AM Best Downgrades Credit Ratings of Humana Health of Puerto Rico Group's Subsidiaries; Affirms Credit Ratings of Humana Inc. and Most of Its Health Insurance Subsidiaries

AM Best has downgraded the Financial Strength Rating (FSR) to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to "bbb-" (Good) from "bbb" (Good) of Humana Insurance of Puerto Rico, Inc. and Humana Health Plans of Puerto Rico, Inc. These companies are domiciled in Puerto Rico and collectively are referred to as Humana Health of Puerto Rico Group. The outlook of these Credit Ratings (ratings) has been revised to negative from stable. Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of "a" (Excellent) for the health and dental insurance subsidiaries of Humana Inc. (Humana) (headquartered in Louisville, KY) (NYSE:HUM). These subsidiaries collectively are referred to as Humana Health Group. In addition, AM Best has affirmed the Long-Term ICR of "bbb" (Good) and the Long-Term Issue Credit Ratings (Long-Term IRs) of Humana Inc. (Humana). AM Best also has affirmed the Short-Term Issue Credit Rating of AMB-2 (Satisfactory) for Humana. The outlook of these ratings is stable. (See below for a detailed listing of Humana Health Group members and Long-Term IRs.)

The ratings of Humana Health Group reflects its balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).

Humana Health Group's balance sheet strength is assessed as adequate, despite a decline in risk-adjusted capitalization to a weak level, as measured by Best's Capital Adequacy Ratio (BCAR). The decline was primarily driven by strong premium growth in 2023 and related required capital to support these risks. The group's premium expansion has outpaced capital growth in recent years, due largely to dividends from the regulated entities to the parent, Humana.

The Humana Health Group maintains a conservative invested asset portfolio that is mainly composed of investment grade fixed income securities, cash, and short-term investments in order to preserve capital and to supplement operating gains. Capitalization has increased annually over the past five years, rising at a 7.5% compound annual growth rate over the period as the group reported consistently favorable operating results. Recently, the group's operating performance has been pressured by challenges in its core business line, Medicare Advantage (MA). Not only has the medical cost trend in MA increased over the past year, but the business has also been impacted by several regulatory factors related to lower payment rates and Star Ratings bonus and rebate revenue from the Centers for Medicare and Medicaid Services (CMS), which will further impact results in the upcoming years. However, Humana Health Group exhibited strong operating results prior to the declines reported in 2024, owing to the steady growth of MA and lower claims trends that were influenced by COVID-19 pandemic deferrals of care. AM Best expects MA challenges to persist in the near to mid-term, but Humana Health Group to continue to report overall profitability, albeit with some margin compression as it navigates certain of the challenges in the business.

Humana Health Group generates the majority of its premium base from MA, but premium income is also sourced from Medicaid managed care and supplementary lines, including dental and vision. Effective 2023, Humana exited the commercial market. While its concentration of business in government health programs makes the organization susceptible to headwinds in the MA and Medicaid businesses, Humana benefits from an excellent market position that spans nationwide, which supports its favorable business profile assessment. 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. All of the group's operations are supported by a well-developed ERM program to ensure proper oversight and mitigation of key risks.

The ratings of Humana Health of Puerto Rico Group reflect its balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and appropriate ERM.

The ratings downgrade Humana Health of Puerto Rico Group and outlook revision to negative reflect its weakening risk-adjusted capitalization measures, driven by significant operating losses since 2023. These operating losses were predominantly brought on by a material increase in the MA medical cost trend, its primary business segment, which has persisted through 2024. This has caused a substantial deterioration of the group's surplus, especially at Humana Health Plans of Puerto Rico, Inc., which reported a net loss of $63.9 million at year-end 2023 and $16.4 million through the third quarter of 2024.

Humana Health of Puerto Rico Group maintains the support of its parent company, Humana, as evidenced by material capital support within the past year in the form of two $30 million capital contributions to ensure an appropriate regulatory capital position. However, AM Best believes this was not enough to support the business expansion and deterioration in underwriting results experienced in 2023 and 2024. AM Best expects capital support to continue as needed to support these regulated entities as Humana Health of Puerto Rico Group navigates its current operating challenges. AM Best notes that these entities derive rating lift from the parent, and continued support is required for this to continue.

The parent, Humana, has a good level of financial flexibility due to its strong operating cash flows, subsidiary dividends and material available cash position. This is further enhanced by its commercial paper program, revolving credit agreement and access to a borrowing capacity through the Federal Home Loan Bank of Cincinnati at its subsidiary, Humana Insurance Company. Similar to many of the public health insurance carriers, unadjusted financial leverage was relatively high at 41.8% at year-end 2023. While this slightly exceeds the entity's target leverage ratio, interest coverage ratios remain sufficient to support Humana Inc.'s debt.

AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of "a" (Excellent) with stable outlooks for the following health and dental insurance subsidiaries of Humana Inc.:

• Humana Medical Plan, Inc.
• Humana Insurance Company
• Humana Health Plan, Inc.
• Humana Health Benefit Plan of Louisiana, Inc.
• Humana Health Plan of Texas, Inc.
• Humana Health Insurance Company of Florida, Inc.
• Humana Benefit Plan of Illinois, Inc.
• Humana Health Plan of Ohio, Inc.
• Humana Employers Health Plan of Georgia, Inc.
• Humana Insurance Company of New York
• Humana Wisconsin Health Organization Insurance Corporation
• Humana Insurance Company of Kentucky
• Cariten Health Plan Inc.
• CarePlus Health Plans, Inc.
• HumanaDental Insurance Company
• CompBenefits Insurance Company
• CompBenefits Company
• CompBenefits Dental, Inc.
• The Dental Concern, Inc.
• DentiCare, Inc.

The following Long-Term IRs have been affirmed with stable outlooks:

Humana Inc.-

— "bbb" (Good) on $600 million 4.5% senior unsecured notes, due 2025

— "bbb" (Good) on $500 million 5.7% senior unsecured notes, due 2026

— "bbb" (Good) on $750 million 1.35% senior unsecured notes, due 2027

— "bbb" (Good) on $600 million 3.95% senior unsecured notes, due 2027

— "bbb" (Good) on $500 million 5.75% senior unsecured notes, due 2028

— "bbb" (Good) on $500 million 5.75% senior unsecured notes, due 2028

— "bbb" (Good) on $500 million 3.125% senior unsecured notes, due 2029

— "bbb" (Good) on $750 million 3.7% senior unsecured notes, due 2029

— "bbb" (Good) on $500 million 4.875% senior unsecured notes, due 2030

— "bbb" (Good) on $1.25 billion 5.375% senior unsecured notes, due 2031

— "bbb" (Good) on $750 million 2.15% senior unsecured notes, due 2032

— "bbb" (Good) on $750 million 5.875% senior unsecured notes, due 2033

— "bbb" (Good) on $850 million 5.95% senior unsecured notes, due 2034

— "bbb" (Good) on $250 million 8.15% senior unsecured notes, due 2038

— "bbb" (Good) on $400 million 4.625% senior unsecured notes, due 2042

— "bbb" (Good) on $750 million 4.95% senior unsecured notes, due 2044

— "bbb" (Good) on $400 million 4.8% senior unsecured notes, due 2047

— "bbb" (Good) on $500 million 3.95% senior unsecured notes, due 2049

— "bbb" (Good) on $750 million 5.5% senior unsecured notes, due 2053

— "bbb" (Good) on $1 billion 5.75% senior unsecured notes, due 2054

The following indicative Long-Term IRs have been affirmed with stable outlooks for the following shelf registrations:

Humana Inc.—

— "bbb" (Good) on senior unsecured debt securities

— "bbb-" (Good) on subordinated debt securities

— "bb+" (Fair) on preferred stock

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.

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