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Fidelity & Guaranty Life Reports First Quarter Fiscal 2014 Results

Company Reports Net Income of $42.7 Million Reflecting Strong Quarterly Performance

DES MOINES, Iowa, Feb. 6, 2014 /PRNewswire/ -- Fidelity & Guaranty Life ("FGL") (NYSE: FGL), a leading provider of fixed annuity and fixed universal life products, today announced its results for the first quarter of fiscal 2014 ended on December 31, 2013(1).

(Logo:  http://photos.prnewswire.com/prnh/20140122/MM51073LOGO )

Lee Launer, FGL Chief Executive Officer, said, "The results reflect a strong quarter of sales for FGL. This quarter, we recorded the strongest sales within the last seven quarters, as we launched products targeting the needs of the underserved middle market. We are also pleased with the warm reception we received in Iowa with our redomestication, allowing us to further expand upon our growth plans."

Phil Gass, FGL Chairman of the Board, said, "Our first reported quarter of results as a public company is a testament to the success of the management team as we begin executing on our growth strategy. With the additional capital raised from the initial public offering, we are benefiting from attractive market fundamentals as we increase sales, build our adjusted operating income, and grow book value."

First Quarter Fiscal 2014 Highlights:

  • Total annuity sales of $540.6 million represented a 119% increase from $247.3 million in Q1 2013 and a 119% increase from Q4 2013.
  • Pretax adjusted operating income ("Pretax AOI") of $44.1 million increased 38% compared to $31.9 million in the prior year first quarter; GAAP net income was $42.7 million in the current period.
  • GAAP book value per share excluding AOCI reached $24.88 from $20.20 in the prior year first quarter, an increase of 23%.
  • The primary life insurance subsidiary successfully redomiciled to Iowa on November 1, 2013.
  • FGL successfully listed shares on the New York Stock Exchange on December 13, 2013 (NYSE:FGL).                                                                                                        

                                                                                                   

Summary Financial Results




Three months ended December 31


(unaudited)





2013

2012

(Amounts in millions, except share data)

Total

Per diluted share

Total

Per diluted share

Annuity sales (2)

$540.6


$247.3


Net income

$42.7

$0.87

$110.6

$2.35

Pretax adjusted operating income ("Pretax AOI") (2)

$44.1

$ 0.89

$31.9

$0.68

Total shares outstanding

58,270,822


47,000,000 (3)


Weighted average diluted shares

49,263,675


47,000,000 (3)


Book value per share

$27.03


$29.20


Book value per share, excluding accumulated other comprehensive income ("AOCI") (2)

$24.88


$20.20




(1)

Fidelity & Guaranty Life's fiscal year ends each year on September 30.

(2)

This is a financial measure not calculated based on U.S. Generally Accepted Accounting Principles (Non-


GAAP). See the Use of Non-GAAP Measures section of this press release for additional information

(3)

Common shares outstanding and per share amounts give retroactive effect to our statutory conversion on


August 26, 2013 and the 4,700-for-1 stock split of our shares of common stock effected on November 26,


2013.

Detail on First Quarter Fiscal 2014 Results:

Total annuity sales of $540.6 million for the first quarter represented an increase of 119% from $247.3 million as compared to the prior year quarter. On a sequential basis, total annuity sales also increased 119% as compared to Q4 2013. Strong sales for both fixed index and multi-year guarantee product offerings contributed to the current period results.  Additionally, indexed universal life sales grew by 7% on a sequential basis, reflecting an expansion of the product portfolio and marketing efforts.

FGL reported net income of $42.7 million for the first quarter, compared to $110.6 million in the prior year. The prior year included $81.7 million of net investment gains, net of tax and other adjustments, related to a strategic repositioning of the investment portfolio.

Pretax AOI was $44.1 million for the first quarter, an increase of $12.2 million or 38%, from $31.9 million in the prior year. This increase is due to higher fee income and higher net investment spread compared to prior year.

FGL ended the first quarter with a book value per diluted share excluding AOCI of $24.88, up from $20.20 in the prior year quarter. This reflects a $43.0 million special dividend FGL paid to Harbinger Group Inc. on December 18, 2013.

On November 1, 2013, Fidelity & Guaranty Life Insurance Company ("FGLIC") redomesticated to Iowa. FGLIC moved its headquarters to the state to position the organization for strong growth in the future. FGL plans to hire 50 employees in the state over the next three years and capitalize on the strong talent pool in the area.

In December 2013, FGL completed its initial public offering, and FGL's common stock began trading on the New York Stock Exchange.  FGL issued 11,212,500 shares of common stock in the offering at a price to the public of $17 per share, valuing the company at approximately $990 million.  FGL received $173.0 million in proceeds from the offering, net of underwriting and issuance expenses of $17.6 million.

 

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



December 31,
 2013


September 30,
 2013


(Unaudited)



ASSETS




Investments:




Fixed maturities securities, available-for-sale, at fair value

$

16,327,617



$

15,541,526


Equity securities, available-for-sale, at fair value

286,922



271,075


Derivative investments

294,531



221,758


Other invested assets

316,552



188,180


Total investments

17,225,622



16,222,539


Related party loans and investments

96,442



119,044


Cash and cash equivalents

759,471



1,204,334


Accrued investment income

157,785



159,287


Reinsurance recoverable

3,723,693



3,728,632


Intangibles, net

601,444



563,758


Deferred tax assets

225,908



226,351


Other assets

155,292



205,230


Total assets

$

22,945,657



$

22,429,175






LIABILITIES AND SHAREHOLDER'S EQUITY








Contractholder funds

$

15,519,722



$

15,248,216


Future policy benefits

3,545,881



3,556,808


Funds withheld for reinsurance liabilities

1,381,238



1,407,713


Liability for policy and contract claims

60,331



51,456


Long-term debt

300,000



300,000


Other liabilities

806,662



700,097


Total liabilities

21,613,834



21,264,290










Shareholder's equity:




Common stock ($.01 par value,  500,000,000 shares authorized, 58,270,822 issued and outstanding at December 31, 2013; 47,000,000 shares issued and outstanding at September 30, 2013)

583




Additional paid-in capital

700,528



527,124


Retained earnings

524,572



524,871


Accumulated other comprehensive income

106,140



112,890


Total shareholder's equity

1,331,823



1,164,885


Total liabilities and shareholder's equity

$

22,945,657



$

22,429,175






 

 

 

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)



Three months ended


December 31,
 2013


December 31,
 2012


(Unaudited)

Revenues:




Premiums

$

13,705



$

13,796


Net investment income

183,437



170,298


Net investment gains

123,417



146,475


Insurance and investment product fees and other

15,552



13,729


Total revenues

336,111



344,298


Benefits and expenses:




Benefits and other changes in policy reserves

216,856



83,644


Acquisition and operating expenses, net of deferrals

26,004



26,914


Amortization of intangibles

22,892



69,511


Total benefits and expenses

265,752



180,069


Operating income

70,359



164,229


Interest expense

(5,624)



(34)


Other income



225


Income before income taxes

64,735



164,420


Income tax expense

22,041



53,815


Net income

$

42,694



$

110,605






Net income per common share:








Basic

$

0.87



$

2.35


Diluted

$

0.87



$

2.35


Weighted average common shares used in computing net income per common share:




Basic

49,142,208



47,000,000


Diluted

49,263,675



47,000,000






Supplemental disclosures:




Total other-than-temporary impairments

$

(34)



$

(509)


Less non-credit portion of other-than-temporary impairments included  in other comprehensive income




Net other-than-temporary impairments

(34)



(509)


Gains (losses) on derivative instruments

111,538



(25,568)


Other realized investment gains

11,913



172,552


        Total net investment gains

$

123,417



$

146,475


 

PRETAX AOI ADJUSTMENTS TO NET INCOME

Pretax AOI is a non-GAAP insurance industry measure that eliminates the impact of realized investment gains (losses), the effect of interest rate changes on the fixed indexed annuities ("FIA") embedded derivative liability and the effects of transaction-related reinsurance, net of the corresponding VOBA and DAC impact related to these adjustments. Return on average assets under management ("AAUM") is a non-U.S. GAAP measure calculated by dividing Pretax AOI by AAUM. AAUM is the sum of the assets under management ("AUM") at the end of each month in the period divided by the number of months in the period.

 

(In millions)


Fiscal Quarter

Reconciliation to income before income taxes:


2014


2013

Income before taxes


$

64.7



$

164.4


Interest expense and other


5.6



(0.2)


Operating income (loss)


70.3



164.2


Effect of investment (gains) losses, net of offsets


(9.8)



(125.7)


Effect of change in FIA embedded derivative discount rate, net of offsets


(20.4)



(6.6)


Effects of transaction-related reinsurance


4.0




Pretax AOI


$

44.1



$

31.9







AAUM


$15,588.4



$16,349.3


Return on AAUM


0.3

%


0.2

%

 

BOOK VALUE PER SHARE, EXCLUDING AOCI, ADJUSTMENTS TO SHAREHOLDER'S EQUITY

Book value per common share, excluding AOCI, is a non-GAAP measure that eliminates the impact of accumulated other comprehensive income.

(In millions, except share data)


As of December 31,

Reconciliation to total shareholder's equity:


2013


2012

Total shareholder's equity


$

1,331.8



$

1,372.4


     Less: AOCI


106.1



422.9


Total shareholder's equity excluding AOCI


$1,225.7



$949.5









Total shares outstanding


58,270,822



47,000,000

(1)

Weighted average shares outstanding – basic


49,142,208



47,000,000

(1)

Weighted average shares outstanding – diluted


49,263,675



47,000,000









Book value per diluted share


$27.03



$29.20


Book value per diluted share, excluding AOCI


$24.88



$20.20









(1)

Common shares outstanding and per share amounts give retroactive effect to our statutory conversion on 


August 26, 2013 and the 4,700-for-1 stock split of our shares of common stock effected on November 26,


2013.

 

About Fidelity & Guaranty Life

Fidelity & Guaranty Life is the parent company of Fidelity & Guaranty Life Insurance Company. Originally incorporated in 1959, the direct insurance writer has a solid commitment to serving the individuals it knows best – consumers seeking the safety, protection, accumulation and income features of secure life insurance and annuity products. Through its insurance subsidiaries, Fidelity & Guaranty Life Insurance Company and Fidelity & Guaranty Life Insurance Company of New York, FGL is a leading provider of fixed indexed annuity and fixed indexed universal life products. Visit us at:  www.fglife.com.

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.

FGL uses Pretax AOI, a non-GAAP financial measure frequently used throughout the insurance industry. Pretax AOI is calculated by adjusting the reported operating income to eliminate the impact of net investment gains, excluding gains and losses on derivatives and including net other-than-temporary impairment losses recognized in operations, the effect of changes in the rates used to discount the FIA embedded derivative liability and the effects of transaction-related reinsurance transactions. 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.

Annuity 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).

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.

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 Registration Statement on Form S-1, as amended (File No. 333-190880), 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:
Paul Tyler
Fidelity & Guaranty Life
[email protected]
410-895-0131
914-356-2138

Media Contact:
Sard Verbinnen & Co
Jamie Tully or David Millar, 212-687-8080

SOURCE Fidelity & Guaranty Life

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