StanCorp Financial Group, Inc. (NYSE:SFG) today reported net
income of $57.7 million, or $1.30 per diluted share for the second
quarter of 2013, compared to net income of $20.0 million, or $0.45
per diluted share for the second quarter of 2012. After-tax net
capital losses were $1.6 million for the second quarter of 2013,
compared to $2.5 million for the second quarter of 2012.
Net income excluding after-tax net capital losses was $1.34 per
diluted share for the second quarter of 2013, compared to $0.51 per
diluted share for the second quarter of 2012 (see discussion of
non-GAAP financial measures below). The increase was primarily due
to more favorable claims experience in the group long term
disability insurance business, lower operating expenses as a result
of expense management, and higher earnings in the Company’s Asset
Management segment compared to the second quarter of 2012.
Operating expenses were reduced by $10.3 million for the second
quarter of 2013 due to the amendment of the Company’s
postretirement medical plan. This reduction will not reoccur in the
second half of 2013.
“Our second quarter results continue our strong start to 2013
with solid earnings growth in all of our businesses,” said Greg
Ness, chairman, president and chief executive officer. “I am
pleased with the significant improvement in group insurance claims
experience, the outstanding results in our Asset Management segment
and the reduction in operating expenses as a result of our expense
management actions. We remain firmly committed to our growth and
profitability initiatives in all of our lines of business.”
Year-to-Date
Net income was $104.5 million, or $2.35 per diluted share for
the first six months of 2013, compared to net income of $55.2
million, or $1.24 per diluted share for the first six months of
2012. After-tax net capital losses were $2.6 million for the first
six months of 2013 and 2012.
Net income excluding after-tax net capital losses for the first
six months of 2013 was $2.41 per diluted share, compared to $1.30
per diluted share for the first six months of 2012. The increase
was primarily due to more favorable claims experience in the group
long term disability insurance business, lower operating expenses
as a result of expense management for the first six months of 2013,
and higher earnings in the Company’s Asset Management segment
compared to the first six months of 2012. Operating expenses were
reduced by $20.6 million for the first six months of 2013 due to
the amendment of the Company’s postretirement medical plan.
Business Segments
Insurance Services
The Insurance Services segment reported income before income
taxes of $61.4 million for the second quarter of 2013, compared to
$23.3 million for the second quarter of 2012. The increase was
primarily due to more favorable claims experience in the group long
term disability insurance business and lower operating expenses as
a result of expense management, partially offset by lower group
insurance premiums and a lower discount rate used for newly
established long term disability claim reserves.
Premiums for the Insurance Services segment decreased 2.3% to
$533.7 million for the second quarter of 2013 from $546.5 million
for the second quarter of 2012. Group insurance premiums for the
second quarter of 2013 were $487.0 million, a 3.5% decrease from
the second quarter of 2012. The decrease in group insurance
premiums was primarily due to higher experience rated refunds
(“ERRs”) for the second quarter of 2013 and lower group insurance
sales for the first six months of 2013.
ERRs decreased group insurance premiums by $4.3 million for the
second quarter of 2013 and increased group insurance premiums by
$7.1 million for the second quarter of 2012. Excluding ERRs, group
insurance premiums decreased 1.3% for the second quarter of 2013
compared to the second quarter of 2012. ERRs represent a cost
sharing arrangement with certain group contract holders that
provides refunds when claims experience is more favorable than
contractual benchmarks, and provides for additional premiums to be
paid when claims experience is less favorable than contractual
benchmarks. ERRs can fluctuate widely from quarter to quarter
depending on the underlying experience of the specific
contracts.
Sales for the group insurance businesses, reported as annualized
new premiums, were $25.2 million and $22.3 million for the second
quarters of 2013 and 2012, respectively.
The discount rate used for newly established long term
disability claim reserves was 3.75% for the second quarter of 2013,
compared to 4.00% for the second quarter of 2012. The 25 basis
point lower discount rate for the second quarter of 2013 resulted
in a corresponding decrease in quarterly pre-tax income of
approximately $2 million.
The Company’s new money investment rate for the second quarter
of 2013 was 4.16%, compared to 4.73% for the second quarter of
2012. The 12-month reserve interest margin between the Company’s
new money rate and average reserve discount rate was 53 basis
points for the second quarter of 2013, compared to 62 basis points
for the second quarter of 2012.
The benefit ratio for group insurance products, measured as
benefits to policyholders and interest credited as a percentage of
premiums, was 80.4% for the second quarter of 2013, compared to
88.5% for the second quarter of 2012. The 25 basis point lower
discount rate used for newly established long term disability claim
reserves increased the group insurance benefit ratio for the second
quarter of 2013 by approximately 40 basis points. Excluding the
effect of the lower discount rate, the group insurance benefit
ratio improved approximately 850 basis points compared to the
second quarter of 2012. The decrease in the group insurance benefit
ratio was primarily due to more favorable claims experience in the
group long term disability insurance business for the second
quarter of 2013. Claims experience can fluctuate widely from
quarter to quarter and tends to be more stable when measured over a
longer period of time.
Individual disability insurance premiums were $46.7 million for
the second quarter of 2013, compared to $41.8 million for the
second quarter of 2012.
The benefit ratio for individual disability insurance was 63.4%
for the second quarter of 2013, compared to 60.8% for the second
quarter of 2012. 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 businesses.
Asset Management
The Asset Management segment reported income before income taxes
of $20.7 million for the second quarter of 2013, compared to $15.2
million for the second quarter of 2012. The increase in income
before income taxes was primarily due to higher administrative fee
revenues and spread margin as a result of the increase in assets
under administration, and lower operating expenses. Income before
income taxes also increased $1.6 million for the second quarter of
2013 and decreased $0.6 million for the second quarter of 2012 as a
result of the change in fair values of the hedging assets and
liabilities related to the Company’s equity-indexed annuity
product.
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, increased 8.3% to $22.83 billion
at June 30, 2013, compared to $21.07 billion at June 30, 2012,
primarily reflecting higher equity values for retirement plan
assets under administration.
StanCorp Mortgage Investors originated $364.1 million and $300.2
million of commercial mortgage loans for the second quarters of
2013 and 2012, respectively. The increase in originations was the
result of increased activity in the commercial real estate
market.
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 $3.6 million for the second quarter of 2013,
compared to a loss before income taxes of $15.9 million for the
second quarter of 2012.
Net capital losses were $2.6 million for the second quarter of
2013, compared to net capital losses of $4.0 million for the second
quarter of 2012. The loss before income taxes excluding net capital
losses was $1.0 million for the second quarter of 2013, compared to
$11.9 million for the second quarter of 2012. The lower loss before
income taxes for the second quarter of 2013 was primarily due to
lower operating expenses as a result of expense management.
Operating expenses for the Other category were reduced $10.3
million for the second quarter of 2013 due to the amendment of the
Company’s postretirement medical plan.
Fixed Maturity Securities and Commercial Mortgage
Loans
At June 30, 2013, the Company’s investment portfolio consisted
of 55.2% fixed maturity securities, 42.5% 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 June 30, 2013.
At June 30, 2013, commercial mortgage loans in the Company’s
investment portfolio totaled $5.43 billion on approximately 6,480
commercial mortgage loans. The average loan balance retained by the
Company in the portfolio was $0.8 million. Commercial mortgage
loans more than 60 days delinquent were 0.23% and 0.31% of the
portfolio balance at June 30, 2013 and 2012, respectively.
Capital and Book Value
The Company’s available capital was approximately $410 million
at June 30, 2013 and March 31, 2013. The income from its insurance
subsidiaries for the second quarter of 2013 was offset by a higher
estimated risk-based capital (“RBC”) requirement, share repurchases
and an allocation for expected annual interest and shareholder
dividends. Available capital includes capital at its insurance
subsidiaries in excess of the Company’s target RBC ratio of 300%
and cash and capital at the holding company and non-insurance
subsidiaries. The RBC ratio was estimated to be 365% at June 30,
2013.
The Company’s book value per share decreased 0.5% from $47.27 at
June 30, 2012, to $47.04 at June 30, 2013, primarily due to the
decrease in Accumulated Other Comprehensive Income (“AOCI”). The
Company’s book value per share excluding AOCI grew 7.8% from $40.97
at June 30, 2012, to $44.16 at June 30, 2013.
Share Repurchases
For the second quarter of 2013, the Company repurchased 382,495
shares at a total cost of $16.9 million, which reflects a volume
weighted-average price of $44.14. At June 30, 2013, the Company had
2.4 million shares remaining under its repurchase authorization,
which expires December 31, 2014. Diluted weighted-average shares
outstanding for the second quarters of 2013 and 2012 were
44,398,120 and 44,354,720, 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, origination and
servicing of fixed-rate commercial mortgage loans, 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 July 24, 2013, at noon Eastern time (9:00 a.m. Pacific
time) to review StanCorp’s second quarter 2013 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 September
13, 2013.
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 the conference
identification number 416270. The telephone replay will be
available through August 2, 2013.
Forward-Looking Information
Some of the statements contained in this earnings release,
including guidance, estimates, projections, statements related to
business plans, strategies, objectives and expected operating
results and the assumptions upon which those statements are based,
are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking
statements also include, without limitation, any statement that
includes words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “estimates,” “seeks,” “will be,” “will
continue,” “will likely result” and similar expressions that are
predictive in nature or that depend on or refer to future events or
conditions. The Company’s forward-looking statements are not
guarantees of future performance and involve uncertainties that are
difficult to predict. They involve risks and uncertainties which
may cause actual results to differ materially from the
forward-looking statements. The risks and uncertainties are
detailed in reports filed by StanCorp with the Securities and
Exchange Commission, including Forms 10-Q and 10-K.
As a provider of financial products and services, our actual
results of operations may vary significantly in response to
economic trends, interest rates, investment performance, claims
experience, operating expenses and pricing. Given these
uncertainties or circumstances, investors are cautioned not to
place undue reliance on forward-looking statements as a predictor
of future results. 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.
The following factors could cause the Company’s results to
differ materially from management expectations suggested by
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 use of capital, including
the ability to achieve financing through debt or equity.
- Changes in liquidity needs and the
liquidity of assets in its investment portfolios.
- 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 customer persistency.
- Adequacy of reserves established for
future policy benefits.
- The effect of changes in interest rates
on reserves, policyholder funds, investment income, bond call
premiums 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, 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 bond
call premiums, commercial mortgage loan prepayment fees and
commercial mortgage loan 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.
- Environmental liability exposure
resulting from commercial mortgage loan and real estate
investments.
STANCORP FINANCIAL GROUP,
INC.UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME(Dollars in millions-except per share data)
Three Months EndedJune 30,
Six Months EndedJune 30, 2013
2012 2013 2012 Revenues: Premiums:
Insurance Services $ 533.7 $ 546.5 $ 1,066.9 $ 1,097.6 Asset
Management 1.4 1.6 4.4
3.8 Total premiums 535.1 548.1
1,071.3 1,101.4 Administrative fees:
Insurance Services 3.5 4.2 7.0 7.3 Asset Management 31.5 30.0 61.4
59.9 Other (4.6 ) (4.4 ) (9.3 ) (8.8 ) Total
administrative fees 30.4 29.8
59.1 58.4 Net investment income: Insurance
Services 79.9 83.6 161.9 168.2 Asset Management 70.7 64.6 144.0
137.7 Other 3.5 3.2 7.4
5.2 Total net investment income 154.1
151.4 313.3 311.1 Net capital
losses:
Total other-than-temporary impairment
losses on fixed maturity securities—available-for-sale
(0.3 ) (1.7 ) (0.6 ) (2.5 ) All other net capital losses
(2.3 ) (2.3 ) (3.6 ) (1.7 ) Total net capital
losses (2.6 ) (4.0 ) (4.2 ) (4.2 )
Total revenues 717.0 725.3
1,439.5 1,466.7 Benefits and
expenses: Benefits to policyholders 424.1 475.9 865.9 925.9
Interest credited 40.3 39.2 86.9 86.4 Operating expenses 104.4
116.7 209.5 240.6 Commissions and bonuses 50.8 51.3 104.6 106.7
Premium taxes 9.1 9.5 18.6 19.5 Interest expense 8.6 9.8 17.1 19.5
Net decrease (increase) in deferred
acquisition costs, value of business acquired and other intangible
assets
1.2 0.3 (1.9 ) (2.2 )
Total benefits and expenses 638.5 702.7
1,300.7 1,396.4 Income
(loss) before income taxes: Insurance Services 61.4 23.3 110.2 69.4
Asset Management 20.7 15.2 37.9 30.2 Other (3.6 )
(15.9 ) (9.3 ) (29.3 ) Total income before income
taxes 78.5 22.6 138.8 70.3 Income taxes 20.8
2.6 34.3 15.1 Net income
$ 57.7 $ 20.0 $ 104.5 $ 55.2 Net
income per common share: Basic $ 1.30 $ 0.45 $ 2.36 $ 1.25 Diluted
1.30 0.45 2.35 1.24 Weighted-average common shares outstanding:
Basic 44,257,095 44,266,776 44,341,158 44,296,945 Diluted
44,398,120 44,354,720 44,445,155 44,407,325
STANCORP FINANCIAL GROUP,
INC.UNAUDITED CONSOLIDATED BALANCE SHEETS(Dollars in
millions)
June 30,2013 December
31,2012
A S S E T
S
Investments: Fixed maturity securities—available-for-sale
(amortized cost of $6,659.6 and $6,517.7) $ 7,034.3 $ 7,190.7
Commercial mortgage loans, net 5,426.2 5,267.4 Real estate, net
90.8 95.5 Other invested assets 201.7 175.5 Total
investments 12,753.0 12,729.1 Cash and cash equivalents 199.7 160.7
Premiums and other receivables 126.9 123.0 Accrued investment
income 109.6 109.3 Amounts recoverable from reinsurers 980.8 972.4
Deferred acquisition costs, value of business acquired and other
intangible assets, net 367.2 346.5 Goodwill 36.0 36.0 Property and
equipment, net 83.8 90.7 Other assets 59.7 69.3 Separate account
assets 5,629.9 5,154.3 Total assets $ 20,346.6
$ 19,791.3
L I A B I L I T I
E S A N D S H A R E H O L D E R
S’ E Q U I T Y
Liabilities: Future policy benefits and claims $ 5,861.3 $
5,843.2 Other policyholder funds 5,759.2 5,531.1 Deferred tax
liabilities, net 61.0 148.1 Short-term debt 1.1 1.0 Long-term debt
551.4 551.4 Other liabilities 405.7 393.2 Separate account
liabilities 5,629.9 5,154.3 Total liabilities
18,269.6 17,622.3 Commitments and
contingencies Shareholders’ equity: Preferred stock,
100,000,000 shares authorized; none issued --- ---
Common stock, no par, 300,000,000 shares
authorized; 44,149,730 and 44,419,448 shares issued at June 30,
2013 and December 31, 2012, respectively
75.1 89.6 Accumulated other comprehensive income 127.3 309.3
Retained earnings 1,874.6 1,770.1 Total
shareholders' equity 2,077.0 2,169.0 Total
liabilities and shareholders’ equity $ 20,346.6 $ 19,791.3
STANCORP FINANCIAL GROUP,
INC.UNAUDITED STATISTICAL AND OPERATING DATAAT OR FOR
THE PERIODS INDICATED(Dollars in millions-except per share
data)
Three Months EndedJune 30,
Six Months EndedJune 30, 2013
2012 2013 2012 Benefit
ratio: % of total revenues: Group Insurance (including
interest credited) 70.2 % 77.1 % 71.6 % 74.9 % Individual
Disability Insurance 49.6 46.3 48.9 43.1 Insurance Services segment
(including interest credited) 68.2 74.4 69.4 72.1
% of total
premiums: Group Insurance (including interest credited) 80.4 %
88.5 % 82.1 % 86.0 % Individual Disability Insurance 63.4 60.8 62.6
56.4 Insurance Services segment (including interest credited) 78.9
86.4 80.4 83.7
Reconciliation of non-GAAP financial
measures: Net income $ 57.7 $ 20.0 $ 104.5 $ 55.2 After-tax net
capital losses (1.6) (2.5) (2.6) (2.6)
Net income excluding after-tax net capital losses $ 59.3 $ 22.5 $
107.1 $ 57.8 Net capital losses $ (2.6) $ (4.0) $ (4.2) $
(4.2) Tax benefit on net capital losses (1.0) (1.5)
(1.6) (1.6) After-tax net capital losses $ (1.6) $
(2.5) $ (2.6) $ (2.6) Diluted earnings per common share: Net
income $ 1.30 $ 0.45 $ 2.35 $ 1.24 After-tax net capital losses
(0.04) (0.06) (0.06) (0.06) Net income
excluding after-tax net capital losses $ 1.34 $ 0.51 $ 2.41 $ 1.30
Shareholders' equity $ 2,077.0 $ 2,085.5 Accumulated other
comprehensive income 127.3 277.9 Shareholders'
equity excluding accumulated other comprehensive income $ 1,949.7 $
1,807.6 Net income return on average equity 9.8 % 5.4 %
Net income return on average equity
(excluding accumulated other comprehensive income)
11.0 6.2
Net income return on average equity
(excluding after-tax net capital losses and accumulated other
comprehensive income)
11.2 6.5
Statutory data - insurance subsidiaries: Net
gain from operations before federal income taxes and realized
capital gains (losses) $ 66.4 $ 31.0 $ 95.3 $ 73.1 Net gain from
operations after federal income taxes and before realized capital
gains (losses) 42.3 28.2 66.7 65.0
June
30,2013 December 31,2012 Capital
and surplus $ 1,268.8 $ 1,259.6 Asset valuation reserve 132.8 117.5
StanCorp Financial Group, Inc.Investor Relations and Financial
MediaJeff Hallin, 971-321-6127jeff.hallin@standard.comorGeneral MediaBob Speltz,
971-321-3162bob.speltz@standard.com
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