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Earnings also fell behind the year-ago result of $1.23. Net income from continuing operations for the quarter was $53 million, down 12% from $60 million reported in fourth-quarter 2009.
StanCorp incurred an after-tax net capital loss of $1 million or 2 cents per share in the quarter under review. Including the one-time loss, StanCorp reported a net income of $52 million or $1.12 per share compared with $60 million or $1.23 in the third quarter of 2009.
Higher premiums in the Insurance Services segment, improved earnings in the Asset Management segment and positive favorable impact of share buyback were more than offset by lower favorable claims in the Insurance Services segment.
For full year 2010, operating earnings were $4.70 per share, lower than the Zacks Consensus Estimate of $4.82 as well as year ago result of $4.86. Operating earnings totaled $221.1 million, down 7% from 2009.
Including after-tax net capital loss of $32.1 million or 68 cents a share, the company reported earnings of $189 million or $4.02 a share, lower than $208.9 million or $4.26 per share in 2009.
StanCorp’s total revenue in the fourth quarter 2010 was $710.2 million, up 3.1% from $688.7 million in the year-ago period. Results surpassed the Zacks Consensus Estimate of $706 million. A combination of increased premiums, administrative fees and investment income led to the overall climb.
Full year 2010 revenue grossed $2.765 billion, a trifle lower than the 2009 level. Results also lagged the Zacks Consensus Estimate of $2.8 billion.
Total benefit and expense during the quarter increased 6% year-over-year to $633.9 million. The increase may primarily be attributable to an increase in benefits to policyholders and higher commissions and bonuses. 2010 total benefit and expense declined 1% from 2009 level.
Insurance Services: Premiums from this business totaled $512 million in the fourth quarter of 2010, up 1.1% year over year. Higher premiums from group insurance, partially offset by a lower premium in individual disability insurance fueled the overall premium increase.
Sales from the group insurance business in the fourth quarter declined to $73.1 million from $93 million in the year ago period.
Group insurance benefit ratio in the quarter was 77.4%, up 490 basis points year-over-year, while individual disability insurance benefit ratio was 81.9%, down 1230 basis points year-over-year.
Pretax income in fourth-quarter 2010 totaled $72.2 million, down 15% year over year. The decrease was mainly attributable to lower favorable claims experienced in the quarter.
Asset Management: Fourth-quarter 2010 pretax income increased by 16% to $16.0 million from $11.0 million in third-quarter 2009. The increase was mainly driven by higher administrative fees earned coupled with lower operating expenses.
Assets under administration were $21.89 billion as of December 31, 2010, a trifle higher than the year ago period.
During the quarter, StanCorp Mortgage Investors originated $215.8 million of commercial mortgage loans, substantially higher than $156.3 million in the prior-year quarter due to increase in commercial real estate market activities.
StanCorp’s investment portfolio, as of December 31, 2010, consisted of approximately 58% fixed maturity securities, 40% commercial mortgage loans and 2% real estate. The overall weighted-average credit rating of the fixed maturity securities portfolio assigned by Standard & Poor’s was “A.”
During fourth-quarter 2010, StanCorp spent $1.9 million for repurchasing 0.05 million shares at an average price of $39.08. In 2010, the company bought back 2.0 million shares for $81.8 million at an average price of $40.19.
StanCorp had approximately 2.3 million shares remaining under its repurchase authorization. The authorization will lapse on December 31, 2011.
StanCorp ended 2010 with cash and cash equivalents of $152.0 million, down 40% from $108.3 million in 2009. Long-term debt declined slightly to $551.9 million in 2010 from $553.2 million in 2009.
Book value per share as of December 31, 2010 was $41.42, up 13.9% from $36.35 as of December 31, 2009.
Looking Into 2011
StanCorp expects premium growth to remain flat with 2010 level. The company also expects that the annual benefit ratio for the group insurance business will be consistent with the last five years. Stancorp expects share repurchases to remain consistent with 2010.
Taking into consideration these factors, Stancorp guided operating income to a range of $4.80 to $5.10 per share and return on equity in the range of 12% to 13%.
The positives for StanCorp include a better performing Asset Management segment, positive recommendations from credit rating agencies, focus on increasing shareholder value and conservative underwriting practices.
However, based on a competitive environment, low interest rate environment and exposure to commercial mortgage loans, we maintain our Neutral recommendation on StanCorp. The quantitative Zacks #2 Rank (short-term Buy rating) for StanCorp indicates upward pressure on the stock over the near term.
Headquartered in Portland, Oregon, StanCorp Financial Group is one of the largest providers of employee benefits products and services in the U.S. The company operates across the country, with a dominant position in western U.S. It competes with Unum Group (UNM - Analyst Report), MetLife, Inc. (MET - Analyst Report) and Principal Financial Group Inc. (PFG - Analyst Report).
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