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

Rhea-AI Summary

AM Best has assigned a 'bbb' (Good) rating to Humana Inc.'s new senior unsecured notes: $750 million at 5.5% due 2035 and $500 million at 6.0% due 2055. The proceeds will be used for general corporate purposes, including repayment of $600 million in existing debt due April 2025 and approximately $885 million in commercial paper.

The issuance will temporarily increase financial leverage from 42% to approximately 45%, above Humana's long-term target of 40%. While EBIT interest coverage remains solid at 5-8 times, it has declined from previous double-digit levels due to increased Medicare Advantage utilization and reimbursement changes in 2023-2024.

Humana maintains strong liquidity with $3 billion in operating cash flows and $1.5 billion in subsidiary dividends for 2024. The company's financial position is supported by $4.75 billion in credit lines and a $4 billion commercial paper program.

Positive

• Strong liquidity position with $3B operating cash flow
• Solid subsidiary dividends of $1.5B in 2024
• Substantial credit facilities totaling $4.75B
• Strong premium growth in Medicare Advantage segment
• TRICARE East contract renewed

Negative

• Financial leverage increasing to 45%, above 40% target
• EBIT interest coverage declined from double-digits to 5-8x
• Declining profitability due to increased Medicare Advantage utilization
• Higher interest expenses impacting earnings
• Margin compression expected to continue

Insights

Financial Analyst

Humana's new debt issuance represents a significant refinancing move that has both strategic benefits and financial implications. The company is issuing $1.25 billion in new notes ($750 million at 5.5% due 2035 and $500 million at 6.0% due 2055) primarily to refinance existing obligations, including $600 million in notes maturing in April 2025 and approximately $885 million in commercial paper.

The immediate effect will be an increase in financial leverage from 42% to approximately 45%, pushing Humana further above its long-term target debt-to-capital ratio of 40%. This elevated leverage warrants attention, especially as the company's EBIT interest coverage has declined from double-digits to 5-8 times in recent years due to operational challenges in its Medicare Advantage segment.

Despite these concerns, Humana maintains solid liquidity with $3 billion in operating cash flows for 2024, $1.5 billion in subsidiary dividends, and significant credit facilities including $4.75 billion in lines of credit and a $4 billion commercial paper program. The company continues to generate premium growth, though profitability has been impacted by increased utilization in Medicare Advantage.

The AM Best rating of "bbb" with a stable outlook indicates adequate financial strength, but the margin compression trend highlighted in the report suggests ongoing operational challenges that investors should monitor closely. Management's plan to reduce leverage through equity growth and deleveraging throughout 2025 will be a key factor to watch.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has assigned a Long-Term Issue Credit Rating of “bbb” (Good) to the $750 million, 5.5% senior unsecured notes, due 2035, and the $500 million, 6.0% senior unsecured notes, due 2055, issued by Humana Inc. (Humana) (headquartered in Louisville, KY) [NYSE: HUM]. The outlook assigned to these Credit Ratings (ratings) is stable. Humana’s Long-Term Issuer Credit Rating of “bbb” (Good), its Long-Term IRs and the ratings of its insurance subsidiaries are unchanged.

Humana expects to use the proceeds from the senior unsecured notes issuance for general corporate purposes, including the repayment of existing debt of $600 million, 4.5% senior unsecured notes maturing in April 2025, and short-term borrowings outstanding under its commercial paper program, which as of March 2025 was approximately $885 million. AM Best expects the issuance to increase financial leverage in the immediate term and then be reduced after the repayments. Financial leverage, as measured by AM Best, was 42% as of year-end 2024, and will increase to approximately 45% with the new issuance. Financial leverage has exceeded the organization's long-term target debt-to-capital ratio of 40%, but management expects that through increases in equity and continued deleveraging over the course of the year, they will get closer to this target. Humana’s earnings before interest and taxes (EBIT) interest coverage remains solid at 5-8 times in recent years; however, it has declined from the double-digit range a few years ago due to a moderate decline in operating results driven by increased utilization and changes in reimbursement in its Medicare Advantage segment in 2023 and 2024, as well as higher interest expense.

Humana has sound liquidity measures as the organization generates consistently strong operating cash flows, which totaled $3 billion in 2024. Liquidity is also supported by dividends primarily from subsidiaries, which totaled $1.5 billion for 2024, as well as its lines of credit totaling $4.75 billion, 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-yet-declining profitability has driven equity growth over the past five-year period. Humana again generated strong premium growth in 2024, driven by its core Medicare Advantage segment, but premium revenue is also generated from its Medicaid managed care and supplementary lines. While profitability remained solid in 2024, net income was impacted by increased utilization in Medicare Advantage. AM Best expects the company’s earnings to remain positive albeit with margin compression.

Revenue and earnings are also diversified through Humana’s non-insurance segment, CenterWell. The CenterWell entities focus on value-based care initiatives through primary care, home care and pharmacy services operations. Furthermore, Humana Health Group holds the TRICARE East contract, which was recently renewed for an extended period. The group’s operations are supported by a well-developed enterprise risk management program to ensure proper oversight and mitigation of key risks.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2025 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Joseph Zazzera

Director

+1 908 882 2442

jospeh.zazzera@ambest.com

Sally Rosen

Senior Director

+1 908 882 2284

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Christopher Sharkey

Associate Director, Public Relations

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christopher.sharkey@ambest.com

Al Slavin

Senior Public Relations Specialist

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al.slavin@ambest.com

Source: AM Best

FAQ

What are the terms of Humana's (HUM) new senior unsecured notes issued in 2025?

Humana issued two notes: $750 million at 5.5% due 2035 and $500 million at 6.0% due 2055.

How will the new debt issuance affect Humana's (HUM) financial leverage ratio?

The issuance will temporarily increase financial leverage from 42% to approximately 45%, above the target ratio of 40%.

What was Humana's (HUM) operating cash flow in 2024?

Humana generated $3 billion in operating cash flows during 2024.

Why has Humana's (HUM) EBIT interest coverage declined in recent years?

Coverage declined due to increased Medicare Advantage utilization and reimbursement changes in 2023-2024, plus higher interest expenses.