A.M. Best Affirms Humana Rating - Analyst Blog
22 September 2011 - 10:30PM
Zacks
The rating agency A.M.Best Co. has affirmed the financial
strength ratings (FSR) and the issuer credit ratings (ICR) of the
health insurer Humana Inc. (HUM) and conferred a
debt rating of “bbb” to the company.
All the ratings carry a stable outlook, indicating the company’s
stable financial and market trends, and a likelihood that the
company's rating would change over an intermediate period.
However, A.M. Best’s rating action reflects a combination of
positive and negative factors. The agency views positively Humana’s
efforts of maintaining its revenue growth and developing its
Medicare Advantage membership base.
A modest leverage (18.0% at the end of June 30, 2011) relative
to its other peers such as UnitedHealth Group
Inc. (UNH), CIGNA Inc. (CI),
Aetna Inc. (AET), WellPoint Inc.
(WLP), along with sufficient capital flexibility, is viewed as a
positive by the rating agency. Besides, a strong capital structure
has helped the company to successfully execute its growth plans
while insulating itself from balance sheet risks.
Partially offsetting these positive rating factors is Humana’s
above-average exposure to Medicare Advantage and Medicaid
businesses (privately administered versions of the federal health
program for seniors), which have high administrative costs. During
the first half of 2011, the company derived 68% of its health
insurance premium from Medicare Advantage plans. Going forward, the
company is likely to suffer as the recently passed health care
reform has shrunk the selling season for the Medicare Advantage
plans.
Meanwhile, the rating agency withdrew its rating on one of
Humana’s subsidiaries, Caritan Insurance Co. (acquired in 2008),
primarily due to low or negligible operating scale and lack of
significant membership.
In June yet another rating agency, Fitch rating affirmed the
'A-' (IFS) rating of various Humana insurance company subsidiaries,
along with revising the outlook to positive from stable.
Peers such as Aetna, Cigna and UnitedHealth have witnessed
rating affirmations with a stable outlook from A.M. Best since the
start of the year. The rating agency is busy reviewing its outlook
as the uncertainty relating to the Health Care law implemented last
year has started to clear.
AETNA INC-NEW (AET): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
HUMANA INC NEW (HUM): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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