DES MOINES, Iowa, Nov. 16,
2016 /PRNewswire/ -- Fidelity & Guaranty Life (NYSE: FGL),
a leading provider of annuities and life insurance, today reported
net income of $30 million or
$0.52 per diluted common share, for
the fiscal fourth quarter of 2016 ended on September 30,
2016(1). The Company reported adjusted operating income
of $40 million, or $0.69 per diluted share, compared to adjusted
operating income of $42 million, or
$0.72 per diluted share, in the prior
year period.
The table below reconciles reported after-tax net income to
adjusted operating income ("AOI").
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Three months
ended
September 30,
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(In
millions)
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(Unaudited)
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Reconciliation
from Net Income to AOI(2):
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2016
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2015
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Increase
(decrease)
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Net income
|
|
$
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30
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$
|
30
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$
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—
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Effect of investment
losses (gains), net of offsets
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5
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12
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(7)
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Effect of change in
FIA embedded derivative discount rate, net of offsets
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(7)
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35
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(42)
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Effect of change in
fair value of reinsurance related embedded derivative, net of
offsets
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17
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(29)
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46
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Tax impact of
adjusting items
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(5)
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(6)
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1
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Adjusted operating
income
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$
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40
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$
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42
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$
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(2)
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See footnotes at end
of release.
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The current quarter included net favorable items of $4 million or $0.07
per diluted share. The prior year quarter included net favorable
items of $8 million or $0.14 per diluted share. The table below details
notable items in both periods.
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Current Year
Fiscal Quarter
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• Net favorable
adjustments related to lower deferred acquisition cost ("DAC")
amortization, primarily due to equity market fluctuations, and bond
prepayment income
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$6 million
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• Higher
expenses related to long-term incentive compensation
plans
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($2)
million
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Prior Year Fiscal
Quarter
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• Net favorable
adjustments related to annual actuarial assumption review, lower
DAC amortization due to equity market fluctuations, and bond
prepayment income
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$16
million
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• Unfavorable
actual to expected mortality within single premium immediate
annuity ("SPIA") product line
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($5)
million
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• Higher
expense (legacy incentive compensation & merger transaction
costs)
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($3)
million
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"We delivered another strong quarter and full year with
improvements across most of our key metrics, including sales, net
investment income and spread, adjusted operating income, and assets
under management," said Chris
Littlefield, President and CEO of FGL. "Our FIA sales are up
nicely over the prior year quarter while continuing to achieve our
targeted profitability, and we have been growing our IUL business
with existing and new distribution. In addition, we recently
announced the extension of our merger agreement with Anbang. We are
continuing the work to secure required regulatory approvals to
complete the pending merger, and we remain committed to closing the
transaction once the regulatory approval process concludes."
Fiscal Year 2016 Summary
FGL reported net income of $97
million, or $1.66 per diluted
share, for fiscal year 2016, compared to net income of $118 million, or $2.02 per diluted share, for fiscal year 2015.
The Company reported adjusted operating income of $162 million, or $2.77 per diluted share, for fiscal year 2016,
compared to adjusted operating income of $118 million, or $2.02 per diluted share, for fiscal year 2015.
The prior fiscal year included net favorable items of $2 million, whereby the $16 million benefit from the annual actuarial
assumption review, lower DAC amortization due to equity market
fluctuations, and bond prepayment income were partially offset by
$4 million SPIA mortality losses and
$10 million of expenses related to
the legacy incentive compensation plan and merger transaction
costs. The current fiscal year includes $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 $6 million higher
expense related to the pending merger transaction and long-term
incentive compensation plans.
Summary Financial
Results (Unaudited)
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Three months
ended
September 30,
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Year ended
September 30,
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(In millions, except
per share data)
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2016
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2015
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2016
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2015
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Fixed indexed annuity
sales (2)
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$
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482
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$
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424
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$
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1,832
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$
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2,179
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Total annuity sales
(2)
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$
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603
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$
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434
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$
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2,525
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$
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2,466
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Average assets under
management (2)
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$
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19,381
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$
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18,114
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$
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18,738
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$
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17,722
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Net investment spread
- FIA (2)
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2.98
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%
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2.95
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%
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2.97
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%
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2.90
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%
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Net investment spread
- All products (2)
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2.27
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%
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2.20
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%
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2.27
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%
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1.97
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%
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Net income
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$
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30
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$
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30
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$
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97
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$
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118
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Net income per
diluted share
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$
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0.52
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$
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0.51
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$
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1.66
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$
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2.02
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Adjusted operating
income ("AOI") (2)
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$
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40
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$
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42
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$
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162
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$
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118
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AOI per diluted share
(2)
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$
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0.69
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$
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0.72
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$
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2.77
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$
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2.02
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Weighted average
basic shares
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58.3
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58.1
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58.3
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58.1
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Weighted average
diluted shares
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58.4
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58.4
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58.6
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58.4
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Total common shares
outstanding
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59.0
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58.9
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59.0
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58.9
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Book value per
share
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$
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32.80
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$
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25.51
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$
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32.80
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$
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25.51
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Book value per share,
excluding AOCI (2)
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$
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25.36
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$
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24.02
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$
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25.36
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$
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24.02
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See footnotes
below.
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Sales In Line With Expectations
For the fiscal fourth quarter, sales of our core fixed indexed
annuity ("FIA") product were $482
million, an increase of 14% over the prior year quarter. FIA
sales levels in recent quarters reflect continued strong and
productive partnerships with our independent marketing
organizations ("IMO's"). FIA sales were $1.8
billion for the fiscal year, a 16% decrease over the prior
year. As expected, FIA sales were down from the prior year as
we intentionally moderated volume to sustain a disciplined approach
for new business profitability and capital management.
Sales of multi-year guarantee annuities ("MYGA") were
$121 million in the current quarter
as compared to $10 million in the
same period last year. We continue to view this business
opportunistically; therefore MYGA volume will fluctuate from period
to period. Total annuity sales were $603
million for the fourth quarter, an increase of 39% compared
to the fiscal fourth quarter of 2015. For the fiscal year, total
annuity sales were $2.5 billion, a 2%
increase over the prior year.
Indexed universal life sales in the quarter were $17 million, an increase of 55% compared to
$11 million last year. The strong
growth in the current period reflects FGL's ongoing efforts to
steadily grow indexed universal life sales through its network of
core middle-market focused IMO's. Sales of indexed universal life
were $56 million for the fiscal year,
a 60% increase over the prior period.
Investment Portfolio Performing Well
Net investment income was $238
million for the quarter, an increase of 7% compared to
$223 million for the same period last
year. This growth was driven by increases in average assets under
management ("AAUM"), which grew $1.0
billion or 6% 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%, down 2 basis points from 4.92% in the prior year quarter
which benefited from higher bond prepayment income. Asset purchases
during the quarter were $0.8 billion
at an average yield of 4.83%. Asset purchases during the current
quarter were primarily in investment grade corporate bonds and
structured securities and high grade preferred stocks. The
average NAIC rating for the portfolio remains approximately
1.5.
Net investment spread across all product lines increased 7 basis
points compared to fiscal fourth quarter 2015. Net investment
spread in the current quarter for fixed indexed annuities was
consistent with recent performance at 298 basis points. Current
period results also included net realized losses on
available-for-sale investments of $8
million before DAC amortization and taxes.
Capital Management Trends
- GAAP book value per share at September
30, 2016 was $32.80 on a
reported basis; book value per share excluding accumulated other
comprehensive income ("AOCI") was $25.36, an increase of 6% year over year.
- As of September 30, 2016, the
Company has drawn down $100 million
of its unsecured revolving credit facility. Proceeds were
contributed to the insurance subsidiary to support continued growth
of the business. The remaining amount available under the revolver
credit facility is $50 million.
- As announced on November 10,
2016, the FGL Board of Directors has declared a quarterly
dividend of $0.065 per share. The
dividend is payable on December 12,
2016 to shareholders of record as of the close of business
on November 28, 2016.
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In millions,
except share data)
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September 30,
2016
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September 30,
2015
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ASSETS
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Investments:
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Fixed maturity
securities, available-for-sale, at fair value (amortized cost:
September 30, 2016 - $18,521; September 30, 2015 -
$17,622)
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$
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19,411
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$
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17,746
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Equity securities,
available-for-sale, at fair value (amortized cost:
September 30, 2016 - $640; September 30, 2015 - $597)
|
683
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620
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Derivative
investments
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276
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82
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Commercial mortgage
loans
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595
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491
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Other invested
assets
|
60
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155
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Total
investments
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21,025
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19,094
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Related party
loans
|
71
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78
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Cash and cash
equivalents
|
864
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|
502
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Accrued investment
income
|
214
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|
191
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Reinsurance
recoverable
|
3,464
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|
3,579
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Intangibles,
net
|
1,026
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|
988
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Deferred tax
assets
|
—
|
|
228
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Other
assets
|
371
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|
265
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Total
assets
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$
|
27,035
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$
|
24,925
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LIABILITIES AND
SHAREHOLDERS' EQUITY
|
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Contractholder
funds
|
$
|
19,251
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$
|
17,770
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Future policy
benefits
|
3,467
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3,468
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Funds withheld for
reinsurance liabilities
|
1,172
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|
1,267
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Liability for policy
and contract claims
|
55
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|
55
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Debt
|
300
|
|
300
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Revolving credit
facility
|
100
|
|
—
|
Deferred tax
liability
|
10
|
|
—
|
Other
liabilities
|
746
|
|
563
|
Total
liabilities
|
25,101
|
|
23,423
|
|
|
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Commitments and
contingencies
|
|
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Shareholders'
equity:
|
|
|
|
Preferred stock ($.01
par value, 50,000,000 shares authorized, no shares
issued at September 30, 2016 and September 30, 2015)
|
$
|
—
|
|
$
|
—
|
Common stock ($.01
par value, 500,000,000 shares authorized, 58,956,127
issued and outstanding at September 30, 2016; 58,870,823 shares
issued
and outstanding at September 30, 2015)
|
1
|
|
1
|
Additional paid-in
capital
|
714
|
|
714
|
Retained
earnings
|
792
|
|
710
|
Accumulated other
comprehensive income
|
439
|
|
88
|
Treasury stock, at
cost (537,613 shares at September 30, 2016;
512,391 shares at September 30, 2015)
|
(12)
|
|
(11)
|
Total
shareholders' equity
|
1,934
|
|
1,502
|
Total liabilities
and shareholders' equity
|
$
|
27,035
|
|
$
|
24,925
|
FIDELITY &
GUARANTY LIFE AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions,
except per share data)
|
|
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|
|
|
|
|
|
|
|
|
|
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|
Three months
ended
|
|
Year
Ended
|
|
September 30,
2016
|
|
September 30,
2015
|
|
September 30,
2016
|
|
September 30,
2015
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Premiums
|
$
|
18
|
|
$
|
15
|
|
$
|
70
|
|
$
|
58
|
Net investment
income
|
238
|
|
223
|
|
923
|
|
851
|
Net investment gains
(losses)
|
26
|
|
(112)
|
|
19
|
|
(37)
|
Insurance and
investment product fees and other
|
34
|
|
24
|
|
127
|
|
89
|
Total
revenues
|
316
|
|
150
|
|
1,139
|
|
961
|
Benefits and
expenses:
|
|
|
|
|
|
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|
Benefits and other
changes in policy reserves
|
206
|
|
104
|
|
791
|
|
578
|
Acquisition and
operating expenses, net of deferrals
|
36
|
|
30
|
|
119
|
|
113
|
Amortization of
intangibles
|
20
|
|
(33)
|
|
54
|
|
64
|
Total
benefits and expenses
|
262
|
|
101
|
|
964
|
|
755
|
Operating
income
|
54
|
|
49
|
|
175
|
|
206
|
Interest
expense
|
(5)
|
|
(6)
|
|
(22)
|
|
(24)
|
Income before income
taxes
|
49
|
|
43
|
|
153
|
|
182
|
Income tax
expense
|
19
|
|
13
|
|
56
|
|
64
|
Net
income
|
$
|
30
|
|
$
|
30
|
|
$
|
97
|
|
$
|
118
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
$
|
0.52
|
|
$
|
0.52
|
|
$
|
1.67
|
|
$
|
2.03
|
Diluted
|
$
|
0.52
|
|
$
|
0.51
|
|
$
|
1.66
|
|
$
|
2.02
|
Weighted average
common shares used in
computing net income per common share:
|
|
|
|
|
|
|
|
Basic
|
58.3
|
|
58.1
|
|
58.3
|
|
58.1
|
Diluted
|
58.4
|
|
58.4
|
|
58.6
|
|
58.4
|
|
|
|
|
|
|
|
|
Cash dividend per
common share
|
$
|
0.065
|
|
$
|
0.065
|
|
$
|
0.260
|
|
$
|
0.260
|
RECONCILIATION OF
BOOK VALUE PER SHARE EXCLUDING AOCI
|
|
|
|
|
(In millions,
except per share data)
|
September 30,
2016
|
|
September 30,
2015
|
Reconciliation to
total shareholder's equity:
|
|
|
|
Total shareholder's
equity
|
$
|
1,934
|
|
|
$
|
1,502
|
|
Less: AOCI
|
439
|
|
|
88
|
|
Total shareholder's
equity excluding AOCI
|
$
|
1,495
|
|
|
$
|
1,414
|
|
|
|
|
|
Total shares
outstanding
|
59.0
|
|
|
58.9
|
|
Weighted average
shares outstanding - basic
|
58.3
|
|
|
58.1
|
|
Weighted average
shares outstanding - diluted
|
58.6
|
|
|
58.4
|
|
|
|
|
|
Book value per
share
|
$
|
32.80
|
|
|
$
|
25.51
|
|
Book value per share,
excluding AOCI(2)
|
$
|
25.36
|
|
|
$
|
24.02
|
|
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)
|
See table on
reconciliation of net income to AOI for the 2016 and 2015 fiscal
quarters
|
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 merger agreement through February 8, 2017. For more information, please
visit FGL's investor relations website at www.fglife.com.
FGL and Anbang are committed to securing the remaining
regulatory approvals and seek to close the Merger as expeditiously
as possible, however, the closing of the Merger, and the timing
thereof, is subject to the regulatory review and approval process,
none of which can be assured. 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, (iii) the effect of change in fair value of the
reinsurance related embedded derivative, and (iv) the effect of
class action litigation reserves. 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