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Investments | 3 Months Ended
--- | ---
Dec. 31, 2013
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments The Company’s consolidated investments are summarized as follows:
| December 31, 2013
| Cost or Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Carrying Value
Fixed-maturity securities, available-for sale |  |  |  |  |  |  |  |  |
Asset-backed securities | $ | 1,590.7 |  |  | $ | 19.1 |  |  | $ | (8.0 | ) |  | $ | 1,601.8 |  |  | $ | 1,601.8 |
Commercial mortgage-backed securities | 422.6 |  |  | 25.2 |  |  | (3.2 | ) |  | 444.6 |  |  | 444.6 |
Corporates | 9,963.8 |  |  | 272.1 |  |  | (189.3 | ) |  | 10,046.6 |  |  | 10,046.6 |
Hybrids | 400.5 |  |  | 20.8 |  |  | (3.2 | ) |  | 418.1 |  |  | 418.1 |
Municipals | 1,121.2 |  |  | 45.2 |  |  | (45.0 | ) |  | 1,121.4 |  |  | 1,121.4 |
Agency residential mortgage-backed securities | 88.9 |  |  | 2.2 |  |  | (0.1 | ) |  | 91.0 |  |  | 91.0 |
Non-agency residential mortgage-backed securities | 1,564.1 |  |  | 99.2 |  |  | (11.3 | ) |  | 1,652.0 |  |  | 1,652.0 |
U.S. Government | 711.5 |  |  | 5.8 |  |  | (6.2 | ) |  | 711.1 |  |  | 711.1 |
Total fixed maturities | 15,863.3 |  |  | 489.6 |  |  | (266.3 | ) |  | 16,086.6 |  |  | 16,086.6 |
Equity securities |  |  |  |  |  |  |  |  |
Available-for-sale | 293.9 |  |  | 6.8 |  |  | (13.8 | ) |  | 286.9 |  |  | 286.9 |
Held for trading | 124.4 |  |  | 6.0 |  |  | (41.4 | ) |  | 89.0 |  |  | 89.0 |
Total equity securities | 418.3 |  |  | 12.8 |  |  | (55.2 | ) |  | 375.9 |  |  | 375.9 |
Derivatives | 148.3 |  |  | 147.0 |  |  | (0.8 | ) |  | 294.5 |  |  | 294.5 |
Asset-based loans | 794.0 |  |  | — |  |  | — |  |  | 794.0 |  |  | 794.0 |
Other invested assets |  |  |  |  |  |  |  |  |
Policy loans and other invested assets | 117.3 |  |  | — |  |  | — |  |  | 117.3 |  |  | 117.3 |
Total investments | $ | 17,341.2 |  |  | $ | 649.4 |  |  | $ | (322.3 | ) |  | $ | 17,668.3 |  |  | $ | 17,668.3 |
| September 30, 2013
| Cost or Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated 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 |
Policy loans and 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 December 31, 2013 and September 30, 2013, respectively. The non-agency residential mortgage-backed securities unrealized gains and losses represent the difference between book value and fair value on securities that were previously impaired. There have been no impairments or write downs on any of the 2013 purchased non-agency residential mortgage-backed securities. Securities held on deposit with various state regulatory authorities had a fair value of $13,727.8 and $19.4 at December 31, 2013 and September 30, 2013, respectively. The increase in securities held on deposits is due to the FGL Insurance 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. In accordance with FGL Insurance's Federal Home Loan Bank of Atlanta (“FHLB”) agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities. The collateral investments had a fair value of $591.8 and $604.9 at December 31, 2013 and September 30, 2013, respectively. 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.
| December 31, 2013
| Amortized Cost |  | Fair Value
Corporates, Non-structured Hybrids, Municipal and U.S. Government securities: |  |  |
Due in one year or less | $ | 345.5 |  |  | $ | 348.1 |
Due after one year through five years | 3,059.2 |  |  | 3,133.2 |
Due after five years through ten years | 3,315.1 |  |  | 3,332.1 |
Due after ten years | 5,444.4 |  |  | 5,448.3 |
Subtotal | 12,164.2 |  |  | 12,261.7 |
Other securities which provide for periodic payments: |  |  |
Asset-backed securities | 1,590.7 |  |  | 1,601.8 |
Commercial-mortgage-backed securities | 422.6 |  |  | 444.6 |
Structured hybrids | 32.8 |  |  | 35.5 |
Agency residential mortgage-backed securities | 88.9 |  |  | 91.0 |
Non-agency residential mortgage-backed securities | 1,564.1 |  |  | 1,652.0 |
Total fixed maturity available-for-sale securities | $ | 15,863.3 |  |  | $ | 16,086.6 |
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 December 31, 2013. The fair value and gross unrealized losses of available-for-sale securities, aggregated by investment category, were as follows:
| December 31, 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 | $ | 488.5 |  |  | $ | (6.8 | ) |  | $ | 127.5 |  |  | $ | (1.2 | ) |  | $ | 616.0 |  |  | $ | (8.0 | )
Commercial-mortgage-backed securities | 29.4 |  |  | (0.5 | ) |  | 5.9 |  |  | (2.7 | ) |  | 35.3 |  |  | (3.2 | )
Corporates | 3,355.4 |  |  | (163.0 | ) |  | 477.9 |  |  | (26.3 | ) |  | 3,833.3 |  |  | (189.3 | )
Equities | 131.7 |  |  | (13.8 | ) |  | 6.9 |  |  | — |  |  | 138.6 |  |  | (13.8 | )
Hybrids | 106.3 |  |  | (3.1 | ) |  | 8.3 |  |  | (0.1 | ) |  | 114.6 |  |  | (3.2 | )
Municipals | 478.2 |  |  | (28.4 | ) |  | 168.1 |  |  | (16.6 | ) |  | 646.3 |  |  | (45.0 | )
Agency residential mortgage-backed securities | 11.9 |  |  | (0.1 | ) |  | 0.5 |  |  | — |  |  | 12.4 |  |  | (0.1 | )
Non-agency residential mortgage-backed securities | 354.5 |  |  | (10.6 | ) |  | 55.2 |  |  | (0.7 | ) |  | 409.7 |  |  | (11.3 | )
U.S. Government | 338.0 |  |  | (6.2 | ) |  | — |  |  | — |  |  | 338.0 |  |  | (6.2 | )
Total available-for-sale securities | $ | 5,293.9 |  |  | $ | (232.5 | ) |  | $ | 850.3 |  |  | $ | (47.6 | ) |  | $ | 6,144.2 |  |  | $ | (280.1 | )
Total number of available-for-sale securities in an unrealized loss position |  |  | 634 |  |  |  |  | 109 |  |  |  |  | 743 |
| 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 December 31, 2013 and September 30, 2013, securities in an unrealized loss position were primarily concentrated in investment grade corporate debt instruments and municipals. Total unrealized losses were $280.1 and $263.9 at December 31, 2013 and September 30, 2013, respectively. At December 31, 2013 and September 30, 2013, securities with a fair value of $77.1 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. 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 the three months ended December 31, 2013, and December 30, 2012, for which a portion of the other-than-temporary impairment was recognized in AOCI:
| Three months ended
| December 31, 2013 |  | December 30, 2012
Beginning balance | $ | 2.7 |  |  | $ | 2.7 |
Increases attributable to credit losses on securities: |  |  |
Other-than-temporary impairment was previously recognized | — |  |  | — |
Other-than-temporary impairment was not previously recognized | — |  |  | — |
Ending balance | $ | 2.7 |  |  | $ | 2.7 |
For the three months ended December 31, 2013, FGL recognized insignificant impairment losses in operations and had an amortized cost of $0.2 million and a fair value of $0.2 million at the time of impairment. For the three months ended December 30, 2012, FGL recognized an impairment loss in operations totaling $0.5, including credit impairments of $0.2, and change-of-intent impairments of $0.3 and had an amortized cost of $1.6 and a fair value of $1.1 at December 30, 2012. Asset-based Loans Salus’ portfolio of asset-based loans receivable, included in “Asset-based loans” in the Condensed Consolidated Balance Sheets as of December 31, 2013 and September 30, 2013, consisted of the following:
| December 31, 2013 |  | September 30, 2013
Asset-based loans, by major industry: |  |  |
Apparel | $ | 235.7 |  |  | $ | 252.9 |
Jewelry | 117.1 |  |  | 125.8 |
Sporting Goods | 16.3 |  |  | 25.1 |
Manufacturing | 55.8 |  |  | 34.3 |
Transportation | 42.5 |  |  | 85.7 |
Electronics | 250.0 |  |  | — |
Other | 83.6 |  |  | 41.8 |
Total asset-based loans | 801.0 |  |  | 565.6 |
Less: Allowance for credit losses | 7.0 |  |  | 5.2 |
Total asset-based loans, net | $ | 794.0 |  |  | $ | 560.4 |
Salus establishes its allowance for credit losses through a provision for credit losses based on its evaluation of the credit quality of its loan portfolio. The following table presents the activity in its allowance for credit losses for the three months ended December 31, 2013 and December 30, 2012:
| Three months ended
| December 31, 2013 |  | December 30, 2012
Allowance for credit losses: |  |  |
Balance at beginning of period | $ | 5.2 |  |  | $ | 1.4 |
Provision for credit losses | 1.8 |  |  | 1.2 |
Balance at end of period | $ | 7.0 |  |  | $ | 2.6 |
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 December 31, 2013 and September 30, 2013, Salus had no outstanding loans that either were non-performing, in a non-accrual status, or had been subject to a troubled-debt restructuring. As of December 31, 2013 and September 30, 2013, there were no outstanding loans that had been individually considered impaired, as all loans were in current payment status.
| Internal Risk Rating
| Pass |  | Special Mention |  | Substandard |  | Doubtful |  | Total
December 31, 2013 | $ | 204.7 |  |  | $ | 338.8 |  |  | $ | 257.5 |  |  | $ | — |  |  | $ | 801.0 |
September 30, 2013 | $ | 306.9 |  |  | $ | 36.7 |  |  | $ | 222.0 |  |  | $ | — |  |  | $ | 565.6 |
Net Investment Income The major sources of “Net investment income” on the accompanying Condensed Consolidated Statements of Operations were as follows:
| Three months ended
| December 31, 2013 |  | December 30, 2012
Fixed maturity available-for-sale securities | $ | 191.8 |  |  | $ | 167.6 |
Equity available-for-sale securities | 4.5 |  |  | 4.7 |
Policy loans | 0.2 |  |  | 0.3 |
Invested cash and short-term investments | 0.1 |  |  | 0.8 |
Other investments | 8.2 |  |  | 8.7 |
Gross investment income | 204.8 |  |  | 182.1 |
External investment expense | (3.6 | ) |  | (4.1 | )
Net investment income | $ | 201.2 |  |  | $ | 178.0 |
Net investment gains “Net investment gains” reported on the accompanying Condensed Consolidated Statements of Operations were as follows:
| Three months ended
| December 31, 2013 |  | December 30, 2012
Net realized gains before other-than-temporary impairments | $ | 9.8 |  |  | $ | 172.5 |
Gross other-than-temporary impairments | — |  |  | (0.5 | )
Net realized gains on fixed maturity available-for-sale securities | 9.8 |  |  | 172.0 |
Realized gains on equity securities | 5.4 |  |  | — |
Net realized gains on securities | 15.2 |  |  | 172.0 |
Realized gains on certain derivative instruments | 66.8 |  |  | 15.6 |
Unrealized gains (losses) on certain derivative instruments | 60.6 |  |  | (41.2 | )
Change in fair value of derivatives | 127.4 |  |  | (25.6 | )
Realized (losses) gains on other invested assets | (0.7 | ) |  | 0.1 |
Net investment gains | $ | 141.9 |  |  | $ | 146.5 |
For the three months ended December 31, 2013, principal repayments, calls, tenders, and proceeds from the sale of fixed maturity available-for-sale securities totaled $1,705.9, gross gains on such sales totaled $21.8 and gross losses totaled $12.0, respectively. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for the three months ended December 31, 2013. For the three months ended December 30, 2012, principal repayments, calls, tenders, and proceeds from the sale of fixed maturity available-for-sale securities totaled $2,415.1, gross gains on such sales totaled $178.0 and gross losses totaled $0.5, respectively. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for the three months ended December 30, 2012. Cash flows from consolidated investing activities by security classification were as follows:
| Three months ended
| December 31, 2013 |  | December 30, 2012
Proceeds from investments sold, matured or repaid: |  |  |
Available-for-sale | $ | 1,705.9 |  |  | $ | 2,913.4 |
Trading (acquired for holding) | — |  |  | 91.0 |
Derivatives and other | 114.4 |  |  | 50.3 |
| $ | 1,820.3 |  |  | $ | 3,054.7 |
Cost of investments acquired: |  |  |
Available-for-sale | $ | (2,598.5 | ) |  | $ | (3,395.1 | )
Trading (acquired for holding) | (4.4 | ) |  | — |
Derivatives and other | (125.3 | ) |  | (45.3 | )
| $ | (2,728.2 | ) |  | $ | (3,440.4 | )
Concentrations of Financial Instruments As of December 31, 2013 and September 30, 2013, the Company’s most significant investment in one industry, excluding U.S. Government securities, was FGL’s investment securities in the banking industry with a fair value of $1,974.0, or 11.5% and $1,892.1, or 11.7%, of the invested assets portfolio, respectively. FGL’s holdings in this industry includes investments in 82 different issuers with the top ten investments accounting for 37.8% of the total holdings in this industry. As of December 31, 2013 and September 30, 2013, the Company had investments in 34 and 19 issuers that exceeded 10% of the Company's stockholders’ equity with a fair value of $2,925.5 and $1,983.7, or 16.9% and 12.0% of the invested assets portfolio, respectively. Additionally, FGL’s largest concentration in any single issuer as of December 31, 2013 and September 30, 2013, had a fair value of $140.5 and $150.7, or 1.0% of FGL's invested assets portfolio, 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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