Fitch Affirms Symetra Life's IFS at 'A' and Holdco's IDR at 'A-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Symetra Life Insurance Company's (Symetra Life) Insurer Financial Strength (IFS) rating at 'A'. 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

Symetra's ratings reflect its strong balance sheet, diversified earnings, moderate financial leverage. Additional strengths include the company's strong competitive position in the group medical stop-loss market and fixed annuities sold through banks. The ratings also reflect its above-average interest rate risk.

The ratings consider Symetra's status as a wholly-owned subsidiary of Japan-based Sumitomo Life Insurance Company (Sumitomo). Fitch rates Sumitomo's IFS and IDR at 'A' with a Negative Outlook. Sumitomo's IFS rating is currently constrained by Japan's Long-Term Local Currency IDR ('A'/Outlook Negative), and is one notch below its unadjusted IFS rating of 'A+'.

Based on Fitch's criteria, Symetra's strategic importance level is 'Very Important' within the Sumitomo enterprise, reflecting its position as its parent's U.S. platform. This along with its standalone credit profile, which Fitch views as in line with an 'A' IFS rating, results in Symetra Life carrying the same IFS rating as Sumitomo. In the event of a one notch downgrade to the Japanese sovereign rating, Fitch would likely affirm Symetra's ratings, due to its lack of direct exposure to Japan and the issues constraining its sovereign rating.

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 book, Symetra is more exposed to interest rate risk than peers.

Fitch views Symetra Life's risk-adjusted capital as strong for the rating and considers the growth in statutory surplus adequate. The company's RBC ratio decreased in 1H16 to an estimated 411% from 424% as of year-end 2015. However, RBC remains both strong for the rating level and above management's target of 350%. Symetra's Prism capital model score in 2015 was 'Strong', which is consistent with the rating level.

Symetra's financial leverage declined to 16% as of June 30, 2016, largely due to purchase accounting adjustments whereby shareholders' equity was set equal to Sumitomo's purchase price, leading to a $1.3 billion increase in shareholders' equity, excluding net unrealized gains, from year-end 2015. Fitch views the company's use of financial leverage as reasonable considering its profile and rating level. Total financings and commitments (TFC) remains modest at 0.3x.

Through June 30, 2016, Symetra's post-tax operating income was $23.8 million, down from the prior year as a result of purchase accounting adjustments. The benefits division loss ratio increased to 71% in Q2'16 from 66% in the prior year period due to higher severity and increased frequency of claims. Fixed indexed annuity sales remain strong, but could face headwinds from the Department of Labor's fiduciary rule. Margin compression persists in the protracted low interest rate environment.

Symetra's risky asset ratio of 71% remained below the industry (80%) at year-end 2015, due to its below-average Schedule BA exposure, which is partially offset by its above-average common stock exposure. The company's bond portfolio is overweight 'BBB' rated bonds, but its exposure to below investment grade bonds is in line with the industry. Commercial mortgages comprise 16% of its invested assets, moderately above the industry's 11%, but the portfolio is of high quality and considered a good match for its long-dated liabilities.

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. Given that Sumitomo's ratings have a Negative Outlook, an upgrade of Symetra Life for this reason is unlikely in the near term. In the event of a one notch downgrade of the parent's IFS rating to 'A-', Symetra Life could maintain its current 'A' IFS rating per Fitch's criteria. As a 'Very Important' subsidiary of Sumitomo, Symetra Life's IFS rating could be downgraded below the parent's IFS rating if its standalone assessment is downgraded by three or more notches.

Symetra's holding company ratings are somewhat constrained by Sumitomo's ratings, which are capped by Japan's Long-Term Local-Currency IDR of 'A'. Therefore, a two notch upgrade of Sumitomo's IFS rating would be needed to upgrade Symetra's holding company ratings. Conversely, 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 will also likely be lowered in conjunction with its parent.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings 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'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 15 Sep 2016)

https://www.fitchratings.com/site/re/887191

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014815

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014815

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Jamie R. Tucker, CPA, +1-212-612-7856
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Committee Chairperson
Keith M. Buckley, CFA, +1-312-368-3211
Managing Director
or
Media Relations
Hannah James, New York, + 1-646-582-4947
hannah.james@fitchratings.com