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Brighthouse Financial Announces Second Quarter 2018 Results

August 6, 2018

CHARLOTTE, N.C.--(BUSINESS WIRE)--Aug 6, 2018--Brighthouse Financial, Inc. (“Brighthouse Financial”) (Nasdaq: BHF) announced today its financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Results

The company reported a net loss available to shareholders of $239 million in the second quarter of 2018, or $2.01 on a per share basis, compared to net income available to shareholders of $246 million in the second quarter of 2017. The company ended the second quarter of 2018 with stockholders’ equity (“book value”) of $13.4 billion, or $112.17 on a per share basis, and book value, excluding accumulated other comprehensive income (“AOCI”), of $12.6 billion, or $105.37 on a per share basis.

For the second quarter of 2018, the company reported adjusted earnings of $153 million, or $1.27 on a per share basis.

Adjusted earnings for the quarter included $44 million of a net unfavorable notable item, or $0.37 on a per share basis, for establishment costs primarily related to planned technology and branding investments.

The company previously provided guidance in May 2018 for select financial metrics for full-year 2018 including an expectation of adjusted earnings per share, less notable items, of $8.50 to $9.00 and an adjusted return on equity (ROE), less notable items, of approximately 8 percent. Taking into account its performance over the first half of 2018 and its expected performance for the remainder of the year, the company reaffirmed its guidance for full-year 2018.

Corporate expenses in the second quarter of 2018 were $288 million pre-tax, up from $230 million pre-tax in the first quarter of 2018. Total corporate expenses in the first twelve months post-separation were $1,046 million pre-tax, in line with company expectations of $1.0 billion to $1.1 billion.

Annuity sales increased 42 percent quarter-over-quarter, driven by an increase in sales of Shield and fixed indexed annuities. On a sequential basis, annuity sales increased 12 percent, primarily from an increase in sales of fixed indexed annuities.

“We are pleased with our quarter-over-quarter sales growth in annuities and with our strong operational performance during the second quarter. While we recorded lower sequential adjusted earnings this period, we expect to reach our guidance targets for 2018,” commented Eric Steigerwalt, president and chief executive officer, Brighthouse Financial. “As we enter our second year as an independent, publicly-traded company, we are on track with our goals, we are confident in our strategy, and we remain focused on delivering value for advisors, the clients they serve, and our shareholders.”

Key Metrics (Unaudited, dollars in millions except share and per share amounts)

* Information regarding the non-GAAP and other financial measures included in this news release and a reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is provided in the Non-GAAP and Other Financial Disclosures discussion below as well as in the tables that accompany this news release and/or the Second Quarter 2018 Brighthouse Financial, Inc. Financial Supplement (which is available on the Brighthouse Financial Investor Relations web page at http://investor.brighthousefinancial.com ). Additional information regarding notable items can be found on page 16 of this news release.

Results by Business Segment and Corporate & Other (Unaudited, in millions)

Sales (Unaudited, in millions)

Annuities

Adjusted earnings in the Annuities segment were $221 million in the current quarter, compared to adjusted earnings of $226 million in each of the second quarter of 2017 and the first quarter of 2018.

There were no notable items in the second quarter of 2018. The second quarter of 2017 included $25 million of favorable notable items. The first quarter of 2018 did not include any notable items. On a quarter-over-quarter basis adjusted earnings, less notable items, reflect higher net investment income and lower taxes, partially offset by higher expenses. On a sequential basis, adjusted earnings reflect higher expenses, partially offset by higher net investment income and lower deferred acquisition costs (DAC) amortization due to market performance in the quarter.

As mentioned above, annuity sales increased 42 percent quarter-over-quarter, primarily driven by an increase in sales of Shield and fixed indexed annuities. On a sequential basis, annuity sales increased by 12 percent, primarily from an increase in sales of fixed indexed annuities.

Life

Adjusted earnings in the Life segment were $37 million in the current quarter, compared to adjusted earnings of $12 million in the second quarter of 2017 and adjusted earnings of $66 million in the first quarter of 2018.

There were no notable items in the current quarter. The second quarter of 2017 included $12 million in favorable notable items. The first quarter of 2018 included $16 million of favorable notable items. On a quarter-over-quarter basis, adjusted earnings reflect higher net investment income due to the portfolio realignment completed in the first quarter of 2018, partially offset by higher DAC amortization and higher expenses. On a sequential basis, adjusted earnings reflect higher expenses.

Life insurance sales remained low, consistent with the company’s strategy of migrating to simpler life insurance solutions. The company expects life insurance sales to remain at similar levels over the medium-term, as it revamps its life insurance business. The company is targeting a launch of a life insurance product in late 2018 or early 2019, subject to regulatory approval.

Run-off

The Run-off segment had an adjusted loss of $6 million in the current quarter, compared to adjusted earnings of $52 million in the second quarter of 2017 and adjusted earnings of $50 million in the first quarter of 2018.

The current quarter did not include any notable items. The second quarter of 2017 included $5 million in favorable notable items. The first quarter of 2018 included $16 million in favorable notable items. On a quarter-over-quarter basis, the adjusted loss reflects higher claims and reserve development, and lower net investment income primarily related to a decrease in alternative investment income and the portfolio realignment completed in the first quarter of 2018. On a sequential basis, the adjusted loss reflects lower net investment income primarily related to a decrease in alternative investment income, higher claims, and higher expenses.

Corporate & Other

Corporate & Other had an adjusted loss of $99 million in the current quarter, compared to adjusted earnings of $34 million in the second quarter of 2017 and an adjusted loss of $59 million in the first quarter of 2018.

The current quarter includes an unfavorable notable item of $44 million related to establishment costs, as described above. The second quarter of 2017 did not include any notable items. The first quarter of 2018 included an unfavorable notable item of $37 million. On a quarter-over-quarter basis, the adjusted loss reflects lower net investment income and higher expenses. On a sequential basis, the adjusted loss reflects higher expenses.

Net Investment Income

Net investment income for the second quarter of 2018 was $806 million. On a quarter-over-quarter basis, adjusted net investment income* increased $20 million to $812 million, primarily driven by growth in assets and ongoing repositioning of the investment portfolio, partially offset by lower alternative investment income. On a sequential basis, adjusted net investment income decreased $13 million, primarily driven by lower alternative investment income, partially offset by growth in assets and ongoing repositioning of the investment portfolio.

The net investment income yield was 4.37 percent during the quarter.

Statutory Capital and Liquidity (Unaudited, in billions)

Capitalization

Holding company liquid assets were $569 million at June 30, 2018.

Statutory total adjusted capital on a preliminary basis decreased approximately $0.5 billion to $6.0 billion at June 30, 2018, driven by an increase in variable annuity reserves and net derivative mark-to-market losses.

Assets above CTE95 were flat at $2.7 billion at June 30, 2018. Assets above CTE98 were in excess of $0.5 billion at June 30, 2018.

Stock Repurchase Program

Brighthouse Financial today announced that its Board of Directors has authorized the repurchase of up to $200 million of Brighthouse Financial common stock. The stock repurchase program is the first for Brighthouse Financial since becoming an independent, publicly-traded company in August 2017.

Repurchases under the program may be made through open market purchases, pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans from time to time at management’s discretion in accordance with applicable federal securities laws.

Earnings Conference Call

Brighthouse Financial plans to hold a conference call and audio webcast to discuss its financial results for the second quarter of 2018 at 8:00 a.m. Eastern Time on Tuesday, August 7, 2018.

To listen to the audio webcast via the internet, please visit the Brighthouse Financial Investor Relations webpage at http://investor.brighthousefinancial.com. To join the conference call via telephone, please dial (844) 358-9117 from within the U.S. or +1-209-905-5952 from outside the U.S.

A replay of the conference call will be made available until Friday, August 17, 2018 on the Brighthouse Financial Investor Relations webpage at http://investor.brighthousefinancial.com.

Non-GAAP and Other Financial Disclosures

Our definitions of the non-GAAP and other financial measures may differ from those used by other companies.

Non-GAAP Financial Disclosures

We present certain measures of our performance that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures highlight our results of operations and the underlying profitability drivers of our business, as well as enhance the understanding of our performance by the investor community.

The following non-GAAP financial measures, previously referred to as operating measures, should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:

Reconciliations to the most directly comparable historical GAAP measures are included for those measures which are presented herein. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are not accessible on a forward-looking basis because we believe it is not possible without unreasonable efforts to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income (loss) available to shareholders.

Adjusted Earnings, Adjusted Revenues and Adjusted Expenses

Adjusted earnings, which may be positive or negative, is used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. This financial measure focuses on our primary businesses principally by excluding (i) the impact of market volatility, which could distort trends, and (ii) businesses that have been or will be sold or exited by us, referred to as divested businesses.

Adjusted earnings reflects adjusted revenues less adjusted expenses, both net of income tax, and excludes net income (loss) attributable to noncontrolling interests. Provided below are the adjustments to GAAP revenues and GAAP expenses used to calculate adjusted revenues and adjusted expenses, respectively.

The following are significant items excluded from total revenues, net of income tax, in calculating the adjusted revenues component of adjusted earnings:

Net investment gains (losses); Net derivative gains (losses), except earned income on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment (“Investment Hedge Adjustments”); and Amortization of unearned revenue related to net investment gains (loss) and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB Fees”) (1).

The following are significant items excluded from total expenses, net of income tax, in calculating the adjusted expenses component of adjusted earnings:

Amounts associated with benefits and hedging costs related to GMIBs (“GMIB Costs”) (1); Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”); and Amortization of DAC and VOBA related to (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments (1).

The tax impact of the adjustments mentioned is calculated net of the U.S. statutory tax rate, which could differ from our effective tax rate.

Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance.

Adjusted Earnings per Common Share and Adjusted Return on Equity

Adjusted earnings per common share and adjusted return on equity are measures used by management to evaluate the execution of our business strategy and align such strategy with our shareholders’ interests.

Adjusted earnings per common share is defined as adjusted earnings for the period divided by the weighted average number of fully diluted shares of common stock outstanding for the period.

Adjusted return on equity is defined as total annual adjusted earnings on a four quarter trailing basis, divided by the simple average of the most recent five quarters of total Brighthouse Financial, Inc.’s stockholders’ equity, excluding AOCI.

(1) Collectively, amounts related to GMIB, excluding amounts recorded in NDGL, may be referred to as “GMIB adjustments.”

Adjusted Net Investment Income

We present adjusted net investment income to measure our performance for management purposes, and we believe it enhances the understanding of our investment portfolio results. Adjusted net investment income represents net investment income including investment hedge adjustments and excluding the incremental net investment income from CSEs.

Other Financial Disclosures

Corporate Expenses

Corporate expenses includes functional department expenses, public company expenses, certain investment expenses, retirement funding and incentive compensation; and excludes establishment costs.

Notable items

Certain of the non-GAAP measures described above may be presented further adjusted to exclude notable items. Notable items reflect the impact on our results of certain unanticipated items and events, as well as certain items and events that were anticipated, such as establishment costs. The presentation of notable items and non-GAAP measures, less notable items is intended to help investors better understand our results and to evaluate and forecast those results.

Book Value per Common Share and Book Value per Common Share, excluding AOCI

Brighthouse uses the term “book value” to refer to “stockholders’ equity.” Book value per common share is defined as ending Brighthouse Financial, Inc.’s stockholders’ equity, including AOCI, divided by ending common shares outstanding. Book value per common share, excluding AOCI, is defined as ending Brighthouse Financial, Inc.’s stockholders’ equity, excluding AOCI, divided by ending common shares outstanding.

CTE95

CTE95 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.

CTE98

CTE98 is defined as the amount of assets required to satisfy contract holder obligations across market environments in the average of the worst 2 percent of 1,000 capital market scenarios over the life of the contracts.

Holding Company Liquid Assets

Holding company liquid assets include liquid assets in Brighthouse Financial, Inc., Brighthouse Holdings, LLC, and Brighthouse Services, LLC. Liquid assets include cash and cash equivalents, short-term investments and publicly traded securities excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with derivatives and collateral financing arrangements.

Sales

Statistical sales information for Life sales is calculated using the LIMRA definition of sales for core direct sales, excluding company-sponsored internal exchanges, corporate-owned life insurance, bank-owned life insurance, and private placement variable universal life insurance. Annuity sales consist of 100 percent of direct statutory premiums, except for fixed indexed annuity sales distributed through MassMutual that consist of 90 percent of gross sales. Annuity sales exclude company sponsored internal exchanges. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity.

Net Investment Income Yield

Similar to adjusted net investment income, we present net investment income yields as a performance measure we believe enhances the understanding of our investment portfolio results. Net investment income yields are calculated on adjusted net investment income as a percent of average quarterly asset carrying values. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets, collateral received from derivative counterparties and the effects of consolidating under GAAP certain VIEs that are treated as CSEs.

Adjusted Statutory Earnings

Adjusted statutory earnings is a measure of our ability to pay future distributions and are reflective of whether our hedging program functions as intended. Adjusted statutory earnings is calculated as statutory pre-tax income less the variable annuities reserve methodology (Actuarial Guideline 43) and including both the reserve and capital methodology based CTE95 calculation and unrealized gains (losses) associated with the variable annuities risk management strategy.

Basis of Presentation

The information presented in this news release is derived from the consolidated financial statements of Brighthouse Financial, Inc. for periods subsequent to the separation from MetLife, Inc. that occurred on August 4, 2017, and is derived from the combined financial information of the MetLife U.S. Retail Separation Business for periods prior to the separation. The combined financial information was prepared in connection with the separation of a substantial portion of MetLife, Inc.’s former Retail segment as well as certain portions of its former Corporate Benefit Funding segment, and presents the combined results of operations and financial condition of certain former direct and indirect subsidiaries and certain of its current and former affiliates.

Forward-Looking Statements

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