Net capital gains and losses are reported in “Other.” Net capital gains were $1.9 million, $2.2 million and $11.5 million for 2006, 2005 and 2004, 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.
Income before income taxes for the Asset Management segment increased 24.3% to $38.4 million for 2006 compared to 2005. The increase was primarily due to increased administrative fees earned from increased assets under administration. Income before income taxes for the Asset Management segment decreased 0.6% to $30.9 million for 2005 compared to 2004. The decrease between comparative periods was primarily due to lower net investment income from commitment fees due to lower commercial mortgage loan originations in 2005 compared to 2004.
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 the Company’s financial assets can be significantly different from that estimated by the model. The hypothetical reduction in the fair value of the Company’s financial assets that resulted from the model was estimated to be $183 million and $169 million at December 31, 2006 and 2005, respectively.
Commercial mortgage loan originations for internal and external investors were $942.8 million, $996.4 million and $1.17 billion for 2006, 2005 and 2004, respectively. The
Capitalized commercial mortgage loan servicing rights associated with commercial loans serviced for other institutional investors were $4.0 million and $3.3 million at December 31, 2006 and 2005, respectively.
In the normal course of business, we commit to fund commercial mortgage loans generally up to 90 days in advance. At December 31, 2006, the Company had outstanding commitments to fund commercial mortgage loans totaling $160.7 million, with fixed interest rates ranging from 6.0% to 7.5%. 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, we
Effective December 31, 2006, the NAIC adopted changes to the RBC calculation that require insurance companies to undertake additional testing to determine the risk-based capital requirement for certain annuities and single payment life insurance. The change did not significantly impact the Company’s authorized control level RBC at December 31, 2006.
VOBA primarily represents the discounted future profits of business assumed through reinsurance agreements. VOBA is amortized in proportion to future premiums or future profitability, as appropriate. 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. 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 and intangibles totaled $100.7 million and $79.5 million at December 31, 2006 and 2005, respectively. Regarding the effect of the adoption of SOP 05-1, the premium portion of the VOBA related to TIAA will be recorded as a reduction of retained earnings upon adoption of SOP 05-1. See Item 8, “Financial Statements and Supplementary Data- Notes to Consolidated Financial Statements-Note 1-Summary of Significant Accounting Policies-Accounting Pronouncements.”
in Connection With Modifications or Exchanges of Insurance Contracts, effective for internal replacements occurring in fiscal years beginning after December 15, 2006. SOP 05-1 defines an internal replacement as modifications in product benefits, features, rights or coverages that occur by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election of a feature or coverage within an existing contract. An issued technical practice aid related to SOP 05-1 applies a rules-based interpretation of a replacement. The adoption of SOP 05-1 beginning in 2007 will have an estimated cumulative effect adjustment between $30 million and $40 million, after-tax, which will be recorded as a reduction to retained earnings. At December 31, 2006, prior to adjustment for SOP 05-1, the Company’s group DAC, group VOBA and retirement plans DAC were $63.4 million, $27.2 million and $24.6 million, respectively. The Company estimates 2007 pre-tax earnings will be reduced by between $3 million and $5 million related to the adoption of SOP 05-1. This estimate assumes stable lapse ratios and that DAC will be amortized over the guarantee period of the contract, which for our group business is approximately 2.5 years. Previously, amortization of DAC on these contracts was up to 5 years.
The expected benefit payments for the Company’s pension plans are as follows for the years indicated:
The Company uses 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 are fixed in dollars. Directors receive one-third of the retainer fees in stock and receive the remainder in cash. The number of shares issued varies according to the market value of the stock on the date of the issue. The shares are fully vested when issued. The number of director shares issued was 3,617, 4,210 and 5,222 during 2006, 2005 and 2004, respectively. The weighted-average fair value for the shares issued was $49.83, $40.94 and $33.25 for the same periods, respectively.
The following table reconciles statutory gain from operations as reported to insurance regulatory authorities with GAAP net income for the years ended December 31:
transactions through December 31, 2007, and replaced the Company’s previous share repurchase program.