Assigns Rating to New Senior Notes
OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has affirmed the financial strength rating (FSR) of
A (Excellent) for the insurance subsidiaries of StanCorp Financial
Group, Inc.(StanCorp) [NYSE: SFG]: Standard Insurance Companyand
The Standard Life Insurance Company of New York. Collectively,
the group is referred to as Standard Insurance Group (The Standard)
(headquartered in Portland, OR). The outlook for the rating is stable.
Concurrently, A.M. Best has downgraded the issuer credit rating (ICR) to
“bbb” from “bbb+” as well as the existing debt ratings of StanCorp.
The outlook for these ratings has been revised to stable from negative.
A.M. Best has also assigned a debt rating of “bbb” to StanCorp’s recent
issuance of $250 million in 10-year senior unsecured notes. (See below
for a detailed listing of ratings.)
The downgrades reflect continued elevated claims incidence and greater
claims severity in various blocks of the group’s long-term disability
(LTD) business, which have resulted in higher group insurance benefit
ratios over the last several quarters. These trends have driven a
decline in The Standard’s operating results that is inconsistent with
historical performance and which A.M. Best believes could be prolonged.
While the overall group LTD market has more recently shown an increase
in claims incidence, The Standard, which has more significant exposure
to the public and education sectors, has experienced a moderately higher
level of claims volatility than its peers. The increase in claims
incidence appears to be correlated to elevated levels of unemployment
within The Standard’s current mix of business. While there was not a
single driver of the increase in severity, the company saw
concentrations in pockets of its manufacturing and services sectors.
Additionally, A.M. Best notes The Standard’s considerable exposure to
commercial mortgage loans at approximately 40% of total invested assets
and over three times statutory surplus. A significant portion of the
mortgage loan portfolio is represented by retail and office properties,
which have the potential to report increased delinquencies due to the
continued weak economy. However, the company has reported declining
60-day delinquency rates over the last four quarters and has been able
to issue high-quality mortgages at attractive spreads. A.M. Best
believes that the low interest rate environment will continue to
pressure LTD carriers, in general.
The ratings of The Standard recognize its sufficient risk-adjusted
capitalization, excellent operating profitability and established
presence within the employee benefits market. The group continues to
report generally favorable sales trends and good persistency tied to its
core group life, accidental death and dismemberment, short-term
disability and LTD products, and offers innovative and value-added
product options within its target market. Additionally, The Standard’s
asset management segment generates meaningful revenue and provides
additional diversification and cross-selling opportunities within the
employee benefits market. The operating companies provide significant
dividends to StanCorp to service its outstanding debt and to fund
stockholder dividends and opportunistic share repurchases. As the
proceeds from the new senior notes will be used to retire debt maturing
October 1, 2012, StanCorp’s debt-to-capital ratio will remain below 24%.
A.M. Best notes that the group’s interest coverage ratio is more than
adequate to support its current level of debt.
A.M. Best considers StanCorp well positioned at its current rating level
in the near to medium term. Key rating factors that may result in a
negative rating action for StanCorp include persistent unfavorable
operating trends within its core lines, deterioration in risk-adjusted
capitalization and/or a substantial increase in delinquency and
foreclosure activity within its mortgage loan portfolio.
The following debt ratings have been downgraded:
StanCorp Financial Group, Inc.—
-- to “bbb” from “bbb+” on $250 million 6.875% senior unsecured notes,
-- to “bb+” from “bbb-” on $300 million 6.90% junior subordinated
debentures, due 2067
The following debt rating has been assigned:
-- “bbb” on $250 million 5.00% senior unsecured notes, due 2022
The following indicative shelf ratings have been assigned:
-- “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.
Founded in 1899, 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 © 2012 by A.M. Best Company, Inc.ALL RIGHTS
A.M. BestKate Steffanelli, 908-439-2200, ext. 5063Senior
Morrow, 908-439-2200, ext. 5378Senior Manager, Public
Edelsberg, 908-439-2200, ext. 5182Vice Presidentandrew.email@example.comJim
Peavy, 908-439-2200, ext. 5644Assistant Vice President,
Source: A.M. Best Co.