Form 8-K Fidelity & Guaranty Life For: Feb 03

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February 3, 2016 4:23 PM EST



 
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 3, 2016

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 3, 2016, Fidelity & Guaranty Life issued a press release announcing its results of operations for the quarter ended December 31, 2015. 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 3, 2016
99.2
 
Financial Supplement of Fidelity & Guaranty Life dated February 3, 2016
 




 

 
 

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 3, 2016





Fidelity & Guaranty Life Reports Fiscal First Quarter 2016 Results
•
Reported net income was $48 million or $0.82 per diluted share for the first quarter
•
Adjusted operating income was $31 million or $0.53 per diluted share for the first quarter
•
Fixed indexed annuity ("FIA") sales were $437 million, up 3% over fourth quarter 2015; indexed universal life sales increased 86% over prior year to $13 million
•
Average assets under management now exceed $18.2 billion, an increase of 6% over prior year; net investment spread across all product lines up 30 basis points year over year

DES MOINES, Iowa: February 3, 2016 -- Fidelity & Guaranty Life (NYSE: FGL), a leading provider of annuities and life insurance, today reported net income of $48 million or $0.82 per diluted common share for the fiscal first quarter of 2016 ended on December 31, 2015(1). The Company reported adjusted operating income of $31 million, or $0.53 per diluted share, compared to adjusted operating income of $27 million or $0.46 per diluted share, in the prior year period.
The table below reconciles after-tax reported net income to adjusted operating income ("AOI").
(In millions, all amounts are after tax)
 
Three months ended December 31,
 
 
Reconciliation from Net Income to AOI(2):
 
2015
 
2014
 
Increase (decrease)
Net income
 
$
48

 
$
14

 
$
34

Effect of investment losses, net of offsets
 
3

 
2

 
1

Effect of change in FIA embedded derivative discount rate, net of offsets
 
(7
)
 
20

 
(27
)
Effect of change in fair value of reinsurance related embedded derivative, net of offsets
 
(13
)
 
(8
)
 
(5
)
Effects of class action litigation reserves, net of offsets
 
—

 
(1
)
 
1

Adjusted operating income
 
$
31

 
$
27

 
$
4

See footnotes at end of release.

The current quarter included net unfavorable items of ($3) million or ($0.05) per diluted share and prior year items were fully offsetting. The table below details notable items in both periods.
 
 
 
 
 
 
 
Current Year Fiscal Quarter
 
 
 
 
 
- Unfavorable actual to expected mortality within single premium immediate annuity product line ("SPIA")
 
($3) million
 
 
 
- Higher expenses 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
 
 
Prior Year Fiscal Quarter
 
 
 
 
 
- Favorable actual to expected mortality within SPIA product line
 
$3 million
 
 
 
- Higher expense related to legacy incentive compensation plans & strategic review related costs
 
($3) million
 
 
 
 
 
 
 

"We had a good start to the year with adjusted operating income up nearly 15%, average assets under management up $1 billion and net investment spread up 30 basis points over the prior year,” said Chris Littlefield, President and Chief Executive Officer of FGL. “As we have previously noted, following last year's record first quarter sales we intentionally moderated our FIA volume in favor of higher new business profitability and prudent capital management. Due to the timing of our opportunistic MYGA sales program last year and the record FIA quarter, annuity sales were lower year over year, as expected. That said, FIA sales this quarter were up sequentially despite a very competitive environment that we expect will continue. At the same time, we're seeing significant growth in our indexed universal life business as we expand distribution. Finally, we continue to work on a successful closing of




the merger transaction with Anbang Insurance Group Co., Ltd. We are working towards securing the required regulatory approvals and currently expect to close the transaction during the second quarter of 2016.”

Summary Financial Results (Unaudited)
 
 
Three months ended December 31,
(In millions, except per share data)
 
2015
 
2014
Fixed indexed annuity sales (2)
 
$
437

 
$
648

Total annuity sales (2)
 
$
489

 
$
903

Average assets under management (2)
 
$
18,239

 
$
17,266

Net investment spread - FIA (2)
 
2.92
%
 
2.87
%
Net investment spread - All products (2)
 
2.14
%
 
1.84
%
Net income
 
$
48

 
$
14

Net income per diluted share
 
$
0.82

 
$
0.24

Adjusted operating income (“AOI”) (2)
 
$
31

 
$
27

AOI per diluted share (2)
 
$
0.53

 
$
0.46

Weighted average basic shares
 
58.2

 
58.3

Weighted average diluted shares
 
58.5

 
58.5

Total common shares outstanding
 
59.0

 
58.7

Book value per share
 
$
23.73

 
$
28.36

Book value per share, excluding AOCI (2)
 
$
24.78

 
$
22.49

See footnotes below.

Annuity Sales In Line With Expectations
Sales of our core fixed indexed annuity product were $437 million in the current period, a decrease of 33% over the prior year. As expected, FIA sales were down from the near record level achieved in the prior period as we have intentionally moderated volume to sustain a disciplined approach for new business profitability and capital targets. While we continue to see volatility among product manufacturers in the near-term competitive landscape for FIA's, we believe that the market will continue to expand as demand for indexed products increases over the long-term.
On a sequential basis, FIA sales increased 3% as compared to the fiscal fourth quarter of 2015. Continued demand for our products is the result of long-tenured relationships with our independent marketing organizations ("IMO's") and a well-rounded product suite to meet the retirement needs of today's customers.
Sales of multi-year guarantee annuities ("MYGA") were $52 million in the current quarter as compared to $255 million in the same period last year. We continue to view this business as opportunistic, when the interest rate environment is attractive to us and to the market, therefore our MYGA volume will fluctuate from period to period.
Indexed universal life sales in the quarter were $13 million, an increase of 86% compared to $7 million last year. The strong growth in the current period reflects FGL's ongoing efforts to steadily grow indexed universal life sales through its network of core middle-market focused IMO's.

Investment Portfolio Performing Well
Net investment income was $222 million for the quarter, an increase of 7% compared to $208 million for the same period last year. This growth was driven by increases in average assets under management ("AAUM") and earned yields. AAUM increased $1.0 billion or 6% over the prior year due to sales growth and stable policy owner retention trends.




The average earned yield on the total portfolio in the quarter was 4.87%, up 4 basis points from 4.83% in the prior year quarter, primarily due to portfolio repositioning completed last year. Asset purchases during the quarter were $1.1 billion at an average yield of 5.50% and included new business, as well as $432 million from a portfolio repositioning program. Net investment income and earned yields in the quarter also benefited from prepayment income of $3 million, before DAC amortization and taxes.
Net investment spread across all product lines increased 30 basis points compared to fiscal first quarter 2015. Net investment spread in fixed indexed annuities was 292 basis points for the current period, up 5 basis points from the prior year level of 287 basis points primarily from lower option costs during the current quarter. Net realized losses of $5 million in the quarter, before DAC amortization and taxes, included $10 million of other than temporary impairment losses partially offset by trading gains. As of December 31, 2015, the average NAIC rating for the portfolio remains approximately 1.5.

Capital Management Trends:
•
GAAP book value per share on a reported basis was $23.73, 16% lower than the prior year, and included a $407 million decline in the fair value of available-for-sale investments, as interest rates increased and bond yield spreads widened over the past year.
•
GAAP book value per share at December 31, 2015 excluding accumulated other comprehensive (loss) income (“AOCI”) was $24.78, an increase of 10% year over year.
•
As announced on February 2, 2016, the FGL Board of Directors has declared a quarterly dividend of $0.065 per share. The dividend is payable on March 7, 2016 to shareholders of record as of the close of business on February 22, 2016.





FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 
December 31,
2015
 
September 30,
2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: December 31, 2015 - $17,684 September 30, 2015 - $17,622)
$
17,428

 
$
17,746

Equity securities, available-for-sale, at fair value (amortized cost: December 31, 2015 - $601; September 30, 2015 - $597)
637

 
620

Derivative investments
145

 
82

Commercial mortgage loans
616

 
491

Other invested assets
127

 
155

Total investments
18,953

 
19,094

Related party loans
81

 
78

Cash and cash equivalents
568

 
502

Accrued investment income
181

 
191

Reinsurance recoverable
3,552

 
3,579

Intangibles, net
1,162

 
988

Deferred tax assets
286

 
228

Other assets
248

 
265

Total assets
$
25,031

 
$
24,925

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Contractholder funds
$
17,961

 
$
17,770

Future policy benefits
3,473

 
3,468

Funds withheld for reinsurance liabilities
1,251

 
1,267

Liability for policy and contract claims
64

 
55

Debt
300

 
300

Other liabilities
583

 
563

Total liabilities
23,632

 
23,423

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at December 31, 2015 and September 30, 2015)
$
—

 
$
—

Common stock ($.01 par value, 500,000,000 shares authorized, 58,963,902 issued and outstanding at December 31, 2015; 58,870,823 shares issued and outstanding at September 30, 2015)
1

 
1

Additional paid-in capital
718

 
714

Retained earnings
754

 
710

Accumulated other comprehensive (loss) income
(62
)
 
88

Treasury stock, at cost (534,514 shares at December 31, 2015; 512,391 shares at September 30, 2015)
(12
)
 
(11
)
Total shareholders' equity
1,399

 
1,502

Total liabilities and shareholders' equity
$
25,031

 
$
24,925





FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
 
Three months ended
 
December 31, 2015
 
December 31, 2014
 
(Unaudited)
Revenues:
 
 
 
Premiums
$
15

 
$
11

Net investment income
222

 
208

Net investment gains
63

 
59

Insurance and investment product fees and other
29

 
20

Total revenues
329

 
298

Benefits and expenses:
 
 
 
Benefits and other changes in policy reserves
181

 
224

Acquisition and operating expenses, net of deferrals
28

 
29

Amortization of intangibles
41

 
16

        Total benefits and expenses
250

 
269

Operating income
79

 
29

Interest expense
(6
)
 
(6
)
Income before income taxes
73

 
23

Income tax expense
25

 
9

        Net income
$
48

 
$
14

 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.82

 
$
0.24

Diluted
$
0.82

 
$
0.24

Weighted average common shares used in computing net income per common share:
 
 
 
Basic
58.2

 
58.3

Diluted
58.5

 
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, 2015
 
September 30, 2015
Reconciliation to total shareholder's equity:
 
 
 
Total shareholder's equity
$
1,399

 
$
1,502

     Less: AOCI
(62
)
 
88

Total shareholder's equity excluding AOCI
$
1,461

 
$
1,414

 
 
 
 
Total shares outstanding
59.0

 
58.9

Weighted average shares outstanding - basic
58.2

 
58.1

Weighted average shares outstanding - diluted
58.5

 
58.4

 
 
 
 
Book value per share
$
23.73

 
$
25.51

Book value per share, excluding AOCI(2)
$
24.78

 
$
24.02



RECONCILIATION OF ADJUSTED OPERATING ROE
(In millions)
December 31, 2015
 
December 31, 2014
Reconciliation to total shareholder's equity:
 
 
 
Total shareholder's equity
$
1,399

 
$
1,665

     Less: AOCI
(62
)
 
345

Total shareholder's equity excluding AOCI
$
1,461

 
$
1,320

 
 
 
 
Quarterly AOI(3)
$
31

 
$
27

Quarterly Adjusted Operating ROE(2)
9
%
 
8
%
 
 
 
 
 
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.
(3)
See table on reconciliation of net income to AOI for the 2016 and 2015 fiscal quarters.


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. The joint press release can be found on FGL’s investor relations website at www.fglife.com.
The Merger is expected to close in the second quarter of 2016. The Merger is subject to closing conditions, including the receipt of regulatory approvals from the Iowa Insurance Division, New York Department of Financial Services, Vermont Department of Financial Regulation, China Insurance Regulatory Commission and the Committee on Foreign Investment in the United States. 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, (iii) the effect of




change in fair value of reinsurance related embedded derivative, and (iv) the effect of class action litigation reserves. All adjustments to AOI are net of the corresponding VOBA, DAC and income tax impact (using an effective tax rate of 35%) related to these adjustments 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; 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.
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.
Adjusted operating ROE is calculated by dividing AOI by total average equity excluding AOCI. Average equity excluding AOCI is the average of the beginning and ending equity excluding AOCI for the period.
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
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, 2015, 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
515-330-3307


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

Source: Fidelity & Guaranty Life



Exhibit 99.2






Investor Supplement
First Fiscal Quarter 2016
(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, 2015
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)


FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Consolidated Financial Highlights
 
Three Months Ended
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
December 31,
2014
 
(Dollars in millions)
Revenues:
 
 
 
 
 
 
 
 
 
Premiums
$
15

 
$
15

 
$
17

 
$
15

 
$
11

Net investment income
222

 
223

 
212

 
208

 
208

Net investment gains (losses)
63

 
(112
)
 
74

 
(58
)
 
59

Insurance and investment product fees and other
29

 
24

 
23

 
22

 
20

Total revenues
329

 
150

 
326

 
187

 
298

 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income ("AOI")
$
31

 
$
42

 
$
25

 
$
23

 
$
27

Net income (loss)
$
48

 
$
30

 
$
86

 
$
(12
)
 
$
14

 
 
 
 
 
 
 
 
 
 
Per Unrestricted Common Shares Amounts:
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
AOI
$
0.53

 
$
0.72

 
$
0.43

 
$
0.40

 
$
0.46

Net income (loss)
$
0.82

 
$
0.52

 
$
1.48

 
$
(0.21
)
 
$
0.24

Diluted:
 
 
 
 
 
 
 
 
 
AOI
$
0.53

 
$
0.72

 
$
0.43

 
$
0.40

 
$
0.46

Net income (loss)
$
0.82

 
$
0.51

 
$
1.48

 
$
(0.21
)
 
$
0.24

 
 
 
 
 
 
 
 
 
 
Dividends Paid to Shareholders Per Share
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
 
 
 
 
 
 
 
 
 
At Period End
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
568

 
$
502

 
$
654

 
$
849

 
$
556

Total investments
$
18,953

 
$
19,094

 
$
19,391

 
$
19,465

 
$
19,335

Total assets
$
25,031

 
$
24,925

 
$
25,159

 
$
25,195

 
$
24,752

Contractholder funds
$
17,961

 
$
17,770

 
$
17,704

 
$
17,521

 
$
17,160

Future policy benefits
$
3,473

 
$
3,468

 
$
3,465

 
$
3,481

 
$
3,484

Notes payable
$
300

 
$
300

 
$
300

 
$
300

 
$
300

Total equity
$
1,399

 
$
1,502

 
$
1,559

 
$
1,710

 
$
1,665

Total equity excluding AOCI
$
1,461

 
$
1,414

 
$
1,384

 
$
1,302

 
$
1,320

Common shares issued and outstanding
58.96

 
58.87

 
58.76

 
58.74

 
58.70

 
 
 
 
 
 
 
 
 
 
GAAP Book value per share
$
23.73

 
$
25.51

 
$
26.53

 
$
29.11

 
$
28.36

GAAP Book Value per Share excluding AOCI
$
24.78

 
$
24.02

 
$
23.55

 
$
22.17

 
$
22.49

Debt to total Capitalization excluding AOCI
17
%
 
18
%
 
18
%
 
19
 %
 
19
%
Return on average shareholders' equity
13
%
 
9
%
 
26
%
 
(4
)%
 
4
%
Statutory Book value per share(1)
$
21.13

 
$
20.79

 
$
21.02

 
$
20.87

 
$
20.64

Statutory Book value per share excluding IMR and AVR(1)
$
31.55

 
$
31.40

 
$
31.70

 
$
30.97

 
$
31.49

(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, 2015
(unaudited)

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)

4
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 
 
 
 
 
 
 
 
      Investments:
 
 
 
 
 
 
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: December 31, 2015 - $17,684 September 30, 2015 - $17,622)
$
17,428

 
$
17,746

 
$
17,965

 
$
18,055

 
$
17,910

Equity securities, available-for-sale, at fair value (amortized cost: December 31, 2015 - $601; September 30, 2015 - $597)
637

 
620

 
583

 
606

 
658

Derivative investments
145

 
82

 
220

 
268

 
306

Commercial mortgage loans
616

 
491

 
405

 
304

 
207

Other invested assets
127

 
155

 
218

 
232

 
253

Total investments
18,953

 
19,094

 
19,391

 
19,465

 
19,334

Related party loans
81

 
78

 
77

 
75

 
93

Cash and cash equivalents
568

 
502

 
654

 
849

 
556

Accrued investment income
181

 
191

 
164

 
180

 
164

Reinsurance recoverable
3,552

 
3,579

 
3,642

 
3,691

 
3,729

Intangibles, net
1,162

 
988

 
808

 
610

 
593

Deferred tax assets
286

 
228

 
200

 
104

 
132

Other assets
248

 
265

 
223

 
221

 
151

Total assets
$
25,031

 
$
24,925

 
$
25,159

 
$
25,195

 
$
24,752

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Contractholder funds
$
17,961

 
$
17,770

 
$
17,704

 
$
17,521

 
$
17,160

Future policy benefits
3,473

 
3,468

 
3,465

 
3,481

 
3,484

Funds withheld for reinsurance liabilities
1,251

 
1,267

 
1,325

 
1,329

 
1,376

Liability for policy and contract claims
64

 
55

 
60

 
60

 
68

Debt
300

 
300

 
300

 
300

 
300

Other liabilities
583

 
563

 
746

 
794

 
698

Total liabilities
23,632

 
23,423

 
23,600

 
23,485

 
23,086

 
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at December 31, 2015 and September 30, 2015)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Common stock ($.01 par value, 500,000,000 shares authorized, 58,963,902 issued and outstanding at December 31, 2015; 58,870,823 shares issued and outstanding at September 30, 2015)
1

 
1

 
1

 
1

 
1

Additional paid-in capital
718

 
714

 
711

 
710

 
704

Retained earnings
754

 
710

 
683

 
601

 
617

Accumulated other comprehensive (loss) income
(62
)
 
88

 
175

 
408

 
345

Treasury stock, at cost (534,514 shares at December 31, 2015; 512,391 shares at September 30, 2015)
(12
)
 
(11
)
 
(11
)
 
(10
)
 
(1
)
Total shareholders' equity
1,399

 
1,502

 
$
1,559

 
$
1,710

 
$
1,666

Total liabilities and shareholders' equity
$
25,031

 
$
24,925

 
$
25,159

 
$
25,195

 
$
24,752


5
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

Quarterly Summary - Most Recent 5 Quarters
 
Three Months Ended
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
December 31,
2014
 
(Dollars in millions)
Revenues:
 
 
 
 
 
 
 
 
 
Traditional life insurance premiums
$
10

 
$
11

 
$
10

 
$
12

 
$
10

Life contingent immediate annuity
5

 
4

 
7

 
3

 
1

Net investment income
222

 
223

 
212

 
208

 
208

Net investment gains (losses)
63

 
(112
)
 
74

 
(58
)
 
59

Surrender charges
4

 
5

 
5

 
5

 
4

Cost of insurance fees and other income
25

 
19

 
18

 
17

 
16

Total revenues
329

 
150

 
326

 
187

 
298

Benefits and expenses:
 
 
 
 
 
 
 
 
 
Traditional life insurance policy benefits and change in future policy benefits
18

 
18

 
20

 
17

 
19

Life contingent immediate annuity benefits and changes in future policy benefits
32

 
30

 
29

 
26

 
10

Interest sensitive and index product benefits and changes in future policy benefits
131

 
56

 
29

 
129

 
195

General expenses
26

 
29

 
22

 
27

 
28

Acquisition expenses
73

 
64

 
72

 
74

 
88

Deferred acquisition costs ("DAC")
(71
)
 
(63
)
 
(68
)
 
(73
)
 
(87
)
Amortization of intangibles
41

 
(33
)
 
88

 
(7
)
 
16

        Total benefits and expenses
250

 
101

 
192

 
193

 
269

Operating income
79

 
49

 
134

 
(6
)
 
29

Interest expense
(6
)
 
(6
)
 
(6
)
 
(6
)
 
(6
)
Income before income taxes
73

 
43

 
128

 
(12
)
 
23

Income tax expense
25

 
13

 
42

 
—

 
9

Net income (loss)
$
48

 
$
30

 
$
86

 
$
(12
)
 
$
14

 
 
 
 
 
 
 
 
 
 
Net income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.82

 
$
0.52

 
$
1.48

 
$
(0.21
)
 
$
0.24

Diluted
$
0.82

 
$
0.51

 
$
1.48

 
$
(0.21
)
 
$
0.24

Weighted average common shares used in computing net income (loss) per common share:
 
 
 
 
 
 
 
 
 
Basic
58.22

 
58.09

 
58.06

 
58.03

 
58.28

Diluted
58.54

 
58.42

 
58.24

 
58.03

 
58.45



6
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)


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

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

 
 
Three Months Ended
 
 
 
December 31, 2015
 
September 30, 2015
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
 
 
(Dollars in millions, except per share data)
 
Net income (loss)
 
$
48

 
$
30

 
$
86

 
$
(12
)
 
$
14

 
Adjustments to arrive at AOI:
 
 
 
 
 
 
 
 
 
 
 
Effect of investment (gains) losses, net of offsets
 
3

 
8

 
(23
)
 
21

 
2

 
Effect of change in FIA embedded derivative discount rate, net of offsets
 
(7
)
 
23

 
(21
)
 
15

 
20

 
Effect of change in fair value of reinsurance related embedded derivative, net of offsets
 
(13
)
 
(19
)
 
(17
)
 
(1
)
 
(8
)
 
Effects of class action litigation reserves, net of offsets
 
—

 
—

 
—

 
—

 
(1
)
 
AOI
 
$
31

 
$
42

 
$
25

 
$
23

 
$
27

 
 
 
 
 
 
 
 
 
 
 
 
 
Per diluted common share:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
0.82

 
$
0.51

 
$
1.48

 
$
(0.21
)
 
$
0.24

 
Adjustments to arrive at AOI:
 
 
 
 
 
 
 
 
 
 
 
Effect of investment (gains) losses, net of offsets
 
0.05

 
0.15

 
(0.39
)
 
0.37

 
0.04

 
Effect of change in FIA embedded derivative discount rate, net of offsets
 
(0.12
)
 
0.39

 
(0.37
)
 
0.26

 
0.34

 
Effect of change in fair value of reinsurance related embedded derivative, net of offsets
 
(0.22
)
 
(0.33
)
 
(0.29
)
 
(0.02
)
 
(0.15
)
 
Effects of class action litigation reserves, net of offsets
 
—

 
—

 
—

 
—

 
(0.01
)
 
AOI per diluted share
 
$
0.53

 
$
0.72

 
$
0.43

 
$
0.40

 
$
0.46

 




7
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(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, (iii) the effect of change in fair value of reinsurance related embedded derivative, and (iv) the effect of class action litigation reserves. All adjustments to AOI are net of the corresponding VOBA, DAC and income tax impact (using an effective tax rate of 35%) related to these adjustments 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.


8
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)


Summary of Adjustments to Arrive at AOI (Unaudited)

 
 
Three Months Ended
 
 
December 31, 2015
 
September 30, 2015
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
 
(Dollars in millions)
Revenue:
 
 
 
 
 
 
 
 
 
 
Net investment gains (a)
 
$
(21
)
 
$
(23
)
 
$
(81
)
 
$
49

 
$
(14
)
(Decrease) increase in total revenues
 
(21
)
 
(23
)
 
(81
)
 
49

 
(14
)
 
 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves (b)
 
(19
)
 
61

 
(64
)
 
34

 
51

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

 
1

 
—

 
—

 
(1
)
Amortization of intangibles
 
14

 
(21
)
 
52

 
(29
)
 
(16
)
Increase (decrease) in total benefits and expenses
 
(5
)
 
41

 
(12
)
 
5

 
34

 
 
 
 
 
 
 
 
 
 
 
(Decrease) increase in pre-tax operating income
 
(26
)
 
18

 
(93
)
 
54

 
20

 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in income tax expense (benefit)
 
9

 
(6
)
 
32

 
(19
)
 
(7
)
Increase (decrease) in net income (loss)
 
$
(17
)
 
$
12

 
$
(61
)
 
$
35

 
$
13


(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.

9
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

AOI Analysis (Unaudited)

Each quarterly reporting period, we identify notable items that explain the trends in our 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 or earnings calls to explain our AOI results.  We believe that understanding these items provides further clarity to the financial performance of the business.   
 
 
Three Months Ended
 
 
December 31, 2015
 
September 30, 2015
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
 
 
(Dollars in millions)
AOI
 
$
31

 
$
42

 
$
25

 
$
23

 
$
27

Notable Items Included within AOI [(unfavorable)/favorable]
 
 
 
 
 
 
 
 
 
 
Legacy incentive compensation (a)
 
(1
)
 
(1
)
 
(1
)
 
(2
)
 
(2
)
Project expenses (b)
 
(2
)
 
(2
)
 
(1
)
 
(1
)
 
(1
)
Single premium immediate annuities ("SPIA") mortality & other reserve adjustments (c)
 
(3
)
 
(5
)
 
(2
)
 
—

 
3

Assumption review & DAC unlocking (d)
 
2

 
14

 
—

 
—

 
—

Tax valuation allowance / other (e)
 
1

 
2

 
—

 
—

 
—


(a) 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.
(d) 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. Also includes unlocking in other quarters from updating our DAC amortization models for actual experience and equity market fluctuations.
(e) Changes in the Company's deferred tax valuation allowance and other net favorable activity.

10
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)


Capitalization/Book Value per Share

 
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
December 31,
2014
 
 
(Dollars in millions, except per share data)
Capitalization:
 
 
 
 
 
 
 
 
 
 
Debt
 
$
300

 
$
300

 
$
300

 
$
300

 
$
300

Total debt
 
300

 
300

 
300

 
300

 
300

Total shareholders' equity
 
1,399

 
1,502

 
1,559

 
1,710

 
1,665

Total capitalization
 
1,699

 
1,802

 
1,859

 
2,010

 
1,965

AOCI
 
(62
)
 
88

 
175

 
408

 
345

Total capitalization excluding AOCI (a)
 
$
1,761

 
$
1,714

 
$
1,684

 
$
1,602

 
$
1,620

 
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
1,399

 
1,502

 
1,559

 
1,710

 
1,665

AOCI
 
(62
)
 
88

 
175

 
408

 
345

Total shareholders' equity excluding AOCI (a)
 
$
1,461

 
$
1,414

 
$
1,384

 
$
1,302

 
$
1,320

 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
 
58.96

 
58.87

 
58.76

 
58.74

 
58.70

 
 
 
 
 
 
 
 
 
 


Book Value per Share: (b)
 


 
 
 
 
 
 
 
 
GAAP Book value per share including AOCI
 
$
23.73

 
$
25.51

 
$
26.53

 
$
29.11

 
$
28.36

GAAP Book value per share excluding AOCI (a)
 
$
24.78

 
$
24.02

 
$
23.55

 
$
22.17

 
$
22.49

 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve months ended
Twelve Month Rolling Average Return on Equity ("ROE")
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
December 31,
2014
Return on Shareholders' Equity (c)
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity, excluding AOCI (c)
 
11
%
 
9
%
 
10
%
 
8
 %
 
11
%
 
 
 
 
 
 
 
 
 
 
 
Return on Shareholders' Equity - AOI (d)
 
 
 
 
 
 
 
 
 
 
Adjusted Operating ROE, excluding AOCI (d)
 
9
%
 
9
%
 
8
%
 
9
 %
 
11
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
Quarterly Average ROE
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
December 31,
2014
Return on average shareholders' equity, excluding AOCI (c)
 
13
%
 
9
%
 
26
%
 
(4
)%
 
4
%
Adjusted Operating ROE, excluding AOCI (d)
 
9
%
 
12
%
 
7
%
 
7
 %
 
8
%
 
 
 
 
 
 
 
 
 
 
 
Debt-to-Capital Ratios: (e)
 
 
 
 
 
 
 
 
 
 
Long-term debt/Total capitalization excluding AOCI
 
17
%
 
18
%
 
18
%
 
19
 %
 
19
%

11
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(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 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 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 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 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.



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
 
CreditWatch Developing
 
Under Review With Developing Implications
 
Positive
 
Ratings Watch Evolving

12
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

Net Investment Spread Results
(Dollars in millions)
Three Months Ended
 
 
December 31, 2015
 
December 31, 2014
 
Yield on average assets under management "AAUM" (at amortized cost)
4.87
 %
 
4.83
 %
 
Less: Interest credited and option cost
(2.73
)%
 
(2.99
)%
 
Total net investment spread - All product lines
2.14
 %
 
1.84
 %
 
 
 
 
 
 
FIA net investment spread
2.92
 %
 
2.87
 %
 
 
 
 
 
 
Investment book yield - bonds purchased during the period (b)
5.50
 %
 
5.21
 %
 
 
 
 
 
 
AAUM (a)
$
18,239

 
$
17,266

 

(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) 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, 2015
 
September 30, 2015
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
Fixed index annuities
 
$
437

 
$
424

 
$
507

 
$
600

 
$
648

Fixed rate annuities
 
52

 
9

 
12

 
10

 
255

Index universal life
 
13

 
11

 
10

 
7

 
7

All other products
 
—

 
1

 
5

 
7

 
8

Total Sales
 
$
502

 
$
445

 
$
534

 
$
624

 
$
918




13
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)


Annuity Account Balance Rollforward (a)

(Dollars in millions)
 
Three months ended
 
 
December 31, 2015
 
September 30, 2015
 
June 30, 2015
 
March 31, 2015
 
December 31, 2014
Account balances at beginning of period:
 
$
14,154

 
$
14,000

 
$
13,655

 
$
13,254

 
$
12,643

Net deposits
 
507

 
435

 
525

 
608

 
828

Premium and interest bonuses
 
12

 
9

 
9

 
9

 
9

Fixed interest credited and index credits
 
66

 
75

 
117

 
115

 
126

Guaranteed product rider fees
 
(13
)
 
(8
)
 
(9
)
 
(9
)
 
(7
)
Surrenders, withdrawals, deaths, etc.
 
(396
)
 
(357
)
 
(296
)
 
(322
)
 
(345
)
Account balance at end of period
 
$
14,330

 
$
14,154

 
$
14,001


$
13,655


$
13,254

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

Annuity Deposits by Product Type

 
 
Three Months Ended
 
Product Type
 
December 31, 2015
 
December 31, 2014
 
 
 
(Dollars in millions)
 
Fixed Index Annuities:
 
 
 
 
 
Index Strategies
 
$
374

 
$
572

 
Fixed Strategy
 
79

 
79

 
 
 
453


651


 
 
 
 
 
 
Fixed Rate Annuities:
 
 
 
 
 
Single-Year Rate Guaranteed
 
1

 
12

 
Multi-Year Rate Guaranteed
 
53

 
236

 
 
 
 
 
 
 
Total before coinsurance ceded
 
507

 
899

 
Coinsurance ceded
 
—

 
71

 
Net after coinsurance ceded
 
$
507


$
828






14
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Account Values (net of reinsurance) at December 31, 2015:
 
 
Surrender Charge
 
Net Account Value
Product Type
 
Avg. Years at Issue
 
Avg. Years Remaining
 
Avg. % Remaining
 
Dollars in millions
 
%
Fixed Index Annuities
 
11
 
6
 
8
%
 
$
11,531

 
80
%
Single-Year Rate Guaranteed
 
10
 
1
 
1
%
 
650

 
5
%
Multi-Year Rate Guaranteed
 
5
 
3
 
6
%
 
2,149

 
15
%
Total
 
 
 
 
 
 
 
$
14,330

 
100
%



15
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)



Annuity Liability Characteristics

 
 
Fixed Annuities Account Value
 
Fixed Index Annuities Account Value
 
 
(Dollars in millions)
SURRENDER CHARGE PERCENTAGES:
 
 
 
 
No surrender charge
 
$
619

 
$
1,520

0.0% < 2.0%
 
37

 
144

2.0% < 4.0%
 
66

 
804

4.0% < 6.0%
 
214

 
659

6.0% < 8.0%
 
1,135

 
1,070

8.0% < 10.0%
 
675

 
2,414

10.0% or greater
 
53

 
4,920

 
 
$
2,799

 
$
11,531


 
 
Fixed and Fixed Index Annuities Account Value
 
Weighted Average Surrender Charge
 
 
(Dollars in millions)
 
 
SURRENDER CHARGE EXPIRATION BY YEAR:
 
 
 
 
Out of Surrender Charge
 
$
2,107

 
—
%
2015
 
849

 
3
%
2016 - 2017
 
2,645

 
6
%
2018 - 2019
 
1,849

 
8
%
2020 - 2021
 
1,566

 
9
%
Thereafter
 
5,314

 
12
%
 
 
$
14,330

 
8
%


16
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

 
 
Fixed Annuities Account Value
 
Fixed Index Annuities Account Value
 
 
(Dollars in millions)
CREDITED RATE (INCLUDING BONUS INTEREST) VS. ULTIMATE MINIMUM GUARANTEED RATE DIFFERENTIAL:
 
 
 
 
No differential
 
$
1,115

 
$
991

0.0% - 1.0%
 
469

 
1,111

1.0% - 2.0%
 
233

 
75

2.0% - 3.0%
 
923

 
14

3.0% - 4.0%
 
59

 
1

4.0% - 5.0%
 
—

 
—

Allocated to index strategies
 
—

 
9,339

 
 
$
2,799

 
$
11,531

    
FIXED INDEX ANNUITIES ACCOUNT VALUE - INDEX STRATEGIES

Monthly Average, Point to Point and Gain Trigger Strategies with Cap

 
 
Minimum Guaranteed Cap
 
 
1%
 
2%
 
3%
 
5%
 
6%
Current Cap
 
(Dollars in millions)
At minimum
 
$
—

 
$
—

 
$
764

 
$
858

 
$
—

 2-3%
 
115

 
—

 
—

 
—

 
—

 3-4%
 
523

 
—

 
740

 
—

 
—

 4-5%
 
262

 
—

 
738

 
—

 
—

 5-6%
 
32

 
—

 
584

 
27

 
—

 6-7%
 
25

 
1

 
78

 
9

 
2

 7% +
 
33

 
8

 
130

 
—

 
64

Total:
 
$
990

 
$
9

 
$
3,034

 
$
894

 
$
66

    








17
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)


Monthly Point-to-Point with Cap
 
 
Minimum Guaranteed Cap 1%
Current Cap
 
(Dollars in millions)
At minimum
 
$
199

 1% to 2%
 
2,478

 2% to 3%
 
955

 3% +
 
406

 Total:
 
$
4,038


3 Year Step Forward with Cap
 
 
Minimum Guaranteed Cap 2%
 
Minimum Guaranteed Cap 5%
Current Cap
 
(Dollars in millions)
At minimum
 
$
—

 
$
17

 2% to 5%
 
—

 
—

 5% to 7%
 
2

 
50

 7% to 9%
 
—

 
51

 9% to 11%
 
—

 
20

 11% to 13%
 
—

 
12

 13% +
 
—

 
—

 Total:
 
$
2

 
$
150


There is an additional $155 million Account Value allocated to strategies not listed above. Of this $155 million, $16 million is at the guaranteed rates.











18
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)



Summary of Invested Assets by Asset Class

(Dollars in millions)
 
December 31, 2015
 
September 30, 2015
 
 
Amortized Cost
 
Fair Value
 
Percent
 
Amortized Cost
 
Fair Value
 
Percent
Fixed maturity securities, available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
    United States Government full faith and credit
 
$
233

 
$
240

 
1
%
 
$
233

 
$
244

 
1
%
    United States Government sponsored entities
 
128

 
130

 
1
%
 
134

 
137

 
1
%
    United States municipalities, states and territories
 
1,543

 
1,631

 
9
%
 
1,520

 
1,608

 
8
%
Corporate securities:
 
 
 
 
 
 
 
 
 
 
 
 
    Finance, insurance and real estate
 
4,454

 
4,572

 
24
%
 
4,272

 
4,446

 
23
%
    Manufacturing, construction and mining
 
938

 
796

 
4
%
 
867

 
772

 
4
%
    Utilities, energy and related sectors
 
2,047

 
1,917

 
10
%
 
1,893

 
1,849

 
10
%
    Wholesale/retail trade
 
1,058

 
1,050

 
6
%
 
1,018

 
1,027

 
5
%
    Services, media and other
 
1,576

 
1,490

 
8
%
 
1,483

 
1,436

 
8
%
Hybrid securities
 
1,174

 
1,160

 
6
%
 
1,211

 
1,214

 
6
%
Non-agency residential mortgage-backed securities
 
1,391

 
1,416

 
8
%
 
1,965

 
2,025

 
11
%
Commercial mortgage-backed securities
 
848

 
835

 
4
%
 
878

 
882

 
5
%
Asset-backed securities
 
2,294

 
2,191

 
12
%
 
2,148

 
2,106

 
11
%
Equity securities
 
601

 
637

 
3
%
 
597

 
620

 
3
%
Commercial mortgage loans
616

 
602

 
3
%
 
491

 
490

 
3
%
Other (primarily derivatives and loan participations)
 
358

 
270

 
1
%
 
382

 
235

 
1
%
Total
 
$
19,259

 
$
18,937

 
100
%
 
19,092

 
$
19,091

 
100
%

Credit Quality of Fixed Maturity Securities at December 31, 2015
NAIC Designation
 
Fair Value
 
Percent
 
Rating Agency Rating
 
Fair Value
 
Percent
 
 
(Dollars in millions)
 
 
 
 
 
(Dollars in millions)
 
 
1
 
$
9,897

 
57
%
 
AAA
 
$
1,554

 
9
%
2
 
6,554

 
38
%
 
AA
 
1,843

 
11
%
3
 
715

 
4
%
 
A
 
4,350

 
25
%
4
 
193

 
1
%
 
BBB
 
7,454

 
43
%
5
 
68

 
—
%
 
BB
 
758

 
4
%
6
 
1

 
—
%
 
B and below
 
1,469

 
8
%
 
 
$
17,428

 
100
%
 
 
 
$
17,428

 
100
%

19
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)


Managed and Direct Related Party Investments

(Dollars in Millions)
 
 
 
December 31, 2015
Type
 
Balance Sheet Classification
 
Amortized Cost
 
Fair Value
Investments managed by related parties:
 
 
 
 
 
 
Salus collateralized loan obligations
 
Fixed maturities, available-for-sale
 
$
164

 
$
164

Fortress Investment Group collateralized loan obligations
 
Fixed maturities, available-for-sale
 
190

 
184

Salus participations (b)
 
Other invested assets
 
85

 
76

Energy & Infrastructure Capital ("EIC") participations
 
Other invested assets
 
9

 
8

 
 
Total investments managed by related parties
 
$
448

 
$
432

 
 
 
 
 
 
 
Direct investment in related parties:
 
 
 
 
 
 
HGI energy loan
 
Related party loans
 
78

 
78

Salus preferred equity
 
Equity securities, available-for-sale
 
3

 
5

Foreign exchange derivatives and embedded derivatives
 
Other invested assets
 
12

 
12

Salus promissory note (90 day term)
 
Related party loans
 
3

 
3

 
 
Total direct investment in related parties
 
$
96

 
$
98

 
 
 
 
 
 
 
Assets above included in FSRCI Funds withheld portfolio:
 
 
 
 
 
 
Fortress Investment Group collateralized loan obligations
 
Fixed Maturities, available-for-sale
 
19

 
17

HGI energy loan
 
Related Party Loans
 
28

 
28

Salus collateralized loan obligations
 
Fixed Maturities, available-for-sale
 
8

 
8

Salus participations
 
Other Invested Assets
 
5

 
5

Salus preferred equity
 
Equity securities, available-for-sale
 
3

 
5

 
 
Total assets included in FSRCI Funds withheld portfolio
 
$
63

 
$
63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b) Includes loan participations with 12 different borrowers with an average loan fair value of $6 as of December 31, 2015.
 
 
 
 


20
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

Summary of Residential Mortgage Backed Securities by Collateral Type and NAIC Designation

 
 
December 31, 2015
Collateral Type
 
Principal Amount
 
Amortized Cost
 
Fair Value
 
 
(Dollars in millions)
Total by collateral type
 
 
 
 
 
 
Government agency
 
$
123

 
$
128

 
$
130

Prime
 
278

 
236

 
239

Subprime
 
413

 
354

 
363

Alt-A
 
1,069

 
801

 
814

 
 
$
1,883

 
$
1,519

 
$
1,546

Total by NAIC designation
 
 
 
 
 
 
1
 
$
1,848

 
$
1,493

 
$
1,523

2
 
14

 
7

 
6

3
 
4

 
4

 
4

4
 
8

 
8

 
7

5
 
9

 
7

 
6

 
 
$
1,883

 
$
1,519

 
$
1,546




21
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

Top 10 Holdings by Issuers

(Dollars in millions)
 
December 31, 2015
Issuer (a):
 
Fair Value
 
Percentage of Total Invested Assets
Wells Fargo & Company
 
$
156

 
0.8
%
Goldman Sachs Group, Inc.
 
141

 
0.7
%
Metropolitan Transportation Authority (NY)
 
114

 
0.6
%
General Electric Company
 
109

 
0.6
%
JP Morgan Chase & Co.
 
104

 
0.5
%
Bank of America Corp
 
103

 
0.5
%
Nationwide Mutual Insurance Company
 
90

 
0.5
%
Cooperatieve Centrale Raiffeis
 
86

 
0.5
%
Metlife, Inc.
 
84

 
0.4
%
TIAA Board of Overseers
 
81

 
0.4
%
(a) Issuers excluding U.S. Governmental securities and any securities held in our funds withheld portfolio.

22
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

Reinsurance Counterparty Risk


 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
 
 
Financial Strength Rating
Parent Company/Principal Reinsurers
 
Reinsurance Recoverable (a)
 
AM Best
 
S&P
 
Moody's
Wilton Reinsurance
 
$
1,492

 
 A
 
 Not Rated
 
 Not Rated
Front Street Re
 
1,198

 
 Not Rated
 
 Not Rated
 
 Not Rated
Security Life of Denver
 
143

 
 A
 
 A
 
 A2
Scottish Re
 
143

 
 Not Rated
 
 Not Rated
 
 Not Rated
London Life
 
107

 
 A
 
 Not Rated
 
 Not Rated

(a) Reinsurance recoverables do not include unearned ceded premiums that would be recovered in the event of early termination of certain traditional life policies.




23
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

Shareholder Information

Corporate Offices:
Fidelity & Guaranty Life
Two Ruan Center
601 Locust Street, 14th Floor
Des Moines, IA  50309


Investor Contact:
Lisa Foxworthy-Parker
Fidelity & Guaranty Life
515-330-3307


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


Common stock and Dividend Information:
New York Stock Exchange symbol: "FGL"

 
 
High
 
Low
 
Close
 
Dividend Declared
FY2016
 
 
 
 
 
 
 
 
First Quarter
 
$
27.87

 
$
24.01

 
$
25.37

 
$
0.065


Transfer Agent
American Stock Transfer & Trust
59 Maiden Lane, Plaza Level
New York, NY 10038
Phone: (800) 937-5449
Fax: (718) 236-2641
http://www.amstock.com



24
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - December 31, 2015
(unaudited)

Research Analyst Coverage


Jimmy Bhullar
J.P. Morgan
(212) 622-6397
jimmy.s.bhullar@jpmorgancom


Sean Dargan
Macquarie Capital (USA) Inc.
212-231-0663


Eric Berg
RBC Capital Markets
(212) 618-7593


John Barnidge
Sandler O'Neill + Partners
(312) 281-3412














25

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