Attached files
| file | filename |
|---|---|
| 8-K - 8-K - FGL Holdings | fglholdings-12312017x10xkp.htm |
| EX-99.1 - EXHIBIT 99.1 - FGL Holdings | fglholdings-12312017earnin.htm |
Exhibit 99.2
Investor Supplement
Period from December 1 to December 31, 2017
(Year Ended December 31)
The financial statements and financial exhibits included herein are unaudited. These financial statements and exhibits should be read in conjunction with the Company's periodic reports on Form 10-K, Form 10-Q and Form 8-K.
Fidelity & Guaranty Life (“FGL”; NYSE: FGL), a former majority owned subsidiary of HRG Group, Inc. (“HRG”; NYSE: HRG), completed the merger with CF Corporation (NASDAQ: CFCO) (“CF Corp”) and its related entities (“CF Entities”), on November 30, 2017. As a result of the Business Combination completed November 30, 2017, CF Corp changed their name to FGL Holdings (NYSE: FG). For accounting purposes, FGL Holdings was determined to be the acquirer and FGL was deemed the acquired party and accounting predecessor. In addition, on November 30, 2017 CF Corp acquired all of the issued and outstanding shares of Front Street Re (Cayman) Ltd. and Front Street Re. Ltd (collectively "FSR Companies"). Our financial statement presentation includes the financial statements of FGL and its subsidiaries as “Predecessor” for the periods prior to the completion of the Business Combination and FGL Holdings, including the consolidation of FGL and its subsidiaries and FSR Companies, as "Successor" for periods from and after the Closing Date. Our Consolidated Financial Statements are presented: (i) unaudited as of December 31, 2017 and for the period December 1, 2017 to December 31, 2017 (Successor); (ii) unaudited for the period October 1, 2017 to November 30, 2017 (Predecessor); (iii) for the unaudited period October 1, 2016 to December 31, 2016 (Predecessor); and (iv) as of September 30, 2017 and 2016, and for each of the years in the three year period ended September 30, 2017 (Predecessor).
Non-GAAP Financial Measures
This document contains certain non-GAAP financial measures commonly used in our industry that, together with the relevant GAAP measures, may enhance a user’s ability to analyze the Company's operating performance and capital position for the periods presented. These measures should be considered supplementary to our results in accordance with GAAP and should not be viewed as a substitute for the GAAP measures. Because the Company's calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing the Company's non-GAAP financial measures to those of other companies.
FGL HOLDINGS
Financial Supplement
December 31, 2017
(All periods are unaudited)
Page | |
Consolidated Financial Highlights | |
Condensed Consolidated Balance Sheets | |
Quarterly Summary - Most Recent 5 Quarters | |
Non-GAAP Definitions | |
Summary of Adjustments to Arrive at AOI | |
Notable items Included in Net Income and AOI | |
Capitalization/Book Value per Share | |
Net Investment Spread Results | |
Sales Results by Product | |
B. Product Summary | |
C. Investment Summary | |
D. Counterparty Risk | |
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
FGL HOLDINGS
Consolidated Financial Highlights
One Month Ended | Two Months Ended | Three Months Ended | ||||||||||||||||||||||
December 31, 2017 | November 30, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | |||||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums | $ | 3 | $ | 7 | $ | 16 | $ | 12 | $ | 3 | $ | 11 | ||||||||||||
Net investment income | 92 | 174 | 261 | 257 | 247 | 240 | ||||||||||||||||||
Net investment gains (losses) | 42 | 146 | 117 | 67 | 81 | 51 | ||||||||||||||||||
Insurance and investment product fees and other | 28 | 35 | 41 | 44 | 44 | 38 | ||||||||||||||||||
Total revenues | 165 | 362 | 435 | 380 | 375 | 340 | ||||||||||||||||||
Net income (loss) | $ | (102 | ) | $ | 28 | $ | 61 | $ | 32 | $ | 22 | $ | 108 | |||||||||||
Adjusted Operating Income ("AOI") (1) | $ | 3 | $ | 36 | $ | 63 | $ | 37 | $ | 36 | $ | 41 | ||||||||||||
Dividends on preferred stock | (2 | ) | — | — | — | — | — | |||||||||||||||||
AOI available to common shareholders | 1 | 36 | 63 | 37 | 36 | 41 | ||||||||||||||||||
Per Unrestricted Common Shares Amounts: | ||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||
Net (loss) income available to common shareholders | $ | (0.49 | ) | $ | 0.48 | $ | 1.06 | $ | 0.54 | $ | 0.38 | $ | 1.85 | |||||||||||
AOI available to common shareholders (1) | $ | — | $ | 0.62 | $ | 1.08 | $ | 0.63 | $ | 0.62 | $ | 0.70 | ||||||||||||
Diluted: | ||||||||||||||||||||||||
Net (loss) income available to common shareholders | $ | (0.49 | ) | $ | 0.47 | $ | 1.06 | $ | 0.54 | $ | 0.38 | $ | 1.85 | |||||||||||
AOI available to common shareholders (1) | $ | — | $ | 0.62 | $ | 1.08 | $ | 0.63 | $ | 0.62 | $ | 0.70 | ||||||||||||
Dividends Paid to Common Shareholders Per Share | $ | — | $ | 0.065 | $ | 0.065 | $ | 0.065 | $ | 0.065 | $ | 0.065 | ||||||||||||
At Period End | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,215 | $ | 924 | $ | 885 | $ | 799 | $ | 887 | $ | 632 | ||||||||||||
Total investments | $ | 23,604 | $ | 23,326 | $ | 23,072 | $ | 22,627 | $ | 21,813 | $ | 21,076 | ||||||||||||
Total assets | $ | 29,929 | $ | 29,227 | $ | 28,965 | $ | 28,402 | $ | 27,897 | $ | 26,952 | ||||||||||||
Contractholder funds | $ | 21,844 | $ | 21,083 | $ | 20,792 | $ | 20,342 | $ | 20,052 | $ | 19,486 | ||||||||||||
Future policy benefits | $ | 4,751 | $ | 3,401 | $ | 3,412 | $ | 3,423 | $ | 3,435 | $ | 3,453 | ||||||||||||
Debt (including revolving credit facility) | $ | 412 | $ | 405 | $ | 405 | $ | 405 | $ | 405 | $ | 400 | ||||||||||||
Total equity | $ | 1,975 | $ | 2,284 | $ | 2,247 | $ | 2,113 | $ | 1,908 | $ | 1,752 | ||||||||||||
Total equity excluding Accumulated Other Comprehensive Income (AOCI) | $ | 1,900 | $ | 1,729 | $ | 1,704 | $ | 1,646 | $ | 1,617 | $ | 1,599 | ||||||||||||
Common shares issued and outstanding | 214.37 | 59.00 | 58.93 | 58.99 | 58.99 | 58.98 | ||||||||||||||||||
GAAP Book value per common share (1) | $ | 7.45 | $ | 38.71 | $ | 38.13 | $ | 35.82 | $ | 32.34 | $ | 29.70 | ||||||||||||
GAAP Book value per common share excluding AOCI (1) | $ | 7.10 | $ | 29.31 | $ | 28.92 | $ | 27.90 | $ | 27.41 | $ | 27.11 | ||||||||||||
Debt to total Capitalization excluding AOCI (1) | 17.8 | % | 19.0 | % | 19.2 | % | 19.7 | % | 20.0 | % | 20.0 | % | ||||||||||||
Return on average common shareholders' equity excluding AOCI (1) | N/M | 6.5 | % | 14.6 | % | 7.8 | % | 5.5 | % | 27.9 | % | |||||||||||||
3
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
One Month Ended | Two Months Ended | Three Months Ended | ||||||||||||||||||||||
December 31, 2017 | November 30, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | |||||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
Statutory Book value per share | $ | 4.26 | $ | 25.91 | $ | 25.91 | $ | 25.18 | $ | 26.06 | $ | 22.43 | ||||||||||||
Statutory Book value per share excluding IMR and AVR | $ | 6.92 | $ | 34.99 | $ | 34.99 | $ | 34.30 | $ | 35.28 | $ | 32.18 | ||||||||||||
(1) Refer to "Non-GAAP Financial Measures" for further details
N/M - Not meaningful
4
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
FGL HOLDINGS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | ||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
ASSETS | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Fixed maturity securities, available-for-sale, at fair value (amortized cost: December 31, 2017 - $21,475; September 30, 2017 - $20,063; September 30, 2016 - $18,521) | $ | 21,590 | $ | 21,154 | $ | 20,766 | $ | 20,052 | $ | 19,437 | ||||||||||
Equity securities, available-for-sale, at fair value (amortized cost: December 31, 2017 - $764; September 30, 2017 - $733; September 30, 2016 - $640) | 761 | 773 | 774 | 712 | 696 | |||||||||||||||
Derivative investments | 492 | 413 | 361 | 351 | 314 | |||||||||||||||
Short term investments | 25 | — | — | — | — | |||||||||||||||
Commercial mortgage loans | 548 | 547 | 550 | 579 | 582 | |||||||||||||||
Other invested assets | 188 | 185 | 176 | 119 | 47 | |||||||||||||||
Total investments | 23,604 | 23,072 | 22,627 | 21,813 | 21,076 | |||||||||||||||
Related party loans | — | 71 | 71 | 71 | 71 | |||||||||||||||
Cash and cash equivalents | 1,215 | 885 | 799 | 887 | 632 | |||||||||||||||
Accrued investment income | 211 | 231 | 204 | 225 | 201 | |||||||||||||||
Funds withheld for reinsurance receivables at fair value | 756 | — | — | — | — | |||||||||||||||
Reinsurance recoverable | 2,506 | 3,375 | 3,390 | 3,426 | 3,444 | |||||||||||||||
Intangibles, net | 844 | 1,129 | 1,097 | 1,184 | 1,228 | |||||||||||||||
Deferred tax assets, net | 163 | — | — | 87 | 68 | |||||||||||||||
Goodwill | 470 | — | — | — | — | |||||||||||||||
Other assets | 160 | 202 | 214 | 204 | 232 | |||||||||||||||
Total assets | $ | 29,929 | $ | 28,965 | $ | 28,402 | $ | 27,897 | $ | 26,952 | ||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||||
Contractholder funds | $ | 21,844 | $ | 20,792 | $ | 20,342 | $ | 20,052 | $ | 19,486 | ||||||||||
Future policy benefits, including $728 at fair value at December 31, 2017 | 4,751 | 3,412 | 3,423 | 3,435 | 3,453 | |||||||||||||||
Funds withheld for reinsurance liabilities | 2 | 1,083 | 1,106 | 1,134 | 1,142 | |||||||||||||||
Liability for policy and contract claims | 78 | 67 | 57 | 60 | 53 | |||||||||||||||
Debt | 307 | 300 | 300 | 300 | 300 | |||||||||||||||
Revolving credit facility | 105 | 105 | 105 | 105 | 100 | |||||||||||||||
Deferred tax liability, net | — | 62 | 11 | — | — | |||||||||||||||
Other liabilities | 867 | 897 | 945 | 903 | 666 | |||||||||||||||
Total liabilities | 27,954 | 26,718 | 26,289 | 25,989 | 25,200 | |||||||||||||||
5
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | ||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | ||||||||||||||||
Shareholders' equity: | ||||||||||||||||||||
Preferred stock ($.0001 par value, 100,000,000 shares authorized, 375,000 shares issued and outstanding at December 31, 2017; $.01 par value, 50,000,000 shares authorized, no shares issued at September 30, 2017 and September 30, 2016, respectively) | — | — | — | — | — | |||||||||||||||
Common stock ($.0001 par value, 800,000,000 shares authorized, 214,370,000 issued and outstanding at December 31, 2017; $.01 par value, 500,000,000 shares authorized, 58,933,415 and 58,956,127 issued and outstanding at September 30, 2017 and September 30, 2016, respectively) | — | 1 | 1 | 1 | 1 | |||||||||||||||
Additional paid-in capital | 2,060 | 716 | 716 | 715 | 715 | |||||||||||||||
Retained earnings (Accumulated deficit) | (160 | ) | 1,000 | 942 | 914 | 896 | ||||||||||||||
Accumulated other comprehensive income | 75 | 543 | 467 | 291 | 153 | |||||||||||||||
Treasury stock, at cost (no shares at December 31, 2017; 568,847 shares at September 30, 2017; 537,613 shares at September 30, 2016) | — | (13 | ) | (13 | ) | (13 | ) | (13 | ) | |||||||||||
Total shareholders' equity | 1,975 | 2,247 | 2,113 | 1,908 | 1,752 | |||||||||||||||
Total liabilities and shareholders' equity | $ | 29,929 | $ | 28,965 | $ | 28,402 | $ | 27,897 | $ | 26,952 | ||||||||||
Equity attributable to preferred shareholders (1) | $ | 377 | $ | — | $ | — | $ | — | $ | — | ||||||||||
(1) Refer to "Non-GAAP Financial Measures" for further details
6
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Quarterly Summary - Most Recent 5 Quarters
One Month Ended | Two Months Ended | Three Months Ended | ||||||||||||||||||||||
December 31, 2017 | November 30, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | |||||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Traditional life insurance premiums | $ | 3 | $ | 6 | $ | 10 | $ | 7 | $ | — | $ | 10 | ||||||||||||
Life contingent immediate annuity | — | 1 | 6 | 5 | 3 | 1 | ||||||||||||||||||
Net investment income | 92 | 174 | 261 | 257 | 247 | 240 | ||||||||||||||||||
Net investment gains (losses) | 42 | 146 | 117 | 67 | 81 | 51 | ||||||||||||||||||
Surrender charges | 3 | 10 | 9 | 9 | 9 | 7 | ||||||||||||||||||
Cost of insurance fees and other income | 25 | 25 | 32 | 35 | 35 | 31 | ||||||||||||||||||
Total revenues | 165 | 362 | 435 | 380 | 375 | 340 | ||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||
Traditional life insurance policy benefits and change in future policy benefits | 7 | 12 | 18 | 21 | 11 | 22 | ||||||||||||||||||
Life contingent immediate annuity benefits and changes in future policy benefits | 11 | 13 | 26 | 20 | 18 | 18 | ||||||||||||||||||
Interest sensitive and index product benefits and changes in future policy benefits | 123 | 202 | 276 | 194 | 239 | (20 | ) | |||||||||||||||||
General expenses | 11 | 47 | 30 | 35 | 30 | 25 | ||||||||||||||||||
Acquisition expenses | 27 | 44 | 65 | 72 | 81 | 92 | ||||||||||||||||||
Deferred acquisition costs ("DAC") | (22 | ) | (40 | ) | (59 | ) | (67 | ) | (78 | ) | (89 | ) | ||||||||||||
Amortization of intangibles | 1 | 36 | (14 | ) | 51 | 33 | 123 | |||||||||||||||||
Total benefits and expenses | 158 | 314 | 342 | 326 | 334 | 171 | ||||||||||||||||||
Operating income | 7 | 48 | 93 | 54 | 41 | 169 | ||||||||||||||||||
Interest expense | (2 | ) | (4 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | ||||||||||||
Income before income taxes | 5 | 44 | 87 | 48 | 35 | 163 | ||||||||||||||||||
Income tax expense | (107 | ) | (16 | ) | (26 | ) | (16 | ) | (13 | ) | (55 | ) | ||||||||||||
Net (loss) income | $ | (102 | ) | $ | 28 | $ | 61 | $ | 32 | $ | 22 | $ | 108 | |||||||||||
Less Preferred stock dividend | 2 | — | — | — | — | — | ||||||||||||||||||
Net (loss) income available to common shareholders | (104 | ) | 28 | 61 | 32 | 22 | 108 | |||||||||||||||||
Net (loss) income available to common shareholders per common share: | ||||||||||||||||||||||||
Basic | $ | (0.49 | ) | $ | 0.48 | $ | 1.06 | $ | 0.54 | $ | 0.38 | $ | 1.85 | |||||||||||
Diluted | $ | (0.49 | ) | $ | 0.47 | $ | 1.06 | $ | 0.54 | $ | 0.38 | $ | 1.85 | |||||||||||
Weighted average common shares used in computing net income per common share: | ||||||||||||||||||||||||
Basic | 214.37 | $ | 58.34 | 58.34 | 58.34 | 58.33 | 58.28 | |||||||||||||||||
Diluted | 214.37 | $ | 58.49 | 58.48 | 58.44 | 58.38 | 58.37 | |||||||||||||||||
7
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Reconciliation from Net (Loss) Income to Adjusted Operating Income ("AOI ")
One Month Ended | Two Months Ended | Three Months Ended | ||||||||||||||||||||||
December 31, 2017 | November 30, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | |||||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||
Net (loss) income | $ | (102 | ) | $ | 28 | $ | 61 | $ | 32 | $ | 22 | $ | 108 | |||||||||||
Adjustments to arrive at AOI: | ||||||||||||||||||||||||
Effect of investment (gains) losses, net of offsets (a) | — | (6 | ) | (5 | ) | 4 | 15 | (1 | ) | |||||||||||||||
Effect of change in FIA embedded derivative discount rate, net of offsets (a) | 6 | (10 | ) | 3 | (4 | ) | (2 | ) | (92 | ) | ||||||||||||||
Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a) | — | (1 | ) | 5 | 8 | 8 | (10 | ) | ||||||||||||||||
Effect of integration, merger related & other non-operating items (b) | (8 | ) | 29 | — | — | — | — | |||||||||||||||||
Net impact of Tax Cuts and Jobs Act | 131 | — | — | — | — | — | ||||||||||||||||||
Effects of tax impact of affiliated reinsurance embedded derivative | (20 | ) | — | — | — | — | — | |||||||||||||||||
Tax impact of adjusting items | (4 | ) | (4 | ) | (1 | ) | (3 | ) | (7 | ) | 36 | |||||||||||||
AOI | $ | 3 | $ | 36 | $ | 63 | $ | 37 | $ | 36 | $ | 41 | ||||||||||||
Dividends on preferred stock | (2 | ) | — | — | — | — | — | |||||||||||||||||
AOI available to common shareholders (1) | $ | 1 | $ | 36 | $ | 63 | $ | 37 | $ | 36 | $ | 41 | ||||||||||||
Per diluted common share: | ||||||||||||||||||||||||
Net (loss) income available to common shareholders | $ | (0.49 | ) | $ | 0.47 | $ | 1.06 | $ | 0.54 | $ | 0.38 | $ | 1.85 | |||||||||||
Adjustments to arrive at AOI: | ||||||||||||||||||||||||
Effect of investment (gains) losses, net of offsets (a) | — | (0.10 | ) | (0.09 | ) | 0.07 | 0.26 | (0.02 | ) | |||||||||||||||
Effect of change in FIA embedded derivative discount rate, net of offsets (a) | 0.03 | (0.17 | ) | 0.05 | (0.07 | ) | (0.04 | ) | (1.58 | ) | ||||||||||||||
Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a) | — | (0.02 | ) | 0.09 | 0.14 | 0.14 | (0.17 | ) | ||||||||||||||||
Effect of integration, merger related & other non-operating items (b) | (0.04 | ) | 0.50 | — | — | — | — | |||||||||||||||||
Net impact of Tax Cuts and Jobs Act | 0.61 | — | — | — | — | — | ||||||||||||||||||
Effects of tax impact of affiliated reinsurance embedded derivative | (0.09 | ) | — | — | — | — | — | |||||||||||||||||
Tax impact of adjusting items | (0.02 | ) | (0.06 | ) | (0.02 | ) | (0.05 | ) | (0.12 | ) | 0.62 | |||||||||||||
AOI available to common shareholders per diluted share | $ | — | $ | 0.62 | $ | 1.09 | $ | 0.63 | $ | 0.62 | $ | 0.70 | ||||||||||||
(a) Amounts are net of offsets related to value of business acquired ("VOBA") and deferred acquisition cost ("DAC") amortization.
(b) Other non-operating items' for the one month ended December 31, 2017 consists of the effect of a $12 contract termination fee received
8
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
NON-GAAP FINANCIAL MEASURES : Successor
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.
AOI
AOI is a non-GAAP economic measure we use to evaluate financial performance each period. AOI is calculated by adjusting net income (loss) 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 affiliated reinsurance embedded derivative, (iv) the effect of integration, merger related & other non-operating items, (v) impact of extinguishment of debt, and (vi) net impact from Tax Cuts and Jobs Act. Adjustments to AOI are net of the corresponding impact on amortization of intangibles, as appropriate. 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 FG, market conditions and/or the non-recurring or non-operating nature of these items can overshadow the underlying performance of the core business. Accordingly, Management considers 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.
AOI Available to Common Shareholders
AOI available to common shareholders is a non-GAAP economic measure we use to evaluate financial performance attributable to our common shareholders each period. AOI available to common shareholders is calculated by adjusting net income (loss) available to common shareholders 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 tax effect of change in fair value of affiliated reinsurance embedded derivative, (iv) the effect of integration, merger related & other non-operating items, (v) impact of extinguishment of debt, and (vi) net impact from Tax Cuts and Jobs act. All adjustments to AOI available to common shareholders are net of the corresponding impact on amortization of intangibles. 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 FG, market conditions impacting these items can overshadow the underlying performance of the business. Accordingly, Management considers 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.
Sales
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 and IUL 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.
Common Shareholders’ Equity
Common Shareholders’ Equity is based on Total Shareholders’ Equity excluding Equity Available to Preferred Shareholders. Management considers this to be a useful measure internally and to investors to assess the level of equity that is attributable common stock holders.
9
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Common Shareholders’ Equity Excluding AOCI
Common Shareholders’ Equity Excluding AOCI is based on Common Shareholders Equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, Management considers this non-GAAP financial measure to provide useful supplemental information internally and to investors and analysts assessing the level of earned equity on common equity.
Equity Available to Preferred Shareholders
Equity available to preferred shareholders is equal to the product of (a) the number of preferred shares outstanding plus share dividends declared but not yet issued and (b) the original liquidation preference amount per share. Management considers this non-GAAP measure to provide useful information internally and to investors and analysts to assess the level of return driven by the Company that is attributable to preferred stock holders.
Total Capitalization Excluding AOCI
Total Capitalization Excluding AOCI is based on shareholders’ equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, Management considers this non-GAAP financial measure to provide useful supplemental information internally and to investors and analysts to help assess the capital position of the Company.
Book Value per Common Share (including and excluding AOCI)
Book Value per Common Share including and excluding AOCI is calculated as Common Shareholders’ Equity and Common Shareholders Equity Excluding AOCI divided by the total number of shares of common stock outstanding. Management considers this to be a useful measure internally and for investors and analysts to assess the capital position of the Company.
Return on Common Shareholders’ Equity
Return on Common Shareholders' Equity is a non-GAAP financial measure. It is calculated by dividing net income (loss) available to common shareholders by total average Common Shareholders’ Equity. Average Common Shareholders Equity for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average Common Shareholders Equity is calculated using the beginning and ending Common Shareholders’ Equity for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized. As a result of the merger, the starting point for calculation of average Common Shareholders’ Equity was reset to December 1, 2017. The rolling average will be updated from the merger date forward to use available historical data points for the successor until 5 historical data points are available. Management considers this to be a useful measure internally and for investors and analysts to assess the level of return driven by the Company that is attributable to common shareholders.
Return on Common Shareholders Equity Excluding AOCI
Return on Common Shareholders' Equity Excluding AOCI is a non-GAAP financial measure. It is calculated by dividing net income (loss) available to common shareholders by total average Common Shareholders’ Equity Excluding AOCI. Average Common Shareholders Equity Excluding AOCI for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average Common Shareholders Equity Excluding AOCI is calculated using the beginning and ending Common Shareholders’ Equity, excluding AOCI, for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized. As a result of the merger, the starting point for calculation of average Common Shareholders’ Equity was reset to December 1, 2017. The rolling average will be updated from the merger date forward to use available historical data points for the successor until 5 historical data points are available. Management considers this to be a useful measure internally and for investors and analysts to assess the level of return driven by the Company that is attributable to common shareholders.
10
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Adjusted Operating Return on Common Shareholders’ Equity Excluding AOCI
Adjusted Operating Return on Common Shareholders’ Equity Excluding AOCI is a non-GAAP financial measure. It is calculated by dividing AOI Available to Common Shareholders’ by total average Common Shareholders’ Equity Excluding AOCI. Average Common Shareholders’ Equity Excluding AOCI for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average Common Shareholders Equity is calculated using the beginning and ending Common Shareholders Equity, Excluding AOCI, for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized. As a result of the merger, the starting point for calculation of average Common Shareholders’ Equity was reset to December 1, 2017. The rolling average will be updated from the merger date forward to use available historical data points for the successor until 5 historical data points are available. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, Management considers this non-GAAP financial measure to provide useful supplemental information internally and to investors and analysts assessing the level of adjusted earned return on common equity.
Debt-to-Capital
Debt-to-capital ratio is computed by dividing total debt by total capitalization excluding AOCI. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing its capital position.
Average Assets Under Management (AAUM)
AAUM is the sum of (i) total invested assets at amortized cost, excluding derivatives; (ii) related party loans and investments; (iii) accrued investment income; (iv) funds withheld at fair value; (v) the net payable/receivable for the purchase/sale of investments and (iv) cash and cash equivalents, excluding derivative collateral, at the beginning of the period and the end of each month in the period, divided by the total number of months in the period plus one. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the rate of return on assets available for reinvestment.
Yield on AAUM
Yield on AAUM is calculated by dividing annualized net investment income by AAUM. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the level of return earned on AAUM.
Net Investment Spread
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. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the performance of the Company’s invested assets against the level of investment return, inclusive of hedging costs, provided to policyholders.
Investment Book Yield
Investment book yield on bonds purchased during the period excludes yield on short-term treasuries and cash and cash equivalents. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the level of returned on the Company’s income generating invested assets
NON-GAAP FINANCIAL MEASURES : Predecessor
The following represents the definitions of non-GAAP measures used by the Predecessor entity.
For the period ended November 30, 2017, the Predecessor changed their definition of AOI to exclude the effects of integration and merger related expenses. Given the volume of integration and merger expenses incurred during the two months ended November 30, 2017, Predecessor management believed the exclusion of these charges from net income when calculating AOI provided users of the financial statements and other financial communications a more representative view of the results of the core business of the Predecessor for that period. Predecessor periods shown prior to November 30, 2017 have not been adjusted to reflect the new definition; however, integration and merger expenses in Predecessor periods prior to the two months ended November 30, 2017 are included within the ‘Notable Items Included in Net Income and AOI’ schedule within this document and are noted as ‘project expenses’.
11
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
AOI
AOI is a non-GAAP economic measure the Predecessor used to evaluate financial performance each period. 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 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 integration and merger related expenses. 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 were an integral part of the overall performance of the Predecessor, market conditions impacting these items could overshadow the underlying performance of the Predecessor's business. Accordingly, the Predecessor believed using a measure which excluded their impact was effective in analyzing the trends of their operations. The Predecessor's 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.
Sales
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). The Predecessor believed that presentation of sales as measured for management purposes enhances the understanding of the 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.
Total Capitalization Excluding AOCI
Total Capitalization Excluding AOCI is based on shareholders’ equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, the Predecessor considered this non-GAAP financial measure to provide useful supplemental information internally and to investors and analysts to help assess capital position of the Predecessor.
Book Value per share (including and excluding AOCI) (presented herein as Book Value per common share including and excluding AOCI)
Book Value per share including and excluding AOCI is calculated as shareholders’ equity and shareholders’ equity excluding AOCI divided by the total number of shares of common stock outstanding. The Predecessor considered this non-GAAP financial measure to provide useful supplemental information internally and to investors and analysts to help assess capital position of the Predecessor.
Return on Average Shareholders’ Equity (presented herein as Return on Average Common Shareholders’ Equity)
Return on Average Shareholders’ Equity is a non-GAAP financial measure. It is calculated by dividing net income (loss) available to shareholders by total average shareholders’ equity. Average shareholders’ equity for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average shareholders’ equity is calculated using the beginning and ending shareholders’ equity for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized. The Predecessor considered this to be a useful measure internally and for investors and analysts to assess the level of return driven by the Company that is attributable to common shareholders.
Return on Average Shareholders’ Excluding AOCI (presented herein as Return on Average Common Shareholders’ Equity Excluding AOCI)
Return on Average Shareholders’ Equity Excluding AOCI is a non-GAAP financial measure. It is calculated by dividing net income (loss) available to common shareholders by total average shareholders’ equity excluding AOCI. Average shareholders’ equity excluding AOCI for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average shareholders’ equity excluding AOCI is calculated using the beginning and ending shareholders’ equity, excluding AOCI, for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, the Predecessor considered this non-GAAP financial measure to provide useful supplemental information internally and to investors and analysts assessing the level of earned return on shareholders’ equity.
12
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Adjusted Operating Return Equity Excluding AOCI (presented herein as Adjusting Operating return on common shareholders’ equity, excluding AOCI)
Adjusted Operating Return on Equity Excluding AOCI is a non-GAAP financial measure. It is calculated by dividing AOI by total average shareholders’ equity excluding AOCI. Average shareholders’ equity excluding AOCI for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average shareholders’ equity is calculated using the beginning and ending shareholders’ equity, excluding AOCI, for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized. The Predecessor considered this non-GAAP financial measure to provide useful supplemental information internally and to investors and analysts assessing the level of adjusted earned return on equity.
Debt-to-Capital
Debt-to-capital is computed by dividing total debt by capitalization excluding AOCI. The Predecessor considered this non-GAAP financial measure to be useful internally and to investors and analysts when assessing capital position.
Average Assets Under Management (AAUM)
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, excluding derivative collateral, at the beginning of the period and the end of each month in the period, divided by the total number of months in the period plus one. The Predecessor considered this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the rate of return on assets available for reinvestment.
Yield on AAUM
Yield on AAUM is calculated by dividing annualized net investment income by AAUM. The Predecessor considered this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the level of return earned on AAUM.
Net Investment Spread
Net investment spread is the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging the Predecessor’s risk on FIA policies. The Predecessor considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the performance of the Predecessor’s invested assets against the level of investment return, inclusive of hedging costs, provided to policyholders.
Investment Book Yield
Investment book yield on bonds purchased during the period excludes yield on short-term treasuries and cash and cash equivalents. The Predecessor considered this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the level of returned on their income generating invested assets.
13
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Summary of Adjustments to Arrive at AOI
One Month Ended | Two Months Ended | Three Months Ended | ||||||||||||||||||||||
December 31, 2017 | November 30, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | |||||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Insurance and investment product fees and other (a) | $ | (12 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Net investment gains (b) | — | (8 | ) | 1 | 15 | 28 | (12 | ) | ||||||||||||||||
Increase (decrease) in total revenues | (12 | ) | (8 | ) | 1 | 15 | 28 | (12 | ) | |||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||
Benefits and other changes in policy reserves (c) | 7 | (19 | ) | 12 | (10 | ) | (1 | ) | (168 | ) | ||||||||||||||
Acquisition and operating expenses, net of deferrals | 4 | 29 | — | — | — | — | ||||||||||||||||||
Amortization of intangibles (d) | (1 | ) | 10 | (10 | ) | 3 | (6 | ) | 77 | |||||||||||||||
(Decrease) increase in total benefits and expenses | 10 | 20 | 2 | (7 | ) | (7 | ) | (91 | ) | |||||||||||||||
Increase (decrease) in pre-tax operating income | (2 | ) | 12 | 3 | 8 | 21 | (103 | ) | ||||||||||||||||
(Decrease) increase in income tax expense (benefit) (e) | 107 | (4 | ) | (1 | ) | (3 | ) | (7 | ) | 36 | ||||||||||||||
Increase (decrease) in net income | $ | 105 | $ | 8 | $ | 2 | $ | 5 | $ | 14 | $ | (67 | ) | |||||||||||
(a) Insurance and investment product fees and other: includes the effect of contract fee termination.
(b) Net investment gains: includes the effects of net investment gains and for the Predecessor only, the change in fair value of the reinsurance related embedded derivative.
(c) Benefits and other changes in policy reserves: includes the effects of the change in fair value of the FIA embedded derivative discount rate.
(d) Amortization of intangibles includes the impact on DAC and VOBA of the adjustments in b-c above.
(e) The tax expense (benefit) includes the tax impact of the adjustments in a-c above, and for the Successor only, the impact of tax reform and the impact of affiliated reinsurance embedded derivative.
14
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Notable Items Included in Net Income and AOI
Each quarterly reporting period, we identify notable items that help explain the trends in our Net Income and AOI. These items are infrequent in nature or involve accounting volatility under general accepted accounting principles. The amounts below are included in disclosures within the Company's earnings releases to explain our Net Income and AOI results. We believe that understanding these items provides further clarity to the financial performance of the business.
One Month Ended | Two Months Ended | Three Months Ended | ||||||||||||||||||||||
December 31, 2017 | November 30, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | |||||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Net income | $ | (102 | ) | $ | 28 | $ | 61 | $ | 32 | $ | 22 | $ | 108 | |||||||||||
AOI | $ | 3 | $ | 36 | $ | 63 | $ | 37 | $ | 36 | $ | 41 | ||||||||||||
Notable Items (Not Trendable) Included within AOI [(unfavorable)/favorable] | ||||||||||||||||||||||||
Legacy incentive compensation (a) | — | — | — | (1 | ) | (1 | ) | — | ||||||||||||||||
Project expenses (b) | — | — | (2 | ) | (5 | ) | (2 | ) | — | |||||||||||||||
Single premium immediate annuities ("SPIA") mortality & other reserve adjustments (c) | (2 | ) | 1 | (2 | ) | 2 | 3 | 2 | ||||||||||||||||
Assumption review & DAC unlocking (d) | (9 | ) | 4 | 21 | — | (3 | ) | — | ||||||||||||||||
Other, including bond prepayment income & tax valuation allowance (e) | — | — | 2 | — | — | 2 | ||||||||||||||||||
(a) Change in certain long term incentive compensation costs, including the change in the liability for our FGLH stock compensation plan, which as a liability plan, is settled in cash and accounted for at fair value each reporting period (Predecessor only).
(b) Expenses associated with corporate development activities, including mergers & acquisitions (Predecessor periods prior to the two months ended November 30, 2017 only).
(c) The release of annuity reserves associated with mortality of annuitants, which varies due to timing, volume and severity of experience, and other reserve adjustments.
(d) Reflects unlocking from updating our DAC amortization models for actual experience and equity market fluctuations. Also, annually in the 4th fiscal quarter, we complete our Annual Assumption Review & DAC Unlocking process by adjusting our valuation assumptions to align with actual experience.
(e) Bond prepayment income, changes in tax valuation, and other allowances related to reinsurance and agent debt, reinsurance settlements and other net favorable activity.
15
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Capitalization/Book Value per Share
December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | |||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
(Dollars in millions, except per share data) | |||||||||||||||||||||
Capitalization: | |||||||||||||||||||||
Debt | $ | 412 | $ | 405 | $ | 405 | $ | 405 | $ | 400 | |||||||||||
Total debt | 412 | 405 | 405 | 405 | 400 | ||||||||||||||||
Total shareholders' equity | 1,975 | 2,247 | 2,113 | 1,908 | 1,752 | ||||||||||||||||
Total capitalization | 2,387 | 2,652 | 2,518 | 2,313 | 2,152 | ||||||||||||||||
AOCI | 75 | 543 | 467 | 291 | 153 | ||||||||||||||||
Total capitalization excluding AOCI (1) | $ | 2,312 | $ | 2,109 | $ | 2,051 | $ | 2,022 | $ | 1,999 | |||||||||||
Total shareholders' equity | 1,975 | 2,247 | 2,113 | 1,908 | 1,752 | ||||||||||||||||
Equity available to preferred shareholders | 377 | — | — | — | — | ||||||||||||||||
Common shareholders' equity | 1,598 | 2,247 | 2,113 | 1,908 | 1,752 | ||||||||||||||||
AOCI | 75 | 543 | 467 | 291 | 153 | ||||||||||||||||
Total common shareholders' equity excluding AOCI (1) | $ | 1,523 | $ | 1,704 | $ | 1,646 | $ | 1,617 | $ | 1,599 | |||||||||||
Common shares outstanding | 214.37 | 58.93 | 58.99 | 58.99 | 58.98 | ||||||||||||||||
Book Value per Share: (1) | |||||||||||||||||||||
GAAP Book value per common share including AOCI (1) | $ | 7.45 | $ | 38.13 | $ | 35.82 | $ | 32.34 | $ | 29.70 | |||||||||||
GAAP Book value per common share excluding AOCI (1) | $ | 7.10 | $ | 28.92 | $ | 27.90 | $ | 27.41 | $ | 27.11 | |||||||||||
Twelve months ended | |||||||||||||||||||||
Twelve Month Rolling Average Return on Equity ("ROE") | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | ||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
Return on Common Shareholders' Equity (1) | |||||||||||||||||||||
Return on average common shareholders' equity | N/M | 11.2 | % | 10.1 | % | 9.6 | % | 9.4 | % | ||||||||||||
Return on average common shareholders' equity, excluding AOCI (1) | N/M | 13.8 | % | 12.3 | % | 11.1 | % | 10.5 | % | ||||||||||||
Return on Common Shareholders' Equity - AOI (1) | |||||||||||||||||||||
Adjusted Operating return on common shareholders' equity, excluding AOCI (1) | 0.9 | % | 11.0 | % | 9.8 | % | 10.8 | % | 11.5 | % | |||||||||||
16
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Three months ended | |||||||||||||||||||||
Quarterly Average ROE | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | ||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
Return on average common shareholders' equity | N/M | 11.2 | % | 6.4 | % | 4.8 | % | 23.4 | % | ||||||||||||
Return on average common shareholders' equity, excluding AOCI (1) | N/M | 14.6 | % | 7.8 | % | 5.5 | % | 27.9 | % | ||||||||||||
Adjusted Operating return on common shareholders' equity, excluding AOCI (1) | 0.9 | % | 15.0 | % | 9.1 | % | 9.0 | % | 10.6 | % | |||||||||||
Three months ended | |||||||||||||||||||||
Debt-to-Capital Ratios: (1) | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | ||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
Long-term debt/Total capitalization excluding AOCI (1) | 17.8 | % | 19.2 | % | 19.7 | % | 20.0 | % | 20.0 | % | |||||||||||
(1) Refer to "Non-GAAP Financial Measures" for further details
N/M - Not meaningful.
17
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Financial Strength Ratings
A.M. Best | Fitch | Moody's | S&P | |||||
Company | ||||||||
FGL Holdings | ||||||||
Issuer Credit / Default Rating | Not Rated | BB+ | Ba3 | B++ | ||||
Outlook | Stable | Stable | Positive | |||||
CF Bermuda Holdings Limited | ||||||||
Issuer Credit / Default Rating | Not Rated | BB+ | Ba2 | BB+ | ||||
Outlook | Stable | Stable | Positive | |||||
F&G Re Ltd | ||||||||
Issuer Credit / Default Rating | Not Rated | BBB | Baa2 | BBB+ | ||||
Outlook | Stable | Stable | Stable | |||||
Fidelity &Guaranty Life Holdings, Inc. | ||||||||
Issuer Credit / Default Rating | bb+ | BB+ | Not Rated | BB+ | ||||
Outlook | Under Review With Developing Implications | Stable | Not Rated | Positive | ||||
Senior Unsecured Notes | bb+ | BB | Ba2 | BB+ | ||||
Outlook | Under Review With Developing Implications | Stable | Stable | |||||
Fidelity & Guaranty Life Insurance Company | ||||||||
Financial Strength Rating | B++ | BBB | Ba2 | BBB+ | ||||
Outlook | Under Review With Developing Implications | Stable | Stable | Stable | ||||
Fidelity & Guaranty Life Insurance Company of New York | ||||||||
Financial Strength Rating | B++ | BBB | Not Rated | BBB+ | ||||
Outlook | Under Review With Developing Implications | Stable | Not Rated | Stable | ||||
*Reflects current ratings and outlooks as of date of filing | ||||||||
18
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Net Investment Spread Results
(Dollars in millions) | One Month Ended | Two Months Ended | Three Months Ended | |||||||||
December 31, 2017 | November 30, 2017 | December 31, 2016 | ||||||||||
Successor | Predecessor | Predecessor | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Yield on average assets under management "AAUM" (1) | 4.48 | % | 4.93 | % | 4.85 | % | ||||||
Less: Interest credited and option cost | (2.47 | )% | (2.49 | )% | (2.56 | )% | ||||||
Total net investment spread - All product lines (1) | 2.01 | % | 2.44 | % | 2.29 | % | ||||||
FIA net investment spread | 2.67 | % | 3.05 | % | 3.00 | % | ||||||
Investment book yield - bonds purchased during the period (1) | 4.93 | % | 4.65 | % | 4.78 | % | ||||||
AAUM (1) | $ | 24,722 | $ | 21,167 | $ | 19,768 | ||||||
(1) Refer to "Non-GAAP Financial Measures" for further details
Sales Results by Product
(Dollars in millions) | Three Months Ended | |||||||||||||||||||
December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | ||||||||||||||||
Successor | Predecessor | Predecessor | Predecessor | Predecessor | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||
Fixed index annuities ("FIA") | $ | 462 | $ | 424 | $ | 455 | $ | 438 | $ | 551 | ||||||||||
Fixed rate annuities ("MYGA") | 161 | 164 | 127 | 158 | 97 | |||||||||||||||
Institutional spread based (1) | — | — | — | 136 | — | |||||||||||||||
Total Annuity | $ | 623 | $ | 588 | $ | 582 | $ | 732 | $ | 648 | ||||||||||
Index universal life | 7 | 6 | 9 | 14 | 17 | |||||||||||||||
ULIC (FSR International) | 8 | — | — | — | — | |||||||||||||||
Total Sales | $ | 638 | $ | 594 | $ | 591 | $ | 746 | $ | 665 | ||||||||||
(1) Institutional spread based product sales from funding agreement investment contracts issued with the Federal Home Loan Bank and held in our separate account.
19
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Annuity Account Balance Rollforward (a)
(Dollars in millions) | One month ended (b) | Two months ended | Three months ended | ||||||||||||||||||||||
December 31, 2017 | November 30, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | ||||||||||||||||||||
Successor | Predecessor | ||||||||||||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||||||||
Account balances at beginning of period: | $ | 17,892 | $ | 16,819 | $ | 16,430 | $ | 16,114 | $ | 15,603 | $ | 15,250 | |||||||||||||
Net deposits | 223 | 404 | 598 | 591 | 603 | 655 | |||||||||||||||||||
Premium and interest bonuses | 5 | 9 | 11 | 12 | 12 | 13 | |||||||||||||||||||
Fixed interest credited and index credits | 71 | 130 | 147 | 154 | 153 | 87 | |||||||||||||||||||
Guaranteed product rider fees | (8 | ) | (14 | ) | (17 | ) | (18 | ) | (18 | ) | (16 | ) | |||||||||||||
Surrenders, withdrawals, deaths, etc. | (142 | ) | (256 | ) | (350 | ) | (423 | ) | (239 | ) | (386 | ) | |||||||||||||
Account balance at end of period | $ | 18,041 | $ | 17,092 | $ | 16,819 | $ | 16,430 | $ | 16,114 | $ | 15,603 | |||||||||||||
(a) The rollforward reflects the account balance of our fixed index annuities and fixed rate annuities.
(b) Beginning balance as of December 1, 2017 is inclusive of FSR after the Business Combination was completed
Annuity Deposits by Product Type
One Month Ended | Two Months Ended | Three Months Ended | ||||||||||
Product Type | December 31, 2017 | November 30, 2017 | December 31, 2016 | |||||||||
Successor | Predecessor | Predecessor | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
(Dollars in millions) | ||||||||||||
Fixed Index Annuities: | ||||||||||||
Index Strategies | $ | 146 | $ | 236 | $ | 437 | ||||||
Fixed Strategy | 32 | 52 | 119 | |||||||||
178 | 288 | 556 | ||||||||||
Fixed Rate Annuities: | ||||||||||||
Single-Year Rate Guaranteed | 1 | — | 2 | |||||||||
Multi-Year Rate Guaranteed | 44 | 116 | 97 | |||||||||
Total before coinsurance ceded | 223 | 404 | 655 | |||||||||
Coinsurance ceded | — | — | — | |||||||||
Net after coinsurance ceded | $ | 223 | $ | 404 | $ | 655 | ||||||
20
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Account Values (net of reinsurance) at December 31, 2017 (unaudited):
Surrender Charge | Net Account Value | |||||||||||||
(Unaudited) | ||||||||||||||
Product Type | Avg. Years at Issue | Avg. Years Remaining | Avg. % Remaining | Dollars in millions | % | |||||||||
Fixed Index Annuities | 11 | 6 | 8 | % | $ | 14,152 | 78 | % | ||||||
Single-Year Rate Guaranteed | 10 | 1 | 1 | % | 634 | 4 | % | |||||||
Multi-Year Rate Guaranteed | 5 | 3 | 7 | % | 3,255 | 18 | % | |||||||
Total | $ | 18,041 | 100 | % | ||||||||||
21
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Annuity Liability Characteristics
Fixed Annuities Account Value | Fixed Index Annuities Account Value | |||||||
(Unaudited) | ||||||||
(Dollars in millions) | ||||||||
SURRENDER CHARGE PERCENTAGES: | ||||||||
No surrender charge | $ | 774 | $ | 2,194 | ||||
0.0% < 2.0% | 31 | 344 | ||||||
2.0% < 4.0% | 28 | 321 | ||||||
4.0% < 6.0% | 586 | 715 | ||||||
6.0% < 8.0% | 673 | 1,885 | ||||||
8.0% < 10.0% | 1,763 | 2,547 | ||||||
10.0% or greater | 34 | 6,146 | ||||||
$ | 3,889 | $ | 14,152 | |||||
Fixed and Fixed Index Annuities Account Value | Weighted Average Surrender Charge | ||||||
(Unaudited) | |||||||
(Dollars in millions) | |||||||
SURRENDER CHARGE EXPIRATION BY YEAR: | |||||||
Out of surrender charge | $ | 2,899 | — | % | |||
2018 | 1,250 | 4 | % | ||||
2019 - 2020 | 1,913 | 6 | % | ||||
2021 - 2022 | 3,127 | 8 | % | ||||
2023 - 2024 | 1,845 | 8 | % | ||||
Thereafter | 7,007 | 11 | % | ||||
$ | 18,041 | 7 | % | ||||
22
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Fixed Annuities Account Value | Fixed Index Annuities Account Value | |||||||
(Unaudited) | ||||||||
(Dollars in millions) | ||||||||
CREDITED RATE (INCLUDING BONUS INTEREST) VS. ULTIMATE MINIMUM GUARANTEED RATE DIFFERENTIAL: | ||||||||
No differential | $ | 1,071 | $ | 1,431 | ||||
0.0% - 1.0% | 399 | 1,287 | ||||||
1.0% - 2.0% | 324 | 56 | ||||||
2.0% - 3.0% | 2,073 | 13 | ||||||
3.0% - 4.0% | 22 | — | ||||||
Allocated to index strategies | — | 11,365 | ||||||
$ | 3,889 | $ | 14,152 | |||||
FIXED INDEX ANNUITIES ACCOUNT VALUE - INDEX STRATEGIES
Monthly Average, Point to Point and Gain Trigger Strategies with Cap
Minimum Guaranteed Cap | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
1% | 2% | 3% | 5% | 6% | ||||||||||||||||
Current Cap | (Dollars in millions) | |||||||||||||||||||
At minimum | $ | — | $ | — | $ | 1,634 | $ | 665 | $ | — | ||||||||||
2-3% | 739 | — | — | — | — | |||||||||||||||
3-4% | 1,099 | — | 399 | — | — | |||||||||||||||
4-5% | 432 | — | 396 | — | — | |||||||||||||||
5-6% | 79 | 2 | 110 | 5 | — | |||||||||||||||
6-7% | 37 | 2 | 21 | — | 7 | |||||||||||||||
7% + | 70 | 38 | 191 | — | 73 | |||||||||||||||
Total: | $ | 2,456 | $ | 42 | $ | 2,751 | $ | 670 | $ | 80 | ||||||||||
23
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Monthly Point-to-Point with Cap
Minimum Guaranteed Cap 1% | ||||
(Unaudited) | ||||
Current Cap | (Dollars in millions) | |||
At minimum | $ | 1,605 | ||
1% to 2% | 2,513 | |||
2% to 3% | 666 | |||
3% + | 110 | |||
Total: | $ | 4,894 | ||
3 Year Step Forward with Cap
Minimum Guaranteed Cap 2% | Minimum Guaranteed Cap 5% | |||||||
(Unaudited) | ||||||||
Current Cap | (Dollars in millions) | |||||||
At minimum | — | $ | 21 | |||||
2% to 5% | 2 | — | ||||||
5% to 7% | 10 | 53 | ||||||
7% to 9% | — | 44 | ||||||
9% to 11% | — | 19 | ||||||
11% to 13% | — | 9 | ||||||
Total: | $ | 12 | $ | 146 | ||||
There is an additional $317 million Account Value allocated to strategies not listed above. Of this $317 million, $14 million is at the guaranteed rates.
24
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Summary of Invested Assets by Asset Class
(Dollars in millions) | December 31, 2017 | September 30, 2017 | |||||||||||||||||||||
Successor | Predecessor | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||||||
Amortized Cost | Fair Value | Percent | Amortized Cost | Fair Value | Percent | ||||||||||||||||||
Fixed maturity securities, available for sale: | |||||||||||||||||||||||
United States Government full faith and credit | $ | 84 | $ | 84 | 1 | % | $ | 105 | $ | 107 | — | % | |||||||||||
United States Government sponsored entities | 123 | 122 | 1 | % | 127 | 128 | 1 | % | |||||||||||||||
United States municipalities, states and territories | 1,736 | 1,747 | 7 | % | 1,573 | 1,726 | 8 | % | |||||||||||||||
Corporate securities: | |||||||||||||||||||||||
Finance, insurance and real estate | 5,898 | 5,930 | 25 | % | 5,400 | 5,806 | 25 | % | |||||||||||||||
Manufacturing, construction and mining | 988 | 996 | 4 | % | 980 | 1,018 | 4 | % | |||||||||||||||
Utilities, energy and related sectors | 2,260 | 2,278 | 10 | % | 2,109 | 2,202 | 10 | % | |||||||||||||||
Wholesale/retail trade | 1,448 | 1,457 | 6 | % | 1,342 | 1,408 | 6 | % | |||||||||||||||
Services, media and other | 2,320 | 2,354 | 10 | % | 2,196 | 2,296 | 10 | % | |||||||||||||||
Hybrid securities | 1,445 | 1,446 | 6 | % | 1,388 | 1,465 | 6 | % | |||||||||||||||
Non-agency residential mortgage-backed securities | 1,156 | 1,155 | 5 | % | 1,031 | 1,150 | 5 | % | |||||||||||||||
Commercial mortgage-backed securities | 956 | 956 | 4 | % | 974 | 978 | 4 | % | |||||||||||||||
Asset-backed securities | 3,061 | 3,065 | 13 | % | 2,838 | 2,870 | 13 | % | |||||||||||||||
Equity securities | 764 | 761 | 3 | % | 733 | 773 | 3 | % | |||||||||||||||
Commercial mortgage loans | 548 | 549 | 2 | % | 547 | 552 | 2 | % | |||||||||||||||
Other (primarily derivatives) | 647 | 678 | 3 | % | 410 | 595 | 3 | % | |||||||||||||||
Short term investments | 25 | 25 | — | % | — | — | — | % | |||||||||||||||
Total | $ | 23,459 | $ | 23,603 | 100 | % | $ | 21,753 | $ | 23,074 | 100 | % | |||||||||||
25
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Credit Quality of Fixed Maturity Securities at December 31, 2017 (unaudited)
NAIC Designation | Fair Value | Percent | Rating Agency Rating | Fair Value | Percent | |||||||||||
(Dollars in millions) | (Dollars in millions) | |||||||||||||||
1 | $ | 11,217 | 52 | % | AAA | $ | 1,784 | 8 | % | |||||||
2 | 9,086 | 42 | % | AA | 2,036 | 9 | % | |||||||||
3 | 1,089 | 5 | % | A | 5,887 | 27 | % | |||||||||
4 | 136 | 1 | % | BBB | 9,810 | 46 | % | |||||||||
5 | 61 | — | % | BB | 994 | 5 | % | |||||||||
6 | 1 | — | % | B and below | 1,079 | 5 | % | |||||||||
$ | 21,590 | 100 | % | $ | 21,590 | 100 | % | |||||||||
26
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Summary of Residential Mortgage Backed Securities by Collateral Type and NAIC Designation
December 31, 2017 | ||||||||
Successor | ||||||||
(Unaudited) | ||||||||
Collateral Type | Amortized Cost | Fair Value | ||||||
(Dollars in millions) | ||||||||
Total by collateral type | ||||||||
Government agency | $ | 123 | $ | 122 | ||||
Prime | 199 | 199 | ||||||
Subprime | 267 | 267 | ||||||
Alt-A | 690 | 689 | ||||||
$ | 1,279 | $ | 1,277 | |||||
Total by NAIC designation | ||||||||
1 | $ | 1,249 | $ | 1,247 | ||||
2 | 18 | 18 | ||||||
3 | 7 | 7 | ||||||
4 | 1 | 1 | ||||||
5 | 4 | 4 | ||||||
$ | 1,279 | $ | 1,277 | |||||
27
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Top 10 Holdings by Issuers
(Dollars in millions) | December 31, 2017 | ||||||
Successor | |||||||
(Unaudited) | |||||||
Issuer (a): | Fair Value | Percentage of Total Invested Assets | |||||
Wells Fargo & Company | $ | 155 | 0.7 | % | |||
Metropolitan Transportation Authority (NY) | 123 | 0.5 | % | ||||
JP Morgan Chase & Co. | 114 | 0.5 | % | ||||
General Electric Company | 104 | 0.4 | % | ||||
Nationwide Mutual Insurance Company | 103 | 0.4 | % | ||||
Goldman Sachs Group, Inc. | 98 | 0.4 | % | ||||
Entergy Corp | 94 | 0.4 | % | ||||
Bank of America Corp | 92 | 0.4 | % | ||||
Bank of New York Mellon Corp | 92 | 0.4 | % | ||||
Metlife, Inc. | 91 | 0.4 | % | ||||
(a) Issuers excluding U.S. Governmental securities and any securities held in our funds withheld portfolio.
28
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Reinsurance Counterparty Risk Top 5 Reinsurers
(Unaudited) | ||||||||||
(Dollars in millions) | Financial Strength Rating | |||||||||
Parent Company/Principal Reinsurers | Reinsurance Recoverable (a) | AM Best | S&P | Moody's | ||||||
Wilton Reinsurance | $ | 1,580 | A+ | Not Rated | A+ | |||||
Scottish Re | 180 | Not Rated | Not Rated | Not Rated | ||||||
Security Life of Denver | 169 | A | A | A | ||||||
London Life | 113 | A | Not Rated | Not Rated | ||||||
Swiss Re Life and Health | 106 | A+ | AA- | Not Rated | ||||||
(a) Reinsurance recoverables do not include unearned ceded premiums that would be recovered in the event of early termination of certain traditional life policies.
29
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Shareholder Information
Corporate Offices:
FGL Holdings
Sterling House
16 Wesley Street
Hamilton HM CX, Bermuda
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
Common stock and Dividend Information:
NYSE symbol: "FG"
High | Low | Close | Dividend Declared | |||||||||||||
2017 (Successor unaudited) | ||||||||||||||||
One Month Ended December 31, 2017 | $ | 10.10 | $ | 9.19 | $ | 10.02 | $ | — | ||||||||
Transfer Agent
American Stock Transfer & Trust
59 Maiden Lane, Plaza Level
New York, NY 10038
Phone: (800) 937-5449
Fax: (718) 236-2641
http://www.amstock.com
30
FGL HOLDINGS
Financial Supplement - December 31, 2017
(unaudited)
Research Analyst Coverage
Jimmy Bhullar
J.P. Morgan
(212) 622-6397
jimmy.s.bhullar@jpmorgan.com
John Barnidge
Sandler O'Neill + Partners
(312) 281-3412
jbarnidge@sandleroneill.com
31