Fidelity & Guaranty Life, a leading provider of fixed indexed annuities (FIAs), is going public. Yesterday, its parent company, Harbinger Group Inc. (HGI), filed a prospectus for a $100 million IPO.
Neither the share price nor the amount of stock to be sold were revealed in the SEC filing. Proceeds will be used to pay an unspecified dividend to HGI and for general corporate purposes. Credit Suisse was listed as the sole underwriter. Harbinger is not a selling shareholder in the offering. There was no indication as to which stock exchange the shares would be traded.
In 2011, HGI, which lists itself as a publicly traded diversified holding company, acquired Fidelity & Guaranty Life (FGL) for $350 million. A spokesperson for FGL declined to comment further on the IPO filing.
FGL reported operating income in its insurance segment of $78.5 million in the third quarter versus an operating loss of $1.5 billion a year earlier. In Q3, FGL’s annuity sales reached $270.8 million, down from $468 million in the same quarter a year prior.
According to the SEC filing, FIAs generated approximately 95 percent of FGL’s total sales in fiscal year 2012. As of June 31, the Baltimore-based company had roughly 700,000 policyholders. Its annuities are marketed through a network of 200 IMOs that represent some 19,000 independent agents.
Though parent company Harbinger is public, the pending IPO is interesting in light of several recent acquisitions by private equity firms of fixed annuity lines.
Competitors and industry watchdogs have questioned whether private equity firms with generally short-term investment horizons are the best fit for products like fixed annuities that provide lifetime payments to policyholders. Some have also questioned some of the investment holdings of these companies, which, although still highly regulated by the National Association of Insurance Commissioners (NAIC), are still in the area of mortgage-backed securities, which are seen as more risky after the financial crisis.
At the same time, the sellers of those lines have been willing to unload the businesses because continued low interest rates continue to drag down the profits obtained through such products.
The NAIC is monitoring the issue through a financial issues working group. The New York State Department of Financial Services (DFS) has been investigating the issue as well, even subpoenaing investment managers buying the annuity companies.
Recently, affiliates of two alternative investment firm giants, Apollo and Guggenheim, agreed to higher reserving standards and other conditions imposed by insurance regulators in New York and Iowa in conjunction with the respective acquisitions of Aviva USA (through Apollo affiliate Athene Holding) and Sun Life. Athene, for its part, has a reservoir of insurance talent in its leadership, and has said it is involved in insurance for the long-term.
Therefore, the taking public of a private FIA provider could be an indication of the ultimate endgame for these businesses.