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  • Fidelity & Guaranty Life Reports First Quarter Fiscal 2014 Results

    February 6, 2014 by PRNewswire

    Company Reports Net Income of $42.7 Million Reflecting Strong Quarterly Performance 
    
    Achieves Key Business Milestones, Including Achieving Sales Goals, Redomestication, & IPO

    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,                Per diluted                   Per diluted 
    except share data)           Total         share           Total         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,    September 30, 
                                                         2013            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,    December 31, 
                                                          2013            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

    paul.tyler@fglife.com

    410-895-0131

    914-356-2138

    Media Contact:

    Sard Verbinnen & Co

    Jamie Tully or David Millar, 212-687-8080

    SOURCE Fidelity & Guaranty Life

    /Web site: http://www.fglife.com

    Originally Posted at The Wall Street Journal on February 6, 2014 by PRNewswire.

    Categories: Industry Articles
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