Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 08/09/2016
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Insurance Segment
Presented below is a table that summarizes the results of operations of our Insurance segment and compares the amount of the change between the fiscal periods (in millions):
 
Fiscal Quarter
 
Fiscal Nine Months
 
2016
 
2015
 
Increase / (Decrease)
 
2016
 
2015
 
Increase / (Decrease)
Insurance segment revenues
$
70.2

 
$
(68.0
)
 
$
138.2

 
$
99.8

 
$
(72.4
)
 
$
172.2

 
 
 
 
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves
65.2

 
(41.2
)
 
106.4

 
93.4

 
0.6

 
92.8

Selling, acquisition, operating and general expenses
1.4

 
1.8

 
(0.4
)
 
4.6

 
6.3

 
(1.7
)
Total Insurance segment operating costs and expenses
66.6

 
(39.4
)
 
106.0

 
98.0

 
6.9

 
91.1

 Operating income (loss) - Insurance segment
$
3.6

 
$
(28.6
)
 
$
32.2

 
$
1.8

 
$
(79.3
)
 
$
81.1

For segment reporting purposes, at the inception date of the reinsurance transactions, Front Street elected to apply the fair value option to account for its funds withheld receivables, non-funds withheld assets and future policyholder benefits reserves related to its assumed reinsurance. For consolidated reporting, the results from Front Street’s assumed reinsurance business with FGL is reported on FGL’s historical basis. Upon completion of the FGL Merger, our consolidated results will reflect all reinsurance business on the fair value option.
Insurance segment revenues. For the Fiscal 2016 Quarter, Insurance segment revenues increased $138.2 million to a gain of $70.2 million from a loss of $68.0 million for the Fiscal 2015 Quarter. The increase in Insurance segment revenues was primarily driven by an increase in the fair value of the 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. In addition, the Insurance segment recorded realized losses related to credit impairments from intercompany investments of $32.5 million in the Fiscal 2015 Quarter.
For the Fiscal 2016 Nine Months, Insurance segment revenues increased $172.2 million to a gain of $99.8 million from a loss of $72.4 million for the Fiscal 2015 Nine Months. The increase in Insurance segment revenues was primarily driven by realized losses related to credit impairment losses related to intercompany investments of $74.9 million and asset-based loan participations of $5.1 million that were recorded in the Fiscal 2015 Nine 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 Nine 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 $106.4 million to $65.2 million from an income of $41.2 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 Nine Months, benefits and other changes in policy reserves increased $92.8 million to $93.4 million from $0.6 million for the Fiscal 2015 Nine Months. The increase was primarily due to a decrease in the insurance liability discount rate for the Fiscal 2016 Nine Months, as discussed above.
Selling, acquisition, operating and general expenses. Selling, acquisition, operating and general expenses of the Insurance segment decreased to $1.4 million for the Fiscal 2016 Quarter as compared to $1.8 million for the Fiscal 2015 Quarter. Selling, acquisition, operating and general expenses of the Insurance segment decreased to $4.6 million for the Fiscal 2016 Nine Months as compared to $6.3 million for the Fiscal 2015 Nine Months. The higher expenses in the Fiscal 2015 Quarter and the Fiscal 2015 Nine 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 Nine Months.


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