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Analyst Blog

With its fourth-quarter 2013 operating earnings of $1.49 per share exceeding the Zacks Consensus Estimate by 26.3%, StanCorp Financial Group Inc. (SFG - Analyst Report) has successfully delivered six straight quarters of positive surprises. The result also outpaced the year-ago quarter’s earnings by a substantial 67%.

Including after-tax net capital losses of 3 cents a share, net earnings of StanCorp came in at $1.46 per share in the fourth quarter, up 68% year over year.

For full year 2013, StanCorp posted record earnings of $5.34 per share which shot up 65% year over year and surpassed the Zacks Consensus Estimate by 5.9%. Net earnings improved 64% year over year.

StanCorp witnessed robust earnings growth in Employee Benefits and record earnings in Individual Disability and Asset Management. While pricing actions implemented started bearing fruit, efficient expense management lowered operating costs.

Operational Update

StanCorp’s total revenue in the fourth quarter amounted to $718.6 million, flat year over year as higher administrative fees (up 12.3% year over year) and net investment income (up 12% year over year) were offset by waning premiums (down 1% year over year) and higher net capital losses. Results however surpassed the Zacks Consensus Estimate of $707 million. Full year revenue came in at $2.86 billion, declining 1.3% year over year.

Total benefits and expenses of StanCorp, for the reported quarter, stood at $626.2 million, down 6% year over year. A decline in benefits to policy holders (down 11.2%) and premium taxes (down 14.6%) from the prior-year quarter aided the results.

Segment Update

The Insurance Services business reported pre-tax income of $83.9 million for the fourth quarter of 2013, up 75% year over year. The surge was driven by increased favorable claims experience in Employee Benefits and Individual Disability, partially offset by lower Employee Benefits premiums and lower net investment income.

Premiums for the segment in the fourth quarter were $527.5 million, down 0.9% year over year. Employee benefits premiums declined 1.4% year over year to $479 million. The results were affected by lower experience rated refunds (ERR) and lower Employee benefits sales. However, individual disability insurance premiums increased 5.0% year over year to $48.3 million during the reported quarter.

Sales from Employee benefits decreased 5.2% year over year to $69.6 million in the quarter due to pricing competition.

Group Insurance benefit ratio was 76.1% compared with 83.7% in the year-ago quarter. Individual disability benefit ratio was 57.5% against 73.8% in the comparable prior-year period.

The Asset Management business reported pre-tax income of $19.5 million, up 19.6% year over year. The improvement came on higher administrative fee revenues and spread margin stemming from increase in assets under administration.

Assets under administration were $24.7 billion as of Dec 31, 2013, up 13.8% from $21.7 billion as of Dec 31, 2012. It largely reflected higher equity values for retirement plan assets under administration.

During the quarter, StanCorp Mortgage Investors originated $251.2 million of commercial mortgage loans, higher than $327.2 million in the comparable year-ago quarter.

The Other segment registered a pre-tax loss of $11.0 million in fourth-quarter 2013 compared with $12.5 million loss in the fourth quarter of 2012.

Financial Update

As of Dec 31, 2013, StanCorp’s investment portfolio comprised approximately 54.1% fixed maturity securities, 41.1% commercial mortgage loans, 2.9% cash and cash equivalents, and 1.9% 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 Dec 31, 2013, cash and cash equivalents for StanCorp were $379.3 million, significantly higher than $160.7 million as of Dec 31, 2012. Long-term debt of StanCorp was $551.9 million as of Dec 31, 2013, inching up from $551.4 million as of 2012-end.

Book value per share of StanCorp as on Dec 31, 2013 was $48.83, down 0.1% from $48.79 as on Dec 31, 2012.

Dividend and Share Repurchase Update

During the fourth quarter, the company paid an annual dividend of $1.10 per share, reflecting an 18.3% year-over-year increase and marking the fourteenth consecutive annual increase in shareholder dividend.

In fourth-quarter 2013, StanCorp purchased 0.19 million shares for $11.4 million taking the full year tally to 1.6 million shares bought back for $82.3 million.

StanCorp is now left with 1.4 million shares under its authorization, scheduled to expire on Dec 31, 2014.

Looking Forward    

StanCorp expects to deliver operating net income of $5.15 per share in 2014. The guidance includes employee benefits premiums expected to remain flat with the 2013 level; Employee Benefits benefit ratio in the range of 77–79%; effective income tax rate in the range of 25–26% and share repurchases in the range of $40–$80 million.

Zacks Rank

StanCorp currently carries a Zacks Rank #3 (Hold). Some better-ranked life insurers worth considering are Primerica, Inc. (PRI - Snapshot Report), Protective Life Corporation (PL - Analyst Report) and Lincoln National Corporation (LNC - Analyst Report). All these stocks carrying a Zacks Rank #2 (Buy) are scheduled to report their results soon.
 

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