Stancorp Financial (SFG) 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

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)

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)

(971) 321-7000

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

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 that 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 Exchange Act).    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 25, 2008, there were 48,889,331 shares of the registrant’s common stock, no par value, outstanding.

INDEX

PART I.    FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Unaudited Consolidated Statements of Income and Comprehensive Income (Loss) for the three and six months ended June 30, 2008 and 2007	1
	Unaudited Consolidated Balance Sheets at June 30, 2008, and December 31, 2007	2
	Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2008, and the year ended December 31, 2007	3
	Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007	4
	Condensed Notes to Unaudited Consolidated Financial Statements	5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47
ITEM 4.	CONTROLS AND PROCEDURES	47
PART II.    OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	48
ITEM 1A.	RISK FACTORS	48
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	51
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	51
ITEM 5.	OTHER INFORMATION	51
ITEM 6.	EXHIBITS	52
SIGNATURES		53

STANCORP FINANCIAL GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME (LOSS)

(In millions—except share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Revenues:
Premiums	$	543.0		$	518.1		$	1,083.5		$	1,010.1
Administrative fees		30.9			28.4			58.8			54.9
Net investment income		136.6			130.7			265.4			254.0
Net capital gains (losses)		(21.6	)		0.7			(26.0	)		1.6
Total revenues		688.9			677.9			1,381.7			1,320.6
Benefits and expenses:
Benefits to policyholders		409.2			409.9			820.9			791.9
Interest credited		27.8			28.0			49.0			53.6
Operating expenses		115.8			105.7			232.7			212.0
Commissions and bonuses		54.9			46.4			112.1			96.4
Premium taxes		9.4			9.3			18.4			18.2
Interest expense		9.9			6.3			19.6			10.8
Net increase in deferred acquisition costs, value of business acquired and other intangibles		(8.6	)		(6.7	)		(17.6	)		(15.1	)
Total benefits and expenses		618.4			598.9			1,235.1			1,167.8
Income before income taxes		70.5			79.0			146.6			152.8
Income taxes		22.1			26.9			47.9			52.4
Net income		48.4			52.1			98.7			100.4
Other comprehensive loss, net of tax:
Unrealized losses on securities available-for-sale:
Unrealized capital losses on securities available-for-sale, net		(92.9	)		(54.8	)		(72.4	)		(46.2	)
Reclassification adjustment for net capital (gains) losses included in net income, net		14.9			(1.5	)		13.7			(1.8	)
Employee benefits plans:
Prior service cost arising during the period, net		—			—			—			(1.4	)
Reclassification adjustment for amortization to net periodic pension cost, net		0.2			0.2			0.4			0.5
Total other comprehensive loss, net of tax		(77.8	)		(56.1	)		(58.3	)		(48.9	)
Comprehensive income (loss)	$	(29.4	)	$	(4.0	)	$	40.4		$	51.5
Net income per common share:
Basic	$	0.99		$	0.98		$	2.02		$	1.88
Diluted		0.98			0.97			2.00			1.86
Weighted-average common shares outstanding:
Basic		48,943,331			53,195,859			48,950,232			53,311,550
Diluted		49,414,086			53,735,309			49,387,519			53,846,800

See Condensed Notes to Unaudited Consolidated Financial Statements.

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STANCORP FINANCIAL GROUP, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

	June 30, 2008			December 31, 2007
A S S E T S
Investments:
Fixed maturity securities—available-for-sale	$	5,285.9		$	4,997.1
Short-term investments		1.8			4.5
Commercial mortgage loans, net		3,967.8			3,657.7
Real estate, net		72.2			71.8
Policy loans		3.8			3.9
Total investments		9,331.5			8,735.0
Cash and cash equivalents		72.2			205.8
Premiums and other receivables		101.5			106.8
Accrued investment income		100.5			93.1
Amounts recoverable from reinsurers		937.8			929.6
Deferred acquisition costs, value of business acquired, other intangibles and goodwill, net		345.7			324.8
Property and equipment, net		134.0			126.9
Deferred tax assets, net		11.9			—
Other assets		33.7			74.5
Separate account assets		4,157.8			4,386.4
Total Assets	$	15,226.6		$	14,982.9
L I A B I L I T I E S    A N D    S H A R E H O L D E R S’    E Q U I T Y
Liabilities:
Future policy benefits and claims	$	5,246.0		$	5,158.7
Other policyholder funds		3,533.3			3,153.8
Deferred tax liabilities, net		—			15.6
Short-term debt		22.0			4.0
Long-term debt		562.3			562.6
Other liabilities		239.4			272.8
Separate account liabilities		4,157.8			4,386.4
Total liabilities		13,760.8			13,553.9
Contingencies and commitments (See Note 9)
Shareholders’ equity:
Preferred stock, 100,000,000 shares authorized; none issued		—			—
Common stock, no par, 300,000,000 shares authorized; 49,029,174 and 49,155,131 shares issued at June 30, 2008, and December 31, 2007, respectively		263.5			267.1
Accumulated other comprehensive income (loss)		(41.5	)		16.8
Retained earnings		1,243.8			1,145.1
Total shareholders’ equity		1,465.8			1,429.0
Total liabilities and shareholders’ equity	$	15,226.6		$	14,982.9

See Condensed Notes to Unaudited Consolidated Financial Statements.

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STANCORP FINANCIAL GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in millions)

	Common Stock					Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Shareholders’ Equity
	Share		Amount
Balance, January 1, 2007	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
Net income	—			—			—			98.7			98.7
Other comprehensive loss, net of tax	—			—			(58.3	)		—			(58.3	)
Common stock:
Repurchased	(328,800	)		(15.9	)		—			—			(15.9	)
Issued to directors	9,820			0.2			—			—			0.2
Issued under employee stock plans, net	193,023			12.1			—			—			12.1
Balance, June 30, 2008	49,029,174		$	263.5		$	(41.5	)	$	1,243.8		$	1,465.8

See Condensed Notes to Unaudited Consolidated Financial Statements.

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STANCORP FINANCIAL GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

	Six Months Ended June 30,
	2008			2007
Operating:
Net income	$	98.7		$	100.4
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized capital losses		26.0			1.7
Depreciation and amortization		67.9			47.1
Deferral of acquisition costs, value of business acquired, other intangibles and goodwill, net		(53.5	)		(41.3	)
Deferred income taxes		4.1			7.8
Changes in other assets and liabilities:
Receivables and accrued income		(9.0	)		(13.3	)
Future policy benefits and claims		87.3			115.8
Other, net		18.6			31.5
Net cash provided by operating activities		240.1			249.7
Investing:
Proceeds of investments sold, matured or repaid:
Fixed maturity securities—available-for-sale		310.3			344.8
Commercial mortgage loans		497.8			463.4
Real estate		0.4			2.1
Cost of investments acquired or originated:
Fixed maturity securities—available-for-sale		(732.0	)		(569.4	)
Commercial mortgage loans		(818.2	)		(665.7	)
Real estate		(2.6	)		(3.6	)
Acquisitions		—			(0.7	)
Other investments		—			(60.7	)
Acquisition of property and equipment		(19.9	)		(15.9	)
Net cash used in investing activities		(764.2	)		(505.7	)
Financing:
Policyholder fund deposits		1,146.8			896.1
Policyholder fund withdrawals		(767.3	)		(759.7	)
Short-term debt		18.0			0.4
Long-term debt		(0.3	)		296.5
Issuance of common stock		9.2			3.4
Repurchase of common stock		(15.9	)		(43.6	)
Net cash provided by financing activities		390.5			393.1
Increase (decrease) in cash and cash equivalents		(133.6	)		137.1
Cash and cash equivalents, beginning of period		205.8			56.0
Cash and cash equivalents, end of period	$	72.2		$	193.1
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	74.7		$	63.4
Income taxes		47.1			49.1

See Condensed Notes to Unaudited Consolidated Financial Statements.

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CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As used in this Form 10-Q, the terms “StanCorp,” “Company,” “we,” “us” and “our” refer to StanCorp Financial Group, Inc. and its subsidiaries, unless the context otherwise requires.

1. 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 (“Standard”), a leading provider of group insurance products and services that offers group and individual disability insurance, group life and accidental death and dismemberment (“AD&D”) insurance and group dental insurance. Through our insurance subsidiaries, we have the authority to underwrite insurance products in all 50 states. Our asset management businesses offer 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 advisory and management services, financial planning services, individual fixed annuities, group annuity contracts and retirement plan trust products, 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 4—Segments.”

StanCorp was incorporated under the laws of Oregon in 1998 as a parent holding company and conducts business through its subsidiaries: 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, through its 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.

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, licensed in all states except New York, and 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 and trust products began operating through Standard Retirement Services. Retirement plan products are offered in all 50 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 and services small, fixed-rate commercial mortgage loans for the investment portfolios of the Company’s insurance subsidiaries. StanCorp Mortgage Investors also generates additional fee income from the origination and servicing of commercial mortgage loans participated to institutional investors.

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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, financial planning, 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 owned by Standard.

StanCorp Trust Company offers limited directed trust services to retirement plan clients.

StanCorp and Standard hold interests in low-income housing partnerships. Individually, the interests 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. 51, nor do they meet the requirements for consolidation. The total investment in these interests was $17.5 million and $17.8 million at June 30, 2008, and December 31, 2007, respectively.

Minority interest related to consolidated entities included in other liabilities was $0.5 million at June 30, 2008, and December 31, 2007.

The unaudited consolidated financial statements include StanCorp and its subsidiaries. Intercompany balances and transactions have been eliminated.

The accompanying unaudited consolidated financial statements of StanCorp and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conformance with the requirements of Form 10-Q pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the financial statement date, and the reported amounts of revenues and expenses during the period. Actual results may differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the Company’s financial condition at June 30, 2008, and for the results of operations for the three and six months ended June 30, 2008 and 2007, and cash flows for the six months ended June 30, 2008 and 2007. Interim results for the three and six-month periods ended June 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. This report should be read in conjunction with the Company’s 2007 annual report on Form 10-K.

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.

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Net income per basic and diluted weighted-average common shares outstanding was calculated as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Net income (in millions)	$	48.4	$	52.1	$	98.7	$	100.4
Basic weighted-average common shares outstanding		48,943,331		53,195,859		48,950,232		53,311,550
Stock options		462,755		526,823		422,786		512,897
Restricted stock		8,000		12,627		14,501		22,353
Diluted weighted-average common shares outstanding		49,414,086		53,735,309		49,387,519		53,846,800
Net income per common share:
Net income per basic common share	$	0.99	$	0.98	$	2.02	$	1.88
Net income per diluted common share		0.98		0.97		2.00		1.86
Antidilutive shares not included in net income per diluted common share calculation		40,250		367,900		372,175		388,600

3. 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 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 2002 plan was authorized as a replacement for the 1999 Omnibus Stock Incentive Plan. Substantially all of the authorized shares in the 1999 plan have been issued or optioned as of June 30, 2008, and 2.6 million shares or options for shares had been issued under the 2002 plan. At the May 5, 2008, annual meeting of shareholders, the shareholders approved amending the 2002 plan to increase the number of shares available by 1.9 million shares. The maximum number of shares of common stock that may be issued under this plan, following the amendment, is 4.8 million, of which 2.2 million are still available.

The Company’s ESPP allows eligible employees to purchase StanCorp common stock at a discount. The ESPP is described later in this footnote.

Income before income taxes included compensation cost related to all share-based compensation arrangements of $1.9 million and $1.4 million for the second quarters of 2008 and 2007, respectively. The related tax benefits were $0.7 million and $0.5 million for the same periods, respectively. Income before income taxes included compensation cost related to all share-based compensation arrangements of $5.3 million and $4.2 million for the first six months of 2008 and 2007, respectively. The related tax benefits were $1.9 million and $1.5 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 typically receive annual grants in amounts determined by the organization and compensation committee of the board of directors. Options are granted with an exercise price equal to the market closing price of the stock on the

7

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. There were 369,450 options and 430,800 options granted in the first six months of 2008 and 2007, respectively, at a weighted-average exercise price of $50.05 and $45.69, respectively.

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. The weighted-average grant date fair value of options granted was $12.37 during the first six months of 2008, compared to $11.72 during the first six months of 2007.

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 June 30, 2008, the total compensation cost related to unvested option awards that has not yet been recognized in the financial statements was $7.9 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 0.8 million shares available for issuance as restricted stock at June 30, 2008.

Performance-based shares

Performance-based awards are made to designated 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. Awards are long-term incentive awards that culminate in future grants of stock to executives (“Stock Performance Units”). Stock Performance Units granted represent the maximum number of shares to be issued, and Stock Performance Units are generally granted two years before the performance period. Stock is 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. The granting of Stock Performance Units replaced the Company’s previous method of granting restricted stock along with cash units that were tied to the value of the Company’s stock at the time the restrictions were lifted.

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. During the first six months of 2008 and 2007, there were 62,962 and 83,655 Stock Performance Units granted. There were no performance-based shares vested or cash units paid in the second quarter of 2008 or 2007. The total value of performance-based shares vested and cash units paid was $1.8 million for the first six months of 2008, compared to $2.2 million for the same period in 2007.

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 maximum target is achieved for each performance goal, and valuing cash units at the price of StanCorp stock on June 30, 2008, $7.5 million in additional compensation cost would be recognized through 2010. The target or expected payout is 70% of the total or approximately $4.6 million. This cost is expected to be recognized over a weighted-average period of 1.7 years.

Retention-based shares

At June 30, 2008, there were 8,000 shares of retention-based restricted stock outstanding that were granted in 2006. There was $0.1 million of total unrecognized compensation cost related to unvested retention-based shares at June 30, 2008, which will be recognized by the end of 2008.

8

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. There were 303 shares issued in the second quarter of 2007 and 1,292 issued in the first six months of 2007 as compensation for directors’ retainer fees.

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 receives 1,000 shares of common stock on the day preceding the annual shareholders meeting. The first such payment was made in May 2008.

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 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, 0.7 million shares remained available at June 30, 2008. The Company’s compensation cost resulting from the ESPP was $0.4 million and $0.3 million for the second quarters of 2008 and 2007, respectively. The related tax benefit was $0.1 million and $0.1 million for the same periods, respectively. The compensation costs resulting from the ESPP were $0.9 million and $0.7 million for the first six months of 2008 and 2007, respectively, and the related tax benefits were $0.3 million for the same periods.

4. 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 advisory and management services, financial planning services, commercial mortgage loan origination and servicing, individual fixed annuities, group annuity contracts and retirement plan trust products, and limited trust 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 company expenses, interest on debt and adjustments made in consolidation are reflected in “Other.”

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The following table sets forth premiums, administrative fees and net investment income by major product line or category within each of our segments:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
				(In millions)
Premiums:
Insurance Services:
Group life and AD&D	$	219.5		$	196.4		$	434.7		$	387.5
Group long term disability		219.9			226.6			437.0			432.7
Group short term disability		54.6			54.1			108.5			107.0
Group dental		19.0			18.2			37.4			36.4
Experience rated refunds		(13.3	)		(13.4	)		(23.4	)		(24.4	)
Total Group insurance		499.7			481.9			994.2			939.2
Individual disability insurance		34.3			31.0			74.1			63.5
Total Insurance Services premiums		534.0			512.9			1,068.3			1,002.7
Asset Management:
Retirement plans		0.2			0.1			0.6			0.3
Individual annuities		8.8			5.1			14.6			7.1
Total Asset Management premiums		9.0			5.2			15.2			7.4
Total premiums	$	543.0		$	518.1		$	1,083.5		$	1,010.1
Administrative fees:
Insurance Services:
Group insurance	$	2.3		$	1.9		$	4.5		$	3.9
Individual disability insurance		0.1			—			0.2			—
Total Insurance Services administrative fees		2.4			1.9			4.7			3.9
Asset Management:
Retirement plans		26.2			24.7			49.8			47.6
Other financial services businesses		5.5			4.7			10.7			9.2
Total Asset Management administrative fees		31.7			29.4			60.5			56.8
Other		(3.2	)		(2.9	)		(6.4	)		(5.8	)
Total administrative fees	$	30.9		$	28.4		$	58.8		$	54.9
Net investment income:
Insurance Services:
Group insurance	$	73.0		$	68.5		$	143.9		$	136.1
Individual disability insurance		12.3			13.0			24.3			25.0
Total Insurance Services net investment income		85.3			81.5			168.2			161.1
Asset Management:
Retirement plans		21.5			20.5			42.7			41.9
Individual annuities		21.1			18.2			35.1			35.4
Other financial services businesses		5.5			4.9			10.2			7.6
Total Asset Management net investment income		48.1			43.6			88.0			84.9
Other		3.2			5.6			9.2			8.0
Total net investment income	$	136.6		$	130.7		$	265.4		$	254.0

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The following tables set forth select segment information:

	Insurance Services			Asset Management			Other			Total
				(In millions)
Three months ended June 30, 2008:
Revenues:
Premiums	$	534.0		$	9.0		$	—		$	543.0
Administrative fees		2.4			31.7			(3.2	)		30.9
Net investment income		85.3			48.1			3.2			136.6
Net capital losses		—			—			(21.6	)		(21.6	)
Total revenues		621.7			88.8			(21.6	)		688.9
Benefits and expenses:
Benefits to policyholders		397.9			11.3			—			409.2
Interest credited		2.7			25.1			—			27.8
Operating expenses		83.7			32.1			—			115.8
Commissions and bonuses		43.0			11.9			—			54.9
Premium taxes		9.4			—			—			9.4
Interest expense		—			0.1			9.8			9.9
Net increase in deferred acquisition costs, value of business acquired and intangibles		(4.3	)		(4.3	)		—			(8.6	)
Total benefits and expenses		532.4			76.2			9.8			618.4
Income (loss) before income taxes	$	89.3		$	12.6		$	(31.4	)	$	70.5
	Insurance Services			Asset Management			Other			Total
				(In millions)
Three months ended June 30, 2007:
Revenues:
Premiums	$	512.9		$	5.2		$	—		$	518.1
Administrative fees		1.9			29.4			(2.9	)		28.4
Net investment income		81.5			43.6			5.6			130.7
Net capital gains		—			—			0.7			0.7
Total revenues		596.3			78.2			3.4			677.9
Benefits and expenses:
Benefits to policyholders		402.7			7.2			—			409.9
Interest credited		4.0			24.0			—			28.0
Operating expenses		74.1			28.8			2.8			105.7
Commissions and bonuses		38.9			7.5			—			46.4
Premium taxes		9.3			—			—			9.3
Interest expense		—			0.1			6.2			6.3
Net increase in deferred acquisition costs, value of business acquired and intangibles		(5.1	)		(1.6	)		—			(6.7	)
Total benefits and expenses		523.9			66.0			9.0			598.9
Income (loss) before income taxes	$	72.4		$	12.2		$	(5.6	)	$	79.0

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	Insurance Services			Asset Management			Other			Total
				(In millions)
Six months ended June 30, 2008:
Revenues:
Premiums	$	1,068.3		$	15.2		$	—		$	1,083.5
Administrative fees		4.7			60.5			(6.4	)		58.8
Net investment income		168.2			88.0			9.2			265.4
Net capital losses		—			—			(26.0	)		(26.0	)
Total revenues		1,241.2			163.7			(23.2	)		1,381.7
Benefits and expenses:
Benefits to policyholders		801.3			19.6			—			820.9
Interest credited		6.4			42.6			—			49.0
Operating expenses		168.4			64.4			(0.1	)		232.7
Commissions and bonuses		89.7			22.4			—			112.1
Premium taxes		18.4			—			—			18.4
Interest expense		—			0.2			19.4			19.6
Net increase in deferred acquisition costs, value of business acquired and intangibles		(11.2	)		(6.4	)		—			(17.6	)
Total benefits and expenses		1,073.0			142.8			19.3			1,235.1
Income (loss) before income taxes	$	168.2		$	20.9		$	(42.5	)	$	146.6
Total assets	$	7,296.5		$	7,776.2		$	153.9		$	15,226.6
	Insurance Services			Asset Management			Other			Total
				(In millions)
Six months ended June 30, 2007:
Revenues:
Premiums	$	1,002.7		$	7.4		$	—		$	1,010.1
Administrative fees		3.9			56.8			(5.8	)		54.9
Net investment income		161.1			84.9			8.0			254.0
Net capital gains		—			—			1.6			1.6
Total revenues		1,167.7			149.1			3.8			1,320.6
Benefits and expenses:
Benefits to policyholders		780.4			11.5			—			791.9
Interest credited		7.8			45.8			—			53.6
Operating expenses		152.5			57.0			2.5			212.0
Commissions and bonuses		81.2			15.2			—			96.4
Premium taxes		18.2			—			—			18.2
Interest expense		—			0.2			10.6			10.8
Net increase in deferred acquisition costs, value of business acquired and intangibles		(11.9	)		(3.2	)		—			(15.1	)
Total benefits and expenses		1,028.2			126.5			13.1			1,167.8
Income (loss) before income taxes	$	139.5		$	22.6		$	(9.3	)	$	152.8
Total assets	$	6,967.4		$	7,409.6		$	365.3		$	14,742.3

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5. RETIREMENT 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 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.

In addition, 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 service were equal to or greater than 45 years at January 1, 2006.

The following tables set forth the components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for pension benefits and postretirement benefits:

	Pension Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
				(In millions)
Components of net periodic benefit cost (benefit):
Service cost	$	2.3		$	2.2		$	4.8		$	4.4
Interest cost		3.3			3.6			6.9			7.2
Expected return on plan assets		(4.5	)		(4.2	)		(9.1	)		(8.4	)
Amortization of prior service credit		(0.1	)		(0.1	)		(0.2	)		(0.2	)
Amortization of net actuarial loss		0.4			0.5			0.8			1.0
Net periodic benefit cost		1.4			2.0			3.2			4.0
Other changes in plan assets and benefit obligation recognized in other comprehensive (income) loss:
Amortization of prior service credit		0.1			0.1			0.2			0.2
Amortization of net actuarial loss		(0.4	)		(0.5	)		(0.8	)		(1.0	)
Total recognized in other comprehensive (income) loss		(0.3	)		(0.4	)		(0.6	)		(0.8	)
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	1.1		$	1.6		$	2.6		$	3.2

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	Postretirement Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
				(In millions)
Components of net periodic benefit cost (benefit):
Service cost	$	0.2		$	0.2		$	0.3		$	0.4
Interest cost		0.3			0.3			0.7			0.6
Expected return on plan assets		(0.1	)		(0.2	)		(0.4	)		(0.4	)
Amortization of prior service credit		(0.1	)		(0.1	)		(0.2	)		(0.2	)
Amortization of net actuarial gain		(0.1	)		—			(0.1	)		—
Net periodic benefit cost		0.2			0.2			0.3			0.4
Other changes in plan assets and benefit obligation recognized in other comprehensive (income) loss:
Amortization of prior service credit		0.1			0.1			0.2			0.2
Amortization of net actuarial gain		0.1			—			0.1			—
Total recognized in other comprehensive (income) loss		0.2			0.1			0.3			0.2
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	0.4		$	0.3		$	0.6		$	0.6

The Company is not obligated to make any contributions to its pension plans for 2008.

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 were $2.7 million and $2.3 million for the second quarters of 2008 and 2007, respectively, and $5.7 million and $4.6 million for the first six months of 2008 and 2007, respectively.

In addition, eligible executive officers are covered by a non-qualified supplemental retirement plan (“non-qualified plan”). Expenses for the non-qualified plan were $0.7 million and $0.6 million for the second quarters of 2008 and 2007, respectively, and $1.2 million for the first six months of both 2008 and 2007. Furthermore, gains of $0.1 million, net of tax, were reported in other comprehensive income for the second quarters of both 2008 and 2007, and gains of $0.2 million, net of tax, were reported in other comprehensive income for the first six months of both 2008 and 2007. There was $20.4 million and $19.9 million reported in other liabilities for the non-qualified plan at June 30, 2008, and December 31, 2007, respectively.

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 $9.2 million and $8.9 million at June 30, 2008, and December 31, 2007, respectively.

6. DERIVATIVE FINANCIAL INSTRUMENTS

The Company markets indexed annuities, which 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. Statement of Financial Accounting Standards (“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 of the index-based interest guarantees are recorded as interest credited and

14

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 decreased $2.4 million and $8.9 million for the second quarter and first six months of 2008, respectively, compared to increases of $1.2 million and $1.3 million for the second quarter and first six months of 2007, respectively. The decreases for the second quarter and first six months of 2008 were primarily due to the decline, on average, of the S&P 500 Index during 2008 compared to 2007.

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 $2.4 million and $6.0 million at June 30, 2008, and December 31, 2007, respectively, is included in fixed maturity securities in the consolidated balance sheets. The changes in fair value associated with these investments were decreases of $2.0 million and $7.0 million for the second quarter and first six months of 2008, respectively, compared to increases of $0.9 million for both the second quarter and first six months of 2007, and was accounted for in the net investment income section of the income statement. For additional fair value information, see “Note 7—Fair Value of Financial Instruments.”

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

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 adopted the provisions of SFAS No. 157 beginning January 1, 2008.

SFAS No. 157 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources while unobservable inputs reflect our estimates about market data.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 inputs are based upon quoted prices in active markets for identical assets or liabilities that we can access at the measurement date. Level 2 inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 inputs are generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability.

Fixed maturity securities—available-for-sale, S&P 500 index options and index-based interest guarantees are recorded at fair value on a recurring basis. The Company currently has no assets or liabilities measured at fair value on a nonrecurring basis. In the Company’s consolidated statements of income and comprehensive income, unrealized gains and losses are reported in other comprehensive income for fixed maturity securities—available-for-sale, in net investment income for S&P 500 index options and in interest credited for index-based interest guarantees.

There are three types of valuation techniques described in SFAS No. 157: (1) the market approach, which uses prices or other relevant information generated by market transactions involving identical or comparable assets or liabilities; (2) the income approach, which uses the present value of cash flows or earnings; and (3) the cost approach, which uses replacement costs more readily adaptable for valuing physical assets.

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Fixed maturity securities—available-for-sale are placed into two groups depending on the valuation technique used to determine the fair value of the securities. Fixed maturity securities totaling $5.24 billion, or approximately 99%, were valued using the market approach and Level 1 measurement based on quoted market prices where available. The remaining $48.3 million of fixed maturity securities were valued using the income approach and Level 2 measurement, where the expected future cash flows for the fixed maturity securities were discounted to present value based on information such as credit quality, market conditions and credit spread, which is the difference between the yields for the fixed maturity securities in relation to comparable U.S. Treasury rates. The Company recorded an other-than-temporary impairment of our fixed maturity securities of $21.6 million during the second quarter of 2008, primarily due to a decline in the market value of investments we hold in certain bond insurers.

The valuation technique used to determine the fair value of S&P 500 index options is the market approach. The monthly valuations for the Company’s S&P 500 index options are provided to us by the investment banks with which we do business. The valuations are an estimate of the mid-market values of the positions, based on proprietary valuation models using information derived from estimated or actual bids and offers for similar positions.

The valuation technique used to determine the fair value of index-based interest guarantees is the income approach. The liability is the present value of future cash flows attributable to the projected index growth in excess of cash flows driven by fixed interest rate guarantees for the indexed annuity product. Level 3 assumptions for policyholder behavior and future index interest rate declaration significantly impact the calculation.

The following table sets forth the estimated fair values of assets and liabilities measured and recorded at fair value on a recurring basis at June 30, 2008:

	Total			Level 1		Level 2		Level 3
				(In millions)
Assets:
Fixed maturity securities—available-for-sale	$	5,285.9		$	5,237.6	$	48.3	$	—
S&P 500 index options		2.4			—		—		2.4
Liabilities:
Index-based interest guarantees	$	(24.6	)	$	—	$	—	$	(24.6	)

The following table sets forth the changes in Level 3 assets and liabilities measured at fair value on a recurring basis at June 30, 2008:

	S&P 500 Index Options			Index-Based Interest Guarantees
	(In millions)
Balance, December 31, 2007	$	6.0		$	(26.3	)
Total net gains (losses) included in:
Net investment income		(4.9	)		—
Interest credited		—			6.5
Purchases, sales, issuances and settlements, net		1.2			(3.8	)
Balance, March 31, 2008		2.3			(23.6	)
Total net gains (losses) included in:
Net investment income		(2.1	)		—
Interest credited		—			2.4
Purchases, sales, issuances and settlements, net		2.2			(3.4	)
Balance, June 30, 2008	$	2.4		$	(24.6	)
Net unrealized gains (losses) included in income before income taxes for assets and liabilities held at fair value at June 30, 2008:
For the three months ended June 30, 2008	$	(2.1	)	$	2.4
For the six months ended June 30, 2008		(7.0	)		8.9

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8. DEFERRED ACQUISITION COSTS (“DAC”), VALUE OF BUSINESS ACQUIRED (“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 $226.8 million and $202.3 million at June 30, 2008, and December 31, 2007, 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. 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. 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.

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 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 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

17

amortization methods. The amortization period was up to 10 years for VOBA that was amortized in proportion to premiums and up to 20 years for VOBA that is amortized in proportion to expected gross profits. VOBA totaled $32.5 million and $34.4 million at June 30, 2008, and December 31, 2007, 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.

VOBA related to the TIAA group long term disability claims, for which no further premiums are due, is amortized in proportion to expected gross profits. At June 30, 2008, DAC and VOBA balances amortized in proportion to expected gross profits accounted for 31.1% and 26.2%, or $70.5 million and $8.5 million of the total balance for DAC and VOBA, respectively. 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.

Key assumptions, which will affect the determination of expected gross profits for determining DAC and VOBA balances, are:

• Persistency.

• Interest rates, which affect both investment income and interest credited.

• Stock market performance.

• Capital gains and losses.

• Claim termination rates.

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 or 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 $0.1 million and $0.8 million in the second quarter and first six months of 2008, respectively, and decreased $0.2 million and $0.4 million for the same periods of 2007. 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 that 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 were acquired primarily in connection with the purchase of Invesmart, Inc. (“Invesmart”), the purchase of DPA, Inc. and with the acquisition of small investment advisory firms. Customer lists have a combined estimated weighted-average remaining life of approximately 8.9 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 $50.4 million and $52.1 million at June 30, 2008, and December 31, 2007, respectively.

Goodwill totaled $36.0 million at June 30, 2008, and December 31, 2007, and is related to the purchase of Invesmart, which is part of the Asset Management segment.

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

	For the Six Months Ended June 30, 2008			For the Year Ended December 31, 2007
	(In millions)
Carrying value at beginning of period:
DAC	$	202.3		$	208.5
VOBA		34.4			53.7
Other intangible assets		52.1			47.0
Goodwill		36.0			33.5
Total balance at beginning of period		324.8			342.7
Deferred or acquired:
DAC		52.6			86.2
Other intangible assets		0.9			9.0
Goodwill		—			2.5
Total deferred or acquired		53.5			97.7
Amortized during period:
DAC		(28.1	)		(47.1	)
VOBA		(1.9	)		(3.9	)
Other intangible assets		(2.6	)		(3.9	)
Total amortized during period		(32.6	)		(54.9	)
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		226.8			202.3
VOBA		32.5			34.4
Other intangible assets		50.4			52.1
Goodwill		36.0			36.0
Total carrying value at end of period	$	345.7		$	324.8

The estimated net amortization of VOBA and other intangible assets, excluding DAC, for the remainder of 2008 and each of the next five years is as follows:

	Amount
	(In millions)
2008	$	4.4
2009		7.8
2010		7.3
2011		7.1
2012		7.2
2013		7.4

9. 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 at June 30, 2008. In some instances, lawsuits include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in

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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.

The Company maintains a $200 million senior unsecured revolving credit facility (“Facility”). On June 15, 2008, the Facility was amended to extend the expiry date by one year to June 15, 2013. The Facility will remain at $200 million through June 15, 2012, and will decrease to $165 million thereafter until final maturity on June 15, 2013. Borrowings under the Facility will continue to be used to provide for the working capital and general corporate purposes of the Company and its subsidiaries and the issuance of letters of credit.

Under the Facility 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 June 30, 2008, StanCorp was in compliance with all covenants under the Facility and had a $17.5 million outstanding balance on the Facility.

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 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 of three-month LIBOR plus 2.51%. StanCorp has the option to defer interest payments for up to five years.

10. ACCOUNTING PRONOUNCEMENTS

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 have on our financial statements, and we do not expect it to have a material effect.

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In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement 133. SFAS No. 161 expands the disclosure requirements for derivative instruments and hedging activities. The enhanced disclosures required by SFAS No. 161 include how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The guidance in SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company plans to adopt the new standard on January 1, 2009.

In April 2008, the FASB finalized FASB Staff Position (FSP) FAS No. 142-3,Determination of the Useful Life of Intangible Assets. FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R,Business Combinations, and other U.S. generally accepted accounting principles. In addition, this FSP requires additional disclosures concerning recognized intangible assets. These additional disclosures would enable users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP FAS No. 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Earlier adoption is prohibited. Therefore, the Company will adopt FSP FAS No. 142-3 on January 1, 2009. The Company does not expect the adoption to have a material effect on our financial statements.

In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and provides a consistent framework, or hierarchy, for selecting the accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. The hierarchy of accounting principles within SFAS No. 162 is consistent with that previously defined in the AICPA Statement on Auditing Standards (SAS) No. 69,The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SFAS No. 162 is effective 60 days following the United States Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company has previously utilized the guidance within SAS No. 69, and, therefore, we do not expect the adoption of SFAS No. 162 to have a material effect on our financial statements.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this Form 10-Q, the terms “StanCorp,” “Company,” “we,” “us” and “our” refer to StanCorp Financial Group, Inc. and its subsidiaries, unless the context otherwise requires. The following analysis of the consolidated financial condition and results of operations of StanCorp should be read in conjunction with the unaudited consolidated financial statements and related condensed notes thereto. See Part 1, Item 1, “Financial Statements.”

Our filings with the Securities and Exchange Commission (“SEC”) include our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, registration statements and amendments to those reports. Access to all filed reports is available free of charge on our website atwww.stancorpfinancial.com/investors as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC atwww.sec.gov.

The following management assessment of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto in our 2007 Form 10-K. Those consolidated financial statements and certain disclosures made in this Form 10-Q 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 certain statements, which are predictive in nature and not based on historical facts, in this Form 10-Q and, from time to time, in our public filings, news releases and oral presentations and discussions. 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 $0.98 for the second quarter of 2008, compared to $0.97 for the second quarter of 2007. Net income for these same periods was $48.4 million and $52.1 million, respectively. Results for the second quarter reflected premium growth and comparatively favorable claims experience for the group insurance businesses, and a 4.3 million reduction in diluted weighted-average shares outstanding primarily from share repurchases. These factors were largely offset by a $14.0 million after-tax net capital loss primarily related to the other-than-temporary impairment of debt security holdings of certain bond insurers.

Net income per diluted share was $2.00 for the first six months of 2008, compared to $1.86 for the same period in 2007. Net income for these same periods was $98.7 million and $100.4 million, respectively. Results for the first six months reflected premium growth, comparatively favorable claims experience for the group insurance businesses and a 4.5 million reduction in diluted weighted-average shares outstanding primarily from share repurchases. These factors were partially offset by a year-to-date after-tax net capital loss of $16.8 million.

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Outlook

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.

At this time the Company has the following expectations for 2008:

• Premium growth will be at or below the low end of its previously stated 2008 range of 6% to 8%.

• The annual group insurance benefit ratio will be in the range of 77.5% to 79.5%. However, actual experience over the past four years indicates that the benefit ratio for 2008 could be at the lower end of the range.

Consolidated Results of Operations

Revenues

Revenues primarily consist of premiums, administrative fees and net investment income. Total revenues increased 1.6% to $688.9 million for the second quarter of 2008, compared to $677.9 million for the second quarter of 2007. Total revenues increased 4.6% to $1.38 billion for the first six months of 2008, compared to $1.32 billion for the first six months of 2007.

The following table sets forth percentages of premium and administrative fee growth, and net investment income growth by segment:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Premium and administrative fee growth:
Insurance Services	4.2	%	6.8	%	6.6	%	5.4	%
Asset Management	17.6		135.4		17.9		117.6
Consolidated total premium and administrative fee growth	5.0		10.5		7.3		8.7
Net investment income growth:
Insurance Services	4.7	%	6.3	%	4.4	%	4.6	%
Asset Management	10.3		18.8		3.7		17.3
Consolidated total net investment income growth	4.5		11.2		4.5		7.4
Total revenue growth	1.6	%	10.8	%	4.6	%	8.8	%

Premiums and Administrative Fees

Premium growth in our Insurance Services segment and administrative fee growth in our Asset Management segment are the primary drivers of consolidated growth. Premiums for the Insurance Services segment increased 4.1% to $534.0 million for the second quarter of 2008 compared to the same period in 2007, and increased 6.5% to $1.07 billion for the first six months of 2008, compared to the same period in 2007. Premiums in the second quarter and first six months of 2007 included a single premium of $19.3 million related to a reserve buyout. The increase in premiums was primarily due to growth in our group insurance businesses. Group insurance premium growth was driven by some large case sales in the last six months of 2007. These 2007 sales continued to benefit premium growth in the first six months of 2008. See “Business Segments—Insurance Services Segment.” Administrative fees for our Asset Management segment increased 7.8% to $31.7 million for the second quarter of 2008 compared to the same period in 2007, and increased 6.5% to $60.5 million for the first six months of 2008 compared to the same period in 2007. Administrative fee growth in our Asset Management segment reflected

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growth in our retirement plan business as evidenced by growth in assets under administration, and by the acquisition of DPA, Inc. in the third quarter of 2007, which added approximately $2.6 million in administrative fees for the first six months of 2008. In addition, administrative fee growth also reflected increased fee revenue related to the origination and servicing of commercial mortgage loans participated to third party investors.

Net Investment Income

Net investment income increased 4.5% to $136.6 million for the second quarter of 2008 compared to the second quarter of 2007, and increased 4.5% to $265.4 million for the first six months of 2008 compared to the first six months of 2007. 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 the second quarter of 2008 compared to the same period in 2007 was primarily due to an increase of 8.4% to $9.21 billion in average invested assets, primarily resulting from business growth, as evidenced by premium growth in our insurance businesses, and growth in average assets under administration for the retirement plans general account and individual fixed annuities. Average invested assets do not include cash and cash equivalents. The increase in net investment income was partially offset by a decrease in the fair value of derivative assets and slightly lower portfolio yields of fixed maturity securities and commercial mortgage loans. The fair value adjustment to derivative assets resulted in a decrease of $2.0 million and $7.0 million for the second quarter and first six months of 2008, respectively, compared to an increase of $0.9 million for both the second quarter and first six months of 2007. The portfolio yields for our fixed maturity securities and commercial mortgage loan portfolios decreased to 5.54% and 6.36%, respectively, at June 30, 2008, compared to 5.56% and 6.37%, respectively, at June 30, 2007.

Net Capital Gains (Losses)

Net capital gains and losses are reported in “Other.” Net capital losses were $21.6 million before tax for the second quarter of 2008, compared to net capital gains of $0.7 million before tax for the second quarter of 2007. Net capital losses were $26.0 million before tax for the first six months of 2008, compared to net capital gains of $1.6 million before tax for the first six months of 2007. Net capital gains and losses occur as a result of other-than-temporary impairment or sale of the Company’s assets, neither of which is likely to occur in regular patterns. The net capital losses in the first six months of 2008 were primarily the result of other-than-temporary impairments of debt security holdings of certain bond insurers in the second quarter and losses on disposal of fixed maturity securities.

Benefits and Expenses

Benefits to Policyholders

Benefits to policyholders are affected by four primary factors: reserves that are established in part based on premium levels, claims experience, assumptions used to establish related reserves and current and future benefits on life-contingent annuities. Benefits to policyholders decreased 0.2% to $409.2 million for the second quarter of 2008 compared to the second quarter of 2007. Benefits to policyholders increased 3.7% to $820.9 million for the first six months of 2008 compared to the first six months of 2007. The slight decrease in benefits to policyholders in the second quarter of 2008 was due to favorable claims experience in the Insurance Services segment, partially offset by the increase in individual annuity reserves related to new individual annuity sales in the Asset Management segment. The increase in benefits to policyholders for the first six months of 2008 was primarily due to business growth, as evidenced by premium growth, in both the Insurance Services and Asset Management segments. The business growth in the first six months of 2008 was partially offset by comparatively favorable claims experience in our group insurance business.

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Interest Credited

Interest credited represents interest paid to policyholders on retirement plan general account assets and individual fixed annuity deposits in the asset management segment and interest paid on life insurance proceeds on deposit in the insurance services segment. Consolidated interest credited decreased 0.7% to $27.8 million for the second quarter of 2008 compared to the second quarter of 2007, and decreased 8.6% to $49.0 million for the first six months of 2008 compared to the same period in 2007. The decrease in interest credited for the second quarter of 2008 compared to the second quarter of 2007 was primarily due to lower interest rates on life insurance proceeds on deposit partially offset by increased interest resulting from increased individual annuity assets under administration. The decrease in interest credited for the first six months of 2008 compared to the first six months of 2007 was primarily related to a decline in the S&P 500 index, which is used in valuing the indexed annuities and lower interest rates on life insurance proceeds on deposit. The decrease in the S&P 500 index was partially offset by increased interest resulting from increased individual annuity assets under administration in the first six months of 2008.

Operating Expenses

Operating expenses increased 9.6% to $115.8 million for the second quarter of 2008 compared to the second quarter of 2007. Operating expenses increased 9.8% to $232.7 million for the first six months of 2008 compared to the same period in 2007. The increased operating expenses were due to business growth, as evidenced by premium growth, and technology infrastructure costs related to the integration of group annuity and trust product platforms used to administer our retirement plans business. See “Business Segments—Asset Management Segment.”

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 18.3% to $54.9 million for the second quarter of 2008 compared to the same period in 2007. Commissions and bonuses increased 16.3% to $112.1 million for the first six months of 2008 compared to the same period in 2007. The increases were primarily due to premium growth in our insurance businesses and strong individual annuity sales in the first six months of 2008.

Net Increase 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, Inc. (“Invesmart”), DPA, Inc. and several small investment advisory firms. 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. The net deferral for DAC, VOBA and intangibles for the second quarter of 2008 increased $1.9 million compared to the same period in 2007, and increased $2.5 million for the first six months of 2008 compared to the same period in 2007, primarily as a result of commissions paid in connection with increased individual fixed annuity sales. 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. See Item 1, “Financial Statements—Condensed Notes to Unaudited Consolidated Financial Statements—Note 8—Deferred Acquisition Costs (“DAC”), Value of Business Acquired (“VOBA”), Other Intangible Assets and Goodwill.”

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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 benefit. The combined federal and state effective income tax rates were 31.3% and 34.1% for the second quarters of 2008 and 2007, respectively, and 32.7% and 34.3% for the first six months of 2008 and 2007, respectively. The lower effective income tax rates in 2008 compared to 2007 were primarily the result of the favorable resolution of prior year tax matters and a change in the apportionment of Oregon state income taxes. At June 30, 2008, the years open for audit by the Internal Revenue Service are 2004 through 2007. The federal statute of limitations for the 2004 tax year expires in September 2008.

Business Segments

StanCorp operates through two reportable segments: Insurance Services and Asset Management, as well as an Other category for activities 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 advisory and management services, financial planning services, commercial mortgage loan origination and servicing, individual fixed annuities, group annuity contracts and retirement plan trust products, and limited trust services.

The following table sets forth segment revenues measured as a percentage of total revenues, excluding net capital gains and losses:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Insurance Services	87.5	%	88.1	%	88.2	%	88.5	%
Asset Management	12.5		11.5		11.6		11.3

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 the Other category.

Insurance Services Segment

The Insurance Services segment is our largest segment and substantially influences our consolidated financial results. Income before income taxes for the Insurance Services segment was $89.3 million for the second quarter of 2008, compared to $72.4 million for the second quarter of 2007. Income before income taxes for the Insurance Services segment was $168.2 million for the first six months of 2008, compared to $139.5 million for the first six months of 2007. Results for the comparative periods reflected premium growth and comparatively favorable claims experience in our group insurance business, partially offset by comparatively unfavorable claims experience in our individual disability business.

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The following table sets forth key indicators that management uses to manage and assess the performance of the Insurance Services segment:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
				(Dollars in millions)
Premiums:
Group life and AD&D	$	219.5		$	196.4		$	434.7		$	387.5
Group long term disability		219.9			226.6			437.0			432.7
Group short term disability		54.6			54.1			108.5			107.0
Group dental		19.0			18.2			37.4			36.4
Experience rated refunds		(13.3	)		(13.4	)		(23.4	)		(24.4	)
Individual disability		34.3			31.0			74.1			63.5
Total premiums	$	534.0		$	512.9		$	1,068.3		$	1,002.7
Group insurance sales (annualized new premiums) reported at contract effective date	$	43.0		$	58.3		$	163.8		$	178.4
Individual disability sales (annualized new premiums)		6.1			6.1			11.8			11.0
Group insurance benefit ratio (% of premiums)		74.4	%		79.0	%		75.5	%		79.3	%
Individual disability benefit ratio (% of premiums)		84.3			84.2			76.9			68.5
Segment operating expense ratio (% of premiums)		15.7			14.4			15.8			15.2

Revenues

Revenues for the Insurance Services segment increased 4.3% to $621.7 million for the second quarter of 2008 compared to the same period in 2007, and increased 6.3% to $1.24 billion for the first six months of 2008 compared to the same period in 2007. The growth in revenues for both comparative periods was primarily due to increased premiums and net investment income in our group insurance business.

Premiums

Premiums for the Insurance Services segment increased 4.1% to $534.0 million for the second quarter of 2008 compared to the same period in 2007, and increased 6.5% to $1.07 billion for the first six months of 2008 compared to the same period in 2007. Premiums for the second quarter of 2007 included a single reserve buyout of $19.3 million. Adjusted for the 2007 reserve buyout, premium growth for the second quarter of 2008 compared to the second quarter of 2007 was 8.2%. Premium growth for the first six months of 2008 compared to 2007, adjusted for the reserve buyout, was 8.6%. The primary factors that affect 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 primarily due to employment and wage rate growth from existing group policyholders.

Sales.    Sales of our group insurance products reported as annualized new premiums were $43.0 million and $58.3 million for the second quarters of 2008 and 2007, respectively. Sales of our group insurance products reported as annualized new premiums were $163.8 million and $178.4 million for the first six months of 2008 and 2007, respectively. The group insurance market continues to reflect a price-competitive sales environment. Sales in the second quarter of 2007 included a single premium sale of $19.3 million related to a reserve buyout. Excluding the single premium sale of $19.3 million in the second quarter of 2007, sales growth was 10.3% for the second quarter of 2008 compared to the second quarter of 2007, and 3.0% for the first six months of 2008 compared to the first six months of 2007.

Persistency.    Annual persistency for our group insurance products has historically exceeded industry averages. We believe this demonstrates our commitment to customer service and pricing discipline for new sales. Persistency is reported annually. Our premium growth expectations for 2008 incorporate two large case terminations that occurred in the second quarter of 2008.

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Organic Growth.    A portion of our premium growth in our group insurance in force business is affected by employment and wage rate growth. Organic growth is also affected by changes in price per insured and the average age of employees.

In addition to the factors listed above, premiums for the first six months of 2008 included $3.7 million received related to the termination of reinsurance on a small block of reinsured individual disability policies and claims. Offsetting the premiums received in this termination of reinsurance were $3.9 million in additional reserves assumed. The termination of these agreements was made primarily for the purpose of gaining administrative efficiencies.

Net Investment Income

Net investment income for the Insurance Services segment increased 4.7% to $85.3 million for the second quarter of 2008 compared to the same period in 2007. Net investment income for the Insurance Services segment increased 4.4% to $168.2 million for the first six months of 2008 compared to the same period in 2007. The increases in net investment income were primarily affected by growth in average invested assets due to business growth, as evidenced by premium growth. See “Consolidated Results of Operations—Revenues—Net Investment Income.”

Benefits and Expenses

Benefits to Policyholders (including interest credited)

Three primary factors that affect benefits to policyholders are reserves that are established in part based on premium level, 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 decreased 1.5% to $400.6 million for the second quarter of 2008 compared to the same period in 2007. Benefits to policyholders, including interest credited, for the Insurance Services segment increased 2.5% to $807.7 million for the first six months of 2008 compared to the same period in 2007. The increase primarily resulted from business growth as evidenced by premium growth offset by favorable claims experience. Premiums for the Insurance Services segment increased 4.1% to $534.0 million for the second quarter of 2008 compared to the same period in 2007. Premiums for the Insurance Services segment increased 6.5% to $1.07 billion for the first six months of 2008 compared to the same period in 2007.

Because premium growth is one of the primary factors that affect 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 changes in premiums. The benefit ratio for our group insurance product lines for the second quarter of 2008 was 74.4% compared to 79.0% for the second quarter of 2007, and 75.5% for the first six months of 2008, compared to 79.3% for the same period in 2007. The benefit ratios for the second quarter and first six months of 2008 were below the Company’s estimated annual range of 77.5% to 79.5% for 2008. Claims experience can fluctuate widely from quarter to quarter.

In 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. For the first six months of 2008 and 2007, reserves were calculated on a comparable basis.

The benefit ratio for our individual disability business was 84.3% for the second quarter of 2008, compared to 84.2% for the second quarter of 2007. The benefit ratio for our individual disability business was 76.9% for

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the first six months of 2008, compared to 68.5% for the same period in 2007, primarily reflecting less favorable claims experience. The benefit ratio for individual disability for the first six months of 2008 included $3.7 million of premium and $3.9 million in additional reserves related to the termination of reinsurance on a small block of reinsured policies and claims. Excluding the effects of this termination of reinsurance, the benefit ratio would have been 75.4% for the first six months of 2008. Due to the relatively smaller size of our individual disability business, claims experience can fluctuate more widely from quarter to quarter than that of our group insurance business.

We expect the individual disability benefit ratio to trend down over the next few years, as the Minnesota Life block becomes a smaller portion of the total business, and the corresponding shift in revenues from net investment income to premiums. The expected decrease year to year in the expected benefit ratio does not necessarily indicate an increase in profitability but rather a change in the mix of revenues from the business.

The discount rate used for the second quarter of 2008 for newly established long term disability claim reserves increased to 5.25% from the first quarter of 2008 discount rate of 5.00%. The discount rate used in the second quarter of 2007 was 5.50%.

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. See “Liquidity and Capital Resources—Trends in Key Assumptions.”

Operating Expenses

Operating expenses in the Insurance Services segment increased 13.0% to $83.7 million for the second quarter of 2008 compared to the second quarter of 2007, and increased 10.4% to $168.4 million for the first six months of 2008 compared to the same period in 2007. The increases in operating expenses were primarily due to business growth, as evidenced by premium growth, the corresponding set-up and administrative costs on new group insurance business resulting from strong sales in the last six months of 2007 and increased variable compensation accruals.

Asset Management Segment

Income before income taxes for the Asset Management segment was $12.6 million for the second quarter of 2008, compared to $12.2 million for the same period in 2007. The increase primarily reflected the impact of increased revenues due to higher asset balances, partially offset by increased expenses related to integration and infrastructure work in the retirement plans business. Income before income taxes was $20.9 million for the first six months of 2008, compared to $22.6 million for the same period in 2007. The decrease was primarily due to the impact of declining equity markets on revenue, DAC amortization, and planned technology infrastructure costs related to the integration of our group annuity and trust product administrative platforms. Revenues increased 13.6% for the second quarter of 2008 compared to the same period in 2007 and 9.8% for the first six months of 2008 compared to the same period in 2007.

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The following table sets forth key indicators that management uses to manage and assess the performance of the Asset Management segment:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
				(Dollars in millions)
Premiums:
Retirement plans	$	0.2		$	0.1		$	0.6		$	0.3
Individual annuities		8.8			5.1			14.6			7.1
Total premiums	$	9.0		$	5.2		$	15.2		$	7.4
Administrative fees:
Retirement plans	$	26.2		$	24.7		$	49.8		$	47.6
Other financial services business		5.5			4.7			10.7			9.2
Total administrative fees	$	31.7		$	29.4		$	60.5		$	56.8
Net investment income:
Retirement plans	$	21.5		$	20.5		$	42.7		$	41.9
Individual annuities		21.1			18.2			35.1			35.4
Other financial services business		5.5			4.9			10.2			7.6
Total net investment income	$	48.1		$	43.6		$	88.0		$	84.9
Sales (annuity deposits)	$	232.9		$	56.7		$	407.8		$	106.5
Interest credited (% of net investment income):
Retirement plans		56.3	%		55.6	%		56.4	%		53.0	%
Individual annuities		61.6			69.2			52.7			66.7
Retirement plans:
Annualized operating expenses (% of average assets under administration)		0.57	%		0.55	%		0.56	%		0.54	%
							At June 30,
							2008			2007
							(In millions)
Assets under administration:
Retirement plans general account							$	1,480.7		$	1,425.3
Retirement plans separate account								4,157.8			4,361.7
Total retirement plans insurance products								5,638.5			5,787.0
Retirement plans trust products								12,187.8			11,518.0
Individual fixed annuities								1,636.5			1,267.4
Commercial mortgage loans under administration for other investors								2,262.3			1,616.6
Other								466.1			294.8
Total assets under administration							$	22,191.2		$	20,483.8

Revenues

Revenues for the Asset Management segment increased 13.6% to $88.8 million for the second quarter of 2008 compared to the same period in 2007, and 9.8% to $163.7 million for the first six months of 2008 compared to the same period in 2007. The revenue increase for the quarter was led by a 28.3% increase in revenues of the individual fixed annuities business and a 5.7% increase in revenues of the retirement plans business. For the first six months, the revenue increase was led by a 16.9% increase in individual fixed annuity revenue and a 3.7% increase in revenues of the retirement plans business. Revenues from the retirement plans business include

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premiums on life contingent annuities, 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. 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 are primarily a single-premium product. Premiums and benefits to policyholders reflect both the sale of immediate annuities by our individual annuity business and the conversion of retirement plan assets into life-contingent annuities, which can be selected by plan participants at the time of retirement. 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 $9.0 million for the second quarter of 2008, compared to $5.2 million for the second quarter of 2007, and $15.2 million for the first six months of 2008, compared to $7.4 million for the same period in 2007.

Administrative Fees

Administrative fees for the Asset Management segment were $31.7 million for the second quarter of 2008, compared to $29.4 million for the second quarter of 2007, and $60.5 million for the first six months of 2008, compared to $56.8 million for the same period in 2007. Administrative fees are earned primarily from assets under administration.

Assets under administration for this segment, including retirement plans, individual fixed annuities and commercial mortgage loans managed for third party investors, were $22.19 billion and $20.48 billion at June 30, 2008 and 2007, respectively. The increase was primarily due to increased assets under administration in our retirement plan business and the acquisition of DPA, Inc. in the third quarter of 2007, which added approximately $2.6 million in administrative fees for the first six months of 2008. In addition, administrative fee growth also reflected increased fee revenue related to the origination and servicing of commercial mortgage loans participated to third party investors.

StanCorp Mortgage Investors, LLC (“StanCorp Mortgage Investors”) originated $380.5 million and $395.9 million of commercial mortgage loans for the second quarters of 2008 and 2007, respectively, and $787.8 million and $696.1 million for the first six months of 2008 and 2007, respectively. The strong originations for the first six months of 2008 were primarily due to favorable interest rate conditions and distribution channel growth, accompanied by increased demand for fixed-rate commercial mortgage loans. The strong originations also reflected a less competitive origination market, partially due to decreased competition from securitized lenders. Commercial mortgage loans managed for other investors increased 39.9% at June 30, 2008, compared with June 30, 2007.

Net Investment Income

Net investment income for the Asset Management segment increased 10.3% to $48.1 million for the second quarter of 2008, compared to $43.6 million for the second quarter of 2007. Net investment income for the Asset Management segment increased 3.7% to $88.0 million for the first six months of 2008, compared to $84.9 million for the first six months of 2007. The increases were primarily reflective of increases in average retirement plan general account and individual annuity assets under administration in the second quarter and first six months of 2008. The increases were partially offset by decreases in the fair value of derivative instruments in the first six months of 2008. Average retirement plan general account assets under administration increased 6.2% to $1.49 billion for the second quarter of 2008 compared to the same period in 2007, and increased 5.8% to $1.47 billion for the first six months of 2008 compared to the same period in 2007. Average individual annuity assets under administration increased 21.8% to $1.53 billion for the second quarter of 2008 compared to the same period in 2007, and increased 17.2% to $1.47 billion for the first six months of 2008 compared to the same period in 2007.

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The increases in average individual annuity assets under administration were due to strong individual annuity sales in the first six months of 2008. The fair value of derivative instruments decreased $2.0 million and $7.0 million for the second quarter and first six months of 2008, respectively, compared to an increase in the fair value of $0.9 million for the second quarter and first six months of 2007. See Item 1, “Financial Statements—Condensed Notes to Unaudited Consolidated Financial Statements—Note 6—Derivative Financial Instruments.” Excluding the effect of changes in the derivative instruments, net investment income increased 17.3% to $50.1 million for the second quarter of 2008 compared to the same period in 2007, and increased 13.1% to $95.0 million for the first six months of 2008 compared to the same period in 2007.

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 significantly with life-contingent annuity sales. Benefits to policyholders for the Asset Management segment increased 56.9% to $11.3 million for the second quarter of 2008, compared to the same period in 2007, and increased 70.4% to $19.6 million for the first six months of 2008 compared to the same period in 2007. Changes in the level of benefits to policyholders will correlate to changes in premium levels because these annuities are primarily single-premium life-contingent annuity products with a significant portion of all premium payments established as a reserve. As evidence of this, Asset Management segment premiums increased 73.1% for the second quarter of 2008 and 105.4% for the first six months of 2008 compared to the same periods in 2007.

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 4.6% to $25.1 million for the second quarter of 2008 compared to the second quarter of 2007, and decreased 7.0% to $42.6 million for the first six months of 2008 compared to the same period in 2007. The increase in interest credited for the second quarter of 2008 compared to the second quarter of 2007 was primarily due to increased interest resulting from increased individual annuity assets under administration. The decrease in interest credited for the first six months of 2008 compared to the first six months of 2007 was primarily related to a decline in the S&P 500 index, which is used in valuing the indexed annuities. Interest credited on indexed annuities was reduced by $8.9 million for the first six months of 2008 compared to an increase in interest credited of $1.3 million for the first six months of 2007. The decrease in the S&P 500 index was partially offset by increased interest resulting from increased individual annuity assets under administration in the first six months of 2008.

Operating Expenses

Operating expenses for the Asset Management segment increased 11.5% to $32.1 million for the second quarter of 2008 compared to the second quarter of 2007, and increased 13.0% to $64.4 million for the first six months of 2008 compared to the same period in 2007. The increases in operating expenses for this segment were due to a combination of business growth, as evidenced by growth in assets under administration, and planned technology infrastructure costs related to the integration of our group annuity and trust product administrative platforms. In addition, the Company acquired DPA, Inc., a retirement plans business based in Portland, Oregon in the third quarter of 2007. Operating expenses for the second quarter and first six months of 2008 included approximately $0.9 million and $1.8 million, respectively, in expenses related to the operations of this business.

Other

In addition to our two segments, we report our holding company and corporate activity in the Other category. 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.

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The Other category reported a loss before income taxes of $31.4 million for the second quarter of 2008, compared to a loss before income taxes of $5.6 million for the second quarter of 2007, and a loss before income taxes of $42.5 million for the first six months of 2008, compared to a loss before income taxes of $9.3 million for the first six months of 2007. The loss before income taxes included net capital losses of $21.6 million and $26.0 million for the second quarter and first six months of 2008, respectively. These capital losses were primarily related to a decline in the market value of investments we hold in certain bond insurers. The total capital losses on these bond insurers was $18.9 million in the second quarter of 2008. This compared to net capital gains of $0.7 million and $1.6 million for the second quarter and first six months of 2007, respectively. Contributing to the loss before income taxes for the second quarter and first six months of 2008 was additional interest expense of $3.6 million and $8.8 million, respectively, for the same comparative periods primarily related to the $300 million junior subordinated debentures (“Subordinated Debt”) issued in May 2007. See “Liquidity and Capital Resources—Financing Cash Flows.”

Liquidity and Capital Resources

Asset/Liability Matching 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 are due to variations in economic conditions. The primary source of economic risk arises 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 June 30, 2008.

As a percentage of our fixed maturity investments, callable bonds were 3.1% at June 30, 2008. Since 2001, all of our 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. These prepayment provisions exist in approximately 87% of our commercial mortgage loan portfolio. Almost all of the remaining commercial mortgage loans contain fixed percentage 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 operating activities is net income adjusted for non-cash items and accruals. Net cash provided by operating activities was $240.1 million for the first six months of 2008, compared to $249.7 million for the first six months of 2007.

Investing Cash Flows

We maintain a diversified investment portfolio primarily consisting of fixed maturity securities and fixed-rate 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

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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 Insurance Company (“Standard”) and to the board of directors for The Standard Life Insurance Company of New York.

Net cash used in investing activities was $764.2 million and $505.7 million for the first six months of 2008 and 2007, respectively. The increase in net cash used in investing activities was primarily due to increased investments from growth in the individual annuity business.

Our target investment portfolio allocation is approximately 60% fixed maturity securities and 40% commercial mortgage loans. At June 30, 2008, our portfolio consisted of 56.7% fixed maturity securities, 42.5% commercial mortgage loans and 0.8% real estate.

Fixed Maturity Securities

Our fixed maturity securities totaled $5.29 billion at June 30, 2008. 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 June 30, 2008. The percentage of fixed maturity securities below investment-grade was 5.5% and 4.1% at June 30, 2008 and December 31, 2007, respectively. At June 30, 2008, fixed maturity securities and short-term investments on our watch list totaled $46.8 million in market value and $52.5 million in book value. These watch list amounts include fixed maturity securities in which the Company recorded an other-than-temporary impairment of $21.6 million during the second quarter of 2008, primarily due to a significant decline in the market value of the investments we hold in bond insurers. We did not have any direct exposure to sub-prime or Alt-A mortgages in our fixed maturity securities portfolio at June 30, 2008.

At June 30, 2008, our fixed maturity securities portfolio had gross unrealized capital gains of $71.4 million and gross unrealized capital losses of $101.1 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 $380.5 million and $395.9 million for the second quarters of 2008 and 2007, respectively, and $787.8 million and $696.1 million for the first six months of 2008 and 2007, respectively. The strong originations were primarily due to favorable interest rate conditions and distribution channel growth, accompanied by increased demand for fixed-rate commercial mortgage loans. The strong originations also reflected a less competitive origination market, partially due to decreased competition from securitized lenders. 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.

At June 30, 2008, StanCorp Mortgage Investors serviced $3.97 billion in commercial mortgage loans for subsidiaries of StanCorp and $2.26 billion for other institutional investors, compared to $3.66 billion serviced for subsidiaries of StanCorp and $1.90 billion for other institutional investors at December 31, 2007.

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The average loan to value ratio for the overall portfolio was approximately 58.3% at June 30, 2008, and the average loan size retained by the Company in the portfolio was approximately $0.8 million at June 30, 2008. 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 $6.6 million and $4.6 million at June 30, 2008 and 2007, respectively.

At June 30, 2008, there were seven commercial mortgage loans totaling $5.3 million in our portfolio that were at least sixty days delinquent, of which five commercial mortgage loans with a total balance of $2.9 million were in the process of foreclosure. We had a net balance of restructured loans of $1.9 million at June 30, 2008, and a commercial mortgage loan loss reserve of $4.3 million. In March 2008, StanCorp Mortgage Investors purchased two loans from a third party lender related to a current borrower. These loans, which had an aggregate obligation to the previous lender of $31.9 million, were purchased at a discounted price of $25.0 million. The portfolio of loans with this current borrower had a total aggregate obligation of $86.4 million and a book value of $79.5 million at June 30, 2008. At June 30, 2008, we did not have any direct exposure to sub-prime or Alt-A mortgages. 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 June 30, 2008, our commercial mortgage loan portfolio was collateralized by properties with the following characteristics:

• 44.5% retail properties.

• 17.7% industrial properties.

• 19.0% office properties.

• 9.6% commercial properties.

• 6.5% hotel/motel properties.

• 2.7% apartment and agricultural properties.

At June 30, 2008, our commercial mortgage loan portfolio was diversified regionally as follows:

• 46.9% Western region.

• 23.7% Central region.

• 29.4% Eastern region.

Commercial mortgage loans in California accounted for 28.6% of our commercial mortgage loan portfolio at June 30, 2008. Through this concentration, we are exposed to potential losses 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. 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. However, diversification may not always 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, when new loans are underwritten, 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. We do not expect a catastrophe or earthquake damage in California to have a material adverse effect on our business, financial position, results of operations or cash flows. 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.

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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 June 30, 2008, we had outstanding commitments to fund commercial mortgage loans totaling $211.7 million, with fixed interest rates ranging from 6.125% to 7.000%. 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 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 $390.5 million and $393.1 million for the first six months of 2008 and 2007, respectively.

The primary drivers of financing cash flows for the first six months of 2008 were the growth in individual annuity deposits due to increased individual annuity business, reduced share repurchases and increased withdrawals on the line of credit in the first six months of 2008 compared to the first six months of 2007. In the first six months of 2007 proceeds from the issuance of a $300 million hybrid debt offering provided the primary contribution to proceeds from financing activities.

The Company maintains a $200 million senior unsecured revolving credit facility (“Facility”). On June 15, 2008, the Facility was amended to extend the expiration date by one year to June 15, 2013. The Facility will remain at $200 million through June 15, 2012, and will decrease to $165 million thereafter until final maturity on June 15, 2013. Borrowings under the Facility will be used to provide for the working capital and general corporate purposes of the Company and its subsidiaries and the issuance of letters of credit.

Under the Facility 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 June 30, 2008, StanCorp was in compliance with all covenants under the Facility and had an outstanding balance of $17.5 million on the Facility.

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.

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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 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.

On May 7, 2007, the board of directors authorized a repurchase program for up to 6.0 million shares of StanCorp common stock, which replaced the Company’s prior share repurchase program. We repurchased 0.1 million shares of common stock at a total cost of $5.0 million for the second quarter of 2008, compared to 0.7 million shares at $34.3 million for the second quarter of 2007, and 0.3 million shares of common stock at a total cost of $15.9 million for the first six months of 2008, compared to 0.9 million shares at $43.6 million for the same period in 2007. At June 30, 2008, there were 1.1 million shares remaining under the repurchase program.

Capital Management

State insurance departments require insurance enterprises to maintain minimum levels of capital and surplus. Our insurance subsidiaries’ target is generally to maintain capital at 300% of the company action level of Risk-Based Capital (“RBC”) required by regulators, which is 600% of the authorized control level RBC required by our states of domicile. The insurance subsidiaries held an estimated 315% of the company action level RBC at June 30, 2008. At June��30, 2008, statutory capital, adjusted to exclude asset valuation reserves, for our regulated insurance subsidiaries totaled $1.25 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 million to $150 million in 2008. In part, we seek to maintain amounts sufficient to fund holding company operating expenses, interest on our debt and our annual dividends to shareholders.

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 to the excess capital carried on the insurance subsidiaries, our non-insurance subsidiaries also hold capital in excess of regulatory requirements. 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 27.9% and 27.4% at June 30, 2008 and 2007, respectively. The increase in our debt to total capitalization ratio was primarily due to an outstanding balance on our line of credit, which is in short-term 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 was 17.2% at June 30, 2008. StanCorp’s ratio of earnings to fixed charges, including interest credited to policyholders, was 3.0x and 3.3x for the first six months of 2008 and 2007, respectively.

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Dividends from Insurance Subsidiary

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. One factor considered by the board is 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. If the proposed dividend exceeds certain statutory limitations, Standard must receive the prior approval of the Director of the Oregon Department of Consumer and Business Services—Insurance Division (“Oregon Insurance Division”). 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. In each case, the limitation must be determined under statutory accounting practices. Oregon law gives the Oregon Insurance Division broad discretion to decline requests for dividends in excess of these limits. There are no regulatory restrictions on dividends from non-insurance subsidiaries to StanCorp.

In the first six months of 2007, Standard paid a dividend of $155 million to StanCorp. Standard did not pay a dividend in the first six months of 2008. The reduction in dividends paid to StanCorp from Standard for the first six months of 2008 compared to the same period in 2007 reflected a decision to maintain capital in Standard in excess of 300% company action level RBC. Prior to 2008, capital for Standard was maintained at a level in excess of 275% company action level RBC. In June 2008, Standard notified the Oregon Insurance Department that Standard was planning to distribute a regular cash dividend of $10 million to StanCorp in July 2008. At June 30, 2008, projected RBC was 315% of the company action level. In early July 2008, Standard distributed the cash dividend of $10 million to StanCorp.

Dividends to Shareholders

The declaration and payment of dividends 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 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 and 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. In the fourth quarter of 2007, StanCorp paid an annual cash dividend of $0.72 per share, totaling $35.7 million. 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 will be made 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 May 7, 2007, the board of directors authorized a share repurchase program of up to 6.0 million shares of StanCorp common stock. Share repurchases will be made in the open market or in negotiated transactions through December 31, 2008. The share repurchase program replaced our previous share repurchase program, which had 1.2 million shares remaining that expired upon authorization of the new program.

During the second quarter of 2008, we repurchased 0.1 million shares of common stock at a total cost of $5.0 million for a volume weighted-average price of $50.52 per share. During the first six months of 2008, we repurchased 0.3 million shares of common stock at a total cost of $15.9 million for a volume weighted-average

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price of $48.27 per share. At June 30, 2008, there were 1.1 million shares remaining under the share repurchase program. In addition, during the second quarter of 2008, we acquired 1,180 shares of common stock from directors to cover tax liabilities of these directors resulting from the release of performance-based shares at a total cost of $0.1 million for a volume weighted-average price of $53.22 per common share, which reflects the market price on the transaction date. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”

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 July 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 July 2008, ratings from these agencies were A-, Baa1 and bbb+, respectively. As of July 2008, Standard’s issuer credit rating from A.M. Best was a+.

Standard & Poor’s, Moody’s Investor Services, Inc. and A.M. Best Company also provide credit ratings on StanCorp’s Subordinated Debt. As of July 2008, ratings from these agencies were BBB, Baa2 and bbb-, respectively.

Contingencies and Litigation

See Item 1, “Financial Statements—Condensed Notes to Unaudited Consolidated Financial Statements—Note 9, Contingencies and Commitments.”

Off-Balance Sheet Arrangements

See “Liquidity and Capital Resources, Investing Cash Flows, Commercial Mortgage Loans.”

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, 2006, through June 30, 2008, aggregated $0.4 million. At June 30, 2008, we maintained a reserve 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

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statutory accounting practices include state laws, regulations and general administrative rules, as well as the Statements of Statutory Accounting Principles set forth in publications of the National Association of Insurance Commissioners.

Statutory net gains from insurance operations before federal income taxes and excluding capital gains and losses were $86.2 million for the second quarter of 2008, compared to $56.6 million for the second quarter of 2007, and $162.7 million for the first six months of 2008, compared to $113.9 million for the first six months of 2007, respectively. The increases in statutory net gains from operations for the comparative periods were primarily due to comparatively favorable benefit ratios.

Generally statutory net gains from insurance operations before federal income taxes, including capital gains and losses, are lower than GAAP income before income taxes, including capital gains and losses. This variance between Statutory and GAAP is primarily due to DAC and VOBA being expensed in the period incurred on a statutory basis and statutory using a lower discount rate than the GAAP rate. There was a narrowing of the variance between Statutory and GAAP results for the second quarter of 2008 compared to the second quarter 2007 and the first six months of 2008 compared to the same period in 2007. This narrowing of the variance was primarily due to a decrease in earnings from non-insurance subsidiaries and a difference in the change in reserves due to the reserve discount rate being lower on a statutory basis. The reserve discount rate for long term disability claims on a Statutory basis was 4.5% during the first six months of 2008 and 2007. The GAAP reserve discount rate ranged from 5.00% to 5.25% in the first half of 2008 and was 5.50% in the first half of 2007. The decrease in earnings from non-insurance subsidiaries was primarily related to hybrid debt interest of $10.5 million in the first six months of 2008 compared to $1.7 million in the same period in 2007.

Statutory capital adjusted to exclude asset valuation reserves for our insurance subsidiaries totaled $1.25 billion and $1.04 billion at June 30, 2008 and 2007, respectively. The asset valuation reserve was $101.5 million and $98.0 million at June 30, 2008 and 2007, respectively.

Accounting Pronouncements

See Item 1, “Financial Statements—Condensed Notes to Unaudited Consolidated Financial Statements—Note 7, Fair Value of Financial Instruments.”

Critical Accounting Policies and Estimates

Our consolidated financial statements and certain disclosures made in this Form 10-Q 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.

Deferred Acquisition Costs (“DAC”), Value of Business Acquired (“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.

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Acquisition costs that we have 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. 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 $226.8 million and $202.3 million at June 30, 2008, and December 31, 2007, 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. 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. 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.

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-DurationContracts 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 the 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 $32.5 million and $34.4 million at June 30, 2008, and December 31, 2007, 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.

VOBA related to the TIAA group long term disability claims, for which no further premiums are due, is amortized in proportion to expected gross profits. At June 30, 2008, DAC and VOBA balances amortized in proportion to expected gross profits accounted for 31.1% and 26.2%, or $70.5 million and $8.5 million of the total balance for DAC and VOBA, respectively. 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.

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Key assumptions, which will affect the determination of expected gross profits for determining DAC and VOBA balances, are:

• Persistency.

• Interest rates, which affect both investment income and interest credited.

• Stock market performance.

• Capital gains and losses.

• Claim termination rates.

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 or 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 $0.1 million and $0.8 million in the second quarter and first six months of 2008, respectively, and decreased $0.2 million and $0.4 million for the same periods of 2007. 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 that 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 were acquired primarily in connection with the purchase of Invesmart, the purchase of DPA, Inc. and with the acquisition of small investment advisory firms. Customer lists have a combined estimated weighted-average remaining life of approximately 8.9 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 $50.4 million and $52.1 million at June 30, 2008, and December 31, 2007, respectively.

Goodwill totaled $36.0 million at June 30, 2008, and December 31, 2007, and is related to the purchase of Invesmart, which is part of the Asset Management segment.

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 June 30, 2008, these reserves represented approximately 88% of total reserves held or $4.58 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 12% of total reserves held at June 30, 2008, or $651.1 million. Finally, a small amount of reserves is held based entirely upon subjective

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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 June 30, 2008, or $11.7 million.

Reserves include policy reserves for claims not yet incurred, policy reserve liabilities for our individual and group immediate annuity business and claim reserve 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 $5.25 billion at June 30, 2008, compared to $5.16 billion at December 31, 2007.

Policy Reserves

Policy reserves totaled $927.2 million and $908.3 million at June 30, 2008, and December 31, 2007, 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 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 $170.2 million and $164.4 million at June 30, 2008, and December 31, 2007, 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, gender 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 $152.0 million and $141.8 million at June 30, 2008, and December 31, 2007, 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 gender 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 $605.0 million and $602.1 million at June 30, 2008, and December 31, 2007, 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.

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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, equals our best estimate of the present value of the liability of future unpaid claims and claim adjustment expenses. Reserves for incurred but not reported (“IBNR”) claims are determined using company experience and consider actual historical incidence rates, claim reporting patterns, and the average cost of claims. The IBNR reserves are calculated using a company derived formula based primarily upon premium, which is validated through a close examination of reserve run-out experience.

The claim reserves are related to group life and group and individual disability products offered by our Insurance Services segment. The following table sets forth total claim reserves segregated between reserves associated with life versus disability products:

	June 30, 2008		December 31, 2007
	(In millions)
Group life	$	745.1	$	735.6
Group disability		2,961.9		2,923.8
Individual disability		611.9		590.6
Total claim reserves	$	4,318.9	$	4,250.0

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. During 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, gender and occupation class of the claimant, the year the claim was incurred, time elapsed since disablement, and specific contract provisions and limitations.

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.

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Claim reserves for our group life and AD&D products are established for death claims reported but not yet paid, IBNR for death and waiver 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 increased to 5.25% for the second quarter of 2008 from 5.00% for the first quarter of 2008. 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 the first six months of 2008, 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.

In 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. For the first six months of 2008 and 2007, reserves were calculated on a comparable basis.

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 changes 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 run-out 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 adjusted 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.

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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 $7 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 of this range.

Forward-looking Statements

Some of the statements contained in this Form 10-Q, including those relating to our strategy, growth prospects 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. 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 and annuity deposits, cash flows, gross profits and profitability.

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

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

• 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.

• Events of terrorism, natural disasters or other catastrophic events.

• Changes in federal or state income taxes.

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

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

• Levels of persistency.

• Adequacy of reserves established for future policy benefits.

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

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

• Levels of employment and wage growth.

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

• Concentration of risk that is especially inherent in group life products.

• Ability of reinsurers to meet their obligations.

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

• Losses from a disease pandemic.

• Achievement of anticipated levels of operating expenses.

• Adequacy of diversification of risk within our fixed maturity securities portfolio by industries, issuers and maturities.

• Credit quality of the holdings in our investment portfolios.

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

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

• 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.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the interest rate risks faced by StanCorp since those reported in our annual report on Form 10-K for the year ended December 31, 2007. In reference to equity risk, StanCorp’s primary exposure relates to the potential for lower administrative fee revenue associated with the Asset Management businesses. Administrative fee revenue is primarily based on the fair value of assets under administration. In an equity market decline, administrative fee revenue could be reduced by decreased market valuations and also by customer withdrawals and redemptions. These withdrawals and redemptions from equity funds and accounts may be partially offset by transfers to our fixed-income accounts and transfers from other plans.

ITEM 4: CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.    Management of StanCorp has evaluated, under the supervision and with the participation of our chief executive officer and chief financial officer, the effectiveness of our “disclosure controls and procedures,” (as defined by the Securities Exchange Act of 1934 Rules 13a-15(c) and 15-d-15(c)) as of the end of the period covered by this report. Based on this evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at June 30, 2008, 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 our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in internal control.    There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to affect materially, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

See Item 1, “Financial Statements—Condensed Notes to Unaudited Consolidated Financial Statements—Note 9, Contingencies and Commitments.”

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 reserves related to 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 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.

• 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

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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 important factors 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

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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 I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Management—Dividends from Insurance Subsidiary.”

• Our business may be affected by employment and wage growth—Two factors in the growth of StanCorp’s group insurance and retirement plans 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 and revenues in our retirement plans business.

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

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ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth share purchase information:

	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Period:
April 1-30, 2008	24,600	$	49.36	24,600	1,166,800
May 1-31, 2008	5,180		53.03	4,000	1,162,800
June 1-30, 2008	70,500		50.78	70,500	1,092,300
Total second quarter	100,280		50.55	99,100	1,092,300

On May 7, 2007, the board of directors authorized a share repurchase program of up to 6.0 million shares of StanCorp common stock. The share repurchases will be made in the open market or in negotiated transactions through December 31, 2008. The share repurchase program replaced our previous share repurchase program, which had 1.2 million shares remaining that expired upon authorization of the new program.

Included in the share repurchases during the second quarter of 2008 were 1,180 shares of common stock acquired from directors to cover tax liabilities of these directors resulting from the release of performance-based shares at a total cost of $0.1 million for a volume weighted-average price of $53.22 per common share, which reflects the market price on the transaction date.

In addition, the declaration or payment of dividends would be restricted if StanCorp elects to defer interest payments on its junior subordinated debt. If the Company elected to defer interest payments, the dividend restriction would be in place during the deferral period, which cannot exceed five years. See Part I, Item 2, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Capital Management—Dividends to Shareholders.”

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5: OTHER INFORMATION

None

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ITEM 6: EXHIBITS

Exhibit Index
Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements 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.

Date: August 5, 2008	By:	/s/    FLOYD F. CHADEE
		Floyd F. Chadee Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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EXHIBITS INDEX

Number	Name	Method of Filing
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of Chief 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 Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

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