Symetra Financial's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Symetra Financial Corporation (SYA)

Q2 2012 Earnings Call

July 26, 2012 10:00 am ET

Executives

Jim Pirak – Investor Relations

Thomas M. Marra – President and Chief Executive Officer

Margaret A. Meister – Executive Vice President and Chief Financial Officer

Michael W. Fry – Executive Vice President, Benefits Division

Daniel R. Guilbert – Executive Vice President, Retirement Division

Analysts

Jimmy Bhullar – JPMorgan

Chris Giovanni – Goldman Sachs

John M. Nadel – Sterne, Agee & Leach, Inc.

Steven Schwartz – Raymond James

Jeffrey R. Schuman – Keefe, Bruyette & Woods, Inc.

Humphrey Lee – UBS

Ryan Krueger – Dowling & Partners

Presentation

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Q2 2012 Symetra Financial Corporation Conference Call, hosted by Jim Pirak. My name is Marie and I will be your operator today.

During the presentation all participants will be in a listen-only-mode and after the speakers’ remarks, you will be invited to participate in the question-and-answer session. As a reminder ladies and gentlemen, this conference is being recorded.

I would now like to hand the call over to the host for today's call Mr. Jim Pirak, please proceed.

Jim Pirak

Thank you, Marie. Good morning and welcome to Symetra Financial Corporation review of second quarter 2012 results. Before we begin I would like to call your attention to the Safe Harbor statement on slide two of the presentation materials, which are posted on Symetra's website.

Some of the information discussed on the call, is based upon information, as of today and contains forward-looking statements that involve risk and uncertainty. To the extent, any comments on the call are forward-looking statements, they are qualified by the risk factors in Symetra's public filings, including the press release issued yesterday.

During this call we will discuss GAAP and non-GAAP financial measures, a reconciliation between the two is available in yesterday's earnings press release and in the presentation materials which are posted on Symetra's website.

On the call today, you will hear from President and CEO, Tom Marra; and Executive Vice President and CFO, Margaret Meister. Michael Fry, from the Benefits Division and Dan Guilbert, from the Retirement Division, would join in the Q&A discussion.

Now I'll turn it over to Tom.

Thomas M. Marra

Thank you Jim and good morning everyone, Margaret and I will review the financial results and update our key initiatives. And then, of course we’ll take your questions, so I’ll begin on slide three, where we have a summary of current highlights and challenges.

So this is another strong quarter for our Retirement division, with solid interest spreads earned and by both the Deferred Annuities and the Income Annuities segments. This is especially impressive in the current interest rate environment, which continues to apply pressure to our products margins.

Sales of fixed deferred annuities were lower in the quarter, but sales of our fixed indexed annuity product continue to pick up the pace, and in fact we posted our fourth consecutive quarter of higher sales – sequential sales, over up by product. Immediately, that trend will probably end here as we expect third quarter FIA sales to be down from the second quarter again due to low interest rates.

At 63.5%, our benefits loss ratio for the first half of 2012 remains well within our long term target range of 63% to 65%. The ratio was 65.5% in the second quarter Margaret will have more to say about that in a moment. While clearly the medical stop-loss business is performing in line with our underwriting objectives.

Now turning to challenges; first we continue to deal with the interest rate environment, the impact it has on margins and sales. As you know, we’re maintaining our discipline despite this low rate environment and while this may negatively impact sales in the short-term, we believe the finest discipline is the prudent way to run the business.

Second, we’re not satisfied with sales levels in individual item. And the near-term outlook remains challenging, you recall that we told you last quarter that we’re lowering commissions on our single premium life product, as a result of interest rates that change went into effect on July 1, and we expect that to be our sales drop off dramatically for the remainder of the year.

For now, I’ll take a personal charge of the Life business, I have a lot of experience here and we’ll be working with a very capable team to carefully evaluate ways to historic growth. We still need a more complete product offering and we obviously need to drive sales through our distribution relationships.

With regard to our grow and diversify campaign, we’ve done a lot of optimal work across the company to expand our products and capabilities. The retirement division launched our True Variable Annuity products in June and the Benefits division implemented the state-of-the-art Life & DI claims in asset management system. The Life team introduced a Lapse Protection Benefit rider for Classic UL and a new variable COLI product. Now our focus is on driving increased revenues as a result of these initiatives. It’s critical that we were quickly to drive sales of our new products, while we also keep our core business going strong. We build good products and service capabilities, but now it’s time to execute on the sales side.

Turning to slide four, we have our consolidated financial results for the second quarter. Net income was $44 million down from $58 million in second quarter 2011 reflecting lower net realized investment gains. Adjusted operating income was $47 million compared with $49 million in second quarter of 2011. Return on equity was 6.6% for the 12 months ended June 30, down from 9.1% for the same period last year, mostly due to growth in total stockholders’ equity, which includes higher unrealized gains in the investment portfolio.

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