Buffett Tests the Water for Insurance IPOs - and Finds It Chilly

American International Group keeps on talking about an initial public offering of its two foreign life insurance companies, AIA and Alico. Even AIG property-casualty carrier Chartis has been rumored to be an IPO. The hype that surrounded this, fueled by investment banks that want the business, arguably helped to push AIG's stock up to the inflated price of nearly $56 a share last year.

But those who believe that the IPO sugarplum fairy is going to solve AIG's problems should take a lesson from Professor Warren Buffett, the sage of Omaha. Buffett knows a thing or two about selling stock to the public. His successful Verisk Analytics offering in October was one of the bright spots in a year that was mostly slow for IPOs.

Now Symetra Financial Corp., a retirement insurer and financial adviser formed in 2004 by investors led by Buffett's Berkshire Hathaway and partner White Mountains Insurance Group, is going public. But Buffett and White Mountains are proceeding with caution. Bloomberg News points out that the original plan to sell $575 million of stock only a week ago has been scaled back by more than $140 million to $434.7 million.

And Buffett and White Mountains have given the offering what one analyst calls their "vote of confidence" by each keeping their 26 percent stake in the company. This could either be viewed as a positive, or simply as an acknowledgement that it would have been a tough sell anyway. Buffett also kept his stake in Verisk, a firm that sells actuarial data to insurers, when it had its IPO and has since profited handsomely from its 39 percent rise. But other insurance partners like AIG and Travelers didn't, so it's questionable whether White Mountains would still keep Symetra if it had its choice.

Wall Street loves IPOs, and, in the 1990's when stocks doubled and tripled on the day they went public, it was a great form of legalized gambling. But those days are gone and, unless the numbers are lying, insurers are in for a rough year.

That doesn't mean the Symetra offering will fall flat. Far from it. Buffett has probably priced it right, and, like the early bird, he'll get the worm. Heaven help the hindmost.