CHICAGO--(BUSINESS WIRE)--In a new special report published today, Fitch Ratings revised its outlook for the U.S. health insurance industry to negative from stable.
The revision reflects anticipated acquisition-related increases in financial leverage and reductions in interest coverage for U.S. health insurers that from a ratings perspective will outweigh the acquisitions' earnings and competitive benefits. To a lesser extent, the revision reflects profitability concerns derived from health exchange sourced membership.
'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,' said Mark Rouck, Senior Director, Health Insurance at Fitch Ratings.
In the report, Fitch discusses expectations for acquisitions expected to close in 2016 to add roughly $55 billion of new debt to acquirers' balance sheets.
Under its 'base-case' scenario Fitch projects that the aggregate debt-to-EBITDA of the nine publicly-traded health insurers it follows will increase to 3.0x in 2016 compared with 1.8x at year-end 2015. Similarly, EBITDA interest coverage is projected to deteriorate to 9.6x compared with 2015's 14.3x. EBITDA-based margins are projected to be flat at approximately 8% in 2016.
Fitch also notes the comparatively poor financial results emanating from many of health insurance exchanges formed under the Affordable Care Act (ACA) and health insurers' balance sheet exposures to the ACA's risk Corridor program.
Negative outlooks and watches assigned to U.S. health insurers in Fitch's coverage universe outweigh positive outlooks and watches by more than two-to-one. As a result, Fitch expects more downgrades than upgrades over the next 12 - 24 months with affirmations the most common rating action.
The full report '2016 Outlook: U.S. Health Insurance' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 16, 2015);
--'Health Insurance and Managed Care (U.S.) Sector Credit Factors' (Jan. 21, 2015).
2016 Outlook: U.S. Health Insurance (Acquisitions Are a Ratings Negative)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874985
Applicable Criteria
Insurance Rating Methodology (pub. 16 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172
Related Research
Health Insurance and Managed Care (U.S.) Sector Credit Factors
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686930
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