DES MOINES, Iowa, Feb. 6, 2017 /PRNewswire/ -- Fidelity &
Guaranty Life (NYSE: FGL), a leading provider of annuities and life
insurance, today announced financial results for the fiscal first
quarter of 2017.
- Reported net income was $108
million or $1.85 per diluted
share for the first quarter
- Adjusted operating income was $41
million or $0.70 per diluted
share for the first quarter
- Total annuity sales were $648
million; including fixed indexed annuity ("FIA") sales of
$551 million, up 26% over prior
year
- Indexed universal life ("IUL") sales increased 31% over
prior year to $17 million
- Average assets under management increased to $19.8 billion, up 8% over prior year
Net income for the fiscal first quarter of 2017 ended on
December 31, 2016(1) was $108 million or $1.85 per diluted common share. Adjusted
operating income for the fiscal first quarter of 2017 was
$41 million, or $0.70 per diluted share, compared to adjusted
operating income of $31 million, or
$0.53 per diluted share, in the prior
year period.
The table below reconciles reported after-tax net income to
adjusted operating income ("AOI").
(In
millions)
|
|
Three months
ended
December
31,
|
|
|
|
|
(Unaudited)
|
|
|
Reconciliation
from Net Income to AOI(2):
|
|
2016
|
|
2015
|
|
Increase
(decrease)
|
Net income
|
|
$
|
108
|
|
|
$
|
48
|
|
|
$
|
60
|
|
Effect of investment
losses (gains), net of offsets
|
|
(1)
|
|
|
4
|
|
|
(5)
|
|
Effect of change in
FIA embedded derivative discount rate, net of offsets
|
|
(92)
|
|
|
(10)
|
|
|
(82)
|
|
Effect of change in
fair value of reinsurance related embedded derivative, net of
offsets
|
|
(10)
|
|
|
(20)
|
|
|
10
|
|
Tax impact of
adjusting items
|
|
36
|
|
|
9
|
|
|
27
|
|
Adjusted operating
income
|
|
$
|
41
|
|
|
$
|
31
|
|
|
$
|
10
|
|
See footnotes at end
of release.
|
The current quarter included net favorable items of $4 million or $0.07
per diluted share. The prior year quarter included net unfavorable
items of ($3) million or ($0.05) per diluted share. The table below
details notable items in both periods.
|
|
|
|
|
|
|
Current Year
Fiscal Quarter
|
|
|
|
|
|
- Favorable
actual to expected mortality within the single premium immediate
annuity ("SPIA") product line
|
|
$2 million
|
|
|
|
- Higher net
investment income from bond prepayment income
|
|
$2 million
|
|
|
Prior Year Fiscal
Quarter
|
|
|
|
|
|
- Unfavorable
actual to expected mortality within SPIA product line
|
|
($3)
million
|
|
|
|
- Higher
expense related to legacy incentive compensation plans & merger
transaction costs
|
|
($3)
million
|
|
|
|
- Net favorable
adjustments related to lower deferred acquisition cost ("DAC")
amortization, due to equity
market fluctuations,
and bond prepayment income
|
|
$3 million
|
|
|
|
|
|
|
|
"We've delivered another strong quarter and fiscal 2017 is off
to a good start with solid increases in sales, net income, net
investment income, adjusted operating income and assets under
management," said Chris Littlefield,
President and CEO of FGL. "As we look to the future, we expect to
benefit if interest rates continue to rise and if the regulatory
environment becomes more favorable under President Trump's
administration. With respect to the Anbang transaction, we
are continuing discussions with Anbang regarding an extension of
the outside termination date beyond February
8, 2017. We expect to make an announcement on or about
February 9, 2017 regarding the
outcome of our discussions."
Summary Financial
Results (Unaudited)
|
|
|
|
Three months ended
December 31,
|
(In millions, except
per share data)
|
|
2016
|
|
2015
|
Fixed indexed annuity
sales (2)
|
|
$
|
551
|
|
|
$
|
437
|
|
Total annuity sales
(2)
|
|
$
|
648
|
|
|
$
|
489
|
|
Average assets under
management (2)
|
|
$
|
19,768
|
|
|
$
|
18,239
|
|
Net investment spread
- FIA (2)
|
|
3.00
|
%
|
|
2.92
|
%
|
Net investment spread
- All products (2)
|
|
2.29
|
%
|
|
2.14
|
%
|
Net income
|
|
$
|
108
|
|
|
$
|
48
|
|
Net income per
diluted share
|
|
$
|
1.85
|
|
|
$
|
0.82
|
|
Adjusted operating
income ("AOI") (2)
|
|
$
|
41
|
|
|
$
|
31
|
|
AOI per diluted share
(2)
|
|
$
|
0.70
|
|
|
$
|
0.53
|
|
Weighted average
basic shares
|
|
58.3
|
|
|
58.2
|
|
Weighted average
diluted shares
|
|
58.4
|
|
|
58.5
|
|
Total common shares
outstanding
|
|
59.0
|
|
|
59.0
|
|
Book value per
share
|
|
$
|
29.70
|
|
|
$
|
23.73
|
|
Book value per share,
excluding AOCI (2)
|
|
$
|
27.11
|
|
|
$
|
24.78
|
|
See footnotes
below.
|
Sales In Line With Expectations
Sales of our core fixed indexed annuity product were
$551 million in the current period,
an increase of 26% over the prior year quarter. On a sequential
basis, FIA sales increased 14% as compared to the fiscal fourth
quarter 2016. FIA sales levels in recent quarters reflect continued
strong and productive partnerships with our independent marketing
organizations ("IMO's").
Sales of multi-year guarantee annuities ("MYGA") were
$97 million in the current quarter as
compared to $52 million in the same
period last year. Total annuity sales were $648 million for the current quarter, an increase
of 33% over the prior year quarter.
Indexed universal life sales in the quarter were $17 million, an increase of 31% compared to
$13 million last year. This increase
reflects FGL's efforts to grow our IUL business with expanded
distribution.
Investment Portfolio Performing Well
Net investment income was $240
million for the quarter, an increase of 8% compared to
$222 million for the same period last
year. This growth was right in line with the increase in average
assets under management ("AAUM"), which were up $1.5 billion or 8% over the prior year from sales
and stable policy owner retention trends.
The average earned yield on the total portfolio in the quarter
was 4.85%, consistent with 4.87% in the prior year quarter. Asset
purchases during the quarter were $1.2
billion at an average yield of 4.78%. Asset purchases during
the current quarter were primarily in investment grade corporate
bonds and structured securities. The average NAIC rating for
the portfolio remains approximately 1.5.
Net investment spread across all product lines increased 15
basis points to 229 basis points, compared to fiscal first quarter
2016. Net investment spread in the current quarter for fixed
indexed annuities was consistent with recent performance at 300
basis points.
Capital Management Trends
- GAAP book value per share at December
31, 2016 was $29.70 on a
reported basis; book value per share excluding accumulated other
comprehensive income ("AOCI") was $27.11, an increase of 9% year over year.
- As announced on February 2, 2017,
the FGL Board of Directors has declared a quarterly dividend of
$0.065 per share. The dividend is
payable on March 6, 2017 to
shareholders of record as of the close of business on February 21, 2017.
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEETS (In millions, except share
data)
|
|
|
December 31,
2016
|
|
September 30,
2016
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed maturity
securities, available-for-sale, at fair value (amortized cost:
December 31, 2016 - $19,173; September 30, 2016 -
$18,521)
|
$
|
19,437
|
|
|
$
|
19,411
|
|
Equity securities,
available-for-sale, at fair value (amortized cost: December 31,
2016 - $691; September 30, 2016 - $640)
|
696
|
|
|
683
|
|
Derivative
investments
|
314
|
|
|
276
|
|
Commercial mortgage
loans
|
582
|
|
|
595
|
|
Other invested
assets
|
47
|
|
|
60
|
|
Total
investments
|
21,076
|
|
|
21,025
|
|
Related party
loans
|
71
|
|
|
71
|
|
Cash and cash
equivalents
|
632
|
|
|
864
|
|
Accrued investment
income
|
201
|
|
|
214
|
|
Reinsurance
recoverable
|
3,444
|
|
|
3,464
|
|
Intangibles,
net
|
1,228
|
|
|
1,026
|
|
Deferred tax
assets
|
68
|
|
|
—
|
|
Other
assets
|
232
|
|
|
371
|
|
Total
assets
|
$
|
26,952
|
|
|
$
|
27,035
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Contractholder
funds
|
$
|
19,486
|
|
|
$
|
19,251
|
|
Future policy
benefits
|
3,453
|
|
|
3,467
|
|
Funds withheld for
reinsurance liabilities
|
1,142
|
|
|
1,172
|
|
Liability for policy
and contract claims
|
53
|
|
|
55
|
|
Debt
|
300
|
|
|
300
|
|
Revolving credit
facility
|
100
|
|
|
100
|
|
Deferred tax
liability
|
—
|
|
|
10
|
|
Other
liabilities
|
666
|
|
|
746
|
|
Total
liabilities
|
25,200
|
|
|
25,101
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
Preferred stock ($.01
par value, 50,000,000 shares authorized, no shares issued at
December 31, 2016 and September 30, 2016)
|
$
|
—
|
|
|
$
|
—
|
|
Common stock ($.01
par value, 500,000,000 shares authorized, 58,984,034 issued
and outstanding at December 31, 2016; 58,956,127 shares issued and
outstanding at September 30, 2016)
|
1
|
|
|
1
|
|
Additional paid-in
capital
|
715
|
|
|
714
|
|
Retained
earnings
|
896
|
|
|
792
|
|
Accumulated other
comprehensive income
|
153
|
|
|
439
|
|
Treasury stock, at
cost (565,723 shares at December 31, 2016; 537,613 shares at
September 30, 2016)
|
(13)
|
|
|
(12)
|
|
Total
shareholders' equity
|
1,752
|
|
|
1,934
|
|
Total liabilities
and shareholders' equity
|
$
|
26,952
|
|
|
$
|
27,035
|
|
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (In millions, except per
share data)
|
|
|
Three months
ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
(Unaudited)
|
Revenues:
|
|
|
|
Premiums
|
$
|
11
|
|
|
$
|
15
|
|
Net investment
income
|
240
|
|
|
222
|
|
Net investment
gains
|
51
|
|
|
63
|
|
Insurance and
investment product fees and other
|
38
|
|
|
29
|
|
Total
revenues
|
340
|
|
|
329
|
|
Benefits and
expenses:
|
|
|
|
Benefits and other
changes in policy reserves
|
20
|
|
|
181
|
|
Acquisition and
operating expenses, net of deferrals
|
28
|
|
|
28
|
|
Amortization of
intangibles
|
123
|
|
|
41
|
|
Total
benefits and expenses
|
171
|
|
|
250
|
|
Operating
income
|
169
|
|
|
79
|
|
Interest
expense
|
(6)
|
|
|
(6)
|
|
Income before income
taxes
|
163
|
|
|
73
|
|
Income tax
expense
|
(55)
|
|
|
(25)
|
|
Net
income
|
$
|
108
|
|
|
$
|
48
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.85
|
|
|
$
|
0.82
|
|
Diluted
|
$
|
1.85
|
|
|
$
|
0.82
|
|
Weighted average
common shares used in computing net income per common
share:
|
|
|
|
Basic
|
58.3
|
|
|
58.2
|
|
Diluted
|
58.4
|
|
|
58.5
|
|
|
|
|
|
Cash dividend per
common share
|
$
|
0.065
|
|
|
$
|
0.065
|
|
RECONCILIATION OF
BOOK VALUE PER SHARE EXCLUDING AOCI
|
|
(In millions,
except per share data)
|
December 31,
2016
|
|
September 30,
2016
|
Reconciliation to
total shareholder's equity:
|
|
|
|
Total shareholder's
equity
|
$
|
1,752
|
|
|
$
|
1,934
|
|
Less: AOCI
|
153
|
|
|
439
|
|
Total shareholder's
equity excluding AOCI
|
$
|
1,599
|
|
|
$
|
1,495
|
|
|
|
|
|
Total shares
outstanding
|
59.0
|
|
|
59.0
|
|
Weighted average
shares outstanding - basic
|
58.3
|
|
|
58.3
|
|
Weighted average
shares outstanding - diluted
|
58.4
|
|
|
58.6
|
|
|
|
|
|
Book value per
share
|
$
|
29.70
|
|
|
$
|
32.80
|
|
Book value per share,
excluding AOCI(2)
|
$
|
27.11
|
|
|
$
|
25.36
|
|
|
|
Footnotes:
|
|
(1)
|
Fidelity &
Guaranty Life's fiscal year ends on September 30.
|
(2)
|
Non-GAAP
financial measure. See the Non-GAAP Measures section below for
additional information.
|
Agreement and Plan of Merger with Anbang Insurance Group Co.,
Ltd. ("Anbang")
On November 8, 2015, FGL and
Anbang entered into a definitive merger agreement (the "Merger
Agreement") pursuant to which Anbang will acquire all outstanding
shares of FGL (the "Merger") for $26.80 per share in cash, without interest. On
November 3, 2016, FGL and Anbang
extended the outside termination date for the completion of the
merger to February 8, 2017.
Accordingly, either party may terminate the merger agreement if the
closing of the merger does not occur prior to February 8, 2017. The parties are in discussions
regarding an extension of the outside termination date beyond
February 8, 2017. We expect to make
an announcement on or about February 9,
2017 regarding the outcome of our discussions.
The Merger remains subject to the receipt of regulatory
approvals from the Iowa Insurance Division, the New York Department
of Financial Services and the China Insurance Regulatory Commission
("CIRC"). The parties have obtained requisite regulatory
approvals for the Merger from the Vermont Department of
Financial Regulation and the Committee on Foreign Investment
in the United States
("CFIUS"). The parties will not be required to file a
notification of the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, due to an available
exemption.
Non-GAAP Measures
Management believes that certain non-GAAP financial measures may
be useful in certain instances to provide additional meaningful
comparisons between current results and results in prior operating
periods. Reconciliations of such measures to the most comparable
GAAP measures are included herein.
AOI is calculated by adjusting net income to eliminate
(i) the impact of net investment gains including
other-than-temporary impairment ("OTTI") losses recognized in
operations, but excluding gains and losses on derivatives hedging
our indexed annuity policies, (ii) the effect of changes in the
interest rates used to discount the FIA embedded derivative
liability, and (iii) the effect of change in fair value of the
reinsurance related embedded derivative. All adjustments to AOI are
net of the corresponding VOBA and DAC impact. The income tax impact
related to these adjustments is measured using an effective tax
rate of 35%, as appropriate.
While these adjustments are an integral part of the overall
performance of FGL, market conditions impacting these items can
overshadow the underlying performance of the business. Accordingly,
we believe using a measure which excludes their impact is effective
in analyzing the trends of our operations. Our non-GAAP measures
may not be comparable to similarly titled measures of other
organizations because other organizations may not calculate such
non-GAAP measures in the same manner as we do.
Net investment spread is the excess of net investment income
earned over the sum of interest credited to policyholders and the
cost of hedging our risk on FIA policies.
Average assets under management ("AAUM") is the sum of (i) total
invested assets at amortized cost, excluding derivatives, (ii)
related party loans and investments and (iii) cash and cash
equivalents at the end of each month in the period divided by the
number of months in the period.
Book value per share excluding AOCI is calculated as total
stockholders' equity excluding AOCI divided by the total number of
shares of common stock outstanding.
Sales are not derived from any specific GAAP income statement
accounts or line items and should not be viewed as a substitute for
any financial measure determined in accordance with GAAP. For GAAP
purposes annuity sales are recorded as deposit liabilities (i.e.
contract holder funds). Management believes that presentation of
sales as measured for management purposes enhances the
understanding of our business and helps depict longer term trends
that may not be apparent in the results of operations due to the
timing of sales and revenue recognition.
While management believes that non-GAAP measurements are useful
supplemental information, such adjusted results are not intended to
replace GAAP financial results and should be read in conjunction
with those GAAP results.
Conference Call and Earnings Release
In light of the announced merger with Anbang, FGL has elected to
discontinue conference calls to discuss quarterly and annual
results, pending the closing of the transaction. FGL will continue
to issue its earnings press releases and quarterly financial
supplement.
About Fidelity & Guaranty Life
Fidelity & Guaranty Life, an insurance holding company,
helps middle-income Americans prepare for retirement. Through its
subsidiaries, the company offers fixed annuity and life insurance
products distributed by independent agents through an established
network of independent marketing organizations. Fidelity
& Guaranty Life, headquartered in Des
Moines, Iowa, trades on the New York Stock Exchange under
the ticker symbol FGL. For more information, please visit
www.fglife.com.
Forward Looking Statements
"Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995: This document contains, and certain oral
statements made by our representatives from time to time may
contain, forward-looking statements, including those statements
regarding our subsidiaries' ability to pay dividends. Such
statements are subject to risks and uncertainties that could cause
actual results, events and developments to differ materially from
those set forth in, or implied by, such statements. These
statements are based on the beliefs and assumptions of FGL's
management and the management of FGL's subsidiaries (including
target businesses). Generally, forward-looking statements include
information concerning possible or assumed future distributions
from subsidiaries, other actions, events, results, strategies and
expectations and are generally identifiable by use of the words
"believes," "expects," "intends," "anticipates," "plans," "seeks,"
"estimates," "projects," "may," "will," "could," "might," or
"continues" or similar expressions. Factors that could cause actual
results, events and developments to differ include, without
limitation: the accuracy of FGL's assumptions and estimates;
FGL's and its insurance subsidiaries' ability to maintain or
improve financial strength ratings; FGL's ability to manage its
business in a highly regulated industry; regulatory changes or
actions; the impact of FGL's reinsurers failing to meet their
assumed obligations; restrictions on FGL's ability to use captive
reinsurers; the impact of interest rate fluctuations; changes in
the federal income tax laws and regulations; litigation (including
class action litigation), enforcement investigations or regulatory
scrutiny; the performance of third parties; the loss of key
personnel; telecommunication, information technology and other
operational systems failures; the continued availability of
capital; new accounting rules or changes to existing accounting
rules; general economic conditions; FGL's ability to protect its
intellectual property; the ability to maintain or obtain approval
of the Iowa Insurance Department and other regulatory authorities
as required for FGL's operations; and other factors discussed in
FGL's filings with the SEC including its Form 10-K for the year
ended September 30, 2016, which can
be found at the SEC's website www.sec.gov.
All forward-looking statements described herein are qualified by
these cautionary statements and there can be no assurance that the
actual results, events or developments referenced herein will occur
or be realized. FGL does not undertake any obligation to update or
revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future
operation results.
Investor Contact:
Lisa Foxworthy-Parker
Fidelity & Guaranty Life
Investor.Relations@fglife.com
515-330-3307
Media Contact:
Sard Verbinnen & Co
Jamie Tully or David Millar, 212-687-8080
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SOURCE Fidelity & Guaranty Life