AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” (Excellent) of Standard Insurance Company (Portland, OR) and its affiliate, The Standard Life Insurance Company of New York (White Plains, NY), together referred to as Standard Insurance Group (The Standard). Concurrently, AM Best has affirmed the Long-Term ICR of “bbb+” (Good) of StanCorp Financial Group, Inc. (StanCorp Financial) (Portland, OR), the intermediate holding company of The Standard. In addition, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Pacific Guardian Life Insurance Company, Limited (Pacific Guardian) (Honolulu, HI). The outlook of these Credit Ratings (ratings) is stable.
The ratings of The Standard reflect its balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The Standard’s strong balance sheet strength assessment is supported by its adequate risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), and its financial flexibility. Over the past two years, the BCAR has fluctuated between adequate and strong assessments due to premium development and inhibited capital growth owing to unrealized losses on invested assets and dividends to StanCorp Financial and upstream to its ultimate parent, Meiji Yasuda Life Insurance Company (Meiji Yasuda) that has outpaced earnings. Financial flexibility is good with favorable cash flow from operations, access to Federal Home Loan Bank borrowing and parent company cash at StanCorp Financial. Invested assets are moderately risky as more than one-third are held in commercial mortgage loans with a concentration of loans on the U.S. West Coast. The Standard is the direct underwriter of the mortgage loans and has historical strong underwriting capabilities, based on its long history as a loan originator. The mortgage portfolio is actively managed by dedicated staff and is currently performing well with very low delinquency rates.
The Standard continues to report favorable premium revenue growth over the past five years through continued strong sales and retention of existing customers. Operating results historically have been favorable. The group reported a net loss in 2022, primarily due to the acquisition of the Securian Financial business and the recording of ceding commissions from the transaction in the income statement. The acquisition of this business was funded by Meiji Yasuda through a capital contribution. Additionally, earnings over the past three years were adversely impacted by COVID-19-related claims. Earnings through the first half of 2023 have shown improvement as COVID-19 claims have dissipated and core business is performing at pre-pandemic levels. The Standard maintains good business diversification between mortality and morbidity products, in addition to asset management. AM Best notes that The Standard maintains top 10 market positions in group long-term disability, individual disability insurance, group short-term disability and group life insurance products. The Standard has a comprehensive and well-developed ERM program. The organization maintains good governance structure, appropriate risk management and controls.
The ratings of Pacific Guardian reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM.
Pacific Guardian continues to maintain a strongest level of risk-adjusted capital, as measured by BCAR. However, there was a significant drop in the level of risk-adjusted capital in 2022 due to a change in its product portfolio offerings and a decline in absolute capital and surplus. Pacific Guardian began offering multiyear guaranteed annuity (MYGA) products, which significantly increased asset and business risk and negatively impacted risk-adjusted capital. The capital decline in 2022 was due to a net loss and an unfavorable change in asset valuation reserve. Pacific Guardian also has a relatively high allocation of more than one-quarter of invested assets to commercial mortgage loans, which are mostly underwritten by its affiliate, The Standard. There is currently no delinquent, restructured or foreclosed mortgage loans. The company has no outstanding debt and has access to a line of credit for short-term liquidity needs.
Pacific Guardian reported substantial premium growth in 2022 due primarily from sales of MYGAs, and to a lesser degree, sales of interest-sensitive whole life products. The launch of updated life products and a new MYGA products have improved premium and business growth trends. However, the company has reported net losses in the past three years. The loss in 2022 was the result of statutory strain from sales of MYGAs and individual life, as well as related acquisition costs/reserves and a large tax expense. Modest losses reported in the prior two years were due to declining premium revenue from the company’s temporary disability income (TDI) and increased COVID-19 claims. AM Best notes that the company is one of Hawaii’s largest and highly regarded group life insurance and group disability carriers and maintains a leading position in the state’s TDI market. Pacific Guardian has expanded to be licensed in 46 states and the District of Columbia to support the sale of MYGAs nationally.
The ratings of The Standard and Pacific Guardian also take into consideration their strategic role to and the financial strength of their parent company, Meiji Yasuda.
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