Good morning, ladies and gentlemen, and welcome to Brighthouse Financial's Second Quarter 2021 Earnings Conference Call. My name is Howard, 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 the end of the conference call. In fairness to all participants, please limit yourself to one question and one follow-up. As a reminder, the conference is being recorded for replay purposes. I would now like to turn the presentation over to David Rosenbaum, Head of Investor Relations. Mr. Rosenbaum, you may proceed.

Good morning and thank you for joining Brighthouse Financial's second quarter 2021 earnings call. Our earnings release, slide presentation, and financial supplement were released last night. It can be accessed on the Investor Relations section of our website at brighthousefinancial.com. We encourage you to review all of these materials. Today, you will hear from Eric Steigerwalt, our President and Chief Executive Officer; and Ed Spehar, our Chief Financial Officer. Following our prepared comments, we will open the call up for a question-and-answer period. Also here with us today to participate in the discussions are Myles Lambert, Chief Distribution and Marketing Officer; Conor Murphy, Chief Operating Officer; and John Rosenthal, Chief Investment Officer. Our discussion during this call will include Forward-Looking Statements within the meaning of the Federal Securities Laws. Brighthouse Financial's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risks and uncertainties described from time-to-time in Brighthouse Financial's filings with the U.S. Securities and Exchange Commission. Information discussed on today's call speaks only as of today, August 6th, 2021. The Company undertakes no obligation to update any information discussed on today's call. During this call, we will also be discussing 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 related definitions may be found on the Investor Relations portion of our website in our earnings release, slide presentation or financial supplement. And finally, references to statutory results, include certain statutory-based measures used by management are preliminary due to the timing of the filing of the statutory statements. And now, I will turn the call over to our CEO, Eric Steigerwalt.

Thank you, David, and good morning everyone. Once again, I hope that everyone listening today and your loved ones are remaining safe and well. Today, I will discuss our second quarter results and provide some perspectives on the continued execution of our strategy. Brighthouse delivered strong results in the second quarter. Investment income from alternative investments was very strong, given the first quarter market performance. As a reminder, alternative investment income is generally reported on a one quarter lag. The underwriting margin was in line with the prior quarter, but lower than a more normal quarter. We delivered another quarter of strong sales results, and we continued to prudently manage expenses. Our balance sheet and liquidity position remained robust in the second quarter and our hedging program performed as expected. We estimate that our combined risk-based capital or RBC ratio range was between 480% and 500%, well above our target of between 400% and 450% in normal markets. Additionally, we ended the quarter with liquid assets at the holding company of approximately $1.6 billion, which includes a $250 million ordinary dividend paid to the holding company from Brighthouse Life Insurance Company or BLIC. Ed will provide more details on our financial results shortly. As we have said before, our strategy has remained focused on growing sales, managing expenses, unlocking capital, and repurchasing our common stock. Let me provide a few perspectives on each of these pillars. Starting with sales, I'm very pleased with our results in the second quarter. Annuity sales were approximately $2.3 billion, up 25% compared with the second quarter of 2020, and ahead of our expectations. We reported record sales this quarter for both our flagship shield level annuities and our variable annuities with FlexChoice Access. Additionally, we generated approximately $26 million of life insurance sales in the second quarter of 2021, also ahead of our expectations. I remained very pleased with the progress that we're making as we continue to execute on our life insurance strategy. We remain focused on enhancing our existing suite of products, as well as further expanding our distribution footprint. Earlier this week, we launched several enhancements to our shield level annuities. We believe these enhancements bolster the competitiveness of shield, while also continuing to provide value to our distribution partners and the clients they serve. Also, in July, we further grew our distribution footprint for SmartCare. As we execute our life insurance strategy, we expect to continue to add distribution partners, bring on additional wholesalers, and enhance and add to our product mix. Total annuity net outflows were $735 million in the quarter, as outflows were partially offset by continued strong sales. As we have said many times previously, we expect to see a continued shift in our business mix profile over time, as we add more cash flow generating and less capital intensive new business, coupled with the runoff of older, less profitable business. Turning to expenses. Corporate expenses, which do not include establishment costs, were $218 million in the second quarter. Establishment costs were approximately $29 million. We previously committed to a cumulative $175 million reduction in corporate expenses relative to our first year as a public company. That was $150 million in 2020 and an additional $25 million in 2021. We remain focused on achieving the remainder of our expense reduction commitment in 2021. With that said, as I've said before, we will continue to invest in our infrastructure as we seek to enhance the support we provide our distributors and their financial professionals, as well as our policyholders and contract holders. Moving to capital. We continue to focus on optimizing statutory capital to support our balance sheet strength and our share repurchase program. I am extremely pleased to announce that in July, we received regulatory approval to take a $600 million dividend from Brighthouse Reinsurance Company of Delaware, or BRCD as we refer to it to its parent company BLIC. Since 2019, we have unlocked almost $3 billion of statutory capital, including $1 billion related to the de-risking of our variable annuity hedging strategy. Lastly, let me discuss our stock repurchase program. In the second quarter of 2021, we repurchased approximately $125 million of our common stock. And since the end of the second quarter through August 4, we repurchased an additional approximately $53 million of our common stock. Since the announcement of our first stock repurchase authorization in August of 2018 through August 4th of this year, we have repurchased almost $1.3 billion of our common stock. This represents a reduction of more than 31% of shares outstanding from the time we became an independent public company. Last night, we announced a new authorization to repurchase up to an additional $1 billion of our common stock. We are very pleased with this new authorization as it reflects our financial strength, positions us to achieve our goal of returning $1.5 billion to our shareholders by the end of this year, and supports our ongoing commitment to return capital to our shareholders. Before turning the call over to Ed, I'd like to take a moment to congratulate David Rosenbaum, who recently assumed the role of Head of Product Strategy and Pricing for Brighthouse. As I'm sure many of you know, David has served as Head of Investor Relations for Brighthouse since our launch in 2017, and his responsibilities expanded in 2019 to include financial planning and analysis. David has been pivotal in driving our financial strategy over the last number of years, and I and we are excited for him in his new role. I am also very pleased to share that Dana Amante has succeeded David as the Head of Brighthouse's Investor Relations program. Dana has also been with Brighthouse since our launch as part of our finance organization, and most recently as Director of Investor Relations, and we're thrilled that she has taken on this new role. To wrap up, Brighthouse delivered strong results in the second quarter. Sales were better than our expectations. We continue to prudently manage expenses, and we repurchased more of our common stock in the quarter. Our balance sheet and liquidity position remained robust. Additionally, we unlocked more capital during the quarter and our new authorization supports our ongoing commitment to returning capital to our shareholders. We remain focused on executing our strategy to deliver long-term shareholder value. And with that, I'll turn it over to Ed to discuss our financial results.

Thank you, Eric, and good morning, everyone. Today, I will discuss our robust capital position, as demonstrated by the preliminary statutory results we reported yesterday. I will also provide a few comments on adjusted earnings. At June 30, combined statutory total adjusted capital or TAC was approximately $9.4 billion, which was unchanged from March 31st even though we paid a $250 million dividend from Brighthouse Life Insurance Company, or BLIC, to the holding company. This BLIC dividend was consistent with the 2021 dividend plan I communicated on our fourth quarter 2020 earnings call. TAC benefited from the increase in equity markets in the second quarter, and strong investment performance in our alternatives portfolio. Capital strength is a top priority, and we continue to look for opportunities to optimize statutory capital. The regulatory approval of a $600 million dividend from Brighthouse Reinsurance Company of Delaware, or BRCD, is the most recent example of these efforts. We intend to take this dividend up to BLIC in the third quarter. This additional capital further enhances an already strong capital position at Brighthouse Life Insurance Company and we plan to take another dividend from this entity to the holding company in the fourth quarter of this year. At June 30, we estimate that our combined risk-based capital ratio or RBC ratio was between 480% and 500%. The change in the RBC ratio from the first quarter range of 500% to 520% is primarily explained by the $250 million BLIC ordinary dividend paid to the holding company. Additionally, in June, the National Association of Insurance Commissioners or NAIC adopted changes to the RBC factors for bonds and real estate. Assuming these factor modifications are effective on December 31, 2021, we estimate the changes will have a mid-single-digit negative impact on the RBC ratio and this impact is included in the estimated range of 480% to 500%. The RBC ratio remains well above our target range of 400% to 450% in normal markets. Starting with preliminary statutory results, we reported breakeven normalized statutory earnings during the first six months, as the positive equity market performance in the first half of 2021 was offset by the negative impact from interest rates and non-VA results. Holding Company liquid assets were approximately $1.6 billion at the end of the second quarter, unchanged from the first quarter. Shifting to adjusted earnings, second quarter adjusted earnings, excluding the impact from notable items were $458 million, which compares with adjusted earnings on the same basis of $428 million in the first quarter of 2021, and $39 million in the second quarter of 2020. We had one notable item in the quarter, establishment costs of $23 million after-tax, which was included in Corporate & Other. When we think about the adjusted earnings results compared with our quarterly adjusted earnings expectation, there are two key themes. First, net investment income was very strong, primarily due to an 11.5% alternative investment yield in the quarter. This was the second quarter in a row that the quarterly return in alternative investments exceeded the 9% to 11% annual return we anticipate for this asset class. Excess return is the primary driver of approximately $225 million of additional after-tax earnings relative to the quarterly run rate expectation. Second, while the underwriting margin was consistent with the first quarter, it was approximately $70 million lower than the quarterly run rate expectation on an after-tax basis. Underwriting margin included $37 million of pre-tax net claims related to COVID-19. And overall we had a lower than normal benefit from reinsurance in the quarter. We anticipate potential volatility in underwriting on a quarterly basis driven by fluctuations in a number of factors, including the frequency of claims, severity of claims, and the offset from reinsurance. Overall, we believe that our quarterly adjusted earnings run rate is in the range of $3 to $3.20 per share. Turning to adjusted earnings at the segment level, Annuity's adjusted earnings excluding notable items were $338 million in the quarter. Sequentially, results were driven by lower reserves as a result of the favorable market, mostly offset by higher expenses and lower net investment income. In the Life segment, adjusted earnings excluding notable items were $68 million in the quarter. On a sequential basis, results reflect lower DAC amortization, a higher underwriting margin and higher net investment income. Run-off segment reported adjusted earnings excluding notable items of $122 million in the quarter. Sequentially, results were driven by higher net investment income partially offset by a lower underwriting margin. Corporate & Other had an adjusted loss excluding notable items of $70 million. Sequentially, results were driven by higher expenses and a lower tax benefit, partially offset by lower total preferred stock dividends. To conclude, I am very pleased with our results this quarter. We maintained our robust capital and cash position, and we continue to return a meaningful amount of capital to shareholders. We announced a new common stock repurchase authorization of up to an additional $1 billion which supports our ongoing commitment of returning capital to shareholders and we received regulatory approval to unlock $600 million of capital from BRCD. We remain focused on executing our strategy and committed to using a multi-scenario multiyear framework to determine the appropriate level of capital returned to shareholders. With that, we'd like to turn the call over to the operator for your questions.

Hey, good morning. Ed, I think you mentioned in the prepared remarks that you plan to take another dividend from BLIC in the fourth quarter. Can you give us any sense of upsizing there?

Sure. Good morning, Ryan. So we have almost $500 million of remaining ordinary dividend capacity at BLIC. And I would expect we to take at least half that amount.

Got it. Thanks. Now that you've received another $600 million from BRCD, how does that affect your dividend plans from BLIC for next year? It seems like it gives you a bit more flexibility to consider it, right?

We are very optimistic about the capital position of our operating companies, as well as the cash position at the holding company. Currently, we are in a better position with the RBC ratio than we expected at the beginning of the year. It's important to note that the second quarter figures do not include the $600 million BRCD dividend. We will continue to manage the company to ensure we are appropriately capitalized, utilizing the multi-year, multi-scenario framework we have previously discussed and which is reflected in our DE tables. This approach will continue to guide our capital management decisions.

Thanks for the follow-up. Now that you have $1.2 billion in dividends approved from BRCD, are the reserves closer to what you consider appropriate? Do you still believe there's potential for additional capacity in the long term?

So as you've heard us talk about, the primary means to assess the capital position of BRCD is our cash flow testing margins. And even after this dividend, we continue to have; I consider very strong cash flow testing margins in BRCD. And remember, we look at that under a multitude of scenarios.

Good morning and thank you for taking my questions. I guess thinking about the $1 billion of share repurchase authorization, how should we think about the pace of the buyback going forward? Is there any reason why we should not look at the historical pace as a guidepost?

I'll start Hung-Fai. I think it would be smart to look at that history as a guidepost. Obviously, we feel great about our flexibility here. Ed, you're going to give a little help, right? Why don't you give a little help?

A little help. So we don't think it's in the best interest of shareholders to discuss a future buyback plan. So I'll tell you what we've done. And as Eric said, I think we have the strategy and I would expect that strategy would continue. If we look at the last couple of years, our repurchases have typically been in this 4% to 6% of average daily market volume. And if you look at the early stage of the pandemic, because of the opportunity we saw, we ramped that up to about 16% of average daily market volume during a couple of month period. So we know how important returning capital is to shareholders in financial companies. And I think the fact that through August 4th, we've repurchased 31% of our shares outstanding since separation. I would say that illustrates our commitment to capital return.

Okay. I understand. Switching back to BRCD, I believe this is a positive development to secure another $600 million. The timing seems to have been quicker than I anticipated. Now that you've taken $600 million from BRCD for two consecutive years, should we expect this pace to continue? Is there any way to clarify the dividend capacity of BRCD?

I wouldn't recommend that you base your expectations on just two data points. However, we are very optimistic about the cash flow testing margins at BRCD. This is why we requested the regulator to permit us to withdraw this amount, and I believe the regulator agreed because these cash flow testing margins continue to be strong.

Hi, thanks. My first question, if we go back to the EPS that you reported. And then I adjust that for a couple of items, you pointed out being the underwriting and a better COGS, gets to around something around $3.52, whereas you guys gave the range of $3 to $3.20 as the run rate, so there is some other one-off items in the quarter? Or is it just assuming some kind of normal level of underwriting volatility when you give that kind of quarterly run rate of $3 to $3.20?

Good morning, Elyse. So, as you can imagine, there are a number of items every quarter that are off trend, and I would say we called out the two big ones this quarter in our disclosures around underwriting and alternative investments. But the one notable item that we did not call out was the bigger one of the remaining would be market impact, which was favorable in the quarter.

Okay. And then, in terms of shifting back to capital, you guys since the pandemic right have also maintained a healthy level of capital as a holding company with the new buyback and also there is more certainty that we're coming out of the pandemic. Are there any thoughts about kind of changing the buffer that you're looking to hold at the HoldCo whether that's later this year, or something that you guys are thinking about for 2022?

Okay. So last quarter, I made some comments about how we were assessing the appropriate level of conservatism in our holding company cash position. And I think the answer to the outcome of that assessment was our decision to ask the board for a $1 billion repurchase authorization, which is equivalent to 26% of our equity market cap and is two times the largest previous authorization.

Thank you. Can you talk about the growth in the life insurance business sales, maybe expectations going forward? And do you anticipate, like do you see this is coming from broadening out of distribution, a pull-forward from raised awareness or really shifting to a higher gear? Thank you.

Yes sure, this is Myles, happy to take the question. So we're really pleased with the progress that we continue to make with SmartCare sales. And as Eric mentioned in some of his prior comments, we continue to expand distribution. Over the last few weeks, we've been able to bring in about a half a dozen new firms. We have expanded strategically through two partnerships into the BGA space. And that's now providing us access to approximately 13,000 new advisors, which we're very excited about. But the product itself is a great product. It's very competitive as it relates to the indemnity benefit that it has. And the policy has the opportunity for cash value growth based on industry performances. That coupled with the fact that a few major national distributors have really embraced the product and are doing a great job of selling it coupled with the fact that we continue to grow our sales force is the reasons why we expect to see continued growth with SmartCare moving forward.

And John, it's Connor. Let me just add one comment to emphasize that we filled nearly as much SmartCare in the first half of 2021 as we did in all of last year. We're also developing some additional life products to complement that suite. You will see those in the future.

And maybe the follow-up to that is, and thanks for the answers there. That was helpful. You're obviously having good distribution on the annuity side on top of life. Some of your expenses are variable. Obviously some are fixed. Given the outlook for distribution is still constructive. How should we be thinking about operating expenses within that thing? Thank you for the answers.

Oh, sorry. Sorry, wait, sorry. We have to answer that. So on operating expense, corporate expenses for the first half of the year were $421 million, that's lower than what we would anticipate it would be in the second half of the year. As you can imagine, travel is still low relative to what we budget and there are some other areas where we would expect more expense in the second half of the year. But I don't know, Eric, if you have any further comments.

Well, I'll just say, sort of strategically, we're investing in distribution, we're investing both operationally and in distribution itself and that's going to continue. So I'm pleased with where we are in expenses and that includes investments that we're making now and are going to make in the future.

Hi, good morning. Just had a quick question, you've done a few funding agreements year-to-date. Curious how big deal of an opportunity do you see this becoming and how quickly do you expect it to ramp up? Also kind of where should we find the results for this kind of nascent line of business in your reporting?

Hi Zach, it's John. We think this is really an attractive space to be in, as it will enhance our overall business profile and provide good risk adjusted returns and product diversification. It's a bit premature to talk about how big we think the business is going to be or what kind of earnings power it may have, as we're just beginning to grow it. But so far things are going extremely well. The program started in April and we currently have about $4 billion of outstanding balances. And we look forward to talking to you more about it in the future as this business grows.

Hey, it's Eric. I'll just add. It sits in Corporate & Other, and that's where it'll probably sit for a while.

Thanks. Ed, could you provide a little bit more detail on the normalized stat earnings? And I guess in particular, I would have thought given the favorable equity markets and the favorable alternative investment income, they would have been a bit stronger. Can you give some perspective on the offsets?

Sure. It's important to note that most of the benefits we are experiencing from the ALF are reflected in unrealized gains, which go directly to tax and are not included in normalized statutory earnings. This explains the disconnect between some of the other statutory metrics and normalized statutory earnings. Additionally, our year-to-date results for non-VA have been less favorable than expected over the past two quarters, with mortality being a contributing factor. In the first quarter, we discussed strong VA results, even though we absorbed the full-year impact of the lower mean reversion point for the statutory accounting framework, which we estimated to be a $200 million to $250 million hit. In the second quarter, interest rates decreased, leading to a negative impact from rates in both the VA business and a modest impact on our fixed indexed annuity liabilities.

Just on that last point on the lower rates you have to reflect the lower starting point, but there is no additional mean aversion impact, is that correct?

No.

Thank you all for joining us today and for your interest in Brighthouse Financial. I look forward to working with you. Have a great day.

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