Fidelity National Prepares to Spin Off Part of Annuity Unit

What You Need to Know

Fidelity National CEO Mike Nolan says his company's share price doesn't reflect how well F&G has been doing.
A new F&G stock would trade on the New York Stock Exchange.
Fidelity National will keep an 85% stake in F&G because F&G stands to benefit from rising interest rates, Nolan says.

Fidelity National Financial is preparing to give a 15% stake in its F&G Annuities & Life subsidiary — the unit that holds Fidelity & Guaranty Life Insurance Co. — to its shareholders.

Fidelity National is the Jacksonville, Florida-based title insurer that acquired F&G in June 2020.

F&G is a Des Moines, Iowa-based life and annuity issuer that has focused on selling nonvariable indexed annuities, multiyear guaranteed annuities and fixed indexed universal life insurance.

Mike Nolan, Fidelity National’s CEO, said in a comment, included in the partial spinoff announcement, that the F&G deal has worked out better than Fidelity National had expected, but that Fidelity National’s share price does not reflect how well F&G has been doing.

“We believe that the best way to unlock this value is to publicly list F&G through a dividend to our shareholders,” Nolan said.

The new F&G stock would trade on the New York Stock Exchange.

What It Means

If F&G has its own NYSE stock listing, it will show up on the stock information ticket windows at the bottom of the CNBC and Fox Business screens.

F&G will release its own separate earnings every quarter, and Chris Blunt, F&G’s CEO, will likely speak on conference calls the company holds to go over its performance with securities analysts every three months.

The proposed spinoff could lead securities analysts, investors and financial news organizations to focus a little more attention on annuities and retirement security every three months.

Deal Details

The Fidelity National board approved the proposed spinoff in March.

They intend to structure the spinoff as a taxable dividend and complete the distribution by Sept. 30.

Fidelity National would help keep F&G well capitalized by converting a $400 million intercompany loan into F&G stock before the F&G stock distribution takes place.

The Rate Story

In recent years, the Federal Reserve Board has tried to help companies recover from the effects of the 2007-2009 Great Recession and the COVID-19 pandemic by keeping the short-term lending rates it controls low. Some economists have suggested that deeper economic forces might also be holding rates down.

Low rates have held down life and annuity issuers’ earnings and scared some investors away from life and annuity company stocks.

One reason that Fidelity National intends to keep an 85% stake in F&G and not sell the whole company off is that the Federal Reserve Board is now doing what it can to cool inflation by making borrowing money more expensive.

The Fed is making borrowing money more expensive by increasing the interest rates it controls.

When interest rates rise, home sales often slow. A slump in home sales could reduce the need for title insurance.

Annuity issuers depend heavily on investments in bonds to support benefits guarantees. Because annuity issuers hold so many bonds, rising interest rates can increase their overall revenue and profits.

“F&G provides our company with a countercyclical revenue stream that is poised to benefit from the current environment as interest rates rise,” said Nolan, Fidelity National’s CEO.