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Coverage Initiation: StanCorp Financial Group
Value Line has initiated coverage of StanCorp Financial Group (SFG) in its flagship product, The Value Line Investment Survey. StanCorp is a holding company for subsidiaries that provide insurance and financial services, which are marketed under the name The Standard. Its main subsidiary, Standard Insurance Company, is the fifth-largest provider of group long-term disability insurance, the sixth-largest provider of group short-term disability insurance, the seventh-largest provider of individual disability insurance, and the eighth-largest provider of group life insurance. Standard is licensed to sell insurance in 49 states, the District of Columbia, and the U.S. territories of Guam and the Virgin Islands. A separate unit, Standard Life Insurance Company of New York, offers insurance in the Empire State. Other subsidiaries provide asset management services. StanCorp is based in Portland, Oregon and has nearly 3,000 employees.
The company is more than 100 years old, having been founded in 1906. It had its initial public offering on the New York Stock Exchange in April of 1999.
In 2012, 74% of the company’s pretax income came from insurance, and 26% from asset management. As of year-end 2012, its Insurance Services segment had about 35,000 group insurance policies in force, covering some 6.5 million employees. Of its insurance segment, in 2012 40.8% of premiums came from group life and accidental death & dismemberment insurance, and 37.5% from group long-term disability insurance. Of its asset management segment, in 2012 retirement plans contributed 45.7% of revenues. The company had $14.86 billion of retirement plan assets under administration as of year-end 2012.
StanCorp is managed conservatively. The company does not offer services such as individual life insurance, long-term care insurance, and variable annuities, which are riskier than group life and group disability insurance because they cannot be repriced over a one- to three-year period. Most of StanCorp’s invested assets are in government and corporate debt, and mortgage loans, rather than equities and structured investments. (The company underwrites, originates, and services its commercial mortgage loans.) As of year-end 2012, intangible assets made up just 20.6% of its equity, versus an average of 59.0% for its industry peers such as Lincoln National (LNC), MetLife (MET), Prudential (PRU), and Unum (UNM). Most of its credit ratings are investment-grade.
The company has not yet reported fourth-quarter results for 2013, but share earnings in the first nine months (aided by a strong stock market) climbed 62%. The share price rose more than 80% in 2013.
StanCorp pays dividends annually, not quarterly, and repurchases stock from time to time. Its board of directors has raised the payout for 14 consecutive years. In the fourth quarter of 2013, the increase was 18%, to $1.10 a share. Even so, with a dividend yield of less than 2%, this equity does not stand out for income-oriented investors.
StanCorp faces some challenges. There does not appear to be much growth in its lines of business. The company has had to raise its insurance rates in response to elevated claims incidence and the low interest rate environment. Thus, it expected a low single-digit decline in premiums in 2013. StanCorp’s subsidiaries have numerous competitors, some of which are larger, financially stronger, or offer a broader array of products.
For a more thorough look at StanCorp, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the stocks mentioned.