BHF - Earnings call transcript Q2 2019 | Brighthouse Financial, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to Brighthouse Financial's Second Quarter 2019 Earnings Conference Call. My name is Brian and I will be your coordinator today. At this time, all participants are in a listen-only mode.

We will facilitate a question-and-answer session towards end of the conference call. In fairness to all participants, please limit yourself to one question and one follow-up.

conference recorded the replay reminder, a is for being purposes. As from ask portion speakerphones that we using of you call. question-and-answer Also, the refrain cell-phones, during or today’s headsets

David to you Rosenbaum proceed. presentation now Relations. may turn would of Investor like over I to Rosenbaum, Head Mr. the

David Rosenbaum

Earnings and morning XXXX for Financial's Second joining Good Brighthouse you Quarter thank Call.

review Our and of on to accessed Relations section of can our encourage presentation at all the the financial We in our were supplement and refer and release, prepared materials be earnings released remarks. night brighthousefinancial.com. website we last these to presentation Investor you will slide

Today Officer; from followed Eric Operating hear you Murphy, Conor our our Chief will Chief President Executive by Interim Officer and Chief and Steigerwalt, Officer. Financial

we question-and-answer Chief our open for Distribution Lambert today will up and John discussions us with Myles Officer; comments period. Spehar here participate Chief and call a Incoming in to the Chief Financial Marketing Rosenthal, Officer. are the our Following Officer; Also Investment prepared Ed

discussion may risks Our securities described company call. actual a forward-looking of filings will Financial's on no from call as within including discussed statements Information uncertainties, the Brighthouse The laws. the Securities forward-looking results meaning statements include discussed of August materially obligation anticipated to speaks today, the information with in on federal from result to results any the this those and today's only in time undertakes differ Brighthouse during and time call XXXX. Financial's X, today's U.S. update the Exchange Commission. as of

Reconciliations these GAAP most to accepted on historical a as that will non-GAAP are this known measures measures financial the of based and statutory of of certain timing on due measures. also finally, supplement. our principles, we measures statements. results comparable related call During non-GAAP be accounting earnings portion the and directly generally be discussing basis to slide presentation Investor filing financial the references of preliminary to found on our the And or release, website definitions statutory Relations may the not are

to over CEO, And now, Steigerwalt. our Eric call turn I'll the

Eric Steigerwalt

and the later, XXXX. you, during first quarter. interest markets alternative while everyone. given generated which morning, Investment discuss will delivered additional Brighthouse of and performance. were quarter U.S. capital investments results strong higher, during Thank the we Equity we David, rates income as quarter good strong was from market declined, second expected,

the while modestly second results Claims well. portfolio expenses very quarter higher our as investment remained sequentially, Sales the completed improved as repositioning in were strong and expected. of we

focused to shareholder Moving we which value. long-term forward, remain believe continue on our executing will generate we strategy,

our to Ed's moment officially Also, the us addition announced his to management I our customers. business. execute a six the help and Ed a deliver thank we Financial for that today addition team take the will I August Interim on a with the of long-term our months. value leadership in-depth XX. leader seasoned last Ed continue He shareholders, knowledge over want is Spehar to to to also Murphy assume of CFO role an and as our Conor recently and to confident strategy partners us with will Chief the Officer. CFO am company is as

XXXX. stock first of announcement of our approximately repurchases July. our Since of of and We we've repurchased in to one repurchase with in repurchased we continued second the have goal. of consistent the August $XXX this our $XXX to XXXX third quarter. is million of discussed, As of stock achieving stock our we toward XXXX, be over capital July goals common through And progress of in authorization a million a previously the our returner common we make time approximately of total have quarter million in repurchased $XX continue

to turn me results. let Now second quarter

slide earnings on summarized Our presentation. key of our quarter highlights the are three for

the I'm our of sales, up approximately $X.X compared sales First, the billion quarter. XXXX to had in results and We XX% of annuity pleased quarter very XX% second sequentially. with outstanding second up

We the of are quarter. we with business as as quality be sales adding each continue well new growth pleased to our

the positive. early The pleased SmartCare. new the In insurance our becoming but February, I'm been distribution quarter. are extremely sales our the first a from hybrid expectations the since part market. life move insurance an line as public we insurance launched pipeline, presence Results product has marked launch strong with life our third strategy very in This to and is reestablish independent partners competitive Brighthouse company introduction product with second in our in we into our feedback life of quarter,

continue add this out quarter, SmartCare of for throughout distributors roll and intend distributors the in major our product to year. second product rest We to additional the to the

million are as businesses. our were continuing costs. we to necessary investments refer our these infrastructure investments establishment Second, technology post-tax. the in $XX to make in We second quarter, costs and approximately establishment In

less touch in first the results. items improved of benefit a to provided extent higher XXXX. quarter. earnings, investment quarter but investment our the Third, quarter primarily favorable the second first market earnings a by markets lesser in notable our equity driven let Equity in on Adjusted given than income, adjusted alternative me the from earnings, to sequentially portfolio performance

annuity manage And our prudently we capitalization. finally, continue to variable

our higher. have business we previously, we to about managing are VA CTEXX talked or As

excess quarter, our billion $X.X CTEXX second of VA our assets the in were with approximately consistent of strategy. As

continues conditions expectations. perform line of program economic well, a and range with hedging across wide our in to Our

insurance impacted our rates. like the of more long-term call level companies, discuss interest to rates. second perspectives in the provide to turning let quarter Before detail, results me Conor by Brighthouse, few interest is a over all on

environment. sheet for well With said, is protected balance a our believe low we that rate

of sheet two and successfully capital exposures the capital the derivatives markets last managed our have through use We the balance years. existing on over

quarters sensitivity on rate this interest long-term changes our year, reducing of During the statutory and in proactively interest we first second protection, to added rates capital.

previously. assets another yet increase Brighthouse example above was sheet. CTEXX as $X.X in net quarter VA an I of is of hedging of our its the approximately balance prudently to The result This said managing strategy billion,

by our current achieve billion capital return interest capital our $X.X remainder rate to return low believe believe the to of to the target. ability have in we XXXX. levers target achieve we Despite We multiple continue environment, our

First, our annuity just prudently we discussed, backing in equity first we block. the as more I variable million rate normalized half statutory Despite given environment, low strong capital the the of $XXX of the are managing market performance generated than have XXXX. earnings

ordinary reform XXXX, the for variable of post holding Although in dividend financials. begin or Insurance BLIC the Brighthouse BLIC dividends our from implementation statutory planning are has XXXX for in regular to we Life currently capacity Company in annuity capital company

said released. we believe reinsurance capitalized. excess Brighthouse our it subsidiary, Company Reinsurance that Delaware could be is as previously, possible have robustly capital time Second, is over of And we

that capacity million. XXXX England company. will is or Third, a $XXX ordinary New NELICO we capital to Life Company over be NELICO's continue stable dividend source Insurance anticipate the holding for of

We intend dividend to holding company year. to the this later amount this

NELICO over will expect next We million million the several continue $XX dividend to per $XX approximately year to years. of capacity generate

finally, excess we have at currently And capital the company. holding

reminder, in our quarter times least assets is X a at of as fixed the excess the company And annual holding are XXXX, of second at As liquid well our we have our of charges. of goal target. to

protected results solid is continue environment. and up, for take low had to steps balance our we rate proactive we a ensure to quarter this wrap well interest To sheet

over independent significant as progress made We company. past the two an years have

second celebrate I of anniversary tremendous years. we a our focus work As two want week, to employees moment past their our and thank take this the hard to for all dedication, over

and annuity grow remain life we to and on capital, our managing sales, shareholder continuing value. focused forward, long-term Going effectively expenses, reducing driving

over call in the second Conor more Conor? turn financial quarter to I'll our discuss that, With to detail. results

Conor Murphy

morning, compared items the sheet and the notable on of adjusted improvement metrics We reported the of strong performance million as quarter evidenced key in the earnings excluding our annuity of we balance earnings program. had XXXX basis XXXX. in Thank earnings with of Last you, Eric, quarter, impact in quarter million second $XXX results the the and million in same adjusted good $XXX first the and $XXX in of variable from continued everyone. night, hedging quarter adjusted by

expenses results Run-off $XX costs items in were impacting Corporate segment. impacting $XX & of after-tax our after-tax establishment two solid unfavorable case, were the reinsurance investment related to modestly, the improved There performed equity million higher expected. better and and Other; the quarter: million than notable were Overall, adjustment base corporate markets claims as a

the underlying themes sequentially. investment which continued after-tax sales results Overall, few as net The increase quarter quarter. were given momentum. by higher was performance. first the A our growth, market primarily driven positive $XXX influenced strong approximately by our returns, primarily this asset improved was income which million driven alternative investment Prepayments was increased

of mix investment have we the our billion market I a quarter $X base account were with of portfolio. would diversified separate through into the the points returns the XXXX, repositioning spread to above also the in second completion of over percentage like Continuing case note results, approximately assets, our X.X% quarter, marking treasuries positive repositioned two of assumption. high-quality impact on of

$XX with Compared of tax. base impact resulted in million a after this favorable the case,

sequential separate case on than on were While account DAC which basis. were assumption, XXXX the quarter first amortization they higher a base returns, separate higher returns reserves in our resulted below account

revenue days modestly higher Higher more Variable coupled annuity first at separate sequentially. end separate the account higher balances of ended at account than processing $XX billion XXXX. quarter balances quarter in of the the fee with resulted

the to higher quarter life Moving primarily claims of first result recoveries as modestly compared XXXX, the favorable reinsurance on insurance, in a second quarter. to were

million quarter corporate the up second expenses sequentially our million, in with $XXX were our Lastly, consistent pre-tax expectations. approximately $XX

the year Brighthouse level to year below continue full platform. corporate be to or with anticipate expenses transition full XXXX as XXXX operating in We slightly we line the to

projecting $XX by corporate a year-end basis of and reduction expense XXXX run-rate an XXXX. in on still are additional We million a million $XXX

Turning Starting $XXX to in the were the earnings segment excludes annuities, mentioned adjusted items. adjusted with which the segment previously in notable quarter. the level, million Annuity earnings at

As I positive our first a market returns momentum. strong by above the first benefited to base quarter in quarter. balances investment XXXX driven continued were the sequentially returns aided performance and which by lesser strong case, mentioned, sales the than were Alternative increased quarter account extent the in asset earnings adjusted and separate

in impacted was amortization. were by driven adjusted Other Run-off million an Additionally, alternative by Sequentially, higher were income segment increased as investment Sequentially, in the of expenses returns was loss segment in This The $XX $XX Corporate previously increase marketing return. reported and favorably by earnings DAC quarter. the the of the fee branding were sequential million. higher of investment earnings the ongoing recovery. by Life quarter. driven higher programs. Adjusted $XX The and alternative offset higher results adjusted partially reinsurance had in I & million increase mentioned. timing

were in of update would XXXX an our sensitivities respect hedging position To capital and outlined With with provide annuity XX-K. on our results in line to to XXXX. like wrap-up, variable in the I XX, as outperformed expectations strategy, our quarter the June Form

added statutory we in the half reducing protection, rate previously of the changes rate. to mentioned As capital in we first long-term more XXXX, proactively interest sensitivity interest our of

above VA approximately to The quarter second our net was result $X.X billion interest increase hedging a CTEXX rates. of in the sequential lower in strategy assets despite

normalized program total $X.X adjusted capital quarter bringing in $XXX earnings to variable by approximately million second our Eric quarter prior as were million. $XXX from Additionally, said quarter. annuity in was year-to-date gains million hedging approximately up statutory combined over the $XXX billion from our the the driven total Statutory

for capacity adopt better to come way our hedge dividend the growth new framework will we changes by year with statutory for We reform We believe pave end reserves years intend in to as expect ordinary will in the help XXXX. in align reserve reporting NAIC the target. VA

manage sheet. Finally, at leverage million approximately with ratio were our XX% was second quarter another and at assets quarter. prior the all, financial solid holding consistent balance our performance to we we liquid prudently continue end had quarter the of of $XXX and company the average In our

that, like for call to questions. turn we'd over the With

Operator

Thank Greenspan of And from our sir. Instructions] line you, question [Operator with the will come Wells Elyse first Fargo.

Your line is open. now

Elyse Greenspan

Good My morning. first Hi. question.

second work the a quarter. it's on X.XX, at of guys sense today? at quarter the the we're at to the the the purchased obviously work XX-year at with interest that seeing continue X that ability the give to end Could you to interest to the of at the hedges it's with now of rate you the just subsequent level the hedges us drop in their end guys -- quarter You and increase XX-year rate pointed

Conor Murphy

add believe Elyse, a so Hi, our protection the protect conditions hedging Conor. Yes, designed we're to did rate But the environment. it's strategy. half sheet strategy executing in first With and well. market respect it We of to of correct. up for against you're year. statutory we this well-protected we're is balance it low the At as mining amount stage reasonable are the we

took volatility being to implied given opportunity half the the historically first increase of protection. the interest low levels So rate at we some year, in that

So believe quarter. that believe second we this at be With we're that feeling good. we the from statutory We right the wouldn't well-protected impacts stage. basis, meaningfully now different we're on finished we here from respect as pretty to where a of

Elyse Greenspan

helpful. That's of the in annuities sales pretty Okay. in were And the then quarter. terms the strong

companies other given products. rates Some to had have interest adjust commented their they their on some lower pricing as of

of And help So impact things? from -- have on here offset you would is you that any an on there distribution well? sales an or offset potentially changes guys is side taken action expect the as arrangements could new pricing from just

Conor Murphy

Yes.

to for a and We're seeing terms not from then it We from on weeks. a ask perspective. pricing heart meaningful sales anything and from do annuity start give Operating every not a a perspective. second to Let all pipeline from add the going meaningful commentary Chief Myles revisit and me I'm I'll of impact Shield-liked Officer pricing some in and view. But Myles. pricing products our to But point two a of seeing pricing my

Myles Lambert

knows you, as Thank the product. Shield of Yes. from everyone Conor. our sales our are coming And majority

continue So grow we sales continue that able front. confident to be on sales we'll remain to very that --

a environment. to to it sales So we ability our on significant don't see as impact low relates interest a rate produce

Elyse Greenspan

color. Okay. Thank you the for

Operator

with Kligerman Suisse. the And come you. from Andrew question will of Credit Thank line next our

now open. is line Your

Andrew Kligerman

Hey, morning. good

question is are respect buying? balance interest the your sheet you're First from using protect statutory -- about the you Could to instruments hedging you of that to hedges with around rates. talk types

Conor Murphy

and probably I the mean, about you're familiar composition XX-Ks I pretty $XXX XX-Qs. in we with the notional was Well, of Yes. billion disclosed. that think It

that is billion options. billion In the We what we first about year. had second changed up at in $XX billion quarter up this the We $XX to rate about brought added we terms about notional and interest brought of of the more of quarter. quarter to $XX end the it in

Andrew Kligerman

rise -- they the and are So if are feel see future I What direction? swapped? going opposite oriented? rates are I on in mean pressure they what particular, -- they you options the to

Eric Steigerwalt

particular if all up. comfortable respect a pretty rate options. Andrew, rates it's different. we we The isn't where we them. feel to the In of case now rates we was Eric. instruments But what mean very composition options of are stay at I added no use the swaptions, interest portfolio. comfortable this if swaps even they go feel or go with little hedging lower And

Andrew Kligerman

And are options these long-term? Eric,

Eric Steigerwalt

I not certainly they're short-dated mean options. term, Longer

they're Over than we've longer three the a last not out months. XX-year being years, little bit they're But duration discussed two duration.

Andrew Kligerman

should on net it. that And you at be million. Got earnings. the over normalized saw million financials, then a $XXX I had you've $XXX you loss And mentioned statutory call of of that the

loss of generated the clarify statutory a could $XXX that So million? what there you dynamics

Eric Steigerwalt

Yeah.

you're So significant quarter were the and elements in the the then the this of which I hedging not gains think CTEXX on the program. are missing and terribly the standard pieces scenario, losses changes unrealized that

you those giving when you the million. stat adjust of what's normalized for earning So $XXX number that's

Andrew Kligerman

I see. what's deductible lastly out And just standing right then the now?

Conor Murphy

so any since deductible Well, in change had we last overall the haven't quarter.

more XX. we're, above meaningfully obviously, So the

sort number range billion. last of in $X.X potentially it the haven't time think up we we by to going about we the $X.X it the had about quarter. a had changed in spoken I billion But

Andrew Kligerman

So $X.X billion?

Conor Murphy

Correct.

Andrew Kligerman

Thanks lot. a

Operator

Gallagher next with And will you. come Tom line Thank question the of from our Evercore.

open. now is line Your

Tom Gallagher

morning. Good

expect counting I follow-up a what guess the program. the when interest there protection going rate to is long-term I'm a at associated that you flows on cost is economics? on the is distributable what's -- So change at the about the with you this block? put cash getting in hedging long-term Just change your from you Would extra think

Conor Murphy

in overall Tom. I meaningful no we the here. add mentioned well, would extended cost. of some There's – to I've maturities extent change No, actually did and terms

in of the got So context you the $XXX put billion of this notional. to

Eric Steigerwalt

program. I we're a VA first -- Eric. companies in the I'm I the as it's low might change are opportunistic We sure hedging was it's opportunistic. add Tom, Hey in pretty think don't well. just this. The increase really quarter. its change has very way and parameters program. to bit. It's even frankly the And not a well like wholesale strategy. program protection It a little we found any around there's established. other is to duration

just a want I everybody, So change say for to itself. consider that in the I program don't wholesale

Conor Murphy

drove level. and of just at opportunity historically me reminder a start what here let that And was part low again the as volatility implied the is

rate -- first attractive interest chance the So in for well. to that year a gives half the well options we us pricing saw of as

Tom Gallagher

how Thanks. extract you of excess capital you sound much think -- can and timing confident when excess be when would some Eric, is might there the us is give to capital? you anything SGUL what mention be you from out of think the extract you captive. could And still standpoint And there? follow-up can -- my that begin then you would could you a the process What the

Eric Steigerwalt

Look Tom. regulators. conversations all this with our revolves Yeah around

can't think have I we're a these relationship it managing with attention We to in the timing We do company we're very we and all them, I pay dimension or pretty they the their either hope with what mouth them. doing conversations. I want on words a good but they feel job. we're good to that think size depends doing because a I put good relationship keep can't prudently. very the very

we and to the of time have and, capital as we over BRCD will discussing obviously, capital excess agree. they be So think position in what

as I to there do can't I'll extract I while as dimension we time, it absolutely capital over so. able believe So happy can And yet. I be soon will to be some

Tom Gallagher

The believing from on you environment capital current then would rate persuade just excess a not your there? you. Got quick interest And still material that. follow-up

Eric Steigerwalt

I've hours. the right. lot the XX persuaded on of a over definition been the to All current time spend of last word

be Currently volatility rates explicit area, okay? the If go terms we've back here. we not some I see able here, year's over seen the in probably So the some levers me and very to i.e. XX that normal returns. in capital the let of of hit degree, Then our billion have a to the XXX in capability some time extra to operating we be $X.X but environments to feel like some degree. lot up

that if interest tell on if three some the to that there. this then going that me into Now to look it's make call there's be would a headwinds like for to years environment take you and consideration, we rate current have at And I were that if assumption. going we we'd say

And last you scenarios, the published that, because know I all these XX-K. think we in they're

a all you pretty have there. of So longer-term good sense

I like I we the in well couple rates, way do clear hope see to there. mean So the I was If markets equity days. of and volatility don't last continue by if

You years. again, that's pretty helpful. hope some a will know know here. Then put were That headwinds. Again, was But I of I I rates what surprise. that for talking I'm a lower feel comfortable. number no about longer-term

Tom Gallagher

was. Thanks. That

Operator

you. Bass our from And line Autonomous Thank Erik next question of will Research. come the of

line open. now Your is

Erik Bass

you. Thank Hi.

to both one rate that Just for cash and is provided interest may we flow? given about any changes how follow-up should vein the first -- think you've that sensitivities capital be previously along

Conor Murphy

from flows. scenario. The we or year-end -- not those repetitive disclosures have to totally for as are and impacted Erik part me cash again, cash flows I get Eric's our XX-year -- earnings both So, redundant maybe let are and distributable just don't

of they're So with better. at where to those if modestly we're year, similar you probably today and the compare the end were

of think the you then perspective, is of it equity terms the of an market rate. from back part earnings, equity market gets and drivers, interest the In it to part what distributable

number. that said, like, scenario and interest them few years, of know are in they Eric rates looks are to the you what as the because okay, If your a -- So were equity for lower that gave the it's stay going lower where both not markets XX-K. then you then we next the be

Erik Bass

your, if rate impact Thanks. I the any you quarter then can were assumption, of net X.XX% just the income to sensitivity it. third thinking interest kind any to to you long-term Got make And review? think, ahead changes provide to

Ed Spehar

Hi, Erik, it's Ed.

So done rate year the you third a in actual update is know once assumption our as quarter.

on provide we so next the But call. perspective quarter's rate me a discuss And little will on let assumptions. it interest bit

have XX-year. a mean X.XX% So, on reversion a GAAP for of the rate basis, we

which the rate basis, we interest stack the run a how company assumptions On implied are is lower.

a weighted So VA for reform, data. first, interest average on there's prescribed of historical a methodology under rates based

So, calculation our as reversion for CTE XX-year. a rate the includes implied an mean of result, X.XX%

we're flow we At reserves required flow an to rates exercise stack continue current cash includes we cash on had year-end margins. of testing we annual believe scenarios. margins. perform interest and meaningful And basis this to a have XXXX, Second, for have meaningful stress variety at rates, testing

calc it's no changing So stat balance would to rate on reversion mean that say our assumption bearing GAAP the have or CTE fair our sheet.

So, assumptions just to on a interest the sense helps. and give GAAP a Hope difference of between rate stack you that basis.

Erik Bass

and Got quarter? can then point, until any of kind at you GAAP just this third sizing obviously it's Is there it. non-cash wait that And basis, give on or accounting-oriented.

Ed Spehar

Yeah.

I think third wait going quarter. you're have until to the to

Erik Bass

Okay. Thanks.

Ed Spehar

process. This involved no. is Actually, an

stay tuned. So

Operator

come with of Nadel Thank you. question line our UBS. And next the from will John

now open. Your line is

John Nadel

morning, Hey, everybody. good

that real been hedging approach, half of of look equal Eric overall guys you sort or beneficial. to late CTEXX incremental of me curious you're your like half hedge that what guys obviously very that in not change the I'm beneficial how did? coming would that as done impressions you else action as XQ? into it billion have the XXXX the incremental first no $X.X you has know not seems but Because year what to actually I to the that All relative it put year. on have the Just as of first maybe back in describing

Conor Murphy

have have not fair Conor. It's CTE numbers the Yeah, been quarter. on consistent with protection They additional the John. would would question. pretty we put Had Hi, been first flat.

in looks and the like of closer $XXX $XXX increase the It's million the to a probably would not terms have increase seen million. you from increase -- rounding. So the

John Nadel

Okay.

Conor Murphy

had we added have flat So it been would extra protection. not the pretty

John Nadel

if Okay. want cash you books? got your I on you distributable where that -- this, to That's actions tell can helpful. then And have really paraphrase I me think I've impact or doesn't incremental is right try a guys it wrong. expectation to The think it but meaningful maybe and

Conor Murphy

or you talking the about Are protection, you about cost? talking Yes. the

John Nadel

net. activity Just does look a out dividend you a Does change put not it as in on dividend for to potential holding basis or or statutory we your two? better the company potential it position materially the next year

Conor Murphy

material. I don't of to the to think year able more I we're the that's is going that. of meaningful end it's going revisit Look be at reform and those to full to meaningful this terribly VA the full with or the don't the again, think adoption implementation

John Nadel

quarter one question investment this may alternatives income understand I investment help XQ, how sure consider if just on -- includes income basis Got wonder on $XXX of that just And and I'm us of of you prepayments normalized sort then you you much NII? more an be okay. to make-wholes, a total million could the so at not would if of just relative underlying level

John Rosenthal

Hi, it's John.

John Nadel

John. Hi

John Rosenthal

alternatives So, I into two think we prepayments buckets. break in

about quarterly know are less returns as these long-term we predict class was and this base of the hard asset million alternatives past. $XX much billion, about a talk in X.X%, you return the a returns It's are as quarter real the alternative for woeful. quarter-to-quarter $X.X As from on to year-to-year for

that's X% again, long-term disclosed XX% and we long-term. alts we expect to return from our in as But presentation a

that what feel just a normal as but a quarter might can to free much alts. is like, no mind quarter those you to So, use numbers there in derive please thing for keep such look normal pretty

due one bond prepayments prepayment. side, mortgage prepayment, elevated prepayment primarily during quarter, were the -- one On the we to

You to I'm a not off as million prepayment. that could -- normalized to number separate $XX we but give more from you get a can whether $XX sure pretax million prepayment take number,

John Nadel

Okay.

that's in right? $XXX the high quarterly Okay bordering seems $XXX about so to million, be at million on be may NII

John Rosenthal

guess. pretty that's I think good a

John Nadel

full benefits of inclusive the that's of the Okay. repositioning, And all correct?

John Rosenthal

it Yes is.

John Nadel

so Thanks much.

Operator

our And Jimmy line JPMorgan. will you. come from Thank next question the Bhullar of with

Your line is now open.

Jimmy Bhullar

morning. good Hi,

to of the year your of Chase, I added more fully believe those on is major on over some you've is distributors what all wanted Primerica, you the added distribution you outlets? ones Shield product just fair sort the getting idea benefited, grow, of there share you've the distribution you of Obviously, just First helping are annuity go is your as an well. sales. or that past get to in like terms through you or

Myles Lambert

It's Myles. selling our in Thank you feel to on to lot we that expand a No, for new channels. brought we for there's product. relates the room and still into to the of it we grow of as other distribution like some growth to distributors question. But addition flagship that new firms continue

grow their selling there. is working that seen continue lastly Shield, then them business I firms we've are would And the that to say the what that been with over past we've years several

still So, a as forward. our to there's it moving growing Shield of relates like feel sales lot runway we

Jimmy Bhullar

then expect how quantify? that And adjustment can as earnings from if well? your Okay. you is yes, it on you cost ongoing an do reinsurance impact the if on And much

Conor Murphy

There's an that ongoing quarters. not Hi, one-time reflection. a future impact in it's No, Conor. is

Jimmy Bhullar

you. Thank Okay.

Operator

you. Thank

Our of the question come line Krueger Ryan will next from with KBW.

is open. line Your now

Ryan Krueger

morning. Hi thanks, good

reinsurance of purchased reinsurance access we the for life back of materially when So, the capital hedges captive of you on all you the did On those stack maintain still lower Do large capital a separation, view not hedges? in rates, it's that. the your about had guess, rate impacting think interest captive? you pretty amount I rates should

Conor Murphy

keep as simple answer yes. -- that We our perspective. the rate we is well protection maintain Yes, on interest from an

Ryan Krueger

NAIC you of excess think in discuss you've incorporated terms you've believe already on incorporated reform, when then in VA most I I your guess And capital -- impacts it. I Got guess already I the I adopt of confirm fully would CTEXX. this year I generally already? guess you much you this do just of you wanted or additional But at the capture change that end when the to of impact expect

Conor Murphy

Not the calculation. to with respect CTE

Ryan Krueger

So, RBC calculation? the just

Conor Murphy

be yes. Well, -- that a will

we of how are the the there already elements incorporate are yes, impacts calibrate there But the So, complete. -- transition be for reform. of that terms VA not those will CTEs, in

Ryan Krueger

Okay. Thank you.

Operator

Thank you.

question of come will with next Citi. the Kamath from line Suneet Our

Your is open. line now

Suneet Kamath

morning. Good Thanks.

to could. few I wanted Just a things, try to reconcile if

things confident On of dividends if we earnings hand, pretty that it low to then, that sensitive ability the for pretty XX-K at shows big distributable BLIC? other drop-off the BLIC I'm get get if those level the distributable you confidence rates. gives disclosures, out And you to trying of in your you of one in in your seem what the of we environment, few scenario out this to in at and reconcile on earnings. hand, rate just look particular, business VA pretty are can out look a we're understand XXXX. dividends the the by if But

Conor Murphy

the let bigger and four, rate me no I differences And between earnings. actually And distributable sort the two right, difference to a four. equity than a meaningful rates equity interest is you're be you mentioned remember, of might because they're and market it's the one those in But meaningful there a little market see difference interest combination a the scenario of between element. both start. scenario scenarios returns. Well little is both

yes from had component, Eric challenge. be So, interest the to I the if a earlier, back that market what rate will you're again isolating said think equity

few equity both the markets years. out yes the to you're be ability well the an next additional the interest then, challenge to to those low low we that'll If saying over prolonged have take that and -- rates ability

Now over we're We've that. $XXX executed million of again remember million $XXX already. in

after I end million $XXX July. the of go got to we've think

earnings also first of in have this We million start the year. six $XXX of months

we've well. you'll depending distributable starting earnings that other calculation on made have the to when point to reference And think have is, today, we as of into as some you're you're So again well. if starting that count I drivers your

Suneet Kamath

it. Got

one And just there's know this any comment? much to helpful. That's summer. those captive, talked very you feedback I last then regulators regulators. I on having believe it's had the to whether on been Any color quarter's you can Okay. the them if one quick you've the call, about from But with the initial extent still conversations on conversations tied and

Eric Steigerwalt

with go. have on ongoing need cetera. to to. some to our revolves doing; These we're stuff one company want This managing got understand conversations what continue we had And conversation Suneet, exactly they we've go that'll are should understand frankly. them we're the it's regulators. more it conversations Eric. and for that long how never as Yes, as Yes. we have et around We to prudently plenty nor

love that about to the way. I This So, that time. there. And a on excess I'd like play-by-play definitely to do but as truly believe where give talk unfold be conversations capital you we will a this I I it have these just it unfold can over able call work to will. really doesn't point here,

Suneet Kamath

Thanks. Okay.

Operator

you. Thank

question the will next with come John Our from line O'Neill. of Barnidge Sandler

line open. now is Your

John Barnidge

the a Thanks. it's tax answered. But quarter-to-quarter. some Most questions your rate range? been there rate, But volatility level of have is thoughts full I what around a are on danced of on my bit, year get current tax

Eric Steigerwalt

expect in mid-teens. it'll the You should be

John Barnidge

annuity how answers. sale conversations given the sold so Okay. And the annuities. not the year year, Thanks on the rate year for equity only last an side, indexed fixed versus interest have markets well change because but this Shield this and then the has volatility of on

Ed Spehar

Can that clarify question you a bit? again little

John Barnidge

market sales sold How of the indexed versus side year a this products conversation having rate in light the volatility interest the and also the well, equity having Shield sold the I year. for on in this segment? Sure. in has ask but well annuities given year side fixed Annuities the on changed perspective your last both this

Ed Spehar

Yes.

short-term on market protection, our volatility thing product. the for Shield a of on remain slightly market I Shield but is good to perspective, equity yet for impact clients look on could actually still as side; more longer-term point in invested your So But this perspective type a sales. think a

a we're As FIA seeing story. it think similar to sales, I it's with relates what

in I think come providing down they the looking for an guarantee those are that with standpoint, fully that interest-rate maximum clients a protection and looking bit customers market advisers little that can provide it's from rates might type though so cap protected stay invested are products. for, that of still even to

Eric Steigerwalt

I'll something John, too. just it's Eric. add

pressure going And got be prudently on for pure looking but to are our obviously still guarantees. the pricing, we're fixed seeing there. On side, if returns, look, any people we manage it's to

next. think go We'll annuity sales I companies, have at I you're here, But only fixed doing seeing here, thought not other but where what clarify why rates that's that. okay. just happens see to So -- I'd

Operator

come with you. of And the from question line our Alex Scott will Sachs. next Goldman Thank

is open. line Your now

Alex Scott

Hey, the good also on follow-up a morning. I have program. hedged

bit you requirements the on that at So, there surprising provide as of didn't the CTE derivatives the guess some I that look it your I guys big was a quarter-over-quarter, the way, an spent disclosure when through it's you think move liabilities sensitivity the movement product in move. is guys that And $XXX million. offset in the -- have I much. around of provided

the money of the that your it have wondering, if the up you that's out are going so And marks I'm that of is options from equities? forward? that on equity Have the there's just the a this. some So now sensitivity move much exposure markets equity you -- does of far change not drag driving

Eric Steigerwalt

We've let a to got portfolio, right? couple It's a Alex, me understand liabilities. You Eric. the conversation these had It's this start. of calls. on movements times big and

understand changes second consider the did got from It's quarter, the first strategy side, we going. following off we predict where movements said we asset a I that big the the I to as perfectly in the And generally previously, we've what And stat a and don't consider strategy. company. had been that spun is change. changes. this pretty volatility to You hard frankly outside I on

were time But that. volatility. at I look interesting margin we of that'll John does and time us. for shades and a This time Now looking the cause it's gray to on is I from everybody particularly oppression. know --

the watching our think And handle well. as markets constantly got calculations on I cetera. we've et a are liability We reasonable

hedge the managing the portfolio time. we're So all

certainly it trading but the necessarily Not the all time, all time. managing

a think like, the you. the it get I'll within million-ish, on know quarters to the I it $XXX over turn do. get than it Conor, right down couple something. I outside anybody So to was of to to add So hard I thing that's easiest you're penny, better okay? not of ago to but maybe sort trying to I would be know want you for

Conor Murphy

this calculation risk just of yes need time and do say really you that the liability Eric to in through your analyst fees not detail, is, appreciate the Well you've and but a again as think What you've -- to gone the everything components basis but and you're the changes going detailed it. I completely in actually and I be else. of hedges, was great portfolio order said, -- you I as to And very elements captured decay well.

you're able to assumption, able like as it but reasonable I get be be to point, Eric's to think as So you'd going a to do won't you fine-tuned to.

Eric Steigerwalt

And this maybe I'll well. just add as

program about the the strategy. but stat all do at to we're what understand. hedging you handle with balance I sheet ultimate margin here. we goal good it's our of the hedging do. wholesale not hope no have strategy. I were this the program. now comments two-year we to wanting There's helpful. and with really feel stat balance hedging those good anniversary, And is the issues to is on Do in doing the goal things, tomorrow have believe really hedging protect changes our think I really know that do Again, I some the to feel unfold is I been protect I strategy. you that and a starting sheet. the portfolio And this We of ability Our about

Alex Scott

guess more options XX% associated that were to still intact think on were with like XQ I of the money if follow-up helpful. around comments XX% very just the balances out I equities the Those options hedged One Yes. were that. now.

pull -- this taken very not of you about far was small have but need any the equity And was of think talking money. the the further out opportunity changes, I I'm to of and that like So those? options

pulled those or interested in just not? So were if

Eric Steigerwalt

as out these you where to be like you this anything? a look can find on eventually So add but we're Conor, take want what at what are minute. I able right doing, you'll retrospect, don't we're positions to comment in want to doing

Conor Murphy

the speaking interest in protection Eric. in I with agree we schedule our not think portfolio meaningful you'll queue -- would the due it's the pretty But the I increase talked and yes, option. course you'll equity rate say about meaningfully a get would the option different And the BAs. other of get I across elements broadly including look

Alex Scott

you. Thank

Operator

Thank you. Lee come the & question of from our And will Humphrey line Partners. Dowling with next

Your open. line now is

Humphrey Lee

for my morning questions. taking Good thanks and

terms understand would like program. your on and protection. fine-tuning a it's follow-up going to of hedged I on Just your be comment the dynamic I in about optimistic you based be guess fine-tuning incremental those you're right so anything and of like sounded be? some would now. planning potential could it what trigger But further comment, actions what some at earlier if your least are

Eric Steigerwalt

fine-tuning. I Because your is it a that's good Humphrey. phrase That's it's Well fine-tuning. love what

markets you secondary more we Just watching do when A consider change changes, you day, bit might And but liability as watching see duration. little every get again little longer it right? would like positive, that the fine-tuning. to the a order I affects you duration

how we see right do So think I that because would do fine-tuning phrase have but anything anything your that's now us about don't like I it.

Humphrey Lee

I'm glide you liked that.

So shifting I'm gear.

think to a of $XX For I said at based quarters. on that going kind But still million one-off -- volatile any segment given be the quarter-over-quarter for is you've know I to coming potential concern of quarter Could kind now. number be was quarters of just your looking – kind you're through up. It were as the of of any the we third book? that area expectations

Eric Steigerwalt

to to just is underscore X and reiterate will if Well, items. Okay. that range or you notable

I is think look materially it – different. nothing

year have we'll a Investor with think the revisit rates. later small our amount. Call I an is the opportunity – perhaps in run to This Outlook it's

if the a broadly to need I to move to revisit end about largely take we But think doesn't range. that you know run rates of currently let be And it and the speaking, the $XX it million them lot intact million treated. are the very we'll they think $XX number I talk and year in at much.

Humphrey Lee

Thank you.

Operator

will from with question line Thank the of our come Joshua you. next Shanker And Bank. Deutsche

Your now line open. is

Joshua Shanker

for my question. Thank taking you Yeah.

one earnings we data of to more, lot all? rates VIX should a detail And we think never the have falls? on from area you sensitivities how volatility. but getting on quarter. is information always a also bit us from We more update that capital beginning equity what really some little about interest you about are markets The even and And to Can on talk yesterday good of we're that the the of the went at great up XX XX don't have sensitivities.

Conor Murphy

it's Connor. Hey,

Okay.

specifically second it's VIX vol not for benign I it's best you meaningful it really was if not determinator, I look a yeah, generally for in a and So very is vol higher quarter factor for hard. will us. a – was the is QX, – calculation will us. the – say I the positive probably volatility but

Joshua Shanker

asking I'm about No, course. third of quarter

Conor Murphy

there's to third go quarter. have be to of the long going a Yeah. way we in – lot Look a

to going what be that terms the of stay than on currently. other collide that, would finished interest where second may I away said previously predictions in speaking we I'm any quarter from So where we broadly rates

Eric Steigerwalt

end But Joshua, yeah, that. of could where of it'll It from it's know quarter. But obviously it's mean, Eric. view point speculate the the early I you the to I be of at pointless help. mean August

Joshua Shanker

us is looking frame or looking to not to point going I but to read a for about sort you this for that I'm morning, are it it? actually can there rule of think we this I'm thumb speculating, help of

Eric Steigerwalt

that know good complicated, definitely be mean, know. I a trying guy really are to so. calculations really. isn't but higher But is And smart calculations I'm these pretty hedging are you the complicated. overall that not here. Not you The strategy

it's linear. perfectly not So

out rule Higher you some of I know want give that. better and all So to is here. don't thumb

So it that. at I'll leave

Joshua Shanker

there a And about interest impact? fall is big rate think we should How that?

Eric Steigerwalt

Interest be less than Less would vol effect rate would equity. have – than equities. an

Joshua Shanker

this rate vol for or calculations? positive the Is negative – a in positive is higher interest

Eric Steigerwalt

Similar.

Joshua Shanker

okay. better, vol higher Similar,

Eric Steigerwalt

getting You're Joshua? else, there. Anything

Operator

turn Steigerwalt gentlemen, Mr. and closing to over back now Ladies remarks. would call the I for

Eric Steigerwalt

Thanks.

and just second a about challenge I'd on know While of just maybe wrap-up that sort low interest talked minutes our all on lot Look, industry a we we where we're two thought here, is here anniversary. today. still on pose have everybody to spend to rates the I on

a we'll well last protected discussed balance we've two do sheet managed Over this call. to as is a believe in our large low the capital rate and And we've years, for our the environment on part future. prudently of continue we so

period this maintaining years not as continued extended almost because call, rates repurchasing have current shareholders to capital and even have our they billion discussed returning as have of and this capital $X.X two began target declined. ahead interest then rates we're We we'll on assuming by of for Also, will could stock level we're return stay conversation. XXXX, although an the year-end again our a at time different we've at plan

also levers can We rates. from low we And do and have as pressure well. markets the interest where offset have could other that pull would to obviously we equity talk some of to about are

I robust. going our good here. I a think Let pleased questions prospects some couldn't They few couple things. be feels very to Look, you still A Myles say more be about sales. me just you with more of continue our forward today. can that And asked annuity sense he

variable product of meaningful annuities. offset In addition, to remember risk enforce our block our Shield a that let's has

also designed in insurance So, way was ago working life We're as it space. advertised. re-establishing presence the that it is our years and

I'm really going the here. about third So, into quarter momentum the excited

our TSAs, about establishment good made expense my I We will that higher. good exiting want a the this, I'll one-time reduction our be feel say tell is we do and progress you guess costs to really little plans.

for it'll take probably all little probably And into investor more. be third think one So, quarter, a going that. get know that's Maybe a call. to an that little we'll spot, you longer in the it's certainly to on I and important cost

the treasuries we're and savings mix high-quality multi-manager into portfolio, the With assets. associated of cost spread respect a We've that. strategy, transitioned billion repositioned are that now diversified approximately to also of our $X with fully to investment

this looking me to of about well the fully We've starting talked feel hedging that good right you program I almost strategy. various cycles. feeling all that a transitioned it get the to through the I and are economic working We've are strategy lot hope we John's now. So, that about at multi-manager managing is today.

strategies. to I'll remain just committed finally, say executing And on we our

those no the transparent ramifications X-ish out economic we have our And targets conditions So, on strategy. conditions, what what strategy, as many goal to are and we as with to be we a there. the matter laid but -- respect of don't it's economic always know, we'll hit I out possibly can, that

paying being thank board two over years, attention thanks on and So, for for the all last you today.

Operator

Ladies conclude for This and today's Everybody may gentlemen, thank program, and day. disconnect. a participation wonderful you our all have does on your conference. we

Brighthouse Financial (BHF) 6 Aug 192019 Q2 Earnings call transcript