Higher leverage ratios from acquisition-related debt combined with declining revenue growth and declining interest coverage ratios contributed to deteriorating credit metrics for publicly traded health insurers in the first half of 2016, according to a Fitch Ratings report.
The weakened credit picture has led Fitch to take several negative rating actions. The rating agency downgraded Louisville, Ky.-based Humana's senior notes, revised Minnetonka, Minn.-based UnitedHealth Group's rating outlook to negative and placed ratings of Hartford, Conn.-based Aetna, Indianapolis-based Anthem and St. Louis-based Centene on negative watch.
A combined $29.8 billion has been issued in the past year to fund insurer deals. In July 2015, $14.4 billion was issued by UnitedHealth to fund its acquisition of Catamaran. In February of this year, $2.4 billion was issued by Centene to fund its acquisition of Los Angeles-based Health Net. In June, $13 billion was issued by Aetna to fund its planned acquisition of Humana.
Mark Rouck, senior director at Fitch Ratings, said it is uncertain whether the planned Aetna-Humana and Anthem-Cigna mergers will be completed due to pending lawsuits challenging the deals filed by the Department of Justice. "If they do close, Fitch expects that the companies will adopt deleveraging strategies to reduce debt-to-capital ratios in the next two years that include foregoing refinancing maturing debt and reducing share repurchases," Mr. Rouck said.
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