A.M. Best Special Report: Debt Obligations Continue to Increase At Publicly Traded Health Insurers, Yet Interest Coverage Remains Strong
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Some companies have been taking advantage of the prolonged low interest rate environment by issuing debt with lower associated coupons and using the proceeds to extinguish older debt with higher coupons. Furthermore, health insurers have extended the weighted average years of their debt obligations while simultaneously reducing the weighted fixed coupon they have to pay on that debt. This provides further protection for interest payments and any potential deterioration in operating earnings.
While the aggregate debt-to-capital ratio for publicly traded health companies remains at 10-year highs, the companies, especially those with lower-than-average debt-to-capital ratios, show continuous willingness to borrow as the rates remain low and companies consider potential merger and acquisition moves. It is expected that the carriers with currently higher debt levels will work toward gradual deleveraging; however, the average debt-to-capital ratio is likely to remain significantly above historic levels in the near to medium term.
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