UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 15, 2018
Brighthouse Financial, Inc.
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
Delaware | 001-37905 | 81-3846992 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
11225 North Community House Road Charlotte, North Carolina | 28277 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(980) 365-7100
Not Applicable
(Former name or former address, if changed since last report)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 under the Securities Act (17 CFR 230.405) or Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 7.01. Regulation FD Disclosure.
In connection with the filing of its Annual Report on Form 10-K for the year ended December 31, 2017, Brighthouse Financial, Inc. has prepared a presentation for use with investors and other members of the investment community. A copy of the presentation is attached hereto as Exhibit 99.1 and incorporated herein by reference.
In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. | Description of Exhibit |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
BRIGHTHOUSE FINANCIAL, INC.
By: /s/ Lynn A. Dumais
Name: Lynn A. Dumais
Title: Chief Accounting Officer
Title: Chief Accounting Officer
Date: March 15, 2018
EXHIBIT INDEX
Exhibit No. | Description of Exhibit |
Brighthouse Financial, Inc.
Sensitivity Update
March 2018
Note regarding forward-looking statements
This presentation and other written or oral statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements using words such as
“anticipate,” “estimate,” “expect,” “project,” “may,” “will,” “could,” “intend,” “goal,” “target,” “forecast,” “objective,” “continue,” “aim,” “plan,” “believe” and other words and terms of similar meaning, or are tied to
future periods, in connection with a discussion of future operating or financial performance. In particular, these include, without limitation, statements relating to future actions, prospective services or
products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operating and financial
results, as well as statements regarding the expected benefits of the separation from MetLife (the “Separation”) and the recapitalization actions.
Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in
determining the actual future results of Brighthouse Financial, Inc. These statements are based on current expectations and the current economic environment and involve a number of risks and
uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements
due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others: differences between actual
experience and actuarial assumptions and the effectiveness of our actuarial models; higher risk management costs and exposure to increased counterparty risk due to guarantees within certain of our
products; the effectiveness of our exposure management strategy and the impact of such strategy on net income volatility and negative effects on our statutory capital; the additional reserves we will be
required to hold against our variable annuities as a result of actuarial guidelines; a sustained period of low equity market prices and interest rates that are lower than those we assumed when we issued our
variable annuity products; our degree of leverage due to indebtedness incurred in connection with the Separation; the effect adverse capital and credit market conditions may have on our ability to meet
liquidity needs and our access to capital; the impact of changes in regulation and in supervisory and enforcement policies on our insurance business or other operations; the effectiveness of our risk
management policies and procedures; the availability of reinsurance and the ability of our counterparties to our reinsurance or indemnification arrangements to perform their obligations thereunder;
heightened competition, including with respect to service, product features, scale, price, actual or perceived financial strength, claims-paying ratings, credit ratings, e-business capabilities and name
recognition; changes in accounting standards, practices and/or policies applicable to us; the ability of our insurance subsidiaries to pay dividends to us, and our ability to pay dividends to our shareholders;
our ability to market and distribute our products through distribution channels; the impact of the Separation on our business and profitability due to MetLife’s strong brand and reputation, the increased costs
related to replacing arrangements with MetLife with those of third parties and incremental costs as a public company; whether the operational, strategic and other benefits of the Separation can be achieved,
and our ability to implement our business strategy; whether all or any portion of the Separation tax consequences are not as expected, leading to material additional taxes or material adverse consequences
to tax attributes that impact us; the uncertainty of the outcome of any disputes with MetLife over tax-related matters and agreements including the potential of outcomes adverse to us that could cause us to
owe MetLife material tax reimbursements or payments; the impact on our business structure, profitability, cost of capital and flexibility due to restrictions we have agreed to that preserve the tax-free
treatment of certain parts of the Separation; the potential material negative tax impact of the Tax Cuts and Jobs Act and other potential future tax legislation that could decrease the value of our tax
attributes, lead to increased RBC requirements and cause other cash expenses, such as reserves, to increase materially and make some of our products less attractive to consumers; whether the
distribution will qualify for non-recognition treatment for U.S. federal income tax purposes and potential indemnification to MetLife if the distribution does not so qualify; our ability to attract and retain key
personnel; and other factors described from time to time in documents that we file with the U.S. Securities and Exchange Commission (“SEC”).
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements included and the risks,
uncertainties and other factors identified in our Annual Report on Form 10-K, particularly in “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk,” as well as in our quarterly reports
on Form 10-Q, current reports on Form 8-K and other documents we file from time to time with the SEC. Further, any forward-looking statement speaks only as of the date on which it is made, and we
undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated
events, except as otherwise may be required by law. Please consult any further disclosures Brighthouse Financial, Inc. makes on related subjects in reports to the SEC.
2
Executive summary
• Improved variable annuity (VA) cash flow profile driven by lower hedge costs
• Lower variability of cash flows across the five VA scenarios
• Protecting statutory balance sheet for VA & Universal Life with Secondary
Guarantees (ULSG) exposures with manageable GAAP impact
3
Principal updates from Form 10
• Incorporates full migration to Brighthouse Financial hedging strategies,
including Shield Annuities as a VA CTE951 risk offset
• Benefits to hedge gain/loss from VA tax strategy refinement, effective with
tax elections made as of year-end 2017
• Includes 2017 actuarial updates to assumptions and models
• Reflects in-force as of year-end 2017
Note: Does not reflect potential impact (if any) from proposed NAIC VA Capital
Reform Initiative
1Conditional Tail Expectation ("CTE") 95 is defined as the amount of assets required to satisfy contract holder obligations across market environments in
the average of the worst 5 percent of 1,000 capital market scenarios over the life of the contracts ("CTE95").
4
Meaningful improvement in VA statutory distributable
cash flow
($ in billions)
Lower hedge gains/losses driven by:
• Successful transition to the Brighthouse
Financial VA hedging strategy
• Benefits from tax elections made as of
year-end 2017
Assets above CTE95 in Base Case and
Scenarios 2-4 at $3B by year 3
Assets above CTE95 in Scenario 5 at
$1.8B in year 5, compared to $1.3B in the
Form 10
0.2
1.1
0.0 0.1 0.1
1.1
1.8
0.4
0.0 0.0
0.0
0.5
1.0
1.5
2.0
Base Case Scenario 2 Scenario 3 Scenario 4 Scenario 5
Years 1-31
1.7
3.1
0.2 0.3 0.1
2.9
4.2
1.7
0.6
0.0
0.0
1.0
2.0
3.0
4.0
5.0
Base Case Scenario 2 Scenario 3 Scenario 4 Scenario 5
Years 1-51
Source: Brighthouse Financial Form 10 published June 2017 and 2017 10-K.
12017 values are presented on a pre-tax basis and do not include an estimate for any potential impact of proposed NAIC VA Capital Reform Initiative or a change in tax rates on
the CTE95 requirements.
($ in billions)
5
VA in-force lifetime present value of cash flows
Scenario Assumptions
PV of Cash
Flows as of
Year End 20161
($ billions)
PV of Cash
Flows as of
Year End 20171
($ billions)
9.8
Separate Account Returns: 6.5%2
Interest Rate Yields: mean reversion of 10 Year
UST to 4.25% over 10 years
Base Case
Scenario
9.8
Change in PV of cash
flows driven by:
14.4
Separate Account Returns: 9.0%
Interest Rate Yields: mean reversion of 10 Year
UST to 4.25% over 10 years
Scenario 2 13.4
+ 2017 market performance
- Net Shield Annuities impact
- Net Shield Annuities impact
4.4
Separate Account Returns: 4.0%
Interest Rate Yields: mean reversion of 10 Year
UST to 4.25% over 10 years
Scenario 3 5.9 + 2017 market performance
2.7
Separate Account Returns: 4.0%
Interest Rate Yields: follows the forward UST and
swap interest rate curve as of December 31, 2017
Scenario 4 2.9 + 2017 market performance
- Flatter forward curve
1.1
Separate Account Returns: (25)% shock to equities, then
6.5% separate account return
Interest Rate Yields: 10 year UST interest rates drop to
1.0%, and then follows the implied forward rate
Scenario 5 3.2 + 2017 market performance
+ Lower hedge losses
Form 10 2017 10-K
Source: Brighthouse Financial Form 10 published June 2017 and 2017 10-K.
1Represents the pre-tax present value of VA cash flows and current assets and does not reflect any value or cost from non-VA businesses.
2Blended separate account return of 6.5% implies illustrative equity market return of 8.5% and illustrative fixed income return of 3.5%, gross of fees.
6
Reduced market sensitivity on VA assets above CTE95
• Improved risk profile
• Limit downside of assets
above CTE95 up to $1B for
instantaneous shocks
• Includes Shield Annuities as
a VA CTE95 risk offset
• Does not reflect impact of
passage of time on CTE95
(aging); ~$200M per quarter
• Assumes implied volatility is
held constant with respect to
market levels at December
31, 2017
Source: Brighthouse Financial Form 10 published June 2017 and 2017 10-K.
VA assets above target funding level of CTE95 ($B)
(1.6)
(0.9)
0.0
0.9
2.1
0.0
0.7
(0.9)
(0.7)
0.0
0.6
1.5
0.1
0.5
(2.0)
(1.5)
(1.0)
(0.5)
0.0
0.5
1.0
1.5
2.0
2.5
-25% -10% Base 10% 25% (100bps) 100bps
V
A
a
ss
et
s
ab
ov
e
C
TE
95
Equity market (S&P 500) Change in 10 year UST
7
Mitigated downside interest rate risk for run-off ULSG
block, retained potential for upside
Source: Brighthouse Financial Form 10 published June 2017 and 2017 10-K.
Run-off ULSG assets vs. target – statutory basis ($B)
0.1
(0.1)
0.0
0.5
1.3
0.0
(0.1)
0.0
0.5
1.5
(0.2)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
(2.0%) (1.0%) Base 1.0% 2.0%
A
ss
et
s
ab
ov
e
U
LS
G
ta
rg
et
Change in long-term interest rates
8
2017 10-K reflects rebalancing
of our ULSG Hedge Program
completed in 1Q 2018
GAAP net income market sensitivity
Source: Brighthouse Financial Form 10 published June 2017 and 2017 10-K.
1With respect to GAAP, ULSG policy reserves are relatively insensitive to interest rate movements. As a result, the sensitivity of ULSG GAAP net income largely consists of
changes in the fair value of the ULSG Hedge Program.
Impact on VA GAAP net income ($B)
0.4
0.1
0.0
(0.1)
(0.2) (0.2)
0.3
1.6
0.4
0.0
(0.2)
(0.5)
0.2 0.2
(1.0)
(0.5)
0.0
0.5
1.0
1.5
2.0
-25% -10% Base 10% 25% (100bps) 100bps
Im
pa
ct
o
n
V
A
n
et
in
co
m
e
Equity market (S&P 500) Change in 10 year UST
2.8
1.3
0.0
(0.8)
(1.3)
2.7
1.0
0.0
(0.5)
(0.7)
(2.0)
(1.5)
(1.0)
(0.5)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
(2.0%) (1.0%) Base 1.0% 2.0%
C
ha
ng
e
in
R
un
-o
ff
U
LS
G
H
ed
ge
P
ro
gr
am
Change in Run-off ULSG Hedge Program1 ($B)
Change in long-term interest rates
9
2017 10-K reflects rebalancing
of our ULSG Hedge Program
completed in 1Q 2018
2017 10-K reflects net impact
of Shield Annuities as a risk
offset
With the transition to the
Brighthouse Financial hedging
strategy, 2017 10-K does not
reflect any deferred policy
acquisition cost offset