Humana Inc. appears to be on solid financial ground following its announced acquisition by Aetna Inc. The deal will include cash and Aetna stock valued at $37 billion.
Fitch Ratings of New York City has placed Humana's rating on Rating Watch Positive. The rating service also gives Humana's unsecured notes a BBB grade, and its insurance financial strength of A.
Fitch specifically mentioned benefits derived from Aetna's more-diverse market positon, and greater scale and size. After the transaction is completed, presumably in the second half of 2016, Fitch expects to upgrade Humana's senior notes to BBB+ and its insurance financial strength to A+.
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Humana's strong position in the Medicare Advantage market and Aetna's positions in the employer group and individual health insurance markets provide the combined organization with a stronger market position and size/scale characteristics than either company maintained on a standalone basis. Fitch considers Humana to be maintaining the second-strongest Medicare Advantage market position in the United States, after UnitedHealth Group Inc.
The effect of Aetna's post-acquisition financial leverage, which Fitch expects to increase materially above current levels to fund a portion of the cash consideration paid to Humana shareholders, and potential operational and earnings disruptions that could arise as the companies integrate operationally partially offset the benefits.
Medicare Advantage enrollment generally supports lower ratings than employer group and individual health insurance enrollment because of the U.S. government's large role in the market, which Fitch believes suppresses margins and capital formation.
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Alan Goforth
Alan Goforth is a freelance writer in suburban Kansas City. In addition to freelancing for several publications, he has written a dozen books about sports and other topics.
