AM Best affirms the credit ratings of Humana Inc. and its health insurance subsidiaries

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OLDWICK, New Jersey– (BUSINESS WIRE) –
AM Best confirmed 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 health insurance subsidiaries and dental Humana Inc. (Humana) (sits at Louisville, Kentucky) [NYSE: HUM]. These subsidiaries are collectively referred to as Humana Health Group. At the same time, AM Best confirmed the long-term ICR of “bbb-” (good) and the long-term issuance credit ratings (long-term IR) of Humana Inc. AM Best also confirmed AMB-2’s short-term issuance credit rating (short-term IR) (satisfactory) for Humana Inc. In addition, AM Best has confirmed 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 Porto Rico and are collectively called Human health of Puerto Rico Group. The outlook for these credit ratings (rating) is stable. (See below for a detailed list of Humana Health Group members and long-term IRs.)

The affirmation of the odds of Humana Health Group reflect the strength of its balance sheet, which AM Best believes to be strong, as well as its adequate operational 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 strong earnings. Humana has been successful in maintaining adequate levels of risk-adjusted capital while paying substantial annual dividends in excess of $ 1 billion to the holding company. Assets invested for Humana Health Group consist primarily of high quality fixed income securities. Liquidity measures remain high and provide flexibility to adjust asset allocation. The strong cash flow from operations is complemented by the abundant liquidity of the parent company to support its legal entities.

Humana Health Group reported strong profits over the past five years, with net profit exceeding $ 1.5 billion in each of the past four years, and underwriting income exceeding $ 1 billion in three of the past five years. The boost in profits in 2020 is mainly due to the decline in the use and postponement of care due to the COVID-19 pandemic; earnings are expected to moderate in 2021. However, the return on earnings has been in the order of 3% in recent years. Since a significant percentage of Humanana’s revenue and profit comes from Medicare Advantage, which is a government-funded company, the ability to achieve and maintain a higher margin level is unlikely given the minimum requirements. in the loss ratio in the Medicare Advantage segment. The five-year compound average premium growth rate was 4.6%, reflecting the increase in new business and the scale of revenue, in which the Medicare Advantage segment led this growth. Humana Health Group has a favorable business profile through its competitive position in the Medicare Advantage segment market as one of the nation’s leading writers. In addition, Humana offers a variety of product offerings through its Retail, Group and the Specialty and Health Services segments. Additionally, AM Best notes that Healthcare segment earnings are unregulated. The Healthcare Services segment provides pharmaceutical solutions, vendor services and clinical programs to internal and external customers.

Humana Inc. has good financial flexibility thanks to dividends from its regulated insurance entities and profits from its unregulated entities, which represent nearly 37% of the consolidated operating income of Humana Inc. In addition, Humana Inc. has a $ 4 billion, five-year credit facility, parent company treasury and commercial paper program. Leverage is expected to be above 40%, as calculated by AM Best, when Humana releases its third quarter financial results, which would exceed the company’s target range. The increase follows the completion of the acquisition of the remaining Kindred at Home stake, which was funded through the issuance of debt securities from $ 3 billion in August 2021. Humana plans to sell its majority stake in Kindred At Home’s palliative and personal care services through an IPO. Humana is expected to deleverage in the short to medium term using the proceeds of the IPO in combination with continued favorable earnings.

Humana’s earnings before interest and tax (EBIT) interest coverage remains strong, at over 10 times EBIT at the end of 2020, based on strong operating profit. In addition, Humana’s goodwill and intangible assets remained below 40%, but increased significantly following the acquisition of Kindred At Home.

The odds of Human health of Puerto Rico Group reflect the strength of its balance sheet, which AM Best considers adequate, as well as its marginal operational performance, limited business profile and appropriate ERM. The stable outlook reflects Human health the Puerto Rican group’s very strong assessment of risk-adjusted capital as measured by BCAR. The improvement in risk-adjusted capitalization in 2020 is mainly due to the increase in the net income of the two companies, which was retained in Human health of Puerto Rico Group. After a few years of earnings volatility, the group saw an improvement in underwriting and bottom line in 2020, mainly due to lower usage resulting from postponement of elective procedures during the COVID-19 pandemic. For the first half of 2021, group companies remained profitable, albeit at lower levels due to the continued decline in premiums in the Medicare Advantage line of business. Human health of Puerto Rico Group is fully integrated into the overall strategy of the company and continues to benefit from the support of the parent company. Furthermore, Humana Inc. has provided a parental guarantee to Humana health plan of Porto Rico provide the necessary capital to remain in compliance with regulatory capital requirements.

The FSR of A- (Excellent) and the long-term KPIs of “a-” (Excellent) were confirmed with a stable outlook for the following health and dental insurance subsidiaries of Humana Inc.:

  • Humana Insurance Company
  • Humana Medical Plan, Inc.
  • Health Plan from Humana, Inc.
  • Humana Health Benefit Plan of Louisiana, Inc.
  • Humana Health Plan of Texas, Inc.
  • Humana Health Insurance Company of Florida, Inc.
  • Illinois Humanitarian Benefit Plan, Inc.
  • Humana Health Plan of Ohio, Inc.
  • Humana Employer Health Plan of Georgia, Inc.
  • Humana Insurance Company of New York
  • Humana Wisconsin Health Organization Insurance Corporation
  • Kentucky Humana Insurance Company
  • Cariten Health Plan Inc.
  • CarePlus Health Plans, Inc.
  • HumanaDental Insurance Company
  • CompBenefits Insurance Company
  • CompBenefits Company
  • CompBenefits Dental, Inc.
  • Dental Concern, Inc.
  • DentiCare, Inc.

The following long-term IRs have been confirmed with a stable outlook:

Humana Inc.—

– “bbb-” (Good) activated $ 600 million 3.15% senior unsecured notes, due 2022

– “bbb-” (Good) activated $ 400 million 2.9% senior unsecured notes, due 2022

– “bbb-” (Good) activated $ 1.5 billion 0.65% senior unsecured bonds, due 2023

– “bbb-” (Good) activated $ 600 million Senior securities unsecured at 3.85%, maturing in 2024

– “bbb-” (Good) activated $ 600 million 4.5% senior unsecured securities, maturing in 2025

– “bbb-” (Good) activated $ 750 million Senior securities unsecured at 1.35%, maturing in 2027

– “bbb-” (Good) activated $ 600 million 3.95% senior unsecured notes, due 2027

– “bbb-” (Good) activated $ 500 million 3.125% senior unsecured notes, due 2029

– “bbb-” (Good) activated $ 500 million 4.875% senior unsecured notes, due 2030

– “bbb-” (Good) activated $ 750 million 2.15% senior unsecured notes, due 2032

– “bbb-” (Good) activated $ 250 million 8.15% senior unsecured notes, due 2038

– “bbb-” (Good) activated $ 400 million 4.625% senior unsecured notes, due 2042

– “bbb-” (Good) activated $ 750 million 4.95% senior unsecured notes, due 2044

– “bbb-” (Good) activated $ 400 million 4.8% senior unsecured bonds, due 2047

– “bbb-” (Good) activated $ 500 million 3.95% senior unsecured notes, due 2049

The following indicative long-term IRs have been confirmed with a stable outlook for pending registration:

Humana Inc.—

– “bbb-” (good) on senior unsecured debt securities

– “bb +” (Fair) on subordinated debt securities

– “bb” (Fair) on the preferred shares

This press release relates to credit ratings published on the AM Best website. For all rating information relating to the publication and relevant disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this publication, please see AM Best’s Recent Rating Activity webpage. . For more information on the use and limitations of credit rating reviews, please see Best’s Guide to Credit Ratings. For more information on the proper use of Best Credit Ratings, Best Preliminary Credit Ratings, and AM Best press releases, please see the Guide to Appropriate Use of Best Ratings and Ratings.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Based at United States, the company operates in more than 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico. For more information, visit www.ambest.com.

Copyright © 2021 by AM Best Rating Services, Inc. and / or its affiliates. ALL RIGHTS RESERVED.

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Antonietta Iachetta
Senior Financial Analyst

+1 908 439 2200, ext. 5792

[email protected]

Sally Rosen
Senior director

+1 908 439 2200, ext. 5280

[email protected]

Christophe sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Jim peavy
Director, Communications

+1 908 439 2200, ext. 5644

[email protected]

Source: AM Best


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