A.M. Best Revises Issuer Credit Rating Outlook to Negative for StanCorp Financial Group, Inc. and Its Insurance Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to negative from stable for the issuer credit rating (ICR) of “bbb+” and the debt ratings of StanCorp Financial Group, Inc.(StanCorp) (NYSE: SFG). A.M. Best also has affirmed the ICR and debt ratings of StanCorp.

Concurrently, A.M. Best has revised the outlook to negative from stable for the ICR of “a+” of the insurance subsidiaries of StanCorp, Standard Insurance Companyand The Standard Life Insurance Company of New York. Additionally, A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) with a stable outlook for these companies. Collectively, the group is referred to as Standard Insurance Group (The Standard), headquartered in Portland, OR. (See below for a detailed listing of the debt ratings.)

The negative outlook on the ICR of The Standard reflects the elevated claims incidence that has been reported recently, which is tied to various blocks of the group’s long-term disability (LTD) business. 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.

A. M. Best remains concerned with The Standard’s significant commercial mortgage loan portfolio, which is currently approximately 40% of its total invested assets. More recently, StanCorp has reported modest realized losses tied to the sale of a number of properties from a single borrower, which it foreclosed on during 2010. The group intends to continue to sell off the remaining properties during the next 12 months. Additionally, a significant portion of the mortgage loan portfolio is represented by retail and office properties, which have a potential to report increased delinquencies due to the continued weak economy. A.M. Best notes that the lower interest rate environment continues to pressure LTD carriers, in general.

The rating affirmations of The Standard recognize its sufficient risk-adjusted capitalization, continued operating profitability and established presence within the employee benefits market. The group continues to report generally favorable sales trends and favorable persistency tied to its core group life, accidental death and dismemberment, sexual transmitted diseases and LTD products, and offers innovative and value-added product options within its target market. The Standard’s asset management segment continues to generate meaningful revenue and provides additional diversification and cross-selling opportunities within the employee benefits market. The Standard continues to provide significant dividends to StanCorp to support its outstanding debt as well as provide for stockholder dividends and share repurchases. StanCorp’s unadjusted financial leverage remains below 24%, and its interest coverage ratio remains more than adequate to support its current level of debt.

The following debt ratings have been affirmed:

StanCorp Financial Group, Inc.—
-- “bbb+” on $250 million 6.875% senior unsecured notes, due 2012
-- “bbb-” on $300 million 6.900% junior subordinated debentures, due 2067

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding BCAR for Life and Health Insurers”; “Rating Members of Insurance Groups”; “A.M. Best’s Ratings & the Treatment of Debt”; “A.M. Best’s Perspective on Operating Leverage”; “Equity Credit for Hybrid Securities”; and “Risk Management and the Rating Process for Insurance Companies.” Methodologies 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 © 2011 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Kathryn Steffanelli,908-439-2200, ext. 5063
Senior Financial Analyst
[email protected]
or
Carl Austin, 908-439-2200, ext. 5500
Assistant Vice President
[email protected]
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
[email protected]
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.