We retain our Underperform recommendation on StanCorp Financial Group Inc. ( SFG - Analyst Report ) , 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 - Analyst Report ) and Unum Group ( UNM - Analyst Report ) , 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 - Analyst Report ) , holds a quantitative Zacks #4 Rank (short-term Sell rating), indicating slight downward pressure on the stock over the near term.