OREANDA-NEWS. 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'.