AM Best Affirms Credit Ratings of Humana Inc. and Majority of Its Health Subsidiaries; Maintains Positive Outlooks

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.

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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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