OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has 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 affirmed the Long-Term ICR of “bbb-”, as well as the existing Long- and Short-Term Issue Credit Ratings of Humana. The outlook of these Credit Ratings (ratings) remains stable.
Concurrently, A.M. Best has affirmed 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). The outlook of these ratings remains stable.
Moreover, A.M. Best also 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. (both domiciled in Puerto Rico). The outlook of the FSR is stable, while the outlook of the Long-Term ICRs is negative. These companies are collectively referred to as Humana Health of Puerto Rico Group.
Additionally, A.M. Best has maintained the under review with negative implications status for the FSR of B++ (Good) and the Long-Term ICR of “bbb+” of Kanawha Insurance Company (Kanawha) (Lancaster, SC). These ratings will remain under review with negative implications pending the previously announced sale of this entity to Continental General Insurance Company, (Continental General) a Texas-based insurance company wholly owned by HC2 Holdings, Inc.
(See link below for a detailed listing of all Humana Inc. companies and ratings.)
A.M. Best recognizes that Humana Inc.’s debt-to-capital ratio is expected to remain below the 35% range over the medium term, and that interest coverage was approximately 17 times earnings at year-end 2017, which includes the one-time break-up fee from the dissolved Aetna merger. A.M. Best expects Humana’s coverage ratio to remain in a range above 10 times earnings in the near term.
The Humana Health Group ratings reflect the group’s balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The credit ratings of Humana’s health insurance entities reflect the aggregate strength of risk-adjusted capitalization driven by the favorable operating results over the medium term. The operating results are augmented by the strong margins from Humana’s core business line of individual Medicare Advantage product results. Its retail segment contributed earnings before income and taxes (EBIT) of approximately $1.9 billion and a 4.4% of margin in 2017. Offsetting the favorable 2017 operating results was a near-term decline in premium compared with the prior year, which was attributed to the company’s exit from the individual Affordable Care Act business; however, this segment was unprofitable for Humana. Additionally, the high percentage of business derived from Medicare Advantage adds concentration risk.
The Humana Dental Group’s ratings reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. Humana’s dental companies add complementary dental and vision options for employer groups and individuals. These entities are well capitalized and are a diversified source of earnings for the Humana organization.
The Humana Health of Puerto Rico Group ratings reflect the group’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its marginal operating performance, limited business profile and appropriate ERM. The Puerto Rico companies are strategic to Humana’s Medicare Advantage offerings in markets outside of the U.S. domestic markets. The operating earnings were weak as a result of weaker reimbursement rates on its Medicare business. The expectation in 2018 is that rate increases in the Puerto Rico market for Medicare Advantage plans may result in more favorable operating results.
The ratings of Kanawha reflect the group’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its weak operating performance, limited business profile and appropriate ERM. A.M. Best anticipates that the ratings of Kanawha will remain under review with negative implications until the transaction closes with Continental General, which is estimated to be in early third quarter 2018, subject to regulatory approval.
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.
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