StanCorp Financial Group, Inc. (



Q4 2011 Earnings Call

January 31, 2012 12:00 pm ET


Jeff Hallin - AVP, IR

Greg Ness - President & CEO

Floyd Chadee - SVP & CFO - StanCorp Financial Group, Inc. and Standard Insurance Company

Dan McMillan - VP, Insurance Services Group - Standard Insurance Company

Jim Harbolt - VP, Insurance Services Group - Standard Insurance Company

Scott Hibbs - VP, Asset Management Group - Standard Insurance Company

Rob Erickson - VP & Controller - StanCorp Financial Group, Inc. Standard Insurance Company


Randy Binner - FBR Capital Markets Corporation

Mark Finkelstein - Evercore Partners

Chris Giovanni - Goldman Sachs

Steven Schwartz - Raymond James & Associates

John Nadel - Sterne Agee

Ryan Krueger - Dowling & Partners

Dustin Brumbaugh - E.K. Riley Investments

Bill Dezellem -Tieton Capital Management

Tom Gallagher - Credit Suisse



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Ladies and gentlemen, thank you for holding. Welcome to the StanCorp Financial Group Incorporated fourth quarter 2011 financial review conference call. All lines have been placed on mute to prevent any background noise. Today’s conference call is being webcast live over the internet and is also being recorded. A question-and-answer session will follow today’s presentation. (Operator Instructions).

At this time, I’d like to turn the call over to Mr. Jeff Hallin, StanCorp’s Assistant Vice President of Investor Relations for opening remarks and introductions. Please go ahead, sir.



Thank you, Jackie, and welcome to StanCorp’s fourth quarter 2011 financial review conference call. Here today to discuss the company’s fourth quarter results are Greg Ness, Chairman, President and Chief Executive Officer; Floyd Chadee, Senior Vice President and Chief Financial Officer; Jim Harbolt, Vice President, Insurance Services Group; Dan McMillan, Vice President, Insurance Services Group; Scott Hibbs, Vice President, Asset Management Group; Mark Fisher, Vice President and Managing Director of StanCorp Mortgage Investors; and Rob Erickson, Vice President and Controller.

Today’s call will begin with some brief comments from Greg and Floyd and then we will open it up for questions. Before we begin, I need to remind you that certain comments made during this conference call will include statements regarding growth plans and other anticipated developments for StanCorp’s businesses and the intent, belief and expectation of StanCorp’s management regarding future performance.

Some of the statements made are not historical facts, but are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements are subject to risks and uncertainties, actual results may differ from those expressed or implied. Factors that could cause actual results to differ materially from those expressed or implied have been disclosed as risk factors in the company’s fourth quarter earnings release and the third quarter Form 10-Q.

With that, I’ll turn the call over to Greg. Greg?



Thank you, Jeff, and thanks to all of you, who’ve joined us for our fourth quarter earnings call this morning. As we look at 2011, despite the influence of the current economic environment on the benefit ratio in our Group Insurance business, a number of things went well. In the Group Insurance business, sales and persistency levels were strong and premium growth was up. In the Asset Management segment, lower operating expenses and strong interest margins contributed to higher earnings for the segment.

Our solid investment portfolio continues to perform very well. We originated more than $1 billion in commercials loans and brought the delinquency rate below 40 basis points. And we returned value to shareholders through share repurchases and increased our annual dividend per share for the 12th consecutive year.

Looking now to our quarterly results. In our Insurance Services segment, group insurance premiums for the fourth quarter increased 5.6% compared to premiums for the fourth quarter of 2010. Some of the improvement is due to lower experienced rated refunds. Excluding experienced rated refunds, group insurance premiums still increased 2.7% reflecting high customer retention and strong sales for 2011 partially offset by declining employment levels among our current customers.

Group insurance sales were $74.7 million for the fourth quarter of 2011 compared to $73.1 million for the fourth quarter of 2010. Open enrollments during the fourth quarter which are the benefit elections made by employees for 2012 returned to more normal levels after low open enrollments in the fourth quarter of 2010.

Persistency in our Group Insurance business increased slightly to 88.8% for 2011, that compares to 88.7% for 2010. Both of these are very strong retention levels and demonstrate that our products and services continue to resonate with our customers. Organic growth within our Group Insurance business continues to be a significant challenge to growing premiums as this measure depends on employment and wage growth.

Employment levels among our existing customers continue to be down around 2% year-over-year continuing the trend we saw throughout 2010 and 2011. The group insurance benefit ratio was 82.8% for the fourth quarter of 2011 compared to 77.4% for the fourth quarter of 2010. The comparative increase can be attributed to continued higher disability incidence in the fourth quarter of 2011, a reserve release made in the fourth quarter of 2010 and a lower discount rate on our on a long-term disability reserves in the fourth quarter of 2011.

While our claims incidents in the fourth quarter remain higher than our long-term expectations, we are seeing some gradual improvement and expect further improvement in the benefit ratio given the pricing actions we’re currently taking.

Like most carriers in the group insurance industry, the economy has had an adverse effect on our claims results. Some saw this impacts early on in the recession. At StanCorp, the recession had a later impact on our business and we expect a somewhat later recovery as well. We believe we are well positioned to reap the benefits of organic growth once wage and employment levels improved.

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