AM Best Assigns Issue Credit Ratings to Humana Inc.’s New Senior Unsecured Notes and New Shelf Registrations

AM Best has assigned Long-Term Issue Credit Ratings (Long-Term IRs) of “bbb” (Good) to Humana Inc.’s (Humana) (headquartered in Louisville, KY) [NYSE: HUM] recently announced $1.25 billion 5.375% senior unsecured notes, due 2031, and $1 billion 5.75% senior unsecured notes, due 2054. In addition, AM Best has assigned indicative Long-Term IRs of “bbb” (Good) to senior unsecured issues, “bbb-” (Good) to subordinated issues and “bb+” (Fair) to preferred stock and of the recently filed shelf registration of Humana. The outlook assigned to these Credit Ratings (ratings) is stable. Concurrently, AM Best has withdrawn the ratings on the previous shelf registration, which expired.

Humana is anticipated to use the proceeds from the senior unsecured notes issuance for general corporate purposes, including the repayment of existing debt and outstanding commercial paper. As such, AM Best expects the issuance to be mostly neutral to financial leverage. Financial leverage, as measured by AM Best, was approximately 42% as of year-end 2023, slightly exceeding the organization's long-term target debt-to-capital ratio of 40%. Humana’s earnings before interest and taxes (EBIT) interest coverage remains solid at about 8 times; however, it did decrease at year-end 2023 due to a moderate decline in operating results driven by increased utilization in its Medicare Advantage segment in the fourth quarter of 2023, as well as higher interest expense.

Humana has sound liquidity measures as the organization maintains consolidated cash holdings of $4.7 billion and generates consistently strong operating cash flows, which totaled $4 billion in 2023. Liquidity is also supported by subsidiary dividends, its $4 billion commercial paper program, and access to short-term borrowings from the Federal Home Loan Bank of Cincinnati through its subsidiary, Humana Insurance Company.

The organization’s consistent profitability has driven equity growth over the past five years. Humana generated strong premium growth in 2023, driven by a membership increase in its core Medicare Advantage segment. However, service revenue derived from its CenterWell segment declined because of the divestiture of its 60% ownership in Gentiva Hospice operations. While profitability remained solid in 2023, net income was impacted by increased utilization in Medicare Advantage and supplementary benefits in the fourth quarter of 2023. AM Best expects the company’s earnings to remain positive albeit with margin compression.

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