(SFG) Rating Action on StanCorp Financial Group

A.M. Best has affirmed the issuer credit rating (ICR) of  “bbb+” and debt ratings of “bbb+” on $250 million 6.875% senior unsecured notes, due 2012 and “bbb-” on $300 million 6.900% junior subordinated debentures, due 2067 of StanCorp Financial Group (SFG). However, the rating agency has downgraded the outlook to negative from stable.

Also, A.M. Best affirmed the ICR of “a+” and 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. The outlook of ICR was lowered to negative from stable while the outlook of FSR was maintained at stable.

The downgraded outlook of the ICR was due to higher claims at long-term disability business experienced by the companies. To add to its woes, the lower interest rate environment continues to weigh on the long-term disability business.

The rating agency also remains concerned about the commercial mortgage loan portfolio (40% of its total invested assets). StanCorp incurred losses on the sale of a number of properties from a single borrower, which were foreclosed in 2010 and expects to sell off the remaining properties over the next one year. Also, the rating agency expects a significant portion of the mortgage loan portfolio represented by retail and office properties to report higher delinquencies.

However, the rating affirmations came on the back of solid risk-adjusted capitalization, sustained operating profitability and strong presence in the employee benefits market. The asset management segment continues to deliver solid revenues and offer cross-selling opportunities within the employee benefits market.

The Zacks Consensus Estimate for second-quarter 2011 is $1.06 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $4.22 per share and $5.19 per share.

The quantitative Zacks #3 Rank (short-term Hold rating) for StanCorp indicates no clear directional pressure on the stock over the near term.

Headquartered in Portland, Oregon, StanCorp Financial Group is one of the largest providers of employee benefits products and services in the U.S. The company operates across the country, with a dominant position in western U.S. It competes with Unum Group (UNM), MetLife, Inc. (MET) and Principal Financial Group Inc. (PFG).

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

Zacks Investment Research

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