DES MOINES, Iowa, May 3, 2017 /PRNewswire/ -- Fidelity &
Guaranty Life (NYSE: FGL), a leading provider of annuities and life
insurance, today announced financial results for the fiscal second
quarter of 2017.
- Reported net income was $22
million or $0.38 per diluted
share for the second quarter
- Adjusted operating income was $36
million or $0.62 per diluted
share for the second quarter
- Total annuity sales were $732
million; including fixed indexed annuity ("FIA") sales of
$438 million, up 5% over prior
year
- Indexed universal life ("IUL") sales increased 27% over
prior year to $14 million
- Average assets under management increased to $20.0 billion, up 9% over prior year
Net income for the fiscal second quarter of 2017 ended on
March 31, 2017(1) was $22
million or $0.38 per diluted
common share. Adjusted operating income for the fiscal second
quarter of 2017 was $36 million, or
$0.62 per diluted share, compared to
adjusted operating income of $43
million, or $0.73 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
March 31,
|
|
|
|
|
(Unaudited)
|
|
|
Reconciliation
from Net Income to AOI(2):
|
|
2017
|
|
2016
|
|
Increase
(decrease)
|
Net income
|
|
$
|
22
|
|
|
$
|
9
|
|
|
$
|
13
|
|
Effect of investment
losses (gains), net of offsets
|
|
15
|
|
|
(5)
|
|
|
20
|
|
Effect of change in
FIA embedded derivative discount rate, net of offsets
|
|
(2)
|
|
|
43
|
|
|
(45)
|
|
Effect of change in
fair value of reinsurance related embedded derivative, net of
offsets
|
|
8
|
|
|
14
|
|
|
(6)
|
|
Tax impact of
adjusting items
|
|
(7)
|
|
|
(18)
|
|
|
11
|
|
Adjusted operating
income
|
|
$
|
36
|
|
|
$
|
43
|
|
|
$
|
(7)
|
|
See footnotes at end
of release.
|
The current quarter included net unfavorable items of
$3 million or $0.05 per diluted share. The prior year quarter
included net favorable items of $10
million or $0.17 per diluted
share. The table below details notable items in both periods.
|
|
|
|
|
|
|
Current Year
Fiscal Quarter
|
|
|
|
|
|
- Net
unfavorable adjustments related to higher deferred acquisition cost
("DAC") amortization, primarily due to equity market
fluctuations
|
|
($3)
million
|
|
|
|
- Higher
expense related to merger transaction costs & legacy incentive
compensation plans
|
|
($3)
million
|
|
|
|
- Favorable
actual to expected mortality within single premium immediate
annuity ("SPIA") product line and other annuity reserve
movements
|
|
$3 million
|
|
|
Prior Year Fiscal
Quarter
|
|
|
|
|
|
- Favorable
performance within SPIA product line
|
|
$5 million
|
|
|
|
- Net favorable
adjustments related to lower DAC amortization, primarily due to
equity market fluctuations
|
|
$6 million
|
|
|
|
- Higher
expense related to merger transaction costs
|
|
($1)
million
|
|
|
|
|
|
|
|
"Our business momentum continues and we delivered another strong
quarter with year-over-year increases in sales, net income, net
investment income and assets under management," said Chris Littlefield, President and CEO of
FGL. "We are continuing to explore and negotiate strategic
alternatives with other parties in light of our termination of the
merger agreement with Anbang and are working to maximize value for
our shareholders."
Summary Financial
Results (Unaudited)
|
|
|
|
Three months ended
March 31,
|
Six months ended
March 31,
|
(In millions, except
per share data)
|
|
2017
|
|
2016
|
2017
|
|
2016
|
Fixed indexed annuity
sales (2)
|
|
$
|
438
|
|
|
$
|
418
|
|
$
|
989
|
|
|
$
|
855
|
|
Total annuity sales
(2)
|
|
$
|
732
|
|
|
$
|
601
|
|
$
|
1,380
|
|
|
$
|
1,090
|
|
Average assets under
management (2)
|
|
$
|
20,162
|
|
|
$
|
18,465
|
|
$
|
19,963
|
|
|
$
|
18,349
|
|
Net investment spread
- FIA (2)
|
|
3.05
|
%
|
|
2.93
|
%
|
3.03
|
%
|
|
2.94
|
%
|
Net investment spread
- All products (2)
|
|
2.41
|
%
|
|
2.27
|
%
|
2.35
|
%
|
|
2.21
|
%
|
Net income
|
|
$
|
22
|
|
|
$
|
9
|
|
$
|
130
|
|
|
$
|
57
|
|
Net income per
diluted share
|
|
$
|
0.38
|
|
|
$
|
0.16
|
|
$
|
2.23
|
|
|
$
|
0.98
|
|
Adjusted operating
income ("AOI") (2)
|
|
$
|
36
|
|
|
$
|
43
|
|
$
|
77
|
|
|
$
|
74
|
|
AOI per diluted share
(2)
|
|
$
|
0.62
|
|
|
$
|
0.73
|
|
$
|
1.32
|
|
|
$
|
1.26
|
|
Weighted average
basic shares
|
|
58.3
|
|
|
58.3
|
|
58.3
|
|
|
58.3
|
|
Weighted average
diluted shares
|
|
58.4
|
|
|
58.6
|
|
58.4
|
|
|
58.6
|
|
Total common shares
outstanding
|
|
59.0
|
|
|
59.0
|
|
59.0
|
|
|
59.0
|
|
Book value per
share
|
|
$
|
32.34
|
|
|
$
|
25.63
|
|
$
|
32.34
|
|
|
$
|
25.63
|
|
Book value per share,
excluding AOCI (2)
|
|
$
|
27.41
|
|
|
$
|
24.90
|
|
$
|
27.41
|
|
|
$
|
24.90
|
|
See footnotes
below.
|
Sales In Line With Expectations
Sales of our core fixed indexed annuity product were
$438 million in the current period,
an increase of 5% over the prior year quarter. We continue to
maintain a disciplined approach to achieve new business
profitability and capital targets. 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
$158 million in the current quarter
as compared to $183 million in the
same period last year. During the quarter, we entered into a
$136 million funding agreement with
Federal Home Loan Bank, under an investment spread strategy. This
funding agreement is reflected as an institutional spread based
product and we view this volume as subject to fluctuation period to
period. Total annuity sales were $732
million for the current quarter, an increase of 22% over the
prior year quarter.
Indexed universal life sales in the quarter were $14 million, an increase of 27% compared to
$11 million last year. This increase
reflects FGL's efforts to grow our IUL business with expanded
distribution.
Investment Portfolio Performance
Overall, the investment portfolio is performing in line with
expectations. Net investment income in the current period was
$247 million, an increase of 9%
compared to $227 million for the same
period last year. This growth was right in line with the increase
in average assets under management ("AAUM"), which were up
$1.6 billion or 9% over the prior
year from sales and stable policy owner retention trends.
The average earned yield on the total portfolio in the quarter
was 4.90%, consistent with 4.91% in the prior year quarter. Asset
purchases during the quarter were $0.9
billion at an average yield of 5.22%. Asset purchases during
the current quarter were primarily in investment grade corporate
bonds, structured securities, and also included a modest allocation
to private credit strategies with a focus on current income, which
helped lift the overall new money rate. The average NAIC
rating for the portfolio remains approximately 1.5.
Net investment spread across all product lines increased 14
basis points to 241 basis points, compared to fiscal second quarter
2016. Net investment spread in the current quarter for fixed
indexed annuities was consistent with recent performance at 305
basis points.
The current period results included $21
million of impairments, before DAC amortization and taxes,
$20 million of which was related to a
single investment in a bank holding company that was placed into
receivership by the FDIC. The impact to net income was $11 million, after DAC amortization and
taxes.
Capital Management Trends
- GAAP book value per share at March 31,
2017 was $32.34 on a reported
basis; book value per share excluding accumulated other
comprehensive income ("AOCI") was $27.41, an increase of 10% year over year.
- During the quarter, the Company drew down $5 million of its unsecured revolving credit
facility. The remaining amount available under the revolving credit
facility is $45 million.
- As announced on May 1, 2017, the
FGL Board of Directors has declared a quarterly dividend of
$0.065 per share. The dividend is
payable on June 5, 2017 to
shareholders of record as of the close of business on May 22, 2017.
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(In millions,
except share data)
|
|
|
March 31,
2017
|
|
September 30,
2016
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed maturity
securities, available-for-sale, at fair value (amortized cost:
March 31, 2017 - $19,501; September 30, 2016 - $18,521)
|
$
|
20,052
|
|
|
$
|
19,411
|
|
Equity securities,
available-for-sale, at fair value (amortized cost: March 31, 2017 -
$682; September 30, 2016 - $640)
|
712
|
|
|
683
|
|
Derivative
investments
|
351
|
|
|
276
|
|
Commercial mortgage
loans
|
579
|
|
|
595
|
|
Other invested
assets
|
119
|
|
|
60
|
|
Total
investments
|
21,813
|
|
|
21,025
|
|
Related party
loans
|
71
|
|
|
71
|
|
Cash and cash
equivalents
|
887
|
|
|
864
|
|
Accrued investment
income
|
225
|
|
|
214
|
|
Reinsurance
recoverable
|
3,426
|
|
|
3,464
|
|
Intangibles,
net
|
1,184
|
|
|
1,026
|
|
Deferred tax assets,
net
|
87
|
|
|
—
|
|
Other
assets
|
204
|
|
|
371
|
|
Total
assets
|
$
|
27,897
|
|
|
$
|
27,035
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Contractholder
funds
|
$
|
20,052
|
|
|
$
|
19,251
|
|
Future policy
benefits
|
3,435
|
|
|
3,467
|
|
Funds withheld for
reinsurance liabilities
|
1,134
|
|
|
1,172
|
|
Liability for policy
and contract claims
|
60
|
|
|
55
|
|
Debt
|
300
|
|
|
300
|
|
Revolving credit
facility
|
105
|
|
|
100
|
|
Deferred tax
liability, net
|
—
|
|
|
10
|
|
Other
liabilities
|
903
|
|
|
746
|
|
Total
liabilities
|
25,989
|
|
|
25,101
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
Preferred stock ($.01
par value, 50,000,000 shares authorized, no shares issued at March
31, 2017 and September 30, 2016)
|
$
|
—
|
|
|
$
|
—
|
|
Common stock ($.01
par value, 500,000,000 shares authorized, 58,991,806 issued
and outstanding at March 31, 2017; 58,956,127 shares issued and
outstanding at September 30, 2016)
|
1
|
|
|
1
|
|
Additional paid-in
capital
|
715
|
|
|
714
|
|
Retained
earnings
|
914
|
|
|
792
|
|
Accumulated other
comprehensive income
|
291
|
|
|
439
|
|
Treasury stock, at
cost (568,847 shares at March 31, 2017; 537,613 shares at September
30, 2016)
|
(13)
|
|
|
(12)
|
|
Total
shareholders' equity
|
1,908
|
|
|
1,934
|
|
Total liabilities
and shareholders' equity
|
$
|
27,897
|
|
|
$
|
27,035
|
|
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In millions,
except per share data)
|
|
|
Three months
ended
|
|
Six months
ended
|
|
March 31,
2017
|
|
March 31,
2016
|
|
March 31,
2017
|
|
March 31,
2016
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues:
|
|
|
|
|
|
|
|
Premiums
|
$
|
3
|
|
|
$
|
16
|
|
|
$
|
14
|
|
|
$
|
31
|
|
Net investment
income
|
247
|
|
|
227
|
|
|
487
|
|
|
449
|
|
Net investment gains
(losses)
|
81
|
|
|
(42)
|
|
|
132
|
|
|
21
|
|
Insurance and
investment product fees and other
|
44
|
|
|
32
|
|
|
82
|
|
|
61
|
|
Total
revenues
|
375
|
|
|
233
|
|
|
715
|
|
|
562
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Benefits and other
changes in policy reserves
|
268
|
|
|
188
|
|
|
288
|
|
|
369
|
|
Acquisition and
operating expenses, net of deferrals
|
33
|
|
|
27
|
|
|
61
|
|
|
55
|
|
Amortization of
intangibles
|
33
|
|
|
(3)
|
|
|
156
|
|
|
38
|
|
Total
benefits and expenses
|
334
|
|
|
212
|
|
|
505
|
|
|
462
|
|
Operating
income
|
41
|
|
|
21
|
|
|
210
|
|
|
100
|
|
Interest
expense
|
(6)
|
|
|
(6)
|
|
|
(12)
|
|
|
(12)
|
|
Income before income
taxes
|
35
|
|
|
15
|
|
|
198
|
|
|
88
|
|
Income tax
expense
|
(13)
|
|
|
(6)
|
|
|
(68)
|
|
|
(31)
|
|
Net
income
|
$
|
22
|
|
|
$
|
9
|
|
|
$
|
130
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.38
|
|
|
$
|
0.16
|
|
|
$
|
2.23
|
|
|
$
|
0.98
|
|
Diluted
|
$
|
0.38
|
|
|
$
|
0.16
|
|
|
$
|
2.23
|
|
|
$
|
0.98
|
|
Weighted average
common shares used in computing net income per common
share:
|
|
|
|
|
|
|
|
Basic
|
58.3
|
|
|
58.3
|
|
|
58.3
|
|
|
58.3
|
|
Diluted
|
58.4
|
|
|
58.6
|
|
|
58.4
|
|
|
58.6
|
|
|
|
|
|
|
|
|
|
Cash dividend per
common share
|
$
|
0.065
|
|
|
$
|
0.065
|
|
|
$
|
0.130
|
|
|
$
|
0.130
|
|
RECONCILIATION OF
BOOK VALUE PER SHARE EXCLUDING AOCI
|
|
(In millions,
except per share data)
|
March 31,
2017
|
|
September 30,
2016
|
Reconciliation to
total shareholder's equity:
|
|
|
|
Total shareholder's
equity
|
$
|
1,908
|
|
|
$
|
1,934
|
|
Less: AOCI
|
291
|
|
|
439
|
|
Total shareholder's
equity excluding AOCI
|
$
|
1,617
|
|
|
$
|
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
|
$
|
32.34
|
|
|
$
|
32.80
|
|
Book value per share,
excluding AOCI(2)
|
$
|
27.41
|
|
|
$
|
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.
|
Update On Review Of Strategic Alternatives
On April 17, 2017, FGL announced
the termination of the merger agreement with Anbang Insurance Group
Co., Ltd. ("Anbang"). In addition, FGL announced that its Board of
Directors was continuing to evaluate strategic alternatives to
maximize shareholder value and had received interest from a number
of parties. FGL does not intend to disclose developments with
respect to its process for the evaluation of the strategic
alternatives until such time that it determines otherwise in its
sole discretion or as required by applicable law. There can be no
assurance that FGL's evaluation of strategic alternatives will
result in a transaction, or that any transaction, if pursued, will
be consummated. FGL's evaluation of strategic alternatives may be
terminated at any time with or without notice.
Non-GAAP Measures
Management believes that certain non-GAAP financial measures may
be useful in certain instances to provide additional meaningful
comparisons between current results and results in prior operating
periods. Reconciliations of such measures to the most comparable
GAAP measures are included herein.
AOI is calculated by adjusting net income to eliminate
(i) the impact of net investment gains including
other-than-temporary impairment ("OTTI") losses recognized in
operations, but excluding gains and losses on derivatives hedging
our indexed annuity policies, (ii) the effect of changes in the
interest rates used to discount the FIA embedded derivative
liability, and (iii) the effect of change in fair value of the
reinsurance related embedded derivative. All adjustments to AOI are
net of the corresponding value of business acquired ("VOBA") and
DAC impact. The income tax impact related to these adjustments is
measured using an effective tax rate of 35%, as appropriate.
While these adjustments are an integral part of the overall
performance of FGL, market conditions impacting these items can
overshadow the underlying performance of the business. Accordingly,
we believe using a measure which excludes their impact is effective
in analyzing the trends of our operations. Our non-GAAP measures
may not be comparable to similarly titled measures of other
organizations because other organizations may not calculate such
non-GAAP measures in the same manner as we do.
Net investment spread is the excess of net investment income
earned over the sum of interest credited to policyholders and the
cost of hedging our risk on FIA policies.
Average assets under management ("AAUM") is the sum of (i) total
invested assets at amortized cost, excluding derivatives, (ii)
related party loans and investments and (iii) cash and cash
equivalents at the end of each month in the period divided by the
number of months in the period.
Book value per share excluding AOCI is calculated as total
stockholders' equity excluding AOCI divided by the total number of
shares of common stock outstanding.
Sales are not derived from any specific GAAP income statement
accounts or line items and should not be viewed as a substitute for
any financial measure determined in accordance with GAAP. For GAAP
purposes annuity sales are recorded as deposit liabilities (i.e.
contract holder funds). Management believes that presentation of
sales as measured for management purposes enhances the
understanding of our business and helps depict longer term trends
that may not be apparent in the results of operations due to the
timing of sales and revenue recognition.
While management believes that non-GAAP measurements are useful
supplemental information, such adjusted results are not intended to
replace GAAP financial results and should be read in conjunction
with those GAAP results.
Conference Call and Earnings Release
In light of the ongoing review of strategic alternatives, FGL
has elected to discontinue conference calls to discuss quarterly
and annual results, pending the outcome of the strategic review.
FGL will continue to issue its earnings press releases and
quarterly financial supplement.
About Fidelity & Guaranty Life
Fidelity & Guaranty Life, an insurance holding company,
helps middle-income Americans prepare for retirement. Through its
subsidiaries, the company offers fixed annuity and life insurance
products distributed by independent agents through an established
network of independent marketing organizations. Fidelity
& Guaranty Life, headquartered in Des
Moines, Iowa, trades on the New York Stock Exchange under
the ticker symbol FGL. For more information, please visit
www.fglife.com.
Forward Looking Statements
"Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995: This document contains, and certain oral
statements made by our representatives from time to time may
contain, forward-looking statements, including as to FGL's
evaluation of strategic alternatives and regarding our
subsidiaries' ability to pay dividends. Such statements are subject
to risks and uncertainties that could cause actual results, events
and developments to differ materially from those set forth in, or
implied by, such statements. These statements are based on the
beliefs and assumptions of FGL's management and the management of
FGL's subsidiaries (including target businesses). Generally,
forward-looking statements include information concerning possible
or assumed future distributions from subsidiaries, other actions,
events, results, strategies and expectations and are generally
identifiable by use of the words "believes," "expects," "intends,"
"anticipates," "plans," "seeks," "estimates," "projects," "may,"
"will," "could," "might," or "continues" or similar expressions.
Factors that could cause actual results, events and developments to
differ include, without limitation: the accuracy of FGL's
assumptions and estimates; FGL's and its insurance subsidiaries'
ability to maintain or improve financial strength ratings; FGL's
ability to manage its business in a highly regulated industry;
regulatory changes or actions; the impact of FGL's reinsurers
failing to meet their assumed obligations; restrictions on FGL's
ability to use captive reinsurers; the impact of interest rate
fluctuations; changes in the federal income tax laws and
regulations; litigation (including class action litigation),
enforcement investigations or regulatory scrutiny; the performance
of third parties; the loss of key personnel; telecommunication,
information technology and other operational systems failures; the
continued availability of capital; new accounting rules or changes
to existing accounting rules; general economic conditions; FGL's
ability to protect its intellectual property; the ability to
maintain or obtain approval of the Iowa Insurance Department and
other regulatory authorities as required for FGL's operations;
possible risks and uncertainties arising from FGL's evaluation of
strategic alternatives; and other factors discussed in FGL's
filings with the SEC including its Form 10-K for the year ended
September 30, 2016, and its Form 10-Q
for the quarter ended December 31,
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, except as required by law.
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