StanCorp Financial Services, Inc. was incorporated in 1998 in Oregon. We are a holding company for our insurance and asset management subsidiaries and are headquartered in Portland, Oregon. Our insurance businesses offer group and individual disability insurance, group life and accidental death and dismemberment (“AD&D”) insurance, group dental and group vision insurance and absence management services. Through our insurance subsidiaries, we have the authority to underwrite insurance products in all 50 states. Our asset management businesses offer full-service 401(k) plans, 403(b) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans and non-qualified deferred compensation products and services through an affiliated broker-dealer. Our asset management businesses also offer investment advisory and management services, financial planning services, commercial mortgage loan origination and servicing, individual fixed-rate annuities, group annuity contracts and retirement plan trust products.
MISSION AND STRATEGY
Our mission is to exceed customers’ needs for financial products and services in growing markets where the application of specialized expertise creates potential for superior shareholder returns. Our vision is to lead the financial services industry in integrity, expertise and customer service. We operate in select financial products and services growth markets and seek to compete on expertise, differentiation and customer service, while maintaining a strong financial position.
Our long-term strategy includes: Maintaining strong growth rates in traditional risk acceptance businesses (disability and group life insurance). Seeking opportunities to increase penetration in markets with limited presence to expand growth opportunities. Further diversifying our earnings base, and taking advantage of market opportunities, demographic trends and capital synergies by increasing our asset management businesses.
STANCORP AND SUBSIDIARIES
StanCorp, headquartered in Portland, Oregon, conducts business through wholly-owned operating subsidiaries throughout the United States. Through our subsidiaries, we have the authority to underwrite insurance products in all 50 states.
Standard Insurance Company (“Standard”), our largest subsidiary, is a leading provider of group insurance products and services. It underwrites group and individual disability insurance and annuity products, group life and AD&D insurance, and provides group dental and vision insurance, absence management services and retirement plan products. Founded in 1906, Standard is domiciled in Oregon, licensed in all states except New York, and licensed in the District of Columbia and the U.S. Territories of Guam and the Virgin Islands.
FINANCIAL STRENGTH AND CREDIT RATINGS
Financial strength ratings, which gauge claims paying ability, are an important factor in establishing the competitive position of insurance companies. Ratings are important in maintaining public confidence in our company and in our ability to market our products. Rating organizations continually review the financial performance and condition of insurance companies, including ours. In addition, credit ratings on our 10-year senior notes (“Senior Notes”) and junior subordinated debentures (“Subordinated Debt”) are tied to our financial strength ratings. A ratings downgrade could increase surrender levels for our annuity products, could adversely affect our ability to market our products and could increase costs of future debt issuances.
We operate through two reportable segments: Insurance Services and Asset Management, as well as an Other category. Resources are allocated, and performance is evaluated at the segment level.
Of our total $2.77 billion in revenues for 2009, revenues of $2.41 billion were from our Insurance Services segment and $382.8 million were from our Asset Management segment. Net capital losses were $26.9 million for 2009 and are recorded in our Other category. Excluding net capital losses, revenues for 2009 from our Other category were $3.5 million. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results of Operations—Revenues” and Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 3—Segments” for segment information regarding revenues, expenses and total assets for the years 2009, 2008 and 2007.
Insurance Services Segment
The Insurance Services segment sells group and individual disability insurance, group life and AD&D insurance, group dental and group vision insurance products and absence management services to individuals and employer groups ranging in size from two lives to more than 619,000 lives. We have about 30,000 group insurance policies in force, covering approximately 7.3 million employees as of December 31, 2009.
Our group insurance products are sold by sales representatives through independent employee benefit brokers and consultants. The sales representatives, who are employees of the Company, are compensated through salary and incentive compensation programs and are located in 42 field offices in principal metropolitan areas of the United States. The field offices also provide sales support and customer service through field administrative staff. Our arrangements with brokers include compensation established at the time of sale (commissions or fees), and, in some situations, also include compensation related to the overall performance of a block of business (performance
related compensation). In most cases, the overall performance of a block of business is measured in terms of volume and persistency (customer retention).
Group long term disability insurance contributed 38.5% of 2009 premiums for the segment. Group long term disability insurance provides partial replacement of earnings to insured employees who become disabled for extended periods of time.
Our basic long term disability product covers disabilities that occur during the policy period at both work and elsewhere. In order to receive long term disability benefits, an employee must be continuously disabled beyond a specified waiting period, which generally ranges from 30 to 180 days. The benefits usually are reduced by other income that the disabled employee receives from sources such as social security disability, workers compensation and sick leave. The benefits may also be subject to certain maximum amounts and benefit periods. Historically, approximately 50% of all claims filed under our long term disability policies close within 24 months. However, claims caused by more severe disabling conditions may be paid over much longer periods, including up to normal retirement age or longer.
Generally, group long term disability policies offer rate guarantees for periods from one to three years. While we can prospectively re-price and re-underwrite coverage at the end of these guarantee periods, we must pay benefits with respect to claims incurred during these periods without being able to increase guaranteed premium rates during the same periods.
Group life and AD&D insurance contributed 39.2% of 2009 premiums for the segment. Group life insurance products provide coverage to insured employees for a specified period and have no cash value (amount of cash available to an insured employee on the surrender of, or withdrawal from, the life insurance policy). Coverage is offered to insured employees and their dependents. AD&D insurance is usually provided in conjunction with group life insurance, and is payable after the accidental death or dismemberment of the insured in an amount based on the face amount of the policy or dismemberment schedule.
In addition to our two segments, we report our holding company and corporate activity in the Other category. The Other category includes return on capital not allocated to the product segments, holding company expenses, interest on debt, other unallocated expenses including one-time costs, net capital gains and losses related to the impairment or the disposition of our invested assets and adjustments made in consolidation.