A.M. Best Co. lowered the issuer credit rating ("ICR") to “bbb” from “bbb+” of StanCorp Financial Group Inc. (SFG), besides downgrading the debt ratings. The outlook, however, was upgraded to stable from negative.
Concurrently, the rating agency reiterated the financial strength rating ("FSR") of A (Excellent) of Standard Insurance Company and The Standard Life Insurance Company of New York, the insurance subsidiaries of StanCorp Financial. At the same time, A.M. Best lowered ICR to "a" from "a+." The outlook for ICRs was upgraded to stable from negative, though the outlook for the FSR remains stable.
The downward revision came on the back of higher group insurance benefit ratios in the past several quarters stemming from continued increase in claims incidence and higher claims severity in various blocks of the group’s long-term disability (LTD) business.
The insurance subsidiaries have significant exposure to commercial mortgage loans; and as such there remains a possibility of higher delinquencies. Nevertheless, the company’s 60-day delinquency rates have been exhibiting a declining trend over the last four quarters.
The ratings affirmations of the insurance subsidiaries reflect strong operational results, adequate risk-adjusted capitalization and dominant presence within the employee benefits market. Sales trend and persistence level have continuously improved.
The asset management segment has generated considerable revenue and aided diversification and cross-selling opportunities within the employee benefits market. Furthermore, it offers considerable dividend to StanCorp Financial to enable it to service debt and enhance shareholders value.
Though A.M. Best believes StanCorp Financial’s present ratings hold true in the near to medium term, it might consider rating downgrades if operating results deteriorates within its core lines, risk-adjusted capitalization erodes or delinquency and foreclosure activity within its mortgage loan portfolio increases considerably.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. On the other hand, rating downgrade adversely affects the business, besides increasing costs of future debt issuances.
The quantitative Zacks #5 Rank (short-term Strong Sell rating) for StanCorp Financial indicates downward pressure on the shares over the near term. MetLife, Inc. (MET) and Unum Group (UNM), competing with StanCorp Financial have a Zacks #3 Rank (short-term Hold rating) indicating no clear directional pressure on the shares over the near term.
Another peer, Principal Financial Group Inc. (PFG), has a Zacks #5 Rank (short-term Strong Sell rating) indicating slight downward pressure on the shares over the near term.
METLIFE INC (MET): Free Stock Analysis Report
PRINCIPAL FINL (PFG): Free Stock Analysis Report
STANCORP FNL CP (SFG): Free Stock Analysis Report
UNUM GROUP (UNM): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment