(The following statement was released by the rating agency)
CHICAGO, August 05 (Fitch) Fitch Ratings has downgraded its
WellPoint, Inc.'s (WLP) senior unsecured notes to 'BBB' from
'BBB+' and the
Insurer Financial Strength (IFS) ratings assigned to various
company subsidiaries to 'A+' from 'AA-'. In addition, the
Rating Outlook is
revised to Stable. WLP's short-term rating and the rating on
the company's $2.5
billion commercial paper (CP) program are affirmed at 'F2'.
KEY RATING DRIVERS
Today's rating actions reflect Fitch's view that WLP's run-rate
leverage metrics are likely to remain elevated relative to
WLP's previous ratings levels. Specifically, Fitch now believes
company's run-rate ratios of debt-to-EBITDA and debt-to-capital
are unlikely to
decline to approximately 2.2x and 35% by year-end 2015.
Previously Fitch had
identified an inability to meet these ratings sensitivities as
key factors that
could lead to downgrades of WLP's ratings.
Fitch believes that WLP is likely to manage its debt-to-capital
ratio in the
35%-40% range going forward, reflecting a tendency toward
than paying down maturing debt and, possibly, issuing additional
debt to fund
various growth-related initiatives. Further, given these
tendencies and margin
pressure from health-care reform and from the increasing portion
membership derived from government-sponsored business, Fitch
believes that WLP's
debt-to-EBITDA ratios are likely to be in 2.5-3.0x range for at
least the next
12-18 months. Ratios at these levels are consistent with
Fitch's 'BBB' IFS
rating category guidelines.
Other key ratings drivers that underlie WLP's IFS ratings are
unchanged and include the following:
Debt Service Capabilities and Financial Flexibility: WLP's debt
capabilities and financial flexibility characteristics are
consistent with those
expected at the 'A' IFS rating category. Fitch believes that
operating EBITDA-based interest coverage ratios over the next
12-18 months will
be in the range of 8x-11x. Despite WLP's comparatively high
the company retains good financial flexibility and liquidity. In
WLP has maintained approximately $2 billion of holding company
investments and it has access to a $2 billion credit line that
was untapped at
June 30, 2014.
Market Position Size/Scale: Under Fitch's rating methodology for
WLP's market position and size/scale characteristics are
considered 'large' and
supportive of 'AA' rating category IFS ratings. Key factors
'large' categorization is the diversity of its membership, both
from a business
line and geographic perspective, strong market shares in various
markets, and the very large size of the company's membership and
WLP's membership includes meaningful contributions from the
and Medicare markets, and the company maintains leading market
shares in 14
states where it is licensed to use the Blue Cross and or Blue
Based on its 37.3 million members and over $70 billion in annual
is the second-largest health insurer in the U.S.
Financial Performance and Earnings: WLP has a solid earnings
profile that is
consistent with 'A' IFS rating category expectations. From
company generated average annual EBITDA of $5.2 billion and
EBITDA-to-revenues and net income-to-average capital that
averaged 8.0% and
7.4%, respectively. Fitch views the company's Blue Cross and
licenses in key geographic markets and the company's significant
corresponding scale benefits as key factors underlying its
Fitch expects WLP's and the overall health insurance sector's
margins to be
pressured as companies cope with Affordable Care Act provisions
mandated benefits, limit underwriting capabilities, and impose
and minimum benefit ratios on Medicare Advantage business. In
issues at the state and federal levels are pressuring Medicaid
Advantage funding. These pressures are offset somewhat by the
sector's ability to pass significant portions of medical cost
inflation on to
end-consumers, which Fitch believes will help grow absolute
levels of revenues
and earnings even in periods of declining margins.
Due to WLP's elevated financial leverage, Fitch has applied
notching to increase the number of notches between the company's
Rating (IDR) and ratings on the company's senior unsecured
notes. Fitch would
consider applying standard notching, resulting in a one-notch
upgrade to the
rating on WLP's senior unsecured notes, if the company's
ratio was approximately 2.5x.
Rating sensitivities that could lead Fitch to upgrade all of
WLP's ratings are:
--Run-rate debt-to-EBITDA and debt-to-capital ratios of
approximately 2.2x and
--Maintenance of organization-wide NAIC risk-based capital (RBC)
ratios (on a
company action-level basis) above 250%;
--Run-rate EBITDA-based margins approximating 9%.
Rating sensitivities that could lead to downgrades of all of
WLP's ratings are:
--Run-rate debt-to-EBITDA or debt-to-capital ratios that exceed
3.0x and 40%,
--Organization-wide NAIC RBC ratios (on a company action-level
--Run-rate operating EBITDA-based interest coverage less than 6x
EBITDA-to-revenue ratios less than 6%;
--Acquisitions that Fitch believes carry inordinate integration
risks or are
--Material goodwill impairments that cause Fitch to question the
value of one of
--One or more of its subsidiaries' losing the right to use the
Blue Cross or
Blue Shield brands.
Fitch has taken the following ratings:
--Long-term IDR downgraded to 'BBB+' from 'A-'; Outlook Stable;
The following ratings were downgraded to 'BBB' from 'BBB+':
--5.000% senior notes due 12/15/2014;
--1.250% senior notes due 9/10/2015;
--5.250% senior notes due 1/15/2016;
--2.375% senior notes due 2/15/2017;
--5.875% senior notes due 6/15/2017;
--1.875% senior notes due 1/15/2018;
--2.300% senior notes due 7/15/2018;
--7.000% senior notes due 2/15/2019;
--4.350% senior notes due 8/15/2020;
--3.700% senior notes due 8/15/2021;
--3.125% senior notes due 5/15/2022;
--3.300% senior notes due 1/15/2023;
--5.950% senior notes due 12/15/2034;
--5.850% senior notes due 1/15/2036;
--6.375% senior notes due 6/15/2037;
--5.800% senior notes due 8/15/2040;
--4.625% senior notes due 5/15/2042;
--2.750% senior convertible debentures due 10/15/2042;
--4.650% senior notes due 1/15/2043;
--5.100% senior notes due 1/15/2044;
The following ratings were affirmed:
--Short-term IDR at 'F2';
--$2.5 billion CP program at 'F2'.
Anthem Holding Corp.
--Long-term IDR downgraded to 'BBB+' from 'A-'; Outlook Stable.
Anthem Insurance Companies, Inc.
--Long-term IDR downgraded to 'A' from 'A+'; Outlook Stable.
--9.00% surplus notes due 2027 downgraded to 'A-' from 'A';
--IFS downgraded to 'A+' from 'AA-'.
The IFS ratings of the following issuers have been downgraded to
'A+' from 'AA-'
and their Outlooks revised to Stable from Negative:
Anthem Blue Cross Life & Health Insurance Company
Anthem Health Plans, Inc.
Anthem Health Plans of Kentucky, Inc.
Anthem Health Plans of Maine, Inc.
Anthem Health Plans of New Hampshire, Inc.
Anthem Health Plans of Virginia, Inc.
Blue Cross of California
Blue Cross and Blue Shield of Georgia, Inc.
Blue Cross Blue Shield Healthcare Plan of Georgia, Inc.
Community Insurance Company, Inc.
Empire HealthChoice HMO, Inc.
Empire HealthChoice Assurance, Inc.
Healthy Alliance Life Insurance Company
HMO Missouri, Inc.
Matthew Thornton Health Plan, Inc.
Rocky Mountain Hospital & Medical Service, Inc.
Mark Rouck, CPA, CFA
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Bradley S. Ellis, CFA
James Auden CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (November 13, 2013);
--'Health Insurance and Managed Care (U.S.) Sector Credit
Factors' (December 18,
Applicable Criteria and Related Research:
Health Insurance and Managed Care (U.S.)
Insurance Rating Methodology
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