StanCorp Financial Group Inc. (SFG - Analyst Report) reported third-quarter 2013 operating net earnings of $1.45 per share, which exceeded the Zacks Consensus Estimate of $1.04 by 39%. Results were 38% ahead of $1.05 earned in the prior-year quarter.
The improvement came on the back of increased favorable claims experience in the group insurance business and higher earnings in the company’s Asset Management segment.
Including after-tax net capital losses of 13 cents a share, net earnings of StanCorp were $1.32 per share in the third quarter, up 31% year over year.
StanCorp’s total revenue in the third quarter of 2013 was $702.0 million, down 1.6% year over year from $713.7 million. The decline came from waning premiums (down 0.8% year over year) as well as lower net investment income (down 2.5% year over year). Results were also below the Zacks Consensus Estimate of $711 million.
Total benefits and expenses of StanCorp stood at $620.2 million in the reported quarter, down 4.9% year over year. A decline in benefits to policy holders (down 6.5%), operating expense (down 0.4%), and interest expense (down 27.1%) from the prior-year quarter aided the results.
The Insurance Services business reported pre-tax income of $78.3 million for the third quarter of 2013, up 25% year over year. The surge was driven by increased favorable claims experience in the group insurance business. However, lower group insurance premiums and a lower discount rate used for new long-term disability claim reserves limited the upside.
Premiums for the segment in the third quarter were $523 million, down 0.9% from $527.5 million in the year-ago quarter. Group insurance premiums declined 1.7% year over year to $474.7 million. The results were affected by higher experience rated refunds (ERR) and lower group insurance sales. However, individual disability insurance premiums increased 8.8% year over year to $48.3 million during the reported quarter.
Sales from the group insurance business increased 44.9% year over year to $29.7 million in the reported quarter due to pricing competition.
Group Insurance benefit ratio was 75.1% compared with 79.7% in the year-ago quarter. Individual disability benefit ratio was 72.9% in the quarter against 75.7% in the prior-year period.
The Asset Management business reported pre-tax income of $21.9 million, up 25.1% year over year from $17.5 million. The improvement came on higher administrative fee revenues and spread margin stemming from increase in assets under administration and lower benefits to policy holders.
Assets under administration were $23.8 billion as of Sep 30, 2013, up 9.9% from $21.7 billion as of Sep 30, 2012. It largely reflected higher equity values for retirement plan assets under administration.
During the quarter, StanCorp Mortgage Investors originated $414.1 million of commercial mortgage loans, higher than $347.3 million in the comparable year-ago quarter.
The Other segment registered a pre-tax loss of $9.7 million in third-quarter 2013 compared with $16 million in the third quarter of 2012.
As of Sep 30, 2013, StanCorp’s investment portfolio comprised approximately 54.8% fixed maturity securities, 43% commercial mortgage loans, and 2.2% real estate and other invested assets. The overall weighted-average credit rating of the fixed maturity securities portfolio assigned by Standard and Poor’s was “A-”.
As of Sep 30, 2013, cash and cash equivalents for StanCorp were $345.4 million, significantly up from $160.7 million as of Dec 31, 2012. Long-term debt of StanCorp was $551.4 million as of Sep 30, 2013, flat with 2012-end level.
Book value per share of StanCorp as on Sep 30, 2013 was $48.12, down 2% from $49.08 at Sep 30, 2012.
Share Repurchase Update
In third-quarter 2013, StanCorp purchased 0.82 million shares for $44.1 million and is left with 1.5 million shares under its authorization, scheduled to expire on Dec 31, 2014.
StanCorp currently carries a Zacks Rank #1 (Strong Buy). Among other life insurers, Torchmark Corporation (TMK - Analyst Report) with will report its results on Oct 23, after the market closes. Protective Life Corporation and Lincoln National Corporation (LNC - Analyst Report) will report their results on Oct 30. All these stocks carry a Zacks Rank #2 (Buy).