Toggle SGML Header (+)


Section 1: 8-K (8-K)

Document




 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 8-K

 
CURRENT REPORT

Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): February 6, 2017

FIDELITY & GUARANTY LIFE
(Exact name of registrant as specified in its charter)


 
 
 
 
 
 
Delaware
 
001-36227
 
46-3489149
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
 
Two Ruan Center
601 Locust Street, 14th Floor
Des Moines, IA

 
50309
(Address of principal executive offices)
 
(Zip Code)
 
Registrant's telephone number, including area code: (800) 445-6758
Former name or former address, if changed since last report.


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
     
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






 
Item 2.02.
Results of Operations and Financial Condition.
 
  The following information, including the Exhibit referenced in this Item 2.02, is being furnished pursuant to this Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
 
On February 6, 2017, Fidelity & Guaranty Life issued a press release announcing its results of operations for the quarter ended December 31, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Report. In addition, Fidelity & Guaranty Life is including as Exhibit 99.2 to this report the related quarterly financial supplement.

Item 9.01
Financial Statements and Exhibits.
 
(d) Exhibits
 
 
 
 
 
Exhibit
No.
  
 
Description
 
 
99.1
 
Press Release of Fidelity & Guaranty Life dated February 6, 2017
99.2
 
Financial Supplement of Fidelity & Guaranty Life dated February 6, 2017
 





 

 
 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
FIDELITY & GUARANTY LIFE
 
 
 
 
 
 
/s/ Eric L. Marhoun
 
 
Name:  Eric L. Marhoun
 
 
Title:    Executive Vice President, General Counsel and Secretary
 
 
 
 
Dated: February 6, 2017


(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


                        

Fidelity & Guaranty Life Reports Fiscal First Quarter 2017 Results
DES MOINES, Iowa: February 6, 2017 -- Fidelity & Guaranty Life (NYSE: FGL), a leading provider of annuities and life insurance, today announced financial results for the fiscal first quarter of 2017.
Reported net income was $108 million or $1.85 per diluted share for the first quarter
Adjusted operating income was $41 million or $0.70 per diluted share for the first quarter
Total annuity sales were $648 million; including fixed indexed annuity ("FIA") sales of $551 million, up 26% over prior year
Indexed universal life ("IUL") sales increased 31% over prior year to $17 million
Average assets under management increased to $19.8 billion, up 8% over prior year
Net income for the fiscal first quarter of 2017 ended on December 31, 2016(1) was $108 million or $1.85 per diluted common share. Adjusted operating income for the fiscal first quarter of 2017 was $41 million, or $0.70 per diluted share, compared to adjusted operating income of $31 million, or $0.53 per diluted share, in the prior year period.
The table below reconciles reported after-tax net income to adjusted operating income ("AOI").
(In millions)
 
Three months ended December 31,
 
 
 
 
(Unaudited)
 
 
Reconciliation from Net Income to AOI(2):
 
2016
 
2015
 
Increase (decrease)
Net income
 
$
108

 
$
48

 
$
60

Effect of investment losses (gains), net of offsets
 
(1
)
 
4

 
(5
)
Effect of change in FIA embedded derivative discount rate, net of offsets
 
(92
)
 
(10
)
 
(82
)
Effect of change in fair value of reinsurance related embedded derivative, net of offsets
 
(10
)
 
(20
)
 
10

Tax impact of adjusting items
 
36

 
9

 
27

Adjusted operating income
 
$
41

 
$
31

 
$
10

See footnotes at end of release.

The current quarter included net favorable items of $4 million or $0.07 per diluted share. The prior year quarter included net unfavorable items of ($3) million or ($0.05) per diluted share. The table below details notable items in both periods.
 
 
 
 
 
 
 
Current Year Fiscal Quarter
 
 
 
 
 
- Favorable actual to expected mortality within the single premium immediate annuity ("SPIA") product line
 
$2 million
 
 
 
- Higher net investment income from bond prepayment income
 
$2 million
 
 
Prior Year Fiscal Quarter
 
 
 
 
 
- Unfavorable actual to expected mortality within SPIA product line
 
($3) million
 
 
 
- Higher expense related to legacy incentive compensation plans & merger transaction costs
 
($3) million
 
 
 
- Net favorable adjustments related to lower deferred acquisition cost ("DAC") amortization, due to equity market fluctuations, and bond prepayment income
 
$3 million
 
 
 
 
 
 
 
"We've delivered another strong quarter and fiscal 2017 is off to a good start with solid increases in sales, net income, net investment income, adjusted operating income and assets under management," said Chris Littlefield, President and CEO of FGL. "As we look to the future, we expect to benefit if interest rates continue to rise and if the regulatory environment becomes more favorable under President Trump's administration.  With respect to the Anbang transaction, we are continuing discussions with Anbang regarding an e





xtension of the outside termination date beyond February 8, 2017. We expect to make an announcement on or about February 9, 2017 regarding the outcome of our discussions."

Summary Financial Results (Unaudited)
 
 
Three months ended December 31,
(In millions, except per share data)
 
2016
 
2015
Fixed indexed annuity sales (2)
 
$
551

 
$
437

Total annuity sales (2)
 
$
648

 
$
489

Average assets under management (2)
 
$
19,768

 
$
18,239

Net investment spread - FIA (2)
 
3.00
%
 
2.92
%
Net investment spread - All products (2)
 
2.29
%
 
2.14
%
Net income
 
$
108

 
$
48

Net income per diluted share
 
$
1.85

 
$
0.82

Adjusted operating income (“AOI”) (2)
 
$
41

 
$
31

AOI per diluted share (2)
 
$
0.70

 
$
0.53

Weighted average basic shares
 
58.3

 
58.2

Weighted average diluted shares
 
58.4

 
58.5

Total common shares outstanding
 
59.0

 
59.0

Book value per share
 
$
29.70

 
$
23.73

Book value per share, excluding AOCI (2)
 
$
27.11

 
$
24.78

See footnotes below.

Sales In Line With Expectations
Sales of our core fixed indexed annuity product were $551 million in the current period, an increase of 26% over the prior year quarter. On a sequential basis, FIA sales increased 14% as compared to the fiscal fourth quarter 2016. FIA sales levels in recent quarters reflect continued strong and productive partnerships with our independent marketing organizations ("IMO's").
Sales of multi-year guarantee annuities ("MYGA") were $97 million in the current quarter as compared to $52 million in the same period last year. Total annuity sales were $648 million for the current quarter, an increase of 33% over the prior year quarter.
Indexed universal life sales in the quarter were $17 million, an increase of 31% compared to $13 million last year. This increase reflects FGL's efforts to grow our IUL business with expanded distribution.

Investment Portfolio Performing Well
Net investment income was $240 million for the quarter, an increase of 8% compared to $222 million for the same period last year. This growth was right in line with the increase in average assets under management ("AAUM"), which were up $1.5 billion or 8% over the prior year from sales and stable policy owner retention trends.
The average earned yield on the total portfolio in the quarter was 4.85%, consistent with 4.87% in the prior year quarter. Asset purchases during the quarter were $1.2 billion at an average yield of 4.78%. Asset purchases during the current quarter were primarily in investment grade corporate bonds and structured securities. The average NAIC rating for the portfolio remains approximately 1.5.
Net investment spread across all product lines increased 15 basis points to 229 basis points, compared to fiscal first quarter 2016. Net investment spread in the current quarter for fixed indexed annuities was consistent with recent performance at 300 basis points.
  





Capital Management Trends
GAAP book value per share at December 31, 2016 was $29.70 on a reported basis; book value per share excluding accumulated other comprehensive income (“AOCI”) was $27.11, an increase of 9% year over year.
As announced on February 2, 2017, the FGL Board of Directors has declared a quarterly dividend of $0.065 per share. The dividend is payable on March 6, 2017 to shareholders of record as of the close of business on February 21, 2017.





FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 
December 31,
2016
 
September 30,
2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: December 31, 2016 - $19,173; September 30, 2016 - $18,521)
$
19,437

 
$
19,411

Equity securities, available-for-sale, at fair value (amortized cost: December 31, 2016 - $691; September 30, 2016 - $640)
696

 
683

Derivative investments
314

 
276

Commercial mortgage loans
582

 
595

Other invested assets
47

 
60

Total investments
21,076

 
21,025

Related party loans
71

 
71

Cash and cash equivalents
632

 
864

Accrued investment income
201

 
214

Reinsurance recoverable
3,444

 
3,464

Intangibles, net
1,228

 
1,026

Deferred tax assets
68

 

Other assets
232

 
371

Total assets
$
26,952

 
$
27,035

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Contractholder funds
$
19,486

 
$
19,251

Future policy benefits
3,453

 
3,467

Funds withheld for reinsurance liabilities
1,142

 
1,172

Liability for policy and contract claims
53

 
55

Debt
300

 
300

Revolving credit facility
100

 
100

Deferred tax liability

 
10

Other liabilities
666

 
746

Total liabilities
25,200

 
25,101

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at December 31, 2016 and September 30, 2016)
$

 
$

Common stock ($.01 par value, 500,000,000 shares authorized, 58,984,034 issued and outstanding at December 31, 2016; 58,956,127 shares issued and outstanding at September 30, 2016)
1

 
1

Additional paid-in capital
715

 
714

Retained earnings
896

 
792

Accumulated other comprehensive income
153

 
439

Treasury stock, at cost (565,723 shares at December 31, 2016; 537,613 shares at September 30, 2016)
(13
)
 
(12
)
Total shareholders' equity
1,752

 
1,934

Total liabilities and shareholders' equity
$
26,952

 
$
27,035






FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
 
Three months ended
 
December 31, 2016
 
December 31, 2015
 
(Unaudited)
Revenues:
 
 
 
Premiums
$
11

 
$
15

Net investment income
240

 
222

Net investment gains
51

 
63

Insurance and investment product fees and other
38

 
29

Total revenues
340

 
329

Benefits and expenses:
 
 
 
Benefits and other changes in policy reserves
20

 
181

Acquisition and operating expenses, net of deferrals
28

 
28

Amortization of intangibles
123

 
41

        Total benefits and expenses
171

 
250

Operating income
169

 
79

Interest expense
(6
)
 
(6
)
Income before income taxes
163

 
73

Income tax expense
(55
)
 
(25
)
        Net income
$
108

 
$
48

 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
1.85

 
$
0.82

Diluted
$
1.85

 
$
0.82

Weighted average common shares used in computing net income per common share:
 
 
 
Basic
58.3

 
58.2

Diluted
58.4

 
58.5

 
 
 
 
Cash dividend per common share
$
0.065

 
$
0.065









RECONCILIATION OF BOOK VALUE PER SHARE EXCLUDING AOCI

(In millions, except per share data)
December 31, 2016
 
September 30, 2016
Reconciliation to total shareholder's equity:
 
 
 
Total shareholder's equity
$
1,752

 
$
1,934

     Less: AOCI
153

 
439

Total shareholder's equity excluding AOCI
$
1,599

 
$
1,495

 
 
 
 
Total shares outstanding
59.0

 
59.0

Weighted average shares outstanding - basic
58.3

 
58.3

Weighted average shares outstanding - diluted
58.4

 
58.6

 
 
 
 
Book value per share
$
29.70

 
$
32.80

Book value per share, excluding AOCI(2)
$
27.11

 
$
25.36


 
 
 
 
 
Footnotes:
(1)
Fidelity & Guaranty Life’s fiscal year ends on September 30.
(2)
Non-GAAP financial measure. See the Non-GAAP Measures section below for additional information.


Agreement and Plan of Merger with Anbang Insurance Group Co., Ltd. ("Anbang")
On November 8, 2015, FGL and Anbang entered into a definitive merger agreement (the "Merger Agreement") pursuant to which Anbang will acquire all outstanding shares of FGL (the "Merger") for $26.80 per share in cash, without interest. On November 3, 2016, FGL and Anbang extended the outside termination date for the completion of the merger to February 8, 2017. Accordingly, either party may terminate the merger agreement if the closing of the merger does not occur prior to February 8, 2017. The parties are in discussions regarding an extension of the outside termination date beyond February 8, 2017. We expect to make an announcement on or about February 9, 2017 regarding the outcome of our discussions.
The Merger remains subject to the receipt of regulatory approvals from the Iowa Insurance Division, the New York Department of Financial Services and the China Insurance Regulatory Commission ("CIRC").  The parties have obtained requisite regulatory approvals for the Merger from the Vermont Department of Financial Regulation and the Committee on Foreign Investment in the United States ("CFIUS").  The parties will not be required to file a notification of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, due to an available exemption.

Non-GAAP Measures
Management believes that certain non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Reconciliations of such measures to the most comparable GAAP measures are included herein.
AOI is calculated by adjusting net income to eliminate (i) the impact of net investment gains including other-than-temporary impairment ("OTTI") losses recognized in operations, but excluding gains and losses on derivatives hedging our indexed annuity policies, (ii) the effect of changes in the interest rates used to discount the FIA embedded derivative liability, and (iii) the effect of change in fair value of the reinsurance related embedded derivative. All adjustments to AOI are net of the corresponding VOBA and DAC impact. The income tax impact related to these adjustments is measured using an effective tax rate of 35%, as appropriate.
While these adjustments are an integral part of the overall performance of FGL, market conditions impacting these items can overshadow the underlying performance of the business. Accordingly, we believe using a measure which excludes their impact is effective in analyzing the trends of our operations. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such non-GAAP measures in the same manner as we do.
Net investment spread is the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on FIA policies.





Average assets under management ("AAUM") is the sum of (i) total invested assets at amortized cost, excluding derivatives, (ii) related party loans and investments and (iii) cash and cash equivalents at the end of each month in the period divided by the number of months in the period.
Book value per share excluding AOCI is calculated as total stockholders' equity excluding AOCI divided by the total number of shares of common stock outstanding.
Sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP. For GAAP purposes annuity sales are recorded as deposit liabilities (i.e. contract holder funds). Management believes that presentation of sales as measured for management purposes enhances the understanding of our business and helps depict longer term trends that may not be apparent in the results of operations due to the timing of sales and revenue recognition.
While management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace GAAP financial results and should be read in conjunction with those GAAP results.
Conference Call and Earnings Release
In light of the announced merger with Anbang, FGL has elected to discontinue conference calls to discuss quarterly and annual results, pending the closing of the transaction. FGL will continue to issue its earnings press releases and quarterly financial supplement.
About Fidelity & Guaranty Life
Fidelity & Guaranty Life, an insurance holding company, helps middle-income Americans prepare for retirement. Through its subsidiaries, the company offers fixed annuity and life insurance products distributed by independent agents through an established network of independent marketing organizations. Fidelity & Guaranty Life, headquartered in Des Moines, Iowa, trades on the New York Stock Exchange under the ticker symbol FGL. For more information, please visit www.fglife.com.
Forward Looking Statements
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This document contains, and certain oral statements made by our representatives from time to time may contain, forward-looking statements, including those statements regarding our subsidiaries' ability to pay dividends. Such statements are subject to risks and uncertainties that could cause actual results, events and developments to differ materially from those set forth in, or implied by, such statements. These statements are based on the beliefs and assumptions of FGL's management and the management of FGL's subsidiaries (including target businesses). Generally, forward-looking statements include information concerning possible or assumed future distributions from subsidiaries, other actions, events, results, strategies and expectations and are generally identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans," "seeks," "estimates," "projects," "may," "will," "could," "might," or "continues" or similar expressions. Factors that could cause actual results, events and developments to differ include, without limitation:  the accuracy of FGL's assumptions and estimates; FGL's and its insurance subsidiaries' ability to maintain or improve financial strength ratings; FGL's ability to manage its business in a highly regulated industry; regulatory changes or actions; the impact of FGL's reinsurers failing to meet their assumed obligations; restrictions on FGL's ability to use captive reinsurers; the impact of interest rate fluctuations; changes in the federal income tax laws and regulations; litigation (including class action litigation), enforcement investigations or regulatory scrutiny; the performance of third parties; the loss of key personnel; telecommunication, information technology and other operational systems failures; the continued availability of capital; new accounting rules or changes to existing accounting rules; general economic conditions; FGL's ability to protect its intellectual property; the ability to maintain or obtain approval of the Iowa Insurance Department and other regulatory authorities as required for FGL's operations; and other factors discussed in FGL's filings with the SEC including its Form 10-K for the year ended September 30, 2016, which can be found at the SEC's website www.sec.gov.
All forward-looking statements described herein are qualified by these cautionary statements and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized. FGL does not undertake any obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operation results.


Investor Contact:





Lisa Foxworthy-Parker
Fidelity & Guaranty Life
[email protected]
515-330-3307


Media Contact:
Sard Verbinnen & Co
Jamie Tully or David Millar, 212-687-8080

Source: Fidelity & Guaranty Life



(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit
Exhibit 99.2


37899704_logo2a02a15.jpg




Investor Supplement
First Fiscal Quarter 2017
(Fiscal Year Ended September 30)

The financial statements and financial exhibits included herein are unaudited. These financial statements and exhibits should be read in conjunction with the Company's periodic reports on Form 10-K, Form 10-Q and Form 8-K. The results of operations for interim periods should not be considered indicative of results to be expected for the full year.

Non-GAAP Financial Measures

This document contains non-GAAP financial measures to analyze the Company's operating performance for the periods presented. Because the Company's calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing the Company's non-GAAP financial measures to those of other companies.





FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement
December 31, 2016
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 


FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)


FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Consolidated Financial Highlights
 
Three Months Ended
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
(Dollars in millions)
Revenues:
 
 
 
 
 
 
 
 
 
Premiums
$
11

 
$
18

 
$
21

 
$
16

 
$
15

Net investment income
240

 
238

 
236

 
227

 
222

Net investment gains (losses)
51

 
26

 
(28
)
 
(42
)
 
63

Insurance and investment product fees and other
38

 
34

 
32

 
32

 
29

Total revenues
340

 
316

 
261

 
233

 
329

 
 
 
 
 
 
 
 
 
 
Net income
$
108

 
$
30

 
$
10

 
$
9

 
$
48

Adjusted Operating Income ("AOI")
$
41

 
$
40

 
$
48

 
$
43

 
$
31

 
 
 
 
 
 
 
 
 
 
Per Unrestricted Common Shares Amounts:
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
Net income
$
1.85

 
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

AOI
$
0.70

 
$
0.69

 
$
0.82

 
$
0.74

 
$
0.53

Diluted:
 
 
 
 
 
 
 
 
 
Net income
$
1.85

 
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

AOI
$
0.70

 
$
0.69

 
$
0.82

 
$
0.73

 
$
0.53

 
 
 
 
 
 
 
 
 
 
Dividends Paid to Shareholders Per Share
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
 
 
 
 
 
 
 
 
 
At Period End
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
632

 
$
864

 
$
719

 
$
496

 
$
568

Total investments
$
21,076

 
$
21,025

 
$
20,548

 
$
19,580

 
$
18,953

Total assets
$
26,952

 
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031

Contractholder funds
$
19,486

 
$
19,251

 
$
18,874

 
$
18,295

 
$
17,961

Future policy benefits
$
3,453

 
$
3,467

 
$
3,466

 
$
3,463

 
$
3,473

Debt (including revolving credit facility)
$
400

 
$
400

 
$
300

 
$
300

 
$
300

Total equity
$
1,752

 
$
1,934

 
$
1,782

 
$
1,511

 
$
1,399

Total equity excluding AOCI
$
1,599

 
$
1,495

 
$
1,477

 
$
1,468

 
$
1,461

Common shares issued and outstanding
58.98

 
58.96

 
58.96

 
58.96

 
58.96

 
 
 
 
 
 
 
 
 
 
GAAP Book value per share
$
29.70

 
$
32.80

 
$
30.22

 
$
25.63

 
$
23.73

GAAP Book Value per Share excluding AOCI
$
27.11

 
$
25.36

 
$
25.05

 
$
24.90

 
$
24.78

Debt to total Capitalization excluding AOCI
20.0
%
 
21.1
%
 
16.9
%
 
17.0
%
 
17.0
%
Return on average shareholders' equity excluding AOCI
27.9
%
 
8.1
%
 
2.7
%
 
2.5
%
 
13.4
%
Statutory Book value per share(1)
$
22.43

 
$
22.39

 
$
21.23

 
$
21.28

 
$
21.13

Statutory Book value per share excluding IMR and AVR(1)
$
32.18

 
$
32.20

 
$
31.35

 
$
31.43

 
$
31.55

(1) The statutory book value per share and the statutory book value per share excluding interest maintenance reserve ("IMR") and asset valuation reserve ("AVR") are estimates due to the timing of the filing of statutory statements and are prepared consistent with the presentation of the statutory financial statements in the combined annual statement.

3

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
ASSETS
 
 
 
 
 
 
 
 
 
      Investments:
 
 
 
 
 
 
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: December 31, 2016 - $19,173; September 30, 2016 - $18,521)
$
19,437

 
$
19,411

 
$
18,972

 
$
18,057

 
$
17,428

Equity securities, available-for-sale, at fair value (amortized cost: December 31, 2016 - $691; September 30, 2016 - $640)
696

 
683

 
645

 
620

 
637

Derivative investments
314

 
276

 
216

 
158

 
145

Commercial mortgage loans
582

 
595

 
622

 
613

 
616

Other invested assets
47

 
60

 
93

 
132

 
127

Total investments
21,076

 
21,025

 
20,548

 
19,580

 
18,953

Related party loans
71

 
71

 
72

 
76

 
81

Cash and cash equivalents
632

 
864

 
719

 
496

 
568

Accrued investment income
201

 
214

 
192

 
209

 
181

Reinsurance recoverable
3,444

 
3,464

 
3,476

 
3,512

 
3,552

Intangibles, net
1,228

 
1,026

 
1,048

 
1,170

 
1,162

Deferred tax assets
68

 

 
84

 
228

 
286

Other assets
232

 
371

 
199

 
228

 
248

Total assets
$
26,952

 
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Contractholder funds
$
19,486

 
$
19,251

 
$
18,874

 
$
18,295

 
$
17,961

Future policy benefits
3,453

 
3,467

 
3,466

 
3,463

 
3,473

Funds withheld for reinsurance liabilities
1,142

 
1,172

 
1,190

 
1,210

 
1,251

Liability for policy and contract claims
53

 
55

 
45

 
51

 
64

Debt
300

 
300

 
300

 
300

 
300

Revolving credit facility
100

 
100

 

 

 

Deferred tax liability

 
10

 

 

 

Other liabilities
666

 
746

 
681

 
669

 
583

Total liabilities
25,200

 
25,101

 
24,556

 
23,988

 
23,632

 
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at December 31, 2016 and September 30, 2016)
$

 
$

 
$

 
$

 
$

Common stock ($.01 par value, 500,000,000 shares authorized, 58,984,034 issued and outstanding at December 31, 2016; 58,956,127 shares issued and outstanding at September 30, 2016)
1

 
1

 
1

 
1

 
1

Additional paid-in capital
715

 
714

 
723

 
720

 
718

Retained earnings
896

 
792

 
765

 
759

 
754

Accumulated other comprehensive income
153

 
439

 
305

 
43

 
(62
)
Treasury stock, at cost (565,723 shares at December 31, 2016; 537,613 shares at September 30, 2016)
(13
)
 
(12
)
 
(12
)
 
(12
)
 
(12
)
Total shareholders' equity
1,752

 
1,934

 
$
1,782

 
$
1,511

 
$
1,399

Total liabilities and shareholders' equity
$
26,952

 
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031


4

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)

Quarterly Summary - Most Recent 5 Quarters
 
Three Months Ended
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
(Dollars in millions)
Revenues:
 
 
 
 
 
 
 
 
 
Traditional life insurance premiums
$
10

 
$
11

 
$
10

 
$
11

 
$
10

Life contingent immediate annuity
1

 
7

 
11

 
5

 
5

Net investment income
240

 
238

 
236

 
227

 
222

Net investment gains (losses)
51

 
26

 
(28
)
 
(42
)
 
63

Surrender charges
7

 
8

 
5

 
5

 
4

Cost of insurance fees and other income
31

 
26

 
27

 
27

 
25

Total revenues
340

 
316

 
261

 
233

 
329

Benefits and expenses:
 
 
 
 
 
 
 
 
 
Traditional life insurance policy benefits and change in future policy benefits
22

 
18

 
18

 
16

 
18

Life contingent immediate annuity benefits and changes in future policy benefits
18

 
25

 
31

 
21

 
32

Interest sensitive and index product benefits and changes in future policy benefits
(20
)
 
163

 
167

 
151

 
131

General expenses
25

 
30

 
26

 
25

 
26

Acquisition expenses
92

 
89

 
88

 
75

 
73

Deferred acquisition costs ("DAC")
(89
)
 
(83
)
 
(86
)
 
(73
)
 
(71
)
Amortization of intangibles
123

 
20

 
(4
)
 
(3
)
 
41

        Total benefits and expenses
171

 
262

 
240

 
212

 
250

Operating income
169

 
54

 
21

 
21

 
79

Interest expense
(6
)
 
(5
)
 
(5
)
 
(6
)
 
(6
)
Income before income taxes
163

 
49

 
16

 
15

 
73

Income tax expense
(55
)
 
(19
)
 
(6
)
 
(6
)
 
(25
)
Net income
$
108

 
$
30

 
$
10

 
$
9

 
$
48

 
 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
1.85

 
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

Diluted
$
1.85

 
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

Weighted average common shares used in computing net income per common share:
 
 
 
 
 
 
 
 
 
Basic
58.28

 
58.26

 
58.31

 
58.31

 
58.22

Diluted
58.37

 
58.35

 
58.66

 
58.61

 
58.54



5

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)


Reconciliation from Net Income to Adjusted Operating Income ("AOI ")



 
 
Three Months Ended
 
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
 
(Dollars in millions, except per share data)
Net income
 
$
108

 
$
30

 
$
10

 
$
9

 
$
48

Adjustments to arrive at AOI:
 
 
 
 
 
 
 
 
 
 
Effect of investment (gains) losses, net of offsets (a)
 
(1
)
 
5

 
5

 
(5
)
 
4

Effect of change in FIA embedded derivative discount rate, net of offsets (a)
 
(92
)
 
(7
)
 
28

 
43

 
(10
)
Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a)
 
(10
)
 
17

 
26

 
14

 
(20
)
Tax impact of adjusting items
 
36

 
(5
)
 
(21
)
 
(18
)
 
9

AOI
 
$
41

 
$
40

 
$
48

 
$
43

 
$
31

 
 
 
 
 
 
 
 
 
 
 
Per diluted common share:
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1.85

 
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

Adjustments to arrive at AOI:
 
 
 
 
 
 
 
 
 
 
Effect of investment (gains) losses, net of offsets (a)
 
(0.02
)
 
0.09

 
0.09

 
(0.09
)
 
0.07

Effect of change in FIA embedded derivative discount rate, net of offsets (a)
 
(1.58
)
 
(0.12
)
 
0.48

 
0.73

 
(0.17
)
Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a)
 
(0.17
)
 
0.29

 
0.44

 
0.24

 
(0.34
)
Tax impact of adjusting items
 
$
0.62

 
$
(0.09
)
 
$
(0.35
)
 
$
(0.31
)
 
$
0.15

AOI per diluted share
 
$
0.70

 
$
0.69

 
$
0.82

 
$
0.73

 
$
0.53


(a) amounts are net of offsets related to value of business acquired ("VOBA") and deferred acquisition cost ("DAC") amortization



6

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)

NON-GAAP FINANCIAL MEASURES

AOI
AOI is a non-GAAP economic measure we use to evaluate financial performance each period. AOI is calculated by adjusting net income to eliminate (i) the impact of net investment gains including other-than-temporary impairment ("OTTI") losses recognized in operations, but excluding gains and losses on derivatives hedging our indexed annuity policies, (ii) the effect of changes in the interest rates used to discount the FIA embedded derivative liability, and (iii) the effect of change in fair value of the reinsurance related embedded derivative. All adjustments to AOI are net of the corresponding VOBA and DAC impact. The income tax impact related to these adjustments is measured using an effective tax rate of 35%, as appropriate. While these adjustments are an integral part of the overall performance of FGL, market conditions impacting these items can overshadow the underlying performance of the business. Accordingly, we believe using a measure which excludes their impact is effective in analyzing the trends of our operations. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such non-GAAP measures in the same manner as we do.

Sales
Sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP. For GAAP purposes annuity sales are recorded as deposit liabilities (i.e. contract holder funds). Management believes that presentation of sales as measured for management purposes enhances the understanding of our business and helps depict longer term trends that may not be apparent in the results of operations due to the timing of sales and revenue recognition.
While management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace GAAP financial results and should be read in conjunction with those GAAP results.


7

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)


Summary of Adjustments to Arrive at AOI

 
 
Three Months Ended
 
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
 
(Dollars in millions)
Revenue:
 
 
 
 
 
 
 
 
 
 
Net investment gains (a)
 
$
(12
)
 
$
29

 
$
44

 
$
11

 
$
(21
)
(Decrease) increase in total revenues
 
(12
)
 
29

 
44

 
11

 
(21
)
 
 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves (b)
 
(168
)
 
(16
)
 
53

 
80

 
(19
)
Acquisition and operating expenses, net of deferrals (c)
 

 

 

 

 

Amortization of intangibles
 
77

 
2

 
(38
)
 
(39
)
 
14

(Decrease) increase in total benefits and expenses
 
(91
)
 
(14
)
 
15

 
41

 
(5
)
 
 
 
 
 
 
 
 
 
 
 
(Decrease) increase in pre-tax operating income
 
(103
)
 
15

 
59

 
52

 
(26
)
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in income tax expense (benefit) (d)
 
36

 
(5
)
 
(21
)
 
(18
)
 
9

(Decrease) increase in net income
 
$
(67
)
 
$
10

 
$
38

 
$
34

 
$
(17
)

(a) Net investment gains: includes the effects of net investment gains and change in fair value of the reinsurance related embedded derivative.
(b) Benefits and other changes in policy reserves: includes the effects of the change in fair value of the FIA embedded derivative discount rate.
(c) Acquisition and operating expenses: includes the effects of the class action litigation reserve.
(d) The tax expense (benefit) includes the tax impact of the adjustments in a-c above.


8

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)

Notable Items Included in Net Income and AOI

Each quarterly reporting period, we identify notable items that explain the trends in our Net Income and AOI.  These items are infrequent in nature or involve accounting volatility under general accepted accounting principles. The amounts below are included in disclosures within the Company's earnings releases to explain our Net Income and AOI results.  We believe that understanding these items provides further clarity to the financial performance of the business.   
 
 
Three Months Ended
 
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
 
(Dollars in millions)
Net Income
 
$
108

 
$
30

 
$
10

 
$
9

 
$
48

 
 
 
 
 
 
 
 
 
 
 
AOI
 
$
41

 
$
40

 
$
48

 
$
43

 
$
31

Notable Items Included within AOI [(unfavorable)/favorable]
 
 
 
 
 
 
 
 
 
 
Legacy incentive compensation (a)
 

 
(2
)
 
1

 

 
(1
)
Project expenses (b)
 

 

 
(1
)
 
(1
)
 
(2
)
Single premium immediate annuities ("SPIA") mortality & other reserve adjustments (c)
 
2

 

 
4

 
5

 
(3
)
Assumption review & DAC unlocking (d)
 

 
5

 
7

 
4

 
2

Other, including bond prepayment income & tax valuation allowance (e)
 
2

 
1

 
2

 
2

 
1


(a) Change in certain long term incentive compensation costs, including the change in the liability for our FGLH stock compensation plan, which as a liability plan, is settled in cash and accounted for at fair value each reporting period.
(b) Expenses associated with corporate development activities, including mergers & acquisitions.
(c) The release of annuity reserves associated with mortality of annuitants, which varies due to timing, volume and severity of experience, and other reserve adjustments.
(d) Reflects unlocking from updating our DAC amortization models for actual experience and equity market fluctuations. Also, annually in the 4th fiscal
quarter, we complete our Annual Assumption Review & DAC Unlocking process by adjusting our valuation assumptions to align with actual experience.
(e) Changes in the Company's deferred tax valuation allowance, receipt of bond prepayment income and other net favorable activity.

9

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)

Capitalization/Book Value per Share

 
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
 
(Dollars in millions, except per share data)
Capitalization:
 
 
 
 
 
 
 
 
 
 
Debt
 
$
400

 
$
400

 
$
300

 
$
300

 
$
300

Total debt
 
400

 
400

 
300

 
300

 
300

Total shareholders' equity
 
1,752

 
1,934

 
1,782

 
1,511

 
1,399

Total capitalization
 
2,152

 
2,334

 
2,082

 
1,811

 
1,699

AOCI
 
153

 
439

 
305

 
43

 
(62
)
Total capitalization excluding AOCI (a)
 
$
1,999

 
$
1,895

 
$
1,777

 
$
1,768

 
$
1,761

 
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
1,752

 
1,934

 
1,782

 
1,511

 
1,399

AOCI
 
153

 
439

 
305

 
43

 
(62
)
Total shareholders' equity excluding AOCI (a)
 
$
1,599

 
$
1,495

 
$
1,477

 
$
1,468

 
$
1,461

 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
 
58.98

 
58.96

 
58.96

 
58.96

 
58.96

 
 
 
 
 
 
 
 
 
 


Book Value per Share: (b)
 


 
 
 
 
 
 
 
 
GAAP Book value per share including AOCI
 
$
29.70

 
$
32.80

 
$
30.22

 
$
25.63

 
$
23.73

GAAP Book value per share excluding AOCI (a)
 
$
27.11

 
$
25.36

 
$
25.05

 
$
24.90

 
$
24.78

 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve months ended
Twelve Month Rolling Average Return on Equity ("ROE")
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
Return on Shareholders' Equity (c)
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity
 
9.4
%
 
6.0
%
 
6.3
%
 
11.3
%
 
9.7
%
Return on average shareholders' equity, excluding AOCI (c)
 
10.5
%
 
6.6
%
 
6.7
%
 
12.3
%
 
11.0
%
 
 
 
 
 
 
 
 
 
 
 
Return on Shareholders' Equity - AOI (d)
 
 
 
 
 
 
 
 
 
 
Adjusted Operating ROE, excluding AOCI (d)
 
11.5
%
 
11.1
%
 
11.4
%
 
10.0
%
 
8.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
Quarterly Average ROE
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
Return on average shareholders' equity
 
23.4
%
 
6.5
%
 
2.4
%
 
2.5
%
 
13.2
%
Return on average shareholders' equity, excluding AOCI (c)
 
27.9
%
 
8.1
%
 
2.7
%
 
2.5
%
 
13.4
%
Adjusted Operating ROE, excluding AOCI (d)
 
10.6
%
 
10.8
%
 
13.1
%
 
11.7
%
 
8.6
%
 
 
 
 
 
 
 
 
 
 
 
Debt-to-Capital Ratios: (e)
 
 
 
 
 
 
 
 
 
 
Long-term debt/Total capitalization excluding AOCI
 
20.0
%
 
21.1
%
 
16.9
%
 
17.0
%
 
17.0
%

10

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)


(a) Total capitalization, total stockholders’ equity and book value per share excluding AOCI (a non-GAAP financial measure) are based on stockholders’ equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, we believe these non-GAAP financial measures provide useful supplemental information.
(b) Book value per share including and excluding AOCI is calculated as total stockholders’ equity and total stockholders’ equity excluding AOCI divided by the total number of shares of common stock outstanding.
(c) Return on Equity, excluding AOCI is a non-GAAP financial measure. It is calculated by dividing net income by total average equity excluding AOCI. Average equity excluding AOCI for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average equity is calculated using the beginning and ending equity, excluding AOCI, for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized.
(d) Adjusted Operating ROE, excluding AOCI is a non-GAAP financial measure. It is calculated by dividing AOI by total average equity excluding AOCI. Average equity excluding AOCI for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average equity is calculated using the beginning and ending equity, excluding AOCI, for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized.
(e) Debt-to-capital ratios are computed using total capitalization excluding AOCI. Adjusted debt includes the total senior unsecured debentures and revolving credit facility.



Financial Strength Ratings
 
 
S&P
 
A.M. Best
 
Moody's
 
Fitch
As of Date of Financial Supplement
 
 
 
 
 
 
 
 
Fidelity and Guaranty Life Insurance Company
 
BBB-
 
B++
 
Baa3
 
BBB
Fidelity and Guaranty Life Insurance Company of New York
 
BBB-
 
B++
 
Not Rated
 
BBB
Rating Agency Outlook
 
Stable
 
Under Review With Developing Implications
 
Positive
 
Stable

11

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)

Net Investment Spread Results
(Dollars in millions)
Three Months Ended
 
December 31, 2016
 
December 31, 2015
Yield on average assets under management "AAUM" (at amortized cost)
4.85
 %
 
4.87
 %
Less: Interest credited and option cost
(2.56
)%
 
(2.73
)%
Total net investment spread - All product lines (b)
2.29
 %
 
2.14
 %
 
 
 
 
FIA net investment spread
3.00
 %
 
2.92
 %
 
 
 
 
Investment book yield - bonds purchased during the period (c)
4.78
 %
 
5.50
 %
 
 
 
 
AAUM (a)
$
19,768

 
$
18,239


(a) AAUM is a non-GAAP measure and is the sum of (i) total invested assets at amortized cost, excluding derivatives; and including (ii) related party loans and investments and (iii) cash and cash equivalents at the end of each month in the period divided by the number of months in the period.
(b) Net investment spread is the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on FIA policies.
(c) Investment book yield on bonds purchased during the period excludes yield on short-term treasuries and cash and cash equivalents.

Sales Results by Product

(Dollars in millions)
 
Three Months Ended
 
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
Fixed index annuities ("FIA")
 
$
551

 
$
482

 
$
495

 
$
418

 
$
437

Fixed rate annuities ("MYGA")
 
97

 
121

 
180

 
183

 
52

Institutional spread based (1)
 

 

 
157

 

 

Total Annuity
 
$
648

 
$
603

 
$
832

 
$
601

 
$
489

Index universal life
 
17

 
17

 
15

 
11

 
13

Total Sales
 
$
665

 
$
620

 
$
847

 
$
612

 
$
502


(1) Institutional spread based product sales from funding agreement investment contracts issued with the Federal Home Loan Bank and held in our separate account.


12

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2016
(unaudited)


Annuity Account Balance Rollforward (a)

(Dollars in millions)
 
Three months ended
 
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
Account balances at beginning of period:
 
$
15,250

 
$
14,935

 
$
14,599

 
$
14,330

 
$
14,154

Net deposits
 
655

 
598

 
687

 
608

 
507

Premium and interest bonuses
 
13

 
10

 
11

 
11

 
12

Fixed interest credited and index credits
 
87

 
81

 
45

 
41

 
66

Guaranteed product rider fees
 
(16
)
 
(12
)
 
(14
)
 
(14
)
 
(13
)
Surrenders, withdrawals, deaths, etc.
 
(386
)
 
(362
)
 
(393
)
 
(377
)
 
(396
)
Account balance at end of period
 
$
15,603

 
$
15,250

 
$
14,935


$
14,599


$
14,330

(a) The rollforward reflects the account balance of our fixed index annuities and fixed rate annuities.

Annuity Deposits by Product Type