Insurer Primerica Poised To Break Away From Citi

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MarketWatch

March 30, 2010 Tuesday 6:56 PM EST

SECTION: NEWS & COMMENTARY; Markets; IPO Report

LENGTH: 580 words

HEADLINE: Insurer Primerica poised to break away from Citi

BYLINE: Alistair Barr, MarketWatch mailto:[email protected].

Alistair Barr is a reporter for MarketWatch in San Francisco.

SAN FRANCISCO (MarketWatch) -- This week's Primerica Inc. initial public offering is a small step in the reorganization of parent Citigroup Inc., but it's a giant leap for the life insurer itself.

The offering is scheduled to be priced Wednesday evening and the stock, under ticker PRI, is due to start trading the following morning.

Citigroup (C) plans to sell 18 million shares of Primerica and raise about $236 million, assuming they'll price between $12 and $14 a share.

The bank is also selling more than 17 million Primerica shares to private-equity firm Warburg Pincus, along with warrants to purchase roughly 4.3 million additional shares. Those sales will generate more than $200 million for Citigroup.

In its heyday, Citigroup grew into one of the largest financial institutions in the world, but the company had to rely on $45 billion in government support to help it survive the financial crisis.

Since then, it's launched an ambitious plan to sell hundreds of billions of dollars in assets and businesses while repaying taxpayers. Thus the Primerica spin-off.

"It's a relatively small part of the whole equation," Chris Kotowski, a banking analyst at Oppenheimer & Co., said in an interview. "They've announced that they have lots of asset sales in the works."

Breaking away from the parent amounts to a much bigger deal for Primerica than for Citigroup.

The company traces its roots to an insurance agency called A.L. Williams & Associates. Founded in 1977, the firm popularized the strategy of buying cheaper term-life insurance, while investing any cash saved.

A.L. Williams quickly became one of the nation's largest sellers of life insurance to individuals. Citigroup acquired the business in the late 1980s.

Primerica won't be getting any operating capital from the IPO. However, the offering will help the firm provide new stock-based incentives to some employees.

"The IPO will take Primerica out from under the shadow of Citigroup and allow them to pursue a future free of the controls imposed upon their parent company by government regulators after the federal bailout," Scott Sweet, senior managing partner at IPO Boutique, wrote in a recent note to investors.

Primerica was the largest provider of individual term-life insurance in the U.S. in 2008 based on the amount of in-force premiums collected, according to LIMRA International, an independent market research organization.

Primerica posted $495 million in net income last year, up from $168 million in 2008.

The company makes money by collecting premiums on those policies and investing it, before paying claims. It also sells investment products like mutual funds and variable annuities that generate commissions and fees.

In filings with regulators, Primerica listed its main rivals as MetLife Inc. (MET) , Prudential Financial (PRU) and Edward D. Jones & Co.

Its niche is individuals who earn $30,000 to $100,000 a year. This part of the market has been shunned by some other companies in favor of wealthier customers who often buy more product.

Selling smaller term-life policies and investment products to middle-income customers can be less profitable than dealing with rich clients. However, Primerica has roughly 100,000 licensed sales representatives who are independent contractors. This is cheaper than hiring in-house sales representatives or salaried agents, the company says.

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