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Investments | 12 Months Ended
--- | ---
Sep. 30, 2014
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments The Company’s consolidated investments are summarized as follows:
| September 30, 2014
| Cost or Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value |  | Carrying Value
Fixed-maturity securities, available-for sale |  |  |  |  |  |  |  |  |
Asset-backed securities | $ | 1,800.8 |  |  | $ | 10.9 |  |  | $ | (18.8 | ) |  | $ | 1,792.9 |  |  | $ | 1,792.9 |
Commercial mortgage-backed securities | 617.6 |  |  | 21.3 |  |  | (2.0 | ) |  | 636.9 |  |  | 636.9 |
Corporates | 9,345.5 |  |  | 499.2 |  |  | (48.9 | ) |  | 9,795.8 |  |  | 9,795.8 |
Hybrids | 1,279.1 |  |  | 52.2 |  |  | (15.2 | ) |  | 1,316.1 |  |  | 1,316.1 |
Municipals | 1,149.9 |  |  | 116.2 |  |  | (6.3 | ) |  | 1,259.8 |  |  | 1,259.8 |
Agency residential mortgage-backed securities | 104.3 |  |  | 3.1 |  |  | (0.1 | ) |  | 107.3 |  |  | 107.3 |
Non-agency residential mortgage-backed securities | 1,880.5 |  |  | 137.2 |  |  | (11.0 | ) |  | 2,006.7 |  |  | 2,006.7 |
U.S. Government | 291.0 |  |  | 6.4 |  |  | (1.4 | ) |  | 296.0 |  |  | 296.0 |
Total fixed-maturity securities | 16,468.7 |  |  | 846.5 |  |  | (103.7 | ) |  | 17,211.5 |  |  | 17,211.5 |
Equity securities |  |  |  |  |  |  |  |  |
Available-for-sale | 645.7 |  |  | 23.0 |  |  | (5.1 | ) |  | 663.6 |  |  | 663.6 |
Held for trading | 141.2 |  |  | 8.2 |  |  | (44.9 | ) |  | 104.5 |  |  | 104.5 |
Total equity securities | 786.9 |  |  | 31.2 |  |  | (50.0 | ) |  | 768.1 |  |  | 768.1 |
Derivatives | 177.7 |  |  | 123.3 |  |  | (4.7 | ) |  | 296.3 |  |  | 296.3 |
Asset-based loans | 811.6 |  |  | — |  |  | — |  |  | 811.6 |  |  | 811.6 |
Other invested assets | 164.9 |  |  | 0.1 |  |  | — |  |  | 165.0 |  |  | 165.0 |
Total investments | $ | 18,409.8 |  |  | $ | 1,001.1 |  |  | $ | (158.4 | ) |  | $ | 19,252.5 |  |  | $ | 19,252.5 |
| September 30, 2013
| Cost or Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value |  | Carrying Value
Fixed-maturity securities, available-for-sale |  |  |  |  |  |  |  |  |
Asset-backed securities | $ | 1,505.7 |  |  | $ | 22.6 |  |  | $ | (5.2 | ) |  | $ | 1,523.1 |  |  | $ | 1,523.1 |
Commercial mortgage-backed securities | 431.3 |  |  | 24.7 |  |  | (1.6 | ) |  | 454.4 |  |  | 454.4 |
Corporates | 9,314.7 |  |  | 288.7 |  |  | (185.1 | ) |  | 9,418.3 |  |  | 9,418.3 |
Hybrids | 412.6 |  |  | 19.5 |  |  | (3.3 | ) |  | 428.8 |  |  | 428.8 |
Municipals | 998.8 |  |  | 49.0 |  |  | (40.8 | ) |  | 1,007.0 |  |  | 1,007.0 |
Agency residential mortgage-backed securities | 96.5 |  |  | 2.4 |  |  | (0.3 | ) |  | 98.6 |  |  | 98.6 |
Non-agency residential mortgage-backed securities | 1,304.0 |  |  | 77.4 |  |  | (13.4 | ) |  | 1,368.0 |  |  | 1,368.0 |
U.S. Government | 998.5 |  |  | 7.2 |  |  | (3.9 | ) |  | 1,001.8 |  |  | 1,001.8 |
Total fixed-maturity securities | 15,062.1 |  |  | 491.5 |  |  | (253.6 | ) |  | 15,300.0 |  |  | 15,300.0 |
Equity securities |  |  |  |  |  |  |  |  |
Available-for-sale | 274.6 |  |  | 6.7 |  |  | (10.3 | ) |  | 271.0 |  |  | 271.0 |
Held for trading | 120.1 |  |  | 0.6 |  |  | (39.2 | ) |  | 81.5 |  |  | 81.5 |
Total equity securities | 394.7 |  |  | 7.3 |  |  | (49.5 | ) |  | 352.5 |  |  | 352.5 |
Derivatives | 141.7 |  |  | 88.5 |  |  | (8.4 | ) |  | 221.8 |  |  | 221.8 |
Asset-based loans | 560.4 |  |  | — |  |  | — |  |  | 560.4 |  |  | 560.4 |
Other invested assets | 31.2 |  |  | — |  |  | — |  |  | 31.2 |  |  | 31.2 |
Total investments | $ | 16,190.1 |  |  | $ | 587.3 |  |  | $ | (311.5 | ) |  | $ | 16,465.9 |  |  | $ | 16,465.9 |
Included in AOCI were cumulative unrealized gains of $0.9 and unrealized losses of $1.9 related to the non-credit portion of other-than-temporary impairments on non-agency residential mortgage-backed securities at September 30, 2014 and 2013, respectively. The non-agency residential mortgage-backed securities unrealized gains and losses represent the difference between amortized cost and fair value on securities that were previously impaired. There have been no impairments or write downs on any of the non-agency residential mortgage-backed securities purchased in 2014 and 2013. Securities held on deposit with various state regulatory authorities had a fair value of $15,009.3 and $19.4 at September 30, 2014 and 2013, respectively. The increase in securities held on deposit is due to FGL Insurance’s re-domestication from Maryland to Iowa. Under Iowa regulations, insurance companies are required to hold securities on deposit in an amount no less than the Company’s legal reserve as prescribed by Iowa regulations. Maturities of Fixed-maturity Securities 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.
| September 30, 2014
| Amortized Cost |  | Fair Value
Corporate, Non-structured Hybrids, Municipal and U.S. Government securities: |  |  |
Due in one year or less | $ | 370.0 |  |  | $ | 372.8 |
Due after one year through five years | 2,297.6 |  |  | 2,360.2 |
Due after five years through ten years | 3,128.9 |  |  | 3,232.7 |
Due after ten years | 5,794.5 |  |  | 6,230.0 |
Subtotal | 11,591.0 |  |  | 12,195.7 |
Other securities which provide for periodic payments: |  |  |
Asset-backed securities | 1,800.8 |  |  | 1,792.9 |
Commercial mortgage-backed securities | 617.6 |  |  | 636.9 |
Structured hybrids | 474.5 |  |  | 472.0 |
Agency residential mortgage-backed securities | 104.3 |  |  | 107.3 |
Non-agency residential mortgage-backed securities | 1,880.5 |  |  | 2,006.7 |
Total fixed maturity available-for-sale securities | $ | 16,468.7 |  |  | $ | 17,211.5 |
Securities in an Unrealized Loss Position FGL’s available-for-sale securities with unrealized losses are reviewed for potential other-than-temporary impairments. In evaluating whether a decline in value is other-than-temporary, FGL considers several factors including, but not limited to, the following: (1) the extent and the duration of the decline; (2) the reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening); and (3) the financial condition of and near-term prospects of the issuer. FGL also considers the ability and intent to hold the investment for a period of time to allow for a recovery of value. FGL analyzes its ability to recover the amortized cost by comparing the net present value of cash flows expected to be collected with the amortized cost of the security. For mortgage-backed and asset-backed securities, cash flow estimates consider the payment terms of the underlying assets backing a particular security, including interest rate and prepayment assumptions, based on data from widely accepted third-party data sources or internal estimates. In addition to interest rate and prepayment assumptions, cash flow estimates also include other assumptions regarding the underlying collateral including default rates and recoveries, which vary based on the asset type and geographic location, as well as the vintage year of the security. For structured securities, the payment priority within the tranche structure is also considered. For all other debt securities, cash flow estimates are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default. If the net present value is less than the amortized cost of the investment, an other-than-temporary impairment is recognized. FGL has concluded that the fair values of the securities presented in the table below were not other-than-temporarily impaired as of September 30, 2014. The fair value and gross unrealized losses of available-for-sale securities, aggregated by investment category, were as follows:
| September 30, 2014
| Less than 12 months |  | 12 months or longer |  | Total
| Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |
Asset-backed securities | $ | 825.8 |  |  | $ | (11.8 | ) |  | $ | 288.2 |  |  | $ | (7.0 | ) |  | $ | 1,114.0 |  |  | $ | (18.8 | )
Commercial mortgage-backed securities | 160.3 |  |  | (0.9 | ) |  | 0.4 |  |  | (1.1 | ) |  | 160.7 |  |  | (2.0 | )
Corporates | 816.6 |  |  | (16.3 | ) |  | 1,127.8 |  |  | (32.6 | ) |  | 1,944.4 |  |  | (48.9 | )
Equities | 180.4 |  |  | (2.2 | ) |  | 54.9 |  |  | (2.9 | ) |  | 235.3 |  |  | (5.1 | )
Hybrids | 258.2 |  |  | (2.3 | ) |  | 290.0 |  |  | (12.9 | ) |  | 548.2 |  |  | (15.2 | )
Municipals | — |  |  | — |  |  | 264.9 |  |  | (6.3 | ) |  | 264.9 |  |  | (6.3 | )
Agency residential mortgage-backed securities | 24.1 |  |  | (0.1 | ) |  | 0.6 |  |  | — |  |  | 24.7 |  |  | (0.1 | )
Non-agency residential mortgage-backed securities | 274.4 |  |  | (5.7 | ) |  | 177.0 |  |  | (5.3 | ) |  | 451.4 |  |  | (11.0 | )
U.S. Government | 37.3 |  |  | (0.1 | ) |  | 81.7 |  |  | (1.3 | ) |  | 119.0 |  |  | (1.4 | )
Total available-for-sale securities | $ | 2,577.1 |  |  | $ | (39.4 | ) |  | $ | 2,285.5 |  |  | $ | (69.4 | ) |  | $ | 4,862.6 |  |  | $ | (108.8 | )
Total number of available-for-sale securities in an unrealized loss position |  |  | 319 |  |  |  |  | 310 |  |  |  |  | 629 |
| September 30, 2013
| Less than 12 months |  | 12 months or longer |  | Total
| Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |
Asset-backed securities | $ | 329.3 |  |  | $ | (4.5 | ) |  | $ | 81.5 |  |  | $ | (0.7 | ) |  | $ | 410.8 |  |  | $ | (5.2 | )
Commercial mortgage-backed securities | 26.6 |  |  | (0.5 | ) |  | 4.9 |  |  | (1.1 | ) |  | 31.5 |  |  | (1.6 | )
Corporates | 3,457.2 |  |  | (175.0 | ) |  | 186.0 |  |  | (10.1 | ) |  | 3,643.2 |  |  | (185.1 | )
Equities | 118.6 |  |  | (9.1 | ) |  | 32.2 |  |  | (1.2 | ) |  | 150.8 |  |  | (10.3 | )
Hybrids | 52.0 |  |  | (3.3 | ) |  | — |  |  | — |  |  | 52.0 |  |  | (3.3 | )
Municipals | 333.3 |  |  | (27.3 | ) |  | 144.4 |  |  | (13.5 | ) |  | 477.7 |  |  | (40.8 | )
Agency residential mortgage-backed securities | 9.8 |  |  | (0.1 | ) |  | 1.1 |  |  | (0.2 | ) |  | 10.9 |  |  | (0.3 | )
Non-agency residential mortgage-backed securities | 325.2 |  |  | (12.2 | ) |  | 69.9 |  |  | (1.2 | ) |  | 395.1 |  |  | (13.4 | )
U.S Government | 753.9 |  |  | (3.9 | ) |  | — |  |  | — |  |  | 753.9 |  |  | (3.9 | )
Total available-for-sale securities | $ | 5,405.9 |  |  | $ | (235.9 | ) |  | $ | 520.0 |  |  | $ | (28.0 | ) |  | $ | 5,925.9 |  |  | $ | (263.9 | )
Total number of available-for-sale securities in an unrealized loss position |  |  | 588 |  |  |  |  | 78 |  |  |  |  | 666 |
At September 30, 2014 and 2013, securities in an unrealized loss position were primarily concentrated in investment grade corporate debt instruments. Agency residential mortgage-backed securities had positions with an unrealized loss less than $0.1 as of September 30, 2014. At September 30, 2014 and 2013, securities with a fair value of $0.2 and $60.9, respectively, were depressed greater than 20% of amortized cost (excluding U.S. Government and U.S. Government sponsored agency securities), which represented less than 1% of the carrying values of all investments in both periods. Credit Loss Portion of Other-than-temporary Impairments 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 for Fiscal 2014, 2013 and 2012, for which a portion of the other-than-temporary impairment was recognized in AOCI:
| Fiscal
| 2014 |  | 2013 |  | 2012
Beginning balance | $ | 2.7 |  |  | $ | 2.7 |  |  | $ | 0.7 |
Increases attributable to credit losses on securities: |  |  |  |  |
Other-than-temporary impairment was previously recognized | — |  |  | — |  |  | 0.1 |
Other-than-temporary impairment was not previously recognized | — |  |  | — |  |  | 1.9 |
Ending balance | $ | 2.7 |  |  | $ | 2.7 |  |  | $ | 2.7 |
For Fiscal 2014, FGL recognized impairment losses in operations totaling $0.7, including credit impairments of $0.6, and change-of-intent impairments of $0.1, related to fixed maturity securities and low income housing tax credit securities with an amortized cost of $1.8 and a fair value of $1.1 at September 30, 2014. For Fiscal 2013, FGL recognized impairment losses in operations totaling $2.9, including credit impairments of $0.8, and change-of-intent impairments of $2.2 related to fixed maturity securities, non-agency residential mortgage-backed securities and low income housing tax credit securities with an amortized cost of $9.6 and a fair value of $6.7 at the time of impairment. For Fiscal 2012, FGL recognized impairment losses in operations totaling $22.8, including credit impairments of $5.7 and change-of-intent impairments of $17.1, as well as non-credit losses in other comprehensive income totaling $1.5 for investments which experienced other-than-temporary impairments and had an amortized cost of $162.3 and a fair value of $138.0 at September 30, 2012. Details underlying write-downs taken as a result of other-than-temporary impairments that were recognized in net income and included in net realized gains on securities were as follows:
| Fiscal
| 2014 |  | 2013 |  | 2012
Other-than-temporary impairments recognized in net income: |  |  |  |  |
Corporates | $ | — |  |  | $ | 1.2 |  |  | $ | 4.1 |
Municipals | 0.3 |  |  | — |  |  | — |
Non-agency residential mortgage-backed securities | 0.1 |  |  | 1.2 |  |  | 7.5 |
Hybrids | — |  |  | — |  |  | 9.7 |
Other invested assets | 0.3 |  |  | 0.5 |  |  | 1.5 |
Total other-than-temporary impairments | $ | 0.7 |  |  | $ | 2.9 |  |  | $ | 22.8 |
Asset-based Loans The Company’s portfolio of asset-based loans receivable, originated by Salus and their co-lenders FGL and FSR, included in “Asset-based loans” in the Consolidated Balance Sheets as of September 30, 2014 and 2013, consisted of the following:
| September 30,
| 2014 |  | 2013
Asset-based loans, net of deferred fees, by major industry: |  |  |
Electronics | $ | 245.4 |  |  | $ | — |
Apparel | 191.6 |  |  | 252.9 |
Jewelry | 100.1 |  |  | 125.8 |
Home Furnishings | 71.7 |  |  | — |
Manufacturing | 56.9 |  |  | 34.3 |
Transportation | 44.3 |  |  | 85.7 |
Sporting Goods | 13.9 |  |  | 25.1 |
Other | 94.9 |  |  | 41.8 |
Total asset-based loans | 818.8 |  |  | 565.6 |
Less: Allowance for loan losses | 7.2 |  |  | 5.2 |
Total asset-based loans, net | $ | 811.6 |  |  | $ | 560.4 |
The Company establishes its allowance for credit losses through a provision for credit losses based on Salus’ evaluation of the credit quality of the loan portfolio. The following table presents the activity in its allowance for credit losses for Fiscal 2014, 2013 and 2012:
| Fiscal
| 2014 |  | 2013 |  | 2012
Allowance for credit losses: |  |  |  |  |
Balance at beginning of year | $ | 5.2 |  |  | $ | 1.4 |  |  | $ | — |
Provision for credit losses | 2.0 |  |  | 3.8 |  |  | 1.4 |
Balance at end of year | $ | 7.2 |  |  | $ | 5.2 |  |  | $ | 1.4 |
Credit Quality Indicators Salus monitors credit quality as indicated by various factors and utilizes such information in its evaluation of the adequacy of the allowance for credit losses. As of September 30, 2014 and 2013, Salus had no outstanding loans that either were delinquent, non-performing, in a non-accrual status, or had been subject to a troubled-debt restructuring. As of September 30, 2014 and 2013, there were no impaired loans.
| Internal Risk Rating
| Pass |  | Special Mention |  | Substandard |  | Doubtful |  | Total
September 30, 2014 | $ | 195.3 |  |  | $ | 372.7 |  |  | $ | 250.8 |  |  | $ | — |  |  | $ | 818.8 |
September 30, 2013 | $ | 306.9 |  |  | $ | 36.7 |  |  | $ | 222.0 |  |  | $ | — |  |  | $ | 565.6 |
At September 30, 2014, approximately $250.0 or 30.8% of the Company’s total Asset-based loans, net balance represent a term loan receivable from a national electric retailer. The aforementioned receivable balance is collateralized by various assets including inventory, real estate, receivables, machinery and equipment and intellectual property rights. In addition, the net exposure is $150.0 as there is non-qualifying participation of $100.0 by a third party. The Company believes that this receivable is adequately collateralized. The Company has assessed the adequacy of its allowance for loan assets and believes the level of allowance for credit losses to be adequate to mitigate inherent losses in the portfolio. Net Investment Income The major sources of “Net investment income” in the accompanying Consolidated Statements of Operations were as follows:
| Fiscal
| 2014 |  | 2013 |  | 2012
Fixed maturity available-for-sale securities | $ | 787.4 |  |  | $ | 686.2 |  |  | $ | 707.1 |
Equity available-for-sale securities | 22.8 |  |  | 14.8 |  |  | 14.0 |
Policy loans | 0.7 |  |  | 0.8 |  |  | 0.7 |
Invested cash and short-term investments | 0.3 |  |  | 1.4 |  |  | 4.9 |
Asset-based loans | 41.5 |  |  | 35.4 |  |  | 8.6 |
Other investments | 7.1 |  |  | 12.9 |  |  | (0.9 | )
Gross investment income | 859.8 |  |  | 751.5 |  |  | 734.4 |
External investment expense | (17.6 | ) |  | (16.8 | ) |  | (11.7 | )
Net investment income | $ | 842.2 |  |  | $ | 734.7 |  |  | $ | 722.7 |
Net investment gains “Net investment gains” reported in the accompanying Consolidated Statements of Operations were as follows:
| Fiscal
| 2014 |  | 2013 |  | 2012
Net realized gains before other-than-temporary impairments | $ | 101.9 |  |  | $ | 332.9 |  |  | $ | 287.2 |
Gross other-than-temporary impairments | (0.6 | ) |  | (2.9 | ) |  | (24.3 | )
Non-credit portion of other-than-temporary impairments included in other comprehensive income | — |  |  | — |  |  | 1.5 |
Net realized gains on fixed maturity available-for-sale securities | 101.3 |  |  | 330.0 |  |  | 264.4 |
Realized gains on equity securities | 13.5 |  |  | 12.6 |  |  | 0.9 |
Net realized gains on securities | 114.8 |  |  | 342.6 |  |  | 265.3 |
Realized gains (losses) on certain derivative instruments | 233.8 |  |  | 148.6 |  |  | (10.3 | )
Unrealized gains on certain derivative instruments | 37.7 |  |  | 20.5 |  |  | 156.3 |
Change in fair value of other embedded derivatives | (0.1 | ) |  | — |  |  | — |
Change in fair value of derivatives | 271.4 |  |  | 169.1 |  |  | 146.0 |
Realized gains (losses) on other invested assets | 9.1 |  |  | (0.1 | ) |  | (1.3 | )
Net investment gains | $ | 395.3 |  |  | $ | 511.6 |  |  | $ | 410.0 |
For Fiscal 2014, principal repayments, calls, tenders, and proceeds from the sale of fixed maturity available-for-sale securities totaled $5,033.4, gross gains on such sales totaled $108.5 and gross losses totaled $4.9. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for Fiscal 2014. For Fiscal 2013, principal repayments, calls, tenders, and proceeds from the sale of fixed maturity available-for-sale securities totaled $8,986.9, gross gains on such sales totaled $351.2 and gross losses totaled $18.3. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for Fiscal 2013. For Fiscal 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 19, Reinsurance totaled $4,603.0, gross gains on such sales totaled $295.9 and gross losses totaled $13.8. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for Fiscal 2012. Cash flows from consolidated investing activities by security classification were as follows:
| Fiscal
| 2014 |  | 2013 |  | 2012
Proceeds from investments sold, matured or repaid: |  |  |  |  |
Available-for-sale | $ | 5,084.1 |  |  | $ | 8,986.9 |  |  | $ | 5,833.4 |
Held-to-maturity | — |  |  | — |  |  | 109.6 |
Trading (acquired for holding) | 54.9 |  |  | 92.9 |  |  | 106.1 |
Derivatives and other | 470.2 |  |  | 352.4 |  |  | 157.6 |
| $ | 5,609.2 |  |  | $ | 9,432.2 |  |  | $ | 6,206.7 |
Cost of investments acquired: |  |  |  |  |
Available-for-sale | $ | (6,741.2 | ) |  | $ | (8,757.5 | ) |  | $ | (5,640.1 | )
Held-to-maturity | — |  |  | — |  |  | (68.7 | )
Trading (acquired for holding) | (99.7 | ) |  | (20.8 | ) |  | (122.3 | )
Derivatives and other | (380.5 | ) |  | (162.5 | ) |  | (141.6 | )
| $ | (7,221.4 | ) |  | $ | (8,940.8 | ) |  | $ | (5,972.7 | )

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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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