Fitch Ratings has assigned a 'BBB' rating to StanCorp Financial Group,
Inc.'s (StanCorp) proposed issuance of $250 million of 10-year senior
Fitch expects proceeds from the debt issuance to be used to fund the
repayment of $250 million in senior notes maturing Oct. 1, 2012.
Fitch considers StanCorp's new debt offering to be a refinancing. As
such, its fundamental effect on the company's financial leverage will be
insignificant. Financial leverage was estimated at 24% at June 30, 2012.
Fitch's ratings on StanCorp reflect a moderate decline in the company's
overall operating profitability in the first half of 2012 relative to
the same period in 2011, which is in line with Fitch's expectations, and
essentially stable financial leverage.
StanCorp's historically favorable earnings, driven by its group
long-term disability (LTD) and group life insurance business, have
weakened in recent years due to intense competitive conditions and
unfavorable claims trends driven by poor economic conditions. The
company reported pretax operating income of $74.5 million in the first
half of 2012, down from $89.6 million in the first half of 2011.
Weakness in the company's earnings continue to be driven by an elevated
benefits ratio in the company's core group insurance segment, partially
offset by a lower benefit ratio in its individual disability business.
The benefit ratio for the company's group insurance segment has
increased in each of the past four years from 73.6% in 2008 to 83.1% in
2011, and increased further to 86% in the first half of 2012.
StanCorp's statutory total adjusted capital declined modestly in 2011 to
$1.3 billion, and the NAIC risk based capital ratio of its insurance
subsidiaries also declined modestly in 2011 to 327% from 331% in 2010.
Fitch estimates the 2011 ratio benefited approximately 15 points from a
reinsurance agreement executed at the end of the year.
StanCorp'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
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 historic 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%.
--GAAP-based interest coverage below 6x for an extended period of time.
--An increase in financial leverage above 30%.
--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 rates the following:
StanCorp Financial Group
--$250 million senior unsecured notes due 2022 'BBB'.
Additional information is available at 'www.fitchratings.com'.
The ratings above were unsolicited and have been provided by Fitch as a
service to investors.
Applicable Criteria and Related Research:
--'StanCorp Financial Group Inc., and Insurance Subsidiaries' (June 8,
--'Insurance Rating Methodology' (Sept. 22, 2011).
StanCorp Financial Group (And Insurance Subsidiaries)
Insurance Rating Methodology
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Fitch RatingsPrimary AnalystBradley S. Ellis, CFADirector+1-312-368-2089Fitch,
Inc.70 W. Madison Street13th FloorChicago, IL 60602orSecondary
AnalystBruce E. CoxDirector+1-312-606-2316orCommittee
ChairpersonKeith M. Buckley, CFAManaging Director+1-312-368-3211orMedia
Relations:Brian Bertsch, +1-212-908-0549 (New York)firstname.lastname@example.org
Source: Fitch Ratings