Fitch Ratings retained StanCorp Financial Group Inc.‘s (SFG) long-term issuer default rating (“IDR”) at ‘BBB+’. Concurrently, the rating agency reiterated the Insurer Financial Strength (“IFS”) ratings of ‘A’ on Standard Insurance Company and Standard Life Insurance Company of New York, the operating subsidiaries of StanCorp. Fitch affirmed the ratings with a stable outlook.
Despite the operating performance softening in the first quarter of 2012, Fitch avowed the ratings based on the results being in-line with its expectation and a modest financial leverage ratio. Also, StanCorp’s earnings, mainly driven by its group long-term disability (LTD) and group life insurance business, diluted owing to the competitive market and the soft macro-economic conditions.
Fitch estimates the company’s dividend to dip in 2012 as against 2011. StanCorp also has $250 million debt maturing in October 2012. Fitch believes StanCorp has sufficient liquidity to retire the debt.
Fitch stated that it might consider to upgrade the ratings if risk-adjusted capital ratio remains above 350% and group benefit ratio continues to show its increasing trend.
However, the ratings might be downgraded if group benefit ratio slides, financial leverage exceeds 30% mark, risk-based capital ratio falls below 300%, capital erodes and commercial mortgage loan portfolio performs poorly.
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. We believe, the company’s strong ratings scores will keep investors’ optimism afloat and help it to write more businesses going forward, thereby augmenting the results.
Separately, StanCorp’s peer Principal Financial Group Inc.‘s (PFG) long-term IDR was affirmed at ‘A’ by Fitch Ratings. Concurrently, the rating agency also reiterated IFS at ‘AA-‘ on Principal’s operating subsidiaries. The outlook of the ratings remains stable.
We retain our Neutral recommendation on StanCorp. The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
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