EX-99.2 3 a9302016fglfinancialsupple.htm EXHIBIT 99.2 Exhibit
Exhibit 99.2


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Investor Supplement
Fourth Fiscal Quarter 2016
(Fiscal Year Ended September 30)

The financial statements and financial exhibits included herein are unaudited. These financial statements and exhibits should be read in conjunction with the Company's periodic reports on Form 10-K, Form 10-Q and Form 8-K.

Non-GAAP Financial Measures

This document contains non-GAAP financial measures to analyze the Company's operating performance for the periods presented. Because the Company's calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing the Company's non-GAAP financial measures to those of other companies.





FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement
September 30, 2016
 
Page
 
 
 
B. Product Summary
 
 
 
C. Investment Summary
 
 
 
D. Counterparty Risk
 
 
 
 
 


FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Consolidated Financial Highlights
 
Three Months Ended
 
Twelve Months Ended
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
 
(Dollars in millions)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
$
18

 
$
21

 
$
16

 
$
15

 
$
15

 
$
70

 
$
58

Net investment income
238

 
236

 
227

 
222

 
223

 
923

 
851

Net investment gains (losses)
26

 
(28
)
 
(42
)
 
63

 
(112
)
 
19

 
(37
)
Insurance and investment product fees and other
34

 
32

 
32

 
29

 
24

 
127

 
89

Total revenues
316

 
261

 
233

 
329

 
150

 
1,139

 
961

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
30

 
$
10

 
$
9

 
$
48

 
$
30

 
$
97

 
$
118

Adjusted Operating Income ("AOI")
$
40

 
$
48

 
$
43

 
$
31

 
$
42

 
$
162

 
$
118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Unrestricted Common Shares Amounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.52

 
$
1.67

 
$
2.03

AOI
$
0.69

 
$
0.82

 
$
0.74

 
$
0.53

 
$
0.72

 
$
2.78

 
$
2.03

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.51

 
$
1.66

 
$
2.02

AOI
$
0.69

 
$
0.82

 
$
0.73

 
$
0.53

 
$
0.72

 
$
2.77

 
$
2.02

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid to shareholders per share
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
$
0.065

 
$
0.260

 
$
0.260

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At Period End
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
864

 
$
719

 
$
496

 
$
568

 
$
502

 
$
864

 
$
502

Total investments
$
21,025

 
$
20,548

 
$
19,580

 
$
18,953

 
$
19,094

 
$
21,025

 
$
19,094

Total assets
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031

 
$
24,925

 
$
27,035

 
$
24,925

Contractholder funds
$
19,251

 
$
18,874

 
$
18,295

 
$
17,961

 
$
17,770

 
$
19,251

 
$
17,770

Future policy benefits
$
3,467

 
$
3,466

 
$
3,463

 
$
3,473

 
$
3,468

 
$
3,467

 
$
3,468

Debt (including revolving credit facility)
$
400

 
$
300

 
$
300

 
$
300

 
$
300

 
$
400

 
$
300

Total equity
$
1,934

 
$
1,782

 
$
1,511

 
$
1,399

 
$
1,502

 
$
1,934

 
$
1,502

Total equity excluding AOCI
$
1,495

 
$
1,477

 
$
1,468

 
$
1,461

 
$
1,414

 
$
1,495

 
$
1,414

Common shares issued and outstanding
58.96

 
58.96

 
58.96

 
58.96

 
58.87

 
58.96

 
58.87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP book value per share
$
32.80

 
$
30.22

 
$
25.63

 
$
23.73

 
$
25.51

 
$
32.80

 
$
25.51

GAAP book Value per Share excluding AOCI
$
25.36

 
$
25.05

 
$
24.90

 
$
24.78

 
$
24.02

 
25.36

 
24.02

Debt to total Capitalization excluding AOCI
21.1
%
 
16.9
%
 
17.0
%
 
17.0
%
 
17.5
%
 
21.1
%
 
17.5
%
Return on average shareholders' equity
8.1
%
 
2.7
%
 
2.5
%
 
13.4
%
 
8.6
%
 
6.6
%
 
9.0
%
Statutory book value per share(1)
$
22.39

 
$
21.23

 
$
21.28

 
$
21.13

 
$
20.79

 
22.39

 
20.79

Statutory book value per share excluding IMR and AVR(1)
$
32.20

 
$
31.35

 
$
31.43

 
$
31.55

 
$
31.40

 
32.20

 
31.40

(1) The statutory book value per share and the statutory book value per share excluding interest maintenance reserve ("IMR") and asset valuation reserve ("AVR") are estimates due to the timing of the filing of statutory statements and are prepared consistent with the presentation of the statutory financial statements in the combined annual statement.

3

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
ASSETS
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: September 30, 2016 - $18,521; September 30, 2015 - $17,622)
$
19,411

 
$
18,972

 
$
18,057

 
$
17,428

 
$
17,746

Equity securities, available-for-sale, at fair value (amortized cost: September 30, 2016 - $640; September 30, 2015 - $597)
683

 
645

 
620

 
637

 
620

Derivative investments
276

 
216

 
158

 
145

 
82

Commercial mortgage loans
595

 
622

 
613

 
616

 
491

Other invested assets
60

 
93

 
132

 
127

 
155

Total investments
21,025

 
20,548

 
19,580

 
18,953

 
19,094

Related party loans
71

 
72

 
76

 
81

 
78

Cash and cash equivalents
864

 
719

 
496

 
568

 
502

Accrued investment income
214

 
192

 
209

 
181

 
191

Reinsurance recoverable
3,464

 
3,476

 
3,512

 
3,552

 
3,579

Intangibles, net
1,026

 
1,048

 
1,170

 
1,162

 
988

Deferred tax assets

 
84

 
228

 
286

 
228

Other assets
371

 
199

 
228

 
248

 
265

Total assets
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031

 
$
24,925

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Contractholder funds
$
19,251

 
$
18,874

 
$
18,295

 
$
17,961

 
$
17,770

Future policy benefits
3,467

 
3,466

 
3,463

 
3,473

 
3,468

Funds withheld for reinsurance liabilities
1,172

 
1,190

 
1,210

 
1,251

 
1,267

Liability for policy and contract claims
55

 
45

 
51

 
64

 
55

Debt
300

 
300

 
300

 
300

 
300

Revolving credit facility
100

 

 

 

 

Deferred tax liability
10

 

 

 

 

Other liabilities
746

 
681

 
669

 
583

 
563

Total liabilities
25,101

 
24,556

 
23,988

 
23,632

 
23,423

 
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at September 30, 2016 and September 30, 2015)

 

 

 

 

Common stock ($.01 par value, 500,000,000 shares authorized, 58,956,127 issued and outstanding at September 30, 2016; 58,870,823 shares issued and outstanding at September 30, 2015)
1

 
1

 
1

 
1

 
1

Additional paid-in capital
714

 
723

 
720

 
718

 
714

Retained earnings
792

 
765

 
759

 
754

 
710

Accumulated other comprehensive income
439

 
305

 
43

 
(62
)
 
88

Treasury stock, at cost (537,613 shares at September 30, 2016; 512,391 shares at September 30, 2015)
(12
)
 
(12
)
 
(12
)
 
(12
)
 
(11
)
Total shareholders' equity
1,934

 
1,782

 
1,511

 
1,399

 
1,502

Total liabilities and shareholders' equity
$
27,035

 
$
26,338

 
$
25,499

 
$
25,031

 
$
24,925


4

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Quarterly Summary - Most Recent 5 Quarters
 
Three Months Ended
 
Twelve Months Ended
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
 
(Dollars in millions)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Traditional life insurance premiums
$
11

 
$
10

 
$
11

 
$
10

 
$
11

 
$
42

 
$
43

Life contingent immediate annuity
7

 
11

 
5

 
5

 
4

 
28

 
15

Net investment income
238

 
236

 
227

 
222

 
223

 
923

 
851

Net investment gains
26

 
(28
)
 
(42
)
 
63

 
(112
)
 
19

 
(37
)
Surrender charges
8

 
5

 
5

 
4

 
5

 
22

 
19

Cost of insurance fees and other income
26

 
27

 
27

 
25

 
19

 
105

 
70

Total revenues
316

 
261

 
233

 
329

 
150

 
1,139

 
961

Benefits and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Traditional life insurance policy benefits and change in future policy benefits
18

 
18

 
16

 
18

 
18

 
70

 
74

Life contingent immediate annuity benefits and changes in future policy benefits
25

 
31

 
21

 
32

 
30

 
109

 
95

Interest sensitive and index product benefits and changes in future policy benefits
163

 
167

 
151

 
131

 
56

 
612

 
409

General expenses
30

 
26

 
25

 
26

 
29

 
107

 
106

Acquisition expenses
89

 
88

 
75

 
73

 
64

 
325

 
298

Deferred acquisition costs ("DAC")
(83
)
 
(86
)
 
(73
)
 
(71
)
 
(63
)
 
(313
)
 
(291
)
Amortization of intangibles
20

 
(4
)
 
(3
)
 
41

 
(33
)
 
54

 
64

        Total benefits and expenses
262

 
240

 
212

 
250

 
101

 
964

 
755

Operating income
54

 
21

 
21

 
79

 
49

 
175

 
206

Interest expense
(5
)
 
(5
)
 
(6
)
 
(6
)
 
(6
)
 
(22
)
 
(24
)
Income before income taxes
49

 
16

 
15

 
73

 
43

 
153

 
182

Income tax expense
19

 
6

 
6

 
25

 
13

 
56

 
64

Net income
$
30

 
$
10

 
$
9

 
$
48

 
$
30

 
$
97

 
$
118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.52

 
$
1.67

 
$
2.03

Diluted
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.51

 
$
1.66

 
$
2.02

Weighted average common shares used in computing net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
58.26

 
58.31

 
58.31

 
58.22

 
58.09

 
58.28

 
58.12

Diluted
$
58.35

 
58.66

 
58.61

 
58.54

 
58.42

 
58.58

 
58.36



5

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


Reconciliation from Net Income to Adjusted Operating Income ("AOI ")

 
 
Three Months Ended
 
Twelve Months Ended
 
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
 
 
(Dollars in millions, except per share data)
Net income
 
$
30

 
$
10

 
$
9

 
$
48

 
$
30

 
$
97

 
$
118

Adjustments to arrive at AOI:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of investment losses (gains), net of offsets (a)
 
5

 
5

 
(5
)
 
4

 
12

 
9

 
13

Effect of change in FIA embedded derivative discount rate, net of offsets (a)
 
(7
)
 
28

 
43

 
(10
)
 
35

 
54

 
56

Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a)
 
17

 
26

 
14

 
(20
)
 
(29
)
 
37

 
(69
)
Effects of class action litigation reserves, net of offsets (a)
 

 

 

 

 

 

 
(1
)
Tax impact of adjusting items
 
(5
)
 
(21
)
 
(18
)
 
9

 
(6
)
 
(35
)
 
1

AOI
 
$
40

 
$
48

 
$
43

 
$
31

 
$
42

 
$
162

 
$
118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per diluted common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
0.52

 
$
0.16

 
$
0.16

 
$
0.82

 
$
0.51

 
$
1.66

 
$
2.02

Adjustments to arrive at AOI:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of investment (gains) losses, net of offsets (a)
 
0.09

 
0.09

 
(0.09
)
 
0.07

 
0.21

 
0.16

 
0.22

Effect of change in FIA embedded derivative discount rate, net of offsets (a)
 
(0.12
)
 
0.48

 
0.73

 
(0.17
)
 
0.60

 
0.92

 
0.96

Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a)
 
0.29

 
0.44

 
0.24

 
(0.34
)
 
(0.50
)
 
0.63

 
(1.18
)
Effects of class action litigation reserves, net of offsets (a)
 

 

 

 

 

 

 
(0.02
)
Tax impact of adjusting items
 
(0.09
)
 
(0.35
)
 
(0.31
)
 
0.15

 
(0.10
)
 
(0.60
)
 
0.02

AOI per diluted share
 
$
0.69

 
$
0.82

 
$
0.73

 
$
0.53

 
$
0.72

 
$
2.77

 
$
2.02


(a) Amounts are net of offsets related to value of business acquired ("VOBA") and deferred acquisition cost ("DAC") amortization.

6

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


NON-GAAP FINANCIAL MEASURES
AOI
AOI is a non-GAAP economic measure we use to evaluate financial performance each period. AOI is calculated by adjusting net income 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 the interest rates used to discount the FIA embedded derivative liability, (iii) the effect of change in fair value of the reinsurance related embedded derivative and (iv) the effect of class action litigation reserves. All adjustments to AOI are net of the corresponding VOBA and DAC. The income tax impact related to these adjustments is measured using an effective tax rate of 35%, as appropriate. 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. 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.


Sales
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). 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.


7

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


Summary of Adjustments to Arrive at AOI

 
 
Three Months Ended
 
Twelve Months Ended
 
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
 
 
(Dollars in millions)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment gains (a)
 
$
29

 
$
44

 
$
11

 
$
(21
)
 
$
(23
)
 
$
63

 
$
(70
)
Increase (decrease) in total revenues
 
29

 
44

 
11

 
(21
)
 
(23
)
 
63

 
(70
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves (b)
 
(16
)
 
53

 
80

 
(19
)
 
61

 
97

 
83

Acquisition and operating expenses, net of deferrals (c)
 

 

 

 

 
1

 

 

Amortization of intangibles
 
2

 
(38
)
 
(39
)
 
14

 
(21
)
 
(60
)
 
(13
)
(Decrease) increase in total benefits and expenses
 
(14
)
 
15

 
41

 
(5
)
 
41

 
37

 
70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in pre-tax operating income
 
15

 
59

 
52

 
(26
)
 
18

 
100

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Decrease) increase in income tax expense
 
(5
)
 
(21
)
 
(18
)
 
9

 
(6
)
 
(35
)
 

(Decrease) increase in net income
 
$
10

 
$
38

 
$
34

 
$
(17
)
 
$
12

 
$
65

 
$


(a) Net investment gains: includes the effects of net investment gains and change in fair value of the reinsurance related embedded derivative.
(b) Benefits and other changes in policy reserves: includes the effects of the change in fair value of the FIA embedded derivative discount rate.
(c) Acquisition and operating expenses: includes the effects of the class action litigation reserve.

8

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

AOI Analysis

Each quarterly reporting period, we identify notable items that explain the trends in our AOI.  These items are infrequent in nature or involve accounting volatility under general accepted accounting principles. The amounts below are included in disclosures within the Company's earnings releases to explain our AOI results.  We believe that understanding these items provides further clarity to the financial performance of the business.   
 
 
Three Months Ended
 
Twelve Months Ended
 
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
 
 
(Dollars in millions)
AOI
 
$
40

 
$
48

 
$
43

 
$
31

 
$
42

 
$
162

 
$
118

Notable Items Included within AOI [(unfavorable)/favorable]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy incentive compensation (a)
 
(2
)
 
1

 

 
(1
)
 
(1
)
 
(2
)
 
(5
)
Project expenses (b)
 

 
(1
)
 
(1
)
 
(2
)
 
(2
)
 
(4
)
 
(5
)
Single premium immediate annuities ("SPIA") mortality & other reserve adjustments (c)
 

 
4

 
5

 
(3
)
 
(5
)
 
7

 
(4
)
Assumption review & DAC unlocking (d)
 
5

 
7

 
4

 
2

 
14

 
17

 
14

Other, including bond prepayment income & tax valuation allowance (e)
 
1

 
2

 
2

 
1

 
2

 
6

 
2


(a) Change in the liability for our FGLH stock compensation plan, which as a liability plan, is settled in cash and accounted for at fair value each reporting period. Also, in the 4th fiscal quarter of 2016 reflects Performance Restricted Stock Unit (PRSU) fair value adjustment, shifting from equity to liability classification for settlement of vested awards in cash.
(b) Expenses associated with corporate development activities, including mergers & acquisitions.
(c) The release of annuity reserves associated with mortality of annuitants which varies due to timing, volume and severity of experience, and other reserve adjustments.
(d) Annually in the 4th fiscal quarter, we complete our Annual Assumption Review & DAC Unlocking process by adjusting our valuation assumptions to align with actual
experience. Also includes unlocking in other quarters from updating our DAC amortization models for actual experience and equity market fluctuations.
(e) Changes in the Company’s deferred tax valuation allowance, receipt of bond prepayment income and other net favorable activity.

9

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Capitalization/Book Value per Share

 
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
 
(Dollars in millions, except per share data)
Capitalization:
 
 
 
 
 
 
 
 
 
 
Debt
 
$
400

 
$
300

 
$
300

 
$
300

 
$
300

Total debt
 
400

 
300

 
300

 
300

 
300

Total shareholders' equity
 
1,934

 
1,782

 
1,511

 
1,399

 
1,502

Total capitalization
 
2,334

 
2,082

 
1,811

 
1,699

 
1,802

AOCI
 
439

 
305

 
43

 
(62
)
 
88

Total capitalization excluding AOCI (a)
 
$
1,895

 
$
1,777

 
$
1,768

 
$
1,761

 
$
1,714

 
 
 
 
 
 
 
 
 
 
 
Total shareholders' equity
 
1,934

 
1,782

 
1,511

 
1,399

 
1,502

AOCI
 
439

 
305

 
43

 
(62
)
 
88

Total shareholders' equity excluding AOCI (a)
 
$
1,495

 
$
1,477

 
$
1,468

 
$
1,461

 
$
1,414

 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
 
58.96

 
58.96

 
58.96

 
58.96

 
58.87

 
 
 
 
 
 
 
 
 
 
 
Book Value per Share: (b)
 
 
 


 
 
 
 
 
 
GAAP book value per share including AOCI
 
$
32.80

 
$
30.22

 
$
25.63

 
$
23.73

 
$
25.51

GAAP book value per share excluding AOCI (a)
 
$
25.36

 
$
25.05

 
$
24.90

 
$
24.78

 
$
24.02

 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve months ended
Twelve Month Rolling Average Return on Equity ("ROE")
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
Return on Shareholders' Equity (c)
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity, excluding AOCI (c)
 
6.6
%
 
6.7
%
 
12.3
%
 
11.0
%
 
8.8
%
 
 
 
 
 
 
 
 
 
 
 
Return on Shareholders' Equity - AOI (d)
 
 
 
 
 
 
 
 
 
 
Adjusted operating ROE, excluding AOCI (d)
 
11.1
%
 
11.4
%
 
10.0
%
 
8.8
%
 
8.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
Quarterly Average ROE
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
Return on average shareholders' equity, excluding AOCI (c)
 
8.1
%
 
2.7
%
 
2.5
%
 
13.4
%
 
8.6
%
Adjusted operating ROE, excluding AOCI (d)
 
10.8
%
 
13.1
%
 
11.7
%
 
8.6
%
 
12.0
%
 
 
 
 
 
 
 
 
 
 
 
Debt-to-Capital Ratios: (e)
 
 
 
 
 
 
 
 
 
 
Long-term debt/Total capitalization excluding AOCI
 
21.1
%
 
16.9
%
 
17.0
%
 
17.0
%
 
17.5
%

10

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


(a) Total capitalization, total stockholders’ equity and book value per share excluding AOCI (a non-GAAP financial measure) are based on stockholders’ 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, we believe these non-GAAP financial measures provide useful supplemental information.
(b) Book value per share including and excluding AOCI is calculated as total stockholders’ equity and total stockholders’ equity excluding AOCI divided by the total number of shares of common stock outstanding.
(c) Return on Equity, excluding AOCI is a non-GAAP financial measure. It is calculated by dividing net income by total average equity excluding AOCI. Average equity excluding AOCI for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average equity is calculated using the beginning and ending equity for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized.
(d) Adjusted Operating ROE, excluding AOCI is a non-GAAP financial measure. It is calculated by dividing AOI by total average equity excluding AOCI. Average equity excluding AOCI for the twelve months rolling, is the average of 5 points throughout the period and for the quarterly average equity is calculated using the beginning and ending equity for the period. For periods less than a full fiscal year, amounts disclosed in the table are annualized.
(e) Debt-to-capital ratios are computed using total capitalization excluding AOCI. Adjusted debt includes the total senior unsecured debentures.



Financial Strength Ratings
 
 
S&P
 
A.M. Best
 
Moody's
 
Fitch

 
 
 
 
 
 
 
 
Fidelity and Guaranty Life Insurance Company
 
BBB-
 
B++
 
Baa3
 
BBB
Fidelity and Guaranty Life Insurance Company of New York
 
BBB-
 
B++
 
Not Rated
 
BBB
Rating agency outlook
 
CreditWatch Developing
 
Under Review With Developing Implications
 
Positive
 
Stable
*Reflects current ratings and outlooks as of date of filing

11

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Net Investment Spread Results
(Dollars in millions)
Three Months Ended
 
Twelve Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Yield on average assets under management "AAUM" (at amortized cost)
4.90
 %
 
4.92
 %
 
4.92
 %
 
4.80
 %
Less: Interest credited and option cost
(2.63
)%
 
(2.72
)%
 
(2.65
)%
 
(2.83
)%
Total net investment spread - All product lines
2.27
 %
 
2.20
 %
 
2.27
 %
 
1.97
 %
 
 
 
 
 
 
 
 
FIA net investment spread
2.98
 %
 
2.95
 %
 
2.97
 %
 
2.90
 %
 
 
 
 
 
 
 
 
Investment book yield - bonds purchased during the period (b)
4.83
 %
 
5.13
 %
 
5.35
 %
 
4.92
 %
 
 
 
 
 
 
 
 
AAUM (a)
$
19,381

 
$
18,114

 
$
18,738

 
$
17,722


(a) AAUM is a non-GAAP measure and is the sum of (i) total invested assets at amortized cost, excluding derivatives; and including (ii) related party loans and investments and (iii) cash and cash equivalents at the end of each month in the period divided by the number of months in the period.
(b) Investment book yield on bonds purchased during the period excludes yield on short-term treasuries and cash and cash equivalents.

Sales Results by Product

(Dollars in millions)
 
Three Months Ended
 
Twelve Months Ended
 
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Fixed index annuities ("FIA")
 
$
482

 
$
495

 
$
418

 
$
437

 
$
424

 
1,832

 
2,179

Fixed rate annuities ("MYGA")
 
121

 
180

 
183

 
52

 
10

 
536

 
287

Institutional spread based (a)
 

 
157

 

 

 

 
157

 

Total Annuity
 
$
603

 
$
832

 
$
601

 
$
489

 
$
434

 
$
2,525

 
$
2,466

Index universal life
 
17

 
15

 
11

 
13

 
11

 
56

 
35

Total Sales
 
$
620

 
$
847

 
$
612

 
$
502

 
$
445

 
$
2,581

 
$
2,501

(a) Institutional spread based product sales from funding agreement investment contracts issued with the Federal Home Loan Bank and held in our separate account.



12

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)


Annuity Account Balance Rollforward (a)

(Dollars in millions)
 
Three months ended
 
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
Account balances at beginning of period:
 
$
14,935

 
$
14,599

 
$
14,330

 
$
14,154

 
$
14,000

Net deposits
 
598

 
687

 
608

 
507

 
435

Premium and interest bonuses
 
10

 
11

 
11

 
12

 
9

Fixed interest credited and index credits
 
81

 
45

 
41

 
66

 
75

Guaranteed product rider fees
 
(12
)
 
(14
)
 
(14
)
 
(13
)
 
(8
)
Surrenders, withdrawals, deaths, etc.
 
(362
)
 
(393
)
 
(377
)
 
(396
)
 
(357
)
Account balance at end of period
 
$
15,250

 
$
14,935

 
$
14,599

 
$
14,330


$
14,154

(a) The rollforward reflects the account balance of our fixed index annuities and fixed rate annuities.

Annuity Deposits by Product Type

 
 
Three Months Ended
 
Twelve Months Ended
Product Type
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
 
 
(Dollars in millions)
Fixed index annuities:
 
 
 
 
 
 
 
 
Index strategies
 
$
388

 
$
354

 
$
1,502

 
$
1,886

Fixed strategy
 
98

 
72

 
359

 
300

 
 
486


426


1,861


2,186

 
 
 
 
 
 
 
 
 
Fixed rate annuities:
 
 
 
 
 
 
 
 
Single-year rate guaranteed
 

 
5

 
4

 
35

Multi-year rate guaranteed
 
111

 
5

 
535

 
248

 
 
 
 
 
 
 
 
 
Total before coinsurance ceded
 
597

 
436

 
2,400

 
2,469

Coinsurance ceded
 

 
1

 
1

 
74

Net after coinsurance ceded
 
$
597


$
435


$
2,399


$
2,395





13

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)

Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Account Values (net of reinsurance) at September 30, 2016:
 
 
Surrender Charge
 
Net Account Value
Product Type
 
Avg. Years at Issue
 
Avg. Years Remaining
 
Avg. % Remaining
 
Dollars in millions
 
%
Fixed index annuities
 
11
 
6
 
8
%
 
$
12,092

 
79
%
Single-year rate guaranteed
 
10
 
1
 
1
%
 
622

 
4
%
Multi-year rate guaranteed
 
5
 
3
 
7
%
 
2,536

 
17
%
Total
 
 
 
 
 
 
 
$
15,250

 
100
%



14

FIDELITY & GUARANTY LIFE AND SUBSIDIARIES
Financial Supplement - September 30, 2016
(unaudited)



Annuity Liability Characteristics

 
 
Fixed Annuities Account Value
 
Fixed Index Annuities Account Value
 
 
(Dollars in millions)
SURRENDER CHARGE PERCENTAGES:
 
 
 
 
No surrender charge
 
$
598

 
$
1,773

0.0% < 2.0%
 
43

 
224

2.0% < 4.0%
 
120

 
536

4.0% < 6.0%
 
514

 
559

6.0% < 8.0%
 
976

 
1,249

8.0% < 10.0%
 
861

 
2,550

10.0% or greater
 
46

 
5,201

 
 
$
3,158

 
$
12,092


 
 
Fixed and Fixed Index Annuities Account Value
 
Weighted Average Surrender Charge
 
 
(Dollars in millions)
 
 
SURRENDER CHARGE EXPIRATION BY YEAR:
 
 
 
 
Out of Surrender Charge
 
$
2,394

 
%
2016
 
203

 
3