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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integration related professional fees and other post business combination related expenses associated with our acquisitions.
Impairments and bad debt expense. For Fiscal 2016, the Consumer Products segment recognized $4.7 million impairment on indefinite life intangible asset due to the reduction in value over certain tradenames in response to changes in management’s strategy. There was no impairment loss on indefinite-lived intangible assets for Fiscal 2015 or 2014.
Amortization of intangibles. For Fiscal 2016, amortization of intangibles increased $6.1 million, or 6.9%, to $93.9 million from $87.8 million for Fiscal 2015. For Fiscal 2015, amortization of intangibles increased $6.1 million, or 7.5%, to $87.8 million from $81.7 million for Fiscal 2014. The increases were as a result of the additional definite lived intangible assets acquired during Fiscal 2015 and 2014.

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
 
Increase / (Decrease)
 
2016
 
2015
 
2014
 
2016 compared to 2015
 
2015 compared to 2014
Insurance segment revenues
$
150.4

 
$
(98.8
)
 
$
144.3

 
$
249.2

 
$
(243.1
)
 
 
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves
153.2

 
(43.5
)
 
92.8

 
196.7

 
(136.3
)
Selling, acquisition, operating and general expenses
9.6

 
13.4

 
11.4

 
(3.8
)
 
2.0

Total Insurance segment operating costs and expenses
162.8

 
(30.1
)
 
104.2

 
192.9

 
(134.3
)
Operating (loss) income - Insurance segment
$
(12.4
)
 
$
(68.7
)
 
$
40.1

 
$
56.3

 
$
(108.8
)
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 Fiscal 2016, Insurance segment revenues increased $249.2 million to $150.4 million from a loss of $98.8 million for Fiscal 2015. 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 Fiscal 2016 and such increase was due to market conditions with decreasing risk-free rates and tightening credit spreads resulting in generally higher valuations of fixed maturity debt securities. In addition, the Insurance segment recognized losses related to credit impairment losses due to intercompany investments of $11.3 million and $73.4 million in Fiscal 2016 and Fiscal 2015, respectively, and asset-based loan participations of $5.1 million that were recorded in Fiscal 2015.
For Fiscal 2015, Insurance segment revenues decreased $243.1 million to a loss of $98.8 million compared to a gain of $144.3 million for Fiscal 2014. Such decrease was primarily driven by a decrease in the fair value of the underlying fixed maturity debt securities included in the funds withheld receivables during Fiscal 2015 due to market conditions with increasing risk-free rates and widening credit spreads resulting in generally lower valuations of fixed maturity debt securities. In addition, the Insurance segment recognized $78.5 million of losses related to credit impairment losses related to intercompany investments and asset-based loan participations that were recorded in Fiscal 2015.
Benefits and other changes in policy reserves. For Fiscal 2016, benefits and other changes in policy reserves increased $196.7 million to an expense of $153.2 million from an income of $43.5 million for Fiscal 2015. The increase was primarily due to a decrease in the insurance liability discount rate. In addition, at December 31, 2015, Front Street began discounting the liability cash flows by using the market yields on the underlying asset 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 Fiscal 2015, benefits and other changes in policy reserves decreased $136.3 million to an income of $43.5 million from an expense of $92.8 million for Fiscal 2014. The decrease was primarily due to the increase in the insurance liability discount rate for Fiscal 2015, as discussed above.
Selling, acquisition, operating and general expenses. Selling, acquisition, operating and general expenses of the Insurance segment decreased to $9.6 million for Fiscal 2016 as compared to $13.4 million for Fiscal 2015 mainly driven by legal and actuarial consulting costs related to new reinsurance treaties in Fiscal 2015. There were no new reinsurance treaties entered into during Fiscal 2016.
Selling, acquisition, operating and general expenses of the Insurance segment increased slightly to $13.4 million for Fiscal 2015 as compared to $11.4 million for Fiscal 2014 primarily due to costs associated with new reinsurance treaties.

90
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