AM Best Assigns Issue Credit Rating to Humana Inc.'s New Junior Subordinated Notes
MWN-AI** Summary
AM Best has assigned a Long-Term Issue Credit Rating of “bbb-” (Good) to Humana Inc.’s newly issued $1 billion, 6.625% fixed-rate junior subordinated notes, which mature in 2056. The stable outlook reflects AM Best's assessment of Humana’s financial stability despite challenges in recent years. The rating agency noted that the proceeds from the notes will be used for general corporate purposes, which may involve repaying existing debts, including exposure from its commercial paper program.
Although the issuance is expected to lead to a slight increase in financial leverage—projected to reach approximately 41.8% by year-end 2025—Humana's management is committed to managing this leverage to align with its long-term target of 40%. This management strategy includes increasing equity and ongoing deleveraging efforts.
The company’s earnings before interest and taxes (EBIT) interest coverage is robust, remaining between four to eight times in recent years, albeit down from previously higher levels, which were attributed to declining operating results. Increased utilization and adjustments in the Medicare Advantage segment's reimbursement, alongside rising interest expenses, have contributed to this shift.
Humana has demonstrated strong operating cash flows, yet cash flow dropped significantly to $0.9 billion in 2025 from $3 billion in 2024 due to various operational factors and changes resulting from the Inflation Reduction Act. However, liquidity remains solid, bolstered by subsidiary dividends, a $5 billion credit line, and a commercial paper program.
Despite a dip in profitability due to increased utilization in Medicare Advantage, strong premium growth was recorded across Humana's segments. AM Best anticipates Humana’s earnings will remain positive, although some margin compression is expected throughout 2026.
MWN-AI** Analysis
AM Best's recent assignment of a “bbb-” Long-Term Issue Credit Rating to Humana Inc.'s $1 billion junior subordinated notes presents a mixed outlook for potential investors. While the “Good” rating indicates a stable credit quality, it also raises concerns about the company's rising financial leverage, which is projected to climb to approximately 41.8% by year-end 2025, surpassing the firm's long-term target of 40%. This could hint at future risks, especially if operating conditions worsen.
Humana's efforts to utilize the proceeds for general corporate purposes, such as repayment of existing debt, reflect a strategic approach to managing leverage. Investors should note, however, that while Humana’s earnings before interest and taxes (EBIT) coverage has remained solid, it has experienced a decline from previous double-digit numbers. This trend, attributed to increased utilization and changes in Medicare reimbursement rates, suggests a gradual erosion of operating efficiency.
Moreover, while operating cash flows have historically been robust, the recent drop to $0.9 billion in 2025 from $3 billion in 2024 signifies a concerning liquidity trend that warrants monitoring. The organization does, however, maintain a sound liquidity position bolstered by subsidiary dividends and $5 billion in available credit facilities.
Given these factors, while the stable credit outlook provides a buffer, investors are advised to proceed with caution. Short-term fluctuations and potential margin compression could impact profitability, especially in the competitive Medicare Advantage market. Assessing Humana’s ongoing financial adjustments and market adaptability is crucial. Long-term investors may find value in the premium growth potential, particularly if Humana effectively manages operational challenges. However, the risks associated with increased leverage and declining EBIT coverage suggest a watchful approach to any new investments in its securities.
**MWN-AI Summary and Analysis is based on asking OpenAI to summarize and analyze this news release.
AM Best has assigned a Long-Term Issue Credit Rating of “bbb-” (Good) to the $1 billion, 6.625% fixed rate junior subordinated notes, due 2056, of Humana Inc. (Humana) (headquartered in Louisville, KY) [NYSE: HUM]. The outlook assigned to this Credit Rating (rating) is stable. All other ratings of Humana and its subsidiaries remain unchanged.
Humana expects to use the proceeds from the junior subordinated notes issuance for general corporate purposes, which may include repayment of existing indebtedness, including borrowings under its commercial paper program. AM Best expects the issuance to increase financial leverage slightly in the intermediate term. The company’s financial leverage, as measured by AM Best, will increase slightly from year-end 2025 to approximately 41.8% with the new issuance. Financial leverage has exceeded the organization's long-term target debt-to-capital ratio of 40%, but management expects to manage to this target through increases in equity and continued deleveraging over the course of the year.
Humana’s earnings before interest and taxes (EBIT) interest coverage remains solid at 4-8 times in recent years; however, it has dropped off from the double-digit range a few years ago due to a decline in operating results, driven by increased utilization and changes in reimbursement in its Medicare Advantage segment in the last few years, as well as higher interest expenses.
Humana has sound liquidity measures as the organization generates consistently strong operating cash flows; however, cash flow in 2025 totaled $0.9 billion, a notable decrease from $3 billion in 2024. This was driven by timing impacts, the increase in receivables due to the Inflation Reduction Act and the unfavorable impact of working capital items. Liquidity is also supported by dividends primarily from subsidiaries, which totaled $1.1 billion for 2025, as well as its lines of credit totaling $5 billion, as well as its $5 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 2025, driven by its core Medicare Advantage segment, but premium revenue is also generated from its Medicaid managed care and supplementary lines. Although profitability increased in 2025, net income was impacted by increased utilization in Medicare Advantage. AM Best expects the company’s earnings to remain positive albeit with margin compression throughout 2026.
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 .
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James Quito
Financial Analyst
+1 908 882 2460
james.quito@ambest.com
Joseph Zazzera
Director
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Christopher Sharkey
Associate Director, Public Relations
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Al Slavin
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al.slavin@ambest.com
FAQ**
How might Humana Inc. HUM's increased financial leverage, projected at approximately 41.8%, impact its ratings and the decision-making of investors considering the recent “bbb-” credit rating assignment by AM Best?
Given that Humana Inc. HUM has seen a decline in EBIT interest coverage and increased utilization in its Medicare Advantage segment, what potential strategies could the company pursue to reverse this trend?
With Humana Inc. HUM projecting margin compression in earnings throughout 2026, how can the company ensure continued strong premium growth, especially in its Medicare Advantage segment?
What are the implications of the $1 billion junior subordinated notes issuance for Humana Inc. HUM’s overall liquidity position and access to capital markets in the near term?
**MWN-AI FAQ is based on asking OpenAI questions about Humana Inc. (NYSE: HUM).
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