StanCorp Financial Group Inc.’s (SFG) third-quarter 2014 operating net earnings of $1.73 per share outperforming the Zacks Consensus Estimate by 31%. Earnings improved 19.3% year over year.
Favorable claims experience in Employee Benefits along with benefit of pricing actions drove the outperformance. Strong performing Asst Management also added to the upside. Share gained 4.2% in the last trading session reflecting investor optimism over the solid result.
Including after-tax net capital losses of 8 cent a share, net earnings of StanCorp came in at $1.65 per share in the third quarter, up 25% year over year.
Operational Update
StanCorp’s total revenue in the third quarter amounted to $687 million, down 0.7% year over year. This was due to lower premiums (down 3% year over year) and lower net investment income (down 5.6% year over year) that were partially offset by higher administrative fees (up 7.5% year over year). The top line however missed the Zacks Consensus Estimate of $692 million.
Total benefits and expenses of StanCorp came in at $585.1 million, 5.6% down year over year. Lower benefits to policy holders, interest credited, premium taxes and interest expenses all contributed to the decline.
Segment Update
The Insurance Services business reported a pre-tax income of $89.3 million for the third quarter, up 14% year over year.
Employee Benefits premiums declined 4.4% year over year to $474.7 million due to higher experience rated refunds and lower Employee Benefits sales. However, Individual Disability insurance premiums increased 4.1% year over year to $50.3 million.
Sales from Employee Benefits increased 78% year over year to $52.8 million in the quarter owing to stepped up proposal activity.
Benefit ratio for Employee Benefits decreased 420 basis points to 70.9% while the same for Individual Disability decreased 510 basis points to 67.8%.
The Asset Management business reported a pre-tax income of $20.8 million, down 5% year.
Assets under administration were $25.97 billion as of Sep 30, 2014, up 9.2% from $23.79 billion as of Sep 30, 2013. This largely reflects higher equity values for retirement plan assets under administration.
During the quarter, StanCorp Mortgage Investors actualized $303.5 million of commercial mortgage loans, lower than $414.1 million in the comparable year-ago quarter, reflecting heightened competition in the mortgage origination market.
The Other segment registered a pre-tax loss of $13.2 million, narrower than $18.4 million loss incurred in the year-ago quarter.
Financial Update
As of Sep 30, 2014, StanCorp’s investment portfolio comprised approximately 56.4% fixed maturity securities, 39.3% commercial mortgage loans, 1.9% cash and cash equivalents, and 2.4% 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, 2014, cash and cash equivalents for StanCorp were $263.3 million, 31% lower than $379.3 million as of Dec 31, 2013. Long-term debt of StanCorp was $503.7 million as of Sep 30, 2014, improving from $551.9 million as of 2013 end.
Book value per share of StanCorp as of Sep 30, 2014 was $53.38, up 10.9% from $48.12 as of Sep 30, 2013.
Share Repurchase Update
In the third quarter, StanCorp purchased 0.5 million shares for $33.2 million. This brings the year-to-date tally to 1.9 million shares repurchased for $119.1 million. At September end, 2.4 million shares were remaining under the repurchase authorization.
Zacks Rank
StanCorp currently carries a Zacks Rank #3 (Hold). Some better-ranked life insurers include Fidelity & Guaranty Life Common (FGL), Sun Life Financial Inc. (SLF) and China Life Insurance Co. Ltd. (LFC). While Fidelity & Guaranty sports a Zacks Rank #1 (Strong Buy), Sun Life and China Life carry a Zacks Rank #2 (Buy).
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