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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): August 2, 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))





Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
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 August 2, 2017, Fidelity & Guaranty Life issued a press release announcing its results of operations for the quarter ended June 30, 2017. 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 August 2, 2017
99.2
 
Financial Supplement of Fidelity & Guaranty Life dated August 2, 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: August 2, 2017


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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


                        

Fidelity & Guaranty Life Reports Fiscal Third Quarter 2017 Results
DES MOINES, Iowa: August 2, 2017 -- Fidelity & Guaranty Life (NYSE: FGL), a leading provider of annuities and life insurance, today announced financial results for the fiscal third quarter of 2017.
Reported net income was $32 million or $0.54 per diluted share for the third quarter
Adjusted operating income was $37 million or $0.63 per diluted share for the third quarter
Total annuity sales were $582 million; including fixed indexed annuity ("FIA") sales of $455 million
Total annuity and FIA year-to-date sales increased 2% and 7%, respectively, over prior year
Average assets under management increased to $20.2 billion, up 9% over prior year
On May 24, 2017, FGL and CF Corporation ("CF Corp.") entered into a definitive merger agreement pursuant to which CF Corp. will acquire FGL for $31.10 per share
Net income for the fiscal third quarter of 2017 ended on June 30, 2017(1) was $32 million or $0.54 per diluted common share. Adjusted operating income for the fiscal third quarter of 2017 was $37 million, or $0.63 per diluted share, compared to adjusted operating income of $48 million, or $0.82 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 June 30,
 
 
 
 
(Unaudited)
 
 
Reconciliation from Net Income to AOI(2):
 
2017
 
2016
 
Increase (decrease)
Net income
 
$
32

 
$
10

 
$
22

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

 
5

 
(1
)
Effect of change in FIA embedded derivative discount rate, net of offsets
 
(4
)
 
28

 
(32
)
Effect of change in fair value of reinsurance related embedded derivative, net of offsets
 
8

 
26

 
(18
)
Tax impact of adjusting items
 
(3
)
 
(21
)
 
18

Adjusted operating income
 
$
37

 
$
48

 
$
(11
)
See footnotes at end of release.

The current quarter included net unfavorable items of $4 million or $0.07 per diluted share. The prior year quarter included net favorable items of $13 million or $0.22 per diluted share. The table below details notable items in both periods.
 
 
 
 
 
 
 
Current Year Fiscal Quarter
 
 
 
 
 
- Higher expense related to merger transaction costs & legacy incentive compensation plans
 
($6) million
 
 
 
- Favorable actual to expected mortality within single premium immediate annuity ("SPIA") product line
 
$2 million
 
 
Prior Year Fiscal Quarter
 
 
 
 
 
- Net favorable adjustments related to lower deferred acquisition cost ("DAC") amortization, primarily due to equity market fluctuations
 
$7 million
 
 
 
- Favorable performance within the SPIA product line and other annuity reserve movements
 
$4 million
 
 
 
- Favorable net investment income from tender offers and bond prepayment income
 
$2 million
 
 
 
 
 
 
 
"We delivered another solid quarter and are very pleased with the year-over-year increases in net income, net investment income and assets under management,” said Chris Littlefield, President and CEO of FGL.  “Our FIA sales are up 7% year-to-date over the prior year and up 4% from last quarter, though are down 8% versus last year’s third quarter.  The uncertainty surrounding the





Department of Labor fiduciary rule is having some impact on FIA sales industry-wide and we expect additional disruption if the rule is fully implemented on January 1, 2018.  Our IUL and MYGA sales are lower compared to last year as we have prioritized higher profitability over volume.  We continue to maintain discipline in managing our spreads and are pleased that we have consistently achieved our targeted returns on new sales while growing our business.  Finally, the recently announced merger with CF Corp. and accompanying regulatory approval processes are progressing and, subject to approval of CF Corp.’s shareholders at their August 8th meeting, we expect to close the transaction in the fourth calendar quarter of 2017."

Summary Financial Results (Unaudited)
 
 
Three months ended June 30,
Nine months ended June 30,
(In millions, except per share data)
 
2017
 
2016
2017
 
2016
Fixed indexed annuity sales (2)
 
$
455

 
$
495

$
1,444

 
$
1,350

Total annuity sales (2)
 
$
582

 
$
832

$
1,962

 
$
1,922

Average assets under management (2)
 
$
20,569

 
$
18,854

$
20,153

 
$
18,523

Net investment spread - FIA (2)
 
3.02
%
 
3.07
%
3.03
%
 
2.98
%
Net investment spread - All products (2)
 
2.54
%
 
2.41
%
2.41
%
 
2.27
%
Net income
 
$
32

 
$
10

$
162

 
$
67

Net income per diluted share
 
$
0.54

 
$
0.16

$
2.77

 
$
1.14

Adjusted operating income (“AOI”) (2)
 
$
37

 
$
48

$
114

 
$
122

AOI per diluted share (2)
 
$
0.63

 
$
0.82

$
1.95

 
$
2.08

Weighted average basic shares
 
58.3

 
58.3

58.3

 
58.3

Weighted average diluted shares
 
58.4

 
58.7

58.4

 
58.6

Total common shares outstanding
 
59.0

 
59.0

59.0

 
59.0

Book value per share
 
$
35.82

 
$
30.22

$
35.82

 
$
30.22

Book value per share, excluding AOCI (2)
 
$
27.90

 
$
25.05

$
27.90

 
$
25.05

See footnotes below.

Sales In Line With Expectations
Sales of our core FIA product were $455 million in the current period, a decrease of 8% over the prior year period. As expected, FIA sales levels were influenced from an overall industry decline in FIA sales over the past two quarters as carriers and independent marketing organizations ("IMO's") focused on the Department of Labor ("DOL") fiduciary rule implementation. On a sequential basis, FIA sales increased 4% as compared to the fiscal second quarter of 2017.  FIA sales levels in recent quarters reflect strong and productive partnerships with our IMO's, and our continued discipline to achieve new business profitability and capital targets. FIA sales were $1.4 billion on a year-to-date basis, an increase of 7% over the prior year period.
Sales of multi-year guarantee annuities ("MYGA") were $127 million in the current quarter as compared to $180 million in the same period last year. Total annuity sales were $582 million for the current quarter, a decrease of 30% over the prior year quarter. On a year-to-date basis, total annuity sales of $2.0 billion increased 2% over the prior year period.
Indexed universal life ("IUL") sales in the quarter were $9 million compared to $15 million last year. The decline in IUL sales reflects our focus on quality of new business and pricing discipline to achieve profitability and capital targets. On a year-to-date basis, IUL sales of $40 million increased 3% over the prior year period.

Investment Portfolio Performance
Overall, the investment portfolio is performing in line with expectations. Net investment income in the current period was $257 million, an increase of 9% compared to $236 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 $1.6 billion or 9% over the prior year from sales and stable policy owner retention trends.
The average earned yield on the total portfolio in the quarter was 5.01%, unchanged from the prior year quarter which benefited from tender offer and bond prepayment income. Asset purchases during the quarter were $1.2 billion at an average yield of 5.27% primarily reflecting purchases in investment grade corporate bonds, structured securities, and a modest allocation to private credit strategies with a focus on current income, which helped lift the overall new money rate. The average NAIC rating for the portfolio remains approximately 1.5.
Net investment spread across all product lines increased 13 basis points to 254 basis points, compared to fiscal third quarter 2016. Net investment spread in the current quarter for fixed indexed annuities was consistent with recent performance at 302 basis points.
   
Capital Management Trends
GAAP book value per share at June 30, 2017 was $35.82 on a reported basis; book value per share excluding accumulated other comprehensive income (“AOCI”) was $27.90, an increase of 11% year over year.
In July, FGL extended the maturity date of its existing unsecured revolving credit facility from August 26, 2017 to August 26, 2018. The remaining amount available under the revolving credit facility is $45 million.
As announced on July 27, 2017, the FGL Board of Directors has declared a quarterly dividend of $0.065 per share. The dividend is payable on August 28, 2017 to shareholders of record as of the close of business on August 14, 2017.






FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 
June 30,
2017
 
September 30,
2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: June 30, 2017 - $19,845; September 30, 2016 - $18,521)
$
20,766

 
$
19,411

Equity securities, available-for-sale, at fair value (amortized cost: June 30, 2017 - $732; September 30, 2016 - $640)
774

 
683

Derivative investments
361

 
276

Commercial mortgage loans
550

 
595

Other invested assets
176

 
60

Total investments
22,627

 
21,025

Related party loans
71

 
71

Cash and cash equivalents
799

 
864

Accrued investment income
204

 
214

Reinsurance recoverable
3,390

 
3,464

Intangibles, net
1,097

 
1,026

Deferred tax assets, net

 

Other assets
214

 
371

Total assets
$
28,402

 
$
27,035

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Contractholder funds
$
20,342

 
$
19,251

Future policy benefits
3,423

 
3,467

Funds withheld for reinsurance liabilities
1,106

 
1,172

Liability for policy and contract claims
57

 
55

Debt
300

 
300

Revolving credit facility
105

 
100

Deferred tax liability, net
11

 
10

Other liabilities
945

 
746

Total liabilities
26,289

 
25,101

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at June 30, 2017 and September 30, 2016)
$

 
$

Common stock ($.01 par value, 500,000,000 shares authorized, 58,993,219 issued and outstanding at June 30, 2017; 58,956,127 shares issued and outstanding at September 30, 2016)
1

 
1

Additional paid-in capital
716

 
714

Retained earnings
942

 
792

Accumulated other comprehensive income
467

 
439

Treasury stock, at cost (568,847 shares at June 30, 2017; 537,613 shares at September 30, 2016)
(13
)
 
(12
)
Total shareholders' equity
2,113

 
1,934

Total liabilities and shareholders' equity
$
28,402

 
$
27,035






FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
 
Three months ended
 
Nine months ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
(Unaudited)
 
(Unaudited)
Revenues:
 
 
 
 
 
 
 
Premiums
$
12

 
$
21

 
$
26

 
$
52

Net investment income
257

 
236

 
744

 
685

Net investment gains (losses)
67

 
(28
)
 
199

 
(7
)
Insurance and investment product fees and other
44

 
32

 
126

 
93

Total revenues
380

 
261

 
1,095

 
823

Benefits and expenses:
 
 
 
 
 
 
 
Benefits and other changes in policy reserves
235

 
216

 
523

 
585

Acquisition and operating expenses, net of deferrals
40

 
28

 
101

 
83

Amortization of intangibles
51

 
(4
)
 
207

 
34

        Total benefits and expenses
326

 
240

 
831

 
702

Operating income
54

 
21

 
264

 
121

Interest expense
(6
)
 
(5
)
 
(18
)
 
(17
)
Income before income taxes
48

 
16

 
246

 
104

Income tax expense
(16
)
 
(6
)
 
(84
)
 
(37
)
        Net income
$
32

 
$
10

 
$
162

 
$
67

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.54

 
$
0.16

 
$
2.78

 
$
1.14

Diluted
$
0.54

 
$
0.16

 
$
2.77

 
$
1.14

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

 
58.3

 
58.3

 
58.3

Diluted
58.4

 
58.7

 
58.4

 
58.6

 
 
 
 
 
 
 
 
Cash dividend per common share
$
0.065

 
$
0.065

 
$
0.195

 
$
0.195









RECONCILIATION OF BOOK VALUE PER SHARE EXCLUDING AOCI

(In millions, except per share data)
June 30, 2017
 
September 30, 2016
Reconciliation to total shareholder's equity:
 
 
 
Total shareholder's equity
$
2,113

 
$
1,934

     Less: AOCI
467

 
439

Total shareholder's equity excluding AOCI
$
1,646

 
$
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
$
35.82

 
$
32.80

Book value per share, excluding AOCI(2)
$
27.90

 
$
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 CF Corp.
On May 24, 2017, FGL and CF Corp. entered into a definitive merger agreement (the "Merger Agreement") pursuant to which CF Corp. will acquire all outstanding shares of FGL (the "Merger") for $31.10 per share in cash, without interest, plus the assumption of $405 million of existing debt. The joint press release can be found on FGL's investor relations website at www.fglife.com.
The transaction is expected to close in the calendar fourth quarter of 2017. The Merger is subject to closing conditions, including the approval of the shareholders of CF Corp., the receipt of regulatory approvals from the Iowa Insurance Division, the New York Department of Financial Services, and the Vermont Department of Financial Regulation, and the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). On June 16, 2017, the Federal Trade Commission granted early termination of the waiting period under the HSR Act.
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 value of business acquired ("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 CF Corp., 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 as to FGL's evaluation of strategic alternatives and 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; possible risks and uncertainties arising from FGL's evaluation of strategic alternatives; and other factors discussed in FGL's filings with the SEC including its Form 10-K for the year ended September 30, 2016, and its Form 10-Q for the quarter ended March 31, 2017, 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, except as required by law.

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



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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit
Exhibit 99.2


389739277_logo2a02a19.jpg




Investor Supplement
Third 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
June 30, 2017
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 


FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - June 30, 2017
(unaudited)


FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Consolidated Financial Highlights
 
Three Months Ended
 
Nine Months Ended
 
June 30,
2017
 
March 31,
2017
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
(Dollars in millions)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
$
12

 
$
3

 
$
11

 
$
18

 
$
21

 
$
26

 
$
52

Net investment income
257

 
247

 
240

 
238

 
236

 
744

 
685

Net investment gains (losses)
67

 
81

 
51

 
26

 
(28
)
 
199

 
(7
)
Insurance and investment product fees and other
44

 
44

 
38

 
34

 
32

 
126

 
93

Total revenues
380

 
375

 
340

 
316

 
261

 
1,095

 
823

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
32

 
$
22

 
$
108

 
$
30

 
$
10

 
$
162

 
$
67

Adjusted Operating Income ("AOI")
$
37

 
$
36

 
$
41

 
$
40

 
$
48

 
114

 
122

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Unrestricted Common Shares Amounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.54

 
$
0.38

 
$
1.85

 
$
0.52

 
$
0.16

 
$
2.78

 
$
1.14

AOI
$
0.63

 
$
0.62

 
$
0.70

 
$
0.69

 
$
0.82

 
$
1.95

 
$
2.09

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.54

 
$
0.38

 
$
1.85

 
$
0.52

 
$
0.16

 
$
2.77

 
$
1.14

AOI
$
0.63

 
$
0.62

 
$
0.70

 
$
0.69

 
$
0.82

 
$
1.95

 
$
2.08

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends Paid to Shareholders Per Share
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
$
0.195

 
$
0.195

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At Period End
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
799

 
$
887

 
$
632

 
$
864

 
$
719

 
$
799

 
$
719

Total investments
$
22,627

 
$
21,813

 
$
21,076

 
$
21,025

 
$
20,548

 
$
22,627

 
$
20,548

Total assets
$
28,402

 
$
27,897

 
$
26,952

 
$
27,035

 
$
26,338

 
$
28,402

 
$
26,338

Contractholder funds
$
20,342

 
$
20,052

 
$
19,486

 
$
19,251

 
$
18,874

 
$
20,342

 
$
18,874

Future policy benefits
$
3,423

 
$
3,435

 
$
3,453

 
$
3,467

 
$
3,466

 
$
3,423

 
$
3,466

Debt (including revolving credit facility)
$
405

 
$
405

 
$
400

 
$
400

 
$
300

 
$
405

 
$
300

Total equity
$
2,113

 
$
1,908

 
$
1,752

 
$
1,934

 
$
1,782

 
$
2,113

 
$
1,782

Total equity excluding AOCI
$
1,646

 
$
1,617

 
$
1,599

 
$
1,495

 
$
1,477

 
$
1,646

 
$
1,477

Common shares issued and outstanding
58.99

 
58.99

 
58.98

 
58.96

 
58.96

 
58.99

 
58.96

 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Book value per share
$
35.82

 
$
32.34

 
$
29.70

 
$
32.80

 
$
30.22

 
$
35.82

 
$
30.22

GAAP Book Value per Share excluding AOCI
$
27.90

 
$
27.41

 
$
27.11

 
$
25.36

 
$
25.05

 
27.90

 
25.05

Debt to total Capitalization excluding AOCI
19.7
%
 
20.0
%
 
20.0
%
 
21.1
%
 
16.9
%
 
19.7
%
 
16.9
%
Return on average shareholders' equity excluding AOCI
7.8
%
 
5.5
%
 
27.9
%
 
8.1
%
 
2.7
%
 
13.8
%
 
9.1
%
Statutory Book value per share(1)
$
25.18

 
$
26.06

 
$
22.43

 
$
22.39

 
$
21.23

 
25.18

 
21.23

Statutory Book value per share excluding IMR and AVR(1)
$
34.30

 
$
35.28

 
$
32.18

 
$
32.20

 
$
31.35

 
34.30

 
31.35

(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 - June 30, 2017
(unaudited)

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
 
June 30,
2017
 
March 31,
2017
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
ASSETS
 
 
 
 
 
 
 
 
 
      Investments:
 
 
 
 
 
 
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: June 30, 2017 - $19,845; September 30, 2016 - $18,521)
$
20,766

 
$
20,052

 
$
19,437

 
$
19,411

 
$
18,972

Equity securities, available-for-sale, at fair value (amortized cost: June 30, 2017 - $732; September 30, 2016 - $640)
774

 
712

 
696

 
683

 
645

Derivative investments
361

 
351

 
314

 
276

 
216

Commercial mortgage loans
550

 
579

 
582

 
595

 
622

Other invested assets
176

 
119

 
47

 
60

 
93

Total investments
22,627

 
21,813

 
21,076

 
21,025

 
20,548

Related party loans
71

 
71

 
71

 
71

 
72

Cash and cash equivalents
799

 
887

 
632

 
864

 
719

Accrued investment income
204

 
225

 
201

 
214

 
192

Reinsurance recoverable
3,390

 
3,426

 
3,444

 
3,464

 
3,476

Intangibles, net
1,097

 
1,184

 
1,228

 
1,026

 
1,048

Deferred tax assets, net

 
87

 
68

 

 
84

Other assets
214

 
204

 
232

 
371

 
199

Total assets
$
28,402

 
$
27,897

 
$
26,952

 
$
27,035

 
$
26,338

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Contractholder funds
$
20,342

 
$
20,052

 
$
19,486

 
$
19,251

 
$
18,874

Future policy benefits
3,423

 
3,435

 
3,453

 
3,467

 
3,466

Funds withheld for reinsurance liabilities
1,106

 
1,134

 
1,142

 
1,172

 
1,190

Liability for policy and contract claims
57

 
60

 
53

 
55

 
45

Debt
300

 
300

 
300

 
300

 
300

Revolving credit facility
105

 
105

 
100

 
100

 

Deferred tax liability, net
11

 

 

 
10

 

Other liabilities
945

 
903

 
666

 
746

 
681

Total liabilities
26,289

 
25,989

 
25,200

 
25,101

 
24,556

 
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at June 30, 2017 and September 30, 2016)
$

 
$

 
$

 
$

 
$

Common stock ($.01 par value, 500,000,000 shares authorized, 58,993,219 issued and outstanding at June 30, 2017; 58,956,127 shares issued and outstanding at September 30, 2016)
1

 
1

 
1

 
1

 
1

Additional paid-in capital
716

 
715

 
715

 
714

 
723

Retained earnings
942

 
914

 
896

 
792

 
765

Accumulated other comprehensive income
467

 
291

 
153

 
439

 
305

Treasury stock, at cost (568,847 shares at June 30, 2017; 537,613 shares at September 30, 2016)
(13
)
 
(13
)
 
(13
)
 
(12
)
 
(12
)
Total shareholders' equity
2,113

 
1,908

 
$
1,752

 
$
1,934

 
$
1,782

Total liabilities and shareholders' equity
$
28,402

 
$
27,897

 
$
26,952

 
$
27,035

 
$
26,338


4

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - June 30, 2017
(unaudited)

Quarterly Summary - Most Recent 5 Quarters
 
Three Months Ended
 
Nine Months Ended
 
June 30,
2017
 
March 31,
2017
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
(Dollars in millions)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Traditional life insurance premiums
$
7

 
$

 
$
10

 
$
11

 
$
10

 
$
16

 
$
31

Life contingent immediate annuity
5

 
3

 
1

 
7

 
11

 
10

 
21

Net investment income
257

 
247

 
240

 
238

 
236

 
744

 
685

Net investment gains (losses)
67

 
81

 
51

 
26

 
(28
)
 
199

 
(7
)
Surrender charges
9

 
9

 
7

 
8

 
5

 
25

 
15

Cost of insurance fees and other income
35

 
35

 
31

 
26

 
27

 
101

 
78

Total revenues
380

 
375

 
340

 
316

 
261

 
1,095

 
823

Benefits and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Traditional life insurance policy benefits and change in future policy benefits
21

 
11

 
22

 
18

 
18

 
53

 
52

Life contingent immediate annuity benefits and changes in future policy benefits
20

 
18

 
18

 
25

 
31

 
57

 
84

Interest sensitive and index product benefits and changes in future policy benefits
194

 
239

 
(20
)
 
163

 
167

 
413

 
449

General expenses
35

 
30

 
25

 
30

 
26

 
90

 
77

Acquisition expenses
72

 
81

 
92

 
89

 
88

 
245

 
236

Deferred acquisition costs ("DAC")
(67
)
 
(78
)
 
(89
)
 
(83
)
 
(86
)
 
(234
)
 
(230
)
Amortization of intangibles
51

 
33

 
123

 
20

 
(4
)
 
207

 
34

        Total benefits and expenses
326

 
334

 
171

 
262

 
240

 
831

 
702

Operating income
54

 
41

 
169

 
54

 
21

 
264

 
121

Interest expense
(6
)
 
(6
)
 
(6
)
 
(5
)
 
(5
)
 
(18
)
 
(17
)
Income before income taxes
48

 
35

 
163

 
49

 
16

 
246

 
104

Income tax expense
(16
)
 
(13
)
 
(55
)
 
(19
)
 
(6
)
 
(84
)
 
(37
)
Net income
$
32

 
$
22

 
$
108

 
$
30

 
$
10

 
$
162

 
$
67

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.54

 
$
0.38

 
$
1.85

 
$
0.52

 
$
0.16

 
$
2.78

 
$
1.14

Diluted
$
0.54

 
$
0.38

 
$
1.85

 
$
0.52

 
$
0.16

 
$
2.77

 
$
1.14

Weighted average common shares used in computing net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
58.34

 
58.33

 
58.28

 
58.26

 
58.31

 
58.31

 
58.28

Diluted
58.44

 
58.38

 
58.37

 
58.35

 
58.66

 
58.39

 
58.60



5

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - June 30, 2017
(unaudited)


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



 
Three Months Ended
 
Nine Months Ended
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
(Dollars in millions, except per share data)
 
 
 
 
Net income
$
32

 
$
22

 
$
108

 
$
30

 
$
10

 
$
162

 
$
67

Adjustments to arrive at AOI:
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of investment (gains) losses, net of offsets (a)
4

 
15

 
(1
)
 
5

 
5

 
18

 
4

Effect of change in FIA embedded derivative discount rate, net of offsets (a)
(4
)
 
(2
)
 
(92
)
 
(7
)
 
28

 
(98
)
 
61

Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a)
8

 
8

 
(10
)
 
17

 
26

 
6

 
20

Tax impact of adjusting items
(3
)
 
(7
)
 
36

 
(5
)
 
(21
)
 
26

 
(30
)
AOI
$
37

 
$
36

 
$
41

 
$
40

 
$
48

 
$
114

 
$
122

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per diluted common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.54

 
$
0.38

 
$
1.85

 
$
0.52

 
$
0.16

 
$
2.77

 
$
1.14

Adjustments to arrive at AOI:
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of investment (gains) losses, net of offsets (a)
0.07

 
0.26

 
(0.02
)
 
0.09

 
0.09

 
0.31

 
0.07

Effect of change in FIA embedded derivative discount rate, net of offsets (a)
(0.07
)
 
(0.04
)
 
(1.58
)
 
(0.12
)
 
0.48

 
(1.68
)
 
1.04

Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a)
0.14

 
0.14

 
(0.17
)
 
0.29

 
0.44

 
0.10

 
0.34

Tax impact of adjusting items
$
(0.05
)
 
$
(0.12
)
 
$
0.62

 
$
(0.09
)
 
$
(0.35
)
 
$
0.45

 
$
(0.51
)
AOI per diluted share
$
0.63

 
$
0.62

 
$
0.70

 
$
0.69

 
$
0.82

 
$
1.95

 
$
2.08


(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 - June 30, 2017
(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 - June 30, 2017
(unaudited)


Summary of Adjustments to Arrive at AOI

 
Three Months Ended
 
Nine Months Ended
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
(Dollars in millions)
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment gains (a)
$
15

 
$
28

 
$
(12
)
 
$
29

 
$
44

 
$
31

 
$
34

Increase (decrease) in total revenues
15

 
28

 
(12
)
 
29

 
44

 
31

 
34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves (b)
(10
)
 
(1
)
 
(168
)
 
(16
)
 
53

 
(179
)
 
113

Amortization of intangibles
3

 
(6
)
 
77

 
2

 
(38
)
 
74

 
(62
)
(Decrease) increase in total benefits and expenses
(7
)
 
(7
)
 
(91
)
 
(14
)
 
15

 
(105
)
 
51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in pre-tax operating income
8

 
21

 
(103
)
 
15

 
59

 
(74
)
 
85

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Decrease) increase in income tax expense (benefit) (c)
(3
)
 
(7
)
 
36

 
(5
)
 
(21
)
 
26

 
(30
)
Increase (decrease) in net income
$
5

 
$
14

 
$
(67
)
 
$
10

 
$
38

 
$
(48
)
 
$
55


(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) The tax expense (benefit) includes the tax impact of the adjustments in a-b above.


8

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - June 30, 2017
(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
 
Nine Months Ended
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
(Dollars in millions)
 
 
 
 
Net Income
$
32

 
$
22

 
$
108

 
$
30

 
$
10

 
$
162

 
$
67

 
 
 
 
 
 
 
 
 
 
 
 
 
 
AOI
$
37

 
$
36

 
$
41

 
$
40

 
$
48

 
$
114

 
$
122

Notable Items Included within AOI [(unfavorable)/favorable]
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy incentive compensation (a)
(1
)
 
(1
)
 

 
(2
)
 
1

 
(2
)
 

Project expenses (b)
(5
)
 
(2
)
 

 

 
(1
)
 
(7
)
 
(4
)
Single premium immediate annuities ("SPIA") mortality & other reserve adjustments (c)
2

 
3

 
2

 

 
4

 
7

 
7

Assumption review & DAC unlocking (d)

 
(3
)
 

 
5

 
7

 
(3
)
 
12

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

 

 
2

 
1

 
2

 
2

 
5


(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) Bond prepayment income, changes in tax valuation, and other allowances related to reinsurance and agent debt, reinsurance settlements and other net favorable activity.

9

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - June 30, 2017
(unaudited)

Capitalization/Book Value per Share

 
 
June 30,
2017
 
March 31,
2017
 
December 31,
2016
 
September 30,
2016
 
June 30,
2016
 
 
(Dollars in millions, except per share data)
Capitalization:
 
 
 
 
 
 
 
 
 
 
Debt
 
$
405

 
$
405

 
$
400

 
$
400

 
$
300

Total debt
 
405

 
405

 
400

 
400

 
300

Total shareholders' equity
 
2,113

 
1,908

 
1,752

 
1,934

 
1,782

Total capitalization
 
2,518