As filed with the Securities and Exchange Commission on January 5, 2010.

Registration No. 333-162344

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 4

To

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SYMETRA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

777 108th Avenue NE, Suite 1200

Bellevue, WA 98004

(425) 256-8000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Margaret A. Meister

Chief Financial Officer

Symetra Financial Corporation

777 108th Avenue NE, Suite 1200

Bellevue, WA 98004

(425) 256-8000

(Name and address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

(Do not check if a smaller reporting company)

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED JANUARY 5, 2010

 

PROSPECTUS

 

27,000,000 Shares

 

 

Common Stock

 

This is Symetra Financial Corporation’s initial public offering. We are selling 17,256,010 shares of our common stock in this offering. The Selling Stockholders are selling 9,743,990 shares of our common stock in the offering. We intend to use the net primary proceeds from this offering for general corporate purposes, which may include contributions of capital to our insurance and other subsidiaries. We will not receive any proceeds from the sale of shares by the Selling Stockholders. See “Use of Proceeds.”

 

We expect the public offering price to be between $12.00 and $14.00 per share. Currently, no public market exists for the shares. We have applied to list our common stock on the New York Stock Exchange under the symbol “SYA.”

 

Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 12 of this prospectus.

 

 

 

 

 

The underwriters may also purchase up to an additional 4,050,000 shares of common stock from the Company at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The shares will be ready for delivery on or about          , 2010.

 

 

 

 

Joint Book-Running Managers

 

 

 

 

 

 

 

 

The date of this prospectus is          , 2010.

 

TABLE OF CONTENTS

 

 

 

 

 

You should rely only on the information contained in this document or any free writing prospectus prepared by or on behalf of us. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information contained in this document may only be accurate on the date of this document.

 

“Symetra,” “Symetra Financial” and their respective logos are our trademarks. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners.

 

Our insurance subsidiaries are domiciled in the states of Washington and New York. These states have enacted laws that require regulatory approval for the acquisition of “control” of insurance companies. Under these laws, there exists a presumption of “control” when an acquiring party acquires 10% or more of the voting securities of an insurance company or of a company which itself controls an insurance company. Therefore, any person acquiring 10% or more of our common stock would need the prior approval of the state insurance regulators of these states or a determination from such regulators that “control” has not been acquired.

 

 

 

 

Dealer Prospectus Delivery Obligation

 

Until          , 2010 (the 25th day after the date of this prospectus), all dealers that effect transactions in our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

 

PROSPECTUS SUMMARY

	•	Group. We offer medical stop-loss insurance, limited medical benefit plans, group life insurance, accidental death and dismemberment insurance and disability insurance mainly to employer groups of 50 to 5,000 individuals. In addition to our insurance products, we offer managing general underwriting, or MGU, services through Medical Risk Managers, Inc, or MRM. Our Group segment generated segment pre-tax adjusted operating income of $66.9 million during 2008 and $44.7 million during the nine months ended September 30, 2009.

	•	Retirement Services. We offer fixed and variable deferred annuities, including tax sheltered annuities, individual retirement accounts, or IRAs, and group annuities to qualified retirement plans, including Section 401(k), 403(b) and 457 plans. Our Retirement Services segment generated segment pre-tax adjusted operating income of $36.6 million during 2008 and $41.3 million during the nine months ended September 30, 2009.

	•	Income Annuities. We offer single premium immediate annuities, or SPIAs, to customers seeking a reliable source of retirement income and structured settlement annuities to fund third party personal injury settlements. In addition, we offer our existing structured settlement clients a variety of funding services product options. Our Income Annuities segment generated segment pre-tax adjusted operating income of $36.5 million during 2008 and $33.0 million during the nine months ended September 30, 2009.

	•	Individual. We offer a wide array of term, universal and variable life insurance as well as bank-owned life insurance, or BOLI. Our Individual segment generated segment pre-tax adjusted operating income of $59.7 million during 2008 and $51.6 million during the nine months ended September 30, 2009.

	•	Other. This segment consists of unallocated corporate income, composed primarily of investment income on unallocated surplus, unallocated corporate expenses, interest expense on

		debt, tax credits from certain investments, the results of small, non-insurance businesses that are managed outside of our operating segments, and inter-segment elimination entries. Our Other segment generated a segment pre-tax adjusted operating loss of $31.6 million during 2008 and $5.8 million during the nine months ended September 30, 2009.

	•	Increasing need for retirement savings and income. There are significant demographic factors that indicate increased need for retirement solutions. These factors include:

	–	according to the U.S. Census Bureau, there are 76.8 million baby-boomers (Americans born between 1946 and 1964) who are at or near retirement age; and
	–	according to the U.S. Census Bureau, there are 61.6 million members of Generation X (Americans born between 1965 and 1979). We believe these members of Generation X are likely to fund their retirement from personal savings.

	•	Shift in customer demand toward simple to understand products. The equity and bond market dislocation of the last 18 months shifted customer and distributor demand toward simple to understand and predictable products. Customers increasingly demand savings and income oriented products (such as fixed annuities) that offer transparency and stable returns that are higher than returns on savings accounts. Industry sales of savings and income oriented products have grown substantially while sales of equity market based products (such as variable annuities) have fallen. Illustrating this trend, Kehrer/LIMRA reported that industry sales of variable annuities declined by 23% in the first nine months of 2009 compared to the equivalent 2008 period. Conversely, industry sales of fixed annuities grew by 18% over the same period.

	•	Continued demand for affordable health insurance. According to the Kaiser Family Foundation, health insurance premiums in the United States increased 131% from 1999 to 2009; meanwhile, the Consumer Price Index increased only 28%. As health care costs continue to rise faster than inflation, the demand for affordable health insurance options has increased. According to the Self-Insurance Institute of America, 75 million people in the United States under the age of 65 receive their benefits through self-funded plans, including 47% of workers in smaller firms and 76% of workers in midsize firms. We believe we can grow our business by providing employees with affordable access to health insurance through employer-sponsored limited benefit employee health plans and by offering group medical stop-loss insurance to medium and large businesses that self-fund their medical plans.

	•	Superior investment management. We pursue a value-oriented investment approach focused on disciplined matching of assets and liabilities and preservation of principal. We believe we have built a conservative asset portfolio illustrated by the following (as of September 30, 2009):

	–	Subprime exposure of only $0.3 million
	–	Alt-A exposure totaling less than 1% of invested assets, with 88% of Alt-A exposure being supported by fixed rate collateral
	–	No exposure to option adjustable rate mortgages, or option ARMs
	–	99% of our commercial mortgage-backed security, or CMBS, portfolio is rated AAA and has a weighted-average credit enhancement of 28%
	–	Minimal exposure to alternative assets, such as hedge funds and private equity funds
	–	Below investment grade fixed maturities represent less than 7% of invested assets

	–	Our total pre-tax net realized gains (losses) on sales and impairments of fixed maturities cost 41 basis points for the first nine months of 2009, cost 52 basis points for 2008, and cost an annualized average 19 basis points since January 1, 2005
	–	Our commercial mortgage portfolio has a weighted-average loan-to-value ratio of 54% and only one non-performing loan
	–	Since January 1, 2005, our equity portfolio has grown at an annualized rate of 10.1% compared to an annualized return of (0.8)% for the S&P 500 Index

	•	Disciplined liability risk management. We believe we have an attractive and diverse mix of businesses that, combined with our disciplined approach to asset/liability matching, enables us to stick to our strategy of offering simple to understand products without adding product features that create liability-side balance sheet volatility. Our liability portfolio includes:

	–	No guaranteed living benefits, or GLBs, in variable annuity products
	–	No shadow accounts in universal life products
	–	No term products that are dependent on lapse-supported pricing and securitization of deficiency reserves
	–	No high commission/long surrender period indexed annuities

	•	Strong financial position. We believe we have a strong and transparent balance sheet due to the lack of off-balance sheet obligations and embedded guarantees on variable products, and limited derivative and alternative investments. We have no value of business acquired, or VOBA, on our

		balance sheet and minimal goodwill. We believe that we compare favorably to our industry in terms of the following financial strength metrics (as of September 30, 2009):

	–	Our deferred acquisition costs, or DAC, is 16% of stockholders’ equity and 17% of adjusted book value
	–	Our goodwill is 2% of stockholders’ equity and adjusted book value
	–	We have no outstanding debt balances maturing until 2016
	–	Stockholders’ equity is 102% and adjusted book value is 100% of regulatory capital
	–	Our risk-based capital ratio is 361%
	–	Our AOCI improved from $(1,052.6) million at December 31, 2008 to $29.8 million at September 30, 2009

	•	High quality distribution relationships. We offer consumers access to our products through a national multi-channel network, including financial institutions, employee benefits brokers, third party administrators, specialty brokers and independent agents. We are adept at designing simple to understand, yet innovative products to meet the changing demands of the market. By working closely with our distributors, we are able to anticipate opportunities in the marketplace and rapidly address them. By treating our distributors as clients and providing them with outstanding levels of service, we have cultivated strong relationships over decades that we believe allow us to avoid competing on price alone. In addition, we have flexible information technology platforms that allow us to integrate our products onto the operating platforms of our distributors, which we believe provides us with a competitive advantage in attracting new distributors.

	•	Strong bank distribution channel. According to Kehrer/LIMRA, we were a top-five seller of fixed annuities through banks in the first nine months of 2009. Our strong bank distribution relationships make us well-positioned to continue to take advantage of the increased investor demand for fixed annuities and to take market share away from financially stressed competitors. We also have increased our sales of single premium immediate annuities and single premium life insurance through existing and new bank distribution partners. During the first nine months of 2009, our sales of single premium immediate annuities through banks increased 18% and single premium life volumes increased 74% as compared to the first nine months of 2008.

	•	Sell simple to understand products. We have built a reputation as a writer of simple to understand products that meet the needs of customers and our distribution partners. This reputation has been strengthened by the retrenchment of many of our competitors due to recent market events and the consistency of our presence and product lineup over the past several years. We believe independent distributors highly value our demonstrated ability to accept new business during turbulent conditions while maintaining strong financial performance. As a result, we are able to take advantage of the convergence of increasing customer desire for simple to understand products and the financial challenges of several market competitors.
	•	Broaden and deepen distribution relationships. Our distribution strategy is to deliver multiple products through a single point of sale, thereby reducing our distribution costs. We believe that we have an unprecedented opportunity to expand our existing relationships and build new long-term relationships due to the recent market disruption that has distracted and refocused our competitors. Since January 1, 2008, we have added eight new bank relationships with approximately 6,100 sales representatives. In addition, we have added 18 new independent distribution relationships which added 2,400 new sales representatives actively selling our products. These new relationships, in tandem with existing relationships, have enabled us to grow our sales from $617 million during the first nine months of 2007 to $2.2 billion in the first nine months of 2009.
	•	Effectively deploy capital. We intend to deploy our capital prudently while maximizing our profitability and long-term growth in stockholder value. Our capital management strategy is to maintain financial strength through conservative and disciplined risk management practices, capital efficient product design, effective asset/liability management and opportunistic market share growth in all our business segments. We will also maintain our conservative investment management philosophy, which includes holding a high quality investment portfolio and carefully matching our investment assets against the duration of our insurance product liabilities. This approach will enable us to remain flexible to allocate capital to opportunities within our business segments that offer the highest returns.

	•	Impact of the credit crisis and economic downturn. The recent credit crisis, global capital markets conditions and economic downturn have adversely impacted and will continue to have an adverse impact on our business and on the financial services industry in general. Impacts have included and will include investment losses, less availability and/or more competition for appropriate investments to support our products, higher cash balances generating yields lower

		than needed to support our products, failure of key business partners, impacts on demand for our products from new and existing customers, reduced availability of capital, higher cost of capital and heightened scrutiny from regulators and ratings agencies. It is unclear what impact financial rescue programs instituted by the U.S. federal government will have on the markets and on our business.

	•	Investment losses. The credit crisis and significant drop in the equity markets that began in the second half of 2007 and substantially increased during the fourth quarter of 2008 have resulted in, and may continue to result in, decreases in value of fixed maturity securities, equity securities and other investments in our investment portfolio, which have impacted and may continue to impact our results of operations and financial position.
	•	Exposure to interest rate fluctuations. Many of our insurance and investment products are sensitive to interest rate fluctuations and expose us to the risk that falling interest rates will reduce the “spread,” or the difference between the returns we earn on the investments that support our obligations under our insurance and investment products and the amounts that we must credit to policyholders and contractholders. Generally, persistently low interest rates would have an adverse effect on our financial condition, results of operations and cash flows. Generally, inflation could adversely impact our financial condition, results of operations and cash flows due to potential higher policyholder withdrawals and asset sales at undesirable prices.
	•	Reserve requirements. Our calculations of reserves for estimated future benefit payments are based upon estimates and assumptions with regard to our future experience. Future experience is subject to many uncertainties and we cannot predict the ultimate amounts we will pay for future benefits or the timing of the payments. If reserves are insufficient to cover actual benefits and payments, we could be required to increase our reserves, which could adversely affect our financial condition and results.
	•	Deviation from assumptions upon which pricing is established. The price and expected future profitability of our insurance and annuity products are based in part upon expected patterns of premiums, expenses and benefits, using a number of assumptions, including those related to persistency, mortality and morbidity. Significant deviations from these assumptions could have an adverse affect on our financial condition, results of operations and cash flows.
	•	Amortization of deferred policy acquisition costs. Deferred policy acquisition costs, or DAC, represent certain costs that vary with, and are primarily related to, the sale and issuance of insurance policies and investment contracts and are deferred and amortized over the estimated policy and contract lives. Unfavorable experience with regard to expenses, investment returns, mortality, morbidity, withdrawals or lapses may increase the amortization of DAC, resulting in higher expenses and lower profitability.
	•	Potential downgrade in financial strength ratings. A downgrade in our financial strength ratings could have an adverse effect on our financial condition, results of operations and cash flows in several ways, including reducing new sales of products, adversely affecting our relationship with sales agents, increasing the number of policy surrenders and withdrawals, requiring us to reduce prices in order to compete and adversely impacting our ability to obtain reinsurance.
	•	Highly regulated industry. Our insurance businesses are subject to a wide variety of laws and regulations in various jurisdictions. Compliance with applicable laws and regulations is time consuming and personnel intensive, and changes in these laws and regulations may materially increase our direct and indirect compliance efforts and other expenses of doing business.
	•	Proposals for national health care reform. We sell group medical stop-loss insurance and limited benefit employee health plans to employer groups. Proposals addressing the affordability and availability of health insurance, including reducing the number of uninsured, are pending in

		the U.S. Congress and in many states. While at this time we cannot predict whether or in what form these proposals will be enacted, national health care reform could have a material effect on the profitability or marketability of our health insurance products and services and on our financial condition, results of operations and cash flows.

	•	Constraints related to holding company structure. As a holding company, we have no significant direct operations. Dividends and other permitted distributions from subsidiaries are expected to be our principal source of funds to meet ongoing cash requirements. These payments are limited by regulations in the jurisdictions in which our subsidiaries operate. If our subsidiaries are unable to pay dividends, we may have difficulty servicing our debt, paying dividends on our common stock and meeting our holding company expenses.

Common stock offered by Symetra		17,256,010 shares

Common stock offered by the Selling Stockholders		9,743,990 shares

Common stock to be outstanding after this offering		109,985,465 shares

Over-allotment option		The underwriters have an option to purchase a total of up to 4,050,000 additional shares from the Company to cover over-allotments.

Use of proceeds		We intend to use the net primary proceeds from this offering for general corporate purposes, which may include contributions of capital to our insurance and other subsidiaries. We will not receive any proceeds from the sale of shares by the Selling Stockholders. See “Use of Proceeds.”
Listing		We have applied to list our common stock on the New York Stock Exchange, or NYSE, under the symbol “SYA.”

Dividend policy		We intend to pay quarterly dividends on our common stock at an initial rate of approximately $0.05 per share. The declaration, payment and amount of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition and results of operations, liquidity requirements, market opportunities, capital requirements of our subsidiaries, legal requirements, regulatory constraints and other factors that our board of directors deems relevant. Dividends on our common stock will also be paid to holders of our outstanding warrants on a one-to-one basis. See “Dividend Policy.”

Risk factors		See “Risk Factors” for a discussion of factors you should consider before investing in our common stock.

	•	assumes the common stock will be sold at $13.00 per share (the midpoint of the price range set forth on the cover of this prospectus);

	•	assumes no exercise of the underwriters’ over-allotment option;

	•	excludes 7,746,840 remaining shares of common stock reserved for issuance pursuant to our Equity Plan;
	•	excludes 870,000 shares of common stock reserved for issuance pursuant to our Employee Stock Purchase Plan; and
	•	assumes no exercise of outstanding warrants to purchase 18,975,744 shares of common stock at an exercise price of $11.49 per share.

		Nine Months Ended								Twelve Months Ended
		September 30,								December 31,
		2009				2008				2008				2007				2006
		(In millions, except per share data)
Consolidated Income Statement Data:
Revenues:
Premiums		$	430.2			$	440.4			$	584.8			$	530.5			$	525.7
Net investment income			829.4				718.0				956.5				973.6				984.9
Other revenues			43.2				52.0				67.8				68.7				56.1
Net realized investment gains (losses):
Total other-than-temporary impairment losses on securities			(167.9	)			(61.7	)			(86.4	)			(16.2	)			(25.7	)
Less: portion of losses recognized in other comprehensive income			94.2				—				—				—				—
Net impairment losses recognized in earnings			(73.7	)			(61.7	)			(86.4	)			(16.2	)			(25.7	)
Other net realized investment gains (losses)			44.7				(41.6	)			(71.6	)			33.0				27.4
Total net realized investment gains (losses)			(29.0	)			(103.3	)			(158.0	)			16.8				1.7
Total revenues			1,273.8				1,107.1				1,451.1				1,589.6				1,568.4
Benefits and expenses:
Policyholder benefits and claims			262.1				260.1				348.5				267.1				264.3
Interest credited			629.2				569.1				766.1				752.3				765.9
Other underwriting and operating expenses			186.7				201.9				265.8				281.9				260.5
Interest expense			23.8				24.0				31.9				21.5				19.1
Amortization of deferred policy acquisition costs			36.4				17.7				25.8				18.0				14.6
Total benefits and expenses			1,138.2				1,072.8				1,438.1				1,340.8				1,324.4
Income from operations before income taxes			135.6				34.3				13.0				248.8				244.0
Provision (benefit) for income taxes:
Current			(4.2	)			34.2				23.8				62.8				92.4
Deferred			43.6				(26.9	)			(32.9	)			18.7				(7.9	)
Total provision (benefit) for income taxes			39.4				7.3				(9.1	)			81.5				84.5
Net income		$	96.2			$	27.0			$	22.1			$	167.3			$	159.5
Net income per common share(1):
Basic		$	0.86			$	0.24			$	0.20			$	1.50			$	1.43
Diluted		$	0.86			$	0.24			$	0.20			$	1.50			$	1.43
Weighted-average number of common shares outstanding:
Basic			111.622				111.622				111.622				111.622				111.622
Diluted			111.623				111.622				111.622				111.622				111.622
Cash dividends declared per common share		$	—			$	—			$	—			$	1.79			$	0.90
Non-GAAP Financial Measure(2):
Adjusted operating income		$	115.2			$	91.8			$	122.9			$	154.9			$	159.8
Reconciliation to net income:
Net income		$	96.2			$	27.0			$	22.1			$	167.3			$	159.5
Less: Net realized investment gains (losses) (net of taxes)(3)			(18.9	)			(67.1	)			(102.7	)			10.9				1.1
Add: Net realized and unrealized investment gains (losses) on FIA options (net of taxes)(4)			0.1				(2.3	)			(1.9	)			(1.5	)			1.4
Adjusted operating income		$	115.2			$	91.8			$	122.9			$	154.9			$	159.8

		As of September 30,				As of December 31,
		2009				2008				2007				2006
		(In millions, except share and per share data)
Consolidated Balance Sheet Data:
Total investments		$	20,035.2			$	16,252.5			$	16,905.0			$	17,305.3
Total assets			22,226.0				19,229.6				19,560.2				20,114.6
Total debt			448.9				448.8				448.6				298.7
Separate account assets			818.6				716.2				1,181.9				1,233.9
Accumulated other comprehensive income (loss) (net of taxes) (AOCI)			29.8				(1,052.6	)			(12.5	)			(0.5	)
Total stockholders’ equity			1,480.5				286.2				1,285.1				1,327.3
U.S. Statutory Financial Information:
Statutory capital and surplus		$	1,331.7			$	1,179.0			$	1,225.0			$	1,266.2
Asset valuation reserve (AVR)			117.3				113.7				176.0				158.4
Statutory capital and surplus and AVR		$	1,449.0			$	1,292.7			$	1,401.0			$	1,424.6

		As of September 30,				As of December 31,
		2009				2008				2007				2006
Book value per common share(5)		$	13.25			$	2.56			$	11.51			$	11.89
Non-GAAP Financial Measures(6):
Adjusted book value		$	1,450.7			$	1,338.8			$	1,297.6			$	1,327.8
Reconciliation to stockholders’ equity:
Total stockholders’ equity		$	1,480.5			$	286.2			$	1,285.1			$	1,327.3
Less: AOCI			29.8				(1,052.6	)			(12.5	)			(0.5	)
Adjusted book value		$	1,450.7			$	1,338.8			$	1,297.6			$	1,327.8
Add: Assumed proceeds from exercise of warrants			218.1				218.1				218.1				218.1
Adjusted book value, as converted		$	1,668.8			$	1,556.9			$	1,515.7			$	1,545.9
Adjusted book value per common share(7)		$	15.65			$	14.45			$	14.01			$	14.33
Adjusted book value per common share, as converted(8)		$	14.94			$	13.95			$	13.58			$	13.85

		Twelve Months Ended
		September 30,				December 31,				December 31,				December 31,
		2009				2008				2007				2006
ROE(9)			13.9	%			2.6	%			12.6	%			12.8	%
Average stockholders’ equity(10)		$	658.0			$	861.8			$	1,328.3			$	1,249.5
Non-GAAP Financial Measure(11):
Operating ROAE			10.6	%			9.2	%			11.2	%			12.1	%
Average adjusted book value(12)		$	1,379.9			$	1,329.8			$	1,380.2			$	1,324.2

(1)		Basic net income per common share assumes that all participating securities, including warrants, have been outstanding since the beginning of the period using the two-class method. Diluted net income per common share includes the dilutive impact of non-participating, unvested restricted stock awards, based on the application of the treasury stock method, weighted for the portion of the period they were outstanding.
(2)		Management considers adjusted operating income to be a useful supplement to net income, its most comparable GAAP measure, in evaluating our financial performance. We believe that the non-GAAP presentation of adjusted operating income is valuable because it assists an investor in determining whether our insurance-related revenues, composed primarily of premiums and net investment income, have been sufficient to generate operating earnings after meeting our insurance-related obligations, composed primarily of claims paid to policyholders and investment returns credited to policyholder accounts, and other operating costs. Though the after-tax net realized gains (losses) excluded from adjusted operating income recur in most periods, the timing and amount are driven by investment decisions and external economic developments unrelated to our management of the insurance and underwriting aspects of our business. For a definition and

		discussion of this non-GAAP measure and other metrics used in our analysis, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of non-GAAP Financial Measures.”
(3)		Net realized investment gains (losses) are reported net of taxes of $(10.1) million, $(36.2) million, $(55.3) million, $5.9 million and $0.6 million for the nine months ended September 30, 2009 and 2008, and the twelve months ended December 31, 2008, 2007 and 2006, respectively.
(4)		Net realized and unrealized investment gains (losses) on fixed income annuity, or FIA, options are reported net of taxes of $0.1 million, $(1.3) million, $(1.0) million, $(0.8) million and $0.8 million for the nine months ended September 30, 2009 and 2008, and the twelve months ended December 31, 2008, 2007 and 2006, respectively.
(5)		Book value per common share is calculated based on stockholders’ equity divided by outstanding common shares and shares subject to outstanding warrants, totaling 111,705,199, as of September 30, 2009 and 111,622,039, as of December 31, 2008, 2007 and 2006.

(6)		Management considers adjusted book value to be a useful supplement to total stockholders’ equity, its most comparable GAAP measure, in evaluating our financial condition. Adjusted book value is calculated based on stockholders’ equity less AOCI. We believe that investors find it useful if we present them with a financial measure that removes from stockholders’ equity the temporary and unrealized changes in the fair values of our investments, and the related effects on AOCI. By evaluating our adjusted book value, an investor can assess our financial condition based on our general practice of holding our fixed investments to maturity. For a definition and discussion of this non-GAAP measure and other metrics used in our analysis, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of non-GAAP Financial Measures.”

(7)		Management considers adjusted book value per common share to be a useful supplement to book value per common share, its most comparable GAAP measure, in evaluating our financial performance and condition. Adjusted book value per common share is calculated based on stockholders’ equity less AOCI, divided by outstanding common shares, totaling 92,729,455 as of September 30, 2009 and 92,646,295 as of December 31, 2008, 2007 and 2006. We believe investors find it useful if we present them with adjusted book value, a non-GAAP measure that removes AOCI from stockholders’ equity, and then translate it into another measure, adjusted book value per common share, which allows the investor to understand the value of its investment on the adjusted book value basis. For a definition and discussion of this non-GAAP measure and other metrics used in our analysis, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of non-GAAP Financial Measures.”

(8)		Management considers adjusted book value per common share, as converted, to be a useful supplement to book value per common share, its most comparable GAAP measure, in evaluating our financial performance and condition. Adjusted book value per common share, as converted, is calculated as adjusted book value plus the assumed proceeds from the outstanding warrants, divided by the sum of outstanding common shares and shares subject to outstanding warrants, totaling 111,705,199 as of September 30, 2009 and 111,622,039 as of December 31, 2008, 2007 and 2006. We believe investors find it useful if we present them with adjusted book value, a non-GAAP measure that removes AOCI from stockholders’ equity and then translate it into another measure, adjusted book value per common share, as converted, which gives effect to the exercise of our outstanding warrants. For a definition and discussion of this non-GAAP measure and other metrics used in our analysis, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of non-GAAP Financial Measures.”

(9)		Return on stockholders’ equity is calculated as net income divided by average stockholders’ equity.
(10)		Average stockholders’ equity is derived by averaging ending stockholders’ equity for the most recent five quarters.

(11)		Management considers operating ROAE to be a useful supplement to return on stockholders’ equity, or ROE, its most comparable GAAP measure, in evaluating our financial performance. Operating ROAE is calculated based on adjusted operating income divided by average adjusted book value. The numerator and denominator of this measure have been reconciled to net income and stockholders’ equity, respectively, their most comparable GAAP financial measures. We believe that the non-GAAP presentation of this measure is valuable to an investor as it can help an investor form a judgment as to how effectively our management uses funds invested by our stockholders to generate adjusted operating income growth. For a definition and discussion of this non-GAAP measure and other metrics used in our analysis, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of non-GAAP Financial Measures.”

(12)		Average adjusted book value is derived by averaging ending adjusted book value for the most recent five quarters.

 

You should carefully consider the following risks and other information in this prospectus before deciding to invest in shares of our common stock. Any of the risks described below could materially adversely affect our business, financial condition, results of operations and cash flows. In this event, the trading price of our common stock could decline and you could lose part or all of your investment.

 

Risks Related to Our Business

 

Markets in the United States and elsewhere have experienced extreme and unprecedented volatility and disruption, with adverse consequences to our liquidity, access to capital and cost of capital. Market conditions such as we have experienced since the second half of 2007 may significantly affect our ability to meet liquidity needs, including capital that may be required by our subsidiaries. We may seek additional debt or equity capital but be unable to obtain such capital.

 

We need liquidity to pay our policyholder benefits, operating expenses, interest on our debt and dividends on our capital stock, and to pay down or replace certain debt obligations as they mature. Without sufficient liquidity, we could be forced to curtail our operations, and our business could suffer. The principal sources of our liquidity are premiums earned on group life, health and individual insurance products, annuity considerations, deposit funds and cash flow from our investment portfolio and assets, consisting mainly of cash or assets that are generally readily convertible into cash. Sources of liquidity in normal markets also include a variety of short- and long-term instruments, including long-term debt and capital securities.

 

Disruptions, uncertainty or volatility in the financial markets may limit our access to capital required to operate our business and maintain desired financial ratios. These market conditions may limit our ability to access the capital necessary to grow our business in a timely manner, replace capital withdrawn by customers or raise new capital required by our subsidiaries as a result of volatility in the markets. As a result, we may be forced to delay raising capital, bear an unattractive cost of capital or be unable to raise capital at any price, which could decrease our profitability and significantly reduce our financial flexibility. Actions we might take to access financing may in turn cause rating agencies to reevaluate our ratings. Future deterioration of our capital position at a time when we are unable to access the long-term debt market could have a material adverse effect on our liquidity. Our internal sources of liquidity may prove to be insufficient.

 

Disruptions in the capital markets could adversely affect our ability to access sources of liquidity, as well as threaten to reduce our capital below a level that is consistent with our existing objectives. If this occurs, we may need to:

 

 

Certain of these actions may require regulatory approval and/or the approval of counterparties which are outside of our control or have economic costs associated with them.

 

We rely on our revolving credit facility as a potential source of liquidity which could be critical in enabling us to meet our obligations as they come due, particularly during periods when alternative sources of liquidity are limited. Our ability to borrow under this facility is conditioned on our satisfaction of covenants and other requirements contained in the facility, as described in “Description of Certain Indebtedness — Revolving Credit Facilities” on page 169. Our failure to satisfy these covenants and other requirements would

restrict our access to the facility when needed and, consequently, could have a material adverse effect on our financial condition and results of operations.

 

Difficult conditions in the credit and equity markets, and in the economy generally, have adversely affected and may continue to adversely affect our business and results of operations.

 

Conditions in the global capital markets and the economy generally, both in the United States and elsewhere around the world, have adversely affected our results of operations. The stress experienced by global capital markets that began in the second half of 2007 continued and substantially increased during the fourth quarter of 2008 and early 2009. While the second and third quarters of 2009 brought some turnaround in the capital markets, concerns about the availability and cost of credit, inflation, the U.S. mortgage market, the stability of banks and other financial institutions, and a declining real estate market in the United States continue and contribute to heightened market volatility and dampen expectations for the economy and the markets going forward. These factors, combined with declining business and consumer confidence, increased unemployment and volatile oil prices, have precipitated a sustained recession.

 

In particular, the credit, financial and economic crisis has had, or may have in the future, the following effects on our business and results of operations:

 

 

In addition, general inflationary pressures may affect medical costs, increasing the costs of paying claims.

Our investment portfolio is subject to various risks that may diminish the value of our invested assets, reduce investment returns and erode capital.

 

The performance of our investment portfolio depends in part upon the level of and changes in interest rates and credit spreads, the overall performance of the economy, the creditworthiness of the specific obligors included in our portfolio, equity prices, liquidity and other factors, some of which are beyond our control. These factors could materially affect our investment results in any period and had an adverse impact on our investment results in 2008 and 2009. In addition, given our reliance on external investment advisors, we could also be exposed to operational risks that may include, but are not limited to, a failure to follow our investment guidelines, technological and staffing deficiencies and inadequate disaster recovery plans.

 

Interest rate and credit spread risk

 

Fluctuations in interest rates and credit spreads can negatively affect the returns on our fixed maturity and short-term investments and can cause unrealized losses or reduce unrealized gains in our investment portfolios. Interest rates and credit spreads are highly sensitive to many factors, including governmental monetary policies, general investor sentiment, domestic and international economic and political conditions and other factors beyond our control.

 

The fair value of the fixed maturities in our portfolio and the investment income from these securities fluctuate depending on general economic and market conditions. The fair value generally increases or decreases in an inverse relationship with fluctuations in interest rates and credit spreads, while net investment income realized by us from future investments in fixed maturity securities will generally increase or decrease in step with interest rates and credit spreads. In addition, actual net investment income or cash flows from investments that carry prepayment risk, such as mortgage-backed and certain other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations. In periods of declining interest rates, mortgage prepayments generally increase and mortgage-backed securities, commercial mortgage obligations and other bonds in our investment portfolio are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates, and we may be required to reinvest those funds in lower interest-bearing investments.

 

Because substantially all of our fixed maturities are classified as available-for-sale, changes in the fair value of these securities as described above are reflected as a component of comprehensive income. However, U.S. GAAP does not require similar fair value accounting treatment for the insurance liabilities that the fixed maturities support. Therefore, changes in the fair value of our fixed maturities caused by interest rate fluctuations are not offset in whole or in part by similar adjustments to the fair value of our insurance liabilities on the balance sheet.

 

In an attempt to mitigate these risks, we employ asset/liability matching strategies to reduce the adverse effects of interest rate volatility and to ensure that cash flows are available to pay claims as they become due. Our asset/liability matching strategies include:

 

 

However, because these strategies may fail to eliminate or reduce the adverse effects of interest rate and credit spread volatility, significant fluctuations in the level of interest rates and credit spreads may have a material adverse effect on our financial condition, results of operations and cash flows.

Credit risk

 

From time to time, issuers of the fixed maturities that we own may default on principal and interest payments. Defaults by third parties in the payment or performance of their obligations could reduce our investment income and realized investment gains or result in realized investment losses. Further, the value of any particular fixed maturity security is subject to impairment based on the creditworthiness of a given issuer. Our fixed maturities portfolio also includes below investment grade securities, which generally provide higher expected returns but present greater risk and can be less liquid than investment grade securities. Further, an issuer’s inability to refinance or pay off debt could cause certain of our investment-grade maturities to present more significant credit risk than when we first invested. In addition, private equity buyouts could cause certain of our investment-grade fixed maturities to present more significant credit risk than when we first invested. As of September 30, 2009, December 31, 2008 and December 31, 2007, our fixed maturities portfolio was $18,542.3 million, $14,887.6 million and $15,599.9 million, respectively. A significant increase in defaults and impairments on our fixed maturities portfolio could materially adversely affect our financial condition, results of operations and cash flows. For the nine months ended September 30, 2009 and 2008, and the years ended December 31, 2008, 2007 and 2006, we had credit related impairments of $47.5 million, $29.6 million, $39.4 million, $0.7 million and $8.9 million, respectively. For further information on our fixed maturities portfolio and credit-related impairments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments.”

 

Issuers of the fixed maturities that we own may experience threats and performance deterioration that trigger rating agency downgrades. Although the issuers may not have defaulted on principal and interest payments with respect to these securities, we may be required by regulators and rating agencies to hold more capital in support of these investments. We could experience higher cost of capital and potential constraints on our ability to grow our business and maintain our own ratings.

 

Liquidity risk

 

Our investments in privately placed fixed maturities, mortgage loans, policy loans and limited partnership interests, which collectively represented 11% of total invested assets as of September 30, 2009, are relatively illiquid as compared to publicly traded fixed maturities and equities. If we require significant amounts of cash on short notice in excess of our normal cash requirements, we may have difficulty selling these investments in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both.

 

A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business.

 

Financial strength ratings, which various ratings organizations publish as measures of an insurance company’s ability to meet contractholder and policyholder obligations, are important to maintaining public confidence in our company and our products, the ability to market our products and our competitive position. Our principal life insurance company subsidiaries, Symetra Life Insurance Company and First Symetra National Life Insurance Company of New York, have financial strength ratings of “A” (“Excellent,” third highest of 16 ratings) with a stable outlook from A.M. Best, “A” (“Strong,” sixth highest of 21 ratings) with a negative outlook from Standard & Poor’s, or S&P and “A+” (“Strong,” fifth highest of 24 ratings) with a negative outlook from Fitch. Moody’s Investors Service, Inc. rates Symetra Life Insurance Company as “A3” (“Good,” seventh highest of 21 ratings) with a stable outlook. Moody’s does not rate First Symetra National Life Insurance Company of New York.

 

A downgrade in our financial strength ratings, or the announced potential for a downgrade, could have an adverse effect on our financial condition, results of operations and cash flows in several ways, including:

 

 

 

Defaults or volatility of performance in our commercial mortgage loans may adversely affect our profitability.

 

Our mortgage loans, which are collateralized by commercial properties, are subject to default risk. The carrying value of commercial mortgage loans is stated at outstanding principal less a valuation allowance. Our allowance provides for the risk of credit loss. The allowance includes a portfolio reserve for probable incurred but not specifically identified losses and loan specific reserves for non-performing loans. At December 31, 2008, no mortgage loans were considered non-performing and only one mortgage loan was non-performing as of September 30, 2009. The performance of our mortgage loan portfolio, however, may decline in the future. In addition, substantially all of our loans have balloon payment maturities. An increase in the default rate of our mortgage loan investments, caused by current or worsening economic conditions or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

 

Further, any geographic concentration of our commercial mortgage loans may have adverse effects on our loan portfolio and, consequently, on our consolidated results of operations or financial condition. While we seek to mitigate this risk by having a broadly diversified portfolio, events or developments that have a negative effect on any particular geographic region or sector may have a greater adverse effect on our loan portfolio. At September 30, 2009, approximately 29.4% of our commercial mortgage loans were located in California, 20.0% were located in Washington and 11.0% were located in Texas.

 

For additional information on our mortgage loan portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Mortgage Loans.”

 

Gross unrealized losses on fixed maturity and equity securities may be realized or result in future impairments, resulting in a reduction in our net income.

 

Fixed maturity and equity securities classified as available-for-sale are reported at their estimated fair value. Unrealized gains or losses on available-for-sale securities are recognized as a component of AOCI and are, therefore, excluded from net income. Our gross unrealized losses on available-for-sale fixed maturity and equity securities at September 30, 2009 were $658.3 million. The portion of the gross unrealized losses for fixed maturity and equity securities where the estimated fair value has declined and remained below amortized cost or cost by 20% or more for six months or greater was $280.5 million at September 30, 2009. The accumulated change in estimated fair value of these available-for-sale securities is recognized in net income when the gain or loss is realized upon the sale of the security or in the event that the decline in estimated fair value is determined to be other-than-temporary and an impairment charge is taken. Realized losses or impairments will have a material adverse affect on our net income in a particular quarterly or annual period.

 

Fluctuations in interest rates and interest rate spreads could adversely affect our financial condition, results of operations and cash flows.

 

Certain of our insurance and investment products, such as fixed annuities and universal life insurance, are sensitive to interest rate fluctuations and expose us to the risk that falling interest rates will reduce the “spread,” or the difference between the returns we earn on the investments that support our obligations under these products and the amounts that we must credit to policyholders and contractholders. This risk is exacerbated due to the existence of guaranteed minimum crediting rates established by our contracts and regulatory authorities and restrictions on the timing and frequency with which we can adjust our crediting rates. Accordingly, falling interest rates could have an adverse effect on our financial condition, results of

operations and cash flows. Additionally, we may see interest rate fluctuations due to potential future inflation resulting from economic stimulus spending.

 

Our interest rate spreads and associated investment margins related to these spreads vary by product as follows:

 

 

During periods of rising interest rates, we may determine to offer higher crediting rates on new sales of interest-sensitive products and to increase crediting rates on existing in force products, in each case in order to maintain or enhance product competitiveness. In addition, periods of rising interest rates may cause increased policy surrenders, withdrawals and requests for policy loans as policyholders and contractholders allocate their assets into higher yielding investments. Increases in crediting rates, as well as surrenders and withdrawals, could have an adverse effect on our financial condition, results of operations and cash flows.

 

We calculate reserves for long-term disability and life waiver of premium claims using net present value calculations based on the actual interest rates in effect at the time claims are funded, as well as our expectations for future interest rates. Waiver of premium refers to a provision in a life insurance policy pursuant to which an insured with total disability, which has lasted for a minimum specified period, continues to receive life insurance coverage but no longer has to pay premiums for the duration of the disability or for a stated period. During periods of declining interest rates, reserves for new claims are calculated using lower discount rates, thereby increasing the net present value of those claims and the required reserves. Further, if actual interest rates used to establish reserves on open claims prove to be lower than our original expectations, we would be required to increase such reserves accordingly. As such, the increase in net present value calculations caused by declines in interest rates could have an adverse effect on our financial condition, results of operations and cash flows.

 

Our term life insurance products also expose us to the risk of interest rate fluctuations. The pricing and expected future profitability of these products are based in part on expected investment returns. Over time, term life insurance products generally produce positive cash flows as customers pay periodic premiums, which we invest as we receive them. Lower than expected interest rates may reduce our ability to achieve our targeted investment margins and may adversely affect our financial condition, results of operations and cash flows.

 

Our valuation of fixed maturity securities may include methodologies, estimations and assumptions which are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect our results of operations or financial condition.

 

Fixed maturities are reported at fair value on our consolidated balance sheets and represent 93% of our invested assets. The accounting guidance regarding Fair Value Measurements establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The level in the fair value hierarchy is based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). As of September 30, 2009, approximately

93% and 7% of our fixed maturities were categorized as Level 2 and Level 3 investments, respectively. As of December 31, 2008, approximately 95% and 5% of our fixed maturities were categorized as Level 2 and Level 3 investments, respectively. The determination of estimated fair values by management is made at a specific point in time, primarily by obtaining prices from our pricing services, based on objectively verifiable, observable market data. If such information about a security is unavailable, we determine the fair value using internal pricing models that typically utilize significant, unobservable market inputs or inputs that are difficult to corroborate with observable market data. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts. For additional information on our valuation methodology, see Note 7 to our audited consolidated financial statements.

 

During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain of our securities (for example, corporate private placements) if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, more securities may require more subjectivity and management judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation as well as valuation methods that require greater estimation, which could result in values that are different from the value at which the investments may be ultimately sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within our consolidated financial statements and the period-to-period changes in value could vary significantly. Decreases in value will have a material adverse effect on our results of operations or financial condition.

 

Downturns and volatility in equity markets could adversely affect the marketability of our products and our profitability.

 

Significant downturns and volatility in equity markets could have an adverse effect on our business in various ways. Market downturns and volatility may discourage purchases of separate account products, such as variable annuities and variable life insurance, which have returns linked to the performance of the equity markets and may cause some existing customers to withdraw cash values or reduce investments in those products.

 

Further, downturns and volatility in equity markets can have an adverse effect on the revenues and returns from our separate account products. Because these products depend on fees related primarily to the value of assets under management, a decline in the equity markets could reduce our revenues by reducing the value of the investment assets we manage.

 

We hold common stock and equity-like investments, primarily in our Income Annuities segment, that represent 1.2% of the fair value of our total invested assets as of September 30, 2009. Investments in common stock or equity-like securities generally provide higher expected total returns over the long term but present greater risk to preservation of principal than do our fixed income investments.

 

If our reserves for future policy benefits and claims are inadequate, we would be required to increase our reserve liabilities.

 

We calculate and maintain reserves for estimated future benefit payments to our policyholders and contractholders in accordance with U.S. GAAP. We release these reserves as those future obligations are extinguished. The reserves we establish necessarily reflect estimates and actuarial assumptions with regard to our future experience. These estimates and actuarial assumptions involve the exercise of significant judgment. Our future financial results depend upon the extent to which our actual future experience is consistent with the assumptions we have used in pricing our products and determining our reserves. Many factors can affect future experience, including economic, political and social conditions, inflation, healthcare costs and changes in doctrines of legal liability and damage awards in litigation. Therefore, we cannot predict the ultimate amounts we will pay for actual future benefits or the timing of those payments.

 

We regularly monitor our reserves. If we conclude that our reserves are insufficient to cover actual or expected policy and contract benefits and claims payments, we would be required to increase our reserves and incur income statement charges in the period in which we make the determination, which could adversely

affect our financial condition and results of operations. There were no significant adjustments to reserves due to inadequacy during 2007, 2008 or the first nine months of 2009.

 

We may face unanticipated losses if there are significant deviations from our assumptions regarding the probabilities that our insurance policies or annuity contracts will remain in force from one period to the next or if morbidity and mortality rates differ significantly from our pricing expectations.

 

The prices and expected future profitability of our insurance and annuity products are based in part upon expected patterns of premiums, expenses and benefits, using a number of assumptions, including those related to persistency, mortality and morbidity. Persistency is the probability that a policy or contract will remain in force from one period to the next. The effect of persistency on profitability varies for different products. For most of our products, actual persistency that is lower than our assumptions could have an adverse impact on profitability, especially in the early years of a policy or contract primarily because we would be required to accelerate the amortization of expenses we deferred in connection with the acquisition of the policy or contract. In addition, we may need to sell investments at a loss to fund withdrawals. For some of our life insurance policies, actual persistency in later policy durations that is higher than our persistency assumptions could have a negative impact on profitability. If these policies remain in force longer than we assumed, then we could be required to make greater benefit payments than we had anticipated when we priced these products.

 

In addition, we set prices for our insurance and certain annuity products based upon expected claims and payment patterns, using assumptions for, among other factors, morbidity rates and mortality rates of our policyholders and contractholders. The long-term profitability of these products depends upon how our actual experience compares with our pricing assumptions. For example, if morbidity rates are higher, or mortality rates are lower, than our pricing assumptions, we could be required to make greater payments under certain annuity contracts than we had projected.

 

Because our assumptions are inherently uncertain, reserves for future policy benefits and claims may prove to be inadequate if actual experience is different from our assumptions. Although certain of our products permit us to increase premiums or reduce benefits during the life of the policy or contract, these changes may not be sufficient to maintain profitability. Moreover, many of our products either do not permit us to increase premiums or reduce benefits or may limit those changes during the life of the policy or contract. Therefore, significant deviations in experience from our assumptions regarding persistency and mortality and morbidity rates could have an adverse effect on our financial condition, results of operations and cash flows.

 

We may be required to accelerate the amortization of deferred policy acquisition costs, which would increase our expenses and reduce profitability.

 

Deferred policy acquisition costs, or DAC, represent certain costs which vary with and are primarily related to the sale and issuance of our products and are deferred and amortized over the estimated life of the related contracts. These costs include commissions in excess of ultimate renewal commissions and certain other sales incentives, solicitation and printing costs, sales material and other costs, such as underwriting and contract and policy issuance expenses. Under U.S. GAAP, DAC is amortized through income over the lives of the underlying contracts in relation to the anticipated recognition of premiums or gross profits for most of our products.

 

Our amortization of DAC generally depends upon anticipated profits from investments, surrender and other policy and contract charges, mortality, morbidity and maintenance and expense margins. Unfavorable experience with regard to expected expenses, investment returns, mortality, morbidity, withdrawals or lapses may cause us to increase the amortization of DAC, resulting in higher expenses and lower profitability.

 

We regularly review our DAC asset balance to determine if it is recoverable from future income. The portion of the DAC asset balance deemed to be unrecoverable, if any, is charged to expense in the period in which we make this determination. For example, if we determine that we are unable to recover DAC from profits over the life of a book of business of insurance policies or annuity contracts, we would be required to recognize the unrecoverable DAC amortization as a current-period expense. As of September 30, 2009, we had $240.8 million of DAC. Our amortization of DAC was $36.4 million during the nine months ended September 30, 2009.

The occurrence of natural disasters, disease pandemics, terrorism or military actions could adversely affect our financial condition, results of operations and cash flows.

 

Our financial condition and results of operations are at risk of material adverse effects that could arise from catastrophic mortality and morbidity due to natural disasters, including floods, tornadoes, earthquakes and hurricanes, disease pandemics (e.g., H1N1 virus), terrorism and military actions. Such events could also lead to unexpected changes in persistency rates as policyholders and contractholders who are affected by the disaster may be unable to meet their contractual obligations, such as payment of premiums on our insurance policies or deposits into our investment products. The continued threat of terrorism and ongoing military actions may cause significant volatility in global financial markets, and a natural disaster or a disease pandemic could trigger an economic downturn in the areas directly or indirectly affected by the disaster. The effectiveness of external parties, including governmental and nongovernmental organizations, in combating the spread and severity of a disease pandemic could have a material impact on the losses experienced by us. Further, in our group health and life insurance operations, a localized event that affects the workplace of one or more of our customers could cause a significant loss due to mortality or morbidity claims.

 

We rely on reinsurance arrangements to help manage our business risks, and failure to perform by the counterparties to our reinsurance arrangements may expose us to risks we had sought to mitigate.

 

We utilize reinsurance to mitigate our risks in various circumstances. Reinsurance does not relieve us of our direct liability to our policyholders, even when the reinsurer is liable to us. Accordingly, we bear credit risk with respect to our reinsurers. The total reinsurance recoverable amount due from reinsurers was $269.9 million as of September 30, 2009. Our reinsurers may be unable or unwilling to pay the reinsurance recoverable owed to us now or in the future or on a timely basis. A reinsurer’s insolvency, inability or unwillingness to make payments under the terms of its reinsurance agreement with us could have an adverse effect on our financial condition, results of operations and cash flows. This has not occurred in 2007, 2008 or through September 30, 2009.

 

Reinsurance may not be available, affordable or adequate to protect us against losses.

 

As part of our overall risk management strategy, we purchase reinsurance for certain risks underwritten by our various business segments. For example, we reinsure the mortality risk in excess of $0.5 million for most of our individual life insurance policies. While reinsurance agreements generally bind the reinsurer for the life of the business reinsured at generally fixed pricing, market conditions beyond our control determine the availability and cost of the reinsurance protection for new business. In certain circumstances, the price of reinsurance for business already reinsured may also increase. Any decrease in the amount of reinsurance will increase our risk of loss and any increase in the cost of reinsurance will reduce our earnings. Accordingly, we may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which could adversely affect our ability to write future business or result in the assumption of more risk with respect to those policies we issue.

 

The availability and cost of these reinsurance arrangements are subject to market conditions that are beyond our control. As a result, in the future, we may not be able to enter into reinsurance arrangements on attractive terms, if at all.

 

We may be unable to attract and retain independent sales intermediaries and dedicated sales specialists.

 

We distribute our products through financial intermediaries, independent producers and dedicated sales specialists. We compete with other financial institutions to attract and retain commercial relationships in each of these channels, and our success in competing for sales through these sales intermediaries depends upon factors such as:

 

 

 

Our competitors may be effective in providing incentives to existing and potential distribution partners to favor their products or to reduce sales of our products. Our contracts with our distribution partners generally allow either party to terminate the relationship upon short notice. Our distribution partners do not make minimum purchase commitments, and our contracts do not prohibit our partners from offering products that compete with ours. Accordingly, our distribution partners may choose not to offer our products exclusively or at all, or may choose to exert insufficient resources and attention to selling our products.

 

Our future success is highly dependent on maintaining and growing both existing and new distribution relationships. We may have little or no contact with end customers of our products. As a result, we have little to no brand awareness with end customers which makes it more difficult to respond to evolving customer needs, thereby increasing our reliance on our distribution partners.

 

From time to time, due to competitive forces, we may experience unusually high attrition in particular sales channels for specific products. An inability to recruit productive independent sales intermediaries and dedicated sales specialists, or our inability to retain strong relationships with the individual agents at our independent sales intermediaries, could have an adverse effect on our financial condition, results of operations and cash flows.

 

Consolidation among distributors or potential distributors of our products may adversely affect the profitability of our business.

 

We distribute many of our products through financial institutions such as banks and broker-dealers. As capital, credit and equity markets continue to experience volatility, bank and broker-dealer consolidation activity may increase and negatively impact our sales, and such consolidation could increase competition for access to distributors, result in greater distribution expenses and impair our ability to market our products to our current customer base or to expand our customer base. As a result of recent consolidation in the financial services industry, a single financial institution, JPMorgan Chase & Co., accounted for 45.6% and 38.2% of our total sales in 2008 and for the nine months ended September 30, 2009, respectively, selling primarily fixed annuity products. See “Business — Distribution.” If our relationship with this financial institution were to deteriorate, it is likely that we would experience a decline in our sales of such products.

 

Intense competition could adversely affect our ability to maintain or increase our market share and profitability.

 

Our businesses are subject to intense competition. We believe the principal competitive factors in the sale of our products are product features, price, commission structure, marketing and distribution arrangements, brand, reputation, financial strength ratings and service. Many other companies actively compete for sales in our retirement services, income annuity, individual and group markets, including other major insurers, banks, other financial institutions, mutual fund and asset management firms and specialty providers.

 

In many of our product lines, we face competition from companies that have greater market share or breadth of distribution, offer a broader range of products, services or features, assume a greater level of risk, have lower profitability expectations or have higher financial strength ratings than we do. Many competitors offer similar products and use similar distribution channels. The substantial expansion of banks’ and insurance companies’ distribution capacities and expansion of product features in recent years have intensified pressure on margins and production levels and have increased the level of competition in many of our product lines.

Our risk management policies and procedures may not be effective or may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business.

 

Management of operational, legal and regulatory risks requires effective policies and procedures to record, verify and report on a large number of transactions and events. We have devoted resources to develop our policies and procedures to mitigate these risks and expect to continue to do so in the future. Even so, these policies and procedures may not be fully effective to mitigate all of these risks. Many of our methods for managing these risks and exposures are based upon historical statistical models and observed market behavior. As such, our methods may not be able to predict all future exposures. These could be significantly greater than our historical measures have indicated. In addition, our distribution network consists of a large number of third party agents and requires the implementation and oversight of policies and procedures to ensure that we are not unduly subjected to reputational, financial or other risks attributable to such third party agents. Other risk management methods depend upon the evaluation of information regarding markets and clients, or other matters that are publicly available or otherwise accessible to us. This information may not always be accurate, complete, up-to-date or properly evaluated.

 

Changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect our financial statements.

 

Our financial statements are subject to the application of U.S. generally accepted accounting principles, which are periodically revised and/or expanded by recognized authorities, including the Financial Accounting Standards Board. On January 1, 2008, we adopted accounting guidance for the fair value measurements, which, among other things, defined fair value and established a framework for measuring fair value. Determinations of fair values are made at a specific point in time, based on available market information and judgments about financial instruments, including estimates of the timing, amounts of expected future cash flows and the credit standing of the issuer. During periods of market disruption, rapidly widening credit spreads or illiquidity, it can be difficult to value certain types of securities. As such, the value they were originally reported, or later sold, at may differ materially from the valuations determined as of the end of the applicable reporting period. In addition, fluctuations in fair value during these periods can create larger unrealized gains and losses than during normal market conditions. Similarly, future accounting standards could change the current accounting treatment that we apply to our consolidated financial statements and such changes could have an adverse effect on our reported financial condition and results of operations.

 

The failure to maintain effective and efficient information systems could adversely affect our business.

 

Our business is dependent upon our ability to keep pace with technological advances. Our ability to keep our systems fully integrated with those of our clients is critical to the operation of our business. Our failure to update our systems to reflect technological advancements or to protect our systems may adversely affect our relationships and ability to do business with our clients.

 

In addition, our business depends significantly on effective information systems, and we have many different information systems for our various businesses. We have committed and will continue to commit significant resources to develop, maintain and enhance our existing information systems and develop new information systems in order to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and changing customer preferences. Our failure to maintain effective and efficient information systems could have a material adverse effect on our financial condition and results of operations. If we do not maintain adequate systems, we could experience adverse consequences, including:

 

 

 

If we are unable to maintain the availability of our systems and safeguard the security of our data, our ability to conduct business will likely be compromised, which may have a material adverse effect on our financial condition, results of operations and cash flows.

 

We use computer systems to store, retrieve, evaluate and use customer and company data and information. Additionally, our computer and information technology systems interface with and rely upon third party systems. Our business is highly dependent on our ability, and the ability of our affiliates, to access these systems to perform necessary business functions. This includes providing insurance quotes, processing premium payments, providing customer support, filing and paying claims and making changes to existing policies. Systems outages or outright failures would compromise our ability to perform these functions in a timely manner. This could hurt our relationships with our business partners and customers and harm our ability to conduct business. In the event of a disaster such as a blackout, a computer virus, an industrial accident, a natural catastrophe, a terrorist attack or war, our systems may not be available to our employees, customers or business partners for an extended period of time. If our employees are able to report to work, yet our systems or our data are destroyed or disabled, they may be unable to perform their duties for an extended period of time. Our systems could also be subject to similar disruptions due to physical and electronic break-ins or other types of unauthorized tampering with our systems. This may interrupt our business operations and may have a material adverse effect on our financial condition, results of operations and cash flows.

 

Failure to protect our clients’ confidential information and privacy could adversely affect our business.

 

A number of our businesses are subject to privacy regulations and to confidentiality obligations. For example, the collection and use of patient data in our Group segment is the subject of national and state legislation, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and certain of the activities conducted by our businesses are subject to the privacy regulations of the Gramm-Leach-Bliley Act. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and clients. These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information. The actions we take to protect such confidential information vary by business segment and may include, among other things:

 

 

In addition, we must develop, implement and maintain a comprehensive written information security program with appropriate administrative, technical and physical safeguards to protect such confidential information. If we do not properly comply with privacy regulations and protect confidential information, we could experience adverse consequences, including regulatory sanctions, such as penalties, fines and loss of license, as well as loss of reputation and possible litigation.

Our business could be interrupted or compromised if we experience difficulties arising from outsourcing relationships.

 

We outsource certain technology and business functions to third parties, including a significant portion of our information technology function, and expect to continue to do so in the future. If we do not maintain an effective outsourcing strategy or third party providers do not perform as contracted, we may experience operational difficulties, increased costs and a loss of business that could have a material adverse effect on our consolidated results of operations.

 

Our credit facility subjects us to restrictive covenants that impose operating and financial restrictions on our operations and could limit our ability to grow our business.

 

We entered into a $200.0 million revolving credit facility on August 16, 2007. On February 12, 2009, Bank of America, N.A. issued a notice of default to Lehman Commercial Paper, Inc., one of the lending institutions in the syndicate with a commitment of $20.0 million, effectively limiting our ability to borrow under the revolving credit facility to $180.0 million at that time. On October 7, 2009, Lehman Commercial Paper, Inc. assigned its interest in our revolving credit facility to Barclays Bank PLC, effectively restoring capacity in the facility to $200.0 million. As of September 30, 2009, we had no balance outstanding under this facility. In connection with this facility, we have made covenants that may impose significant operating and financial restrictions on us. These restrictions limit the incurrence of additional indebtedness by our subsidiaries, limit the ability of us and our subsidiaries to create liens and impose certain other operating limitations. These restrictions could limit our ability to obtain future financing or take advantage of business opportunities. Furthermore, our credit facility requires us and our insurance subsidiaries to maintain specified financial ratios. Our ability to comply with these ratios may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If we are unable to comply with the covenants and ratios in our credit facility, we may be deemed in default under the facility, or we may be required to pay substantial fees or penalties to the lenders to obtain a waiver of any such default. Either development could have a material adverse effect on our business.

 

We may need additional capital in the future, which may not be available to us on favorable terms. Raising additional capital could dilute your ownership in the Company and may cause the market price of our common stock to fall.

 

We may need to raise additional funds through public or private debt or equity financings in order to:

 

 

Any additional capital raised through the sale of equity will dilute your ownership percentage in our company and may decrease the market price of our common stock. Furthermore, the securities may have rights, preferences and privileges that are senior or otherwise superior to those of our common stock. Any additional financing we may need may not be available on terms favorable to us.

 

To be eligible for borrowing under our revolving credit facility, we must not be in default of any payment obligations, covenants or other requirements set forth in the facility, and the representations and

warranties that we make under the facility must continue to be true in all material respects. Accordingly, it is possible that we may not meet these requirements in the future and may not be eligible to borrow under our credit facility.

 

In connection with the CENts offering, we entered into a covenant that may limit our ability to undertake certain additional types of financing to repay or redeem the CENts.

 

Risks Related to Our Industry

 

Our industry is highly regulated and changes in regulations affecting our businesses may reduce our profitability and limit our growth.

 

Our insurance businesses are heavily regulated and are subject to a wide variety of laws and regulations in various jurisdictions. State insurance laws regulate most aspects of our insurance businesses and our insurance subsidiaries are regulated by the insurance departments of the various states in which they are domiciled and licensed.

 

State laws in the United States grant insurance regulatory authorities broad administrative powers with respect to various aspects of our insurance businesses, including:

 

 

State insurance regulators and the National Association of Insurance Commissioners, or NAIC, regularly re-examine existing laws and regulations applicable to insurance companies and their products. Changes in these laws and regulations, or in interpretations thereof, are often made for the benefit of the consumer at the expense of the insurer and thus could have an adverse effect on our business.

 

Currently, the U.S. federal government does not regulate directly the business of insurance. However, federal legislation and administrative policies in several areas can significantly and adversely affect insurance companies. These areas include financial services regulation, securities regulation, pension regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct federal regulation of insurance have been proposed. These proposals include direct federal regulation of insurance through an optional federal charter and enhanced federal oversight through a Federal Insurance Office. We cannot predict whether these or other proposals will be adopted, or what impact, if any, such proposals or, if enacted, such laws may have on our financial condition, results of operations and cash flows.

Many of our customers and independent sales intermediaries also operate in regulated environments. Changes in the regulations that affect their operations also may affect our business relationships with them and their ability to purchase or to distribute our products.

 

Compliance with applicable laws and regulations is time consuming and personnel-intensive, and changes in these laws and regulations may materially increase our direct and indirect compliance efforts and other expenses of doing business.

 

U.S. federal and state securities laws apply to investment products that are also securities, including variable annuities and variable life insurance policies. As a result, some of our subsidiaries and the policies and contracts they offer are subject to regulation under these federal and state securities laws. Some of our insurance subsidiaries’ separate accounts are registered as investment companies under the Investment Company Act of 1940. Some subsidiaries are registered as broker-dealers under the Securities Exchange Act of 1934, as amended, or Exchange Act, and are members of, and subject to regulation by, the Financial Industry Regulatory Authority, or FINRA. In addition, one of our subsidiaries also is registered as an investment adviser under the Investment Advisers Act of 1940.

 

Securities laws and regulations are primarily intended to ensure the integrity of the financial markets and to protect investors in the securities markets or investment advisory or brokerage clients. These laws and regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of business for failure to comply with those laws and regulations.

 

Legal and regulatory investigations and actions are increasingly common in the insurance business and may result in financial losses and harm our reputation.

 

We face a significant risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses, including the risk of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In our insurance operations, we may become subject to class actions and we are or may become subject to individual suits relating, among other things, to sales or underwriting practices, payment of contingent or other sales commissions, claims payments and procedures, product design, disclosure, administration, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits and breaches of fiduciary or other duties to customers. Plaintiffs in class action and other lawsuits against us may seek very large or indeterminate amounts, including punitive and treble damages, which may remain unknown for substantial periods of time.

 

For example, the mutual fund and insurance industry has been the focus of increased scrutiny and class action lawsuits related to “revenue sharing” practices by mutual funds with service providers and others in offering mutual fund investments in qualified retirement plans. The lawsuits allege that service providers were involved in self-dealing and prohibited transactions under the Employee Retirement Income Security Act, or ERISA. The outcome of these lawsuits is unknown. We have not been the subject of any inquiries or lawsuits regarding these practices. In addition, annuity sales to seniors are coming under increased scrutiny by FINRA and state insurance regulators, and have been the source of industry litigation in situations where annuity sales have allegedly been unsuitable for the seniors’ financial needs.

 

We are also subject to various regulatory inquiries, such as information requests, subpoenas, market conduct exams and books and record examinations, from state and federal regulators and other authorities which may result in fines, recommendations for corrective action or other regulatory actions.

 

Current or future investigations and proceedings could have an adverse effect on our business. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, we could suffer significant reputational harm, which could have an adverse effect on our business. Increased regulatory scrutiny and any resulting investigations or proceedings could result in new legal actions or precedents and industry-wide regulations or practices that could adversely affect our business.

Proposals for national health care reform could have a material adverse effect on the profitability or marketability of the health insurance products that we sell.

 

In our Group segment, we sell group medical stop-loss insurance and limited benefit employee health plans to employer groups. Addressing the affordability and availability of health insurance, including reducing the number of uninsured, is a major initiative of President Obama and members of the U.S. Congress, and proposals that would address these issues are pending in the U.S. Congress and in many states. The proposals vary, and include a public health plan and other private health plans for individual and small business customers, individual insurance mandates, potential tax ramifications, including, among other things, a windfall profits tax on health insurers, the expansion of eligibility under existing Medicaid and/or Federal Employees Health Benefit Plan programs, minimum medical benefit ratios for health plans, mandatory issuance of insurance coverage, limitations on antitrust immunity and requirements that would limit the ability of health plans and insurers to vary premiums based on assessments of underlying risk. While certain of these measures would adversely affect us, at this time we cannot predict whether they will be enacted, and if enacted, the extent of the impact of these proposals on our business or results of operations. If any of these initiatives ultimately becomes effective, it could have a material adverse effect on the profitability or marketability of the health insurance products and services we sell and on our financial condition, results of operations and cash flows.

 

Medical advances, such as genetic research and diagnostic imaging, and related legislation could adversely affect the financial performance of our life insurance and annuities businesses.

 

Genetic research includes procedures focused on identifying key genes that render an individual predisposed to specific diseases such as particular types of cancer and other diseases. Other medical advances, such as diagnostic imaging technologies, may be used to detect the early onset of diseases such as cancer and cardiovascular disease. We believe that if individuals learn through medical advances that they are predisposed to particular conditions that may reduce life longevity or require long-term care, they will be more likely to purchase our life insurance policies or not to permit existing polices to lapse. In contrast, if individuals learn that they lack the genetic predisposition to develop the conditions that reduce longevity, they will be less likely to purchase our life insurance products but more likely to purchase certain annuity products. In addition, such individuals that are existing policyholders will be more likely to permit their policies to lapse.

 

If we were to gain access to the same genetic or medical information as our prospective policyholders and contractholders, then we would be able to take this information into account in pricing our life insurance policies and annuity contracts. However, a growing body of law imposes limitations on an insurer’s ability to use genetic information in underwriting.

 

Medical advances also could lead to new forms of preventive care. Preventive care could extend the life and improve the overall health of individuals. If this were to occur, the duration of payments under certain of our annuity products likely would increase, thereby reducing net earnings in that business.

 

Changes in tax laws could make some of our products less attractive to consumers and as a result have an adverse effect on our business.

 

Congress, from time to time, considers legislation that could make our products less attractive to consumers, including legislation that would reduce or eliminate the benefits derived from the tax deferred nature of life insurance and annuity products.

 

In addition, changes in tax laws could increase our tax liability or increase our reporting obligations. For example, in May 2009, President Obama released additional information about the tax proposals contained in his Fiscal Year 2010 Budget (the “Budget”). There are several proposals included in the Budget that are significant for life insurance companies. Those proposals include: modifying the dividends-received deduction for life insurance company separate accounts; requiring information reporting for private separate accounts of life insurance companies; imposing new reporting requirements and transfer-for-value rules on purchasers of certain life insurance contracts; expanding the interest expense disallowance for corporate-owned life insurance; requiring information reporting on payments to corporations; and increasing information return

penalties. These proposals not only could increase our tax liabilities but also could reduce the attractiveness of certain products we sell. These proposals may not be enacted or may be modified by Congress prior to enactment.

 

Furthermore, the federal estate tax, which has undergone a gradual repeal since 2001 that will continue to be phased in through 2010, is scheduled to revert to pre-2001 law as of January 1, 2011. The repeal of and continuing uncertainty regarding the federal estate tax may adversely affect sales and surrenders of some of our estate planning products.

 

Failures elsewhere in the insurance industry could obligate us to pay assessments through guaranty associations.

 

When an insurance company becomes insolvent, guaranty associations in each of the 50 states levy assessments upon all companies licensed to write insurance in the relevant lines of business in that state, and use the proceeds to pay claims of policyholder residents of that state, up to the state-specific limit of coverage. The total amount of the assessment is based on the number of insured residents in each state, and each company’s assessment is based on its proportionate share of premium volume in the relevant lines of business and could have an adverse effect on our results of operations. The failure of a large life, health or annuity insurer could trigger guaranty association assessments which we would be obligated to pay.

 

Risks Relating to this Offering and Ownership of Our Common Stock

 

As a holding company, Symetra Financial Corporation depends on the ability of its subsidiaries to transfer funds to it to meet its obligations and pay dividends.

 

Symetra Financial Corporation is a holding company for its insurance and financial subsidiaries with no significant operations of its own. Its principal sources of cash to meet its obligations and to pay dividends consist of dividends from its subsidiaries and permitted payments under tax sharing agreements with its subsidiaries. State insurance regulatory authorities limit the payment of dividends by insurance subsidiaries. Based on our statutory results as of December 31, 2008, our insurance subsidiaries may pay dividends to us of up to $117.9 million in the aggregate during 2009 without obtaining regulatory approval, provided that the aggregate dividends paid over the twelve months preceding any dividend payment made during 2009 do not exceed the $117.9 million limit. Competitive pressures generally require our insurance subsidiaries to maintain financial strength ratings, which are partly based on maintaining certain levels of capital. These restrictions and other regulatory requirements, such as minimum required risk-based capital ratios, affect the ability of our insurance subsidiaries to make dividend payments. Limits on the ability of the insurance subsidiaries to pay dividends could adversely affect our liquidity, including our ability to pay dividends to stockholders and service our debt.

 

There are a number of other factors that could affect our ability to pay dividends, including the following:

 

 

The failure to maintain or pay dividends could adversely affect the trading price of our common stock.

There may not be an active, liquid trading market for our common stock.

 

Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which an active trading market with adequate liquidity will develop. If an active trading market does not develop, you may have difficulty selling any of our common stock that you purchase and the value of your shares may be impaired.

 

If securities or industry analysts do not publish research or reports about our business, if they change their recommendations regarding our stock adversely or if our operating results do not meet their expectations, our stock price could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our business or our industry. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrade our stock or if our operating results do not meet their expectations, our stock price could decline.

 

As a public company, we will become subject to additional financial and other reporting and corporate governance requirements.

 

We have historically operated our business as a private company. After this offering, we will become obligated to file with the Securities and Exchange Commission, or SEC, annual and quarterly information and other reports that are specified in Section 13 of the Exchange Act. We will also be required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. We will also become subject to other reporting and corporate governance requirements, including the requirements of the NYSE and certain provisions of the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder, which will impose significant compliance obligations upon us. As a public company, we will be required to:

 

 

These changes will require a significant commitment of additional expense and other resources. We may not be successful in implementing these requirements and implementing them could adversely affect our business or operating results. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired.

 

Significant stockholders may be able to influence the direction of our business.

 

Upon completion of this offering, our principal stockholders, affiliates of White Mountains Insurance Group, Ltd. and Berkshire Hathaway Inc., will each beneficially own approximately 22.5% of our outstanding shares of common stock (includes warrants exercisable for 9,487,872 shares held by affiliates of each of White Mountains Insurance Group, Ltd. and Berkshire Hathaway Inc.). On matters that are brought to stockholders

for their vote, they would continue to have the ability to significantly influence all matters requiring stockholder approval, including the nomination and election of directors and the determination of the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including amendments to our certificate of incorporation, potential mergers or acquisitions, asset sales and other significant corporate transactions. The interests of our principal stockholders may not coincide with the interests of the other holders of our common stock.

 

Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act of 2002, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

 

As a privately held company, we have not been required to maintain internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404 of the Sarbanes-Oxley Act, standards that we may be required to meet in the course of preparing our consolidated financial statements as of and for the year ended December 31, 2010. Although we have documentation of our internal controls, we do not document or test our compliance with these controls on a periodic basis in accordance with Section 404 of the Sarbanes-Oxley Act. In connection with our 2008, 2007 and 2006 audits, no material weaknesses in our internal control over financial reporting were identified.

 

If, as a public company, we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to attest to the adequacy of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules and may breach the covenants under our revolving credit facilities and our senior notes. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in our financial statements is also likely to suffer if we or our independent registered public accounting firm report a material weakness in our internal control over financial reporting. In addition, we will incur incremental costs in order to improve our internal control over financial reporting and comply with Section 404, including increased auditing and legal fees and costs associated with hiring additional accounting and administrative staff.

 

Our stock price may fluctuate significantly, and you may not be able to resell your shares at or above the initial public offering price.

 

The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, including:

 

 

 

These and other factors may cause the market price of our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. Even factors that do not specifically relate to our company may materially reduce the market price of our common stock, regardless of our operating performance.

 

Future sales, or the perception of future sales, of a substantial amount of our common stock may depress the market price of our common stock.

 

Future sales, or the perception of future sales, of a substantial number of shares of our common stock in the public market after this offering could have a material adverse effect on the prevailing market price of our common stock.

 

Upon completion of this offering, we will have 109,985,465 shares of common stock outstanding, or 128,961,209 shares if we give effect to the exercise of all outstanding warrants (in each case assuming no exercise of the underwriters’ over-allotment option). All shares sold in this offering will be freely tradable without restriction under the Securities Act, except for any shares that may be held or acquired by affiliates of the Company, as that term is defined in the Securities Act.

 

In connection with this offering, we, each of our executive officers, directors and stockholders will have entered into lock-up agreements that prevent the sale of shares of our common stock for 180 days after the date of this prospectus, subject to an extension in certain circumstances described under “Underwriting.” Following the expiration of the lock-up period, the remaining 82,985,465 shares outstanding held by current stockholders of the Company will be available for sale pursuant to Rule 144, subject to compliance with the requirements and limitations under Rule 144. Furthermore, our existing stockholders will have the right, subject to certain conditions, to require us to register the sale of 82,985,465 of their shares of our common stock under the Securities Act. By exercising their registration rights, and selling a large number of shares, our stockholders could cause the prevailing market price of our common stock to decline.

 

Purchasers of common stock will experience immediate dilution.

 

Based on the initial public offering price of $13.00 per share (the midpoint of the price range shown on the cover page of this prospectus), purchasers of our common stock in this offering will experience an immediate dilution in the net tangible book value per share of common stock of $0.58 from the offering price. Investors purchasing common stock in this offering will contribute approximately 17.4% of the total amount invested by stockholders since inception (gross of estimated expenses of this offering), but will only own approximately 15.7% of the shares of common stock outstanding (in each case assuming no exercise of the underwriters’ over-allotment option). In addition, following this offering, a significant number of warrants to purchase our common stock will be outstanding. You will incur further dilution if outstanding warrants to purchase common stock are exercised. Also, our amended and restated certificate of incorporation allows us to issue significant numbers of additional shares, including shares that may be issued under the Equity Plan and Employee Stock Purchase Plan, which could result in further dilution to purchasers of our common stock in this offering.

Anti-takeover provisions in our charter documents could delay or prevent a change of control of our company and may result in an entrenchment of management and diminish the value of our common stock.

 

Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change of control of our company or changes in management that our stockholders might deem advantageous. Specific provisions in our certificate of incorporation include:

 

 

These provisions in our certificate of incorporation and bylaws may frustrate attempts to effect a takeover transaction that is in the best interests of our minority stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.

 

Applicable insurance laws may make it difficult to effect a change of control of our company.

 

Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state where the insurer is domiciled. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10% or more of the voting securities of the domestic insurer. These statutes may frustrate or delay attempts to effect a takeover transaction that would benefit our stockholders.

 

This prospectus contains “forward-looking” statements that are intended to enhance the reader’s ability to assess our future financial and business performance. Forward-looking statements include, but are not limited to, statements that represent our beliefs concerning future operations, strategies, financial results or other developments, and contain words and phrases such as “may,” “expects,” “should,” “believes,” “anticipates,” “estimates,” “intends” or similar expressions. In addition, statements that refer to our future financial performance, anticipated growth and trends in our business and in our industry and other characterizations of future events or circumstances are forward-looking statements. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different.

 

Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs with respect to, among other things, future events and financial performance. Except as required under the federal securities laws, we do not intend, and do not undertake, any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

 

You should review carefully the section captioned “Risk Factors” in this prospectus for a complete discussion of the material risks of an investment in our common stock.

 

This prospectus includes industry and government data and forecasts that we have prepared based, in part, upon industry and government data and forecasts obtained from industry and government publications and surveys. These sources include publications and data compiled by the Employee Benefit Research Institute, Kaiser Family Foundation, U.S. Census Bureau, U.S. Department of Commerce, Bureau of Economic Analysis and the Self-Insurance Institute of America. Third party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. While we are responsible for the adequacy and accuracy of the disclosure in this prospectus, we have not independently verified any of the data from third party sources nor have we ascertained the underlying economic assumptions relied upon therein. Forecasts are particularly likely to be inaccurate, especially over long periods of time. While we are not aware of any misstatements regarding the industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in the section captioned “Risk Factors.”

 

If you invest in our common stock in this offering, your interest in our company will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after giving effect to this offering.

 

Our net tangible book value per share represents the amount of our total assets, excluding deferred policy acquisition costs, goodwill, and intangible assets, less total liabilities, divided by the total number of common shares then outstanding. As of September 30, 2009, our net tangible book value was approximately $1,157.3 million, or approximately $12.48 per share based on shares of our common stock outstanding as of such date. After giving effect to the sale of shares of our common stock at an assumed initial public offering price of $13.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of September 30, 2009, which we refer to as our pro forma net tangible book value, would have been approximately $1,365.6 million, or $12.42 per share of our common stock. This represents an immediate decrease in the net tangible book value of $(0.06) per share to our existing stockholders, and an immediate dilution of $0.58 per share to new investors purchasing shares of our common stock in this offering.

 

The following table illustrates this dilution on a per share basis:

 

 

The foregoing discussion and table do not give effect to the 18,975,744 shares subject to outstanding warrants that can be exercised at a price of $11.49 per share. To the extent that these warrants are exercised, there will be further dilution to our shareholders. In addition, the foregoing discussion and table do not give effect to 4,050,000 shares of common stock that we will issue if the underwriters exercise their option to purchase additional shares in full. To the extent that this option is exercised, there will be further dilution to new investors.

 

The following table summarizes, as of September 30, 2009, the number of shares of our common stock we issued and sold, the total consideration we received and the average price per share paid to us by our existing stockholders prior to this offering, and by new investors purchasing shares of common stock in this offering. The table assumes an initial public offering price of $13.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and excludes estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share would increase or decrease our pro forma net tangible book value after giving effect to this offering by $16.3 million and increase or decrease the dilution to new investors by $0.85 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

 

If the underwriters’ option to purchase additional shares is exercised in full, the 82,985,465 shares held by our existing stockholders will represent approximately 72.8% of the total number of shares of our common stock outstanding after this offering. The number of shares of our common stock held by new investors will be 31,050,000, which includes the 9,743,990 shares being sold by the selling stockholders in this offering, or approximately 27.2% of the total number of shares of our common stock outstanding after this offering.

 

We expect to receive net primary proceeds from this offering of approximately $208.3 million. Our board of directors has not made any determination of specific uses of proceeds at this time. However, we expect to use the net primary proceeds from this offering (including shares subject to the underwriters’ option to purchase additional shares) for general corporate purposes, which may include contributions of capital to our insurance and other subsidiaries. Some of the shares of common stock offered by this prospectus are being sold by the Selling Stockholders. For information about the Selling Stockholders, see “Principal and Selling Stockholders.” We will not receive any of the proceeds from the sale of shares by the Selling Stockholders.

 

We intend to pay quarterly cash dividends on our common stock at an initial rate of approximately $0.05 per share. The declaration, payment and amount of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition and results of operations, liquidity requirements, market opportunities, capital requirements of our subsidiaries, legal requirements, regulatory constraints and other factors as the board of directors deems relevant. Dividends on our common stock will also be paid to holders of our outstanding warrants on a one-to-one basis.

 

We are a holding company with no significant business operations of our own. All of our business operations are conducted through our subsidiaries. Dividends and loans from, and cash generated by, our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations and pay dividends. Accordingly, our ability to pay dividends to our stockholders will depend on the earnings and distributions of funds from our subsidiaries. See “Risk Factors — Risks Relating to this Offering and Ownership of Our Common Stock — As a holding company, Symetra Financial Corporation depends on the ability of its subsidiaries to transfer funds to it to meet its obligations and pay dividends.”

 

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2009 on an actual basis and on an as adjusted basis to give effect to receipt of the net primary proceeds from the sale by us in this offering of shares of common stock, assuming that this offering had been consummated on September 30, 2009. The following table does not give effect to 4,050,000 shares of common stock that we will issue if the underwriters exercise their over-allotment option in full. You should read this table in conjunction with our consolidated financial statements and related notes and the information provided in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

 

 

The selected historical consolidated financial data, except for non-GAAP financial measures, as of September 30, 2009 and for the nine months ended September 30, 2009 and 2008 have been derived from our unaudited interim historical consolidated financial statements, which have been prepared on a basis consistent with our audited consolidated financial statements, included elsewhere in this prospectus. In the opinion of management, such unaudited financial data, except for non-GAAP financial measures, reflects all historical and recurring adjustments necessary for a fair presentation of the results for these periods. The results of operations for the nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year or any future period. The selected historical consolidated financial data, except for non-GAAP financial measures, as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006 have been derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected historical consolidated financial data, except for non-GAAP financial measures, presented below as of December 31, 2006 and 2005 and for the year ended December 31, 2005 and as of December 31, 2004 and for the period from January 1, 2004 through August 1, 2004 and for the period from August 2, 2004 through December 31, 2004 have been derived from our audited consolidated financial statements that are not included in this prospectus.

 

On August 2, 2004, we completed the Acquisition which was accounted for using the purchase method of accounting, referred to as purchase GAAP accounting, or PGAAP. We do not believe the predecessor financial results prior to the Acquisition for the period from January 1, 2004 through August 1, 2004 are comparable to the results subsequent to the Acquisition. This lack of comparability is primarily due to significant changes in our operating costs and also because of PGAAP adjustments impacting net investment income, policyholder benefits and claims, interest credited amortization of deferred policy acquisition costs, intangible assets and net realized investment gains (losses). Under PGAAP, the purchase price is allocated to the estimated fair value of the tangible and identifiable assets acquired less liabilities assumed at the date of acquisition. In conjunction with PGAAP for the Acquisition, we were required to adjust our consolidated balance sheet to fair value and reset our existing deferred policy acquisition costs, goodwill and intangible asset balances at August 2, 2004 to zero.

 

In addition to our four operating segments and our Other segment, during the year ended December 31, 2005 and prior, our historical financial statements also include the results of Symetra Asset Management Company and the majority of the business of Symetra Services Corporation, which are presented in our historical financial statements as discontinued operations.

 

This selected historical consolidated financial data should be read in conjunction with other information contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and related notes included elsewhere in this prospectus.