A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Symetra Life Insurance Company and its subsidiary, First Symetra National Life Insurance Company of New York (New York, NY). Concurrently, A.M. Best has affirmed the ICR of “bbb+” and the debt ratings of “bbb+” on $300 million of 6.125% senior unsecured notes, due 2016 and “bbb-” on $150 million of fixed-to-floating junior subordinated notes, due 2067 of Symetra Financial Corporation (Symetra) [NYSE: SYA]. The outlook for all ratings is stable. All companies are headquartered in Bellevue, WA, unless otherwise specified.

The ratings reflect the organization’s continuing product and earnings diversification, conservative underwriting within the group and its favorable risk-adjusted capital position. Symetra’s insurance operations continue to generate solid operating earnings across all business lines. Within the retirement and life divisions, Symetra is looking to enhance future earnings and revenue streams by offering new fixed indexed and variable annuities, as well as new universal life insurance products. Within the group division, earnings continue to improve driven by Symetra’s conservative underwriting, which has resulted in low loss ratios—generally in the 65%-68% range over the last 3 years. Additionally, each division contributes at least (roughly) one-quarter to Symetra’s operating revenue and earnings, suggestive of good product diversification.

The ratings also reflect Symetra’s conservative debt-to-capital ratio and strong interest coverage. The organization’s improved earnings and solid capitalization should enable Symetra to maintain its favorable leverage position.

While Symetra and its subsidiaries have reported favorable capital and earnings trends, A.M. Best remains concerned about its exposure to spread-based product liabilities, especially given the current low interest rate environment. Nearly 85% of the company’s general account reserves are comprised of individual annuities, and over one-third of that amount represents income annuities (i.e., structured settlements and payout annuities). Income annuities have limited pricing flexibility and generate narrow spreads relative to traditional fixed deferred annuities. Additionally, due to the long-tailed nature of the liabilities, it is difficult to find assets with similar durations. Hence, the financial performance of this line is particularly sensitive to certain interest rate scenarios. Moreover, given tightening credit spreads, Symetra will be challenged to maintain or improve its investment portfolio yields without materially increasing credit risk. Nevertheless, A.M. Best believes that Symetra’s relatively strong risk-adjusted capital position and fairly liquid, high-quality investment portfolio essentially mitigates the potential degradation in operating performance should low interest rates persist.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition , which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life and Health Insurers”; “Rating Health Insurance Companies”; “Rating Members of Insurance Groups”; “Equity Credit for Hybrid Securities”; and “A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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