A.M. Best Affirms Ratings of Humana Inc. and Its U.S. Subsidiaries

  A.M. Best Affirms Ratings of Humana Inc. and Its U.S. Subsidiaries

Business Wire

OLDWICK, N.J. -- January 11, 2013

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A-
(Excellent) and issuer credit ratings (ICR) of “a-” for the majority of the
insurance subsidiaries of Humana Inc. (Humana) (Louisville, KY) (NYSE: HUM).
A.M. Best also has affirmed Humana’s ICR of “bbb-” and existing debt ratings.
Ratings also have been assigned on new debt for Humana. The outlook for all
ratings remains stable.

Additionally, A.M. Best has affirmed the FSR of B++ (Good) and ICR of “bbb+”
of Kanawha Insurance Company (Lancaster, SC) (Kanawha). The outlook for the
FSR is stable, while the outlook for the ICR is negative.

Concurrently, A.M. Best has upgraded the FSR to B++ (Good) from B+ (Good) and
the ICR to “bbb+” from “bbb-” of Humana’s Puerto Rico insurance subsidiaries,
Humana Insurance of Puerto Rico, Inc. and Humana Health Plans of Puerto Rico,
Inc. The outlook for these ratings remains stable. (See link below for a
detailed listing of all companies and ratings.)

The rating affirmation for Humana’s U.S. subsidiaries reflects strong
membership gains over the last year, partly as a function of organic growth,
acquired members and being awarded additional Medicare members by CMS, as well
as large quantities of prescription drug members. The organization continues
to report solid underwriting gains and favorable overall earnings trends.

Humana has followed a strong merger and acquisition strategy. The organization
is also pursuing an integrative care initiative, requiring the coming together
of various medical, administrative and health insurance services, making for a
more complete, sophisticated, efficient and complementary operating
environment that is expected to provide more comprehensive care delivery
services at a lower cost. Expanding the integrated care environment drove
several acquisitions in order to complete underrepresented parts of the
service delivery process.

Offsetting rating factors include Humana’s somewhat lower earnings after the
historical peak of the prior year and business concentration risk. The overall
organization reported strong earnings in 2012; however, the results were
somewhat below the prior year as significant membership growth led to some
margin suppression. Additionally, A.M. Best has observed an increase in the
concentration of government-sponsored programs in the overall product mix.
This is of concern because any significant interruption in benefits
reimbursement cash flows could have unfavorable repercussion in the delivery
of services and disruptions within the vast provider community. Federal and
state governments have reported many challenges maintaining the mandates of
their budgets, where health care services are a significant part.

The rating upgrade of Humana’s Puerto Rico insurance subsidiaries reflects a
solid revenue trend, favorable underwriting performance and consistent capital
development. After being awarded Medicaid administrative contracts for three
regions in Puerto Rico, net premium revenues grew sharply, reflecting the
shift in operating scale. The companies were profitable and self-sustaining,
and regulatory capital ratios have been well above statutory required
minimums.

Humana's financial leverage, including the newly issued securities, is
manageable at 20%. In general, A.M. Best expects Humana to manage its
financial leverage in the 20%-30% range. Humana’s interest coverage remains
strong at over ten times, factoring in the debt service on the $1.0 billion of
new senior notes.

Factors that could result in the upward movement of the organization's ratings
include sustained profitable premium development and capital growth, broader
diversification in product development and further progress in integrative
health and wellness care. Conversely, factors that could result in downward
movement are the interruption of cash flow and the cancellation,
discontinuance or reduction of any major part of Humana’s benefits or provider
structure, which could leave the organization's integrative care initiative
and provider networks severely weakened and Humana's customers left
underserved.

For a complete listing of Humana Inc. and its U.S. subsidiaries’ FSRs, ICRs
and debt ratings, please visit www.ambest.com/press/011104humana.pdf.

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more information,
visit www.ambest.com.

       Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Co.
David Mitchell, 908-439-2200, ext. 5556
Senior Financial Analyst
david.mitchell@ambest.com
or
Joseph Zazzera, MBA, 908-439-2200, ext. 5797
Assistant Vice President
joseph.zazzera@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
 
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