A.M. Best Affirms Ratings of StanCorp Financial Group, Inc. and Its Subsidiaries

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A.M. Best Affirms Ratings of StanCorp Financial Group, Inc. and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and the issuer credit ratings (ICR) of "a" of the life/health insurance subsidiaries of StanCorp Financial Group, Inc. (StanCorp) [NYSE: SFG], which consists of Standard Insurance Company and The Standard Life Insurance Company of New York. Collectively, the group is referred to as Standard Insurance Group (The Standard) (headquartered in Portland, OR).

Concurrently, A.M. Best has affirmed the ICR of "bbb" and the existing debt ratings of StanCorp. The outlook for all ratings is stable. (See below for a detailed listing of the debt ratings.)

The ratings reflect The Standard's adequate risk-adjusted capitalization, positive operating results despite some recent claims volatility within its core group disability line of business and its established presence in the employee benefits market. Although The Standard continues to be impacted by sluggish employment growth exacerbated by budget cuts within state and local public and education sectors, the current low-interest rate environment and uncertainty surrounding the impact of the Patient Protection and Affordable Care Act, management has taken a number of actions to improve product profitability and strengthen its capital position. These actions consisted of premium rate increases, additional use of reinsurance and suspending its stock repurchase program in the second half of 2012. In addition, claims incidence levels have begun to subside somewhat in 2013, resulting in improved operating results. While A.M. Best believes that The Standard will remain challenged to meaningfully grow its group insurance businesses over the near term, the company's Asset Management segment has experienced an increase in assets under management and has become an increasing source of earnings for the organization. A.M. Best also believes the Asset Management segment provides good diversification benefits.

StanCorp maintains sound financial flexibility due to only a moderate amount of financial leverage and access to public markets. However, A.M. Best believes the company's liquidity position is negatively impacted by the substantial holdings of commercial mortgage loans representing over 43% of the general account investment portfolio and over 400% of capital and surplus. A.M. Best notes that the commercial mortgage loan portfolio continues to be well managed with a strong track record of only minimal delinquencies over the past 20 years. In addition, StanCorp's fixed income portfolio is relatively conservative but does maintain a relatively high allocation to the financial sector. The company's favorable business profile and strong asset/liability matching program also are mitigating factors to the somewhat higher than average investment risk of the portfolio.

A.M. Best believes the ratings of StanCorp are well positioned over the near to medium term. Negative rating actions could result from a deterioration in operating results due to an increase in the benefit ratios, further spread compression within its interest-sensitive liabilities or a material increase in delinquencies within the commercial mortgage loan portfolio that could lead to a decline in risk-adjusted capital levels.

The following debt ratings have been affirmed:

StanCorp Financial Group, Inc.

-- "bbb" on $250 million 5.00% senior unsecured notes, due 2022

-- "bb+" on $300 million 6.90% junior subordinated debentures, due 2067

The following shelf ratings have been affirmed:

StanCorp Financial Group, Inc.

-- "bbb" on senior debt

-- "bbb-" on subordinated debt

-- "bb+" on preferred stock

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Company
Michael Adams, 908-439-2200, ext. 5133
Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Ken Johnson, CFA, 908-439-2200, ext. 5056
Assistant Vice President
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations

KEYWORDS:   United States  Europe  North America  New Jersey


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