29 November 2018Insurance

Aetna downgraded after acquisition by CVS

Fitch Ratings has downgraded the Insurer Financial Strength (IFS) ratings of health insurer Aetna to 'A' from 'AA-'.

Fitch has also downgraded Aetna's Issuer Default Rating (IDR) to 'BBB+' from 'A' and the ratings on its existing senior unsecured debt to 'BBB' from 'A-'. The Rating Outlook is Stable.

The rating actions follow the announcement that US drugstore operator CVS Health (CVS) has completed its acquisition of Aetna for cash and stock consideration of approximately $70 billion.

The primary driver of the rating actions is the very high financial leverage of the combined company, as well as the potential for significant business disruption and unforeseen costs at a time when the company will be operating at such elevated financial leverage.

Fitch believes that the combination of CVS and Aetna offers the potential for significant strategic benefits, including lower cost of care, administrative efficiencies, and improved care coordination for Aetna's members, particularly for its Medicare Advantage members, who have a relatively high utilization rate for prescription medication. However, Fitch believes that concerns around the combined company's considerable increase in financial leverage to fund the acquisition outweigh the potential benefits mentioned above. Although Aetna continues to generate very strong operating performance and its stand-alone financial leverage metrics support its previous ratings, Fitch believes that the very high financial leverage of its ultimate parent adds considerable weight to Aetna's credit profile.

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More on this story

Insurance
28 January 2019   Health insurer Aetna, part of US drugstore operator CVS Health, has entered into a four-year reinsurance arrangement with Vitality Re X as part of its long-term capital management strategy.
Insurance
2 August 2018   California insurance commissioner Dave Jones has urged the US Justice Department to block the merger between CVS and Aetna.
Alternative Risk Transfer
30 January 2018   Health insurer Aetna has entered into a four-year reinsurance arrangement with Vitality Re IX as part of its long-term capital management strategy, according to a Jan. 29 press release.