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• 1Q10 results of $1.52 include $0.37 per share in higher-than-expected favorable prior-period reserve development
• 2010 EPS guidance raised to $5.55 to $5.65
• Medicare Advantage membership now approximates 1.75 million
• 1Q10 cash flows from operations of $755 million

LOUISVILLE, Ky., Apr 26, 2010 (BUSINESS WIRE) --Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended March 31, 2010 (1Q10) of $1.52, ahead of management's guidance of $1.10 to $1.20. EPS for 1Q10 included earnings of approximately $0.37 per share from higher-than-anticipated favorable prior-period development of medical claims reserves as well as $0.04 per share in higher-than-projected income tax expense due to recently enacted health reform legislation. Excluding these items, 1Q10 EPS was at the top end of the company's previous guidance range. The 1Q10 results compared to EPS of $1.22 for the quarter ended March 31, 2009 (1Q09).

The company also announced that it had raised its EPS projection for the year ending December 31, 2010 (FY10) to a range of $5.55 to $5.65 versus its previous EPS estimate of $5.15 to $5.35 primarily to reflect the impact of the favorable prior-period reserve development impacting 1Q10 earnings noted above, partially offset by the higher effective tax rate now anticipated.

"Our first quarter results demonstrate solid execution in both of our business segments," said Michael B. McCallister, Humana's president and chief executive officer. "We believe strategic and tactical initiatives over the past several years, together with our continued focus on the consumer, position us well for the remainder of 2010 and for the challenges of the post-health-reform environment."

Consolidated Highlights

Revenues - 1Q10 consolidated revenues rose 9.5 percent to $8.44 billion from $7.71 billion in 1Q09, with total premium and administrative services fees up 9.2 percent compared to the prior year's quarter. The year-over-year increase in premiums and administrative services fees primarily reflects a 19 percent increase in average membership for the company's Medicare Advantage plans and continued pricing discipline across all of the company's lines of business, partially offset by lower average stand-alone Prescription Drug Plan (PDP) and commercial fully-insured medical membership.

Benefit expenses - The 1Q10 consolidated benefit ratio (benefit expenses as a percent of premium revenues) of 83.4 percent compares to 83.9 percent in 1Q09. This 50 basis point decrease was driven by declines in the benefit ratio in both of the company's business segments.

Selling, general, & administrative (SG&A) expenses - The 1Q10 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) of 13.5 percent decreased 40 basis points compared to the 1Q09 ratio of 13.9 percent due primarily to efficiencies associated with higher average Medicare Advantage membership together with the company's continued focus on administrative cost reductions.

Government Segment Results

Pretax results:

• Government segment pretax income increased to $279.2 million in 1Q10 from $166.1 million in 1Q09. The 1Q10 results included the benefit of $85.9 million in favorable prior-period reserve development and also reflected higher average Medicare Advantage membership year over year as well as improved operating metrics.

Enrollment:

• Medicare Advantage membership grew to 1,742,300 at March 31, 2010, an increase of 273,400 members, or 19 percent from March 31, 2009, and up 233,800, or 16 percent versus December 31, 2009.
• April 2010 membership in the company's Medicare Advantage plans approximated 1,750,900, with 72 percent of fully-insured members in network-based products, up from 63 percent at December 31, 2009.
• Membership in the company's stand-alone PDPs totaled 1,917,100 at March 31, 2010 compared to 2,078,900 at March 31, 2009 and 1,927,900 at December 31, 2009. The decline during 1Q10 primarily resulted from the company's continued competitive positioning as it realigned stand-alone PDP premium and benefit designs to correspond with its pharmacy claims experience.
• Military services membership at March 31, 2010 of 3,031,400 was up approximately 1 percent from 2,990,600 at March 31, 2009 and essentially unchanged from 3,034,400 at December 31, 2009.

Premiums and administrative services fees:

• Medicare Advantage premiums and administrative service fees of $4.82 billion in 1Q10 increased 19 percent compared to $4.06 billion in 1Q09, primarily due to a 19 percent increase in average Medicare Advantage membership.
• Medicare stand-alone PDP premiums of $579.0 million in 1Q10 decreased 3 percent compared to $595.7 million in 1Q09, reflecting a 13 percent decline in average membership year over year, partially offset by an 11 percent increase in premiums per member per month.
• Military services premiums and administrative services fees during 1Q10 decreased $22.1 million to $867.3 million compared to $889.4 million in 1Q09.

Benefit Expenses:

• The Government Segment benefit ratio decreased 80 basis points to 86.0 percent in 1Q10 compared to 86.8 percent in the prior year's quarter, primarily driven by a 130 basis point benefit from higher-than-anticipated favorable prior-period reserve development. The increase in the benefit ratio excluding this favorable reserve development is primarily due to growth in the company's Medicare Advantage group business which generally carries a higher benefit ratio than the company's individual Medicare Advantage business.

SG&A Expenses:

• The Government Segment's SG&A expense ratio decreased 40 basis points to 10.1 percent in 1Q10 compared to 10.5 percent in the prior year's quarter driven primarily by increased efficiencies from higher average medical membership in the company's Medicare Advantage plans and the company's continued focus on administrative cost reductions.

Commercial Segment Results

Pretax results:

• Commercial Segment pretax earnings increased to $137.8 million in 1Q10 compared to $127.7 million in 1Q09 primarily driven by the benefit of $14.1 million in higher-than-anticipated favorable prior-period reserve development during 1Q10, partially offset by the effect of an 8 percent decline in average fully-insured commercial medical membership from the prior year's quarter.

Enrollment:

• Commercial Segment medical membership at March 31, 2010 of 3,331,500 was down 140,000 from March 31, 2009 and down 79,300 from December 31, 2009. The decline during 1Q10 primarily reflected the impact of the economy across various of the company's fully-insured group medical lines of business.
• The company's individual product line has continued to grow steadily, with membership of 370,500, up 10 percent at March 31, 2010 compared to March 31, 2009.
• Membership in Commercial Segment specialty products^(a) of 7,237,900 at March 31, 2010 increased 11 percent from 6,535,100 at March 31, 2009 and up 2 percent from 7,109,900 at December 31, 2009.

Premiums and administrative services fees:

• Premiums and administrative services fees for the Commercial Segment decreased 2 percent to $1.85 billion in 1Q10 compared to $1.88 billion in the prior year's quarter, reflecting lower average medical membership partially offset by continued pricing discipline.
• Commercial Segment medical premiums for fully-insured group accounts increased approximately 8 percent on a per-member basis during 1Q10 compared to 1Q09.

Benefit Expenses:

• The Commercial Segment benefit ratio for 1Q10 of 74.1 percent was 60 basis points lower than the 1Q09 benefit ratio of 74.7 percent, primarily due to an 80 basis point benefit from higher-than-expected favorable prior-period reserve development during 1Q10.

SG&A Expenses:

• The Commercial Segment SG&A expense ratio of 24.8 percent for 1Q10 compares to 24.1 percent in 1Q09, primarily driven by increases in the company's specialty, ancillary and individual medical businesses that carry a higher administrative expense load as a percent of revenues, partially offset by the company's continued focus on administrative cost reductions.

Balance Sheet

• At March 31, 2010, the company had cash, cash equivalents, and investment securities of $9.91 billion, up 9 percent from $9.11 billion at December 31, 2009 and up 33 percent from $7.43 billion at March 31, 2009.
• Parent company cash and investments of $729.8 million at March 31, 2010 increased $64.2 million from $665.6 million at December 31, 2009.
• Debt-to-total capitalization at March 31, 2010 was 21.6 percent, down 90 basis points from December 31, 2009 due primarily to the increase in capitalization associated with net income during 1Q10.

Cash Flows from Operations

Cash flows provided by operations for 1Q10 of $754.7 million compared to cash flows provided by operations of $45.5 million in 1Q09 with the year-over-year increase primarily due to higher medical claims reserve balances associated with higher average Medicare Advantage membership and increased claims inventories on hand together with other working capital changes during 1Q10 versus the prior year's quarter.

Footnote

Conference Call & Virtual Slide Presentation

Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.m. eastern time today to discuss its financial results for the quarter and the company's expectations for future earnings. A live virtual presentation (audio with slides) may be accessed via Humana's Investor Relations page at http://www.humana.com. The company suggests web participants sign on approximately 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation.

All parties interested in the audio-only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in approximately ten minutes in advance of the call. For those unable to participate in the live event, the virtual presentation archive may be accessed via the Historical Webcasts & Presentations section of the Investor Relations page at http://www.humana.com.

Cautionary Statement

This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in investor presentations, press releases, Securities and Exchange Commission (SEC) filings, and in oral statements made by or with the approval of one of Humana's executive officers, the words or phrases like "expects," "anticipates," "intends," "likely will result," "estimates," "projects" or variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions, including, among other things, information set forth in the "Risk Factors" section of the company's SEC filings, a summary of which includes but is not limited to the following:

• Recently enacted health care reform, including The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010, could have a material adverse effect on Humana's results of operations, including lowering the company's Medicare payment rates and increasing the company's expenses associated with a non-deductible federal premium tax; financial position, including goodwill recoverability; and cash flows. In addition, if the new non-deductible federal premium tax is imposed as enacted, and if Humana is unable to adjust its business model to address this new tax, there can be no assurance that the non-deductible federal premium tax would not have a material adverse effect on the company's results of operations, financial position, and cash flows.
• If Humana does not design and price its products properly and competitively, if the premiums Humana charges are insufficient to cover the cost of health care services delivered to its members, or if its estimates of benefit expenses are inadequate, Humana's profitability could be materially adversely affected. Humana estimates the costs of its benefit expense payments, and designs and prices its products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. These estimates, however, involve extensive judgment, and have considerable inherent variability that is extremely sensitive to payment patterns and medical cost trends.
• If Humana fails to effectively implement its operational and strategic initiatives, including its Medicare initiatives, the company's business may be materially adversely affected, which is of particular importance given the concentration of the company's revenues in the Medicare business.
• If Humana fails to properly maintain the integrity of its data, to strategically implement new information systems, or to protect Humana's proprietary rights to its systems, the company's business may be materially adversely affected.
• Humana is involved in various legal actions, which, if resolved unfavorably to Humana, could result in substantial monetary damages. Increased litigation and negative publicity could increase the company's cost of doing business.
• Humana's business activities are subject to substantial government regulation. New laws or regulations, or changes in existing laws or regulations or their manner of application, could increase the company's cost of doing business and may adversely affect the company's business, profitability and financial condition. In addition, as a government contractor, Humana is exposed to additional risks that may adversely affect the company's business or the company's willingness to participate in government health care programs.
• Any failure to manage administrative costs could hamper Humana's profitability.
• Any failure by Humana to manage acquisitions and other significant transactions successfully may have a material adverse effect on its results of operations, financial position, and cash flows.
• If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company's business may be adversely affected.
• Humana's mail order pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses.
• Changes in the prescription drug industry pricing benchmarks may adversely affect Humana's financial performance.
• If Humana does not continue to earn and retain purchase discounts and volume rebates from pharmaceutical manufacturers at current levels, Humana's gross margins may decline.
• Humana's ability to obtain funds from its subsidiaries is restricted by state insurance regulations.
• Downgrades in Humana's debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition.
• Changes in economic conditions could adversely affect Humana's business and results of operations.
• The securities and credit markets may experience volatility and disruption, which may adversely affect Humana's business.
• Given the current economic climate, Humana's stock and the stock of other companies in the insurance industry may be increasingly subject to stock price and trading volume volatility.

In making forward-looking statements, Humana is not undertaking to address or update them in future filings or communications regarding its business or results. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed herein may or may not occur. There also may be other risks that the company is unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward-looking statements.

Humana advises investors to read the following documents as filed by the company with the SEC for further discussion both of the risks it faces and its historical performance:

• Form 10-K for the year ended December 31, 2009;
• Form 8-Ks filed during 2010.

About Humana

Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health and supplemental benefits companies, with approximately 10.4 million medical members and 7.2 million specialty members. Humana is a full-service benefits solutions company, offering a wide array of health, pharmacy and supplemental benefit plans for employer groups, government programs and individuals.

Over its 49-year history, Humana has consistently seized opportunities to meet changing customer needs. Today, the company is a leader in consumer engagement, providing guidance that leads to lower costs and a better health plan experience throughout its diversified customer portfolio.

More information regarding Humana is available to investors via the Investor Relations page of the company's web site at http://www.humana.com, including copies of:

• Annual reports to stockholders;
• Securities and Exchange Commission filings;
• Most recent investor conference presentations;
• Quarterly earnings news releases;
• Replays of most recent earnings release conference calls;
• Calendar of events (including upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors);
• Corporate Governance information.

SOURCE: Humana Inc.

Humana Inc.
Regina Nethery, 502-580-3644
Investor Relations
Rnethery@humana.com
or
Tom Noland, 502-580-3674
Corporate Communications
Tnoland@humana.com