Good Competitive Position, Improved Leverage, Strong Capitalization Benefit StanCorp Financial Group (SFG) - Fitch Aug 29, 2014 03:06PM

Fitch Ratings has affirmed the Issuer Default Rating (IDR) of StanCorp Financial Group (NYSE: SFG) at 'BBB+' and the Insurer Financial Strength (IFS) ratings of its subsidiaries, Standard Insurance Company and Standard Life Insurance Company of New York at 'A'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.


Today's affirmation reflects SFG's improved operating performance in 2013, good competitive position in the group life and disability market, strong capitalization and improved financial leverage. The company's ratings also reflect continued challenges in terms of its overall operating profitability in a very competitive market environment, with persistently low market interest rates and poor economic conditions, which has resulted in slow employment growth and adverse claims experience in recent years.

SFG's operating performance improved significantly in 2013 after several years of declining performance driven by an intense competitive environment and poor economic conditions. SFG reported pretax operating income of $329 million in 2013, up from $192 million in 2012. In the first half of 2014, the company reported pretax operating income of $118 million, down from $143 million for the same period in 2013, with the decline driven by lower group insurance premiums, reduced investment income and increased operating expenses. The benefit ratio for the company's group insurance business, its primary earnings driver, was 78.9% in 2013, down significantly from 83.9% in 2012. For the first six months of 2014, the group insurance benefit ratio was 81.4%, down from 82.1% for the same period in 2013.

SFG's statutory total adjusted capital increased 8% in 2013 to $1.49 billion, and the NAIC risk based capital ratio of its insurance subsidiaries improved to 398% from 364% in 2012. Fitch estimates the company's RBC ratio receives a benefit of approximately 40 percentage points from a reinsurance agreement executed at the end of the 2011 and expanded in 2012.

SFG's ratings are supported by the company's solid balance sheet fundamentals and solid competitive position in the U.S. group insurance market. The company's balance sheet fundamentals reflect strong asset quality, good risk adjusted capitalization, and reasonable financial leverage. SFG's total financing and commitments ratio was approximately 0.3 times (x) and financial leverage was 20% at June 30, 2014.

Fitch believes that SFG's insurance subsidiaries maintain a high-quality bond portfolio. Below investment grade (BIG) bonds accounted for only 6% of the fixed maturity portfolio or a low 29% of total adjusted capital (TAC) at June 30, 2014. Market values of SFG's fixed maturity investments reflect the low interest rate environment and good quality portfolio, with gross unrealized losses $21 million and gross unrealized gains $473 million at June 30, 2014.

While SFG's commercial mortgage portfolio allocation of approximately 43% of total statutory invested assets at June 30, 2014, is much higher than the industry average, Fitch believes it is complementary to the company's stable liability structure, despite its lower liquidity relative to publicly traded bonds. Commercial mortgage loan loss experience, although heightened during the financial crisis, has improved significantly in recent years and remains in line with Fitch's overall loss expectations.


The key rating triggers that could result in an upgrade include:
--A substantial increase in run-rate risk-adjusted capital above 350%, with no significant deterioration in capital quality;
--A long-term improving trend in the group benefit ratio substantially below its historic baseline of about 76%.

The key rating triggers that could result in a downgrade include:
--A prolonged deterioration in the company's group benefit ratio above the 2011 level of 83%;
--An increase in financial leverage above 30%;
--GAAP-based interest coverage below 6x for an extended period of time;
--A decrease in RBC below 300%, or a significant decrease in the quality of capital supporting the company's RBC;
--A significant deterioration in the performance of the company's commercial mortgage loan portfolio.

Fitch affirms the following ratings with a Stable Outlook:

StanCorp Financial Group
--IDR at 'BBB+';
--$250 million 5.000% senior notes due Aug. 15, 2022 at 'BBB';
--60-year $253 million junior subordinated debt due June 1, 2067 at 'BB+'.

Standard Insurance Company
--IFS rating at 'A'.

Standard Life Insurance Co. of New York
--IFS rating at 'A'.

S&P Lowers Outlook on Arch Coal (ACI) to Negative; Potential Downgrade on Met Coal Price Activity Aug 29, 2014 02:35PM

Standard & Poor's Ratings Services said it revised its rating outlook on Arch Coal, Inc. (NYSE: ACI) to negative from stable. At the same time, we affirmed our 'B' corporate credit rating on the company. In addition, we affirmed our 'B' issue-level ratings on the company's senior secured bank facility and term loan B remain, commensurate with a '2' recovery rating and indicating our expectation of substantial (70%-90%) recovery for holders in the event of a payment default. We also affirmed our 'CCC+' rating on the company's senior unsecured notes, two notches below the corporate credit rating and commensurate with the '6' recovery rating, indicating our expectation for negligible (0%-10%) recovery in the event of a default.

The negative outlook reflects the potential for a downgrade if average met coal prices do not improve in line with our expectations of $140 to $160 per ton in the next 12 to 18 months. This would cause Arch to continue burning cash and use liquidity faster than forecast. Downside risks include slower steel production in China, continued weakness in Europe, and excess global met coal supply depressing met coal prices beyond 2015. However, we are expecting these prices to improve under our base case because of significant capacity curtailments that have been announced. We also expect domestic thermal coal markets to improve modestly as utilities replenish depleted stockpiles stemming from the harsher-than-expected 2013/2014 winter--thermal coal prices for Arch's Powder River Basin (PRB) mines are up 6% for 2015 commitments made through the end of July.

"The negative outlook reflects the possibility that global supply and demand conditions for met coal will not support a near-term price recovery, driving Arch to encroach its senior secured leverage covenant in June 2015 and burn more cash than expected," said Standard & Poor's credit analyst Amanda Buckland.

We could lower the rating if the weak met coal environment persists at an average benchmark price less than $140/ton in 2015, causing possible violation of the senior secured leverage covenant. We could also lower the rating if continued cash burn deteriorates liquidity to less than $550 million in cash and revolving credit facility availability, which could occur if average met coal prices remain about $120/ton or less beyond 2015.

An upgrade is not likely in the near term because we expect leverage to remain very high, with debt to EBIDTA above 10x through 2015. We could revise the outlook to stable if we see a sustained recovery in met coal leading to an improvement in cash flow generation and operating performance.

S&P Raises Outlook on American Airlines Group (AAL) to Positive; Notes Strong H114 Performance Aug 29, 2014 12:48PM

Standard & Poor's Ratings Services said that it revised its rating outlooks on American Airlines Group Inc. (Nasdaq: AAL)(AAG) and its subsidiaries American Airlines Inc. and US Airways Inc. to positive from stable. At the same time, we affirmed our ratings on the companies, including the 'B' corporate credit ratings.

AAG reported strong earnings during the first half of 2014, with net income of $1.3 billion, and we expect that this trend will continue for the remainder of the year and into 2015. The company is benefiting from generally positive revenue conditions in the U.S. airline industry, since the largest four airlines, which have a combined market share of more than 80%, are adding capacity cautiously and focusing on raising load factors (utilization) and yield (pricing). AAG is also capturing merger cost and revenue synergies, which should increase further once regulatory approvals (a single operating certificate) allow the full operational integration of the company's two airline operating subsidiaries. That integration, which AAG expects to be complete in late 2015, also carries risks, since it will involve combining information technology systems and aircraft crews.

The outlook is positive. "We expect continued growth in AAG's earnings and cash flow, which should result in improved credit measures despite heavy capital spending and a share repurchase program," said Standard & Poor's credit analyst Philip Baggaley.

We could raise rating if AAG's FFO to debt exceeds 16% and we expect it to remain at that level, and if debt to EBITDA remains consistently below 4.5x. In addition, in assessing the sustainability of AAG's credit ratio improvements, we would consider its progress on merger integration as well as the general industry outlook.

We could revise the outlook to stable if the company's trend of improvement falters, funds flow to debt slips to the low-teens percent area, and debt to EBITDA rises above 4.5x. This could result from worse-than-expected merger integration problems, general industry challenges such as a fuel price spike, or a more aggressive financial policy.

Fitch Affirms Ratings on ACE Ltd. (ACE); Operating Performance Strong Amid Tough Market Conditions Aug 29, 2014 12:18PM

Fitch Ratings has affirmed the ratings of ACE Ltd. (NYSE: ACE) and its subsidiaries (ACE). The Rating Outlook is Stable. A complete list of ratings follows at the end of this release.


The ratings affirmation reflects ACE's continued strong operating performance despite competitive market conditions, strong balance sheet position and financial flexibility with moderate leverage, and diverse sources of revenues and earnings with the advantages of global scale and a strong management team.

ACE's operating performance consistently exceeds peers, characterized by low combined ratios with manageable catastrophe losses, consistent favorable loss reserve development and stable investment income. The company has reported a combined ratio under 100% for 10+ consecutive years. For the five-year period 2009-2013, the average consolidated GAAP combined ratio was 91% and the operating return on equity was 12.5%.

ACE reported year-to-date 2014 after-tax operating income of $1.6 billion, up over 4% versus the same period last year from continued underwriting income and premium growth, and margin expansion. This result corresponds with an operating return on equity of 11.5%.

The underwriting combined ratio through the first six months of 2014 was 88.2% versus 88.1% for the same period in 2013, benefitting from favorable pricing and underwriting results both in North America and internationally. Expense ratios have trended slightly higher due in part to increasing acquisitions costs in certain lines.

Shareholders' equity has more than doubled in the past five and a half years to $30.3 billion at June 30, 2014. Until recently, ACE differed from peers by not repurchasing a material amount of shares. The company announced plans to target $1.5 billion in share repurchases in 2014 and has repurchased a total of $626 million of shares since November 2013.

The company's financial leverage ratio was 17.7% at June 30, 2014, FAS 115 adjusted, which is consistent with Fitch's median sector credit factors for the current rating category. Leverage includes an additional $1.15 billion of pre-funded debt that will repay debt maturing in 2015. Excluding this debt, financial leverage would decline to approximately 15%.

Operating interest coverage (excluding realized investment gains) remains favorable at approximately 15x in both 2013 and through the first half on 2014. ACE has ample resources available for debt servicing needs with roughly $2.7 billion of cash and short-term investments at June 30, 2014. Significant additional flexibility is provided by insurance subsidiaries that can pay nearly another $3.8 billion of dividends to the holding company without prior regulatory approval in 2014.


Key rating triggers that may lead to an upgrade include:

--Generating a combined ratio consistently under 85%;
--Maintained growth in stockholders' equity that corresponds with premium and asset growth;
--A reduction in financial leverage to a run-rate level of 15% or lower;
--Operating earnings-based interest and preferred dividend coverage at or above 15x;
--Movement in ACE's retention ratio (net premium written to gross premium written) to increase over time to be more in line with highly-rated peers;
--Continuing a track record of successful acquisition execution.

Key rating triggers that may lead to a downgrade include:

--A sustained material deterioration in operating performance such that the combined ratio is consistently less profitable at over 95%;
--A significant reduction in stockholders' equity that is not recovered in the near term;
--Increases in financial leverage to a sustained level of over 25%.

Any future acquisitions and the associated integration risks and company profile changes could lead to pressure on the ratings, upward or downward, depending on the nature and size of the acquisition and corresponding integration risks.

Future rating action may also be constrained by sovereign rating considerations. A Fitch downgrade of Bermuda's long-term foreign currency IDR to more than four notches below ACE's IFS rating, may promote consideration of a downgrade in ACE's ratings.

Fitch notes that ACE's debt ratings currently benefit from narrower notching relative to the insurance company financial strength ratings as a result of Bermuda's moderate regulatory environment. This narrower notching may be revised in the future as Fitch evaluates the impact of Solvency II and other possible regulatory changes on Bermuda's insurance regime.

Fitch has affirmed the following ratings with a Stable Outlook:

ACE Limited
--Issuer Default Rating (IDR) 'AA-'.

ACE INA Holdings Inc.
--IDR 'AA-';
--$450 million senior notes due 2015 'A+';
--$700 million senior notes due 2015 'A+';
--$500 million senior notes due 2017 'A+';
--$300 million senior notes due 2018 'A+';
--$500 million senior notes due 2019 'A+';
--$475 million senior notes due 2023 'A+';
--$700 million senior notes due 2024 'A+';
--$100 million senior debentures due 2029 'A+';
--$300 million senior notes due 2036 'A+';
--$475 million senior notes due 2043 'A+'.

ACE Capital Trust II
--$300 million capital securities due 2030 'A-'.

ACE American Insurance Company
ACE Bermuda Insurance Limited
ACE Fire Underwriters Ins. Company
ACE INA Overseas Insurance Company Ltd.
ACE Insurance Company of the Midwest
ACE Property and Casualty Insurance Company
ACE Tempest Reinsurance Limited
Agri General Insurance Company
Atlantic Employers Insurance Company
Bankers Standard Fire & Marine Company
Bankers Standard Insurance Company
Illinois Union Insurance Company
Indemnity Insurance Company of North America
Insurance Company of North America
Pacific Employers Insurance Company
Westchester Fire Insurance Company
Westchester Surplus Lines Insurance Company
--IFS 'AA'.

ACE Reinsurance (Switzerland) Limited
--IFS 'AA-'.

S&P Places Elizabeth Arden (RDEN) on CreditWatch Negative; FY14 Operating Results Seen as 'Weak' Aug 29, 2014 11:26AM

Standard & Poor's Ratings Services today placed all of its ratings on New York City-based Elizabeth Arden Inc. (Nasdaq: RDEN), including the 'BB-' corporate credit rating, on CreditWatch with negative implications.

The CreditWatch placement follows weak operating results for the fiscal year ended June 30, 2014. Sales decreased about 13% to $1.16 billion for fiscal 2014 compared with the prior fiscal year, stemming from weaker than expected declines from its celebrity fragrances segment and replenishment from the mass channel. Profitability also decreased, mainly due to a highly competitive and promotional environment, and sales mix shift towards lower-margin products. We estimate credit metrics have deteriorated, including leverage above 5x. This is weaker than our expectation that leverage would remain below 4x.

We could affirm or lower the rating once we meet with the company and assess the company's financial policy and ability to strengthen its credit metrics over the next year. We could lower our ratings if we believe the company's credit metrics will remain near its current weakened levels. Alternatively, we could affirm our ratings if we believe the company can improve its operating performance and strengthen credit metrics, including leverage decreasing towards historical levels of near 4x.

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