Expand our Life segment distribution channel and produce $25.0 in combined UL, BOLI and COLI sales.
Other underwriting and operating expenses represent non-deferrable costs related to the acquisition and ongoing maintenance of insurance and investment contracts, including certain non-deferrable commissions, policy issuance expenses and other business and administrative operating costs.
The $3.6 decrease in other underwriting and operating expenses was primarily the result of the sale of our third party administrator, described above.
(4) MBS prepayment speed adjustment is the impact to net investment income due to the change in prepayment speeds on the underlying collateral of mortgage-backed securities.
Segment pre-tax adjusted operating income increased $1.9 on mortality gains and funding services activity that more than offset the impact of lower reserves and lower MBS prepayment speed adjustment income.
The following table sets forth the results of operations relating to our Other segment:
As of December 31, 2011, our fixed maturity securities portfolio included $5.5 billion of residential and commercial mortgage-backed securities at fair value. Approximately 69% of these securities are agency securities and approximately 23% are AAA rated non-agency securities in the most senior tranche of the structure type.
premium or discount associated with the securities in our portfolio. This adjustment is recorded in net investment income in our results of operations. These adjustments, which relate primarily to RMBS, create volatility in our net investment income. Refer to the RMBS section below for additional discussion.
We classify our investments in RMBS as agency, prime, Alt-A, and subprime. Agency RMBS are guaranteed or otherwise supported by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. Prime RMBS are loans to the most credit-worthy customers with high quality credit profiles. Alt-A RMBS have overall credit quality between prime and subprime, based on a review of their underlying mortgage loans and factors such as credit scores and financial ratios.
As of December 31, 2011 and 2010, 59.9% and 58.8%, respectively, of the fair value of our non-agency RMBS had super senior subordination. The super senior class has priority over all principal and interest cash flows and will not experience any loss of principal until lower levels are written down to zero. Therefore, the majority of our RMBS investments have less exposure to defaults and delinquencies in the underlying collateral than if we held the more subordinated classes.
The following table provides additional information on our RMBS prepayment exposure, by type and year of origination (vintage):
During the fourth quarter 2011 we completed our cash flow testing to assess statutory reserve adequacy during a prolonged period of record low interest rates. As a result of our analysis, we established a $60.0 statutory cash-flow testing reserve as of December 31, 2011. This analysis assumed that interest rates remain near current low levels for the next 45 years. After the establishment of the additional reserve, the Company believes that the statutory reserves are adequate under a set of moderately adverse scenarios. This level of statutory reserve decreased statutory capital by $39.0 and reduced our risk-based capital ratio by nine points. We believe this is a very manageable reserve increase and does not impact our ability to pursue our Grow & Diversify initiatives. This reserve does not impact our consolidated GAAP financial statements.
Our capital structure consists of notes payable and stockholders’ equity. The following table summarizes our capital structure:
Years Ended December 31, 2010 and 2009. Net cash provided by operating activities for 2010 was $925.7, a $127.3 increase over 2009. This was primarily driven by increased net investment income driven by an increase in average assets, a decline in paid commissions related to our deferred annuity products on lower sales, and a decrease in group medical stop-loss paid claims.
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2011, 2010 and 2009
Symetra Financial Corporation is a Delaware corporation that, through its subsidiaries, offers group and individual insurance products and retirement products, including annuities, marketed through benefits consultants, financial institutions and independent agents and advisers in all states and the District of Columbia. The Company’s principal products include medical stop-loss insurance; fixed and variable deferred annuities; single premium immediate annuities; universal life insurance, including single-premium life and bank-owned life insurance (BOLI), and term life insurance. The accompanying financial statements include, on a consolidated basis, the accounts of Symetra Financial Corporation and its subsidiaries, which are wholly-owned and are collectively referred to as “Symetra” or “the Company.”
The Company has elected fair value accounting for its investments in common stock. As a result, changes in the fair value of the Company’s trading portfolio are recorded in net realized investment gains (losses) in the consolidated statements of income. The Company believes this presents its investment results for these securities on a basis that is consistent with management’s operating principles. Dividends earned on trading securities are reported in net investment income.
The Company originates and manages a portfolio of mortgage loans which are secured by first-mortgage liens on income-producing commercial real estate, primarily in the retail, industrial and office building sectors. All loans are underwritten consistently using standards based on loan-to-value (LTV) ratios and debt-service coverage ratios (DSCR) as well as detailed market, property and borrower analyses. The Company’s mortgage loan portfolio is considered a single portfolio segment and class of financing receivables, which is consistent with how the Company assesses and monitors the risk and performance of the portfolio. A majority of these loans have personal guarantees, and all loans are inspected and evaluated annually. The Company’s mortgage loan portfolio is diversified by geographic region, loan size and scheduled maturities. As of December 31, 2011, 32.2% of our commercial mortgage loans were located in California, primarily in the Los Angeles area, 12.1% were located in Washington and 10.5% were located in Texas.
The Company’s Level 2 CMBS had a weighted-average coupon rate of 5.23% and 5.50% as of December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010, 18.3% and 18.2% of the underlying collateral for these securities was located in New York, 13.0% and 13.3% was located in California, and 7.5% and 7.1% was located in Texas. The underlying collateral primarily consisted of retail shopping centers, comprising 35.0% and 33.7%, respectively, as of December 31, 2011 and 2010, and office buildings comprising 29.7% and 30.5%, respectively, of these securities as of December 31, 2011 and 2010.
Rollforward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
(2) Other is primarily comprised of pay downs, calls, amortization and redemptions.
On February 28, 2012, the Company declared a dividend of $0.07 per common share, or approximately $9.6 in total, to shareholders and warrant holders of record as of March 13, 2012. The dividend will be paid on or about March 30, 2012.