|
|
|
|
|
|
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
|
|
|
Delaware
|
46-3489149
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
Two Ruan Center
601 Locust Street, 14th Floor
Des Moines, Iowa
|
50309
|
(Address of principal executive offices)
|
(Zip Code)
|
|
|
|
Large Accelerated Filer
|
¨
|
|
Accelerated Filer
|
¨
|
Non-accelerated Filer
|
x
|
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
¨
|
|
|
Page
|
PART I. FINANCIAL INFORMATION & FORWARD LOOKING STATEMENTS
|
|
|
|
PART II. OTHER INFORMATION
|
|
Item 1.
|
Financial Statements
|
|
June 30,
2015 |
|
September 30,
2014 |
||||
|
(Unaudited)
|
|
|
||||
ASSETS
|
|
|
|
||||
Investments:
|
|
|
|
||||
Fixed maturity securities, available-for-sale, at fair value (amortized cost: June 30, 2015 - $17,630; September 30, 2014 - $16,692)
|
$
|
17,965
|
|
|
$
|
17,435
|
|
Equity securities, available-for-sale, at fair value (amortized cost: June 30, 2015 - $564; September 30, 2014 - $679)
|
583
|
|
|
698
|
|
||
Derivative investments
|
220
|
|
|
296
|
|
||
Commercial mortgage loans
|
405
|
|
|
136
|
|
||
Other invested assets
|
218
|
|
|
237
|
|
||
Total investments
|
19,391
|
|
|
18,802
|
|
||
Related party loans
|
77
|
|
|
113
|
|
||
Cash and cash equivalents
|
654
|
|
|
576
|
|
||
Accrued investment income
|
164
|
|
|
182
|
|
||
Reinsurance recoverable
|
3,642
|
|
|
3,665
|
|
||
Intangibles, net
|
808
|
|
|
515
|
|
||
Deferred tax assets
|
200
|
|
|
137
|
|
||
Other assets
|
223
|
|
|
163
|
|
||
Total assets
|
$
|
25,159
|
|
|
$
|
24,153
|
|
|
|
|
|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
||||
|
|
|
|
||||
Contractholder funds
|
$
|
17,704
|
|
|
$
|
16,464
|
|
Future policy benefits
|
3,465
|
|
|
3,504
|
|
||
Funds withheld for reinsurance liabilities
|
1,325
|
|
|
1,331
|
|
||
Liability for policy and contract claims
|
60
|
|
|
58
|
|
||
Debt
|
300
|
|
|
300
|
|
||
Other liabilities
|
746
|
|
|
837
|
|
||
Total liabilities
|
23,600
|
|
|
22,494
|
|
||
|
|
|
|
||||
Commitments and contingencies
|
|
|
|
||||
|
|
|
|
||||
Shareholders' equity:
|
|
|
|
||||
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued at June 30, 2015)
|
$
|
—
|
|
|
$
|
—
|
|
Common stock ($.01 par value, 500,000,000 shares authorized, 58,762,826 issued and outstanding at June 30, 2015; 58,442,721 shares issued and outstanding at September 30, 2014)
|
1
|
|
|
1
|
|
||
Additional paid-in capital
|
711
|
|
|
702
|
|
||
Retained earnings
|
683
|
|
|
607
|
|
||
Accumulated other comprehensive income
|
175
|
|
|
349
|
|
||
Treasury Stock, at cost (512,391 shares at June 30, 2015; no shares at September 30, 2014)
|
(11
|
)
|
|
—
|
|
||
Total shareholders' equity
|
1,559
|
|
|
1,659
|
|
||
Total liabilities and shareholders' equity
|
$
|
25,159
|
|
|
$
|
24,153
|
|
|
|
|
|
|
|||||||||||||||
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
June 30,
2015 |
|
June 30,
2014 |
|
June 30,
2015 |
|
June 30,
2014 |
||||||||
|
(Unaudited)
|
|
(Unaudited)
|
||||||||||||
Revenues:
|
|
|
|
|
|
|
|
||||||||
Premiums
|
$
|
17
|
|
|
$
|
13
|
|
|
$
|
43
|
|
|
$
|
41
|
|
Net investment income
|
212
|
|
|
191
|
|
|
628
|
|
|
559
|
|
||||
Net investment gains
|
74
|
|
|
145
|
|
|
75
|
|
|
267
|
|
||||
Insurance and investment product fees and other
|
23
|
|
|
19
|
|
|
65
|
|
|
51
|
|
||||
Total revenues
|
326
|
|
|
368
|
|
|
811
|
|
|
918
|
|
||||
Benefits and expenses:
|
|
|
|
|
|
|
|
||||||||
Benefits and other changes in policy reserves
|
78
|
|
|
242
|
|
|
474
|
|
|
638
|
|
||||
Acquisition and operating expenses, net of deferrals
|
26
|
|
|
23
|
|
|
83
|
|
|
81
|
|
||||
Amortization of intangibles
|
88
|
|
|
15
|
|
|
97
|
|
|
49
|
|
||||
Total benefits and expenses
|
192
|
|
|
280
|
|
|
654
|
|
|
768
|
|
||||
Operating income
|
134
|
|
|
88
|
|
|
157
|
|
|
150
|
|
||||
Interest expense
|
(6
|
)
|
|
(6
|
)
|
|
(18
|
)
|
|
(17
|
)
|
||||
Income before income taxes
|
128
|
|
|
82
|
|
|
139
|
|
|
133
|
|
||||
Income tax expense
|
42
|
|
|
25
|
|
|
51
|
|
|
9
|
|
||||
Net income
|
$
|
86
|
|
|
$
|
57
|
|
|
$
|
88
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
||||||||
Net income per common share:
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
1.48
|
|
|
$
|
0.97
|
|
|
$
|
1.51
|
|
|
$
|
2.25
|
|
Diluted
|
$
|
1.48
|
|
|
$
|
0.97
|
|
|
$
|
1.51
|
|
|
$
|
2.24
|
|
Weighted average common shares used in computing net income per common share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
58,058,247
|
|
|
58,270,822
|
|
|
58,125,850
|
|
|
55,194,513
|
|
||||
Diluted
|
58,241,215
|
|
|
58,474,938
|
|
|
58,327,483
|
|
|
55,329,523
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Cash dividend per common share
|
$
|
0.065
|
|
|
$
|
0.065
|
|
|
$
|
0.195
|
|
|
$
|
1.045
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Supplemental disclosures:
|
|
|
|
|
|
|
|
||||||||
Total other-than-temporary impairments
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
|
$
|
(65
|
)
|
|
$
|
(1
|
)
|
Portion of other-than-temporary impairments included in other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net other-than-temporary impairments
|
(4
|
)
|
|
(1
|
)
|
|
(65
|
)
|
|
(1
|
)
|
||||
Gains (losses) on derivative instruments
|
27
|
|
|
74
|
|
|
90
|
|
|
177
|
|
||||
Other realized investment gains (losses)
|
51
|
|
|
72
|
|
|
50
|
|
|
91
|
|
||||
Total net investment gains (losses)
|
$
|
74
|
|
|
$
|
145
|
|
|
$
|
75
|
|
|
$
|
267
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
June 30,
2015 |
|
June 30,
2014 |
|
June 30,
2015 |
|
June 30,
2014 |
||||||||
|
(Unaudited)
|
|
(Unaudited)
|
||||||||||||
Net income
|
$
|
86
|
|
|
$
|
57
|
|
|
$
|
88
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
Unrealized investment gains (losses):
|
|
|
|
|
|
|
|
||||||||
Change in unrealized investment (losses) gain before reclassification adjustment
|
(524
|
)
|
|
353
|
|
|
(424
|
)
|
|
727
|
|
||||
Net reclassification adjustment for (gains) losses included in net income
|
(47
|
)
|
|
(72
|
)
|
|
15
|
|
|
(90
|
)
|
||||
Changes in unrealized investment (losses) gains after reclassification adjustment
|
(571
|
)
|
|
281
|
|
|
(409
|
)
|
|
637
|
|
||||
Adjustments to intangible assets
|
212
|
|
|
(86
|
)
|
|
141
|
|
|
(191
|
)
|
||||
Changes in deferred income tax asset/liability
|
127
|
|
|
(68
|
)
|
|
94
|
|
|
(156
|
)
|
||||
Net changes to derive comprehensive (loss) income for the period
|
(232
|
)
|
|
127
|
|
|
(174
|
)
|
|
290
|
|
||||
Comprehensive (loss) income, net of tax
|
$
|
(146
|
)
|
|
$
|
184
|
|
|
$
|
(86
|
)
|
|
$
|
414
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional Paid-in Capital/Contributed Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Total Shareholders' Equity
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance, September 30, 2013
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
527
|
|
|
$
|
499
|
|
|
$
|
113
|
|
|
$
|
—
|
|
|
$
|
1,139
|
|
Dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|||||||
Stock Split
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Proceeds from issuance of common stock, net of transaction fees
|
—
|
|
|
—
|
|
|
173
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
173
|
|
|||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
124
|
|
|
—
|
|
|
—
|
|
|
124
|
|
|||||||
Unrealized investment gains, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
290
|
|
|
—
|
|
|
290
|
|
|||||||
Stock compensation
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|||||||
Balance, June 30, 2014
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
701
|
|
|
$
|
572
|
|
|
$
|
403
|
|
|
$
|
—
|
|
|
$
|
1,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance, September 30, 2014
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
702
|
|
|
$
|
607
|
|
|
$
|
349
|
|
|
$
|
—
|
|
|
$
|
1,659
|
|
Treasury shares purchased
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
(11
|
)
|
|||||||
Dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|||||||
Unrealized investment losses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(174
|
)
|
|
—
|
|
|
(174
|
)
|
|||||||
Stock compensation
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|||||||
Balance, June 30, 2015
|
—
|
|
|
1
|
|
|
711
|
|
|
683
|
|
|
175
|
|
|
(11
|
)
|
|
1,559
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
||||||
|
June 30,
2015 |
|
June 30,
2014 |
||||
|
(Unaudited)
|
||||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
88
|
|
|
$
|
124
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Stock based compensation
|
9
|
|
|
12
|
|
||
Amortization
|
(37
|
)
|
|
(23
|
)
|
||
Deferred income taxes
|
31
|
|
|
(25
|
)
|
||
Interest credited/index credit to contractholder account balances
|
363
|
|
|
541
|
|
||
Net recognized (gains) on investments and derivatives
|
(75
|
)
|
|
(267
|
)
|
||
Charges assessed to contractholders for mortality and administration
|
(50
|
)
|
|
(33
|
)
|
||
Deferred policy acquisition costs, net of amortization
|
(151
|
)
|
|
(124
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Reinsurance recoverable
|
13
|
|
|
(13
|
)
|
||
Future policy benefits
|
(39
|
)
|
|
(41
|
)
|
||
Funds withheld from reinsurers
|
(13
|
)
|
|
(90
|
)
|
||
Collateral posted
|
(32
|
)
|
|
80
|
|
||
Other assets and other liabilities
|
—
|
|
|
34
|
|
||
Net cash provided by operating activities
|
107
|
|
|
175
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Proceeds from available-for-sale investments sold, matured or repaid
|
3,796
|
|
|
4,402
|
|
||
Proceeds from derivatives instruments and other invested assets
|
335
|
|
|
359
|
|
||
Proceeds from commercial mortgage loans
|
33
|
|
|
—
|
|
||
Cost of available-for-sale investments acquired
|
(4,557
|
)
|
|
(5,628
|
)
|
||
Costs of derivatives instruments and other invested assets
|
(234
|
)
|
|
(341
|
)
|
||
Costs of commercial mortgage loans
|
(302
|
)
|
|
—
|
|
||
Related party loans
|
36
|
|
|
(5
|
)
|
||
Capital expenditures
|
(6
|
)
|
|
(7
|
)
|
||
Net cash (used in) investing activities
|
(899
|
)
|
|
(1,220
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Treasury stock
|
(11
|
)
|
|
—
|
|
||
Proceeds from issuance of common stock, net of transaction fees
|
—
|
|
|
176
|
|
||
Dividends paid
|
(12
|
)
|
|
(51
|
)
|
||
Contractholder account deposits
|
2,046
|
|
|
1,773
|
|
||
Contractholder account withdrawals
|
(1,153
|
)
|
|
(1,239
|
)
|
||
Net cash provided by financing activities
|
870
|
|
|
659
|
|
||
Change in cash & cash equivalents
|
78
|
|
|
(386
|
)
|
||
Cash & cash equivalents, beginning of period
|
576
|
|
|
1,204
|
|
||
Cash & cash equivalents, end of period
|
$
|
654
|
|
|
$
|
818
|
|
|
|
|
|
||||
Supplemental disclosures of cash flow information
|
|
|
|
||||
Interest paid
|
$
|
10
|
|
|
$
|
19
|
|
Taxes paid
|
$
|
38
|
|
|
$
|
24
|
|
|
June 30, 2015
|
||||||||||||||||||
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Carrying Value
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Available-for sale securities
|
|
|
|
|
|
|
|
|
|
||||||||||
Asset-backed securities
|
$
|
2,164
|
|
|
$
|
5
|
|
|
$
|
(24
|
)
|
|
$
|
2,145
|
|
|
$
|
2,145
|
|
Commercial mortgage-backed securities
|
814
|
|
|
14
|
|
|
(7
|
)
|
|
821
|
|
|
821
|
|
|||||
Corporates
|
9,362
|
|
|
346
|
|
|
(173
|
)
|
|
9,535
|
|
|
9,535
|
|
|||||
Equities
|
564
|
|
|
23
|
|
|
(4
|
)
|
|
583
|
|
|
583
|
|
|||||
Hybrids
|
1,224
|
|
|
46
|
|
|
(29
|
)
|
|
1,241
|
|
|
1,241
|
|
|||||
Municipals
|
1,378
|
|
|
92
|
|
|
(20
|
)
|
|
1,450
|
|
|
1,450
|
|
|||||
Residential mortgage-backed securities
|
2,100
|
|
|
101
|
|
|
(25
|
)
|
|
2,176
|
|
|
2,176
|
|
|||||
U.S. Government
|
588
|
|
|
9
|
|
|
—
|
|
|
597
|
|
|
597
|
|
|||||
Total available-for-sale securities
|
18,194
|
|
|
636
|
|
|
(282
|
)
|
|
18,548
|
|
|
18,548
|
|
|||||
Derivative investments
|
212
|
|
|
47
|
|
|
(39
|
)
|
|
220
|
|
|
220
|
|
|||||
Commercial mortgage loans
|
405
|
|
|
—
|
|
|
—
|
|
|
405
|
|
|
405
|
|
|||||
Other invested assets
|
224
|
|
|
—
|
|
|
(6
|
)
|
|
218
|
|
|
218
|
|
|||||
Total investments
|
$
|
19,035
|
|
|
$
|
683
|
|
|
$
|
(327
|
)
|
|
$
|
19,391
|
|
|
$
|
19,391
|
|
|
September 30, 2014
|
||||||||||||||||||
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Carrying Value
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
||||||||||
Asset-backed securities
|
$
|
2,040
|
|
|
$
|
12
|
|
|
$
|
(20
|
)
|
|
$
|
2,032
|
|
|
$
|
2,032
|
|
Commercial mortgage-backed securities
|
618
|
|
|
21
|
|
|
(2
|
)
|
|
637
|
|
|
637
|
|
|||||
Corporates
|
9,329
|
|
|
499
|
|
|
(49
|
)
|
|
9,779
|
|
|
9,779
|
|
|||||
Equities
|
679
|
|
|
24
|
|
|
(5
|
)
|
|
698
|
|
|
698
|
|
|||||
Hybrids
|
1,279
|
|
|
52
|
|
|
(15
|
)
|
|
1,316
|
|
|
1,316
|
|
|||||
Municipals
|
1,150
|
|
|
117
|
|
|
(7
|
)
|
|
1,260
|
|
|
1,260
|
|
|||||
Residential mortgage-backed securities
|
1,985
|
|
|
140
|
|
|
(11
|
)
|
|
2,114
|
|
|
2,114
|
|
|||||
U.S. Government
|
291
|
|
|
7
|
|
|
(1
|
)
|
|
297
|
|
|
297
|
|
|||||
Total available-for-sale securities
|
17,371
|
|
|
872
|
|
|
(110
|
)
|
|
18,133
|
|
|
18,133
|
|
|||||
Derivatives investments
|
178
|
|
|
123
|
|
|
(5
|
)
|
|
296
|
|
|
296
|
|
|||||
Commercial mortgage loans
|
136
|
|
|
—
|
|
|
—
|
|
|
136
|
|
|
136
|
|
|||||
Other invested assets
|
237
|
|
|
—
|
|
|
—
|
|
|
237
|
|
|
237
|
|
|||||
Total investments
|
$
|
17,922
|
|
|
$
|
995
|
|
|
$
|
(115
|
)
|
|
$
|
18,802
|
|
|
$
|
18,802
|
|
|
June 30, 2015
|
||||||
|
Amortized Cost
|
|
Fair Value
|
||||
Corporates, Non-structured Hybrids, Municipal and U.S. Government securities:
|
|
|
|
||||
Due in one year or less
|
$
|
204
|
|
|
$
|
206
|
|
Due after one year through five years
|
2,113
|
|
|
2,153
|
|
||
Due after five years through ten years
|
2,955
|
|
|
3,015
|
|
||
Due after ten years
|
6,607
|
|
|
6,788
|
|
||
Subtotal
|
11,879
|
|
|
12,162
|
|
||
Other securities which provide for periodic payments:
|
|
|
|
||||
Asset-backed securities
|
2,164
|
|
|
2,145
|
|
||
Commercial mortgage-backed securities
|
814
|
|
|
821
|
|
||
Structured hybrids
|
673
|
|
|
661
|
|
||
Residential mortgage-backed securities
|
2,100
|
|
|
2,176
|
|
||
Subtotal
|
5,751
|
|
|
5,803
|
|
||
Total fixed maturity available-for-sale securities
|
$
|
17,630
|
|
|
$
|
17,965
|
|
|
June 30, 2015
|
||||||||||||||||||||||
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
||||||||||||||||||
|
Fair Value
|
|
Gross Unrealized
Losses
|
|
Fair Value
|
|
Gross Unrealized
Losses
|
|
Fair Value
|
|
Gross Unrealized
Losses
|
||||||||||||
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Asset-backed securities
|
$
|
941
|
|
|
$
|
(10
|
)
|
|
$
|
597
|
|
|
$
|
(14
|
)
|
|
$
|
1,538
|
|
|
$
|
(24
|
)
|
Commercial mortgage-backed securities
|
319
|
|
|
(7
|
)
|
|
57
|
|
|
—
|
|
|
376
|
|
|
(7
|
)
|
||||||
Corporates
|
2,817
|
|
|
(127
|
)
|
|
894
|
|
|
(46
|
)
|
|
3,711
|
|
|
(173
|
)
|
||||||
Equities
|
60
|
|
|
(1
|
)
|
|
95
|
|
|
(3
|
)
|
|
155
|
|
|
(4
|
)
|
||||||
Hybrids
|
174
|
|
|
(5
|
)
|
|
361
|
|
|
(24
|
)
|
|
535
|
|
|
(29
|
)
|
||||||
Municipals
|
339
|
|
|
(13
|
)
|
|
211
|
|
|
(7
|
)
|
|
550
|
|
|
(20
|
)
|
||||||
Residential mortgage-backed securities
|
496
|
|
|
(13
|
)
|
|
246
|
|
|
(12
|
)
|
|
742
|
|
|
(25
|
)
|
||||||
U.S. Government
|
350
|
|
|
—
|
|
|
59
|
|
|
—
|
|
|
409
|
|
|
—
|
|
||||||
Total available-for-sale securities
|
$
|
5,496
|
|
|
$
|
(176
|
)
|
|
$
|
2,520
|
|
|
$
|
(106
|
)
|
|
$
|
8,016
|
|
|
$
|
(282
|
)
|
Total number of available-for-sale securities in an unrealized loss position less than twelve months
|
|
|
|
|
|
|
|
|
|
|
787
|
|
|||||||||||
Total number of available-for-sale securities in an unrealized loss position twelve months or longer
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|||||||||||
Total number of available-for-sale securities in an unrealized loss position
|
|
|
|
|
|
|
|
|
|
|
1087
|
|
|
September 30, 2014
|
||||||||||||||||||||||
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
||||||||||||||||||
|
Fair Value
|
|
Gross Unrealized
Losses
|
|
Fair Value
|
|
Gross Unrealized
Losses
|
|
Fair Value
|
|
Gross Unrealized
Losses
|
||||||||||||
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Asset-backed securities
|
$
|
939
|
|
|
$
|
(13
|
)
|
|
$
|
290
|
|
|
$
|
(7
|
)
|
|
$
|
1,229
|
|
|
$
|
(20
|
)
|
Commercial mortgage-backed securities
|
160
|
|
|
(1
|
)
|
|
1
|
|
|
(1
|
)
|
|
161
|
|
|
(2
|
)
|
||||||
Corporates
|
817
|
|
|
(16
|
)
|
|
1,127
|
|
|
(33
|
)
|
|
1,944
|
|
|
(49
|
)
|
||||||
Equities
|
181
|
|
|
(2
|
)
|
|
54
|
|
|
(3
|
)
|
|
235
|
|
|
(5
|
)
|
||||||
Hybrids
|
258
|
|
|
(2
|
)
|
|
290
|
|
|
(13
|
)
|
|
548
|
|
|
(15
|
)
|
||||||
Municipals
|
—
|
|
|
—
|
|
|
265
|
|
|
(7
|
)
|
|
265
|
|
|
(7
|
)
|
||||||
Residential mortgage-backed securities
|
299
|
|
|
(6
|
)
|
|
178
|
|
|
(5
|
)
|
|
477
|
|
|
(11
|
)
|
||||||
U.S Government
|
37
|
|
|
—
|
|
|
82
|
|
|
(1
|
)
|
|
119
|
|
|
(1
|
)
|
||||||
Total available-for-sale securities
|
$
|
2,691
|
|
|
$
|
(40
|
)
|
|
$
|
2,287
|
|
|
$
|
(70
|
)
|
|
$
|
4,978
|
|
|
$
|
(110
|
)
|
Total number of available-for-sale securities in an unrealized loss position less than twelve months
|
|
|
|
|
|
|
|
|
|
|
324
|
|
|||||||||||
Total number of available-for-sale securities in an unrealized loss position twelve months or longer
|
|
|
|
|
|
|
|
|
|
|
311
|
|
|||||||||||
Total number of available-for-sale securities in an unrealized loss position
|
|
|
|
|
|
|
|
|
|
|
635
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
Beginning balance
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Increases attributable to credit losses on securities:
|
|
|
|
|
|
|
|
||||||||
Other-than-temporary impairment was previously recognized
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Other-than-temporary impairment was not previously recognized
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Ending balance
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
OTTI Recognized in Net Income:
|
|
|
|
|
|
|
|
||||||||
Asset-backed securities
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
—
|
|
Corporates
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
||||
Other invested assets
|
1
|
|
|
1
|
|
|
36
|
|
|
1
|
|
||||
Total
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
65
|
|
|
$
|
1
|
|
|
|
|
|
Three months ended
|
||
|
|
|
|
March 31, 2015
|
||
Type
|
|
Balance Sheet Classification
|
|
Impairment Loss
|
||
CLOs (a)
|
|
Fixed maturities, available-for-sale
|
|
$
|
25
|
|
Preferred equity (a)
|
|
Equity securities, available-for-sale
|
|
21
|
|
|
Participations
|
|
Other invested assets
|
|
35
|
|
|
Impairment, gross of reinsurance
|
|
|
|
$
|
81
|
|
Preferred equity (a)
|
|
Equity securities, available-for-sale
|
|
(21
|
)
|
|
CLOs (a)
|
|
Fixed maturities, available-for-sale
|
|
(1
|
)
|
|
Impairment, net of reinsurance
|
|
|
|
$
|
59
|
|
•
|
CLOs - The Company utilized a price from a third party valuation firm which considered the sufficiency of underlying loan collateral for the RSH loan and other loans.
|
•
|
Preferred equity - The Company utilized a price from a third party valuation firm which considered the updated fair value estimates of the Salus Capital Partners, LLC ("Salus") CLO and the Salus participation in RSH, both of which Salus owns investment interests.
|
•
|
Participations - The Company considered the sufficiency and recoverability of the underlying loan collateral for RSH based on the evidence obtained.
|
|
June 30, 2015
|
September 30, 2014
|
|||||||||||
|
Gross Carrying Value
|
|
% of Total
|
|
Gross Carrying Value
|
|
% of Total
|
||||||
Property Type:
|
|
|
|
|
|
|
|
||||||
Industrial - General
|
$
|
9
|
|
|
2
|
%
|
|
$
|
—
|
|
|
—
|
%
|
Industrial - Warehouse
|
67
|
|
|
17
|
%
|
|
48
|
|
|
35
|
%
|
||
Multifamily
|
57
|
|
|
14
|
%
|
|
38
|
|
|
28
|
%
|
||
Office
|
129
|
|
|
32
|
%
|
|
44
|
|
|
33
|
%
|
||
Retail
|
129
|
|
|
32
|
%
|
|
6
|
|
|
4
|
%
|
||
Funeral Home
|
1
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
||
Hotel
|
13
|
|
|
3
|
%
|
|
|
|
|
|
|
||
Total commercial mortgage loans
|
$
|
405
|
|
|
100
|
%
|
|
$
|
136
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
||||||
US Region:
|
|
|
|
|
|
|
|
||||||
East North Central
|
$
|
113
|
|
|
28
|
%
|
|
$
|
28
|
|
|
21
|
%
|
Middle Atlantic
|
81
|
|
|
20
|
%
|
|
11
|
|
|
8
|
%
|
||
Pacific
|
81
|
|
|
20
|
%
|
|
61
|
|
|
45
|
%
|
||
South Atlantic
|
56
|
|
|
14
|
%
|
|
—
|
|
|
—
|
%
|
||
West North Central
|
6
|
|
|
1
|
%
|
|
6
|
|
|
4
|
%
|
||
West South Central
|
20
|
|
|
5
|
%
|
|
30
|
|
|
22
|
%
|
||
Mountain
|
42
|
|
|
11
|
%
|
|
—
|
|
|
—
|
%
|
||
New England
|
6
|
|
|
1
|
%
|
|
—
|
|
|
—
|
%
|
||
Total commercial mortgage loans
|
$
|
405
|
|
|
100
|
%
|
|
$
|
136
|
|
|
100
|
%
|
|
Debt-Service Coverage Ratios
|
|
Total Amount
|
|
% of Total
|
|
Estimated Fair Value
|
|
% of Total
|
||||||||||||||||
|
>1.25
|
|
1.00 - 1.25
|
|
N/A(a)
|
|
|
|
|
||||||||||||||||
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
LTV Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Less than 50%
|
$
|
93
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
94
|
|
|
23
|
%
|
|
$
|
94
|
|
|
23
|
%
|
50% to 60%
|
129
|
|
|
20
|
|
|
—
|
|
|
149
|
|
|
37
|
%
|
|
149
|
|
|
37
|
%
|
|||||
60% to 75%
|
162
|
|
|
—
|
|
|
—
|
|
|
162
|
|
|
40
|
%
|
|
162
|
|
|
40
|
%
|
|||||
Commercial mortgage loans
|
$
|
384
|
|
|
$
|
20
|
|
|
$
|
1
|
|
|
$
|
405
|
|
|
100
|
%
|
|
$
|
405
|
|
|
100
|
%
|
September 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
LTV Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Less than 50%
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
45
|
|
|
33
|
%
|
|
$
|
45
|
|
|
33
|
%
|
50% to 60%
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
15
|
%
|
|
20
|
|
|
15
|
%
|
|||||
60% to 75%
|
71
|
|
|
—
|
|
|
—
|
|
|
71
|
|
|
52
|
%
|
|
71
|
|
|
52
|
%
|
|||||
Commercial mortgage loans
|
$
|
135
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
136
|
|
|
100
|
%
|
|
$
|
136
|
|
|
100
|
%
|
|
June 30, 2015
|
|
September 30, 2014
|
||||
Current to 30 days
|
$
|
405
|
|
|
$
|
136
|
|
Past due
|
—
|
|
|
—
|
|
||
Total carrying value
|
$
|
405
|
|
|
$
|
136
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
Fixed maturity available-for-sale securities
|
$
|
199
|
|
|
$
|
182
|
|
|
$
|
589
|
|
|
$
|
532
|
|
Equity available-for-sale securities
|
8
|
|
|
7
|
|
|
26
|
|
|
16
|
|
||||
Commercial mortgage loans
|
3
|
|
|
1
|
|
|
7
|
|
|
2
|
|
||||
Related party loans
|
2
|
|
|
2
|
|
|
5
|
|
|
5
|
|
||||
Other investments
|
5
|
|
|
4
|
|
|
16
|
|
|
16
|
|
||||
Gross investment income
|
217
|
|
|
196
|
|
|
643
|
|
|
571
|
|
||||
Investment expense
|
(5
|
)
|
|
(5
|
)
|
|
(15
|
)
|
|
(12
|
)
|
||||
Net investment income
|
$
|
212
|
|
|
$
|
191
|
|
|
$
|
628
|
|
|
$
|
559
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
Net realized gains on fixed maturity available-for-sale securities
|
$
|
47
|
|
|
$
|
73
|
|
|
$
|
24
|
|
|
$
|
93
|
|
Realized gains (losses) on equity securities
|
1
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
||||
Net realized gains on securities
|
48
|
|
|
73
|
|
|
24
|
|
|
92
|
|
||||
Realized gains on certain derivative instruments
|
37
|
|
|
57
|
|
|
118
|
|
|
157
|
|
||||
Unrealized (losses) gains on certain derivative instruments
|
(44
|
)
|
|
37
|
|
|
(90
|
)
|
|
73
|
|
||||
Change in fair value of reinsurance related embedded derivative
|
36
|
|
|
(21
|
)
|
|
52
|
|
|
(54
|
)
|
||||
Change in fair value of other derivatives and embedded derivatives
|
(2
|
)
|
|
1
|
|
|
10
|
|
|
1
|
|
||||
Realized gains on derivatives and embedded derivatives
|
27
|
|
|
74
|
|
|
90
|
|
|
177
|
|
||||
Realized losses on other invested assets
|
(1
|
)
|
|
(2
|
)
|
|
(39
|
)
|
|
(2
|
)
|
||||
Net investment gains
|
$
|
74
|
|
|
$
|
145
|
|
|
$
|
75
|
|
|
$
|
267
|
|
|
June 30, 2015
|
|
September 30, 2014
|
||||
Assets:
|
|
|
|
||||
Derivative investments:
|
|
|
|
||||
Call options
|
$
|
220
|
|
|
$
|
296
|
|
Other invested assets:
|
|
|
|
||||
Other derivatives and embedded derivatives
|
23
|
|
|
13
|
|
||
Other assets:
|
|
|
|
||||
Reinsurance related embedded derivative
|
128
|
|
|
77
|
|
||
|
$
|
371
|
|
|
$
|
386
|
|
Liabilities:
|
|
|
|
||||
Contractholder funds:
|
|
|
|
||||
FIA embedded derivative
|
$
|
2,174
|
|
|
$
|
1,908
|
|
Funds withheld for reinsurance liabilities:
|
|
|
|
||||
Call options payable to FSRCI
|
14
|
|
|
23
|
|
||
Other liabilities:
|
|
|
|
||||
Futures contracts
|
—
|
|
|
1
|
|
||
|
$
|
2,188
|
|
|
$
|
1,932
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
Revenues:
|
|
|
|
|
|
|
|
||||||||
Net investment (losses) gains:
|
|
|
|
|
|
|
|
||||||||
Call options
|
$
|
(7
|
)
|
|
$
|
83
|
|
|
$
|
24
|
|
|
$
|
205
|
|
Futures contracts
|
—
|
|
|
11
|
|
|
4
|
|
|
25
|
|
||||
Other derivatives and embedded derivatives
|
(2
|
)
|
|
1
|
|
|
10
|
|
|
1
|
|
||||
Reinsurance related embedded derivative
|
36
|
|
|
(21
|
)
|
|
52
|
|
|
(54
|
)
|
||||
|
$
|
27
|
|
|
$
|
74
|
|
|
$
|
90
|
|
|
$
|
177
|
|
Benefits and other changes in policy reserves
|
|
|
|
|
|
|
|
||||||||
FIA embedded derivatives
|
$
|
(43
|
)
|
|
$
|
146
|
|
|
$
|
266
|
|
|
$
|
320
|
|
|
|
|
|
June 30, 2015
|
|
September 30, 2014
|
||||||||||||||||||||||||||||
Counterparty
|
|
Credit Rating
(Fitch/Moody's/S&P) (a)
|
|
Notional
Amount
|
|
Fair Value
|
|
Collateral
|
|
Net Credit Risk
|
|
Notional
Amount
|
|
Fair Value
|
|
Collateral
|
|
Net Credit Risk
|
||||||||||||||||
Merrill Lynch
|
|
A/*/A
|
|
$
|
2,438
|
|
|
$
|
59
|
|
|
$
|
15
|
|
|
$
|
44
|
|
|
$
|
2,240
|
|
|
$
|
93
|
|
|
$
|
53
|
|
|
$
|
40
|
|
Deutsche Bank
|
|
A/A3/BBB+
|
|
2,660
|
|
|
72
|
|
|
39
|
|
|
33
|
|
|
2,810
|
|
|
108
|
|
|
72
|
|
|
36
|
|
||||||||
Morgan Stanley
|
|
*/A1/A
|
|
3,747
|
|
|
88
|
|
|
65
|
|
|
23
|
|
|
2,295
|
|
|
85
|
|
|
63
|
|
|
22
|
|
||||||||
Barclay's Bank
|
|
A/A2/A-
|
|
127
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
258
|
|
|
10
|
|
|
—
|
|
|
10
|
|
||||||||
Total
|
|
|
|
$
|
8,972
|
|
|
$
|
220
|
|
|
$
|
119
|
|
|
$
|
101
|
|
|
$
|
7,603
|
|
|
$
|
296
|
|
|
$
|
188
|
|
|
$
|
108
|
|
|
June 30, 2015
|
||||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
|
Carrying Amount
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
654
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
654
|
|
|
$
|
654
|
|
Fixed maturity securities, available-for-sale:
|
|
|
|
|
|
|
|
|
|
||||||||||
Asset-backed securities
|
—
|
|
|
2,075
|
|
|
70
|
|
|
2,145
|
|
|
2,145
|
|
|||||
Commercial mortgage-backed securities
|
—
|
|
|
681
|
|
|
140
|
|
|
821
|
|
|
821
|
|
|||||
Corporates
|
—
|
|
|
8,634
|
|
|
901
|
|
|
9,535
|
|
|
9,535
|
|
|||||
Hybrids
|
—
|
|
|
1,241
|
|
|
—
|
|
|
1,241
|
|
|
1,241
|
|
|||||
Municipals
|
—
|
|
|
1,412
|
|
|
38
|
|
|
1,450
|
|
|
1,450
|
|
|||||
Residential mortgage-backed securities
|
—
|
|
|
2,176
|
|
|
—
|
|
|
2,176
|
|
|
2,176
|
|
|||||
U.S. Government
|
413
|
|
|
184
|
|
|
—
|
|
|
597
|
|
|
597
|
|
|||||
Equity securities available-for-sale
|
27
|
|
|
547
|
|
|
9
|
|
|
583
|
|
|
583
|
|
|||||
Derivative financial instruments
|
—
|
|
|
220
|
|
|
—
|
|
|
220
|
|
|
220
|
|
|||||
Reinsurance related embedded derivative, included in other assets
|
—
|
|
|
128
|
|
|
—
|
|
|
128
|
|
|
128
|
|
|||||
Other invested assets
|
—
|
|
|
11
|
|
|
207
|
|
|
218
|
|
|
218
|
|
|||||
Total financial assets at fair value
|
$
|
1,094
|
|
|
$
|
17,309
|
|
|
$
|
1,365
|
|
|
$
|
19,768
|
|
|
$
|
19,768
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||
FIA embedded derivatives, included in contractholder funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,174
|
|
|
$
|
2,174
|
|
|
$
|
2,174
|
|
Derivative instruments - futures contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Investment contracts, included in contractholder funds
|
—
|
|
|
—
|
|
|
14,016
|
|
|
14,016
|
|
|
15,530
|
|
|||||
Call options payable for FSRCI, included in funds withheld for reinsurance liabilities
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
|
14
|
|
|||||
Debt
|
—
|
|
|
312
|
|
|
—
|
|
|
312
|
|
|
300
|
|
|||||
Total financial liabilities at fair value
|
$
|
—
|
|
|
$
|
326
|
|
|
$
|
16,190
|
|
|
$
|
16,516
|
|
|
$
|
18,018
|
|
|
September 30, 2014
|
||||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
|
Carrying Amount
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
576
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
576
|
|
|
$
|
576
|
|
Fixed maturity securities, available-for-sale:
|
|
|
|
|
|
|
|
|
|
||||||||||
Asset-backed securities
|
—
|
|
|
1,958
|
|
|
74
|
|
|
2,032
|
|
|
2,032
|
|
|||||
Commercial mortgage-backed securities
|
—
|
|
|
554
|
|
|
83
|
|
|
637
|
|
|
637
|
|
|||||
Corporates
|
—
|
|
|
8,945
|
|
|
834
|
|
|
9,779
|
|
|
9,779
|
|
|||||
Hybrids
|
—
|
|
|
1,316
|
|
|
—
|
|
|
1,316
|
|
|
1,316
|
|
|||||
Municipals
|
—
|
|
|
1,223
|
|
|
37
|
|
|
1,260
|
|
|
1,260
|
|
|||||
Residential mortgage-backed securities
|
—
|
|
|
2,114
|
|
|
—
|
|
|
2,114
|
|
|
2,114
|
|
|||||
U.S. Government
|
116
|
|
|
181
|
|
|
—
|
|
|
297
|
|
|
297
|
|
|||||
Equity securities available-for-sale
|
59
|
|
|
599
|
|
|
40
|
|
|
698
|
|
|
698
|
|
|||||
Derivative financial instruments
|
—
|
|
|
296
|
|
|
—
|
|
|
296
|
|
|
296
|
|
|||||
Reinsurance related embedded derivative, included in other assets
|
—
|
|
|
76
|
|
|
—
|
|
|
76
|
|
|
76
|
|
|||||
Other invested assets
|
—
|
|
|
2
|
|
|
235
|
|
|
237
|
|
|
237
|
|
|||||
Total financial assets at fair value
|
$
|
751
|
|
|
$
|
17,264
|
|
|
$
|
1,303
|
|
|
$
|
19,318
|
|
|
$
|
19,318
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||
FIA embedded derivatives, included in contractholder funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,908
|
|
|
$
|
1,908
|
|
|
$
|
1,908
|
|
Derivative instruments - futures contracts
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|||||
Investment contracts, included in contractholder funds
|
—
|
|
|
—
|
|
|
13,109
|
|
|
13,109
|
|
|
14,556
|
|
|||||
Call options payable for FSRCI, included in funds withheld for reinsurance liabilities
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
|
22
|
|
|||||
Debt
|
—
|
|
|
317
|
|
|
—
|
|
|
317
|
|
|
300
|
|
|||||
Total financial liabilities at fair value
|
$
|
—
|
|
|
$
|
340
|
|
|
$
|
15,017
|
|
|
$
|
15,357
|
|
|
$
|
16,787
|
|
|
|
Fair Value at
|
|
Valuation
|
|
|
|
Range (Weighted average)
|
||
|
|
June 30, 2015
|
|
Technique
|
|
Unobservable Input(s)
|
|
June 30, 2015
|
||
Assets
|
|
|
|
|
|
|
|
|
||
Asset-backed securities
|
|
$
|
33
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
100.00% - 106.75%
(100.58%) |
Asset-backed securities (Salus CLO equity tranche)
|
|
37
|
|
|
Third-Party Valuation
|
|
Offered quotes
|
|
55.00% - 58.73%
(55.17%) |
|
|
|
|
|
|
|
Discount rate
|
|
11.00%
|
||
|
|
|
|
|
|
Constant default rate
|
|
2.00%
|
||
|
|
|
|
|
|
RSH recovery
|
|
30.00%
|
||
|
|
|
|
|
|
Other loan recoveries
|
|
48.00% - 100.00%
|
||
Commercial mortgage-backed securities
|
|
140
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
99.88% - 121.50%
(113.00%) |
|
Corporates
|
|
868
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
60.00% - 120.34%
(100.50%) |
|
Corporates
|
|
33
|
|
|
Matrix Pricing
|
|
Quoted prices
|
|
103.51% - 144.25%
(105.33%) |
|
Municipals
|
|
38
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
108.44%
|
|
Equity securities available-for-sale
|
|
6
|
|
|
Matrix Pricing
|
|
Quoted prices
|
|
100.00%
|
|
Equity securities available-for-sale (Salus preferred equity)
|
|
3
|
|
|
Market-approach
|
|
Yield
|
|
11.00%
|
|
|
|
|
|
|
|
RSH recovery
|
|
30.00%
|
||
|
|
|
|
|
|
Discount rate
|
|
11.00%
|
||
|
|
|
|
|
|
Salus CLO equity
|
|
55.17%
|
||
Other invested assets:
|
|
|
|
|
|
|
|
|
||
Available-for-sale embedded derivative
|
|
12
|
|
|
Black Scholes model
|
|
Market value of AnchorPath fund
|
|
100.00%
|
|
Salus participations
|
|
167
|
|
|
Market Pricing
|
|
Offered quotes
|
|
100.00%
|
|
Salus participation - RSH Corporation
|
|
15
|
|
|
Liquidation Value - 30% recovery estimate
|
|
Sales agreements
|
|
100.00%
|
|
|
|
|
|
|
|
Cash
|
|
100.00%
|
||
|
|
|
|
|
|
Inventory
|
|
50.00%- 75.00% of book value
|
||
|
|
|
|
|
|
Accounts receivable
|
|
50.00% - 100.00% of book value
|
||
|
|
|
|
|
|
Wind-down expenses
|
|
100.00% estimated expense
|
||
Total
|
|
$
|
1,352
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
||
Derivatives:
|
|
|
|
|
|
|
|
|
||
FIA embedded derivatives, included in contractholder funds
|
|
$
|
2,174
|
|
|
Discounted Cash Flow
|
|
Market value of option
|
|
0.00% - 40.86% (2.26%)
|
|
|
|
|
|
|
SWAP rates
|
|
1.79% - 2.46% (2.13%)
|
||
|
|
|
|
|
|
Morality multiplier
|
|
80.00%
|
||
|
|
|
|
|
|
Surrender rates
|
|
0.50% - 75.00% (7.00%)
|
||
|
|
|
|
|
|
Non-performance spread
|
|
0.25%
|
||
Total liabilities at fair value
|
|
$
|
2,174
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Valuation
|
|
Unobservable
|
|
Range (Weighted average)
|
||
|
|
September 30, 2014
|
|
Technique
|
|
Input(s)
|
|
September 30, 2014
|
||
Assets
|
|
|
|
|
|
|
|
|
||
Asset-backed securities
|
|
$
|
74
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
95.45% - 109.26% (99.26%)
|
Commercial mortgage-backed securities
|
|
83
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
105.25% - 121.00% (118.29%)
|
|
Corporates
|
|
832
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
61.67% - 119.75% (100.04%)
|
|
Corporates
|
|
2
|
|
|
Matrix Pricing
|
|
Quoted prices
|
|
142.30%
|
|
Municipals
|
|
37
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
106.64%
|
|
Equity securities available-for-sale
|
|
6
|
|
|
Broker-quoted
|
|
Offered quotes
|
|
99.75%
|
|
Equity securities available-for-sale
|
|
34
|
|
|
Market-approach
|
|
Yield
|
|
8.31% - 9.81%
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
||
Available-for-sale embedded derivative
|
|
11
|
|
|
Black Scholes model
|
|
Net asset value of AnchorPath fund
|
|
100.00%
|
|
Salus participations
|
|
213
|
|
|
Market Pricing
|
|
Offered quotes
|
|
100.00%
|
|
Total
|
|
$
|
1,292
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
||
Derivatives:
|
|
|
|
|
|
|
|
|
||
FIA embedded derivatives, included in contractholder funds
|
|
$
|
1,908
|
|
|
Discounted Cash Flow
|
|
Market value of option
|
|
0.00% - 49.82% (3.37%)
|
|
|
|
|
|
|
SWAP rates
|
|
1.93% - 2.64% (2.29%)
|
||
|
|
|
|
|
|
Morality multiplier
|
|
80.00%
|
||
|
|
|
|
|
|
Surrender rates
|
|
0.50% - 75.00% (7.00%)
|
||
|
|
|
|
|
|
Non-performance spread
|
|
0.25%
|
||
Total liabilities at fair value
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
VOBA
|
|
DAC
|
|
Total
|
||||||
Balance at September 30, 2014
|
|
$
|
59
|
|
|
$
|
456
|
|
|
$
|
515
|
|
Deferrals
|
|
—
|
|
|
249
|
|
|
249
|
|
|||
Less: Amortization related to:
|
|
|
|
|
|
|
||||||
Unlocking
|
|
3
|
|
|
(5
|
)
|
|
(2
|
)
|
|||
Interest
|
|
9
|
|
|
16
|
|
|
25
|
|
|||
Amortization
|
|
(57
|
)
|
|
(63
|
)
|
|
(120
|
)
|
|||
Add: Adjustment for unrealized investment losses
|
|
49
|
|
|
92
|
|
|
141
|
|
|||
Balance at June 30, 2015
|
|
$
|
63
|
|
|
$
|
745
|
|
|
$
|
808
|
|
|
|
|
|
|
|
|
||||||
Accumulated amortization
|
|
$
|
399
|
|
|
|
|
|
|
|
VOBA
|
|
DAC
|
|
Total
|
||||||
Balance at September 30, 2013
|
|
$
|
192
|
|
|
$
|
331
|
|
|
$
|
523
|
|
Deferrals
|
|
—
|
|
|
173
|
|
|
173
|
|
|||
Less: Amortization related to:
|
|
|
|
|
|
|
||||||
Unlocking
|
|
22
|
|
|
3
|
|
|
25
|
|
|||
Interest
|
|
11
|
|
|
10
|
|
|
21
|
|
|||
Amortization
|
|
(59
|
)
|
|
(36
|
)
|
|
(95
|
)
|
|||
Add: Adjustment for unrealized investment gains
|
|
(108
|
)
|
|
(83
|
)
|
|
(191
|
)
|
|||
Balance at June 30, 2014
|
|
$
|
58
|
|
|
$
|
398
|
|
|
$
|
456
|
|
|
|
|
|
|
|
|
||||||
Accumulated amortization
|
|
$
|
330
|
|
|
|
|
|
|
|
June 30, 2015
|
|
September 30, 2014
|
||||
Debt
|
|
$
|
300
|
|
|
$
|
300
|
|
Revolving credit facility
|
|
—
|
|
|
—
|
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||||||||||||||||||
|
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||||||||||||||||||
|
|
Interest Expense
|
|
Amortization
|
|
Interest Expense
|
|
Amortization
|
|
Interest Expense
|
|
Amortization
|
|
Interest Expense
|
|
Amortization
|
||||||||||||||||
Debt
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
14
|
|
|
$
|
3
|
|
|
$
|
14
|
|
|
$
|
3
|
|
Revolving credit facility
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
FGL Plans
|
|
|
|
|
|
|
|
|
||||||||
Stock options
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Restricted shares
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
||||
Performance restricted stock units
|
|
1
|
|
|
—
|
|
|
3
|
|
|
1
|
|
||||
Unrestricted shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||
|
|
1
|
|
|
—
|
|
|
9
|
|
|
2
|
|
||||
FGLH Plans
|
|
|
|
|
|
|
|
|
||||||||
Stock Incentive Plan - stock options
|
|
—
|
|
|
1
|
|
|
1
|
|
|
7
|
|
||||
2011 dividend equivalent plan
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||
Amended and Restated Stock Incentive Plan - stock options
|
|
2
|
|
|
1
|
|
|
4
|
|
|
6
|
|
||||
Amended and Restated Stock Incentive Plan - restricted stock units
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
||||
2012 dividend equivalent plan
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
||||
|
|
3
|
|
|
3
|
|
|
7
|
|
|
15
|
|
||||
Total stock compensation expense
|
|
4
|
|
|
3
|
|
|
16
|
|
|
17
|
|
||||
Related tax benefit
|
|
1
|
|
|
1
|
|
|
6
|
|
|
6
|
|
||||
Net stock compensation expense
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
10
|
|
|
$
|
11
|
|
|
|
Unrecognized Compensation
Expense |
|
Weighted Average Recognition
Period in Years |
||
FGL Plans
|
|
|
|
|
||
Stock options
|
|
$
|
1
|
|
|
2
|
Restricted shares
|
|
4
|
|
|
2
|
|
Performance restricted stock units
|
|
6
|
|
|
1
|
|
Unrestricted shares
|
|
—
|
|
|
N/A
|
|
|
|
11
|
|
|
|
|
FGLH Plans
|
|
|
|
|
|
|
Stock Incentive Plan - stock options
|
|
—
|
|
|
N/A
|
|
2011 dividend equivalent plan
|
|
—
|
|
|
N/A
|
|
Amended and Restated Stock Incentive Plan - stock options
|
|
1
|
|
|
1
|
|
Amended and Restated Stock Incentive Plan - restricted stock units
|
|
1
|
|
|
1
|
|
2012 dividend equivalent plan
|
|
—
|
|
|
1
|
|
|
|
2
|
|
|
|
|
Total unrecognized stock compensation expense
|
|
$
|
13
|
|
|
1
|
Stock Option Awards
|
|
Options
|
|
Weighted Average
Exercise Price
|
|||
Stock options outstanding at September 30, 2014
|
|
242
|
|
|
$
|
17.00
|
|
Granted
|
|
206
|
|
|
24.40
|
|
|
Exercised
|
|
(3
|
)
|
|
17.00
|
|
|
Forfeited or expired
|
|
(16
|
)
|
|
20.81
|
|
|
Stock options outstanding at June 30, 2015
|
|
429
|
|
|
20.41
|
|
|
Exercisable at June 30, 2015
|
|
221
|
|
|
19.52
|
|
|
Vested or projected to vest as of June 30, 2015
|
|
420
|
|
|
20.41
|
|
Weighted average fair value per option modified
|
$2.53
|
Risk-free interest rate
|
0.2%
|
Assumed dividend yield
|
1.2%
|
Expected option term
|
0.75 years
|
Volatility
|
25.0%
|
Restricted Stock Awards
|
|
Shares
|
|
Weighted Average Grant
Date Fair Value
|
|||
Nonvested restricted shares outstanding at September 30, 2014
|
|
172
|
|
|
$
|
18.18
|
|
Granted
|
|
325
|
|
|
23.57
|
|
|
Vested
|
|
(227
|
)
|
|
21.61
|
|
|
Forfeited or expired
|
|
(18
|
)
|
|
21.62
|
|
|
Nonvested restricted shares outstanding at June 30, 2015
|
|
252
|
|
|
21.91
|
|
Performance Restricted Stock Units (PRSUs)
|
|
Shares
|
|
Weighted Average Grant
Date Fair Value |
|||
Nonvested PRSUs outstanding at September 30, 2014
|
|
578
|
|
|
$
|
17.37
|
|
Granted, including 8 additional units based on 2014 financial performance
|
|
40
|
|
|
20.36
|
|
|
Vested
|
|
(45
|
)
|
|
17.00
|
|
|
Forfeited
|
|
(72
|
)
|
|
17.00
|
|
|
Nonvested PRSUs outstanding at June 30, 2015
|
|
501
|
|
|
17.69
|
|
|
|
FGLH
|
|||||
Stock Option Awards
|
|
Options
|
|
Weighted Average
Exercise Price (a)
|
|||
Stock options outstanding at September 30, 2014
|
|
225
|
|
|
$
|
46.19
|
|
Granted
|
|
—
|
|
|
—
|
|
|
Exercised
|
|
(75
|
)
|
|
44.89
|
|
|
Forfeited or expired
|
|
(1
|
)
|
|
49.45
|
|
|
Stock options outstanding at June 30, 2015
|
|
149
|
|
|
46.81
|
|
|
Vested and exercisable at June 30, 2015
|
|
123
|
|
|
46.23
|
|
|
Vested or projected to vest as of June 30, 2015
|
|
148
|
|
|
46.79
|
|
(a)
|
The exercise price is based on the value of FGLH’s common stock, not the value of the Company’s common stock. The fair value of FGLH stock at
June 30, 2015
is
$116.54
per share.
|
Restricted Stock Awards
|
|
Shares
|
|
Weighted Average Grant
Date Fair Value (a)
|
|||
Nonvested restricted shares outstanding at September 30, 2014
|
|
26
|
|
|
$
|
49.55
|
|
Granted
|
|
—
|
|
|
—
|
|
|
Vested
|
|
(14
|
)
|
|
49.55
|
|
|
Forfeited
|
|
(1
|
)
|
|
49.45
|
|
|
Nonvested restricted stock units outstanding at June 30, 2015
|
|
11
|
|
|
49.57
|
|
Asset Type
|
June 30, 2015
|
||
Other invested assets
|
$
|
142
|
|
Commercial mortgage loans
|
48
|
|
|
Fixed maturity securities, available-for-sale
|
35
|
|
|
Other assets
|
21
|
|
|
Related party loans
|
5
|
|
|
Total
|
$
|
251
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||||||||||||||||||
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||||||||||||||||||
|
Net Premiums Earned
|
|
Net Benefits Incurred
|
|
Net Premiums Earned
|
|
Net Benefits Incurred
|
|
Net Premiums Earned
|
|
Net Benefits Incurred
|
|
Net Premiums Earned
|
|
Net Benefits Incurred
|
||||||||||||||||
Direct
|
$
|
68
|
|
|
$
|
133
|
|
|
$
|
65
|
|
|
$
|
324
|
|
|
$
|
195
|
|
|
$
|
666
|
|
|
$
|
200
|
|
|
$
|
877
|
|
Assumed
|
—
|
|
|
(15
|
)
|
|
9
|
|
|
6
|
|
|
17
|
|
|
1
|
|
|
28
|
|
|
19
|
|
||||||||
Ceded
|
(51
|
)
|
|
(40
|
)
|
|
(61
|
)
|
|
(88
|
)
|
|
(169
|
)
|
|
(193
|
)
|
|
(187
|
)
|
|
(258
|
)
|
||||||||
Net
|
$
|
17
|
|
|
$
|
78
|
|
|
$
|
13
|
|
|
$
|
242
|
|
|
$
|
43
|
|
|
$
|
474
|
|
|
$
|
41
|
|
|
$
|
638
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
Revenues:
|
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
Premiums
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Net investment income
|
|
14
|
|
|
14
|
|
|
47
|
|
|
46
|
|
||||
Net investment (losses) gains
|
|
(3
|
)
|
|
10
|
|
|
(18
|
)
|
|
21
|
|
||||
Insurance and investment product fees
|
|
1
|
|
|
1
|
|
|
3
|
|
|
4
|
|
||||
Total revenues
|
|
13
|
|
|
25
|
|
|
33
|
|
|
72
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Benefits and expenses:
|
|
|
|
|
|
|
|
|
||||||||
Benefits and other changes in policy reserves
|
|
(7
|
)
|
|
(17
|
)
|
|
(35
|
)
|
|
(50
|
)
|
||||
Acquisition & operating expenses, net of deferrals
|
|
(1
|
)
|
|
(1
|
)
|
|
(3
|
)
|
|
(5
|
)
|
||||
Total benefits and expenses
|
|
(8
|
)
|
|
(18
|
)
|
|
(38
|
)
|
|
(55
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Operating income (loss)
|
|
$
|
5
|
|
|
$
|
7
|
|
|
$
|
(5
|
)
|
|
$
|
17
|
|
|
|
|
|
June 30, 2015
|
||||||||||
Type
|
|
Balance Sheet Classification
|
|
Asset carrying value
|
|
Accrued Investment Income
|
|
Total carrying value
|
||||||
Salus CLOs
|
|
Fixed maturities, available-for-sale
|
|
$
|
257
|
|
|
$
|
1
|
|
|
$
|
258
|
|
Fortress Investment Group CLOs
|
|
Fixed maturities, available-for-sale
|
|
203
|
|
|
2
|
|
|
205
|
|
|||
Salus preferred equity (a)
|
|
Equity securities, available-for-sale
|
|
3
|
|
|
—
|
|
|
3
|
|
|||
Salus participations (b)
|
|
Other invested assets
|
|
173
|
|
|
1
|
|
|
174
|
|
|||
Energy & Infrastructure Capital ("EIC") participations
|
|
Other Invested Assets
|
|
9
|
|
|
—
|
|
|
9
|
|
|||
Foreign exchange derivatives and embedded derivatives
|
|
Other invested assets
|
|
12
|
|
|
—
|
|
|
12
|
|
|||
HGI energy loan (c)
|
|
Related party loans
|
|
70
|
|
|
—
|
|
|
70
|
|
|||
Salus 2012 participations
|
|
Related party loans
|
|
4
|
|
|
—
|
|
|
4
|
|
|||
Salus promissory note
|
|
Related party loans
|
|
3
|
|
|
—
|
|
|
3
|
|
|
|
|
|
September 30, 2014
|
||||||||||
Type
|
|
Balance Sheet Classification
|
|
Asset carrying value
|
|
Accrued Investment Income
|
|
Total carrying value
|
||||||
Salus CLOs
|
|
Fixed maturities, available-for-sale
|
|
$
|
239
|
|
|
$
|
1
|
|
|
$
|
240
|
|
Fortress Investment Group CLOs
|
|
Fixed maturities, available-for-sale
|
|
195
|
|
|
2
|
|
|
197
|
|
|||
Salus preferred equity(a)
|
|
Equity securities, available-for-sale
|
|
34
|
|
|
—
|
|
|
34
|
|
|||
Salus participations
|
|
Other invested assets
|
|
213
|
|
|
2
|
|
|
215
|
|
|||
Foreign exchange embedded derivative
|
|
Other invested assets
|
|
2
|
|
|
—
|
|
|
2
|
|
|||
HGI energy loan (b)
|
|
Related party loans
|
|
70
|
|
|
2
|
|
|
72
|
|
|||
Salus 2012 participations
|
|
Related party loans
|
|
11
|
|
|
—
|
|
|
11
|
|
|||
Salus promissory note
|
|
Related party loans
|
|
20
|
|
|
—
|
|
|
20
|
|
|||
Salus revolver
|
|
Related party loans
|
|
10
|
|
|
—
|
|
|
10
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
|
|
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
Type
|
|
Investment Income Classification
|
|
Net investment income
|
|
Net investment income
|
|
Net investment income
|
|
Net investment income
|
||||||||
Salus CLOs
|
|
Fixed maturities
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Fortress Investment Group CLOs
|
|
Fixed maturities
|
|
2
|
|
|
1
|
|
|
6
|
|
|
1
|
|
||||
Leucadia National Corporation
|
|
Fixed Maturities
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Jefferies Group Inc.
|
|
Fixed Maturities
|
|
—
|
|
|
1
|
|
|
—
|
|
|
3
|
|
||||
Salus participations
|
|
Other invested assets
|
|
4
|
|
|
4
|
|
|
12
|
|
|
14
|
|
||||
HGI energy loan
|
|
Related party loans
|
|
2
|
|
|
1
|
|
|
4
|
|
|
3
|
|
||||
Salus 2012 participations
|
|
Related party loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||
Salus promissory note
|
|
Related party loans
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
||||||||
Net income attributable to common shares - basic
|
$
|
86
|
|
|
$
|
57
|
|
|
$
|
88
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average common shares outstanding - basic
|
58,058
|
|
|
58,271
|
|
|
58,126
|
|
|
55,195
|
|
||||
Dilutive effect of unvested restricted stock & PRSU
|
143
|
|
|
167
|
|
|
168
|
|
|
113
|
|
||||
Dilutive effect of stock options
|
40
|
|
|
37
|
|
|
33
|
|
|
22
|
|
||||
Weighted-average shares outstanding - diluted
|
58,241
|
|
|
58,475
|
|
|
58,327
|
|
|
55,330
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net income per common share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
1.48
|
|
|
$
|
0.97
|
|
|
$
|
1.51
|
|
|
$
|
2.25
|
|
Diluted
|
$
|
1.48
|
|
|
$
|
0.97
|
|
|
$
|
1.51
|
|
|
$
|
2.24
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
the accuracy of management’s assumptions and estimates;
|
•
|
the accuracy of our assumptions regarding the fair value and future performance of our investments;
|
•
|
our and our insurance subsidiaries’ ability to maintain or improve financial strength ratings;
|
•
|
our and our insurance subsidiaries’ potential need for additional capital to maintain our and their financial strength and credit ratings and meet other requirements and obligations;
|
•
|
Our process to review strategic alternatives;
|
•
|
our ability to manage our business in a highly regulated industry, which is subject to numerous legal restrictions and regulations;
|
•
|
regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) underwriting of insurance products and regulation of the sale, underwriting and pricing of products and minimum capitalization and statutory reserve requirements for insurance companies, or the ability of our insurance subsidiaries to make cash distributions to us (including dividends or payments on surplus notes those subsidiaries issue to us);
|
•
|
the impact of our reinsurers failing to meet or timely meet their assumed obligations, increasing their rates, or becoming subject to adverse developments that could materially adversely impact their ability to provide reinsurance to us at consistent and economical terms;
|
•
|
restrictions on our ability to use captive reinsurers;
|
•
|
being forced to sell investments at a loss to cover policyholder withdrawals;
|
•
|
the impact of interest rate fluctuations;
|
•
|
the availability of credit or other financings and the impact of equity and credit market volatility and disruptions on both our ability to obtain capital and the value and liquidity of our investments;
|
•
|
changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products;
|
•
|
increases in our valuation allowance against our deferred tax assets, and restrictions on our ability to fully utilize such assets;
|
•
|
being the target or subject of, and our ability to defend ourselves against or respond to, litigation (including class action litigation), enforcement investigations or regulatory scrutiny;
|
•
|
the performance of third parties including distributors, underwriters, actuarial consultants and other service providers;
|
•
|
the loss of key personnel;
|
•
|
interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems;
|
•
|
the continued availability of capital required for our insurance subsidiaries to grow;
|
•
|
the impact on our business of new accounting rules or changes to existing accounting rules;
|
•
|
our risk management policies and procedures could leave us exposed to unidentified or unanticipated risk;
|
•
|
general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance which may affect (among other things) our ability to sell our products and the fair value of our investments, which could result in impairments and other than temporary impairments ("OTTI") and certain liabilities, and the lapse rate and profitability of policies;
|
•
|
our ability to protect our intellectual property;
|
•
|
difficulties arising from outsourcing relationships;
|
•
|
the impact on our business of man-made catastrophes, pandemics, and malicious and terrorist acts;
|
•
|
our ability to compete in a highly competitive industry and maintain competitive unit costs;
|
•
|
adverse consequences if the independent contractor status of our independent insurance marketing organizations (“IMOs”) is successfully challenged;
|
•
|
our ability to attract and retain national marketing organizations and independent agents;
|
•
|
adverse tax consequences if we generate passive income in excess of operating expenses;
|
•
|
significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities;
|
•
|
the inability of our subsidiaries and affiliates to generate sufficient cash to service all of their obligations;
|
•
|
our subsidiaries’ ability to pay dividends to us;
|
•
|
the ability to maintain or obtain approval of the Iowa Insurance Division ("IID") and other regulatory authorities as required for our operations and those of our insurance subsidiaries; and
|
•
|
the other factors discussed in “Risk Factors”, of our 2014 Form 10-K.
|
|
|
Annuity Sales
|
|
IUL Sales
|
||||||||||||
(in millions)
|
|
Fiscal 2015
|
|
Fiscal 2014
|
|
Fiscal 2015
|
|
Fiscal 2014
|
||||||||
First fiscal quarter
|
|
$
|
903
|
|
|
$
|
540
|
|
|
$
|
7
|
|
|
$
|
5
|
|
Second fiscal quarter
|
|
610
|
|
|
728
|
|
|
7
|
|
|
5
|
|
||||
Third fiscal quarter
|
|
519
|
|
|
392
|
|
|
10
|
|
|
6
|
|
||||
Total
|
|
$
|
2,032
|
|
|
$
|
1,660
|
|
|
$
|
24
|
|
|
$
|
16
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Premiums
|
$
|
17
|
|
|
$
|
13
|
|
|
$
|
4
|
|
|
$
|
43
|
|
|
$
|
41
|
|
|
$
|
2
|
|
Net investment income
|
212
|
|
|
191
|
|
|
21
|
|
|
628
|
|
|
559
|
|
|
69
|
|
||||||
Net investment gains
|
74
|
|
|
145
|
|
|
(71
|
)
|
|
75
|
|
|
267
|
|
|
(192
|
)
|
||||||
Insurance and investment product fees and other
|
23
|
|
|
19
|
|
|
4
|
|
|
65
|
|
|
51
|
|
|
14
|
|
||||||
Total revenues
|
326
|
|
|
368
|
|
|
(42
|
)
|
|
811
|
|
|
918
|
|
|
(107
|
)
|
||||||
Benefits and other changes in policy reserves
|
78
|
|
|
242
|
|
|
(164
|
)
|
|
474
|
|
|
638
|
|
|
(164
|
)
|
||||||
Acquisition and operating expenses, net of deferrals
|
26
|
|
|
23
|
|
|
3
|
|
|
83
|
|
|
81
|
|
|
2
|
|
||||||
Amortization of intangibles
|
88
|
|
|
15
|
|
|
73
|
|
|
97
|
|
|
49
|
|
|
48
|
|
||||||
Total benefits and expenses
|
192
|
|
|
280
|
|
|
(88
|
)
|
|
654
|
|
|
768
|
|
|
(114
|
)
|
||||||
Operating income
|
134
|
|
|
88
|
|
|
46
|
|
|
157
|
|
|
150
|
|
|
7
|
|
||||||
Interest expense
|
(6
|
)
|
|
(6
|
)
|
|
—
|
|
|
(18
|
)
|
|
(17
|
)
|
|
(1
|
)
|
||||||
Income before income taxes
|
128
|
|
|
82
|
|
|
46
|
|
|
139
|
|
|
133
|
|
|
6
|
|
||||||
Income tax expense
|
42
|
|
|
25
|
|
|
17
|
|
|
51
|
|
|
9
|
|
|
42
|
|
||||||
Net income
|
$
|
86
|
|
|
$
|
57
|
|
|
$
|
29
|
|
|
$
|
88
|
|
|
$
|
124
|
|
|
$
|
(36
|
)
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
Fixed maturity available-for-sale securities
|
$
|
199
|
|
|
$
|
182
|
|
|
$
|
17
|
|
|
$
|
589
|
|
|
$
|
532
|
|
|
$
|
57
|
|
Equity available-for-sale securities
|
8
|
|
|
7
|
|
|
1
|
|
|
26
|
|
|
16
|
|
|
10
|
|
||||||
Related party loans, invested cash, short-term investments, and other investments
|
10
|
|
|
7
|
|
|
3
|
|
|
28
|
|
|
23
|
|
|
5
|
|
||||||
Gross investment income
|
217
|
|
|
196
|
|
|
21
|
|
|
643
|
|
|
571
|
|
|
72
|
|
||||||
Investment expense
|
(5
|
)
|
|
(5
|
)
|
|
—
|
|
|
(15
|
)
|
|
(12
|
)
|
|
(3
|
)
|
||||||
Net investment income
|
$
|
212
|
|
|
$
|
191
|
|
|
$
|
21
|
|
|
$
|
628
|
|
|
$
|
559
|
|
|
$
|
69
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
Yield on AAUM (at amortized cost)
|
4.73
|
%
|
|
4.62
|
%
|
|
0.11
|
%
|
|
4.76
|
%
|
|
4.60
|
%
|
|
0.16
|
%
|
||||||
Less: Interest credited and option cost
|
(2.79
|
)%
|
|
(2.88
|
)%
|
|
0.09
|
%
|
|
(2.86
|
)%
|
|
(2.94
|
)%
|
|
0.08
|
%
|
||||||
Net investment spread
|
1.94
|
%
|
|
1.74
|
%
|
|
0.20
|
%
|
|
1.90
|
%
|
|
1.66
|
%
|
|
0.24
|
%
|
||||||
AAUM
|
$
|
17,915
|
|
|
$
|
16,546
|
|
|
$
|
1,369
|
|
|
$
|
17,600
|
|
|
$
|
16,206
|
|
|
$
|
1,394
|
|
•
|
The
increase
in net investment income of
$21
, or
11%
, from the
Fiscal 2014 Quarter
to the
Fiscal 2015 Quarter
was primarily due to higher investment income on fixed maturity and equity available-for-sale securities driven by higher overall portfolio yields from repositioning activities completed over the past year and higher AAUM quarter over quarter -
Fiscal 2015 Quarter
AAUM and earned yield of
$18 billion
and
4.73%
compared to
Fiscal 2014 Quarter
AAUM and earned yield of
$17 billion
and
4.62%
, respectively.
|
•
|
The
increase
in net investment income of
$69
, or
12%
, from the
Fiscal 2014 Nine Months
to the
Fiscal 2015 Nine Months
was primarily due to higher investment income on fixed maturity and equity available-for-sale securities driven by higher overall portfolio yields from repositioning activities completed over the past year and higher AAUM period over period -
Fiscal 2015 Nine Months
AAUM and earned yield of
$18 billion
and
4.76%
compared to
Fiscal 2014 Nine Months
AAUM and earned yield of
$16 billion
and
4.60%
, respectively.
|
•
|
The
increase
in AAUM of
$1 billion
or
8%
from the
Fiscal 2014 Quarter
to the
Fiscal 2015 Quarter
and
$1 billion
or
9%
from the
Fiscal 2014 Nine Months
to the
Fiscal 2015 Nine Months
was driven by sales growth during the quarter and stable retention trends.
|
|
Fiscal 2015
|
|
Fiscal 2014
|
||||
First fiscal quarter
|
$
|
556
|
|
|
$
|
759
|
|
Second fiscal quarter
|
849
|
|
|
702
|
|
||
Third fiscal quarter
|
654
|
|
|
818
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
Net realized gains on available-for-sale securities
|
$
|
48
|
|
|
$
|
73
|
|
|
$
|
(25
|
)
|
|
$
|
24
|
|
|
$
|
92
|
|
|
$
|
(68
|
)
|
Realized and unrealized (losses) gains on certain derivative instruments
|
(7
|
)
|
|
94
|
|
|
(101
|
)
|
|
28
|
|
|
230
|
|
|
(202
|
)
|
||||||
Change in fair value of reinsurance related embedded derivative
|
36
|
|
|
(21
|
)
|
|
57
|
|
|
52
|
|
|
(54
|
)
|
|
106
|
|
||||||
Realized (losses) on fair value of other derivatives, embedded derivatives and other invested assets
|
(3
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(29
|
)
|
|
(1
|
)
|
|
(28
|
)
|
||||||
Net investment gains
|
$
|
74
|
|
|
$
|
145
|
|
|
$
|
(71
|
)
|
|
$
|
75
|
|
|
$
|
267
|
|
|
$
|
(192
|
)
|
•
|
The quarter over quarter decrease in net investment gains was primarily due to the Company's Tax Planning Strategy adopted during 2014. This strategy resulted in portfolio repositioning sales and in the
Fiscal 2014 Quarter
to trigger net unrealized built-in gains ("NUBIG") to allow utilization of capital loss carryforwards. The current quarter included approximately
$49
in realized gains related to the tax planning strategy initiated in 2014.
|
•
|
Unrealized gains on certain derivative instruments and realized gains on certain derivative instruments decreased
$101
. See table below for primary drivers of these decreases.
|
•
|
Partially offsetting the quarter over quarter decrease in net investment gains was a period over period increase in the fair value of reinsurance related embedded derivative. Specifically, the reinsurance related embedded derivative increased
$36
in the Fiscal 2015 Quarter due to a decrease in the unrealized gain position of the FSRCI funds withheld ("FWH") portfolio as a result of an increase in treasury rates during the quarter. Comparatively, the reinsurance related embedded derivative decreased
$21
in the Fiscal 2014 Quarter due to an increase in the unrealized gain position of FSRCI FWH portfolio as a result of a decrease in treasury rates.
|
•
|
The decrease in net investment gains of
$192
from the
Fiscal 2014 Nine Months
to the
Fiscal 2015 Nine Months
was primarily due to a decline in realized and unrealized gains on certain derivative instruments. See table below for primary drivers of decreases. Additionally, the decrease is also due to credit impairment losses of
$59
during the second fiscal quarter on available-for-sale debt securities, available-for-sale equity securities and other invested assets related to direct and indirect investments in RadioShack Corporation ("RSH"), which filed for bankruptcy in February 2015. Refer to impairment disclosures in "Note 4. Investments" to our unaudited
Condensed Consolidated Financial Statements
for additional details.
|
•
|
Partially offsetting the year over year decrease in net investment gains was a
$106
period over period increase in fair value of reinsurance related embedded derivative. Specifically, the reinsurance related embedded derivative increased
$52
during the
Fiscal 2015 Nine Months
resulting from a decrease in the unrealized gain position of the FSRCI FWH portfolio primarily due to an increase in treasury rates during the period as well as credit spread widening of securities rated BBB and below in the first quarter of 2015. Comparatively, the reinsurance related embedded derivative decreased
$54
in the
Fiscal 2014 Nine Months
due to a decrease in treasury rates during the period and corresponding increase in the FSRCI FWH portfolio.
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
Call options:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Gain on option expiration
|
$
|
35
|
|
|
$
|
46
|
|
|
$
|
(11
|
)
|
|
$
|
113
|
|
|
$
|
136
|
|
|
$
|
(23
|
)
|
Change in unrealized (loss) gain
|
(42
|
)
|
|
37
|
|
|
(79
|
)
|
|
(89
|
)
|
|
69
|
|
|
(158
|
)
|
||||||
Futures contracts:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Gain on futures contracts expiration
|
2
|
|
|
11
|
|
|
(9
|
)
|
|
5
|
|
|
21
|
|
|
(16
|
)
|
||||||
Change in unrealized (loss) gain
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
4
|
|
|
(5
|
)
|
||||||
Total
|
$
|
(7
|
)
|
|
$
|
94
|
|
|
$
|
(101
|
)
|
|
$
|
28
|
|
|
$
|
230
|
|
|
$
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Change in S&P 500 Index during the period
|
—
|
%
|
|
5
|
%
|
|
(5
|
)%
|
|
5
|
%
|
|
17
|
%
|
|
(12
|
)%
|
•
|
The
$79
quarter over quarter
decrease
in unrealized on certain derivative instruments was primarily driven by the performance of the indices upon which the call options and futures contracts are based as well as the timing of option purchases and expirations. We utilize a combination of static (call options) and dynamic (long futures contracts) instruments in our hedging strategy. A substantial portion of the call options and futures contracts are based upon the Standard & Poor's 500 Stock Index ("S&P 500 Index") with the remainder based upon other equity and bond market indices. The S&P 500 Index increased
0%
and
5%
during the
Fiscal 2015 Quarter
and the
Fiscal 2014 Quarter
, respectively (the percentages noted are a fiscal period over period comparison of the growth of the S&P 500 Index only and do not reflect the change for each option buy date).
|
•
|
The year over year
decrease
in certain derivative instruments was primarily due to a decline in unrealized on certain derivative instruments. The S&P 500 Index increased
5%
and
17%
during the
Fiscal 2015 Nine Months
and the
Fiscal 2014 Nine Months
, respectively (the percentages noted are a fiscal period over period comparison of the growth of the S&P 500 Index only and do not reflect the change for each option buy date).
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||
Average Crediting Rate
|
4
|
%
|
|
5
|
%
|
|
(1
|
)%
|
|
5
|
%
|
|
6
|
%
|
|
(1
|
)%
|
S&P 500 Index:
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Point-to-point strategy
|
5
|
%
|
|
5
|
%
|
|
—
|
%
|
|
5
|
%
|
|
5
|
%
|
|
—
|
%
|
Monthly average strategy
|
5
|
%
|
|
5
|
%
|
|
—
|
%
|
|
5
|
%
|
|
5
|
%
|
|
—
|
%
|
Monthly point-to-point strategy
|
3
|
%
|
|
5
|
%
|
|
(2
|
)%
|
|
4
|
%
|
|
7
|
%
|
|
(3
|
)%
|
3 year high water mark
|
24
|
%
|
|
21
|
%
|
|
3
|
%
|
|
25
|
%
|
|
21
|
%
|
|
4
|
%
|
•
|
The credits for the
Fiscal 2015 Nine Months
and the
Fiscal 2015 Quarter
were based on comparing the S&P 500 Index on each issue date in these respective periods to the same issue date in the respective prior year periods. The volatility at different points in these periods created lower overall monthly point-to-point credits in the
Fiscal 2015 Nine Months
and the
Fiscal 2015 Quarter
compared to the S&P 500 Index growth for issue dates in the
Fiscal 2014 Nine Months
and the
Fiscal 2014 Quarter
, respectively.
|
•
|
Actual amounts credited to contractholder fund balances may differ from the index appreciation due to contractual features in the FIA contracts (caps, spreads, participation rates and asset fees) which allow the Company to manage the cost of the options purchased to fund the annual index credits.
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
Insurance and investment product fees and other:
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
Surrender charges
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
(1
|
)
|
|
$
|
14
|
|
|
$
|
16
|
|
|
$
|
(2
|
)
|
Cost of insurance fees and other income
|
|
18
|
|
|
13
|
|
|
5
|
|
|
51
|
|
|
35
|
|
|
16
|
|
||||||
Total insurance and investment product fees and other
|
|
$
|
23
|
|
|
$
|
19
|
|
|
$
|
4
|
|
|
$
|
65
|
|
|
$
|
51
|
|
|
$
|
14
|
|
•
|
The quarter over quarter and year over year
increase
was primarily due to an increase in rider fees on FIA policies during the
Fiscal 2015 Quarter
and
Fiscal 2015 Nine Months
, respectively. Specifically, guaranteed minimum withdrawal benefit ("GMWB") rider fees have increased as a result of FIA sales growth over the past year. The cost of insurance ("COI") charges on IUL have also increased due to growth in life sales.
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
FIA market value option liability change
|
|
$
|
(43
|
)
|
|
$
|
50
|
|
|
$
|
(93
|
)
|
|
$
|
(84
|
)
|
|
$
|
98
|
|
|
$
|
(182
|
)
|
FIA present value future credits & guarantee liability change
|
|
(66
|
)
|
|
5
|
|
|
(71
|
)
|
|
7
|
|
|
(16
|
)
|
|
23
|
|
||||||
Index credits, interest credited & bonuses
|
|
146
|
|
|
157
|
|
|
(11
|
)
|
|
428
|
|
|
447
|
|
|
(19
|
)
|
||||||
Annuity Payments
|
|
45
|
|
|
46
|
|
|
(1
|
)
|
|
134
|
|
|
143
|
|
|
(9
|
)
|
||||||
Other policy benefits and reserve movements
|
|
(4
|
)
|
|
(16
|
)
|
|
12
|
|
|
(11
|
)
|
|
(34
|
)
|
|
23
|
|
||||||
Total benefits and other changes in policy reserves
|
|
$
|
78
|
|
|
$
|
242
|
|
|
$
|
(164
|
)
|
|
$
|
474
|
|
|
$
|
638
|
|
|
$
|
(164
|
)
|
•
|
The FIA market value option liability
decreased
$43
during the
Fiscal 2015 Quarter
compared to a
$50
increase
during the
Fiscal 2014 Quarter
and
decreased
$84
during the
Fiscal 2015 Nine Months
compared to a
$98
increase
during the
Fiscal 2014 Nine Months
, respectively. The FIA market value option liability is directly correlated with the change in market value of the derivative assets hedging our FIA policies. Accordingly, the period over period
decrease
of
$93
and
$182
for the
Fiscal 2015 Quarter
and the
Fiscal 2015 Nine Months
, respectively, was primarily due to the equity market movements during these respective quarters (see the net investment gain discussion above for details on the change in market value of our derivative assets quarter over quarter).
|
•
|
The FIA present value of future credits and guarantee liability change
decreased
$66
during the
Fiscal 2015 Quarter
compared to a
$5
increase
during the
Fiscal 2014 Quarter
. The period over period
decrease
of
$71
was primarily driven by an
increase
in longer duration risk free rates during the
Fiscal 2015 Quarter
, which
decreased
reserves by
$64
compared to a
decrease
in rates and corresponding reserve
increase
during the
Fiscal 2014 Quarter
.
|
•
|
The FIA present value of future credits and guarantee liability change
increased
$7
during the
Fiscal 2015 Nine Months
compared to a
$16
decrease
during the
Fiscal 2014 Nine Months
. The period over period
increase
of
$23
was primarily driven by a
decrease
in longer duration risk free rates during the
Fiscal 2015 Nine Months
, which
increased
reserves by
$21
compared to an
decrease
in risk-free rates and corresponding reserve
increase
of
$12
during the
Fiscal 2014 Nine Months
.
|
•
|
The
$23
period over period decrease in Other policy benefits and reserve movements during the
Fiscal 2015 Nine Months
compared to the
Fiscal 2014 Nine Months
was primarily due to favorable mortality experience on life contingent immediate annuity polices in the
Fiscal 2014 Nine Months
which resulted in a
$22
decrease in reserves during that period.
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
Acquisition and operating expenses, net of deferrals:
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
General expenses
|
|
$
|
22
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
77
|
|
|
$
|
79
|
|
|
$
|
(2
|
)
|
Acquisition expenses
|
|
72
|
|
|
51
|
|
|
21
|
|
|
234
|
|
|
158
|
|
|
76
|
|
||||||
Deferred acquisition costs
|
|
(68
|
)
|
|
(50
|
)
|
|
(18
|
)
|
|
(228
|
)
|
|
(156
|
)
|
|
(72
|
)
|
||||||
Total acquisition and operating expenses, net of deferrals
|
|
$
|
26
|
|
|
$
|
23
|
|
|
$
|
3
|
|
|
$
|
83
|
|
|
$
|
81
|
|
|
$
|
2
|
|
•
|
Acquisition and operating expenses, net of deferrals increased quarter over quarter and year over year as a result of higher corporate project spend, employee expenses, excluding stock compensation expense, due to head count growth over the past year and higher underwriting expense due to an increase in sales volume.
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
Amortization of intangibles related to:
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
Unlocking
|
|
$
|
(6
|
)
|
|
$
|
(12
|
)
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
(25
|
)
|
|
$
|
27
|
|
Interest
|
|
(8
|
)
|
|
(7
|
)
|
|
(1
|
)
|
|
(25
|
)
|
|
(21
|
)
|
|
(4
|
)
|
||||||
Amortization
|
|
102
|
|
|
34
|
|
|
68
|
|
|
120
|
|
|
95
|
|
|
25
|
|
||||||
Total amortization of intangibles
|
|
$
|
88
|
|
|
$
|
15
|
|
|
$
|
73
|
|
|
$
|
97
|
|
|
$
|
49
|
|
|
$
|
48
|
|
•
|
Amortization of intangibles is based on historical, current and future expected gross margins (pre-tax operating income before amortization). Accordingly, the period over period
increase
s were primarily due to higher gross margins during the
Fiscal 2015 Quarter
and
Fiscal 2015 Nine Months
. The
increase
in gross margins for the
Fiscal 2015 Quarter
was primarily due to the decrease in the FIA present value of future credits and guarantee liability. The increase in amortization for the
Fiscal 2015 Nine Months
was impacted by a higher amortization rate from changes in product mix and the amortization impact attributable to the volume and product mix of investment gains, and also due to realized gains from a decrease in the reinsurance related embedded derivative liability, as discussed above. The
Fiscal 2014 Nine Months
also benefited from lower amortization due to impact of the FIA reserve on estimated gross profits.
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
|
|
2015
|
|
2014
|
|
Increase (Decrease)
|
|
2015
|
|
2014
|
|
Increase (Decrease)
|
||||||||||||
Income before taxes
|
|
$
|
128
|
|
|
$
|
82
|
|
|
$
|
46
|
|
|
$
|
139
|
|
|
$
|
133
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income tax before VA
|
|
44
|
|
|
28
|
|
|
16
|
|
|
49
|
|
|
47
|
|
|
2
|
|
||||||
Change in valuation allowance
|
|
(2
|
)
|
|
(3
|
)
|
|
1
|
|
|
2
|
|
|
(38
|
)
|
|
40
|
|
||||||
Income tax
|
|
$
|
42
|
|
|
$
|
25
|
|
|
$
|
17
|
|
|
$
|
51
|
|
|
$
|
9
|
|
|
$
|
42
|
|
Effective Rate
|
|
33
|
%
|
|
30
|
%
|
|
|
|
37
|
%
|
|
7
|
%
|
|
|
•
|
Income tax expense for the
Fiscal 2015 Quarter
was
$42
, net of valuation allowance release of
$2
, compared to income tax expense of
$25
for the
Fiscal 2014 Quarter
, net of a valuation allowance release of
$3
. The
increase
in income tax expense of
$17
quarter over quarter was primarily due to an increase in the Fiscal 2015 quarter's pre-tax income of
$46
compared to the Fiscal 2014 quarter.
|
•
|
Income tax expense for the
Fiscal 2015 Nine Months
was
$51
, inclusive of valuation allowance expense of
$2
, compared to an income tax expense of
$9
for the
Fiscal 2014 Nine Months
, net of a valuation allowance release of
$38
. The
increase
in income tax expense of
$42
quarter over quarter was primarily due to a
$38
net valuation allowance release in the
Fiscal 2014 Nine Months
, compared to
$2
net valuation allowance increase in the
Fiscal 2015 Nine Months
.
|
|
|
Fiscal Quarter
|
|
|
|
Fiscal Nine Months
|
|
|
||||||||||||||||
Reconciliation from Net income to AOI:
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||||||||
Net income
|
|
$
|
86
|
|
|
$
|
57
|
|
|
$
|
29
|
|
|
$
|
88
|
|
|
$
|
124
|
|
|
$
|
(36
|
)
|
Adjustments to arrive at AOI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Effect of investment (gains) losses, net of offsets
|
|
(23
|
)
|
|
(40
|
)
|
|
17
|
|
|
—
|
|
|
(50
|
)
|
|
50
|
|
||||||
Effect of change in FIA embedded derivative discount rate, net of offsets
|
|
(21
|
)
|
|
8
|
|
|
(29
|
)
|
|
14
|
|
|
5
|
|
|
9
|
|
||||||
Effect of change in fair value of reinsurance related embedded derivative, net of offsets
|
|
(17
|
)
|
|
10
|
|
|
(27
|
)
|
|
(26
|
)
|
|
28
|
|
|
(54
|
)
|
||||||
Effects of class action litigation reserves, net of offsets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
(2
|
)
|
||||||
AOI
|
|
$
|
25
|
|
|
$
|
35
|
|
|
$
|
(10
|
)
|
|
$
|
75
|
|
|
$
|
108
|
|
|
$
|
(33
|
)
|
•
|
AOI for the
Fiscal 2015 Quarter
was
$25
compared to
$35
for the
Fiscal 2014 Quarter
, a quarter over quarter
decrease
of
$10
. The current quarter results included
$2
of unfavorable mortality experience in the immediate annuity product line and
$2
of expenses related to the ongoing strategic review process and the legacy incentive compensation plan. Results in the prior period reflected a
$6
favorable mortality experience in the immediate annuity product line as well as favorable intangible amortization of
$5
.
|
•
|
AOI for the
Fiscal 2015 Nine Months
was
$75
compared to
$108
for the
Fiscal 2014 Nine Months
, a year over year
decrease
of
$33
. This decrease was primarily due to a
$35
tax benefit from the Company's 2014 tax planning strategy, which reduced a tax valuation allowance previously offsetting the Company's capital loss carry forward position.
|
(dollars in millions)
|
|
June 30, 2015
|
|
September 30, 2014
|
||||||||||
|
|
Carrying Value
|
|
Percent
|
|
Carrying Value
|
|
Percent
|
||||||
|
|
|
|
|
|
|
|
|
||||||
Fixed maturity securities, available-for-sale:
|
|
|
|
|
|
|
|
|||||||
United States Government full faith and credit
|
$
|
597
|
|
|
3
|
%
|
|
$
|
297
|
|
|
2
|
%
|
|
United States Government sponsored entities
|
123
|
|
|
1
|
%
|
|
107
|
|
|
1
|
%
|
|||
United States municipalities, states and territories
|
1,450
|
|
|
8
|
%
|
|
1,260
|
|
|
7
|
%
|
|||
Corporate securities:
|
|
|
|
|
|
|
|
|||||||
Finance, insurance and real estate
|
4,428
|
|
|
23
|
%
|
|
4,743
|
|
|
25
|
%
|
|||
Manufacturing, construction and mining
|
775
|
|
|
4
|
%
|
|
883
|
|
|
5
|
%
|
|||
Utilities and related sectors
|
1,942
|
|
|
10
|
%
|
|
1,922
|
|
|
10
|
%
|
|||
Wholesale/retail trade
|
1,050
|
|
|
5
|
%
|
|
1,088
|
|
|
6
|
%
|
|||
Services, media and other
|
1,340
|
|
|
7
|
%
|
|
1,143
|
|
|
6
|
%
|
|||
Hybrid securities
|
1,241
|
|
|
6
|
%
|
|
1,316
|
|
|
7
|
%
|
|||
Non-agency residential mortgage-backed securities
|
2,053
|
|
|
11
|
%
|
|
2,007
|
|
|
10
|
%
|
|||
Commercial mortgage-backed securities
|
821
|
|
|
4
|
%
|
|
637
|
|
|
3
|
%
|
|||
Asset-backed securities
|
2,145
|
|
|
11
|
%
|
|
2,032
|
|
|
11
|
%
|
|||
Total fixed maturity available-for-sale securities
|
17,965
|
|
|
93
|
%
|
|
17,435
|
|
|
93
|
%
|
|||
Equity securities (a)
|
583
|
|
|
3
|
%
|
|
698
|
|
|
3
|
%
|
|||
Commercial mortgage loans
|
405
|
|
|
2
|
%
|
|
136
|
|
|
1
|
%
|
|||
Other (primarily derivatives and policy loans)
|
438
|
|
|
2
|
%
|
|
533
|
|
|
3
|
%
|
|||
Total investments
|
$
|
19,391
|
|
|
100
|
%
|
|
$
|
18,802
|
|
|
100
|
%
|
(dollars in millions)
|
|
June 30, 2015
|
|
September 30, 2014
|
||||||||||
Rating
|
|
Fair Value
|
|
Percent
|
|
Fair Value
|
|
Percent
|
||||||
AAA
|
|
$
|
2,061
|
|
|
11
|
%
|
|
$
|
1,754
|
|
|
10
|
%
|
AA
|
|
1,833
|
|
|
10
|
%
|
|
1,909
|
|
|
11
|
%
|
||
A
|
|
4,070
|
|
|
23
|
%
|
|
3,873
|
|
|
22
|
%
|
||
BBB
|
|
7,169
|
|
|
40
|
%
|
|
7,042
|
|
|
40
|
%
|
||
BB (a)
|
|
731
|
|
|
4
|
%
|
|
786
|
|
|
5
|
%
|
||
B and below (b)
|
|
2,101
|
|
|
12
|
%
|
|
2,071
|
|
|
12
|
%
|
||
Total
|
|
$
|
17,965
|
|
|
100
|
%
|
|
$
|
17,435
|
|
|
100
|
%
|
(dollars in millions)
|
|
June 30, 2015
|
|
September 30, 2014
|
||||||||||
Rating
|
|
Fair Value
|
|
Percent
|
|
Fair Value
|
|
Percent
|
||||||
AAA
|
|
$
|
103
|
|
|
10
|
%
|
|
$
|
92
|
|
|
9
|
%
|
AA
|
|
64
|
|
|
7
|
%
|
|
93
|
|
|
9
|
%
|
||
A
|
|
83
|
|
|
8
|
%
|
|
95
|
|
|
9
|
%
|
||
BBB
|
|
306
|
|
|
30
|
%
|
|
304
|
|
|
30
|
%
|
||
BB
|
|
165
|
|
|
16
|
%
|
|
86
|
|
|
8
|
%
|
||
B and below
|
|
288
|
|
|
29
|
%
|
|
366
|
|
|
35
|
%
|
||
Total
|
|
$
|
1,009
|
|
|
100
|
%
|
|
$
|
1,036
|
|
|
100
|
%
|
NAIC Designation
|
|
NRSRO Equivalent Rating
|
1
|
|
AAA/AA/A
|
2
|
|
BBB
|
3
|
|
BB
|
4
|
|
B
|
5
|
|
CCC and lower
|
6
|
|
In or near default
|
(dollars in millions)
|
|
June 30, 2015
|
|||||||||
NAIC Designation
|
|
Amortized Cost
|
|
Fair Value
|
|
Percent of Total Fair Value
|
|||||
1
|
|
$
|
10,272
|
|
|
$
|
10,532
|
|
|
59
|
%
|
2
|
|
6,471
|
|
|
6,565
|
|
|
37
|
%
|
||
3
|
|
550
|
|
|
539
|
|
|
3
|
%
|
||
4
|
|
270
|
|
|
261
|
|
|
1
|
%
|
||
5
|
|
67
|
|
|
68
|
|
|
—
|
%
|
||
6
|
|
—
|
|
|
—
|
|
|
—
|
%
|
||
Total
|
|
$
|
17,630
|
|
|
$
|
17,965
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|||||
|
|
September 30, 2014
|
|||||||||
NAIC Designation
|
|
Amortized Cost
|
|
Fair Value
|
|
Percent of Total Fair Value
|
|||||
1
|
|
$
|
9,409
|
|
|
$
|
9,861
|
|
|
56
|
%
|
2
|
|
6,312
|
|
|
6,579
|
|
|
38
|
%
|
||
3
|
|
549
|
|
|
575
|
|
|
3
|
%
|
||
4
|
|
320
|
|
|
319
|
|
|
2
|
%
|
||
5
|
|
102
|
|
|
101
|
|
|
1
|
%
|
||
6
|
|
—
|
|
|
—
|
|
|
—
|
%
|
||
Total
|
|
$
|
16,692
|
|
|
$
|
17,435
|
|
|
100
|
%
|
(dollars in millions)
|
|
June 30, 2015
|
|||||||||
NAIC Designation
|
|
Amortized Cost
|
|
Fair Value
|
|
Percent of Total Fair Value
|
|||||
1
|
|
$
|
363
|
|
|
$
|
360
|
|
|
36
|
%
|
2
|
|
283
|
|
|
264
|
|
|
26
|
%
|
||
3
|
|
155
|
|
|
152
|
|
|
15
|
%
|
||
4
|
|
209
|
|
|
203
|
|
|
20
|
%
|
||
5
|
|
30
|
|
|
30
|
|
|
3
|
%
|
||
6
|
|
—
|
|
|
—
|
|
|
—
|
%
|
||
Total
|
|
$
|
1,040
|
|
|
$
|
1,009
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|||||
|
|
September 30, 2014
|
|||||||||
NAIC Designation
|
|
Amortized Cost
|
|
Fair Value
|
|
Percent of Total Fair Value
|
|||||
1
|
|
$
|
361
|
|
|
$
|
378
|
|
|
36
|
%
|
2
|
|
271
|
|
|
275
|
|
|
27
|
%
|
||
3
|
|
48
|
|
|
48
|
|
|
5
|
%
|
||
4
|
|
255
|
|
|
254
|
|
|
24
|
%
|
||
5
|
|
81
|
|
|
81
|
|
|
8
|
%
|
||
6
|
|
—
|
|
|
—
|
|
|
—
|
%
|
||
Total
|
|
$
|
1,016
|
|
|
$
|
1,036
|
|
|
100
|
%
|
(dollar in millions)
|
|
June 30, 2015
|
|||||
Top 10 Industry Concentration
|
|
Fair Value
|
|
Percent of Total Fair Value
|
|||
Banking
|
|
$
|
1,982
|
|
|
11
|
%
|
ABS Collateralized Loan Obligation ("CLO")
|
|
1,848
|
|
|
10
|
%
|
|
Municipal
|
|
1,533
|
|
|
8
|
%
|
|
Life Insurance
|
|
996
|
|
|
5
|
%
|
|
Whole Loan Collateralized Mortgage Obligation Other
|
|
906
|
|
|
5
|
%
|
|
CMBS
|
|
891
|
|
|
5
|
%
|
|
Electric
|
|
871
|
|
|
5
|
%
|
|
Property and Casualty Insurance
|
|
793
|
|
|
4
|
%
|
|
Other Financial Institutions
|
|
699
|
|
|
4
|
%
|
|
Pipelines
|
|
543
|
|
|
3
|
%
|
|
Total
|
|
$
|
11,062
|
|
|
60
|
%
|
|
|
September 30, 2014
|
|||||
Top 10 Industry Concentration
|
|
Fair Value
|
|
Percent of Total Fair Value
|
|||
Banking
|
|
$
|
2,240
|
|
|
12
|
%
|
ABS Other
|
|
1,996
|
|
|
12
|
%
|
|
Municipal
|
|
1,313
|
|
|
7
|
%
|
|
Life Insurance
|
|
1,087
|
|
|
6
|
%
|
|
Electric
|
|
959
|
|
|
5
|
%
|
|
CMBS
|
|
836
|
|
|
5
|
%
|
|
Property and Casualty Insurance
|
|
832
|
|
|
5
|
%
|
|
Whole Loan Collateralized Mortgage Obligation Other
|
|
807
|
|
|
4
|
%
|
|
Other Financial Institutions
|
|
726
|
|
|
4
|
%
|
|
Pipelines
|
|
561
|
|
|
3
|
%
|
|
Total
|
|
$
|
11,357
|
|
|
63
|
%
|
(in millions)
|
|
June 30, 2015
|
|
September 30, 2014
|
||||||||||||
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
||||||||
Corporate, Non-structured Hybrids, Municipal and U.S. Government securities:
|
|
|
|
|
|
|
|
|
||||||||
Due in one year or less
|
|
$
|
204
|
|
|
$
|
206
|
|
|
$
|
370
|
|
|
$
|
373
|
|
Due after one year through five years
|
|
2,113
|
|
|
2,153
|
|
|
2,298
|
|
|
2,360
|
|
||||
Due after five years through ten years
|
|
2,955
|
|
|
3,015
|
|
|
3,129
|
|
|
3,233
|
|
||||
Due after ten years
|
|
6,607
|
|
|
6,788
|
|
|
5,778
|
|
|
6,213
|
|
||||
Subtotal
|
|
$
|
11,879
|
|
|
$
|
12,162
|
|
|
$
|
11,575
|
|
|
$
|
12,179
|
|
Other securities which provide for periodic payments:
|
|
|
|
|
|
|
|
|
||||||||
Asset-backed securities
|
|
$
|
2,164
|
|
|
$
|
2,145
|
|
|
$
|
2,040
|
|
|
$
|
2,032
|
|
Commercial-mortgage-backed securities
|
|
814
|
|
|
821
|
|
|
618
|
|
|
637
|
|
||||
Structured hybrids
|
|
673
|
|
|
661
|
|
|
474
|
|
|
473
|
|
||||
Residential mortgage-backed securities
|
|
2,100
|
|
|
2,176
|
|
|
1,985
|
|
|
2,114
|
|
||||
Subtotal
|
|
$
|
5,751
|
|
|
$
|
5,803
|
|
|
$
|
5,117
|
|
|
$
|
5,256
|
|
Total fixed maturity available-for-sale securities
|
|
$
|
17,630
|
|
|
$
|
17,965
|
|
|
$
|
16,692
|
|
|
$
|
17,435
|
|
|
|
June 30, 2015
|
|
September 30, 2014
|
||
NAIC Designation:
|
|
|
|
|
||
1
|
|
99
|
%
|
|
98
|
%
|
2
|
|
1
|
%
|
|
1
|
%
|
3
|
|
—
|
%
|
|
1
|
%
|
4
|
|
—
|
%
|
|
—
|
%
|
5
|
|
—
|
%
|
|
—
|
%
|
6
|
|
—
|
%
|
|
—
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
||
NRSRO:
|
|
|
|
|
||
AAA
|
|
3
|
%
|
|
4
|
%
|
AA
|
|
1
|
%
|
|
1
|
%
|
A
|
|
4
|
%
|
|
5
|
%
|
BBB
|
|
1
|
%
|
|
2
|
%
|
BB and below
|
|
91
|
%
|
|
88
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
||
Vintage:
|
|
|
|
|
||
2007
|
|
23
|
%
|
|
24
|
%
|
2006
|
|
41
|
%
|
|
35
|
%
|
2005 and prior
|
|
36
|
%
|
|
41
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
(dollars in millions)
|
|
June 30, 2015
|
|
September 30, 2014
|
||||||||||
Asset Class
|
|
Fair Value
|
|
Percent
|
|
Fair Value
|
|
Percent
|
||||||
ABS CLO
|
|
$
|
1,848
|
|
|
86
|
%
|
|
$
|
1,867
|
|
|
92
|
%
|
ABS Auto
|
|
22
|
|
|
1
|
%
|
|
18
|
|
|
1
|
%
|
||
ABS Home Equity
|
|
—
|
|
|
—
|
%
|
|
3
|
|
|
—
|
%
|
||
ABS Credit Card
|
|
1
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
||
ABS Other
|
|
274
|
|
|
13
|
%
|
|
141
|
|
|
7
|
%
|
||
ABS Utility
|
|
—
|
|
|
—
|
%
|
|
3
|
|
|
—
|
%
|
||
Total ABS
|
|
$
|
2,145
|
|
|
100
|
%
|
|
$
|
2,032
|
|
|
100
|
%
|
(dollars in millions)
|
June 30, 2015
|
|||||||||||||
|
Number of securities
|
|
Amortized Cost
|
|
Unrealized Losses
|
|
Fair Value
|
|||||||
Fixed maturity securities, available-for-sale:
|
|
|
|
|
|
|
|
|||||||
United States Government full faith and credit
|
3
|
|
|
$
|
409
|
|
|
$
|
—
|
|
|
$
|
409
|
|
United States Government sponsored agencies
|
20
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|||
United States municipalities, states and territories
|
78
|
|
|
570
|
|
|
(20
|
)
|
|
550
|
|
|||
Corporate securities:
|
|
|
|
|
|
|
|
|||||||
Finance, insurance and real estate
|
148
|
|
|
1,266
|
|
|
(34
|
)
|
|
1,232
|
|
|||
Manufacturing, construction and mining
|
69
|
|
|
502
|
|
|
(40
|
)
|
|
462
|
|
|||
Utilities and related sectors
|
135
|
|
|
878
|
|
|
(41
|
)
|
|
837
|
|
|||
Wholesale/retail trade
|
90
|
|
|
387
|
|
|
(16
|
)
|
|
371
|
|
|||
Services, media and other
|
114
|
|
|
851
|
|
|
(42
|
)
|
|
809
|
|
|||
Hybrid securities
|
41
|
|
|
564
|
|
|
(29
|
)
|
|
535
|
|
|||
Non-agency residential mortgage-backed securities
|
135
|
|
|
742
|
|
|
(25
|
)
|
|
717
|
|
|||
Commercial mortgage-backed securities
|
50
|
|
|
383
|
|
|
(7
|
)
|
|
376
|
|
|||
Asset-backed securities
|
179
|
|
|
1,562
|
|
|
(24
|
)
|
|
1,538
|
|
|||
Total fixed maturity available-for-sale securities
|
1062
|
|
|
8,139
|
|
|
(278
|
)
|
|
7,861
|
|
|||
Equity securities
|
25
|
|
|
159
|
|
|
(4
|
)
|
|
155
|
|
|||
Total
|
1,087
|
|
|
$
|
8,298
|
|
|
$
|
(282
|
)
|
|
$
|
8,016
|
|
|
September 30, 2014
|
|||||||||||||
|
Number of securities
|
|
Amortized Cost
|
|
Unrealized Losses
|
|
Fair Value
|
|||||||
Fixed maturity securities, available-for-sale:
|
|
|
|
|
|
|
|
|||||||
United States Government full faith and credit
|
6
|
|
|
$
|
120
|
|
|
$
|
(1
|
)
|
|
$
|
119
|
|
United States Government sponsored agencies
|
19
|
|
|
26
|
|
|
—
|
|
|
26
|
|
|||
United States municipalities, states and territories
|
41
|
|
|
272
|
|
|
(7
|
)
|
|
265
|
|
|||
Corporate securities:
|
|
|
|
|
|
|
|
|||||||
Finance, insurance and real estate
|
89
|
|
|
676
|
|
|
(14
|
)
|
|
662
|
|
|||
Manufacturing, construction and mining
|
39
|
|
|
353
|
|
|
(14
|
)
|
|
339
|
|
|||
Utilities and related sectors
|
55
|
|
|
386
|
|
|
(9
|
)
|
|
377
|
|
|||
Wholesale/retail trade
|
31
|
|
|
251
|
|
|
(4
|
)
|
|
247
|
|
|||
Services, media and other
|
42
|
|
|
327
|
|
|
(8
|
)
|
|
319
|
|
|||
Hybrid securities
|
41
|
|
|
563
|
|
|
(15
|
)
|
|
548
|
|
|||
Non-agency residential mortgage-backed securities
|
83
|
|
|
462
|
|
|
(11
|
)
|
|
451
|
|
|||
Commercial mortgage-backed securities
|
24
|
|
|
163
|
|
|
(2
|
)
|
|
161
|
|
|||
Asset-backed securities
|
140
|
|
|
1,249
|
|
|
(20
|
)
|
|
1,229
|
|
|||
Total fixed maturity available-for-sale securities
|
610
|
|
|
4,848
|
|
|
(105
|
)
|
|
4,743
|
|
|||
Equity securities
|
25
|
|
|
240
|
|
|
(5
|
)
|
|
235
|
|
|||
Total
|
635
|
|
|
$
|
5,088
|
|
|
$
|
(110
|
)
|
|
$
|
4,978
|
|
(dollars in millions)
|
June 30, 2015
|
|
September 30, 2014
|
||||||||||||||||||||||||||
|
Number of securities
|
|
Amortized Cost
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Number of securities
|
|
Amortized Cost
|
|
Fair Value
|
|
Gross Unrealized Losses
|
||||||||||||||
Investment grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Less than six months
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Six months or more and less than twelve months
|
7
|
|
|
65
|
|
|
49
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Twelve months or greater
|
1
|
|
|
6
|
|
|
4
|
|
|
(1
|
)
|
|
2
|
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
||||||
Total investment grade
|
8
|
|
|
71
|
|
|
53
|
|
|
(18
|
)
|
|
2
|
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Below investment grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Less than six months
|
1
|
|
|
13
|
|
|
10
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Six months or more and less than twelve months
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Twelve months or greater
|
2
|
|
|
5
|
|
|
4
|
|
|
(1
|
)
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total below investment grade
|
3
|
|
|
18
|
|
|
14
|
|
|
(4
|
)
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total
|
11
|
|
|
$
|
89
|
|
|
$
|
67
|
|
|
$
|
(22
|
)
|
|
7
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
|
Fiscal Nine Months
|
|
|
||||||||
Cash provided by (used in):
|
|
2015
|
|
2014
|
|
Increase / (Decrease)
|
||||||
Operating activities
|
|
$
|
107
|
|
|
$
|
175
|
|
|
$
|
(68
|
)
|
Investing activities
|
|
(899
|
)
|
|
(1,220
|
)
|
|
321
|
|
|||
Financing activities
|
|
870
|
|
|
659
|
|
|
211
|
|
|||
Net increase (decrease) in cash and cash equivalents
|
|
$
|
78
|
|
|
$
|
(386
|
)
|
|
$
|
464
|
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
(dollars in millions)
|
|
|
|
|
|||
Duration
|
|
Amortized Cost
|
|
|
% of Total
|
|
|
0-4
|
|
$
|
7,262
|
|
|
41
|
%
|
5-9
|
|
5,740
|
|
|
32
|
%
|
|
10-14
|
|
4,153
|
|
|
23
|
%
|
|
15-20
|
|
620
|
|
|
4
|
%
|
|
Total
|
|
$
|
17,775
|
|
|
100
|
%
|
(dollars in millions)
|
June 30, 2015
|
|
September 30, 2014
|
|||||||||||||||||||||||||||||||
Counterparty
|
|
Credit Rating
(Fitch/Moody's/S&P) (a) |
|
Notional
Amount |
|
Fair Value
|
|
Collateral
|
|
Net Credit Risk
|
|
Notional
Amount |
|
Fair Value
|
|
Collateral
|
|
Net Credit Risk
|
||||||||||||||||
Merrill Lynch
|
|
A/*/A
|
|
$
|
2,438
|
|
|
$
|
59
|
|
|
$
|
15
|
|
|
$
|
44
|
|
|
$
|
2,240
|
|
|
$
|
93
|
|
|
$
|
53
|
|
|
$
|
40
|
|
Deutsche Bank
|
|
A/A3/BBB+
|
|
2,660
|
|
|
72
|
|
|
39
|
|
|
33
|
|
|
2,810
|
|
|
108
|
|
|
72
|
|
|
36
|
|
||||||||
Morgan Stanley
|
|
*/A1/A
|
|
3,747
|
|
|
88
|
|
|
65
|
|
|
23
|
|
|
2,295
|
|
|
85
|
|
|
63
|
|
|
22
|
|
||||||||
Barclay's Bank
|
|
A/A2/A-
|
|
127
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
258
|
|
|
10
|
|
|
—
|
|
|
10
|
|
||||||||
Total
|
|
|
|
$
|
8,972
|
|
|
$
|
220
|
|
|
$
|
119
|
|
|
$
|
101
|
|
|
$
|
7,603
|
|
|
$
|
296
|
|
|
$
|
188
|
|
|
$
|
108
|
|
(in millions)
|
|
|
|
Financial Strength Rating
|
||||
Parent Company/Principal Reinsurers
|
|
Reinsurance Recoverable
|
|
AM Best
|
|
S&P
|
|
Moody's
|
Wilton Reinsurance
|
|
$1,498
|
|
A
|
|
Not Rated
|
|
Not Rated
|
Front Street Re
|
|
1,259
|
|
Not Rated
|
|
Not Rated
|
|
Not Rated
|
Security Life of Denver
|
|
171
|
|
A
|
|
A
|
|
A2
|
Scottish Re
|
|
141
|
|
Not Rated
|
|
Not Rated
|
|
Not Rated
|
London Life
|
|
108
|
|
A
|
|
Not Rated
|
|
Not Rated
|
Item 4.
|
Controls and Procedures
|
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Period
|
|
Total Number of Shares Purchased
|
|
Average Price Paid per Share (including fees)
|
|
Total Number of Shares Purchased as part of Publicly Announced Plans or Programs
|
|
Number of Shares that May Yet Be Purchased Under the Plans or Programs
|
|||||
|
|
|
|
|
|
|
|
|
|||||
April 1, 2015 through April 30, 2015
|
|
14,600
|
|
|
$
|
20.95
|
|
|
14,600
|
|
|
34,397
|
|
May 1, 2015 through May 31, 2015
|
|
34,397
|
|
|
20.92
|
|
|
34,397
|
|
|
—
|
|
|
June 1, 2015 through June 30, 2015
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
48,997
|
|
|
$
|
20.93
|
|
|
48,997
|
|
|
—
|
|
Item 5.
|
Other Information
|
Item 6.
|
Exhibits
|
Exhibit
No.
|
|
Description of Exhibits
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Fidelity & Guaranty Life (incorporated by reference to our Registration Statement on Form S-8, filed on December 13, 2013 (File No. 333-192849)).
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3.2
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Second Amended and Restated Bylaws of Fidelity & Guaranty Life (incorporated by reference to our Current Report on Form 8-K, filed on October 7, 2014 (File No. 001-36227)).
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4.1
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Reference is made to Exhibits 3.1 and 3.2.
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4.2
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Form of Common Stock Certificate (incorporated by reference to our Registration Statement on Form S-1/A, filed on December 3, 2013 (File No. 333-190880)).
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4.3
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Indenture, dated March 27, 2013, among Fidelity & Guaranty Life Holdings, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto and Wells Fargo Bank, National Association, as trustee, relating to the 6.375% Senior Notes due 2021 (incorporated by reference to our Registration Statement on Form S-1/A, filed on October 17, 2013 (File No. 333-190880)).
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4.4
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First Supplemental Indenture, dated March 27, 2013, among Fidelity & Guaranty Life Holdings, Inc., as issuer, the Subsidiary Guarantors from named therein and Wells Fargo Bank, National Association, relating to the 6.375% Senior Notes due 2021 (incorporated by reference to our Registration Statement on Form S-1/A, filed on October 17, 2013 (File No. 333-190880)).
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4.5
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Registration Rights Agreement, dated December 18, 2013, between Fidelity & Guaranty Life, and Harbinger Group, Inc. (incorporated by reference to our Quarterly Report on Form 10-Q, filed on February 7, 2014 (file No. 001-36227)).
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10.1
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Omnibus Amendment to Equity Award Agreements by and among Fidelity & Guaranty Life, Fidelity & Guaranty Life Holdings, Inc., Fidelity & Guaranty Life Business Services, Inc. and Leland C. Launer Jr., dated as of March 31, 2015 (incorporated by reference to our Form 8-K, filed on April 2, 2015 (File No. 001-36227)).
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10.2
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Employment Agreement by and between Fidelity & Guaranty Life Business Services, Inc. and Christopher J. Littlefield, dated as of May 6, 2015 (incorporated by reference to our Form 8-K, filed on May 8, 2015 (File No. 001-36227)).
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10.3 *
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Fidelity & Guaranty Life 2015 Severance Plan, effective as of June 16, 2015.
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10.4 *
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Form of Retention Letter from Fidelity & Guaranty Life to its executive officers, dated July 10, 2015.
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10.5 *
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Form of Indemnification Agreement by and between Fidelity & Guaranty Life and its directors and executive officers, dated as of July 14, 2015.
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31.1 *
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Certification of Chief Executive Officer, pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2 *
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Certification of Chief Financial Officer, pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1 *
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Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2 *
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Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS *
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XBRL Instance Document.
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101.SCH *
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XBRL Taxonomy Extension Schema.
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101.CAL *
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XBRL Taxonomy Extension Calculation Linkbase.
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101.DEF *
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XBRL Taxonomy Definition Linkbase.
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101.LAB *
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XBRL Taxonomy Extension Label Linkbase.
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101.PRE *
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XBRL Taxonomy Extension Presentation Linkbase.
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*
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Filed herewith
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|
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FIDELITY & GUARANTY LIFE (Registrant)
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|
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Dated:
|
August 5, 2015
|
By:
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/s/ Dennis Vigneau
|
|
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Executive Vice President and Chief Financial Officer
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(on behalf of the Registrant and as Principal Financial Officer)
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FIDELITY & GUARANTY LIFE
2015 SEVERANCE PLAN
Effective as of June 16, 2015
Plan Document/Summary Plan Description
|
•
|
Severance Pay and Benefits
. Under the Severance Plan, you may become eligible for severance pay. In addition, if your termination occurs in connection with a Change in Control, you may be eligible for a COBRA subsidy (Section 2).
|
•
|
Contact Information.
For contact information, see Appendix A.
|
•
|
Other Severance Plan Information.
For other important Severance Plan information, including claims procedures and a statement of your rights under ERISA, see Appendix B.
|
•
|
The employee is employed by the Company as a regular full-time or regular part-time employee; and
|
•
|
Either:
|
•
|
The Chief Executive Officer of the Company.
|
•
|
In the Non-Change in Control Context, any employee who has an employment agreement with severance provisions. In the Change in Control Context, any employee who has an employment agreement with severance provisions under which the severance payment is greater than under the Severance Plan.
|
•
|
In a Non-Change of Control Context any employee who has failed to remain in good standing or whose employment is terminated for performance-related reasons.
|
•
|
In the Change in Control Context, any employee who is offered Comparable Employment (as defined below), or who expressly accepts in writing
any
alternative employment (even if not Comparable Employment), with the Company, any of its affiliates, or an acquirer.
|
•
|
Any employee who the Company determines reasonably and in good faith has engaged in conduct that results in or would have resulted in dismissal. Such employee will forfeit all rights under the Severance Plan. Such prohibited conduct includes, but is not limited to, conduct prohibited by the Separation Agreement and General Release (the “
Release Agreement
”) and conduct prohibited during the Notice Period in the Change of Control Context as described below.
|
•
|
Any employee who does not return all material Company property within a reasonable time period requested by the Company.
|
•
|
Any employee who resigns from employment before the termination date designated by the Company.
|
Position
|
Minimum Severance
|
Notice Period
|
Bonus
|
Manager (Gr. 16) and below
|
4 weeks
|
60 days
|
Pro-Rata Target Bonus
|
Directors & AVPs (Gr. 17 - 18)
|
12 weeks
|
60 days
|
Pro-Rata Target Bonus
|
Vice Presidents (VP & VP II)
|
26 weeks
|
60 days
|
Pro-Rata Target Bonus
|
Sr. Vice Presidents & Exec. Vice Presidents
|
52 weeks
|
60 days
|
Pro-Rata Target Bonus plus Annual Target Bonus
|
•
|
If your employment agreement provides greater total payments than the total payments due under the Severance Plan, you will not be eligible for the Severance Plan.
|
•
|
If the Severance Plan provides a greater total payment than the total amount of payments due under your employment agreement, you will receive the payment due under your employment agreement, plus an additional payment under the Severance Plan that is equal to (1) the full payment otherwise due under the Severance Plan, minus (2) the total payment due under your employment agreement.
|
•
|
Examine, without charge, at the plan administrator's office and at other specified locations, such as work sites, all documents governing the plan and a copy of the latest annual report (Form 5500 Series) filed by the plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.
|
•
|
Obtain, upon written request to the plan administrator, copies of documents governing the operation of the plan and copies of the latest annual report (Form 5500 Series) and updated summary plan description. The administrator may make a reasonable charge for the copies.
|
•
|
Receive a summary of the plan's annual financial report. The plan administrator is required by law to furnish each participant with a copy of this summary annual report.
|
•
|
Payment of the Retention Award is contingent upon the consummation of a transaction that results in a Change in Control. If consummation of a Change in Control transaction (the “
Closing Date
”) does not occur on or before December 31, 2016, the Retention Award will expire.
|
•
|
If you remain employed by the Company or one of its subsidiaries or an acquirer through the one year anniversary of the Closing Date (or your employment is terminated by the Company or one of its subsidiaries or an acquirer without Cause or your position is eliminated and you are not offered Comparable Employment before the one year anniversary of the Closing Date), you will receive a Retention Award in the amount of $________, which represents 100% of your base salary as of the date of this letter. This amount is payable on the first regular pay date immediately following the one year anniversary of the Closing Date or, if applicable, the first regular pay date after your employment terminates without Cause or the date you resign following not being offered Comparable Employment.
|
•
|
The Retention Award will not be paid if (a) you voluntarily terminate your employment prior to the one year anniversary of the Closing Date (unless you voluntarily terminate your employment and are eligible for the Change in Control Context severance benefit under Section 2 of the Severance Plan, in which case your Retention Award will be paid on the first regular pay date after your employment terminates) or (b) your employment is terminated by the Company or any of its subsidiaries for Cause.
|
•
|
The Retention Award is offered to you in addition to any other compensation or payments you may be eligible for under plans, contracts or programs of the Company and is subject to all legally required taxes and withholding amounts.
|
•
|
Except as otherwise stated under any employee benefit plan, policy or program, the Retention Award shall not be treated as compensation for purposes of calculating your rights under any such plan, policy or program.
|
(a)
|
If to Indemnitee, to:
[Address]
Facsimile:
Attn: [INDEMNITEE]
|
(b)
|
If to the Company, to:
Fidelity & Guaranty Life
[Address]
Facsimile:
Attention: General Counsel
|
1.
|
I have reviewed this quarterly report Form 10-Q for the quarterly period ended
June 30, 2015
of Fidelity & Guaranty Life;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
[Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ CHRISTOPHER J. LITTLEFIELD
|
|
Christopher J. Littlefield
|
|
Chief Executive Officer
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q for the quarterly period ended
June 30, 2015
of Fidelity & Guaranty Life;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
[Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ DENNIS R. VIGNEAU
|
|
Dennis R. Vigneau
|
|
Executive Vice President and Chief Financial Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ CHRISTOPHER J. LITTLEFIELD
|
|
Christopher J. Littlefield
|
|
Chief Executive Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ DENNIS R. VIGNEAU
|
|
Dennis R. Vigneau
|
|
Executive Vice President and Chief Financial Officer
|
|