Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 05/05/2017
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based on the priority of inputs to the respective valuation technique. The three-level hierarchy for fair value measurement is defined as follows:
Level 1 — Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date.
Level 2 — Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves.
Level 3 — Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date based on the best information available in the circumstances.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lower level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.
When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more difficult. However, Level 3 fair value investments may include, in addition to the unobservable or Level 3 inputs, observable components, which are components that are actively quoted or can be validated to market-based sources.
The Company’s consolidated assets and liabilities measured at fair value are summarized according to the hierarchy previously described as follows:
 
March 31, 2017
 
September 30, 2016
Assets
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Fixed maturity and equity securities included in funds withheld receivables
$
80.5

 
$
1,413.8

 
$
49.1

 
$
1,543.4

 
$
69.9

 
$
1,387.1

 
$
78.1

 
$
1,535.1

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Call option receivable from FGL included in funds withheld receivables
—

 
13.3

 
—

 
13.3

 
—

 
11.3

 
—

 
11.3

Call options
—

 
10.5

 
—

 
10.5

 
—

 
5.9

 
—

 
5.9

Foreign exchange contracts
—

 
4.6

 
—

 
4.6

 
—

 
5.8

 
—

 
5.8

Commodity contracts
—

 
4.3

 
—

 
4.3

 
—

 
2.9

 
—

 
2.9

Total financial assets
$
80.5

 
$
1,446.5

 
$
49.1

 
$
1,576.1

 
$
69.9

 
$
1,413.0

 
$
78.1

 
$
1,561.0

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Front Street future policyholder benefit liability
$
—

 
$
—

 
$
661.2

 
$
661.2

 
$
—

 
$
—

 
$
631.8

 
$
631.8

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in Front Street's assumed FIA business
—

 
—

 
121.0

 
121.0

 
—

 
—

 
131.2

 
131.2

Commodity contracts
—

 
0.1

 
—

 
0.1

 
—

 
0.1

 
—

 
0.1

Interest rate contracts
—

 
—

 
—

 
—

 
—

 
1.1

 
—

 
1.1

Foreign exchange contracts
—

 
2.1

 
—

 
2.1

 
—

 
2.0

 
—

 
2.0

Total financial liabilities
$
—

 
$
2.2

 
$
782.2

 
$
784.4

 
$
—

 
$
3.2

 
$
763.0

 
$
766.2

Valuation Methodologies
Reinsurance Agreements with FGL
Front Street Cayman has entered into certain reinsurance agreements with FGL on a funds withheld basis. The funds withheld receivables portfolio related to the reinsurance agreements with FGL consists of investments in debt and equity securities that are carried at fair value with unrealized gains and losses included in AOCI, net of associated intangibles “shadow adjustments” and deferred income taxes. The funds withheld receivables portfolio also includes cash, derivatives and accrued income.
The liabilities for contractholder funds for deferred annuities consist of contract account balances that accrue to the benefit of the contractholders, excluding surrender charges and other liabilities. The liabilities for FIA consist of the value of the host contract plus the value of the FIA embedded derivative. The FIA embedded derivative is carried at fair value in the accompanying Condensed Consolidated Balance Sheets with changes in fair value reported in “Benefits and other changes in policy reserves” in the

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