StanCorp Earnings Miss Ests, Up Y/Y - Analyst Blog

StanCorp Financial Group Inc.'s SFG first-quarter 2014 operating net earnings of $1.14 per share missed the Zacks Consensus Estimate by 7.3%. Earnings however improved 6.5% year over year.

The year-over-year improvement came on the back of favorable claims experience in Employee Benefits and Individual Disability. Even so, lower net investment income, higher operating expenses and lower Employee Benefits premiums limited the upside.

Including after-tax net capital losses of 1 cent a share, net earnings of StanCorp came in at $1.13 per share in the fourth quarter, up 7.6% year over year.

Operational Update

StanCorp's total revenue in the first quarter amounted to $691.2 million, down 4.3% year over year. This was due to lower premiums (down 4.9% year over year) and lower net investment income (down 5.4% year over year) significantly offsetting higher administrative fees (up 10.1% year over year). Results also fell short of the Zacks Consensus Estimate of $723 million.

Total benefits and expenses of StanCorp stood at $625.8 million, down 5.5% year over year. A decline in benefits to policy holders (down 9.2%) coupled with lower Interest credited, commissions and bonuses, premium taxes and interest expense aided the improvement.

Segment Update

The Insurance Services business reported a pre-tax income of $56.7 million for the first quarter of 2014, up 16.2% year over year. The boost was driven by more favorable claims experience in Employee Benefits and Individual Disability, partially offset by lower net investment income and lower Employee Benefits premiums.

Employee benefits premiums declined 5.5% year over year to $459.4 million due to lower Employee Benefits sales. However, individual disability insurance premiums increased 2.3% year over year to $48.1 million.

Sales from Employee benefits decreased 36% year over year to $62.5 million in the quarter owing to pricing competition, fewer attractive large case opportunities and lower quoting activity.

For the seventh consecutive quarter, Employee Benefits benefit ratio marked an improvement, running 80.8% from 83.9% in the year-ago quarter. Individual disability benefit ratio was 54.1% against 61.9% in the comparable prior-year period.

The Asset Management business reported a pre-tax income of $16.4 million, down 4.6% year over year. The decline was attributable to higher operating expenses and the change in fair values of the hedging assets and liabilities related to the company's equity-indexed annuity product. However, an increase in administrative fees limited the downside.

Assets under administration were $25.13 billion as of Mar 31, 2014, up 10.5% from $22.74 billion as of Mar 31, 2013. It largely reflected higher equity values for retirement plan assets under administration.

During the quarter, StanCorp Mortgage Investors actualized $245.1 million of commercial mortgage loans, lower than $273.7 million in the comparable year-ago quarter.

The Other segment registered a pre-tax loss of $7.7 million in fourth-quarter 2013 compared with $5.7 million loss in the first quarter of 2013.

Financial Update

As of Dec 31, 2013, StanCorp's investment portfolio comprised approximately 55.6% fixed maturity securities, 40.5% commercial mortgage loans, 1.5% cash and cash equivalents, and 2.0% 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 Mar 31, 2014, cash and cash equivalents for StanCorp were $253 million, significantly lower than $379.3 million as of Dec 31, 2013. Long-term debt of StanCorp was $504.8 million as of Mar 31, 2014, improving from $551.9 million as of 2013-end.  The company repurchased $47.1 million of its 6.90% junior subordinated debentures.

Book value per share of StanCorp as on Mar 31, 2014 was $46.70, up 8.9% from $42.90 as on Mar 31, 2013.

Share Repurchase Update

In first-quarter 2014, StanCorp purchased 0.553 million shares for $34.6 million.

Zacks Rank

StanCorp currently carries a Zacks Rank #3 (Hold). Some better-ranked life insurers worth considering are Primerica, Inc. PRI, Protective Life Corporation PL and Sun Life Financial Inc. SLF. All these stocks carrying a Zacks Rank #2 (Buy) are scheduled to report their results soon.