StanCorp Financial Group, Inc. (NYSE: SFG) today reported net
income of $71.1 million, or $1.65 per diluted share for the third
quarter of 2014, compared to $59.0 million, or $1.32 per diluted
share, for the third quarter of 2013. After-tax net capital losses
were $3.4 million for the third quarter of 2014, compared to $5.5
million for the third quarter of 2013.
Net income excluding after-tax net capital losses was $1.73 per
diluted share for the third quarter of 2014, compared to $1.45 per
diluted share for the third quarter of 2013 (see discussion of
non-GAAP financial measures below). The increase in net income was
primarily due to more favorable claims experience in Employee
Benefits and Individual Disability for the third quarter of 2014,
partially offset by lower net investment income.
“Each of our businesses reported excellent results for the third
quarter of 2014, which included a very favorable benefit ratio for
Employee Benefits and strong earnings in our Asset Management
segment,” said Greg Ness, chairman, president and chief executive
officer. “We are very pleased with the performance of our
businesses, while recognizing that from quarter to quarter we will
experience both positive and negative claim fluctuations.”
Year-to-Date
Net income was $163.1 million, or $3.73 per diluted share for
the first nine months of 2014, compared to $163.5 million, or $3.67
per diluted share, for the first nine months of 2013. After-tax net
capital losses were $4.4 million for the first nine months of 2014,
compared to $8.1 million for the first nine months of 2013.
Net income excluding after-tax net capital losses for the first
nine months of 2014 was $3.83 per diluted share, compared to $3.85
per diluted share for the first nine months of 2013. The decrease
was primarily due to lower operating expenses for the first nine
months of 2013, which included savings due to an amendment of the
Company’s postretirement medical plan of $20.6 million, or $0.30
per diluted share, in the first half of 2013 that did not recur in
2014.
Business Segments
Insurance Services
Employee Benefits
Employee Benefits reported income before income taxes of $76.9
million for the third quarter of 2014, compared to $68.6 million
for the third quarter of 2013. The increase was primarily due to
more favorable claims experience, partially offset by lower
premiums and lower net investment income.
Employee Benefits premiums decreased 4.4% from $474.7 million
for the third quarter of 2013 to $453.9 million for the third
quarter of 2014. The decrease was primarily due to higher
experience rated refunds (“ERRs”) and lower Employee Benefits sales
in the first half of 2014 compared to prior periods. ERRs decreased
premiums by $10.3 million and $3.2 million for the third quarter of
2014 and 2013, respectively. Excluding the effects of ERRs,
premiums decreased 2.9% for the third quarter of 2014 compared to
the third quarter of 2013.
Employee Benefits annualized new sales were $52.8 million for
the third quarter of 2014, compared to $29.7 million for the third
quarter of 2013. The increase reflected increased proposal
activity, which management believes was due to employers being less
distracted by economic and federal health care reform issues.
The benefit ratio for Employee Benefits, measured as benefits to
policyholders and interest credited as a percentage of premiums,
was 70.9% for the third quarter of 2014, compared to 75.1% for the
third quarter of 2013. The decrease in the benefit ratio for the
third quarter of 2014 was primarily due to more favorable claims
experience in the Company’s group life and group disability
businesses for the third quarter of 2014. The benefit ratio can
fluctuate widely from quarter to quarter and has historically been
lower in the second half of the year.
The discount rate used for newly established, long term
disability claim reserves was 4.00% for the third quarter of 2014,
compared to 3.75% for the third quarter of 2013. A 25 basis point
increase or decrease in the discount rate currently results in a
corresponding increase or decrease in quarterly pre-tax income of
approximately $2 million.
The Company’s new money investment rate was 4.41% for the third
quarter of 2014, compared to 4.23% for the third quarter of 2013.
The 12-month reserve interest margin between the Company’s new
money rate and average reserve discount rate was 56 basis points
for the third quarter of 2014, compared to 54 basis points for the
third quarter of 2013.
Individual Disability
Individual Disability reported income before income taxes of
$12.4 million for the third quarter of 2014, compared to $9.7
million for the third quarter of 2013. The increase was primarily
due to more favorable claims experience.
Individual Disability premiums were $50.3 million for the third
quarter of 2014, compared to $48.3 million for the third quarter of
2013.
The benefit ratio for Individual Disability was 67.8% for the
third quarter of 2014, compared to 72.9% for the third quarter of
2013. Due to the relatively small size of the Individual Disability
business, the benefit ratio generally fluctuates more on a
quarterly basis and tends to be more stable when measured on an
annual basis.
Asset Management
Asset Management reported income before income taxes of $20.8
million for the third quarter of 2014, compared to $21.9 million
for the third quarter of 2013.
Assets under administration, which include assets related to
retirement plans, individual fixed annuities, private client wealth
management and commercial mortgage loans managed for third-party
investors, increased 9.2% to $25.97 billion at September 30, 2014,
from $23.79 billion at September 30, 2013, primarily reflecting
higher equity values for retirement plan assets under
administration.
Commercial mortgage loan originations were $303.5 million for
the third quarter of 2014, compared to $414.1 million for the third
quarter of 2013. The decrease reflected increased competition in
the mortgage origination 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 primarily related to the
disposition or impairment of the Company’s invested assets and
adjustments made in consolidation.
The Other category reported a loss before income taxes of $13.2
million for the third quarter of 2014, compared to $18.4 million
for the third quarter of 2013. Net capital losses were $5.2 million
for the third quarter of 2014, compared to $8.7 million for the
third quarter of 2013. The loss before income taxes excluding net
capital losses was $8.0 million for the third quarter of 2014,
compared to $9.7 million for the third quarter of 2013, reflecting
lower interest expense as a result of debt repurchased earlier in
the year.
Cash and Investments
At September 30, 2014, the Company’s total cash and investments
consisted of 56.4% fixed maturity securities, 39.3% commercial
mortgage loans, 2.4% other invested assets and real estate, and
1.9% cash and cash equivalents. The overall weighted-average credit
rating of the fixed maturity securities portfolio was A- (Standard
& Poor’s) at September 30, 2014.
At September 30, 2014, commercial mortgage loans in the
Company’s investment portfolio totaled $5.34 billion on
approximately 6,500 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 0.19%
of the portfolio balance at September 30, 2014, compared to 0.35%
at September 30, 2013.
Book Value
The Company’s book value per share increased 10.9% from $48.12
at September 30, 2013 to $53.38 at September 30, 2014. Accumulated
other comprehensive income (“AOCI”) increased $67.0 million from
$121.7 million at September 30, 2013 to $188.7 million at September
30, 2014, primarily due to an increase in net unrealized gains in
the Company’s fixed maturity securities portfolio related to lower
market interest rates. The Company’s book value per share excluding
AOCI increased 7.9% from $45.36 at September 30, 2013 to $48.94 at
September 30, 2014 (see discussion of non-GAAP financial measures
below).
Capital Management
The Company deployed approximately $166 million of capital
through the repurchase of shares and debt for the first nine months
of 2014.
Share Repurchases
For the third quarter of 2014, the Company repurchased 530,898
shares at a total cost of $33.2 million, which reflects a volume
weighted-average price per share of $62.45.
For the first nine months of 2014, the Company repurchased
1,936,976 shares at a total cost of $119.1 million, which reflects
a volume weighted-average price per share of $61.48.
At September 30, 2014, the Company had approximately 2.4 million
shares remaining under its share repurchase authorization. Diluted
weighted-average shares outstanding were 43,184,170 for the third
quarter of 2014, compared to 44,610,358 for the third quarter of
2013.
Debt Repurchase
In the first quarter of 2014, the Company repurchased $47.1
million of its 6.90% junior subordinated debentures (“Subordinated
Debt”), which matures on June 1, 2067 and is non-callable prior to
June 1, 2017. The Company had $252.9 million of Subordinated Debt
outstanding at September 30, 2014.
Available Capital
The Company’s available capital was approximately $515 million
at September 30, 2014, a $15 million increase from June 30, 2014.
The income from its insurance subsidiaries and capital generated
from real estate sales for the third quarter of 2014 were offset by
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
risk-based capital (“RBC”) ratio of 300% and cash and capital at
the holding company and non-insurance subsidiaries. The RBC ratio
was approximately 435% at September 30, 2014. In the third quarter,
the Company transferred its group life reinsurance from an external
party to a wholly-owned subsidiary. The result of this transaction
did not change the Company’s available capital position, but it did
increase the RBC ratio at its insurance subsidiaries by
approximately 25%.
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.
Net income 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 net income return on
average equity. Measuring net income 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 net income 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 relations website at www.stancorpfinancial.com.
Conference Call
StanCorp management will hold an investor and analyst conference
call on October 23, 2014, at noon Eastern time (9:00 a.m. Pacific
time) to review StanCorp’s third quarter 2014 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 December
12, 2014.
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 13590114. The telephone replay will be
available through October 31, 2014.
Forward-Looking Information
Some of the statements contained in this earnings release,
including estimates, projections, expected operating results,
business plans, strategies, objectives, 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.
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, the Company’s
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 including annual
guidance, 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, including the
ability to pledge collateral as required.
- 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.
- Changes in accounting standards,
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 Ended Nine Months Ended
September 30, September 30, 2014
2013 2014 2013
Revenues: Premiums: Insurance Services $ 504.2 $ 523.0 $ 1,527.9 $
1,589.9 Asset Management 3.1 1.4
8.7 5.8 Total premiums 507.3
524.4 1,536.6 1,595.7
Administrative fees: Insurance Services 3.8 3.9 12.3 10.9 Asset
Management 33.9 31.3 99.2 92.7 Other (4.9 ) (4.7 )
(14.5 ) (14.0 ) Total administrative fees 32.8
30.5 97.0 89.6 Net
investment income: Insurance Services 73.7 79.0 224.3 240.9 Asset
Management 69.4 73.4 211.1 217.4 Other 4.0 3.4
12.1 10.8 Total net investment
income 147.1 155.8 447.5
469.1 Net capital losses: Total other-than-temporary
impairment losses on fixed maturity securities—available-for-sale
(0.3 ) (0.4 ) (0.4 ) (1.0 ) All other net capital losses
(4.9 ) (8.3 ) (6.4 ) (11.9 ) Total net capital
losses (5.2 ) (8.7 ) (6.8 ) (12.9 )
Total revenues 682.0 702.0
2,074.3 2,141.5 Benefits and
expenses: Benefits to policyholders 360.8 395.0 1,188.1 1,260.9
Interest credited 38.7 43.9 122.8 130.8 Operating expenses 119.9
114.8 348.3 324.3 Commissions and bonuses 53.2 51.9 154.7 156.5
Premium taxes 7.5 9.1 24.7 27.7 Interest expense 7.8 8.6 24.1 25.7
Net increase in deferred acquisition costs, value of business
acquired and other intangible assets (2.8 ) (3.1 )
(2.0 ) (5.0 ) Total benefits and expenses
585.1 620.2 1,860.7
1,920.9 Income (loss) before income taxes:
Insurance Services 89.3 78.3 185.7 188.5 Asset Management 20.8 21.9
59.2 59.8 Other (13.2 ) (18.4 ) (31.3 )
(27.7 ) Total income before income taxes 96.9 81.8 213.6 220.6
Income taxes 25.8 22.8 50.5
57.1 Net income $ 71.1 $ 59.0
$ 163.1 $ 163.5 Net income per common
share: Basic $ 1.66 $ 1.33 $ 3.76 $ 3.69 Diluted 1.65 1.32 3.73
3.67 Weighted-average common shares outstanding: Basic 42,777,337
44,271,160 43,324,269 44,307,863 Diluted 43,184,170 44,610,358
43,736,832 44,514,600
STANCORP FINANCIAL GROUP, INC. UNAUDITED
CONSOLIDATED BALANCE SHEETS (Dollars in millions)
September 30, December
31, 2014 2013
A S S E T
S
Investments: Fixed maturity securities—available-for-sale
(amortized cost of $7,268.4 and $6,811.9) $ 7,654.6 $ 7,120.5
Commercial mortgage loans, net 5,342.6 5,405.1 Real estate, net
44.3 65.7 Other invested assets 284.8 196.5 Total
investments 13,326.3 12,787.8 Cash and cash equivalents 263.3 379.3
Premiums and other receivables 132.0 118.2 Accrued investment
income 108.1 106.8 Amounts recoverable from reinsurers 987.4 988.1
Deferred acquisition costs, value of business acquired and other
intangible assets, net 376.2 371.3 Goodwill 36.0 36.0 Property and
equipment, net 82.6 84.7 Other assets 94.9 127.9 Separate account
assets 7,031.9 6,393.2 Total assets $ 22,438.7
$ 21,393.3
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 $ 5,818.0 $
5,846.9 Other policyholder funds 6,372.2 6,051.6 Deferred tax
liabilities, net 91.5 64.7 Short-term debt 1.2 1.5 Long-term debt
503.7 551.9 Other liabilities 352.9 330.7 Separate account
liabilities 7,031.9 6,393.2 Total liabilities
20,171.4 19,240.5 Commitments and
contingencies Shareholders’ equity: Preferred stock,
100,000,000 shares authorized; none issued --- ---
Common stock, no par, 300,000,000 shares
authorized; 42,475,479 and 44,126,389 shares issued and outstanding
at September 30, 2014 and December 31, 2013, respectively
--- 68.0 Accumulated other comprehensive income 188.7 134.7
Retained earnings 2,078.6 1,950.1 Total
shareholders' equity 2,267.3 2,152.8 Total
liabilities and shareholders’ equity $ 22,438.7 $ 21,393.3
STANCORP FINANCIAL GROUP, INC. UNAUDITED
STATISTICAL AND OPERATING DATA AT OR FOR THE PERIODS
INDICATED (Dollars in millions-except per share data)
Three Months Ended Nine Months Ended
September 30, September 30, 2014
2013 2014 2013
Benefit ratio: % of total revenues: Employee Benefits
(including interest credited) 62.1 % 65.5 % 68.2 % 69.6 %
Individual Disability 53.9 57.1 53.0 51.7
% of total
premiums: Employee Benefits (including interest credited) 70.9
% 75.1 % 78.0 % 79.8 % Individual Disability 67.8 72.9 67.1 66.1
Reconciliation of non-GAAP financial measures: Net
income $ 71.1 $ 59.0 $ 163.1 $ 163.5 After-tax net capital losses
(3.4 ) (5.5 ) (4.4 ) (8.1 ) Net income
excluding after-tax net capital losses $ 74.5 $ 64.5
$ 167.5 $ 171.6 Net capital losses $ (5.2 ) $
(8.7 ) $ (6.8 ) $ (12.9 ) Tax benefit on net capital losses
(1.8 ) (3.2 ) (2.4 ) (4.8 ) After-tax net
capital losses $ (3.4 ) $ (5.5 ) $ (4.4 ) $ (8.1 ) Net
income per diluted common share: Net income $ 1.65 $ 1.32 $ 3.73 $
3.67 After-tax net capital losses (0.08 ) (0.13 )
(0.10 ) (0.18 ) Net income excluding after-tax net
capital losses $ 1.73 $ 1.45 $ 3.83 $ 3.85
Shareholders' equity $ 2,267.3 $ 2,117.2 Accumulated
other comprehensive income 188.7 121.7
Shareholders' equity excluding accumulated
other comprehensive income
$ 2,078.6 $ 1,995.5 Net income return on
average equity 9.8 % 10.2 %
Net income return on average equity
(excluding accumulated other comprehensive income)
10.6 11.3
Net income return on average equity
(excluding after-tax net capital losses and accumulated other
comprehensive income)
10.9 11.9
Statutory data - insurance subsidiaries:*
Net gain from operations before federal
income taxes and realized capital gains (losses)
$ 108.9 $ 87.0 $ 207.8 $ 182.3
Net gain from operations after federal
income taxes and before realized capital gains (losses)
80.9 56.1 162.2 122.8
September 30, December
31, 2014 2013 Capital and
surplus $ 1,188.8 $ 1,359.0 Asset valuation reserve 131.7 127.5
* Statutory data represents Standard Insurance
Company and The Standard Life Insurance Company of New York
StanCorp Financial Group, Inc.Investor Relations and Financial
MediaJeff HallinVice President, Investor Relations and Capital
Markets971-321-6127jeff.hallin@standard.comorGeneral MediaBob
SpeltzSenior Director, Public
Affairs971-321-3162bob.speltz@standard.com
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