Earnings Call Transcript - BHF Q2 2020

Operator, Operator

Good morning, ladies and gentlemen, and welcome to Brighthouse Financial’s Second Quarter 2020 Earnings Conference Call. My name is Liz 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. Also, we ask that you refrain from using cellphones, speakerphones, or headsets during the question-and-answer portion of today's call. I would now like to turn the presentation over to David Rosenbaum, Head of Investor Relations. Mr. Rosenbaum, you may proceed.

David Rosenbaum, Head of Investor Relations

Good morning and thank you for joining Brighthouse Financial’s second quarter 2020 earnings call. Our earnings release, slide presentation, and financial supplement were released last night and can be accessed on the Investor Relations section of our website at brighthousefinancial.com. We encourage you to review all of these materials, and we will refer to the slide presentation in our prepared remarks. 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 7, 2020. The company undertakes no obligation to update any information discussed on today's call. During this call, we will 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 including certain statutory base measures used by management are preliminary due to the timing of the filing of the statutory statements. And now, I'll turn the call over to our CEO, Eric Steigerwalt.

Eric Steigerwalt, CEO

Thank you, David, and good morning, everyone. I want to cover a few topics today. First, I will provide some perspectives on the current environment. Next, I will give an update on our share repurchase program. And finally, I will discuss Brighthouse Financial’s results in the second quarter. So let's start with the current environment. I hope that you and your loved ones are well and staying safe as the COVID-19 pandemic continues to unfold and impacts our communities and the global economy. Brighthouse Financial’s top priority remains the wellbeing and safety of our employees and their families, our partners, and our customers. As I've said, it is in uncertain times like these when our mission to help people achieve financial security becomes even more important. Despite the challenges created by the pandemic, we remain steadfastly focused on our mission and strategy and on delivering for our partners, customers, and our shareholders. Importantly, we respond to the current climate from a position of strength and remain confident in our focused strategy. Our balance sheet and liquidity remain strong. Our investment portfolio is high quality and well-diversified, and we continue to believe that we are well-positioned to weather the current downturn. The second topic I would like to cover is share repurchases. Since the announcement of our first stock repurchase authorization in August of 2018, we have repurchased a total of approximately $870 million of our common stock, a reduction of more than 22% of shares outstanding from the time we became an independent public company, and well ahead of our initial expectations. As previously disclosed, we temporarily suspended repurchases of our common stock on May 11, and that suspension remains in effect at this time. We continually assess market conditions, as well as other factors. And we will continue to be prudent, while retaining flexibility should circumstances warrant resuming share repurchases this year. Importantly, our target of returning $1.5 billion of capital to our shareholders by year-end 2021 remains in place. Now, let me turn to second quarter results. Our key highlights for the quarter are summarized on Slide 5 of our earnings presentation. First, we continue to prudently manage our statutory capitalization. Our hedging program performed as expected in the second quarter of 2020. Importantly, we estimate that our combined risk-based capital or RBC ratio remained in the range of 515% to 535%, consistent with the range disclosed for the first quarter of this year. The RBC ratio in the second quarter includes the impact of a $500 million subsidiary ordinary dividend paid to the holding company in the quarter. Ed will provide more details on statutory results shortly. Second, we had a strong sales quarter, despite the challenging environment. Annuity sales were approximately $1.8 billion, down 3% compared with the second quarter of 2019. However, I am extremely pleased that we grew our annuity sales 6% in the first six months of 2020 compared with the same period in 2019. Our annuity sales results through the second quarter of this year demonstrate the strength and complementary nature of our annuity product portfolio as we weather the current environment. Additionally, we generated approximately $12 million of life insurance sales in the second quarter of 2020. I am very pleased with the progress we have made as we continue to execute on our life insurance strategy. As I reflect on all that we've accomplished since reestablishing a competitive presence in the life insurance business last year, I want to give special thanks to our life insurance team and our life insurance distribution partners. While the current market environment remains a headwind to near-term sales of annuity and life insurance products for Brighthouse and for the industry, we remain focused on broadening our product offerings and expanding our distribution footprint. We're very excited about expanding our relationship with BlackRock, as we join the efforts to deliver BlackRock’s LifePath Paycheck, an investment solution that is designed to provide millions of American workers with simplified access to lifetime income throughout their retirement. With respect to life insurance, we remain focused on growing our business and expanding our digital footprint. To that end, in June, we announced the launch of Brighthouse SimplySelect, a new term life insurance product available online through Policygenius. Brighthouse SimplySelect features a fast and simple purchase process that doesn't require invasive testing, allowing an underwriting decision within 24 hours for most applicants. As I've said before, rising healthcare costs, unforeseen healthcare needs, and insufficient income in retirement are pervasive retirement concerns for Americans. And we believe Brighthouse Financial is well-positioned to help people achieve financial security and help address retirement concerns over the long term. Third, let me turn to total annuity net outflows, which were approximately $250 million in the quarter, down from both the second quarter of 2019 and sequentially, driven by continued strong sales as well as the market environment as fewer contract holders are surrendering policies. As we said 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 less profitable business. Fourth, corporate expenses, which do not include establishment costs, were $210 million in the second quarter, lower than our expectation. We remain committed to reducing corporate expenses by $150 million on a run rate basis by the end of this year and by an additional $25 million in 2021. Finally, we continue to make necessary investments in our technology infrastructure and in our business. We have referred to these investments as establishment costs. In the second quarter, establishment costs were approximately $35 million before tax. As I've said before, we are being prudent in how we are managing our way through our expected final couple of years of TSA exits. We now believe establishment costs will be approximately $125 million to $135 million in 2020 and $55 million to $65 million in 2021, both on a pre-tax basis. These TSA exits and associated systems transitions put us one step closer to our future state operating platform. Before wrapping up, I want to take a moment to once again thank our employees for their tireless work and the resiliency they've demonstrated over the past several months. Since March, our employees have remained in a work from home environment, as we've prioritized their health and safety, while continuing to monitor the COVID-19 pandemic. Despite the challenges that can come with working remotely, our employees have risen to the occasion, exemplifying our core values of being collaborative, adaptable, and passionate. I'm extremely proud of their focus and commitment, which have enabled us to continue to support our customers, partners, and communities during these very difficult times. To wrap up, we believe our balance sheet and liquidity positions are strong. We continue to believe we have the right strategy in place to deliver long-term shareholder value. And we believe that we are well-positioned to continue the execution of our strategy. With that, I'll turn the call over to Ed to discuss our financial results.

Ed Spehar, CFO

Thank you, Eric, and good morning, everyone. I hope you're staying safe and healthy and enjoying your summer as best you can. With our focus on prudence and flexibility, we entered this challenging environment with a strong statutory balance sheet and a material reduction in our equity market risk profile. Last night, we reported second quarter earnings along with our preliminary statutory results. And as our results illustrate, we've continued to maintain a strong capital and liquidity position during this unprecedented time. With the recovery in capital markets during the second quarter, our combined statutory total adjusted capital or TAC increased to $7.7 billion at June 30 from $7.2 billion at March 31. TAC increased despite a $500 million ordinary dividend paid to the holding company from Brighthouse Life Insurance Company or BLIC during the second quarter. The $500 million dividend from BLIC brings the year-to-date total to $800 million. Given our strong capital position, we intend to take the remaining $450 million of our planned $1.25 billion ordinary dividend from BLIC in the second half of this year. As a reminder, the $1.25 billion is consistent with the plan that we communicated on our Business Update Call in early March. I am also pleased to share that our estimated combined RBC ratio remained between 515% and 535% at June 30, consistent with our estimated RBC ratio at the end of the first quarter. In the second quarter, we had normalized statutory earnings of approximately $600 million, bringing year-to-date results to a normalized statutory loss of approximately $200 million. Roughly two-thirds of normalized statutory earnings in the second quarter was attributable to the recovery in capital markets. The balance was driven by a rebound in non-variable annuity results, including favorable mortality despite the impact from COVID-19 claims. Moving to the holding company, we ended the second quarter with cash of approximately $1.3 billion, which is consistent with the estimate we provided on the first quarter call, and roughly 5 times annual fixed charges. We believe it is appropriate to have a conservative position at the holding company in the current environment. So, in addition to maintaining a substantial cash balance, we also took the opportunity in the second quarter to extend our debt maturities. We issued senior debt and preferred stock and used the proceeds to prepay a $1 billion term loan that would have begun to amortize next year, and was scheduled to mature in 2024. As a result of these actions, our next outstanding debt maturity is 2027. Finally, even with the additional costs associated with extending our debt maturities, the combination of approximately $200 million of annual non-dividend inflows to the holding company and the planned ordinary dividend from New England Life Insurance Company or NELICO, covers our holding company fixed charges and other outflows. Moving to adjusted earnings. Last night, we reported second quarter adjusted earnings, excluding the impact from notable items of $39 million, which compares with adjusted earnings on the same basis of $273 million in the first quarter of 2020 and $296 million in the second quarter of 2019. One notable item in the quarter was establishment costs of $28 million after tax included in Corporate & Other. When we look at second quarter adjusted earnings, there are three underlying themes. First, alternative investments generated a loss. Our alternative investment yield was negative 9.7% in the second quarter, which was driven by the unfavorable market performance in the first quarter. As a reminder, alternative investment income is generally reported on a one quarter lag. As we think about alternative investment returns in the third quarter, we expect a bounce back but probably not a full recapture of the second quarter decline, given that economic fundamentals remain strained. Second, our underwriting margin was better-than-expected. Net claims on a pre-tax basis for the second quarter were $235 million, which is approximately $20 million below what we would consider a normal level. Results were favorable despite the negative impact from COVID-19. Net claims from the pandemic were approximately $25 million pre-tax with approximately 120,000 U.S. deaths at the end of the second quarter. This is much better than the guidance we provided on our first quarter call. Third, expenses were lower than expected. Corporate expenses were $210 million, which was below both the first quarter and a normal level. As Eric mentioned, we remain committed to reducing corporate expenses by $150 million on a run rate basis by year-end 2020 and by an additional $25 million in 2021. I would now like to talk about the impact of market performance on our adjusted earnings. With separate account returns of 14%, we saw a reversal of the first quarter impact from market performance. Separate account return performance drove a decrease in deferred acquisition cost or DAC amortization for variable annuities and life insurance, along with a decrease in variable annuity reserves. However, as we saw in the first quarter, the change in variable annuity DAC amortization was offset by a change in Shield DAC amortization. Turning to adjusted earnings at the segment level. Annuities adjusted earnings excluding notable items were $171 million in the quarter. Sequentially, DAC amortization was higher, along with lower alternative investment income. Life adjusted earnings excluding notable items were $48 million in the quarter. Sequentially, results were impacted by lower DAC amortization and a higher underwriting margin, partially offset by lower alternative investment income. The Run-off segment reported an adjusted loss excluding notable items of $115 million in the quarter. Sequentially, results were driven by lower alternative investment income, partially offset by a higher underwriting margin. Corporate & Other had an adjusted loss excluding notable items of $65 million. Sequentially, results were driven by higher expenses and higher taxes. Overall, I am pleased with our results this quarter. We continue to emphasize prudence and flexibility, as evidenced by our strong capital and liquidity position. In these uncertain times, balance sheet strength remains paramount to protect our distribution franchise, and to validate that we have a full cycle business model. With that, we'd like to turn the call over to the operator for your questions.

Tom Gallagher, Analyst

Good morning. Eric, just a question on your comment about maintaining the $1.5 billion buyback goal through the end of 2021. My question is, if all other conditions remain, we'll call it relatively benign versus where things are today, credit, equity markets, but interest rates remain at around 50 basis points, would you still expect to execute $1.5 billion buyback with those types of conditions?

Eric Steigerwalt, CEO

Good morning, Tom, how are you doing? Taking your question at face value. Yes, I would.

Ed Spehar, CFO

Yes. Hey, Tom. It’s Ed. So, we're not going to give a forward look on normalized statutory earnings in this environment. But I guess I would say that with the 515% to 535% RBC ratio at the end of the second quarter, $1.3 billion of holding company cash and no debt maturities until 2027, we feel very good about our position during this period of uncertainty.

Elyse Greenspan, Analyst

My first question I guess also on the capital side, I guess, Eric in your prepared remarks, it seemed like you left the door open a little bit to return to buying back your stock maybe perhaps this year. So what are you guys paying attention to for when you might return to buybacks? And then when do you expect to get the remaining dividend from BLIC, in the third or the fourth quarter? And can you let us know the unassigned funds at BLIC in the quarter as well?

Eric Steigerwalt, CEO

Hi, Elyse. It’s Eric. I'll start and then I think Ed will jump in. Just let me highlight that obviously we temporarily suspended the share repurchases in early May as you know. And that was after we had repurchased more than 12% of year-end 2019 shares outstanding. At an average price that's roughly 15% below where we are now. So we feel pretty good about where we're at. And I'll just add, kind of dovetailing off of Tom's question, look, we would like to achieve our capital return target of $1.5 billion by year-end '21. Having said that, look, we're going to evaluate market conditions and other factors. And as we think about the environment, if it's appropriate to begin repurchases, we will. As you've heard Ed say many times, prudence and flexibility, that's what we're thinking about along with watching market conditions, et cetera. Ed, you want to jump in?

Ed Spehar, CFO

Yes. Hi, Elyse. So two things to first, just one thing to add on to the share buyback that we have done in the year to date. I just want to highlight that by taking advantage of the opportunity earlier this year with our stock price down, we repurchased more shares in the first five months of this year than we had thought or had planned to repurchase for all of 2020. So just to underscore, that we're very pleased with the capital actions we've taken year to date. And then on your specific question on unassigned funds, unassigned funds at the end of the first quarter was negative $140 million, I think. So more than $100 million negative at the end of the first quarter, it was approximately $1 billion positive at the end of the second quarter.

Elyse Greenspan, Analyst

And then my second question, it seems like annuity sales held up pretty well in the quarter. Can you just give us a sense of how sales might trend kind of given the environment that we're in right now for the balance of the year?

Myles Lambert, Chief Distribution and Marketing Officer

Yes, good morning. It's Myles speaking. So what I would say is, look, we're continuing to execute on our distribution strategy. We're adding wholesalers. We're expanding into new firms as well as new channels. We're introducing products that really are complementary to all different types of market conditions. And frankly, we're very pleased with our sales results. Annuity sales, quarter-over-quarter were down slightly, but as Eric mentioned, still up 6% year-to-date. And we continue to just make fabulous progress as it relates to selling our new SmartCare product. As it relates to kind of forecasting the rest of the year, I really believe that until we get back to more normal business conditions, COVID is still going to have an impact on sales. What exactly that impact looks like? I just can't quantify at this time?

Humphrey Lee, Analyst

Hi, good morning and thank you for taking my questions. I just want to follow up on your capital proposition and your RBC level. I'm actually a little surprised to see that even after dividing up the $500 million, your RBC levels have remained relatively flat quarter-over-quarter. I thought last quarter you mentioned that the factors around the new VA capital reform, how the TAC and the capital requirement change full cycle, would keep your RBC relatively stable regardless of the market situation. However, I would expect this to be consistent for this quarter as well. Looking at your current position, even after dividing the $500 million, you're still at 515 to 535. Could you elaborate on the factors that caused the change between the first quarter and the second quarter?

Eric Steigerwalt, CEO

Sure, good morning, Humphrey. So, the discussion we had about the interplay between capital and required capital and reserves, so the CTE70 to CTE98 movements of convergence in bad markets and divergence in good markets. We saw that, again this quarter in terms of divergence. But it's important to keep in mind that we're just talking about, in the framework relative to those two different measures of averages of the worse scenarios. We clearly benefit from better markets. And that is the source of our normalized statutory earnings over time and therefore our distributable earnings over time. So if you look at our results this quarter, we talk about normalized statutory earnings in total of $600 million with about two-thirds of that related to VA. If you were to look at CTE98, which is what's important for RBC, you’d see the same dynamic of, adding to assets above, just like you saw with the normalized statutory earnings. So it's not surprising given the magnitude of those numbers that if we take a $500 million dividend out in the second quarter, and we have roughly the same amount of norm stat earnings that you would see no material change in the risk-based capital ratio.

Humphrey Lee, Analyst

Okay. Got it. And then my second question is on the annuity sales. So I guess in terms of the mix for this quarter, we saw Shield coming down. Fixed annuities actually went up. I think many of your peers have talked about difficulty getting return for fixed annuity products in the current environment. So maybe just talk about what you saw in terms of how you find attractive returns for your fixed products, and also what you saw in terms of Shield, maybe in terms of market competition?

Conor Murphy, Chief Operating Officer

This is Conor, I'll start and I'm sure Myles will add to the distribution story. Starting with the fixed products, I'm referring to the supplement, we have both fixed indexed annuities and fixed deferred annuities. You'll see an increase in fixed indexed annuities because we added a new product late in the first quarter. This is contributing to the sequential increase. Regarding fixed deferred annuities, we have maintained a disciplined approach to our pricing and are comfortable and pleased with our returns. Specifically for fixed deferred annuities, our expense base has continued to improve, which is beneficial. Additionally, we have a reinsurance agreement that supports our product. Myles will also want to provide input on the interest in that product within the current environment. From a broader perspective, Humphrey and Eric mentioned in his prepared remarks that when Brighthouse was established, Shield was our flagship product, and it continues to be significant, accounting for about half of our sales this quarter compared to around 60% a year ago. We have intentionally introduced a couple of fixed indexed annuities and fixed deferred annuities to change our business mix. As we noted at Investor Day, we are working to shift our business model to reduce the more capital-intensive variable annuities, decreasing from about a third of our business when we began to aiming for a sixth by 2025.

Myles Lambert, Chief Distribution and Marketing Officer

Yes, I'll address fixed sales as well. Conor mentioned that fixed sales are a crucial part of our strategy. The products we offer currently have competitive rates, and the market volatility is presenting an attractive option for many clients. We have implemented several marketing initiatives directed at advisors to ensure they recognize the competitiveness of our products. Our focus has been on the bank and wirehouse channels, particularly with our FRA product, where we are experiencing significant growth. Regarding Shield, we remain very optimistic and are pleased with our Shield sales, which exceeded $900 million for the quarter. While there has been a noted decline sequentially, particularly from two major distributors, we attribute most of this to their adjustment to remote work during COVID. If we consider overall sales across most of our other firms, they remain robust. Therefore, the negative sales impact associated with Shield is primarily linked to the adaptations of just a couple of our major distributors during the pandemic.

Ryan Krueger, Analyst

Hi, good morning. DAC amortization in annuities has bounced around a lot the last couple quarters, can you give a sense of what you would view as a more normalized level going forward?

Eric Steigerwalt, CEO

Sure. Hi, good morning, Ryan. In the last quarter's call, I mentioned that a more typical level of amortization for annuities is around $100 million per quarter. In the first quarter, with a 20% decline in the stock market and the benefit of Shield, we observed approximately $40 million in DAC amortization, which is $60 million less than what I consider normal. In this quarter, we saw a reversal of that trend, with DAC amortization in annuities amounting to about $160 million. If you average the first six months, it aligns with what would be a normal quarter. DAC amortization tends to fluctuate, and we are managing the company based on statutory earnings, distributable earnings, cash, and other critical factors we discuss on these calls. Currently, we are not offering an updated guideline for amortization levels while we assess the situation. The rising significance of Shield has altered our amortization dynamics, but the key takeaway is the essential benefit it provides as a hedge for our in-force variable annuities, along with the appealing profit characteristics of this product and others we offer, which I believe will be a crucial factor in the valuation narrative for our company.

Ryan Krueger, Analyst

Thanks. And then can you discuss, I guess, what the NAIC is considering in terms of lowering their interest rate assumptions for variable annuity accounting and how you think that may play out and how it could affect you?

Eric Steigerwalt, CEO

Sure, I mean, I'll start off by saying that generally, as you can imagine, we are very engaged with the NAIC and regulators on all matters of importance to Brighthouse. I would say on your specific question, it is premature to discuss any change to VA reform, I think considering the fact that many companies haven't even adopted VA reform yet. Remember, we adopted early at the end of 2019. What I would say is obviously you hear us emphasize statutory balance sheet, holding company position, prudence, flexibility, all the words that we use frequently when we talk about this stuff we are managing balance sheet considering current market condition over an extended period of time. So current market conditions over an extended period of time. So if we look and think about where we were at the end of the second quarter, with a 515% to 535% RBC ratio, with $1.3 billion of cash at the holding company, and no debt maturities until 2027, we are positioned to comfortably manage through whatever equity, interest rate, or credit environment we think we'll face over the coming years.

Andrew Kligerman, Analyst

I want to come back to capital for a moment to better understand the development in total adjusted capital. So in the first quarter Brighthouse went from $9.7 billion to $7.2 billion, including the $300 million dividend, so it was a $2.2 billion delta. In the second quarter, you went from $7.2 billion to $7.7 billion, including a $500 million dividend. So that was a $1 billion delta, so you’re 2.2 billion against 1 billion if you take out the dividend impacts. And given the magnitude of the markets was similar, maybe interest rates played a role a bit last quarter much more so than this. But why the big differential in the movement to the two quarters on total adjusted capital?

Eric Steigerwalt, CEO

Good morning, Andrew. If you look at the rebound this quarter, we took a $500 million dividend. The actual increase in total adjusted capital of $1 billion this quarter was mainly driven by a recovery in the capital markets. The equity market saw significant improvement in the second quarter, but we still experienced a decline over the first six months. You didn’t recover everything that was lost, which is a key part of the explanation. We also had some modest non-variable annuity losses. The combination of these two factors really clarifies the situation you are observing.

Andrew Kligerman, Analyst

Regarding mortality, you have guidance indicating around $70 million per 100,000 lives, and it appears that the estimate for COVID-19 mortality this quarter was approximately $25 million. This is significantly lower than the sensitivity provided last quarter. Is Brighthouse currently in a favorable position concerning the sensitivities, and will there be a need to adjust that sensitivity going forward at this point?

Eric Steigerwalt, CEO

Andrew, you briefly cut out at the end, but I understand your question. Let's start by providing some context. Ignoring COVID claims for a moment, our quarterly average direct claims in life insurance exceed $400 million. Our net claims are approximately $250 million each quarter. Considering the volume of claims we have both directly and net, we should keep in mind the numbers we're discussing regarding COVID. Regarding sensitivity, whether it will increase or decrease, we believe it's not necessary to be more specific at this point. We are pleased that in the second quarter our experience was better than our previous guidance indicated. As you mentioned, we projected $70 million, which was an after-tax figure for 100,000 U.S. deaths. We experienced 120,000 U.S. deaths, and our pre-tax number was around $25 million. Clearly, this is a significant improvement. However, this area remains uncertain, and we will not provide any further updates beyond what we have already communicated.

John Barnidge, Analyst

Great. Your $150 million corporate expense reduction in 2020 and additional $25 million in 2021. Does that reflect any potential lease or real estate savings that may emerge from a change in the working environment?

Eric Steigerwalt, CEO

We've been on that journey for a while, so we don't have anything like that planned. We might have a small lease coming up soon, but the bigger ones are not in play. So no.

John Barnidge, Analyst

Okay. And then can you also talk about rental forbearance in your commercial real estate portfolio and the investments? Thank you.

John Rosenthal, Chief Investment Officer

Hi. It's John. As of June 30th, we had $763 million of loans, a relatively small portion of the portfolio is less than 8% with debt forbearance agreements in place. Virtually all were hotel and retail mortgage loans. And we would expect substantially all of them to repay eventually.

Erik Bass, Analyst

Hi, thank you. Could you elaborate on the new annuity product with BlackRock and the sales potential you foresee over time? Is this opportunity something that will materialize in the near term, or does it open up access to a new and possibly expanding market?

Conor Murphy, Chief Operating Officer

Hey, Eric, it's Conor. So as you know, this was just announced in the second quarter. So it's near term, but it's going to be most of the rest of this year, I think kind of getting organized, we don't expect it to be a source of revenue until 2021. Obviously, while we're very, very excited about it and we think it's a great endorsement for Brighthouse and it's a continuation of a great partnership we already have with BlackRock, it's too early to frame what the economics might look like. So we'll certainly get back to you but we're excited to be able to do that, but it's too early at this stage.

Erik Bass, Analyst

Got it. Thank you. And then maybe if you could talk a bit more about your strategy for growing life sales from here and how you're adapting to the current working environment?

Conor Murphy, Chief Operating Officer

Sure, I can start discussing the product side, and then I'll pass it over to Myles. I recently spoke with Humphrey about the growth in the annuity segment. As you know, on the life insurance side, we entered the market with SmartCare last year, and we are pleased with its performance. Additionally, we reentered the term insurance space this quarter by launching the SimplySelect term in partnership with Policygenius. It's important to note that when we mention reentering, we still have nearly $550 billion of life insurance in force before reinsurance and about $400 billion after. Now, I'll let Myles elaborate on the emerging strategy in the life insurance segment.

Myles Lambert, Chief Distribution and Marketing Officer

Yes, so we're really pleased with the progression we've made regarding SmartCare. We're selling the product now at over a dozen firms and we have access to approximately 60,000 advisors. And the plan moving forward is to continue to develop and grow the wholesaling force. We have a number of plans underway as it relates to bringing on new additional major firms starting next year. We also have a channel expansion strategy that's well underway. And we feel really good about the progress that we've made. The product is absolutely resonating in the marketplace. It's got a competitive indemnity benefit. And it's the only linked benefit product in the market right now that has a cash value that potentially could grow with market conditions. So the reception from our advisors and our distributors has been really positive. So we're going to look to just continue to expand on that, as well as introduce new products at some point in time in the future, as Conor just mentioned.

Eric Steigerwalt, CEO

To elaborate further, SmartCare, which is a hybrid long-term care product, had much of its infrastructure developed within Brighthouse, including the data-driven underwriting. This allowed us to leverage that knowledge for the SimplySelect term product. We expect to continue developing other products that complement these in terms of architecture and our distribution capabilities. It's important to note that SimplySelect term, available through Policygenius, represents a different avenue for us. However, you should anticipate that much of what we develop moving forward will complement our core distribution network.

Suneet Kamath, Analyst

I think in your prepared remarks, you talked about lapse rates in VA, and I'm assuming it's the legacy VA being lower than the usual. Has that been a one quarter phenomenon or has that been going on for a while? And can you talk about what your lapse rate assumption is that's built into your statutory VA capital and reserves?

Conor Murphy, Chief Operating Officer

Well, I will start by saying thank you, Suneet, it's Connor. From a flows perspective and what we've been observing, I would characterize it as a phenomenon over the past four months. We have experienced lower outflows, which have generally been around $1 billion per month or $3 billion per quarter. There was a decrease in outflows during the first quarter, particularly in March, which was already in progress. Instead of the usual $3 billion in outflows this quarter, it's closer to $2 billion. These outflows are primarily influenced by four factors. The number of people annuitizing and the number of deaths remain nearly the same, which contributes to partial and full withdrawals. However, we have seen a noticeable decline in partial withdrawals and a significant drop in full withdrawals, which may indicate the safety haven nature of Brighthouse in the current environment. It's difficult to predict what will happen from here, though. I will allow Ed to address the overall lapse assumptions if he wishes.

Ed Spehar, CFO

Good morning, Suneet. Obviously, there was a lot of work done around VA reform in terms of assumptions for key policyholder behavior. And obviously, we have dynamic lapse assumptions. We've always had them, but the assumptions we have are consistent with the work that was done around VA reform. So there isn't just one lapse rate to quote for you. It's a dynamic lapse formula and obviously so that depends on market conditions but consistent with VA reform.

Operator, Operator

Our first question comes from Tom Gallagher with Evercore. Your line is now open.

Eric Steigerwalt, CEO

Thank you, operator. Thanks for participating on today's call. Just to recap, we entered the current climate from a position of strength and remain confident. As you heard today, our balance sheet and liquidity remain strong and our investment portfolio is in good shape. We continue to believe that we are well positioned to weather the current downturn. Also, I'll just add, we celebrate our third anniversary today as an independent public company. And I want to give a special thank you to all our employees for their tremendous hard work and dedication and also a shout out to our distributors who we very much appreciate. I hope that you and your loved ones stay safe and we look forward to speaking with you again at the next quarter.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.