October 1, 2013 / 4:40 PM / in 4 years

Fitch Affirms StanCorp Financial Group's Ratings; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, October 01 (Fitch) Fitch Ratings has affirmed the Issuer Default Rating (IDR) of StanCorp Financial Group, Inc. (SFG) at 'BBB+' and the Insurer Financial Strength (IFS) ratings of its subsidiaries, Standard Insurance Company and Standard Life Insurance Company of New York at 'A'. The Rating Outlook is Stable. A full list of ratings follows at the end of this release. KEY RATING DRIVERS Today's affirmation reflects continued challenges in terms of SFG's overall operating profitability, although Fitch acknowledges continued performance improvement in the first half of 2013. The affirmation also reflects the company's good competitive position in the group life and disability market, acceptable capitalization and essentially stable financial leverage. SFG's historically favorable earnings, driven by its group long-term disability (LTD) and group life insurance business, have weakened in recent years due to a competitive market environment and poor economic conditions. SFG reported pretax operating income of $192 million in 2012, down modestly from $198 million in 2011. In the first half of 2013, the company reported pretax operating income of $143 million, up significantly from $75 million for the same period in 2012, with the improvement driven by lower operating expenses and a lower group insurance benefit ratio. The benefit ratio for the company's group insurance business, its primary earnings driver, has increased in each of the past five years from 73.6% in 2008 to 83.9% in 2012, but improved significantly to 82.1% in the first half of 2013. SFG's statutory total adjusted capital increased 6% in 2012 to $1.38 billion, and the NAIC risk-based capital (RBC) ratio of its insurance subsidiaries improved to 364% from 327% in 2011. Fitch estimates the 2011 ratio benefited approximately 15 points from a reinsurance agreement executed at the end of the year and another 25 points by an expansion of that contract in 2012. SFG's ratings are supported by the company's adequate balance sheet fundamentals and solid competitive position in the U.S. group insurance market. The company's balance sheet fundamentals reflect strong asset quality, good risk-adjusted capitalization, and reasonable financial leverage. SFG's total financing and commitments ratio was approximately 0.3x and financial leverage was 23% at June 30, 2013. Fitch believes that SFG's insurance subsidiaries maintain a high-quality bond portfolio. Below investment grade (BIG) bonds accounted for only 6% of the fixed maturity portfolio or a low 27% of total adjusted capital (TAC) at Dec. 31, 2012. Market values of SFG's fixed maturity investments continue to improve with the investment market, bringing gross unrealized losses down to just $4 million and gross unrealized gains up to $588 million at year-end 2012. The speed and amount of recovery reflects the conservative nature of SFG's bond portfolio and the relatively low amount of financial sector securities. While SFG's commercial mortgage portfolio allocation of approximately 40% of total invested assets at Dec. 31, 2012 is much higher than the industry average, Fitch believes it is complementary to the company's stable liability structure, despite its lower liquidity relative to publicly traded bonds. Commercial mortgage loan loss experience, although heightened during the financial crisis, has improved significantly in recent years and remains in line with Fitch's overall loss expectations. RATING SENSITIVITIES The key rating triggers that could result in an upgrade include: --A substantial increase in run-rate risk-adjusted capital above 350%, with no significant deterioration in capital quality; --A long-term improving trend in the group benefit ratio substantially below its historical baseline of about 76%. The key rating triggers that could result in a downgrade include: --A prolonged deterioration in the company's group benefit ratio above the 2011 level of 83%; --An increase in financial leverage above 30%; --GAAP-based interest coverage below 6x for an extended period of time; --A decrease in RBC below 300%, or a significant decrease in the quality of capital supporting the company's RBC. --A significant deterioration in the performance of the company's commercial mortgage loan portfolio. Fitch affirms the following ratings with a Stable Outlook: StanCorp Financial Group --IDR at 'BBB+'; --$250 million 5.00% senior notes due Aug. 15, 2022 at 'BBB'; --60-year $300 million junior subordinated debt due June 1, 2067 at 'BB+'. Standard Insurance Company --IFS at 'A'. Standard Life Insurance Co. of New York --IFS rating at 'A'. Contact: Primary Analyst Bradley S. Ellis, CFA Director +1-312-368-2089 Fitch Ratings, Inc. 70 W. Madison Street 13th Floor Chicago, IL 60602 Secondary Analyst Bruce E. Cox Director +1-312-606-2316 Committee Chairperson Keith M. Buckley, CFA Managing Director +1-312-368-3211 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (August 19, 2013); --'Life Insurance (U.S.) Sector Credit Factors' (Oct. 9, 2012). Applicable Criteria and Related Research: Insurance Rating Methodology here Title Insurance Sector Credit Factors here Life Insurance (U.S.) Sector Credit Factors here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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