Fitch Rates Symetra Financial's $250MM Sr. Debt 'BBB+'

CHICAGO--()--Fitch Ratings has assigned a 'BBB+' rating to $250 million of new senior unsecured notes due 2024 issued by Symetra Financial Corp. (Symetra). Symetra's other ratings are unaffected by this action. The Rating Outlook is Stable.

KEY RATING DRIVERS

The rating is equivalent to the ratings assigned to Symetra's existing senior unsecured notes and reflect standard notching based on Fitch's rating criteria.

Symetra's strong balance sheet fundamentals and recent financial performance remain consistent and within rating expectations.

Fitch views this opportunistic issuance of debt as removing much of the rating cushion in financial leverage and fixed charge coverage ratios. Proceeds from the debt issuance are anticipated to be used for general corporate purposes, which may include, but are not limited to, working capital, capital expenditures, repayment of outstanding indebtedness, stock repurchases and dividends.

Pro forma financial leverage is expected to increase to approximately 23% from 16% with the issuance of the senior notes but still remain under Fitch's 25% downgrade rating trigger. Pro forma fixed charge coverage is estimated to decline to near downgrade rating trigger levels of 8x for full year 2014 from 8.9x for the first six months of 2014. Statutory interest coverage is expected to remain strong at over 4.6x for full year 2014.

The Outlook for Symetra remains Stable based primarily on Fitch's expectations that key credit metrics, including earnings, will remain at or above current levels over the next 12 to 18 months. Longer term, Fitch is concerned with the earnings implications of a prolonged low interest rate environment as spreads between earned rates and credited rates narrow.

Symetra's ratings reflect the company's strong balance sheet, consistent and diversified earnings, and lower-risk products. Additional strengths include the company's good competitive position in the group medical stop-loss market and fixed annuities sold through banks. The ratings also consider Symetra's lack of significant scale to other highly rated life insurers and the company's reliance on its niche group medical stop-loss business, which generates a major source of earnings (26% in 2013).

Symetra reported solid, consistent operating results through the first six months of 2014. Operating return on equity profitability improved to 9.4% at June 30, 2014 from 8.8% for 2013 and net operating income increased 18.5% to $121 million. Profitability is expected to range from 9% to 10% return on equity. Credit related impairments have been very low through the first six months of 2014 and are expected to remain low.

Fitch views Symetra's balance sheet strength and asset quality favorably. The company's NAIC risk-adjusted capital (RBC) ratio was estimated to be 458% at June 30, 2014 almost unchanged from 461% at year-end 2013. Capitalization is considered by Fitch to be very strong for the rating. Financial leverage at 15.6% at June 30, 2014 is considered moderate for the rating but expected to increase to near 23% with the issuance of debt and potential stock buybacks.

RATING SENSITIVITIES

Key rating triggers that could lead to a downgrade include:

--A decline in run rate profitability to below 8% ROE on a sustained basis;

--Any deterioration in operating company capitalization sustained below 400% Risk Based Capital (RBC);

--An increase in financial leverage above 25% or a decline in GAAP-based fixed charge coverage to below 8x on a sustained basis;

--Material realized or unrealized losses in the company's long-duration bond portfolio derived from sudden changes in market conditions, spiked interest rate levels, and credit spreads that lead to significant cash flow stresses or declines in capital.

Given Symetra's current size and scale relative to higher rated peers, a rating upgrade is not likely in the near term. Rating triggers that could lead to an upgrade would be achieved over an extended period of time, and include:

--Enhanced profitability to double-digit ROE levels;

--Successful execution of its product diversification strategy;

--Maintenance of strong capital levels in excess of 450% RBC, financial leverage, fixed charge coverage, and operating company leverage maintained near current levels or improved.

Fitch has assigned the following rating:

Symetra Financial Corp.

--4.25% senior unsecured notes due July 15, 2024 'BBB+'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', Nov. 13, 2013.

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842946

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Contacts

Fitch Ratings
Primary Analyst
R. Andrew Davidson, CFA
Senior Director
+1-312-368-3144
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Julie A. Burke, CPA, CFA
Managing Director
+1-312-368-3158
or
Committee Chairperson
Douglas Pawlowski, CFA
Senior Director
+1-312-368-2054
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
R. Andrew Davidson, CFA
Senior Director
+1-312-368-3144
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Julie A. Burke, CPA, CFA
Managing Director
+1-312-368-3158
or
Committee Chairperson
Douglas Pawlowski, CFA
Senior Director
+1-312-368-2054
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com