Investments

The Company’s consolidated investments are summarized as follows:



	March 31, 2015
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Carrying Value
Fixed-maturity securities, available-for sale
Asset-backed securities	$	1,939.6	$	10.1	$	(18.5	)	$	1,931.2	$	1,931.2
Commercial mortgage-backed securities	707.2		22.9		(0.8		)	729.3		729.3
Corporates	9,270.2		647.5		(74.6		)	9,843.1		9,843.1
Hybrids	1,302.9		74.0		(19.6		)	1,357.3		1,357.3
Municipals	1,280.7		156.7		(1.8		)	1,435.6		1,435.6
Residential mortgage-backed securities	2,107.8		108.3		(21.8		)	2,194.3		2,194.3
U.S. Government	308.8		11.1		(0.1		)	319.8		319.8
Total fixed maturities	16,917.2		1,030.6		(137.2		)	17,810.6		17,810.6
Equity securities
Available-for-sale	562.1		34.7		(2.9		)	593.9		593.9
Held for trading	70.9		41.8		(34.9		)	77.8		77.8
Total equity securities	633.0		76.5		(37.8		)	671.7		671.7
Derivatives	205.0		83.6		(20.3		)	268.3		268.3
Asset-based loans	660.2		—		—			660.2		660.2
Other invested assets	341.8		—		—			341.8		341.8
Total investments	$	18,757.2	$	1,190.7	$	(195.3	)	$	19,752.6	$	19,752.6



	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
Residential mortgage-backed securities	1,984.8		140.3		(11.1		)	2,114.0		2,114.0
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

Included in accumulated other comprehensive income ("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 ("OTTI") on non-agency residential mortgage-backed securities at March 31, 2015 and September 30, 2014, 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 during the six months ended March 31, 2015.

Securities held on deposit with various state regulatory authorities had a fair value of $15,985.6 and $15,009.3 at March 31, 2015 and September 30, 2014, respectively. FGL Insurance is domesticated in Iowa and 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.

FGL held no non-income producing investments during the three and six months ended March 31, 2015 and 2014.

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 agreement liabilities. The collateral investments had a fair value of $558.4 and $573.2 at March 31, 2015 and September 30, 2014, 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.



	March 31, 2015
	Amortized Cost		Fair Value
Corporates, Non-structured Hybrids, Municipal and U.S. Government securities:
Due in one year or less	$	328.2	$	330.7
Due after one year through five years	2,292.8		2,352.0
Due after five years through ten years	2,894.6		3,026.7
Due after ten years	5,934.4		6,530.1
Subtotal	11,450.0		12,239.5
Other securities which provide for periodic payments:
Asset-backed securities	1,939.6		1,931.2
Commercial-mortgage-backed securities	707.2		729.3
Structured hybrids	712.6		716.3
Residential mortgage-backed securities	2,107.8		2,194.3
Total fixed maturity available-for-sale securities	$	16,917.2	$	17,810.6

Securities in an Unrealized Loss Position

The fair value and gross unrealized losses of available-for-sale securities, aggregated by investment category, were as follows:



	March 31, 2015
	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	$	560.1	$	(7.7	)	$	474.5	$	(10.8	)	$	1,034.6	$	(18.5	)
Commercial-mortgage-backed securities	51.3		(0.4		)	8.4		(0.4		)	59.7		(0.8		)
Corporates	853.5		(32.6		)	761.2		(42.0		)	1,614.7		(74.6		)
Equities	35.0		(0.7		)	50.2		(2.2		)	85.2		(2.9		)
Hybrids	149.2		(7.8		)	143.8		(11.8		)	293.0		(19.6		)
Municipals	63.2		(0.6		)	125.8		(1.2		)	189.0		(1.8		)
Residential mortgage-backed securities	411.7		(10.2		)	297.5		(11.6		)	709.2		(21.8		)
U.S. Government	69.9		—			49.6		(0.1		)	119.5		(0.1		)
Total available-for-sale securities	$	2,193.9	$	(60.0	)	$	1,911.0	$	(80.1	)	$	4,104.9	$	(140.1	)
Total number of available-for-sale securities in an unrealized loss position			322					245					567



	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		)
Residential mortgage-backed securities	298.5		(5.8		)	177.6		(5.3		)	476.1		(11.1		)
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

At March 31, 2015 and September 30, 2014, securities in an unrealized loss position were primarily concentrated in investment grade corporate debt instruments.

At March 31, 2015 and September 30, 2014, securities with a fair value of $21.3 and $0.2, 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.

For the three and six months ended March 31, 2015 and 2014, the Company recognized no material impairment losses on available-for-sale fixed maturity and equity securities. The portion of other-than-temporary impairments recognized in AOCI is disclosed in the unaudited Condensed Consolidated Statements of Comprehensive Loss.

Asset-based Loans

Salus Capital Partners, LLC (“Salus”) portfolio of asset-based loans receivable, included in “Asset-based loans” in the unaudited Condensed Consolidated Balance Sheets as of March 31, 2015 and September 30, 2014, consisted of the following:



	March 31, 2015		September 30, 2014
Asset-based loans, net of deferred fees, by major industry:
Electronics	$	167.1	$	245.4
Apparel	188.1		191.6
Jewelry	83.9		100.1
Home Furnishings	55.7		71.7
Manufacturing	49.9		56.9
Transportation	32.5		44.3
Sporting Goods	11.8		13.9
Other	105.0		94.9
Total asset-based loans	694.0		818.8
Less: Allowance for credit losses	33.8		7.2
Total asset-based loans, net	$	660.2	$	811.6

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 and six months ended March 31, 2015 and 2014:



	Three months ended March 31,					Six months ended March 31,
	2015			2014		2015			2014
Allowance for credit losses:
Balance at beginning of period	$	7.5		$	7.0	$	7.2		$	5.2
Provision for credit losses	102.9			—		103.2			1.8
Charge-offs	(76.6		)	—		(76.6		)	—
Balance at end of period	$	33.8		$	7.0	$	33.8		$	7.0

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 March 31, 2015, there was one loan representing $167.1 that was considered delinquent by Salus and was placed on nonaccrual status. It is the Salus' policy to discontinue accruing interest when there is a reasonable doubt as to collectability in the normal course of business. Nonaccrual loans are considered impaired for reporting purposes. This loan was also individually evaluated for impairment. As of September 30, 2014, there were no outstanding loans that had been individually considered impaired, as all loans were in current payment status.

During the three months ended March 31, 2015, the bankruptcy court overseeing the Chapter 11 proceedings of RadioShack Corp. ("RadioShack") approved the sale of 1,743 of the company’s stores to General Wireless Inc., an affiliate of Standard General LP. Salus was the lender under RadioShack’s $250.0 term loan placed in December 2013 with a net exposure to our Insurance and Asset Management segments of $150.0 after giving effect to non-qualifying participation of $100.0 held by a third party. The extent to which Salus will be able to recover amounts owed to it by RadioShack is dependent on a number of factors, including the results of asset sales, only some of which have been completed to date, and ongoing litigation. At March 31, 2015, the expected recovery on the RadioShack loan, excluding any additional proceeds from ongoing litigation resulted in charge-offs of $76.6 and an additional net increase in the provision of credit losses of $26.3 for a total recognized bad debt expense of $102.9 for the three months ended March 31, 2015. In addition, the internal risk rating of this loan was changed to doubtful. Salus has assessed the adequacy of its allowance for loan assets and believes the level of allowance for loan losses to be adequate to mitigate inherent losses in the portfolio.



	Internal Risk Rating
	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2015	$	142.8	$	57.8	$	326.3	$	167.1	$	694.0
September 30, 2014	$	195.3	$	372.7	$	250.8	$	—	$	818.8

Mortgage Loans on Real Estate

Included in Other invested assets on the unaudited Condensed Consolidated Balance Sheets were Commercial mortgage loans ("CMLs") of $304.4 and $136.2, or approximately 1.5% and 0.7% of the Company's total investments as of March 31, 2015 and September 30, 2014, respectively. FGL primarily makes mortgage loans on income producing properties including hotels, industrial properties, retail buildings, multifamily properties and office buildings. FGL diversifies its CML portfolio by geographic region and property type to reduce concentration risk. Subsequent to origination, FGL continuously evaluates CMLs based on relevant current information to ensure properties are performing at a consistent and acceptable level to secure the related debt.

The distribution of CMLs, gross of valuation allowances, by property type and geographic region is reflected in the following tables:



	March 31, 2015				September 30, 2014
	Gross Carrying Value		% of Total		Gross Carrying Value		% of Total
Property Type:
Industrial- General	$	19.9	6.5	%	$	—	—	%
Industrial- Warehouse	47.5		15.6	%	48.0		35.2	%
Multifamily	29.8		9.8	%	37.8		27.8	%
Office	75.7		24.9	%	44.6		32.7	%
Retail	123.1		40.4	%	5.8		4.3	%
Apartment	7.6		2.5	%	—		—	%
Funeral Home	0.8		0.3	%	—		—	%
Total	$	304.4	100.0	%	$	136.2	100.0	%

US Region:
East North Central	$	83.8	27.5	%	$	27.8	20.4	%
Middle Atlantic	17.9		5.9	%	10.9		8.0	%
Pacific	65.7		21.6	%	61.5		45.1	%
South Atlantic	63.8		21.0	%	—		—	%
West North Central	5.7		1.9	%	5.8		4.3	%
West South Central	19.9		6.5	%	30.2		22.2	%
Mountain	42.1		13.8	%	—		—	%
New England	5.5		1.8	%	—		—	%
Total	$	304.4	100.0	%	$	136.2	100.0	%

FGL has a CML portfolio with 100% of all CMLs having a loan-to-value ("LTV") ratio of less than 75% at March 31, 2015 and September 30, 2014. As of March 31, 2015 all CMLs are current and have not experienced credit or other events which would require the recording of an impairment loss. FGL has not established a collective or specific CML valuation allowance as of March 31, 2015.

LTV and debt service coverage (“DSC”) ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio, calculated at time of origination, is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.0 indicates that a property’s operations do not generate sufficient income to cover debt payments.

The following table presents the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios at March 31, 2015 and September 30, 2014:



	Debt-Service Coverage Ratios						Total Amount		% of Total		Estimated Fair Value		% of Total
	>1.25		1.00 - 1.25		N/A (a)		Total Amount		% of Total		Estimated Fair Value		% of Total
March 31, 2015
LTV Ratios:
Less than 50%	$	74.2	$	—	$	0.8	$	75.0	24.6	%	$	75.0	24.6	%
50% to 60%	63.8		19.9		—		83.7		27.5	%	83.7		27.5	%
60% to 75%	145.7		—		—		145.7		47.9	%	145.7		47.9	%
Total mortgage loans on real estate	$	283.7	$	19.9	$	0.8	$	304.4	100.0	%	$	304.4	100.0	%
September 30, 2014
LTV Ratios:
Less than 50%	$	44.6	$	—	$	0.8	$	45.4	33.3	%	$	45.4	33.3	%
50% to 60%	19.9		—		—		19.9		14.6	%	19.9		14.6	%
60% to 75%	70.9		—		—		70.9		52.1	%	70.9		52.1	%
Total mortgage loans on real estate	$	135.4	$	—	$	0.8	$	136.2	100.0	%	$	136.2	100.0	%

(a) N/A - Current financial information not available.

FGL recognizes a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At March 31, 2015, FGL had no CMLs that were delinquent in principal or interest payments. The following provides the current and past due composition of FGL's CMLs on real estate:



	March 31, 2015		September 30, 2014
Current to 30 days	$	304.4	$	136.2
Total carrying value	$	304.4	$	136.2

As of March 31, 2015, FGL's CML portfolio had no impairments, modifications or troubled debt restructuring.

Net Investment Income

The major sources of “Net investment income” on the accompanying Condensed Consolidated Statements of Operations were as follows:



	Three months ended March 31,						Six months ended March 31,
	2015			2014			2015			2014
Fixed maturity available-for-sale securities	$	207.7		$	188.7		$	414.2		$	376.0
Equity available-for-sale securities	7.8			5.1			17.7			9.6
Asset-based loans	10.9			15.9			26.5			27.8
Other investments	3.2			0.6			6.5			1.7
Gross investment income	229.6			210.3			464.9			415.1
External investment expense	(4.6		)	(3.9		)	(9.1		)	(7.5		)
Net investment income	$	225.0		$	206.4		$	455.8		$	407.6

Net investment (losses) gains

“Net investment (losses) gains” reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows:



	Three months ended March 31,						Six months ended March 31,
	2015			2014			2015			2014
Net realized gains on fixed maturity available-for-sale securities	$	7.7		$	7.9		$	5.9		$	17.7
Realized (losses) gains on equity securities	(6.4		)	5.4			(3.2		)	10.8
Net realized gains on securities	1.3			13.3			2.7			28.5
Realized gains on certain derivative instruments	43.2			50.0			88.2			110.6
Unrealized (losses) gains on certain derivative instruments	(51.2		)	(27.5		)	(50.7		)	39.3
Change in fair value of other embedded derivatives	0.4			—			1.0			—
Change in fair value of derivatives	(7.6		)	22.5			38.5			149.9
Realized gains on other invested assets	2.4			5.1			6.9			4.4
Net investment (losses) gains	$	(3.9	)	$	40.9		$	48.1		$	182.8

For the six months ended March 31, 2015, principal repayments, calls, tenders, and proceeds from the sale of fixed maturity available-for-sale securities totaled $1,805.8, gross gains on such sales totaled $19.8 and gross losses totaled $44.5. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for the six months ended March 31, 2015.

For the six months ended March 31, 2014, principal repayments, calls, tenders, and proceeds from the sale of fixed maturity available-for-sale securities totaled $2,627.9, gross gains on such sales totaled $22.2 and gross losses totaled $2.5. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for the six months ended March 31, 2014.

Cash flows from consolidated investing activities by security classification were as follows:



	Six months ended March 31,
	2015			2014
Proceeds from investments sold, matured or repaid:
Available-for-sale	$	1,848.5		$	2,675.4
Derivatives and other	209.4			188.2
	$	2,057.9		$	2,863.6
Cost of investments acquired:
Available-for-sale	$	(2,154.4	)	$	(3,815.7	)
Trading (acquired for holding)	—			(40.5		)
Derivatives and other	(313.8		)	(176.7		)
	$	(2,468.2	)	$	(4,032.9	)

Concentrations of Investments

As of March 31, 2015 and September 30, 2014, the Company’s most significant investment in one industry, excluding U.S. Government securities, was the Company’s investment securities in the banking industry with a fair value of $2,273.6 or 11.5% and $2,240.3, or 11.6%, of the Company's invested assets portfolio, respectively. FGL’s holdings in this industry includes investments in 83 different issuers with the top ten investments accounting for 39.5% of the total holdings in this industry. As of March 31, 2015 and September 30, 2014, the Company had investments in 8 and 4 issuers that exceeded 10% of the Company's stockholders’ equity with a fair value of $1,202.8 and $768.5, or 6.1% and 4.0% of the invested assets portfolio, respectively. Additionally, the Company’s largest concentration in any single issuer as of March 31, 2015 and September 30, 2014, had a fair value of $187.8, or 1.0% and $250.0, or 1.3%, respectively, of the Company's invested assets portfolio.