The Insurance segment reported operating income of $165.3 million for the first quarter of Fiscal 2013, an increase of $128.9 million, from $36.4 million for the first quarter of Fiscal 2012.
First quarter 2013 results included realized investment gains of $125.7 million, net of related intangibles amortization, compared to $18.2 million of net realized investment gains in the comparable period of Fiscal 2012. The increase in net realized investment gains was the result of strategic portfolio repositioning to shorten the overall portfolio duration combined with the realization of certain tax-advantaged built-in-gains.
Adjusted operating income was $33.0 million (pre-tax) for the first quarter of Fiscal 2013, reflecting solid business performance, as FGL continues to execute on its business strategy. Adjusted operating income is a non-U.S. GAAP insurance industry measure that eliminates the impact of realized investment gains (losses), the effect of interest rate changes on the FIA embedded derivative liability, and the effects of acquisition-related reinsurance transactions - see “Non-U.S. GAAP Measures” and a reconciliation of adjusted operating income to the Insurance segment's operating income below.
As of December 30, 2012, HGI's Insurance segment had a net U.S. GAAP book value of $1.3 billion (including AOCI of $422.9 million), up from $1.2 billion as of September 30, 2012. As of December 30, 2012, the Insurance segment's available for sale investment portfolio had $1.0 billion in net unrealized gains on a U.S. GAAP basis. FGL's investment portfolio continues to be conservatively positioned, has shortened the portfolio duration over the past twelve months, and remains well matched against its liability profile.On December 17, 2012, HGI announced that FGL had received approval from the Maryland Insurance Administration to enter into a reinsurance treaty with Front Street Re (Cayman) Ltd., also a wholly-owned subsidiary of HGI. Under the terms of the reinsurance treaty, Fidelity & Guaranty Life ceded approximately 10%, or approximately $1.5 billion of liabilities, of its annuity business to Front Street Re. The transaction was effective December 31, 2012, for which the effects will be eliminated in consolidation.