We retain our Underperform recommendation on
StanCorp Financial Group Inc.
(
SFG
), following disappointing second quarter results. StanCorp
Financial's second quarter earnings lagged the Zacks Consensus
Estimate and the year-ago results as the quarter experienced higher
benefit ratio in the Insurance Services segment, largely due to
less favorable claims experience in the group long-term disability
business. The top line also missed expectations.
In the first quarter as well, the segment posted higher benefit
ratio. To note, both the quarters posted benefit ratio that
exceeded the guided range of 80% to 82% for 2012. Also, the company
now expects full-year benefit ratio to exceed its guided range,
given the performance in the first half of the year and the
persistently low interest rate environment.
However, StanCorp expects that with pricing actions on the
long-term disability business accomplished and employment levels
and wage growth returning to the historical levels, annual benefit
ratio will also return to its historical range of 74% to 78%.
StanCorp's Asset Management segment, after posting robust earnings
over the past couple of quarters, witnessed a decline for the
fourth consecutive quarter. The fall was mainly attributable to
lower administrative fee revenues due to a decline in retirement
plan assets under administration.
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. Rating
downgrades, therefore adversely affects the business, besides
increasing costs of future debt issuances. A.M. Best Co. lowered
the issuer credit rating (ICR) to "bbb" from "bbb+" of StanCorp
Financial, besides downgrading the debt ratings.
The rating agency also downgraded the ICR to "a" from "a+" of
the insurance subsidiaries of StanCorp. Although Moody's affirmed
the financial strength and credit ratings for the company and its
subsidiaries at Baa2, it lowered the outlook to negative.
The positives include premium growth, continued good investment
performance, conservative underwriting practices, and focus on
increasing shareholder value along with a strong capital position.
The company, for the third consecutive time reported lower
delinquency.
The quantitative Zacks #5 Rank (short-term Strong Sell rating) for
the company indicates downward pressure on the stock over the near
term.
Metlife Inc.
(
MET
) and
Unum Group
(
UNM
), which compete with Stancorp, both hold a quantitative Zacks #3
Rank (short-term Hold rating), indicating no clear directional
pressure on the stock over the near term. Another peer,
Principal Financial Group Inc.
(
PFG
), holds a quantitative Zacks #4 Rank (short-term Sell rating),
indicating slight downward pressure on the stock over the near
term.
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
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