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Investments | 6 Months Ended
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Apr. 01, 2012
Investments [Abstract] |
Investments | (3) Investments Consumer Products and Other HGI’s short-term investments consist of (1) marketable equity and debt securities classified as trading and carried at fair value with unrealized gains and losses recognized in earnings, including certain securities for which the Company has elected the fair value option under Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments, which would otherwise have been classified as available-for-sale, and (2) U.S. Treasury securities and a certificate of deposit classified as held-to-maturity and carried at amortized cost, which approximates fair value. The Company’s short-term investments are summarized as follows:
|  | April 1, 2012 |  |  | September 30, 2011 |
Trading: |  |  |  |  |  |  |  |
Marketable equity securities |  | $ | 177,113 |  |  | $ | 262,085 |
Marketable debt securities |  |  | 6,625 |  |  |  | 12,665 |
|  |  | 183,738 |  |  |  | 274,750 |
Held-to-maturity: |  |  |  |  |  |  |  |
U.S. Treasury securities |  |  | 34,746 |  |  |  | 75,638 |
Certificate of deposit |  |  | 250 |  |  |  | 250 |
|  |  | 34,996 |  |  |  | 75,888 |
Total short-term investments |  | $ | 218,734 |  |  | $ | 350,638 |
Insurance and Financial Services FGL’s debt and equity securities have been designated as available-for-sale and are carried at fair value with unrealized gains and losses included in AOCI, net of associated VOBA, DAC and deferred income taxes. Investments of FGL and Salus at April 1, 2012 and September 30, 2011 are summarized as follows:
|  | April 1, 2012 |
|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value and Carrying Value |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Asset-backed securities |  | $ | 585,839 |  |  | $ | 4,579 |  |  | $ | (2,659 | ) |  | $ | 587,759 |
Commercial mortgage-backed securities |  |  | 525,105 |  |  |  | 19,270 |  |  |  | (5,154 | ) |  |  | 539,221 |
Corporates |  |  | 10,577,039 |  |  |  | 454,530 |  |  |  | (27,457 | ) |  |  | 11,004,112 |
Equities |  |  | 231,932 |  |  |  | 5,571 |  |  |  | (1,112 | ) |  |  | 236,391 |
Hybrids |  |  | 674,398 |  |  |  | 12,273 |  |  |  | (14,268 | ) |  |  | 672,403 |
Municipals |  |  | 841,132 |  |  |  | 120,971 |  |  |  | (222 | ) |  |  | 961,881 |
Agency residential mortgage-backed securities |  |  | 178,540 |  |  |  | 4,564 |  |  |  | (298 | ) |  |  | 182,806 |
Non-agency residential mortgage-backed securities |  |  | 474,149 |  |  |  | 2,626 |  |  |  | (13,358 | ) |  |  | 463,417 |
U.S. Government |  |  | 86,605 |  |  |  | 8,347 |  |  |  | (11 | ) |  |  | 94,941 |
Total available-for-sale securities |  |  | 14,174,739 |  |  |  | 632,731 |  |  |  | (64,539 | ) |  |  | 14,742,931 |
Derivative investments |  |  | 147,724 |  |  |  | 63,469 |  |  |  | (24,646 | ) |  |  | 186,547 |
Asset-backed loans and other invested assets |  |  | 55,569 |  |  |  | — |  |  |  | — |  |  |  | 55,569 |
Total investments |  | $ | 14,378,032 |  |  | $ | 696,200 |  |  | $ | (89,185 | ) |  | $ | 14,985,047 |
|  | September 30, 2011 |
|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value and Carrying Value |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Asset-backed securities |  | $ | 501,469 |  |  | $ | 1,785 |  |  | $ | (2,770 | ) |  | $ | 500,484 |
Commercial mortgage-backed securities |  |  | 580,313 |  |  |  | 3,427 |  |  |  | (18,163 | ) |  |  | 565,577 |
Corporates |  |  | 11,479,862 |  |  |  | 506,264 |  |  |  | (130,352 | ) |  |  | 11,855,774 |
Equities |  |  | 292,112 |  |  |  | 3,964 |  |  |  | (9,033 | ) |  |  | 287,043 |
Hybrids |  |  | 699,915 |  |  |  | 10,429 |  |  |  | (51,055 | ) |  |  | 659,289 |
Municipals |  |  | 824,562 |  |  |  | 111,929 |  |  |  | (7 | ) |  |  | 936,484 |
Agency residential mortgage-backed securities |  |  | 217,354 |  |  |  | 4,966 |  |  |  | (295 | ) |  |  | 222,025 |
Non-agency residential mortgage-backed securities |  |  | 465,666 |  |  |  | 1,971 |  |  |  | (23,120 | ) |  |  | 444,517 |
U.S. Government |  |  | 175,054 |  |  |  | 8,270 |  |  |  | — |  |  |  | 183,324 |
Total available-for-sale securities |  |  | 15,236,307 |  |  |  | 653,005 |  |  |  | (234,795 | ) |  |  | 15,654,517 |
Derivative investments |  |  | 171,612 |  |  |  | 405 |  |  |  | (119,682 | ) |  |  | 52,335 |
Other invested assets |  |  | 44,279 |  |  |  | — |  |  |  | — |  |  |  | 44,279 |
Total investments |  | $ | 15,452,198 |  |  | $ | 653,410 |  |  | $ | (354,477 | ) |  | $ | 15,751,131 |
Included in AOCI were unrealized gains of $769 and $524 and unrealized losses of $1,880 and $24 related to the non-credit portion of other-than-temporary impairments on non-agency residential-mortgage-backed securities at April 1, 2012 and September 30, 2011, respectively. The amortized cost and fair value of fixed maturity available-for-sale securities by contractual maturities, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.
|  | April 1, 2012 |
|  | Amortized Cost |  |  | Fair Value |
Corporate, Non-structured Hybrids, Municipal and U.S. Government securities: |  |  |  |  |  |  |  |
Due in one year or less |  | $ | 832,022 |  |  | $ | 833,577 |
Due after one year through five years |  |  | 2,575,171 |  |  |  | 2,634,039 |
Due after five years through ten years |  |  | 3,766,969 |  |  |  | 3,943,316 |
Due after ten years |  |  | 4,859,646 |  |  |  | 5,181,065 |
Subtotal |  |  | 12,033,808 |  |  |  | 12,591,997 |
Other securities which provide for periodic payments: |  |  |  |  |  |  |  |
Asset-backed securities |  |  | 585,839 |  |  |  | 587,759 |
Commercial-mortgage-backed securities |  |  | 525,105 |  |  |  | 539,221 |
Structured hybrids |  |  | 145,366 |  |  |  | 141,340 |
Agency residential mortgage-backed securities |  |  | 178,540 |  |  |  | 182,806 |
Non-agency residential mortgage-backed securities |  |  | 474,149 |  |  |  | 463,417 |
Total fixed maturity available-for-sale securities |  | $ | 13,942,807 |  |  | $ | 14,506,540 |
As part of FGL’s ongoing securities monitoring process, FGL evaluates whether securities in an unrealized loss position could potentially be other-than-temporarily impaired. Excluding the non-credit portion of other-than-temporary impairments on non-agency residential-mortgage backed securities above, FGL has concluded that the fair values of the securities presented in the table below were not other-than-temporarily impaired as of April 1, 2012. This conclusion is derived from the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms along with the expectation that they will continue to do so. Also contributing to this conclusion is FGL’s determination that it is more likely than not that FGL will not be required to sell these securities prior to recovery, an assessment of the issuers’ financial condition, and other objective evidence. As it specifically relates to asset-backed securities and commercial mortgage-backed securities, the present value of cash flows expected to be collected is at least the amount of the amortized cost basis of the security and FGL management has the intent to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value. As the amortized cost of all investments was adjusted to fair value as of the FGL Acquisition date, no individual securities have been in a continuous unrealized loss position greater than twelve months. The fair value and gross unrealized losses of available-for-sale securities, aggregated by investment category, were as follows:
|  | April 1, 2012 |
|  | Fair Value |  |  | Gross Unrealized Losses |
Available-for-sale securities |  |  |  |  |  |  |  |
Asset-backed securities |  | $ | 149,232 |  |  | $ | (2,659 | )
Commercial-mortgage-backed securities |  |  | 70,198 |  |  |  | (5,154 | )
Corporates |  |  | 1,394,724 |  |  |  | (27,457 | )
Equities |  |  | 29,751 |  |  |  | (1,112 | )
Hybrids |  |  | 296,946 |  |  |  | (14,268 | )
Municipals |  |  | 16,857 |  |  |  | (222 | )
Agency residential mortgage-backed securities |  |  | 12,399 |  |  |  | (298 | )
Non-agency residential mortgage-backed securities |  |  | 343,401 |  |  |  | (13,358 | )
U.S Government |  |  | 3,697 |  |  |  | (11 | )
Total available-for-sale securities |  | $ | 2,317,205 |  |  | $ | (64,539 | )
Total number of available-for-sale securities in an unrealized loss position |  |  |  |  |  |  | 282 |
|  | September 30, 2011 |
|  | Fair Value |  |  | Gross Unrealized Losses |
Available-for-sale securities |  |  |  |  |  |  |  |
Asset-backed securities |  | $ | 275,135 |  |  | $ | (2,770 | )
Commercial-mortgage-backed securities |  |  | 338,865 |  |  |  | (18,163 | )
Corporates |  |  | 3,081,556 |  |  |  | (130,352 | )
Equities |  |  | 99,772 |  |  |  | (9,033 | )
Hybrids |  |  | 450,376 |  |  |  | (51,055 | )
Municipals |  |  | 1,137 |  |  |  | (7 | )
Agency residential mortgage-backed securities |  |  | 25,820 |  |  |  | (295 | )
Non-agency residential mortgage-backed securities |  |  | 375,349 |  |  |  | (23,120 | )
Total available-for-sale securities |  | $ | 4,648,010 |  |  | $ | (234,795 | )
Total number of available-for-sale securities in an unrealized loss position |  |  |  |  |  |  | 505 |
At April 1, 2012 and September 30, 2011, securities in an unrealized loss position were primarily concentrated in investment grade corporate debt instruments, residential mortgage-backed securities and hybrids. Total unrealized losses were $64,539 and $234,795 at April 1, 2012 and September 30, 2011, respectively. Financial sector-related exposure represents the largest component of the unrealized loss position in the portfolio at April 1, 2012 and September 30, 2011. The improvement in unrealized loss positions in corporate debt instruments from September 30, 2011 to April 1, 2012 was primarily result of a decline in risk aversion by market participants during the period driven by the coordinated efforts of global central banks in late 2011 to provide liquidity to European institutions. The continued rally in risk assets during the March 2012 quarter helped drive further improvement in corporate debt instruments. During the fiscal 2012 six month period, spreads on “A” rated corporate bonds declined by 65 basis points. As capital market and economic conditions have improved, prices on the portfolio’s mortgage-related securities have risen. Similarly, prices on the portfolio’s hybrid and subordinated securities have improved, reflecting the recovery of the more economically sensitive asset classes along with that of the broader market. Elevated risk aversion in capital markets during the most recent period continues to affect prices of commercial mortgage-backed securities and non-agency residential mortgage-backed securities, including the earlier vintage generally investment grade rated securities currently owned. At April 1, 2012 and September 30, 2011, securities with a fair value of $9,844 and $31,320, respectively, were depressed greater than 20% of amortized cost, which represented less than 1% of the carrying values of all investments. The improvement in unrealized loss positions from September 30, 2011 is primarily due to two factors: (1) securities at depressed prices were sold over the past six months, reducing the size of holdings at an unrealized loss position and (2) the decline in fixed income spreads over the past six months, specifically spreads on investment grade bonds, as risk aversion by market participants declined and risk assets rallied, which contributed to an improvement in market values. Based upon FGL’s current evaluation of these securities in accordance with its impairment policy and FGL’s intent to retain these investments for a period of time sufficient to allow for recovery in value, FGL has determined that these securities are not other-than-temporarily impaired. The following table provides a reconciliation of the beginning and ending balances of the credit loss portion of other-than-temporary impairments on fixed maturity securities held by FGL at April 1, 2012, for which a portion of the other-than-temporary impairment was recognized in AOCI:
|  | April 1, 2012 |
|  | Three Months |  |  | Six Months |
Beginning balance |  | $ | 2,132 |  |  | $ | 667 |
Increases attributable to credit losses on securities: |  |  |  |  |  |  |  |
Other-than-temporary impairment was previously recognized |  |  | — |  |  |  | — |
Other-than-temporary impairment was not previously recognized |  |  | 437 |  |  |  | 1,902 |
Balance at April 1, 2012 |  | $ | 2,569 |  |  | $ | 2,569 |
For the three and six months ended April 1, 2012, FGL recognized impairment losses in operations totaling $4,135 and $17,300, respectively, for investments which experienced other-than-temporary impairments and had an amortized cost of $86,937 and a fair value of $68,026 at April 1, 2012. Details underlying write-downs taken as a result of other-than-temporary impairments that were recognized in net income and included in realized gains on investments were as follows:
|  | April 1, 2012 |
|  | Three Months |  |  | Six Months |
Other-than-temporary impairments recognized in net income: |  |  |  |  |  |  |  |
Corporates |  | $ | — |  |  | $ | 696 |
Non-agency residential mortgage-backed securities |  |  | 3,292 |  |  |  | 6,073 |
Hybrids |  |  | — |  |  |  | 9,688 |
Other invested assets |  |  | 843 |  |  |  | 843 |
Total other-than-temporary impairments |  | $ | 4,135 |  |  | $ | 17,300 |
Net Investment Income The major sources of “Net investment income” on the accompanying Condensed Consolidated Statements of Operations were as follows:
|  | April 1, 2012 |
|  | Three Months |  |  | Six Months |
Fixed maturity available-for-sale securities |  | $ | 170,472 |  |  | $ | 357,692 |
Equity available-for-sale securities |  |  | 3,428 |  |  |  | 6,022 |
Policy loans |  |  | 174 |  |  |  | 425 |
Invested cash and short-term investments |  |  | 1,227 |  |  |  | 1,353 |
Other investments |  |  | 851 |  |  |  | 567 |
Gross investment income |  |  | 176,152 |  |  |  | 366,059 |
External investment expense |  |  | (3,181 | ) |  |  | (6,299 | )
Net investment income |  | $ | 172,971 |  |  | $ | 359,760 |
Net Investment Gains (Losses) Details underlying “Net investment gains” reported on the accompanying Condensed Consolidated Statements of Operations were as follows:
|  | April 1, 2012 |
|  | Three Months |  |  | Six Months |
Net realized gain on fixed maturity available-for-sale securities |  | $ | 65,632 |  |  | $ | 134,293 |
Realized gain on equity securities |  |  | 46 |  |  |  | 366 |
Net realized gains on securities |  |  | 65,678 |  |  |  | 134,659 |
Realized gains (losses) on certain derivative instruments |  |  | 9,782 |  |  |  | (5,706 | )
Unrealized gains on certain derivative instruments |  |  | 89,163 |  |  |  | 139,488 |
Change in fair value of derivatives |  |  | 98,945 |  |  |  | 133,782 |
Realized loss on other invested assests |  |  | (1,045 | ) |  |  | (919 | )
Net investment gains |  | $ | 163,578 |  |  | $ | 267,522 |
Additional detail regarding the net investment gains on securities is as follows:
|  | April 1, 2012 |
|  | Three Months |  |  | Six Months |
Total other-than-temporary impairments |  | $ | (4,823 | ) |  | $ | (18,911 | )
Less non-credit portion of other-than-temporary impairments included in other comprehensive income |  |  | (688 | ) |  |  | (1,611 | )
Net other-than-temporary impairments |  |  | (4,135 | ) |  |  | (17,300 | )
Gains on derivative instruments |  |  | 98,945 |  |  |  | 133,782 |
Other realized investment gains |  |  | 68,768 |  |  |  | 151,040 |
Net realized gains on securities |  | $ | 163,578 |  |  | $ | 267,522 |
For the three and six months ended April 1, 2012, principal repayments, calls, tenders and proceeds from the sale of fixed maturity available-for-sale securities, including assets transferred to Wilton Re as discussed in Note 9, totaled $1,416,970 and $3,150,150, gross gains on such sales totaled $70,110 and $162,439 and gross losses totaled $1,186 and $11,689, respectively. Underlying write-downs taken to fixed maturity available-for-sale securities as a result of other-than-temporary impairments that were recognized in earnings and included in net realized gains on available-for-sale securities above were $4,135 and $17,300 for the three and six months ended April 1, 2012, respectively. Cash flows from consolidated investing activities by security classification were as follows:
|  | Six Months Ended |
|  | April 1, 2012 |  |  | April 3, 2011 |
Proceeds from investments sold, matured or repaid: |  |  |  |  |  |  |  |
Available-for-sale |  | $ | 3,059,702 |  |  | $ | — |
Held-to-maturity |  |  | 74,900 |  |  |  | 37,955 |
Trading (acquired for holding) |  |  | 9,211 |  |  |  | — |
Derivatives and other |  |  | 79,339 |  |  |  | — |
|  | $ | 3,223,152 |  |  | $ | 37,955 |
Cost of investments acquired: |  |  |  |  |  |  |  |
Available-for-sale |  | $ | (2,022,000 | ) |  | $ | — |
Held-to-maturity |  |  | (34,008 | ) |  |  | (51,918 | )
Trading |  |  | (70,454 | ) |  |  | — |
Derivatives and other |  |  | (67,863 | ) |  |  | — |
|  | $ | (2,194,325 | ) |  | $ | (51,918 | )
Concentrations of Financial Instruments As of April 1, 2012, FGL’s most significant investment in one industry was FGL’s investment securities in the banking industry with a fair value of $2,112,484 or 14.1% of the invested assets portfolio. FGL’s holdings in this industry includes investments in 130 different issuers with the top ten investments accounting for 35% of the total holdings in this industry. As of April 1, 2012, FGL’s exposure to sub-prime and Alternative-A residential mortgage-backed securities was $243,487 and $36,446 or 1.6% and 0.2% of FGL’s invested assets, respectively.

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- Definition The entire disclosure for cash, cash equivalents, investments in debt and equity instruments (including cost and equity investees and related income statement amounts), equity and cost method investments, investments in joint ventures and any other investment. + References No definition available. + Details
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