Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 02/05/2016
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with reinsurance contracts in the accompanying Condensed Consolidated Statements of Operations, and are largely offset by an expense for index credits earned on annuity contract holder fund balances.

(7) Fair Value of Financial Instruments
The Company’s consolidated assets and liabilities measured at fair value are summarized according to the hierarchy previously described as follows:
 
December 31, 2015
 
September 30, 2015
 
 
 
 
 
 
 
 
 
(As Adjusted)
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Call options
$

 
$
10.3

 
$

 
$
10.3

 
$

 
$
6.4

 
$

 
$
6.4

Foreign exchange contracts

 
7.6

 

 
7.6

 

 
6.0

 

 
6.0

Commodity contracts

 
1.3

 

 
1.3

 

 
7.9

 

 
7.9

Corporate fixed maturity securities AFS

 

 

 

 

 

 
14.1

 
14.1

Equity securities - trading

 

 

 

 
32.8

 

 

 
32.8

Other invested assets

 

 

 

 

 

 
2.8

 
2.8

Funds withheld receivables
53.9

 
1,535.3

 
74.8

 
1,664.0

 
45.8

 
1,579.9

 
84.4

 
1,710.1

Total financial assets
$
53.9

 
$
1,554.5

 
$
74.8

 
$
1,683.2

 
$
78.6

 
$
1,600.2

 
$
101.3

 
$
1,780.1

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Front Street future policyholder benefit liability
$

 
$

 
$
629.0

 
$
629.0

 
$

 
$

 
$
629.2

 
$
629.2

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in Front Street's assumed FIA business

 

 
139.9

 
139.9

 

 

 
142.3

 
142.3

Commodity contracts

 
5.1

 

 
5.1

 

 
5.6

 

 
5.6

Interest rate contracts

 
1.9

 

 
1.9

 

 
2.6

 

 
2.6

Foreign exchange contracts

 
0.7

 

 
0.7

 

 
1.6

 

 
1.6

Total financial liabilities
$

 
$
7.7

 
$
768.9

 
$
776.6

 
$

 
$
9.8

 
$
771.5

 
$
781.3

Valuation Methodologies
Fixed Maturity Securities, Equity Securities and Other Invested Assets
The Company measures the fair value of its securities based on assumptions used by market participants in pricing the security. The appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity or equity security, and the Company will then consistently apply the valuation methodology to measure the security’s fair value. The Company’s fair value measurement is based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach include a third-party pricing service, independent broker quotations or pricing matrices. The Company uses observable and unobservable inputs in its valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. In addition, market indicators and industry and economic events are monitored and further market data will be acquired when certain thresholds are met. For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources recognized to be market participants. Management believes the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. The Company did not adjust prices received from third parties as of December 31, 2015 and September 30, 2015. However, the Company does analyze the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy.
Funds Withheld Receivables and Future Policyholder Benefits Liability
Front Street elected to apply the fair value option to account for its funds withheld receivables, non-funds withheld assets and future policyholder benefits reserve related to its assumed reinsurance. Front Street measures fair value of the funds withheld receivables based on the fair values of the securities in the underlying funds withheld portfolio held by the cedant. The non-funds

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