UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007
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or



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from
 to
|- |  | ---------------------------------------------------------------------------------------------------------------------------



Commission File Number: 1-14925



STANCORP FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)



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|Oregon                                                         |  | 93-1253576                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



1100 SW Sixth
Avenue, Portland, Oregon, 97204

(Address of principal executive offices, including zip code)



Registrants telephone number, including area code:
(971) 321-7000



Securities registered pursuant to
Section 12(b) of the Act:



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|---------------------------------------- |  | -----------------------------------------
|TITLE OF EACH CLASS                      |  | NAME OF EACH EXCHANGE ON WHICH REGISTERED
|Common Stock                             |  | New York Stock Exchange                  
|Series A Preferred Share Purchase Rights |  | New York Stock Exchange                  



Securities
registered pursuant to Section 12(g) of the Act: NONE



Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No   ̈



Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x



Indicate by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes  x    No   ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of the 10-K or any amendment to the Form 10-K.  x



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large
accelerated filer  x    Accelerated filer   ̈    Non-accelerated filer   ̈    Smaller reporting company   ̈



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ̈    No  x



The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 29, 2007, was approximately $2.75 billion based upon the closing price of $52.48 on
June 29, 2007. For this purpose, directors and executive officers of the registrant are assumed to be affiliates.



As of February 22, 2008, there were 49,011,892 shares of the registrants common stock, no par value, outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the registrants definitive Proxy Statement for its 2008
Annual Meeting of Shareholders are incorporated by reference in Parts I and III.








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|ITEM                  |  |                                                                                                              |  | PAGE
|Available Information |  | 3                                                                                                           
|Part I               
|Item                 
|1.                    |  | Business                                                                                                     |  | 3   
|1A.                   |  | Risk Factors                                                                                                 |  | 11  
|1B.                   |  | Unresolved Staff Comments                                                                                    |  | 14  
|2.                    |  | Properties                                                                                                   |  | 14  
|3.                    |  | Legal Proceedings                                                                                            |  | 14  
|4.                    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 14  
|4A.                   |  | Executive Officers of the Registrant                                                                         |  | 14  
|Part II              
|Item                 
|5.                    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 16  
|6.                    |  | Selected Financial Data                                                                                      |  | 18  
|7.                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 19  
|7A.                   |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 39  
|8.                    |  | Financial Statements and Supplementary Data                                                                  |  | 39  
|9.                    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 74  
|9A.                   |  | Controls and Procedures                                                                                      |  | 74  
|9B.                   |  | Other Information                                                                                            |  | 74  
|Part III             
|Item                 
|10.                   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 75  
|11.                   |  | Executive Compensation                                                                                       |  | 75  
|12.                   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 75  
|13.                   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 76  
|14.                   |  | Principal Accountant Fees and Services                                                                       |  | 76  
|Part IV              
|Item                 
|15.                   |  | Exhibits, Financial Statement Schedules                                                                      |  | 77  
|                      |  | Signatures                                                                                                   |  | 79  
|                      |  | Exhibits Index                                                                                               |  | 80  



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|2 |  | STANCORP FINANCIAL GROUP, INC.



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Part I



As used in this Form 10-K, the terms StanCorp, Company, we, us and our refer to StanCorp
Financial Group, Inc. and its subsidiaries, unless the context otherwise requires.  AVAILABLE INFORMATION StanCorp files its annual, quarterly and current reports, proxy statements and other
information with the United States Securities and Exchange Commission (SEC). You may read and copy any document StanCorp files with the SEC at the SECs Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549,
U.S.A. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 (or 1-202-551-8090). The SEC maintains an Internet site that contains annual, quarterly and current reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC. StanCorps electronic SEC filings are available to the public at www.sec.gov. StanCorps Internet site for investors is www.stancorpfinancial.com/investors. StanCorp publishes its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on its Internet site free of charge. StanCorp makes these
reports available as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. StanCorp also makes available on www.stancorpfinancial.com/investors (i) its Corporate Governance
Guidelines, (ii) its codes of business ethics (including any waivers therefrom granted to executive officers or directors), and (iii) the charters of the audit, organization and compensation, and nominating and corporate governance
committees of its board of directors. These documents are also available in print without charge to any person who requests them by writing or telephoning:  Shareholder Relations Department StanCorp Financial Group, Inc. 1100 SW Sixth Avenue Portland, OR 97204 (800) 378-8360  Item 1.

Business  FORWARD-LOOKING STATEMENTS Some of the statements contained or incorporated by reference in this Annual Report
on Form 10-K, including those relating to the Companys strategy and other statements that are predictive in nature, that depend on or


refer to future events or conditions, or that include words such as expects, anticipates, intends, plans,
believes, estimates, seeks and similar expressions, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are not historical
facts but instead represent only managements expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve uncertainties that are difficult to predict, which
may include, but are not limited to, the factors listed in Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of OperationsForward-looking Statements of this Report. As a provider of
financial products and services, our results of operations may vary significantly in response to claims experience, economic trends, interest rate changes, investment performance, operating expenses and pricing. Caution should be used when
extrapolating historical results or conditions to future periods. Our actual results and financial condition may differ, perhaps
materially, from the anticipated results and financial condition in any such forward-looking statements and, given these uncertainties or circumstances, readers are cautioned not to place undue reliance on such statements. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  GENERAL We are a holding company for our insurance and asset
management subsidiaries and are headquartered in Portland, Oregon. We are the parent company of Standard Insurance Company, a leading provider of group insurance products and services serving the life and disability insurance needs of employer
groups and disability insurance serving the needs of individuals. Our insurance subsidiaries also provide accidental death and dismemberment insurance (AD&D) and dental insurance. Through our insurance subsidiaries, we have the
authority to underwrite insurance products in all 50 states. Our asset management businesses offer investment management services, retirement financial services, individual annuities, group annuity contracts and trust products, full-service 401(k)
plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans, non-qualified deferred compensation products and services and limited trust services. Our mortgage subsidiary originates and services small,
fixed-rate commercial mortgage loans for the investment portfolios of our insurance subsidiaries and for sale to institutional investors.




2007 ANNUAL REPORT

3




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Part I



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. StanCorps strategy includes: 

Maintaining strong growth rates in traditional risk acceptance businesses (disability and group life insurance). 

Developing greater diversification by taking advantage of market opportunities, demographic trends and capital synergies. 

Significantly increasing our asset accumulation and asset administration businesses over the next few years. Our ability to accomplish this strategy is dependent on a number of factors, some of which involve risks or uncertainties. See Competition and
Key Factors Affecting Results of Operations below, Item 1A, Risk Factors, and Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of OperationsForward-looking
Statements of this Report.  DEVELOPMENT OF STANCORP StanCorp was incorporated under the laws of Oregon in 1998 as a parent holding company and conducts business through its subsidiaries: Standard Insurance
Company (Standard); The Standard Life Insurance Company of New York; Standard Retirement Services, Inc. (Standard Retirement Services); StanCorp Equities, Inc. (StanCorp Equities); StanCorp Mortgage Investors, LLC
(StanCorp Mortgage Investors); StanCorp Investment Advisers, Inc. (StanCorp Investment Advisers); StanCorp Real Estate, LLC (StanCorp Real Estate); and StanCorp Trust Company. The Company is based in Portland,
Oregon and, through our subsidiaries, has operations throughout the United States. The Standardis a service mark of StanCorp and
its subsidiaries and is used as a brand mark and marketing name by Standard and The Standard Life Insurance Company of New York. We have the authority to underwrite insurance products in all 50 states. Standard, our largest subsidiary, underwrites group and individual disability insurance and annuity products, group life, AD&D, and dental insurance,
and provides retirement plan products. Founded in 1906, Standard is domiciled in Oregon


and licensed in all states except New York, and is licensed in the District of Columbia and the U.S. Territories of Guam and the Virgin Islands. The Standard Life Insurance Company of New York was organized in 2000 and is licensed to provide group long term and short term disability, life,
AD&D and dental insurance in New York. Effective January 1, 2007, the administration and servicing operations of StanCorps
retirement plans group annuity contracts offered through Standard and for the trust product formerly offered through Invesmart, Inc. (Invesmart), which was acquired in July 2006, began operating under the name Standard Retirement
Services. Retirement plans products are offered in all fifty states through Standard or Standard Retirement Services. StanCorp Equities is
a limited broker-dealer and member of the Financial Industry Regulatory Authority. StanCorp Equities serves as principal underwriter and distributor for group variable annuity contracts issued by Standard and as the broker of record for certain
retirement plans using the trust platform. StanCorp Equities carries no customer accounts but provides supervision and oversight for the distribution of group variable annuity contracts and of the sales activities of all registered representatives
employed by StanCorp Equities and its affiliates. StanCorp Mortgage Investors originates, underwrites and services small, fixed-rate
commercial mortgage loans for the investment portfolios of our insurance subsidiaries. StanCorp Mortgage Investors also generates additional fee income from the origination and servicing of commercial mortgage loans participated to institutional
investors. StanCorp Mortgage Investors began operations in 1996 and, as of December 31, 2007, was servicing $3.66 billion in commercial mortgage loans for subsidiaries of StanCorp and $1.90 billion in commercial mortgage loans for other
institutional investors. The average loan size of the commercial mortgage loans held by the insurance subsidiaries and serviced by StanCorp Mortgage Investors was approximately $0.7 million at December 31, 2007. StanCorp Investment Advisers is a Securities and Exchange Commission (SEC) registered investment adviser providing performance analysis, fund
selection support, model portfolios and other investment advisory and investment management services to its retirement plans clients, individual investors and subsidiaries of StanCorp. StanCorp Real Estate is a property management company that owns and manages our Hillsboro, Oregon home office properties and other investment properties
and manages our Portland, Oregon home office properties.




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|4 |  | STANCORP FINANCIAL GROUP, INC.



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In January 2006, StanCorp established StanCorp Trust Company, which offers limited directed trust services to clients.  MARKET POSITION Based on mid-year 2007 insurance industry in force premium statistics in the United States, provided by JHA and LIMRA International, we have leading market positions with single digit market share in group long term
and short term disability insurance and group life insurance. Based on a 2006 survey by LIMRA International we also have single digit market share for individual disability insurance. The positions are as follows: 

4th largest provider of group long term disability insurance. 

4th largest provider of group short term disability insurance. 

8th largest provider of individual disability insurance. 

9th largest provider of group life insurance.  FINANCIAL STRENGTH 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. Standard & Poors, Moodys Investors Service, Inc. and A.M. Best Company provide financial strength and credit ratings. Standards financial strength ratings as of February 2008 were: 

AA- (Very Strong) by Standard & Poors4th of 20 ratings. 

A1 (Good) by Moodys5th of 21 ratings. 

A (Excellent) by A.M. Best3rd of 13 ratings.  CREDIT RATINGS Standard & Poors, Moodys
Investors Service, Inc. and A.M. Best Company provide credit ratings on StanCorps Senior Notes. As of February 2008, ratings from these agencies were A-, Baa1 and bbb+, respectively. As of February 2008, A.M. Best Company affirmed an issuer
credit rating of a+ to Standard. Standard & Poors, Moodys Investor Services, Inc. and A.M. Best Company also provide
credit ratings on StanCorps


Subordinated Debt. As of February 2008, ratings from these agencies were BBB, Baa2 and bbb-, respectively.  SEGMENTS Our operations include two reportable segments: Insurance Services and Asset Management, as well as an Other category for activity outside of the two segments. Resources are allocated, and performance is
evaluated at the segment level. The Insurance Services segment offers group and individual disability insurance, group life and AD&D insurance, and group dental insurance. The Asset Management segment offers full-service 401(k) plans, 457 plans,
defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans and non-qualified deferred compensation products and services through an affiliated broker-dealer. This segment also offers investment management and financial
planning services, commercial mortgage loan origination and servicing, and individual fixed annuities. It also includes the former operations of Invesmart, a provider of retirement plan services, and investment advisory and management services,
acquired in July 2006. Effective January 1, 2007, the administration and servicing operations for the retirement plans group annuity contracts offered through Standard and for the trust product offered through Invesmart, began operating under
the name Standard Retirement Services. Measured as a percentage of total revenues, revenues for each of our segments for 2007 were 88.5%
for Insurance Services and 11.2% for Asset Management. 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. Net capital gains and losses on investments, return on capital not allocated to the product segments, holding company expenses, interest on debt and adjustments made in consolidation are reflected in Other.  Insurance Services Segment The Insurance Services segment sells disability, life, AD&D and dental insurance products to employer groups ranging in size from two lives to over
685,000 lives, and has about 30,000 group insurance policies in force, covering approximately 8.1 million employees as of December 31, 2007. This segment also sells disability insurance to individuals. 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 41




2007 ANNUAL REPORT

5




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Part I



field offices in principal metropolitan areas of the United States. The field offices also provide sales support, customer service and limited underwriting
through field administrative staff. The Companys arrangements with brokers include compensation earned at the time of sale, 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 41% of 2007 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. The Companys 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 also may 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 coverages 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 38% of 2007 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. Group short term disability insurance contributed 11% of 2007 premiums for the segment. Our basic short term disability products generally cover only
disabilities occurring outside of work. Short term disability insurance generally


requires a short waiting period, ranging from one to 30 days, before an insured employee may receive benefits, with maximum benefit periods generally not
exceeding 26 weeks. Group short term disability benefits also may be reduced by other income, such as sick leave, that a disabled insured employee may receive. Group dental insurance contributed 3% of 2007 premiums for the segment. Group dental products provide coverage to insured employees and their dependents for preventive, basic and major dental expenses, and also
include an option to purchase orthodontia benefits. We offer three dental plans including a traditional plan, a reduced cost plan and a cost containment plan, which are differentiated by levels of service and cost. Standard has a strategic marketing
alliance with Ameritas Life Insurance Corp. (Ameritas), which offers Standards policyholders flexible dental coverage options and access to Ameritas nationwide preferred provider organization panel of dentists. Individual disability insurance contributed 7% of 2007 premiums for the segment. The products include non-cancelable disability coverage, which provides
insurance at a guaranteed fixed premium rate for the life of the contract, and guaranteed renewable coverage where premium rates are guaranteed for limited periods and subject to change thereafter. This segment also sells business overhead expense
coverage, which reimburses covered operating expenses when the insured is disabled, and business equity buy-out coverage, which provides payment for the purchase, by other owners or partners, of the insureds ownership interest in a business in
the event of total disability. Non-cancelable disability insurance policies represented 81% of sales based on annualized new premiums for 2007. Our individual disability insurance products are sold nationally by sales representatives through master general agents and brokers, primarily to physicians, lawyers, executives, other professionals and small business owners. The
compensation paid to master general agents and brokers is based primarily on a percentage of premiums. Master general agents and some brokers are eligible for a bonus based on sales volume and persistency of business they have written.  Asset Management Segment The Asset Management segment offers full-service 401(k) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans,
403(b) plans and non-qualified deferred compensation products and services through an affiliated broker-dealer. This segment also offers investment management and financial planning services,




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|6 |  | STANCORP FINANCIAL GROUP, INC.



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commercial mortgage loan origination and servicing, and individual fixed annuities. Beginning in the third quarter of 2006, this segment included the former
operations of Invesmart, a national retirement financial services company. Effective January 1, 2007, the administration and operations of StanCorps retirement plans group annuity contracts offered through Standard and for the trust
product offered through Invesmart, which was acquired in July 2006, began operating under the name Standard Retirement Services. In the third quarter of 2007, this segment also added $1.7 billion of assets under administration acquired from DPA,
Inc., a retirement business based in Portland, Oregon. Investment services for 401(k), defined benefit, and other 401(a) qualified plans
and governmental 457 plans are provided through a non-registered group annuity contract with third party brand name mutual funds through a separate account and, for certain plans, a stable value investment option managed by Standard. These plan
services also are provided through a trust product offering third party brand name mutual funds. Mutual funds offered through the separate account as of December 31, 2007, were from American Beacon Funds, AllianceBernstein, Alger Allianz Pimco
Funds, American Century Investment Services, Artisan Funds, AST Capital Trust Company, Aston Asset Management LLC., Black Rock Funds, Brandywine Fund, Inc., Calamos, California Investors, Davis Funds, Dodge & Cox, The Dreyfus Corporation,
First American, Federated Investors Funds, Fidelity Investments, Franklin Templeton, GE, Goldman Sachs, Harbor, Hotchkis and Wiley Funds, Jennison Dryden Mutual Funds, JP Morgan, Munder Funds, Neuberger & Berman Funds, Oppenheimer, Rainer
Investment Management, Royce Funds, SEI Investments, T. Rowe Price, TCW Galileo Funds, UMB, Vanguard Funds, Van Kampen Investment, Wells Fargo and Williams Companies. The 403(b) and non-qualified deferred compensation plan services are provided through a registered group variable annuity contract, with a stable value investment option managed by Standard and separate account
investment options from AllianceBernstein, Alger, Allianz Pimco Funds, American Century Investment Services, Black Rock Funds, Davis, Delaware Investments Mutual Funds, The Dreyfus Corporation, Federated Investors Funds, Fidelity Investments,
Franklin Templeton, GE, Goldman Sachs, Lincoln National Funds, Neuberger & Berman Funds, Principal Funds, Royce Funds, T. Rowe Price and Vanguard Funds. Certain plan services also are provided through a trust product offering third party
investment options. Funds offered in our retirement plans are regularly evaluated for performance, expense ratios, risk statistics, style consistency, industry diversification and management through the investment


advisory service we provide to our customers. Funds are added and removed as part of this evaluation process. StanCorp Investment Advisers provides fund
performance analysis and selection support to 85% of our group annuity plan sponsors. All group annuity contracts are distributed by StanCorp Equities. The target market for retirement plans is businesses with $1 million to $25 million in plan assets. Our retirement plans products and services are sold primarily through registered investment advisors, brokers,
employee benefit consultants, and other distributors served by our sales representatives throughout the United States. Brokers are compensated based on a percentage of the combination of deposits and assets under administration. Compensation is
disclosed to the customer by the Company. Most of our retirement plan customers receive financial, record keeping and administrative services, although the option is available to receive only financial and record keeping services or financial
services alone. The primary sources of revenue for the retirement plans business include plan administration fees, asset-based fees and
investment income on general account assets under administration, a portion of which is credited to policyholders. In addition, premiums and benefits to policyholders reflect the conversion of retirement plan assets into life-contingent annuities,
which is an option that can be selected by plan participants at the time of retirement. Individual fixed annuity deposits earn investment income, a portion of which is credited to policyholders. In three recent surveys for 2007, the retirement plans business was recognized as an outstanding retirement plan provider. Standard earned 21 Best in Class awards in PLANSPONSORmagazines 2007 defined contribution plan survey as a provider serving plans with less
than $5 million in assets. In 401kExchanges most recent survey of retirement plan sponsors, Standard was rated the number four plan
administrator in the $1 million to $10 million asset range. Rankings were based on interviews of almost 20,000 plan sponsors. Since the Companys entrance into the 401kExchange.com survey beginning in 1999, Standard has been ranked number two
in the category of overall plan administrator for plans with $1 million to $10 million in assets. In the Boston Research Groups 2007
survey of defined contribution plans under $5 million in assets, The Standard was rated first in terms of overall satisfaction by plan sponsors. Twenty-six providers were included in this survey. In July 2006, StanCorp acquired Invesmart and all of its subsidiaries. Invesmart was a provider of retirement plan




2007 ANNUAL REPORT

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Part I



services, and investment advisory and management services. Effective January 1, 2007, the administration and servicing operations for the retirement
plans group annuity contracts offered through Standard Insurance Company (Standard) and for the trust product offered through Invesmart began operating under the name Standard Retirement Services. In July 2007, Standard Retirement Services acquired DPA, Inc., a retirement business based in Portland, Oregon. The acquisition of DPA, Inc. added $1.7
billion to assets under administration. Retirement plans assets under administration were $18.73 billion at December 31, 2007. The
individual annuity products sold by this segment are primarily fixed-rate and indexed deferred annuities, although we also market life-contingent immediate annuities. The target market for fixed-rate and indexed annuities is any individual seeking
conservative investments to meet their retirement or other financial goals. The fixed-rate annuity product portfolio includes deferred annuities with initial interest rate guarantees generally ranging from one to six years and a full array of single
premium immediate annuity income payment options. The Company launched an indexed annuity product in January 2006 and uses over the counter call-spread options to hedge the index performance of the policies. Fixed-rate annuities are distributed through master general agents, brokers and financial institutions and compensation is primarily based on a percentage
of premiums and deposits related to the business sold. Master general agents are eligible for a bonus based on the volume of annuity
business they coordinate, which is sold by financial institutions and brokers they coordinate. Most of our annuity business deposits are
not recorded as premiums, but rather are recorded as liabilities. Individual fixed annuity deposits earn investment income, a portion of which is credited to policyholders. Annuity premiums consist of premiums on life-contingent annuities, which are
a small portion of total sales. Our investment advisory business, StanCorp Investment Advisers, is a SEC-registered investment adviser
providing performance analysis, fund selection support, model portfolios and other investment advisory and investment management services. Our target market is our retirement plan clients with $1 million to $25 million in plan assets, individual
investors with $250,000 to $2 million in portfolio assets and the subsidiaries of StanCorp. Our commercial mortgage loans subsidiary,
StanCorp Mortgage Investors, originates, underwrites and services small, fixed-rate commercial mortgage loans, generally between $250,000 and $5 million per loan for the investment


portfolios of our insurance subsidiaries. It also generates additional fee income from the origination and servicing of commercial mortgage loans
participated to institutional investors. The target market for commercial mortgage loans is small retail, office, and industrial properties located throughout the continental United States.  Other In addition to our two segments, we report our holding company and corporate activity in Other. This category includes net capital gains and losses on investments, return on capital not allocated to the
product segments, holding company expenses, interest on debt and adjustments made in consolidation.  COMPETITION Competition for sale of our products comes primarily from other insurers and financial services
companies such as banks, broker-dealers and mutual funds. Some competitors have greater financial resources, offer a broader array of products and may have higher financial strength ratings. Pricing is a competitive issue in the markets we serve. We
do not seek to compete primarily on price. While we believe our products and service provide superior value to our customers, a significant price difference between our products and those of some of our competitors may result in periods of declining
new sales, reduced persistency (customer retention), lower premium growth, and increased sales force attrition. See Key Factors Affecting Results of OperationsPricing.  KEY FACTORS AFFECTING RESULTS OF OPERATIONS Group insurance is our largest business and represented 93%, 93% and 94% of total premiums for the years ended December 31, 2007, 2006 and 2005, respectively. In addition to competition, three factors can have a
critical impact on the financial results of our Insurance Services segment operations: claims experience, economic conditions and pricing. Claims Experience.We have a large and well-diversified group insurance business. However, claims experience can fluctuate widely, particularly from quarter to
quarter. The predominant factors affecting claims experience are incidence (number of claims) and severity (length of time a disability claim is paid and the size of the claim). These factors can fluctuate widely within and between our insurance
products. Economic Conditions. The rate of wage and
employment growth can influence premium growth in our group insurance business because premium rates are based, in part, on total salaries covered. In addition, our financial results are




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|8 |  | STANCORP FINANCIAL GROUP, INC.



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sensitive to changing interest rates and their effect on product pricing because premiums collected today must be invested to provide a return sufficient to
meet the future claims of policyholders. For that reason, we closely monitor changes in interest rates and make changes to our pricing, as appropriate. Interest rates also affect the discount rates we use to establish reserves. Pricing.One of the key components of our pricing decisions for
many of our insurance products is the investment return available to us. In periods of decreasing interest rates, the returns available to us from our primary investments, fixed maturity securities and commercial mortgage loans, decline. This may
require us to increase the price of some of our products in order to maintain our targeted returns. If our competitors do not make similar adjustments to their product pricing or if they have a higher return on investments, our products may be more
expensive than those offered by competitors. Alternatively, in periods when interest rates are increasing, we may be able to reduce premium rates, and therefore reduce pricing pressure to customers. Given the negative financial consequences of
under-pricing, we believe that our practice of maintaining a disciplined approach to product pricing provides the best long-term pricing stability, stable renewal pricing for our customers, higher levels of persistency, and therefore, the best
long-term financial success for our company.  RISK MANAGEMENT We manage risk through sound product design and underwriting, effective claims management, disciplined pricing, distribution expertise, broad
diversification of risk by customer geography, industry, size and occupation, maintenance of a strong financial position, maintenance of reinsurance and risk pool arrangements, and sufficient alignment of assets and liabilities to meet financial
obligations.  Diversification of Products We achieve earnings diversification by offering multiple insurance products such as group life, group long term disability, and individual disability
products. These products have differing price, market and risk characteristics. Our strategy is to diversify our earnings further through growth in our asset management businesses. Our long-term financial goal is to grow assets under administration
10-15% per year, excluding acquisitions. The Company experienced growth of 6.0% in assets under administration during 2007, excluding 2007 acquisitions, and growth of 17.6%, including the 2007 acquisitions. Even though the Company expects
favorable sales and cash flows in 2008, the Company recognizes the current volatility in the stock markets and does not provide specific short-term guidance with regard to overall asset growth.


Diversification by Customer Industry, Geography and Size We seek to diversify risk by customer industry,
geography and size measured by the number of insured employees. Over half of our group insurance premiums come from industries that are resistant to the effects a recession may have on employment. These industries include the public sector,
education, health care and utilities. Compared to other industries during the last recession of 2001, most of these businesses showed either slight increases in employment or only fractional decreases. In force premium distribution by industry,
geography and customer size for group long term disability and group life products was as follows as of December 31, 2007:  Customer IndustryPublic

27
%Education

19Professional

10Manufacturing

10Health Care

9Finance

8Retail

3Services

2Utilities

2Other

10Total

100
%  Customer GeographyNortheast

14
%Southeast

18Central

29West

39Total

100
%Customer Size (Employees)2-99

13
%100-2,499

372,500-7,499

187,500+

32Total

100
%  Reinsurance In order to limit our losses from large exposures, we enter into reinsurance agreements with other insurance companies. We review our retention limits
based on size and experience. The maximum retention limit per individual for group life and AD&D is $750,000. Our maximum retention limit for group disability insurance is $15,000 monthly benefit per individual. During 2007, we increased our
maximum retention limit from $5,000 to $5,500 monthly benefit per individual for individual disability policies with effective dates on or after September 1, 2007. On certain business acquired from Minnesota Life Insurance Company, we have a
maximum retention of $6,000 monthly benefit per individual.




2007 ANNUAL REPORT

9




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Part I



Standard participates in a reinsurance and third party administration arrangement with Northwestern Mutual under which Northwestern Mutual group long term
and short term disability products are sold using Northwestern Mutuals agency distribution system. Generally, Standard assumes 60% of the risk, and receives 60% of the premiums for the policies issued. If Standard were to become unable to meet
its obligations, Northwestern Mutual would retain the reinsured liabilities. Therefore, in accordance with an agreement with Northwestern Mutual, Standard established a trust for the benefit of Northwestern Mutual with the market value of assets in
the trust equal to Northwestern Mutuals reinsurance receivable from Standard. The market value of assets required to be maintained in the trust at December 31, 2007, was $218.0 million. Premiums assumed by Standard for the Northwestern
Mutual business accounted for 3% of the Companys total premiums for each of the three years 2007, 2006 and 2005. In addition to assuming risk, Standard provides product design, pricing, underwriting, legal support, claims management and other
administrative services under the arrangement. Standard maintains a strategic marketing alliance with Ameritas that offers Standards
policyholders more flexible dental coverage options and access to Ameritas nationwide preferred provider organization panel of dentists. As part of this alliance, Standard and Ameritas entered into a reinsurance agreement that provides for 20%
of the net dental premiums written by Standard and the risk associated with these premiums to be ceded to Ameritas. In addition to
product-specific reinsurance arrangements, we maintain reinsurance coverage for certain catastrophe losses related to group life and AD&D. This agreement excludes nuclear, biological and chemical acts of terrorism. Through a combination of this
agreement and our participation in a catastrophe reinsurance pool discussed below, we have coverage of up to $453.0 million per event. Subsequent to the terrorist events of September 11, 2001, we entered into a catastrophe reinsurance pool with other insurance companies. This pool spreads catastrophe losses on group life and AD&D over 29 participating members. The
annual fee paid by the Company in 2007 to participate in the pool was minor. As a member of the pool, we are exposed to maximum potential losses experienced by other participating members of up to $90.9 million for a single event for losses
submitted by a single company and a maximum of $227.2 million for a single event for losses submitted by multiple companies. The Companys percentage share of losses experienced by pool members will change over time as it is a function of our
group life and AD&D in force relative to the


total group life and AD&D in force for all pool participants. The reinsurance pool does not exclude war or nuclear, biological and chemical acts of
terrorism. The Terrorism Risk Insurance Act of 2002 (TRIA), which has been extended through 2014, provides for federal
government assistance to property and casualty insurers in the event of material losses due to terrorist acts on behalf of a foreign person or foreign interest. Due to the concentration of risk present in group life insurance and the fact that group
life insurance is not covered under TRIA, an occurrence of a significant catastrophe or a change in the on-going nature and availability of reinsurance and catastrophe reinsurance could have a material adverse effect on the Company.  Asset/Liability and Interest Rate Risk Management See Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital
ResourcesAsset/Liability and Interest Rate Risk Management.  INVESTMENTS Investment management is an integral part of our business. Investments are maintained to ensure that asset types and
maturities are appropriate for the Companys policy reserves and other liabilities so that we can meet our obligations to policyholders under a wide variety of economic conditions. A substantial portion of our insurance subsidiaries
policy liabilities result from long term disability reserves that have proven to be very stable over time, and annuity products on which interest rates can be adjusted periodically, subject to minimum interest rate guarantees. Policyholders or
claimants may not withdraw funds from the large block of disability reserves. Instead, claim payments are issued monthly over periods that may extend for many years. Holding these stable long-term reserves makes it possible to allocate a significant
portion of invested assets to long-term fixed-rate investments, including commercial mortgage loans. The ability to allocate a significant portion of investments to commercial mortgage loans, combined with StanCorp Mortgage Investors unique
expertise with respect to its market niche for fixed-rate commercial mortgage loans, allows us to enhance the yield on the overall investment portfolio beyond that available through fixed maturity securities with an equivalent risk profile. See Part
II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesInvesting Cash Flows and Item 8, Financial Statements and Supplementary
DataNotes to Consolidated Financial Statements.




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|10 |  | STANCORP FINANCIAL GROUP, INC.



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REGULATION State and Federal Laws and Regulations Standard sells its products in and is regulated by all states except New York, and sells its products and is regulated in the District of Columbia. The
Standard Life Insurance Company of New York sells its products in and is regulated by New York. The insurance industry in the United States is subject to extensive regulation. Such regulation relates to, among other things, terms and provisions of
insurance policies, market conduct practices, maintenance of capital and payment of distributions, and financial reporting on a statutory basis of accounting. We market registered group variable annuity products, which are part of a registered investment company under the Investment Company Act of 1940. These products are subject to that act and the rules thereunder, which,
among other things, regulate the relationship between a registered investment company and its investment adviser. As registered investment
advisers, StanCorp Investment Advisers is subject to regulation under the Investment Advisers Act of 1940. This Act requires, among other things, recordkeeping and reporting requirements, disclosure requirements, limitations on transactions between
the advisers account and an advisory clients account, limitations on transactions between the accounts of advisory clients, and general anti-fraud prohibitions. The Sarbanes-Oxley Act of 2002 and rules promulgated by the SEC and the New York Stock Exchange thereunder have imposed substantial new or enhanced
regulations and disclosure requirements in the areas of corporate governance (including director independence, director selection and audit committee, corporate governance committee and compensation committee responsibilities), equity compensation
plans, auditor independence, pre-approval of auditor fees and services, disclosure of executive compensation and internal control procedures. Violation of applicable laws and regulations can result in legal or administrative proceedings, which can result in fines, penalties, cease and desist orders or suspension or expulsion of our license to sell insurance in a particular state.  Capital RequirementRisk-Based Capital The National Association of Insurance Commissioners has a tool to aid in the assessment of the statutory capital and surplus of life and health insurers.
This tool, known as Risk-based Capital (RBC), augments statutory minimum capital and surplus requirements. RBC employs a risk-based formula that applies prescribed factors to the various risk elements inherent in an insurers
business to arrive at minimum capital requirements in proportion to the amount of risk assumed by the insurer.


State insurance departments require insurance enterprises to maintain minimum levels of capital and surplus. As of December 31, 2007, the insurance
subsidiaries capital was approximately 301% of the company action level of RBC required by regulators, which is 601% of the authorized control level RBC required by our states of domicile. See Part II, Item 7, Managements
Discussion and Analysis of Financial Condition and Results of OperationsCapital Management.  EMPLOYEES At December 31, 2007, StanCorp and its subsidiaries had 3,437 full-time equivalent employees,
68% of which were located in Portland, Oregon and the surrounding metropolitan area. At December 31, 2007, none of the Companys employees were represented by unions.  Item 1A.

Risk Factors  Risk factors that may affect our business are as follows: 

Our reserves for future policy benefits and claims related to our current and future business as well as businesses we may acquire in the future may prove to be
inadequateFor certain of our product lines, we establish and carry as a liability actuarially determined reserves that are calculated to meet our obligations for future policy benefits and claims. These reserves do not represent an exact
calculation of our future benefit liabilities, but are instead estimates based on assumptions, which can be materially affected by changes in the national or regional economy, changes in social perceptions about work ethics, emerging medical
perceptions regarding physiological or psychological causes of disability, emerging or changing health issues and changes in industry regulation. Claims experience on our products can fluctuate widely from period to period. If actual events vary
materially from our assumptions used when establishing the reserves to meet our obligations for future policy benefits and claims, we may be required to increase our reserves, which could have a material adverse effect on our business, financial
position, results of operations or cash flows. 

Differences between actual claims experience and underwriting and reserving assumptions may adversely affect our financial resultsOur long term
disability products provide coverage for claims incurred during the policy period. Generally, group policies offer rate guarantees for periods from one to three years. While we can prospectively re-price and re-underwrite coverages at the end of
these guarantee periods, we must pay benefits with respect to claims incurred during these periods


2007 ANNUAL REPORT

11




---

Part I



without being able to increase guaranteed premium rates during these 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, in some cases, up to normal retirement age or longer. Longer duration claims, in addition to a
higher volume of claims than we expect, expose us to the possibility that we may pay benefits in excess of the amount that we anticipated when the policy was underwritten. The profitability of our long term disability products is thus subject to
volatility resulting from the difference between our actual claims experience and our assumptions at the time of underwriting and from changes in economic conditions. 

We are exposed to concentration risk on our group life insurance businessDue to the nature of group life insurance coverage, we are subject to
geographical concentration risk from the occurrence of a catastrophe. 

Catastrophic losses from a disease pandemic could have an adverse effect on usOur life insurance operations are exposed to the risk of loss from an
occurrence of catastrophic mortality caused by a disease pandemic, such as could arise from the avian flu, which could have a material adverse effect on our business, financial position, results of operations or cash flows. 

Catastrophic losses from terrorism or other factors could have an adverse effect on usAn occurrence of a significant catastrophic event, including
natural disasters, terrorism, or other disasters, or a change in the nature and availability of reinsurance and catastrophe reinsurance, could have a material adverse effect on our business, financial position, results of operations or cash flows. 

We may be exposed to disintermediation risk during periods of increasing interest ratesIn periods of increasing interest rates, withdrawals of annuity
contracts may increase as policyholders seek to invest in investments with higher perceived returns. This process, referred to as disintermediation, may lead to cash outflows. These outflows may require investment assets to be sold at a time when
the prices of those assets are adversely affected by the increase in interest rates, which may result in realized investment losses. A significant portion of our investment portfolio consists of commercial mortgage loans, which are relatively
illiquid, thus increasing our liquidity risk in the event of disintermediation during a period of rising interest rates.




Our profitability may be adversely affected by declining interest ratesDuring periods of declining interest rates, annuity products may be relatively
more attractive investments, resulting in increases in the percentage of policies remaining in force from year to year during a period when our new investments carry lower returns. During these periods, lower returns on our investments could prove
inadequate for us to meet contractually guaranteed minimum payments to holders of our annuity products. In addition, the profitability of our life and disability insurance products can be affected by declining interest rates. A factor in pricing our
insurance products is prevailing interest rates. Longer duration claims and premium rate guarantee periods can expose us to interest rate risk when portfolio yields are less than those assumed when pricing these products. Mortgages and bonds in our
investment portfolio are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates, and we may be required to reinvest those funds in lower interest-bearing investments. 

Our investment portfolio is subject to risks of market value fluctuations, defaults, delinquencies and liquidityOur general account investments
primarily consist of fixed maturity securities, commercial mortgage loans and real estate. The market values of our investments vary with changing economic and market conditions and interest rates. In addition, we are subject to default risk on our
fixed maturity securities portfolio, and delinquency and default risk on our commercial mortgage loans. Our commercial mortgage loans are relatively illiquid. We may have difficulty selling commercial mortgage loans at attractive prices, in a timely
manner, or both if we require significant amounts of cash on short notice. 

Our business is subject to significant competitionEach of our business segments faces competition from other insurers and financial services companies,
such as banks, broker-dealers, mutual funds, and managed care providers for employer groups, individual consumers and distributors. Since many of our competitors have greater financial resources, offer a broader array of products and, with respect
to other insurers, may have higher financial strength ratings than we do, the possibility exists that any one of our business segments could be adversely affected, which in turn could have a material adverse effect on our business, financial
position, results of operations or cash flows. 

A significant downgrade in our financial strength ratings may negatively affect our businessFinancial strength ratings, which rate our claims paying
ability, are an


|   |  |                               
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|12 |  | STANCORP FINANCIAL GROUP, INC.



---



important factor in establishing the competitive position of insurance companies. Ratings are important to 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 our company. A significant ratings downgrade could increase our surrender levels and could
adversely affect our ability to market our products and thereby have a material adverse effect on our business, financial position, results of operations or cash flows. 

Our profitability may be affected by changes in state and federal regulationOur business is subject to comprehensive state regulation and supervision
throughout the United States. While we cannot predict the impact of potential or future state or federal legislation or regulation on our business, future laws and regulations, or the interpretation thereof, could have a material adverse effect on
our business, financial position, results of operations or cash flows. 

Our business is subject to litigation riskIn the normal course of business, we are a plaintiff or defendant in actions arising out of our insurance
business and investment operations. We are from time to time involved in various governmental and administrative proceedings. While the outcome of any pending or future litigation cannot be predicted, as of the date hereof, we do not believe that
any pending litigation will have a material adverse effect on our results of operations and financial condition. However, no assurances can be given that such litigation would not materially and adversely affect our business, financial position,
results of operations or cash flows. 

The concentration of our investments in California may subject us to losses resulting from an economic downturn as well as certain catastrophes in this
stateOur commercial mortgage loans are concentrated in the western region of the U.S., particularly in California. Due to this concentration, we are exposed to potential losses resulting from the risk of an economic downturn in California
as well as to certain catastrophes, such as earthquakes and fires, which may affect the region. Although we diversify our commercial mortgage loan portfolio within California by both location and type of property in an effort to reduce earthquake
exposure, such diversification may not eliminate the risk of such losses, which could have a material adverse effect on our business, financial position, results of operations or cash flows.




We may be exposed to environmental liability from our commercial mortgage loan and real estate investmentsAs a commercial mortgage lender, we
customarily conduct environmental assessments prior to making commercial mortgage loans secured by real estate and before taking title through foreclosure to real estate collateralizing delinquent commercial mortgage loans held by us. Based on our
environmental assessments, we believe that any compliance costs associated with environmental laws and regulations or any remediation of affected properties would not have a material adverse effect on our results of operations or financial
condition. However, we cannot provide assurance that material compliance costs will not be incurred by us. 

As a holding company, we depend on the ability of our subsidiaries to transfer funds to us in sufficient amounts to pay dividends to shareholders, make payments
on debt securities and meet our other obligationsWe are a holding company for our insurance and asset management subsidiaries and do not have any significant operations of our own. Dividends and permitted payments from our subsidiaries are
our principal source of cash to meet our other obligations, pay dividends to shareholders and make payments on debt securities. As a result, our ability to pay dividends to shareholders and interest payments on debt securities primarily will depend
upon the receipt of dividends and other distributions from our subsidiaries. Many of our subsidiaries are non-insurance
businesses and have no regulatory restrictions on dividends. Our insurance subsidiaries, however, are regulated by insurance laws and regulations that limit the maximum amount of dividends, distributions and other payments that they could declare
and pay to us without prior approval of the states in which the subsidiaries are domiciled. Under Oregon law, Standard Insurance Company may pay dividends only from the earned surplus arising from its business. Oregon law gives the Director of the
Oregon Department of Consumer and Business ServicesInsurances Division (Oregon Insurance Division) broad discretion regarding the approval of dividends. Oregon law requires us to receive the prior approval of the Oregon Insurance
Division to pay a dividend if such dividend exceeds certain statutory limitations; however, it is at the Oregon Insurance Divisions discretion to request prior approval of dividends at any time. See Part II, Item 7,
Managements Discussion and Analysis of Financial Condition and Results of OperationsCapital ManagementDividends from Subsidiaries.




2007 ANNUAL REPORT

13




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Part I





Our business may be affected by employment and wage growthTwo factors in the growth of StanCorps group businesses are the employment levels, and
salary and wage growth of its employer groups. A reduction in either of these factors may affect premium levels for our group businesses. 

Our profitability may be adversely affected by declining equity marketsSustained equity market declines could result in decreases in the value of our
retirement plans assets under administration, which could reduce our ability to earn administrative fee income derived from the value of those assets.  Item 1B.

Unresolved Staff Comments  None.  Item 2.

Properties  Principal properties owned by Standard Insurance Company (Standard) and used by the Company consist of two office buildings in downtown
Portland, Oregon: the Standard Insurance Center, with approximately 460,000 square feet; and the Standard Plaza, with approximately 220,000 square feet. Both of our business segments use the facilities described above. The Company also owns a
building with 72,000 square feet of office space in Hillsboro, Oregon, which is used by StanCorp Mortgage Investors, LLC and our group insurance claims operations. A second building with 72,000 square feet was completed in the first quarter of 2007
and is used by our group operations. In addition, Standard leases 160,000 square feet of office space located in downtown Portland, Oregon, for home office and claims operations and 60,000 square feet of offsite storage. The


Company leases 66 offices under commitments of varying terms to support its sales and regional processing offices throughout the United States. Management
believes that the capacity and types of facilities are suitable and adequate. Management may evaluate additional square footage in 2008 to accommodate its increasing workforce. See Part II, Item 8, Financial Statements and Supplementary
DataNote 1 to Consolidated Financial Statements.  Item 3.

Legal Proceedings  In the normal course of business, the Company is involved in various legal actions and other state and federal proceedings. A number of actions or
proceedings were pending as of December 31, 2007. In some instances, lawsuits include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in addition to amounts for alleged contractual liability or
other compensatory damages. In the opinion of management, the ultimate liability, if any, arising from the actions or proceedings is not expected to have a material adverse effect on the Companys business, financial position, results of
operations or cash flows.  Item 4.

Submission of Matters to a Vote of Security Holders  There were no matters submitted to a vote of StanCorps shareholders during the fourth quarter of 2007.  Item 4A.

Executive Officers of the Registrant  The information with respect to executive officers is set forth pursuant to General Instruction G of Form 10-K.




The following table sets forth the executive officers of StanCorp:



|                   |  |                             |  |                                                                                                                
|------------------ |  | --------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|Name               |  | Age (as ofFebruary 27,2008) |  | Position                                                                                                       
|Robert M. Erickson |  | 39                          |  | Assistant Vice President, Controller and Principal Financial Officer of StanCorp and Standard Insurance Company
|Kim W. Ledbetter*  |  | 55                          |  | Senior Vice President, Asset Management Group of Standard Insurance Company                                    
|J. Gregory Ness*   |  | 50                          |  | Senior Vice President, Insurance Services Group of Standard Insurance Company                                  
|Eric E. Parsons    |  | 59                          |  | Chairman, President and Chief Executive Officer of StanCorp and Standard Insurance Company                     
|Michael T. Winslow |  | 53                          |  | Senior Vice President and General Counsel of StanCorp and Standard Insurance Company                           



| | * |  | Denotes an officer of a subsidiary who is not an officer of StanCorp but who is considered an executive officer of StanCorp under the regulations of the Securities
and Exchange Commission.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------









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|14 |  | STANCORP FINANCIAL GROUP, INC.



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Set forth below is biographical information for the executive officers of StanCorp: Robert M. Erickson,CMA, has been assistant vice president and controller of StanCorp and Standard Insurance Company (Standard) since July 2005. In June 2007, he began fulfilling the duties
of the Principal Financial Officer on an interim basis until a successor Chief Financial Officer is in place. Since 2000, Mr. Erickson has held several leadership roles in the Corporate Financial Services division of Standard, most recently as
corporate divisional controller of Standard. Kim W. Ledbetter, FSA, CLU, has been senior vice president, Asset Management
group of Standard since the Companys segment realignment in January 2006. Since June 2004, Mr. Ledbetter was senior vice president, asset management and individual disability of Standard, which included responsibility for Standards
investment operations, including StanCorp Mortgage Investors, LLC, StanCorp Investment Advisers, Inc., our real estate department, and the individual insurance and retirement plans divisions. Since 1997, Mr. Ledbetter was senior vice president,
retirement plans division of Standard.


J. Gregory Ness, LLIF, has been senior vice president, Insurance Services group of Standard since the Companys segment realignment in January 2006. Since April 2004, Mr. Ness was senior vice
president, group insurance division of Standard. Since 1999, Mr. Ness was senior vice president, investments of Standard. Eric
E. Parsons has been chairman, president and chief executive officer of StanCorp and Standard since May 2004. Prior to this, Mr. Parsons was president since May 2002 and chief executive officer since January 2003. Mr. Parsons was
senior vice president and chief financial officer of StanCorp from its incorporation until 2002 and was chief financial officer of Standard from 1998 through 2002. Michael T. Winslow, JD, has been senior vice president and general counsel of StanCorp and Standard since July 2004. Mr. Winslow has also performed the duties of assistant corporate secretary since
February 2007. Since 2001, Mr. Winslow was vice president, general counsel and corporate secretary of StanCorp and Standard. Prior to joining StanCorp, Mr. Winslow served as assistant general counsel and chief compliance officer for
PacifiCorp.




2007 ANNUAL REPORT

15




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Part II



Item 5.

Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities  All share information below has been adjusted to reflect the December 9,
2005, two-for-one stock split, affected as a share dividend, of the Companys common stock. StanCorps common stock is listed on the New York Stock Exchange under the symbol SFG. As of February 22, 2008, there were 40,630
shareholders of record of common stock. The following tables set forth the high and low sales prices as reported by the New York Stock
Exchange at the close of the trading day and cash dividends paid per share of common stock by calendar quarter:  20074th Qtr

3rd Qtr

2nd Qtr

1st QtrHigh

$
55.13

$
52.79

$
52.89

$
49.82Low


49.28


41.44


46.99


44.88Dividends paid


0.72











20064th Qtr

3rd Qtr

2nd Qtr

1st QtrHigh

$
46.27

$
51.68

$
55.75

$
54.55Low


44.29


42.07


46.22


47.64Dividends paid


0.65








  The declaration and
payment of dividends in the future is subject to the discretion of StanCorps board of directors. It is anticipated that annual dividends will be paid in December of each year depending on StanCorps financial condition, results of
operations, cash requirements, future prospects, regulatory restrictions on the distributions from the insurance subsidiaries, the ability of the insurance subsidiaries to maintain adequate capital and other factors deemed relevant by
StanCorps board of directors. See Item 7, Managements Discussion and Analysis of Financial Condition and Results of OperationsCapital Management. See also Item 1A, Risk FactorsAs a holding company,
we depend on the ability of our subsidiaries to transfer funds to us in sufficient amounts to pay dividends to shareholders, make payments on debt securities and meet our other obligations.






The following graph provides a comparison of the cumulative total shareholder return on the Companys common stock with the cumulative total
return of the Standard & Poors (S&P) 500 Index, the S&P Life and Health Insurance Index and the S&P Insurance Group Index. The comparison assumes $100 was invested on December 31, 2002, in the
Companys common stock and in each of the foregoing indexes, and assumes the reinvestment of dividends. The graph covers the period of time beginning December 31, 2002, through December 31, 2007.



|                                                                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                               
|Comparison of Five Year Cumulative Total Return  Among StanCorp Financial Group, Inc., the S&P 500 Index, the S&P Life & Health Insurance Index and the S&P 500 Insurance Group



LOGO



|
|
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|



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|16 |  | STANCORP FINANCIAL GROUP, INC.



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From time to time, the board of directors has authorized share repurchase programs. Share repurchases are to be effected in the open market or in negotiated
transactions in compliance with the safe harbor provisions of Rule 10b-18 under regulations of the Securities Exchange Act of 1934. Execution of the share repurchase program is based upon managements assessment of market conditions for its
common stock and other potential growth opportunities. On November 14, 2005, the board of directors authorized a share repurchase program of up to 3.0 million shares of StanCorp common stock. The share repurchases were effected in the open
market or in negotiated transactions through May 7, 2007. On May 7, 2007, the board of directors authorized a new share repurchase program of up to 6.0 million shares of StanCorp common stock. The new share repurchase program will be
effected in the open market or in negotiated transactions through December 31, 2008. The new share repurchase program replaced our


previous share repurchase program, which had 1.2 million shares remaining that were canceled upon authorization of the new program. During 2007, the Company repurchased 4.8 million shares of common stock at a total cost of $235.6 million for a volume weighted-average price of
$48.60 per common share. At December 31, 2007, there were 1.4 million shares remaining under the Companys current share repurchase program. During 2007, the Company acquired 7,620 shares of common stock from executive officers to
cover tax liabilities of these officers resulting from the release of performance-based shares and retention-based shares at a total cost of $0.4 million for a volume weighted-average price of $47.55 per common share. Repurchases are made at market
prices on the date of repurchase. Information required by Item 5 with respect to securities authorized for issuance under equity compensation plans is contained in Part III, Item 12 of this Form 10-K.




The following table sets forth share purchases made, for the periods
indicated.



|                     |  |                                     |  |                                 |       |                                                                                  |         |                                                                                 |          
|-------------------- |  | ----------------------------------- |  | ------------------------------- | ----- | -------------------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------- | ---------
|                     |  | (a) Total Number ofShares Purchased |  | (b) Average PricePaid per Share |       | (c) Total Numberof Shares Purchasedas Part of PubliclyAnnounced Plansor Programs |         | (d) Maximum Numberof Shares that May Yetbe Purchased Underthe Plans or Programs
|Period:              |  |                                     |  |                                 |       |                                                                                  |         |                                                                                 |          
|October 1-31, 2007   |  | 320,600                             |  | $                               | 50.94 |                                                                                  | 320,600 |                                                                                 | 1,937,000
|November 1-30, 2007  |  | 241,000                             |  |                                 | 51.45 |                                                                                  | 241,000 |                                                                                 | 1,696,000
|December 1-31, 2007  |  | 274,900                             |  |                                 | 51.48 |                                                                                  | 274,900 |                                                                                 | 1,421,100
|                     |  |                                     |  |                                 |       |                                                                                  |         |                                                                                 |          
|Total fourth quarter |  | 836,500                             |  |                                 | 51.27 |                                                                                  | 836,500 |                                                                                 |          



2007 ANNUAL REPORT

17




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Part II



|Item 6. |  | Selected Financial Data
|------- |  | -----------------------



The following financial data at or for the years ended December 31, should be read in conjunction with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data.



|                                                                                               |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|---------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|(In millionsexcept share data)                                                                |  | 2007 |            |   | 2006 |   |            | 2005 |  |   | 2004       |   |  | 2003 |           
|Income Statement Data:                                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Revenues:                                                                                      |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Premiums                                                                                       |  | $    | 2,078.3    |   |      | $ | 1,935.0    |      |  | $ | 1,826.5    |   |  | $    | 1,654.0    |   |  | $ | 1,589.0    |  
|Administrative fees                                                                            |  |      | 115.2      |   |      |   | 77.1       |      |  |   | 43.3       |   |  |      | 33.7       |   |  |   | 28.4       |  
|Net investment income                                                                          |  |      | 516.3      |   |      |   | 478.9      |      |  |   | 465.2      |   |  |      | 445.3      |   |  |   | 435.3      |  
|Net capital gains (losses)                                                                     |  |      | (0.6       | ) |      |   | 1.9        |      |  |   | 2.2        |   |  |      | 11.5       |   |  |   | 9.3        |  
|Total revenues                                                                                 |  |      | 2,709.2    |   |      |   | 2,492.9    |      |  |   | 2,337.2    |   |  |      | 2,144.5    |   |  |   | 2,062.0    |  
|Benefits and expenses:                                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Benefits to policyholders(1)                                                                   |  |      | 1,700.6    |   |      |   | 1,610.8    |      |  |   | 1,476.3    |   |  |      | 1,367.7    |   |  |   | 1,372.8    |  
|Operating expenses(2)                                                                          |  |      | 636.2      |   |      |   | 554.5      |      |  |   | 517.3      |   |  |      | 467.1      |   |  |   | 431.9      |  
|Interest expense                                                                               |  |      | 30.7       |   |      |   | 17.9       |      |  |   | 18.0       |   |  |      | 17.7       |   |  |   | 17.5       |  
|Total benefits and expenses                                                                    |  |      | 2,367.5    |   |      |   | 2,183.2    |      |  |   | 2,011.6    |   |  |      | 1,852.5    |   |  |   | 1,822.2    |  
|Income before income taxes                                                                     |  |      | 341.7      |   |      |   | 309.7      |      |  |   | 325.6      |   |  |      | 292.0      |   |  |   | 239.8      |  
|Income taxes                                                                                   |  |      | 114.2      |   |      |   | 105.9      |      |  |   | 114.5      |   |  |      | 92.6       |   |  |   | 83.5       |  
|Net income                                                                                     |  | $    | 227.5      |   |      | $ | 203.8      |      |  | $ | 211.1      |   |  | $    | 199.4      |   |  | $ | 156.3      |  
|Benefit Ratio (% of total premiums):                                                           |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Group Insurance                                                                                |  |      | 77.4       | % |      |   | 78.3       | %    |  |   | 75.8       | % |  |      | 77.4       | % |  |   | 81.3       | %
|Individual Disability                                                                          |  |      | 69.3       |   |      |   | 79.4       |      |  |   | 79.2       |   |  |      | 83.2       |   |  |   | 82.7       |  
|Per Common Share:                                                                              |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic net income                                                                               |  | $    | 4.39       |   |      | $ | 3.77       |      |  | $ | 3.81       |   |  | $    | 3.49       |   |  | $ | 2.70       |  
|Diluted net income                                                                             |  |      | 4.35       |   |      |   | 3.73       |      |  |   | 3.76       |   |  |      | 3.45       |   |  |   | 2.66       |  
|Market value at year end                                                                       |  |      | 50.38      |   |      |   | 45.05      |      |  |   | 49.95      |   |  |      | 41.25      |   |  |   | 31.44      |  
|Dividends declared and paid                                                                    |  |      | 0.72       |   |      |   | 0.65       |      |  |   | 0.625      |   |  |      | 0.50       |   |  |   | 0.35       |  
|Basic weighted-average shares outstanding                                                      |  |      | 51,824,050 |   |      |   | 54,079,033 |      |  |   | 55,465,215 |   |  |      | 57,192,206 |   |  |   | 57,979,100 |  
|Diluted weighted-average shares outstanding                                                    |  |      | 52,344,950 |   |      |   | 54,688,114 |      |  |   | 56,076,666 |   |  |      | 57,838,188 |   |  |   | 58,669,118 |  
|Ending shares outstanding                                                                      |  |      | 49,155,131 |   |      |   | 53,592,178 |      |  |   | 54,712,936 |   |  |      | 56,889,678 |   |  |   | 58,601,446 |  
|Balance Sheet Data:                                                                            |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|General account assets                                                                         |  | $    | 10,596.5   |   |      | $ | 9,806.1    |      |  | $ | 9,443.1    |   |  | $    | 8,873.4    |   |  | $ | 8,296.0    |  
|Separate account assets                                                                        |  |      | 4,386.4    |   |      |   | 3,832.5    |      |  |   | 3,007.6    |   |  |      | 2,338.6    |   |  |   | 1,685.7    |  
|Total assets                                                                                   |  | $    | 14,982.9   |   |      | $ | 13,638.6   |      |  | $ | 12,450.7   |   |  | $    | 11,212.0   |   |  | $ | 9,981.7    |  
|Long-term debt                                                                                 |  |      | 562.6      |   |      |   | 261.1      |      |  |   | 260.1      |   |  |      | 258.1      |   |  |   | 272.0      |  
|Total liabilities                                                                              |  |      | 13,553.9   |   |      |   | 12,174.1   |      |  |   | 11,036.9   |   |  |      | 9,810.9    |   |  |   | 8,672.2    |  
|Total equity                                                                                   |  |      | 1,429.0    |   |      |   | 1,464.5    |      |  |   | 1,413.8    |   |  |      | 1,401.1    |   |  |   | 1,309.5    |  
|Statutory Data:                                                                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net gain from operations before federal income taxes                                           |  | $    | 309.3      |   |      | $ | 271.1      |      |  | $ | 314.0      |   |  | $    | 275.8      |   |  | $ | 214.2      |  
|Net gain from operations after federal income taxes and before realized capital gains (losses) |  |      | 197.2      |   |      |   | 172.8      |      |  |   | 207.5      |   |  |      | 191.5      |   |  |   | 138.9      |  
|Capital and surplus                                                                            |  |      | 1,047.8    |   |      |   | 967.5      |      |  |   | 968.7      |   |  |      | 942.5      |   |  |   | 876.1      |  
|Asset valuation reserve                                                                        |  |      | 102.2      |   |      |   | 96.6       |      |  |   | 88.2       |   |  |      | 73.8       |   |  |   | 54.3       |  



| | (1) |  | Includes benefits to policyholders and interest credited.
| | --- |  | ---------------------------------------------------------

| | (2) |  | Includes operating expenses, commissions and bonuses, premium taxes, and the net increase in deferred acquisition
costs, value of business acquired and intangibles.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|   |  |                               
|-- |  | ------------------------------
|18 |  | STANCORP FINANCIAL GROUP, INC.



---



Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations  The following management assessment of the financial condition and results of operations should be read in conjunction with
the consolidated financial statements and related notes thereto. See Item 8, Financial Statements and Supplementary Data. Our consolidated financial statements and certain disclosures made in this Form 10-K have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP) and require us to make estimates and assumptions that affect reported amounts of assets and liabilities and contingent assets and contingent
liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during each reporting period. The estimates most susceptible to material changes due to significant judgment are identified as critical accounting
policies. The results of these estimates are critical because they affect our profitability and may affect key indicators used to measure the Companys performance. See Critical Accounting Policies and Estimates. We have made in this Form 10-K, and from time to time may make in our public filings, news releases and oral presentations and discussions, certain
statements, which are predictive in nature and not based on historical facts. These statements are forward-looking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those
discussed or implied. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. See Forward-looking Statements.  EXECUTIVE SUMMARY Financial Results Overview Net income per diluted share was $4.35, $3.73 and $3.76 for the years 2007, 2006
and 2005, respectively. Net income for these same periods was $227.5 million, $203.8 million and $211.1 million, respectively. The increase in net income for 2007 compared to 2006 reflected premium growth and comparatively favorable claims
experience in our group insurance and individual disability businesses. Net income for 2006 was affected by premium growth, offset by comparatively higher claims expense. Premium growth in the Insurance Services segment was 7.1%, 6.1% and 10.1% for
2007, 2006 and 2005, respectively. For the Insurance Services segment, claims experience for the group insurance products, as indicated by the benefit ratio (benefits to policyholders and interest credited measured as a percentage of premiums), was
77.4%, 78.3% and 75.8% for 2007, 2006 and 2005,


respectively. The growth in net income per diluted share for 2007 also reflected a reduction in diluted weighted-average shares outstanding of
2.3 million compared to 2006 due to increased share repurchase activity in 2007.  Outlook for 2008 For 2008, we will continue to focus on our long-term objectives and address challenges that may arise with
financial discipline and from a position of superior financial strength. We manage for profitability, focusing on good business diversification, disciplined product pricing, sound underwriting, effective claims management and high quality customer
service. For 2008, the Company has established the following expectations, which will affect our annual financial results: 

Premium growth in the range of 6% to 8%, a rate we expect will maintain our historical pattern of growing at least 1% to 2% more than the industry growth rate. 

An annual benefit ratio in the range of 77.5% to 79.5% for the group insurance business, noting that our actual experience over the last four years has been toward
the lower end of this range. Claims experience can fluctuate widely from quarter to quarter.  CONSOLIDATED RESULTS OF OPERATIONS Revenues Revenues primarily consist of premiums, administrative fees and net investment income. Total revenues increased 8.7% to $2.71 billion for 2007 compared to 2006 and 6.7% to $2.49 billion for 2006 compared to 2005.  Premium and Administrative Fees The following table sets forth percentages of premium and administrative fee growth, and net investment income growth by segment for the years
December 31:  2007


2006


2005Premiums and administrative fees growth:Insurance Services

7.0
%

6.1
%

10.2
%Asset Management

55.3


69.4


40.8Consolidated total premium and administrative fee growth

9.0


7.6


10.8Net investment income growth:Insurance Services

4.0
%

3.3
%

0.3
%Asset Management

12.5


7.8


4.8Consolidated total net investmentincome growth

7.8


2.9


4.5Total revenue growth

8.7
%

6.7
%

9.0
%  Consolidated premium
and administrative fee growth is driven primarily by premium growth in our Insurance Services segment and administrative fee growth in our Asset Management segment. The three primary factors that influence premium growth for our Insurance Services




2007 ANNUAL REPORT

19




---

Part II



segment are sales, customer retention, and organic growth that is derived from wage and employment growth. Premiums for the Insurance Services segment
increased 7.1% to $2.06 billion for 2007 compared to 2006, and 6.1% to $1.93 billion for 2006 compare to 2005. The increases in premiums were due in part to strong sales and a single premium in 2007 of $19.3 million related to a reserve buyout,
which was partially offset by higher experience rated refunds (ERRs) of $37.2 million for 2007, compared to $22.6 million for 2006. Administrative fees for our Asset Management segment increased 51.6% to $118.7 million for 2007 compared
to 2006, and 92.9% to $78.3 million for 2006 compared to 2005. Administrative fee growth in our Asset Management segment was due to continued deposit growth, strong customer retention in the retirement plans business, as well as assets under
administration added through the acquisition of DPA, Inc. in July 2007 and Invesmart, Inc. (Invesmart) in July 2006. Excluding the administrative fees related to the addition of Invesmart and DPA, Inc., administrative fee growth for the
Asset Management segment was 22.9% for 2007 compared to 2006.  Net
Investment Income Net investment income increased 7.8% to $516.3 million for 2007 compared to 2006 and 2.9% to $478.9 million for
2006 compared to 2005. Net investment income primarily is affected by changes in levels of invested assets, interest rates, the change in fair value of derivative assets and commercial mortgage loan prepayment fees. The increase in net investment income for 2007 compared to 2006 was primarily due to an increase of 4.9% to $8.47 billion in average invested assets
resulting from operations, and an increase in assets related to proceeds of $300 million from junior subordinated debentures (Subordinated Debt) issued in May 2007. Average invested assets do not include cash and cash equivalents. Also
contributing to the increase was an increase in premiums on called bonds, primarily in the first six months of 2007. Premiums on called bonds were $2.0 million for 2007, compared to $0.5 million for 2006. The increase in net investment income was
partially offset by decreases in the fair value of derivative assets and lower portfolio yield of commercial mortgage loans. The fair value adjustment to derivative assets was a decrease of $1.0 million for 2007, compared to an increase of $0.9
million for 2006. The portfolio yield for commercial mortgage loans decreased to 6.36% at the end of 2007 from 6.40% at the end of 2006. The portfolio yield for fixed maturity securities remained stable at 5.57% at the end of 2007 and 2006.


The increase in net
investment income for 2006 compared to 2005 was primarily due to an increase of 4.9% to $8.07 billion in average invested assets resulting from operations and an increase of $0.9 million in the fair value of derivative assets. The increase in net
investment income was partially offset by a $3.6 million decrease in commercial mortgage loan prepayment fees, a $1.1 million decrease in premiums on called bonds and decreases in the portfolio yields of commercial mortgage loans and fixed maturity
securities. The portfolio yield for commercial mortgage loans decreased to 6.40% at the end of 2006 from 6.46% at the end of 2005. The portfolio yield for fixed maturity securities decreased to 5.57% at the end of 2006 from 5.61% at the end of 2005. Commercial mortgage loan prepayment fees were $9.7 million, $9.8 million and $13.4 million for 2007, 2006 and 2005, respectively.
Approximately 85% of our commercial mortgage loans have a provision that requires the borrower to pay a prepayment fee that assures that the Companys expected cash flow from commercial mortgage loan investments will be protected in the event
of prepayment. Since 2001, all new commercial mortgage loans originated by the Company contain this prepayment provision. The remainder of our commercial mortgage loans contains fixed prepayment fees that mitigate prepayments, but may not fully
protect the Companys expected cash flow in the event of prepayment.  Net Capital Gains (Losses) Net capital gains and losses are reported in Other. Net capital losses were
$0.6 million for 2007. Net capital gains were $1.9 million and $2.2 million for 2006 and 2005, respectively. Net capital gains and losses occur as a result of sale or impairment of the Companys assets, neither of which is likely to occur in
regular patterns. While the timing of an impairment is not controllable, management does have discretion over the timing of sales of invested assets.  Benefits and Expenses Benefits to Policyholders (including interest
credited) The growth in benefits to policyholders, including interest credited, is driven by different factors for each of our
product segments. For the Insurance Services segment, three primary factors drive benefits to policyholders: premium growth (reserves are established in part based on premium levels), claims experience, and the assumptions used to establish related
reserves. The predominant factors affecting claims experience are incidence measured by the number of claims and severity measured as the length of time a disability claim is paid and the size of the claim. The assumptions used to establish the
related reserves reflect expected incidence and




|   |  |                               
|-- |  | ------------------------------
|20 |  | STANCORP FINANCIAL GROUP, INC.



---



severity, as well as new investment interest rates and overall portfolio yield, both of which affect the discount rate used to establish reserves. See
Critical Accounting Policies and EstimatesReserves. For our Asset Management segment, the primary factors that drive
benefits to policyholders, including interest credited, relate to interest credited to customers. The primary factors that affect interest credited are growth in


general account assets under management, new investment interest rates and overall portfolio yield (which influence our interest crediting rate for our
customers), and customer retention. In addition, these amounts may fluctuate from quarter to quarter in compliance with Statement of Financial Accounting Standards (SFAS) No. 133 related to changes in interest rates and equity
market volatility.




The following table
sets forth benefits to policyholders, including interest credited, by segment for the years ended December 31:



|                                |  |      |         |               |      |   |      |   |               |  |     |      |  |               |         |  |      |  
|------------------------------- |  | ---- | ------- | ------------- | ---- | - | ---- | - | ------------- |  | --- | ---- |  | ------------- | ------- |  | ---- | -
|(Dollars in millions)           |  | 2007 |         | Percentchange |      |   | 2006 |   | Percentchange |  |     | 2005 |  | Percentchange |        
|Benefits to policyholders:      |  |      |         |               |      |   |      |   |               |  |     |      |  |               |         |  |      |  
|Insurance Services              |  | $    | 1,585.5 |               | 5.0  | % |      | $ | 1,510.4       |  | 9.4 | %    |  | $             | 1,381.0 |  | 7.6  | %
|Asset Management                |  |      | 115.1   |               | 14.6 |   |      |   | 100.4         |  | 5.4 |      |  |               | 95.3    |  | 12.4 |  
|Total benefits to policyholders |  | $    | 1,700.6 |               | 5.6  |   |      | $ | 1,610.8       |  | 9.1 |      |  | $             | 1,476.3 |  | 7.9  |  



The increase in benefits to
policyholders, including interest credited, for the Insurance Services segment for 2007 compared to 2006 resulted from business growth as evidenced by premium growth, partially offset by comparatively favorable claims experience in our group
insurance and individual disability insurance businesses. See Business SegmentsInsurance Services SegmentBenefits and ExpensesBenefits to Policyholders (including interest credited). The increase in benefits to policyholders, including interest credited, for the Insurance Services segment for 2006 compared to 2005 primarily resulted
from business growth, as evidenced by premium growth, and comparatively less favorable claims experience in our group insurance product lines. By contrast, group insurance products had favorable claims experience overall for most of 2005. The increase in benefits to policyholders, including interest credited, for the Asset Management segment for 2007 compared to 2006 resulted
primarily from increased interest credited related to growth in general account assets in our retirement plans and individual fixed annuities businesses. Growth in interest credited for this segment was affected by higher SFAS No. 133 liability
accruals for our small block of indexed annuities. In 2007, interest credited was increased by $1.6 million due to the effects of this valuation. In addition, benefits to policyholders for the Asset Management segment increased in 2007 compared to
2006 due to an increase in life-contingent annuity sales for our individual fixed annuities business. The increase in benefits to
policyholders, including interest credited, for the Asset Management segment for 2006 compared to 2005 resulted from an increase in assets under administration due to favorable customer retention,


growth in general account assets in our retirement plans and individual fixed annuities businesses, offset by reduced interest crediting rates due to lower
new investment interest rates and overall portfolio yield. Growth in general account assets for our retirement plans and individual fixed annuities businesses was 6.4% for 2007 compared to 2006, and 10.2% for 2006 compared to 2005. In addition, a
significant increase in the sales of life-contingent annuities for our individual fixed annuities business in 2005 increased benefits to policyholders for that period. See Business SegmentsAsset Management SegmentBenefits and
ExpensesBenefits to Policyholders.  Operating Expenses Operating expenses increased 17.4% to $434.8 million for 2007 compared to 2006, and 8.7% to $370.3 million for 2006 compared to
2005. The increase in operating expenses was primarily due to the integration of Invesmart since 2007 included a full year of Invesmart expenses compared to a half year of expenses in 2006. The additional increase in operating expenses was due to
business growth as evidenced by growth in assets under administration and up-front costs related to the consolidation of some of our trust and insurance platforms. In addition, we acquired DPA, Inc. during the third quarter of 2007. DPA, Inc. is a
retirement plan business based in Portland, Oregon. Operating expenses for DPA, Inc. during 2007 were approximately $1.9 million. There were also additional costs related to the installation of a large national account group policy sold in our group
insurance business that contributed approximately $8.5 million to the overall increase in operating expenses for 2007. The installation of the large national account included capitalized software and system costs that will be depreciated




2007 ANNUAL REPORT

21




---

Part II



and amortized through 2012. The depreciation and amortization costs will add an average of $3.0 million to operating expenses for the next five years. The increase in operating expenses for 2006 was primarily due to expenses related to the operations of Invesmart. Excluding expenses from
the Invesmart operations, operating expense growth for 2006 was 2.7%. Operating expense growth is typically influenced by business growth as evidenced by premium and administrative fee growth. Premium and administrative fee growth for 2007 was 9.0%
compared to 2006, and for 2006 was 7.6% compared to 2005. See Business Segments.  Commissions and Bonuses Commissions and bonuses primarily represent sales-based compensation,
which can vary depending on the product, the structure of the commission program and factors such as customer retention, sales, growth in assets under administration and profitability of the business in each of our segments. Commissions and bonuses
increased 7.8% to $198.0 million for 2007 compared to 2006, and 9.0% to $183.6 million for 2006 compared to 2005. The increases for the comparative periods were due to premium growth and persistency for our Insurance Services segment and growth in
assets under administration for our Asset Management segment. In addition, commissions and bonuses increased due to operations from the Invesmart acquisition in the third quarter of 2006. Excluding the Invesmart acquisition, growth in commissions
and bonuses was 7.6% for 2007 compared to 2006, and 8.2% for 2006 compared to 2005.  Net Decrease in Deferred Acquisition Costs (DAC), Value of Business Acquired (VOBA) and Intangibles We defer certain commissions, bonuses and operating expenses, which are considered acquisition costs. These costs are then amortized into expenses over a period not to exceed the life of the related policies, which for group insurance
contracts is the initial premium rate guarantee period, which averages 2.5 years. VOBA primarily represents the discounted future profits of business assumed through reinsurance agreements. A portion of VOBA is amortized each year to achieve
matching against expected gross profits. The Companys intangibles, consisting of customer lists and marketing agreements, are also subject to amortization. Customer lists were acquired through the purchase of Invesmart, DPA, Inc. and the
acquisition by StanCorp Investment Advisers, Inc. of several small investment advisory firms. The values associated with the customer lists are amortized over 10 years. The amortization for the marketing agreement with the Minnesota Life Insurance
Company (Minnesota Life) is up to 25 years. See Critical Accounting Policies and EstimatesDAC, VOBA, Other Intangible Assets


and Goodwill. The net deferral for DAC, VOBA and intangibles for 2007 decreased $1.0 million compared to 2006 and increased $10.2 million for 2006
compared to 2005. In addition, a cumulative effect adjustment of $39.4 million after-tax was recorded as a reduction to retained earnings as of January 1, 2007, as a result of the adoption of Statement of Position (SOP) 05-1,
Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts.  Income Taxes Total income taxes may differ from the amount
computed by applying the federal corporate tax rate of 35% because of the net result of permanent differences and the inclusion of state and local income taxes, net of the federal tax benefit. The combined federal and state effective tax rates were
33.4%, 34.2% and 35.2% for 2007, 2006 and 2005, respectively. See Item 8, Note 10Income Taxes for more information on the change in the effective tax rate.  BUSINESS SEGMENTS StanCorps
operations include two reportable segments: Insurance Services and Asset Management, as well as an Other category for activity outside of the two segments. Resources are allocated, and performance is evaluated at the segment level. The
Insurance Services segment offers group and individual disability insurance, group life and accidental death and dismemberment (AD&D) insurance, and group dental insurance. The Asset Management segment offers full-service 401(k)
plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans and non-qualified deferred compensation products and services through an affiliated broker-dealer. This segment also offers investment
management and financial planning services, commercial mortgage loan origination and servicing, and individual fixed annuities. It also includes the former operations of Invesmart, a provider of retirement plan services, and investment advisory and
management services, acquired in July 2006. Effective January 1, 2007, the administration and servicing operations for the retirement plans group annuity contracts offered through Standard and for the trust product offered through Invesmart,
began operating under the name Standard Retirement Services, Inc. (Standard Retirement Services). Segment revenues measured as
a percentage of total revenues for 2007 were 88.5% for the Insurance Services segment and 11.2% for the Asset Management segment. Net
capital gains and losses on investments, return on capital not allocated to the product segments, holding company expenses, interest on debt and adjustments made in consolidation are reflected in Other.




|   |  |                               
|-- |  | ------------------------------
|22 |  | STANCORP FINANCIAL GROUP, INC.



---



Insurance Services Segment As the Insurance
Services segment is our largest segment, it substantially influences our consolidated financial results. Income before income taxes for the Insurance Services segment was $322.6 million, $282.4 million and $300.1 million for 2007, 2006 and 2005,
respectively. Income before income taxes for this segment for 2007 was affected by premium growth and comparatively favorable claims experience in our group insurance and individual disability businesses. Income before income taxes for 2006 for this
segment was affected by premium growth, comparatively less favorable claims experience in our group insurance products and operating expense growth less than premium growth. Following are key indicators that management uses to manage and assess the performance of the Insurance Services segment:  (Dollars in millions)

2007


2006


2005Premiums:Group life and AD&D

$
807.2


$
735.0


$
681.0Group long term disability


869.8



809.9



780.7Group short term disability


219.5



211.1



191.7Group dental


70.8



72.9



73.8Experience rated refunds


(37.2
)


(22.6
)


(20.2
)Individual disability


133.5



121.1



109.4Total premiums

$
2,063.6


$
1,927.4


$
1,816.4Group insurance sales (annualizednew premiums) reported atcontract effective date

$
408.8


$
317.8


$
324.9Individual disability sales (annualized new premiums)


23.9



21.5



21.5Group insurance benefit ratio(% of premiums)


77.4
%


78.3
%


75.8
%Individual disability benefit ratio(% of premiums)


69.3



79.4



79.2Segment operating expense ratio(% of premiums)


15.2



15.1



15.6  Revenues Revenues for the Insurance Services segment increased 6.6% to $2.40 billion for 2007 compared to 2006, primarily due to premium growth of 7.1% and
increased net investment income in our insurance businesses. Revenues for the Insurance Services segment increased 5.7% to $2.25 billion for 2006 compared to 2005, again primarily due to increased premiums and increased net investment income in our
insurance businesses.  Premiums Premiums for the Insurance Services segment increased 7.1% for 2007
compared to 2006, and 6.1% for 2006 compared to 2005. The primary factors that contribute to premium growth for the Insurance Services segment are sales and persistency for all of our insurance products and organic growth in our group insurance
product lines due to


employment and wage rate growth from existing group policyholders. Sales. Sales of our group insurance products increased 28.6% for 2007 compared to 2006, and decreased 2.2% for 2006 compared to
2005. Sales for 2007 exceeded $400 million of annualized premium for the first time in our history. This sales growth and the related increase in the number of new cases underscores our efforts to diversify our block of business further and thus our
risk. The increase in sales for 2007 included sales to a few large national accounts and a single sale of $19.3 million related to a reserve buyout. The decline in sales for 2006 compared to 2005 was due to a highly competitive sales environment and
slower industry growth. The group insurance market continues to reflect a price-competitive sales environment. Persistency. Persistency for our group insurance products has historically exceeded industry averages, which we believe demonstrates our commitment to customer service and pricing
discipline for new sales. Premium growth for 2007 was supported by strong persistency in our group insurance product lines at 87.4%, compared to 88.1% for 2006 and 88.2% for 2005. Persistency in our individual disability products remains favorable.
A significant portion of our in force individual disability policies are non-cancelable. Organic
Growth. A portion of our premium growth in our group insurance in force business is due to continued employment and wage rate growth. Employment and wage growth slowed during 2007 compared to 2006 and
2005. Organic growth is also affected by changes in premium per insured and the average age of employees. Premium growth for 2007 compared
to 2006 was affected by a single sale of $19.3 million related to a reserve buyout. The buyout included claims incurred prior to June 1, 2007. Premium growth was offset by ERRs of $37.2 million, $22.6 million and $20.2 million for 2007, 2006
and 2005, respectively. ERRs, which are refunds to certain group contract holders based on claims experience, can fluctuate widely from quarter to quarter depending on the underlying experience of specific contracts.  Net Investment Income Net investment income for the Insurance Services segment increased 4.0% to $325.8 million for 2007 compared to 2006 and 3.3% to
$313.4 million for 2006 compared to 2005. The increase in net investment income for 2007 compared to 2006 was primarily affected by growth in average invested assets due to premium growth and by additional income related to premiums on called bonds
for this segment of $1.2 million for 2007 compared to $0.3 million for 2006. The increase in net investment income for 2006 compared to 2005 was primarily affected by growth in average invested




2007 ANNUAL REPORT

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Part II



assets due to premium growth, partially offset by a reduction in invested asset yields and commercial mortgage loan prepayments. See Consolidated
Results of OperationsRevenuesNet Investment Income.  Benefits and Expenses Benefits to Policyholders (including interest credited) Three primary factors drive benefits to policyholders: premium growth (reserves are established in part based
on premium levels), claims experience and the assumptions used to establish related reserves. The predominant factors affecting claims experience are claims incidence measured by the number of claims and claims severity measured as the length of
time a disability claim is paid and the size of the claim. The assumptions used to establish the related reserves reflect claims incidence and claims severity, in addition to new-money investment interest rates and overall portfolio yield, as both
affect the discount rate used to establish reserves. Benefits to policyholders, including interest credited, for the Insurance Services
segment increased 5.0% to $1.59 billion for 2007 compared to 2006, and 9.4% to $1.51 billion for 2006 compared to 2005. The increases primarily resulted from business growth as evidenced by premium growth, with the 2007 increase partially offset by
favorable claims experience. Premiums for the Insurance Services segment increased 7.1% for 2007 compared to 2006, and 6.1% for 2006 compared to 2005. Because premium growth is one of the primary factors that drive benefits to policyholders, the benefit ratio, calculated as benefits to policyholders and interest credited as a percentage of premiums, is utilized to
provide a measurement of claims normalized for premium growth. The benefit ratio for our group insurance product lines for 2007 was 77.4%, compared to 78.3 % for 2006 and 75.8% for 2005. The group benefit ratio for 2007 was just below the
Companys estimated annual range of 77.5% to 79.5% for 2007. We adopted a new group life waiver table, the Society of Actuaries Table
2005, to be used in the calculation of reserves for group life waiver claims incurred in 2007 and later. Adoption of this table resulted in a reduction of $15.5 million in reserves established for new 2007 group life waiver claims compared to the
reserves that would have been established using the prior table. The benefit ratio for our individual disability business was 69.3% for
2007 compared to 79.4% for 2006, primarily reflecting favorable claims experience in 2007. The benefit ratio for our individual disability business was 79.2% for 2005.


Due to the small size of our individual disability business, claims experience and, therefore, the benefit ratio can fluctuate more widely from quarter to
quarter than that of our group insurance business. We increased our individual disability reserves by $6.0 million in 2006 and by an
additional $7.4 million in 2007 to address findings of an industry experience study. Due to the size of our individual disability block of business, we view the industry experience study as a credible source for establishing reserves. As with any
block of business, we will continue to monitor emerging information, and if necessary, we will adjust our reserves accordingly. Generally,
we expect the individual disability benefit ratio to trend down over time to reflect the growth in the business outside of the large block of disability business assumed in 2000 from Minnesota Life, and the corresponding shift in revenues from net
investment income to premiums. The decrease year to year in the expected benefit ratio does not necessarily indicate an increase in profitability; rather it reflects a change in the mix of revenues from the business. The discount rate used in the fourth quarter of 2007 for newly established long term disability claim reserves was 5.35%, which decreased from 5.50% used
during the first three quarters of 2007. If investment rates prove to be lower than provided for in the margin between the new money
investment rate and the reserve discount rate, we could be required to increase reserves, which could cause expense for benefits to policyholders to increase. The margin at December 31, 2007, in our overall block of business for group insurance
between invested asset yield and weighted-average reserve discount rate was 40 basis points. See Liquidity and Capital Resources.  Operating Expenses Operating expenses in the Insurance Services segment increased 7.3% to $313.2 million for 2007 compared to 2006, and 2.7% to $291.8 million for 2006
compared to 2005. Operating expenses as a percentage of premiums were 15.2%, 15.1% and 15.6% for 2007, 2006 and 2005, respectively. The increase in operating expenses in 2007 was primarily due to business growth as evidenced by premium growth and
additional costs related to strong sales in our group insurance business. Some of the expense related to our strong sales in 2007 included new and enhanced systems capabilities that will benefit current and future customers. The decrease in the
expense ratio for 2006 was primarily due to careful expense management, and decreased expenses related to technology spending in 2006 compared to 2005.




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Asset Management Segment Income before income taxes for the
Asset Management segment increased 11.7% to $42.9 million for 2007 compared to 2006, and 24.3% to $38.4 million for 2006 compared to 2005. The increases were primarily due to fees earned from higher assets under administration. Revenues grew 28.0%
for 2007 compared to 2006, and 24.2% for 2006 compared to 2005. The slower growth in income before income taxes compared to revenue growth was primarily due to higher interest credited relating to changes in the fair value of certain liabilities for
indexed annuities, higher expenses related to the integration of Invesmart and consolidation of some of our trust and insurance platforms. During the third quarter of 2007, the Company acquired DPA, Inc., a retirement business based in Portland,
Oregon, which added $1.7 billion to the Companys total assets under administration. Following are key indicators that management uses
to manage and assess the performance of the Asset Management segment:  (Dollars in millions)

2007


2006


2005Premiums:Retirement plans

$
0.8


$
1.3


$
1.3Individual annuities


13.9



6.3



8.8Total premiums

$
14.7


$
7.6


$
10.1Administrative fees:Retirement plans

$
100.1


$
63.7


$
31.6Other financial services business


18.6



14.6



9.0Total administrative fees

$
118.7


$
78.3


$
40.6Net investment income:Retirement plans

$
83.4


$
74.0


$
64.6Individual annuities


70.0



68.5



66.3Other financial services income


16.8



8.8



9.4Total net investment income

$
170.2


$
151.3


$
140.3Sales (annuity deposits)

$
210.7


$
214.2


$
119.9Interest credited (% of net investment income):Retirement plans


54.9
%


54.5
%


55.0
%Individual annuities


67.0



64.4



60.9Retirement plans:Operating expenses (% of average assets under administration)


0.6
%


0.6
%


0.9
%


December 31 (In millions)

2007

2006

2005Assets under administration:Retirement plans general account

$
1,467.1

$
1,361.9

$
1,214.1Retirement plans separate account


4,386.4


3,832.5


3,007.6Total retirement plans insurance products


5,853.5


5,194.4


4,221.7Retirement plans trust products


12,872.1


11,045.6


Individual fixed annuities


1,295.9


1,234.9


1,143.3Commercial mortgage loans under administration for other investors


1,899.4


1,407.0


1,141.9Other


447.3


137.5


35.5Total assets under administration

$
22,368.2

$
19,019.4

$
6,542.4  Revenues Revenues for the Asset Management segment increased 28.0% to $303.6 million for 2007 compared to 2006, and 24.2% to $237.2 million for 2006 compared to
2005. Revenues from the retirement plans business include plan and trust administration fees, fees on equity investments held in separate account assets and other assets under administration, and investment income on general account assets under
administration. Premiums and benefits to policyholders reflect the conversion of retirement plan assets into life-contingent annuities, which can be selected by plan participants at the time of retirement, including the sale of immediate annuities.
Most of the sales for this segment are recorded as deposits and are therefore not reflected as premiums. Individual fixed annuity deposits earn investment income, a portion of which is credited to policyholders.  Premiums Premiums for the Asset Management segment are generated from life-contingent annuities, which primarily are a single-premium product.
Premiums for the segment can vary significantly from quarter to quarter due to low sales volume of life-contingent annuities and the varying size of single premiums. Premiums for the Asset Management segment were $14.7 million, $7.6 million and
$10.1 million for 2007, 2006 and 2005, respectively.  Administrative Fees Administrative fees for the Asset Management segment were
$118.7 million, $78.3 million and $40.6 million for 2007 2006 and 2005, respectively. Administrative fees are primarily earned from assets under administration. Assets under administration for this segment, including retirement plans, individual fixed annuities and outside managed commercial mortgage loans, were $22.37 billion at December 31, 2007, which was a $3.35
billion increase compared to December 31, 2006. The increase was due to continued deposit growth, good customer retention, strong mortgage originations for other investors and equity market




2007 ANNUAL REPORT

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Part II



appreciation in the retirement plans business as well as $1.7 billion acquired through the third quarter 2007 acquisition of DPA, Inc., a retirement
plans business based in Portland, Oregon. Administrative fee growth for 2007 included $2.6 million in administrative fee revenue from the DPA, Inc. business acquired in the third quarter of 2007. Assets under administration increased $12.48 billion
for 2006 compared to 2005. Growth in assets under administration in 2006 resulted from almost $11 billion added through the addition of Invesmart, as well as continued deposit growth and customer retention in our other retirement plans business.
Excluding the assets under administration added through the addition of Invesmart, average assets under administration increased 23.2% for 2006 compared to 2005. StanCorp Mortgage Investors, LLC (StanCorp Mortgage Investors) originated $1.45 billion, $942.8 million and $996.4 million of commercial mortgage loans for 2007, 2006 and 2005, respectively. The increases
in originations primarily were due to less competition, accompanied by increased demand for fixed-rate commercial mortgage loans. Commercial mortgage loans managed for other investors increased 35.0% at December 31, 2007, compared with
December 31, 2006.  Net Investment
Income Net investment income for the Asset Management segment increased 12.5% to $170.2
million for 2007 compared to 2006. The increase was primarily due to an increase of 9.8% to $1.41 billion in average general account assets under administration and an increase in commercial mortgage loan commitment fees of $3.9 million for 2007
compared to 2006 as a result of the increase in commercial mortgage loan originations. Partially offsetting the increase in net investment income was a decrease in the fair value of derivative assets of $1.0 million, compared to an increase of $0.9
million for 2006 and lower yields on commercial mortgage loans. Net investment income for the Asset Management segment increased 7.8% to
$151.3 million for 2006 compared to 2005. The increase for the comparative periods was primarily due to a 14.9% increase in average retirement plan general account assets under administration, partially offset by a $1.6 million decrease in
commercial mortgage loan prepayments and a $1.6 million decrease in commercial mortgage loan commitment fees.  Benefits and Expenses Benefits to Policyholders Benefits to policyholders for the Asset Management segment represents current and future benefits on life-


contingent annuities, which vary with life-contingent annuity sales. Benefits to policyholders for the Asset Management segment increased $6.4 million to
$22.4 million for 2007 compared to 2006 and decreased $3.4 million to $16.0 million for 2006 compared to 2005. Changes in the level of benefits to policyholders will approximate changes in premium levels because these annuities primarily are
single-premium life-contingent annuity products with a significant portion of all premium payments established as reserves.  Interest Credited Interest credited represents interest paid to policyholders on retirement plan general account assets and individual fixed annuity deposits. Interest
credited for the Asset Management segment increased 9.8% to $92.7 million for 2007 compared to 2006, and 11.2% to $84.4 million for 2006 compared to 2005. Interest credited to retirement plan customers increased primarily due to an increase in the
interest-crediting rate to retirement plan customers and increases in average balances. Interest credited to individual fixed annuity deposits included the indexed annuity products first offered in 2006. The interest credited to the indexed
annuities increased $4.3 million for 2007 compared to 2006 primarily due to increases in the S&P 500 Index and average balances. Average assets under administration for individual fixed annuities increased 6.4% for 2007 compared to 2006, and
6.7% for 2006 compared to 2005. Interest credited also includes changes in fair value of index-based interest guarantees. See Item 8 Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 7,
Derivative Financial Instruments.  Operating Expenses Operating expenses for the Asset Management segment
increased 52.9% to $120.2 million for 2007 compared to 2006. The increase in operating expenses for this segment was due to business growth as evidenced by growth in assets under administration, the integration of Invesmart, which included a full
year of expenses in 2007 compared to a half year of expenses in 2006, up-front costs related to the consolidation of our trust product and group annuity platforms and $1.9 million of expenses in 2007 related to the operations of DPA, Inc. Operating expenses for the Asset Management segment increased 54.4% to $78.6 million for 2006 compared to 2005. The increase in operating
expenses for this segment was due to business growth as evidenced by growth in assets under administration and operating expenses related to the acquisition of Invesmart in July 2006. Segment operating expenses in 2006 included nearly a half year of
operating expenses related to Invesmart. Excluding operating expenses




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|26 |  | STANCORP FINANCIAL GROUP, INC.



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related to operating the Invesmart business, operating expenses for 2006 increased 14.1% to $58.1 million compared to 2005.  OTHER In addition to our two segments, we report our holding company and corporate activity in Other. This category includes net capital gains and losses, return on capital not allocated to the product segments,
holding company expenses, interest on debt and adjustments made in consolidation. The Other category reported a loss before income taxes of
$23.8 million for 2007 compared to a loss before income taxes of $11.1 million for 2006 and a loss before income taxes of $5.4 million for 2005. Contributing to the loss before income taxes for 2007 compared to 2006 was an increase in interest
expense of $12.8 million primarily related to the $300 million Subordinated Debt issued in May 2007. The interest expense was partially offset by an increase in net investment income of $6.1 million to $20.3 million in 2007. The increase in net
investment income is primarily due to increased levels of invested assets attributed to the proceeds received through the Subordinated Debt issuance. In addition, 2007 included $3.0 million in pre-tax severance costs due to the departure of the
chief financial officer in the second quarter. The increased loss before income taxes for 2006 compared to 2005 was primarily due to lower net investment income resulting from lower excess capital as a result of the purchase of Invesmart in the
third quarter of 2006. Net investment income for 2006 was $14.2 million, compared to $21.6 million for 2005. See Liquidity and Capital ResourcesFinancing Cash Flows.  LIQUIDITY AND CAPITAL RESOURCES Asset/Liability and Interest Rate Risk Management Asset/Liability management is a part of our risk management
structure. The risks we assume related to asset/liability mismatches vary with economic conditions. The primary source of economic risk originates from changes in interest rates. It is generally managements objective to align the
characteristics of assets and liabilities so that our financial obligations can be met under a wide variety of economic conditions. From time to time, management may choose to liquidate certain investments and reinvest in different investments so
that the certainty of meeting our financial obligations is increased. See Investing Cash Flows. We manage interest rate
risk, in part, through asset/liability analyses. In keeping with presently accepted actuarial standards, the Company has made adequate provisions for the anticipated cash flows required to meet contractual obligations and related expenses, through
the use of statutory reserves and related items at December 31, 2007.


Our financial instruments are exposed to financial market volatility and potential disruptions in the market that may result in certain financial
instruments becoming less valuable. Financial market volatility includes interest rate risk. We have analyzed the estimated loss in fair value of certain market sensitive financial assets held at December 31, 2007 and 2006, given a hypothetical
10% increase in interest rates, and related qualitative information on how we manage interest rate risk. The interest rate sensitivity analysis was based upon our fixed maturity securities and commercial mortgage loans held at December 31, 2007
and 2006. Interest rate sensitivity of our financial assets was measured assuming a parallel shift in interest rates. All security yields were increased by 10% of the year-end 10-year U.S. Government Treasury bond yield, or 0.40% and 0.47% for the
2007 and 2006 analyses, respectively. The change in fair value of each security was estimated as the change in the option adjusted value of each security. Option adjusted values were computed using our payment models and provisions for the effects
of possible future changes in interest rates. The analyses did not explicitly provide for the possibility of non-parallel shifts in the yield curve, which would involve discount rates for different maturities being increased by different amounts.
The actual change in fair value of our financial assets can be significantly different from that estimated by the model. The hypothetical reduction in the fair value of our financial assets that resulted from the model was estimated to be $180
million and $183 million at December 31, 2007 and 2006, respectively. As a percentage of our fixed maturity investments, callable
bonds were 2.4% at December 31, 2007. Since 2001, all commercial mortgage loans originated by us contain a provision requiring the borrower to pay a prepayment fee to assure that our expected cash flow from commercial mortgage loan investments
would be protected in the event of prepayment. Approximately 85% of our commercial mortgage loan portfolio contains this prepayment provision. The remainder of our commercial mortgage loans contains fixed prepayment fees that mitigate prepayments,
but may not fully protect our expected cash flow in the event of prepayment.  Operating Cash Flows Net cash provided by operations is net income adjusted for non-cash items and accruals and was $485.7
million, $390.1 million and $407.1 million for 2007, 2006 and 2005, respectively.  Investing Cash Flows We maintain a diversified investment portfolio primarily consisting of fixed maturity securities and
fixed-rate




2007 ANNUAL REPORT

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Part II



commercial mortgage loans. Investing cash inflows primarily consist of the proceeds of investments sold, matured or repaid. Investing cash outflows primarily
consist of payments for investments acquired or originated. The insurance laws of the states of domicile and other states in which the
insurance subsidiaries conduct business regulate the investment portfolios of the insurance subsidiaries. Relevant laws and regulations generally limit investments to bonds and other fixed maturity securities, mortgage loans, common and preferred
stock and real estate. Decisions to acquire and dispose of investments are made in accordance with guidelines adopted and modified from time to time by the insurance subsidiaries boards of directors. Each investment transaction requires the
approval of one or more members of senior investment staff, with increasingly higher approval authorities required for transactions that are more significant. Transactions are reported quarterly to the finance and operations committee of the board
of directors for Standard and to the board of directors for The Standard Life Insurance Company of New York. Net cash used in investing
activities was $597.0 million, $749.3 million and $664.9 million for 2007, 2006 and 2005, respectively. The decrease in the net use of cash in investing activities from 2007 compared to 2006 was primarily due to the July 2006 purchase of
Invesmart. Invesmart was a national retirement financial services company and is now part of our Asset Management segment. There were no similar sized acquisitions during 2007. In addition, contributing to the decrease in cash used was a $606.9
million increase in proceeds from investments sold, matured or repaid. This increase was partially offset by a $495.5 million increase in cash used by the combination of new mortgage originations, purchases of fixed maturity securities, and
purchases of real estate investments. Partially offsetting the overall decrease in investing cash used for acquisitions was the Companys increased use of cash for short-term investments. The increased use of cash for short-term investments was
primarily due to the investment of cash received through the Subordinated Debt offering in May 2007. Our target investment portfolio
allocation is approximately 60% fixed maturity securities and 40% commercial mortgage loans. At December 31, 2007, our portfolio consisted of 57.2% fixed maturity securities, 41.9% commercial mortgage loans, 0.8% real estate and 0.1% short-term
investments.  Fixed Maturity Securities Our fixed maturity securities totaled $5.0 billion at December 31, 2007. We believe that we maintain prudent diversification across industries,
issuers and maturities. Our corporate bond industry diversification targets are based on


the Lehman Investment Grade Credit Index, which is reasonably reflective of the mix of issuers broadly available in the market. We also target a specified
level of government, agency and municipal securities in our portfolio for credit quality and additional liquidity. The overall credit quality of our fixed maturity securities investment portfolio was A (Standard & Poors) at
December 31, 2007. The percentage of fixed maturity securities below investment-grade was 4.1% and 3.6% at December 31, 2007 and 2006, respectively. At December 31, 2007, bonds on our watch list totaled approximately $49.3 million. We
did not have any direct exposure to sub-prime or Alt-A mortgages in our fixed maturity securities portfolio at December 31, 2007. We held investments in debt securities issued by bond insurers at December 31, 2007, with $33.5 million in
market value and $40.7 million in book value. The Company intends to hold these securities to maturity and will continue to evaluate these holdings, but currently expects the fair values of its investments in debt securities issued by bond insurers
to recover as these debt securities approach their maturity dates. Should the credit quality of our fixed maturity securities decline, there could be a material adverse effect on our business, financial position, results of operations or cash flows. At December 31, 2007, our fixed maturity securities portfolio had gross unrealized capital gains of $115.8 million and gross
unrealized capital losses of $52.4 million. Unrealized gains and losses primarily result from holding fixed maturity securities with interest rates higher or lower, respectively, than those currently available at the reporting date.  Commercial Mortgage Loans StanCorp Mortgage Investors originates and services fixed-rate commercial mortgage loans for the investment portfolios of our insurance subsidiaries and
generates additional fee income from the origination and servicing of commercial mortgage loans participated to institutional investors. Commercial mortgage loan originations for internal and external investors were $1.45 billion, $942.8 million and $996.4 million for 2007, 2006 and 2005, respectively. The increased originations in 2007 reflected a return to a more
traditional origination market with the securitized lenders essentially out of the market for loans, making the market less competitive with wider spreads. The decrease in originations in 2006 reflected a more competitive origination market for
commercial mortgage loan financing. The level of commercial mortgage loan originations in any year is influenced by market conditions as we respond to changes in interest rates, available spreads and borrower demand.




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At December 31, 2007, StanCorp Mortgage Investors serviced $3.66 billion in commercial mortgage loans for subsidiaries of StanCorp and $1.90 billion for
other institutional investors, compared to $3.32 billion serviced for subsidiaries of StanCorp and $1.41 billion for other institutional investors at December 31, 2006. The average loan to value ratio for the overall portfolio was approximately 57% at December 31, 2007, and the average loan size in the portfolio was
approximately $0.7 million at December 31, 2007. We have the contractual ability to pursue personal recourse on most of the loans. Capitalized commercial mortgage loan servicing rights associated with commercial loans serviced for other institutional investors were $5.7 million and $4.0 million at December 31, 2007 and 2006, respectively. At December 31, 2007, there were four commercial mortgage loans totaling $1.9 million in our portfolio that were more than sixty days delinquent, of
which two commercial mortgage loans with a total balance of $0.7 million were in the process of foreclosure. We had a net balance of restructured loans of $3.4 million at December 31, 2007, and a commercial mortgage loan loss reserve of $3.0
million. At December 31, 2007, we do not have any direct exposure to sub-prime or Alt-A mortgages. The delinquency rate and loss performance of our commercial mortgage loan portfolio is in line with the recent industry averages as reported by
the American Council of Life Insurers. The performance of our commercial mortgage loan portfolio may fluctuate in the future. Should the delinquency rate or loss performance of our commercial mortgage loan portfolio increase, the increase could have
a material adverse effect on our business, financial position, results of operations or cash flows. At December 31, 2007, our
commercial mortgage loan portfolio was collateralized by properties with the following characteristics: 

46% retail properties. 

18% industrial properties. 

19% office properties. 

8% commercial properties. 

6% hotel/motel properties. 

3% apartment, residential and agricultural properties. At December 31, 2007, our commercial mortgage loan portfolio was diversified regionally as follows: 

47% Western region. 

24% Central region. 

29% Eastern region. Commercial
mortgage loans in California accounted for 30% of our commercial mortgage loan portfolio at December 31, 2007. Through this concentration, we are


exposed to potential losses resulting from an economic downturn in California as well as to certain catastrophes, such as earthquakes and fires, which may
affect certain areas of the state. We require borrowers to maintain fire insurance coverage to provide reimbursement for any losses due to fire. Although we diversify our commercial mortgage loan portfolio within California by both location and type
of property in an effort to reduce certain catastrophe and economic exposure, such diversification may not eliminate the risk of such losses. Historically, the delinquency rate of our California-based commercial mortgage loans has been substantially
below the industry average and consistent with our experience in other states. In addition, we do not require earthquake insurance for properties on which we make commercial mortgage loans, but do consider the potential for earthquake loss based
upon seismic surveys and structural information specific to each property when new loans are underwritten. We do not expect the exposure to catastrophe or earthquake damage to the properties in our commercial mortgage loan portfolio located in
California to have a material adverse effect on our business, financial position, results of operations or cash flows. However, if economic conditions in California decline, we could experience a higher delinquency rate on the portion of our
commercial mortgage loan portfolio located in California, which could have a material adverse effect on our business, financial position, results of operations or cash flows. Under the laws of certain states, environmental contamination of a property may result in a lien on the property to secure recovery of the costs of
cleanup. In some states, such a lien has priority over the lien of an existing mortgage against such property. As a commercial mortgage lender, we customarily conduct environmental assessments prior to making commercial mortgage loans secured by
real estate and before taking title through foreclosure on real estate collateralizing delinquent commercial mortgage loans held by us. Based on our environmental assessments, we believe that any compliance costs associated with environmental laws
and regulations or any remediation of affected properties would not have a material adverse effect on our business, financial position, results of operations or cash flows. However, we cannot provide assurance that material compliance costs will not
be incurred by us. In the normal course of business, we commit to fund commercial mortgage loans generally up to 90 days in advance. At
December 31, 2007, the Company had outstanding commitments to fund commercial mortgage loans totaling $265.0 million, with fixed interest rates ranging from 6.0% to 7.125%. These commitments generally have fixed expiration dates. A small
percentage of commitments




2007 ANNUAL REPORT

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Part II



expire due to the borrowers failure to deliver the requirements of the commitment by the expiration date. In these cases, we will retain the commitment
fee and good faith deposit. Alternatively, if we terminate a commitment due to the disapproval of a commitment requirement, the commitment fee and good faith deposit may be refunded to the borrower, less an administrative fee.  Financing Cash Flows Financing cash flows primarily consist of policyholder fund deposits and withdrawals, borrowings and repayments on the line of credit, borrowings and
repayments on long-term debt, repurchases of common stock and dividends paid on common stock. Net cash provided by financing activities was $261.1 million, $362.0 million and $265.7 million for 2007, 2006 and 2005, respectively. The decrease
for 2007 resulted from several offsetting factors. Cash inflows from a $300 million Subordinated Debt offering in May 2007 were offset by increased repurchases of common stock, the elimination of cash inflows from a third party minority interest in
a limited liability company that was dissolved in December 2006 and slightly slower growth in policyholder fund deposits, net of withdrawals. The increase for 2005 primarily resulted from the third party interest in the limited liability company
created for the purpose of holding commercial mortgage loans originated by StanCorp Mortgage Investors. The minority third party investment totaled $143.2 million for 2005. Standard retained its ownership share of the commercial mortgage loans upon
the dissolution of the limited liability company. The non-cash transaction in the Consolidated Statements of Cash Flows for 2006 represented the transfer of commercial mortgage loans to the minority shareholders at dissolution. The Company
repurchased common stock at a total cost of $235.6 million, $70.1 million and $106.4 million for 2007, 2006 and 2005, respectively. On
June 15, 2006, the Company established a five-year, $200 million senior unsecured revolving credit facility (Facility). On May 9, 2007, the Facility was amended to extend the expiration date by one year to June 15, 2012.
At the option of StanCorp and with the consent of the lenders under the Facility, the termination date can be extended for an additional one-year period. Additionally, upon the request of StanCorp and with consent of the lenders under the Facility,
the Facility can be increased by up to $100 million to a total of up to $300 million. Borrowings under the Facility will be used to provide for working capital and general corporate purposes of the Company and its subsidiaries and the issuance of
letters of credit. Under the agreement, StanCorp is subject to customary covenants that take into consideration the impact of material


transactions, changes to the business, compliance with legal requirements and financial performance. The two financial covenants are based on our total debt
to total capitalization ratio and consolidated net worth. The Facility is subject to performance pricing based upon our total debt to total capitalization ratio and includes interest based on a Eurodollar margin, plus facility and utilization fees.
At December 31, 2007, StanCorp was in compliance with all covenants under the Facility and had no outstanding balance on the Facility. StanCorp currently has no commitments for standby letters of credit, standby repurchase obligations or other
related commercial commitments. StanCorp filed a $1.0 billion shelf registration statement with the Securities and Exchange Commission,
which became effective on July 23, 2002, and expires on December 1, 2008, registering common stock, preferred stock, debt securities and warrants. On September 25, 2002, we completed an initial public debt offering of $250 million of
6.875%, 10-year senior notes (Senior Notes), pursuant to the shelf registration statement. The principal amount of the Senior Notes is payable at maturity and interest is payable semi-annually in April and October. Upon expiration of the
$1.0 billion shelf registration statement in December 2008, the Company, as a well-known seasoned issuer, has the ability to file an automatic shelf registration statement for subsequent security issuances. On May 29, 2007, the Company completed a public debt offering of $300 million of 6.90%, Subordinated Debt. The Subordinated Debt has a final maturity
on June 1, 2067, is non-callable at par for the first 10 years and is subject to a replacement capital covenant. The covenant limits replacement of the Subordinated Debt for the first 40 years to be redeemable only with securities, which carry
equity-like characteristics that are the same as or more equity-like than the Subordinated Debt. The principal amount of the Subordinated Debt is payable at final maturity. Interest is payable semi-annually at 6.90% in June and December for the
first 10 years and quarterly thereafter at a floating rate equal to three-month LIBOR plus 2.51%. StanCorp has the option to defer interest payments for up to five years. StanCorp management chose to make the first scheduled interest payment of
$10.5 million in December 2007. StanCorp used approximately $30 million of the proceeds from the sale of the Subordinated Debt to fund the acquisition by StanCorp Real Estate, LLC (a wholly owned subsidiary) of certain real estate assets from
Standard and $227.7 million to repurchase approximately 4.6 million shares of common stock. The Company intends to use the remaining debt proceeds to repurchase additional shares of its common stock and for general corporate purposes.




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On May 7, 2007, the board of directors authorized a new repurchase program for up to 6.0 million shares of StanCorp common stock, which
replaced the Companys prior share repurchase program. We repurchased 4.8 million shares of common stock at a total cost of $235.6 million during 2007. At December 31, 2007, there were 1.4 million shares remaining under the
current repurchase program.  CAPITAL MANAGEMENT State insurance departments require insurance enterprises to maintain minimum levels of capital and surplus. At December 31, 2007, the insurance
subsidiaries capital was approximately 301% of the company action level of Risk-based Capital (RBC) required by regulators, which is 601% of the authorized control level RBC required by our states of domicile. We expect to maintain a
target capital of approximately 300% of the company action level of the insurance company. We expect to distribute capital in excess of the target to the holding company. At December 31, 2007, statutory capital, adjusted to exclude asset
valuation reserves, for our regulated insurance subsidiaries totaled $1.15 billion. The levels of capital in excess of targeted RBC we
generate vary inversely in relation to our levels of premium growth, primarily due to initial reserve requirements, certain regulatory capital requirements based on premiums and certain acquisition costs associated with policy issuance. At higher
levels of premium growth, we generate less capital in excess of targeted RBC. At very high levels of premium growth, we could generate the need for capital infusions. At lower levels of premium growth, we generate more capital in excess of targeted
RBC. At our expected growth rate, we anticipate generating capital in excess of our 300% target of $125 to $150 million in 2008. We will
continue to maintain our three priorities, in the following order, for the remaining excess capital: 

Fund internal growth. 

Fund acquisitions that are consistent with our mission and meet our return objectives. 

Provide a return to shareholders, via share repurchases and dividends. In addition, we seek to maintain amounts sufficient to fund holding company operating expenses, interest on our debt and our annual dividends to
shareholders. Maintaining additional capital provides timing flexibility if we choose to access capital markets to finance growth or acquisition. StanCorp has a $1.0 billion shelf registration statement with the SEC. Under the shelf registration, we
have issued $550 million in long-term debt. See Liquidity and Capital ResourcesFinancing Cash Flows.


We had debt to total capitalization ratios of 28.6% and 15.2% at December 31, 2007 and 2006, respectively. The increase in our debt to total
capitalization ratio was primarily due to the $300 million Subordinated Debt. Certain rating agencies recognize a portion of the Subordinated Debt as equity. Standard & Poors currently recognizes the Subordinated Debt as 100% equity,
while Moodys and AM Best currently recognize 75% of the Subordinated Debt as equity. Debt to total capitalization after the 75% equity credit is 17.3% at December 31, 2007. Our ratio of earnings to fixed charges for 2007 and 2006 was 3.3x
and 3.5x, respectively.  Dividends from Subsidiaries StanCorps ability to pay dividends to its shareholders, repurchase its shares and meet its obligations substantially depends upon the receipt of
distributions from its subsidiaries, including Standard. Standards ability to pay dividends to StanCorp is affected by factors deemed relevant by Standards board of directors, including the ability to maintain adequate RBC according to
Oregon statute. Under Oregon law, Standard may pay dividends only from the earned surplus arising from its business. It also must receive the prior approval of the Director of the Oregon Department of Consumer and Business ServicesInsurance
Division (Oregon Insurance Division) to pay a dividend if such dividend exceeds certain statutory limitations. The current statutory limitations are the greater of (a) 10% of Standards combined capital and surplus as of
December 31 of the preceding year, or (b) the net gain from operations after dividends to policyholders and federal income taxes before realized capital gains or losses for the 12-month period ended on the preceding December 31 date.
In each case, the limitation must be determined under statutory accounting practices. Oregon law gives the Oregon Insurance Division broad discretion to disapprove requests for dividends in excess of these limits. There are no regulatory
restrictions on dividends from non-insurance subsidiaries of StanCorp. During 2007 and 2006, Standard paid dividends to StanCorp totaling
$155.0 million and $147.0 million, respectively.  Dividends to Shareholders On November 5, 2007, the board of directors of StanCorp declared an annual cash dividend of $0.72 per share, calculated and payable on
a per share basis. The dividend was payable on December 7, 2007, to shareholders of record on November 16, 2007. The declaration and payment of dividends in the future is subject to the discretion of StanCorps board of directors. It
is anticipated that annual dividends will be paid in December of each year depending on StanCorps financial condition, results of operations, cash




2007 ANNUAL REPORT

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requirements, future prospects, regulatory restrictions on distributions from the insurance subsidiaries, the ability of the insurance subsidiaries to
maintain adequate capital and other factors deemed relevant by the board of directors. In addition, the declaration or payment of dividends would be restricted if StanCorp elects to defer interest payments on its Subordinated Debt. If elected, the
restriction would be in place during the deferral period, which cannot exceed five years. StanCorp has paid dividends each year since its initial public offering in 1999.  Share Repurchases From time to time, the board
of directors has authorized share repurchase programs. Share repurchases are to be effected in the open market or in negotiated transactions in compliance with the safe harbor provisions of Rule 10b-18 under regulations of the Securities Exchange
Act of 1934 (the Exchange Act). Execution of the share repurchase program is based upon managements assessment of market conditions for its common stock and other potential growth opportunities. On November 14, 2005, the board of directors authorized a share repurchase program of up to 3.0 million shares of StanCorp common stock. The
share repurchases were effected in the open market or in negotiated transactions through May 7, 2007. On May 7, 2007, the board of directors authorized a new share repurchase program of up to 6.0 million shares of StanCorp common
stock. The new share repurchase program will be effected in the open market or in negotiated transactions through December 31, 2008. The new share repurchase program replaced our previous share repurchase program, which had 1.2 million
shares remaining that were canceled upon authorization of the new program. During 2007, we repurchased 4.8 million shares of common
stock at a total cost of $235.6 million for a volume weighted-average price of $48.60 per common share. At December 31, 2007, there were 1.4 million shares remaining under the current share repurchase program. In addition, during 2007, we
acquired 7,620 shares of common stock from executive officers to cover tax liabilities of these officers resulting from the release of performance-based shares and retention-based shares at a total cost of $0.4 million for a volume weighted-average
price of $47.55 per common share, which reflects the market price on the transaction dates.  FINANCIAL STRENGTH 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 Senior Notes and
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.
Standard & Poors, Moodys Investors Service, Inc. and A.M. Best Company provide financial strength and credit ratings. Standards financial strength ratings as of February 2008 were: 

AA- (Very Strong) by Standard & Poors4th of 20 ratings. 

A1 (Good) by Moodys5th of 21 ratings. 

A (Excellent) by A.M. Best3rd of 13 ratings.  CREDIT RATINGS Standard & Poors, Moodys
Investors Service, Inc. and A.M. Best Company provide credit ratings on StanCorps Senior Notes. As of February 2008, ratings from these agencies were A-, Baa1 and bbb+, respectively. As of February 2008, A.M. Best Company affirmed an issuer
credit rating of a+ to Standard. Standard & Poors, Moodys Investor Services, Inc. and A.M. Best Company also provide
credit ratings on StanCorps Subordinated Debt. As of February 2008, ratings from these agencies were BBB, Baa2 and bbb-, respectively.  CONTINGENCIES AND LITIGATION See Item 8, Financial
Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 19Contingencies and Commitments.  OFF-BALANCE SHEET ARRANGEMENTS See discussion of loan
commitments, Liquidity and Capital Resources, Investing Cash Flows, Commercial Mortgage Loans.  CONTRACTUAL OBLIGATIONS See Item 8, Financial Statements and Supplementary DataNotes to
Consolidated Financial StatementsNote 19Contingencies and Commitments.  INSOLVENCY ASSESSMENTS Insolvency regulations exist in many of the jurisdictions in which our subsidiaries do business. Such
regulations may require insurance companies operating within the jurisdiction to participate in guaranty associations. The associations levy assessments against their members for the purpose of paying benefits due to policyholders of impaired or
insolvent insurance companies. Association assessments levied against us from January 1, 2005, through December 31, 2007, aggregated $0.5 million. At December 31, 2007, we maintained a reserve




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of $0.6 million for future assessments with respect to currently impaired, insolvent or failed insurers.  STATUTORY FINANCIAL ACCOUNTING Standard and The Standard Life Insurance Company of New York prepare their statutory financial statements in accordance with accounting practices
prescribed or permitted by their states of domicile. Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as the Statements of Statutory Accounting Practices set forth in publications
of the National Association of Insurance Commissioners (NAIC). Statutory accounting practices differ in some respects from
GAAP. The principal statutory practices that differ from GAAP are: a) bonds and commercial mortgage loans are reported principally at amortized cost; b) asset valuation and the interest maintenance reserves are provided as prescribed by the NAIC; c)
certain assets designated as non-admitted, principally deferred tax assets, furniture, equipment, and unsecured receivables, are not recognized as assets, resulting in a charge to statutory surplus; d) annuity considerations with life contingencies,
or purchase rate guarantees, are recognized as revenue when received; e) reserves for life and disability policies and contracts are reported net of ceded reinsurance and calculated based on statutory requirements, including required discount rates;
f) commissions, including initial commissions and expense allowance paid for reinsurance assumed, and other policy acquisition expenses are expensed as incurred; g) initial commissions and expense allowance received for a block of reinsurance ceded
net of taxes are reported as deferred gains in surplus and recognized as income in subsequent periods; h) federal income tax expense includes current income taxes defined as current year estimates of federal income taxes and tax contingencies for
current and all prior years and amounts incurred or received during the year relating to prior periods, to the extent not previously provided; i) deferred tax assets, net of deferred tax liabilities, are included in the regulatory financial
statements but are limited to those deferred tax assets that will be realized within one year; j) surplus notes are included in capital and surplus; and k) interest on surplus notes is not recorded as a liability nor an expense until approval for
payment of such interest has been granted by the commissioner of the state of domicile. Statutory net gains from insurance operations
before federal income taxes were $309.3 million, $271.1 million and $314.0 million for 2007, 2006 and 2005, respectively. The changes in net gains were primarily due to premium growth, comparatively favorable claims experience, and a rise in the
statutory discount rate that decreased reserve requirements.


Differences between Statutory and GAAP results for 2007 compared to 2006 were due to a rise in the statutory discount rate effective in 2007 for certain
reserves established after January 1, 2007, that decreased statutory reserve requirements. Statutory capital, adjusted to exclude asset valuation reserves, for our insurance regulated subsidiaries totaled $1.15 billion and $1.06 billion at
December 31, 2007 and 2006, respectively. Effective December 31, 2006, the NAIC adopted changes to the RBC calculation that
required us to perform additional testing to determine the risk based capital requirement for annuities. The adopted change did not have a material impact on our RBC requirements.  ACCOUNTING PRONOUNCEMENTS See
Item 8, Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 1Summary of Significant Accounting PoliciesAccounting Pronouncements.  CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements and certain disclosures made in this Form 10-K have been prepared in accordance with GAAP and require us to make
estimates and assumptions that affect reported amounts of assets and liabilities and contingent assets and contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting
periods. The estimates most susceptible to material changes due to significant judgment (identified as the critical accounting policies) are those used in determining asset impairments, DAC, VOBA, other intangibles and goodwill, the
reserves for future policy benefits and claims, and the provision for income taxes. The results of these estimates are critical because they affect our profitability and may affect key indicators used to measure the Companys performance. These
estimates have a material effect on our results of operations and financial condition.  Investment Impairments Our investment portfolio includes fixed maturity securities and commercial mortgage loans. When the fair
value of a fixed maturity security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an impairment
exists. The analysis considers the financial condition and near-term prospects of the issuer, as well as the value of any security we may have in the investment. Often, the information available to conduct these assessments is limited and rapidly
changing, making estimates of fair value subject




2007 ANNUAL REPORT

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to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the fixed maturity security may be different
than previously estimated, which could have a material effect on our results of operations and financial condition. The commercial mortgage loan valuation allowance is based on our analysis of factors including changes in the size and composition of
the loan portfolio, actual loan loss experience, economic conditions and individual loan analysis.  DAC, VOBA, Other Intangible Assets and Goodwill DAC, VOBA, other intangible assets and goodwill are considered
intangible assets. These intangible assets are generally originated through the issuance of new business or the purchase of existing business, either by purchasing blocks of insurance policies from other insurers or by the outright purchase of other
companies. Our intangible assets are subject to impairment tests on an annual basis, or more frequently if circumstances indicate that carrying values may not be recoverable. Acquisition costs we have deferred as DAC are those costs that vary with and primarily are related to the acquisition, and in some instances the renewal
of insurance products. These costs are typically one-time expenses that represent the cost of originating new business and placing that business in force. Certain costs related to obtaining new business and acquiring business through reinsurance
agreements have been deferred and will be amortized to accomplish matching against related future premiums or gross profits, as appropriate. We normally defer certain acquisition-related commissions and incentive payments, certain costs of policy
issuance and underwriting, and certain printing costs. Assumptions used in developing DAC and amortization amounts each period include the amount of business in force, expected future persistency, withdrawals, interest rates and profitability. These
assumptions are modified to reflect actual experience when appropriate. Additional amortization of DAC is charged to current earnings to the extent it is determined that future premiums or gross profits are not adequate to cover the remaining
amounts deferred. DAC totaled $202.3 million and $208.5 million at December 31, 2007 and 2006, respectively. Changes in actual persistency are reflected in the calculated DAC balance. Costs that do not vary with the production of new business
are not deferred as DAC and are charged to expense as incurred. DAC for group and individual disability insurance products and group life
insurance products is amortized over the life of related policies in proportion to future premiums in accordance with SFAS No. 60, Accounting and Reporting by Insurance Enterprises. The DAC for our group life and group


disability products has generally been amortized over a period of five years. DAC for individual disability insurance products is amortized in proportion to
future premiums over the life of the contract, averaging 20 to 25 years with approximately 50% and 75% expected to be amortized by years 10 and 15, respectively. Beginning with the adoption of SOP 05-1 on January 1, 2007, we began amortizing
DAC for group disability and life insurance products over the initial premium rate guarantee period, which averages 2.5 years. Our
individual deferred annuities and group annuity products are classified as investment contracts. DAC related to these products is amortized over the life of related policies in proportion to expected gross profits in accordance with SFAS
No. 97,Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. For our individual deferred annuities, DAC is generally amortized over 30 years
with approximately 50% and 90% expected to be amortized by years 5 and 15, respectively. DAC for group annuity products is amortized over 10 years with approximately 30% expected to be amortized by year five. VOBA primarily represents the discounted future profits of business assumed through reinsurance agreements. We have established VOBA for a block of
individual disability business assumed from Minnesota Life and a block of group disability and group life business assumed from Teachers Insurance and Annuity Association of America (TIAA). VOBA is generally amortized in proportion to
future premiums for group and individual disability insurance products and group life products. However, a portion of the VOBA related to the TIAA transaction associated with an in force block of group long term disability claims for which no
ongoing premium is received is amortized in proportion to expected gross profits. If actual premiums or future profitability are inconsistent with our assumptions, we could be required to make adjustments to VOBA and related amortization. For the
VOBA associated with the Minnesota Life block of business reinsured, the amortization period is up to 30 years and is amortized in proportion to future premiums. The amortization period of the intangible asset for the marketing agreement with
Minnesota Life is up to 25 years. The VOBA associated with the TIAA transaction is comprised of two parts with differing amortization methods. The amortization periods are up to 10 years for VOBA that is amortized in proportion to premiums and up to
20 years for VOBA that is amortized in proportion to expected gross profits. VOBA totaled $34.4 million and $53.7 million at December 31, 2007 and 2006, respectively. Upon adoption of SOP 05-1, the premium portion of the VOBA related to TIAA
was recorded as a $10.0 million reduction to retained earnings.




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At December 31, 2007, DAC and VOBA balances amortized in proportion to expected gross profits accounted for 29.5% and 27.3%, or $59.7 million and $9.4
million of the total balance for DAC and VOBA, respectively. At December 31, 2006, DAC and VOBA balances amortized in proportion to expected gross profits accounted for 25.1% and 22.0% of the total balance for DAC and VOBA, or $52.4 million and
$11.8 million, respectively. Key assumptions, which will affect the determination of expected gross profits for the annuity products are
persistency, the spread between investment yields and interest credited, and stock market performance for the group annuity products with assets held in equity funds. For VOBA related to the TIAA group long term disability claims for which no
further premiums are due, that is amortized in proportion to expected gross profits, the key assumptions that affect the development of expected gross profits are the claim termination rates and investment yields. Although a change in a single
assumption may have an impact on the calculated amortization of DAC or VOBA, it is the relationship of that change to the changes in other key assumptions that determines the ultimate impact on DAC and VOBA amortization. Because actual results and
trends related to these assumptions do vary from those assumed, we revise these assumptions annually to reflect the Companys current best estimate of expected gross profits. As a result of this process, known as unlocking, the
cumulative balances of DAC and VOBA are adjusted with an offsetting benefit or charge to income to reflect changes in the period of the revision. An unlocking event that results in an after-tax benefit generally occurs as a result of actual
experience or future expectations being favorable compared to previous estimates. An unlocking event that results in an after-tax charge generally occurs as a result of actual experience or future expectations being unfavorable compared to previous
estimates. As a result of unlocking, the amortization schedule for future periods is also adjusted. Due to unlocking, DAC and VOBA balances decreased $0.4 million for 2007, and increased $0.3 million for 2006. Based on past experience, future
changes in DAC and VOBA balances due to changes in underlying assumptions are not expected to be material. However, significant, unanticipated changes in key assumptions, which affect the determination of expected gross profits may result in a large
unlocking event, which could have a material adverse effect on the Companys financial position or results of operations. Our other
intangible assets are subject to amortization and consist of certain customer lists and a marketing agreement. Customer lists with a value of $28.6 million and a weighted-average amortization period of 10 years were acquired by us during the third
quarter of 2006, primarily in connection


with the purchase of Invesmart, and related to the Asset Management segment. Additional customer lists were acquired with the purchase of DPA, Inc. and with
the acquisition by StanCorp Investment Advisers of small investment advisory firms. Customer lists have a combined estimated weighted-average remaining life of approximately 9.7 years. The marketing agreement accompanied the Minnesota Life
transaction and provides access to Minnesota Life agents, some of whom now market Standards individual disability insurance products. The amortization period for the Minnesota Life marketing agreement is up to 25 years. Other intangible assets
totaled $52.1 million and $47.0 million at December 31, 2007 and 2006, respectively. Goodwill of $33.5 million was acquired by the
Company during the third quarter of 2006, primarily in connection with the purchase of Invesmart, and related to the Asset Management segment. Goodwill totaled $36.0 million and $33.5 million at December 31, 2007 and 2006, respectively.  Reserves Reserves represent amounts to pay future benefits and claims. Developing the estimates for reserves (and therefore the resulting impact on earnings)
requires varying degrees of subjectivity and judgment, depending upon the nature of the reserve. For most of our reserves, the calculation methodology is prescribed by various accounting and actuarial standards, although judgment is required in the
determination of assumptions to use in the calculation. At December 31, 2007, these reserves represented approximately 87% of total reserves held or $4.50 billion. We also hold reserves that lack a prescribed methodology but instead are
determined by a formula that we have developed based on our own experience. Because this type of reserve requires a higher level of subjective judgment, we closely monitor its adequacy. These reserves, which are primarily incurred but not reported
reserves associated with our disability products represented approximately 13% of total reserves held at December 31, 2007, or $653.2 million. Finally, a small amount of reserves is held based entirely upon subjective judgment. These reserves
are generally set up as a result of unique circumstances that are not expected to continue far into the future and are released according to pre-established conditions and timelines. These reserves represented less than 1% of total reserves held at
December 31, 2007, or $10.2 million. Reserves include policy reserves for claims not yet incurred, and claim reserves for liabilities
for unpaid claims and claim adjustment expenses for claims that have been incurred or are estimated to have been incurred but not yet reported to us. These reserves totaled $5.02 billion, $4.78 billion and




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$4.55 billion at December 31, 2007, 2006 and 2005, respectively, and represented over 96% of total reserves.  Policy Reserves Policy reserves totaled $908.3 million, $887.4 million and $871.5 million at December 31, 2007, 2006 and 2005, respectively. Policy reserves include
reserves established for individual life and individual disability businesses. Policy reserves for our individual disability block of
business are established at the time of policy issuance using the net level premium method as prescribed by generally accepted accounting principles (GAAP) and represent the current value of projected future benefits including expenses
less projected future premium. These reserves, related specifically to our individual disability block of business, totaled $164.4 million, $153.8 million and $144.5 million at December 31, 2007, 2006 and 2005, respectively. We continue to maintain a policy reserve for as long as a policy is in force, even after a separate claim reserve is established. Assumptions used to calculate individual disability policy reserves may vary by the age, sex and occupation class of the claimant, the year of policy
issue and specific contract provisions and limitations. Individual disability policy reserves are sensitive to assumptions and
considerations regarding: 

Claim incidence rates. 

Claim termination rates. 

Discount rates used to value expected future claim payments and premiums. 

Persistency rates. 

The amount of monthly benefit paid to the insured less reinsurance recoveries and other offsets. 

Expense rates including inflation. Policy reserves for our individual and group immediate annuity blocks of business totaled $141.8 million, $136.8 million and $138.3 million at December 31, 2007, 2006 and 2005, respectively. These reserves are established at the time
of policy issue and represent the present value of future payments due under the annuity contracts. The contracts are single premium contracts and therefore there is no projected future premium. Assumptions used to calculate immediate annuity policy reserves may vary by the age and sex of the annuitant and year of policy issue. Immediate annuity policy reserves are sensitive to assumptions and considerations regarding: 

Annuitant mortality rates. 

Discount rates used to value expected future annuity payments.


Policy reserves for our individual life block of
business totaled $664.5 million, $596.6 million and $588.6 million at December 31, 2007, 2006 and 2005, respectively. Effective January 1, 2001, substantially all of our individual life policies and the associated reserves were ceded to
Protective Life Insurance Company under a reinsurance agreement. Policy reserves are calculated using our best estimates of assumptions and
considerations at the time the policy was issued, adjusted to allow for the effect of adverse deviations in actual experience. These assumptions are not subsequently modified unless policy reserves become inadequate at which time we may need to
change assumptions to increase reserves.  Claim Reserves Claim reserves are established when a claim is incurred or is estimated to have been incurred but not yet reported to us and, as prescribed by GAAP, equal
our best estimate of the present value of the liability of future unpaid claims and claim adjustment expenses. Reserves for incurred but not reported claims (IBNR) are determined using company experience and consider actual historical
incidence rates, claim-reporting patterns, and the average cost of claims. The reserves are calculated using a company derived formula based primarily upon premium, which is validated through a close examination of reserve runout experience. These reserves are related to group life, and group and individual disability products offered by our insurance segment. The following
table sets forth total claim reserves segregated between reserves associated with life versus disability products: (In millions)

2007

2006

2005Group life

$
735.6

$
688.9

$
628.8Group disability


2,923.8


2,780.7


2,644.4Individual disability


590.6


569.8


540.7Total claim reserves

$
4,250.0

$
4,039.4

$
3,813.9 Unlike policy reserves, claim reserves are subject to revision as our current claim experience and
expectations regarding future factors, which may influence claim experience change. Each quarter we monitor our emerging claim experience to ensure that the claim reserves remain appropriate and make adjustments to our assumptions based on actual
experience and our expectations regarding future events as appropriate. Assumptions used to calculate claim reserves may vary by the age,
sex and occupation class of the claimant, the year the claim was incurred, time elapsed since disablement and specific contract provisions and limitations.




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Claim reserves for our disability products are sensitive to assumptions and considerations regarding: 

Claim incidence rates for IBNR claim reserves. 

Claim termination rates. 

Discount rates used to value expected future claim payments. 

The amount of monthly benefit paid to the insured less reinsurance recoveries and other offsets. 

Expense rates including inflation. 

Historical delay in reporting of claims incurred. Certain of these factors could be materially affected by changes in social perceptions about work ethics, emerging medical perceptions and legal interpretations regarding physiological or psychological causes of
disability, emerging or changing health issues and changes in industry regulation. If there are changes in one or more of these factors or if actual claims experience is materially inconsistent with our assumptions, we could be required to change
our reserves. Claim reserves for our group life and AD&D products are established for death claims reported but not yet paid, IBNR
death claims and waiver of premium benefits. The death claim reserve is based on the actual amount to be paid. The IBNR reserve is calculated using historical information, and the waiver of premium benefit is calculated using a tabular reserve
method that takes into account company experience and published industry tables.  Trends in Key Assumptions Key assumptions affecting our reserve calculations are (1) the discount rate, (2) claim
termination rate and (3) the claim incidence rate for policy reserves and IBNR claim reserves. Reserve discount rates for newly
incurred claims are reviewed quarterly and if necessary are adjusted to reflect our current and expected net investment yields. The discount rate used to calculate GAAP reserves for newly incurred long term disability claims declined 15 basis points
in 2007, increased 75 basis points in 2006 and declined 25 basis points in 2005 as a result of changes in the interest rate environment. Based on our current size, a 25 basis point increase in the discount rate would result in a short-term decrease
of approximately $2 million per quarter of benefits to policyholders, and a corresponding increase to pre-tax earnings. Offsetting adjustments to group insurance premium rates can take from one to three years given that most new contracts have rate
guarantees in place. Claim termination rates can vary widely from quarter to quarter. The claim termination assumptions used in determining
our reserves represent our expectation for claim terminations over the life of our block of business and will


vary from actual experience in any one quarter. In 2007, while we have experienced some variation in our claim termination experience we have not seen any
prolonged or systemic change that would indicate a sustained underlying trend that would affect the claim termination rates used in the calculation of reserves. As a result of our on-going assessment of recovery patterns for claims experience for
group long term disability insurance, we did release incurred but not reported reserves totaling $9 million in 2005. There were no similar reserve releases for 2006. We adopted a new group life waiver table, the Society of Actuaries Table 2005, to be used in the calculation of reserves for group life waiver claims incurred in 2007 and later. Adoption of this table resulted in a
reduction of $15.5 million in reserves established for new 2007 group life waiver claims compared to the reserves that would have been established using the prior table. In 2007, as a result of continued favorable recovery patterns for our group long term disability insurance, partially offset by the recognition of the unique characteristics of a certain group, we released incurred
but not reported reserves totaling $13.5 million. In 2007, we adjusted the calculation of the incurred but not reported reserves related to
pending group life waiver claims as a result of continued redundancy in the reserve. This resulted in a decrease in reserves of $6.0 million. There were no similar reserve releases in 2006 or 2005. In 2007, we adjusted the termination assumptions associated with a small block of group long term disability reported reserves due to prolonged
unfavorable reserve runout experience for the block. This resulted in an increase in reserves of $16.8 million. There were no similar reserve increases in 2006 or 2005. In 2006, we did adjust the claim termination rate assumptions for a small block of individual disability claims in light of a recently released industry table. This resulted in an increase in reserves of $6 million.
These assumptions were further refined in 2007 and resulted in an additional increase in reserves of $7.4 million. Our block of business is relatively small and as a result, we view the new industry table as more credible for establishing reserve
levels compared solely to our own experience. We will continue to monitor our developing experience in light of the availability of the new industry table and if necessary will adjust reserves accordingly. Claim incidence rates, which affect our policy reserves and IBNR claim reserves, can also vary widely from quarter to quarter. Overall, we have not seen
any prolonged or systemic change that would indicate a sustained underlying trend that would affect the claim incidence rates used in the calculation of policy reserves or IBNR claim reserves.




2007 ANNUAL REPORT

37




---

Part II



We monitor the adequacy of our
reserves relative to our key assumptions. In our estimation, scenarios based on reasonably possible variations in claim termination assumptions could produce a percentage change in reserves for our group insurance lines of business of approximately
+/- 0.2% or $9 million. However given that claims experience can fluctuate widely from quarter to quarter, significant unanticipated changes in claim termination rates over time could produce a change in reserves for our group insurance lines
outside this range.  Income Taxes The provision for income taxes includes amounts currently payable and deferred amounts that result from temporary differences between financial reporting
and tax bases of assets and liabilities as measured by current tax rates. Currently, years open for audit by the Internal Revenue Service are 2004 through 2007.  FORWARD-LOOKING STATEMENTS Some of the statements contained
in this Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, including those relating to our strategy and other statements that are predictive in nature, that depend on or refer to future events or
conditions or that include words such as expects, anticipates, intends, plans, believes, estimates seeks and similar expressions, are forward-looking statements
within the meaning of Section 21E of the Exchange Act, as amended. These statements are not historical facts but instead represent only managements expectations, estimates and projections regarding future events. Similarly, these
statements are not guarantees of future performance and involve uncertainties that are difficult to predict, which may include, but are not limited to, the factors discussed below. As a provider of financial products and services, our results of
operations may vary significantly in response to economic trends, interest rate changes, investment performance and claims experience. Caution should be used when extrapolating historical results or conditions to future periods. Our actual results and financial condition may differ, perhaps materially, from the anticipated results and financial condition in any such
forward-looking statements and, given these uncertainties or circumstances, readers are cautioned not to place undue reliance on such statements. We assume no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.


The following factors could cause results to differ materially from management expectations as suggested by such forward-looking statements: 

Growth of sales premiums, annuity deposits, cash flows, gross profits and profitability. 

Growth in assets under administration including performance of equity investments in the separate account. 

Availability of capital required to support business growth and the effective utilization of excess capital. 

Achievement of anticipated levels of operating expenses. 

Benefit ratios, including changes in claims incidence, severity and recovery. 

Levels of persistency. 

Adequacy of reserves established for future policy benefits. 

Credit quality of the holdings in our investment portfolios. 

Experience in delinquency rates or loss experience in our commercial mortgage loan portfolio. 

Concentration of commercial mortgage loan assets collateralized in California. 

Environmental liability exposure resulting from commercial mortgage loan and real estate investments. 

The effect of changes in interest rates on reserves, policyholder funds, investment income and commercial mortgage loan prepayment fees. 

The condition of the economy and expectations for interest rate changes. 

The impact of rising benefit costs on employer budgets for employee benefits. 

Integration and performance of business acquired through reinsurance or acquisition. 

Competition from other insurers and financial services companies, including the ability to competitively price our products. 

Financial strength and credit ratings. 

Changes in the regulatory environment at the state or federal level or changes in U.S. GAAP accounting principles, practices or policies. 

Findings in litigation or other legal proceedings. 

Receipt of dividends from, or contributions to, our subsidiaries. 

Adequacy of the diversification of risk by product offerings and customer industry, geography and size. 

Adequacy of asset/liability management. 

Concentration of risk, especially inherent in group life products. 

Ability of reinsurers to meet their obligations.




|   |  |                               
|-- |  | ------------------------------
|38 |  | STANCORP FINANCIAL GROUP, INC.



---





Availability, adequacy and pricing of reinsurance and catastrophe reinsurance coverage and potential charges incurred. 

Losses from a disease pandemic. 

Events of terrorism, natural disasters or other catastrophic events.




Changes in federal or state income taxes. 

The effect of changing levels of commercial mortgage loan prepayment fees on cash flows. 

Use of proceeds from issuance of debt.




Item 7A. Quantitative and Qualitative Disclosures about Market Risk

See Item 7,
Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesAsset/Liability and Interest Rate Risk Management.



Item 8. Financial Statements and Supplementary Data



|                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                |  | PAGE
|Report of Independent Registered Public Accounting Firm                                                         |  | 40  
|Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2007, 2006 and 2005 |  | 42  
|Consolidated Balance Sheets at December 31, 2007 and 2006                                                       |  | 43  
|Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2007, 2006 and 2005 |  | 44  
|Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005                      |  | 45  
|Notes to Consolidated Financial Statements                                                                      |  | 46  



2007 ANNUAL REPORT

39




---

Part II



Report of Independent Registered Public Accounting Firm



Board of Directors and Shareholders of

StanCorp Financial Group, Inc.

Portland, Oregon



We have
audited the accompanying consolidated balance sheets of StanCorp Financial Group, Inc. and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income and comprehensive income,
changes in shareholders equity, and cash flows for each of the three years in the period ended December 31, 2007. We also have audited the Company's internal control over financial reporting as of December 31, 2007, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on these financial statements and an opinion on the Companys internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and
principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override
of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of StanCorp Financial Group, Inc. and subsidiaries as of December 31, 2007
and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

As discussed in Note 1 to the consolidated financial statements, on January 1,
2007, the Company changed its method of accounting for deferred acquisition costs upon the adoption of Statement of Position 05-1, Accounting by Insurance Enterprises for



|   |  |                               
|-- |  | ------------------------------
|40 |  | STANCORP FINANCIAL GROUP, INC.



---



Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts.As also discussed in Notes 1 and 11 to the
consolidate financial statements, on December 31, 2006, the Company changed its method of accounting for defined benefit and other postretirement plans upon the adoption of Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans.



|                            
|----------------------------
|                            
|/s/    DELOITTE & TOUCHE
LLP
|DELOITTE & TOUCHE LLP       



Portland, Oregon

February 27, 2008



2007 ANNUAL REPORT

41




---

Part II



Consolidated Statements of Income and Comprehensive Income



|                                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|Years Ended December 31 (In millionsexcept share data)                                |  | 2007 |            |   | 2006 |   |            | 2005 | 
|Revenues:                                                                              |  |      |            |   |      |   |            |      |  |   |            |  
|Premiums                                                                               |  | $    | 2,078.3    |   |      | $ | 1,935.0    |      |  | $ | 1,826.5    |  
|Administrative fees                                                                    |  |      | 115.2      |   |      |   | 77.1       |      |  |   | 43.3       |  
|Net investment income                                                                  |  |      | 516.3      |   |      |   | 478.9      |      |  |   | 465.2      |  
|Net capital gains (losses)                                                             |  |      | (0.6       | ) |      |   | 1.9        |      |  |   | 2.2        |  
|Total revenues                                                                         |  |      | 2,709.2    |   |      |   | 2,492.9    |      |  |   | 2,337.2    |  
|Benefits and expenses:                                                                 |  |      |            |   |      |   |            |      |  |   |            |  
|Benefits to policyholders                                                              |  |      | 1,591.8    |   |      |   | 1,513.1    |      |  |   | 1,392.3    |  
|Interest credited                                                                      |  |      | 108.8      |   |      |   | 97.7       |      |  |   | 84.0       |  
|Operating expenses                                                                     |  |      | 434.8      |   |      |   | 370.3      |      |  |   | 340.6      |  
|Commissions and bonuses                                                                |  |      | 198.0      |   |      |   | 183.6      |      |  |   | 168.5      |  
|Premium taxes                                                                          |  |      | 36.4       |   |      |   | 34.6       |      |  |   | 32.0       |  
|Interest expense                                                                       |  |      | 30.7       |   |      |   | 17.9       |      |  |   | 18.0       |  
|Net increase in deferred acquisition costs, value of business acquired and intangibles |  |      | (33.0      | ) |      |   | (34.0      | )    |  |   | (23.8      | )
|Total benefits and expenses                                                            |  |      | 2,367.5    |   |      |   | 2,183.2    |      |  |   | 2,011.6    |  
|Income before income taxes                                                             |  |      | 341.7      |   |      |   | 309.7      |      |  |   | 325.6      |  
|Income taxes                                                                           |  |      | 114.2      |   |      |   | 105.9      |      |  |   | 114.5      |  
|Net income                                                                             |  |      | 227.5      |   |      |   | 203.8      |      |  |   | 211.1      |  
|Other comprehensive income (loss), net of tax:                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Unrealized gains (losses) on securities available-for-sale:                            |  |      |            |   |      |   |            |      |  |   |            |  
|Unrealized capital gains (losses) on securities available-for-sale, net                |  |      | 25.0       |   |      |   | (41.7      | )    |  |   | (67.5      | )
|Reclassification adjustment for net capital gains included in net income, net          |  |      | (2.0       | ) |      |   | (1.7       | )    |  |   | (8.8       | )
|Employee benefit plans:                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Prior service cost and net gains arising during the period, net                        |  |      | 0.3        |   |      |   |           |      |  |   |           |  
|Reclassification adjustment for amortization to net periodic pension cost, net         |  |      | 1.6        |   |      |   |           |      |  |   |           |  
|Total other comprehensive income (loss), net of tax                                    |  |      | 24.9       |   |      |   | (43.4      | )    |  |   | (76.3      | )
|Comprehensive income                                                                   |  | $    | 252.4      |   |      | $ | 160.4      |      |  | $ | 134.8      |  
|                                                                                       |  |      |           
|Net income per common share:                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                                                                  |  | $    | 4.39       |   |      | $ | 3.77       |      |  | $ | 3.81       |  
|Diluted                                                                                |  |      | 4.35       |   |      |   | 3.73       |      |  |   | 3.76       |  
|                                                                                       |  |      |           
|Weighted-average common shares outstanding:                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                                                                  |  |      | 51,824,050 |   |      |   | 54,079,033 |      |  |   | 55,465,215 |  
|Diluted                                                                                |  |      | 52,344,950 |   |      |   | 54,688,114 |      |  |   | 56,076,666 |  



See Notes to
Consolidated Financial Statements.



|   |  |                               
|-- |  | ------------------------------
|42 |  | STANCORP FINANCIAL GROUP, INC.



---



Consolidated Balance Sheets



|                                                                                                                                         |  |      |          |      |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|December 31 (Dollars in millions)                                                                                                        |  | 2007 |          | 2006 |  
|ASSETS                                                                                                                                   |  |      |          |      |   |          |  
|Investments:                                                                                                                             |  |      |          |      |   |          |  
|Fixed maturity securitiesavailable-for-sale                                                                                             |  | $    | 4,997.1  |      | $ | 4,786.0  |  
|Short-term investments                                                                                                                   |  |      | 4.5      |      |   |         |  
|Commercial mortgage loans, net                                                                                                           |  |      | 3,657.7  |      |   | 3,316.0  |  
|Real estate, net                                                                                                                         |  |      | 71.8     |      |   | 89.9     |  
|Policy loans                                                                                                                             |  |      | 3.9      |      |   | 4.0      |  
|Total investments                                                                                                                        |  |      | 8,735.0  |      |   | 8,195.9  |  
|Cash and cash equivalents                                                                                                                |  |      | 205.8    |      |   | 56.0     |  
|Premiums and other receivables                                                                                                           |  |      | 106.8    |      |   | 99.2     |  
|Accrued investment income                                                                                                                |  |      | 93.1     |      |   | 89.5     |  
|Amounts recoverable from reinsurers                                                                                                      |  |      | 929.6    |      |   | 913.6    |  
|Deferred acquisition costs, value of business acquired, intangibles and goodwill, net                                                    |  |      | 324.8    |      |   | 342.7    |  
|Property and equipment, net                                                                                                              |  |      | 126.9    |      |   | 84.6     |  
|Other assets                                                                                                                             |  |      | 74.5     |      |   | 24.6     |  
|Separate account assets                                                                                                                  |  |      | 4,386.4  |      |   | 3,832.5  |  
|Total assets                                                                                                                             |  | $    | 14,982.9 |      | $ | 13,638.6 |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                     |  |      |          |      |   |          |  
|Liabilities:                                                                                                                             |  |      |          |      |   |          |  
|Future policy benefits and claims                                                                                                        |  | $    | 5,158.7  |      | $ | 4,927.6  |  
|Other policyholder funds                                                                                                                 |  |      | 3,153.8  |      |   | 2,937.8  |  
|Deferred tax liabilities, net                                                                                                            |  |      | 15.6     |      |   | 22.9     |  
|Short-term debt                                                                                                                          |  |      | 4.0      |      |   | 2.4      |  
|Long-term debt                                                                                                                           |  |      | 562.6    |      |   | 261.1    |  
|Other liabilities                                                                                                                        |  |      | 272.8    |      |   | 189.8    |  
|Separate account liabilities                                                                                                             |  |      | 4,386.4  |      |   | 3,832.5  |  
|Total liabilities                                                                                                                        |  |      | 13,553.9 |      |   | 12,174.1 |  
|Contingencies and commitments                                                                                                            |  |      |          |      |   |          |  
|                                                                                                                                         |  |     
|Shareholders equity:                                                                                                                    |  |      |          |      |   |          |  
|Preferred stock, 100,000,000 shares authorized; none issued                                                                              |  |      |         |      |   |         |  
|Common stock, no par, 300,000,000 shares authorized; 49,155,131 and 53,592,178 shares issues at December 31, 2007 and 2006, respectively |  |      | 267.1    |      |   | 479.9    |  
|Accumulated other comprehensive income (loss)                                                                                            |  |      | 16.8     |      |   | (8.1     | )
|Retained earnings                                                                                                                        |  |      | 1,145.1  |      |   | 992.7    |  
|Total shareholders equity                                                                                                               |  |      | 1,429.0  |      |   | 1,464.5  |  
|Total liabilities and shareholders equity                                                                                               |  | $    | 14,982.9 |      | $ | 13,638.6 |  



See Notes to
Consolidated Financial Statements.



2007 ANNUAL REPORT

43




---

Part II



Consolidated Statements of Changes in Shareholders Equity



|                                                       |  |              |   |  |                                            |        |   |                  |   |       |                          |  |   |         |   |  |   |         |  
|------------------------------------------------------ |  | ------------ | - |  | ------------------------------------------ | ------ | - | ---------------- | - | ----- | ------------------------ |  | - | ------- | - |  | - | ------- | -
|                                                       |  | Common Stock |   |  | AccumulatedOtherComprehensiveIncome (Loss) |        |   | RetainedEarnings |   |       | TotalShareholdersEquity | 
|(In millionsexcept share data)                        |  | Shares       |   |  | Amount                                     |        |   |                  |  
|Balance, January 1, 2005                               |  | 56,889,678   |   |  | $                                          | 618.2  |   |                  | $ | 136.1 |                          |  | $ | 646.8   |   |  | $ | 1,401.1 |  
|Net income                                             |  |             |   |  |                                            |       |   |                  |   |      |                          |  |   | 211.1   |   |  |   | 211.1   |  
|Other comprehensive loss, net of tax                   |  |             |   |  |                                            |       |   |                  |   | (76.3 | )                        |  |   |        |   |  |   | (76.3   | )
|Common stock:                                          |  |              |   |  |                                            |        |   |                  |   |       |                          |  |   |         |   |  |   |         |  
|Repurchased                                            |  | (2,666,000   | ) |  |                                            | (106.4 | ) |                  |   |      |                          |  |   |        |   |  |   | (106.4  | )
|Issued to directors                                    |  | 4,210        |   |  |                                            | 0.2    |   |                  |   |      |                          |  |   |        |   |  |   | 0.2     |  
|Issued under employee stock plans, net                 |  | 485,048      |   |  |                                            | 18.6   |   |                  |   |      |                          |  |   |        |   |  |   | 18.6    |  
|Cost of common stock split                             |  |             |   |  |                                            | (0.3   | ) |                  |   |      |                          |  |   |        |   |  |   | (0.3    | )
|Dividends declared on common stock                     |  |             |   |  |                                            |       |   |                  |   |      |                          |  |   | (34.2   | ) |  |   | (34.2   | )
|Balance, December 31, 2005                             |  | 54,712,936   |   |  |                                            | 530.3  |   |                  |   | 59.8  |                          |  |   | 823.7   |   |  |   | 1,413.8 |  
|Net income                                             |  |             |   |  |                                            |       |   |                  |   |      |                          |  |   | 203.8   |   |  |   | 203.8   |  
|Other comprehensive loss, net of tax                   |  |             |   |  |                                            |       |   |                  |   | (43.4 | )                        |  |   |        |   |  |   | (43.4   | )
|Adjustment to initially apply SFAS No. 158, net of tax |  |             |   |  |                                            |       |   |                  |   | (24.5 | )                        |  |   |        |   |  |   | (24.5   | )
|Common stock:                                          |  |              |   |  |                                            |        |   |                  |   |       |                          |  |   |         |   |  |   |         |  
|Repurchased                                            |  | (1,519,200   | ) |  |                                            | (70.1  | ) |                  |   |      |                          |  |   |        |   |  |   | (70.1   | )
|Issued to directors                                    |  | 3,617        |   |  |                                            | 0.2    |   |                  |   |      |                          |  |   |        |   |  |   | 0.2     |  
|Issued under employee stock plans, net                 |  | 394,825      |   |  |                                            | 19.5   |   |                  |   |      |                          |  |   |        |   |  |   | 19.5    |  
|Dividends declared on common stock                     |  |             |   |  |                                            |       |   |                  |   |      |                          |  |   | (34.8   | ) |  |   | (34.8   | )
|Balance, December 31, 2006                             |  | 53,592,178   |   |  |                                            | 479.9  |   |                  |   | (8.1  | )                        |  |   | 992.7   |   |  |   | 1,464.5 |  
|Net income                                             |  |             |   |  |                                            |       |   |                  |   |      |                          |  |   | 227.5   |   |  |   | 227.5   |  
|Cumulative adjustment to apply SOP 05-1, net of tax    |  |             |   |  |                                            |       |   |                  |   |      |                          |  |   | (39.4   | ) |  |   | (39.4   | )
|Other comprehensive income, net of tax                 |  |             |   |  |                                            |       |   |                  |   | 24.9  |                          |  |   |        |   |  |   | 24.9    |  
|Common stock:                                          |  |              |   |  |                                            |        |   |                  |   |       |                          |  |   |         |   |  |   |         |  
|Repurchased                                            |  | (4,847,200   | ) |  |                                            | (235.6 | ) |                  |   |      |                          |  |   |        |   |  |   | (235.6  | )
|Issued to directors                                    |  | 1,292        |   |  |                                            | 0.4    |   |                  |   |      |                          |  |   |        |   |  |   | 0.4     |  
|Issued under employee stock plans, net                 |  | 408,861      |   |  |                                            | 22.4   |   |                  |   |      |                          |  |   |        |   |  |   | 22.4    |  
|Dividends declared on common stock                     |  |             |   |  |                                            |       |   |                  |   |      |                          |  |   | (35.7   | ) |  |   | (35.7   | )
|Balance December 31, 2007                              |  | 49,155,131   |   |  | $                                          | 267.1  |   |                  | $ | 16.8  |                          |  | $ | 1,145.1 |   |  | $ | 1,429.0 |  



See Notes to
Consolidated Financial Statements.



|   |  |                               
|-- |  | ------------------------------
|44 |  | STANCORP FINANCIAL GROUP, INC.



---



Consolidated Statements of Cash Flows



|                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|Years Ended December 31 (In millions)                                                    |  | 2007 |          |   | 2006 |   |          | 2005 | 
|Operating:                                                                               |  |      |          |   |      |   |          |      |  |   |          |  
|Net income                                                                               |  | $    | 227.5    |   |      | $ | 203.8    |      |  | $ | 211.1    |  
|Adjustments to reconcile net income to net cash provided by operating activities:        |  |      |          |   |      |   |          |      |  |   |          |  
|Net realized capital losses                                                              |  |      | 3.8      |   |      |   | 4.7      |      |  |   | 2.5      |  
|Depreciation and amortization                                                            |  |      | 97.8     |   |      |   | 83.9     |      |  |   | 70.8     |  
|Deferral of acquisition costs, value of business acquired, intangibles and goodwill, net |  |      | (90.1    | ) |      |   | (77.9    | )    |  |   | (61.6    | )
|Deferred income taxes                                                                    |  |      | 0.7      |   |      |   | 2.3      |      |  |   | 0.9      |  
|Changes in other assets and liabilities:                                                 |  |      |          |   |      |   |          |      |  |   |          |  
|Receivables and accrued income                                                           |  |      | (26.1    | ) |      |   | (28.6    | )    |  |   | (16.2    | )
|Future policy benefits and claims                                                        |  |      | 231.1    |   |      |   | 238.3    |      |  |   | 204.7    |  
|Other, net                                                                               |  |      | 41.0     |   |      |   | (36.4    | )    |  |   | (5.1     | )
|Net cash provided by operating activities                                                |  |      | 485.7    |   |      |   | 390.1    |      |  |   | 407.1    |  
|Investing:                                                                               |  |      |          |   |      |   |          |      |  |   |          |  
|Proceeds of investments, sold, matured or repaid:                                        |  |      |          |   |      |   |          |      |  |   |          |  
|Fixed maturity securitiesavailable-for-sale                                             |  |      | 635.1    |   |      |   | 517.2    |      |  |   | 537.5    |  
|Commercial mortgage loans                                                                |  |      | 1,055.8  |   |      |   | 560.7    |      |  |   | 753.6    |  
|Real estate                                                                              |  |      | 1.5      |   |      |   | 7.6      |      |  |   | 1.2      |  
|Cost of investments acquired or originated:                                              |  |      |          |   |      |   |          |      |  |   |          |  
|Fixed maturity securitiesavailable-for-sale                                             |  |      | (818.7   | ) |      |   | (773.7   | )    |  |   | (880.1   | )
|Commercial mortgage loans                                                                |  |      | (1,400.2 | ) |      |   | (940.8   | )    |  |   | (1,049.6 | )
|Real estate                                                                              |  |      | (9.3     | ) |      |   | (18.2    | )    |  |   | (6.7     | )
|Acquisitions                                                                             |  |      | (6.1     | ) |      |   | (81.7    | )    |  |   |         |  
|Short-term investments                                                                   |  |      | (10.3    | ) |      |   |         |      |  |   |         |  
|Other investments                                                                        |  |      | (0.2     | ) |      |   | (4.1     | )    |  |   | (0.2     | )
|Acquisition of property and equipment                                                    |  |      | (44.6    | ) |      |   | (16.3    | )    |  |   | (20.6    | )
|Net cash used in investing activities                                                    |  |      | (597.0   | ) |      |   | (749.3   | )    |  |   | (664.9   | )
|Financing:                                                                               |  |      |          |   |      |   |          |      |  |   |          |  
|Policyholder fund deposits                                                               |  |      | 1,705.8  |   |      |   | 1,645.6  |      |  |   | 1,405.5  |  
|Policyholder fund withdrawals                                                            |  |      | (1,489.8 | ) |      |   | (1,357.1 | )    |  |   | (1,157.1 | )
|Short-term debt                                                                          |  |      | 1.6      |   |      |   | 0.4      |      |  |   | 1.8      |  
|Long-term debt                                                                           |  |      | 297.7    |   |      |   | 0.6      |      |  |   | 2.0      |  
|Third party interest in a limited liability company                                      |  |      |         |   |      |   | 164.0    |      |  |   | 143.2    |  
|Issuance of common stock                                                                 |  |      | 17.1     |   |      |   | 13.4     |      |  |   | 10.9     |  
|Repurchases of common stock                                                              |  |      | (235.6   | ) |      |   | (70.1    | )    |  |   | (106.4   | )
|Dividends paid on common stock                                                           |  |      | (35.7    | ) |      |   | (34.8    | )    |  |   | (34.2    | )
|Net cash provided by financing activities                                                |  |      | 261.1    |   |      |   | 362.0    |      |  |   | 265.7    |  
|Increase in cash and cash equivalents                                                    |  |      | 149.8    |   |      |   | 2.8      |      |  |   | 7.9      |  
|Cash and cash equivalents, beginning of year                                             |  |      | 56.0     |   |      |   | 53.2     |      |  |   | 45.3     |  
|Cash and cash equivalents, end of year                                                   |  | $    | 205.8    |   |      | $ | 56.0     |      |  | $ | 53.2     |  
|Supplemental disclosure of cash flow information:                                        |  |      |          |   |      |   |          |      |  |   |          |  
|Cash paid during the year for:                                                           |  |      |          |   |      |   |          |      |  |   |          |  
|Interest                                                                                 |  | $    | 132.6    |   |      | $ | 111.2    |      |  | $ | 101.1    |  
|Income taxes                                                                             |  |      | 97.3     |   |      |   | 100.3    |      |  |   | 99.2     |  
|Non-cash transactions:                                                                   |  |      |          |   |      |   |          |      |  |   |          |  
|Transfer of commercial mortgage loans in limited liability company dissolution           |  |      |         |   |      |   | 307.1    |      |  |   |         |  



See Notes to
Consolidated Financial Statements.



2007 ANNUAL REPORT

45




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Part II



Notes to Consolidated Financial Statements  As used in this Form 10-K, the terms StanCorp, Company, we, us and our refer to StanCorp Financial Group, Inc. and its subsidiaries, unless the context otherwise requires.  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization, principles of consolidation, and basis of presentation StanCorp is a holding company for our insurance and asset management subsidiaries and is headquartered in Portland, Oregon. We are the parent company of Standard Insurance Company, a leading provider of group insurance products and services
serving the life and disability insurance needs of employer groups and the disability insurance needs of individuals. Our insurance subsidiaries also provide accidental death and dismemberment (AD&D) insurance and dental insurance.
Through our insurance subsidiaries, we have the authority to underwrite insurance products in all 50 states. Our asset management businesses offer investment management services, retirement financial services, individual annuities, group annuity
contracts and trust products, full-service 401(k) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans, non-qualified deferred compensation products and services and limited trust services. The
Companys mortgage subsidiary originates and services small, fixed-rate commercial mortgage loans for the investment portfolios of its insurance subsidiaries and for participation to institutional investors. StanCorp operates through two
segments: Insurance Services and Asset Management, each of which is described below. See Note 3Segments. StanCorp was
incorporated under the laws of Oregon in 1998 as a parent holding company and conducts business through its subsidiaries: Standard Insurance Company (Standard); The Standard Life Insurance Company of New York; Standard Retirement
Services, Inc. (Standard Retirement Services); StanCorp Equities, Inc. (StanCorp Equities); StanCorp Mortgage Investors, LLC (StanCorp Mortgage Investors); StanCorp Investment Advisers, Inc. (StanCorp
Investment Advisers); StanCorp Real Estate, LLC (StanCorp Real Estate); and StanCorp Trust Company. The Company is headquartered in Portland, Oregon and, through its subsidiaries, has operations throughout the United States. The Standard is a service mark of StanCorp and its subsidiaries and is used as a brand mark and marketing name by Standard and The
Standard Life Insurance Company of New York. Standard, the Companys largest subsidiary, underwrites group and individual disability
insurance and annuity


products, group life, AD&D, and dental insurance, and provides retirement plan products. Founded in 1906, Standard is domiciled in Oregon and licensed in
all states except New York, and is licensed in the District of Columbia and the U.S. Territories of Guam and the Virgin Islands. The
Standard Life Insurance Company of New York was organized in 2000 and is licensed to provide group long term and short term disability, life, AD&D and dental insurance in New York. Effective January 1, 2007, the administrative and servicing operations of StanCorps retirement plans group annuity contracts offered through
Standard and for the trust product formerly offered through Invesmart, Inc. (Invesmart), which was acquired in July 2006, began operating under the name Standard Retirement Services. Retirement plans products are offered in all fifty
states through Standard or Standard Retirement Services. StanCorp Equities is a limited broker-dealer and member of the Financial Industry
Regulatory Authority. StanCorp Equities serves as principal underwriter and distributor for group variable annuity contracts issued by Standard and as the broker of record for certain retirement plans using the trust platform. StanCorp Equities
carries no customer accounts but provides supervision and oversight for the distribution of group variable annuity contracts and of the sales activities of all registered representatives employed by StanCorp Equities and its affiliates. StanCorp Mortgage Investors originates, underwrites and services small, fixed-rate commercial mortgage loans for the investment portfolios of the
Companys insurance subsidiaries. The Company also generates additional fee income from the origination and servicing of commercial mortgage loans participated to institutional investors. The average loan size of the commercial mortgage loans
held by the insurance subsidiaries and serviced by StanCorp Mortgage Investors was approximately $0.7 million and $0.8 million at December 31, 2007 and 2006, respectively. StanCorp Investment Advisers is a Securities and Exchange Commission (SEC) registered investment adviser providing performance analysis, fund
selection support, model portfolios and other investment advisory and investment management services to its retirement plan clients, individual investors and subsidiaries of StanCorp. StanCorp Real Estate is a property management company that owns and manages the Hillsboro, Oregon home office properties and other investment properties
and manages the Portland, Oregon home office properties. In January 2006, StanCorp established StanCorp Trust Company, which offers limited
direct trust services to clients. StanCorp and Standard hold interests in low-income




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housing partnerships. Individually, the interest in these partnerships do not represent a significant variable interest pursuant to the definition of
Financial Accounting Standards Board (FASB) Interpretation No. 46(R), Consolidation of Variable Interest Entities, (revised December 2003)an interpretation of ARB No. 31,nor do they meet the requirements for
consolidation. The total investment in these interests was $17.8 million and $21.1 million at December 31, 2007 and 2006, respectively. Minority interest related to consolidated entities included in other liabilities was $0.5 million and $0.6 million at December 31, 2007 and 2006, respectively. The consolidated financial statements include StanCorp and its subsidiaries. Intercompany balances and transactions have been eliminated.  Use of estimates Our consolidated financial statements and certain disclosures made in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP)
and require us to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and contingent liabilities at the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. The estimates most susceptible to material changes due to significant judgment (the critical accounting policies) are those used in determining asset impairments, the reserves for future policy
benefits and claims, deferred acquisition costs (DAC), value of business acquired (VOBA), other intangible assets and goodwill, and the provision for income taxes. The results of these estimates are critical because they
affect our profitability and may affect key indicators used to measure the Companys performance. These estimates have a material effect on our results of operations and financial condition.  Investments For all investments, capital gains and losses are recognized using the specific identification method. Net investment income and capital gains and losses related to separate account assets and liabilities are included
in the separate account assets and liabilities. For all investments, we record impairments when it is determined that the decline in fair value of an investment below its amortized cost basis is other than temporary. We reflect impairment charges in
net capital gains or losses and permanently adjust the cost basis of the investment to reflect the impairment. In our quarterly impairment analysis, we evaluate whether a decline in value of fixed maturity securities is other than temporary. Factors
considered in this analysis include the length of time and the


extent to which the fair value has been below amortized cost, the financial condition and near-term prospects of the issuer, our intent and ability to retain
the investment for a period of time sufficient to allow for any anticipated recovery in market value, and the value of any security interest we may have collateralized in the investment. See Note 5Investment Securities. For
securities expected to be sold, an other than temporary impairment charge is recorded if we do not expect the realizable market value of a security to recover to amortized cost prior to the expected date of sale. Once an impairment charge has been
recorded, we continue to review the other than temporarily impaired securities for further potential impairment on an on-going basis. Our
investment portfolio includes fixed maturity securities and commercial mortgage loans. When the fair value of a fixed maturity security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair
value is below amortized cost, additional analysis is performed to determine whether an impairment exists. The analysis considers the financial condition and near-term prospects of the issuer, as well as the value of any security we may have in the
investment and our intent and ability to hold the investment. At December 31, 2007, issues on our impairment watch list totaled approximately $32.7 million in market value and $41.8 million in book value. We did not have any direct exposure to
sub-prime or Alt-A mortgages in our fixed maturity securities portfolio at December 31, 2007. The Company held investments in debt securities issued by bond insurers at December 31, 2007, with $33.5 million in market value and $40.7
million in book value. The Company intends to hold these securities to maturity and will continue to evaluate these holdings, but currently expects the fair values of its investments in debt securities issued by bond insurers to recover as these
debt securities approach their maturity dates. Should the credit quality of our fixed maturity securities decline, there could be a material adverse effect on our business, financial position, results of operations or cash flows. Investment securities include fixed maturity securities. Fixed maturity securities are classified as available-for-sale and are carried at fair value on
the consolidated balance sheets. This balance also includes derivative investments, which are carried at fair value. See Note 7Derivative Financial Instruments. Valuation adjustments for fixed maturity securities are reported as
net increases or decreases to other comprehensive income (loss), net of tax, on the consolidated statements of income and comprehensive income. Valuation adjustments for derivatives are reported as a component of net investment income.




2007 ANNUAL REPORT

47




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Part II



Short-term investments on the consolidated balance sheet at December 31, 2007, consisted of commercial paper. Commercial mortgage loans are stated at amortized cost less a valuation allowance for potentially uncollectible amounts. The commercial mortgage loan
valuation allowance is based on our analysis of factors including changes in the size and composition of the loan portfolio, actual loan loss experience and individual loan analysis. We did not have any direct exposure to sub-prime or Alt-A
mortgages in our commercial mortgage loan portfolio at December 31, 2007. Real estate held for investment is stated at cost less
accumulated depreciation. Depreciation generally is provided on the straight-line method with property lives varying from 30 to 40 years. Accumulated depreciation for real estate totaled $29.1 million and $27.0 million at December 31, 2007 and
2006, respectively. Real estate acquired in satisfaction of debt is recorded at the lower of cost or fair value less estimated costs to sell and is depreciated consistently with real estate held for investment. Policy loans are stated at their aggregate unpaid principal balances and are secured by policy cash values.  Cash and Cash Equivalents Cash and cash equivalents include cash and investments purchased with original maturities of three months or less at the time of acquisition. The carrying
amount of cash equivalents approximates the fair value of those instruments.  DAC,
VOBA, other intangible assets and goodwill DAC, VOBA, other intangible assets and goodwill are considered intangible assets. These
intangible assets are generally originated through the issuance of new business or the purchase of existing business either by purchasing blocks of insurance policies from other insurers or by the outright purchase of other companies. The
Companys intangible assets are subject to impairment tests on an annual basis or more frequently if circumstances indicate that carrying values may not be recoverable. Acquisition costs that the Company has deferred as DAC are those costs that vary with and are primarily related to the acquisition and, in some instances,
the renewal of insurance products. These costs are typically one-time expenses that represent the cost of originating new business and placing that business in force. Certain costs related to obtaining new business and acquiring business through
reinsurance agreements have been deferred and will be amortized to accomplish matching against related future premiums or gross profits as appropriate. The Company normally defers certain acquisition-related commissions and incentive payments,
certain costs of policy issuance and underwriting, and certain printing costs. Assumptions used in developing


DAC and amortization amounts each period include the amount of business in force, expected future persistency, withdrawals, interest rates and profitability.
These assumptions are modified to reflect actual experience when appropriate. Additional amortization of DAC is charged to current earnings to the extent it is determined that future premiums or gross profits are not adequate to cover the remaining
amounts deferred. DAC totaled $202.3 million and $208.5 million at December 31, 2007 and 2006, respectively. Changes in actual persistency are reflected in the calculated DAC balance. Costs that do not vary with the production of new business
are not deferred as DAC and are charged to expense as incurred. DAC for group and individual disability insurance products and group life
insurance products is amortized over the life of related policies in proportion to future premiums in accordance with Statement of Financial Accounting Standards (SFAS) No. 60, Accounting and Reporting by Insurance
Enterprises. The DAC for our group life and group disability products has generally been amortized over a period of five years. DAC for individual disability insurance products is amortized in proportion to future premiums over the life of the
contract, averaging 20 to 25 years with approximately 50% and 75% expected to be amortized by years 10 and 15, respectively. Beginning with the adoption of Statement of Position (SOP) 05-1 on January 1, 2007, the Company began
amortizing DAC for group disability and life insurance products over the initial premium rate guarantee period, which averages 2.5 years. The Companys individual deferred annuities and group annuity products are classified as investment contracts. DAC related to these products is amortized over the life of related policies in proportion to expected gross profits in
accordance with SFAS No. 97,Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. For the Companys individual deferred annuities, DAC
is generally amortized over 30 years with approximately 50% and 90% expected to be amortized by years 5 and 15, respectively. DAC for group annuity products is amortized over 10 years with approximately 30% expected to be amortized by year five. VOBA primarily represents the discounted future profits of business assumed through reinsurance agreements. We have established VOBA for a
block of individual disability business assumed from the Minnesota Life Insurance Company (Minnesota Life) and a block of group disability and group life business assumed from Teachers Insurance and Annuity Association of America
(TIAA). VOBA is generally amortized in proportion to future premiums for group and individual disability insurance products and group life




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|48 |  | STANCORP FINANCIAL GROUP, INC.



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products. However, a portion of the VOBA related to the TIAA transaction associated with an in force block of group long term disability claims for which no
ongoing premium is received is amortized in proportion to expected gross profits. If actual premiums or future profitability are inconsistent with our assumptions, the Company could be required to make adjustments to VOBA and the related
amortization. For the VOBA associated with the Minnesota Life block of business reinsured, the amortization period is up to 30 years and is amortized in proportion to future premiums. The amortization period of the intangible asset for the marketing
agreement with Minnesota Life is up to 25 years. The VOBA associated with the TIAA transaction is comprised of two parts with differing amortization methods. The amortization periods are up to 10 years for VOBA that is amortized in proportion to
premiums and up to 20 years for VOBA that is amortized in proportion to expected gross profits. VOBA totaled $34.4 million and $53.7 million at December 31, 2007 and 2006, respectively. Upon adoption of SOP 05-1, the premium portion of the VOBA
related to TIAA was recorded as a $10.0 million reduction to retained earnings. At December 31, 2007, DAC and VOBA balances amortized
in proportion to expected gross profits accounted for 29.5% and 27.3%, or $59.7 million and $9.4 million of the total balance for DAC and VOBA, respectively. At December 31, 2006, DAC and VOBA balances amortized in proportion to expected gross
profits accounted for 25.1% and 22.0% of the total balance for DAC and VOBA, or $52.4 million and $11.8 million, respectively. Key
assumptions, which will affect the determination of expected gross profits for the annuity products are persistency, the spread between investment yields and interest credited, and stock market performance for the group annuity products with assets
held in equity funds. For VOBA related to the TIAA group long term disability claims for which no further premiums are due that is amortized in proportion to expected gross profits, the key assumptions that affect the development of expected gross
profits are the claim termination rates and investment yields. Although a change in a single assumption may have an impact on the calculated amortization of DAC or VOBA, it is the relationship of that change to the changes in other key assumptions
that determines the ultimate impact on DAC and VOBA amortization. Because actual results and trends related to these assumptions do vary from those assumed, the Company revises these assumptions annually to reflect its current best estimate of
expected gross profits. As a result of this process, known as unlocking, the cumulative balances of DAC and VOBA are adjusted with an offsetting benefit or charge to income to reflect changes in the period of the


revision. An unlocking event that results in an after-tax benefit generally occurs as a result of actual experience or future expectations being favorable
compared to previous estimates. An unlocking event that results in an after-tax charge generally occurs as a result of actual experience or future expectations being unfavorable compared to previous estimates. As a result of unlocking, the
amortization schedule for future periods is also adjusted. Due to unlocking, DAC and VOBA balances decreased $0.4 million for 2007, and increased $0.3 million for 2006. Based on past experience, future changes in DAC and VOBA balances due to changes
in underlying assumptions are not expected to be material. However, significant, unanticipated changes in key assumptions, which affect the determination of expected gross profits may result in a large unlocking event, which could have a material
adverse effect on the Companys financial position or results of operations. The Companys other intangible assets are subject to
amortization and consist of certain customer lists and a marketing agreement. Customer lists with a value of $28.6 million and a weighted-average amortization period of 10 years were acquired by the Company during the third quarter of 2006,
primarily in connection with the purchase of Invesmart, and related to the Asset Management segment. Additional customer lists were acquired with the purchase of DPA, Inc. and with the acquisition by StanCorp Investment Advisers of small investment
advisory firms. Customer lists have a combined estimated weighted-average remaining life of approximately 9.7 years. The marketing agreement accompanied the Minnesota Life transaction and provides access to Minnesota Life agents, some of which now
market Standards individual disability insurance products. The amortization period for the Minnesota Life marketing agreement is up to 25 years. Other intangible assets totaled $52.1 million and $47.0 million at December 31, 2007 and
2006, respectively. Goodwill of $33.5 million was acquired by the Company during the third quarter of 2006, primarily in connection with
the purchase of Invesmart, and related to the Asset Management segment. Goodwill totaled $36.0 million and $33.5 million at December 31, 2007 and 2006, respectively.




2007 ANNUAL REPORT

49




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Part II



The following table sets forth
activity for DAC, VOBA, other intangible assets and goodwill:  (In millions)

2007


2006


2005Carrying value at beginning of period:DAC

$
208.5


$
165.8


$
132.5VOBA


53.7



59.6



65.2Other intangible assets


47.0



19.9



21.1Goodwill


33.5







Total balance beginning of period


342.7



245.3



218.8Deferred or acquired:DAC


86.2



78.5



61.6Other intangible assets


9.0



28.6



Goodwill


2.5



33.5



Total deferred or acquired


97.7



140.6



61.6Amortized during period:DAC


(47.1
)


(35.8
)


(28.3
)VOBA


(3.9
)


(5.9
)


(5.6
)Other intangible assets


(3.9
)


(1.5
)


(1.2
)Total amortized during period


(54.9
)


(43.2
)


(35.1
)Adjustment to apply SOP 05-1:DAC


(45.3
)






VOBA


(15.4
)






Total adjustment during period


(60.7
)






Carrying value at end of period, net:DAC


202.3



208.5



165.8VOBA


34.4



53.7



59.6Other intangible assets


52.1



47.0



19.9Goodwill


36.0



33.5



Total carrying value at end of period

$
324.8


$
342.7


$
245.3  At December 31,
2007, the accumulated amortization of VOBA and other intangible assets, excluding DAC, was $54.4 million and $7.4 million, respectively. The accumulated amortization of VOBA and other intangibles, excluding DAC, was $50.5 million and $3.5 million at
December 31, 2006. The estimated net amortization of VOBA and other intangible assets, excluding DAC, for each of the next five years
is as follows:  (In millions)

Amount2008

$
9.42009


7.12010


7.32011


7.02012


7.2


Property and equipment, net The following table sets forth the
major classifications of the Companys property and equipment and accumulated depreciation at December 31:  (In millions)

2007

2006Home office properties

$
122.9

$
97.2Office furniture and equipment


69.0


53.3Capitalized software


87.1


57.2Leasehold improvements


10.0


7.2Subtotal


289.0


214.9Less: accumulated depreciation


162.1


130.3Property and equipment, net

$
126.9

$
84.6 Property and equipment are stated at cost less accumulated depreciation. The Company provides for
depreciation of property and equipment using the half-year, straight-line method over the estimated useful lives, which are generally 40 years for properties and from three to ten years for equipment. Leasehold improvements are amortized over the
estimated useful life of the asset, with amortization not to exceed the life of the lease. Depreciation expense for 2007, 2006 and 2005 was $22.2 million, $15.1 million and $12.7 million, respectively. The Company reviews property and equipment for
impairment when circumstances or events indicate the carrying amount of the asset may not be recoverable and recognizes a charge to earnings if an asset is impaired. Non-affiliated tenants leased approximately 38.5%, 40.0% and 40.6% of the home office properties at December 31, 2007, 2006 and 2005, respectively. Income from the leases is included in net investment income.  Separate account Separate account assets and liabilities represent segregated funds held for the exclusive benefit of contract holders. The activities of the account
primarily relate to contract holder-directed 401(k) contracts. Standard charges the separate account with asset management and plan administration fees associated with the contracts. Separate account assets and liabilities are carried at fair value.  Future policy benefits and claims Benefits and expenses are matched with recognized premiums to result in recognition of profits over the life of the contracts. The match is accomplished
by recording a provision for future policy benefits and unpaid claims and claim adjustment expenses. For most of our product lines, we establish and carry as a liability actuarially determined reserves that are calculated to meet our obligations for
future policy benefits and claims. These reserves do not represent an exact calculation of our future benefit liabilities but are




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instead estimates based on assumptions and considerations concerning a number of factors, which include: 

The amount of premiums that we will receive in the future. 

The rate of return on assets we purchase with premiums received. 

Expected number and severity of claims. 

Expenses. 

Persistency, which is the measurement of the percentage of premiums remaining in force from year to year. In particular, our group and individual long term disability reserves are sensitive to assumptions and considerations regarding the following factors: 

Claim incidence rates for incurred but not reported claim reserves. 

Claim termination rates. 

Discount rates used to value expected future claim payments. 

Persistency rates. 

The amount of monthly benefit paid to the insured (less reinsurance recoveries and other offsets). 

Expense rates including inflation. 

Historical delay in reporting of claims incurred. Assumptions may vary by: 

Age, gender and, for individual policies, occupation class of the claimant. 

Year of issue for policy reserves or incurred date for claim reserves. 

Time elapsed since disablement. 

Contract provisions and limitations.  Other policyholder funds Other policyholder funds are
liabilities for investment-type contracts and are based on the policy account balances including accumulated interest. Other policyholder funds include amounts related to advanced premiums, premiums on deposit and experience rated liabilities
totaling $373.8 million and $357.5 million at December 31, 2007 and 2006, respectively.  Recognition of premiums Premiums from group life and group and individual disability contracts are recognized
as revenue when due. Investment-type contract fee revenues consist of charges for policy administration and surrender charges assessed during the period. Charges related to services to be performed are deferred until earned. The amounts received in
excess of premiums and fees are included in other policyholder funds in the consolidated balance sheets. Experience rated refunds (ERRs) are computed in accordance with the terms of the


contracts with certain group policyholders and are accounted for as an adjustment to premiums.  Income Taxes The provision for
income taxes includes amounts currently payable and deferred amounts that result from temporary differences between financial reporting and tax bases of assets and liabilities as measured by current tax rates. Currently, years open for audit by the
Internal Revenue Service (IRS) are 2004 through 2007. See Note 10Income Taxes.  Other comprehensive income and losses Other comprehensive income and loss included changes in unrealized
capital gains and losses on investment securities available-for-sale, net of the related tax effects, and changes in unrealized prior service costs and credits and net gains and losses associated with our employee benefit plans, net of the related
tax effects. The following table sets forth our other comprehensive income and loss for the years ended December 31:  (In millions)

2007


2006


2005Unrealized gains or losses on securities available-for-sale:Unrealized capital gains (losses) on securities available-for-sale, net

$
38.4


$
(65.0
)

$
(104.9
)Less: tax effects


13.4



(23.3
)


(37.4
)Unrealized capital gains (losses) on securities available-for-sale, net of tax


25.0



(41.7
)


(67.5
)Reclassification adjustment for net capital gains included in net income, net


(3.0
)


(2.7
)


(13.8
)Less: tax effects


(1.0
)


(1.0
)


(5.0
)Reclassification adjustment for realized net capital gains, net of tax


(2.0
)


(1.7
)


(8.8
)Total unrealized gains (losses) on securities available-for-sale


23.0



(43.4
)


(76.3
)Employee benefit plans:Prior service cost and net gains arising during the period, net


0.5







Less: tax effects


0.2







Prior service cost and net gains arising during the period, net of tax


0.3







Reclassification adjustment for amortization to net periodic pension cost, net


2.4







Less: tax effects


0.8







Reclassification adjustment for amortization to net periodic pension cost, net


1.6







Total unrealized changes in employee benefit plans


1.9







Total other comprehensive income (loss), net of tax

$
24.9


$
(43.4
)

$
(76.3
)




2007 ANNUAL REPORT

51




---

Part II



Accumulated Other Comprehensive Loss The following
table sets forth the adjustment to initially apply SFAS No. 158 in 2006:  (In millions)

AmountDefined benefit retirement plans:Net loss

$
(43.5
)Prior service credit


5.7Transition asset


0.1Adjustment to initially apply SFAS No 158


(37.7
)Less: tax effects


(13.2
)Adjustment to initially apply SFAS No. 158, net of tax

$
(24.5
)  The following table
sets forth the incremental effect of applying SFAS No. 158 on individual line items in the Consolidated Balance Sheets and Consolidated Statement of Changes in Equity at December 31, 2006:  (In millions)

BeforeApplicationof SFASNo. 158

Adjustments


AfterApplicationof SFASNo. 158Other liabilities

$
152.1

$
37.7


$
189.8Deferred tax liabilities


36.1


(13.2
)


22.9Total liabilities


12,149.6


24.5



12,174.1Accumulated other comprehensive income (loss)


16.4


(24.5
)


(8.1
)Total shareholders equity


1,489.0


(24.5
)


1,464.5  Accounting Pronouncements In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which is intended to increase consistency and comparability in fair
value measurements by defining fair value, establishing a framework for measuring fair value and expanding disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value
measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. StanCorp will adopt the provisions of SFAS No. 157
beginning January 1, 2008, and is currently evaluating the impact of this statement on our financial statements. In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115,effective for all entities at the beginning of the first fiscal year that begins after
November 15, 2007. Early adoption was permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elected to apply the provisions of SFAS No. 157, Fair Value Measurements.
If adopted by an entity, SFAS No. 159 creates a fair value option whereby a company may irrevocably elect to measure many financial instruments and certain other items at fair value on


an instrument-by-instrument basis with changes in fair value recognized in earnings as those changes occur. An entity can elect the fair value option only at
the date of initial adoption of SFAS No. 159. The Company did not elect early adoption of SFAS No. 159. Therefore, the provisions of SFAS No. 159 will become effective for the Company on January 1, 2008. StanCorp is not electing
to measure retroactively additional eligible items at fair value that are not currently presented at fair value. In December 2007, the FASB
issued SFAS No. 141 (Revised 2007), Business Combinations. The revised standard will improve, simplify and converge internationally the accounting for business combinations. Under SFAS No. 141R, an acquiring entity in a business
combination must recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity at the acquisition date fair values, with limited exceptions. In addition, SFAS No. 141R requires the acquirer to
disclose all information that investors and other users need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, the Company will record and disclose business combinations under the revised standard beginning
January 1, 2009. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements
 An Amendment of ARB No. 51. The new statement establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, SFAS No. 160 requires
the recognition of a noncontrolling interest (formerly referred to as minority interest) as equity in the consolidated financial statements and separate from the parents equity. The amount of net income attributable to the
noncontrolling interest will be identified and included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parents ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. This statement also
includes expanded disclosure requirements regarding interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008, and earlier adoption is prohibited. The
Company has performed an analysis of the impact that the adoption of SFAS No. 160 will




|   |  |                               
|-- |  | ------------------------------
|52 |  | STANCORP FINANCIAL GROUP, INC.



---



have on our financial statements, and we do not expect it to have a material effect. In November 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 109, Written Loan Commitments Recorded at Fair Value Through
Earnings. SAB No. 109 provides guidance on the accounting for written loan commitments recorded at fair value under GAAP. Specifically, SAB No. 109 revises the Staffs views on incorporating expected net future cash flows
related to loan servicing activities in the fair value measurement of a written loan commitment. SAB No. 109, which supersedes SAB No. 105, Application of Accounting Principles to Loan Commitments, requires the expected net future
cash flows related to the associated servicing of the loan to be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SAB No. 109 is effective in fiscal quarters beginning after
December 15, 2007. StanCorp is currently evaluating the potential financial impact, if any, that the adoption of SAB No. 109 will have on its financial statements.  2. NET INCOME PER COMMON SHARE Basic net income per common share was calculated by dividing net income by the weighted-average number of common shares outstanding. Net income per diluted common share, as calculated using the treasury stock method, reflects the potential
dilutive effects of restricted stock grants and exercises of dilutive outstanding stock options. The computation of diluted weighted-average earnings per share does not include stock options with an option exercise price greater than the average
market price because they are antidilutive and inclusion would increase earnings per share.


Net income per basic and diluted weighted-average common shares outstanding was calculated as follows for the years ended December 31:  2007

2006

2005Net income (In millions)

$
227.5

$
203.8

$
211.1Basic weighted-average common shares outstanding


51,824,050


54,079,033


55,465,215Stock options


496,929


554,354


551,301Restricted stock


23,971


54,727


60,150Diluted weighted-average common shares outstanding


52,344,950


54,688,114


56,076,666Net income percommon share:Net income per basic common share

$
4.39

$
3.77

$
3.81Net income per diluted common share


4.35


3.73


3.76Antidilutive shares not included in net income per diluted common share calculation


348,425


408,450


137,550  3. SEGMENTS StanCorps operations include two reportable segments: Insurance Services and Asset Management, as well as an Other category for activity
outside of the two segments. Resources are allocated and performance is evaluated at the segment level. The Insurance Services segment offers group and individual disability insurance, group life and AD&D insurance, and group dental insurance.
The Asset Management segment offers full-service 401(K) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans and non-qualified deferred compensation products and services through an affiliated
broker-dealer. This segment also offers investment management and financial planning services, commercial mortgage loan origination and servicing, and individual fixed annuities. It also includes the operations of the former Invesmart, a provider of
retirement plan services, and investment advisory and management services, acquired in July 2006. Effective January 1, 2007, the administration and servicing operations for the retirement plans group annuity contracts offered through Standard
and for the trust product offered through Invesmart, began operating under the name Standard Retirement Services. In the third quarter of 2007, the Asset Management segment added $1.7 billion of assets under administration acquired from DPA, Inc., a
retirement business based in Portland, Oregon. Net capital gains and losses on investments, return on capital not allocated to the product
segments, holding




2007 ANNUAL REPORT

53




---

Part II



company expenses, interest on debt and adjustments made in consolidation are reflected in Other. The following table sets forth premiums, administrative fees and net investment income by major product line or category within each of our segments for
the years ended December 31:  (In millions)

2007


2006


2005Premiums:Insurance Services:Group life and AD&D

$
807.2


$
735.0


$
681.0Group long term disability


869.8



809.9



780.7Group short term disability


219.5



211.1



191.7Group dental


70.8



72.9



73.8Experience rated refunds


(37.2
)


(22.6
)


(20.2
)Total Group insurance


1,930.1



1,806.3



1,707.0Individual disability


133.5



121.1



109.4Total Insurance Services premiums


2,063.6



1,927.4



1,816.4Asset Management:Retirement plans


0.8



1.3



1.3Individual annuities


13.9



6.3



8.8Total Asset Management premiums


14.7



7.6



10.1Total premiums

$
2,078.3


$
1,935.0


$
1,826.5Administrative fees:Insurance Services:Group insurance

$
8.1


$
8.4


$
8.5Individual insurance


0.3



0.3



0.3Total Insurance Services administrative fees


8.4



8.7



8.8Asset Management:Retirement plans


100.1



63.7



31.6Other financial services businesses


18.6



14.6



9.0Total Asset Management administrative fees


118.7



78.3



40.6Other


(11.9
)


(9.9
)


(6.1
)Total administrative fees

$
115.2


$
77.1


$
43.3Net investment income:Insurance Services:Group insurance

$
276.9


$
265.8


$
255.1Individual insurance


48.9



47.6



48.2Total Insurance Services net investment income


325.8



313.4



303.3Asset Management:Retirement plans


83.4



74.0



64.6Individual annuities


70.0



68.5



66.3Other financial services businesses


16.8



8.8



9.4Total Asset Management net investment income


170.2



151.3



140.3Other


20.3



14.2



21.6Total net investment income

$
516.3


$
478.9


$
465.2


The following tables set forth select segment information at or for the years ended December 31:  (In millions)

InsuranceServices


AssetManagement


Other


Total2007:Revenues:Premiums

$
2,063.6


$
14.7


$



$
2,078.3Administrative fees


8.4



118.7



(11.9
)


115.2Net investment income


325.8



170.2



20.3



516.3Net capital losses










(0.6
)


(0.6
)Total revenues


2,397.8



303.6



7.8



2,709.2Benefits and expenses:Benefits to policyholders


1,569.4



22.4







1,591.8Interest credited


16.1



92.7







108.8Operating expenses


313.2



120.2



1.4



434.8Commissions and bonuses


167.5



30.5







198.0Premium taxes


36.4











36.4Interest expense






0.5



30.2



30.7Net increase in deferred acquisition costs, value of business acquired and intangibles


(27.4
)


(5.6
)






(33.0
)Total benefits and expenses


2,075.2



260.7



31.6



2,367.5Income (loss) before income taxes

$
322.6


$
42.9


$
(23.8
)

$
341.7Total assets

$
7,232.2


$
7,545.8


$
204.9


$
14,982.92006:Revenues:Premiums

$
1,927.4


$
7.6


$



$
1,935.0Administrative fees


8.7



78.3



(9.9
)


77.1Net investment income


313.4



151.3



14.2



478.9Net capital gains










1.9



1.9Total revenues


2,249.5



237.2



6.2



2,492.9Benefits and expenses:Benefits to policyholders


1,497.1



16.0







1,513.1Interest credited


13.3



84.4







97.7Operating expenses


291.8



78.6



(0.1
)


370.3Commissions and bonuses


155.5



28.1







183.6Premium taxes


34.6











34.6Interest expense






0.5



17.4



17.9Net increase in deferred acquisition costs, value of business acquired and intangibles


(25.2
)


(8.8
)






(34.0
)Total benefits and expenses


1,967.1



198.8



17.3



2,183.2Income (loss) before income taxes

$
282.4


$
38.4


$
(11.1
)

$
309.7Total assets

$
6,882.2


$
6,660.8


$
95.6


$
13,638.6




|   |  |                               
|-- |  | ------------------------------
|54 |  | STANCORP FINANCIAL GROUP, INC.



---



(In millions)

InsuranceServices


AssetManagement


Other


Total2005:Revenues:Premiums

$
1,816.4


$
10.1


$



$
1,826.5Administrative fees


8.8



40.6



(6.1
)


43.3Net investment income


303.3



140.3



21.6



465.2Net capital gains










2.2



2.2Total revenues


2,128.5



191.0



17.7



2,337.2Benefits and expenses:Benefits to policyholders


1,372.9



19.4







1,392.3Interest credited


8.1



75.9







84.0Operating expenses


284.2



50.9



5.5



340.6Commissions and bonuses


148.0



20.5







168.5Premium taxes


32.0











32.0Interest expense






0.4



17.6



18.0Net increase in deferred acquisition costs, value of business acquired and intangibles


(16.8
)


(7.0
)






(23.8
)Total benefits and expenses


1,828.4



160.1



23.1



2,011.6Income (loss) before income taxes

$
300.1


$
30.9


$
(5.4
)

$
325.6Total assets

$
6,565.8


$
5,435.0


$
449.9


$
12,450.7  The accounting policies of the segments are the same as those described in the summary of significant accounting policies.  4. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table sets forth carrying amounts and estimated fair values for financial instruments at December 31:  2007

2006(In millions)

FairValue

CarryingAmount

FairValue

CarryingAmountInvestments:Investment securities

$
4,997.1

$
4,997.1

$
4,786.0

$
4,786.0Commercial mortgage loans, net


3,640.0


3,657.7


3,303.1


3,316.0Policy loans


3.9


3.9


4.0


4.0Liabilities:Total other policyholder funds, investment type contracts

$
2,584.6

$
2,620.9

$
2,517.6

$
2,550.7Long-term debt


563.4


562.6


276.0


261.1  Investments The fair values of investment securities were based on quoted market prices, where available, or on values obtained from independent pricing services. The
fair values of commercial mortgage loans were estimated using option-


adjusted valuation discount rates. The carrying values of policy loans approximate fair values. While potentially financial instruments, policy loans are an
integral component of the insurance contract and have no maturity date.  Liabilities The fair values of other policyholder funds that are investment-type contracts were estimated using discounted cash
flows at the then-prevailing interest rates offered for similar contracts or as the amounts payable on demand less surrender charges at the balance sheet date. The fair value for long-term debt was predominantly based on quoted market prices. These
liabilities were carried at book value, as opposed to market value, on the consolidated balance sheets.  5. INVESTMENT SECURITIES The following table sets forth amortized cost and estimated fair values of investment
securities available-for-sale at December 31:  2007Amortized Cost

Unrealized

EstimatedFair Value(In millions)


Gains

LossesAvailable-for-sale:U.S. government and agency bonds

$
417.4

$
24.9

$
0.1

$
442.2Bonds of states and political subdivisionsof the U.S


151.2


5.0


0.7


155.5Foreign government bonds


22.2


0.5





22.7Corporate bonds


4,342.9


85.4


51.6


4,376.7Total investment securities

$
4,933.7

$
115.8

$
52.4

$
4,997.12006Amortized Cost

Unrealized

EstimatedFair Value(In millions)


Gains

LossesAvailable-for-sale:U.S. government and agency bonds

$
443.6

$
13.2

$
3.0

$
453.8Bonds of states and political subdivisionsof the U.S


84.5


2.0


1.4


85.1Foreign government bonds


19.8





0.1


19.7Corporate bonds


4,211.8


71.9


56.3


4,227.4Total investment securities

$
4,759.7

$
87.1

$
60.8

$
4,786.0




2007 ANNUAL REPORT

55




---

Part II



The following table sets forth
the contractual maturities of investment securities available-for-sale at December 31:  2007

2006(In millions)

AmortizedCost

EstimatedFair Value

AmortizedCost

EstimatedFair ValueAvailable-for-sale:Due in 1 year or less

$
412.3

$
412.8

$
346.7

$
346.7Due in 1-5 years


2,129.3


2,157.5


1,856.7


1,858.3Due in 5-10 years


1,419.6


1,423.2


1,531.5


1,517.9Due after 10 years


972.5


1,003.6


1,024.8


1,063.1Total investment securities

$
4,933.7

$
4,997.1

$
4,759.7

$
4,786.0 Actual maturities may differ from contractual maturities because borrowers may have the right to
call or prepay obligations. Callable bonds represented 2.4%, or $122.0 million, of our investment securities at December 31, 2007. The
following table sets forth net investment income summarized by type of investment for the years ended December 31:  (In millions)

2007


2006


2005Investment securities available-for-sale

$
274.7


$
263.0


$
248.0Commercial mortgage loans


240.9



217.0



223.9Real estate


7.5



5.3



5.0Policy loans


0.2



0.3



0.2Other


8.6



8.1



4.1Gross investment income


531.9



493.7



481.2Investment expenses


(15.6
)


(14.8
)


(16.0
)Net investment income

$
516.3


$
478.9


$
465.2


The following table sets forth capital gains (losses) for the years ended December 31:  (In millions)

2007


2006


2005Gains:Investment securities available-for-sale

$
5.0


$
4.6


$
7.1Commercial mortgage loans


2.5



1.4



4.7Real estate


0.1



4.0



Gross capital gains


7.6



10.0



11.8Losses:Investment securities available-for-sale


(4.6
)


(2.9
)


(8.9
)Capitalized software






(0.5
)


Commercial mortgage loans


(1.9
)






Real estate


(1.7
)


(4.7
)


(0.7
)Gross capital losses


(8.2
)


(8.1
)


(9.6
)Net capital gains (losses)

$
(0.6
)

$
1.9


$
2.2  Securities deposited
for the benefit of policyholders in various states, in accordance with state regulations, amounted to $6.4 million and $6.2 million at December 31, 2007 and 2006, respectively.




The following table sets forth our investments gross unrealized losses and fair value, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at December 31, 2007. The unrealized losses on the investment securities set forth below were primarily due to increases in market interest rates subsequent to their
purchase by the Company. The Company expects the fair value of these investment securities to recover as the investment securities approach their maturity dates or sooner if market yields for such investment securities decline. The Company does not
believe that any of the investment securities are impaired due to reasons of credit quality or are related to any company or industry specific event. Based on managements evaluation and intent, none of the unrealized losses summarized in this
table are considered other-than-temporary.



|                                                        |  |                      |  |                     |         |                   |       |        |   |        |  |        |  |   |      
|------------------------------------------------------- |  | -------------------- |  | ------------------- | ------- | ----------------- | ----- | ------ | - | ------ |  | ------ |  | - | -----
|                                                        |  |                      |  |                     |         | Aging            
|                                                        |  | At December 31, 2007 |  | Less than 12 Months |         | 12 or More Months
|(Dollars in millions)                                   |  | Number               |  | Amount              |         | Number            |       | Amount |   | Number |  | Amount
|Unrealized losses:                                      |  |                      |  |                     |         |                   |       |        |   |        |  |        |  |   |      
|Bonds:                                                  |  |                      |  |                     |         |                   |       |        |   |        |  |        |  |   |      
|U.S. government and agency                              |  | 9                    |  | $                   | 0.1     |                   | 1     |        | $ |       |  | 8      |  | $ | 0.1  
|State and political subdivisions of the U.S.            |  | 35                   |  |                     | 0.7     |                   | 13    |        |   | 0.1    |  | 22     |  |   | 0.6  
|Corporate                                               |  | 1,799                |  |                     | 51.6    |                   | 1,121 |        |   | 24.3   |  | 678    |  |   | 27.3 
|                                                        |  | 1,843                |  | $                   | 52.4    |                   | 1,135 |        | $ | 24.4   |  | 708    |  | $ | 28.0 
|Fair market value of securities with unrealized losses: |  |                      |  |                     |         |                   |       |        |   |        |  |        |  |   |      
|Bonds:                                                  |  |                      |  |                     |         |                   |       |        |   |        |  |        |  |   |      
|U.S. government and agency                              |  | 9                    |  | $                   | 13.6    |                   | 1     |        | $ | 0.2    |  | 8      |  | $ | 13.4 
|State and political subdivisions of the U.S.            |  | 35                   |  |                     | 42.4    |                   | 13    |        |   | 18.5   |  | 22     |  |   | 23.9 
|Corporate                                               |  | 1,799                |  |                     | 1,624.1 |                   | 1,121 |        |   | 676.2  |  | 678    |  |   | 947.9
|                                                        |  | 1,843                |  | $                   | 1,680.1 |                   | 1,135 |        | $ | 694.9  |  | 708    |  | $ | 985.2



|   |  |                               
|-- |  | ------------------------------
|56 |  | STANCORP FINANCIAL GROUP, INC.



---



The following table sets forth our investments gross unrealized losses and fair value, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at December 31, 2006:



|                                                        |  |                      |  |                    |         |                   |       |        |   |         |  |        |  |   |      
|------------------------------------------------------- |  | -------------------- |  | ------------------ | ------- | ----------------- | ----- | ------ | - | ------- |  | ------ |  | - | -----
|                                                        |  |                      |  |                    |         | Aging            
|                                                        |  | At December 31, 2006 |  | Less than 12Months |         | 12 or More Months
|(Dollars in millions)                                   |  | Number               |  | Amount             |         | Number            |       | Amount |   | Number  |  | Amount
|Unrealized losses:                                      |  |                      |  |                    |         |                   |       |        |   |         |  |        |  |   |      
|Bonds:                                                  |  |                      |  |                    |         |                   |       |        |   |         |  |        |  |   |      
|U.S. government and agency                              |  | 90                   |  | $                  | 3.0     |                   | 81    |        | $ | 2.8     |  | 9      |  | $ | 0.2  
|State and political subdivisions of the U.S.            |  | 34                   |  |                    | 1.4     |                   | 31    |        |   | 1.3     |  | 3      |  |   | 0.1  
|Foreign government                                      |  | 3                    |  |                    | 0.1     |                   | 3     |        |   | 0.1     |  |       |  |   |     
|Corporate                                               |  | 1,794                |  |                    | 56.3    |                   | 1,651 |        |   | 52.0    |  | 143    |  |   | 4.3  
|                                                        |  | 1,921                |  | $                  | 60.8    |                   | 1,766 |        | $ | 56.2    |  | 155    |  | $ | 4.6  
|Fair market value of securities with unrealized losses: |  |                      |  |                    |         |                   |       |        |   |         |  |        |  |   |      
|Bonds:                                                  |  |                      |  |                    |         |                   |       |        |   |         |  |        |  |   |      
|U.S. government and agency                              |  | 90                   |  | $                  | 161.0   |                   | 81    |        | $ | 149.3   |  | 9      |  | $ | 11.7 
|State and political subdivisions of the U.S.            |  | 34                   |  |                    | 41.0    |                   | 31    |        |   | 38.0    |  | 3      |  |   | 3.0  
|Foreign government                                      |  | 3                    |  |                    | 11.6    |                   | 3     |        |   | 11.6    |  |       |  |   |     
|Corporate                                               |  | 1,794                |  |                    | 2,374.7 |                   | 1,651 |        |   | 2,194.8 |  | 143    |  |   | 179.9
|                                                        |  | 1,921                |  | $                  | 2,588.3 |                   | 1,766 |        | $ | 2,393.7 |  | 155    |  | $ | 194.6



6. COMMERCIAL MORTGAGE LOANS, NET The Company underwrites mortgage loans on commercial property and in addition to real estate collateral, requires either partial or full recourse on most
loans. The following table sets forth the geographic concentration of commercial mortgage loans at December 31:  2007


2006(In millions)

Amount

Percent


Amount

PercentCalifornia

$
1,096.2

30.0
%

$
1,036.2

31.2
%Texas


365.7

10.0



332.4

10.1Florida


190.5

5.2



174.4

5.3Georgia


183.3

5.0



143.3

4.3Other


1,822.0

49.8



1,629.7

49.1Total commercial mortgage loans

$
3,657.7

100.0
%

$
3,316.0

100.0
%  Although the Company
underwrites commercial mortgage loans throughout the United States, commercial mortgage loans in California represent a concentration of credit risk at 30% and 31% of our commercial mortgage loan portfolio at December 31, 2007 and 2006,
respectively. Through this concentration, we are exposed to potential losses resulting from an economic downturn in California as well as to certain catastrophes, such as earthquakes and fires, which


may affect the state. We require borrowers to maintain fire insurance coverage to provide reimbursement for any losses due to fire. Although we diversify our
commercial mortgage loan portfolio within California by both location and type of property in an effort to reduce certain catastrophe and economic exposure, such diversification may not eliminate the risk of such losses. Historically, the
delinquency rate of our California-based commercial mortgage loans has been substantially below the industry average and consistent with our experience in other states. In addition, we do not require earthquake insurance for properties on which we
make commercial mortgage loans but do consider the potential for earthquake loss based upon seismic surveys and structural information specific to each property when new loans are underwritten. We do not expect the exposure to catastrophe or
earthquake damage to the properties in our commercial mortgage loan portfolio located in California to have a material adverse effect on our business, financial position, results of operations or cash flows. However, if economic conditions in
California decline, we could experience a higher delinquency rate on the portion of our commercial mortgage loan portfolio located in California, which could have a material adverse effect on the Companys business, financial position, results
of operations or cash flows.




2007 ANNUAL REPORT

57




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Part II



The following table sets forth the amount of commercial mortgage loans on the consolidated balance sheet at December 31, 2007, segregated by origination
year.  (In millions)

Amount

PercentPrior to 2000

$
125.6

3
%2000


47.1

12001


125.3

32002


291.4

82003


523.3

142004


751.2

212005


539.0

152006


543.9

152007


710.9

20Total

$
3,657.7

100
%  The commercial
mortgage loan valuation allowance is estimated based on evaluating known and inherent risks in the loan portfolio. The allowance is based on our analysis of factors including changes in the size and composition of the loan portfolio, actual loan
loss experience and individual loan analysis. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest. Loan impairment is measured using discounted cash flows
except when the current fair value, reduced by costs to sell, is determinable. Loans that are deemed uncollectible are generally written off against the allowance, and recoveries, if any, are credited to the allowance. Commercial mortgage loans foreclosed and transferred to real estate were $0.5 million and $1.8 million for 2007 and 2006, respectively. At
December 31, 2007 and 2006, we had commercial mortgage loans totaling $1.9 million and $2.9 million, respectively, that were more than sixty days delinquent and of these amounts, $0.7 million and $1.2 million, respectively, were in the process
of foreclosure. The following table sets forth commercial mortgage loan valuation and allowance provisions at December 31:  (In millions)

2007


2006


2005Balance at beginning of the year

$
2.4


$
2.5


$
2.3Provisions (recapture)


1.8



0.4



1.0Charge offs


(1.2
)


(0.5
)


(0.8
)Balance at end of the year

$
3.0


$
2.4


$
2.5  7. DERIVATIVE FINANCIAL INSTRUMENTS In the first quarter of 2006, the Company began marketing indexed annuities. These contracts permit the holder to elect an interest rate
return or an indexed return, where interest credited to the contracts is based on the performance of the S&P 500 index, subject to an upper limit or cap. Policyholders may elect to rebalance between interest crediting options at renewal dates
annually. At each renewal date, the


Company has the opportunity to re-price the indexed component by changing the cap, subject to minimum guarantees. SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, requires that the Company estimate the fair value of the index-based interest rate guarantees for the current period and for all future reset periods until contract maturity. Changes in the fair
value are recorded as interest credited and represent an estimate of the cost of the options to be purchased in the future to hedge the guarantees, discounted back to the date of the balance sheet using current market indicators for future interest
rates, option costs and actuarial estimates for policyholder lapse behavior. The interest credited to policyholders relating to the change in the fair value of the index-based interest guarantees was $1.6 million for 2007, compared to $1.2 million
for 2006. The Company purchases S&P 500 Index options in conjunction with its sales of indexed annuities. SFAS No. 133 requires
companies to recognize all derivative investments as assets in the balance sheet at fair value. These investments are highly correlated to the portfolio allocation decisions of its policyholders, such that the Company is economically hedged with
respect to index-based interest rate guarantees for the current reset period. However, the Company does not use hedge accounting. The fair value of the Companys derivative instruments of $6.0 million and $3.0 million at December 31, 2007
and 2006, respectively, was included in fixed maturity securities in the consolidated balance sheets. The change in fair value associated with these investments was a decrease of $1.0 million for 2007, compared to an increase of $0.9 million for
2006, and is accounted for in the net investment income section of the income statement.




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8. LIABILITY FOR UNPAID CLAIMS, CLAIMS ADJUSTMENT EXPENSES AND OTHER POLICYHOLDER FUNDS The liability for unpaid claims, claims adjustment expenses and other policyholder funds includes liabilities for insurance offered on products such as group long term and short term disability, individual disability,
group dental and group AD&D. The liability for unpaid claims and claim adjustment expenses is established when a claim is incurred or is estimated to have been incurred but not yet reported to us and, as prescribed by GAAP, equals our best
estimate of the present value of the liability of future unpaid claims and claim adjustment expenses. This liability is included in future policy benefits and claims in the consolidated balance sheets. The following table sets forth the change in
the liabilities for unpaid claims and claim adjustment expenses for the years ended December 31:  (In millions)

2007


2006


2005Balance at beginning of the year,gross of reinsurance

$
3,350.5


$
3,185.1


$
3,040.8Less: reinsurance recoverableand other


(98.0
)


(91.2
)


(87.9
)Net balance at beginningof the year


3,252.5



3,093.9



2,952.9Incurred related to:Current year


1,032.4



995.9



944.1Prior years interest


191.1



183.0



180.3Prior years


(115.4
)


(115.9
)


(134.0
)Total incurred


1,108.1



1,063.0



990.4Paid related to:Current year


(301.2
)


(288.9
)


(269.3
)Prior years


(648.1
)


(615.5
)


(580.1
)Total paid


(949.3
)


(904.4
)


(849.4
)Net balance at end of the yearand other


3,411.3



3,252.5



3,093.9Plus: reinsurance recoverable


103.1



98.0



91.2Balance at end of the year,gross of reinsurance

$
3,514.4


$
3,350.5


$
3,185.1  Classified as future
policyholder benefits and claims, but excluded from the table above are amounts recorded for group and individual life reserves, group and individual annuity reserves, group disability premium deficiency reserves, and individual disability active
life reserves. Below is a table that reconciles amounts above to future policyholder benefits and claims as presented on the consolidated balance sheet:  (In millions)

2007


2006


2005Future policyholder benefits

$
5,158.7


$
4,927.6


$
4,689.3Less: Individual life reserves


(600.8
)


(595.7
)


(588.1
)Less: Group life reserves


(735.6
)


( 688.9
)


(628.8
)Less: Group and Individual annuity reserves


(141.8
)


(136.9
)


(138.3
)Less: Individual disability active life reserves


(166.1
)


(155.6
)


(146.4
)Less: Group disability premium deficiency reserves










(2.6
)Liability for unpaid claims and claims adjustment expense

$
3,514.4


$
3,350.5


$
3,185.1


The majority of the net liability balances are related to long term disability claims on which interest earned on assets backing the reserves is a key
component of reserving and pricing. The year to year development of incurred claims related to prior years is therefore broken out into an interest portion and remaining incurred portion. The changes in amounts incurred related to prior years for the years 2007, 2006, and 2005 are not the result of a significant change in an underlying
assumption or method used to determine the estimate. Instead we expect these amounts to change over time as a result of the growth in the size of our in force insurance business and the actual claims experience with respect to that business during
the time periods captured for claims with an incurral date in years prior to the year of valuation. Interest is also a key component in the year-to-year development of the reserves and therefore the positive changes in amounts incurred related to
prior years for the years 2007, 2006 and 2005 should not be taken as an indicator of the adequacy or inadequacy of the reserves held. In each of the years captured there was a decrease in incurred amounts associated with prior years after the effect
of interest is taken into account, indicating claim experience was favorable when compared to the assumptions used to establish the associated reserves. Other policyholder funds at December 31, 2007, 2006 and 2005, included $1.40 billion, $1.29 billion and $ 1.14 billion, respectively, of employer-sponsored defined contribution and benefit plans funds, and $892.3
million, $988.3 million and $986.7 million, respectively, of individual fixed annuity funds.  9. LONG-TERM DEBT The following table sets forth the Companys long-term debt at December 31:  (In millions)

2007

2006Long-term debt:Senior notes

$
250.0

$
250.0Subordinated debt


300.0


Other long-term borrowings


12.6


11.1Total long-term debt

$
562.6

$
261.1  StanCorp filed a $1.0
billion shelf registration statement with the SEC, which became effective on July 23, 2002, and expires on December 1, 2008, registering common stock, preferred stock, debt securities and warrants. On September 25, 2002, we completed
an initial public debt offering of $250 million of 6.875%, 10-year senior notes (Senior Notes), pursuant to the shelf registration statement. The principal amount of the Senior Notes is payable at maturity, and interest is payable
semi-annually in April and October. Upon expiration of the $1.0 billion shelf registration statement in December 2008, the Company, as a




2007 ANNUAL REPORT

59




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Part II



well-known seasoned issuer, has the ability to file an automatic shelf registration statement for subsequent security issuances. On May 29, 2007, the Company completed a public debt offering of $300 million of 6.90%, junior subordinated debentures (Subordinated
Debt). The Subordinated Debt has a final maturity on June 1, 2067, is non-callable at par for the first 10 years and is subject to a replacement capital covenant. The covenant limits replacement of the Subordinated Debt for the first 40
years to be redeemable only with securities that carry equity-like characteristics that are the same as or more equity-like than the Subordinated Debt. The principal amount of the Subordinated Debt is payable at final maturity. Interest is payable
semi-annually at 6.90% in June and December for the first 10 years and quarterly thereafter at a floating rate equal to three-month LIBOR plus 2.51%. StanCorp has the option to defer interest payments for up to five years. StanCorp management chose
to make the first scheduled payment of $10.5 million in December 2007. StanCorp used approximately $30 million of the proceeds from the sale of the Subordinated Debt to fund the acquisition by StanCorp Real Estate (a wholly owned subsidiary) of
certain real estate assets from Standard. Since the Subordinated Debt was issued in May 2007, the Company has repurchased approximately 4.6 million shares of common stock at a repurchase price of $222.7 million. The Company intends to use the
remaining debt proceeds to repurchase additional shares of its common stock and for general corporate purposes.  10. INCOME TAXES The provision for income taxes was as follows
for the years ended December 31:  (In millions)

2007

2006

2005Current

$
113.5

$
103.6

$
113.6Deferred


0.7


2.3


0.9Total income taxes

$
114.2

$
105.9

$
114.5  The difference between
taxes calculated as if the federal corporate tax rate of 35% was applied to income before income taxes and the recorded tax expense is reconciled as follows:  (In millions)

2007


2006


2005Tax at federal corporate rate of 35%

$
119.6


$
108.4


$
113.9Increase (decrease) in rate resulting from:Tax exempt interest


(0.4
)


(0.4
)


(0.4
)Dividends received deduction


(3.7
)


(2.6
)


(1.6
)State income taxes, net of federal benefit


2.0



3.0



3.3Federal tax credits


(2.7
)


(3.0
)


(2.6
)Valuation allowance






(0.9
)


0.9Other


(0.6
)


1.4



1.0Total income taxes

$
114.2


$
105.9


$
114.5


The tax effect of temporary differences that gave rise to significant portions of the net deferred tax liability was as follows at December 31:  (In millions)

2007

2006

2005Policyholder liabilities

$
14.5

$
17.1

$
17.7Deferred gain on disposal of block of business


1.1


1.3


1.4Retirement plans for employees


8.6


3.5


7.4Loss carryforwards


25.4


26.4


3.9Application of SFAS No. 158


13.2


13.2


Investments


9.2





Other


2.8


3.1


0.9Total deferred tax assets


74.8


64.6


31.3Less valuation allowance








0.9Net deferred tax assets


74.8


64.6


30.4Investments





0.5


9.3Net unrealized capital gains


22.2


9.8


34.0Capitalized software


11.9


6.9


8.9Deferred policy acquisition costs


45.6


57.4


48.9Intangible


8.1


9.4


Other


2.6


3.5


2.9Total deferred tax liabilities


90.4


87.5


104.0Net deferred tax liability

$
15.6

$
22.9

$
73.6  The Company is
carrying forward net operating losses of $8.2 million that originated in StanCorp and The Standard Life Insurance Company of New York. The losses will be used in future years to offset taxable income from those entities to the degree allowed by the
IRS Code. If unutilized, $4.6 million would expire in 2023, $2.3 million would expire in 2024 and $1.3 million would expire in 2025. In addition, the Company is carrying forward a $58.5 million federal net operating loss from the acquisition of
Invesmart. This carryforward is subject to limitations under IRS Section 382, which potentially reduce the annual amount that may be utilized. This carryforward will expire between 2018 and 2024 with the majority of it expiring in 2022. In
addition, as a result of the Invesmart acquisition, the Company has approximately $2.0 million (tax effected) of various state net operating loss carryforwards that expire at various dates through 2025. Upon adoption of FASB Interpretation No. 48 on January 1, 2007, and throughout 2007, the Company did not have any material unrecognized tax
benefits. It is the Companys accounting policy to record income tax interest and penalties in the income tax provision. See Note 1Summary of Significant Accounting PoliciesIncome Taxes.  11. PENSION BENEFITS The Company has two non-contributory defined benefit pension plans: the employee pension plan and the agent pension plan. The employee pension plan is for
all eligible employees of StanCorp and its subsidiaries and was frozen effective January 2003 for new participants. The agent




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|60 |  | STANCORP FINANCIAL GROUP, INC.



---



pension plan, which is frozen for new participants, is for former field employees and agents. Both plans are sponsored and administered by Standard. The
defined benefit pension plans provide benefits based on years of service and final average pay. Effective December 31, 2006, Standard
adopted SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires the Company to recognize the funded
or underfunded status of our pension benefit plans as an asset or liability on the balance sheet. This is measured as the difference between the plan assets at fair value and the projected benefit obligation as of the year-end balance sheet date. At
December 31, 2007, an asset of $1.4 million was reflected on the balance sheet. The following table provides a reconciliation of the
changes in the pension plans projected benefit obligations, fair value of assets and the funded status at December 31:  (In millions)

2007


2006


2005Change in benefit obligation:Projected benefit obligation at beginning of the year

$
(225.8
)

$
(204.1
)

$
(184.7
)Service cost


(9.3
)


(8.0
)


(7.6
)Interest cost


(13.2
)


(12.4
)


(11.2
)Actuarial gain (loss)


4.9



(5.6
)


(4.7
)Benefits paid


4.8



4.3



4.1Projected benefit obligation atend of the year


(238.6
)


(225.8
)


(204.1
)Change in plan assets:Fair value of plan assets at beginningof the year


227.5



191.4



157.2Actual return on plan assets


14.3



15.5



12.5Employer contributions


3.0



25.0



26.0Benefits paid and estimated expenses


(4.8
)


(4.4
)


(4.3
)Fair value of plan assets at endof the year


240.0



227.5



191.4Funded status at end of the year

$
1.4


$
1.7


$
(12.7
)  The following table
summarizes the projected and accumulated benefit obligations and the fair value of assets for our plans at December 31:  (In millions)

2007

2006

2005Projected benefit obligation

$
238.6

$
225.8

$
204.1Accumulated benefit obligation


201.0


191.8


173.9Fair value of assets


240.0


227.5


191.4


SFAS No. 158 also requires the Company to recognize as a component of accumulated other comprehensive income or loss, net of tax, the actuarial gains
or losses, prior service costs or credits, and transition assets that have not yet been recognized as components of net periodic benefit cost. The following table sets forth the amounts recognized in accumulated other comprehensive loss at
December 31:  (In millions)

2007


2006Net loss

$
25.7


$
28.7Prior service credit


(1.5
)


(1.6
)Transition asset






(0.1
)Total recognized in accumulated other comprehensive loss

$
24.2


$
27.0  The estimated net loss
and prior service credit for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2008 are $1.5 million and $0.3 million, respectively. The following table sets forth the Companys target and actual weighted-average asset allocations for defined benefit pension plans at
December 31:  2007


2007


2006(In millions)

TargetAllocation


Percentage ofPlan AssetsAsset Category:Equity securities

50.0
%

47.9
%

47.1
%Debt securities

50.0


52.1


52.9Total

100.0
%

100.0
%

100.0
%  The investment goal of
the employee pension plan is to produce long-run portfolio returns that are consistent with reasonable contribution rates and a well-funded plan. To manage the overall risk of the portfolio, the portfolio is rebalanced as necessary to keep the
allocation within tolerance levels of the target allocation. The portfolio is diversified across a number of equity asset categories and stable value assets. The investment goal of the agent pension plan is to invest in stable value assets in order
to maintain its funded status.




2007 ANNUAL REPORT

61




---

Part II



The following table sets forth
the components of net periodic benefit cost, other changes in plan assets and benefit obligations recognized in other comprehensive income, and obligation assumptions used in the measurement of the benefit obligations for the years ended
December 31:  (In millions)

2007


2006


2005Components of net periodic benefit cost (benefit):Service cost

$
9.4


$
8.2


$
7.7Interest cost


13.2



12.4



11.2Expected return on plan assets


(17.2
)


(14.4
)


(12.1
)Amortization of unrecognized transition asset


(0.1
)


(0.2
)


(0.2
)Amortization of prior service credit


(0.2
)


(0.3
)


(0.3
)Amortization of net actuarial loss


2.6



2.5



2.3Net periodic benefit cost


7.7



8.2



8.6Other changes in plan assets and benefit obligation recognized in othercomprehensive (income) loss:Net gain


(2.2
)






Amortization of net loss


(2.6
)






Amortization of prior service credit


0.3







Amortization of transition asset


0.1







Total recognized in other comprehensive (income) loss


(4.4
)






Total recognized in net periodic benefit cost and other comprehensive (income) loss

$
3.3


$
8.2


$
8.6Weighted-average assumptions:Assumptions used for net periodicbenefit cost:Discount rate


5.75
%


5.75
%


5.75
%Expected return on plan assets


7.63



7.61



7.58Rate of compensation increase(Home Office Plan)


4.50



4.50



4.50Assumptions used to determinebenefit obligations:Discount rate


6.00
%


5.75
%


5.75
%Rate of compensation increase(Home Office Plan)


4.50



4.50



4.50  The long-run rate of
return for the employee pension plan portfolio is derived by calculating the average return for the portfolio monthly, from 1971 to the present, using the average mutual fund manager returns in each asset category, weighted by the target allocation
to each category. Because the average equity market value returns over the last 30 years generally have been higher than the long run expected rate of return, the historical average return used to determine the expected return on plan assets was
reduced by 20% to reflect the expected long run rate of return more effectively. Equity securities in the employee pension plan portfolio
totaled $114.9 million and $107.2 million at December 31, 2007 and 2006, respectively. The plan held no StanCorp securities as plan assets at December 31, 2007 and 2006. The Company contributed $3.0 million and $25.0 million to the employee pension plan in 2007 and 2006, respectively. The Company is not obligated to make
any contributions to its pension plans for 2008. In addition, no plan assets are expected to be returned to the Company in 2008.


The expected benefit payments for the
Companys pension plans are as follows for the years indicated:  (In millions)

Amount2008

$
5.52009


6.32010


7.02011


7.82012


8.72013-2017


57.1  Deferred compensation plans Eligible employees are covered by one of two qualified deferred compensation plans sponsored by Standard and Standard Retirement Services under which a
portion of the employee contribution is matched. Employees not eligible for the employee pension plan are eligible for an additional non-elective employer contribution. Contributions to the plan for 2007, 2006 and 2005 were $8.8 million, $6.6
million and $5.9 million, respectively. In addition, eligible executive officers are covered by a non-qualified supplemental retirement
plan. The unfunded status was $19.9 million and $17.2 million at December 31, 2007 and 2006, respectively. Expenses were $2.3 million, $1.8 million and $1.6 million for 2007, 2006 and 2005, respectively. At December 31, 2007, net loss and
prior service cost of $3.9 million, net of tax, was excluded from the net periodic benefit cost and reported as a component of accumulated other comprehensive income. In addition, $19.9 million was reflected in other liabilities. In March 2007,
additional executive officers were eligible to participate in the plan, which increased the pension benefit obligation by $2.1 million and decreased accumulated other comprehensive income by $1.4 million, net of tax. Eligible executive officers, directors, agents and group producers may participate in one of several non-qualified deferred compensation plans under which
a portion of the deferred compensation for participating executive officers, agents and group producers is matched. The liability for the plans was $8.9 million and $8.1 million at December 31, 2007 and 2006, respectively.  12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Standard sponsors and administers a postretirement benefit plan that includes medical, prescription drug benefits and group term life insurance. Eligible
retirees are required to contribute specified amounts for medical and prescription drug benefits that are determined periodically and are based on retirees length of service and age at retirement. Effective January 1, 2006, participation
in the postretirement benefit plan is limited to employees who had reached the age of 40 as of January 1, 2006, or whose combined age and length of




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|62 |  | STANCORP FINANCIAL GROUP, INC.



---



service were equal to or greater than 45 years as of January 1, 2006. The funded or underfunded status of the postretirement benefit plan, reflected as an asset or liability, is measured as the difference between the fair value of plan assets and the accumulated benefit obligation. At
December 31, 2007, a liability of $5.1 million was reflected on the balance sheet for this plan. The Company uses a December 31
measurement date for the postretirement benefit plan. The following table provides a reconciliation of the changes in the postretirement benefit plans accumulated benefit obligations, fair value of assets and the funded status for the years
ended December 31:  (In millions)

2007


2006


2005Change in postretirement benefit obligation:Accumulated postretirement benefit obligation at beginning of the year

$
(19.9
)

$
(22.5
)

$
(27.6
)Service cost


(1.3
)


(0.9
)


(1.2
)Interest cost


(1.2
)


(1.1
)


(1.1
)Amendments






(0.5
)


Actuarial gain






4.8



5.9Benefits paid


0.4



0.3



0.4Curtailment










1.1Accumulated postretirement benefit obligation at end of the year


(22.0
)


(19.9
)


(22.5
)Change in postretirement benefit plan assets:Fair value of plan assets at beginning of the year


15.9



15.3



14.9Actual return on plan assets


1.0



0.6



0.4Employer contributions


0.5



0.3



0.5Benefits paid and estimated expenses


(0.5
)


(0.3
)


(0.5
)Fair value of plan assets at end of the year


16.9



15.9



15.3Funded status at end of the year

$
(5.1
)

$
(4.0
)

$
(7.2
)  The gains and losses,
and prior servicing costs or credits excluded from the projected benefit obligation are recognized as a component of accumulated other comprehensive (income) loss, net of tax. The following table sets forth the amounts recognized in accumulated
other comprehensive income at December 31:  (In millions)

2007


2006Net gain

$
(2.5
)

$
(2.6
)Prior service credit


(1.9
)


(2.1
)Total recognized in accumulated other comprehensive income

$
(4.4
)

$
(4.7
)  The estimated net gain
and prior service credit for the postretirement benefit plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2008 are $0.1 million and $0.4 million, respectively.


The projected discounted cash flow obligation
for the postretirement benefit plan was $32.5 million and $29.9 million at December 31, 2007 and 2006, respectively. For the
postretirement benefit plan, the assumed health care cost trend rates were assumed to increase as follows for the years ended December 31:  2007


2006Health care cost trend rate assumed for next year:Medical

7.75
%

8.25
%Prescription

9.50


10.00HMO (blended)

7.75


8.00Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
(1)

5.00


5.25  (1)

Year that the rate reaches the ultimate trend is 2015.  Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:  (In millions)

1% PointIncrease

1% PointDecreaseEffect on total of service and interest cost

$
0.3

$
(0.2
)Effect on postretirement benefit obligation


2.9


(2.3
)  The following table
sets forth the Companys target and actual weighted-average asset allocations for the postretirement medical plan for the years ended December 31:  2007


2007


2006TargetAllocation


Percentage ofPlan AssetsAsset Category:Debt securities

95.0
%

95.4
%

99.0
%Other

5.0


4.6


1.0Total

100.0
%

100.0
%

100.0
%




2007 ANNUAL REPORT

63




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Part II



Components of net periodic
benefit cost, other changes in plan assets and benefit obligations recognized in other comprehensive loss, and obligation assumptions used in the measurement of the postretirement benefit obligations were as follows for the years ended
December 31:  (Dollars in millions)

2007


2006


2005Components of net periodic benefit cost (benefit):Service cost

$
1.1


$
1.0


$
1.2Interest cost


1.2



1.0



1.1Expected return on plan assets


(0.9
)


(0.8
)


(0.8
)Amortization of prior service credit


(0.4
)


(0.4
)


(0.6
)Amortization of net actuarial gain


(0.1
)


(0.2
)


Curtailment










(2.3
)Net periodic benefit cost


0.9



0.6



(1.4
)Other changes in plan assets and benefitobligation recognized in othercomprehensive (income) loss:Amortization of prior service credit


0.4







Amortization of net actuarial gain


0.1







Total recognized in other comprehensive (income) loss


0.5







Total recognized in net periodic benefitcost and other comprehensive(income)
loss

$
1.4


$
0.6


$
(1.4
)Weighted-average assumptions:Assumptions used for net periodic benefit costDiscount rate


5.75
%


5.75
%


5.75
%Expected return on plan assets


5.50



5.50



5.50Rate of compensation increase graded by age


4.50



4.50



4.50Assumptions used to determine benefit obligations:Discount rate


6.00
%


5.75
%


5.75
%Rate of compensation increase graded by age


4.50



4.50



4.50  The Company
contributed approximately $0.4 million and $0.3 million to fund the postretirement benefit plan in 2007 and 2006, respectively. The Company expects to make contributions of $0.6 million to its postretirement benefit plan in 2008. No plan assets are
expected to be returned to the Company in 2008.  The expected
benefit payments for the Companys postretirement benefit plan for the years indicated are as follows:  (In millions)

Amount2008

$
0.62009


0.72010


0.72011


0.82012


0.92013-2017


6.0


13. SHARE-BASED COMPENSATION The Company has three share-based
compensation plans: the 1999 Omnibus Stock Incentive Plan, the 2002 Stock Incentive Plan and the 1999 Employee Share Purchase Plan (ESPP). The 1999 Omnibus Stock Incentive Plan authorized the board of directors of StanCorp to grant eligible employees certain incentive or non-statutory stock options, bonuses and performance stock options, restricted and
foreign stock awards, and stock appreciation and cash bonus rights related to StanCorps common stock. The maximum number of shares of common stock that may be issued under this plan is 3.4 million. Substantially all of these shares have been
issued or optioned. The 2002 Stock Incentive Plan authorized the board of directors to grant eligible employees and certain related parties
incentive or non-statutory stock options and restricted stock. The maximum number of shares of common stock that may be issued under this plan is 2.9 million. At December 31, 2007, 2.2 million shares or options for shares have been issued
under the 2002 plan. The Companys ESPP allows eligible employees to purchase StanCorp common stock at a discount. The ESPP is
described later in this section. Income before income taxes included compensation costs related to all share-based compensation
arrangements of $8.7 million, $8.7 million and $6.4 million for 2007, 2006 and 2005, respectively. The related tax benefits were $3.0 million, $3.0 million and $2.2 million for the same periods, respectively. The Company has provided three types of share-based compensation pursuant to the 1999 Omnibus Stock Incentive Plan and the 2002 Stock Incentive Plan:
option grants to directors, officers and certain non-officer employees; restricted stock grants to officers; and stock retainer fees to directors.  Option grants Options are granted to directors, officers and
certain non-officer employees. Directors and executive officers receive annual grants in amounts determined by the organization and compensation committee of the board of directors. Officers may also receive options when hired or promoted to an
officer position. In addition, the chief executive officer has authority to award a limited number of options at his discretion to non-executive officers and other employees. Options are granted with an exercise price equal to the market closing
price of the stock on the date of grant. Directors options vest in one year with all others vesting in four equal installments on the first four anniversaries of the grant date. Option awards to certain officers vest immediately upon a change
of control of the Company as defined in the change of control agreement. Options generally expire 10 years from the grant date.




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A summary of option activity and options outstanding and exercisable is presented below:  Option


Weighted-AverageExercisePrice

Weighted-AverageRemainingContractualTerms(Years)

AggregateIntrinsic ValueOutstanding, January 1, 2005

2,162,302


$
24.19

7.3

$
36,974,736Granted

431,200



41.11Exercised

(354,002
)


19.80Forfeited

(21,252
)


27.87Outstanding, December 31, 2005

2,218,248



28.14

7.0


48,378,159Granted

433,350



49.96Exercised

(244,327
)


21.28Forfeited

(54,754
)


40.33Expired

(1,855
)


12.24Outstanding, December 31, 2006

2,350,662



32.61

6.7


31,305,782Granted

432,800



45.72Exercised

(326,321
)


24.43Forfeited

(106,975
)


44.81Expired

(7,038
)


44.90Outstanding, December 31, 2007

2,343,128



35.58

6.4


34,722,495Exercisable, December 31, 2007

1,509,007



30.46

5.4


30,077,972  The fair value of each
option award under the share-based compensation plans was estimated using the Black-Scholes option pricing model as of the grant date using the assumptions noted in the following table. The Black-Scholes model uses the expected term as an input with
the calculated option value varying directly with the length of time until exercise. The Company bases its estimate of expected term on an analysis of the historical exercise experience of similar options granted to similar employee or director
groups. The expected term given below represents the weighted-average expected term of options granted. Expected stock price volatility is based on volatility of the Companys stock over the prior period equal in duration to the expected term.
The dividend rate is the rate expected to be paid over the expected term, generally estimated to be equal to the rate for the year prior to the grant. The risk-free rate is the interest rate on a U.S. Treasury bond of a maturity closest to the
expected term of the option.  2007


2006


2005Dividend yield

1.34
%

1.48
%

1.27
%Expected stock price volatility

22.7-26.8


23.0-28.9


22.9-26.3Risk-free interest rate

4.57-4.69


4.17-5.14


3.58-4.49Expected option lives

4.9 years


5.0 years


5.0 years


The weighted-average grant date fair value of options granted was $11.95, $13.14 and $10.73 during 2007, 2006 and 2005, respectively. The total intrinsic
value of the options exercised was $8.4 million, $6.8 million and $8.6 million for the same periods, respectively. The amount received from the exercise of stock options was $8.0 million, $5.2 million and $7.0 million for 2007, 2006 and 2005,
respectively. The related tax benefit derived from the tax deduction received by the Company for the difference between the stock price and the exercise price when the options were exercised was $2.8 million, $2.4 million and $3.0 million for 2007,
2006 and 2005, respectively. The expense of stock options is amortized over the vesting period, which is also the period over which the
grantee must provide services to the Company. At December 31, 2007, the total compensation cost related to unvested option awards that had not yet been recognized in the financial statements was $5.7 million. This cost will be recognized over
the next four years.  Restricted stock grants Restricted stock grants are a part of the Companys long-term compensation for certain senior officers. The Company grants both performance-based and
retention-based restricted stock. Under the current plans, the Company had 0.5 million shares available for issuance as restricted stock at December 31, 2007.  Performance-based restricted stock Performance-based awards are made to designated senior officers each year and vest with respect to all or a portion of the awards based on the Companys financial performance for a given year. In years prior to 2007, awards consisted
of restricted stock (60%) and cash performance units (40%), which represent a right to receive cash equal to the value of one share of stock subject to the same employment and performance criteria. Both restricted stock and cash performance
units are subject to forfeiture if continued employment and financial performance criteria are not met. On December 8, 2006, the
organization and compensation committee of the board of directors of StanCorp approved a revised form of long-term incentive award agreement to be used in connection with future grants of performance-based awards to executives. Under the new
agreement, which will apply for the 2009 performance period and thereafter, stock will be issued at the end of the performance period based on satisfaction of employment and financial performance conditions with a portion of the shares withheld to
cover required tax withholding (Stock Performance Units). These Stock Performance Units are generally granted two years before the performance period. In 2007, there were 83,655




2007 ANNUAL REPORT

65




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Part II



Stock Performance Units granted of which 8,680 were forfeited during the year leaving 74,975 potential remaining to be issued, subject to performance
measures and service conditions, as unrestricted common stock primarily in 2010. The grant date fair value per unit granted was $45.49. The
compensation cost of these awards was measured using an estimate of the number of shares of StanCorp stock that will vest at the end of the performance period, multiplied by the fair market value. For shares, the fair market value was measured at
the grant date. For cash units, the value was measured as of the date of the financial statements. A summary of the activity for
performance-based restricted stock outstanding is presented below:  RestrictedShares


Cash Units


Weighted-AverageGrant DateFair ValueUnvested balance, January 1, 2005

120,600


79,800


$
32.69Granted

40,494


25,980Vested

(28,220
)

(18,674
)Forfeited

(11,980
)

(7,928
)Unvested balance, December 31, 2005

120,894


79,178



35.27Granted

43,261


28,605Vested

(31,945
)

(21,137
)Forfeited

(10,291
)

(6,821
)Unvested balance, December 31, 2006

121,919


79,825



41.37Granted




Vested

(27,086
)

(17,923
)Forfeited

(25,928
)

(17,207
)Unvested balance, December 31, 2007

68,905


44,695



45.62  No performance-based
shares or cash units were granted in 2007. There were 43,261 and 40,494 performance-based shares or cash units granted during 2006 and 2005 respectively. The weighted-average grant date fair value of both performance-based shares and cash units
granted during 2006 and 2005 was $50.16 and $40.41, respectively. The total value of performance-based shares vested and cash units paid was $2.2 million, $2.8 million and $2.1 million for 2007, 2006 and 2005, respectively. The compensation cost that the Company will ultimately recognize as a result of these awards is dependent on the Companys financial performance and
(for cash units) the price of the Companys stock on the vesting dates. Assuming that the target is achieved for each performance goal, and valuing cash units at the price of StanCorp stock on December 31, 2007, $6.8 million in additional
compensation cost would be recognized through 2009. This cost is expected to be recognized over a weighted-average period of 1.4 years.


Retention-based restricted stock Awards of retention-based restricted stock to certain senior officers are made less frequently and at irregular intervals by the organization and
compensation committee of the board of directors. Participants vest with respect to the stock after completion of a specified period of employment, generally three or four years. The compensation cost of these awards is measured using the fair
market value of the stock at the grant date and is amortized over the specified period of employment. There was $0.1 million of total unrecognized compensation cost related to unvested retention-based shares at December 31, 2007, which will be
recognized by the end of 2008. A summary of the retention-based restricted stock activity and its characteristics are presented below:  RestrictedShares


Weighted-AverageGrant DateFair ValueUnvested balance, January 1, 2005

31,000


$
24.17Granted





Vested

(12,000
)


18.75Unvested balance, December 31, 2005

19,000



27.59Granted

8,000



50.36Vested

(4,000
)


26.54Unvested balance, December 31, 2006

23,000



35.55Granted





Vested

(15,000
)


27.87Unvested balance, December 31, 2007

8,000



49.95  Stock retainer fees to directors Prior to May 7, 2007, the Company used StanCorp common stock pursuant to the 1999 Omnibus Stock Incentive Plan and the 2002 Stock
Incentive Plan to pay a portion of the retainer fees to members of the Companys board of directors each quarter. Total retainer fees were fixed in dollars. Directors received one-third of the retainer fees in stock and received the remainder
in cash. The number of shares issued varied according to the market value of the stock on the date of the issue. The shares were fully vested when issued. On November 6, 2006, the board of directors of StanCorp approved a new director compensation schedule that became effective May 7, 2007. Under the new schedule, each director who is not an employee of
StanCorp or Standard receives cash retainer fees that the Company pays quarterly. Additionally, each director will receive 1,000 shares of common stock annually beginning on the day preceding the annual shareholders meeting in 2008. The number of director shares issued was 1,292, 3,617 and 4,210 during 2007, 2006 and 2005, respectively. The weighted-average fair value per share for
the shares issued




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|66 |  | STANCORP FINANCIAL GROUP, INC.



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was $46.36, $49.83 and $40.94 for the same periods, respectively.  Employee share purchase plan The Companys ESPP allows
eligible employees to purchase StanCorp common stock at a 15% discount off the lesser of the fair market value of the stock on either the commencement date of each six-month offering period or the end-of-the-period purchase date. Under the terms of
the plan, each eligible employee may elect to have up to 10% of the employees gross total cash compensation for the period withheld to purchase StanCorp common stock. No employee may purchase StanCorp common stock having a fair market value in
excess of $25,000 in any calendar year. Of the 2.0 million shares authorized for this plan, 0.8 million remain available at December 31, 2007. The compensation cost for the ESPP is measured as the sum of the value of the 15% discount and the value of the embedded six-month option. The value of the discount is equal to 15% of the fair market value of the
purchase price of the stock. The value of the embedded option is calculated using the Black-Scholes option pricing model using the assumptions noted in the following table. Expected stock price volatility was based on the volatility of StanCorp
common stock over the six months preceding the offering period. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of the grant.  2007


2006


2005Dividend yield

1.34
%

1.48
%

1.27
%Expected stock price volatility

17.0-27.7


24.9-32.7


22.0-22.9Risk-free interest rate

4.69-5.15


4.36-5.17


2.59-3.21Expected option lives

0.5 years


0.5 years


0.5 years  The weighted-average
per-share fair value for the Companys ESPP offerings was $10.27, $10.68 and $7.66 during 2007, 2006 and 2005, respectively. The Companys compensation cost resulting from the ESPP was $1.2 million, $1.2 million and $0.9 million for 2007,
2006 and 2005, respectively. The related tax benefit was $0.4 million, $0.4 million and $0.3 million for the same periods, respectively.  14. REINSURANCE The Company manages risk through sound product
design and underwriting, effective claims management, disciplined pricing, distribution expertise, broad diversification of risk by customer geography, industry, size and occupation, maintenance of a strong financial position, maintenance of
reinsurance and risk pool arrangements, and sufficient alignment of assets and liabilities to meet financial obligations. In order to limit
its losses from large exposures, the Company enters into reinsurance agreements with other


insurance companies. The Company reviews its retention limits based on size and experience. The maximum retention limit per individual for group life and
AD&D is $750,000. The Companys maximum retention limit for group disability insurance is $15,000 monthly benefit per individual. During 2007, the Company increased its maximum retention limit from $5,000 to $5,500 monthly benefit per
individual for individual disability policies with effective dates on or after September 1, 2007. On certain Minnesota Life business, the Company has a maximum retention of $6,000 monthly benefit per individual. Standard participates in a reinsurance and third party administration arrangement with Northwestern Mutual under which Northwestern Mutual group long term
and short term disability products are sold using Northwestern Mutuals agency distribution system. Generally, Standard assumes 60% of the risk and receives 60% of the premiums for the policies issued. If Standard were to become unable to meet
its obligations, Northwestern Mutual would retain the reinsured liabilities. Therefore, in accordance with an agreement with Northwestern Mutual, Standard established a trust for the benefit of Northwestern Mutual with the market value of assets in
the trust equal to Northwestern Mutuals reinsurance receivable from Standard. The market value of assets required to be maintained in the trust at December 31, 2007, was $218.0 million. Premiums assumed by Standard for the Northwestern
Mutual business accounted for 3% of the Companys total premiums for each of the three years 2007, 2006 and 2005. In addition to assuming risk, Standard provides product design, pricing, underwriting, legal support, claims management and other
administrative services under the arrangement. During 2002, Standard formed a strategic marketing alliance with Ameritas Life Insurance
Corp. (Ameritas) that offers Standards policyholders new and more flexible dental coverage options and access to Ameritas nationwide preferred provider organization panel of dentists. As part of this alliance, Standard and
Ameritas entered into a reinsurance agreement that provides for 20% of the net dental premiums written by Standard and the risk associated with this premium to be ceded to Ameritas. In addition to product-specific reinsurance arrangements, the Company maintains reinsurance coverage for certain catastrophe losses related to group life
and AD&D. This agreement excludes nuclear, biological and chemical acts of terrorism. Through a combination of this agreement and its participation in a catastrophe reinsurance pool discussed below, the Company has coverage of up to $453.0
million per event.




2007 ANNUAL REPORT

67




---

Part II



Subsequent to the terrorist events of September 11, 2001, the Company entered into a catastrophe reinsurance pool with other insurance companies. This
pool spreads catastrophe losses on group life and AD&D over approximately 29 participating members. The annual fee paid by the Company in 2007 to participate in the pool was minor. As a member of the pool, the Company is exposed to maximum
potential losses experienced by other participating members of up to $90.9 million for a single event for losses submitted by a single company and a maximum of $227.2 million for a single event for losses submitted by multiple companies. The
Companys percentage share of losses experienced by pool members will change over time as it is a function of our group life and AD&D in force relative to the total group life


and AD&D in force for all pool participants. The reinsurance pool does not exclude war or nuclear, biological and chemical acts of terrorism. The Terrorism Risk Insurance Act of 2002 (TRIA), which has been extended through 2014, provides for federal government assistance to
property and casualty insurers in the event of material losses due to terrorist acts on behalf of a foreign person or foreign interest. Due to the concentration of risk present in group life insurance and the fact that group life insurance is not
covered under TRIA, an occurrence of a significant catastrophe or a change in the on-going nature and availability of reinsurance and catastrophe reinsurance could have a material adverse effect on the Company.




The following table sets forth reinsurance information at or for the years
ended December 31:



|                              |  |             |           |                        |   |                           |  |            |       |                                  |   |           |  |      |  
|----------------------------- |  | ----------- | --------- | ---------------------- | - | ------------------------- |  | ---------- | ----- | -------------------------------- | - | --------- |  | ---- | -
|(Dollars in millions)         |  | GrossAmount |           | Ceded toOtherCompanies |   | AssumedfromOtherCompanies |  | Net Amount |       | Percentageof AmountAssumedto Net |  
|2007:                         |  |             |           |                        |   |                           |  |            |       |                                  |   |           |  |      |  
|Life insurance in force       |  | $           | 313,653.9 |                        | $ | 5,698.9                   |  | $          | 102.3 |                                  | $ | 308,057.3 |  |     | %
|Premiums:                     |  |             |           |                        |   |                           |  |            |       |                                  |   |           |  |      |  
|Life insurance and annuities  |  | $           | 866.3     |                        | $ | 61.2                      |  | $          |      |                                  | $ | 805.1     |  |     | %
|Accident and health insurance |  |             | 1,217.5   |                        |   | 58.6                      |  |            | 114.3 |                                  |   | 1,273.2   |  | 9.0  |  
|Total premiums                |  | $           | 2,083.8   |                        | $ | 119.8                     |  | $          | 114.3 |                                  | $ | 2,078.3   |  | 5.5  | %
|2006:                         |  |             |           |                        |   |                           |  |            |       |                                  |   |           |  |      |  
|Life insurance in force       |  | $           | 271,276.9 |                        | $ | 4,907.2                   |  | $          | 112.2 |                                  | $ | 266,481.9 |  |     | %
|Premiums:                     |  |             |           |                        |   |                           |  |            |       |                                  |   |           |  |      |  
|Life insurance and annuities  |  | $           | 792.5     |                        | $ | 62.6                      |  | $          |      |                                  | $ | 729.9     |  |     | %
|Accident and health insurance |  |             | 1,144.9   |                        |   | 55.2                      |  |            | 115.4 |                                  |   | 1,205.1   |  | 9.6  |  
|Total premiums                |  | $           | 1,937.4   |                        | $ | 117.8                     |  | $          | 115.4 |                                  | $ | 1,935.0   |  | 6.0  | %
|2005:                         |  |             |           |                        |   |                           |  |            |       |                                  |   |           |  |      |  
|Life insurance in force       |  | $           | 241,268.8 |                        | $ | 5,035.9                   |  | $          | 120.7 |                                  | $ | 236,353.6 |  | 0.1  | %
|Premiums:                     |  |             |           |                        |   |                           |  |            |       |                                  |   |           |  |      |  
|Life insurance and annuities  |  | $           | 741.5     |                        | $ | 63.7                      |  | $          | 0.4   |                                  | $ | 678.2     |  | 0.1  | %
|Accident and health insurance |  |             | 1,077.4   |                        |   | 48.3                      |  |            | 119.2 |                                  |   | 1,148.3   |  | 10.4 |  
|Total premiums                |  | $           | 1,818.9   |                        | $ | 112.0                     |  | $          | 119.6 |                                  | $ | 1,826.5   |  | 6.5  | %



Recoveries recognized under
reinsurance agreements were $60.8 million, $56.4 million and $52.8 million for 2007, 2006 and 2005, respectively. Amounts recoverable from reinsurers were $929.6 million and $913.6 million at December 31, 2007 and 2006, respectively. Of these
amounts, $795.4 million and $789.2 million were from the reinsurance transaction with Protective Life Insurance Company (Protective Life) effective January 1, 2001. See Note 15Reinsurance of Blocks of Business.


15. REINSURANCE OF BLOCKS OF BUSINESS Effective October 1,
2002, Standard entered into a reinsurance agreement with TIAA to assume TIAAs group disability and group life insurance business. This business included approximately 1,800 group insurance contracts, representing 650,000 insured individuals.
Standard paid a ceding commission of approximately $75 million and received approximately $705 million in assets and corresponding statutory liabilities. If Standard were to




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|68 |  | STANCORP FINANCIAL GROUP, INC.



---



become unable to meet its obligations, TIAA would retain the reinsured liabilities. Therefore, in accordance with the agreement with TIAA, Standard
established a trust for the benefit of TIAA with the market value of assets in the trust equal to TIAAs reinsurance receivable from Standard. The market value of assets required to be maintained in the trust is determined quarterly. The market
value of assets required to be maintained in the trust at December 31, 2007, was approximately $451.1 million. Approximately $60 million in VOBA was capitalized related to the reinsurance agreement. Effective October 1, 2000, Standard assumed, through a reinsurance agreement, the individual disability insurance business of Minnesota Life.
Standard paid a ceding commission of approximately $55 million and received approximately $500 million in assets and corresponding statutory liabilities. If Standard were to become unable to meet its obligations, Minnesota Life would retain the
reinsured liabilities. Therefore, in accordance with the agreement with Minnesota Life, Standard established a trust for the benefit of Minnesota Life with the market value of assets in the trust equal to Minnesota Lifes reinsurance receivable
from Standard. The market value of assets required to be maintained in the trust is determined


quarterly. The market value of assets required to be maintained in the trust at December 31, 2007, was $597.6 million. Accompanying the transaction was
a national marketing agreement that provides access to Minnesota Life agents, some of whom now market Standards individual disability insurance products. The national marketing agreement, remains in effect through 2009. Effective January 1, 2001, Standard ceded to Protective Life, through a reinsurance agreement, Standards individual life insurance product
line. Standard received a ceding commission of approximately $90 million and transferred to Protective Life approximately $790 million in assets and corresponding statutory liabilities. If Protective Life were to become unable to meet its
obligations, Standard would retain the reinsured liabilities. Therefore, the liabilities remain on Standards books, and an equal amount is recorded as a recoverable from the reinsurer. In accordance with the agreement, Protective Life
established a trust for the benefit of Standard with assets in the trust required to be equal to Standards reinsurance receivable from Protective Life. The amount of assets required to be maintained in the trust is determined quarterly.




16. INSURANCE INFORMATION

The following table sets forth insurance information at or for the years ended December 31:



|                   |  |                             |       |                               |   |                        |  |                |         |                     |   |                                    |  |                                            |       |                           |   |         |  |   |      |  |   |      
|------------------ |  | --------------------------- | ----- | ----------------------------- | - | ---------------------- |  | -------------- | ------- | ------------------- | - | ---------------------------------- |  | ------------------------------------------ | ----- | ------------------------- | - | ------- |  | - | ---- |  | - | -----
|                   |  | DeferredAcquisitionCosts(1) |       | FuturePolicyBenefitsandClaims |   | OtherPolicyholderFunds |  | PremiumRevenue |         | NetInvestmentIncome |   | Benefits,ClaimsandInterestCredited |  | Amortizationof DeferredAcquisitionCosts(1) |       | OtherOperatingExpenses(2)
|2007:              |  |                             |       |                               |   |                        |  |                |         |                     |   |                                    |  |                                            |       |                           |   |         |  |   |      |  |   |      
|Insurance Services |  | $                           | 194.9 |                               | $ | 5,016.9                |  | $              | 532.9   |                     | $ | 2,063.6                            |  | $                                          | 325.8 |                           | $ | 1,585.5 |  | $ | 43.2 |  | $ | 489.7
|Asset Management   |  |                             | 59.7  |                               |   | 141.8                  |  |                | 2,620.9 |                     |   | 14.7                               |  |                                            | 170.2 |                           |   | 115.1   |  |   | 6.6  |  |   | 145.6
|Total              |  | $                           | 254.6 |                               | $ | 5,158.7                |  | $              | 3,153.8 |                     | $ | 2,078.3                            |  | $                                          | 496.0 |                           | $ | 1,700.6 |  | $ | 49.8 |  | $ | 635.3
|2006:              |  |                             |       |                               |   |                        |  |                |         |                     |   |                                    |  |                                            |       |                           |   |         |  |   |      |  |   |      
|Insurance Services |  | $                           | 228.1 |                               | $ | 4,790.7                |  | $              | 477.9   |                     | $ | 1,927.4                            |  | $                                          | 313.4 |                           | $ | 1,510.4 |  | $ | 37.2 |  | $ | 456.7
|Asset Management   |  |                             | 52.4  |                               |   | 136.9                  |  |                | 2,459.9 |                     |   | 7.6                                |  |                                            | 151.3 |                           |   | 100.4   |  |   | 5.6  |  |   | 98.4 
|Total              |  | $                           | 280.5 |                               | $ | 4,927.6                |  | $              | 2,937.8 |                     | $ | 1,935.0                            |  | $                                          | 464.7 |                           | $ | 1,610.8 |  | $ | 42.8 |  | $ | 555.1
|2005:              |  |                             |       |                               |   |                        |  |                |         |                     |   |                                    |  |                                            |       |                           |   |         |  |   |      |  |   |      
|Insurance Services |  | $                           | 202.9 |                               | $ | 4,551.0                |  | $              | 429.8   |                     | $ | 1,816.4                            |  | $                                          | 303.3 |                           | $ | 1,381.0 |  | $ | 33.3 |  | $ | 447.4
|Asset Management   |  |                             | 41.0  |                               |   | 138.3                  |  |                | 2,219.5 |                     |   | 10.1                               |  |                                            | 140.3 |                           |   | 95.3    |  |   | 4.5  |  |   | 64.8 
|Total              |  | $                           | 243.9 |                               | $ | 4,689.3                |  | $              | 2,649.3 |                     | $ | 1,826.5                            |  | $                                          | 443.6 |                           | $ | 1,476.3 |  | $ | 37.8 |  | $ | 512.2



| | (1) |  | DAC and amortization of DAC including VOBA and amortization of VOBA.
| | --- |  | --------------------------------------------------------------------

| | (2) |  | Other operating expenses include operating expenses, commissions and bonuses, interest expense, premium taxes, and
the net increase in DAC.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------



17. REGULATORY MATTERS Standard and The Standard Life Insurance Company of New York prepare their statutory financial statements in accordance with accounting practices
prescribed or permitted by their states of domicile. Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as the Statements of Statutory Accounting Practices set forth in publications
of the National Association of Insurance Commissioners (NAIC).


Statutory accounting practices differ in some respects from GAAP. The principal statutory practices that differ from GAAP are: a) bonds and commercial
mortgage loans are reported principally at amortized cost; b) asset valuation and the interest maintenance reserve are provided as prescribed by the NAIC; c) certain assets designated as non-admitted, principally deferred tax assets, furniture,
equipment, and unsecured receivables are not recognized as assets, resulting in a charge to statutory surplus; d) annuity considerations




2007 ANNUAL REPORT

69




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Part II



with life contingencies, or purchase rate guarantees, are recognized as revenue when received; e) reserves for life and disability policies and contracts are
reported net of ceded reinsurance and calculated based on statutory requirements, including required discount rates; f) commissions, including initial commissions and expense allowance paid for reinsurance assumed, and other policy acquisition
expenses are expensed as incurred; g) initial commissions and expense allowance received for a block of reinsurance ceded net of taxes are reported as deferred gains in surplus and recognized as income in subsequent periods; h) federal income tax
expense includes current income taxes defined as current year estimates of federal income taxes and tax contingencies for current and all prior years and amounts incurred or received during the year relating to prior periods, to the extent not
previously provided; i) deferred tax assets, net of deferred tax liabilities, are included in the regulatory financial statements, but are limited to those deferred tax assets that will be realized within one year that are considered admitted
assets; j) surplus notes are included in capital and surplus; and k) interest on surplus notes is not recorded as a liability nor an expense until approval for payment of such interest has been granted by the commissioner of the state of domicile. Standard and The Standard Life Insurance Company of New York are subject to statutory restrictions that limit the maximum amount of
dividends and distributions that they could declare and pay to StanCorp without prior approval of the states in which the subsidiaries are domiciled. During 2007 and 2006, Standard made distributions to StanCorp totaling $155.0 million and $147.0 million, respectively. State insurance departments require insurance enterprises to adhere to minimum Risk-based Capital (RBC) requirements promulgated by the NAIC. At December 31, 2007 and 2006, the insurance
subsidiaries capital levels were significantly in excess of that which would require corrective action by the insurance subsidiaries or regulatory agencies. The authorized control level RBC was $191.3 million and $175.3 million at
December 31, 2007 and 2006, respectively.


The following table reconciles the statutory capital and surplus of the insurance subsidiaries as reported to state insurance regulatory authorities with the Companys GAAP equity at December 31:  (In millions)

2007


2006Statutory capital and surplus

$
1,047.8


$
967.5Adjustment to reconcile to GAAP equity:Future policy benefits and other policyholder funds


235.8



232.6Deferred acquisition costs, value of business acquired and intangibles


315.3



280.5SOP 05-1 adjustment


(60.7
)


Deferred tax liabilities


(196.2
)


(204.1
)Asset valuation reserve


102.2



96.6Interest maintenance reserve


7.7



6.1Valuation of investments


48.0



14.9Equity of StanCorp and its non-insurance subsidiaries


(257.3
)


(117.7
)Non-admitted assets


237.5



240.1Prepaid pension cost


(35.4
)


(41.1
)Accrued retirement & defined benefit plans


(3.3
)


(2.2
)Capital lease obligations


(7.0
)


Other, net


(5.4
)


(8.7
)GAAP equity

$
1,429.0


$
1,464.5  The following table
reconciles statutory gain from operations as reported to insurance regulatory authorities with GAAP net income for the years ended December 31:  (In millions)

2007


2006


2005Statutory gain from operations

$
239.6


$
170.9


$
207.5Adjustments to reconcile to GAAP net income:Future policy benefits and other policyholder funds


3.2



14.3



6.4Deferred acquisition costs and value of business acquired, net of amortization


36.4



36.7



23.8Deferred income taxes


(0.7
)


(2.3
)


(0.9
)Current income taxes


(1.4
)


(5.3
)


(7.1
)Earnings of StanCorp and its non-insurance subsidiaries


11.5



(3.1
)


(10.5
)Gain from sale of assets to affiliate


(44.2
)






Reinsurance ceding commission


(12.0
)


(9.9
)


(9.6
)Reserve increase due to change in valuation basis


(2.6
)


(7.5
)


(6.3
)Deferred capital gains (interest maintenance reserve)


1.6



3.8



2.2Other, net


(3.9
)


6.2



5.6GAAP net income

$
227.5


$
203.8


$
211.1  18. PARENT HOLDING COMPANY CONDENSED
FINANCIAL INFORMATION Set forth below are the unconsolidated condensed financial statements of StanCorp. The significant accounting
policies used in preparing StanCorps financial statements are substantially the same as those used in the preparation of the consolidated financial statements of the Company except that StanCorps subsidiaries are carried under the equity
method.




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|70 |  | STANCORP FINANCIAL GROUP, INC.



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The following table presents StanCorps condensed statements of income for the years ended December 31:  (In millions)

2007


2006


2005Revenues:Net investment income

$
6.3


$
3.3


$
0.8Total


6.3



3.3



0.8Expenses:Interest expense


30.1



17.6



18.4Operating expenses


6.0



5.3



7.8Total


36.1



22.9



26.2Loss before income taxes and equity in net income of subsidiaries


(29.8
)


(19.6
)


(25.4
)Income taxes


(20.1
)


(5.0
)


(2.9
)Surplus note interest, affiliated entity










4.4Equity in net income of subsidiaries


237.2



218.4



229.2Net income

$
227.5


$
203.8


$
211.1  The following table
presents StanCorps condensed balance sheets at December 31:  (In millions)

2007

2006AssetsCash and cash equivalents

$
71.1

$
Investment in subsidiaries


1,866.7


1,704.7Receivable from subsidiaries


10.9


8.4Other assets


40.6


13.7Total

$
1,989.3

$
1,726.8Liabilities and Shareholders EquityPayable to subsidiaries

$


$
6.6Long-term debt


550.0


250.0Other liabilities


10.3


5.7Total shareholders equity


1,429.0


1,464.5Total

$
1,989.3

$
1,726.8


The following table presents StanCorps condensed statements of cash flows for the years ended December 31:  (In millions)

2007


2006


2005Operating:Net income

$
227.5


$
203.8


$
211.1Change in operating assets and liabilities


33.2



(0.9
)


(1.8
)Net cash provided by operating activities


260.7



202.9



209.3Investing:Investment in subsidiaries


(379.6
)


(321.1
)


(244.9
)Dividends received from subsidiaries


95.4



147.0



84.8Surplus note










75.0Investment securities and other


57.8



34.7



2.3Net cash used in investing activities


(226.4
)


(139.4
)


(82.8
)Financing:Receivables from affiliates, net


(9.0
)


6.6



Proceeds from issuance of Subordinated Debt


300.0







Issuance and repurchase of common stock, net


(218.5
)


(50.4
)


(87.9
)Dividends on common stock


(35.7
)


(34.8
)


(34.2
)Net cash provided by (used in) financing activities


36.8



(78.6
)


(122.1
)Increase (decrease) in cash and cash equivalents


71.1



(15.1
)


4.4Cash and cash equivalents, beginning of the year






15.1



10.7Cash and cash equivalents, endof the year

$
71.1


$



$
15.1  19. CONTINGENCIES AND COMMITMENTS In the normal course of business, the Company is involved in various legal actions and other state and federal proceedings. A number of
actions or proceedings were pending as of December 31, 2007. In some instances, lawsuits include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in addition to amounts for alleged contractual
liability or other compensatory damages. In the opinion of management, the ultimate liability, if any, arising from the actions or proceedings is not expected to have a material adverse effect on the Companys business, financial position,
results of operations or cash flows. On June 15, 2006, the Company established a five-year, $200 million senior unsecured revolving
credit facility (Facility). On May 9, 2007, the Facility was amended to extend the expiration date by one year to June 15, 2012. At the option of StanCorp and with the consent of the lenders under the Facility, the termination
date can be extended for an additional one-year period. Additionally, upon the request of StanCorp and with consent of the lenders under the Facility, the Facility can be increased by up to $100 million to a total of up to $300 million. Borrowings
under the Facility will be used to provide for working capital and general




2007 ANNUAL REPORT

71




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Part II



corporate purposes of the Company and its subsidiaries and the issuance of letters of credit. Under the agreement, StanCorp is subject to customary covenants that take into consideration the impact of material transactions, changes to the business,
compliance with legal requirements and financial performance. The two financial covenants are based on the Companys total debt to total capitalization ratio and consolidated net worth. The Facility is subject to performance pricing based upon
the Companys total debt to total capitalization ratio and includes interest based on a Eurodollar margin, plus facility and utilization fees. At December 31, 2007, StanCorp was in compliance with all covenants under the Facility and had
no outstanding balance on the Facility. StanCorp currently has no commitments for standby letters of credit, standby repurchase obligations or other related commercial commitments. The Company leases certain buildings and equipment under non-cancelable operating leases that expire in various years through 2014, with renewal options
for periods ranging from one to five years. Future minimum payments under the leases are 2008, $13.5 million; 2009, $9.8 million; 2010, $5.8 million; 2011, $3.8 million; and thereafter, $3.7 million. Total rent expense was $15.8 million, $9.6
million and $12.5 million for the years ended December 31, 2007, 2006 and 2005, respectively. At December 31, 2007, minimum
future rental receivables on non-cancelable leases of retail and office space with initial terms of one year or more are 2008, $13.3 million; 2009, $12.5 million; 2010, $10.9 million; 2011, $8.2 million; 2012 $4.9; and thereafter, $19.2 million. The Companys financing obligations generally include debts, lease payment obligations and commitments to fund commercial mortgage
loans. The remaining obligations reflect the long-term portion of other liabilities and the Companys obligations under our insurance and annuity product contracts.


The following table summarizes the
Companys contractual obligations as of December 31, 2007:  Payments Due by Period(In millions)

Total

LessThan 1Year

1 to 3Years

3 to 5Years

MoreThan 5YearsContractual Obligations:Short-term debt and capital lease obligations

$
4.0

$
4.0

$


$


$
Long-term debt and capital lease obligations


562.6





5.2


251.4


306.0Interest on long-term debt obligations


288.1


38.4


76.9


76.7


96.1Operating lease obligations


36.6


13.5


15.6


6.3


1.2Funding requirements for commercial mortgage loans


265.0


265.0








Purchase obligations


3.6


1.7


1.1


0.8


Insurance obligations


4,776.7


685.1


874.1


695.7


2,521.8Policyholder fund obligations


298.0


24.0


44.9


37.4


191.7Other short-term and long-term liabilities according to GAAP


61.9


7.2


10.6


4.2


39.9Total

$
6,296.5

$
1,038.9

$
1,028.4

$
1,072.5

$
3,156.7  The Companys
long-term debt obligations consisted primarily of the $250 million 6.875%, Senior Notes and the $300 million 6.90% Subordinated Debt. See Note 9Long-Term Debt for additional information. In the normal course of business, the Company commits to fund commercial mortgage loans generally up to 90 days in advance. At December 31, 2007, the
Company had outstanding commitments to fund commercial mortgage loans totaling $265.0 million, with fixed interest rates ranging from 6.0% to 7.125%. These commitments generally have fixed expiration dates. A small percentage of commitments expire
due to the borrowers failure to deliver the requirements of the commitment by the expiration date. In these cases, the Company will retain the commitment fee and




|   |  |                               
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|72 |  | STANCORP FINANCIAL GROUP, INC.



---



good faith deposit. Alternatively, if we terminate a commitment due to the disapproval of a commitment requirement, the commitment fee and deposit may be
refunded to the borrower, less an administrative fee. The purchase obligations in the table are related to non-cancelable telecommunication
obligations, software maintenance agreements and other contractual obligations, all expiring in various years through 2012. The insurance
obligations in the table are actuarial estimates of the cash required to meet our obligations for future policy benefits and claims. These estimates do not represent an exact calculation of our future benefit liabilities, but are instead based on
assumptions, which involve a number of factors, including mortality, morbidity, recovery, the consumer price index, reinsurance arrangements and other sources of income for people on claim. Assumptions may vary by age and gender and, for individual
policies, occupation class of the claimant; time elapsed since disablement; and contract provisions and limitations. Certain of these factors could be materially affected by changes in social perceptions about work ethics, emerging medical
perceptions and legal interpretations regarding physiological or psychological causes of disability, emerging or changing health issues and changes in industry regulation. Changes in one or more of these factors or if actual claims experience is
materially inconsistent with our assumptions, could cause actual results to be materially different from the information presented in the table. Not included in the table is approximately $957.8 million in other reserve liabilities where the amount
and timing of related payouts cannot be reasonably determined. Policyholder fund obligations include payments based on currently scheduled
withdrawals and annuity benefit payments stemming from liabilities shown on the balance sheet as policyholder funds. Not included in the table is approximately $2.59 billion in policyholder funds that may be withdrawn upon request. In addition,
amounts presented also exclude separate account liabilities of $4.39 billion. Other long-term liabilities reflected in the Companys
balance sheet at December 31, 2007, consisted of a $15.2 million tax reimbursement liability related to the block of life insurance business sold to Protective Life in 2001, $9.2 million in capital commitments related to our low-income housing
investments, $28.7 million in unfunded liabilities for non-qualified deferred compensation and supplemental retirement plans, an accrued liability of $5.1 million for postretirement benefits, $0.6 million of accrued guarantee association payments
and $3.1 million of remaining payments for StanCorp Investment Advisers acquisitions.


From time to time, the board of directors has authorized share repurchase programs. Share repurchases are to be effected in the open market or in
negotiated transactions in compliance with the safe harbor provisions of Rule 10b-18 under regulations of the Securities Exchange Act of 1934. Execution of the share repurchase program is based upon managements assessment of market conditions
for its common stock and other potential growth opportunities. On November 14, 2005, the board of directors authorized a share repurchase program of up to 3.0 million shares of StanCorp common stock. The share repurchases were effected in
the open market or in negotiated transactions through May 7, 2007. On May 7, 2007, the board of directors authorized a new share repurchase program of up to 6.0 million shares of StanCorp common stock. The share repurchase program
will be effected in the open market or in negotiated transactions through December 31, 2008. The new share repurchase program replaced our previous share repurchase program, which had 1,180,500 shares remaining that were canceled upon
authorization of the new program. During 2007, the Company repurchased approximately 4.8 million shares of common stock at a total
cost of $235.6 million for a volume weighted-average price of $48.60 per common share. At December 31, 2007, there were 1.4 million shares remaining under the new share repurchase program. In addition, during 2007, the Company acquired
7,620 shares of common stock from executive officers to cover tax liabilities of these officers resulting from the release of performance-based shares and retention-based shares at a total cost of $0.4 million for a volume weighted- average price of
$47.55 per common share, which reflects the market price on the transaction dates.  QUARTERLY FINANCIAL INFORMATION (Unaudited) The following tables set forth select unaudited financial information by calendar
quarter for the years indicated:  2007(In millionsexcept share data)

4thQtr


3rdQtr


2ndQtr

1stQtrPremiums

$
546.0


$
522.2


$
518.1

$
492.0Administrative fees


30.1



30.2



28.4


26.5Net investment income


131.0



131.3



130.7


123.3Net capital gains (losses)


(1.8
)


(0.4
)


0.7


0.9Total revenues


705.3



683.3



677.9


642.7Benefits to policyholders


410.5



389.4



409.9


382.0Net income


60.5



66.6



52.1


48.3Net income per common share:Basic

$
1.22


$
1.30


$
0.98

$
0.90Diluted


1.21



1.29



0.97


0.90




2007 ANNUAL REPORT

73




---

Part II



2006(In millionsexcept share data)

4thQtr

3rdQtr

2ndQtr


1stQtrPremiums

$
501.2

$
479.4

$
481.4


$
473.0Administrative fees


26.5


25.1


13.1



12.4Net investment income


122.0


120.5


117.5



118.9Net capital gains (losses)


2.8


2.1


(0.3
)


(2.7
)Total revenues


652.5


627.1


611.7



601.6Benefits to policyholders


371.3


374.1


385.3



382.4Net income


67.5


54.7


42.9



38.7Net income per common share:Basic

$
1.26

$
1.02

$
0.79


$
0.71Diluted


1.25


1.01


0.78



0.70  Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  None.  Item 9A.

Controls and Procedures  Management of the Company has evaluated, under the supervision and with the participation of the Companys chief executive officer and principal
financial officer, the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(c) and 15d-15(c)) as of the end of the period
covered by this report. Based on this evaluation, the chief executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at December 31, 2007, and designed to provide reasonable
assurance that material information relating to us and our consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and is
accumulated and communicated to management, including the Companys chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management of StanCorp Financial Group, Inc. (the Company) is responsible for establishing and maintaining adequate internal control over
financial reporting. The Companys internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. Company management assessed the effectiveness of the


Companys internal control over financial reporting as of December 31, 2007. In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework. Our management concluded that based on its assessment, our internal control over financial reporting was effective as of
December 31, 2007. The effectiveness of our internal control over financial reporting as of December 31, 2007 was audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which
appears under Item 8 Financial Statements and Supplementary Data. There were no changes in our internal control over financial
reporting that occurred during the quarter ended December 31, 2007, that have materially affected, or are reasonably likely to affect materially, the Companys internal control over financial reporting.  Item 9B.

Other Information  None.




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|74 |  | STANCORP FINANCIAL GROUP, INC.



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Part III



Item 10.

Directors, Executive Officers and Corporate Governance  Information required by Item 10 relating to directors of StanCorp is set forth under the caption Election of Directors in the 2008 Proxy
Statement and is incorporated herein by reference. For information on the executive officers of the registrant, see Part I, Item 4A,
Executive Officers of the Registrant. Information relating to beneficial ownership reporting compliance by directors and
executive officers of the Company pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act) is set forth under the caption Section 16(a) Beneficial Ownership Reporting Compliance in the 2008
Proxy Statement, and is incorporated herein by reference. We have codes of business ethics for all directors, senior executive officers,
including the Chairman, President and Chief Executive Officer, and the Senior Vice President and Chief Financial Officer of StanCorp (its principal executive officer and principal financial officer, respectively), and employees of the Company. The
codes of business ethics are available on the Companys web site located at www.stancorpfinancial.com/investors. A copy of the codes of business ethics will be provided without charge to any person who requests them by writing to the address or
telephoning the number indicated under Available Information on page 3. We will disclose on our web site any amendments to or waivers from our codes of business ethics applicable to directors or executive officers of StanCorp, including
the Chairman, President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, in accordance with all applicable laws and regulations. Information regarding executive officers is contained in Part I, Item 4A of this Form 10-K.  AUDIT COMMITTEE StanCorp has a separately designated standing
Audit Committee established in accordance with Section 3(a)58(A) of the Exchange Act. Information regarding the members of the Audit Committee is reported under the caption Corporate GovernanceCommittees of the Board in the
Companys 2008 Proxy Statement, herein incorporated by reference.  AUDIT
COMMITTEE FINANCIAL EXPERT Information required by Item 10 regarding the audit committee financial expert is reported under the
caption Corporate GovernanceCommittees of the Board in the Companys 2008 Proxy Statement and is incorporated herein by reference.


Item 11.

Executive Compensation  Information required by Item 11 regarding executive compensation is reported under the captions Director Compensation, Executive
Compensation, and Compensation Discussion and Analysis in the Companys 2008 Proxy Statement, herein incorporated by reference.  Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  Information required by Item 12 regarding security ownership of certain beneficial owners and management is reported
under the caption Share Ownership of Directors and Officers and Security Ownership of Certain Beneficial Owners in the Companys 2008 Proxy Statement, herein incorporated by reference.  EQUITY COMPENSATION PLANS The Company currently has in effect three equity compensation plans, all of which have been approved by shareholders. These are the 1999 Omnibus Stock
Incentive Plan, the 1999 Employee Share Purchase Plan (ESPP) and the 2002 Stock Plan. The shares to be issued subject to outstanding options and the shares otherwise available for issue under these plans as of December 31, 2007, are
presented below:  Plan category

Number ofsecuritiesto beissueduponexercise ofoutstandingoptions,warrantsand rights


Weighted-averageexerciseprice ofoutstandingoptions,warrantsand rights

Number ofsecuritiesavailable forfutureissuanceunder
equitycompensationplans(excludingsecuritiesreflected incolumn (a)(a)

(b)

(c)Equity compensation plans approved by security holders

2,418,103

$
35.58

1,574,668Equity compensation plans not approved by security holders






  Under the 1999 Omnibus
Stock Incentive Plan, 38,655 shares remained available for issuance as options or restricted stock as of December 31, 2007. Under the 1999 ESPP, there were 820,252 shares available for issuance. Under the 2002 Stock Plan, there were 715,761
shares available to be issued, all of which could be issued as options, and 468,871 of these shares, which could be issued as restricted stock. Shares issuable under performance share awards are not included in calculating the weighted-average price
of outstanding options, warrants and rights.




2007 ANNUAL REPORT

75




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Part III



Item 13.

Certain Relationships and Related Transactions,  and Director Independence  Information required by Item 13 regarding certain relationships and related transactions, and director independence is
reported under the caption Corporate GovernanceDirector Independence in the Companys 2008 Proxy Statement, herein incorporated by reference.


Item 14.

Principal Accountant Fees and Services  Information required by Item 14 regarding principal accounting fees and services is reported under the caption Proposal to Ratify Appointment
of Independent Registered Public Accounting Firm in the Companys 2008 Proxy Statement, herein incorporated by reference.




|   |  |                               
|-- |  | ------------------------------
|76 |  | STANCORP FINANCIAL GROUP, INC.



---

Part IV



|Item 15. |  | Exhibits, Financial Statement Schedules
|-------- |  | ---------------------------------------



|(a) |  | Index of documents filed as part of the report:
|--- |  | -----------------------------------------------

| | 1. |  | The following Consolidated Financial Statements of StanCorp are included in Item 8, Financial Statements and Supplementary Data.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------



Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2007, 2006 and 2005

Consolidated Balance Sheets at December 31, 2007 and 2006

Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005

Notes to
Consolidated Financial Statements



| | 2. |  | The following Financial Statement Schedules of StanCorp are included in Item 8, Financial Statements and Supplementary DataNotes to Consolidated Financial
Statements. Schedules not referenced are inapplicable or not required.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Condensed Financial Information of Registrant

Valuation and Qualifying Accounts

Summary of InvestmentsOther Than Investments in Affiliates

Supplementary Insurance Information

Reinsurance



| | 3. |  | Exhibits Index
| | -- |  | --------------



|       |  |                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Name                                                                                                                                      
|       | 
|3.1    |  | Articles of Incorporation of StanCorp Financial Group, Inc. as amended                                                                    
|3.2    |  | Bylaws of StanCorp Financial Group, Inc.                                                                                                  
|4.1    |  | Form of Rights Agreement                                                                                                                  
|4.2    |  | Form of Indenture Relating to Senior Debt Securities                                                                                      
|4.3    |  | StanCorp Financial Group, Inc. and U.S. Bank National Association as Trustee, First Supplemental Indenture, Dated as of September 25, 2002
|4.4    |  | First Supplemental Indenture, dated May 29, 2007, between the Company and U.S. Bank National Association                                  
|4.5    |  | Replacement Capital Covenant dated May 29, 2007, for the benefit of holders of the Companys 6.875% Senior Notes due
2012                 
|10.1   |  | StanCorp Financial Group, Inc. 1999 Omnibus Stock Incentive Plan, As Amended                                                              
|10.2   |  | Amendment No. 3 to StanCorp Financial Group, Inc. 1999 Omnibus Stock Incentive Plan                                                       
|10.3   |  | StanCorp Financial Group, Inc. 1999 Employee Share Purchase Plan                                                                          
|10.4   |  | Amendment No. 1 to StanCorp Financial Group, Inc. 1999 Employee Share Purchase Plan                                                       
|10.5   |  | Standard Insurance Company Supplemental Retirement Plan for the Senior Officer Management Group 2008 Restatement                          
|10.6   |  | StanCorp Financial Group, Inc. Deferred Compensation Plan for Senior Officers 2008 Restatement                                            
|10.7   |  | StanCorp Financial Group, Inc. Amended 2002 Stock Incentive Plan                                                                          
|10.8   |  | Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan, As Amended Restricted Stock Agreement                                   
|10.9   |  | Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan Non-Statutory Stock Option Agreement Senior Officers                     
|10.10  |  | Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan Non-Statutory Stock Option Agreement Directors                           
|10.11  |  | StanCorp Financial Group, Inc. Short-Term Incentive Plan                                                                                  
|10.12  |  | Acquisition Agreement by and between Minnesota Life Insurance Company and Standard Insurance Company Dated December 1,
2000               
|10.13  |  | 100% Coinsurance Agreement Between Protective Life Insurance Company and Standard Insurance Company dated November 6,
2000                



2007 ANNUAL REPORT

77




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Part IV



|       |  |                                                                                                                                                                                                                                                                                      
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Name                                                                                                                                                                                                                                                                                 
|10.14  |  | Purchase and Sale Agreement by and Between Teachers Insurance and Annuity Association of America and Standard Insurance Company dated May
29, 2002                                                                                                                                   
|10.15  |  | StanCorp Financial Group, Inc. Deferred Compensation Plan for Directors 2008 Restatement                                                                                                                                                                                             
|10.16  |  | Group Disability Income Reinsurance Agreement between The Northwestern Mutual Life Insurance Company (Milwaukee, Wisconsin) and Standard
Insurance Company (Portland, Oregon)                                                                                                        
|10.17  |  | Amendment No. 1 Restatement of Deferred Compensation Plan for Directors of Standard Insurance Company                                                                                                                                                                                
|10.18  |  | Amendment to Group Disability Income Reinsurance Agreement between Standard Insurance Company (Portland, Oregon) and The Northwestern
Mutual Life Insurance Company (Milwaukee, Wisconsin)                                                                                           
|10.19  |  | Form of Executive Officer and Director Indemnity Agreement                                                                                                                                                                                                                           
|10.20  |  | Credit Agreement Dated as of June 15, 2006, Among StanCorp Financial Group, Inc., as Borrower, The Lenders Listed Herein, as Lenders, Wells
Fargo Bank, National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent, $200,000,000        
|10.21  |  | Form of Change of Control Agreement                                                                                                                                                                                                                                                  
|10.22  |  | Form of StanCorp Financial Group, Inc. Long-Term Incentive Award Agreement (20Performance Period)                                                                                                                                                                                    
|10.23  |  | Credit Agreement Extension Dated as of May 9, 2007, Among StanCorp Financial Group, Inc., as Borrower, The Lenders Listed Herein, as
lenders, Wells Fargo Bank, National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent, $200,000,000
|12.1   |  | Statement Regarding Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                
|14.1   |  | Code of Business Conduct and Ethics for the Board of Directors                                                                                                                                                                                                                       
|14.2   |  | Code of Ethics for Senior Officers                                                                                                                                                                                                                                                   
|14.3   |  | Guide to Business Conduct                                                                                                                                                                                                                                                            
|21     |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                       
|23     |  | Independent Registered Public Accounting Firm Consent                                                                                                                                                                                                                                
|24     |  | Power of Attorney of Directors of StanCorp Financial Group, Inc.                                                                                                                                                                                                                     
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   
|31.2   |  | Certification of Assistant Vice President, Controller and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                                                                                                      
|32.1   |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   
|32.2   |  | Certification of Assistant Vice President, Controller and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                                                                                                                      
|99.1   |  | StanCorp Financial Group, Inc. Corporate Governance Guidelines dated February 12, 2007                                                                                                                                                                                               



|   |  |                               
|-- |  | ------------------------------
|78 |  | STANCORP FINANCIAL GROUP, INC.



---



Signatures



Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in Portland, Oregon on February 27, 2008.



STANCORP FINANCIAL GROUP, INC.By:

/s/ ERIC E. PARSONSName: Eric E. ParsonsTitle:   Chairman, President and Chief Executive Officer




Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                         |  |                                                                                        |  |                  
|---------------------------------------- |  | -------------------------------------------------------------------------------------- |  | -----------------
|Signature                                |  | Title                                                                                  |  | Date             
|                                         |  |                                                                                       
|/s/ ERIC E. PARSONSEric E. Parsons       |  | Chairman, President and Chief Executive Officer (Principal Executive Officer) Director |  | February 27, 2008
|                                         |  |                                                                                       
|/s/ ROBERT M. ERICKSONRobert M. Erickson |  | Assistant Vice President, Controller and Principal Financial Officer                   |  | February 27, 2008
|                                         |  |                                                                                       
|*Virginia L. Anderson                    |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*Frederick W. Buckman                    |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*John E. Chapoton                        |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*Stanley R. Fallis                       |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*Wanda G. Henton                         |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*Peter O. Kohler, MD                     |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*Jerome J. Meyer                         |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*Ralph R. Peterson                       |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*E. Kay Stepp                            |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*Michael G. Thorne                       |  | Director                                                                               |  | February 27, 2008
|                                         |  |                                                                                       
|*Ronald E. Timpe                         |  | Director                                                                               |  | February 27, 2008

|     |  |                                     
|---- |  | ------------------------------------
|     | 
|*By: |  | /S/ ERIC E. PARSONS                 
|     |  | Eric E. Parsons, as Attorney-in-fact



2007 ANNUAL REPORT

79




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Part IV



Exhibits Index



|       |  |                                                                                                                                            |  |                                                                                                                       
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------
|Number |  | Name                                                                                                                                       |  | Method of Filing                                                                                                      
|3.1    |  | Articles of Incorporation of StanCorp Financial Group, Inc. as amended                                                                     |  | Filed as Exhibit 4.1 on Registrants Form 8-K, dated May 7, 1999, and incorporated herein by this reference           
|3.2    |  | Bylaws of StanCorp Financial Group, Inc.                                                                                                   |  | Filed as Exhibit 3.2 on Registrants Form S-1A, dated March 12, 1999, and incorporated herein by this reference       
|4.1    |  | Form of Rights Agreement                                                                                                                   |  | Filed as Exhibit 4.2 on the Registrants Form 8-K, dated May 7, 1999, and incorporated herein by this reference       
|4.2    |  | Form of Indenture Relating to Senior Debt Securities                                                                                       |  | Filed as Exhibit 4 (c) on the Registrants Form S-3, dated July 3, 2002, and incorporated herein by this reference    
|4.3    |  | StanCorp Financial Group, Inc. and U.S. Bank National Association as Trustee, First Supplemental Indenture, Dated as of September 25, 2002 |  | Filed as Exhibit 4.1 on the Registrants Form 8-K, dated September 25, 2002, and incorporated herein by this reference
|4.4    |  | First Supplemental Indenture, dated May 29, 2007, between the Company and U.S. Bank National Association                                   |  | Filed as Exhibit 4.1 on Registrants 8-K, dated May 30, 2007, and incorporated herein by this reference               
|4.5    |  | Replacement Capital Covenant dated May 29, 2007, for the benefit of holders of the Companys 6.875% Senior Notes due 2012                  |  | Filed as Exhibit 4.2 on Registrants 8-K, dated May 30, 2007, and incorporated herein by this reference               
|10.1   |  | StanCorp Financial Group, Inc. 1999 Omnibus Stock Incentive Plan, As Amended                                                               |  | Filed as Exhibit 10.2 on Registrants Form 10-Q, dated August 14, 2000, and incorporated herein by this reference     
|10.2   |  | Amendment No. 3 to StanCorp Financial Group, Inc. 1999 Omnibus Stock Incentive Plan                                                        |  | Filed as Exhibit 10.3 on Registrants Form 10-K, dated March 10, 2005, and incorporated herein by this reference      
|10.3   |  | StanCorp Financial Group, Inc. 1999 Employee Share Purchase Plan                                                                           |  | Filed as Exhibit 10.3 on the Registrants Form 10-K, dated March 14, 2000, and incorporated herein by this reference  
|10.4   |  | Amendment No. 1 to StanCorp Financial Group, Inc. 1999 Employee Share Purchase Plan                                                        |  | Filed as Exhibit 10.5 on Registrants Form 10-K, dated March 10, 2005, and incorporated herein by this reference      
|10.5   |  | Standard Insurance Company Supplemental Retirement Plan for the Senior Officer Management Group 2008 Restatement                           |  | Filed herewith                                                                                                        
|10.6   |  | StanCorp Financial Group, Inc. Deferred Compensation Plan for Senior Officers 2008 Restatement                                             |  | Filed herewith                                                                                                        
|10.7   |  | StanCorp Financial Group, Inc. Amended 2002 Stock Incentive Plan                                                                           |  | Filed as Exhibit 10.14 on Registrants Form 10-Q, dated November 9, 2004, and incorporated herein by this reference   
|10.8   |  | Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan, As Amended Restricted Stock Agreement                                    |  | Filed as Exhibit 10.3 on the Registrants Form 8-K, dated January 6, 2005, and incorporated herein by this reference  
|10.9   |  | Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan Non-Statutory Stock Option Agreement Senior Officers                      |  | Filed as Exhibit 10.5 on the Registrants Form 8-K, dated January 6, 2005, and incorporated herein by this reference  



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|80 |  | STANCORP FINANCIAL GROUP, INC.



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|       |  |                                                                                                                                                                                                                                                                                       |  |                                                                                                                     
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Number |  | Name                                                                                                                                                                                                                                                                                  |  | Method of Filing                                                                                                    
|10.10  |  | Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan Non-Statutory Stock Option Agreement Directors                                                                                                                                                                       |  | Filed as Exhibit 10.6 on the Registrants Form 8-K, dated January 6, 2005, and incorporated herein by this reference
|10.11  |  | StanCorp Financial Group, Inc. Short-Term Incentive Plan                                                                                                                                                                                                                              |  | Filed as Exhibit 10.2 on Registrants Form 10-Q, dated May 9, 2007, and incorporated herein by this reference       
|10.12  |  | Acquisition Agreement by and between Minnesota Life Insurance Company and Standard Insurance Company dated December 1, 2000                                                                                                                                                           |  | Filed as Exhibit 2 on Registrants Form 10-K, dated March 14, 2001, and incorporated herein by this reference       
|10.13  |  | 100% Coinsurance Agreement Between Protective Life Insurance Company and Standard Insurance Company dated November 6, 2000                                                                                                                                                            |  | Filed as Exhibit 2 on Registrants Form 10-Q, dated May 14, 2001, and incorporated herein by this reference         
|10.14  |  | Purchase and Sale Agreement by and Between Teachers Insurance and Annuity Association of America and Standard Insurance Company dated May 29, 2002                                                                                                                                    |  | Filed as exhibit 10.17 on Registrants Form 10-K, dated March 14, 2003, and incorporated herein by this reference   
|10.15  |  | StanCorp Financial Group, Inc. Deferred Compensation Plan for Directors 2008 Restatement                                                                                                                                                                                              |  | Filed herewith                                                                                                      
|10.16  |  | Group Disability Income Reinsurance Agreement between The Northwestern Mutual Life Insurance Company (Milwaukee, Wisconsin) and Standard Insurance Company (Portland, Oregon)                                                                                                         |  | Filed as Exhibit 10.20 on Registrants Form 10-K, dated March 10, 2005, and incorporated herein by this reference   
|10.17  |  | Amendment No. 1 Restatement of Deferred Compensation Plan for Directors of Standard Insurance Company                                                                                                                                                                                 |  | Filed as Exhibit 10.21 on Registrants Form 10-Q, dated August 9, 2005, and incorporated herein by this reference   
|10.18  |  | Amendment to Group Disability Income Reinsurance Agreement between Standard Insurance Company (Portland, Oregon) and The Northwestern Mutual Life Insurance Company (Milwaukee,
Wisconsin)                                                                                            |  | Filed as Exhibit 10.22 on Registrants Form 10-Q, dated August 9, 2005, and incorporated herein by this reference   
|10.19  |  | Form of Executive Officer and Director Indemnity Agreement                                                                                                                                                                                                                            |  | Filed as Exhibit 10.25 on Registrants Form 10-Q, dated August 9, 2005, and incorporated herein by this reference   
|10.20  |  | Credit Agreement Dated as of June 15, 2006, Among StanCorp Financial Group, Inc., as Borrower, The Lenders Listed Herein, as Lenders, Wells Fargo Bank, National Association, as Administrative
Agent, and U.S. Bank National Association, as Syndication Agent, $200,000,000         |  | Filed as Exhibit 10.1 on the Registrants Form 8-K, dated June 16, 2006, and incorporated herein by this reference  
|10.21  |  | Form of Change of Control Agreement                                                                                                                                                                                                                                                   |  | Filed as Exhibit 10.1 on Registrants Form 8-K, dated December 14, 2006, and incorporated herein by this reference  
|10.22  |  | Form of StanCorp Financial Group, Inc. Long-Term Incentive Award Agreement (20 Performance Period)                                                                                                                                                                                    |  | Filed as Exhibit 10.1 on Registrants Form 10-Q, dated May 9, 2007, and incorporated herein by this reference       
|10.23  |  | Credit Agreement Extension Dated as of May 9, 2007, Among StanCorp Financial Group, Inc., as Borrower, The Lenders Listed Herein, as lenders, Wells Fargo Bank, National Association, as
Administrative Agent, and U.S. Bank National Association, as Syndication Agent, $200,000,000 |  | Filed as Exhibit 10.1 on Registrants Form 8-K, dated May 10, 2007, and incorporated herein by this reference       



2007 ANNUAL REPORT

81




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Part IV



|       |  |                                                                                                                                                 |  |                                                                                                                   
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------
|Number |  | Name                                                                                                                                            |  | Method of Filing                                                                                                  
|12.1   |  | Statement Regarding Computation of Ratio of Earnings to Fixed Charges                                                                           |  | Filed herewith                                                                                                    
|14.1   |  | Code of Business Conduct and Ethics for the Board of Directors                                                                                  |  | Filed as Exhibit 14.1 on Registrants Form 10-K, dated March 5, 2004, and incorporated herein by this reference   
|14.2   |  | Code of Ethics for Senior Officers                                                                                                              |  | Filed as Exhibit 14.2 on Registrants Form 10-K, dated March 5, 2004, and incorporated herein by this reference   
|14.3   |  | Guide to Business Conduct                                                                                                                       |  | Filed as Exhibit 14.3 on Registrants Form 10-K, dated March 5, 2004, and incorporated herein by this reference   
|21     |  | Subsidiaries of the Registrant                                                                                                                  |  | Filed herewith                                                                                                    
|23     |  | Independent Registered Public Accounting Firm Consent                                                                                           |  | Filed herewith                                                                                                    
|24     |  | Power of Attorney of Directors of StanCorp Financial Group, Inc.                                                                                |  | Filed herewith                                                                                                    
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                              |  | Filed herewith                                                                                                    
|31.2   |  | Certification of Assistant Vice President, Controller and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith                                                                                                    
|32.1   |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                              |  | Filed herewith                                                                                                    
|32.2   |  | Certification of Assistant Vice President, Controller and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith                                                                                                    
|99.1   |  | StanCorp Financial Group, Inc. Corporate Governance Guidelines dated February 12, 2007                                                          |  | Filed as Exhibit 99.1 on Registrants Form 8-K, dated February 16, 2007, and incorporated herein by this reference



|   |  |                               
|-- |  | ------------------------------
|82 |  | STANCORP FINANCIAL GROUP, INC.