Symetra Financial CEO: Capital Ratios for Life Insurers Up Amid Low Interest Rate
April 15, 2011 by Fran Matso Lysiak
| Copyright: | (c) 2011 A.M. Best Company, Inc. |
| Source: | A.M. Best Company, Inc. |
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Capital ratios for many U.S. life insurance companies are up significantly, but the current threat is the low interest rate environment, according to the chief executive officer of Symetra Financial Corp.
Companies have been recapitalizing and now it’s time to put that capital to work — by writing business, said Tom Marra, president and CEO of Symetra Financial (NYSE: SYA), who spoke with BestWire at the life insurance and retirement industry conferences being held in Las Vegas.
Symetra has a risk-based capital ratio of between 480% and 500%, which Marra dubbed “phenomenal.” The company’s long-term objective is to be somewhere in the range of 350% to 400% which would be appropriate for its size, he said.
Most companies are targeting an RBC ratio in the range of 350% to 400%, Marra said.
In January 2010, Symetra raised about $282.2 million in net primary proceeds from its initial public offering to become a publicly traded company. About six months later, Marra was named president and CEO of the Bellevue, Wash.-based life insurance company (BestWire, June 8, 2010).
The ongoing threat is plummeting low interest rates, which have been down sharply for past three to four years, Marra said.
“It’s hard to mature the guarantees when the big part of the fuel to be able to provide lifetime guarantees comes from our investing,” he said. The premium guarantee on universal life insurance, for example, is a big part of the overall individual life business.
Life insurers invest primarily in fixed income. “Fixed income is not fueling like it used to and that makes it a challenge to make your returns and still provide a good product,” Marra said.
Prior to his current post, Marra served as president and chief operating officer at a much larger life insurance company, Hartford Financial Services (NYSE: HIG). Hartford had received financial aid under the federal government’s Troubled Asset Relief Program during the height of the financial crisis.
How the financial crisis hit companies depended on a company’s portfolio, Marra said, noting the double whammy of a concurrent credit crisis and a stock market crash. Companies like Hartford “were exposed more than others” but Hartford “rebounded very nicely and I think they are on a great course.”
On April 12, A.M. Best Co. revised the outlook to stable from negative and affirmed the issuer credit rating of “bbb+” of Hartford Financial Services Group Inc. A.M. Best also affirmed the financial strength rating of A (Excellent) and ICRs of “a+” of the key life/health insurance subsidiaries of Hartford Life. The outlook for the ICRs has been revised to stable from negative, while the outlook for the FSRs is stable (BestWire, April 12, 2011).
Symetra “emerged pretty strong” from the crisis, Marra said, noting it wasn’t in a lot of the product lines that got into trouble. “Part of my attraction to Symetra was the fact that it didn’t have a lot of legacy problems.”
At the conference’s general session on April 12, Marra was on a panel with other industry CEOs who spoke about the evergreen debate over publicly traded stock life insurers versus mutual life insurers.
Mutual life insurers were less impacted by the crisis and came out stronger because they weren’t in the product lines that resulted in troubles, particularly guarantees on variable annuities, Marra said. “It was not a big play for the big mutuals and as a result, they’ve emerged quite well and I think they are in a good relative position.”
Stock companies were under pressure to keep growth going during the mid-2000s. while mutuals, not being subject to pressures of the investment world, were able “to stay to their core product lines.” The core product for many mutuals is whole life insurance.
Now, post-financial crisis, there’s a lot of opportunity for stock companies to thrive as many companies have rebuilt capital, Marra said. “Right now, the playing field is pretty level between stocks and mutuals.”
As for Marra’s strategy for Symetra, he’s seeking to diversify and is eyeing expansion for all of its business divisions. Last summer, Marra said his early focus for the then-newly public Symetra would be individual life insurance (BestWire, June 8, 2010).
Is that still the case? “We’ve made great progress,” Marra said, noting the company brought in new leadership and is building a new portfolio of universal life insurance in an effort to be a bigger player in this market.
The company’s target market is the under-penetrated middle-income Americans, who have financial responsibilities that would not be met on premature death, Marra said. This is “a major undertaking for the industry” Marra conceded. Symetra won’t be in “the mega, estate-planning cases but we do think that basic income protection is a great opportunity.”
Symetra’s retirement division is predominantly in fixed deferred annuities. But on April 18, the company is entering the indexed annuity business — sold mostly through banks — for the first time, “which is very exciting and we think that’s going to be a big opportunity,” Marra said.
“We have an interesting position right now where we’ve got a lot of opportunity to do new things,” he said. “In some ways, it feels like a start up because we’re really attacking the markets with full force.”
Symetra Life Insurance Co. currently has a Best’s Financial Strength Rating of A (Excellent).
The conferences, sponsored by LIMRA, LOMA, the Society of Actuaries and the American Council of Life Insurers, continues through April 15 at Caesar’s Palace.
Shares of Symetra were trading at $13.66 the morning of April 13, up 0.66% from the previous close.
Go to http://www.ambest.com/media/media.asp?RC=185438 to listen to a separate interview with Marra, where he discusses financial services regulatory reform, among many other issues.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
