Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 02/07/2017
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At December 31, 2016 and September 30, 2016, securities with a fair value of $29.5 and $39.6, 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 the three months ended December 31, 2016 and 2015, the Company recognized other-than-temporary impairment (“OTTI”) losses in operations totaling $1.0 and $1.4, respectively, related to funds withheld receivables with FGL with an amortized cost of $12.0 and $2.5 and a fair value of $11.0 and $1.1 at December 31, 2016 and 2015, respectively.
Details underlying write-downs taken as a result of OTTI that were recognized in “Net income” and included in “Net investment losses” were as follows:
 
Three months ended December 31,
 
2016
 
2015
OTTI recognized in net income:
 
 
 
Corporates
$
1.0

 
$
1.4

Total
$
1.0

 
$
1.4

Net investment income
The major sources of “Net investment income” reported in the accompanying Condensed Consolidated Statements of Operations were as follows:
 
Three months ended December 31,
 
2016
 
2015
Fixed maturity securities included in funds withheld receivables with FGL
$
10.2

 
$
15.5

Equity securities included in funds withheld receivables with FGL
0.2

 
0.6

Asset-based loans
0.3

 
2.0

Other investments
—

 
2.2

Net investment income
$
10.7

 
$
20.3

Net investment losses
The major sources of “Net investment losses” reported in the accompanying Condensed Consolidated Statements of Operations were as follows:
 
Three months ended December 31,
 
2016
 
2015
Net realized (losses) gains on fixed maturity securities included in funds withheld receivables with FGL
$
(2.2
)
 
$
3.3

Realized (losses) gains on equity securities included in funds withheld receivables with FGL
(0.1
)
 
1.8

Realized gains on certain derivative instruments
3.1

 
1.9

Change in fair value of embedded derivatives in funds withheld receivables with FGL
(12.2
)
 
(26.5
)
Realized losses on funds withheld receivables with third parties and other
(22.4
)
 
(12.5
)
Net investment losses
$
(33.8
)
 
$
(32.0
)
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 accompanying Condensed Consolidated Balance Sheets and the related gains or losses are reported in net investment gains (losses) with a corresponding income (loss) from discontinued operations on the accompanying Condensed Consolidated Statements of Operations.


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