AM Best has affirmed the Financial Strength Rating (FSR)
of A- (Excellent) and the Long-Term Issuer Credit Ratings
(Long-Term ICR) of “a-” (Excellent) for the majority of the health
and dental insurance subsidiaries of Humana Inc. (Humana)
(headquartered in Louisville, KY) [NYSE: HUM]. These subsidiaries
collectively are referred to as Humana Health Group. Concurrently,
AM Best has affirmed the Long-Term ICR of “bbb-” (Good) and the
Long-Term Issue Credit Ratings (Long-Term IRs) of Humana Inc. AM
Best also has affirmed the Short-Term Issue Credit Rating
(Short-Term IR) of AMB-2 (Satisfactory) for Humana Inc.
Additionally, AM Best has affirmed the FSR of B++ (Good) and the
Long-Term ICR of “bbb” (Good) 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 Credit Ratings (rating) is stable. (See below
for a detailed listing of Humana Health Group members and Long-Term
IRs.)
The affirmation of the ratings of Humana Health Group reflect
its balance sheet strength, which AM Best assesses as strong, as
well as its adequate operating performance, favorable business
profile and appropriate enterprise risk management (ERM).
Humana Health Group has an adequate level of risk-adjusted
capital, as measured by Best’s Capital Adequacy Ratio (BCAR),
primarily supported by solid earnings. Humana has managed to
maintain adequate levels of risk-adjusted capital while still
paying sizable annual dividends in excess of $1 billion to the
holding company. Invested assets for Humana Health Group are
composed primarily of 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 reported solid earnings for the past
five years, with net income exceeding $1.5 billion in each of the
past four years, and underwriting income exceeding $1 billion in
three of the past five years. Earnings strengthening in 2020 was
driven primarily by the decline in the utilization and deferral of
care due to the COVID-19 pandemic; earnings are expected to temper
in 2021. However, return on revenue has been in the 3% range for
the past few years. Given that a large percentage of Humana’s
revenues and earnings are derived from Medicare Advantage, which is
government-funded business, the ability to achieve and sustain a
higher level of margins is unlikely given the minimum loss ratio
requirements on the Medicare Advantage segment. The five-year
compounded average growth rate for premium was 4.6%, reflecting
increased new business and top-line scale, in which the Medicare
Advantage segment has been leading that growth. Humana Health Group
has a favorable business profile driven by its competitive market
position in the Medicare Advantage segment as one of the nation’s
leading writers. Furthermore, Humana offers a variety of product
offerings through its Retail, Group and Specialty and Healthcare
Services segments. Additionally, AM Best notes that the earnings
from the Healthcare Services segment is non-regulated. The
Healthcare Services segment provides pharmacy solutions, provider
services and clinical programs to internal and external
customers.
Humana Inc. has good financial flexibility through its dividends
from its regulated insurance entities, and earnings from its
non-regulated entities, which comprise nearly 37% of Humana Inc.’s
consolidated revenue from operations. In addition, Humana Inc. has
a $4 billion, five-year credit facility, commercial paper program
and cash at the parent company. Financial leverage is expected to
be above 40%, as calculated by AM Best, when Humana reports its
third-quarter financials, which would exceed the company’s targeted
range. The increase follows the completion of the acquisition of
the remaining interest of Kindred at Home, which was funded with
debt issuance of $3 billion in August 2021. Humana plans to divest
its majority stake in Kindred At Home’s hospice and personal care
services through an IPO. Humana is expected to delever over the
near to medium term utilizing the proceeds of the IPO in
combination with continued favorable earnings.
Humana’s earnings before interest and taxes (EBIT) interest
coverage remains strong, at over 10 times EBIT at year-end 2020,
based on solid earnings from operations. Furthermore, Humana’s
goodwill and intangibles to equity remained below 40%, but
increased significantly following the Kindred At Home
acquisition.
The ratings of Humana Health of Puerto Rico Group reflect its
balance sheet strength, which AM Best assesses as adequate, as well
as its marginal operating performance, limited business profile and
appropriate ERM. The stable outlooks reflect Humana Health of
Puerto Rico Group’s very strong assessment of risk-adjusted
capital, as measured by BCAR. The improvement in risk-adjusted
capitalization in 2020 was driven primarily by higher net income at
both companies, which was retained in Humana Health of Puerto Rico
Group. Following a few years of earnings volatility, the group
reported improved underwriting and net income in 2020, mainly due
to lower utilization resulting from the deferral of elective
procedures during the COVID-19 pandemic. For the first half of
2021, the companies in the group remained profitable, albeit at
lower levels due to continued premium decline in the Medicare
Advantage line of business. Humana Health of Puerto Rico Group is
integrated fully into the company’s overall strategy and continues
to receive support from the parent. Furthermore, Humana Inc. has
provided a parental guarantee to Humana Health Plan of Puerto Rico
to provide capital as needed to remain in compliance with
regulatory capital requirements.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-”
(Excellent) have been affirmed with stable outlooks for the
following health and dental 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 Benefit 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.
- HumanaDental Insurance Company
- CompBenefits Insurance Company
- CompBenefits Company
- CompBenefits Dental, Inc.
- The Dental Concern, Inc.
- DentiCare, Inc.
The following Long-Term IRs have been affirmed with stable
outlooks:
Humana Inc.— -- “bbb-”(Good) on $600 million 3.15% senior
unsecured notes, due 2022 -- “bbb-” (Good) on $400 million 2.9%
senior unsecured notes, due 2022 -- “bbb-” (Good) on $1.5 billion
0.65% senior unsecured notes, due 2023 -- “bbb-” (Good) on $600
million 3.85% senior unsecured notes, due 2024 -- “bbb-” (Good) on
$600 million 4.5% senior unsecured notes, due 2025 -- “bbb-” (Good)
on $750 million 1.35% senior unsecured notes, due 2027 -- “bbb-”
(Good) on $600 million 3.95% senior unsecured notes, due 2027 --
“bbb-” (Good) on $500 million 3.125% senior unsecured notes, due
2029 -- “bbb-” (Good) on $500 million 4.875% senior unsecured
notes, due 2030 -- “bbb-” (Good) on $750 million 2.15% senior
unsecured notes, due 2032 -- “bbb-” (Good) on $250 million 8.15%
senior unsecured notes, due 2038 -- “bbb-” (Good) on $400 million
4.625% senior unsecured notes, due 2042 -- “bbb-” (Good) on $750
million 4.95% senior unsecured notes, due 2044 -- “bbb-” (Good) on
$400 million 4.8% senior unsecured notes, due 2047 -- “bbb-” (Good)
on $500 million 3.95% senior unsecured notes, due 2049
The following indicative Long-Term IRs have been affirmed with
stable outlooks for the shelf registration:
Humana Inc.— -- “bbb-” (Good) on senior unsecured debt
securities -- “bb+” (Fair) on subordinated debt securities -- “bb”
(Fair) on preferred shares
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 use of Best’s Credit
Ratings, Best’s Preliminary Credit Assessments and AM Best press
releases, please view Guide to Proper Use of Best’s Ratings &
Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
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version on businesswire.com: https://www.businesswire.com/news/home/20211020006024/en/
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,
Communications +1 908 439 2200, ext. 5644
james.peavy@ambest.com
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