Asset Management. The increase was partially offset by a comparatively higher Employee Benefits benefit ratio as a result of a 95 basis point lower average discount rate in 2012 compared to 2011 used for newly established long term disability claim reserves.
Our real estate investments are stated at cost less accumulated depreciation. Generally, we depreciate this real estate using the straight-line depreciation method with property lives varying from 30 to 40 years.
The long-term 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.
Changes in new investment interest rates and overall portfolio yield, which influence our interest-crediting rate for our customers.
The decrease in benefits to policyholders (including interest credited) for Insurance Services for 2013 compared to 2012 was primarily due to comparatively favorable claims experience in the Employee Benefits segment.
disability claim reserves, partially offset by higher premiums for Employee Benefits and a lower Individual Disability benefit ratio. In addition, bond call premiums and commercial mortgage loan prepayment fee revenues added $13.1 million of income before income taxes for 2012, compared to $4.9 million for 2011, offsetting the effects of lower portfolio yields on invested assets.
At December 31, 2013, we did not have any direct exposure to sub-prime or Alt-A mortgages in our commercial mortgage loan portfolio. When we undertake mortgage risk, we do so directly through loans that we originate ourselves rather than in packaged products such as commercial mortgage-backed securities. Given that we service the vast majority of loans in our portfolios, we are prepared to deal with them promptly and proactively. Should the delinquency rate or loss performance of our commercial mortgage loan portfolio increase significantly, the increase could have a material adverse effect on our business, financial position, results of operations or cash flows.
In the normal course of business, we commit to fund commercial mortgage loans generally up to 90 days in advance. At December 31, 2013, we had outstanding commitments to fund commercial mortgage loans totaling $197.6 million, with fixed interest rates ranging from 4.25% to 5.75%. These commitments generally have fixed expiration dates. A small percentage of commitments
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 $443.3 million, $409.6 million and $327.7 million for 2013, 2012 and 2011, respectively. The increase in funds provided by financing cash flows for 2013 compared to 2012 was primarily due to an increase in net policyholder fund deposits and an increase in cash provided by issuances of common stock, partially offset by an increase in cash used to repurchase shares of common stock. See “Capital Management-Share Repurchases” for further discussion on share repurchases.
Our debt obligations consisted primarily of the $250 million 5.00% 2022 Senior Notes and the $300 million 6.90% Subordinated Debt. See Item 8, “Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-Note 18-Long-Term Debt”.
StanCorp, headquartered in Portland, Oregon, is a holding company and conducts business through wholly-owned operating subsidiaries throughout the United States. Through its subsidiaries, StanCorp has the authority to underwrite insurance products in all 50 states. The Company collectively views and operates its businesses as Insurance Services and Asset Management, which both deliver distinct value to customers and shareholders. Insurance Services contains two reportable product segments, Employee Benefits and Individual Disability. See “Note 5-Segments.”
In November of 2013, the Company became a member of the Federal Home Loan Bank (“FHLB”) of Seattle and purchased the required common stock for membership. The common stock held by the Company relating to its membership in the FHLB of Seattle is carried at par value. The Company periodically evaluates FHLB stock for OTTI. The Company’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value.
The Company defers certain acquisition costs that vary with and are directly related to the origination of 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. Changes in actual persistency are reflected in the calculated DAC balance. Costs that are not directly associated with the acquisition of new business are not deferred as DAC and are charged to expense as incurred. Generally, annual commissions are considered expenses and are not deferred.
(1) The intrinsic value of outstanding options can fluctuate significantly due to changes in the year end closing stock price from year to year.
Pension plan assets are recorded at fair value and are disclosed below using a three-level hierarchy. See “Note 9-Fair Value” for additional fair value information. The fair values of pooled separate accounts are valued daily based upon quoted market prices in an active market and are classified as Level 1 assets. Pooled separate accounts are recorded at fair value on a recurring basis. The fair value of the stable asset fund is included in the financial statements at the Deposit Administration Contract value and was classified as a Level 2 asset. The contract value approximates fair value, as the contract crediting rate resets annually, and the contracts are fully benefit-responsive. Contract value represents contributions made under the contracts, plus earnings, less withdrawals and administrative expenses.
(b) Represents various actuarial assumptions which include combined lapse, mortality and withdrawal decrement rates which generally have a range of inputs from 5%-36% for both December 31, 2013 and December 31, 2012.
The Company continuously monitors its commercial mortgage loan portfolio for potential impairment by evaluating the portfolio and individual loans. See “Note 1-Summary of Significant Accounting Policies-Investment Valuations-Commercial Mortgage Loans” for the Company’s commercial mortgage loan impairment evaluation.
and $3.3 million for 2013 and 2012, respectively. The combined changes in fair value of the S&P 500 Index options and the index-based interest guarantees resulted in net gains for 2013 and 2012.
State insurance departments require insurance enterprises to adhere to minimum Risk-based Capital (“RBC”) requirements promulgated by the NAIC. At December 31, 2013 and 2012, 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 $186.6 million and $189.1 million at December 31, 2013 and 2012, respectively. At December 31, 2013, the capital of the Company’s insurance subsidiaries was approximately 398% of the Company Action Level RBC required by regulators, which was approximately 796% of the Authorized Control Level RBC required by the Company’s states of domicile. At December 31, 2012, the capital of the Company’s insurance subsidiaries was approximately 365% of the Company Action Level RBC required by regulators, which was approximately 730% of the Authorized Control Level RBC required by the Company’s states of domicile.
Total rent expense was $13.7 million, $15.2 million and $16.4 million for the years ended December 31, 2013, 2012 and 2011, respectively.
(2) Net of tax benefit of $2.2 million for unrealized gains on fixed maturity securities and net of tax expense of $3.4 million for employee benefits.