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FILED PURSUANT TO RULES 424(b)(3) and 424(c)
FILE NO. 333-72521
Prospectus Supplement, dated May 5, 1999
to the Prospectus dated April 15, 1999
STANCORP FINANCIAL GROUP, INC.
Operating income for StanCorp Financial Group, Inc. and its subsidiaries
("Standard") for the first quarter of 1999, excluding after-tax realized
investment gains and an extraordinary item, totaled $20.6 million, compared to
$14.5 million for the first quarter of the prior year. Total premiums for the
first quarter of 1999 were $238.6 million, an 8.3% increase from $220.4 million
for the first quarter of 1998.
This quarter's results were driven by a 10.5% growth in Group Insurance
premiums, predominantly Group long term disability, and improved Group
underwriting margins. The Group Insurance benefit ratio was 83.9% for the first
quarter of 1999, compared to the 1998 annual ratio of 85.0%.
Net income for the first quarter of 1999 was $19.0 million compared with
$14.3 million for the same period in 1998. For these same periods, Standard
incurred charges, net of tax, for an extraordinary item of $2.3 million and
$0.3 million, respectively. The extraordinary item consists of expenses
incurred in conjunction with Standard's recent demutualization.
On April 26, 1999 Standard received notice from the San Francisco office of
the U.S. Department of Labor (the "Department") that it was conducting an
investigation with respect to Standard's employee benefit plan clients pursuant
to Section 504(a)(1) of the Employee Retirement Income Security Act of 1974
("ERISA"), to determine whether any person has violated or is about to violate
any provision of Title I of ERISA. Standard and certain of its employee benefit
plan clients are subject to ERISA in connection with, among other things,
certain policies sold by Standard's Group Insurance segment. The notice
included a subpoena requesting that certain documents and records be provided
to the Department. Standard intends to cooperate fully with the Department.
To date no claims or charges have been asserted against Standard as a result
of the investigation and the Department states that its investigation should
not be construed as an indication that any violations of ERISA have occurred or
as a reflection upon any person involved. Management believes that Standard's
business practices comply in all material respects with ERISA and that the
investigation will not have a material adverse effect on its business,
financial condition or results of operations.
Pre-tax operating income by segment, excluding realized gains and losses,
were as follows:
Standard's Group Insurance segment reported pre-tax operating income of
$24.4 million for the first quarter of 1999, compared to $12.5 million for the
first quarter of 1998. Group Insurance premiums for the first quarter of 1999
were $211.5 million, an increase of 10.5% from Group insurance premiums of
$191.4 million for the first quarter of 1998. Group Insurance benefits and
expenses increased 4.9%. Group Insurance segment sales based on annualized new
premiums were $67.7 million for the first quarter of 1999, up 21.1% from $55.9
million for the same period of the prior year. During 1999, management intends
to pursue growth opportunities in this segment through the addition of five new
sales offices, one of which has already been opened. Twelve of an anticipated
nineteen new sales representatives have also been hired.
The Retirement Plans segment reported pre-tax operating income of $0.4
million for the first quarter of 1999, compared to $0.1 million for the same
period in 1998. Management believes that meaningful growth opportunities exist
for the segment, because Standard's target client base of small- to medium-
sized businesses is experiencing strong growth. During 1999, Standard plans to
open five additional Retirement Plans offices, one of which has already been
opened, and pursue cross-selling opportunities with its Group Insurance
segment. Assets managed by the segment totaled $1.34 billion at March 31, 1999,
an increase of 11.1% over assets managed at March 31, 1998.
Standard's Individual Insurance segment reported pre-tax operating income of
$3.8 million in the first quarter of 1999, compared to an unusually favorable
$8.6 million in the first quarter of 1998. Premiums were $22.4 million in the
first quarter of 1999, compared to $25.0 million in the first quarter of 1998.
The segment's products include traditional and universal life insurance,
disability income insurance and annuities for individuals.
Operating income from Standard Mortgage Investors, L.L.C. ("SMI") increased
from $0.8 million during the first quarter of 1998 to $1.4 million during the
same period in 1999. This increase was driven by new mortgage originations,
which increased from $96.6 million during the first quarter of 1998 to $122.8
million during the first quarter of 1999. Net income for SMI is reported in
other pre-tax operating income.
At March 31, 1999, Standard's assets were $5.35 billion, compared to $4.90
billion at March 31, 1998.
StanCorp Financial Group, Inc. ("StanCorp") completed its initial public
offering in April 1999. Upon completion of the initial public offering,
StanCorp had 32,638,015 shares of common stock outstanding. If this had been
outstanding at March 31, 1999 and March 31, 1998, pro forma operating income
per common share for the first quarters of 1999 and 1998 would have been $0.63
and $0.44, respectively.
