Revenues are likely to be relatively flat compared to 2008 given the challenging economic environment.
The primary driver for administrative fee revenue is the level of assets under administration in our Asset Management segment, which is primarily driven by equity market performance. Administrative fees for our Asset Management segment decreased 0.3% to $118.3 million for 2008 compared to 2007 and increased 51.6% to $118.7 million for 2007 compared to 2006. The slight administrative fee decline in 2008 was due to lower levels of assets managed for retirement accounts, which was the result of declining equity markets. This was partially offset by continued new net deposits and increased assets under administration for annuities and commercial mortgage loans. In 2007, administrative fee growth in our Asset Management segment reflected business acquisitions and growth in net deposits in our retirement plans business. In addition, administrative fee growth in 2007 also reflected increased fee revenue related to the origination and servicing of commercial mortgage loans participated to third party investors. Assets under administration were
The increases for 2008 compared to 2007 were primarily due to premium growth in our insurance businesses and strong individual annuity sales in 2008. In comparing 2007 to 2006, the increases 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.
Premiums for the Insurance Services segment increased 2.2% for 2008 compared to 2007, and 7.1% for 2007 compared to 2006. Premiums for 2007 included a single reserve buyout of $19.3 million. Premium growth for 2008 compared to 2007, adjusted for the single reserve buyout of $19.3 million, was 3.2%. The primary factors that affect premium growth for the Insurance Services segment are
Average assets under administration for individual fixed annuities increased 32.5% for 2008 compared to 2007, and 6.4% for 2007 compared to 2006. 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.”
Additionally, a cash management process is in place that anticipates short-term cash needs. Depending upon capital market conditions anticipated, cash needs may be covered by liquid asset holdings or a draw upon our line of credit. In almost all cases, borrowed funds can be retired from normal operating cash flows in conjunction with adjustments to long-term investing practice within half a year. For more information about our line of credit, see “-Financing Cash Flows,” and Part I, Item 1A, “Risk Factors.”
As a percentage of our fixed maturity investments, callable bonds were 2.43% at December 31, 2008. 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
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.
During 2008, we repurchased 0.5 million shares of common stock at a total cost of $24.9 million for a volume weighted-average price of $47.31 per common share. At December 31, 2008, there were 0.9 million shares remaining under the current share repurchase program. In addition, during 2008, we acquired 5,245 shares of common stock from executive officers and directors to cover tax liabilities of these officers and directors resulting from the release of performance-based shares and retention-based shares at a total cost of $0.3 million for a volume weighted-average price of $51.33 per common share, which reflects the market price on the transaction dates.
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
Despite the recent volatility in the economy, we do not currently anticipate credit ratings downgrades. We believe our well-managed underwriting and claims operations, our high quality invested asset portfolios and our strong capital position will continue to support our ability to maintain a strong credit standing during the current recession. See “Liquidity and Capital Resources-Asset/Liability and Interest Rate Risk Management” and “Capital Management.” In addition, we remain well within our line of credit financial covenant restrictions. See “Liquidity and Capital Resources-Financing Cash Flows.”
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 capital adjusted to exclude asset valuation reserves, for our insurance regulated subsidiaries totaled $1.23 billion and $1.15 billion at December 31, 2008 and 2007, respectively. The asset valuation reserve was $78.8 million and $102.2 million at December 31, 2008 and 2007, respectively.
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 adjusted carrying value or amortized cost basis is other than temporary. The impairment loss is charged to net capital gains or losses, and the cost basis of the investment is permanently adjusted to reflect the impairment.
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. Beginning with the adoption of 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. 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.
material adverse effect on the Company’s financial position or results of operations.
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.
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 2008, while we have experienced some variation in our
The expected return on plan assets assumption is the best long-term estimate of the average annual return that will be produced from the pension trust assets until current benefits are paid. Our expectations for the future investment returns of the asset categories are based on a combination of historical and projected market performance. The expected return for the total portfolio is calculated based on each plan’s strategic asset allocation.
Changes in the regulatory environment at the state or federal level or changes in U.S. GAAP accounting principles, practices or policies.
Our investment portfolio includes fixed maturity securities and commercial mortgage loans. At December 31, 2008, issues on our fixed maturity securities impairment watch list totaled approximately $329.5 million in market value and $439.0 million in book value after other-than-temporary impairments had been taken. The Company recorded other-than-temporary impairments of $104.9 million during 2008, primarily due to a decline in the market value of holdings of issuers the Company believed would face difficulties in the deteriorating economic environment. In 2008, the Company sold bond holdings of companies with potential liquidity concerns in order to solidify the condition of the Company’s bond portfolio. The Company will continue to evaluate these holdings but currently expects the fair values of its investments to recover as the securities approach their maturity dates. Should the credit quality of our fixed maturity securities continue to decline, there could be a material adverse effect on our business, financial position, results of operations or cash flows. We did not have any direct exposure to sub-prime or Alt-A mortgages in our fixed maturity securities portfolio at December 31, 2008.
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 $419.6 million and $373.8 million at December 31, 2008 and 2007, respectively.
Other comprehensive income (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 (loss) for the years ended December 31:
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.
acquisition, the Company has approximately $1.7 million (tax effected) of various state net operating loss carryforwards that expire at various dates through 2028.
group disability insurance is $15,000 of monthly benefit per individual. During 2007, the Company increased its maximum retention limit from $5,000 to $5,500 of 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 of monthly benefit per individual.
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, 2008, was $600.8 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 2012.