Form 8-K Fidelity & Guaranty Life For: Nov 16

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November 16, 2016 4:18 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): November 16, 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 November 16, 2016, Fidelity & Guaranty Life issued a press release announcing its results of operations for the quarter ended September 30, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Report. In addition, Fidelity & Guaranty Life is including as Exhibit 99.2 to this report the related quarterly financial supplement.


Item 9.01
Financial Statements and Exhibits.
 
(d) Exhibits
 
 
 
 
 
Exhibit
No.
  
 
Description
 
 
99.1
 
Press Release of Fidelity & Guaranty Life dated November 16, 2016
99.2
 
Financial Supplement of Fidelity & Guaranty Life dated November 16, 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: November 16, 2016




Fidelity & Guaranty Life Reports Fiscal Fourth Quarter 2016 Results
•
Reported net income was $30 million or $0.52 per diluted share for the fourth quarter, and $97 million or $1.66 per diluted share for the full year
•
Adjusted operating income was $40 million or $0.69 per diluted share for the fourth quarter, and $162 million or $2.77 per diluted share for the full year
•
Total annuity sales for the fiscal year increased 2% over prior year to $2.5 billion and indexed universal life ("IUL") sales increased 60% over prior year to $56 million
•
Fixed indexed annuity sales were $482 million for the fourth quarter, a 14% increase over the prior year quarter
•
Average assets under management increased to $18.7 billion, up 6% over prior year; net investment spread across all product lines up 30 basis points over prior year

DES MOINES, Iowa: November 16, 2016 -- Fidelity & Guaranty Life (NYSE: FGL), a leading provider of annuities and life insurance, today reported net income of $30 million or $0.52 per diluted common share, for the fiscal fourth quarter of 2016 ended on September 30, 2016(1). The Company reported adjusted operating income of $40 million, or $0.69 per diluted share, compared to adjusted operating income of $42 million, or $0.72 per diluted share, in the prior year period.
The table below reconciles reported after-tax net income to adjusted operating income ("AOI").
 
 
Three months ended September 30,
 
 
(In millions)
 
(Unaudited)
 
 
Reconciliation from Net Income to AOI(2):
 
2016
 
2015
 
Increase (decrease)
Net income
 
$
30

 
$
30

 
$
—

Effect of investment losses (gains), net of offsets
 
5

 
12

 
(7
)
Effect of change in FIA embedded derivative discount rate, net of offsets
 
(7
)
 
35

 
(42
)
Effect of change in fair value of reinsurance related embedded derivative, net of offsets
 
17

 
(29
)
 
46

Tax impact of adjusting items
 
(5
)
 
(6
)
 
1

Adjusted operating income
 
$
40

 
$
42

 
$
(2
)
See footnotes at end of release.
The current quarter included net favorable items of $4 million or $0.07 per diluted share. The prior year quarter included net favorable items of $8 million or $0.14 per diluted share. The table below details notable items in both periods.
 
 
 
 
 
 
 
Current Year Fiscal Quarter
 
 
 
 
 
•  Net favorable adjustments related to lower deferred acquisition cost ("DAC") amortization, primarily due to equity market fluctuations, and bond prepayment income
 
$6 million
 
 
 
•  Higher expenses related to long-term incentive compensation plans
 
($2) million
 
 
Prior Year Fiscal Quarter
 
 
 
 
 
•  Net favorable adjustments related to annual actuarial assumption review, lower DAC amortization due to equity market fluctuations, and bond prepayment income
 
$16 million
 
 
 
•  Unfavorable actual to expected mortality within single premium immediate annuity ("SPIA") product line
 
($5) million
 
 
 
•  Higher expense (legacy incentive compensation & merger transaction costs)
 
($3) million
 
 
 
 
 
 
 
"We delivered another strong quarter and full year with improvements across most of our key metrics, including sales, net investment income and spread, adjusted operating income, and assets under management," said Chris Littlefield, President and CEO of FGL. "Our FIA sales are up nicely over the prior year quarter while continuing to achieve our targeted profitability, and we have been growing our IUL business with existing and new distribution.  In addition, we recently announced the extension of our merger




agreement with Anbang. We are continuing the work to secure required regulatory approvals to complete the pending merger, and we remain committed to closing the transaction once the regulatory approval process concludes.”

Fiscal Year 2016 Summary
FGL reported net income of $97 million, or $1.66 per diluted share, for fiscal year 2016, compared to net income of $118 million, or $2.02 per diluted share, for fiscal year 2015. The Company reported adjusted operating income of $162 million, or $2.77 per diluted share, for fiscal year 2016, compared to adjusted operating income of $118 million, or $2.02 per diluted share, for fiscal year 2015. The prior fiscal year included net favorable items of $2 million, whereby the $16 million benefit from the annual actuarial assumption review, lower DAC amortization due to equity market fluctuations, and bond prepayment income were partially offset by $4 million SPIA mortality losses and $10 million of expenses related to the legacy incentive compensation plan and merger transaction costs. The current fiscal year includes $17 million benefit from lower DAC amortization primarily due to equity market fluctuations, $6 million bond prepayment income and $7 million SPIA and other favorable reserve adjustments, partially offset by $6 million higher expense related to the pending merger transaction and long-term incentive compensation plans.

Summary Financial Results (Unaudited)
 
 
Three months ended September 30,
 
Year ended September 30,
(In millions, except per share data)
 
2016
 
2015
 
2016
 
2015
Fixed indexed annuity sales (2)
 
$
482

 
$
424

 
$
1,832

 
$
2,179

Total annuity sales (2)
 
$
603

 
$
434

 
$
2,525

 
$
2,466

Average assets under management (2)
 
$
19,381

 
$
18,114

 
$
18,738

 
$
17,722

Net investment spread - FIA (2)
 
2.98
%
 
2.95
%
 
2.97
%
 
2.90
%
Net investment spread - All products (2)
 
2.27
%
 
2.20
%
 
2.27
%
 
1.97
%
Net income
 
$
30

 
$
30

 
$
97

 
$
118

Net income per diluted share
 
$
0.52

 
$
0.51

 
$
1.66

 
$
2.02

Adjusted operating income (“AOI”) (2)
 
$
40

 
$
42

 
$
162

 
$
118

AOI per diluted share (2)
 
$
0.69

 
$
0.72

 
$
2.77

 
$
2.02

Weighted average basic shares
 
58.3

 
58.1

 
58.3

 
58.1

Weighted average diluted shares
 
58.4

 
58.4

 
58.6

 
58.4

Total common shares outstanding
 
59.0

 
58.9

 
59.0

 
58.9

Book value per share
 
$
32.80

 
$
25.51

 
$
32.80

 
$
25.51

Book value per share, excluding AOCI (2)
 
$
25.36

 
$
24.02

 
$
25.36

 
$
24.02

See footnotes below.

Sales In Line With Expectations
For the fiscal fourth quarter, sales of our core fixed indexed annuity ("FIA") product were $482 million, an increase of 14% over the prior year quarter. FIA sales levels in recent quarters reflect continued strong and productive partnerships with our independent marketing organizations ("IMO's"). FIA sales were $1.8 billion for the fiscal year, a 16% decrease over the prior year. As expected, FIA sales were down from the prior year as we intentionally moderated volume to sustain a disciplined approach for new business profitability and capital management.
Sales of multi-year guarantee annuities ("MYGA") were $121 million in the current quarter as compared to $10 million in the same period last year. We continue to view this business opportunistically; therefore MYGA volume will fluctuate from period to period. Total annuity sales were $603 million for the fourth quarter, an increase of 39% compared to the fiscal fourth quarter of 2015. For the fiscal year, total annuity sales were $2.5 billion, a 2% increase over the prior year.




Indexed universal life sales in the quarter were $17 million, an increase of 55% compared to $11 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. Sales of indexed universal life were $56 million for the fiscal year, a 60% increase over the prior period.
Investment Portfolio Performing Well
Net investment income was $238 million for the quarter, an increase of 7% compared to $223 million for the same period last year. This growth was driven by increases in average assets under management ("AAUM"), which grew $1.0 billion or 6% over the prior year from sales and stable policy owner retention trends.
The average earned yield on the total portfolio in the quarter was 4.90%, down 2 basis points from 4.92% in the prior year quarter which benefited from higher bond prepayment income. Asset purchases during the quarter were $0.8 billion at an average yield of 4.83%. Asset purchases during the current quarter were primarily in investment grade corporate bonds and structured securities and high grade preferred stocks. The average NAIC rating for the portfolio remains approximately 1.5.
Net investment spread across all product lines increased 7 basis points compared to fiscal fourth quarter 2015. Net investment spread in the current quarter for fixed indexed annuities was consistent with recent performance at 298 basis points. Current period results also included net realized losses on available-for-sale investments of $8 million before DAC amortization and taxes.

Capital Management Trends
•
GAAP book value per share at September 30, 2016 was $32.80 on a reported basis; book value per share excluding accumulated other comprehensive income (“AOCI”) was $25.36, an increase of 6% year over year.
•
As of September 30, 2016, the Company has drawn down $100 million of its unsecured revolving credit facility. Proceeds were contributed to the insurance subsidiary to support continued growth of the business. The remaining amount available under the revolver credit facility is $50 million.
•
As announced on November 10, 2016, the FGL Board of Directors has declared a quarterly dividend of $0.065 per share. The dividend is payable on December 12, 2016 to shareholders of record as of the close of business on November 28, 2016.






FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 
September 30,
2016
 
September 30,
2015
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: September 30, 2016 - $18,521; September 30, 2015 - $17,622)
$
19,411

 
$
17,746

Equity securities, available-for-sale, at fair value (amortized cost: September 30, 2016 - $640; September 30, 2015 - $597)
683

 
620

Derivative investments
276

 
82

Commercial mortgage loans
595

 
491

Other invested assets
60

 
155

Total investments
21,025

 
19,094

Related party loans
71

 
78

Cash and cash equivalents
864

 
502

Accrued investment income
214

 
191

Reinsurance recoverable
3,464

 
3,579

Intangibles, net
1,026

 
988

Deferred tax assets
—

 
228

Other assets
371

 
265

Total assets
$
27,035

 
$
24,925

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Contractholder funds
$
19,251

 
$
17,770

Future policy benefits
3,467

 
3,468

Funds withheld for reinsurance liabilities
1,172

 
1,267

Liability for policy and contract claims
55

 
55

Debt
300

 
300

Revolving credit facility
100

 
—

Deferred tax liability
10

 
—

Other liabilities
746

 
563

Total liabilities
25,101

 
23,423

 
 
 
 
Commitments and contingencies

 

 
 
 
 
 Shareholders' equity:
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at September 30, 2016 and September 30, 2015)
$
—

 
$
—

Common stock ($.01 par value, 500,000,000 shares authorized, 58,956,127 issued and outstanding at September 30, 2016; 58,870,823 shares issued and outstanding at September 30, 2015)
1

 
1

Additional paid-in capital
714

 
714

Retained earnings
792

 
710

Accumulated other comprehensive income
439

 
88

Treasury stock, at cost (537,613 shares at September 30, 2016; 512,391 shares at September 30, 2015)
(12
)
 
(11
)
Total shareholders' equity
1,934

 
1,502

Total liabilities and shareholders' equity
$
27,035

 
$
24,925





FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
 
Three months ended
 
Year Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Premiums
$
18

 
$
15

 
$
70

 
$
58

Net investment income
238

 
223

 
923

 
851

Net investment gains (losses)
26

 
(112
)
 
19

 
(37
)
Insurance and investment product fees and other
34

 
24

 
127

 
89

Total revenues
316

 
150

 
1,139

 
961

Benefits and expenses:
 
 
 
 
 
 
 
Benefits and other changes in policy reserves
206

 
104

 
791

 
578

Acquisition and operating expenses, net of deferrals
36

 
30

 
119

 
113

Amortization of intangibles
20

 
(33
)
 
54

 
64

        Total benefits and expenses
262

 
101

 
964

 
755

Operating income
54

 
49

 
175

 
206

Interest expense
(5
)
 
(6
)
 
(22
)
 
(24
)
Income before income taxes
49

 
43

 
153

 
182

Income tax expense
19

 
13

 
56

 
64

        Net income
$
30

 
$
30

 
$
97

 
$
118

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.52

 
$
0.52

 
$
1.67

 
$
2.03

Diluted
$
0.52

 
$
0.51

 
$
1.66

 
$
2.02

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

 
58.1

 
58.3

 
58.1

Diluted
58.4

 
58.4

 
58.6

 
58.4

 
 
 
 
 
 
 
 
Cash dividend per common share
$
0.065

 
$
0.065

 
$
0.260

 
$
0.260








RECONCILIATION OF BOOK VALUE PER SHARE EXCLUDING AOCI

(In millions, except per share data)
September 30, 2016
 
September 30, 2015
Reconciliation to total shareholder's equity:
 
 
 
Total shareholder's equity
$
1,934

 
$
1,502

     Less: AOCI
439

 
88

Total shareholder's equity excluding AOCI
$
1,495

 
$
1,414

 
 
 
 
Total shares outstanding
59.0

 
58.9

Weighted average shares outstanding - basic
58.3

 
58.1

Weighted average shares outstanding - diluted
58.6

 
58.4

 
 
 
 
Book value per share
$
32.80

 
$
25.51

Book value per share, excluding AOCI(2)
$
25.36

 
$
24.02



 
 
 
 
 
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. On November 3, 2016, FGL and Anbang extended the merger agreement through February 8, 2017. For more information, please visit FGL’s investor relations website at www.fglife.com.
FGL and Anbang are committed to securing the remaining regulatory approvals and seek to close the Merger as expeditiously as possible, however, the closing of the Merger, and the timing thereof, is subject to the regulatory review and approval process, none of which can be assured. The Merger remains subject to the receipt of regulatory approvals from the Iowa Insurance Division, the New York Department of Financial Services and the China Insurance Regulatory Commission ("CIRC").  The parties have obtained requisite regulatory approvals for the Merger from the Vermont Department of Financial Regulation and the Committee on Foreign Investment in the United States ("CFIUS").  The parties will not be required to file a notification of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, due to an available exemption.

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




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






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


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

Source: Fidelity & Guaranty Life


Exhibit 99.2


logo2a02a05.jpg




Investor Supplement
Fourth 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.

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
September 30, 2016
 
Page
 
 
 
B. Product Summary
 
 
 
C. Investment Summary
 
 
 
D. Counterparty Risk
 
 
 
 
 

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Consolidated Financial Highlights
 
Three Months Ended
 
Twelve Months Ended
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
 
(Dollars in millions)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
$
18

 
$
21

 
$
16

 
$
15

 
$
15

 
$
70

 
$
58

Net investment income
238

 
236

 
227

 
222

 
223

 
923

 
851

Net investment gains (losses)
26

 
(28
)
 
(42
)
 
63

 
(112
)
 
19

 
(37
)
Insurance and investment product fees and other
34

 
32

 
32

 
29

 
24

 
127

 
89

Total revenues
316

 
261

 
233

 
329

 
150

 
1,139

 
961

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
30

 
$
10

 
$
9

 
$
48

 
$
30

 
$
97

 
$
118

Adjusted Operating Income ("AOI")
$
40

 
$
48

 
$
43

 
$
31

 
$
42

 
$
162

 
$
118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Unrestricted Common Shares Amounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.52

 
$
1.67

 
$
2.03

AOI
$
0.69

 
$
0.82

 
$
0.74

 
$
0.53

 
$
0.72

 
$
2.78

 
$
2.03

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.51

 
$
1.66

 
$
2.02

AOI
$
0.69

 
$
0.82

 
$
0.73

 
$
0.53

 
$
0.72

 
$
2.77

 
$
2.02

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid to shareholders per share
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
$
0.260

 
$
0.260

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At Period End
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
864

 
$
719

 
$
496

 
$
568

 
$
502

 
$
864

 
$
502

Total investments
$
21,025

 
$
20,548

 
$
19,580

 
$
18,953

 
$
19,094

 
$
21,025

 
$
19,094

Total assets
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031

 
$
24,925

 
$
27,035

 
$
24,925

Contractholder funds
$
19,251

 
$
18,874

 
$
18,295

 
$
17,961

 
$
17,770

 
$
19,251

 
$
17,770

Future policy benefits
$
3,467

 
$
3,466

 
$
3,463

 
$
3,473

 
$
3,468

 
$
3,467

 
$
3,468

Debt (including revolving credit facility)
$
400

 
$
300

 
$
300

 
$
300

 
$
300

 
$
400

 
$
300

Total equity
$
1,934

 
$
1,782

 
$
1,511

 
$
1,399

 
$
1,502

 
$
1,934

 
$
1,502

Total equity excluding AOCI
$
1,495

 
$
1,477

 
$
1,468

 
$
1,461

 
$
1,414

 
$
1,495

 
$
1,414

Common shares issued and outstanding
58.96

 
58.96

 
58.96

 
58.96

 
58.87

 
58.96

 
58.87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP book value per share
$
32.80

 
$
30.22

 
$
25.63

 
$
23.73

 
$
25.51

 
$
32.80

 
$
25.51

GAAP book Value per Share excluding AOCI
$
25.36

 
$
25.05

 
$
24.90

 
$
24.78

 
$
24.02

 
25.36

 
24.02

Debt to total Capitalization excluding AOCI
21.1
%
 
16.9
%
 
17.0
%
 
17.0
%
 
17.5
%
 
21.1
%
 
17.5
%
Return on average shareholders' equity
8.1
%
 
2.7
%
 
2.5
%
 
13.4
%
 
8.6
%
 
6.6
%
 
9.0
%
Statutory book value per share(1)
$
22.39

 
$
21.23

 
$
21.28

 
$
21.13

 
$
20.79

 
22.39

 
20.79

Statutory book value per share excluding IMR and AVR(1)
$
32.20

 
$
31.35

 
$
31.43

 
$
31.55

 
$
31.40

 
32.20

 
31.40

(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 - September 30, 2016
(unaudited)

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
ASSETS
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: September 30, 2016 - $18,521; September 30, 2015 - $17,622)
$
19,411

 
$
18,972

 
$
18,057

 
$
17,428

 
$
17,746

Equity securities, available-for-sale, at fair value (amortized cost: September 30, 2016 - $640; September 30, 2015 - $597)
683

 
645

 
620

 
637

 
620

Derivative investments
276

 
216

 
158

 
145

 
82

Commercial mortgage loans
595

 
622

 
613

 
616

 
491

Other invested assets
60

 
93

 
132

 
127

 
155

Total investments
21,025

 
20,548

 
19,580

 
18,953

 
19,094

Related party loans
71

 
72

 
76

 
81

 
78

Cash and cash equivalents
864

 
719

 
496

 
568

 
502

Accrued investment income
214

 
192

 
209

 
181

 
191

Reinsurance recoverable
3,464

 
3,476

 
3,512

 
3,552

 
3,579

Intangibles, net
1,026

 
1,048

 
1,170

 
1,162

 
988

Deferred tax assets
—

 
84

 
228

 
286

 
228

Other assets
371

 
199

 
228

 
248

 
265

Total assets
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031

 
$
24,925

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Contractholder funds
$
19,251

 
$
18,874

 
$
18,295

 
$
17,961

 
$
17,770

Future policy benefits
3,467

 
3,466

 
3,463

 
3,473

 
3,468

Funds withheld for reinsurance liabilities
1,172

 
1,190

 
1,210

 
1,251

 
1,267

Liability for policy and contract claims
55

 
45

 
51

 
64

 
55

Debt
300

 
300

 
300

 
300

 
300

Revolving credit facility
100

 
—

 
—

 
—

 
—

Deferred tax liability
10

 
—

 
—

 
—

 
—

Other liabilities
746

 
681

 
669

 
583

 
563

Total liabilities
25,101

 
24,556

 
23,988

 
23,632

 
23,423

 
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at September 30, 2016 and September 30, 2015)
—

 
—

 
—

 
—

 
—

Common stock ($.01 par value, 500,000,000 shares authorized, 58,956,127 issued and outstanding at September 30, 2016; 58,870,823 shares issued and outstanding at September 30, 2015)
1

 
1

 
1

 
1

 
1

Additional paid-in capital
714

 
723

 
720

 
718

 
714

Retained earnings
792

 
765

 
759

 
754

 
710

Accumulated other comprehensive income
439

 
305

 
43

 
(62
)
 
88

Treasury stock, at cost (537,613 shares at September 30, 2016; 512,391 shares at September 30, 2015)
(12
)
 
(12
)
 
(12
)
 
(12
)
 
(11
)
Total shareholders' equity
1,934

 
1,782

 
1,511

 
1,399

 
1,502

Total liabilities and shareholders' equity
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031

 
$
24,925


4
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Quarterly Summary - Most Recent 5 Quarters
 
Three Months Ended
 
Twelve Months Ended
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
 
(Dollars in millions)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Traditional life insurance premiums
$
11

 
$
10

 
$
11

 
$
10

 
$
11

 
$
42

 
$
43

Life contingent immediate annuity
7

 
11

 
5

 
5

 
4

 
28

 
15

Net investment income
238

 
236

 
227

 
222

 
223

 
923

 
851

Net investment gains
26

 
(28
)
 
(42
)
 
63

 
(112
)
 
19

 
(37
)
Surrender charges
8

 
5

 
5

 
4

 
5

 
22

 
19

Cost of insurance fees and other income
26

 
27

 
27

 
25

 
19

 
105

 
70

Total revenues
316

 
261

 
233

 
329

 
150

 
1,139

 
961

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

 
18

 
16

 
18

 
18

 
70

 
74

Life contingent immediate annuity benefits and changes in future policy benefits
25

 
31

 
21

 
32

 
30

 
109

 
95

Interest sensitive and index product benefits and changes in future policy benefits
163

 
167

 
151

 
131

 
56

 
612

 
409

General expenses
30

 
26

 
25

 
26

 
29

 
107

 
106

Acquisition expenses
89

 
88

 
75

 
73

 
64

 
325

 
298

Deferred acquisition costs ("DAC")
(83
)
 
(86
)
 
(73
)
 
(71
)
 
(63
)
 
(313
)
 
(291
)
Amortization of intangibles
20

 
(4
)
 
(3
)
 
41

 
(33
)
 
54

 
64

        Total benefits and expenses
262

 
240

 
212

 
250

 
101

 
964

 
755

Operating income
54

 
21

 
21

 
79

 
49

 
175

 
206

Interest expense
(5
)
 
(5
)
 
(6
)
 
(6
)
 
(6
)
 
(22
)
 
(24
)
Income before income taxes
49

 
16

 
15

 
73

 
43

 
153

 
182

Income tax expense
19

 
6

 
6

 
25

 
13

 
56

 
64

Net income
$
30

 
$
10

 
$
9

 
$
48

 
$
30

 
$
97

 
$
118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.52

 
$
1.67

 
$
2.03

Diluted
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.51

 
$
1.66

 
$
2.02

Weighted average common shares used in computing net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
58.26

 
58.31

 
58.31

 
58.22

 
58.09

 
58.28

 
58.12

Diluted
$
58.35

 
58.66

 
58.61

 
58.54

 
58.42

 
58.58

 
58.36



5
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


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

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

 
$
10

 
$
9

 
$
48

 
$
30

 
$
97

 
$
118

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

 
5

 
(5
)
 
4

 
12

 
9

 
13

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

 
43

 
(10
)
 
35

 
54

 
56

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

 
26

 
14

 
(20
)
 
(29
)
 
37

 
(69
)
Effects of class action litigation reserves, net of offsets (a)
 
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
Tax impact of adjusting items
 
(5
)
 
(21
)
 
(18
)
 
9

 
(6
)
 
(35
)
 
1

AOI
 
$
40

 
$
48

 
$
43

 
$
31

 
$
42

 
$
162

 
$
118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per diluted common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.51

 
$
1.66

 
$
2.02

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

 
0.09

 
(0.09
)
 
0.07

 
0.21

 
0.16

 
0.22

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

 
0.73

 
(0.17
)
 
0.60

 
0.92

 
0.96

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

 
0.44

 
0.24

 
(0.34
)
 
(0.50
)
 
0.63

 
(1.18
)
Effects of class action litigation reserves, net of offsets (a)
 
—

 
—

 
—

 
—

 
—

 
—

 
(0.02
)
Tax impact of adjusting items
 
(0.09
)
 
(0.35
)
 
(0.31
)
 
0.15

 
(0.10
)
 
(0.60
)
 
0.02

AOI per diluted share
 
$
0.69

 
$
0.82

 
$
0.73

 
$
0.53

 
$
0.72

 
$
2.77

 
$
2.02


(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 - September 30, 2016
(unaudited)


NON-GAAP FINANCIAL MEASURES
AOI
AOI is a non-GAAP economic measure we use to evaluate financial performance each period. AOI is calculated by adjusting net income to eliminate (i) the impact of net investment gains including other than temporary impairment ("OTTI") losses recognized in operations, but excluding gains and losses on derivatives hedging our indexed annuity policies, (ii) the effect of changes in the interest rates used to discount the FIA embedded derivative liability, (iii) the effect of change in fair value of the reinsurance related embedded derivative and (iv) the effect of class action litigation reserves. All adjustments to AOI are net of the corresponding VOBA and DAC. 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 - September 30, 2016
(unaudited)


Summary of Adjustments to Arrive at AOI

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

 
$
44

 
$
11

 
$
(21
)
 
$
(23
)
 
$
63

 
$
(70
)
Increase (decrease) in total revenues
 
29

 
44

 
11

 
(21
)
 
(23
)
 
63

 
(70
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves (b)
 
(16
)
 
53

 
80

 
(19
)
 
61

 
97

 
83

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

 
—

 
—

 
—

 
1

 
—

 
—

Amortization of intangibles
 
2

 
(38
)
 
(39
)
 
14

 
(21
)
 
(60
)
 
(13
)
(Decrease) increase in total benefits and expenses
 
(14
)
 
15

 
41

 
(5
)
 
41

 
37

 
70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in pre-tax operating income
 
15

 
59

 
52

 
(26
)
 
18

 
100

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Decrease) increase in income tax expense
 
(5
)
 
(21
)
 
(18
)
 
9

 
(6
)
 
(35
)
 
—

(Decrease) increase in net income
 
$
10

 
$
38

 
$
34

 
$
(17
)
 
$
12

 
$
65

 
$
—


(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.

8
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

AOI Analysis

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 to explain our AOI results.  We believe that understanding these items provides further clarity to the financial performance of the business.   
 
 
Three Months Ended
 
Twelve Months Ended
 
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
 
 
(Dollars in millions)
AOI
 
$
40

 
$
48

 
$
43

 
$
31

 
$
42

 
$
162

 
$
118

Notable Items Included within AOI [(unfavorable)/favorable]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy incentive compensation (a)
 
(2
)
 
1

 
—

 
(1
)
 
(1
)
 
(2
)
 
(5
)
Project expenses (b)
 
—

 
(1
)
 
(1
)
 
(2
)
 
(2
)
 
(4
)
 
(5
)
Single premium immediate annuities ("SPIA") mortality & other reserve adjustments (c)
 
—

 
4

 
5

 
(3
)
 
(5
)
 
7

 
(4
)
Assumption review & DAC unlocking (d)
 
5

 
7

 
4

 
2

 
14

 
17

 
14

Other, including bond prepayment income & tax valuation allowance (e)
 
1

 
2

 
2

 
1

 
2

 
6

 
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. Also, in the 4th fiscal quarter of 2016 reflects Performance Restricted Stock Unit (PRSU) fair value adjustment, shifting from equity to liability classification for settlement of vested awards in cash.
(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) 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, receipt of bond prepayment income and other net favorable activity.

9
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Capitalization/Book Value per Share

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

 
$
300

 
$
300

 
$
300

 
$
300

Total debt
 
400

 
300

 
300

 
300

 
300

Total shareholders' equity
 
1,934

 
1,782

 
1,511

 
1,399

 
1,502

Total capitalization
 
2,334

 
2,082

 
1,811

 
1,699

 
1,802

AOCI
 
439

 
305

 
43

 
(62
)
 
88

Total capitalization excluding AOCI (a)
 
$
1,895

 
$
1,777

 
$
1,768

 
$
1,761

 
$
1,714

 
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
1,934

 
1,782

 
1,511

 
1,399

 
1,502

AOCI
 
439

 
305

 
43

 
(62
)
 
88

Total shareholders' equity excluding AOCI (a)
 
$
1,495

 
$
1,477

 
$
1,468

 
$
1,461

 
$
1,414

 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
 
58.96

 
58.96

 
58.96

 
58.96

 
58.87

 
 
 
 
 
 
 
 
 
 
 
Book Value per Share: (b)
 
 
 


 
 
 
 
 
 
GAAP book value per share including AOCI
 
$
32.80

 
$
30.22

 
$
25.63

 
$
23.73

 
$
25.51

GAAP book value per share excluding AOCI (a)
 
$
25.36

 
$
25.05

 
$
24.90

 
$
24.78

 
$
24.02

 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve months ended
Twelve Month Rolling Average Return on Equity ("ROE")
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
Return on Shareholders' Equity (c)
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity, excluding AOCI (c)
 
6.6
%
 
6.7
%
 
12.3
%
 
11.0
%
 
8.8
%
 
 
 
 
 
 
 
 
 
 
 
Return on Shareholders' Equity - AOI (d)
 
 
 
 
 
 
 
 
 
 
Adjusted operating ROE, excluding AOCI (d)
 
11.1
%
 
11.4
%
 
10.0
%
 
8.8
%
 
8.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
Quarterly Average ROE
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
Return on average shareholders' equity, excluding AOCI (c)
 
8.1
%
 
2.7
%
 
2.5
%
 
13.4
%
 
8.6
%
Adjusted operating ROE, excluding AOCI (d)
 
10.8
%
 
13.1
%
 
11.7
%
 
8.6
%
 
12.0
%
 
 
 
 
 
 
 
 
 
 
 
Debt-to-Capital Ratios: (e)
 
 
 
 
 
 
 
 
 
 
Long-term debt/Total capitalization excluding AOCI
 
21.1
%
 
16.9
%
 
17.0
%
 
17.0
%
 
17.5
%

10
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


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

 
 
 
 
 
 
 
 
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
 
Stable
*Reflects current ratings and outlooks as of date of filing

11
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Net Investment Spread Results
(Dollars in millions)
Three Months Ended
 
Twelve Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Yield on average assets under management "AAUM" (at amortized cost)
4.90
 %
 
4.92
 %
 
4.92
 %
 
4.80
 %
Less: Interest credited and option cost
(2.63
)%
 
(2.72
)%
 
(2.65
)%
 
(2.83
)%
Total net investment spread - All product lines
2.27
 %
 
2.20
 %
 
2.27
 %
 
1.97
 %
 
 
 
 
 
 
 
 
FIA net investment spread
2.98
 %
 
2.95
 %
 
2.97
 %
 
2.90
 %
 
 
 
 
 
 
 
 
Investment book yield - bonds purchased during the period (b)
4.83
 %
 
5.13
 %
 
5.35
 %
 
4.92
 %
 
 
 
 
 
 
 
 
AAUM (a)
$
19,381

 
$
18,114

 
$
18,738

 
$
17,722


(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
 
Twelve Months Ended
 
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Fixed index annuities ("FIA")
 
$
482

 
$
495

 
$
418

 
$
437

 
$
424

 
1,832

 
2,179

Fixed rate annuities ("MYGA")
 
121

 
180

 
183

 
52

 
10

 
536

 
287

Institutional spread based (a)
 
—

 
157

 
—

 
—

 
—

 
157

 
—

Total Annuity
 
$
603

 
$
832

 
$
601

 
$
489

 
$
434

 
$
2,525

 
$
2,466

Index universal life
 
17

 
15

 
11

 
13

 
11

 
56

 
35

Total Sales
 
$
620

 
$
847

 
$
612

 
$
502

 
$
445

 
$
2,581

 
$
2,501

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



12
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


Annuity Account Balance Rollforward (a)

(Dollars in millions)
 
Three months ended
 
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
Account balances at beginning of period:
 
$
14,935

 
$
14,599

 
$
14,330

 
$
14,154

 
$
14,000

Net deposits
 
598

 
687

 
608

 
507

 
435

Premium and interest bonuses
 
10

 
11

 
11

 
12

 
9

Fixed interest credited and index credits
 
81

 
45

 
41

 
66

 
75

Guaranteed product rider fees
 
(12
)
 
(14
)
 
(14
)
 
(13
)
 
(8
)
Surrenders, withdrawals, deaths, etc.
 
(362
)
 
(393
)
 
(377
)
 
(396
)
 
(357
)
Account balance at end of period
 
$
15,250

 
$
14,935

 
$
14,599

 
$
14,330


$
14,154

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

Annuity Deposits by Product Type

 
 
Three Months Ended
 
Twelve Months Ended
Product Type
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
 
 
(Dollars in millions)
Fixed index annuities:
 
 
 
 
 
 
 
 
Index strategies
 
$
388

 
$
354

 
$
1,502

 
$
1,886

Fixed strategy
 
98

 
72

 
359

 
300

 
 
486


426


1,861


2,186

 
 
 
 
 
 
 
 
 
Fixed rate annuities:
 
 
 
 
 
 
 
 
Single-year rate guaranteed
 
—

 
5

 
4

 
35

Multi-year rate guaranteed
 
111

 
5

 
535

 
248

 
 
 
 
 
 
 
 
 
Total before coinsurance ceded
 
597

 
436

 
2,400

 
2,469

Coinsurance ceded
 
—

 
1

 
1

 
74

Net after coinsurance ceded
 
$
597


$
435


$
2,399


$
2,395





13
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Account Values (net of reinsurance) at September 30, 2016:
 
 
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
%
 
$
12,092

 
79
%
Single-year rate guaranteed
 
10
 
1
 
1
%
 
622

 
4
%
Multi-year rate guaranteed
 
5
 
3
 
7
%
 
2,536

 
17
%
Total
 
 
 
 
 
 
 
$
15,250

 
100
%



14
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)



Annuity Liability Characteristics

 
 
Fixed Annuities Account Value
 
Fixed Index Annuities Account Value
 
 
(Dollars in millions)
SURRENDER CHARGE PERCENTAGES:
 
 
 
 
No surrender charge
 
$
598

 
$
1,773

0.0% < 2.0%
 
43

 
224

2.0% < 4.0%
 
120

 
536

4.0% < 6.0%
 
514

 
559

6.0% < 8.0%
 
976

 
1,249

8.0% < 10.0%
 
861

 
2,550

10.0% or greater
 
46

 
5,201

 
 
$
3,158

 
$
12,092


 
 
Fixed and Fixed Index Annuities Account Value
 
Weighted Average Surrender Charge
 
 
(Dollars in millions)
 
 
SURRENDER CHARGE EXPIRATION BY YEAR:
 
 
 
 
Out of Surrender Charge
 
$
2,394

 
—
%
2016
 
203

 
3
%
2017 - 2018
 
2,441

 
5
%
2019 - 2020
 
1,769

 
7
%
2021 - 2022
 
1,964

 
8
%
Thereafter
 
6,479

 
11
%
 
 
$
15,250

 
7
%


15
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(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
 
$
1,062

 
$
1,164

0.0% - 1.0%
 
431

 
1,170

1.0% - 2.0%
 
284

 
75

2.0% - 3.0%
 
1,325

 
14

3.0% - 4.0%
 
56

 
—

Allocated to index strategies
 
—

 
9,669

 
 
$
3,158

 
$
12,092

    
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
 
$
—

 
$
—

 
$
1,199

 
$
727

 
$
—

 2-3%
 
278

 
—

 
—

 
—

 
—

 3-4%
 
752

 
—

 
459

 
—

 
—

 4-5%
 
420

 
—

 
660

 
—

 
—

 5-6%
 
67

 
—

 
324

 
10

 
—

 6-7%
 
25

 
2

 
40

 
1

 
4

 7% +
 
55

 
20

 
155

 
—

 
67

Total:
 
$
1,597

 
$
22

 
$
2,837

 
$
738

 
$
71

    









16
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Monthly Point-to-Point with Cap
 
 
Minimum Guaranteed Cap 1%
Current Cap
 
(Dollars in millions)
At minimum
 
$
892

 1% to 2%
 
1,942

 2% to 3%
 
975

 3% +
 
262

 Total:
 
$
4,071


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

 
$
18

 5% to 7%
 
—

 
54

 7% to 9%
 
—

 
42

 9% to 11%
 
6

 
21

 11% to 13%
 
—

 
10

 13% +
 
—

 
—

 Total:
 
$
6

 
$
145


There is an additional $182 million Account Value allocated to strategies not listed above. Of this $182 million, $15 million is at the guaranteed rates.












Summary of Invested Assets by Asset Class

17
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


(Dollars in millions)
 
September 30, 2016
 
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

 
$
243

 
1
%
 
$
233

 
$
244

 
1
%
    United States Government sponsored entities
 
112

 
115

 
1
%
 
134

 
137

 
1
%
    United States municipalities, states and territories
 
1,515

 
1,717

 
8
%
 
1,520

 
1,608

 
8
%
Corporate securities:
 
 
 
 
 
 
 
 
 
 
 
 
    Finance, insurance and real estate
 
5,084

 
5,463

 
26
%
 
4,272

 
4,446

 
23
%
    Manufacturing, construction and mining
 
847

 
863

 
4
%
 
867

 
772

 
4
%
    Utilities, energy and related sectors
 
1,811

 
1,881

 
9
%
 
1,893

 
1,849

 
10
%
    Wholesale/retail trade
 
1,205

 
1,277

 
6
%
 
1,018

 
1,027

 
5
%
    Services, media and other
 
1,765

 
1,856

 
9
%
 
1,483

 
1,436

 
8
%
Hybrid securities
 
1,356

 
1,386

 
7
%
 
1,211

 
1,214

 
6
%
Non-agency residential mortgage backed securities
 
1,215

 
1,247

 
6
%
 
1,965

 
2,025

 
11
%
Commercial mortgage backed securities
 
850

 
864

 
4
%
 
878

 
882

 
5
%
Asset backed securities
 
2,528

 
2,499

 
12
%
 
2,148

 
2,106

 
11
%
Equity securities
 
640

 
683

 
3
%
 
597

 
620

 
3
%
Commercial mortgage loans
595

 
614

 
3
%
 
491

 
490

 
3
%
Other (primarily derivatives and loan participations)
 
281

 
334

 
1
%
 
382

 
235

 
1
%
Total
 
$
20,037

 
$
21,042

 
100
%
 
19,092

 
$
19,091

 
100
%

Credit Quality of Fixed Maturity Securities at September 30, 2016
NAIC Designation
 
Fair Value
 
Percent
 
Rating Agency Rating
 
Fair Value
 
Percent
 
 
(Dollars in millions)
 
 
 
 
 
(Dollars in millions)
 
 
1
 
$
10,678

 
55
%
 
AAA
 
$
1,509

 
8
%
2
 
7,534

 
39
%
 
AA
 
1,933

 
10
%
3
 
866

 
5
%
 
A
 
5,126

 
27
%
4
 
255

 
1
%
 
BBB
 
8,404

 
43
%
5
 
75

 
—
%
 
BB
 
1,017

 
5
%
6
 
3

 
—
%
 
B and below
 
1,422

 
7
%
 
 
$
19,411

 
100
%
 
 
 
$
19,411

 
100
%


18
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


Managed and Direct Related Party Investments

(Dollars in Millions)
 
 
 
September 30, 2016
Type
 
Balance Sheet Classification
 
Amortized Cost
 
Fair Value
Investments managed by related parties:
 
 
 
 
 
 
Salus collateralized loan obligations
 
Fixed maturities, available-for-sale
 
$
19

 
$
19

Fortress Investment Group collateralized loan obligations
 
Fixed maturities, available-for-sale
 
231

 
225

Salus participations (a)
 
Other invested assets
 
21

 
21

 
 
Total investments managed by related parties
 
$
271

 
$
265

 
 
 
 
 
 
 
Direct investment in related parties:
 
 
 
 
 
 
HGI energy loan
 
Related party loans
 
72

 
71

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

 
3

 
 
Total direct investment in related parties
 
$
75

 
$
74

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

 
18

HGI energy loan
 
Related Party Loans
 
72

 
71

Salus collateralized loan obligations
 
Fixed Maturities, available-for-sale
 
1

 
1

Salus participations
 
Other Invested Assets
 
2

 
2

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

 
3

 
 
Total assets included in FSRCI Funds withheld portfolio
 
$
97

 
$
95

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Includes loan participations with 4 different borrowers with an average loan fair value of $5 as of September 30, 2016.
 
 
 
 


19
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

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

 
 
September 30, 2016
Collateral Type
 
Principal Amount
 
Amortized Cost
 
Fair Value
 
 
(Dollars in millions)
Total by collateral type
 
 
 
 
 
 
Government agency
 
$
107

 
$
112

 
$
115

Prime
 
240

 
206

 
208

Subprime
 
365

 
313

 
322

Alt-A
 
934

 
696

 
717

 
 
$
1,646

 
$
1,327

 
$
1,362

Total by NAIC designation
 
 
 
 
 
 
1
 
$
1,623

 
$
1,306

 
$
1,343

2
 
2

 
2

 
2

3
 
6

 
5

 
5

4
 
8

 
8

 
7

5
 
7

 
6

 
5

 
 
$
1,646

 
$
1,327

 
$
1,362




20
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Top 10 Holdings by Issuers

(Dollars in millions)
 
September 30, 2016
Issuer (a):
 
Fair Value
 
Percentage of Total Invested Assets
Wells Fargo & Company
 
$
161

 
0.8
%
AT&T Inc.
 
145

 
0.7
%
Metropolitan Transportation Authority (NY)
 
125

 
0.6
%
Goldman Sachs Group, Inc.
 
115

 
0.5
%
General Electric Company
 
115

 
0.5
%
JP Morgan Chase & Co.
 
109

 
0.5
%
Nationwide Mutual Insurance Company
 
98

 
0.5
%
Entergy Corp
 
93

 
0.4
%
Metlife, Inc.
 
89

 
0.4
%
Rabobank Nederland
 
89

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

21
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Reinsurance Counterparty Risk Top 5 Reinsurers


 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
 
 
Financial Strength Rating
Parent Company/Principal Reinsurers
 
Reinsurance Recoverable (a)
 
AM Best
 
S&P
 
Moody's
Wilton Reinsurance
 
$
1,523

 
 A
 
 Not Rated
 
 Not Rated
Front Street Re
 
1,120

 
 Not Rated
 
 Not Rated
 
 Not Rated
Scottish Re
 
153

 
Not Rated
 
Not Rated
 
Not Rated
Security Life of Denver
 
143

 
A
 
A
 
A2
London Life
 
104

 
 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.



22
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(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

Second Quarter
 
$
26.55

 
$
23.99

 
$
26.24

 
$
0.065

Third Quarter
 
$
26.49

 
$
22.17

 
$
23.18

 
$
0.065

Fourth Quarter
 
$
24.30

 
$
21.42

 
$
23.19

 
$
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


23
FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Research Analyst Coverage


Jimmy Bhullar
J.P. Morgan
(212) 622-6397


Mark Dwelle
RBC Capital Markets
(804) 782-4008


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

24

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