FGL Holdings Reports First Quarter 2018 Results
- Net income available to common shareholders was
$45 million or$0.21 per diluted share - Adjusted operating income (AOI)1 available to common shareholders was
$61 million or$0.28 per diluted share - Total annuity sales were
$778 million in the quarter, up 6 percent over prior year - Average assets under management increased to
$25.0 billion , up 24 percent over prior year
Net income available to common shareholders for the first quarter ended on
"We delivered solid results in our first full reporting period following completion of the merger transaction," said
As a result of acquisition accounting (purchase accounting or PGAAP), financial results for periods after the closing of the merger transaction on
Fidelity & Guaranty Life (FGL) (thePredecessor Company )--January 1 through November 30, 2017 - FG (the
Successor Company )--December 1, 2017 and subsequent periods
The table below reconciles reported after-tax net income to adjusted operating income available to common shareholders.
(In millions) |
Three Months Ended |
||||||||
|
|
||||||||
FG |
FGL |
||||||||
Reconciliation from Net Income to AOI(1): |
(Unaudited) |
(Unaudited) |
|||||||
Net income |
$ |
52 |
$ |
22 |
|||||
Effect of investment losses (gains), net of offsets (2) |
39 |
15 |
|||||||
Effect of change in FIA embedded derivative discount rate, net of offsets (2) |
— |
(2) |
|||||||
Effect of changes in fair values of FIA related derivatives, embedded derivatives and hedging costs (3) (5) |
(46) |
— |
|||||||
Effect of change in fair value of reinsurance related embedded derivative, net of offsets (4) |
— |
8 |
|||||||
Effect of integration, merger related & other non-operating items |
8 |
2 |
|||||||
Tax effect of affiliated reinsurance embedded derivative (5) |
15 |
— |
|||||||
Tax impact of adjusting items |
— |
(7) |
|||||||
AOI (1) |
$ |
68 |
$ |
38 |
|||||
Dividends on preferred stock (5) |
(7) |
— |
|||||||
AOI available to common shareholders (1) |
$ |
61 |
$ |
38 |
The current quarter included net favorable items of
|
|||||
|
|
||||
Prior |
|||||
|
|
||||
Summary Financial Results (Unaudited) |
||||||||
Three Months Ended |
||||||||
|
|
|||||||
(In millions, except per share data) |
FG |
FGL |
||||||
Fixed indexed annuity (FIA) sales (1) |
$ |
436 |
$ |
438 |
||||
Total annuity sales (1) |
$ |
778 |
$ |
732 |
||||
Average assets under management (1) |
$ |
24,967 |
$ |
20,162 |
||||
Net investment spread - FIA (1) |
2.34 |
% |
3.05 |
% |
||||
Net investment spread - All products (1) |
1.88 |
% |
2.41 |
% |
||||
Net income available to common shareholders |
$ |
45 |
$ |
22 |
||||
Net income available to common shareholders per diluted share |
$ |
0.21 |
$ |
0.38 |
||||
AOI available to common shareholders (1) |
$ |
61 |
$ |
38 |
||||
AOI available to common shareholders per diluted share (1) |
$ |
0.28 |
$ |
0.65 |
||||
Weighted average common basic shares (6) |
214.4 |
58.3 |
||||||
Weighted average common diluted shares (6) |
214.4 |
58.4 |
||||||
Total common shares outstanding (6) |
214.4 |
59.0 |
||||||
Book value per common share |
$ |
5.87 |
$ |
32.34 |
||||
Book value per common share excluding AOCI (1) |
$ |
7.17 |
$ |
27.41 |
||||
See footnotes below. |
Sales Results
Total annuity sales were
Sales of multi-year guarantee annuities (MYGA) were
Indexed universal life (IUL) sales in the quarter were
Investment Portfolio Performance
The investment portfolio is performing well and in line with operating objectives. Asset purchases during the first quarter were
Average assets under management (AAUM) were
Net investment income was
Net investment spread across all product lines was 188 basis points in the first quarter of 2018 compared to an historical sequential quarter spread of 201 basis points. Spread trends primarily reflect the decline in portfolio yield due to purchase accounting effects and are otherwise stable. Net investment spread for fixed indexed annuities declined from approximately 267 basis points in the fourth quarter 2017 to 234 basis points in the first quarter of 2018 primarily due to lower yield from purchase accounting. On a Statutory basis, the yield on the investment portfolio on an economic basis was approximately 5.0 percent in the first quarter of 2018 compared to 5.1 percent in the prior period.
Capital Management & Rating Trends
- GAAP book value per common share at
March 31, 2018 was$5.87 on a reported basis; book value per common share excluding accumulated other comprehensive income (AOCI) was$7.17 , with 214.4 million common shares outstanding as ofMarch 31, 2018 . - The Company continues to have a strong and stable capital position, with estimated statutory company action level risk-based capital (RBC) on an aggregate, combined basis for
Fidelity & Guaranty Life Insurance Company andF&G Re Ltd of 480 percent as ofMarch 31, 2018 , including impacts of Tax Reform. - On
April 20, 2018 , the Company closed on$550 million aggregate principal amount of 5.50% senior notes due 2025. The Company used the net proceeds to repay$135 million borrowings under its revolving credit facility and related expenses. The Company expects to use the remaining net proceeds to redeem and discharge all of the outstanding$300 million aggregate principal amount of its outstanding 6.375% Senior Notes due 2021 onMay 16, 2018 , and for general corporate purposes, which may include additional capital contributions to the Company's insurance subsidiaries.
FGL HOLDINGS AND SUBSIDIARIES |
|||||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||||
(In millions, except share data) |
|||||||
|
|
||||||
(Unaudited) |
(Audited) |
||||||
ASSETS |
|||||||
Investments: |
|||||||
Fixed maturity securities, available-for-sale, at fair value (amortized cost: |
$ |
21,366 |
$ |
21,590 |
|||
Equity securities, at fair value (amortized cost: |
769 |
761 |
|||||
Derivative investments |
293 |
492 |
|||||
Short term investments |
— |
25 |
|||||
Commercial mortgage loans |
528 |
548 |
|||||
Other invested assets |
276 |
188 |
|||||
Total investments |
23,232 |
23,604 |
|||||
Cash and cash equivalents |
1,157 |
1,215 |
|||||
Accrued investment income |
240 |
211 |
|||||
Funds withheld for reinsurance receivables, at fair value |
748 |
756 |
|||||
Reinsurance recoverable |
2,495 |
2,494 |
|||||
Intangibles, net |
954 |
856 |
|||||
Deferred tax assets, net |
258 |
176 |
|||||
|
476 |
476 |
|||||
Other assets |
105 |
141 |
|||||
Total assets |
$ |
29,665 |
$ |
29,929 |
|||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Contractholder funds |
$ |
22,083 |
$ |
21,844 |
|||
Future policy benefits, including |
4,711 |
4,751 |
|||||
Liability for policy and contract claims |
70 |
78 |
|||||
Debt |
307 |
307 |
|||||
Revolving credit facility |
135 |
105 |
|||||
Other liabilities |
717 |
892 |
|||||
Total liabilities |
28,023 |
27,977 |
|||||
Commitments and contingencies |
|||||||
Shareholders' equity: |
|||||||
Preferred stock ( |
— |
— |
|||||
Common stock ( |
— |
— |
|||||
Additional paid-in capital |
2,039 |
2,037 |
|||||
(Accumulated deficit) Retained earnings |
(119) |
(160) |
|||||
Accumulated other comprehensive (loss) income |
(278) |
75 |
|||||
Total shareholders' equity |
1,642 |
1,952 |
|||||
Total liabilities and shareholders' equity |
$ |
29,665 |
$ |
29,929 |
FGL HOLDINGS AND SUBSIDIARIES |
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||||
(In millions, except per share data) |
||||||||
Three Months Ended |
||||||||
|
|
|||||||
Successor |
Predecessor |
|||||||
(Unaudited) |
(Unaudited) |
|||||||
Revenues: |
||||||||
Premiums |
$ |
18 |
$ |
3 |
||||
Net investment income |
263 |
247 |
||||||
Net investment (losses) gains |
(191) |
81 |
||||||
Insurance and investment product fees and other |
41 |
44 |
||||||
Total revenues |
131 |
375 |
||||||
Benefits and expenses: |
||||||||
Benefits and other changes in policy reserves |
(18) |
268 |
||||||
Acquisition and operating expenses, net of deferrals |
40 |
33 |
||||||
Amortization of intangibles |
16 |
33 |
||||||
Total benefits and expenses |
38 |
334 |
||||||
Operating income |
93 |
41 |
||||||
Interest expense |
(6) |
(6) |
||||||
Income before income taxes |
87 |
35 |
||||||
Income tax expense |
(35) |
(13) |
||||||
Net income |
$ |
52 |
$ |
22 |
||||
Less preferred stock dividend |
7 |
— |
||||||
Net income available to common shareholders |
$ |
45 |
$ |
22 |
||||
Net income per common share |
||||||||
Basic |
$ |
0.21 |
$ |
0.38 |
||||
Diluted |
$ |
0.21 |
$ |
0.38 |
||||
Weighted average common shares used in computing net income per common share: |
||||||||
Basic |
214.4 |
58.3 |
||||||
Diluted |
214.4 |
58.4 |
||||||
Cash dividend per common share |
$ |
— |
$ |
0.065 |
RECONCILIATION OF BOOK VALUE PER COMMON SHARE EXCLUDING AOCI |
|||||||||
(In millions, except per share data) |
|
|
|||||||
(Unaudited) |
(Unaudited) |
||||||||
Reconciliation to total shareholders' equity: |
|||||||||
Total shareholders' equity |
$ |
1,642 |
$ |
1,952 |
|||||
Less: AOCI |
(278) |
75 |
|||||||
Less: Preferred equity |
384 |
377 |
|||||||
Total common shareholders' equity excluding AOCI (1) |
$ |
1,536 |
$ |
1,500 |
|||||
Total common shares outstanding |
214.4 |
214.4 |
|||||||
Weighted average common shares outstanding - basic |
214.4 |
214.4 |
|||||||
Weighted average common shares outstanding - diluted |
214.4 |
214.4 |
|||||||
Book value per common share including AOCI (1) |
$ |
5.87 |
$ |
7.35 |
|||||
Book value per common share excluding AOCI(1) |
$ |
7.17 |
$ |
7.00 |
ROLLFORWARD OF AVERAGE ASSETS UNDER MANAGEMENT(1) (AAUM) (Unaudited) |
|||||
(In billions) |
AAUM |
||||
AAUM as of |
$ |
20.2 |
|||
Purchase accounting mark-to-market valuation of investment portfolio |
1.2 |
||||
Inclusion of acquired |
1.9 |
||||
Sales volumes |
1.4 |
||||
Other items |
0.3 |
||||
AAUM as of |
$ |
25.0 |
Footnotes: |
|
(1) |
Non-GAAP financial measure. See the Non-GAAP Measures section below for additional information. |
(2) |
Amounts are net of offsets related to value of business acquired (VOBA), deferred acquisition cost (DAC) and deferred sale inducement (DSI) amortization. |
(3) |
The Company adjusted its non-GAAP measure to remove the residual impacts of fair value accounting on its FIA products, including gains and losses on derivatives hedging those policies, post-merger. |
(4) |
Applicable to the Predecessor only due to the merger. |
(5) |
Applicable to the Successor only. |
(6) |
Predecessor share counts reflect those of the Predecessor entity prior to the merger. |
(7) |
Average yield reflects investment book yield on bonds purchased during the quarter. See the Non-GAAP Measures section below for additional information. |
Purchase Accounting
On
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.
The Company updated its AOI definition as to remove the residual impacts of fair value accounting on its FIA products, including gains and losses on derivatives hedging those policies. Management believes the revised measure enhances the understanding of the business post-merger and is more useful and relevant to investors as compared to the previous definition which eliminated only the effects of changes in the interest rates used to discount the FIA embedded derivative.
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/losses 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 fair values of FIA related derivatives and embedded derivatives, net of hedging cost, (iii) the tax effect 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 21%, as appropriate. While these adjustments are an integral part of the overall performance of the Company, 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 this to be a useful measure internally and to investors and analysts 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 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 fair values of FIA related derivatives and embedded derivatives, net of hedging cost, (iii) the tax effect 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 21%, 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 this to be a useful measure internally and to investors and analysts 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.
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.
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.
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.
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.
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.
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.
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.
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.
Conference Call and Earnings Release
This press release and the financial supplement will be posted to the Company's website at investors.fglife.bm.
The event can be accessed the following ways:
- For internet webcast, visit investors.fglife.bm/investors at least 15 minutes prior to the start of the call to register.
- For conference call, dial 877-883-0383 (
U.S. callers) or 412-902-6506 (International callers) approximately 10 minutes prior to the start of the call. The access code is 8069575. - A replay of the event via webcast will be available after the call at investors.fglife.bm/investors.
- A replay of the event via telephone will be available by dialing 877-344-7529 (
U.S. callers) or 412-317-0088 (International callers). The access code is 10119111.
The replay information will be available through
About
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. 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 FG's management and the management of FG's subsidiaries (including target businesses). Forward-looking statements 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 FG's assumptions and estimates; FG's and its insurance subsidiaries' ability to maintain or improve financial strength ratings; FG's ability to manage its business in a highly regulated industry; regulatory changes or actions; the impact of FG's reinsurers failing to meet their assumed obligations; restrictions on FG'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; FG's ability to protect its intellectual property; the ability to maintain or obtain approval of the
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. FG 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, except as required by law.
Investor Contact:
[email protected]
410-487-8898
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