Fitch Ratings has revised its outlook for the U.S. health insurance industry to negative from stable, according to a report.
Here are four things to know about Fitch's "2016 Outlook: U.S. Health Insurance" report.
1. The rating revision is based on several factors. These include "anticipated acquisition-related increases in financial leverage and reductions in interest coverage for U.S. health insurers." From a ratings perspective, Fitch believes these increases outweigh the acquisitions' earnings and benefits. The revision is also based on profitability concerns regarding health exchange sourced membership.
2. The report discusses preliminary financial expectations. Fitch believes the acquisitions expected to close in 2016 will add approximately $55 billion of new debt to the acquirers. Additionally, Fitch expects "the aggregate debt-to-EBITDA of the nine publicly-traded health insurers it follows will increase to 3.0 times in 2016 compared with 1.8 at year-end 2015."
3. Fitch anticipates more downgrades than upgrades in the next 12 to 24 months. According to Fitch, negative outlooks and watches assigned to insurers outweigh positive outlooks and watches by more than two-to-one. Fitch expects affirmations to be the most common rating action.
4. Mark Rouck, senior director of health insurance at Fitch, commented on the report. "Fitch expects acquisition-related leverage to transform balance sheets in 2016 as the U.S. health insurers strive to grow earnings, improve their competitive positions and cope with changes brought about by the Affordable Care Act and consolidation in the hospital and pharmaceutical industries," he said.