|[March 18, 2014]
Fitch Affirms Kaiser's IFS Ratings at 'A+'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings
of Kaiser Foundation Health Plan, Inc. (KFHP) and its subsidiaries at
'A+'. The Rating Outlooks are Stable. A full list of ratings follows at
the end of this release.
KEY RATING DRIVERS
Key strengths supporting KFHP's and its subsidiaries' ratings include
the organization's unique business model and leading health insurance
market share in California; smaller but still meaningful competitive
positions in other states; and overall strong financial results and
The primary weaknesses considered in the ratings are risks associated
with KFHP's membership and revenue concentration in California; the
large capital needs resulting from KFHP's business model; and the
funding and capital requirements derived from the organization's large
pension and other employee benefit obligations.
KFHP and its subsidiaries along with associated companies Kaiser
Foundation Hospitals (KFH) and the Permanente Medical Groups
collectively conduct business as Kaiser Permanente. Fitch considers
Kaiser Permanente a unique vertically integrated health-care delivery
network of KFH-owned hospitals and facilities staffed by physicians who
contract exclusively with KFHP.
Fitch views the Kaiser Permanente business model as a key contributor to
KFHP's leading market share and strong competitive position in the large
California health insurance market. Kaiser Permanente has 9.2 million
members in its various health plans, approximately 78% of which are
located in California.
Fitch believes that Kaiser Permanente's earnings profile characterized
by a large revenue base and margins that generate large amounts of
absolute EBITDA, is strong for the rating category. In 2013 the company
generated $4.8 billion of EBITDA and the company's margin of
EBITDA-to-revenues was 8.8%. Longer term financial results are also
favorable with 2009 through 2013 annual operating (excluding net
realized gains and losses and impairment charges) EBITDA averaging $3.6
billion. The company's EBITDA-based margin averaged 8.4% from 2009
through 2013 modestly better than Fitch's median guideline for the
Kaiser Permanente's business model requires significant capital
investments in hospitals and other physical facilities that Fitch
anticipates will be partially funded by debt. As a result, the
organization's financial leverage ratios are generally higher than those
of other not-for-profit peer health insurance companies and comparable
to those of large publicly-traded health insurers. While the vast
majority of Kaiser Permanente's debt has been incurred by KFH, KFHP has
guaranteed KFH's obligations under various debt issues.
Fitch calculates Kaiser Permanente's Dec. 31, 2013 Financial Leverage
Ratio (FLR), which is derived from GAAP-basis reported net worth
excluding after-tax net unrealized gains (losses) on fixed maturity
investments, at 25% and the organization's ratio of debt-to-prior four
quarter's aggregate EBITDA at 1.6x. Fitch's ratingexpectations are that
Kaiser Permanente's FLR will be managed below 40% and the company's
ratio of debt-to-EBITDA will be in the range of 1.5x to 2.5x.
Kaiser Permanente's interest coverage is very strong for the rating
category with an operating EBITDA-based interest coverage ratio of 27.0x
in 2013 and an average ratio of 27.8x from 2009 through 2013.
KFHP has guaranteed the obligations of its subsidiaries that are rated
by Fitch with the exception of 50%-owned Kaiser Permanente Insurance
Company. Fitch has used a group rating approach due to the guarantees
and its belief that KFHP would have the ability and willingness to
support these subsidiaries under reasonably foreseeable circumstances.
The primary factors preventing KFHP's rating from reaching the 'AA'
category, is the company's geographic concentration in California and
potential capital requirements, and thus high financial leverage
targets, derived from its integrated business model. Key rating triggers
that could lead to an upgrade of KFHP's and its subsidiaries' ratings
--Measured and profitable growth in member enrollment in markets outside
the organization's key California market that diversifies the
organization's revenue and earnings base. Given the large size of the
organization's California-based membership in relation to its membership
in other markets, Fitch believes that such growth would take a
comparatively long time to emerge;
--Lower financial leverage ratio targets demonstrated by sustained
declines in the organization's run-rate FLR and debt-to-EBITDA ratios to
approximately 25% and 1.5x, respectively;
--Meaningful reductions in the Dec. 31, 2013 under-funded status of the
organization's pension plans;
--Continued on-going favorable financial performance trends demonstrated
by EBITDA-based margins approximating 8.5% respectively;
Key rating triggers that could lead to a downgrade of KFHP's and its
subsidiaries' ratings include:
--Sustained FLRs and debt-to-EBITDA ratios greater than 40% and 2.2x,
--Material mandatory pension plan funding requirements;
--Deteriorating run-rate financial performance evidenced by EBITDA-based
margins and absolute levels of EBITDA approximating 5%;
--Material reductions in liquid assets supporting the put-able
components of the organization's capital structure.
Fitch has affirmed the following ratings:
Kaiser Foundation Health Plan, Inc.;
Kaiser Foundation Health Plan of the Northwest;
Kaiser Foundation Health Plan of Georgia, Inc.;
Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.;
Kaiser Foundation Health Plan of Colorado;
Kaiser Permanente Insurance Company
--IFS at 'A+'.
The Rating Outlooks are Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013);
--'Health and Managed Care (U.S.) Sector Credit Factors Special Report'
(Dec. 18, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
[ InfoTech Spotlight's Homepage ]