Debt issued by publicly traded health insurers has soared over the past decade as the companies have looked to the bond market to raise money for large-scale mergers and acquisitions.
Combined short and long-term debt among nine publicly traded insurers reached its highest point in at least 10 years at $115.5 billion in 2018 compared with $24.8 billion in 2009, according to a recent report by credit rating agency AM Best.
"A lot of this debt is related to the M&A wars that have been occurring over the past few years — sort of an arms race if you will," explained Jason Hopper, an associate director at AM Best.
He added that just two insurers — Cigna Corp. and UnitedHealth Group — account for two-thirds of the debt issued by publicly traded insurers.
Cigna raised capital by issuing bonds to buy pharmacy benefit manager Express Scripts for $67 billion in 2018 while UnitedHealth closed its $4.3 billion deal with DaVita Medical Group this year and picked up PBM Catamaran in 2015. The analysis did not include the large CVS-Aetna deal.
Insurers have opted to issue bonds to fund their mergers and acquisitions instead of using equity because of the historically low interest rates, analysts said. Deep Banerjee of rating agency S&P Global added that insurance companies have also issued more debt as their business mix changes and they wade into care delivery.
"More and more of especially the larger public insurers are no longer just health insurance companies," Banerjee explained. "Part of the debt goes toward running or managing the providers that they own."
Insurers' debt-to-capital ratios have also increased, driven by the rise in debt obligations. Among the nine insurers in the AM Best analysis, the aggregate debt-to-capital ratio rose to 43% at end of 2018 from 33% in the first quarter of 2009.