(5) Total sales represents annualized first-year premiums net of first year policy lapses.
(2) UL account value and BOLI account value represent our liabilities to our policyholders. UL account values include SPL account values of $208.8, $161.6 and $78.5 as of December 31, 2012, 2011 and 2010.
For the year ended December 31, 2012, net investment income increased 0.3% compared to 2011, driven by an increase in invested assets on sales of our fixed annuities. The income increase driven by growth in invested assets was partially offset by a decrease in the total net investment yield, which decreased to 5.08% in 2012 from 5.30% in 2011. This reduction reflects the prolonged low interest rate environment. Yields on fixed maturity purchases in the year ended December 31, 2012 were approximately 275bps lower than the average yield on existing fixed maturity investments. Yields on fixed maturity purchases in the year ended December 31, 2011 were approximately 198bps lower than the average yield on existing investments in 2011.
In an attempt to mitigate the effects of the low interest rate environment, we continued to increase our underwriting of commercial mortgage loans. We focus on originating loans at a consistent spread to comparable U.S. Treasuries. For the year ended December 31, 2012, we originated loans at a spread over U.S. Treasuries of approximately 345bps, compared with an approximate 325bps spread over U.S. Treasuries for 2011. While our spread has increased, U.S. Treasury rates have declined substantially to historically low levels. Lower rates, in combination with the origination of $1.8 billion in mortgage loans over the past two years, has led to a decline in our overall mortgage loan yields.
The following tables set forth the fair value of our fixed maturities by sector, as well as the associated gross unrealized gains and losses and the percentage of total fixed maturities that each sector comprises as of the dates indicated:
Gross unrealized losses in financial sector securities improved $69.0, to $24.3 as of December 31, 2012, from $93.3 as of December 31, 2011. The losses were primarily associated with long dated subordinated, hybrid, and preferred securities, and the securities’ prices reflect relatively wide financial sector credit spreads. Financial sector credit spreads were wider at December 31, 2011 due to heightened concerns over the European debt crisis and its potential impact on the industry, and have since tightened. Improvement in gross unrealized losses can also be attributed to sales, calls and tenders of securities. Additionally, as of December 31, 2012, $9.4 of the gross unrealized losses were related to a single holding. Based on our analysis of this security, as well as our other financial sector holdings in an unrealized loss position, we expect to recover the entire amortized cost.
The following tables summarize our exposure to fixed maturities in European countries, reported in U.S. dollars and separated into sovereign debt, financial industry and other corporate debt. The country designation is based on the issuer’s country of incorporation. The majority of these holdings are denominated in U.S. dollars. As of December 31, 2012, we held $156.1 of fixed maturities denominated in a foreign currency. We did not hold any foreign-currency denominated fixed maturities as of December 31, 2011.
On a fair value basis as of December 31, 2012, our Alt-A portfolio was 90.0% fixed rate collateral and 10.0% hybrid adjustable rate mortgages (ARMs) with no exposure to option ARMs. Generally, fixed rate mortgages have had better credit performance than ARMs, with lower delinquencies and defaults on the underlying collateral.
We have and intend to pay quarterly cash dividends on our common stock and warrants. During 2012, we declared and paid cash dividends of $0.28 per common share. The declaration and payment of future dividends to holders of our common stock and warrants will be at the discretion of our board of directors. See “- Dividends” below for further discussion.
The liquidity requirements of Symetra’s insurance subsidiaries principally relate to the liabilities associated with their insurance and investment products, operating costs and expenses, the payment of dividends to the holding company, and payment of income taxes. Liabilities arising from insurance and investment products include the payment of benefits, as well as cash payments in connection with policy and contract surrenders and withdrawals and policy loans. Historically, Symetra’s insurance subsidiaries have used cash flows from operations, cash flows from invested assets and sales of investment securities to fund their liquidity requirements.
Liabilities for policy and contract claims primarily represent liabilities for claims under group medical stop-loss and limited benefit medical insurance policies and are established on the basis of reported losses (case basis method). The Company also provides for claims incurred but not reported (IBNR), based on expected loss ratios, claims paying completion patterns and historical experience. The Company reviews estimates for reported but unpaid claims and IBNR quarterly. Any necessary adjustments are reflected in earnings. If expected loss ratios increase or expected claims paying completion patterns extend, the IBNR claim liability increases.
The Company invests in certain structured securities, primarily consisting of mortgage-backed securities. The following table presents additional information about the composition of the Company’s investments in agency and non-agency mortgage-backed securities:
The Company reviewed its available-for-sale investments with unrealized losses as of December 31, 2012 and 2011 in accordance with its impairment policy and determined, after the recognition of OTTI, that the remaining declines in fair value were temporary. The Company did not intend to sell its underwater securities, and it was not more likely than not that the Company will be required to sell the securities before recovery of cost or amortized cost. For fixed maturities, this conclusion is supported by the Company’s spread analyses, cash flow modeling and expected continuation of contractually required principal and interest payments.
Level 1 - Unadjusted quoted prices in active markets for identical instruments. This level primarily consists of exchange-traded marketable equity securities and mutual fund investments.
The Company analyzes the prices received from the pricing services to ensure they represent a reasonable estimate of fair value, including analytical reviews of prices between reporting periods. The Company also performs procedures to gain assurance on the overall reasonableness and consistent use of inputs, valuation methodologies and compliance with fair value accounting standards. This includes an annual review of pricing methodologies and inputs by asset class and performing periodic due diligence procedures, including quarterly deep-dive analyses, monthly price fluctuation analyses, and corroboration of prices by obtaining secondary pricing quotes for selected securities. Based upon its analyses, the Company has not adjusted prices obtained from the pricing services.
(1) Symetra Life Insurance Company’s surplus includes the surplus of its two wholly owned subsidiaries, First Symetra National Life Insurance Company of New York and Symetra National Life Insurance Company