October 2, 2017 / 2:29 PM / in a year

Fitch Affirms Symetra's Ratings; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, October 02 (Fitch) Fitch Ratings has affirmed Symetra Life Insurance Company's (Symetra Life) Insurer Financial Strength (IFS) rating at 'A' (Strong). Fitch has also affirmed the Issuer Default Rating (IDR) of Symetra Financial Corporation (Symetra) at 'A-' and the ratings of all outstanding debt. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release. KEY RATING DRIVERS The ratings reflect Symetra's status as a wholly owned subsidiary of Sumitomo Life Insurance Company (Sumitomo). Sumitomo's IFS rating (A/ Stable) is capped by Japan's Long-Term Local-Currency IDR (A/Stable) and is one notch below its unconstrained IFS rating of 'A+'. Fitch classifies Symetra as a 'Very Important' subsidiary within the Sumitomo enterprise and as such, rates its IDR and debt one notch higher than it would on a standalone basis, reflecting its parent's unconstrained rating and considering its enhanced financial and capital resources. Fitch views Symetra's standalone credit profile as in line with an 'A' IFS rating, which reflects the company's strong capitalization, moderate financial leverage and diversified earnings. Additional strengths include the company's solid competitive position in the group medical stop-loss market and fixed annuities sold through banks. The standalone credit profile also considers Symetra's exposure to the protracted low interest rate environment. Fitch believes that with its liability mix, particularly its large legacy structured settlement and bank owned life insurance books, Symetra is more exposed to interest rate risk than peers. Fitch views Symetra's earnings as weaker than the rating level and expects continued pressure in the low interest rate environment. Results have deteriorated in recent periods as the company's statutory return on total adjusted capital was 1.2% in 1H17 following 2.2% for the full year 2016. Symetra's benefits segment, which can be a significant but volatile source of profitability, has been pressured recently. In 1H17, the segment's loss ratio was 78%, up from recent periods and well above management's target of 65%-67%. Fitch views Symetra Life's risk-adjusted capital as strong for the rating. The company's RBC ratio declined in 1H17 to an estimated 403% from 413% as of year-end 2016. However, RBC remains both strong for the rating level and above management's target of 350%. Symetra's Prism capital model score in 2016 was 'Strong', which is consistent with the prior year and in-line with the rating level. Fitch considers Symetra's use of financial leverage as reasonable considering its profile and rating level. Financial leverage was 16% as of June 30, 2017, consistent with the prior year period. Leverage declined from historically in the low 20%-range due to purchase accounting adjustments in 2016 whereby shareholders' equity was set equal to Sumitomo's purchase price. Symetra's total financings and commitments (TFC) ratio remains modest at 0.2x. Fitch views Symetra's debt service capabilities and financial flexibility as strong. The company's GAAP interest coverage was 7x in the first-half 2017, which improved from recent periods due to a reduced interest expense. Fitch expects run-rate coverage to remain near the current level. In 1H17, Symetra paid $180 million of dividends to Sumitomo. Future dividends are expected to be proportional to the company's earnings. Symetra's diversified investment portfolio continues to perform well. The company's risky asset ratio of 82% at year-end 2016 was in line with the life industry average. The ratio increased from the prior year mainly due to increased asset leverage. Symetra remains overweight common stocks, which is offset by its underweight alternatives position. Additionally, the portfolio remains overweight commercial mortgage loans (17% of invested assets). The loan portfolio has grown rapidly over recent years, which Fitch views cautiously, but the quality remains strong. RATING SENSITIVITIES Symetra Life's IFS rating could be upgraded one notch above Sumitomo's IFS rating if its standalone credit profile improved to 'A+'. As a 'Very Important' subsidiary of Sumitomo, Symetra Life's IFS rating could also be upgraded in conjunction with an upgrade of the parent. In the event of a one notch downgrade of the parent's IFS rating or Symetra's standalone credit profile to 'A-', Symetra Life could maintain its current 'A' IFS rating per Fitch's criteria. Symetra's holding company ratings are notched based on Sumitomo's unconstrained rating of 'A+', meaning a two notch upgrade of Sumitomo's IFS rating would be needed to upgrade Symetra's holding company ratings. In the event of a one notch downgrade of Sumitomo's ratings, Fitch could affirm Symetra's holding company ratings. However, if Sumitomo's ratings were downgraded by more than one notch, based on its own credit quality, or deterioration in Japan's sovereign rating, Symetra's holding company ratings would also likely be lowered in conjunction with its parent. Fitch has affirmed the following with a Stable Outlook Symetra Financial Corp. --IDR at 'A-'; --4.25% senior unsecured notes due July 15, 2024 at 'BBB+'; --8.3% junior subordinated CENts due Oct. 15, 2067 at 'BBB-'. Symetra Life Insurance Company --IFS at 'A'. First Symetra National Life Insurance Company of New York --IFS at 'A'. Contact: Primary Analyst Jamie R. Tucker, CPA Associate Director +1-212-612-7856 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Julie A. Burke, CPA, CFA Managing Director +1-312-368-3158 Committee Chairperson Douglas M. Pawlowski, CFA Senior Director +1-312-368-2054 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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