StanCorp Financial Group Inc., Q1 2009 Earnings Call Transcript

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StanCorp Financial Group Inc. (SFG)

Q1 2009 Earnings Call

April 22, 2009 12:00 pm ET

Executives

Eric E. Parsons - Chairman, Chief Executive Officer

Dr. Floyd Chadee - Chief Financial Officer and Senior Vice President

Scott A. Hibbs - Vice President, Asset Management Group

Robert M. Erickson - Vice President and Controller

Mark Fisher - Vice President and Managing Director, StanCorp Mortgage Investors.

Jim Harbolt - Vice President, Insurance Services Group

Dan McMillan - Vice President, Insurance Services Group

Jeffrey J. Hallin - Assistant Vice President of Investor Relations

Analysts

Edward Spehar - Bank of America

Elizabeth Malone - Wunderlich Securities

Randy Binner - FBR Capital Markets

Mark Finkelstein - Fox-Pitt Kelton

Eric Berg - Barclays Capital

William J. Dezellem - Tieton Capital Management

Dustin Brumbaugh – Ragen Mackenzi

John Nadel – Sterne, Agee & Leach

John Evans – [Wells Capital]

Presentation

Operator

Welcome to the StanCorp Financial Group Inc. first quarter 2009 financial review conference call. (Operator Instructions). At this time, I would like to turn the call over to Mr. Jeffrey Hallin, StanCorp's Assistant Vice President of Investor Relations for opening remarks and introductions.

Jeffrey J. Hallin

Welcome to StanCorp’s first quarter 2009 financial review conference call. Here today to discuss the company's first quarter results are Eric Parsons, Chairman and Chief Executive Officer; Dr. Floyd Chadee, Senior Vice President and Chief Financial Officer; Scott Hibbs, Vice President, Asset Management Group; Rob Erickson, Vice President and Controller; and Mark Fisher, Vice President and Managing Director of StanCorp Mortgage Investors.

I’d like to note that Greg Ness, President and Chief Operating Officer is home with a flu this morning and not able to join us on the call today. Jim Harbolt and Dan McMillan both Vice Presidents in the Insurance Services Group will be backing Greg up on the Q&A.

Today’s call will begin with some brief comments from Eric 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 2008 Form 10-K.

With that, I would now like to turn the call over to Eric.

Eric E. Parsons

Thanks to all of you who have joined us for our first quarter earnings call. While the current economic climate continues to offer a number of challenges, StanCorp Financial Group is performing well, turning in yet another solid quarter of earnings.

Earnings from operations which exclude after tax net capital gains and losses and one-time costs associated with our efforts to reduce long-term operating expenses were $1.13 per share in the first quarter of 2009 compared to $1.08 in the first quarter of 2008. The increase was primarily due to continued favorable claims activity in the insurance services segment, partially offset by reduced earnings in the asset management segment which was impacted once again by declining equity values.

In the first quarter, the state of the overall economy continued to dominate the headlines. While we recognize that the current economy presents a unique set of business conditions, we are very pleased with our results and believe they reflect a consistent application of our long-term business model and investment practices.

In our insurance services segment, revenue growth has been a challenge but we continue to produce solid profits. Premiums for the insurance services segment for the first quarter of 2009 were up slightly from the first quarter of last year. The increase in premiums was largely due to the termination of a re-insurance agreement resulting in a premium payment of approximately $18 million within the individual disability business in the first quarter of the year. Offsetting the effects of the re-insurance termination was a slight year-over-year decrease in premiums in our group insurance business largely due to the difficult economic and competitive landscape combined with our disciplined underwriting approach.

Group insurance premiums decreased just under 2% from the first quarter of last year. In line with our expectations, the effects of slower economic conditions on wages and job growth presented short-term top-line growth challenge. Our bottom-line continues to be profitable because we are especially selective on the types of cases that we write and retain. In addition, our premiums remain well diversified for economic pressures with a large percentage of premiums earned in sectors that are still growing or experiencing relatively fewer job losses when compared to the overall market. These sectors include health, education, and public services.

We are seeing some tough competition in our smallest case market and we have some sense that smaller employers may be experiencing greater economic pressures than their larger counterparts. This manifests itself in pressures on persistency and requests to quote only the lowest cost options. We are getting more looks at larger cases as employers seek to find competitive prices with high quality carriers.

I’m pleased with the proposal activity that our sales representatives are generating, and while our sales for the first quarter of 2009 were lower than the first quarter of 2008, we continue to see strong quote activity. It is clear that customers continue to seek financially strong and stable carriers that provide excellent value.

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