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On Mar 15, we downgraded our recommendation on StanCorp Financial Group Inc. (SFG - Analyst Report) to Neutral based on higher group insurance benefit ratio and lower premiums. This life insurer currently carries a Zacks Rank #3 (Hold).

Why the Downgrade?

After reporting strong growth in group insurance premiums, StanCorp witnessed a decline in premiums for the last two quarters. The decline largely stemmed from a low single-digit price increase in its group insurance business and stiff competition, which also weighed on new sales and renewals. Persistency also declined compared with 2011.

In 2012, delinquency improved to 0.40% from 0.34% in 2011.

Benefit ratio was 83.7% in the fourth quarter (up from 82.8% in the year-ago quarter) and was 83.9% for full year 2012, both exceeding the guided range of 80%–82%.

Causes for Concern

StanCorp also expects headwinds from the lack of employment and wage growth in the group insurance business to persist in the upcoming quarters and pressurize premium growth. StanCorp expects group insurance premium to decrease in low-single digit in 2013, exerting downward pressure on group insurance sales and persistency.

Group insurance benefit ratio is expected between 81% and 84% in 2013.

Insurance Stocks That Warrant a Look

Other insurance stocks worth a look are Reinsurance Group of America Inc. (RGA - Analyst Report), Principal Financial Group Inc. (PFG - Analyst Report) and Aegon N. V. (AEG - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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