Harbinger Group Inc.
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SEC Filings

10-K
HRG GROUP, INC. filed this Form 10-K on 11/23/2016
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Use of Estimates and Assumptions
The Company periodically, and at least annually, reviews the assumptions associated with reserves for policy benefits and product guarantees. With respect to the Reinsurance Agreements with FGL, as part of the assumption review process in Fiscal 2016, changes were made to the surrender rates and earned rates to bring assumptions in line with current and expected future experience; in Fiscal 2015, changes were made to the earned rates and the guaranteed option costs; and in Fiscal 2014, changes were made to the changes were made to the surrender rates, earned rates and future index credits. The assumption changes associated with the Reinsurance Agreements with FGL resulted in an increase in insurance reserves of $1.0 in Fiscal 2016, an increase in insurance reserves of $0.8 in Fiscal 2015, and a decrease in insurance reserves of $0.4 in Fiscal 2014. With respect to the reinsurance agreements with third parties, as part of the assumption review process in Fiscal 2016, changes were made to morbidity and premium rate increases to bring assumptions in line with current and expected future experience; in Fiscal 2015, changes were made to morbidity; and in Fiscal 2014, there were no changes made as part of the assumption review process. The assumption changes associated with the reinsurance agreements with third parties resulted in a decrease in reserves of $1.6 in Fiscal 2016 and an increase in insurance reserves of $12.0 in Fiscal 2015.
Funds Withheld Receivables with FGL - OTTI
The Company’s available-for-sale securities included in the funds withheld portfolio related to the reinsurance agreements with FGL with unrealized losses are reviewed for potential other-than-temporary impairment (“OTTI”). In evaluating whether a decline in value is other-than-temporary, the Company considers several factors including, but not limited to, the following: (1) the extent and the duration of the decline; (2) the reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening); and (3) the financial condition of and near-term prospects of the issuer. The Company also considers the ability and intent to hold the investment for a period of time to allow for a recovery of value.
When assessing the Company’s intent to sell a debt security or if it is more likely than not the Company will be required to sell a debt security before recovery of its cost basis, the Company evaluates facts and circumstances such as, but not limited to, decisions to reposition the Company’s security portfolio, sale of securities to meet cash flow needs and sales of securities to capitalize on favorable pricing and tax planning strategies. In order to determine the amount of the credit loss for a security, the Company calculates the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows the Company expects to recover. The discount rate is the effective interest rate implicit in the underlying security. The effective interest rate is the original purchased yield or the yield at the date the debt security was previously impaired.
The Company analyzes its ability to recover the amortized cost by comparing the net present value of cash flows expected to be collected with the amortized cost of the security. For mortgage-backed and asset-backed securities, cash flow estimates consider the payment terms of the underlying assets backing a particular security, including interest rate and prepayment assumptions, based on data from widely accepted third-party data sources or internal estimates. In addition to interest rate and prepayment assumptions, cash flow estimates also include other assumptions regarding the underlying collateral including default rates and recoveries, which vary based on the asset type and geographic location, as well as the vintage year of the security. For structured securities, the payment priority within the tranche structure is also considered. For all other debt securities, cash flow estimates are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default. If the net present value is less than the amortized cost of the investment, an OTTI is recognized. 
The Company includes the total OTTI recognized in “Net investment gains (losses)” on the face of the accompanying Consolidated Statements of Operations, with an offset for the amount of non-credit impairments recognized in AOCI. The Company discloses the amount of OTTI recognized in AOCI and other disclosures related to OTTI in Note 9Other Assets, and the accompanying Consolidated Statements of Comprehensive Income (Loss).
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in the income in the period that includes the enactment date. The Company has the ability and intent to recover in a tax-free manner assets (or liabilities) with book/tax basis differences for which no deferred taxes have been provided, in accordance with ASC Topic 740, Income Taxes.
The Company recognizes the effect of income tax positions only if those positions are more-likely-than-not to be sustained. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Accrued interest expense and penalties related to uncertain tax positions are recorded inIncome tax expense (benefit)” in the accompanying Consolidated Statements of Operations.
Refer to Note 12, Income Taxes, for further detail.

S-69

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