Investments

12 Months Ended

Sep. 30, 2011


(5)	Investments

Consumer Products and Other

The Company’s short-term investments are summarized as follows:


	September 30,
	2011		2010

Trading:
Marketable equity securities	$	262,085	$	—
Marketable debt securities		12,665		—

		274,750		—

Held to maturity:
U.S. Treasury securities		75,638		53,965
Certificate of deposit		250		—

		75,888		53,965

Total	$	350,638	$	53,965

There was $44,030 of net unrealized losses recognized in “Other (expense) income, net” during Fiscal 2011 that relate to trading securities held at September 30, 2011.

Insurance

Investments of FGL at September 30, 2011 are summarized as follows:


								Fair
			Gross		Gross			Value and
	Amortized		Unrealized		Unrealized			Carrying
	Cost		Gains		Losses			Value

Available-for-sale securities
Asset-backed securities	$	501,469	$	1,785	$	(2,770	)	$	500,484
Commercial mortgage-backed securities		580,313		3,427		(18,163	)		565,577
Corporates		11,479,862		506,264		(130,352	)		11,855,774
Equities		292,112		3,964		(9,033	)		287,043
Hybrids		699,915		10,429		(51,055	)		659,289
Municipals		824,562		111,929		(7	)		936,484
Agency residential mortgage-backed securities		217,354		4,966		(295	)		222,025
Non-agency residential mortgage-backed securities		465,666		1,971		(23,120	)		444,517
U.S. Government		175,054		8,270		—			183,324

Total available-for-sale securities		15,236,307		653,005		(234,795	)		15,654,517
Derivative investments		171,612		405		(119,682	)		52,335
Other invested assets		44,279		—		—			44,279

Total investments	$	15,452,198	$	653,410	$	(354,477	)	$	15,751,131

Included in other comprehensive income were unrealized gains of $524 and unrealized losses of $24 related to the non-credit portion of other-than-temporary impairments on non-agency residential-mortgage-backed securities at September 30, 2011.

The amortized cost and fair value of fixed maturity available-for-sale securities by contractual maturities, as applicable, at September 30, 2011 were as follows:


	Amortized		Fair
	Cost		Value

Corporate, Municipal and U.S. Government securities:
Due in one year or less	$	399,362	$	398,594
Due after one year through five years		2,646,037		2,653,699
Due after five years through ten years		4,481,497		4,593,136
Due after ten years		4,952,582		5,330,153

Subtotal		12,479,478		12,975,582
Other securities which provide for periodic payments:
Asset-backed securities		501,469		500,484
Commercial-mortgage-backed securities		580,313		565,577
Hybrids		699,915		659,289
Agency residential mortgage-backed securities		217,354		222,025
Non-agency residential mortgage-backed securities		465,666		444,517

Total fixed maturity available-for-sale securities	$	14,944,195	$	15,367,474

Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.

As part of FGL’s ongoing securities monitoring process, FGL evaluates whether securities in an unrealized loss position could potentially be other-than-temporarily impaired. FGL has concluded that the fair values of the securities presented in the table below were not other-than-temporarily impaired as of September 30, 2011. This conclusion is derived from the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms along with the expectation that they will continue to do so. Also contributing to this conclusion is FGL’s determination that it is more likely than not that FGL will not be required to sell these securities prior to recovery, an assessment of the issuers’ financial condition and other objective evidence. As it specifically relates to asset-backed securities and commercial mortgage-backed securities, the present value of cash flows expected to be collected is at least the amount of the amortized cost basis of the security and FGL management has the intent to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value.

As the amortized cost of all investments was adjusted to fair value as of the FGL Acquisition Date, no individual securities have been in a continuous unrealized loss position greater than twelve months. The fair value and gross unrealized losses, of available-for-sale securities with gross unrealized losses, aggregated by investment category, were as follows:


	September 30, 2011
			Gross
			Unrealized
	Fair Value		Losses

Available-for-sale securities:
Asset-backed securities	$	275,135	$	(2,770	)
Commercial mortgage-backed securities		338,865		(18,163	)
Corporates		3,081,556		(130,352	)
Equities		99,772		(9,033	)
Hybrids		450,376		(51,055	)
Municipals		1,137		(7	)
Agency residential mortgage-backed securities		25,820		(295	)
Non-agency residential mortgage-backed securities		375,349		(23,120	)

Total available-for-sale securities	$	4,648,010	$	(234,795	)

Total number of available-for-sale securities in an unrealized loss position				505

At September 30, 2011, securities in an unrealized loss position were primarily concentrated in investment grade corporate debt instruments, residential mortgage-backed securities, commercial mortgage-backed securities and hybrids. Total unrealized losses were $234,795 at September 30, 2011. Finance-related exposure represents the largest component of the unrealized loss position in the portfolio at September 30, 2011. The increase in risk aversion in capital markets during the most recent period has also affected prices of commercial mortgage-backed securities and non-agency residential mortgage-backed securities, including the earlier vintage and higher quality securities currently owned. FGL has not added to any exposure in these sectors and will continue to monitor existing positions carefully.

At September 30, 2011, securities with a fair value of $31,320 were depressed greater than 20% of amortized cost, which represented less than 1% of the carrying values of all investments. Based upon FGL’s current evaluation of these securities in accordance with its impairment policy and FGL’s intent to retain these investments for a period of time sufficient to allow for recovery in value, FGL has determined that these securities are not other-than-temporarily impaired.

The following table provides a reconciliation of the beginning and ending balances of the credit loss portion of other-than-temporary impairments on fixed maturity securities held by FGL at September 30, 2011, for which a portion of the other-than-temporary impairment was recognized in accumulated other comprehensive income:


Balance at April 6, 2011	$	—
Increases attributable to credit losses on securities:
Other-than-temporary impairment was previously recognized		—
Other-than-temporary impairment was not previously recognized		667

Balance at September 30, 2011	$	667

For the period from April 6, 2011 to September 30, 2011, FGL recognized credit losses in operations totaling $17,966, which experienced other-than-temporary impairments and had an amortized cost of $103,312 and a fair value of $85,846 at the time of impairment. Details underlying write-downs taken as a result of other-than-temporary impairments that were recognized in net income and included in realized loss on investments above were as follows:


	For the Period
	April 6, 2011 to
	September 30, 2011

Other-than-temporary impairments recognized in net income:
Commercial mortgage-backed securities	$	20
Corporates		1,462
Equities		11,007
Non-agency residential mortgage-backed securities		5,059
Other invested assets		418

Total credit impairments	$	17,966

Net Investment Income

The major sources of “Net investment income” on the Consolidated Statement of Operations were as follows:


	For the Period
	April 6, 2011 to
	September 30, 2011

Fixed maturity available-for-sale securities	$	364,771
Equity available-for-sale securities		10,190
Policy loans		1,511
Invested cash and short-term investments		129
Other investments		326

Gross investment income		376,927
Investment expense		(7,087	)

Net investment income	$	369,840

Net Investment Losses

Details underlying “Net investment losses” reported on the accompanying Consolidated Statement of Operations were as follows:


	For the Period
	April 6, 2011 to
	September 30, 2011

Net realized gain on fixed maturity available-for-sale securities	$	16,912
Realized loss on equity securities		(10,977	)

Net realized gains on securities		5,935

Realized loss on certain derivative instruments		(44,776	)
Unrealized loss on certain derivative instruments		(125,976	)

Losses on derivative instruments		(170,752	)

Realized loss on other invested assets		(2,074	)

Net investment losses	$	(166,891	)

Additional detail regarding the net investment losses is as follows:


	For the Period
	April 6, 2011 to
	September 30, 2011

Total other-than-temporary impairments	$	(17,466	)
Less non-credit portion of other-than-temporary impairments included in other comprehensive income		500

Net other-than temporary impairments		(17,966	)
Losses on derivative instruments		(170,752	)
Other realized investment gains		21,827

Net investment losses	$	(166,891	)

For the period from April 6, 2011 to September 30, 2011, principal repayments, calls, tenders and proceeds from the sale of fixed maturity available-for-sale securities, including assets transferred to Wilton Re as discussed in Note 20, totaled $2,104,272, gross gains on such sales totaled $43,902 and gross losses totaled $20,031.

Underlying write-downs taken to fixed maturity available-for-sale securities as a result of other-than-temporary impairments that were recognized in net income and included in net realized gains on available-for-sale securities above were $17,966 for the period from April 6, 2011 to September 30, 2011. The portion of other-than-temporary impairments recognized in AOCI is disclosed in Note 14.

Cash flows from investing activities by security classification were as follows:


	Year Ended September 30,
	2011		2010

Cost of investments acquired:
Available-for-sale	$	1,285,951	$	—
Held-to-maturity		123,428		(3,989	)
Trading (acquired for holding)		332,715		—
Derivatives and other		66,905		—

	$	1,808,999	$	(3,989	)

Proceeds from investments sold, matured or repaid:
Available-for-sale	$	1,482,195	$	—
Held-to-maturity		101,755		30,094
Trading		29,532		—
Derivatives and other		86,437		—

	$	1,699,919	$	30,094