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Fitch Affirms Ratings of HUM

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Fitch Ratings agency affirmed the ratings assigned to Humana Inc.’s (HUM - Free Report) debt instruments and its various insurance subsidiaries. The senior notes were assigned a “BBB” rating while various Humana insurance company subsidiaries were given 'A' Insurer Financial Strength (IFS) ratings

Fitch raised the ratings on the senior notes to “BBB” from “BBB–” and the IFS to “A” from “A–” in Sep 2012. The favorable operating results, strong financial position and improvement in Humana’s shareholders’ equity influenced Fitch to upgrade the ratings in Sept.
At present, the ratings agency is impressed with Humana’s financial strength, huge Medicare Advantage (MA) market share, and strong liquidity and interest coverage. Thus Fitch affirmed the previously upgraded ratings on the company. The ratings affirmation also came on the back of the financial leverage and capitalization metrics that were in line with Fitch’s guidelines for Humana’s present ratings.

Fitch pointed out that the Affordable Care Act’s (ACA) imposition of 85% minimum benefit ratio and a non-deductible yearly fee on health insurers that will come in effect from Jan 2014 might pressurize margins in Humana’s MA product. However, despite such adversities, the ratings agency remained optimistic about the growth prospects of Humana. They expect the company to consistently deliver solid earnings on the back of a large and efficient operating platform.

The ratings agency believes that the acquisitions undertaken by Humana will help the company to combat margin pressure. Moreover, the MA plan that caters to the aged population is expected to boost Humana’s earnings owing to the burgeoning aging U.S. population (with about 14% of the population being above 65 years of age as of 2012, up 100 basis points year over year).

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. We believe that Human’s present score with the credit rating agency will help it write more business going forward.

Humana currently carries a Zacks Rank #3 (Hold). Among other health services companies, Aetna Inc. (AET - Free Report) , Centene Corp. (CNC - Free Report) and Molina Healthcare Inc. (MOH - Free Report) carry a Zacks Rank #2 (Buy) and are worth considering.

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