StanCorp Financial Group (SFG) reported first-quarter 2012 earnings of 79 cents per share, lagging the Zacks Consensus Estimate of 84 cents. However, the results were 5.3% above 75 cents earned in the prior-year quarter. Net income for the quarter inched up 1.4% to $35.3 million, from $34.8 million reported in first-quarter 2011.
The year-over-year improvement stemmed from lower share count and lower effective income tax rate due to purchases of tax-advantaged investments.
Operational Performance
StanCorp’s total revenue in the first quarter of 2012 was $741.4 million, up 3.3% from $717.7 million in the year-ago quarter. The improvement primarily stemmed from higher premiums supported by a small increase in net investment income. Revenue surpassed the Zacks Consensus Estimate of $724 million.
Total benefit and expense during the quarter increased 3.8% year over year to $693.7 million. The upside was buoyed by the increase in benefits to policyholders, higher operating expenses, higher interest credited and higher premium taxes.
Segment Update
Insurance Services: Premiums from this business totaled $551.1 million in the first quarter of 2012, up 3.9% year over year. Higher premiums from group insurance and individual disability insurance fueled the overall premium increase.
Sales from the group insurance business in the quarter decreased 19.6% to $128.8 million, largely attributable to pricing competition.
Group insurance benefit ratio in the quarter was 83.5%, down 70 basis points year over year, while individual disability insurance benefit ratio was 52.3%, down 490 basis points year over year.
Pretax income in the quarter totaled $46.1 million, inching up from $46.0 million in the year ago quarter.
Asset Management: First-quarter 2012 pretax income declined 20.6% over prior year quarter to $15 million. The decrease was mainly driven by lower bond call premiums.
Assets under administration were $21.58 billion as of March 31, 2012, showing a decrease of 1.7% from $21.96 billion as of March 31, 2011.
During the quarter under review, StanCorp Mortgage Investors originated $209 million of commercial mortgage loans, higher than $196 million in the prior-year quarter.
StanCorp’s investment portfolio, as of March 31, 2012, consisted of approximately 56.6% fixed maturity securities, 41.1% commercial mortgage loans and 2.3% real estate. The overall weighted-average credit rating of the fixed maturity securities portfolio assigned by Standard & Poor’s was “A”.
During the quarter, StanCorp did not buyback any shares. As of March 31, StanCorp had approximately 3.0 million shares remaining under its repurchase authorization.
Balance Sheet
StanCorp exited the first quarter with cash and cash equivalents of $116.0 million, down from $138.4 million at 2011 end. Long-term debt was $301.1 million at quarter end, increasing from $300.9 million at 2011 end.
Book value per share as of March 31, 2012 was $45.82, reflecting a 10.4% upside from $41.51 as of March 31, 2011.
At the Peer
MetLife Inc. (MET), which competes with StanCorp Financial, reported net operating earnings of $1.49 billion or $1.37 per share as compared with $1.35 billion or $1.23 per share in the year-ago quarter. This also compares favorably with the Zacks Consensus Estimate of $1.30 per share.
MetLife came out with its results almost two weeks ahead of the scheduled date. However, the accidental slip of the results last week has now impelled the company to publicize its complete results after the closing bell on April 26, 2012.
Our Take
The positives for StanCorp include a better performing Asset Management segment, premium growth, continued good investment performance, conservative underwriting practices, favorable claim experiences and focus on increasing shareholder value along with a strong capital position.
The group disability insurance benefit ratio is also expected to improve given the pricing actions taken at the long-term disability business.
We retain our Neutral recommendation on StanCorp Financial. The quantitative Zacks #2 Rank (short-term Buy rating) for StanCorp indicates slight boost on the stock over the near term.
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