Company Website:
http://www.stancorpfinancial.com
PORTLAND, Ore. -- (Business Wire)
StanCorp Financial Group, Inc. (NYSE: SFG) today reported net income for
the first quarter of 2012 of $35.2 million, or $0.79 per diluted share,
compared to net income for the first quarter of 2011 of $33.3 million,
or $0.72 per diluted share. After-tax net capital losses were $0.1
million for the first quarter of 2012, compared to after-tax net capital
losses of $1.5 million for the first quarter of 2011.
Net income excluding after-tax net capital losses increased to $0.79 per
diluted share for the first quarter of 2012 from $0.75 per diluted share
for the first quarter of 2011 (see discussion of non-GAAP financial
measures below), primarily due to the effect of a 1.7 million share
decrease in diluted weighted-average shares outstanding (see discussion
of shares outstanding below) and a lower effective income tax rate as a
result of the Company’s purchases of tax-advantaged investments.
Effective January 1, 2012, the Company adopted Accounting Standards
Update (“ASU”) 2010-26, Accounting for Costs Associated with
Acquiring or Renewing Insurance Contracts, on a retrospective basis.
In accordance with ASU 2010-26, the Company has adjusted its financial
results for the periods prior to the first quarter of 2012. As a result
of the adjustment, net income excluding after-tax net capital losses per
diluted share decreased $0.01 for the first quarter of 2011.
“I am pleased with our results for the first quarter of 2012. We saw
group insurance premium growth, a continued improvement in our long term
disability claims experience, solid asset management earnings and a
strong investment portfolio,” said Greg Ness, chairman, president and
chief executive officer. “We remain focused on the fundamentals of our
businesses and are encouraged by the progress through the first quarter
of 2012.”
Business Segments
Insurance Services
The Insurance Services segment reported income before income taxes of
$46.1 million for the first quarter of 2012, compared to $46.0 million
for the first quarter of 2011.
Premiums for the Insurance Services segment increased 3.9% to $551.1
million for the first quarter of 2012, compared to $530.5 million for
the first quarter of 2011. Group insurance premiums for the first
quarter of 2012 were $506.9 million, a 3.8% increase compared to the
first quarter of 2011. The increase in premiums for the first quarter of
2012 was primarily due to strong premium persistency and sales from
2011, and renewals in 2012. Premiums for individual disability insurance
for the first quarter of 2012 were $44.2 million, compared to $42.1
million for the first quarter of 2011.
Sales for the group insurance businesses, reported as annualized new
premiums, were $128.8 million and $160.3 million for the first quarters
of 2012 and 2011, respectively. The decrease in group insurance sales
was primarily due to pricing competition.
The discount rate used for newly established long term disability claim
reserves was 4.75% for the first quarter of 2012, compared to 5.50% for
the first quarter of 2011. The 75 basis point decrease in the discount
rate resulted in a corresponding decrease in quarterly pre-tax income of
$4.8 million. The lower discount rate for the first quarter of 2012
compared to the first quarter of 2011 was primarily the result of a
continued low interest rate environment.
The benefit ratio for group insurance products, measured as benefits to
policyholders and interest credited as a percentage of premiums, was
83.5% for the first quarter of 2012, compared to 84.2% for the first
quarter of 2011. The decrease was primarily due to more favorable claims
experience in the group long term disability insurance business,
partially offset by the 75 basis point decrease in the discount rate
used for newly established long term disability claim reserves for the
first quarter of 2012. Claims experience can fluctuate widely from
quarter to quarter and tends to be more stable when measured over a
longer period of time.
The benefit ratio for individual disability insurance was 52.3% for the
first quarter of 2012, compared to 57.2% for the first quarter of 2011.
Due to the relatively small size of the individual disability insurance
block of business, the benefit ratio for this business will generally
fluctuate more than the benefit ratio for the group insurance business.
Asset Management
The Asset Management segment reported income before income taxes of
$15.0 million for the first quarter of 2012, compared to $18.9 million
for the first quarter of 2011. The decrease in income before income
taxes was primarily due to lower bond call premiums for the first
quarter of 2012. Bond call premiums added approximately $3 million of
additional income before income taxes for the first quarter of 2011
compared to the first quarter of 2012.
Assets under administration for the Asset Management segment, which
includes retirement plans, individual fixed annuities, private client
wealth management and commercial mortgage loans managed for third-party
investors, decreased 1.7% to $21.58 billion at March 31, 2012, compared
to $21.96 billion at March 31, 2011. The decrease was primarily due to
an elevated level of retirement plan terminations during 2011.
StanCorp Mortgage Investors originated $209.5 million and $196.3 million
of commercial mortgage loans for the first quarters of 2012 and 2011,
respectively.
Other
The Other category includes the return on capital not allocated to the
product segments, holding company expenses, operations of certain
unallocated subsidiaries, interest on debt, unallocated expenses, net
capital gains and losses related to the impairment or the disposition of
the Company’s invested assets and adjustments made in consolidation. The
Other category reported a loss before income taxes of $13.4 million for
the first quarter of 2012, compared to a loss before income taxes of
$15.5 million for the first quarter of 2011. Net capital losses for the
first quarter of 2012 were $0.2 million, compared to net capital losses
of $2.5 million for the first quarter of 2011.
Fixed Maturity Securities and Commercial Mortgage Loans
At March 31, 2012, the Company’s investment portfolio consisted of 56.6%
fixed maturity securities, 41.1% commercial mortgage loans, and 2.3%
real estate and other invested assets. The overall weighted-average
credit rating of the fixed maturity securities portfolio was A (Standard
& Poor’s) at March 31, 2012.
At March 31, 2012, commercial mortgage loans in the Company’s investment
portfolio totaled $4.98 billion on more than 6,190 commercial mortgage
loans. The average loan balance retained by the Company in the portfolio
was approximately $0.8 million. Commercial mortgage loans more than 60
days delinquent were 0.33% and 0.42% of the portfolio balance at March
31, 2012 and 2011, respectively.
Capital and Book Value
The Company’s available capital increased $15 million to approximately
$235 million at March 31, 2012 compared to December 31, 2011. Available
capital includes capital at its insurance subsidiaries in excess of the
Company’s target risk-based capital ratio (“RBC”) of 300% and cash and
capital at the holding company and non-insurance subsidiaries. The
Company reported available capital after subtracting an allocation for
expected annual interest and dividends.
The Company’s book value per share grew 10.4% from $41.51 at March 31,
2011, to $45.82 at March 31, 2012. The Company’s book value per share
excluding accumulated other comprehensive income or loss (“AOCI”) grew
6.0% from $38.17 at March 31, 2011, to $40.47 at March 31, 2012.
Shares Outstanding
The Company did not repurchase any shares during the first quarter of
2012. At March 31, 2012, the Company had 3.0 million shares remaining
under its repurchase authorization, which expires December 31, 2012.
Diluted weighted-average shares outstanding for the first quarters of
2012 and 2011 were 44,461,841 and 46,190,915, respectively.
Non-GAAP Financial Measures
Financial measures that exclude after-tax net capital gains and losses
and AOCI are non-GAAP (Generally Accepted Accounting Principles in the
United States) measures. To provide investors with a broader
understanding of earnings, the Company provides net income per diluted
share excluding after-tax net capital gains and losses, along with the
GAAP measure of net income per diluted share, because capital gains and
losses are not likely to occur in a stable pattern.
Return on average equity excluding after-tax net capital gains and
losses from net income and AOCI from equity is furnished along with the
GAAP measure of net income return on average equity because management
believes providing both measures gives investors a broader understanding
of return on average equity. Measuring return on average equity without
AOCI excludes the effect of market value fluctuations of the Company’s
fixed maturity securities associated with changes in interest rates and
other market data. Management believes that measuring return on average
equity without AOCI is important to investors because the turnover of
the Company’s portfolio of fixed maturity securities may not be such
that unrealized gains and losses reflected in AOCI are ultimately
realized. Furthermore, management believes exclusion of AOCI provides
investors with a better measure of return.
About StanCorp Financial Group, Inc.
StanCorp Financial Group, Inc., through its subsidiaries marketed as The
Standard — Standard Insurance Company, The Standard Life Insurance
Company of New York, Standard Retirement Services, StanCorp Mortgage
Investors, StanCorp Investment Advisers, StanCorp Real Estate and
StanCorp Equities — is a leading provider of financial products and
services. StanCorp’s subsidiaries offer group and individual disability
insurance, group life and accidental death and dismemberment insurance,
group dental and group vision insurance, absence management services,
retirement plans products and services, individual annuities and
investment advice. For more information about StanCorp Financial Group,
Inc., visit its investor website at www.stancorpfinancial.com.
Conference Call
StanCorp management will hold an investor and analyst conference call on
April 24, 2012, at noon Eastern time (9:00 a.m. Pacific time) to review
StanCorp’s first quarter results.
To listen to the live webcast of this conference call, visit www.stancorpfinancial.com;
Windows Media PlayerTM will be required to listen to the
webcast. A webcast replay will be available starting approximately two
hours after the original broadcast. The replay will be available through
June 15, 2012.
A telephone replay of the conference call will also be available
approximately two hours after the conference call by dialing (877)
660-6853 or (201) 612-7415 and entering account number 286 and
conference identification number 391143. The replay will be available
through April 27, 2012.
Forward-Looking Information
Some of the statements contained in this earnings release, including
those relating to the Company’s strategy, growth prospects and other
statements that are predictive in nature, that depend on or refer to
future events or conditions or that include words such as “expects,”
“anticipates,” “intends,” “plans,” “believes,” “estimates,” “seeks” and
similar expressions, are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. These
statements are not historical facts but instead represent only
management’s expectations, estimates and projections regarding future
events. Similarly, these statements are not guarantees of future
performance and involve uncertainties that are difficult to predict,
which may include, but are not limited to, the factors discussed below.
As a provider of financial products and services, the Company’s results
of operations may vary significantly in response to economic trends,
interest rate changes, investment performance and claims experience.
Caution should be used when extrapolating historical results or
conditions to future periods.
The Company’s actual results and financial condition may differ, perhaps
materially, from the anticipated results and financial condition in any
such forward-looking statements. Because such statements are subject to
risks and uncertainties, actual results in future periods may differ
materially from those expressed or implied by such forward-looking
statements. Given these uncertainties or circumstances, readers are
cautioned not to place undue reliance on such statements. The Company
assumes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. See StanCorp's 2011 annual report on Form 10-K filed with the
Securities and Exchange Commission for a description of the types of
uncertainties and risks that may affect actual results.
The following factors could cause results to differ materially from
management expectations as suggested by such forward-looking statements:
-
Growth of sales, premiums, annuity deposits, cash flows, assets under
administration including performance of equity investments in the
separate account, gross profits and profitability.
-
Availability of capital required to support business growth and the
effective utilization of capital, including the ability to achieve
financing through debt or equity.
-
Changes in liquidity needs and the liquidity of assets in its
investment portfolio.
-
Ability to refinance or retire maturing debt.
-
Integration and performance of business acquired through reinsurance
or acquisition.
-
Changes in financial strength and credit ratings.
-
Changes in the regulatory environment at the state or federal level
including changes in income tax rates and regulations or changes in
U.S. GAAP accounting principles, practices or policies.
-
Findings in litigation or other legal proceedings.
-
Intent and ability to hold investments consistent with its investment
strategy.
-
Receipt of dividends from, or contributions to, its subsidiaries.
-
Adequacy of the diversification of risk by product offerings and
customer industry, geography and size, including concentration of
risk, especially inherent in group life products.
-
Adequacy of asset-liability management.
-
Events of terrorism, natural disasters or other catastrophic events,
including losses from a disease pandemic.
-
Benefit ratios, including changes in claims incidence, severity and
recovery.
-
Levels of persistency.
-
Adequacy of reserves established for future policy benefits.
-
The effect of changes in interest rates on reserves, policyholder
funds, investment income and commercial mortgage loan prepayment fees.
-
Levels of employment and wage growth and the impact of rising benefit
costs on employer budgets for employee benefits.
-
Competition from other insurers and financial services companies,
including the ability to competitively price its products.
-
Ability of reinsurers to meet their obligations.
-
Availability, adequacy and pricing of reinsurance and catastrophe
reinsurance coverage and potential charges incurred.
-
Achievement of anticipated levels of operating expenses.
-
Adequacy of diversification of risk within its fixed maturity
securities portfolio by industries, issuers and maturities.
-
Adequacy of diversification of risk within its commercial mortgage
loan portfolio by borrower type, property type and geographic region.
-
Credit quality of the holdings in its investment portfolios.
-
The condition of the economy and expectations for interest rate
changes.
-
The effect of changing levels of commercial mortgage loan prepayment
fees and participation levels on cash flows.
-
Experience in delinquency rates or loss experience in its commercial
mortgage loan portfolio.
-
Adequacy of commercial mortgage loan loss allowance.
-
Concentration of commercial mortgage loan assets collateralized in
certain states such as California.
-
Concentration of commercial mortgage loan assets by borrower.
-
Environmental liability exposure resulting from commercial mortgage
loan and real estate investments.
|
| | |
| | |
| StanCorp Financial Group, Inc. |
| Consolidated Statements of Income and Comprehensive Income |
|
(Dollars in millions - except share data)
|
|
(Unaudited)
|
| |
|
|
|
|
|
| |
Three Months Ended
|
| |
March 31,
|
| |
|
2012
|
|
|
2011
|
|
Revenues:
| | | | | | |
|
Premiums:
| | | | | | |
|
Insurance Services
| |
$
|
551.1
| | |
$
|
530.5
| |
|
Asset Management
| |
|
2.2
|
|
|
|
3.3
|
|
|
Total premiums
| |
|
553.3
|
|
|
|
533.8
|
|
|
Administrative fees:
| | | | | | |
|
Insurance Services
| | |
3.1
| | | |
2.7
| |
|
Asset Management
| | |
29.9
| | | |
30.6
| |
|
Other
| |
|
(4.4
|
)
|
|
|
(3.9
|
)
|
|
Total administrative fees
| |
|
28.6
|
|
|
|
29.4
|
|
|
Net investment income:
| | | | | | |
|
Insurance Services
| | |
84.6
| | | |
84.4
| |
|
Asset Management
| | |
73.1
| | | |
69.6
| |
|
Other
| |
|
2.0
|
|
|
|
3.0
|
|
|
Total net investment income
| |
|
159.7
|
|
|
|
157.0
|
|
|
Net capital losses:
| | | | | | |
Total other-than-temporary impairment losses on fixed maturity
securities — available-for-sale
| | | | | | |
| |
(0.8
|
)
| | |
(0.9
|
)
|
|
All other net capital gains (losses)
| |
|
0.6
|
|
|
|
(1.6
|
)
|
|
Total net capital losses
| |
|
(0.2
|
)
|
|
|
(2.5
|
)
|
Total revenues
| |
|
741.4
|
|
|
|
717.7
|
|
|
Benefits and expenses:
| | | | | | |
|
Benefits to policyholders
| | |
450.0
| | | |
440.1
| |
|
Interest credited
| | |
47.2
| | | |
40.4
| |
|
Operating expenses
| | |
123.9
| | | |
118.3
| |
|
Commissions and bonuses
| | |
55.4
| | | |
58.8
| |
|
Premium taxes
| | |
10.0
| | | |
9.4
| |
|
Interest expense
| | |
9.7
| | | |
9.7
| |
|
Net increase in deferred acquisition costs, value of business
acquired and other intangible assets
| | | | | | |
|
|
(2.5
|
)
|
|
|
(8.4
|
)
|
|
Total benefits and expenses
| |
|
693.7
|
|
|
|
668.3
|
|
| | | | | |
|
|
Income (loss) before income taxes:
| | | | | | |
|
Insurance Services
| | |
46.1
| | | |
46.0
| |
|
Asset Management
| | |
15.0
| | | |
18.9
| |
|
Other
| |
|
(13.4
|
)
|
|
|
(15.5
|
)
|
|
Total income before income taxes
| | |
47.7
| | | |
49.4
| |
|
Income taxes
| |
|
12.5
|
|
|
|
16.1
|
|
|
Net income
| |
|
35.2
|
|
|
|
33.3
|
|
| | | | | |
|
|
Other comprehensive income (loss), net of tax:
| | | | | | |
Unrealized gains (losses) on securities — available-for-sale:
| | | | | | |
Net unrealized capital gains on securities — available-for-sale
| | |
1.3
| | | |
(9.0
|
)
|
Reclassification adjustment for net capital gains included in net
income
| | | | | | |
| |
(0.8
|
)
| | |
(2.8
|
)
|
|
Employee benefit plans:
| | | | | | |
Prior service credit and net losses arising during the period, net
| | | | | | |
| |
0.4
| | | |
1.5
| |
Reclassification adjustment for amortization to net pension cost,
net
| | | | | | |
|
|
1.6
|
|
|
|
0.8
|
|
|
Total other comprehensive income (loss), net of tax
| |
|
2.5
|
|
|
|
(9.5
|
)
|
|
Comprehensive income
| |
$
|
37.7
|
|
|
$
|
23.8
|
|
| | | | | |
|
| Net income per common share: | | | | | | |
|
Basic
| |
$
|
0.79
| | |
$
|
0.72
| |
|
Diluted
| | |
0.79
| | | |
0.72
| |
| | | | | |
|
| Weighted-average common shares outstanding: | | | | | | |
|
Basic
| | |
44,327,122
| | | |
45,933,253
| |
|
Diluted
| | |
44,461,841
| | | |
46,190,915
| |
| | | | | |
|
|
| | |
| | |
| StanCorp Financial Group, Inc. |
| Consolidated Balance Sheets |
|
(Dollars in millions)
|
|
(Unaudited)
|
| |
|
|
|
|
|
| |
March 31,
| |
December 31,
|
| |
2012
|
|
2011
|
|
Assets:
| | | | | | |
|
Investments:
| | | | | | |
|
Fixed maturity securities—available-for-sale (amortized cost of
$6,304.2 and $6,209.9)
| |
$
|
6,863.8
| |
$
|
6,769.5
|
|
Commercial mortgage loans, net
| | |
4,980.2
| | |
4,902.3
|
|
Real estate, net
| | |
101.5
| | |
92.7
|
|
Other invested assets
| |
|
177.4
|
|
|
130.9
|
|
Total investments
| | |
12,122.9
| | |
11,895.4
|
|
Cash and cash equivalents
| | |
116.0
| | |
138.4
|
|
Premiums and other receivables
| | |
123.2
| | |
118.8
|
|
Accrued investment income
| | |
114.0
| | |
111.7
|
|
Amounts recoverable from reinsurers
| | |
953.7
| | |
949.3
|
|
Deferred acquisition costs, value of business acquired
| | | | | | |
|
and other intangible assets, net
| | |
349.1
| | |
344.9
|
|
Goodwill
| | |
36.0
| | |
36.0
|
|
Property and equipment, net
| | |
98.7
| | |
101.3
|
|
Other assets
| | |
102.1
| | |
113.9
|
|
Separate account assets
| |
|
5,083.4
|
|
|
4,593.5
|
|
Total assets
| |
$
|
19,099.1
|
|
$
|
18,403.2
|
| | | | | |
|
|
Liabilities and shareholders' equity:
| | | | | | |
|
Liabilities:
| | | | | | |
|
Future policy benefits and claims
| |
$
|
5,714.5
| |
$
|
5,683.6
|
|
Other policyholder funds
| | |
5,122.5
| | |
5,078.1
|
|
Deferred tax liabilities, net
| | |
117.7
| | |
103.0
|
|
Short-term debt
| | |
251.3
| | |
251.2
|
|
Long-term debt
| | |
301.3
| | |
300.9
|
|
Other liabilities
| | |
474.9
| | |
402.5
|
|
Separate account liabilities
| |
|
5,083.4
|
|
|
4,593.5
|
|
Total liabilities
| |
|
17,065.6
|
|
|
16,412.8
|
| | | | | |
|
|
Commitments and contingencies
| | | | | | |
| | | | | |
|
|
Shareholders' equity:
| | | | | | |
|
Preferred stock, 100,000,000 shares authorized; none issued
| | |
-
| | |
-
|
|
Common stock, no par, 300,000,000 shares authorized;
| | | | | | |
|
44,377,419 and 44,268,859 shares issued at March 31,2012
| | | | | | |
|
and December 31, 2011, respectively
| | |
87.8
| | |
82.4
|
|
Accumulated other comprehensive income
| | |
237.6
| | |
235.1
|
|
Retained earnings
| |
|
1,708.1
|
|
|
1,672.9
|
|
Total shareholders' equity
| |
|
2,033.5
|
|
|
1,990.4
|
|
Total liabilities and shareholders' equity
| |
$
|
19,099.1
|
|
$
|
18,403.2
|
| | | | | |
|
|
| | | | | | |
| StanCorp Financial Group, Inc. |
| Statistical and Operating Data at or for the Periods Indicated |
|
(Dollars in millions - except share data)
|
|
(Unaudited)
|
| |
|
|
|
|
|
|
| |
Three Months Ended
|
| |
March 31,
|
| |
|
2012
|
|
|
2011
|
| Benefit ratio: | | | | | | | |
| % of total revenues: | | | | | | | |
|
Group Insurance (including interest credited)
| | |
72.8
|
%
| |
73.1
|
%
|
|
Individual Disability Insurance
| | |
40.1
| | |
43.6
| |
|
Insurance Services segment (including interest credited)
| | |
69.9
| | |
70.5
| |
| % of total premiums: | | | | | | | |
|
Group Insurance (including interest credited)
| | |
83.5
|
%
| |
84.2
|
%
|
|
Individual Disability Insurance
| | |
52.3
| | |
57.2
| |
|
Insurance Services segment (including interest credited)
| | |
81.0
| | |
82.1
| |
| | | | | | |
|
| Reconciliation of non-GAAP financial measures: | | | | | | | |
|
Net income
| |
$
|
35.2
| |
$
|
33.3
| |
|
After-tax net capital losses
| |
|
(0.1)
|
|
|
(1.5)
|
|
|
Net income excluding after-tax net capital losses
| |
$
|
35.3
|
|
$
|
34.8
|
|
| | | | | | |
|
|
Net capital losses
| |
$
|
(0.2)
| |
$
|
(2.5)
| |
|
Tax benefit on net capital losses
| |
|
(0.1)
|
|
|
(1.0)
|
|
|
After-tax net capital losses
| |
$
|
(0.1)
|
|
$
|
(1.5)
|
|
| | | | | | |
|
|
Diluted earnings per common share:
| | | | | | | |
|
Net income
| |
$
|
0.79
| |
$
|
0.72
| |
|
After-tax net capital losses
| |
|
-
|
|
|
(0.03)
|
|
|
Net income excluding after-tax net capital losses
| |
$
|
0.79
|
|
$
|
0.75
|
|
| | | | | | |
|
|
Shareholders' equity
| |
$
|
2,033.5
| |
$
|
1,883.8
| |
|
Accumulated other comprehensive income
| |
|
237.6
|
|
|
151.4
|
|
|
Shareholders' equity excluding accumulated other comprehensive income
| | | | | | | |
|
$
|
1,795.9
|
|
$
|
1,732.4
|
|
| | | | | | |
|
| | | | | | |
|
|
Net income return on average equity
| | |
7.0
|
%
| |
7.1
|
%
|
|
Net income return on average equity (excluding accumulated other
comprehensive income)
| | | | | | | |
| |
7.9
| | |
7.7
| |
|
Net income return on average equity (excluding after-tax net capital
losses and accumulated other comprehensive income)
| | | | | | | |
| | | | | |
|
| |
8.0
| | |
8.0
| |
| | | | | | |
|
| Statutory data - insurance subsidiaries: | | | | | | | |
|
Net gain from operations before federal income taxes and realized
capital gains (losses)
| | | | | | | |
|
$
|
42.1
| |
$
|
43.7
| |
|
Net gain from operations after federal income taxes and before
realized capital gains (losses)
| | | | | | | |
| |
36.8
| | |
26.6
| |
| | | | | | |
|
| |
March 31,
| |
December 31,
|
| |
2012
|
|
2011
|
| | | | | | |
|
|
Capital and surplus
| |
$
|
1,219.8
| |
$
|
1,193.1
| |
|
Asset valuation reserve
| | |
111.7
| | |
107.2
| |
| | | | | | |
|
Contacts:
StanCorp Financial Group, Inc.
Investor Relations and Financial
Media
Jeff Hallin, 971-321-6127
jeff.hallin@standard.com
or
General
Media
Bob Speltz, 971-321-3162
bob.speltz@standard.com
Source: StanCorp Financial Group, Inc.
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