AM Best Affirms Credit Ratings of Humana Inc. and Its Health Insurance Subsidiaries - Seite 2

Humana Inc. has good financial flexibility through its dividends from its regulated insurance entities, and earnings from its non-regulated entities, which comprise nearly 37% of Humana Inc.’s consolidated revenue from operations. In addition, Humana Inc. has a $4 billion, five-year credit facility, commercial paper program and cash at the parent company. Financial leverage is expected to be above 40%, as calculated by AM Best, when Humana reports its third-quarter financials, which would exceed the company’s targeted range. The increase follows the completion of the acquisition of the remaining interest of Kindred at Home, which was funded with debt issuance of $3 billion in August 2021. Humana plans to divest its majority stake in Kindred At Home’s hospice and personal care services through an IPO. Humana is expected to delever over the near to medium term utilizing the proceeds of the IPO in combination with continued favorable earnings.

Humana’s earnings before interest and taxes (EBIT) interest coverage remains strong, at over 10 times EBIT at year-end 2020, based on solid earnings from operations. Furthermore, Humana’s goodwill and intangibles to equity remained below 40%, but increased significantly following the Kindred At Home acquisition.

The ratings of Humana Health of Puerto Rico Group reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate ERM. The stable outlooks reflect Humana Health of Puerto Rico Group’s very strong assessment of risk-adjusted capital, as measured by BCAR. The improvement in risk-adjusted capitalization in 2020 was driven primarily by higher net income at both companies, which was retained in Humana Health of Puerto Rico Group. Following a few years of earnings volatility, the group reported improved underwriting and net income in 2020, mainly due to lower utilization resulting from the deferral of elective procedures during the COVID-19 pandemic. For the first half of 2021, the companies in the group remained profitable, albeit at lower levels due to continued premium decline in the Medicare Advantage line of business. Humana Health of Puerto Rico Group is integrated fully into the company’s overall strategy and continues to receive support from the parent. Furthermore, Humana Inc. has provided a parental guarantee to Humana Health Plan of Puerto Rico to provide capital as needed to remain in compliance with regulatory capital requirements.