AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” of Standard Insurance Company (Portland, OR) and its affiliate, The Standard Life Insurance Company of New York (White Plains, NY), together referred to as the Standard Insurance Group (The Standard). Additionally, AM Best has affirmed the Long-Term ICR of “bbb+” and the Long-Term Issue Credit Rating (Long-Term IR) of “bbb+” on the outstanding $250 million 5% senior unsecured notes, due 2022, of StanCorp Financial Group, Inc. (StanCorp Financial) (Portland, OR), the intermediate holding company of The Standard.
Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of Pacific Guardian Life Insurance Company, Limited (Pacific Guardian) (Honolulu, HI). The outlook of these Credit Ratings (ratings) is stable. The Standard and Pacific Guardian are the U.S. insurance subsidiaries of Meiji Yasuda Life Insurance Company (Meiji Yasuda).
The ratings of The Standard reflect its balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The Standard’s risk-adjusted capital has shown incremental increases over the past two years based on favorable operating results. Dividends to the parent have been lower than historical levels, which has contributed to the capital appreciation. Approximately one-third of The Standard’s invested assets are held in commercial mortgage loans with a concentration of loans on the West Coast. The portfolio is currently performing well as The Standard is the direct underwriter of the loans and has strong underwriting capabilities based on its long history as a loan originator. However, commercial mortgage loan performance overall is under pressure due to the economic impact of the COVID-19 pandemic, especially in retail and hospitality related properties.
The Standard continues to report strong operating earning metrics with double-digit premium growth over the past two years and stable mid-double-digit return on equity ratios for the past five years. The Standard has good business diversification between mortality and morbidity products, as well as asset management. The Standard remains in the top 10% of the market for its individual disability and its group life and disability business. ERM practices for The Standard are comprehensive and well-developed. There is a good governance structure, appropriate risk management and controls.
The ratings of Pacific Guardian reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, limited business profile and appropriate ERM.
Pacific Guardian continues to have a high level of risk-adjusted capital, although there has been some contraction over the past two years due to technology investments and dividends to its parent. Pacific Guardian also has a high allocation of invested asset to commercial mortgage loans, which are mostly underwritten by its affiliate, The Standard. Additionally, Pacific Guardian’s portfolio has performed well with only a slight uptick in the delinquency rate on a default that was unrelated to the COVID-19 pandemic. Nevertheless, this investment class is considered to be of a higher risk due to the COVID-19 pandemic’s economic pressure. The company did approve forbearances primarily for interest only payments on a small portion of its loans in the second quarter of 2020.
Operating performance remains favorable albeit with margin contraction from administrative costs related to systems modernization initiatives. Premiums development is being challenged in new sales and in-force individual life business. Furthermore, the company’s primary line of business, temporary statutory disability income (TDI), which is payroll based, is expected to be pressured as unemployment rates remain inflated. Pacific Guardian is the market leader in TDI in Hawaii. Pacific Guardian’s ERM practices have a developed framework, a mature governance structure and a good risk identification and reporting process.
The ratings of The Standard and Pacific Guardian take into consideration the financial strength of their parent company, Meiji Yasuda and the strategic role The Standard and Pacific Guardian play in the Meiji Yasuda organization.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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