Fitch Affirms StanCorp's Ratings; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the Issuer Default Rating (IDR) of StanCorp Financial Group, Inc. (SFG) at 'BBB+' and 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

The rating action follows the announcement that SFG has agreed to be acquired by Japan-based Meiji Yasuda Life Insurance Company (MYL) in a transaction valued at $5 billion. The transaction is expected to close in the first quarter of 2016 subject to customary shareholder and regulatory approvals.

Fitch's views the proposed transaction as credit neutral for SFG based on the financial strength of MYL (IFS 'A'), which 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 proposed 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 following the close of the transaction.

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 that premium growth and operating margins continue to be challenged by competitive market conditions and the weak economic environment, including persistently low interest rates and somewhat weak employment conditions.

RATING SENSITIVITIES

The relationship between SFG and MYL and its impact on rating triggers will be determined following the close of the transaction.

Key rating triggers that could result in an upgrade include:

--Run-rate risk-adjusted capital maintained 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'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 14 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988594

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988594

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

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
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

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
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com