TEXT - S&P raises Fidelity & Guaranty Life Insurance Co rating

Overview
-- Fidelity & Guaranty Life Insurance Co. (F&G) returned to a top 10
position in indexed-annuity sales and continues to reduce investment risk
since being acquired by Harbinger.
-- F&G's third-quarter 2012 statutory results continue positive trends
from 2011.
-- As a result, we are raising our rating on F&G to 'BB+' from 'BB' and
revising the outlook to stable from positive. At the same time, we are
assigning Fidelity & Guaranty Life Insurance Co. of New York our 'BB+' rating
with a stable outlook.
-- The stable outlook reflects F&G's improved sales trends, de-risking of
the investment portfolio, and strengthened capitalization.

Rating Action
On Dec. 13, 2012, Standard & Poor's Ratings Services raised its rating on
Fidelity & Guaranty Life Insurance Co. to 'BB+' from 'BB'. We also revised the
outlook to stable from positive. We are now reviewing the company on a
solicited basis. At the same time, we assigned Fidelity & Guaranty Life
Insurance Co. of New York our 'BB+' rating with a stable outlook.

Rationale
The rating upgrade and stable outlook reflect F&G's strengthened competitive
position, decreased asset risk, and improving operating performance. As of
Sept. 30, 2012, F&G earned adjusted statutory net income of $211.5 million, a
$64 million increase from prior-year-end levels (2011 results contain the
negative impact of about $140 million from the closing of several reinsurance
transactions). Adjusted statutory net income for the year so far, as of Sept.
30, 2012, comprised reported net income of $88 million, net realized capital
losses of $5 million, and $118 million in unrealized gains from derivatives.
When analyzing statutory net income, we adjust earnings to include the
unrealized gains or losses on derivatives backing the fixed-indexed
annuities--reported as a component of capital and surplus--to match it against
the offsetting change in reserves that are reported in income from operations.

F&G recently returned to a top 10 position in indexed annuity sales as of
March 31, 2012, a position it last held in 2007. As of June 30, 2012, F&G's
indexed annuity sales totaled $1 billion--almost triple prior-year sales. For
the same period, indexed life sales (on a weighted basis) were $9.4 million, a
modest increase from prior-year levels. However, F&G's narrow business profile
may affect its competitive positioning in the future.

In its fulfillment of the terms and conditions for the pending sale of F&G in
2011 from Old Mutual PLC, Harbinger identified certain investments that should
be eliminated from the investment portfolio. F&G disposed of these investments
in 2010-2011 to lower the risk in its portfolio without incurring significant
losses. Although 97% of F&G's bonds were rated investment grade as of Dec. 31,
2011, above-average credit exposure to 'BBB' rated investments (44% of the
fixed-income portfolio) offsets its below-average exposure to
speculative-grade assets. More than 85% of F&G's investments are fixed income,
mainly investment-grade corporate bonds, municipal bonds, and agency
collateralized mortgage obligations. The company owns minimal residential
mortgage-backed securities (4% of total invested assets) or commercial
mortgage-backed securities (3%) and has a small exposure to real estate. F&G
also limits its exposure to alternative investments.

F&G improved its year-end 2011 risk-based capital (RBC) ratio to 371% from
350% in 2010 (despite a $40 million dividend it paid to parent company
Harbinger Group Inc.) primarily as a result of positive statutory earnings,
reflecting continued maintenance of capitalization levels.

The ratings on F&G reflect its good competitive position, which it derives
from its distribution relationships and fixed index annuities
product-development capabilities in its niche markets.

Outlook
The stable outlook reflects F&G's improved sales trends, de-risking of the
investment portfolio, and strengthened capitalization. We expect F&G's indexed
annuity and life sales growth to be consistent with industry trends for 2012
and 2013. We also expect F&G to generate at least $100 million in adjusted
statutory net income in 2012 and 2013 and maintain a top 10 position in its
primary niche business: fixed-indexed annuities.

We could raise the rating if capitalization becomes sustainably redundant at
the 'BBB' confidence level as measured by our model, and if operating
performance and risk management continue to improve. We could lower the rating
if F&G's RBC ratio declines below 300% or capitalization under our model
declines significantly. We could also lower the ratings if F&G's investment
risk increases aggressively or if its competitive position weakens.

Related Research And Criteria
-- Refined Methodology And Assumptions For Analyzing Insurer Capital
Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
-- Analysis Of North American Life Insurance Operating Performance, May
13, 2009

Ratings List
Upgraded; Outlook Action
To From
Fidelity & Guaranty Life Insurance Co.
Counterparty Credit Rating
Local Currency BB+/Stable/-- BB/Positive/--
Financial Enhancement Rating
Local Currency BB+/Stable/-- BB/Positive/--
Financial Strength Rating
Local Currency BB+/Stable/-- BB/Positive/--

New Rating; Outlook Assigned

Fidelity & Guaranty Life Insurance Co. of New York
Counterparty Credit Rating
Local Currency BB+/Stable/--
Financial Strength Rating
Local Currency BB+/Stable/--