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The Beginning

Based in Bellevue, WA and backed by well-respected insurer White Mountains (WTM) and investment company Berkshire Hathaway (BRK.A), Symetra Financial is one of six US IPOs scheduled to price this week, along with Cellu Tissue, Terreno Realty, Andatee Marine China Fuel, China Hydroelectric and Chesapeake Lodging Trust. It will be the first week of IPO activity since four PE-backed deals priced in mid-December before the year-end break and will set the stage for the anticipated revival of the IPO markets in 2010.
The Business

Symetra Financial (SYA) offers a diversified mix of insurance and investment products, including medical stop-loss insurance, fixed and variable annuities, and term life and universal life insurance. The firm has 16 offices and 1.8 million customers, and it sells its products through 16,000 independent agents, 26 key financial institutions and 4,300 employee benefits brokers. Its four primary business segments consist of group (27% of revenue for the nine months ended Sept. 30, includes medical stop-loss insurance, limited medical benefits plans, and life, dismemberment and disability insurance), retirement services (23%, includes fixed and variable annuities), income annuities (24%, includes single premium income annuities and workers' compensation claims) and individual (24%, includes individual term and universal life insurance and bank-owned life insurance).

By taking advantage of the increasing need for retirement services and demand for simple and affordable insurance products, Symetra expects to grow its revenue and improve its profitability. The insurance company plans to offer 27 million shares, 36% of which are from insiders, at a price range of $12-$14. BofA Merrill Lynch, J.P. Morgan, Goldman Sachs and Barclays are acting as joint book runners on the deal, which is expected to list on the NYSE this Friday, Jan. 22.

Key Risks

Symetra was heavily impacted by the economic downturn and experienced significant investment losses, impairments, negative ratings actions and reduced demand for its products beginning in the second half of 2007. Its investment portfolio (as well as many of its products) continues to be exposed to interest rate fluctuations; other concerns include stagnating growth from some businesses, competition from larger, more well-known insurers and governmental legislation related to insurance regulations and health care.

Looking Ahead

The deals completed toward the end of 2009 had uninspiring results, indicating that investors may be waiting for a bigger growth story. Coupled with the fact that life insurance stocks have underperformed in the past three months and the fact that the stock is priced in line with its peers, we believe that Symetra Financial is likely to exhibit unimpressive performance upon its market debut.

Disclosure: No positions

Source: White Mountains and Berkshire Hathaway-Backed Symetra Financial Goes Public