StanCorp Financial Group Inc.’s (SFG - Analyst Report) second-quarter 2014 operating net earnings of 97 cents per share missed the Zacks Consensus Estimate by 19.2%. Earnings also declined 27.6% year over year.
Less favorable claims experience in Employee Benefits and Individual Disability largely perpetuated the underperformance.
Including after-tax net capital losses of 1 cent a share, net earnings of StanCorp came in at 96 cents per share in the second quarter, down 26.2% year over year.
StanCorp’s total revenue in the second quarter amounted to $701.6 million, down 2.5% year over year. This was due to lower premiums (down 3% year over year) and lower net investment income (down 2.8% year over year) that were significantly offset by higher administrative fees (up 7.2% year over year). The top line however outperformed the Zacks Consensus Estimate of $698 million.
Total benefits and expenses of StanCorp came in at $649.8 million, 1.8% higher year over year. An increase in benefits to policy holders (up 0.5%) and higher interest credited were responsible for the increase.
The Insurance Services business reported a pre-tax income of $32.7 million for the second quarter of 2014, down 30% year over year. The downside was due to less favorable claims experience, lower net investment income and lower premiums.
Employee Benefits premiums declined 4% year over year to $467.3 million due to lower Employee Benefits sales. However, Individual Disability insurance premiums increased 4.7% year over year to $48.9 million.
Sales from Employee Benefits decreased 36% year over year to $62.5 million in the quarter owing to competition in the large case market.
Employee Benefits benefit ratio increased 160 basis points to 80.8% while the same for Individual Disability increased 1,590 basis points to 79.3%.
The Asset Management business reported a pre-tax income of $22 million, up 6.3% year over year driven by higher administrative fees resulting from increase in assets under administration.
Assets under administration were $26.03 billion as of Jun 30, 2014, up 14% from $22.83 billion as of Jun 30, 2013. It largely reflected higher equity values and favorable cash flows for retirement plan assets under administration.
During the quarter, StanCorp Mortgage Investors actualized $372 million of commercial mortgage loans, higher than $364 million in the comparable year-ago quarter.
The Other segment registered a pre-tax loss of $10.4 million in second quarter, wider than $3.6 million loss incurred in the year-ago quarter.
As of Jun 30, 2014, StanCorp’s investment portfolio comprised approximately 55.3% fixed maturity securities, 40.4% commercial mortgage loans, 1.8% cash and cash equivalents, and 2.5% 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 Jun 30, 2014, cash and cash equivalents for StanCorp were $237.7 million, 37% lower than $379.3 million as of Dec 31, 2013. Long-term debt of StanCorp was $504.3 million as of Jun 30, 2014, improving from $551.9 million as of 2013 end.
Book value per share of StanCorp as of Jun 30, 2014 was $52.66, up 11.9% from $47.04 as of Jun 30, 2013.
Share Repurchase Update
In the second quarter, StanCorp purchased 0.52 million shares for $51.3 million. This brings the year-to-date tally to 1.4 million shares repurchased for $85.9 million.
StanCorp currently carries a Zacks Rank #4 (Sell). Some better-ranked insurers include Lincoln National Corporation (LNC - Analyst Report), MetLife, Inc. (MET - Analyst Report) and Prudential Financial, Inc. (PRU - Analyst Report). All these stocks carrying a Zacks Rank #2 (Buy) are scheduled to report their results in the upcoming week.