Fitch Releases Exposure Draft on Analyzing U.S. Health Insurer Financial Leverage

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has released a new exposure draft proposing new ratings criteria for analyzing financial leverage of U.S. health insurers. Following a review period that will close on Oct. 15, 2008, Fitch will publish any material changes to the methodology based on industry feedback.

Following the review period, Fitch's analysis of health insurer financial leverage will place greater emphasis on various cash flow measures and less emphasis on balance sheet ratios, such as debt-to-capital. The new methodology reflects a blended approach to reviewing financial leverage that utilizes cash flow measures akin to those used in general corporate analysis, as well as balance sheet ratios used in insurance industry analysis.

Regulatory capital requirements for health insurers have generally been less extensive than those for life and property/casualty insurers, especially for those with health maintenance organization subsidiaries. As a result, business growth has often been heavily dictated by cash flow generation from operations, and the ability to invest these cash flows in acquisitions or business expansion. Large build ups in intangible assets such as goodwill also distort health insurer balance sheet capital measures.

Accordingly, for health insurers, Fitch believes operating EBITDA, funds flow from operations (FFO) and subsidiary dividend capacity are the appropriate measures in assessing financial leverage and debt utilization, to augment the debt-to-capital analysis traditionally used for insurance companies. Within the exposure draft, Fitch outlines approximate rating ranges for various rating levels based on current supporting data.

Fitch is introducing a three-year Cash Flow Metrics Projection tool (CFMP) that will analyze the health insurer's financial leverage using both balance sheet and cash flow metrics for the current year, plus two years into the future. The CFMP is explained in detail in the report.

'Cash Flow Measures for Analyzing Health Insurer Financial Leverage' is available at under the following headers:

Financial Institutions >> Insurance >> Criteria Reports

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.


Fitch Ratings
Peter F. Patrino, CFA, +1-312-368-3266 (Chicago)
Bradley S. Ellis, CFA, +1-312-368-2089 (Chicago)
Tyrene Frederick, +1-212-908-0500
(Media Relations, New York)
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)

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