CMS Annual Report 2021/22 Highlights: Solvency Summary
Solvency is a measure of a medical scheme’s financial health. It demonstrates the company’s ability to manage operations into the foreseeable future. The primary difference between liquidity and solvency is that liquidity measures a company’s ability to meet short-term obligations, while solvency also includes the ability to meet long term obligations.
Medical schemes in South Africa are required to maintain their solvency ratios at levels of at least 25%. The medical scheme industry’s ratio continuously exceeds this requirement on average.
Changes in solvency can be described as the following:
Medical Schemes calculate their solvencies by dividing their reserves by their annual gross contributions. At the end of 2021, the medical schemes industry had an overall solvency of 46.73%. The open- and restricted schemes had average solvencies of 39.61% and 56.15%, respectively. This is higher than the solvency levels experienced throughout 2020.
The below graph compares the solvency levels between the two years.
The increase in solvency between 2020 and 2021 is attributable to an increase in reserves throughout the industry which was proportionally larger than the increase in gross contribution income (‘GCI’). Overall gross contributions received by the industry increased by 2.8% in 2021 whereas reserves increased by 7.9%.
The below graph exhibits the changes in GCI and reserves for open-, restricted and all schemes.?
The ten schemes with the highest solvency levels at the end of 2021 are illustrated below. The below graph also illustrates that restricted schemes generally have higher solvency levels than open schemes. Genesis Medical Scheme is the only open scheme on the list of most solvent schemes.?
The below table shows the changes in solvency for the above-mentioned schemes from 2020 to 2021.
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