A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit ratings of "bbb+" of Fidelity & Guaranty Life Insurance Company (Baltimore, MD) and its wholly owned subsidiary, Fidelity & Guaranty Life Insurance Company of New York (Purchase, NY) (together known as FGL). On April 6, 2011, FGL was acquired by Harbinger Group Inc (HGI) (NYSE: HRG), a diversified holding company that is majority owned by funds associated with Harbinger Capital Partners LLC (Harbinger). The outlook for all ratings is stable.
The rating affirmations reflect FGL’s favorable operating performance in recent periods, continued progress in de-risking its investment portfolio, the successful refinancing of its Regulation XXX and Guideline AXXX reserves, and more recently, its emergence as one of the fixed indexed annuity sales market leaders. Additionally, FGL’s adequate risk-adjusted capitalization has been supported by a consistent earnings performance.
A.M. Best also notes the substantial progress that has been made in de-risking FGL's investment portfolio while also shortening the duration and strengthening its asset liability management profile. With the improvement in asset quality, the market value of FGL's investment portfolio has increased to the point where it was in a net unrealized gain position of $939 million as of June 30, 2012.
Partially offsetting these positive rating factors are the challenges FGL faces in the persistently low interest rate environment, its increased reliance on fixed indexed annuity sales growth and the weaker credit profile of its new ownership. A.M. Best notes that HGI's business model employs significant financial leverage to meet its business objectives and relies on dividend payments from FGL to help cover its debt service. Given its level of indebtedness, A.M. Best believes that HGI's ability to provide capital to FGL during periods of financial stress is limited. A.M. Best also expects FGL's organic capital growth to be flat to slightly negative for the foreseeable future as the company's statutory earnings will likely be offset by dividend payments to HGI in support of its debt service obligations.