What's ahead for Fidelity & Guaranty?
Friday, February 21, 2014 7:00 AM
Business Record insurance and finance reporter Joe Gardyasz recently interviewed Lee Launer Jr., CEO of Fidelity & Guaranty Life Holdings Inc., and Phil Gass, the company’s chairman, about the company’s plans as it transitions its corporate headquarters from Baltimore to Des Moines. In December, Fidelity & Guaranty completed an initial public offering of stock, which it plans to use to drive more growth in its niche of selling annuities to Baby Boomers who are nearing or beginning retirement. On Jan. 9, the company held a ribbon-cutting ceremony at Two Ruan Center, where it leases the 14th floor. The company, which has $17 billion in assets, plans to increase its presence to about 50 employees in Greater Des Moines within the next three years.
BR: Now that the public offering is done, how are things settling out for the company?
Launer: This company was part of the old USF&G, which was started in 1959 in Baltimore. The company had been owned by a couple of different owners: Travelers, and then Old Mutual Financial Network, which decided to sell the company about five years ago. Harbinger Group Inc. was fortunate enough to secure the purchase (in April 2011). Fast-forward, for the past couple of years we’ve been detaching this company from a large corporate conglomerate and making it a self-contained, independent operating unit. We operate very independently from Harbinger, which is our 80-percent owner at this point in time. But it took a lot of work just to get everything needed to separate from a really large company. The last phase of that, really, was going public. It was really important that we become a publicly owned company so that we’ve got capital to grow.
BR: What’s the mix between annuity and life insurance products for Fidelity & Guaranty?
Launer: It really is dependent on our clients, what our clients need. We do sell life insurance, but we’ve found that our most popular product is annuities right now. And our product line will change to the extent that our clients change. And our distributors, who are all independent, tell us what their customers want. Actually, all of our products come at the suggestion of our independent agents and our clients. And right now, they really like this product that gives policyholders some upside in the Standard & Poor’s 500 index, but no downside. They don’t want to put money in the stock market and get burned; they don’t want to put it in the bank and earn nothing. So we give them 3, 5 or 6 percent upside in the S&P 500 - and it’s our top-selling product.
BR: What sort of performance track record does Fidelity & Guaranty have in annuities?
Launer: We have roughly 680,000 policyholders, and they’ve all gotten exactly the deal they thought they were going to get. When they bought these kinds of annuities from us right before the stock market took a tumble, they benefited because they didn’t take a tumble. So they’re pretty happy.
BR: What’s the size of the company relative to other indexed annuity companies?
Launer: We benchmark off of another company in town here – American Equity (Investors Life Holding Co.) – they’re slightly larger. Let’s say we’re $17 billion in assets and they’re at $25 billion, roughly. They’re a powerful force in this business - they’re traditionally No. 2 or 3. So we’re a smaller business; when we broke off from Old Mutual, we didn’t bring everything. We just bought this annuity and life piece. So we are a little bit smaller than some of the big boys. Athene (USA) is another major player in town here; another is Allianz Life Insurance Company of North America. We outsource a lot, so we don’t have a lot of employees.
Gass: One of the differences now is that now that we’re a public company and we’ve raised a lot of capital, we have a lot of excess capital, so it allows us to take advantage of that. We plan through the IPO to put that capital to work.
BR: Specifically, how will the capital be put to work?
Launer: Principally through sales. It’s not about using the capital to do trickier things on investments or buying people or whatever. It’s about organic growth - we want to grow sales and we have to back each of those sales with capital. We really haven’t grown much since the acquisition (by Harbinger) in 2011; we’ve been preparing ourselves to grow. We did a public debt deal also in March, so now we have lots of capital to grow.
BR: Will Harbinger’s stake in Fidelity & Guaranty shrink over time?
Gass: It’s a wholly owned subsidiary; through the IPO we didn’t sell stock, we did a primary offering. The whole point of that was to raise capital that would go directly onto the balance sheet of F&G so that we could support the growth. If you step back and look at the Harbinger Group model, it’s really simple. We’re a long-term holder of operating businesses that we control, very akin to a Berkshire Hathaway or Loews Corp. model. We’re a long-term holder, and we’re pretty excited about where this business can go. As a $1.1 billion market capitalization company, it could grow substantially as we take advantage of this opportunity. I don’t see why we would sell or have a substantial change in ownership; having 80 percent, having control, is our stated objective.
BR: Tell me about the growth plans for Des Moines.
Launer: Technically speaking, we made a commitment to the state to have 30 percent of our employees in the state by the end of three years - and it’s stepwise - 10 percent in the first year, 20 by second year and 30 percent by the third year. But this is not a big lift out of Baltimore and drop into Des Moines. When we recruit people, we will have job postings in all three cities - Baltimore, Lincoln, Neb., and here. But I personally think we’ll see more qualified candidates here. We already have. So this floor seats 55 and I bet we fill that up, and we’ve got room for 55 more one floor down. The exact pace of hiring will depend on the resumes we see; we have 20 postings right now.
What’s Fidelity’s executive presence in Des Moines?
Launer: There are nine of us that constitute the executive team. I’ll probably take an apartment or buy a condo here. If these (recently announced housing) developments line up next door, I think they look pretty good. There will be a pretty good amount of time that we split our time between here and Baltimore. But either I or one of the two executive vice presidents is going to be here all the time. So we will have a presence here all the time.
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