As of July 1, 2012, the Insurance segment’s investment portfolio had net unrealized gains on a U.S. GAAP basis of $696 million compared to net unrealized gains of $923 million on a statutory basis. FGL maintained a defensive position with its investment portfolio, and remains well matched against its liability profile. FGL continued repositioning its investment portfolio, emphasizing shorter-dated and floating rate assets in its investment mix, and found opportunities to reduce some of its excess cash levels. Statutory unrealized gains differ substantially from U.S. GAAP because the amortized cost of FGL’s invested assets was adjusted to fair value as of the date HGI completed its acquisition of FGL under U.S. GAAP, while it was not adjusted for statutory reporting. FGL’s investment portfolio is reported at fair value under U.S. GAAP compared to amortized cost generally for statutory reporting. Because the investment portfolio is in an unrealized gain position for U.S. GAAP reporting, the reported value of assets available for meeting policyholder benefits is higher than reported in the statutory balance sheet where investments are reported at amortized cost.
HGI’s consolidated operating income was $81 million in the third quarter of Fiscal 2012 compared to operating income of $121 million in the same period of Fiscal 2011. The decrease was primarily a result of the $51 million decline in the Insurance segment and increased corporate compensation expenses in line with the growth of the business, partially offset by the $16 million improvement in the Consumer Products segment.
HGI reported a consolidated net loss attributable to common and participating preferred stockholders of ($149 million) or ($1.07) per common share compared to consolidated net income attributable to common and participating preferred stockholders of $211 million or $1.16 per common share in the same period of Fiscal 2011. HGI’s results for the Fiscal 2012 Quarter reflect primarily a non-cash charge of $125 million related to an increase in the fair value of the preferred stock equity conversion feature based on the strong rise in the market price of HGI’s common stock from $5.18 to $7.79 per share. In addition, HGI’s Fiscal 2011 results benefited from the $158 million one-time bargain purchase gain on the acquisition of FGL.