Brighthouse Financial, Inc. · NASDAQ:BHF
Brighthouse Financial — Investor Presentation (2017)
47 slides from Brighthouse Financial's investor presentation, 2017
Slide 1: Brighthouse Financial, Inc.
Brighthouse Financial, Inc.
Slide 2: Note regarding forward-looking statements
Note regarding forward-looking statements This presentation contains information that includes or is based upon forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. T
Slide 3: Key members of senior management
Key members of senior management Eric Steigerwalt Pete Carlson Anant Bhalla John Rosenthal Chief Executive Officer Chief Operating Officer Chief Financial Officer Chief Investment Officer 31 years experience 30 years experience 17 years experience 33 years experience Select Experience Select Experie
Slide 4: A large insurance business with a well established retail platform
Brighthouse: A large insurance business with a well established retail platform 1 Major industry player with large in-force book of business providing immediate scale 2 Separation creates a more focused, nimble U.S. Retail franchise that can favorably adapt to market dynamics 3 Strong capital base a
Slide 5: Brighthouse is one of the largest U.S. life insurance companies
1 Brighthouse is one of the largest U.S. life insurance companies Select U.S. insurance companies by assets ($B)1 Select BHF metrics MetLife $6963 $915 $11.2B 4 Prudential $797 Shareholders’ net investment AIG $500 (ex. AOCI) New York Life 2 $318 Lincoln $267 4 State Farm Group 2 $251 $219B 2 Northw
Slide 6: Diverse in-force book and policyholder base to drive relevance, scale and growth
1 Diverse in-force book and policyholder base to drive relevance, scale and growth ~$195B assets under management1 Variable annuities • GMIB, GMWB, GMAB, GMDB – Ceased new GMIB in February 2016 61% 6% Life • Term, Whole, UL and VUL 19% 14% Run-off • Includes ULSG Fixed & index-linked annuities • Fix
Slide 7: Significant fee-based revenues
1 Significant fee-based revenues Operating revenues Fee income ($B) $4.3 $4.3 ¹ $4.1 Annuities 55% Life 14% Run-off 26% Corporate & other 5% ~$9.0B operating revenues for 2016 2014 2015 2016 ¹ Includes approximately $0.3B higher fee income related to recaptures of single premium deferred annuity blo
Slide 8: A more focused, nimble U.S. retail franchise
2 Brighthouse – a more focused, nimble U.S. retail franchise • Focused on target market segments • Simpler product suite focused on generating statutory cash flow • Independent and diverse distribution network • Emphasis on operating cost and flexibility 8
Slide 9: Attractive target markets
2 Attractive target markets Brighthouse target markets represent ~45% of U.S. population Diverse Middle-aged Secure and protected strivers seniors % of U.S. 8% 23% 15% population • Diverse segment; • Early to late stage • Nearing or in Drives relatively lower family formation; retirement, with Selec
Slide 10: Disciplined approach to future sales drives diversification
2 Disciplined approach to future sales drives diversification Key highlights ANP – Annuities Fixed Annuities GMIB1 • Primarily an annuity manufacturer 18% 15% diversifying into fixed / indexed Shield Level GMWB2 Selector • $0.4B+ annualized new premiums 15% 32% (“ANP”) by 2020 GMDB only 12% GMAB2 •
Slide 11: Shield Level Selector, our top selling product
2 Shield Level SelectorSM, our top selling product Key highlights Shield Level SelectorSM illustration1 S&P 500 Shield 10 • Broad distribution adoption 100% • Strong profitability and risk profile 80% Investment Gains / Losses Shield 10 protects clients against the first 60% 10% of market losses • R
Slide 12: Diverse independent distribution network improves profitability and capital efficiency
2 Diverse independent distribution network improves profitability and capital efficiency • 400+ independent partners, including brokerages, banks and other financial institutions and independent financial planners • Successfully built third-party distribution relationships since 2001 2016 distributi
Slide 13: Lean, flexible, cost-competitive operator post-separation
2 Lean, flexible, cost-competitive operator post-separation • History of expense discipline ̶ Current management team cut $200M in expenses through 2015 ̶ Sale of career agency to MassMutual; resulting in 5,900 reduction in employee base ̶ Consolidating 13+ support systems into 1 through multi-year
Slide 14: Continued cost management discipline
2 Continued cost management discipline Corporate expense1 transition ~$1.1B ~$0.9B $0.84B New Public Co. Allocated Allocated TSAs Direct Direct Direct Direct Direct 2016 Initial Year As A Public Co. 2020 Pre Separation Post Separation Full Transition • Reflects operating model and • Reflects TSA and
Slide 15: Relationship with MetLife post-separation
2 Relationship with MetLife post-separation • “Established by MetLife” tagline ̶ Continue to use endorsement language for up to 18 months from separation date ̶ Positive feedback from distribution • Transition services agreements ̶ Transitional period up to 36 months ̶ Migrate off TSAs by end of 201
Slide 16: Robust financial management strategy
3 Robust financial management strategy • Transparent risk appetite and target assets backing reserves & risk capital • On balance sheet invested assets to fund target asset levels • Hedging to protect target assets across market cycles • Strategies that deliver sustained, long term statutory distrib
Slide 17: Pro forma capitalization of Brighthouse
3 Pro forma capitalization of Brighthouse1 • $3.0 billion senior note offering (10 & 30 year) – historic debut life deal • $0.5 billion 3 year term loan Sources • Formation of life captive reinsurer (BRCD2) • $2.0 billion back up credit revolver facility • Strengthened Brighthouse Life Insurance Com
Slide 18: Strong balance sheet fundamentals
3 Strong balance sheet fundamentals RBC ratios – CAL¹ YE 2016; 525% Pro forma for 12/31/2016 including all separation activities, ~650+% 680% 650+%² 527% 508% 489% 483% 481% 441% 424% 321% Pacific Life BHF PRU VOYA LNC Jackson AXA US Aegon US PFG TMK Leverage (ex. AOCI)3 24% ~25% 27% 27% 4 22% 24% 1
Slide 19: Robust risk management framework
4 Robust risk management framework • Continue strong ERM program leveraging controls and practices from MetLife • Focus on protecting statutory capital across severe and extended stress environments Primary risks Mitigation actions Market risks in VA Robust total asset adequacy Market risks in ULSG
Slide 20: Assets above USLG target
4 Defeased downside interest rate risk for run-off ULSG block, retained potential for upside Run-off ULSG assets vs. target – statutory basis ($B) $2.0 $1.5 $1.3 Assets above USLG target $1.0 $0.5 $0.5 $0.1 $0.0 $0.0 ($0.1) ($0.5) (2.0%) (1.0%) Base 1.0% 2.0% Change in long-term interest rates Note:
Slide 21: Strong VA capital management approach across market cycles
4 Strong VA capital management approach across market cycles • Target CTE95 across markets; additional $2.3B assets in excess of CTE95 pro forma for the separation, approximately CTE98 • Transparent VA capital and metrics across market cycles Normal Market Across Market Peak requirement Cycle Cycles
Slide 22: Variable annuity exposure management
4 Variable annuity exposure management VA Funding CTE951 total asset requirement (TAR) across market cycles Target Objective of the strategy is to protect statutory capitalization and maximize distributable cash flows VA Hedging $2-$3B assets in Hedging focused on Retain meaningful Strategy excess o
Slide 23: Variable annuity assets above CTE 95
4 Protection of statutory capital in market shocks Variable annuity assets above target funding level of CTE95 TAR ($B) $5.0 Sensitivity to down markets further mitigated $4.7 with derivatives added post-3/31/2017 Variable annuity assets above CTE 95 $4.0 $3.2 $3.0 $3.0 $2.3 $2.3 $2.0 $1.5 $1.4 $1.0
Slide 24: Positive VA cash flows over time under variety of market scenarios
4 Positive VA cash flows over time under variety of market scenarios Present value of lifetime cash flows of our in-force variable annuity block ($B)1 $14.4 $9.8 $2.7 $1.1 Base Case Upside Downside Shock (25)% shock SA return 6.5%2 9.0% 4.0% to equities, then 6.5% SA return Drop to 1%, 10 year UST M
Slide 25: Non-variable annuity statutory capital and earnings
4 Non-variable annuity statutory capital and earnings Total non-VA capital1 Corporate & other Primary drivers of non-VA Fixed and income annuities distributable earnings 15% 32% • Investment earnings on the capital • Earnings on ~$18B of fixed and 53% income annuities general account Life assets ~$4
Slide 26: Cash flow focused approach to managing in-force VA exposure
5 Cash flow focused approach to managing in-force VA exposure Variable annuity management strategy focused on protecting statutory capital and retaining upside for shareholders • Required hedge payoff to meet risk targets • …Consequently, driving lower hedge to reduce over time… program costs – Decr
Slide 27: Expected reduction in required hedge payoff
5 Expected reduction in required hedge payoff… Assets above CTE95 Target funding much less increasingly cover remaining sensitive to severe shocks risk, reducing need for as in-force seasons hedges Impact of market shock on Hedge payoff required to CTE95 (-25% equity market, cover market shock -50bp
Slide 28: Improvement in distributable cash flow in the medium term
5 …Results in improvement in distributable cash flow in the medium term Average annual distributable free cash flow from VA in-force ($B) Years 1-3 $2.3 ($1.8) Average Annual Cash Flows ($0.4) $0.1 ($0.2) $0.2 Net VA Fees and Hedge Gain / Increase in Increase in Taxes/Other VA Distributable Investme
Slide 29: Changes in operating earnings profile since 2015
Changes in operating earnings profile since 2015 2015 2016 1Q17 Operating Earnings $1.5 billion $0.7 billion $0.3 billion Earnings driver Impact on earnings No longer actively selling run-off products (e.g. 2015 = $468 million after-tax (average ~$120 ULSG and institutional spread lending) million/q
Slide 30: Investment strategy
Investment strategy • Generate competitive returns during normal periods Objective • Outperform in stress environments • Well-diversified portfolio • High credit quality Investment • Sufficient liquidity Philosophy • Strong ALM management • Focus on privately sourced assets • Disciplined risk manage
Slide 31: Highly diversified investment portfolio
Highly diversified investment portfolio Portfolio composition as of 3/31/2017 Key highlights Short-term Other limited investments • $79B general account assets as of partnership 1% 2% Other 5% 3/31/2017 Real estate <1% Policy loans 2% U.S. Corporate 28% Mortgage loans • Over 76% fixed maturities 13%
Slide 32: High quality fixed maturities portfolio
High quality fixed maturities portfolio High quality fixed maturities portfolio as of 3/31/2017 Key highlights • $61B general account assets as BA B or Beloiw 4% 1% of 3/31/2017 AAA BAA 25% 33% • Over 95% investment grade AA 9% A 28% Note: MetLife Investment Advisors, LLC, a subsidiary of MetLife, I
Slide 33: Diversified corporate credit portfolio
Diversified corporate credit portfolio • $28.7B portfolio of which approximately 91% is investment grade • Diversified by sector • Approximately 34% of private placement exposure Quality Distribution (3/31/17) Sector Diversification (3/31/17) B or Below AAA Corp Other BA 2% 2% 3% AA Communications 7
Slide 34: Strong structured finance portfolio
Strong structured finance portfolio • $13.7B portfolio with 96% rated A or better • ABS includes CLOs, consumer loans, and auto loans • CMBS average credit enhancement of approximately 29% Credit Rating (3/31/17) Sector Diversification (3/31/17) BAA BA B or Below 3% 1% <1% ABS 17% AAA 43% A RMBS 48%
Slide 35: High quality mortgage loan portfolio
High quality mortgage loan portfolio • Diversified portfolio of commercial ($6.8B), agricultural ($2.1B) and residential mortgages ($1.0B) • Average LTV of 49% and debt service coverage of 2.3x for commercial mortgage portfolio • Average LTV of 40% for agricultural loans • Portfolios diversified by
Slide 36: Private equity biased alternative investments portfolio
Private equity biased alternative investments portfolio $1.6B in alternative investments as of 3/31/17 Key highlights Special Situations • $1 billion in private equity / leveraged Distressed 4% 7% buyouts Mezzanine 7% • Geographically diverse with over 44% Hedge Funds in global and non-US funds 7% •
Slide 37: High quality retail exposure
High quality retail exposure $4.5B exposure to retail sector as of 3/31/17 Key highlights Commercial Mortgages • $1.9B, 29% of total commercial mortgage exposure CMBS, $1.0 B • Class A, well-occupied dominant centers • Average 49% LTV and 2.2x DSCR Commercial Mortgages, $1.9 B Corporate Credit • $1.
Slide 38: Targets focus on cash generation and operating earnings
Targets focus on cash generation and operating earnings with concrete drivers VA capital management • Managing to CTE95 + $2-3B assets Holding company cash & liquid assets • ~$700mm at separation, >2.0x annual fixed charges over time Cash flow conversion • 50-70%+ of operating earnings by approximat
Slide 39: A large insurance business with a well established retail platform
Brighthouse: A large insurance business with a well established retail platform 1 Major industry player with large in-force book of business providing immediate scale 2 Separation creates a more focused, nimble U.S. Retail franchise that can favorably adapt to market dynamics 3 Strong capital base a
Slide 40: Appendix
Appendix
Slide 41: Explanatory Note on Non-GAAP Financial Information
Explanatory Note on Non-GAAP Financial Information Non-GAAP and other Financial Disclosures In this presentation, we present certain measures of our performance that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We believe th
Slide 42: Explanatory Note on Non-GAAP Financial Information (cont'd)
Explanatory Note on Non-GAAP Financial Information (cont’d) The following are excluded from total expenses in calculating operating earnings: • Amounts associated with benefits and hedging costs related to GMIBs (“GMIB Costs”); • Amortization of DAC and VOBA related to net investment gains (losses)
Slide 43: Explanatory Note on Non-GAAP Financial Information (cont'd)
Explanatory Note on Non-GAAP Financial Information (cont’d) We present operating earnings in a manner consistent with management’s view of the primary business activities that drive the profitability of our core businesses. The table below illustrates how each component of operating earnings is calc
Slide 44: Brighthouse select combined financial data
Brighthouse select combined financial data Results from operations ($B) FY FY FY 1Q 2014 2015 2016 2017 Fee income $4.3 $4.1 $4.3 $1.0 Operating earnings 1.6 1.5 0.7 0.3 Net income (loss) 1.2 1.1 (2.9) (0.3) GAAP balance sheet metrics ($B) As of December 31, March 31, 2014 2015 2016 2017 Total asset
Slide 45: Reconciliation of net income to operating earnings
Reconciliation of net income to operating earnings FY FY 1Q ($B) 2015 2016 2017 2016 Net income (loss) includes: Net income (loss) $1.1 $(2.9) $(0.3) • Derivative gains (losses) • Actuarial assumption review / Add: Provision for income tax expense (benefit) 0.4 (1.8) (0.3) model update (VA and ULSG)
Slide 46: Reconciliation of total revenues to operating revenues
Reconciliation of total revenues to operating revenues FY FY 1Q ($M) 2015 2016 2017 Total revenues $8,891 $3,018 $965 Less: Net investment gains (losses) 7 (78) (55) Less: Net derivative gains (losses) (326) (5,851) (965) Less: Other adjustments 62 (4) (7) Operating revenues $9,148 $8,951 $1,992 Sou
Slide 47: Organizational structure
Organizational structure • On January 12, 2016, MetLife announced the plan to pursue separation of a substantial portion of its U.S. Retail business, later named Brighthouse Financial • On August 4, 2017, MetLife, Inc. will distribute at least 80.1% of the shares of Brighthouse’s common stock Today