OREANDA-NEWS. Surging leverage ratios from acquisition-related debt contributed to deteriorating credit metrics for publicly traded health insurers in the first half of 2016, according to a new report from Fitch Ratings.

"Higher leverage ratios for the health insurers Fitch tracks combined with declining revenue growth and declining interest coverage ratios have weakened the credit picture," said Mark Rouck, Senior Director, Fitch Ratings.

Since July 2015, a combined $29.8 billion was issued for recent health insurer deals by UnitedHealth Group Inc. (UNH, $14.4 billion issued in July 2015 to fund its acquisition of Catamaran Corp.); Aetna Inc. (AET, $13 billion issued in June 2016 to fund its planned acquisition of Humana Inc. [HUM]); and Centene Corp. (CNC, $2.4 billion issued in February 2016 to fund its acquisition of Health Net Inc. [HNT]). If AET's acquisition of HUM and Anthem Inc.'s (ANTM) acquisition of Cigna Corp. (CI) proceed to close, Fitch expects additional debt issuance of a combined $22 billion for the companies to further impact the sector's credit metrics.

Fitch has taken several negative rating actions in response to these trends and acquisitions including downgrading its ratings on HNT's senior notes, revising UNH's Rating Outlook to Negative, and placing AET's, ANTM's and CI's ratings on Negative Watch.

"It is uncertain whether the Aetna/Humana and Anthem/Cigna deals will be completed due to lawsuits 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," added Rouck.

Adjusted for acquisitions, first-half 2016 aggregate EBITDA of the eight health insurers declined 1.6% to $18.7 billion compared with the prior-year period. Higher debt levels and modest declines in EBITDA resulted in increases in EBITDA-based and capital-based financial leverage ratios. At June 30, 2016, the aggregate debt-to-EBITDA and debt-to-capital ratios of the eight insurers were 2.6x and 43%, respectively, compared with 1.7x and 35%, respectively, at June 30, 2015.