Symetra Financial Corp. (NYSE: SYA) today reported first quarter
2010 net income of $46.3 million, or $0.35 per diluted share. This
compares with net income of $5.1 million, or $0.05 per diluted
share, in first quarter 2009.
Adjusted operating income1 was $41.9 million, or $0.32 per
diluted share, in first quarter 2010, compared with $32.2 million,
or $0.29 per diluted share, in the same quarter a year ago.
Summary Financial Results
Three Months Ended (In millions, except per share data)
March 31
2010 2009 Net Income $
46.3 $ 5.1 Per Diluted Share of Common
Stock $ 0.35 $ 0.05
Adjusted Operating Income
$ 41.9 $ 32.2 Per Diluted Share of
Common Stock $ 0.32 $ 0.29
“Symetra delivered strong earnings growth in the first quarter,
reflecting our underwriting discipline and focus on operating
fundamentals,” said Randy Talbot, Symetra Financial president and
chief executive officer. “Our balanced mix of businesses produced a
30% increase in adjusted operating income over first quarter 2009,
despite the headwinds of a low interest rate environment.”
First Quarter Summary
- Improved loss ratio in the Group
segment.
- Continued expansion of interest
spreads on record-level fixed account values in the Retirement
Services segment.
- Constrained earnings growth from
high daily average cash balances.
- Pretax increase of $7.4 million
in the Individual segment related to a credited rate
reduction.
- Significant improvement in net
income and total revenues led by equity portfolio gains and reduced
investment impairments.
Total revenues and operating revenues1 benefited from improved
net investment income, which was driven by an increase in invested
assets. Total revenues in the first quarter of 2010 were $453.2
million, compared with $378.8 million in first quarter 2009.
Operating revenues were $446.5 million in the first quarter,
compared with $420.4 million in the same quarter of 2009.
“Sales across all distribution channels were good,” said Talbot.
“After a dip in fourth quarter 2009, total sales increased in first
quarter 2010, supported by the primary capital raised in our
initial public offering.”
BUSINESS SEGMENT RESULTS
Segment Pretax Adjusted
Operating Income (Loss)
Three Months Ended (In millions)
March 31
2010 2009
Group $ 15.7 $ 11.5
Retirement Services 17.3 9.0
Income Annuities 6.4 14.4
Individual 23.3 17.2 Other
(3.9 )
(3.3 )
Subtotal $ 58.8 $ 48.8
Less: Income Taxes* 16.9
16.6 Adjusted Operating
Income $ 41.9
$ 32.2
* Represents the total provision
for income taxes adjusted for the tax effect on net realized
investment gains (losses) and on net realized and unrealized
investment gains (losses) on fixed index annuity (FIA) options at
the U.S. federal income tax rate of 35%.
Group
The Group segment, which consists primarily of medical stop-loss
insurance, posted first quarter 2010 pretax adjusted operating
income of $15.7 million, compared with $11.5 million in first
quarter 2009. The increase in adjusted operating income stemmed
from an improved loss ratio and lower commission-related expenses.
The first quarter 2010 loss ratio was 68.9%, compared with 70.1%
during the same quarter a year ago. A combination of fewer, less
severe stop-loss claims and price increases on renewals contributed
to the loss ratio improvement.
Sales for first quarter 2010 were $41.4 million, up from $36.8
million in first quarter 2009 as a result of focused work with
select Group distributors and an improved pricing environment.
Although rate increases on stop-loss policies led to higher lapses
during the quarter, premiums remained relatively flat at $108.8
million, compared with $109.7 million in first quarter 2009.
During the first quarter of 2010, the Patient Protection and
Affordable Care Act was signed into law. Based on the company’s
review of the Act, Symetra believes there is continued growth
potential in its flagship medical stop-loss product following
implementation of the healthcare legislation.
Retirement Services
The Retirement Services segment, which includes fixed and
variable deferred annuities and retirement plans, produced $17.3
million in pretax adjusted operating income in first quarter 2010,
up from $9.0 million in first quarter 2009. The marked growth in
operating income was due to higher interest spreads on increased
account values. Significant sales of fixed deferred annuities led
to record-level total account values of $8.8 billion at quarter-end
— a 22% increase over $7.2 billion at the end of first quarter
2009.
Retirement Services sales were $377.5 million for the first
quarter of 2010. This compares with sales of $911.1 million in
first quarter 2009 when uncertain market conditions prompted many
consumers to shift their assets to safer, fixed annuities, driving
record-high sales. First quarter 2010 sales were generated largely
by a broad group of financial institutions, including some recently
added bank partners.
Income Annuities
The Income Annuities segment, which includes single premium
immediate annuities (SPIAs) and structured settlements, reported
pretax adjusted operating income of $6.4 million in first quarter
2010, compared with $14.4 million in the same quarter a year ago.
Mortality losses in first quarter 2010 were $0.1 million, compared
with higher-than-normal mortality gains of $4.3 million in first
quarter 2009. A lower interest spread from reduced investment
yields also contributed to the decline in adjusted operating
income.
Sales for the quarter totaled $66.3 million, a 64% increase over
sales of $40.4 million in first quarter 2009. Income annuity
products continued to gain favor with consumers seeking a low-risk
investment vehicle that provides income for life. Sales of
structured settlement annuities also accounted for growth in this
segment.
Individual
The Individual segment, which includes term and universal life
insurance, and bank-owned life insurance (BOLI), had pretax
adjusted operating income of $23.3 million for first quarter 2010,
compared with $17.2 million in first quarter 2009. Because of
continuing low investment yields, the credited interest rate on one
of the company’s universal life products is being adjusted downward
to the guaranteed minimum. This change resulted in a $7.4 million
increase to adjusted operating income due to the release of
interest reserves and decreased amortization of deferred
acquisition costs. A decrease in BOLI margins resulting from lower
investment returns partially offset the impact from the universal
life crediting rate change.
Individual sales grew 10% to $5.5 million for first quarter
2010, compared with sales of $5.0 million in the same quarter of
2009. Key drivers of sales in the quarter were term life policies
sold through independent agents and BOLI.
Other Segment
The Other segment, which includes unallocated corporate income
and expenses, interest expense on debt and other income outside of
Symetra’s four business segments, reported a pretax adjusted
operating loss of $3.9 million in the first quarter of 2010,
compared with a loss of $3.3 million in first quarter 2009.
Investment Portfolio
Symetra posted net realized investment gains of $6.8 million in
first quarter 2010, compared with net losses of $43.0 million in
first quarter 2009. Symetra’s equity portfolio produced net gains
of $7.6 million in the quarter, rebounding from net losses of $15.3
million in first quarter 2009. As a result of the improving
economic climate, impairment losses were $9.7 million in first
quarter 2010, compared with impairment losses of $27.8 million in
the same quarter of 2009.
Symetra had average daily cash balances of $368.3 million in
first quarter 2010, higher than its historical average. Retirement
Services sales and net primary proceeds from the company’s initial
public offering (IPO) contributed to the increased cash
balances.
IPO Proceeds
On Jan. 22, 2010, Symetra common stock began trading on the New
York Stock Exchange under the ticker symbol “SYA.” Of the $282.5
million in net primary proceeds raised in the IPO, the company
contributed $236.6 million to its subsidiaries to fund growth.
Stockholders’ Equity
Total stockholders’ equity, or book value, as of March 31, 2010
was $1,971.7 million, or $14.39 per share, up from $1,433.3
million, or $12.83 per share, as of Dec. 31, 2009. The substantial
increase in total book value included the $282.5 million in net IPO
proceeds as well as appreciation in the investment portfolio. Book
value per share was affected by the issuance of new shares of
Symetra common stock.
Adjusted book value per share, as converted,1 was $14.81 per
share as of March 31, 2010, compared with $15.23 per share as of
Dec. 31, 2009. The decrease in adjusted book value per share, as
converted, stemmed from the issuance of new shares of Symetra
common stock.
Symetra ended first quarter 2010 with an estimated risk-based
capital (RBC) ratio of 484%, positioning the company well to pursue
additional growth.
Additional Financial Information
This press release and the first quarter 2010 financial
supplement are posted on the company's website at
http://investors.symetra.com. Investors are encouraged to review
all of these materials.
Management to Review Results on Conference Call and
Webcast
Symetra’s senior management team will discuss the company’s
first quarter 2010 performance with investors and analysts on
Thursday, April 29, 2010 at 10 a.m., Eastern Time (7 a.m., Pacific
Time). To listen by phone, dial 866-730-5763. For international
callers, dial 857-350-1587. The access code is 62327855. The
conference call will be broadcast live on the Internet at
http://investors.symetra.com and archived later in the day for
replay. Those who wish to listen to the call by phone or via the
Internet should dial in or go to Symetra’s website at least 15
minutes before the call to register and/or test the compatibility
of their computer.
A replay of the call can be accessed by phone at approximately 1
p.m., Eastern Time (10 a.m., Pacific Time) on April 29, 2010 by
dialing 888-286-8010. For international callers, dial 617-801-6888.
The access code is 30922964. The phone replay will be available
through May 5, 2010.
Use of Non-GAAP Measures
1 Symetra uses both U.S. generally accepted accounting
principles (GAAP) and non-GAAP financial measures to track the
performance of its operations and financial condition. Definitions
of each non-GAAP measure are provided below, and reconciliations to
the most directly comparable GAAP measures are included in the
tables at the end of this press release. These measures are not
substitutes for GAAP financial measures. For more information about
these non-GAAP measures, please see the company’s 2009 Annual
Report on Form 10-K.
This press release includes non-GAAP financial measures entitled
"adjusted operating income," “adjusted operating income per diluted
share,” “operating revenues,” “adjusted book value,” “adjusted book
value, as converted,” “adjusted book value per share, as converted”
and “operating return on average equity.” The company defines
adjusted operating income as net income, excluding after-tax net
investment gains (losses) and including after-tax net investment
gains (losses) on fixed index annuity (FIA) options. Adjusted
operating income per diluted share is defined as adjusted operating
income divided by diluted common shares outstanding. Operating
revenues is defined as total revenues, excluding net realized
investment gains (losses) and including net investment gains
(losses) on FIA options. Adjusted book value is defined as
stockholders’ equity, less accumulated other comprehensive income
(loss), or AOCI. Adjusted book value, as converted, is defined as
stockholders’ equity, less AOCI plus the assumed proceeds from the
outstanding warrants. Adjusted book value per share, as converted,
is calculated as adjusted book value, as converted, divided by the
sum of outstanding common shares and shares subject to outstanding
warrants. Operating return on average equity consists of adjusted
operating income for the most recent four quarters, divided by
average ending adjusted book value for the most recent five
quarters.
Definition of Selected Operating Performance Measures
The company reports selected operating performance measures,
which are commonly used in the insurance industry as measures of
operating performance and financial condition. These measures are
described here:
Loss ratio – Represents policyholder benefits and claims
incurred divided by premiums earned.
Sales – For the Group segment, sales represent annualized
first-year premiums for new policies. For the Retirement Services
and Income Annuities segments, sales represent deposits for new
policies. For the Individual segment, sales represent annualized
first-year premiums, deposits for new policies, and 10% of new
deposits for BOLI and other single-premium products.
About Symetra Financial
Symetra Financial Corporation (NYSE: SYA) is a diversified
financial services company based in Bellevue, Wash. In business
since 1957, Symetra provides employee benefits, annuities and life
insurance through a national network of benefits consultants,
financial institutions, and independent agents and advisors. For
more information, visit www.symetra.com.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995
This press release may contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements,
other than statements of current or historical facts included or
referenced in this release that address activities, events or
developments that we expect or anticipate will or may occur in the
future, are forward-looking statements. The words "will,"
"believe," "intend," "plan," "expect," "anticipate," "project,"
"estimate," "predict" and similar expressions also are intended to
identify forward-looking statements. These forward-looking
statements include, among others, statements with respect to
Symetra's:
- estimates or projections of
revenues, net income (loss), net income (loss) per share, adjusted
operating income (loss), adjusted operating income (loss) per
share, market share or other financial forecasts;
- trends in operations, financial
performance and financial condition;
- financial and operating targets
or plans; and
- business and growth
strategy.
These statements are based on certain assumptions and analyses
made by Symetra in light of its experience and perception of
historical trends, current conditions and expected future
developments, as well as other factors believed to be appropriate
under the circumstances. Whether actual results and developments
will conform to Symetra's expectations and predictions is subject
to a number of risks, uncertainties and contingencies that could
cause actual results to differ materially from expectations,
including, among others:
- general economic, market or
business conditions, including further economic downturns or other
adverse conditions in the global and domestic capital and credit
markets;
- the availability of capital and
financing;
- potential investment
losses;
- the effects of fluctuations in
interest rates;
- recorded reserves for future
policy benefits and claims subsequently proving to be inadequate or
inaccurate;
- deviations from assumptions used
in setting prices for insurance and annuity products;
- market pricing and competitive
trends related to insurance products and services;
- changes in amortization of
deferred policy acquisition costs;
- financial strength or credit
ratings downgrades;
- the continued availability and
cost of reinsurance coverage;
- changes in laws or regulations,
or their interpretation, including those that could increase
Symetra's business costs and required capital levels;
- the ability of subsidiaries to
pay dividends to Symetra;
- the effects of implementation of
the Patient Protection and Affordable Care Act; and
- the risks that are described
from time to time in Symetra's filings with the U.S. Securities and
Exchange Commission, including those in Symetra's 2009 Annual
Report on Form 10-K and quarterly reports on Form 10-Q.
Consequently, all of the forward-looking statements made in this
press release are qualified by these cautionary statements, and
there can be no assurance that the actual results or developments
anticipated by Symetra will be realized or, even if substantially
realized, that they will have the expected consequences to, or
effects on, Symetra or its business or operations. Symetra assumes
no obligation to update publicly any such forward-looking
statements, whether as a result of new information, future events
or otherwise.
Symetra Financial Corporation Consolidated Income
Statement Data (in millions, except per share data) (unaudited)
Three Months Ended March 31
2010 2009
Revenues: Premiums $ 119.0 $ 119.5 Net investment income
286.9 262.7 Policy fees, contract charges and other 40.5 39.6 Net
realized investment gains (losses): Total other-than-temporary
impairment losses on securities (17.9 ) (51.6 ) Less: portion of
losses recognized in other comprehensive income 8.2
23.8 Net impairment losses recognized in earnings
(9.7 ) (27.8 ) Other net realized investment gains (losses)
16.5 (15.2 ) Total net realized investment gains
(losses) 6.8 (43.0 ) Total revenues
453.2 378.8
Benefits and
expenses: Policyholder benefits and claims 86.2 94.4 Interest
credited 218.5 195.6 Other underwriting and operating expenses 59.6
63.0 Interest expense 8.0 7.9 Amortization of deferred policy
acquisition costs 15.4 10.7 Total
benefits and expenses 387.7 371.6
Income from operations before income taxes 65.5 7.2
Provision for income taxes: Current 9.9 1.9 Deferred
9.3 0.2 Total provision for income
taxes 19.2 2.1
Net income
$ 46.3 $ 5.1
Net income per common
share: Basic $ 0.35 $ 0.05 Diluted $ 0.35 $ 0.05
Weighted-average number of common shares outstanding: Basic
131.018 111.622 Diluted 131.038 111.622
Non-GAAP
financial measures: Adjusted operating income $ 41.9 $
32.2 Reconciliation to net income: Net income $ 46.3
$ 5.1 Less: Net realized investment gains (losses) (net of taxes)*
4.5 (28.0 ) Add: Net investment gains (losses) on FIA options (net
of taxes)** 0.1 (0.9 ) Adjusted operating
income $ 41.9 $ 32.2
*Net realized investment gains
(losses) are reported net of taxes of $2.3 and $(15.0) for the
three months ended March 31, 2010 and 2009, respectively.
**Net investment gains (losses) on
FIA options are reported net of taxes of $0.0 and $(0.5) for the
three months ended March 31, 2010 and 2009, respectively.
Symetra Financial Corporation Consolidated Balance
Sheet Data (in millions, except per share data) (unaudited)
March 31 December 31 2010
2009 Assets Total investments $
21,074.3 $ 20,183.1 Other assets 1,435.3 1,414.3 Separate account
assets 854.1 840.1
Total assets $
23,363.7 $ 22,437.5
Liabilities and stockholders'
equity Policyholder liabilities $ 19,862.4 $ 19,463.1 Notes
payable 448.9 448.9 Other liabilities 226.6 252.1 Separate account
liabilities 854.1 840.1 Total liabilities
21,392.0 21,004.2 Common stock and additional paid-in
capital 1,449.5 1,166.6 Retained earnings 362.7 316.4 Accumulated
other comprehensive income (loss), net of taxes 159.5
(49.7 ) Total stockholders' equity 1,971.7 1,433.3
Total liabilities and stockholders' equity $ 23,363.7
$ 22,437.5 Book value per share* $
14.39 $ 12.83
Non-GAAP financial measures
Adjusted book value $ 1,812.2 $ 1,483.0
Reconciliation to stockholders' equity: Total stockholders' equity
$ 1,971.7 $ 1,433.3 Less: AOCI 159.5 (49.7 ) Adjusted
book value 1,812.2 1,483.0 Add: Assumed proceeds from exercise of
warrants 218.1 218.1 Adjusted book value, as
converted $ 2,030.3 $ 1,701.1 Adjusted book value per share,
as converted** $ 14.81 $ 15.23
*Book value per share is
calculated based on stockholders' equity divided by outstanding
common shares plus shares subject to outstanding warrants, totaling
137,061,763 and 111,705,199 as of March 31, 2010 and December 31,
2009, respectively.
**Adjusted book value per share,
as converted, is calculated based on adjusted book value, as
converted, divided by outstanding common shares plus shares subject
to outstanding warrants, totaling 137,061,763 and 111,705,199 as of
March 31, 2010 and December 31, 2009, respectively.
Symetra Financial Corporation Reconciliation of
Segment Pretax Adjusted Operating Income, Operating Revenues and
Operating ROAE (in millions) (unaudited)
Three
Months Ended March 31 2010
2009 Segment pretax adjusted operating income
(loss) Group $ 15.7 $ 11.5 Retirement Services 17.3 9.0 Income
Annuities 6.4 14.4 Individual 23.3 17.2 Other (3.9 )
(3.3 ) Subtotal 58.8 48.8 Add: Net realized investment gains
(losses) 6.8 (43.0 ) Less: Net investment gains (losses) on FIA
options 0.1 (1.4 )
Income from operations
before income taxes $ 65.5 $ 7.2
Reconciliation of revenues to operating revenues: Revenues $
453.2 $ 378.8 Less: Net realized investment gains (losses) 6.8
(43.0 ) Add: Net investment gains (losses) on FIA options
0.1 (1.4 ) Operating Revenues $ 446.5 $ 420.4
Twelve Months Ended March
31 2010 2009
Reconciliation of ROE to operating ROAE: ROE 14.5 % 3.7 %
Average stockholders' equity* $ 1,169.5 $ 644.5
Non-GAAP
financial measures: Operating ROAE 10.5 % 9.9 % Average
adjusted book value** $ 1,502.4 $ 1,342.1
*Average stockholders' equity is
derived by averaging ending stockholders' equity for the most
recent five quarters.
**Average adjusted book value is
derived by averaging ending adjusted book value for the most recent
five quarters.