Falcone Insurer Jumps in Debut After $165.8 Million IPO

Fidelity & Guaranty Life (FGL), the insurer controlled by billionaire Philip Falcone’s Harbinger Group Inc. (HRG), jumped in its trading debut after raising $165.8 million in an initial public offering.

Fidelity climbed 11 percent to $18.86 as of 4 p.m. in New York, giving it a market value of $1.1 billion. The company priced 9.75 million shares, equivalent to a 17 percent stake, for $17 apiece yesterday, the low end of the marketed range.

Falcone is focused on running Harbinger Group, which has businesses from insurance to consumer products, after reaching a settlement with the U.S. Securities and Exchange Commission in August that bars him from the hedge-fund industry. He’s also been banned from being an officer or director of Fidelity & Guaranty, run by former MetLife Inc. (MET) executive Lee Launer.

Fidelity & Guaranty, based in Baltimore, is listed on the New York Stock Exchange under the symbol FGL.

Falcone bought Fidelity & Guaranty from Old Mutual Plc for about $350 million in 2011. Apollo Global Management LLC and Guggenheim Partners LLC have also been acquiring life insurers, betting they can better manage the companies’ portfolios than prior owners. The insurer sells retirement products known as fixed-indexed annuities, which offer payouts tied to stock market performance with a limited risk of losses.

Photographer: Jacob Kepler/Bloomberg

Philip Falcone, chairman and chief executive officer of Harbinger Group Inc. Close

Philip Falcone, chairman and chief executive officer of Harbinger Group Inc.

Photographer: Jacob Kepler/Bloomberg

Philip Falcone, chairman and chief executive officer of Harbinger Group Inc.

SEC Settlement

New York Department of Financial Services Superintendent Benjamin Lawsky in October banned Falcone from being an officer or director of Fidelity & Guaranty for seven years, citing the SEC settlement. Falcone and employees of his hedge fund are also prohibited from involvement in F&G investment decisions. He’s still listed as the insurer’s ultimate controlling person in the IPO prospectus.

Falcone agreed to the ban from the securities industry to settle SEC claims, including that he improperly borrowed money from his fund to pay personal taxes. Falcone is in the process of liquidating the assets managed by his hedge-fund firm, Harbinger Capital Partners LLC, which, along with affiliates, controls most of Harbinger Group’s stock.

Proceeds from the IPO will be used to pay a dividend of less than $50 million to Harbinger Group, regulatory filings show. Fidelity & Guaranty can use the rest of the money to expand its business. Pretax profit at the company rose to $507.4 million in the 12 months ended Sept. 30, from $198.4 million a year earlier, as investment gains increased.

Mortgage Bonds

The firm has an investment portfolio of $16.2 billion, with 58 percent in corporate bonds, that generates income and backs future obligations to policyholders. About 11 percent is invested in asset-backed securities and 8.4 percent is allocated to mortgage bonds that aren’t guaranteed by the U.S. government. The company invests in loans originated by Salus Capital Partners, Harbinger’s middle-market lender.

Life insurers have benefited this year as rising stock markets and higher bond yields limited liabilities on retirement products. ING U.S. Inc. (VOYA), the life insurer being divested by its Dutch parent, has surged more than 75 percent since its initial public offering in May.

Leucadia National Corp. (LUK), which controls Jefferies, bought 18.6 million shares of Harbinger Group from Falcone’s funds in September for $8.50 apiece after the money manager agreed to meet redemption requests as part of the SEC deal. That made New York-based Leucadia the second-largest holder, with a stake of about 13 percent.

Falcone is chief executive officer of Harbinger Group, which controls Spectrum Brand Holdings Inc., the maker of Rayovac batteries and George Foreman grills. Holdings also include reinsurer FrontStreet Re.

Credit Suisse Group AG (CSGN), JPMorgan Chase & Co. (JPM) and Jefferies Group LLC led the offering.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net

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