AM Best has affirmed the Financial Strength Rating (FSR)
of A- (Excellent) and the Long-Term Issuer Credit Ratings
(Long-Term ICR) of “a-” of the majority of the health insurance
subsidiaries of Humana Inc. (Humana) (headquartered in Louisville,
KY) (NYSE: HUM). Concurrently, AM Best has affirmed the Long-Term
ICR of “bbb-” and the existing Long-Term Issue Credit Ratings
(Long-Term IRs) of Humana. The outlook of these Credit Ratings
(ratings) is positive. Furthermore, AM Best also has affirmed the
Short-Term Issue Credit Rating (Short-Term IR) of Humana.
In addition, AM Best has revised the outlooks to positive from
stable and affirmed the FSR of A- (Excellent) and the Long-Term
ICRs of “a-” of the dental subsidiaries of Humana. The health and
dental subsidiaries are collectively referred to as Humana Health
Group. Moreover, AM Best has affirmed the FSR of B++ (Good) and the
Long-Term ICRs of “bbb” of the following Humana subsidiaries,
Humana Insurance of Puerto Rico, Inc. and Humana Health Plans of
Puerto Rico, Inc. These companies are domiciled in Puerto Rico and
collectively are referred to as Humana Health of Puerto Rico Group.
The outlook of these ratings is negative. (See below for a detailed
listing of Humana Inc. companies and ratings.)
The ratings of Humana Health Group reflect its balance sheet
strength, which AM Best categorizes as strong, as well as its
adequate operating performance, favorable business profile and
appropriate enterprise risk management (ERM).
Humana Health Group has reported strong earnings, with
underwriting income in excess of $1 billion annually for the past
four years and net income exceeding $1.5 billion for the past three
years. AM Best expects this trend of strong earnings will continue.
The strong earnings is driven by the organization’s Medicare
Advantage business. Top-line growth has been favorable over the
past few years, but most recently, Medicare Advantage, has been the
primary driver.
Humana Health Group has maintained an adequate level of
risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio
(BCAR), while still paying sizable annual dividends to the holding
company. Invested assets for Humana Health Group are largely in
high quality fixed-income securities. Liquidity measures remain
high and provide flexibility to adjust asset allocation. Strong
cash flow from operations are supplemented by the parent’s ample
liquidity to support its legal entities. Humana Health Group has a
favorable business profile driven by its national presence and
strong market position in Medicare Advantage, which is its core
business. Humana offers a variety of product offerings through its
Retail, Group and Specialty, and Healthcare Services. AM Best notes
that Humana’s Healthcare Services operations are mostly
non-regulated. Healthcare Services provides services and products
to internal and external customers that include pharmacy solutions,
provider services and clinical programs. Humana Inc. has good
financial flexibility through its dividends from its regulated
insurance entities, and earnings from its non-regulated entities,
which comprise nearly 30% of Humana Inc.’s consolidated income from
operations. In addition, Humana Inc. has a $2 billion, five-year
credit facility, commercial paper program, and cash at the parent
company. AM Best notes that Humana’s financial leverage, as
measured by AM Best, was elevated at the end of first-quarter 2020
at 39.2% compared with 32.3% in 2019, due to debt issuance and the
draw down on a $1 billion term loan in first-quarter 2020; however,
financial leverage declined to 35.5% at the end of second-quarter
2020. Humana’s earnings before interest and taxes (EBIT) interest
coverage remains strong, over ten times EBIT at year-end 2019,
based on solid earnings from operations. Furthermore, Humana’s
goodwill and intangibles to equity remained below 40%, which is
significantly lower than its peers.
The ratings of Humana Health of Puerto Rico Group reflect its
balance sheet strength, which AM Best categorizes as weak, as well
as its marginal operating performance, limited business profile and
appropriate ERM.
The negative outlooks reflect Humana Health of Puerto Rico
Group’s entities’ weak assessment of risk-adjusted capital, as
measured by BCAR, mostly driven by operating losses over the past
few years. Humana Health of Puerto Rico Group has reported
underwriting and net losses for the past four years, driven by the
Medicare Advantage line of business.
However, AM Best notes that Humana Inc. has provided a parental
guarantee to provide capital as needed to remain in compliance with
regulatory capital requirements for Humana Health Plans of Puerto
Rico, Inc., the entity that has been driving the majority of the
losses. In 2019, Humana Inc. made a capital contribution of $33
million, which covered the entities’ reported underwriting and net
losses. Humana Health of Puerto Rico Group is integrated fully into
the company’s overall strategy and continues to receive support
from the parent.
The revision of the outlooks to positive for Humana’s dental
insurance entities represents AM Best’s view of the increased
strategic importance of these entities to the Humana
organization.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have
been affirmed with positive outlooks for the following health
insurance subsidiaries of Humana Inc.:
- Humana Insurance Company
- Humana Medical Plan, Inc.
- Humana Health Plan, Inc.
- Humana Health Benefit Plan of Louisiana, Inc.
- Humana Health Plan of Texas, Inc.
- Humana Health Insurance Company of Florida, Inc.
- Humana Benefits Plan of Illinois, Inc.
- Humana Health Plan of Ohio, Inc.
- Humana Employers Health Plan of Georgia, Inc.
- Humana Insurance Company of New York
- Humana Wisconsin Health Organization Insurance Corporation
- Humana Insurance Company of Kentucky
- Cariten Health Plan, Inc.
- CarePlus Health Plans, Inc.
The outlooks have been revised to positive from stable and the
FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been
affirmed for the following dental insurance subsidiaries of Humana
Inc.:
- HumanaDental Insurance Company
- DentiCare, Inc.
- CompBenefits Insurance Company
- CompBenefits Company
- CompBenefits Dental, Inc.
- The Dental Concern, Inc.
The FSR of B++ (Good) and the Long-Term ICRs of “bbb” have been
affirmed with negative outlooks for the following health insurance
subsidiaries of Humana Inc.:
- Humana Insurance of Puerto Rico, Inc.
- Humana Health Plans of Puerto Rico, Inc.
The following Long-Term IRs have been affirmed with positive
outlooks:
Humana Inc.— -- “bbb-” on $400 million 2.5% senior unsecured
notes, due 2020 -- “bbb-” on $600 million 3.15% senior unsecured
notes, due 2022 -- “bbb-” on $400 million 2.9% senior unsecured
notes, due 2022 -- “bbb-” on $600 million 3.85% senior unsecured
notes, due 2024 -- “bbb-” on $600 million 4.5% senior unsecured
notes, due 2025 -- “bbb-” on $600 million 3.95% senior unsecured
notes, due 2027 -- “bbb-” on $500 million 3.125% senior unsecured
notes, due 2029 -- “bbb-” on $500 million 4.875% senior unsecured
notes, due 2030 -- “bbb-” on $250 million 8.15% senior unsecured
notes, due 2038 -- “bbb-” on $400 million 4.625% senior unsecured
notes, due 2042 -- “bbb-” on $750 million 4.95% senior unsecured
notes, due 2044 -- “bbb-” on $400 million 4.8% senior unsecured
notes, due 2047 -- “bbb-” on $500 million 3.95% senior unsecured
notes, due 2049
The following indicative Long-Term IRs have been affirmed with
positive outlooks for the shelf registration:
Humana Inc.— -- “bbb-” on senior unsecured debt securities --
“bb+” on subordinated debt securities -- “bb” on preferred
shares
The following Short-Term IR has been affirmed: -- AMB-2 on
commercial paper program
This press release relates to Credit Ratings that have been
published on AM Best’s website. For all rating information relating
to the release and pertinent disclosures, including details of the
office responsible for issuing each of the individual ratings
referenced in this release, please see AM Best’s Recent Rating
Activity web page. For additional information regarding the use and
limitations of Credit Rating opinions, please view Guide to Best’s
Credit Ratings. For information on the proper media use of Best’s
Credit Ratings and AM Best press releases, please view Guide for
Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.
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Antonietta Iachetta Senior Financial Analyst +1
908 439 2200, ext. 5792 antonietta.iachetta@ambest.com
Sally Rosen Senior Director +1 908 439 2200,
ext. 5280 sally.rosen@ambest.com
Christopher Sharkey Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com
Jim Peavy Director, Public Relations +1 908 439
2200, ext. 5644 james.peavy@ambest.com
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