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
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.
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.
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
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.
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.
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
of $0.6 million for future assessments with respect to currently impaired, insolvent or failed insurers.
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.
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.
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
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.
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.
During 2007 and 2006, Standard made distributions to StanCorp totaling $155.0 million and $147.0 million, respectively.