Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 05/09/2016
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underlying fixed maturity debt securities included in the funds withheld receivables during the Fiscal 2016 Quarter. The favorable change in fair value was due to market conditions with decreasing risk-free rates and tightening credit spreads resulting in generally higher valuations of the fixed maturity debt securities, primarily in the energy, mining and metals sectors. The fair value also increased as a result of new reinsurance treaties entered into during the Fiscal 2015 Six Months.
For the Fiscal 2016 Six Months, Insurance segment revenues increased $34.0 million to a gain of $29.6 million from a loss of $4.4 million for the Fiscal 2015 Six Months. The increase in Insurance segment revenues was primarily driven by the credit impairment losses that were recorded in the Fiscal 2016 Six Months coupled with an increase in the fair value of the underlying fixed maturity debt securities included in the funds withheld receivables during the Fiscal 2016 Six Months due to the factors discussed above.
Benefits and other changes in policy reserves. For the Fiscal 2016 Quarter, benefits and other changes in policy reserves increased $25.2 million, or 163.6%, to $40.6 million from $15.4 million for the Fiscal 2015 Quarter. The increase was primarily due to a decrease in the insurance liability discount rate. As of December 31, 2015, Front Street began discounting the liability cash flows by using the market yields on the underlying assets backing the liabilities less the non-performance spread to reflect uncertainty. In prior periods, the discount rate was based on risk-free rates plus non-performance spreads less a risk margin.
For the Fiscal 2016 Six Months, benefits and other changes in policy reserves decreased $13.6 million, or 32.5%, to $28.2 million from $41.8 million for the Fiscal 2015 Six Months. The decrease was primarily due to an increase in the insurance liability discount rate for the Fiscal 2016 Six Months, as discussed above.
Selling, acquisition, operating and general expenses. Selling, acquisition, operating and general expenses of the Insurance segment decreased to $0.8 million for the Fiscal 2016 Quarter as compared to $2.0 million for the Fiscal 2015 Quarter. Selling, acquisition, operating and general expenses of the Insurance segment decreased to $3.2 million for the Fiscal 2016 Six Months as compared to $4.5 million for the Fiscal 2015 Six Months. The higher expenses in the Fiscal 2015 Quarter and the Fiscal 2015 Six Months were mainly driven by legal and actuarial consulting costs related to new reinsurance treaties. There were no new reinsurance treaties entered into during the Fiscal 2016 Quarter and the Fiscal 2016 Six Months.

Energy Segment
Presented below is a table that summarizes the results of operations of our Energy segment and compares the amount of change between the respective fiscal periods (in millions):
 
Fiscal Quarter
 
Fiscal Six Months
 
2016
 
2015
 
Increase / (Decrease)
 
2016
 
2015
 
Increase / (Decrease)
Oil and natural gas revenues
$
9.5

 
$
26.0

 
$
(16.5
)
 
$
26.3

 
$
60.3

 
$
(34.0
)
Oil and natural gas direct operating costs
9.2

 
23.3

 
(14.1
)
 
26.3

 
43.8

 
(17.5
)
Oil and natural gas operating margin
0.3

 
2.7

 
(2.4
)
 

 
16.5

 
(16.5
)
Selling, acquisition, operating and general expenses
5.8

 
17.4

 
(11.6
)
 
15.6

 
36.2

 
(20.6
)
Impairment of oil and natural gas properties
21.2

 
146.6

 
(125.4
)
 
75.6

 
336.6

 
(261.0
)
Operating loss - Energy segment
$
(26.7
)
 
$
(161.3
)
 
$
134.6

 
$
(91.2
)
 
$
(356.3
)
 
$
265.1

Oil and natural gas production, revenues. Oil and natural gas revenues for the Fiscal 2016 Quarter decreased by $16.5 million, or 63.5%, to $9.5 million compared to $26.0 million for the Fiscal 2015 Quarter. Oil and natural gas revenues for the Fiscal 2016 Six Months decreased $34.0 million, or 56.4%, to $26.3 million compared with $60.3 million for the Fiscal 2015 Six Months. The decreases were primarily due to lower prices of oil, natural gas and natural gas liquids and natural production declines coupled with the effect of the Compass Asset Sale.
Direct operating costs and expenses. The Energy segment’s oil and natural gas direct operating costs and expenses for the Fiscal 2016 Quarter were $9.2 million, a decrease of $14.1 million from $23.3 million for the Fiscal 2015 Quarter. The Energy segment’s oil and natural gas direct operating costs and expenses for the Fiscal 2016 Six Months were $26.3 million, a decrease of $17.5 million from $43.8 million from the Fiscal 2015 Six Months. The decreases were mainly as a result of the Compass Asset Sale.

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