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StanCorp: In-force rates stronger

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StanCorp Financial Group Inc. (NYSE:SFG) managed to increase net income during the first quarter in spite of the effects of painfully low interest rates on new investments, and on the discount rates it uses to value new long-term disability (LTD) insurance claims.

The company is reporting $47 million in net income for the first quarter on $723 million in revenue, compared with $35 million in net income on $741 million in revenue for the first quarter of 2012.

Total premium revenue from group disability products and other group insurance products fell 4.1 percent, to $486 million, and group insurance sales fell to $98 million, from $129 million a year earlier.

Sales fell partly because StanCorp’s insurance company units have been increasing group disability rates to reflect a sharp decrease in already-low interest rates to even lower levels.

The discount rate the company uses to value LTD claim reserves fell to 3.75 percent during the quarter, from 4.75 percent a year earlier.

The interest rate the company earns on new investments fell to 4.25 percent, from 5.5 percent, even though the company increases yields by making commercial mortgage loans directly to commercial borrowers.

Executives at WellPoint Inc. (NYSE:WLP), today said they have seen stabilization in employment levels at the group benefits customers it serves.

Greg Ness, the president of StanCorp, said during a conference call with securities analysts that, in the markets StanCorp units serve, the company sees “continued declines in employment levels and low wage growth.”

Executives reported that the company is about 80 percent of the way through a round of interest-rate-related premium increase started in 2010, 75 percent through a claims-incidence-related increase started in 2011, and 40 percent through an increase started in 2012.

James Harbolt, a StanCorp vice president, said during the call that employers that already have group benefits from StanCorp units like the customer service they get and stick with the company, even when rates rise.

Because of that, for in-force business, “prices seem to be firming for us,” Harbolt said.

“When you’re talking about new sales, it’s a very price competitive environment right now,” Harbolt said.

Executives said the company is trying to be conservative about the “top line” — sales growth — as well as the bottom line — “earnings” — and is trying to be disciplined about prices.

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