Harbinger Group Inc. -SEC Filings

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SEC Filings

10-Q

HRG GROUP, INC. filed this Form 10-Q on 08/09/2016

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for natural gas swaps, (iii) the applicable risk-free rate curve, as described above, and (iv) the implied rate of volatility inherent in the option contracts.

Spectrum Brands’ derivative assets and liabilities are valued on a recurring basis using internal models, which are based on market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities, which are generally based on quoted or observed market prices and classified as Level 2. The fair value of certain derivatives is estimated using pricing models based on contracts with similar terms and risks. Modeling techniques assume market correlation and volatility, such as using prices of one delivery point to calculate the price of the contract’s different delivery point. The nominal value of interest rate transactions is discounted using applicable forward interest rate curves. In addition, by applying a credit reserve which is calculated based on credit default swaps or published default probabilities for the actual and potential asset value, the fair value of Spectrum Brands’ derivative assets reflects the risk that the counterparties to these contracts may default on the obligations. Likewise, by assessing the requirements of a reserve for non-performance which is calculated based on the probability of default by Spectrum Brands, it adjusts its derivative liabilities to reflect the price at which a potential market participant would be willing to assume Spectrum Brands’ liabilities.

The Company has not changed its valuation techniques in measuring the fair value of any derivative assets and liabilities during the quarter.

Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of June 30, 2016 and September 30, 2015 (as adjusted) were as follows:



	Fair Value at						Range (Weighted average)
Assets	June 30, 2016		September 30, 2015		Valuation Technique	Unobservable Input(s)	June 30, 2016	September 30, 2015
Corporate fixed maturity securities AFS	$	—	$	14.1	Broker-quoted	Offered quotes	—%	83%
Other invested assets	—		2.8		Discounted Cash Flow	Probability of collection	—%	50%
						Discount rate	—%	10%
Funds withheld receivables:
Fixed maturity and equity securities AFS	43.7		39.5		Matrix pricing	Quoted prices	78% - 123% (107%)	100% - 122% (112%)
Fixed maturity securities AFS	14.7		19.5		Discounted Cash Flow	Discount rate	6% - 13% (7%)	6% - 12% (8%)
Fixed maturity securities AFS	4.9		6.7		Broker-quoted	Offered quotes	98%	99% - 103% (101%)
Loan participations	2.8		9.7		Market pricing	Offered quotes	81% - 100% (83%)	100%
Policy loans	8.6		9.0		Loan value	Not applicable	100%	100%
Total	$	74.7	$	101.3
Liabilities
Front Street future policyholder benefit liability	$	608.9	$	629.2	Discounted cash flow	Non-performance risk spread	0.36%	0.16% - 0.46%
						Risk margin to reflect uncertainty	0.50%	0.50% - 1.00%
Embedded derivatives in Front Street's assumed FIA business	133.5		142.3		Discounted cash flow	Market value of option	0% - 24% (2%)	0% - 32% (1%)
						SWAP rates	1%	2%
						Mortality multiplier	80%	80%
						Surrender rates	0.50% - 75% (13%)	0.50% - 75% (13%)
						Non-performance risk spread	0.25%	0.25%
Total	$	742.4	$	771.5

The significant unobservable inputs used in the fair value measurement of the Front Street future policyholder benefit liability are non-performance risk spread and risk spread to reflect uncertainty. Significant increases (decreases) in non-performance risk spread and risk margin to reflect uncertainty would result in a lower (higher) fair value measurement.

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