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A.M. Best Comments on Humana's Proposed Acquisition of KMG America Corporation

Category:

Tuesday, September 11, 2007 11:53 am EDT

Dateline:

OLDWICK, N.J.

Public Company Information:

NYSE:
HUM

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has commented that the financial strength ratings, issuer credit ratings and debt ratings of Humana Inc. (Humana) (Louisville, KY) (NYSE: HUM) and its insurance and health maintenance organization (HMO) subsidiaries remain unchanged. The outlook for all ratings is negative.

This follows the announcement that Humana has entered into a definitive agreement to acquire KMG America Corporation (KMG) (Minnetonka, MN), a publicly-traded group and voluntary insurance benefits and third party administration company. Humana plans to acquire KMG for a total of $187.7 million (which includes approximately $50 million of debt). The acquisition is to be financed by a combination of cash and debt. The transaction is expected to close in first quarter 2008, pending regulatory approval.

The acquisition of KMG by Humana is expected to further broaden Humanas product portfolio by adding voluntary insurance benefit products, which is expected to complement Humanas existing major medical offerings in the employer group and individual market segments. This acquisition also fits into Humanas expansion of offerings in the individual market.

After the close of the transaction, Humana is projected to have a 27%-28% debt/capitalization ratio, which is adequate for the organizations current ratings. This acquisition is the second to be announced by Humana in 2007 after a period of inactivity due to the organizations focus on its expansion in the Medicare Part D and Medicare Advantage markets. Humanas pending acquisition of CompBenefits, Corp. (CompBenefits) was announced June 19, 2007 and is expected to close in third quarter 2007. Humana grew its Medicare business significantly in 2006 and government contracts now account for approximately two-thirds of Humanas total revenue. Current government funding of the Medicare programs is good, but proposed funding cuts could affect Humanas revenue stream. The CompBenefits and KMG acquisitions are expected to generate additional revenue in Humanas commercial business segment and to diversify cash flows for Humana. Humana is considered to be modestly capitalized and capital support of additional insurance entities, as well as, additional organic membership growth could pressure Humanas capitalization.

For Bests Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

Contact:

A.M. Best Co.
Analysts
Bridget Maehr, 908-439-2200, ext. 5321
bridget.maehr@ambest.com
or
Sally Rosen, 908-439-2200, ext. 5280
sally.rosen@ambest.com
or
Public Relations
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com