OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has removed the under review with positive implications 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 insurance subsidiaries of Humana Inc. (Humana) (headquartered in Louisville, KY) [NYSE: HUM]. Concurrently, A.M. Best has also removed from under review with positive implications and affirmed the Long-Term ICR of “bbb-”, as well as the existing Long- and Short-Term Issue Credit Ratings of Humana. The outlook assigned to these Credit Ratings (ratings) is stable.
Additionally, A.M. Best has removed from under review with positive implications and affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb+” of Kanawha Insurance Company (Kanawha) (Lancaster, SC). The ratings have been assigned a stable outlook. A.M. Best has also removed from under review with positive implications and 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. (both domiciled in Puerto Rico). The outlook assigned to the FSR is stable while a negative outlook has been assigned to the Long-Term ICRs of the Puerto Rico entities. (See link below for a detailed listing of all companies and ratings.)
The rating action follows the announced mutual termination of Humana’s merger agreement with Aetna Inc. on Feb. 14, 2017. Additionally, A.M. Best has reviewed Humana’s year-end 2016 financial results and its forward looking statements, as well as its capital spending plans announced in a separate call on the same date.
The ratings of Humana’s core insurance subsidiaries reflect enrollment and premium growth in its core line of Medicare Advantage business, favorable operating income trends and a planned exit from an unprofitable line of business. Humana’s core insurance subsidiaries reflect strong overall membership growth in the Medicare Advantage line of business. Humana’s business profile is strengthened by its brand recognition, service quality and leading market share in the Medicare Advantage market. The organization has also strengthened its participation in government-sponsored business while broadening its health care service offerings. Humana experienced favorable underwriting and pre-tax operating results in its three core segments: retail, group and healthcare services. The company announced in 2017 a complete exit from its individual commercial business lines effective in 2018, due to the strain of a higher risk population and a trend of reported losses in this business line. Near-term results have been poor and the company had set up premium deficiency reserves ahead of expected high utilization rates in 2016.
Furthermore, A.M. Best recognizes that Humana’s financial leverage was below 30% for year-end 2016, as well as its ratio of intangibles to equity of 30%, which are both lower than many of its managed care peers. Additionally, Humana’s earnings before interest and taxes (EBIT) interest coverage was slightly below 10 times in 2016, which is considered strong, although it did decline from prior years.
Offsetting the positive rating attributes are margin suppression and the potential for business concentration risk. Humana has experienced near-term margin suppression due to higher utilization from the exchange business, and reserve strengthening required for its long-term care operations, which have negatively impacted earnings. Humana’s earnings may continue to be negatively impacted from the exchange business in 2017; however, A.M. Best recognizes that the organization’s announcement to exit completely from participating and marketing products in the health exchanges as of Jan. 1, 2018 may contribute to improvement in its health insurance company earnings in 2018. Humana’s concentration in Medicare Advantage subjects the company to business concentration and regulatory risk should there be funding changes that adversely affect the program.
For a complete listing of FSRs, Long-Term ICRs and Long- and Short-Term Issue Credit Ratings for Humana Inc. and its life/health subsidiaries, please visit Humana Inc.
This press release relates to Credit Ratings that have been published on A.M. 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 A.M. 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.
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