DES MOINES, Iowa, Aug. 5,
2015 /PRNewswire/ -- Fidelity & Guaranty Life (NYSE: FGL),
a leading provider of annuities and life insurance, today reported
net income of $86 million or
$1.48 per diluted common share for
the fiscal third quarter of 2015 ended on June 30,
2015(1). The Company reported adjusted operating income
of $25 million, or $0.43 per diluted share, compared to adjusted
operating income of $35 million or
$0.60 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
June 30,
|
|
|
Reconciliation
from Net Income to AOI(2):
|
|
2015
|
|
2014
|
|
Increase
(decrease)
|
Net income
|
|
$
|
86
|
|
$
|
57
|
|
$
|
29
|
Effect of investment
(gains) losses, net of offsets
|
|
(23)
|
|
(40)
|
|
17
|
Effect of change in
FIA embedded derivative discount rate, net of offsets
|
|
(21)
|
|
8
|
|
(29)
|
Effect of change in
fair value of reinsurance related embedded derivative, net of
offsets
|
|
(17)
|
|
10
|
|
(27)
|
Adjusted operating
income
|
|
$
|
25
|
|
$
|
35
|
|
$
|
(10)
|
See footnotes at end of release.
Notable items in the current quarter included net unfavorable
items of ($4) million or ($0.06) per diluted share. The prior year quarter
included net favorable items of $11
million or $0.19 per diluted
share. The table below details notable items in both periods.
|
|
|
|
|
|
Current Fiscal
Quarter
|
|
|
|
- Unfavorable actual
to expected mortality within single premium immediate annuity
product line ("SPIA")
- Unfavorable expense
(legacy incentive compensation & strategic review
related)
|
($2)
million ($2) million
|
|
|
Prior Fiscal
Quarter
|
|
|
|
- Favorable actual to
expected mortality within SPIA product line
- Favorable deferred
acquisition cost ("DAC") amortization
|
$6 million
$5 million
|
|
|
|
|
|
|
"Our business continues to grow with fixed indexed annuity
sales, indexed universal life sales and assets under management all
up significantly over last year," said Chris Littlefield, President and Chief Executive
Officer of FGL. "More importantly, we're generating this growth
while achieving our targeted spreads and new business profitability
measures. While adjusted operating income is below our expectations
due to lower SPIA mortality and increased costs associated with the
strategic review process, the overall fundamentals of our business
remain solid and we are well-positioned to continue to deliver
value for our distribution partners, policy owners and
shareholders."
Summary Financial Results (Unaudited)
|
|
Three months ended
June 30,
|
|
Nine months ended
June 30,
|
(In millions, except
per share data)
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Annuity sales
(2)
|
|
$
|
519
|
|
|
$
|
392
|
|
|
$
|
2,032
|
|
|
$
|
1,660
|
|
Average assets under
management (2)
|
|
$
|
17,915
|
|
|
$
|
16,546
|
|
|
$
|
17,600
|
|
|
$
|
16,206
|
|
Net investment spread
- FIA (2)
|
|
2.82
|
%
|
|
2.90
|
%
|
|
2.87
|
%
|
|
2.78
|
%
|
Net investment spread
- All products (2)
|
|
1.94
|
%
|
|
1.74
|
%
|
|
1.90
|
%
|
|
1.66
|
%
|
Net income
|
|
$
|
86
|
|
|
$
|
57
|
|
|
$
|
88
|
|
|
$
|
124
|
|
Net income per
diluted share
|
|
$
|
1.48
|
|
|
$
|
0.97
|
|
|
$
|
1.51
|
|
|
$
|
2.24
|
|
Adjusted operating
income ("AOI") (2)
|
|
$
|
25
|
|
|
$
|
35
|
|
|
$
|
75
|
|
|
$
|
108
|
|
AOI per diluted share
(2)
|
|
$
|
0.43
|
|
|
$
|
0.60
|
|
|
$
|
1.29
|
|
|
$
|
1.95
|
|
Weighted average
basic shares
|
|
58.1
|
|
|
58.3
|
|
|
58.1
|
|
|
55.2
|
|
Weighted average
diluted shares
|
|
58.2
|
|
|
58.5
|
|
|
58.3
|
|
|
55.3
|
|
Total common shares
outstanding
|
|
58.8
|
|
|
58.4
|
|
|
58.8
|
|
|
58.4
|
|
Book value per share
(3)
|
|
$
|
26.53
|
|
|
$
|
28.70
|
|
|
$
|
26.53
|
|
|
$
|
28.70
|
|
Book value per share,
excluding AOCI (2) (3)
|
|
$
|
23.55
|
|
|
$
|
21.80
|
|
|
$
|
23.55
|
|
|
$
|
21.80
|
|
See footnotes below.
Robust Annuity Sales Trend Continues In Line With
Expectations
Sales of our core fixed indexed annuity product were
$507 million in the current period,
an increase of 34% over the prior year. The strong sales growth
compared to the prior year period is the result of productive
partnerships with our independent marketing organizations
("IMO's"), competitive product offerings and continued success of
our new products. New products introduced over the last few
quarters contributed $264 million, or
52% of FIA sales in the current period. As expected, FIA sales were
down from the near record level in the sequential quarter, as we
intentionally moderated volume to maintain our new business
profitability and capital targets. Total annuity sales were
$519 million for the third quarter,
an increase of 32% compared to the third quarter of 2014.
Indexed universal life sales in the quarter were $10 million, an increase of 67% compared to
$6 million last year. This was the
highest quarterly sales level achieved in several years. The
current period results reflect the Company's ongoing efforts to
steadily grow indexed universal life sales through its network of
IMO's.
Investment Portfolio Performing Well
Asset purchases during the quarter were $1.7 billion at an average yield of 4.76% and
included new business, as well as cash flows from portfolio
repositioning and tax planning activities. The average earned yield
on the total portfolio in the quarter was 4.73%, consistent with
the prior quarter and up 11 basis points from 4.62% during the
third quarter of 2014. Net investment income was $212 million for the period, an increase of 11%
compared to $191 million for the same
period last year. This growth is attributable to the combination of
a $1.4 billion or 8% increase in
average assets under management, higher overall portfolio yields
from repositioning activities, and stable policy owner retention
trends. Net investment spread across all product lines increased 20
basis points year over year. Net investment spreads in fixed
indexed annuities were 282 basis points for the current period,
down slightly from the prior year level of 290 basis points from
portfolio asset rebalancing across all product lines in the current
quarter. Net realized gains were $48
million in the current period and included $52 million of gross gains primarily attributable
to tax planning strategies partially offset by $4 million of other than temporary impairment
losses. As of June 30, 2015, the
average NAIC rating for the portfolio remains approximately
1.5.
Capital Management Highlights:
- During the quarter, we repurchased the remaining 48,997 shares
authorized under the repurchase program at an average price of
$20.93.
- GAAP book value per share at June 30,
2015 excluding accumulated other comprehensive income
("AOCI") was $23.55, an increase of
8% year over year. GAAP book value per share on a reported basis
was $26.53, or 8% lower year over
year.
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(In millions,
except share data)
|
|
|
|
|
|
June 30,
2015
|
|
September 30,
2014
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed maturity
securities, available-for-sale, at fair value (amortized cost: June
30, 2015 - $17,630; September 30, 2014 - $16,692)
|
$
|
17,965
|
|
|
$
|
17,435
|
|
Equity securities,
available-for-sale, at fair value (amortized cost: June 30, 2015 -
$564; September 30, 2014 - $679)
|
583
|
|
|
698
|
|
Derivative
investments
|
220
|
|
|
296
|
|
Commercial mortgage
loans
|
405
|
|
|
136
|
|
Other invested
assets
|
218
|
|
|
237
|
|
Total
investments
|
19,391
|
|
|
18,802
|
|
Related party
loans
|
77
|
|
|
113
|
|
Cash and cash
equivalents
|
654
|
|
|
576
|
|
Accrued investment
income
|
164
|
|
|
182
|
|
Reinsurance
recoverable
|
3,642
|
|
|
3,665
|
|
Intangibles,
net
|
808
|
|
|
515
|
|
Deferred tax
assets
|
200
|
|
|
137
|
|
Other
assets
|
223
|
|
|
163
|
|
Total
assets
|
$
|
25,159
|
|
|
$
|
24,153
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Contractholder
funds
|
$
|
17,704
|
|
|
$
|
16,464
|
|
Future policy
benefits
|
3,465
|
|
|
3,504
|
|
Funds withheld for
reinsurance liabilities
|
1,325
|
|
|
1,331
|
|
Liability for policy
and contract claims
|
60
|
|
|
58
|
|
Debt
|
300
|
|
|
300
|
|
Other
liabilities
|
746
|
|
|
837
|
|
Total
liabilities
|
23,600
|
|
|
22,494
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
Preferred stock ($.01
par value, 50,000,000 shares authorized, no shares issued at June
30, 2015)
|
$
|
—
|
|
|
$
|
—
|
|
Common stock ($.01
par value, 500,000,000 shares authorized, 58,762,826 issued
and outstanding at June 30, 2015; 58,442,721 shares issued and
outstanding at September 30, 2014)
|
1
|
|
|
1
|
|
Additional paid-in
capital
|
711
|
|
|
702
|
|
Retained
earnings
|
683
|
|
|
607
|
|
Accumulated other
comprehensive income
|
175
|
|
|
349
|
|
Treasury Stock, at
cost (512,391 shares at June 30, 2015; no shares at September 30,
2014)
|
(11)
|
|
|
—
|
|
Total
shareholders' equity
|
1,559
|
|
|
1,659
|
|
Total liabilities
and shareholders' equity
|
$
|
25,159
|
|
|
$
|
24,153
|
|
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In millions,
except per share data)
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
June
30,
2015
|
|
June
30,
2014
|
|
June
30,
2015
|
|
June
30,
2014
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues:
|
|
|
|
|
|
|
|
Premiums
|
$
|
17
|
|
|
$
|
13
|
|
|
$
|
43
|
|
|
$
|
41
|
|
Net investment
income
|
212
|
|
|
191
|
|
|
628
|
|
|
559
|
|
Net investment
gains
|
74
|
|
|
145
|
|
|
75
|
|
|
267
|
|
Insurance and
investment product fees and other
|
23
|
|
|
19
|
|
|
65
|
|
|
51
|
|
Total
revenues
|
326
|
|
|
368
|
|
|
811
|
|
|
918
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Benefits and other
changes in policy reserves
|
78
|
|
|
242
|
|
|
474
|
|
|
638
|
|
Acquisition and
operating expenses, net of deferrals
|
26
|
|
|
23
|
|
|
83
|
|
|
81
|
|
Amortization of
intangibles
|
88
|
|
|
15
|
|
|
97
|
|
|
49
|
|
Total
benefits and expenses
|
192
|
|
|
280
|
|
|
654
|
|
|
768
|
|
Operating
income
|
134
|
|
|
88
|
|
|
157
|
|
|
150
|
|
Interest
expense
|
(6)
|
|
|
(6)
|
|
|
(18)
|
|
|
(17)
|
|
Income before income
taxes
|
128
|
|
|
82
|
|
|
139
|
|
|
133
|
|
Income tax
expense
|
42
|
|
|
25
|
|
|
51
|
|
|
9
|
|
Net
income
|
$
|
86
|
|
|
$
|
57
|
|
|
$
|
88
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.48
|
|
|
$
|
0.97
|
|
|
$
|
1.51
|
|
|
$
|
2.25
|
|
Diluted
|
$
|
1.48
|
|
|
$
|
0.97
|
|
|
$
|
1.51
|
|
|
$
|
2.24
|
|
Weighted average
common shares used in computing net income per common
share:
|
|
|
|
|
|
|
|
Basic
|
58.1
|
|
|
58.3
|
|
|
58.1
|
|
|
55.2
|
|
Diluted
|
58.2
|
|
|
58.5
|
|
|
58.3
|
|
|
55.3
|
|
|
|
|
|
|
|
|
|
Cash dividend per
common share
|
$
|
0.065
|
|
|
$
|
0.065
|
|
|
$
|
0.195
|
|
|
$
|
1.045
|
|
RECONCILIATION OF
BOOK VALUE PER SHARE EXCLUDING AOCI
|
|
|
|
|
(In millions,
except per share data)
|
June 30,
2015
|
|
September 30,
2014
|
Reconciliation to
total shareholder's equity:
|
|
|
|
Total shareholder's
equity
|
$
|
1,559
|
|
|
$
|
1,659
|
|
Less: AOCI
|
175
|
|
|
349
|
|
Total shareholder's
equity excluding AOCI
|
$
|
1,384
|
|
|
$
|
1,310
|
|
|
|
|
|
Total shares
outstanding
|
58.8
|
|
|
58.4
|
|
Weighted average
shares outstanding - basic
|
58.1
|
|
|
56.0
|
|
Weighted average
shares outstanding - diluted
|
58.2
|
|
|
56.0
|
|
|
|
|
|
Book value per
share
|
$
|
26.53
|
|
|
$
|
28.39
|
|
Book value per share,
excluding AOCI(2)
|
$
|
23.55
|
|
|
$
|
22.42
|
|
|
|
RECONCILIATION OF
ADJUSTED OPERATING ROE
|
|
|
|
|
(In
millions)
|
June 30,
2015
|
|
June 30,
2014
|
Reconciliation to
total shareholder's equity:
|
|
|
|
Total shareholder's
equity(3)
|
$
|
1,559
|
|
|
$
|
1,677
|
|
Less: AOCI
|
175
|
|
|
403
|
|
Total shareholder's
equity excluding AOCI(3)
|
$
|
1,384
|
|
|
$
|
1,274
|
|
|
|
|
|
Quarterly
AOI(4)
|
$
|
25
|
|
|
$
|
35
|
|
Quarterly Adjusted
Operating ROE(2)(3)
|
7
|
%
|
|
11
|
%
|
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)
|
Prior year balance
has been revised to reflect an immaterial prior year revision. For
additional details, see FGL's September 30, 2014 Form
10-K.
|
(4)
|
See table on
reconciliation of net income to AOI for the 2015 and 2014 fiscal
quarters
|
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 OTTI losses
recognized in operations, but excluding gains and losses on
derivatives hedging our indexed annuity policies, (ii) the effect
of changes in the rates used to discount the FIA embedded
derivative liability, (iii) the effect of change in fair value of
reinsurance related embedded derivative, (iv) the effect of class
action litigation reserves and (v) residual net income of
distributed subsidiaries we no longer own. All adjustments to AOI
are net of the corresponding VOBA, DAC and income tax impact
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.
In the second quarter of 2014, we revised our definition of AOI
from a pre-tax basis to an after-tax basis to better reflect the
basis on which the performance of our business is assessed
internally. AOI now includes interest expense and an effective tax
rate of 35.0% is now applied to reconciling items made to net
income. All prior periods presented have been revised to reflect
this new definition. Additionally, during the second quarter of
2014 we revised our definition of AOI to exclude the effect of
class action litigation reserves, net of the corresponding VOBA,
DAC and income tax impact related to these adjustments. This change
has been reflected in Fiscal 2015 AOI. Lastly, during the second
quarter of 2014, we revised our definition of AOI to exclude
residual net income of distributed subsidiaries; specifically the
portion of Front Street Re (Cayman) Ltd. ("FSRCI") income not
already accounted for in the AOI adjustments above. From the
inception of the reinsurance treaty on December 31, 2012 through August 9, 2013, FSRCI was a fully consolidated
subsidiary of FGL. On August 9,
2013 in preparation for the initial public offering ("IPO"),
FGL distributed this subsidiary to its parent company.
Adjusting for this distribution provides a better view of the
underlying performance of FGL as it is now structured post-IPO.
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 and Financial Supplement Information
This press release and the third quarter 2015 financial
supplement will be posted on the company's website.
Fidelity & Guaranty Life will conduct a conference call on
Thursday, August 6, 2015 at
9:00 a.m. Eastern Time to discuss the
quarter's results. Dial-in information for the call is toll-free
1-888-346-2619 (International: 1-412-902-4255). An audio replay
will be available until August 27,
2015. The replay access information is toll-free
1-877-344-7529 (International: 1-412-317-0088), conference ID
number 10069061. The replay will be available approximately two
hours after the completion of the live earnings call.
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, 2014, 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