AM Best Assigns Issue Credit Rating to Humana Inc.’s New Junior Subordinated Notes
AM Best Assigns Issue Credit Rating to Humana Inc.’s New Junior Subordinated Notes
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junior subordinated notesfinancial
Junior subordinated notes are a type of bond: a loan investors make to a company that ranks low in the repayment order if the company runs into trouble. Because they are paid after other creditors, they usually offer higher interest to compensate for greater risk; think of them as being near the back of the line at a crowded payout window. Investors care because these notes affect potential returns and downside exposure, and they influence a company’s overall borrowing risk and credit profile.
financial leveragefinancial
Financial leverage is the use of borrowed money to increase the potential return on an investment. It’s similar to using a lever to lift a heavy object—by borrowing funds, an investor can amplify gains if the investment performs well, but it also increases the risk of larger losses if it performs poorly. This concept matters to investors because it can boost profits, but it also raises the level of risk involved.
EBITfinancial
EBIT (Earnings Before Interest and Taxes) measures a company's profit from normal business operations after paying direct running costs but before subtracting interest on debt and income taxes. Think of it as how well a store does at selling its goods once everyday expenses are covered, ignoring loan payments and tax bills. Investors use EBIT to compare operational performance across companies without the distortion of different financing or tax situations.
Medicare Advantagemedical
Medicare Advantage is a type of health insurance plan offered by private companies that covers services traditionally provided by government-run Medicare. Think of it as a bundled package that combines hospital, doctor, and other medical care into one plan, often with added benefits. For investors, it matters because the popularity and profitability of these plans can influence healthcare companies and the broader health insurance industry.
commercial paper programfinancial
A commercial paper program is a formal way a company issues very short-term IOUs to raise quick cash, typically for days to months, without using a bank loan. Investors care because it shows how the company manages short-term funding and how trustworthy it appears—like watching whether someone keeps using and repaying a credit card; frequent use or higher costs can signal cash strain, while smooth issuance suggests healthy liquidity.
Inflation Reduction Actregulatory
The inflation reduction act is a law designed to lower the overall increase in prices for goods and services in an economy, helping to keep the cost of living more stable. For investors, it matters because reducing inflation can lead to a healthier economy, potentially making investments safer and more predictable by preventing prices from rising too quickly.
OLDWICK, N.J.--(BUSINESS WIRE)--
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.
