Fidelity & Guaranty’s Life recently announced $100-million IPO is a credit positive, according to an analysis by Moody’s Investors Service.
Ann G. Perry, vice president, senior credit officer for Moody’s, writes that the move is a credit positive because it establishes a public equity market for Fidelity & Guaranty Life (FGL) and lessens its capital dependence on the parent company, the Harbinger Group Inc., which acquired Fidelity & Guaranty Life Insurance Co. (FGLIC) from Old Mutual plc three years ago for $350 million.
Most of the proceeds are expected to go toward organic growth or to finance in-market acquisitions, which further confirms the credit positive grade, Perry writes. Access to the IPO cash, along with the bulk of the $300 million March debt issue by FGL subsidiary, Fidelity & Guaranty Life Holdings Inc., provides ample capital to support expansion and opportunistic acquisitions, she notes.
However, Perry points out that a portion will be used to pay a dividend to Harbinger, “which dampens the benefits of the equity offering.” Harbinger will retain a majority stake in FGL.
Other possible negatives relate to substantial or rapid growth that could lead to competitive pricing and/or overly aggressive product features in Fidelity & Guaranty Life Insurance Co.’s large fixed indexed annuity (FIA) business. If that were to occur, it may potentially weaken the company’s credit quality.
Fidelity & Guaranty’s sales are heavily weighted toward FIAs sold to the middle market through independent marketing organizations. FIAs have gained market share within the broader fixed annuity category as consumers have increasingly gravitated toward the product.
Fixed annuities have also caught the attention of private equity firms and alternative investment managers. Guggenheim owns Security Benefit, and Delaware Life Holdings, which is owned by shareholders of Guggenheim Partners, acquired the former U.S. annuity business of Sun Life Financial. Athene Holding Ltd. picked up Aviva USA in a still-pending deal. Such deals have brought the scrutiny of regulators, who have required higher capital reserves by the acquiring company.