Attached files
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| 8-K - 8-K - FGL Holdings | fglholdings8-kinvestorpres.htm |
FGL Holdings January 31, 2018 1
January 31, 2018
FGL Holdings Investor Update
FGL Holdings January 31, 2018 2
Legal Disclosures
► All data in this presentation are as of 12/31/2017 and include unaudited 4Q17 estimated results, unless stated
otherwise
► As a result of the recent merger with CF Corp., the acquisition method of accounting (purchase accounting or
PGAAP) will be applied in 4Q17, including the initial recognition of most of the company’s assets and liabilities at fair
value and other merger related effects.
► Caution regarding forward-looking statements:
► This presentation contains forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. 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 F&G’s management and the management of its subsidiaries.
► Generally, forward-looking statements include actions, events, results, strategies and expectations and are often
identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans,” “seeks,” “estimates,”
“projects,” “may,” “will,” “could,” “might,” or “continues,” “outlook” or similar expressions. Factors that could cause
actual results, events and developments to differ from those set forth in, or implied by, the statements set forth
herein are discussed from time to time in F&G’s filings with the SEC, as well as those of its predecessor
companies—FGL and CFCO. You can find these filings on the SEC’s website, www.sec.gov.
► All forward-looking statements we describe herein are qualified by these cautionary statements and we can
provide no assurance that the actual results, events or developments referenced herein will occur or be realized.
F&G 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 operating results.
► All estimates and forecasts for the effects of purchase accounting are preliminary and subject to change.
► Permission neither sought nor obtained with reference to third party sources
FGL Holdings January 31, 2018 3
Transaction Background
FGL Holdings January 31, 2018 4
Transaction Highlights
Conservative financial leverage with strong capitalization
Significant underlying cash and investable assets of $23B
Prudent Capital
Position with
Significant
Investable assets
4
Favorable demographic trends and growing retirement population drives
broader demand for FIA, MYGA and IUL products
F&G experienced ~10% annual sales growth from 2012-2016
Attractive
Sector and
Company Growth
3
Accelerated earnings momentum through enhanced asset management
performance through relationship with Blackstone and a tax-efficient
international platform
An enhanced ability to pursue ongoing strategic acquisitions by leveraging the
experience and professional network of CF Founders and Blackstone
Well Defined Value
Creation Levers
1
Primary insurance company with well-established Fixed Indexed Annuity (FIA),
Multi-Year Guaranty Annuity (MYGA) and Indexed Universal Life (IUL) platforms
Offers a comprehensive suite of underlying product offerings through its
longstanding and stable distribution relationships
Established Life &
Annuity Franchise
2
CF Corp. Founders Chinh Chu and Bill Foley bring significant investment and
operational expertise to F&G
Total investment of $900+ M from Chinh Chu, Bill Foley, FNF and Blackstone
demonstrates significant ongoing commitment to the franchise
Strong
Sponsorship with
Significant Capital
Investment
5
F&G
FGL Holdings January 31, 2018 5
Founders’ Background—World Class Sponsorship
CF Corporation (CFCO) was a publicly-listed company founded by Chinh Chu and William Foley which raised an
aggregate of $1.2 B of proceeds to acquire a high quality operating company; resulting in FGL Holdings (NYSE: FG)
Primary objective: build high quality, enduring business by using permanent capital
One of the largest U.S.-listed special purpose acquisition companies (SPAC)
Significant investment by co-founders aligns with shareholders’ interests
Capital raised from a broad base of blue-chip long-term investors
Well-
respected
reputations
Operational
expertise
Stewards of
stakeholders’
interests
History of
strategic
investments
with long-
term
horizon
CF
Corp.
Founders
Track
record of
delivering
stability and
value
Broad and
deep
insurance
industry
expertise
William P. Foley II
Founder and Co-Chairman (30+ Years Experience)
$54B of public market value creation
3 separate multi-billion dollar public market platforms, with over 100
acquisitions across all platforms
Chairman of the Board of Fidelity National Financial (“FNF”)
Vice-Chairman of the Board of Fidelity National Information Services (FIS)
Chinh E. Chu
Founder and Co-Chairman (25+ Years Experience)
Previously a Senior Managing Director at Blackstone and member of
Blackstone’s Executive Committee
- Longest tenured partner aside from Stephen Schwarzman
Served on Boards of Kronos, NCR, SunGard, London Financial Futures
Exchange, BankUnited, Stearns Mortgage, Celanese, Nalco, Catalent,
Nycomed, Stiefel, Allied Barton, and Graham Packaging
FGL Holdings January 31, 2018 6
Business Update
FGL Holdings January 31, 2018 7
Transaction Closing Overview
► Successfully closed transaction on
11/30/2017 for $1.84B
► New international entity structure in place
► Capitalized F&G Re with $750M
► Executed ~60% ModCo reinsurance
transaction between FGLIC and F&G Re
► Transitioned Investments team and $23B
portfolio management to Blackstone Group
► Established new Board of Directors
► Retained executive leadership team
FGL Holdings
(Cayman)
(NYSE: FG)
FGL US Holdings
Other
Non-Life
U.S. Entities
FGLIC (Iowa)
& Subsidiaries
Miscellaneous
Subsidiaries
F&G Re Ltd.
(Bermuda)
CF Bermuda
Holdings
(Bermuda)
FGL Holdings January 31, 2018 8
Sales Update
438 455 424 462
294
127 164 161
1Q17 2Q17 3Q17 4Q17E
F&G Annuity Sales Total $2.5B — F&G 6%; Industry 11% through 9/30/171
($M)
► Over past four years, F&G has consistently grown sales at greater than a 10% CAGR.
►2017 annuity sales of $2.5B are down 6% amidst industry-wide disruption from DOL ruling and
reduced appetite for safe money products given strong equity market gains
►Overall industry FIA sales are down 11% through 9/30/17
► Assets under management up 9% over 2016 with annuity volume + solid policyholder persistency
►~85% of FIA in-force protected by an average surrender charge of 9%
► Key distribution relationships remain strong and aligned for growth in 2018
AAUM ($B)
20.2 20.6 20.8 21.9
1Wink’s Report and LIMRA
► Achieved ~13% New
Business IRR for FIA’s
in 2017
► Post transaction target
is 15% with investment
and tax lift
FIA Other Annuities
732
582 588 623
FGL Holdings January 31, 2018 9
Portfolio Performing Well … Repositioning for Upside
247
257
261
265
1Q17 2Q17 3Q17 4Q17E
Portfolio Yield
2017 Net Investment Income (NII): $1.032B — +10% from prior year
($M)
4.90% 5.01% 5.02% 5.03%
► Investment portfolio has performed well throughout 2017 ... consistent improvement
in yield compared to prior year — up 8 bps overall
► No asset impairments in 4th quarter and just 4 bps on AAUM for full year, well below
pricing; <10 bps on average over last five years
► Net FIA spread consistently around 300bps … better than pricing
► Current portfolio is high-quality, well-matched and ready for upside repositioning
► NII $1,032B; 10%
► Portfolio 92% NAIC 1 & 2
► Fixed Maturities 96% IG
► Avg. ’17 Yield 5.00%
1 Results above do not reflect effects of transaction close at 11/30/17. Amounts and metrics for 4Q17E do not reflect impact of purchase accounting and
related fair value of investment portfolio, which are non-cash in nature.
1
FGL Holdings January 31, 2018 10
Organic Growth Outlook
2017E 2018F
Fixed Indexed Annuity (FIA)
MYGA & International
► 2018 Sales Outlook:
► Industry: 5% - 10%1
► F&G: targeting 10% - 12%
► Maintaining pricing discipline
► Planned expansion of MYGA sales from
improved asset flow
► Developing additional reinsurance
opportunities on USD denominated life
and annuity business outside US
► Upon ratings upgrade:
► Additional upside within IMO channel
► Expanded distribution opportunities
– Bank
– Brokerage
– Institutional
2.9
F&G Annuity Sales
($B)
+10% – 12%
1 LIMRA estimate as of 9/30/17
FGL Holdings January 31, 2018 11
U.S. Tax Reform Update
► Broad tax reform legislation signed into law and effective 1/1/2018; Corporate tax rate
reduced from 35% 21%
► Several provisions broadly impact insurance sector; F&G impact manageable
► timing of life insurance reserve deductibility
► timing of acquisition cost deductibility
► certain permanent adjustments regarding company treatment of dividends and tax-exempt interest
► Insurers with international operations are further impacted by provision to apply
alternative tax on affiliate reinsurance payments—base erosion alternative tax (BEAT)—
in addition to 1% federal excise tax
► industry analysis as to the method of alternative tax calculation is ongoing
► near-term, F&G is assuming a conservative onshore effective tax rate of 21% on all business
► working through restructuring scenarios to maintain flexibility while ensuring no exposure to BEAT
► Significant work continues to
► refine overall impact of tax reform legislation & BEAT implications for international platform
► explore further opportunities to leverage international platform
FGL Holdings January 31, 2018 12
U.S. Tax Reform Update (continued)
►Key assumptions looking ahead
► Clear benefits from lower overall corporate tax rate vs. historical ETR%
► Initial GAAP ETR projected to be at ~20% rate; though depending on final Treasury
guidance / regulations could be lower and in line with deal assumptions
►Add’l 3rd party options under evaluation can reduce ETR down to ~15% over time
► Lower corporate rate also reduces RBC ratios ...Industry range is 50-100 points1
►F&G estimate at the lower end of range; expect to offset with other actions as we
manage capital in support of desired ratings
►Estimated 2018 RBC ratio will be 425% - 450% for F&G
Historical GAAP Effective Tax
Rate
~35%
Current Assumption ETR%Assumed ETR % at Transaction
(based on 60% ModCo)
~10%-12%
~15% to ~20%
1CreditSights and industry estimates
FGL Holdings January 31, 2018 13
~4.9%
~5.0%
At Merger Signing Investment Lift Before
PGAAP
By Yearend '19
Repositioning Investment Portfolio
► $23B Investment Management Agreement executed at closing
► Newly formed “Blackstone Insurance Solutions Group” faces markets as part of ~$400B
Blackstone organization; immediate access to improved asset flows & expertise
► improved capital markets coverage;
► enhanced investment grade opportunities;
► access to Blackstone Funds (Private Equity, Real Estate, Credit, etc.)
►Actions well-underway to transform portfolio by year end 2019 and more than offset
estimated ~50 bps decrease to portfolio yield from initial purchase accounting impact
► Reposition low-earning
assets
► % structured assets
► 5% allocation to alternatives
Net Portfolio Yield
1 Estimated ~50 bps decrease to historical portfolio yield from fair value effects of purchase accounting (PGAAP), which are non-cash in nature.
2 Combined $80 - $90M+ increase to Net Income in 2019 from optimized asset management and assuming a 20% tax rate.
Investment
Actions ~5.5%
Purchase
accounting1
+20 - 30 bps
additional
40 bps
original lift
FGL Holdings January 31, 2018 14
Path to Value Creation—Levers to Increase Share Price
- $1.50
(1.0x - 3.0x
Multiple Uplift)
Reduction in tax rate to
~20% provides meaningful
earnings uplift, with potential
to reduce ETR to ~15% over
time with alternative
commercial solutions for
international platform
Tax Reform and
Reinsurance Structure
~60 - 70bps net yield uplift
targeted by YE19
Reposition actions
underway
Optimize Asset
Management
$2.5B of assets can yield
approximately 5-10%
incremental equity value
under new F&G structure
Leverage extensive
experience of FG Founders
and Board Co-Chairs
Accretive, Value-Add
Acquisitions
Structurally-improved ROE
results in higher
compounding and net
income growth
Selected industry
comparables trade at a
range of 10x to 13x P/E
Multiple Re-rating
Today ~2019: ~$13.00 to $14.501 Further Upside: ~$15.00+
Note: Assumes 214.4M ordinary shares and 70.9M warrants outstanding.
1Dilutive effect of warrants allocated pro rata across each Baseline item (except purchase accounting).
2$40 - $50M increase to Net Income in 2019 from Tax Reform and reinsurance.
3$80M - $90M+ increase to Net Income in 2019 from optimized asset management and reflecting a 20% tax rate.
4~$40M decrease to Net Income in 2019 from fair value effects of purchase accounting which are non-cash in nature. Estimated $65M decrease in after tax NII
(decrease of 50 bps portfolio yield).
partially offset by $25M increase from other items. FV effects to NII diminish beyond 2019 as in force portfolio matures or is repositioned.
5Range reflects acquisition of $2.5B - $10.0B of assets. Assumes target acquired at 1.0x P/BV and target standalone ROE of 10% improved pro forma to 15-19%.
Multiple
Re-Rating
Additional
Acquisitions5
Purchase
Accounting4$3.00 –
$3.50
$1.00 - $1.75
Tax Reform /
Reinsurance
Structure2
Asset
Management3
Before
Purchase
Accounting4
~$13.00
~$10.00
~$14.50
($1.50)
FGL Holdings January 31, 2018 15
Strong & Flexible Capital Base
► Debt to Capital at year-end 2017 ~25% … fixed charge coverage ratio >10x
► ~$100M cash at various holding companies
► New 3-year, $250M credit facility in place
► 400M1 capital available for general purposes; including M&A
► No common equity dividend assumed and preferred dividends assumed paid in kind (PIK)2
► 475% - 500% RBC in Iowa-based FGLIC
► >200% Bermuda Solvency Capital Requirement (BSCR) established
Current Ratings S&P A.M. Best Fitch Moody’s
Issuer Credit Rating3 BB+ / Positive bb+ / Under Review BB+ / Stable Ba35 / Stable
Financial Strength Rating4 BBB+ / Stable B++ / Under Review BBB / Stable Baa2 / Stable
1$400M capital at 15% ROE would equate to $600M value at 10x price-to-earnings (P/E) ratio.
2Payment of PIK dividends on preferred shares is subject to the terms of the preferred shares certificate of designation and investor agreement.
3Reflects issuer credit rating for holding companies and senior notes.
4Reflects financial strength rating for insurance operating subsidiaries.
5Reflects issuer credit rating for FGL Holdings. Issuer credit rating of Ba2 for CF Bermuda Holdings Limited and Fidelity & Guaranty Life Holdings, Inc.
Positioning for ratings upgrades to support expanded growth opportunities
FGL Holdings January 31, 2018 16
Looking Ahead to Upcoming Investor Day
Co-chairmen and executive management to cover the following topics
►Further insights to investment portfolio shifts
►Tax reform update
►Purchase accounting impacts
►2018 outlook and objectives