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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At September 30, 2016 and 2015, securities in the funds withheld receivables with FGL in an unrealized loss position were primarily concentrated in investment grade corporate debt instruments.
At September 30, 2016 and 2015, securities with a fair value of $39.6 and $84.4, respectively, had an unrealized loss greater than 20% of amortized cost, which represented less than 5% of the carrying value of all funds withheld receivables.
For Fiscal 2016, 2015 and 2014, the Company recognized other-than-temporary credit impairment losses in operations totaling $7.4, $2.3 and $3.0, respectively, related to funds withheld receivables with an amortized cost of $15.5, $4.8 and $13.1 and a fair value of $8.1, $2.5 and $10.1 at September 30, 2016, 2015 and 2014, respectively.
Details underlying write-downs taken as a result of OTTI that were recognized in “Net (loss) income” and included in “Net investment gains (losses)” were as follows:
 
Fiscal
 
2016
 
2015
 
2014
OTTI recognized in net income:
 
 
 
 
 
Corporates
$
7.4

 
$
2.2

 
$
3.0

Asset/Mortgage-backed securities
—

 
0.1

 
—

Total
$
7.4

 
$
2.3

 
$
3.0

Net Investment Income
The major sources of “Net investment income” in the accompanying Consolidated Statements of Operations were as follows:
 
Fiscal
 
2016
 
2015
 
2014
Fixed maturity securities included in funds withheld receivables with FGL
$
56.0

 
$
58.6

 
$
55.7

Equity securities included in funds withheld receivables with FGL
2.1

 
2.6

 
4.1

Asset-based loans
3.5

 
16.1

 
28.4

Related party loans
4.1

 
7.4

 
6.0

Other investments
5.5

 
7.0

 
2.0

Net investment income
$
71.2

 
$
91.7

 
$
96.2

Net investment gains (losses)
“Net investment gains (losses)” reported in the accompanying Consolidated Statements of Operations were as follows:
 
Fiscal
 
2016
 
2015
 
2014
Net realized (losses) gains on fixed maturity securities included in funds withheld receivables with FGL
$
(4.8
)
 
$
3.4

 
$
(2.5
)
Realized gains (losses) on equity securities included in funds withheld receivables with FGL
3.0

 
(4.9
)
 
14.6

Realized gains (losses) on certain derivative instruments
3.8

 
(7.6
)
 
25.7

Change in fair value of embedded derivatives in funds withheld receivables with FGL (a)
49.4

 
(91.1
)
 
41.6

Realized gains (losses) on funds withheld receivables with third parties and other
45.7

 
(13.8
)
 
9.9

Net investment gains (losses)
$
97.1

 
$
(114.0
)
 
$
89.3

(a) The modified coinsurance arrangement between FGL Insurance and Front Street created an obligation for the parties to settle a payable or receivable at a later date, which resulted in an embedded derivative. This embedded derivative is considered a total return swap with contractual returns that are attributable to the assets and liabilities associated with this reinsurance arrangement. The fair value of the total return swap is based on the change in fair value of the underlying assets held in the funds withheld portfolio. Investment results for the assets that support the coinsurance with funds withheld reinsurance arrangement, including gains and losses from sales, are passed directly to the reinsurer pursuant to contractual terms of the reinsurance arrangement. The reinsurance related embedded derivative is expected to continue to exist after the disposal of FGL and is therefore not eliminated to appropriately reflect the continuing operations and balances held for sale. It is embedded in the funds withheld receivables with a corresponding asset in business held for sale on the Consolidated Balance Sheets and the related gains or losses are reported in net investment gains with corresponding income (loss) from discontinued operations on the Consolidated Statements of Operations.
Concentration of Securities Included in Funds Withheld Receivables
As of September 30, 2016 and 2015, Front Street’s most significant exposure related to the securities underlying the funds withheld receivables was to the financial sector and the energy, mining and metals industries.
As of September 30, 2016 and 2015, the carrying value of the fixed maturity securities in the financial sector was $232.8, or 14.1%, and $269.7, or 15.8%, respectively, of Front Street’s funds withheld receivables. At September 30, 2016 and 2015, the holdings in this sector included investments in 81 and 107 different issuers, respectively, with the top ten investments accounting for 48.0% and 41.0%, respectively, of the total holdings in this sector.

S-83
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