Fitch Upgrades StanCorp's Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has upgraded StanCorp Financial Group, Inc.'s (SFG) Issuer Default Rating (IDR) to 'A-' from 'BBB+' and its senior debt ratings to 'BBB+' from 'BBB'. At the same time, Fitch has affirmed the Insurer Financial Strength (IFS) ratings of its life insurance subsidiaries at 'A'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

On March 7, 2016, SFG was acquired by Japan-based Meiji Yasuda Life Insurance Company (MYL). SFG's ratings were upgraded to be aligned with the ratings of MYL based on Fitch's criteria. Fitch currently rates both MYL's IDR and IFS at 'A', with its IFS constrained due to Japan's sovereign rating. MYL is the third largest life insurance company in Japan with the largest share of group insurance in the Japanese market.

The transaction reflects a broader strategic initiative by MYL to expand its life insurance business outside of Japan. The acquisition of SFG represents MYL's first major overseas acquisition. Fitch expects SFG's existing management team and operating strategies will largely remain in place.

SFG's ratings continue to reflect its strong competitive position in the group life and disability market, improving operating performance, strong capitalization and moderate financial leverage. The ratings also consider the ongoing challenges to operating margins given the competitive market conditions and weak economic environment, including persistently low interest rates and somewhat weak employment conditions.

Fitch views SFG's capitalization as strong, demonstrated by an estimated risk-based capital (RBC) ratio of 410% at year-end 2015. However, the quality of capital is adversely impacted by a reinsurance arrangement with a captive insurer, which augments its RBC ratio. Financial leverage remained moderate at 19.3% as of Dec. 31, 2015.

SFG reported an 8% increase in net operating income to $235 million in 2015. The increase was primarily due to premium growth and more favorable claims experience, partially offset by higher operating expenses and greater commissions and bonuses related to increased sales activity.

Fitch's standalone assessment of SFG's operations results in an 'A' IFS rating with standard notching, and its strategic importance within the MYL enterprise is considered as 'Very Important.' The strategic category reflects MYL's initiative to expand into the U.S. life insurance market. SFG's ratings benefit from the greater resources and stronger credit profile of MYL. As such, SFG's holding company ratings receive a one-notch uplift and SFG's ratings have been assigned the group rating, which is constrained by Japan's 'A' Long-Term Local-Currency IDR.

RATING SENSITIVITIES

SFG's ratings are expected to move in line with MYL's ratings in accordance with Fitch's group rating methodology. Given that MYL's ratings are capped by Japan's Long-Term Local-Currency IDR rating of 'A', an upgrade is unlikely in the near future.

Conversely, if MYL's ratings were downgraded, based on its own credit quality, or deterioration in Japan's sovereign rating, SFG's ratings will also likely be lowered in conjunction with its parent. As a 'Very Important' subsidiary, SFG could also be downgraded below the group rating if its standalone assessment is downgraded by three notches or more.

Fitch upgrades the following ratings with a Stable Outlook:

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

Fitch affirms the following ratings with a Stable Outlook:

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

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

Additional information is available on www.fitchratings.com

Applicable CriteriaInsurance Rating Methodology (pub. 16 Sep 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional DisclosuresDodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1000580Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000580Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160307006536/en/

Fitch Ratings
Primary Analyst
Dafina M. Dunmore, CFA
Director
+1-312-368-3136
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bradley S. Ellis, CFA
Director
+1-312-368-2089
or
Committee Chairperson
Keith M. Buckley, CFA
Managing Director
+1-312-368-3211
or
Media Relations
Hannah James, +1 646-582-4947
[email protected]

Source: Fitch Ratings

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