StanCorp Financial Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

StanCorp Financial Group Inc (SFG)

Q1 2012 Earnings Call

April 24, 2012 12:00 p.m. ET

Executives

Jeffrey Hallin – AVP, IR

Greg Ness – Chairman, President, CEO

Floyd Chadee – CFO, SVP

Analyst

Randy Binner – FBR

Mark Finkelstein – Evercore Partners

Ryan Krueger – Dowling & Partners

Steven Schwartz – Raymond James & Associates

Christopher Giovanni – Goldman Sachs

Edward Spehar – Bank of America

John Nadel – Sterne Agee

Bill Dezellem – Titan Capital Markets

John Hatcher – Jefferies

Presentation

Operator

This is PrecisionIR conferencing and we are about to begin. Ladies and Gentlemen, thank you for holding. Welcome to the StanCorp Financial Group Inc First Quarter 2012 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.

Jeffrey Hallin

Thank you, Kevin, and welcome to StanCorp’s First Quarter 2012 financial review Conference Call. Here today to discuss the company’s first 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 the actual results to differ materially from those expressed or implied have been disclosed as risk factors in the company’s first quarter earnings release and the 2011 Form 10-K. Effective January 1st, 2012, the company adopted AFU2010-26 accounting for costs associated with acquiring or renewing insurance contracts on a retrospective basis and in accordance with the adoption the company has adjusted its financial results for periods prior to the first quarter of 2012. Prior period results discussed in this call will reflect these adjustments.

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

Greg Ness

Thanks, Jeff, and thanks to all of you who have joined us for our first quarter earnings call. Overall, I’m encouraged by our first quarter results. Here is why. Earnings were in line with our expectations. Claims results in our long-term disability business showed steady improvement. Group insurance premiums continued to grow. Asset Management delivered another strong quarter of results. Our commercial mortgage loan portfolio continues to perform very well. Our capital level remains strong and we grew book value per share.

Now a few key details about our Group Insurance business. Claims in our Group Insurance business were in line with our expectations. For the first quarter of 2012, our discount rate used for newly established long-term disability claim reserves remained at 4.75%. This represents a 75 basis point decrease from the first quarter of 2011 due to the continued low interest rate environment.

A 75 basis point decrease in the discount rate results in a decrease in quarterly pre-tax income of $4.8 million, using a common discount rate, the benefit ratio for this quarter improved by 170 basis points compared to the first quarter of 2011. While incidence levels remain high, they continue to show a steady decline.

We continue to see a correlation between the rate of job losses for our customers and the level of claims incidents. Overall, employment levels within our customer base declined about 1% this quarter compared to the first quarter of last year. This was an improvement from the 2% decrease for the fourth quarter of 2011 when compared to the fourth quarter of 2010. We expect to see incidence levels decrease over time as our customers employment levels continue to stabilize.

Despite the pressure that declining employment and low wage growth have on organic growth, we grew premiums in our group insurance business by 3.8%. We continue to make progress with the implementation of our pricing actions related to higher claims incidents that began in 2011.

We are only through about one-third of our customers following the January renewal season, and we are getting good acceptance on our rate increases. We anticipate being through about 75% of our customers after the January 2013 renewal season. Our sales force is communicating and selling our unique value proposition while the rest of our employees are delivering the quality service on which we have based our reputation in the employee benefits marketplace.

Shifting focus now to our Asset Management segment. Asset Management delivered another strong quarter producing $15 million in pre-tax income. The $19 million of pre-tax income in the first quarter of last year included bond called premiums, which added approximately $3 million of additional income compared to this quarter. Overall, we liked the steady progress we’ve seen from our Asset Management business.

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