Press Release - JULY 10, 2019

AM Best Revises Outlooks to Positive for Humana Inc. and the Majority of Its Subsidiaries

 Wayne Kaminski
Senior Financial Analyst
+1 908 439 2200, ext. 5061

Sally Rosen
Senior Director
+1 908 439 2200, ext. 5280

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - JULY 10, 2019
AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” for the majority of the health insurance subsidiaries of Humana Inc. (Humana) (headquartered in Louisville, KY) [NYSE: HUM]. Concurrently, AM Best has revised the outlook to positive from stable and affirmed the Long-Term ICR of “bbb-”, as well as the existing Long-Term Issue Credit Ratings of Humana. AM Best also has affirmed the Short-Term Issue Credit Rating of Humana.

In addition, AM Best has downgraded the Long-Term ICRs to “bbb” from “bbb+” and affirmed the FSR of B++ (Good) of the following Humana subsidiaries, Humana Insurance of Puerto Rico, Inc. and Humana Health Plans of Puerto Rico, Inc. (both domiciled in Puerto Rico). The outlook of these FSRs has been revised to negative from stable, while the outlook of the Long-Term ICRs remain negative. Moreover, AM Best has affirmed with a stable outlook the FSR of A- (Excellent) and the Long-Term ICR of “a-” of the dental insurance subsidiaries of Humana (collectively referred to as Humana Dental Group).

(See link below for a detailed listing of all Humana Inc. companies and ratings.)

The Humana Health Group ratings reflect the group’s 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).

The positive outlook on the ratings of the insurance entities that comprise Humana Health Group is a reflection of the strong earnings. Humana Health Group’s underwriting income exceeded $1.8 billion the past two years and more than $1 billion in four of the past five years. In addition, net income has exceeded $1.6 billion in 2017 and 2018. The core earnings drivers for the group are Medicare Advantage (MA), in which Humana has targeted a 4.5-5% pre-tax margin, and the exit from the individual Affordable Care Act marketplace product which reported sizeable losses in both 2015 and 2016. Humana Inc. has reported a trend of strong earnings and steady premium growth. Additionally, Humana’s Healthcare Services operations, which mostly covers inter-company services and products, as well as military services, is largely non-regulated and contributes more than 20% of Humana Inc.’s consolidated income from operations. While Humana Inc. writes multiple types of health insurance, revenues are driven largely by MA. Humana Inc. is one of the largest MA carriers in the United States with more than 3.9 million individual and group members and an additional 4.4 million individuals for stand-alone MA prescription drug plans (PDP).

Humana Inc. has good financial flexibility through its dividends from its insurance subsidiaries, non-regulated earnings from its healthcare services operations and a five-year $2 billion credit facility that expires in 2022. Humana Inc.’s financial leverage was slightly above 35% at both year-end 2018 and March 31, 2019 and its goodwill and intangibles to equity was below 40%, both of which are lower than peers. Humana Inc.’s earnings before interest and taxes (EBIT) interest coverage declined to 10.5 times earnings at year-end 2018, which includes the one-time loss on the sale of KMG America Corporation. Excluding this loss, EBIT interest coverage would have been 14 times earnings.

The Humana Health of Puerto Rico Group’s ratings reflect the group’s balance sheet strength, which AM Best categorizes as weak, its marginal operating performance, limited business profile, appropriate ERM and support from the parent organization.

The downgrade of the entities that comprise the Humana Health of Puerto Rico Group are a reflection of the aggregate decline in the group’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and continued losses. Some of the capital decline was offset partially by the issuance of an internal surplus note by Humana Health Plan of Puerto Rico to Humana Insurance of Puerto Rico, Inc. The combined entities reported underwriting and net losses in four of the past five years, which accelerated in 2018 after improving in 2017. AM Best also expects the parent, Humana Inc., to provide business and capital support as needed. The negative outlook on the ratings reflects AM Best’s concern regarding the deteriorating trend in both earnings and risk-adjusted capitalization.

The Humana Dental Group’s ratings reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. Humana Inc.’s dental companies are well-capitalized and add a diversified source of earnings for the Humana organization. AM Best notes Humana Dental Group’s stable operating gains are offset by a long-term trend of membership decline.

A complete listing of Humana Inc. and its life/health subsidiaries’ is available.

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 Understanding 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 rating agency and information provider with a unique focus on the insurance industry.

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