Credit rating agency A. M. Best Co. has affirmed some ratings
) with a stable outlook. Concurrently, the outlook on one of the
ratings was revised.
The financial strength rating (FSR) of the holding company was
reiterated at "A-," the issuer credit rating (ICR) of most of its
insurance subsidiaries were affirmed at "a-" and ICR of the
existing debt ratings of the company were confirmed at "bbb-."
The rating affirmations came on the back of strong 2013 earnings
fueled by impressive operating performance, expense management
and revenue development. Moreover, increase in memberships in the
Medicare Advantage and Medicare Part D plans due to mergers and
acquisitions also supported the rating affirmations.
However, the rating agency noted that Humana is likely to face
business concentration risks, margin suppression, higher medical
loss ratio and low investment returns.
Other ratings that were also affirmed include the FSR and ICRs of
two subsidiaries of Humana, namely, Humana Insurance of Puerto
Rico, Inc. and Humana Health Plans of Puerto Rico, Inc. A.M. Best
recognizes the current capital strength of these subsidiaries and
has thus affirmed the ratings. However, the overall financial
strength of these companies will be monitored by the credit
rating agency after taking into consideration the loss from the
Health Reform and competition in the Commonwealth.
On the other hand, the ICR ("bbb+") of Kanawha Insurance Company
was affirmed and the outlook was raised to stable from negative.
The FSR ("B++") rating of this subsidiary was also affirmed but
with a stable outlook.
At present, although the underwriting operations at Kanawha
are weak, A.M. Best stated that Humana's enthusiasm in providing
financial support to this business is encouraging. As a result,
the Kanawha business boasts a strong balance sheet. A.M. Best is
of the opinion that although operating trends have been
unfavorable, things might improve in the near future.
A.M. Best stated that an upward revision in the ratings is
possible if the company continues to gain on premiums profitably,
generates capital growth and enhances product portfolio. On the
other hand, a downward revision in ratings is probable if the
company's debt level widens or its interest coverage lowers.
Disruption in Humana's cash flow, weakening of the company's care
initiatives and a poor customer service might also lead to a
downgrade in the ratings.
Rating affirmations or upgrades from credit rating agencies
play an important part in retaining investor confidence in the
stock as well as maintaining creditworthiness in the market. We
believe that Humana's present score with the credit rating agency
will help it write more business going forward.
Humana currently carries a Zacks Rank #4 (Sell). However, some
better-ranked stocks in the healthcare industry include
). While LCA-Vision and Chemed sport a Zacks Rank #1 (Strong
Buy), Aetna carries a Zacks Rank #2 (Buy).
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