Jun. 15, 2010 (Business Wire) -- A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit ratings (ICR) of “a+” of Standard Insurance Company (Standard Insurance) (Portland, OR) and The Standard Life Insurance Company of New York (White Plains, NY), together known as The Standard, both wholly owned insurance subsidiaries of StanCorp Financial Group, Inc. (StanCorp) (Portland, OR) [NYSE: SFG]. 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 list of the companies and ratings.)
The rating affirmations reflect The Standard’s historically favorable operating earnings, sound risk-adjusted capitalization reported at its operating subsidiaries and its established presence in the employee benefits market.
StanCorp continues to demonstrate strong GAAP and statutory operating trends despite the challenging economic environment, driven primarily by earnings in its employee benefits business. The group maintains a disciplined underwriting strategy, which historically has emphasized profitability over top-line growth. The Standard is appropriately capitalized and continues to provide dividend support to service outstanding debt and pay stockholder dividends. A.M. Best anticipates StanCorp will continue to report unadjusted financial leverage under 25%, and its coverage ratio remains more than adequate to support its current level of debt.
Most recently, The Standard’s employee benefits operations reported noticeably higher sales related to its revised product structure and expanded capabilities. The company is responsive to its customers and their needs and plans to continue to create value-added enhancements. However, while revenue growth has recently matched targeted levels, the company expects that the sales environment in its group life and long-term disability product lines will continue to face challenges related to the competitive environment, as well as slowed wage growth and the high unemployment rate. Like most disability income writers, StanCorp has not seen an increase in claim incidence tied to the troubled economy. The group’s asset management segment has reported some improvement more recently tied to enhanced operating efficiencies and market improvement.
A.M. Best remains concerned with The Standard’s significant exposure to commercial mortgage loans, given continued real estate market conditions. Relative to its peers, The Standard holds one of the largest concentrations in this asset class at roughly 40% of its invested assets. A.M. Best also notes that the largest allocations within the portfolio are in retail and office properties. Despite this exposure, The Standard has reported favorable results with modest realized losses to date and lower delinquencies relative to the insurance industry historically. Performance has been driven by the portfolio’s small average loan size, lower loan to value, required personal recourse on most loans and the company’s seasoned underwriting staff. Additionally, The Standard holds an adequate level of loan reserves to support its currently reported problem loans.
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
For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
