Bellevue-based Symetra Financial Corporation today reported third quarter 2013 net income of $45.3 million, or $0.38 per diluted share, compared with $55.2 million, or $0.40 per diluted share, in third quarter 2012.
Adjusted operating income was $48.9 million, or $0.42 per diluted share, compared with $45.9 million, or $0.33 per diluted share, in the same period a year ago.
| Summary Financial Results | Three Months Ended | Nine Months Ended | ||||||||||||||||||||
| (In millions, except per share data) | September 30 | September 30 | ||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
| Net Income | $ | 45.3 | $ | 55.2 | $ | 156.3 | $ | 174.4 | ||||||||||||||
| Per Diluted Share of Common Stock | $ | 0.38 | $ | 0.40 | $ | 1.21 | $ | 1.26 | ||||||||||||||
| Adjusted Operating Income | $ | 48.9 | $ | 45.9 | $ | 150.7 | $ | 152.4 | ||||||||||||||
| Per Diluted Share of Common Stock | $ | 0.42 | $ | 0.33 | $ | 1.16 | $ | 1.10 | ||||||||||||||
“Exceptional deferred annuity sales and much-improved individual life production were the highlights of Symetra’s third quarter, though their positive impact on earnings will be felt in future quarters. Compared with third quarter results a year ago, we saw flat earnings in Deferred Annuities, modest declines in Benefits and Income Annuities, and higher operating income in Individual Life,” said Tom Marra, Symetra president and CEO.
“We look for our strong sales in Deferred Annuities and good sales momentum in Individual Life to continue through the end of the year. Expanded distribution in both of these areas is making a real difference. We expect ongoing pressure on medical stop-loss and group life and disability income insurance sales in the fourth quarter given stiff pricing competition. The Benefits team is working hard to quote and close January 2014 renewals and new business across product lines,” Marra said.
| Segment Pretax Adjusted Operating Income (Loss) | Three Months Ended | Nine Months Ended | |||||||||||||||||
| (In millions) | September 30 | September 30 | |||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||||||
| Benefits | $ | 15.2 | $ | 16.7 | $ | 45.0 | $ | 58.1 | |||||||||||
| Deferred Annuities | 23.9 | 24.0 | 80.0 | 73.6 | |||||||||||||||
| Income Annuities | 7.1 | 8.6 | 25.9 | 39.9 | |||||||||||||||
| Individual Life | 15.8 | 13.8 | 41.5 | 41.5 | |||||||||||||||
| Other | (3.3 | ) | (10.0 | ) | (9.4 | ) | (20.8 | ) | |||||||||||
| Subtotal | $ | 58.7 | $ | 53.1 | $ | 183.0 | $ | 192.3 | |||||||||||
| Less: Income Taxes* | 9.8 | 7.2 | 32.3 | 39.9 | |||||||||||||||
| Adjusted Operating Income1 | $ | 48.9 | $ | 45.9 | $ | 150.7 | $ | 152.4 | |||||||||||
* 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) product at the U.S. federal income tax rate of 35%.
Benefits
- Pretax adjusted operating income was $15.2 million, down from $16.7 million in third quarter 2012. A less favorable loss ratio drove the earnings decline.
- Loss ratio was 67.3%, compared with 65.5% in third quarter 2012, affected by higher claims frequency in the medical stop-loss line. The company continues to expect the full-year loss ratio will be a couple of percentage points above the high end of the 63%–65% target range.
- Sales of $19.0 million fell from $31.3 million in third quarter 2012. Symetra’s disciplined pricing in a competitive market environment resulted in a stop-loss sales decline of $12.1 million compared with the same quarter last year.
Deferred Annuities
- Pretax adjusted operating income was $23.9 million, essentially unchanged from $24.0 million in third quarter 2012. Third quarter 2013 earnings included $7.4 million of investment prepayment-related income, net of amortization, compared with $2.6 million in the prior-year quarter. Third quarter results were reduced by $3.5 million of unlocking expense, compared with $1.2 million in the same quarter a year ago. Significantly higher FIA sales in third quarter 2013 led to increased distribution costs. This jump in sales will benefit operating earnings in future quarters.
- Total account values were $12.9 billion at the end of the quarter, up from $11.7 billion at the end of third quarter 2012. Accelerated FIA sales drove this growth, with FIA account values increasing to $1.3 billion from $264.3 million a year ago.
- Sales were $747.1 million, up dramatically from $166.5 million in third quarter 2012, reflecting a more favorable interest rate environment and ongoing expansion of Symetra retirement products on bank distribution platforms. FIA sales jumped to $448.2 million, compared with $43.2 million in the same quarter last year. With the uptick in interest rates, sales of traditional fixed annuities also improved in third quarter 2013, totaling $292.1 million versus $116.2 million a year ago.
Income Annuities
- Pretax adjusted operating income was $7.1 million, compared with $8.6 million in third quarter 2012. The decline stemmed from less favorable mortality gains and lower investment income due to a shift toward investing more assets in equities.
- Mortality gains were $1.1 million, compared with mortality gains of $2.0 million in third quarter 2012. Mortality experience can be volatile from quarter to quarter.
- Sales were $38.9 million, down from $49.5 million in third quarter 2012, largely due to Symetra’s discontinuation of structured settlement sales in late 2012. Sales of single-premium immediate annuities (SPIAs) decreased slightly to $37.1 million from $37.6 million in the prior-year quarter. SPIA sales continue to be challenged by pricing competition in the low interest rate environment.
Individual Life
- Pretax adjusted operating income was $15.8 million, compared with $13.8 million in third quarter 2012. Higher income from investment prepayments and a favorable impact from unlocking contributed to the year-over-year improvement. This increase was partially offset by higher BOLI claims, as reflected in a lower BOLI return on assets (ROA).
- Sales of individual life products were $3.9 million, up from $1.6 million in the same quarter a year ago. Symetra Classic Universal Life sales led the way, supported by an expanded brokerage general agency (BGA) distribution network. Sales of corporate-owned life insurance (COLI) were $1.1 million in third quarter 2013, compared with no COLI sales in third quarter 2012.
Other
- Pretax adjusted operating loss was $3.3 million, compared with a loss of $10.0 million in third quarter 2012. The Other segment includes unallocated corporate income and expenses, interest expense on debt and other income outside of Symetra’s four business segments. The improvement in this segment was driven by higher net investment income, compared with net investment losses in third quarter 2012.
Investment Portfolio
- Net realized investment losses were $4.6 million, compared with net gains of $15.5 million in the same quarter a year ago. Net gains on mark-to-market equities were $12.0 million in third quarter 2013, compared with net gains of $25.0 million in third quarter 2012.
Income Taxes
- Provision for income taxes was $7.9 million, compared with $12.3 million in third quarter 2012. The decrease stemmed from lower pretax income and additional benefits from the company’s tax credit investments. Symetra’s effective tax rate for third quarter 2013 was 14.8%, compared with 18.2% in third quarter 2012. The full-year effective tax rate is expected to be approximately 18%.
Stockholders’ Equity
- Total stockholders’ equity, or book value, as of Sept. 30, 2013, was $3,012.8 million, or $25.58 per share, compared with $3,040.1 million, or $25.81 per share, as of June 30, 2013.
- Adjusted book value1 as of Sept. 30, 2013, was $2,293.8 million, or $19.47 per share, compared with $2,257.5 million, or $19.17 per share, as of June 30, 2013.
- Capital actions — There were no stock repurchases during third quarter 2013. Under the current authorization, 9.0 million shares remain available for the company to repurchase.
- Risk-based capital (RBC) ratio for Symetra Life Insurance Company at the end of third quarter 2013 was estimated at 474%. Statutory capital and surplus, including asset valuation reserve (AVR), was $2,223.1 million.
2013 Earnings Outlook
Symetra expects to generate adjusted operating income per diluted share of $1.45–$1.55 for full-year 2013. Among the factors that could drive actual results toward the upper end, middle or lower end of the guidance range are:
- further changes in the interest rate environment;
- Benefits Division loss ratio relative to current expectations;
- maintenance of current distribution relationships and success with new distribution partners;
- timing and levels of life and annuity sales;
- amount of issuance and yields on commercial mortgage loans;
- increases or decreases in the amount of prepayments in the investment portfolio;
- returns on alternative investment portfolio;
- mortality experience;
- management of operating expense levels;
- timing and amount of common stock buybacks;
- changes in expenses related to legal proceedings or regulatory investigations; and
- achievement of target cash balances.
The company will issue 2014 earnings guidance when it announces fourth quarter and full-year 2013 results in early 2014.