Fitch Affirms StanCorp Financial Group’s Ratings; Outlook Stable
The rating affirmation reflects SFG's good, albeit somewhat weakened, earnings profile, adequate balance sheet fundamentals, and good competitive position in the U.S. group insurance market. The company's historically favorable earnings driven by the company's group long-term disability (LTD) and group life insurance business have weakened over the past year due to competitive market conditions and less favorable reserve development. Fitch notes that 2010 group LTD benefit ratios are at the low end of Fitch's expectations and high end of the historical range. SFG is taking steps to reduce operating expenses to offset the deterioration in underwriting results. Fitch expects SFG's 2011 top-line growth will continue to be challenged due to industry competition and SFG's own underwriting discipline.
Fitch believes that SFG's insurance subsidiaries maintain a high-quality bond portfolio that is free of subprime residential mortgage backed and Alt-A security exposure. Below investment grade (BIG) bonds accounted for only 5.2% of the fixed maturity portfolio or a very low 25.5% of total adjusted capital (TAC) at
While SFG's commercial mortgage portfolio (40% of total invested assets at
Although both SFG's statutory total adjusted capital and NAIC risk based capital ratio (
SFG's total financing and commitments ratio was below 0.4 times (x) and the equity-credit adjusted financial leverage was 14.3% at
The key rating drivers that could result in an upgrade include:
--A substantial increase in statutory TAC and risk adjusted capital.
--A long-term improving trend in the group benefit ratio substantially below its historic baseline of about 74%.
The key rating drivers that could result in a downgrade include:
--A prolonged increase in the group benefit ratio above the historic upper range of about 78%.
--A more than modest increase in financial leverage.
--A decrease in RBC below 320%.
--A large unexpected increase in investment losses, particularly in the commercial mortgage loan portfolio.
Fitch affirms the following ratings with a Stable Outlook:
--Issuer Default Rating at 'A-';
--Senior debt rating at 'BBB+';
--10-year 6.875%
--Junior subordinated debt rating at 'BBB';
--60-year
--Issuer Financial Strength (IFS) rating at 'A+'.
--IFS rating at 'A+'.
Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure.
--'Insurance Rating Methodology' (
--'Life Insurance Ratings Methodology' (
--'Insurance Industry: Global Notching Methodology and Recovery Analysis' (
--'Fitch's Approach to Rating Insurance Groups' (
Fitch's Approach to Rating Insurance Groups
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765
Insurance Industry: Global Notching Methodology and Recovery Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493114
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766
Life Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506285
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Fitch Ratings
Media Relations,
[email protected]
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Primary Analyst:
Director
or
Secondary Analyst:
Director
or
Committee Chairperson:
Group Managing Director
Source: Fitch Ratings
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