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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issued that might have a material impact on its financial condition, results of operations or liquidity.
Subsequent Events
ASC Topic 855, “Subsequent Events” (“ASC 855”), establishes general standards of accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 requires the Company to evaluate events that occur after the balance sheet date through the date the Company’s financial statements are issued and to determine whether adjustments to or additional disclosures in the financial statements are necessary. The Company has evaluated subsequent events through the date these financial statements were issued. See Note 9, Debt, for additional discussion regarding the 2017 Loan Agreement entered into by the Company’s subsidiary on January 13, 2017, pursuant to which it may borrow up to an aggregate amount of $150.0 (the “2017 Loan”). No other significant events occurred subsequent to December 31, 2016.

(3) Significant Risks and Uncertainties
Use of Estimates and Assumptions
The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used.
Concentration of Securities Included in Funds Withheld Receivables
As of December 31, 2016 and September 30, 2016, 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 December 31, 2016 and September 30, 2016, the carrying value of the fixed maturity securities in the financial sector was $247.0, or 15.4%, and $232.8, or 14.1%, respectively, of Front Street’s funds withheld receivables. At December 31, 2016 and September 30, 2016, the holdings in this sector included investments in 87 and 81 different issuers, respectively, with the top ten investments accounting for 46.4% and 48.0%, respectively, of the total holdings in this sector.
As of December 31, 2016 and September 30, 2016, the carrying value of the fixed maturity securities in the energy, mining and metals industries was $189.7, or 11.8%, and $188.6, or 11.4%, respectively, of Front Street’s funds withheld receivables. At December 31, 2016 and September 30, 2016, the holdings in these industries included investments in 73 and 74 different issuers, respectively, with the top ten investments accounting for 42.8% and 43.4%, respectively, of the total holdings in these industries.
There were no holdings in a single issuer included in the funds withheld receivables that exceeded 10% of the Company’s stockholders’ equity as of December 31, 2016 and September 30, 2016.
Concentrations of Financial and Capital Markets Risk
Through Front Street, the Company is exposed to financial and capital markets risk, including changes in interest rates and credit spreads which can have an adverse effect on the Company’s results of operations, financial condition and liquidity. The Company expects to continue to face challenges and uncertainties that could adversely affect its results of operations and financial condition.
The Company’s exposure to such financial and capital markets risk relates primarily to the market price and cash flow variability associated with changes in interest rates. A rise in interest rates, in the absence of other countervailing changes, will increase the net unrealized loss position of Front Street’s fund withheld receivables and, if long-term interest rates rise dramatically within a six to twelve month time period, certain of the Front Street’s reinsured products may be exposed to disintermediation risk. Disintermediation risk refers to the risk that policyholders may surrender their contracts in a rising interest rate environment, requiring Front Street to liquidate assets in an unrealized loss position. This risk is mitigated to some extent by surrender charge protection provided by the products reinsured by Front Street.
Insurance Counterparty Risk
Through Front Street, the Company is exposed to insurance counterparty risk, which is the potential for Front Street to incur losses due to a reinsurance counterparty becoming distressed or insolvent. This includes run-on-the-bank risk and collection risk. The run-on-the-bank risk is that a client’s in force block incurs substantial surrenders and/or lapses due to credit impairment, reputation damage or other market changes affecting the counterparty. Substantially higher than expected surrenders and/or lapses could result in inadequate in force business to recover cash paid out for acquisition costs. The collection risk for reinsurance counterparties includes their inability to satisfy a reinsurance agreement because the right of offset is disallowed by the receivership court; the reinsurance contract is rejected by the receiver, resulting in a premature termination of the contract; and/or the security supporting the transaction becomes unavailable to Front Street. To date, Front Street has not experienced a material default in connection with reinsurance arrangements, nor has it experienced any material difficulty in collecting claims recoverable from reinsurance

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