AET Aetna Inc. (delisted)

The rating agency A.M.Best Co. has affirmed the financial strength ratings (FSR) and the issuer credit ratings (ICR) of the health insurer Humana Inc. (HUM) and conferred a debt rating of “bbb” to the company.

All the ratings carry a stable outlook, indicating the company’s stable financial and market trends, and a likelihood that the company's rating would change over an intermediate period.

However, A.M. Best’s rating action reflects a combination of positive and negative factors. The agency views positively Humana’s efforts of maintaining its revenue growth and developing its Medicare Advantage membership base.

A modest leverage (18.0% at the end of June 30, 2011) relative to its other peers  such as UnitedHealth Group Inc. (UNH), CIGNA Inc. (CI), Aetna Inc. (AET), WellPoint Inc. (WLP), along with sufficient capital flexibility, is viewed as a positive by the rating agency. Besides, a strong capital structure has helped the company to successfully execute its growth plans while insulating itself from balance sheet risks. 

Partially offsetting these positive rating factors is Humana’s above-average exposure to Medicare Advantage and Medicaid businesses (privately administered versions of the federal health program for seniors), which have high administrative costs. During the first half of 2011, the company derived 68% of its health insurance premium from Medicare Advantage plans. Going forward, the company is likely to suffer as the recently passed health care reform has shrunk the selling season for the Medicare Advantage plans.

Meanwhile, the rating agency withdrew its rating on one of Humana’s subsidiaries, Caritan Insurance Co. (acquired in 2008), primarily due to low or negligible operating scale and lack of significant membership.

In June yet another rating agency, Fitch rating affirmed the 'A-' (IFS) rating of various Humana insurance company subsidiaries, along with revising the outlook to positive from stable. 

Peers such as Aetna, Cigna and UnitedHealth have witnessed rating affirmations with a stable outlook from A.M. Best since the start of the year. The rating agency is busy reviewing its outlook as the uncertainty relating to the Health Care law implemented last year has started to clear.

 
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