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Symetra Reports Third Quarter 2012 Results

“Sales volumes, however, were disappointing — in our interest-rate-sensitive fixed annuity business as well as our new product areas. Variable annuity sales through fee-based advisers and universal life insurance sales through brokerage general agencies [BGAs] have not yet gained market traction. And while we completed the build-out of our group life and disability income insurance capabilities, initial sales were lower than anticipated. We’re currently focused on January 2013 new business in this emerging product line,” he said.

“Fourth quarter is all about ramping up sales and writing profitable business. To that end, we recently refreshed our universal life pricing, carving out competitive niches in certain categories based on BGA partner feedback. We also are working closely with our bank partners to deliver fixed deferred and fixed indexed annuity solutions to consumers looking for safe investments with guaranteed returns. Given these steps, we expect to see improvement in near-term sales results,” said Marra.

BUSINESS SEGMENT RESULTS

Segment Pretax Adjusted Operating Income (Loss)   Three Months Ended   Nine Months Ended
(In millions) September 30 September 30
      2012     2011*     2012     2011*
Benefits $ 16.7   $ 21.9 $ 58.1   $ 54.9
 
Deferred Annuities 24.0 26.5 73.6 68.3
 
Income Annuities 8.6 7.1 39.9 28.6
 
Individual Life 13.8 12.8 41.5 47.2
 
Other   (10.0 )   (1.7 )   (20.8 )   (5.5 )
 
Pretax Adjusted Operating Income $ 53.1 $ 66.6 $ 192.3 $ 193.5
 
Less: Income Taxes**   (7.2 )   (19.7 )   (39.9 )   (54.4 )
 
Adjusted Operating Income $ 45.9   $ 46.9   $ 152.4   $ 139.1  

* Historical financial information has been restated to reflect retrospective adoption of a new accounting standard for deferred policy acquisition costs on Jan. 1, 2012.

** Represents the total provision for income taxes adjusted for the tax effect on net realized investment gains (losses) and on net gains (losses) on Symetra’s fixed indexed annuity (FIA) products at the U.S. federal income tax rate of 35%.

Benefits

  • Pretax adjusted operating income was $16.7 million, compared with $21.9 million in third quarter 2011. The decline stemmed from a less favorable loss ratio and higher operating expenses related to the expansion of Symetra’s group life and disability income insurance business.
  • Loss ratio was 65.5%, compared with 63.6% in the prior-year period. Although the third quarter 2012 loss ratio was slightly less favorable than target due to an increase in the severity of medical stop-loss claims, the year-to-date loss ratio of 64.2% was within the company’s long-term target range of 63–65%.
  • Sales of $31.3 million were up substantially across all lines of business from $20.1 million in third quarter 2011. Consistent pricing and strong producer relationships led to another excellent quarter of stop-loss sales.

Deferred Annuities

  • Pretax adjusted operating income was $24.0 million, down from $26.5 million in third quarter 2011. The decrease in operating income was due to lower interest spreads, and higher operating expenses related primarily to Symetra True Variable Annuity SM (True VA).
  • Total account values were $11.7 billion at quarter-end, up from $11.1 billion at the end of third quarter 2011.
  • Sales were $166.5 million, compared with $393.6 million in third quarter 2011. The combination of low interest rates and pricing competition challenged annuity sales, particularly in July and August when interest rates hit new historic lows. Sales of Symetra Edge Pro ® Fixed Indexed Annuity, however, increased $26.8 million over third quarter 2011. Product changes and broader availability on bank partner platforms spurred sales late in the quarter both for fixed deferred and fixed indexed annuities. True VA sales fell short of expectations in the third quarter.

Income Annuities

  • Pretax adjusted operating income was $8.6 million, compared with $7.1 million in third quarter 2011. The earnings growth reflected favorable mortality experience and lower operating expenses, offset by lower income from reduced funding services activity.
  • Mortality gains were $2.0 million, compared with mortality losses of $1.4 million in third quarter 2011.
  • Sales were $49.5 million, compared with sales of $64.6 million in the same quarter of 2011. The decrease stemmed mainly from lower structured settlement sales. Shorter-duration single premium immediate annuity (SPIA) sales were up $5.5 million over year-ago levels as a result of new sales strategies to help customers maximize retirement income.

Individual Life

  • Pretax adjusted operating income was $13.8 million, compared with $12.8 million in third quarter 2011. The earnings improvement was driven by a higher BOLI return on assets reflecting lower BOLI claims, partially offset by higher individual life claims and a $2.4 million unfavorable impact from DAC unlocking.
  • Sales of individual life products were $1.6 million, down from $3.3 million in the same quarter a year ago. As expected, third quarter 2012 sales declined due to changes in the company’s single premium life product, which were implemented as a result of sustained low interest rates. Symetra Classic Universal Life Insurance sales fell well short of expectations in the third quarter.

Other

  • Pretax adjusted operating loss was $10.0 million, compared with a loss of $1.7 million in the same quarter a year ago. The Other segment includes unallocated corporate income and expenses, interest expense on debt and other income outside of Symetra’s four business segments. Third quarter 2012 results included a $6.6 million decrease in net investment income primarily related to Symetra’s tax credit investments.

Investment Portfolio

  • Symetra’s equity portfolio posted net investment gains of $25.0 million, driven by a strong common stock portfolio performance. This represents a substantial positive swing from net losses of $52.1 million in third quarter 2011. The company’s common stock portfolio, which is marked to market and is included in Symetra’s overall net realized investment results, delivered returns of 9.8% in third quarter 2012, outperforming the S&P 500 Total Return Index result of 6.3%.
  • Net realized investment gains were $15.5 million, compared with net losses of $56.6 million in third quarter 2011. Significantly improved equity returns were slightly offset by higher impairments of $13.3 million for third quarter 2012, compared with impairments of $4.9 million in third quarter 2011.

Stockholders’ Equity

  • Total stockholders’ equity, or book value, as of Sept. 30, 2012, was $3,641.2 million, or $26.37 per share, compared with $3,378.4 million, or $24.46 per share, as of June 30, 2012.
  • Adjusted book value as converted, 1 as of Sept. 30, 2012, was $2,455.0 million, or $17.78 per share, up from $2,408.5 million, or $17.44 per share, as of June 30, 2012.
  • Risk-based capital (RBC) ratio for Symetra Life Insurance Company at the end of third quarter 2012 was estimated at 485%. Statutory capital and surplus, including asset valuation reserve (AVR), was $2,158.7 million.
  • Provision for income taxes was $12.3 million, compared with $0.1 million in third quarter 2011. The increase reflected fluctuations in net realized investment returns, resulting in higher pretax income. Symetra’s effective tax rate for third quarter 2012 was 18.2%, compared with 0.9% for the same period in 2011. Symetra’s effective tax rate through Sept. 30, 2012 was 22.9%.

2012 Earnings Guidance

Symetra affirmed its guidance for full-year adjusted operating income per diluted share of $1.35–$1.50. This range assumes a Benefits loss ratio within Symetra’s long-term target range, continued low interest rates, a favorable full-year 2012 effective tax rate, and ongoing investments in the company’s Grow & Diversify initiatives.

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