A.M. Best Assigns Debt and Financial Ratings and Affirms Financial Ratings of Humana and Its Subsidiaries.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--June 6, 2002 A.M. Best Co. has assigned a senior debt rating of "bbb" to $300 million of 7.25% senior unsecured notes, due August 2006 by Humana Inc. (Humana) (NYSE NYSE See: New York Stock Exchange :HUM) of Louisville, Kentucky  “Louisville” redirects here. For other uses, see Louisville (disambiguation). . Also, A.M. Best affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. the financial strength ratings of A- (Excellent) or B++ (Very Good) for some subsidiaries of Humana and assigned stable outlooks. Additionally, one subsidiary was assigned a financial strength rating of A- (Excellent) with a stable outlook, while two subsidiaries with financial strength ratings of A- (Excellent) were affirmed with negative outlooks. Humana's ratings reflect its geographic spread of risk and the demonstrated effectiveness of its financial and strategic turnaround. These are offset by the enterprise's dependence upon government contracts for scale and profitability and its somewhat high financial leverage. Humana is one of the nation's largest publicly-traded health services health services Managed care The benefits covered under a health contract companies with approximately 6.4 million medical members located primarily in 18 states and the Commonwealth of Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. . In A.M. Best's opinion, Humana's geographic diversification partially mitigates the negative impact of any state-specific regulatory reform Regulatory Reform concerns improvements to the quality of government regulation. At the international level, the "OECD Regulatory Reform Programme is aimed at helping governments improve regulatory quality -- that is, reforming regulations that raise unnecessary obstacles to or litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. . Recently, Humana completed a two-year financial and strategic turnaround, initiated after a loss of $382 million in 1999. This effort included divesting products and exiting markets that either lacked the prospect for long-term profitability or no longer fit its strategic focus. As a result, net membership decreased more than 10% between 1999 and 2000. Going forward, A.M. Best expects membership growth to resume in the commercial segment. During 2001, Humana continued to improve and grow its remaining core business. The company also experienced a second consecutive year of positive earnings and strengthened capital structure. A.M. Best believes the organization has positioned itself well for modest, profitable growth over the medium term. However, Humana's progress has been driven largely by its government business, which represented 55% and 47% of year-end 2001 membership and premium revenues, respectively. This creates substantial contract concentration risk. The company's reliance on government contracts for profitability to offset the commercial segment's net losses further increases the risk. In A.M. Best's opinion, Humana's earnings margins will continue to lag behind those of peer groups until its commercial segment recognizes profits to supplement those from government business, the latter having limited upside potential Upside potential The amount by which analysts or investors expect the price of a security may increase. upside potential The potential price or gain that may be expected in a security or in a security average, generally stated as the dollar . Humana's financial leverage at 27.7% is somewhat high when compared with peers. Nevertheless, total debt declined from $686 million to $578 million between 1999 and 2001, and the Earnings Before Interest and Taxes In financial and business accounting, earnings before interest and taxes (EBIT) is a measure of a firm's profitability that excludes interest and income tax expenses.[1] EBIT = Operating Revenue – Operating Expenses + Non-operating Income (EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). ) to interest expense coverage ratio improved significantly from 2.6 times (excluding one-time charges related to the impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of assets) to 8.2 times. Moreover, Humana's subsidiaries are well capitalized in comparison to state-mandated requirements and generate strong operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. and earnings to provide good debt service coverage. A.M. Best expects Humana's leverage to remain between 25% and 30% over the mid term. The following debt rating has been assigned: Humana Inc.-- -- "bbb" on $300 million 7.250% senior notes due August 2006 The following subsidiary has been assigned a financial strength rating of A- (Excellent) with a stable outlook: -- HumanaDental Insurance Company The following subsidiaries' financial strength ratings of A- (Excellent) have been affirmed with stable outlooks: -- Humana Employers Health Plan of Georgia, Inc. -- Humana Wisconsin Health Organization Insurance Corporation The following subsidiaries' financial strength ratings of B++ (Very Good) have been affirmed with stable outlooks: -- Humana Employers Health Plan of Georgia, Inc. -- Humana Wisconsin Health Organization Insurance Corporation The following subsidiaries' financial strength ratings of A- (Excellent) have been affirmed with negative outlooks: -- Humana Employers Health Plan of Georgia, Inc. -- Humana Wisconsin Health Organization Insurance Corporation A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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