DES MOINES, Iowa, Aug. 2, 2017 /PRNewswire/ -- Fidelity &
Guaranty Life (NYSE: FGL), a leading provider of annuities and life
insurance, today announced financial results for the fiscal third
quarter of 2017.
- Reported net income was $32
million or $0.54 per diluted
share for the third quarter
- Adjusted operating income was $37
million or $0.63 per diluted
share for the third quarter
- Total annuity sales were $582
million; including fixed indexed annuity ("FIA") sales of
$455 million
- Total annuity and FIA year-to-date sales increased 2% and
7%, respectively, over prior year
- Average assets under management increased to $20.2 billion, up 9% over prior year
- On May 24, 2017, FGL and CF
Corporation ("CF Corp.") entered into a definitive merger agreement
pursuant to which CF Corp. will acquire FGL for $31.10 per share
Net income for the fiscal third quarter of 2017 ended on
June 30, 2017(1) was $32
million or $0.54 per diluted
common share. Adjusted operating income for the fiscal third
quarter of 2017 was $37 million, or
$0.63 per diluted share, compared to
adjusted operating income of $48
million, or $0.82 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
June 30,
|
|
|
|
|
(Unaudited)
|
|
|
Reconciliation
from Net Income to AOI(2):
|
|
2017
|
|
2016
|
|
Increase
(decrease)
|
Net income
|
|
$
|
32
|
|
|
$
|
10
|
|
|
$
|
22
|
|
Effect of investment
losses (gains), net of offsets
|
|
4
|
|
|
5
|
|
|
(1)
|
|
Effect of change in
FIA embedded derivative discount rate, net of offsets
|
|
(4)
|
|
|
28
|
|
|
(32)
|
|
Effect of change in
fair value of reinsurance related embedded derivative, net of
offsets
|
|
8
|
|
|
26
|
|
|
(18)
|
|
Tax impact of
adjusting items
|
|
(3)
|
|
|
(21)
|
|
|
18
|
|
Adjusted operating
income
|
|
$
|
37
|
|
|
$
|
48
|
|
|
$
|
(11)
|
|
See footnotes at end
of release.
|
The current quarter included net unfavorable items of
$4 million or $0.07 per diluted share. The prior year quarter
included net favorable items of $13
million or $0.22 per diluted
share. The table below details notable items in both periods.
|
|
|
|
|
|
|
Current Year
Fiscal Quarter
|
|
|
|
|
|
- Higher
expense related to merger transaction costs & legacy incentive
compensation plans
|
|
($6)
million
|
|
|
|
- Favorable
actual to expected mortality within single premium immediate
annuity ("SPIA") product line
|
|
$2 million
|
|
|
Prior Year Fiscal
Quarter
|
|
|
|
|
|
- Net favorable
adjustments related to lower deferred acquisition cost ("DAC")
amortization, primarily due to
equity market fluctuations
|
|
$7 million
|
|
|
|
- Favorable
performance within the SPIA product line and other annuity reserve
movements
|
|
$4 million
|
|
|
|
- Favorable net
investment income from tender offers and bond prepayment
income
|
|
$2 million
|
|
|
|
|
|
|
|
"We delivered another solid quarter and are very pleased with
the year-over-year increases in net income, net investment income
and assets under management," said Chris
Littlefield, President and CEO of FGL. "Our FIA sales
are up 7% year-to-date over the prior year and up 4% from last
quarter, though are down 8% versus last year's third quarter.
The uncertainty surrounding the Department of Labor fiduciary rule
is having some impact on FIA sales industry-wide and we expect
additional disruption if the rule is fully implemented on
January 1, 2018. Our IUL and
MYGA sales are lower compared to last year as we have prioritized
higher profitability over volume. We continue to maintain
discipline in managing our spreads and are pleased that we have
consistently achieved our targeted returns on new sales while
growing our business. Finally, the recently announced merger
with CF Corp. and accompanying regulatory approval processes are
progressing and, subject to approval of CF Corp.'s shareholders at
their August 8th meeting, we expect
to close the transaction in the fourth calendar quarter of
2017."
Summary Financial
Results (Unaudited)
|
|
|
|
Three months ended
June 30,
|
Nine months ended
June 30,
|
(In millions, except
per share data)
|
|
2017
|
|
2016
|
2017
|
|
2016
|
Fixed indexed annuity
sales (2)
|
|
$
|
455
|
|
|
$
|
495
|
|
$
|
1,444
|
|
|
$
|
1,350
|
|
Total annuity sales
(2)
|
|
$
|
582
|
|
|
$
|
832
|
|
$
|
1,962
|
|
|
$
|
1,922
|
|
Average assets under
management (2)
|
|
$
|
20,569
|
|
|
$
|
18,854
|
|
$
|
20,153
|
|
|
$
|
18,523
|
|
Net investment spread
- FIA (2)
|
|
3.02
|
%
|
|
3.07
|
%
|
3.03
|
%
|
|
2.98
|
%
|
Net investment spread
- All products (2)
|
|
2.54
|
%
|
|
2.41
|
%
|
2.41
|
%
|
|
2.27
|
%
|
Net income
|
|
$
|
32
|
|
|
$
|
10
|
|
$
|
162
|
|
|
$
|
67
|
|
Net income per
diluted share
|
|
$
|
0.54
|
|
|
$
|
0.16
|
|
$
|
2.77
|
|
|
$
|
1.14
|
|
Adjusted operating
income ("AOI") (2)
|
|
$
|
37
|
|
|
$
|
48
|
|
$
|
114
|
|
|
$
|
122
|
|
AOI per diluted share
(2)
|
|
$
|
0.63
|
|
|
$
|
0.82
|
|
$
|
1.95
|
|
|
$
|
2.08
|
|
Weighted average
basic shares
|
|
58.3
|
|
|
58.3
|
|
58.3
|
|
|
58.3
|
|
Weighted average
diluted shares
|
|
58.4
|
|
|
58.7
|
|
58.4
|
|
|
58.6
|
|
Total common shares
outstanding
|
|
59.0
|
|
|
59.0
|
|
59.0
|
|
|
59.0
|
|
Book value per
share
|
|
$
|
35.82
|
|
|
$
|
30.22
|
|
$
|
35.82
|
|
|
$
|
30.22
|
|
Book value per share,
excluding AOCI (2)
|
|
$
|
27.90
|
|
|
$
|
25.05
|
|
$
|
27.90
|
|
|
$
|
25.05
|
|
See footnotes
below.
|
Sales In Line With Expectations
Sales of our core FIA product were $455
million in the current period, a decrease of 8% over the
prior year period. As expected, FIA sales levels were influenced
from an overall industry decline in FIA sales over the past two
quarters as carriers and independent marketing organizations
("IMO's") focused on the Department of Labor ("DOL") fiduciary rule
implementation. On a sequential basis, FIA sales increased 4% as
compared to the fiscal second quarter of 2017. FIA sales
levels in recent quarters reflect strong and productive
partnerships with our IMO's, and our continued discipline to
achieve new business profitability and capital targets. FIA sales
were $1.4 billion on a year-to-date
basis, an increase of 7% over the prior year period.
Sales of multi-year guarantee annuities ("MYGA") were
$127 million in the current quarter
as compared to $180 million in the
same period last year. Total annuity sales were $582 million for the current quarter, a decrease
of 30% over the prior year quarter. On a year-to-date basis,
total annuity sales of $2.0 billion
increased 2% over the prior year period.
Indexed universal life ("IUL") sales in the quarter were
$9 million compared to $15 million last year. The decline in IUL sales
reflects our focus on quality of new business and pricing
discipline to achieve profitability and capital targets. On a
year-to-date basis, IUL sales of $40
million increased 3% over the prior year period.
Investment Portfolio Performance
Overall, the investment portfolio is performing in line with
expectations. Net investment income in the current period was
$257 million, an increase of 9%
compared to $236 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 5.01%, unchanged from the prior year quarter which benefited
from tender offer and bond prepayment income. Asset purchases
during the quarter were $1.2 billion
at an average yield of 5.27% primarily reflecting purchases in
investment grade corporate bonds, structured securities, and 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 13
basis points to 254 basis points, compared to fiscal third quarter
2016. Net investment spread in the current quarter for fixed
indexed annuities was consistent with recent performance at 302
basis points.
Capital Management Trends
- GAAP book value per share at June 30, 2017 was
$35.82 on a reported basis; book
value per share excluding accumulated other comprehensive income
("AOCI") was $27.90, an increase of
11% year over year.
- In July, FGL extended the maturity date of its existing
unsecured revolving credit facility from August 26, 2017 to August
26, 2018. The remaining amount available under the revolving
credit facility is $45 million.
- As announced on July 27, 2017,
the FGL Board of Directors has declared a quarterly dividend of
$0.065 per share. The dividend is
payable on August 28, 2017 to
shareholders of record as of the close of business on August 14, 2017.
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In millions,
except share data)
|
|
|
June 30,
2017
|
|
September 30,
2016
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed maturity
securities, available-for-sale, at fair value (amortized cost: June
30, 2017 - $19,845; September 30, 2016 - $18,521)
|
$
|
20,766
|
|
|
$
|
19,411
|
|
Equity securities,
available-for-sale, at fair value (amortized cost: June 30, 2017 -
$732; September 30, 2016 - $640)
|
774
|
|
|
683
|
|
Derivative
investments
|
361
|
|
|
276
|
|
Commercial mortgage
loans
|
550
|
|
|
595
|
|
Other invested
assets
|
176
|
|
|
60
|
|
Total
investments
|
22,627
|
|
|
21,025
|
|
Related party
loans
|
71
|
|
|
71
|
|
Cash and cash
equivalents
|
799
|
|
|
864
|
|
Accrued investment
income
|
204
|
|
|
214
|
|
Reinsurance
recoverable
|
3,390
|
|
|
3,464
|
|
Intangibles,
net
|
1,097
|
|
|
1,026
|
|
Deferred tax assets,
net
|
—
|
|
|
—
|
|
Other
assets
|
214
|
|
|
371
|
|
Total
assets
|
$
|
28,402
|
|
|
$
|
27,035
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Contractholder
funds
|
$
|
20,342
|
|
|
$
|
19,251
|
|
Future policy
benefits
|
3,423
|
|
|
3,467
|
|
Funds withheld for
reinsurance liabilities
|
1,106
|
|
|
1,172
|
|
Liability for policy
and contract claims
|
57
|
|
|
55
|
|
Debt
|
300
|
|
|
300
|
|
Revolving credit
facility
|
105
|
|
|
100
|
|
Deferred tax
liability, net
|
11
|
|
|
10
|
|
Other
liabilities
|
945
|
|
|
746
|
|
Total
liabilities
|
26,289
|
|
|
25,101
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
Preferred stock ($.01
par value, 50,000,000 shares authorized, no shares issued at June
30, 2017 and September 30, 2016)
|
$
|
—
|
|
|
$
|
—
|
|
Common stock ($.01
par value, 500,000,000 shares authorized, 58,993,219 issued
and outstanding at June 30, 2017; 58,956,127 shares issued and
outstanding at September 30, 2016)
|
1
|
|
|
1
|
|
Additional paid-in
capital
|
716
|
|
|
714
|
|
Retained
earnings
|
942
|
|
|
792
|
|
Accumulated other
comprehensive income
|
467
|
|
|
439
|
|
Treasury stock, at
cost (568,847 shares at June 30, 2017; 537,613 shares at September
30, 2016)
|
(13)
|
|
|
(12)
|
|
Total
shareholders' equity
|
2,113
|
|
|
1,934
|
|
Total liabilities
and shareholders' equity
|
$
|
28,402
|
|
|
$
|
27,035
|
|
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions,
except per share data)
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues:
|
|
|
|
|
|
|
|
Premiums
|
$
|
12
|
|
|
$
|
21
|
|
|
$
|
26
|
|
|
$
|
52
|
|
Net investment
income
|
257
|
|
|
236
|
|
|
744
|
|
|
685
|
|
Net investment gains
(losses)
|
67
|
|
|
(28)
|
|
|
199
|
|
|
(7)
|
|
Insurance and
investment product fees and other
|
44
|
|
|
32
|
|
|
126
|
|
|
93
|
|
Total
revenues
|
380
|
|
|
261
|
|
|
1,095
|
|
|
823
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Benefits and other
changes in policy reserves
|
235
|
|
|
216
|
|
|
523
|
|
|
585
|
|
Acquisition and
operating expenses, net of deferrals
|
40
|
|
|
28
|
|
|
101
|
|
|
83
|
|
Amortization of
intangibles
|
51
|
|
|
(4)
|
|
|
207
|
|
|
34
|
|
Total
benefits and expenses
|
326
|
|
|
240
|
|
|
831
|
|
|
702
|
|
Operating
income
|
54
|
|
|
21
|
|
|
264
|
|
|
121
|
|
Interest
expense
|
(6)
|
|
|
(5)
|
|
|
(18)
|
|
|
(17)
|
|
Income before income
taxes
|
48
|
|
|
16
|
|
|
246
|
|
|
104
|
|
Income tax
expense
|
(16)
|
|
|
(6)
|
|
|
(84)
|
|
|
(37)
|
|
Net
income
|
$
|
32
|
|
|
$
|
10
|
|
|
$
|
162
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.54
|
|
|
$
|
0.16
|
|
|
$
|
2.78
|
|
|
$
|
1.14
|
|
Diluted
|
$
|
0.54
|
|
|
$
|
0.16
|
|
|
$
|
2.77
|
|
|
$
|
1.14
|
|
Weighted average
common shares used in computing net income per common
share:
|
|
|
|
|
|
|
|
Basic
|
58.3
|
|
|
58.3
|
|
|
58.3
|
|
|
58.3
|
|
Diluted
|
58.4
|
|
|
58.7
|
|
|
58.4
|
|
|
58.6
|
|
|
|
|
|
|
|
|
|
Cash dividend per
common share
|
$
|
0.065
|
|
|
$
|
0.065
|
|
|
$
|
0.195
|
|
|
$
|
0.195
|
|
RECONCILIATION OF
BOOK VALUE PER SHARE EXCLUDING AOCI
|
|
(In millions,
except per share data)
|
June 30,
2017
|
|
September 30,
2016
|
Reconciliation to
total shareholder's equity:
|
|
|
|
Total shareholder's
equity
|
$
|
2,113
|
|
|
$
|
1,934
|
|
Less: AOCI
|
467
|
|
|
439
|
|
Total shareholder's
equity excluding AOCI
|
$
|
1,646
|
|
|
$
|
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
|
$
|
35.82
|
|
|
$
|
32.80
|
|
Book value per share,
excluding AOCI(2)
|
$
|
27.90
|
|
|
$
|
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 CF Corp.
On May 24, 2017, FGL and CF Corp.
entered into a definitive merger agreement (the "Merger Agreement")
pursuant to which CF Corp. will acquire all outstanding shares of
FGL (the "Merger") for $31.10 per
share in cash, without interest, plus the assumption of
$405 million of existing debt. The
joint press release can be found on FGL's investor relations
website at www.fglife.com.
The transaction is expected to close in the calendar fourth
quarter of 2017. The Merger is subject to closing conditions,
including the approval of the shareholders of CF Corp., the receipt
of regulatory approvals from the Iowa Insurance Division, the New
York Department of Financial Services, and the Vermont Department
of Financial Regulation, and the expiration or termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). On June 16, 2017, the Federal Trade Commission
granted early termination of the waiting period under the HSR
Act.
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 announced merger with CF Corp., 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 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 March 31, 2017,
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