Fitch Affirms WellPoint's Senior Debt at 'BBB+' & IFS at 'AA-'; Outlook Remains Negative
(The following statement was released by the rating agency) NEW YORK, September 17 (Fitch) Fitch Ratings has affirmed its ratings on WellPoint, Inc. (WLP) including the 'BBB+' ratings on the company's senior unsecured notes and the 'AA-' Insurer Financial Strength (IFS) ratings assigned to various WellPoint insurance company subsidiaries. The Rating Outlook for WLP and its subsidiaries remains Negative. KEY RATING DRIVERS Large Market Position Size/Scale: Under Fitch's Insurance Rating Methodology, WellPoint Inc.'s (WLP) market position and size/scale characteristics are considered 'large' reflecting the company's leading market share in 14 states and significant scale benefits and operating efficiencies derived from its 36 million membership base and estimated $70 billion in annual revenues. Fitch believes that WLP's strong competitive position is directly linked to the company's right to use the Blue Cross and/or Blue Shield names and marks in 14 states. Stable Operating Performance: WLP consistently produces large amounts of absolute earnings and strong and stable EBITDA-based revenue margins and net returns on average capital (ROAC) that are consistent with Fitch's guidelines for the company's current ratings. From 2010 through 2012 the company generated average annual EBITDA of $5.2 billion and EBITDA-based margins and net ROAC of 8.7% and 8.4% respectively. Fitch notes however, that from 2010 to 2012, WLP's EBITDA and net income declined modestly reflecting tepid revenue growth and higher medical benefit ratios. The company's financial results through the first six months of 2013 were generally consistent with its longer-term results. WLP reported $3.2 billion of EBITDA and an EBITDA-based revenue margin and net ROAC of 9.1% and 8.8% respectively. Fitch expects WLP and its peers to experience a modest, gradual decline in operating margins as the Affordable Care Act (ACA) is implemented and a growing portion of the company's revenues are derived from lower margin government business, particularly Medicaid. From an overall earnings perspective, Fitch expects the impact of these declining margins to be somewhat offset by ACA related membership growth, particularly in the Medicaid market.