Fidelity & Guaranty Could Face ‘Potential Sale’

By Linda Koco
AnnuityNews

The future ownership of Fidelity & Guaranty Life (FGL) is a bit less certain as a result of Monday’s announcement from the carrier’s top stockholder, HRG Group.

According to that statement, HRG is now “exploring strategic alternatives” that include “potential sale” of the company, or of “all or part of HRG’s interest in FGL.”

HRG, formerly Harbinger Group, owns nearly 81 percent of the company.

Strong annuity sales growth

The news comes at a time when the FGL is enjoying strong growth in its fixed annuity business.  The company ranked 11^th place in fixed annuity sales in 2014. This was up from 20^th place one year earlier, according to 2014 estimated industrywide sales results reported by LIMRA Secure Retirement Institute. The carrier sold more than $2.5 billion in fixed annuity sales for the year, LIMRA said.

In its core fixed annuity line — fixed index annuities — the company ranked in seventh place industrywide at year-end 2014, according to Wink, Inc. That’s up from 12^th place in the Wink rankings from the year before. The 2014 index sales reached nearly $1.8 billion, according to Wink figures. 

In a February statement on financial results, HRG attributed FGL’s increased annuity sales and fixed index annuity sales to “ongoing marketing initiatives with existing distribution partners as well as the launch of new products.”

A statement from Omar Asali, HRG president and CEO, suggests those strong increases are likely one of the key factors in HRG’s decision to float the idea of a potential sale now.  

FGL has “grown significantly, enhanced its strategic and financial position, and achieved several significant milestones,” Asali said in the announcement.  Other selling points he named include the carrier’s “seasoned” board and management team and its “strong” balance sheet.

The reference to the management team will not be lost upon annuity industry professionals and analysts.

Last fall, the carriers named Christopher J. Littlefield as president and James M. Benson to the board of directors. Littlefield is the former president and CEO of big fixed index annuity seller Aviva USA before Athene Holding Corp. took over Aviva (now Athene USA). Benson is the former president and CEO of John Hancock Life, a division of Manulife Financial. Both have deep prior experience as well.

What could happen

In the announcement, HRG couched its words about FGL’s future ownership in terms of what could happen, instead of what is currently happening.

For instance, the company said, “There can be no assurance that the exploration of strategic alternatives will result in a transaction or that any transaction, if pursued, will be consummated.”  

It also said HRG and its affiliates do not “intend to disclose developments…unless and until the Board of Directors has approved a specific transaction or course of action.”

Those comments may be considered no more than “legalese.” However, given all the speculation that surrounded the company’s initial purchase of FGL in 2011, and the post-sale speculation about how the company would fare, the comments also may be HRG’s attempt to quell some of the inevitable buzz about FGL’s future. The company is now a top-10 fixed index annuity carrier, so speculation certainly will occur.

In the 2011 sale, much of the buzz had to do with the nature of the sale. In that deal, a private equity subsidiary of HRG (then Harbinger Group) acquired FGL—then called OM Financial Life—from Old Mutual.

The subsidiary promptly transferred ownership to HRG, and the carrier took back

its old name, Fidelity & Guaranty Life (FGL). However, the private equity subsidiary’s involvement in the acquisition put the transaction in the public spotlight.

Private equity ownership of insurance companies, in particular annuity companies, was relatively new at the time. There was a lot of concern about potential impact on the business overall. This concern included not only FGL’s transaction but several other private equity deals involving purchase of life and annuity carriers.

HRG said it is a diversified holding company, not a private equity firm, and that it manages the companies it owns for the long term. But, for a while, the scent of private equity hung on. It has waned in more recent times, and especially following the 2013 initial public offering (IPO), which made FGL a public company subject to public disclosure.

In its announcement about a potential sale of the insurance company, HRG noted that FGL’s December 2013 IPO was for 19.3 percent of its interest at that time. HRG did not sell any FGL shares as part of that offering, HRG said.

In December 2014, A.M. Best affirmed the financial strength rating of B++ (Good) and the issuer credit ratings (ICR) of “bbb+” of the key life/health subsidiaries of FGL. It also affirmed the ICR and existing senior debt rating of “bb+” of FGL. “The outlook for all ratings is stable,” the rating agency said in a press release.

AnnuityNews Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].