AM Best confirms credit ratings
AM Best Affirmed Financial Strength Rating (FSR) of A- (Excellent) and Issuer Long Term Credit Rating (Long Term ICR) of “a-” (Excellent) for the majority of insurance subsidiaries Health and Dental of Humana Inc. (Humana) (headquarters in Louisville, KY) [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 issue credit ratings (long-term IR) of Humana Inc. AM Best also confirmed the credit rating AMB-2 short-term emission rating (short-term IR) (Satisfactory) for Humana Inc. In addition, AM Best confirmed the FSR of B++ (Good) and the long-term ICR of “bbb” ( Bon) 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 are collectively referred to as Humana Health of Puerto Rico Group. The outlook for these Credit Ratings (ratings) is stable. (See below for a detailed list of Humana Health Group members and long-term IRs.)
The ratings reflect Humana Health Group’s balance sheet strength, which AM Best assesses as adequate, as well as adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The assessment of Humana Health Group’s balance sheet strength has come under pressure over the past year due to revenue growth and dividends paid to the holding company exceeding net income. The company’s operating performance remained favorable; however, earnings declined in 2021 due to increased medical utilization and lower risk-adjusted revenue for its core Medicare Advantage business. AM Best notes that revenues were high in 2020 due to postponement of non-emergency care due to COVID. Humana Health Group’s Medicare Advantage business risk-adjusted revenue declined in 2021 due to lack of claims and encounter data in 2020, which resulted from the sharp decline in provider visits by people elderly. Medical use returned to near-normal levels in 2021, combined with increased medical spending for COVID testing and treatment. Operating performance for the first half of 2022 improved, with revenue growth and margins recorded at more historic levels.
Humana has a favorable business profile with a national footprint and is the second largest Medicare Advantage insurer in the United States. The company is also expanding its presence in Managed Medicaid and now operates under contracts with six states. Further business diversification is provided by Humana’s TRICARE military contract, which provides health services to more than six million people. The organization is also expanding its unregulated healthcare services business to build capacity in its integrated care delivery model, including pharmacy, provider and home healthcare services. Humana has a well-developed enterprise risk management program that actively manages existing and emerging risks.
Financial flexibility is provided by the holding company, Humana, which includes cash and a $4 billion commercial paper program backed by its revolving credit agreement. Additionally, the organization has access to short-term borrowing from the Federal Home Loan Bank of Cincinnati through its subsidiary, Humana Insurance Company. The holding company’s financial leverage was elevated based on the financing of the Kindred at Home acquisition in 2021 and was approximately 45% at the end of the second quarter of 2022. In the third quarter of 2022, Humana completed a transaction for the sale of a 60% stake in Kindred At Home’s palliative care operations, the proceeds of which are expected to be used to repay a portion of outstanding debt. Leverage is expected to be approximately 40% by year-end 2022. Although Humana’s leverage has been high due to the acquisition of Kindred at Home, its interest coverage on earnings before interest and tax (EBIT) remained strong at more than 10 times.
Humana Health of Puerto Rico Group’s ratings reflect the strength of its balance sheet, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile, appropriate ERM and support from parent company, Humana Inc.
Risk-adjusted capital for Humana Health of Puerto Rico Group has improved significantly over the past two years based on favorable net earnings and, to a lesser extent, declining enrollment. Net profit in 2020 was improved due to postponement of elective care. Margins compressed in 2021 but remained supportive. Historically, operating results have been volatile due to Medicare Advantage funding challenges for this region. The parent company supports the operational and capital needs of its insurance subsidiaries in Puerto Rico and these entities are integrated into Humana Inc.’s consolidated ERM program.
The FSR of A- (Excellent) and the long-term KPIs of “a-” (Excellent) have been confirmed with a stable outlook for the following health and dental insurance subsidiaries of Humana Inc.:
Humana Insurance Company
Humana Medical Plan, Inc.
Human Health Plan, Inc.
Louisiana, Inc. Human Health Benefit Plan
Texas Human Health Plan, Inc.
Humana Health Insurance Company of Florida, Inc.
Humana Benefits Plan of Illinois, Inc.
Ohio Human Health Plan, Inc.
Humana Employer 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 Dental, Inc.
Dental Concern, Inc.
The following long-term IRs have been confirmed with a stable outlook:
— “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 $750 million 3.7% 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 confirmed with a stable outlook for the plateau
— “bbb-” (Good) on senior unsecured debt securities
— “bb+” (Fair) on subordinated debt securities
— “bb” (equitable) on preferred shares
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