DES MOINES, Iowa, Nov. 15, 2017 /PRNewswire/ -- Fidelity &
Guaranty Life (NYSE: FGL), a leading provider of annuities and life
insurance, today announced financial results for the fiscal fourth
quarter of 2017.
- Reported net income was $61
million or $1.06 per diluted
share for the fourth quarter, and $223
million or $3.83 per diluted
share for the full year
- Adjusted operating income was $63
million or $1.08 per diluted
share for the fourth quarter, and $177
million or $3.03 per diluted
share for the full year
- Total annuity sales for the fiscal year increased 1% over
prior year to $2.6 billion and
included $1.9 billion fixed indexed
annuity ("FIA") sales, up 2% over prior year
- Average assets under management increased to $20.3 billion, up 8% over prior year
Net income for the fiscal fourth quarter of 2017 ended on
September 30, 2017(1) was $61 million or $1.06 per diluted common share. Adjusted
operating income for the fiscal fourth quarter of 2017 was
$63 million, or $1.08 per diluted share, compared to adjusted
operating income of $40 million, or
$0.69 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):
|
|
2017
|
|
2016
|
|
Increase
(decrease)
|
Net
income
|
|
$
|
61
|
|
$
|
30
|
|
$
|
31
|
Effect
of investment losses (gains), net of offsets
|
|
(5)
|
|
5
|
|
(10)
|
Effect
of change in FIA embedded derivative discount rate, net of
offsets
|
|
3
|
|
(7)
|
|
10
|
Effect
of change in fair value of reinsurance related embedded derivative,
net of offsets
|
|
5
|
|
17
|
|
(12)
|
Tax
impact of adjusting items
|
|
(1)
|
|
(5)
|
|
4
|
Adjusted
operating income
|
|
$
|
63
|
|
$
|
40
|
|
$
|
23
|
See footnotes at end
of release.
|
The current quarter included net favorable items of $19 million or $0.32 per diluted share. The prior year quarter
included net favorable items of $4
million or $0.07 per diluted
share. The table below details notable items in both periods.
|
|
|
|
|
|
Current Year
Fiscal Quarter
|
|
|
|
|
- Net favorable
adjustments for lower deferred acquisition cost ("DAC")
amortization from unlocking, annual assumption review and equity
market fluctuations; AOI also included $10 million out of period
actuarial adjustments
|
|
$21 million
|
|
|
|
|
$2 million
|
|
|
- Unfavorable actual
to expected mortality within single premium immediate annuity
("SPIA") product line
|
|
($2)
million
|
|
|
- Higher expense
related to merger transaction costs
|
|
($2)
million
|
|
Prior Year Fiscal
Quarter
|
|
|
|
|
- Net favorable
adjustments related to lower 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
|
|
|
|
|
|
|
|
"We delivered yet another solid quarter and a strong finish to
fiscal 2017 with meaningful increases in net income, adjusted
operating income, net investment spread, and assets under
management," said Chris Littlefield,
President and CEO of FGL. "The core earnings power of our business
continued to expand with AOI reaching $177
million for the full year, up 9% over last year. FIA sales
in the current quarter were down due to the continued strong equity
market performance as well as uncertainty regarding the Department
of Labor rule which has slowed industry-wide sales this year, but
FIA sales were up 2% for the full fiscal year, right in line with
our plan. Finally, the regulatory approval processes for the merger
with CF Corporation are progressing well. Last week, we received
approval from the New York Department of Financial Services and
completed the public hearing with the Iowa Insurance
Division. We expect to be in a position to close the
transaction before the end of the year subject to receipt of
approval from Iowa."
Fiscal Year 2017 Summary
FGL reported net income of $223
million, or $3.83 per diluted
share, for fiscal year 2017, compared to net income of $97 million, or $1.66 per diluted share, for fiscal year 2016.
The Company reported adjusted operating income of $177 million, or $3.03 per diluted share, for fiscal year 2017,
compared to adjusted operating income of $162 million, or $2.77 per diluted share, for fiscal year 2016.
The prior fiscal year included $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. The current fiscal year includes
$18 million net benefit for lower DAC
amortization from unlocking, annual assumption review and equity
market fluctuations, $5 million net
favorable SPIA and other reserve adjustments, and $4 million bond prepayment income and lower tax
expense, partially offset by $11
million higher expense related to the pending merger
transaction and legacy incentive compensation plans.
Summary Financial Results (Unaudited)
|
|
Three months ended
September 30,
|
|
Year ended
September 30,
|
(In millions, except
per share data)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Fixed indexed annuity
sales (2)
|
|
$
|
424
|
|
|
$
|
482
|
|
|
$
|
1,868
|
|
|
$
|
1,832
|
|
Total annuity sales
(2)
|
|
$
|
588
|
|
|
$
|
603
|
|
|
$
|
2,550
|
|
|
$
|
2,525
|
|
Average assets under
management (2)
|
|
$
|
20,840
|
|
|
$
|
19,381
|
|
|
$
|
20,324
|
|
|
$
|
18,738
|
|
Net investment spread
- FIA (2)
|
|
3.00
|
%
|
|
2.98
|
%
|
|
3.02
|
%
|
|
2.97
|
%
|
Net investment spread
- All products (2)
|
|
2.44
|
%
|
|
2.27
|
%
|
|
2.42
|
%
|
|
2.27
|
%
|
Net income
|
|
$
|
61
|
|
|
$
|
30
|
|
|
$
|
223
|
|
|
$
|
97
|
|
Net income per
diluted share
|
|
$
|
1.06
|
|
|
$
|
0.52
|
|
|
$
|
3.83
|
|
|
$
|
1.66
|
|
Adjusted operating
income ("AOI") (2)
|
|
$
|
63
|
|
|
$
|
40
|
|
|
$
|
177
|
|
|
$
|
162
|
|
AOI per diluted share
(2)
|
|
$
|
1.08
|
|
|
$
|
0.69
|
|
|
$
|
3.03
|
|
|
$
|
2.77
|
|
Weighted average
basic shares
|
|
58.3
|
|
|
58.3
|
|
|
58.3
|
|
|
58.3
|
|
Weighted average
diluted shares
|
|
58.5
|
|
|
58.4
|
|
|
58.4
|
|
|
58.6
|
|
Total common shares
outstanding
|
|
58.9
|
|
|
59.0
|
|
|
58.9
|
|
|
59.0
|
|
Book value per
share
|
|
$
|
38.13
|
|
|
$
|
32.80
|
|
|
$
|
38.13
|
|
|
$
|
32.80
|
|
Book value per share,
excluding AOCI (2)
|
|
$
|
28.92
|
|
|
$
|
25.36
|
|
|
$
|
28.92
|
|
|
$
|
25.36
|
|
Sales In Line With Expectations
For the fiscal fourth quarter, sales of our core fixed indexed
annuity ("FIA") product were $424
million, a 12% decrease over the prior year quarter. On a
sequential basis, FIA sales decreased 7% as compared to the fiscal
third quarter of 2017. As expected, FIA sales levels were
influenced from an overall industry decline in FIA sales over the
past few quarters resulting from strong equity market performance
as well as focus by carriers and independent marketing
organizations ("IMO's") on the Department of Labor ("DOL")
fiduciary rule implementation. FIA sales were $1.9 billion for the fiscal year, an increase of
2% over the prior year. 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.
Sales of multi-year guarantee annuities ("MYGA") were
$164 million in the current quarter
as compared to $121 million in the
same period last year. Total annuity sales were $588 million for the fourth quarter, a decrease
of 2% compared to the fiscal fourth quarter of 2016. For the fiscal
year, total annuity sales were $2.6
billion, a 1% increase over the prior year.
Indexed universal life ("IUL") sales in the quarter were
$6 million compared to $17 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. IUL sales
were $46 million for the current
fiscal year compared to $56 million
in the prior year.
Investment Portfolio Performance
Overall, the investment portfolio is performing in line with
expectations. Net investment income was $261
million for the quarter, an increase of 10% compared to
$238 million for the same period last
year. This growth was driven by increases in average assets under
management ("AAUM"), which grew $1.6
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 5.02%, up 12 basis points from 4.90% in the prior year quarter,
driven by higher income on structured securities and a higher
allocation to private credit strategies with a focus on current
income over the past year. Asset purchases during the quarter were
$0.7 billion at an average yield of
4.95% primarily reflecting purchases 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 17
basis points to 244 basis points, compared to fiscal fourth 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 September
30, 2017 was $38.13 on a
reported basis; book value per share excluding accumulated other
comprehensive income ("AOCI") was $28.92, an increase of 14% year over year.
- As announced on November 9, 2017,
the FGL Board of Directors has declared a quarterly dividend of
$0.065 per share. The dividend is
payable on December 11, 2017 to
shareholders of record as of the close of business on November 27, 2017.
- On November 14, 2017, Fidelity
& Guaranty Life Holdings, Inc. ("FGLH"), a subsidiary of FGL,
received majority consent from holders of its 6.375% senior notes
due 2021 to adopt certain amendments to their governing indenture.
These amendments principally impact provisions of the indenture
that would have been affected by the merger with CF Corp. and do
not affect the principal, term or borrowing rate of the notes
outstanding. The indenture will be modified and FGLH will pay the
consent consideration once all the conditions with respect to the
consummation of the merger have been satisfied.
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In millions,
except share data)
|
|
|
September 30,
2017
|
|
September 30,
2016
|
ASSETS
|
(Unaudited)
|
|
|
Investments:
|
|
|
|
Fixed maturity
securities, available-for-sale, at fair value (amortized cost:
September 30, 2017 - $20,063;
September 30, 2016 - $18,521)
|
$
|
21,154
|
|
$
|
19,411
|
Equity securities,
available-for-sale, at fair value (amortized cost: September 30,
2017 - $733;
September 30, 2016 - $640)
|
773
|
|
683
|
Derivative
investments
|
413
|
|
276
|
Commercial mortgage
loans
|
547
|
|
595
|
Other invested
assets
|
185
|
|
60
|
Total
investments
|
23,072
|
|
21,025
|
Related party
loans
|
71
|
|
71
|
Cash and cash
equivalents
|
885
|
|
864
|
Accrued investment
income
|
231
|
|
214
|
Reinsurance
recoverable
|
3,375
|
|
3,464
|
Intangibles,
net
|
1,129
|
|
1,026
|
Deferred tax assets,
net
|
—
|
|
—
|
Other
assets
|
202
|
|
371
|
Total
assets
|
$
|
28,965
|
|
$
|
27,035
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Contractholder
funds
|
$
|
20,792
|
|
$
|
19,251
|
Future policy
benefits
|
3,412
|
|
3,467
|
Funds withheld for
reinsurance liabilities
|
1,083
|
|
1,172
|
Liability for policy
and contract claims
|
67
|
|
55
|
Debt
|
300
|
|
300
|
Revolving credit
facility
|
105
|
|
100
|
Deferred tax
liability, net
|
62
|
|
10
|
Other
liabilities
|
897
|
|
746
|
Total
liabilities
|
26,718
|
|
25,101
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
Preferred stock ($.01
par value, 50,000,000 shares authorized, no shares issued at
September 30, 2017
and September 30, 2016)
|
$
|
—
|
|
$
|
—
|
Common stock ($.01
par value, 500,000,000 shares authorized, 58,933,415 issued
and outstanding at
September 30, 2017; 58,956,127 shares issued and outstanding at
September 30, 2016)
|
1
|
|
1
|
Additional paid-in
capital
|
716
|
|
714
|
Retained
earnings
|
1,000
|
|
792
|
Accumulated other
comprehensive income
|
543
|
|
439
|
Treasury stock, at
cost (568,847 shares at September 30, 2017; 537,613 shares at
September 30, 2016)
|
(13)
|
|
(12)
|
Total
shareholders' equity
|
2,247
|
|
1,934
|
Total liabilities
and shareholders' equity
|
$
|
28,965
|
|
$
|
27,035
|
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions,
except per share data)
|
|
|
Three months
ended
|
|
Year
Ended
|
|
September
30, 2017
|
|
September
30, 2016
|
|
September
30, 2017
|
|
September
30, 2016
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Premiums
|
$
|
16
|
|
$
|
18
|
|
$
|
42
|
|
$
|
70
|
Net investment
income
|
261
|
|
238
|
|
1,005
|
|
923
|
Net investment gains
(losses)
|
117
|
|
26
|
|
316
|
|
19
|
Insurance and
investment product fees and other
|
41
|
|
34
|
|
167
|
|
127
|
Total
revenues
|
435
|
|
316
|
|
1,530
|
|
1,139
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Benefits and other
changes in policy reserves
|
320
|
|
206
|
|
843
|
|
791
|
Acquisition and
operating expenses, net of deferrals
|
36
|
|
36
|
|
137
|
|
119
|
Amortization of
intangibles
|
(14)
|
|
20
|
|
193
|
|
54
|
Total
benefits and expenses
|
342
|
|
262
|
|
1,173
|
|
964
|
Operating
income
|
93
|
|
54
|
|
357
|
|
175
|
Interest
expense
|
(6)
|
|
(5)
|
|
(24)
|
|
(22)
|
Income before income
taxes
|
87
|
|
49
|
|
333
|
|
153
|
Income tax
expense
|
(26)
|
|
(19)
|
|
(110)
|
|
(56)
|
Net
income
|
$
|
61
|
|
$
|
30
|
|
$
|
223
|
|
$
|
97
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.06
|
|
$
|
0.52
|
|
$
|
3.83
|
|
$
|
1.67
|
Diluted
|
$
|
1.06
|
|
$
|
0.52
|
|
$
|
3.83
|
|
$
|
1.66
|
Weighted average
common shares used in computing net income per common
share:
|
|
|
|
|
|
|
|
Basic
|
58.3
|
|
58.3
|
|
58.3
|
|
58.3
|
Diluted
|
58.5
|
|
58.4
|
|
58.4
|
|
58.6
|
|
|
|
|
|
|
|
|
Cash dividend per
common share
|
$
|
0.065
|
|
$
|
0.065
|
|
$
|
0.260
|
|
$
|
0.260
|
RECONCILIATION OF
BOOK VALUE PER SHARE EXCLUDING AOCI
|
|
(Unaudited)
|
(In millions,
except per share data)
|
September 30,
2017
|
|
September 30,
2016
|
Reconciliation to
total shareholder's equity:
|
|
|
|
Total shareholder's
equity
|
$
|
2,247
|
|
|
$
|
1,934
|
|
Less: AOCI
|
543
|
|
|
439
|
|
Total shareholder's
equity excluding AOCI
|
$
|
1,704
|
|
|
$
|
1,495
|
|
|
|
|
|
Total shares
outstanding
|
58.9
|
|
|
59.0
|
|
Weighted average
shares outstanding - basic
|
58.3
|
|
|
58.3
|
|
Weighted average
shares outstanding - diluted
|
58.4
|
|
|
58.6
|
|
|
|
|
|
Book value per
share
|
$
|
38.13
|
|
|
$
|
32.80
|
|
Book value per share,
excluding AOCI(2)
|
$
|
28.92
|
|
|
$
|
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 Corporation ("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.
CF Corp. shareholders voted to approve the merger on August 8, 2017. Requisite regulatory approval has
been obtained from the Vermont Department of Financial Regulation
and the New York Department of Financial Services. A public hearing
on the proposed merger was held on November
7, 2017 by the Iowa Insurance Division.
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, if any. 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 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 quarters ended December 31,
2016, March 31, 2017 and
June 30, 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:
Diana Hickert-Hill
Fidelity & Guaranty Life
Investors@fglife.com
410-487-0992
Media Contact:
Sard Verbinnen & Co
Jamie Tully or David Millar, 212-687-8080
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SOURCE Fidelity & Guaranty Life