StanCorp Financial Group Inc. Q3 2009 Earnings Call Transcript

|
 |  About: StanCorp Financial Group, Inc. (SFG)
by: SA Transcripts

Operator

This is Intercall Conferencing, and we are about to begin. Ladies and gentlemen, thank you for holding. Welcome to the StanCorp Financial Group, Inc. third quarter 2009 financial review conference call. (Operator Instructions). 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 would 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 J. Hallin

Thank you, [Christy], and welcome to StanCorp's third quarter 2009 financial review conference call. Here today to discuss the company's third quarter results are Greg Ness, President and Chief Executive Officer, Floyd Chadee, Senior Vice President and Chief Financial Officer, Jim Harbolt, Vice President, Insurance Services, Scott Hibbs, Vice President, Asset Management Group, Dan McMillan, Vice President, Insurance Services, Mark Fisher, Vice President and Managing Director, StanCorp Mortgage Investors and Rob Erickson, Vice President and Controller.

Today's call will begin with some brief comments from Greg and Floyd, and 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 these 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 third-quarter earnings release and the 2008 Form 10-K. With that, I would now like to turn the call over to Greg. Greg?

J. Greg Ness

Thank you, Jeff, and thanks to all of you who have joined us for our third quarter earnings call. I am pleased with the third quarter of earnings for StanCorp Financial Group. As you read in the release, 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 $1.21 per share in the third quarter of 2009, compared to $1.46 per share in the third quarter of 2008.

When reviewing our third quarter results a few key themes arise. Our results continue to reflect strong performance in this challenging economic and competitive environment. Our sales pipeline is firming up, and we will look to grow our business in the areas that meet our profit objectives, although we expect that growth to be somewhat uneven in the current environment.

Our third quarter results reflect positive outcomes from operating expense initiatives we began in 2008. Our investment portfolio continues to demonstrate the superior underwriting and servicing of our mortgage loans and conservative investment strategy. And finally, we have a solid and growing capital base and will utilize available capital opportunistically.

Our group insurance benefit ratio was 76.3% for the third quarter of 2009, compared to 71.1% for the third quarter of 2008, which was the lowest quarterly benefit ratio in our history as a public company. This quarter's benefit ratio remains within our historical guidance range and includes the effect of a 50 basis point reduction in our long-term disability reserve discount rate, reflecting lower interest rates. You'll hear more about this from Floyd in just a moment.

Our overall claims results continue to demonstrate no correlation to weaker employment data and reflect our high-quality conservative underwriting pricing discipline and excellent claims administration. In our individual disability business, we experienced exceptional claims experience in the third quarter, with a benefit ratio of 58.3%, compared to our third quarter 2008 benefit ratio of 78.1%.

Please remember that claims experience can fluctuate widely from quarter to quarter, especially in our small block of individual disability business, and experience tends to be more stable when measured over a longer period of time.

Premiums in our insurance services segment declined by 3.9% in the third quarter, compared to the third quarter of last year. Much of the decline in premiums during the quarter can be attributed to the difficult economic environment with challenging employment and wage growth.

In our book of business, it's important to note that economic factors tend to affect organic growth, rather than persistency. The decline in premiums was mitigated by the concentration of our group business in defensive sectors that stayed relatively stable during the various economic cycles.

While U.S. employment levels decreased more than 4% in the third quarter, our customers' employment levels decreased about 2%. This compares to prior years where employment and wage growth increased by an average of about 1.5%.

We continue to experience high persistency overall, with our best persistency in the stronger segments of the economy. Also affecting our total group insurance premiums were experience-rated refunds of $14 million in the third quarter, compared to $9 million in the third quarter of last year. While these experience-rated refunds decrease our top-line in the short term, they further testify to the beneficial claims experience within our customer base.

Group insurance sales, reported as annualized new premiums, were $60 million in the third quarter, compared to $34 million in the third quarter of 2008. These sales are a credit to the diligent work of our nationwide sales force, combined with a continued expansion of our product and service capabilities.

Although the sales environment continues to be extremely competitive, we are unwavering in our approach to pricing and underwriting, and are taking advantage of growth opportunities as they arise. We will grow sales only when the pricing makes sense.

Turning now to the asset management segment, we are pleased with the segment's $11 million of pre-tax income in the third quarter, compared to $7.7 million of pre-tax income in the second quarter of this year. This quarter's results represent a much more normalized level of earnings within our retirement plans business, having benefited from the surge in equity market combined with the results of our expense reduction efforts.

Within our retirement plans business, assets under administration at September 30, 2009 increased by $1.4 billion or 9%, when compared to June 30, 2009. While the economy has presented us with definite challenges, a number of key points can be taken away from our third quarter results.

Our group benefits business produced a very solid quarter of sales, despite the current competitive and economic landscape. Within our asset management segment, retirement plan assets grew significantly from renewed strength in the equity markets.

Our operating expense reduction initiatives are progressing as planned, and the positive effects have started to appear in our results. Our capital levels in book value continue to grow and provide us with financial stability. And finally, our investment profile remains strong, led by excellent performance within our commercial mortgage loan portfolio and a sound portfolio of fixed-maturity securities.

Each of these key points reflects our steadfast approach to operating a strong and profitable company through various economic scenarios and the continued focus on providing value to our shareholders. All in all, StanCorp delivered impressive results this quarter. A strong financial position combined with solid earnings prospects place us in a very good position as we approach the end of 2009 and the beginning of 2010.

In the near future, we anticipate somewhat uncertain employment and wage growth, a continued competitive sales landscape and a low interest rate environment. However, we recognize the realities of competing in such an environment, and we are running our businesses accordingly. There is much to be positive about for the future.

With that, I'll turn the call over to Floyd for a discussion of our operating expense initiatives, as well as a deeper look into our capital and investments. Of course we'll leave plenty of time for your questions at the end. Floyd?

Dr. Floyd Chadee

Thank you, Greg. As Greg mentioned, during the third quarter we lowered our discount rate used for establishing reserves and new claims to 4.75%, a rate which is 50 basis points lower than the 5.25% that was used in both the second quarter of this year and the third quarter of 2008. A 50 basis point reduction in the discount rate results in a quarterly reduction in pre-tax income of approximately $4 million. This is equivalent to an increase of about 1% in the quarterly benefit ratio.

Discount rates are set so that a sufficient margin is maintained relative to actual investment yields. The margin between the average new money rate and the average discount rate for the previous 12 months is 38 basis points. This resulted in an overall portfolio margin at the end of the quarter of 42 basis points. Over the past six quarters or so, we have witnessed a significant widening of credit spreads, followed by an equally significant tightening that we are experiencing today.

Economists remain highly divergent in the expectations of interest rates going forward, with some predicting runaway inflation driven by government spending, and an equal number of other economists predicting the persistence of the current environment with low Treasury yields combined with tight spreads. As we go forward, we fully intend to maintain a process of tight asset liability management. With our discount rates reflecting actual new money rates on the assets we acquire, less an appropriate margin.

Given the significant uncertainty of economists' expectations with respect to yields going forward, we may experience meaningfully higher or lower discount rates over the next several quarters. Our recent expense management efforts are beginning to show a positive effect on our results. We are nearing the end of a series of actions that we began last year to streamline operations. We have made good progress to reduce operating expense levels across the company. In total, onetime pre-tax costs in 2009 are estimated to be up to $20 million, and this will lead to a savings run rate of approximately $25 million annually.

On a year-to-date basis, we have recognized $17.6 million pre-tax in onetime costs of which $3.2 million were recognized in the third quarter. This puts us right on schedule to complete these efforts in 2009. Consolidated operating expenses were $110.2 million in the third quarter, which represents a 5% decrease compared to $115.9 million in the third quarter of 2008. We are very satisfied with the success of our expense reduction efforts.

Now on the subject of capital, at StanCorp, the capital position is the cornerstone of our business. In the third quarter, GAAP book value per share increased 13% due to recovering valuations and a fixed maturity securities portfolio, and the solid contribution that we had from earnings. Book value excluding accumulated other comprehensive income increased by 4%.

At September 30, 2009, we had more than $290 million of available capital. This consists of capital in accessible insurance subsidiaries target capital ratio of 300% of company action level risk-based capital as well as cash and securities available to the holding company. Approximately $40 million of the increase during the quarter is related to an improvement in the mortgage [experience] adjustment factor in the risk-based capital calculation.

Based on our experience relative to the overall industry experience, our mortgage experience adjustment factor decreased from 100% to 75%. Risk-based capital at our insurance subsidiaries was 345%. This is subsequent to the $40 million dividend that was made from the insurance subsidiaries to the holding company in the third quarter. Our insurance subsidiaries have provided a total of $150 million in dividends to the holding company in the first nine months of 2009.

We are very pleased with the solid growth in our capital base and the strength that it demonstrates. The fact is that during the past 12 to 18 months when the balance sheets of so many financial institutions have come under significant pressure, StanCorp has not had to look to external sources of capital; whether from the equity markets, the debt markets or the U.S. government. Our ability to generate capital from operations greatly enhances our financial flexibility and allows us to continue a long history of investing for our customers and building value for shareholders.

During the fourth quarter we intend to resume our share repurchase program on an opportunistic basis while continuing to maintain an adequate capital position. As always, the investment portfolio that supports our capital base is composed primarily of fixed-maturity securities and commercial mortgage loans. The active and prudent management of our bond portfolio, especially in late 2008 and early 2009, truly solidified the risk profile of our fixed-maturity securities.

Credit quality in our bond portfolio remains high with an average portfolio credit rating of A. In addition, we have not experienced any significant downward rating migration. Approximately 67% of the portfolio is rated A or higher and less than 6% or $359 million of the portfolio is below investment grade, including $257 million in an outside managed high yield portfolio.

Net unrealized gains in the bond portfolio at September 30, 2009 was $294 million, compared to a net unrealized gain of $61 million at June 30, 2009. In the third quarter total net capital gains related to our bonds was $7.1 million. Our mortgage loan portfolio continues its history of outstanding performance. With a current portfolio yield of 6.44%, our loan portfolio provides a superior balance of risk and return as well as a good cash flow [match] with our liabilities.

At September 30, our 60-day delinquency rate was 40 basis points, which represents a slight decline from the 42 basis point delinquency rate at June 30, 2009. This delinquency rate stands in sharp contrast to the 364 basis points being experienced in the CMBS world. This, according to Moody's, is reported last week by the Wall Street Journal.

In the third quarter we foreclosed on nine loans resulting in a modest overall loss of $2.9 million. As the current challenges persist in the overall economy, we would expect that property owners would continue to face challenges that may lead to upticks in our delinquency rate. Nevertheless, we anticipate that our delinquency rate will remain contained and that our mortgage loan portfolio will continue to outperform the poorly underwritten mortgage portfolios within the financial sector.

Mortgage originations in the third quarter were $99 million reflecting low purchase and sale activity in an uncertain economy. As we enter the fourth quarter, we are beginning to see a pickup in activity. We will continue to maintain our strict underwriting practices to place these high quality, high yielding assets on our balance sheet. The loan-to-value ratio of the portfolio increased to 66% from the 61% we reported last quarter. This increase reflects the completion of the annual valuation analysis of all the properties in the portfolio.

We believe that the stabilized net operating income figures and capitalization rates we have used are very conservative. A portfolio that has a 66% loan-to-value derived from capitalization rates averaging 9% is a strong portfolio.

In conclusion, we are very pleased with the demonstration of financial strength that has been delivered by our business franchise through the recent difficult economic circumstance. By continuing to adhere to the principles that have served us so well StanCorp stands ready for both the challenges and the opportunities that are sure to present themselves as the overall economy proceeds to seek a recovery.

And with that, I'll now turn the call back to Jeff to begin the question and answer portion.

Jeffrey J. Hallin

[Christy], we're now ready to take the first question from our participants.

Question-and-Answer Session

Operator

(Operator Instructions). We will now take our first question from Ed Spehar – Bank of America Merrill Lynch.

Edward Spehar – Bank of America Merrill Lynch

I had a few questions, just first, some clarification on the expense reduction efforts. How much of the $25 million in annualized savings expected were in the third quarter numbers?

Dr. Floyd Chadee

Yes, I think, Ed, if you think about this, this process has been going on all year, so I wouldn't look necessarily to the third number to try to reconcile to run rate. I think if you – because some of the initiatives were still going on in the third quarter, there were also some unusual items in the third quarter that may cause some noise.

The numbers that we tend to look at would be if you look at our third quarter ending headcount, for example, at 3,202 that compares with a year ago of about 3,454, which represents a decrease in headcount of about 7% to 8%.

Edward Spehar – Bank of America Merrill Lynch

I guess, but if I look at the $25 million and say that means that at some point you're going to be saving a little bit more than $6 million per quarter.

Dr. Floyd Chadee

That's correct, yes.

Edward Spehar – Bank of America Merrill Lynch

Should I assume any of that was already reflected in the third quarter number?

Dr. Floyd Chadee

I think some of it, but not necessarily a full quarter.

Edward Spehar – Bank of America Merrill Lynch

Do you think it's half, it's three-quarters, it's 25%? I mean, just from a –

Dr. Floyd Chadee

Yes. I think there's enough noise going on in the third quarter here, just the other things going on that I wouldn't want to reconcile back to the number based on our third quarter's numbers here. But I think you are right in terms of our expectation would be about a $6 million savings off our run rate for next year per quarter.

Edward Spehar – Bank of America Merrill Lynch

Okay, but I guess a related question would be it looks like the expense ratio in the insurance services segment was higher, at least than what I thought it was going to be. When you talk about the noise in the numbers, was there something that boosted the expense ratio in the third quarter in insurance services?

Dr. Floyd Chadee

Nothing unusual. I think if you look at it by segment, while we have started seeing the benefits I think a lot of that would have come through the tail-end of the quarter. So if you're looking at it by segment you can't really see the run rate yet.

J. Greg Ness

Ed, the other thing of course you have to look at there is what the premium levels are. That has a big impact on what that expense ratio is as well.

Edward Spehar – Bank of America Merrill Lynch

Right. Well, I guess one of the things that we always struggle with with these expense save initiatives, is footing back to what exactly are the expense saves, and how to track the performance. So I guess that's the reason I'm asking these questions and I think, especially in an environment of challenging revenue growth, it's obviously important to try to figure out how much of this we're going to see next year versus what's occurring already.

I guess the other question I have is on capital. Do you have a guesstimate, a range of what you would consider to be the free cash flow generation you're going to see over the next couple of years? So if we're thinking about share purchase we're talking about a $290 million, sort of, in your definition of excess capital today, if you think about the, sort of, expectation of top line over the next couple years, what kind of a range of free cash flow or additional capital generation do you see over that period?

Dr. Floyd Chadee

I mean, we wouldn't want to give a forward-looking statement here in terms of expectations, but you can see we've generated capital at a fairly good pace to date. Now that's been driven by several things. One would be we haven't been seeing the losses on our bond portfolio that most of the financial sector was seeing last year. Two, you can see this quarter we had the unusual item of mortgage performance relative to the rest of the industry kicking in.

But if you back out that $40 million that we got this quarter, we generated capital at a pretty good pace this year. Now some of that has been, of course, dependent on a function of the fact that the we haven't – the top line has been under pressure in this economy.

So we remain optimistic about our sales and our connection with our customers, but some of that growth is going to be dependent on the overall economy, and we wouldn't want to give you a number here based on sort of our expectations for the overall economy.

Edward Spehar – Bank of America Merrill Lynch

Well, I guess I don't know that I'm looking for an economic forecast. I guess what I'm looking at is you had $183 million of stat operating earnings after taxes in the first nine months, and that's pretty comparable to what you had in '08.

I don't know how much seasonality there is in the fourth quarter in statutory, but it looks like you're on a path to be generating about $250 million of statutory operating income. Can you just give us some sense about how much of that you think you would need to retain? I mean, historically, when you think about your retention rate on a statutory basis, how much of your stat earnings do you typically keep in the subsidiary?

Dr. Floyd Chadee

All right, so they're stat earnings but remember there's a change in RBC, too. So we tend – we thought in the past of thinking of 5% of GAAP equities is what we would like to keep in terms of a target capital level. Now that has changed during the current recent economic disaster, so where we've kept more than that, so that would be a sense of a target.

I think with the growth rates that we've been seeing this year, I mean, we have – I think the run rate – if our top line were to perform the same way next year as it did this year, I think you would see the same level of capital generation that you saw this year excluding the mortgage adjustment factor that was the unusual item this quarter.

Now, I think we are doing a lot of things on the sale side to try to drive that top line up in a very disciplined manner, so I'm not sure that making an assumption about the top line performing next year as it did this year would be necessarily a correct assumption.

Edward Spehar – Bank of America Merrill Lynch

Okay, Floyd, I'm sorry, just the one last thing, can you just tell me what was the capital generation so far, the year-to-date, is it the 290? It's not the 290, right?

Dr. Floyd Chadee

Yes, so if you think of the movement within this quarter, we had $200 million at the end of last quarter, up from $160 the previous quarter. So in this quarter excluding the mortgage adjustment factor, we move from about 200 to 250 in this quarter. And then –

Edward Spehar – Bank of America Merrill Lynch

So that's a $50 million increase in a quarter.

Dr. Floyd Chadee

That's correct and the previous quarter was 40.

Operator

Your next question comes from Ryan Krueger – Keefe, Bruyette & Woods.

Ryan Krueger – Keefe, Bruyette & Woods

First, can you just tell us – give us a split of the 290 of excess capital between the holding company and the life subs?

Dr. Floyd Chadee

So we have about – in terms of sort of plain cash of the holding company, it's about $60 million. And remember the way we tend to think of this excess capital is it's capital that would be available, so things that could be dividended out of the holding company, so it tends to move around by – depending on different – the geography tends to change over time, so about $60 million of that would be sitting in cash at the holding company.

Ryan Krueger – Keefe, Bruyette & Woods

And then can you talk a little about January 1 renewals, what you're seeing in terms of pricing trends and employer activity? And also given the decline in new money rates, do you think that you're going to be able to offset that with pricing increases this year?

Jim Harbolt

Ryan, this is Jim Harbolt. When you're asking about renewals, much of our national account business is experience-rated. So when you're asking about renewals, you're really targeting towards our medium to smaller cases.

It should come as no surprise at renewal time we find a lot of our cases are at the right long-term rate and we're pleased about that. To the extent they're not at the right rate they're usually not off by much, and so far we're very pleased with our renewal activity.

Ryan Krueger – Keefe, Bruyette & Woods

And then just lastly, just going – hitting back on the capital again, Floyd, you talked about opportunistically buying back stock while maintaining an adequate capital position. I'm just curious in the current environment and given rating agency expectations, I guess, what do you consider adequate to be at this point? I assume it's above a 300% historical target for RBC.

Dr. Floyd Chadee

Right, so if we think of our targets at the insurance company or what we think is an appropriate multiple of RBC, we haven't changed from that 300%. We think that has served us well through the past, whether it's the good times or even the bad times last year and through the early part of this year.

So we still tend to think of that 300% as appropriate for our type of business. And then we tend to target about 5% of GAAP equity beyond that. Now, we are holding even excess of that at this point. The reason that we stopped our share repurchase program last year was not a function of sort of our, the capital that we had available, or of our sense that we were necessarily at risk.

But that there was an environment that had deteriorated dramatically and it was very important to demonstrate to our shareholders and importantly to our policyholders that we had the financial strength to live through this period of economic disaster.

So as we think opportunistically of buying in the fourth quarter here, it will be very much a function of our assessment of the degree of confidence that exists in the general economy and the need to shore up the expectations and the confidence of our policyholders and shareholders.

Ryan Krueger – Keefe, Bruyette & Woods

Okay and then so GAAP – 5% of GAAP equity, I think, is about $90 million, so essentially we should think of $290 million of excess capital minus the 90, so you have $200 million of kind of capital you think is available for buy back?

Dr. Floyd Chadee

Yes, so the 90, the 5% of GAAP equity would have been what we would have said in normal circumstances. I guess the judgment call here comes down to are we back into normal circumstances?

Operator

Your next question comes from [Mike Izaroki] – Credit Suisse.

[Mike Izaroki] – Credit Suisse

Could you give us some more color on the specific challenges you alluded to for 4Q and beyond in the press release? I suspect, and you can correct me if I'm wrong, that one of them is the pricing environments. Has anything changed at all in terms of pricing and what catalysts if any do you think the change is for the better in the coming year?

Jim Harbolt

[Mike], this is Jim Harbolt. From our comments in both the third quarter and our Investor Day, I don't think we've seen much change in the competitive environment. It's still a very difficult environment, very competitive. We see some irrational pricing out there on occasion.

And at the same time, we see a lot of strong proposal activity and a great deal of interest in our new capabilities and services. And so we're out there with our sales force fighting hard every day to help employers solve problems. But I think the competitive environment remains the same both in terms of pricing and sometimes the length of low prices being guaranteed for multiple years by some competitors.

[Mike Izaroki] – Credit Suisse

And I don't know if you can provide any color on it, is this – I keep on hearing that the health providers are going to continue to expand into life and disability. I don't know if you can comment on it. I mean, is it newer players or just –

Jim Harbolt

I've not seen any names new this year that we didn't see last year.

[Mike Izaroki] – Credit Suisse

My second question, so I keep seeing the headlines about U.S. Social Security disability claims surging. Why do you guys think StanCorp hasn't seen any correlation to the broader Social Security disability claims?

Dan McMillan

Yes, [Mike], this is Dan. This is a measure as you know that we evaluate very carefully, maybe in excruciating detail because we expect it to fluctuate quarter to quarter. And the comparisons to external measures like Social Security or something we watch closely as well.

We've had the benefit of tracking this measure over a number of years and through a number of economic downturns and have not seen a correlation between our overall claims activity and that economic environment and that holds true today.

If you look at our benefit ratio for this quarter and you strip out the effect of the discount rate, you're left with a benefit ratio of roughly 75.3 to 75.5 and that's squarely in the middle of our guidance we provided at the beginning of the year, even slightly below the midpoint. And if you even look at a longer period, you'll see some more flattening of those fluctuations, and we don't think that's going to change.

Dr. Floyd Chadee

I mean, this is not the first time that we've seen this divergence. Social Security does increase during recessions but when we look at our experience historically, we have not seen that correlation and our hypothesis as we've been talking about for a while is that it reflects the tight underwriting and the selection of risks that we do within our portfolio.

[Mike Izaroki] – Credit Suisse

And I can slip one quick one in, should we expect commercial mortgage originations to remain subdued in the coming quarters because I'm assuming that had a big – that has had to do with the discount rate being lowered?

Dr. Floyd Chadee

So if you just looked at the third quarter here, not only did we have a huge tightening of spreads generally in the market, but you're right, we absolutely did originate less mortgages than normal. On those mortgages that we did originate we had very good spread, very good risks and very good spread. As we look forward, we have been seeing a pickup in activity on the purchase and sale side. This would be a function of the general economy, so we'll wait and see what's happening there.

[Mike Izaroki] – Credit Suisse

But I guess your commercial mortgage originations stayed very strong through the past year and it just kind of fell off a cliff I guess you could say. So I guess you're seeing some deterioration right now – more deterioration right now in the economy, this past quarter?

Dr. Floyd Chadee

So it's been interesting, [Mike], we have generally not moved with originations in concert with the rest of the market. In fact, you could say at times we've been very contrarian. So if you look back to the first quarter of 2008, we had originations that were quite high when the rest of the mortgage world was falling apart.

And then later on in the year you saw mortgage originations come down. So the increases that you saw in the first part of 2008 reflected a falling off of the competition. Then the decreases that you saw thereafter reflected a falling off of the demand.

We saw high quality borrowers getting out of the market and that has been very uneven so far. So in this particular quarter, I think the major driver has been low purchase and sale activity, sort of low economic activity and higher quality borrowers staying away. But we are seeing a pickup in quote activity now as we get into the fourth quarter.

Operator

The next questions comes from Randy Binner – FBR Capital Markets

Randy Binner – FBR Capital Markets

Just a couple of CRE questions, first on the [MEEF], the reduction in the post-[unit] capital there to 75% from 100%, just wanted to clarify that that's more of a permanent change rather than one that's a result of regulatory accommodation, is that correct?

Dr. Floyd Chadee

Yes, it's absolutely not regulatory accommodation. This is just following the formula as it exists today. But as you know, Randy, the formula has been under review and under change, so this formula has existed for quite a while.

And recently, throughout this year, we've had a corridor, so the maximums, minimums and maximums have been set in terms of that factor at 75% and 125%. So we are at the lowest level now given those corridors. But as you know, there's been – and even as we speak, there are conversations going on between the ACLI and the NAIC to try and change this formula because I think there's recognitions throughout industry and amongst regulators that the formula just leads to too much volatility.

Randy Binner – FBR Capital Markets

Do you know if it had been in the old corridor system, would you have gone lower than 75 potentially?

Dr. Floyd Chadee

Yes, I think at this point we pretty much are at 75%. I think going forward, and one never knows what's going to happen with the industry experience going forward, but if the trends in the industry continue under the old formula, we probably would have gone lower but that's a speculation on what all the rest of the industry would perform going forward.

Randy Binner – FBR Capital Markets

Okay, fair enough. And then a follow up on CRE, could you give, if you would, a geographic breakout of the loans that were foreclosed in the quarter and if there was an average recovery you were able to get on those that would be interesting as well.

Dr. Floyd Chadee

Yes, I'll turn that question over to Mark in a second here, but the one thing I want to caution you, Randy, on is that remember here every quarter we're talking about a handful of loans here. So trying to pick out patterns here is not necessarily indicative of anything broader. So Mark, do you want to –

Mark Fisher

Hi Randy, this is Mark Fisher. In terms of a geographic breakout, we had two loans in California, one in Nevada, one in Virginia, three in Maine, one in Texas and actually two in Virginia, so there were nine loans. In terms of a recovery on the foreclosure it was about 65%.

Randy Binner – FBR Capital Markets

And maybe if I could just follow up with one more, there was a question earlier about what the kind of adequate buffer in excess capital would be and maybe another way of asking that question is it still a stated goal to try and have ROE come in in the 14% to 15% range?

Dr. Floyd Chadee

I think that's how we manage the business. We will – having that return to shareholders in the 14% to 15% range is what we try to target. So when we give guidance at the beginning of the year and recognizing the uncertainty of the environment, we said our goal would be to try to hit the 14% to 15% ROE while being very flexible given the economic circumstances on the rest of our measures.

Operator

Your next question comes from Beth Malone – Wunderlich Securities.

Elizabeth Malone – Wunderlich Securities

A couple of questions, first on the commissions and bonuses ratio that we calculate for the quarter, it looked like it went up a little bit in the third quarter compared to second or previous year. I just wondered is that just a seasonality thing or does it reflect the lower sales levels?

Dr. Floyd Chadee

Commissions and bonuses are, I mean we would have – remember the sales bonuses would have certainly been up in the quarter reflecting the sales activity in this quarter. Commissions tend to be flat so I don't think anything unusual going on there.

Elizabeth Malone – Wunderlich Securities

It was probably just seasonality, okay.

Dr. Floyd Chadee

If you look at it, Beth, it's – the commissions and bonuses, if you look at deferral of acquisition costs for example you'd see the deferred going up which represent greater sales in the third quarter here, sequential quarter-over-quarter.

Elizabeth Malone – Wunderlich Securities

And then with all the things that have happened to the life industry and the health industry, I know that there is a lot of competitors that are smaller than – disability is a part of the business they write. Have you seen much change from a competitive standpoint among who you're competing against for these markets or is the demand really being driven just from the economic factors?

Jim Harbolt

We haven't seen, I think, as the last couple of questions ago, we haven't seen a big change in the competitive marketplace. It remains very competitive, very strong around pricing and rate guarantees so I don't sense any big change going on right now. It's been the same. We've been encouraged by our proposal activity. We've been saying that now for a number of months and we still remain encouraged by our proposal activity.

Elizabeth Malone – Wunderlich Securities

Do you have any plans to change your product mix to include – to compete more with longer year guarantees?

Jim Harbolt

We're in the midst of doing that a little bit right now, Beth. We've seen a great deal of interest in bringing out our absence management services this year and how we marry that up with our short-term disability.

We've seen a great deal of customer interest in there. And we're pleased by that and we've had a lot of conversations with folks who would like to have us solve their absence management in short-term disability and long-term disability challenges for their workforce.

Elizabeth Malone – Wunderlich Securities

Do you think the economy does that make companies more interested in the absent management? Do you think that's a factor? Or it doesn't really play a role?

Jim Harbolt

I've not heard that from our customers that the economy is driving absence management. I think there is a regulatory environment out there that when the burdens get even heavier on employers to manage absence they look more and more to off load that to experts. And we consider ourselves an expert in that spot.

Elizabeth Malone – Wunderlich Securities

A question on the asset management business, the improvement that you saw in the value of the assets, is that mostly just recovery of asset values or was that new business?

Scott A. Hibbs

The primary driver in the quarter was the increase in the equity markets and that was the primary driver of values. We had seen strong cash flows for the business. This quarter those cash flows were actually slightly negative.

There were a couple of unusually large terminations in there but that was an unusual variation for us. We're still looking to expecting strong cash flows for the year and that has certainly been our track record.

Elizabeth Malone – Wunderlich Securities

And then one final question, Floyd, you talked about the different economists having different opinions about where the market is going to go in interest and in other factors. Do you get any sense, looking at your own book of business, given that you work with a lot of companies who have employee benefits demands, is there any – do you see any sense of hope or improvement here. Or was your experience comparable to what it was in the second quarter?

Dr. Floyd Chadee

I'm not sure I want to extrapolate from our sort of the experience of our customers into the overall economy. Clearly our customer base would be feeling the pressures of the – that are being reflected in the overall statistics on unemployment. But other than that, I think the interest rate question, which is the one that economists seem to be widely differing on, is really a function of, one, the impact of all the government money in the economy in the monetary system.

And how much confidence will return in the credit world to cause the credit multipliers to have that go through the economy. So I think that's the place where economists seemed to be diverging. And I don't know that would reflect it in sort of all the customers' viewpoint where they're looking sort of at the capacity to hire people.

Operator

Your next question comes from Mark Finkelstein – Fox-Pitt Kelton.

Mark Finkelstein – Fox-Pitt Kelton

I actually have a couple of follow-ups from prior questions. I guess I was a little confused on the comments around the commercial mortgage loan originations. I think it's about the lowest in this decade perhaps in terms of the number that was originated and just knowing how sensitive your new money yield is to this and hence your disability discount rate.

I mean you talk about a pickup in activity, but are you actually expecting originations to materially increase over the near term based on what you're seeing in the pipeline or is this kind of the level that we should be expecting over the next couple of quarters?

Dr. Floyd Chadee

Well, one, from what we have actually seen we are seeing a pickup in activity which we think is some sort of leading indicator that – but it's just a leading indicator. Two, our hypothesis would be that there is a lot of pent up demand because we've seen low purchase and sale activity and so we think borrowers have been staying away from the markets.

So our hypothesis is that that pent up demand has to come back to the market at some point in time. I don't know. Mark, do you have any color to add to that?

Mark Fisher

Well, I think, Mark, we're seeing a lot more loan requests. In the third quarter, I think the borrowers that could borrow simply choose not to. And we kept our spreads fairly high and we're starting to see some good purchase and sale activity.

We're starting to see some buyers that we saw two, three years ago, and I think sellers are beginning to lower their prices out of need. So I think that we're going to see a lot more activity going forward.

Mark Finkelstein – Fox-Pitt Kelton

Greg, can you just give a little bit color on the nature of the sales in the quarter? I think last quarter you talked about more proposals in the over 2,500 lives category. Obviously sales are up a fair amount off of a low, kind of seasonally low quarter as well as an easy comp, but can you just talk about what those sales were and the nature of them in this segment?

Jim Harbolt

We were pleased with the sales results for the quarter because they were across all lines and in all of our segments that we watch. And that would be from our small case clear up to what we would say is national account which for us is in the 2,500 lives and up, so we were pleased. They were across the board and we've been pleased with our continuing proposal activity being across the board as well.

Mark Finkelstein – Fox-Pitt Kelton

Then finally just on asset management earnings $11 million was higher than what I was expecting. I think probably others as well. I mean, is that the new norm that we should be thinking about from a starting point or where there any – you talked about noise earlier. I don't believe you kind of quantified or indicated where exactly it was.

I mean is there anything in that $11 million that we should be stripping out in terms of kind of thinking how to trend that going forward?

Scott A. Hibbs

We do view this quarter's results as a return to a more normal level for the equity markets. So without making a prediction on this line, I'd say that if we continue to see strength in the equity markets, and obviously that's the variable we don't control, and we continue to see the benefits of our cost reduction efforts then the results you're seeing in the quarter are probably a pretty good proxy.

Dr. Floyd Chadee

And just to add to what Scott said, the noise that we talked about earlier was very specific to trying to pick out a run rate on expenses for next year. I think other than – I mean that's the only place where I referred to the term noise because other than that, I think our [court] is pretty transparent.

Operator

Your next question comes from John Nadel – Sterne, Agee & Leach.

John Nadel – Sterne, Agee & Leach

I wanted to follow-up a little bit on Mark's question on the sales and maybe go at it a little bit differently. So across a lot of different segments and obviously a couple of different product lines there, but I'm wondering if you, if think that that's – is that a function of any real growth in the overall market demand? Or do you think that that was, I mean, I suspect that it's more market share gains as you've taken business that was on the books of someone else away from them?

J. Greg Ness

John, I think you're looking at it right.

John Nadel – Sterne, Agee & Leach

And then, sort of a bigger picture question. I guess not surprisingly to date all the focus on all the bantering around health care reform out of Washington and the various proposals, all the focus has really been on the HMOs and related companies.

But, I was definitely interested in what impact, if any, you guys are thinking about as more of a second order effect of some of these proposals, public option, etc.? I imagine at the end of the day any actions that result in higher costs for health care insurance coverage to the employer just means that there's less potential for employers to provide your sorts of benefits, group disability, group life.

But I'm definitely interested in how you're thinking about, what you're paying attention to, how client interactions are going with respect to the more ancillary group insurance benefits that you guys focus on?

J. Greg Ness

John, this is Greg. Let me maybe share a little bit in your speculation because at this stage, that's really all it is is speculation.

John Nadel – Sterne, Agee & Leach

Yes, I understand. Yes.

J. Greg Ness

We just don't know what's going to unfold. We don't have visibility in how it will affect us because we don't know what the heck it is at this stage.

John Nadel – Sterne, Agee & Leach

Yes.

J. Greg Ness

But to the extent that health care brokers aren't doing business in health care anymore or certainly aren't doing business the same way they were, we think that's probably a slight positive for our business. And that they will be far more interested in finding new products and services that they can sell to employers, which they can maybe make up the income deficit that's created on the other side.

John Nadel – Sterne, Agee & Leach

Okay. Do you suspect there's a chance? I mean, are you thinking a little bit more about voluntary benefits as opposed to employer paid, just in the event that a lot more is coming out of employer's pockets?

J. Greg Ness

Absolutely an option. We see some of that in some areas. We certainly provide those voluntary benefits today. And we're able, willing and ready to do that on a broader basis should employers decide to move that way. One of the things we know though when we look at employee surveys and employers surveys, is that the benefits which we provide, we're in about the top five of benefits requested by employees.

John Nadel – Sterne, Agee & Leach

Yes.

J. Greg Ness

So it's unlikely that they will go away.

John Nadel – Sterne, Agee & Leach

Okay and then just one last one for you. Is it fair to assume – I mean, I know you're mentioning buy backs and you're sitting on a good sort of capital cushion or excess capital, however we want to define that term. Is it fair to assume you've run the thoughts for opportunistic, in your words, buy backs past the rating agencies and have sort of their blessing as it were?

Dr. Floyd Chadee

Yes, I mean, I wouldn't have anticipated, but give them a $290 million available capital, that the rating agencies would be too concerned about some share buyback at this point.

John Nadel – Sterne, Agee & Leach

All right. And opportunistic, maybe, I don't know, can we speak to that? Can you guys speak to that a little bit more? I'm sure you don't necessarily want to put out a "we will only buy back our stock below one point something times book value," or, but can you give us a sense of how you're thinking about that?

Dr. Floyd Chadee

Yes, all our thinking, John, is focused on the confidence and the external environment as opposed to any sort of assessment of our business. We've always felt, and we still feel that our stock is undervalued. And we think that we have the capital strength to return value to shareholders this way, should we choose. So it's only going to be a function of our assessment of the external environment.

John Nadel – Sterne, Agee & Leach

And any consideration to raising the dividend?

Dr. Floyd Chadee

We won't eliminate any possibilities on an a priori basis. So that's always on the table, not that –

John Nadel – Sterne, Agee & Leach

Okay. Thanks very much.

Operator

Your next question comes from Eric Berg – Barclays Capital.

Eric Berg – Barclays Capital

Good morning to you. Floyd, a number of your competitors in group insurance, for example, Met and Lincoln National, have cited several factors such as their own decision to run with less leverage, lower business volumes, higher rating agency capital requirements, more liquidity on the balance sheet.

They've started this laundry list of factors, and others quite frankly, I haven't gone over them all, in explaining why they believe in all likelihood, returns in their businesses will be lower, return on equity will be lower in their business [prospectively] than it would have been absent the financial crisis.

What's you're thinking about all this? I know you said that you aim for 14% to 15%. I'm sure that's the case. But I'm not interested in what you're aiming for. I'm interested in that, but what I really want to know is do you think the outlook has changed? Thank you.

Dr. Floyd Chadee

All right so, you're absolutely right. The question of what the outlook is is an open question. Will we have a double dip? Those are all questions that are being debated in the general economy today. So there's a short-term and a long-term view from our perspective.

When we started this year, we committed to shooting and to managing the business to try to get that arrow we target because we think that's the best way to ensure that we're bringing value back to our shareholders. We continue to shoot for those targets.

But in the unfolding circumstances here, you can see there's still a lot of uncertainty with respect to where the overall economy would go in the short term. These still remain our long-term targets. And we see no reason to veer from them as of now. There are challenges in the marketplace, given the overall economy, given the yield rates that we've seen.

Now with respect to the particular examples that you raise, Eric, I don't know that there's comparability between us and those particular examples because clearly, those organizations are in a substantially different business from the one we're in. And they were faced with capital issues that we hadn't had to consider.

So I think their fast forward, their strategies and tactics, I would expect that they would be substantially different from ours.

Eric Berg – Barclays Capital

And I guess a related question – this will be my second one – relates to what you are hearing about required capital from the rating agencies. I know in the course of this call, you've touched on your risk-based capital and rating agencies.

But would it be your anticipation that – I've heard this, I'd like to get this verified or refuted – that rating agencies will be requiring all insurers, including yours, to hold more capital in the future than they did in the past, both at the insurance equity level and in total in terms of the GAAP leverage ratio. What's your sense in how that is developing?

Dr. Floyd Chadee

We have received no indication from the rating agencies that there would be an expectation of us holding more capital. I think more broadly in our industry and in the economy as a whole, clearly there are lots of discussions going on on required capital, which we happen to think might be quite appropriate, given where we've seen some insurers go in this economic challenge and where other financial institutions have gone. But in our business, we have seen no need for more capital or higher targets, nor have we had those discussions with the rating agencies.

Eric Berg – Barclays Capital

Actually, one more last question, it seems curious that on the one hand, you're not getting the organic growth that you would like, but you're selling a lot of business. You're selling a healthy amount of business.

Is that a function of the fact that with respect to organic growth, that's really for the most part outside of your control in the sense that employers decide, you don't decide, how many people you're client customers will employ and what pay raises will go through whereas the decision to pursue business aggressively or not is in your hands? Is that how I should think about why the organic growth is not where you'd like it to be but the new business is healthy?

Jim Harbolt

Eric, this is Jim Harbolt. And I think that you're thinking about it along the right lines. Organic growth for us is dependent upon age, whether or not an employer adds or subtracts from their headcount and what their wage growth is doing.

So, to the extent that you see a jobless recovery or no wage growth, that's going to continue to put downward pressure on our organic growth. And you're also right that on the sales side, we've made significant investments in 2008, 2009 to bring out a number of products and capabilities that employers have shown now sustained interest in. And so we're pleased with that.

Operator

Your next question comes from Colin Devine – Citigroup.

Colin Devine – Citigroup

Good morning. I want to focus on three if that's still possible. One, I'd like to, if you could talk about just both, I guess, the impact of low rates and much narrower spreads on your business outlook going forward.

Second, with respect to the growth and I think we've kind of danced around this a little bit. I've always thought that about 2/3 of your premium growth came from existing accounts, from up-selling, growing, putting raises through, growing their employee bases or whatever and the other third came from going out and finding brand new customers for StanCorp.

It's premium or revenue flatness we're seeing really reflecting that the 2/3 from the existing accounts is likely in this environment to be flat to down a little bit. And then lastly, I have to say I'm troubled by the fact that you're ready to rush out and start buying in your stock again.

For a company that has almost that has almost half of its investment portfolio in commercial mortgages and with that being a lagging indicator, with the acknowledging you're seeing foreclosure activity pick up, I can't recall the last quarter when you foreclosed on nine loans. This seems to me to be the time that as with the mortgage experience factor, given your investment portfolio you should be building capital because those losses are coming.

Dr. Floyd Chadee

And so, this is Floyd, Colin. I'll take the interest rate question and the share repurchase question and I'll ask Jim to talk to the growth question in a moment. So on the interest rate side, I think as we said earlier, there is – the views of economists are quite divergent and we think from where we sit today in terms of our discount rate, we could see those rates go significantly higher or we could see them go lower depending on which of the one of these diverging scenarios would play out.

I don't think we want to necessarily speculate on or build a plan, or plans and expectations based on one particular scenario. We would expect that to the extent that rates diverged significantly from where they are today, then there will be an industry response in terms of pricing and bottom line. That usually lags the change in rates so that whole scenario would need to be played out. But at this point, I think we sit with – we can't really take a particular view of any one particular economist and speculate on where rates might go.

Colin Devine – Citigroup

Well, Floyd, actually I'd push back on that with all due respect, I think you do. And I think you've actually done that with where you've set your pricing as to we're into the renewal season now. So in fact I think you have done that and I'm curious then because of that, in your pricing right now as we go into next year, what have you assumed, rates up, down, or flat?

Dr. Floyd Chadee

Well I think at this point, I mean when we look at our renewals – when we look at our renewals, one looks at renewals based on sort of an average expectation of rates. So I would say all renewals do reflect some stability of rates because you do have to assume some, you have to make some assumption for that pricing. Now that – the assumption that you make is also a function of, it's similar to your competitors. They also need to make some assumption.

We have not seen rates in the industry reflect anything that would, that we can draw correlation with in terms of the very, either the very widening spread that we saw earlier, or the tightening today. So I would say the industry is using some sort of average expectation at this point, and I would say at this point, we and our competitors also need to use that average expectation. Now to the extent rates move significantly either up or down, it means we would all, we would have all been off and then we would have to react to that point, so.

Colin Devine – Citigroup

Well, I understand where we'll come back and address that one next year. I just wanted to be clear, and I think what I heard is you're assuming rates, and I believe you're referring to both spreads and the nominal level of rates will essentially stay where they are now and that's what you've factored into your pricing, is that correct?

Dr. Floyd Chadee

Yeah, I don't want to jump to that as being a very specific rate that is factored into our pricing here. It's I think when our pricing actuaries look at these rapidly changing rate environments, they tend to think of their customer over the lifetime so you don't just think of this single renewal and whether that rate is appropriate, but you think of building a relationship with your customer over a longer period of time and you change expectations about how rates might go in the first renewal but it's just another renewal, so.

Colin Devine – Citigroup

Floyd, you told me you could never re-price enough on the renewal, so come on now. You've got to get it right the first time.

Dr. Floyd Chadee

Yes, I think that would be false that we can never re-price on the renewal side. I think our aim is to build relationship with our customers, deepen our relationship with our intermediaries, and we think that does lead to appropriate pricing whether on new cases or in renewals when that value proposition is sold.

What we've said is we will not go into lower rates and chase the market. But the notion that we can't raise rates on renewal, I think would be entirely false for a business. When we do build those relationships and we do deliver value, and that relationship is established, we can and we do get the appropriate rates.

J. Greg Ness

Let's move on to your other question Colin that was about growth. Jim?

Jim Harbolt

Colin, this is Jim. A couple of points on growth and a follow-up to what Floyd was saying. It's important to remember on growth that there's growth that adds value and there's also top line growth that destroys value and we focus on that add value portion of the growth line.

Also when you think about growth in our premiums, you need to remember we have sales and then we have what we report out once a year on persistency and that's how many customers we keep and as well as the organic growth. There's fluctuation on the mix. You split it 1/3, 2/3, I think those over the long haul are sort of backwards. They're flipped the other way. And doesn't mean that in a given quarter it could change and you also have to introduce seasonality quarter-to-quarter, but in general sales is where the bigger mover is or the quickest mover.

Dr. Floyd Chadee

I think, Colin, you had one last question on the share repurchases? So I think it's very important distinguish between the performance in our mortgage portfolio and the performance of the mortgage portfolios generally. I mean as we've said, we expect in this very difficult economy and perhaps a continuation of difficulty that it's perfectly possible that our delinquency rate will tick up.

But again, we look at those potential losses and we see a such huge divergence between what we're seeing and what's happening elsewhere. For example, the comparison we made earlier was our delinquency rate versus the CMBS world. I would say that compared with the bond losses that we took last year and a lot of many financial institutions took, our performance in the mortgage would have deteriorate significantly to even get close to those numbers.

So our concern, we don't have – share the same concern about our mortgage portfolio because we tend to think it's a very strong mortgage portfolio and we would continue to expect that divergence between our performance and the CMBS world.

Colin Devine – Citigroup

Well I don't doubt that it's strong. I would challenge the comparison to the CMBS market. I think the challenges, the comparison is to your fellow life insurers, that's what the [MEEF's] picking up and that's what's compelling you to hold more capital. With the life industry wrote and what the investment bank wrote is comparing an apple to an orange. But I do agree your portfolio's a much higher quality.

Dr. Floyd Chadee

Yes, so just to be clear Colin, we actually hold – we are required to hold less capital because of the [MEEF] factor adjustment this quarter because the rest of the industry performed worse than us and therefore relative performance improve to the industry, and therefore we are actually required to hold less capital according to the RBC calculation this quarter.

Operator

Your next question comes from Bill Dezellem – Tieton Capital Management.

Bill Dezellem – Tieton Capital Management

Good morning. We have two questions for you. The first one, I believe last quarter you had referenced the fact that you had some early signs that your delinquencies might be improving on the commercial real estate side and I think you used a 30-day delinquency to quote that. Would you please update that data and give us your perspective of whether those trends have continued or whether they've paused out, and then I do have one additional question please.

Dr. Floyd Chadee

Bill, in terms of those early indications, in terms of 30 day delinquencies that we saw, they remained about the same as last quarter. So which was down from the previous quarter so we continue to see what we think is good experience there.

Bill Dezellem – Tieton Capital Management

And would you please remind us what the 30-day delinquency was this quarter and make sure we have the correct comparison to the 60-day delinquency.

Dr. Floyd Chadee

I don't have the number right in front of me here, so but you can certainly follow up with us on that. We can pull out the number from last quarter.

Bill Dezellem – Tieton Capital Management

Great, thank you. And then the second question is relative to the larger case market update. It still may be slightly too early to have real good information on that but, what is your perspective on your proposals turning into new business wins?

Jim Harbolt

Hi, Bill this is Jim Harbolt. We're echoing again today where we were at the end of last quarter and in May at the investor meeting that we're encouraged by the proposal activity and we're encouraged by the amount of interest we're seeing. And our field folks are out there talking to large customers about our new products and capabilities. We're encouraged by that.

I'd give a little anecdote of color is that it appears to us that a number of employers are coming to the market a little bit later or waiting longer to make decisions. And so the selling cycle is getting compressed a little bit where folks may have made in prior years made decisions earlier in the year for 1/1 business, what we're seeing right now is maybe folks waiting a lit bit longer.

Bill Dezellem – Tieton Capital Management

Could that ultimately create some challenges for you if you win a bit more business then you expect at actually getting all the new employees converted over for a 1/1 start date?

Jim Harbolt

We're very aware of that and we're ready to go, that's the best way I could describe that. We're ready to go and to add business and bring people on. Service is a huge value proposition for us and we're very committed to that.

Jeffrey J. Hallin

Hi [Christy] this is Jeff Hallin, we're ready to take a final question as we've gone past the hour.

Operator

Your next question is a follow-up from Edward Spehar – Bank of America, Merrill Lynch.

Edward Spehar – Bank of America Merrill Lynch

I had a question just in terms of the amount of money that you're investing if we're thinking about your mortgage originations of $90 million – $99 million in the quarter. Can you tell us how much – what the total amount that was invested in the quarter and in year-to-date, roughly?

Dr. Floyd Chadee

Yes, you don't have that – I think you can look at sort of reserve growth over time and pull out that number, Ed. I don't have the number off the top of head yet. But remember there's reinvestments that are going on depending on the rollovers within the portfolio so even that doesn't give you the total number.

Edward Spehar – Bank of America Merrill Lynch

That's what I'm trying to get is just roughly what the total number – if you have a $10.5 billion portfolio how much are you investing each year? So we can get some sense of what percentage of the money you're investing is actually being allocated to mortgages right now.

Dr. Floyd Chadee

Yes, so we target 60/40.

Edward Spehar – Bank of America Merrill Lynch

Right, I understand that but you're not there, clearly.

Dr. Floyd Chadee

Right, we're not there as of this quarter. But average over several running quarters I think that our plan would be to stay within those – approximately those targets.

Edward Spehar – Bank of America Merrill Lynch

If I look at the prior six quarters, let's say, where you're running between 180 and let's say between $200 million and $400 million a quarter, is that getting you to your 60/40?

Dr. Floyd Chadee

I think our overall portfolio is about that 60/40 so I remember the 60/40 is all is about keeping that overall portfolio within approximately those limits.

Edward Spehar – Bank of America Merrill Lynch

I mean if those numbers are correct then if we saw these mortgage originations jump back up to that $200 million, $300 million level, let's say, $300 million level it would seem like absent any other changes in the investment environment we could see the discount rate reverse back by 25 basis points if I've done my math right.

Dr. Floyd Chadee

Yes, also there are two countervailing things if you compare it with the third quarter. Remember our mortgage origination is low this quarter but remember we're also facing a very much tightening spread overall in all assets.

And on the mortgage originations that we did have, they were low this quarter in terms of volume but our spreads were very, very good on those mortgages at 408 basis points. So while we're pleased with the pickup in activity of quotes on the mortgage side, we see the potential risk of spreads tightening both on the mortgage side and overall in assets.

Jim Hallin

Well, thank you very much for joining our call today. There will be a replay of this call starting this afternoon and running through October 30th. To listen to this call you can dial 800-642-1687 and enter the conference ID number 3164406. A replay of today's Web cast is also available at www.stancorpfinancial.com. Thank you.

Operator

Thank you for participating in today's telephone conference.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!