How does missile retargeting work against submerged targets?

Missile Retargeting allows ships to target submerged submarines. This is a very effective ability to have, as it allows a ship to deal full damage to subs that are either above water, or submerged. It even allows you to deal full damage to submerged Reaper submarines, which normally take reduced damage when submerged.

However, if there is a detected submarine within range of your fleet, but there are other surfaced enemy targets out of range (including buildings), your missiles will always prioritize the surfaced targets. 

Also, for clarity, ships that say "Retargeting: True" do not require laser targeting to fire upon and damage submerged subs. The MCX and Mercury would be examples of such ships. 

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