(The following statement was released by the rating agency)
CHICAGO, August 14 (Fitch) Fitch Ratings has affirmed the 'BBB'
to Humana Inc.'s (HUM) senior unsecured notes and the 'A'
Strength (IFS) ratings assigned to various Humana insurance
subsidiaries. The Rating Outlooks are Stable.
HUM's 'A' IFS ratings reflect financial metrics and performance
that in recent
years have generally been supportive of 'AA' category IFS
ratings and the impact
of the companies' concentrations in the Medicare market in the
characteristics of which Fitch views as supportive of IFS
ratings in the 'A' to
'BBB' rating categories.
KEY RATING DRIVERS
Industry Profile and Operating Environment: Fitch believes that
Government's ability to set reimbursement rates and influence
conditions in the
Medicare Advantage market makes it difficult for health insurers
Advantage membership concentrations, such as HUM to generate
EBITDA-based margins and capital stability required to support
higher than 'A'. Fitch views on-going federal government fiscal
heightened demands on Medicare tied to the aging U.S.
population, as factors
that effectively limit the ratings levels of health insurers
concentrations in Medicare Advantage. Favorably from a ratings
Fitch believes that these same fiscal and demographic pressures
consistent demand for Medicare Advantage products.
Market Position and Size/Scale: Fitch views HUM as maintaining
market position and size/scale characteristics. Under Fitch's
rating guidelines, such characteristics are consistent with 'A'
ratings. HUM maintains a leading market share in the Medicare
and the company's membership is well diversified throughout the
Additionally, HUM has built integrated delivery capabilities,
acquisitions, in geographic regions where the company maintains
membership. Fitch believes that HUM maintains large membership
and revenue bases
that the help the company generate significant amounts of EBITDA
and capital and
benefit from economies of scale.
Financial Performance and Earnings: Fitch believes that HUM's
performance and earnings over the next 12-24 months will remain
the company's ratings. Fitch's view is that HUM's market
position, size and
scale characteristics and benefits derived from aspects of the
integrated care delivery capabilities will help offset margin
consistent reductions in Medicare funding rates, the Affordable
Care Act's (ACA)
imposition of an 85% minimum benefit ratio on Medicare Advantage
various ACA-related fees.
In recent years HUM's financial performance has been strong
relative to Fitch's
'A' category guidelines. In the first half of 2014 HUM generated
$24 billion of
revenues and $1.6 billion of EBITDA. The company's 1H'14 ratios
EBITDA-to-revenues and annualized net return on average capital
were 6.7X and
11.8% respectively and from 2011-2013 these ratios averaged 6.4%
Capitalization and Financial Leverage: Fitch views HUM's
and financial leverage metrics to be consistent with those
expected at the 'A'
IFS rating category, while the company's reported metrics for
the past several
years have been more consistent with those expected at the 'AA'
At June 30, 2014 HUM's ratio of debt-to-annualized EBITDA was
0.8X and its
financial leverage ratio was 21%. From 2011-2013 these ratios
averaged 0.9x and
21% respectively. The company targets a debt-to-capital ratio of
Fitch believes that debt-funded acquisitions and share
repurchases are potential
ways in which HUM may manage its debt-to-capital ratio toward
Debt Service Capabilities and Financial Flexibility: HUM's debt
capabilities and financial flexibility have historically been
Fitch's 'AA' rating category guidelines. The company's
interest coverage ratio through 1H'14 was 23.0X and from 2011-
21.2x. HUM has access to an untapped $1 billion credit facility
that expires in
2018. At June 30, 2014, the company maintained $11.1 billion of
high-quality and liquid investment securities that exceeded the
value of its
medical benefit and future policy benefit reserves by $4
Key rating triggers that could lead to an upgrade of HUM's
--Over the longer term, an improved outlook for Medicare
--Reduced near-term uncertainty surrounding the impact on HUM's
margins of the
Affordable Care Act's (ACA) minimum medical benefit ratio and
designed to fund portions of the ACA;
--A reduction in HUM's targeted debt-to-capital ratio to 20% and
increase in the
company's organization-wide NAIC RBC to 350%;
--Financial metrics, especially interest coverage and
ratios that approximate current levels.
Key rating triggers that could lead to a downgrade of the
--Over the longer-term, a deterioration in the outlook for
--EBITDA-based interest coverage and EBITDA/revenue ratios below
7x and 5%,
--Debt-to-annualized (prior four quarters) EBITDA ratios above
--HUM increasing its targeted or reported financial leverage
ratio above 30% or
reducing its organization-wide NAIC RBC ratio target below 200%;
--Acquisitions that Fitch views as aggressively financed or
excessive amount of integration risk.
Fitch has affirmed the following ratings:
--Long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable
--$500 million of 6.45% senior unsecured notes due June 1, 2016
--$500 million of 7.2% senior unsecured notes due June 15, 2018
--$300 million of 6.3% senior unsecured notes due Aug. 1, 2018
--$600 million of 3.15% senior unsecured notes due Dec. 1, 2022
--$250 million of 8.15% senior unsecured notes due June 15, 2038
--$400 million of 4.625% senior unsecured notes due Dec. 1, 2042
The following companies' Insurer Financial Strength (IFS)
ratings are affirmed
at 'A' with a Stable Outlook:
Humana Insurance Company
Humana Medical Plan, Inc.
Humana Health Plan, Inc.
Humana Health Benefit Plan of Louisiana
Careplus Health Plans, Inc.
Mark Rouck, CPA, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago IL 60602
Martha M. Butler, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', November 2013;
--'Health Insurance and Managed Care (U.S.) Sector Credit
Applicable Criteria and Related Research:
Insurance Rating Methodology
Health Insurance and Managed Care (U.S.)
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