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StanCorp Financial Group Inc. (SFG - Analyst Report) reported fourth-quarter 2012 operating earnings of 89 cents per share, which exceeded the Zacks Consensus Estimate by 6 cents. Results were also 4.7% higher than 85 cents earned in the prior-year quarter. Net income for the quarter was $39.5 million, up 4% from $37.9 million reported in fourth quarter 2011.

The outperformance came on the back of higher earnings from Asset Management and lower group insurance commissions and bonuses. However, a higher group insurance benefit ratio overshadowed the positives.

Including after tax capital loss of $1.1 million or 2 cents a share, the company reported net earnings of $38.4 million or 87 cents per share, compared with $38.6 million or 87 cents per share in the year-ago quarter. The year-ago period included an after-tax capital gain of $0.7 million or 3 cents a share.

Operational Performance

StanCorp’s total revenue in the fourth quarter of 2012 was $718 million, down 1.3% from $727.7 million in the year-ago quarter. Lower premiums primarily resulted in the decline. Revenue also managed to surpass the Zacks Consensus Estimate of $717million.

Total benefit and expense during the quarter declined 01.5% year over year to $666.2 million. Decrease in benefits to policyholders, lower interest credit, lower interest expense and lower commissions and bonuses led to the decline.

Full Year Highlights

2012 operating earnings of $3.24 per share surpassed the Zacks Consensus Estimate by 1.6% and the year-ago earnings by 3.2%.

Including after tax capital loss of 12 cents a share, the company reported net earnings of $3.12 per share, up 2.6% year over year.

Revenue increased 0.8% year over year to $2.898 billion. It also surpassed the Zacks Consensus Estimate of $2.889 billion.

Segment Update

Insurance Services: Premiums from this business totaled $532.1 million in the fourth quarter of 2012, down 1.6% year over year. Lower premiums from group insurance largely induced the overall premium decrease.

Sales from the group insurance business in the quarter declined 1.7% to $73.4 million, largely attributable to pricing competition.

Group insurance benefit ratio in the quarter was 83.7%, up 90 basis points year over year, while individual disability insurance benefit ratio was 73.8%, up 290 basis points year over year.

Pretax income in the quarter totaled $48 million, down 10% from $65.0 million in the year-ago quarter. The decline was primarily attributable to lower group insurance premiums and newly created long-term disability claim reserves. However, lower group insurance commissions and bonuses somewhat limited the decline.

Asset Management: Fourth-quarter 2012 pretax income improved 16.4% over the prior-year quarter to $16.3 million. The improvement was mainly triggered by higher administrative fee revenues and bond call premiums.

Assets under administration were $21.69 billion as of Dec 31, 2012, up 6.2% from $20.43 billion as of Sep 30, 2011, largely reflecting higher equity values for retirement plan assets under administration.

During the quarter, StanCorp Mortgage Investors originated $327.2 million of commercial mortgage loans, higher than $237 million in the prior-year quarter.

StanCorp’s investment portfolio, as of Dec 31, 2012, comprised approximately 56.5% fixed maturity securities, 41.4% commercial mortgage loans and 2.1% real estate. The overall weighted-average credit rating of the fixed maturity securities portfolio assigned by Standard & Poor’s was “A.”

Other: Pretax loss totaled $12.5 million in the quarter, compared with a loss of $15.8 million in the year-ago quarter.

Balance Sheet

StanCorp exited 2012 with cash and cash equivalents of $160.7 million, up 16.4% from 2011-end. Long-term debt was $551.4 million at year end, increasing 83% from 2011 level.

Book value per share as of Dec 31, 2012 was $48.83, up 8.6% from $44.96 as of Dec 31, 2011.

Share Repurchase and Dividend Update

In 2012, StanCorp spent $10.0 million to buyback 0.3 million shares. On Nov 13, 2012, the board of directors approved a new 3 million share repurchase authorization. As of Dec 31, 2012, StanCorp had 3.0 million shares remaining under its repurchase authorization.

During the quarter, StanCorp paid an annual dividend of 93 cents per share.

2013 Guidance

StanCorp guided operating earnings to a range of $3.40–$3.80 and expects to achieve return on equity (ROE) between 8%–9%.

It also expects a low single digit decline in its group insurance premiums with benefit ratio benefit between 81%–84%.

Our Take

StanCorp remains well poised on the strength of premium growth, continued good investment performance, conservative underwriting practices and a strong capital position.

The company continues to work on pricing actions to mitigate higher group long-term disability claims incidence and continued low interest rate environment.

StanCorp carries a Zacks Rank #3 (Hold). Among other life insurers, Genworth Financial Inc. (GNW - Analyst Report), Manulife Financial Corporation (MFC - Analyst Report) with Zacks Rank #2 (Buy) and Aviva plc (AV), with Zacks Rank #1 (Strong Buy), are yet to release results.


 

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