Brighthouse Financial, Inc. (BHF) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Brighthouse Financial, Inc. Annual Meeting. At this time, I would like to turn the conference over to Mr. Burt Arrington. Thank you. Sir, please begin.

Hey. Good morning, everyone. Thank you for joining us today for the first ever virtual Annual Meeting of the Stockholders of Brighthouse Financial, Inc. I'm Burt Arrington, the Corporate Secretary of Brighthouse. I'm joined virtually today by Chuck Chaplin, Chairman of the Board of Directors of Brighthouse, each of the directors of Brighthouse and Brighthouse's senior executive officers. I would like to state that our discussion during today's meeting may include forward-looking statements within the meaning of the federal securities laws. Brighthouse's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risks and uncertainties, including those related to the COVID-19 pandemic and others described from time to time in Brighthouse's filings with the SEC. Information discussed at today's meeting speaks only as of today, June 10, 2020, and Brighthouse undertakes no obligation to update any information discussed during today's meeting. During this meeting, we may also discuss certain financial measures used by management that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliations of these non-GAAP measures on a historical basis to the most directly comparable GAAP measures and other related definitions may be found on the Investor Relations portion of our website and in our filings with the SEC. A recording of the annual meeting will be available to the public on our annual meeting website at www.virtualshareholdermeeting.com/bhf2020 until our 2021 Annual Meeting of Stockholders. Personal recording of the annual meeting is prohibited. I'm now going to turn the meeting over to Chuck Chaplin, who will preside over the meeting. Mr. Chairman?

Thank you, Burt. The time is 8:02 am, and I will call this meeting to order. On behalf of the Board of Directors, I would like to express our hope that you and your families are all safe and healthy. As we have explained in our proxy statement, out of concerns for the health of our stockholders and the other meeting participants, the Board determined to hold our 2020 annual meeting as a virtual meeting. We appreciate your participation in this meeting. In accordance with our Bylaws, I will act as Chairman of the meeting; and Burt Arrington, our Corporate Secretary, will act as Secretary of the meeting. Now before I turn the floor over to Burt to review some procedural matters, I would like to take this opportunity to recognize Bill Wallace, who is retiring from our Board as of this annual meeting. Bill has served as a Director of Brighthouse since Brighthouse became an independent public company in 2017. Bill has been integral to the Board's oversight of the establishment of our investment management operations and its infrastructure, and has brought wisdom and wit to our boardroom. We thank Bill for his service and contributions to Brighthouse, and we wish him all the best in the future. I'll now turn it back over to Burt.

Yes. Thank you, Chuck. An agenda for this meeting has been posted to the annual meeting website. As you can see on the agenda, following the presentation of the proposals for the stockholder vote, we'll entertain questions from stockholders with respect to the proposals. Following our CEO's presentation, we'll address any general stockholders' questions as are germane to this meeting. Stockholders may enter their questions in the dialogue box that appears on your screen. We've also posted to our website the procedures and rules of conduct for the meeting and will ask shareholders to abide by those rules. Chuck?

Okay. Now I will introduce the directors of Brighthouse Financial, Inc., who are all in attendance virtually and participating in this meeting. Irene Chang Britt. Irene is the Chair of our Nominating and Corporate Governance Committee and serves on the Compensation and Human Capital and Investment committees. Eileen Mallesch. Eileen serves on the Compensation and Human Capital, Investment and Nominating and Corporate Governance committees. Meg McCarthy. Meg serves on our Audit and Finance and Risk committees. Diane Offereins. Diane is the Chair of the Compensation and Human Capital committee and serves on the Nominating and Corporate Governance and Finance and Risk committees. Pat Shouvlin. Pat is the Chair of the Audit Committee and serves on the Investment and Executive committees. Eric Steigerwalt. Eric is our President and Chief Executive Officer and also a member of the Board. Bill Wallace is here. Bill is the Chair of our Investment Committee and serves on the Audit Committee. Paul Wetzel. Paul serves on the Compensation and Human Capital, Finance and Risk, and the Nominating and Corporate Governance committees. More detailed information about each of our directors is included in your proxy materials. I will now introduce the senior executive officers of Brighthouse Financial, Inc., each of whom is in attendance today. Christine DeBiase is our Executive Vice President, Chief Administrative Officer and General Counsel. Shelly Hendler is our Executive Vice President and Chief Auditor. Jeff Hughes. Jeff is Executive Vice President and our Chief Technology Officer. Vanda Huff is the Executive Vice President and Chief Human Resources Officer. Myles Lambert is Executive Vice President and Chief Distribution and Marketing Officer. Phil Melville is Executive Vice President and Chief Risk Officer. Conor Murphy is the Executive Vice President and Chief Operating Officer. John Rosenthal is Executive Vice President and Chief Investment Officer. And Ed Spehar is our Executive Vice President and the company's Chief Financial Officer. Also attending this meeting are John England and Keith Decroy of Deloitte & Touche LLP, our independent accounting firm. Although Deloitte has indicated that it does not wish to make a statement, John and Keith are available to respond to appropriate questions during our general question-and-answer period. Okay. So Burt, back to you for the formal part of the meeting.

Okay. Yes. And I'm just going to cover a few meeting formalities now. Victor Latessa of Broadridge Financial Solutions, Inc. is serving as the Inspector of Election for this meeting. Vic has taken his oath as inspector of election. I confirm that Broadridge Financial Solutions has provided us with an affidavit attesting that the mailing of the notice of this meeting to stockholders commenced on April 29, 2020. The mailing was completed on May 1, 2020. This Affidavit has been filed with the records of the company. I also confirm that the list of stockholders as of the April 13, 2020 record date for this meeting was made available for inspection by stockholders in accordance with Delaware Law and is currently available for inspection on the meeting portal. Now Chuck, back to you.

Okay. Thank you, Burt. Now we'll turn to the agenda. There are 4 proposals today presented for stockholder vote. Each of the proposals is described in detail in the proxy materials that were provided to stockholders. We will present all of the proposals, following which stockholders will have an opportunity to ask questions via the online portal. I will also address any general questions after we complete the official business of the meeting. So with that, I now declare the polls open. Now Burt, would you please review the 4 proposals for action at the meeting and then provide the preliminary vote results?

Yes. Thank you, Chuck. The first item of business is proposal 1, the election of 8 directors: Irene Chang Britt; Chuck Chaplin; Eileen Mallesch; Meg McCarthy; Diane Offereins; Pat Shouvlin; Eric Steigerwalt; and Paul Wetzel, each for a 1-year term expiring at the 2021 annual meeting. The Board of Directors has recommended that stockholders vote for each of the 8 nominees. The next item of business is proposal 2, the ratification of the appointment of Deloitte & Touche LLP as Brighthouse's independent registered public accounting firm for fiscal year 2020. The Board of Directors has recommended the stockholders vote for this proposal. The next item is proposal 3, an advisory vote to approve the compensation paid to Brighthouse's named executive officers, which we refer to as the Say-on-Pay vote. The Board of Directors has recommended that stockholders vote for this proposal. And then the final item of business is proposal 4, approval of the amendment of the Brighthouse Financial, Inc. employee stock purchase plan. The Board of Directors has recommended that stockholders vote for this proposal. I'm now going to pause and review the shareholder portal and see if there's any questions related to the proposals. Okay, I don't see any questions related to the proposals. The polls are about to close. So if you have not yet voted, please do so. [Voting]

Okay. Chuck?

Okay. Thank you, Burt. The time is now 8:10 a.m., and I declare the polls closed. So Burt, at this time, then, would you please present the preliminary report of the proxy votes?

Yes. According to the preliminary report of the vote that was provided to me by the inspector of election, all proposals have passed in accordance with the recommendation of the Board of Directors. Specifically, each of the 8 Director nominees has been elected, and proposals 2, 3 and 4 have been approved. The final vote totals will be included in a Form 8-K that we will file with the Securities and Exchange Commission within 4 business days following today's meeting.

Great. So the matters for a vote of the stockholders are now concluded. So I'd like to, at this time, invite our President, CEO and fellow Board member, Eric Steigerwalt, to address the meeting and then after Eric concludes his remarks, we'll address any stockholder questions that come in through the online portal. Eric?

Thanks, Chuck, and good morning, everyone. Thank you all for joining Brighthouse Financial's 2020 Annual Meeting of Stockholders. I too hope that you and your loved ones are well and staying safe during this time. I want to begin by thanking you for your continued investment in and support of Brighthouse Financial. I also want to thank you for accommodating the shift in this year's annual meeting to a virtual format. Although we were looking forward to seeing you in person, out of concern for the health and well-being of our shareholders and other meeting participants, we, like many other companies, have made the decision to hold this year's meeting virtually. I'd like to take a moment to acknowledge the very difficult time in our nation that we're going through following the distressing events that have further exposed the persistence of injustice in our country. The tragic loss of Black lives in recent weeks, along with far too many others throughout our nation's history, is unacceptable and demonstrates how much work we must do to create a safe and just society. At Brighthouse Financial, we are focused on fostering a culture where diverse backgrounds and experiences are celebrated, and everyone's voice is heard and respected. Our leadership team is committed to supporting our financial professionals, customers, communities by listening to them and standing with them. We recognize our responsibility to speak out against racism, discrimination and injustice. And our commitment to creating an inclusive culture at Brighthouse Financial is unwavering. Today, I'd like to cover several other topics. First, our response to the COVID-19 pandemic, including how we are continuing to support our employees, customers and financial professionals. Second, the current environment and how we believe we are well positioned to weather it. And finally, some highlights of our financial performance in 2019. Brighthouse Financial's top priority at this time remains the well-being and safety of our employees and their families, our partners and our customers. And I am extremely proud that through the Brighthouse Foundation and Brighthouse corporate contributions, we have donated more than $500,000 to food banks and other organizations to help bring relief to communities that have been impacted by the pandemic. We also know that some of our customers may be adversely impacted by this pandemic, and we are here to help them. We have invited customers to reach out to us to discuss potential accommodations should they require any. In March, we promptly implemented our business continuity plans, as cities and states across the country began to enact measures to help protect the health and safety of their communities, and we quickly and successfully shifted all of our employees to a work-from-home environment, where they remain today. I am enormously proud of our employees and how they have navigated this incredibly challenging environment. Their tremendous adaptability and commitment has enabled us to continue to support our customers and financial professionals. We have taken a number of steps to support our employees during this period, including flexible work schedules and additional vacation days that are intended to allow them to spend time with family or to take care of personal needs while the work-from-home arrangement remains in effect. We also remain focused on supporting our financial professionals and their clients during this time. Our sales team has moved from a face-to-face model to a virtual one in order to connect with and remain in front of financial professionals. And in May, we held a national sales call with many of our top financial professionals to provide them with an opportunity to hear directly from me and other Brighthouse senior leaders about how we're managing through this current economic environment and to ask us questions. Turning to the current environment. The COVID-19 pandemic continues to impact the global economy. As I said, we continue to believe Brighthouse Financial is well positioned to weather the current downturn. We believe our balance sheet is strong, and our investment portfolio is well diversified and high quality. Although it is not possible to estimate the severity or duration of the COVID-19 pandemic and the resulting economic environment, we entered this situation from a position of strength, and we remain confident in our strategy and continue to believe it will generate long-term shareholder value. Some of you may have heard us use the word prudence a lot. And given the unprecedented market environment in which we are operating, last month, we announced that we have temporarily suspended repurchases of our common stock while we continue to evaluate the impacts of COVID-19. This suspension follows our repurchasing of approximately 23% of our shares outstanding since the announcement of our first stock repurchase authorization in 2018 through May 11 of this year. We will continually evaluate our repurchase program, and we'll resume repurchases as circumstances warrant. Importantly, our target of returning $1.5 billion of capital to our shareholders by year-end 2021 remains in place at this time. Now let me turn to our 2019 results. 2019 was our second full year as an independent public company, and it was a very strong year for Brighthouse. One of our strategic milestones last year was the introduction of Brighthouse SmartCare, our first life insurance product launched as an independent public company. As we reported in our first quarter 2020 results, we generated approximately $16 million of life insurance sales in the first quarter, ahead of our expectations and up 33% compared with the fourth quarter of 2019, driven primarily by our new product, SmartCare. We also produced strong annuity results last year. Compared with 2018, we grew our annuity sales 23%. Looking forward, the current market environment is a headwind to near-term sales of annuity and life insurance products for the industry and for Brighthouse. It may be challenging to generate sales growth in annuities this year, coming off of a very strong 2019. With respect to life insurance, we have been focused on building new relationships with firms and advisers. Obviously, that becomes more challenging in a virtual world and may have an impact on the timing of when we achieve our life insurance sales targets. However, it is very clear that our plan for 2020 was achievable given the first quarter results, and that gives me great confidence with respect to our strategic goal for life insurance going forward. Even though we will be facing headwinds, we are laser-focused on growing our life insurance business. We also remain focused on expanding our sales and making our distribution network as broad as possible. In February of this year, we entered the independent marketing organization distribution channel with the launch of our new fixed indexed annuity. And yesterday, we announced the launch of a new term life insurance product available online through PolicyGenius. We are delighted to be working with PolicyGenius on this product. In addition, we are thrilled about expanding our relationship with BlackRock to deliver BlackRock's LifePath Paycheck, a new investment solution designed to provide millions of American workers with simplified access to lifetime income throughout their retirement. I'm also very proud of how we have continued to increase awareness of our brand. As of the end of 2019, we achieved 76% awareness of our brand with financial professionals, a threefold increase since the first quarter of 2017. Also last year, we revised our variable annuity hedging program, fundamentally lowering our risk profile and preserving our projected distributable earnings across different capital market scenarios. We also added to our already significant protection against low interest rates. These prudent actions, among others, have provided Brighthouse with a strong balance sheet and financial position that we believe will help us manage through a challenging environment. To wrap up, I am very pleased with our outstanding 2019 results, which reflect the diligent and prudent execution of our focused strategy. Again, we believe we are well positioned to weather the current downturn, and we continue to believe we have the right strategy in place to deliver long-term shareholder value. Thank you again for your interest and investment in Brighthouse Financial.

Okay. So Chuck, I think now it's the time for stockholder questions.

Yes, which I was already into the questions, but I was on mute. And at this time, it's appropriate to open the meeting for stockholder questions. [Operator Instructions] Burt, are there any questions in the queue?

So we do have a few questions in the queue. We have 6 pre submitted questions. So let's go through those. And then we'll address -- there's one that is an overlap of one of the pre-submitted questions, and I want to make sure we address as well. So Chuck, I'm going to go to you first. The first one says, there are 8 directors after the new vote. In the event of a vote and 4 directors vote yes, and 4 directors vote no, how do you handle a tie?

Yes, good question. The technical answer, of course, is that under our bylaws, in order for a Board action to be carried, a majority of the Board has to vote in favor. So in the event of a 4-4 tie, the action is not approved, and we do not go forward. But speaking more practically about how our Board works, while all directors are encouraged to share their candid opinion, the Board does strive to act by consensus. So in a situation where there are different opinions, we would continue to discuss and work on the issue to be able to build a consensus and therefore to resolve the issue. So ultimately, the answer is we keep working on it until there is a consensus.

Okay. Thanks, Chuck. I'm just going to stay with you then for the next question because it's asking about the Board. And it says the pandemic will change the way the companies do business in order to stay financially viable. Do the directors have a plan in place, an emergency plan in place to ensure the viability of Brighthouse Financial?

Yes. We believe, and Eric touched on this, we believe that we entered the current climate with a position of strength. The balance sheet and liquidity of the firm remains strong. Our investment portfolio is well diversified, and we believe we're well positioned to weather the downturn. The Board is focused on overseeing management's activities to address the impact of the pandemic, as Eric just walked through some of the steps that we've taken, but that's including our financial plan, investment portfolio, sales and operations. And we believe that Brighthouse is well positioned to operate and manage through this situation. Now like many companies, we have a robust business continuation plan that covers a variety of scenarios, including a pandemic. And we have successfully implemented those business continuity plans, and we've successfully shifted all of our employees to a work-from-home environment, where they remain today. Thanks to their incredible adaptability and resilience, we remain steadfastly focused on our mission and our strategy and delivering for all stakeholders. With respect to the Board of Directors itself, the bylaws of the company actually provide for emergency continuation plans in the event that the Board's activities are disrupted by, say, a pandemic. So we think that we're in good shape there that the company will continue to operate through the pandemic; the Board of Directors is flexible enough to operate as well.

Okay. Thanks, Chuck. All right. So Eric, I'm going to turn to you. This is one that was covered by a presubmitted question and then one of the live questioners who's in the meeting right now as well, and it's about the dividend. It's about a dividend. And so the question is where is the dividend? When will dividends be paid? And sort of dividends versus buyback and how that impacts things.

Okay. Thanks for your question. So we currently have no plans to pay a dividend on our common stock, just to be clear to everybody. And that's been the case since we initially went public, okay? Any future declaration and payment of dividends or other distributions of capital will be at the discretion of the Board, I think you all know that, and will depend on and be subject to our financial condition, the environment, results of operations, et cetera, et cetera. But just to give you a little background here, right? As we continue to get to the point where dividends flowing out of our operating companies become more and more consistent, that would be sort of a key platform with respect to us paying a common dividend. The Board has discussed it, and we will discuss it in the future. So certainly, at some point, Brighthouse could pay a common dividend, but that's not in the cards right now. We have been returning capital, as I think most of you know, through our stock buyback program. And as I said in my prepared remarks, since inception, since our first buyback authorization, we've repurchased 23% of the company's common stock.

All right. Thanks, Eric. So before we go on, there is a question in the portal just asking about video. And just to clarify for everybody who's on the line, this is an audio-only meeting, so sorry if that was not clear. Okay. Eric, so next question for you is just kind of about the next -- the prospects for the company for like the next 12 months, where are we headed?

Okay. Well, as I said and as you all know, nobody really knows what's going to happen with the economy, et cetera, markets. We're going to be watching like everyone else and responding. Having said that, our strategy has not changed. We have a very focused strategy, and we intend to continue executing on that strategy through 2020 and beyond. I will say, a couple of highlights that have occurred this year is buying back 12% of the company in the first 4 months. That will fuel EPS growth into the future. And then secondly, I have to point out again, we have dramatically expanded our relationship with BlackRock and recently debuted the LifePath Paycheck product. So these are 2 things that will benefit us going forward. And I think our strategy is going to benefit us going forward as well. But obviously, it's going to be turbulent times, at least for a little while, and we're going to have to manage through that.

Okay. Eric, well, sort of staying with the business. There is one that's come in that's kind of asking about the premiums. And so -- and how the current environment. So the question is how have historical low interest rates changed your portfolio return assumptions and asset mix? And if so, how has that affected premiums?

Okay. As you've heard me say many times, our investment portfolio was well positioned for this downturn. It's very well diversified, and it's a very high-quality portfolio. While interest rates are a meaningful component of the pricing process, pricing is also impacted by other components, such as options cost and obviously, competitive landscape as well. We review pricing for all of our products on a regular basis and have the opportunity to update rates as frequently as twice per month, for instance, on most of our annuities. So we have not changed our pricing philosophy or our pricing process. Throughout the first quarter, we've been able to maintain a strong competitive position across our product lines, while appropriately adjusting rates and benefit levels in accordance with our pricing standards. But I think overall, there haven't been huge changes, I think, is the point.

All right. And the final question that we have is, I think, a good one in light of the current environment. It's asking, what have you done as a company to help the poor?

All right. Well, let me take a second on this one. So we established, even before we went public, the Brighthouse Financial Foundation, and that was established to enhance the quality of life in communities in which we live and work. The foundation provides grants to high-impact nonprofit organizations with a specific focus on organizations supporting women, children, veterans and the arts. So Brighthouse financial directly supports charitable endeavors through corporate contributions, fundraising campaigns and engagement in community nonprofit groups. Total Brighthouse financial charitable contributions since we separated were just shy of $1.5 million. And total Brighthouse Financial Foundation grants since separation are in excess of $1.6 million. So the total overall is about $3.1 million. Now through the Brighthouse Foundation and Brighthouse Financial Corporate contributions, to date, as I've mentioned, we have donated more than $500,000 to local food banks and other organizations in our communities to support those in need throughout the COVID-19 pandemic, and we will do so as it continues. These organizations are helping meet basic needs such as food, shelter and financial assistance for some of the most at-risk populations. In addition, we know that some of our customers may be adversely impacted by this pandemic, as I already mentioned, and we are here to help them. We have invited customers to reach out to us to discuss potential accommodations should they require any, and I invite anybody listening today as well.

All right. Thanks, Eric. So with that, there are no further questions. So thanks, Eric and Chuck. And Chuck, I'll turn it back to you now.

Sure. Well, I would just like to say thank you. Thank you, Burt. Thank you, Eric. And on behalf of the Board of Directors, I'd like to thank all stockholders and others who have attended this annual meeting. I appreciate it. Have a great rest of the day, and the meeting is herefore adjourned.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.