Q2 2020 Brighthouse Financial Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Brighthouse financial second quarter 2020 earnings Conference call. My name is lists and I'll be your coordinator today.
At this time, all participants are in 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 cell phones speaker phone for 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.
Good morning, and thank you for joining Brighthouse financial second quarter 2020 earnings call. Our earnings release Slide presentation in financial supplement were released last night and can be accessed on the Investor Relations section of our website at Brighthouse financial Dot Com, we encourage you to review all.
All of these materials and we will refer to the slide presentation in our prepared remarks.
Today, you will hear from Eric Steigerwald, our President and Chief Executive Officer, and its be Har, 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 miles Liam Burke chief distribution of 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 Bright house financials 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 bright house financials filings with the U.S.
Securities and Exchange Commission.
Information discussed on today's call speaks only as of today August 7th 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 unrelated definitions maybe found on the.
Best Relations portion of our website in our earnings release slide presentation or financial supplement.
And finally references to statutory results, including certain statutory based measures used by management, our preliminary due to the timing of the filing of the statutory statements and now I'll turn the call over to our CEO Eric Steigerwald.
Thank you David good morning, everyone.
I want to cover a few topics today first I'll provide some perspectives on the current environment.
Next I will give an update on our share repurchase program.
Finally, I will discuss bright house financials results in the second quarter.
Let's start with the current environment I.
I hope you and your loved ones are well and staying safe.
<unk> 19 pandemic continues to unfold and impact our communities in the global economy.
Right else financial top priority remains well being and safety of our employees and their families.
Partners.
Customers.
As I've said.
It isn't on certain times like these when our mission to help people with Chief 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 answered the current climate from a position of strength.
I remain confident in our focus strategy.
Our balance sheet liquidity remains strong.
Our investment portfolio is high quality and well diversified.
And we continue to believe that we are well positioned to whether the current downturn.
The second topic I would like to cover share repurchase.
Since the announcement of our first stock repurchase authorization in August 28.
We have repurchased a total of approximately $870 million of our common stock.
Reduction of more than 22% of shares outstanding.
Time, we became an independent public company.
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.
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 five of our earnings presentation.
First we continue to prudently manage our statutory capitalization.
Our hedging program performed as expected in the second quarter 2020.
Importantly, we estimate that our combined risk based capital or RBC ratio remained in the range of 515.
The 535%.
Consistent with the range disclosed for the first quarter of this year.
The RBC ratio in the second quarter includes the impact.
500 million dollar.
Didier ordinary dividend.
Page of the holding company in the quarter.
Ed will provide more details on statutory results shortly.
Second.
We had a strong sales corridor.
Despite the challenging environment.
Nobody sales were approximately $1.8 billion.
Down 3% compared with the second quarter of 29.
However.
I am extremely pleased that we grew our annuity sales 6% in the first six months of 20 Twond.
Compared with the same period in 2019.
Our annuity sales results through the second quarter of this year demonstrate the strength.
Elementary nature of our annuity product portfolio.
We whether the current environment.
Additionally, we generated approximately $12 million of life insurance sales in the second quarter of 2020.
I'm 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 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.
All the current market environment remains a headwind to near term sales of annuity and life insurance products for bright house 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 joined the effort to deliver Blackrocks Lifepath paycheck.
An investment solution that is designed to provide billions of American workers with simplified absolutely.
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 bright house simply select.
A new term life insurance product available online through the policy genius.
Right how simply select.
Features of fall off 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.
I think health care costs unforeseen health care needs.
Insufficient income in retirement, our pervasive retirement concerns for Americans.
And we believe Brighthouse financial is well positioned to help people chief 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've said previously we expect to see a continued shift in our business mix profile overtime.
As we add more cash flow generating and less capital intensive new business.
Coupled with the run off of less profitable business.
For.
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 was establishment costs.
In the second quarter, establishing costs were approximately $35 million before tax.
As I've said before we are being prudent in how we're managing our way through our expected final couple of years of CFA 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 tier say 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.
In the resiliency they've demonstrated over the past several months.
Since March our employees have remained and work from home environment as we prioritize their health and safety, while continuing to monitor the cold and 19 pandemic.
Despite the challenges that can come with working remotely.
Our employees have risen to the occasion.
Hey, simplifying our core values have been collaborative adaptable passionate.
I'm extremely proud of their focus and commitment.
Which has enabled us to and you 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 position to continue the execution of our strategy.
With that I'll turn the call over to add to discuss our financial results.
Ed.
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 prudent some flexibility we entered this challenging environment with a strong statutory balance sheet and they 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 and capital markets during the second quarter.
Our combined statutory total adjusted capital or Tac increased to $7.7 billion at June Thirtyth.
From $7.2 billion at March 30 Onest.
Tack increase despite a $500 million ordinary dividend paid at the holding company from Bright House life insurance company or blick during the second quarter.
The 500 million dollar dividend from Blick brings the year to date totaled $800 million.
Given our strong capital position, we intend to take the remaining $450 million of our planned 1.25 billion dollar ordinary dividend from black in the second half of this year.
As a reminder, the $1.25 billion is consistent with the plan, we communicated on our business update call in early March.
I'm also pleased to share that our estimated combined RBC ratio remained between 515 and 535% at June Thirtyth.
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 coal that 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 five 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 use the proceeds to prepay a 1 billion dollar term loan that would have begun to amortize next year and was scheduled to mature in 2024.
As a result of these actions are next outstanding debt maturity is 2027.
Finally, even with the additional cost 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 Nellix, though 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.
The one notable item in the quarter was establishment costs of $28 million after tax included in corporate and 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 to bounce back, but probably not a full recapture of the second quarter decline given the economic fundamentals remain straight.
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 covert 19.
Net claims from the pandemic were approximately $25 million pretax with approximately 120000 U.S. debts at the ended 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 a 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 the 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.
Duties 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 runoff segment reported an adjusted loss, excluding notable items of $115 million in the quarter.
Sequentially result results were driven by lower alternative investment income.
Partially offset by a higher underwriting margin.
Corporate and other had an adjusted loss excluding notable items of $65 million.
Sequentially results were driven by higher expenses and higher taxes.
Overall I'm pleased with our results this quarter.
We continue to emphasize prudence and flexibility as evidenced by a 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.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Our first question comes from Tom Gallagher with Evercore. Your line is now open.
Good morning.
Eric just just a question on on your comment about maintaining that billion five buyback goal through the end of 2021.
My question is.
Before all other conditions remain well 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 billion five buyback would those types of conditions.
Good morning, Tom how you doing.
[music].
Taking your question at face value, Yes, I would.
Gotcha and then the related question would be how should we think about.
Whether you would build meaningful capital under those seem conditions, maybe that one's for Ed in terms of that type of cash flow or RBC build you would expect to get without meaningful credit losses fairly benign equity markets, but interest rates remaining low through the end 2021.
Yeah, Hey, Tom It said so you know 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%.
B C ratio at the end to 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.
Oh.
Good thanks.
Our next question comes from at least Greenspan with Wells Fargo. Your line is now open.
Hi, Thanks, good morning.
My first question I guess also.
No.
Eric in your prepared remarks.
It seems like you left the door up in a little bit to return to buying back your stock maybe perhaps this year. So what do you, but paying attention to for.
When you might return to buyback and then when do you expect ticket the remaining dividends from Blake.
In the third or fourth quarter and can you, let us know the unassigned.
Within the quarter as well thank you.
Hi, Lisa it's Eric I'll start and then I think settled out 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 you know kind of Dovetailing off of 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 and as we think about the environment, if it's appropriate to to be getting 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, do you want to jump in.
Yes, hi lease so two things first just one thing to add onto the share.
Buyback that we have done in the year to date I just wanted 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 bought or had planned to repurchase for all of 2020, So just to underscore.
You know that we're very pleased with the capital actions, we've taken a year to date and then on your specific question on unassigned funds unassigned funds at the end of the first quarter at was negative 140 million I think so more than a 100 100 million negative at the end of the first quarter. It was.
Approximately $1 billion positive at the end of the second quarter.
Thanks, and then my.
My second question it seems like that annuity sales on hold up pretty well in the quarter can you just.
That said.
Hello.
You know kind of given the environment that we're in right now for the balance the here.
Yes, good morning, its miles speaking so what I would say look we're continuing to execute on our distribution strategy, we're adding wholesalers were expanding into new firms as well as new channels.
We're introducing products that really are complementary to all different types of market condition and frankly, we're very pleased with our sales results you know 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.
I felt like our new smart care 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.
It's still going have an impact on sales what exactly that impact looks like I just can't quantify this plant.
Okay. Thank you I appreciate the color.
Our next question comes from Humphrey Lee with Dowling and partners. Your line is now open.
Good morning, and thinking about taking my question I just wanted to follow on.
Your capital position and your RBC level like I'm actually I guess I'm, a little surprise to see even after deducting up the 500 million to RBC level still kind of stayed relatively flat quarter over quarter like I thought last quarter, you talked about how the moving pieces between under the new VA Kaprow reform.
While the pack and the capital requirement change through cycles, so that your RBC will be relatively stable.
Regardless of the market situation, but then so like out with us expect that would be the thing for this quarter. So looking at where you are right now even not the dividing up 500 million you still at 515 to 35. So maybe can you elaborate a little bit in terms of the moving pieces kind of.
For the change quite kind of can be between first quarter in second quarter.
Sure. Good morning, Humphrey. So you know the discussion we had about the interplay between capital and a required capital in reserves. So you know the C.T. 70 to see T. 98 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 worst 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 be a.
On if you were to look.
Add.
The 98, which is what's important for RBC you'd see the same dynamic of.
Adding two 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 dollar dividend out in the second quarter and we have roughly the same amount of norms stat earnings that you would see no material change in the risk based capital ratio.
Okay got it.
And then my second question is on the annuity sales.
So I guess intends to the mix for this quarter, we saw shields coming down fixed annuities actually went up.
I think many of your peers talk about difficult to get returns for fixed annuity products in current environment. So maybe just talk about what you. What you saw in terms of how you how you fly attractive return for your fixed products and also what you saw in terms of shield maybe in terms of markets.
Competition.
Hi, This is Conor I'll start and I'm sure miles will add to the distribution story.
So starting with the fixed product so really we I'm, referring to the supplement we have both the fixed indexed annuities and the fixed deferred annuities I'm, you'll see an increase in fixed indexed annuities because we've added a new product just we added at late in the first quarter.
So that's leading to some of the increase their leases sequentially.
On the fixed deferred side, so we well actually overarching from all of our pricing. We've remained very disciplined we're very comfortable a very pleased with our return.
Specifically with the fixed deferred our expense base is continues to improve which helps us but we also have a reinsurance agreement in place I'm not.
Which also helps with that product as well and I'm sure that said mild will want to add in terms of the.
No the interested not product in the current environment, but but just from an overarching prospective two Humphrey generic said this in his prepared remarks, we when brought US came into being clearly we had shield is our marquee product and it's still is and it represented about half of our.
Sales this quarter is probably 60% a year ago, but we've been intentional we had a V. A flex product as well and we've been intentional about adding a pair of fixed indexed annuities and apparent fixed deferred annuity because as you know and as we ramp as we referred to at Investor Day, We are continuing to change the mix of business.
From where we began to continue to dilute the more capital intensive.
Pete.
Getting not from a roughly a third of our business. When we started out to six of our business by 2025.
Yes, I'll jump in here as it relates to fix sales as well so I'll make the contracts kind of touched on it.
Fixed sales are absolutely part of our strategy.
The products that were offering right now do have competitive rates, but I also think that market volatility in this environment is also making an attractive solution to too many clients out there.
We've had a number of marketing efforts, which has been part of our strategy direct to advisors to make sure that they understand the competitive nature of the product that we have right now and we've been in and we've been really focused on the bank and wire house channels with the sale of our fr a product and we're seeing great growth in those channels.
As it relates to your question pertaining to shield, we still remain incredibly positive and we're very pleased with our shield cells. We did over 900 million of sales for the quarter.
Yes, you had mentioned some decline.
Sequentially quarter over quarter.
One actually two of our major distributors.
Our sales are down relatively significantly and weren't tribute in most of that to their pivot and adjusting.
Working remotely and Cove it.
Other than that we think our our sales across the board with most of our other firms are still very very strong. So I think if you. If you see some of the negative impact as it relates to sell failed to shield, it's more driven to a couple of our major distributors and their pivot during the during depend on it.
That's helpful. Thank you.
Our next question comes from Ryan Krueger with KBW. Your line is now open.
Hi, good morning, DAC amortization in annuity to has bounced around a lot.
Couple of quarters can you give a sense of what you would you add more normalized level going forward.
Sure Hi, good morning, Ryan.
So I think on last quarter's call I said that a more normal level of amortization for annuities was probably around $100 billion a quarter and.
In the first quarter.
When we had.
You know with 20% decline the stock market and that the benefit of shield offset I think we had around 40 million of DAC amortization. So 60 million off of what I said was normal you look at this quarter, where we have a reversal largely of what happened in the first quarter and the DAC amortization.
And in annuities was roughly $160 million so.
I think you take an average of the first six months you're right.
You are right in the middle of what would be a normal quarter. So you know like.
Your DAC amortization is going to bounce around obviously, we're running the company based on statutory and distributable earnings and cash and all the other things that we talk about most of the time on this call but.
You know, it's one of those things that we're not providing an updated kind of rule of thumb at this point, we're looking at it obviously with the growing importance of shield.
It has changed the amortize amortization dynamic for us.
But what's most important about the growing importance of shield is the fundamental benefit we get as a hedge to our in force book, the BA and the attractive profit characteristics of that product and the other products that we sell today, which over time I think is a critical driver of the valuation stay.
For this company.
Thanks, and then can you discuss.
I guess, what DNA as he is the during in terms of lowering their interest rate assumptions for for variable annuity.
Accounting and how how you you think that may play out and how could affect you.
Sure I mean, I'll start off by saying that.
Generally.
As you can imagine we are very engaged with the NIH any I see and regulators on all matters of importance to bright house.
I would say on your specific question it is premature to discuss.
Any change to.
He reform.
I think considering the fact that many companies haven't even adopted.
And yet you remember we adopted early at the end to 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 on when we talk about this stuff.
We're managing balance sheet, considering current market conditions.
Over an extended period of time.
So current market conditions over an extended period of time.
So 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.
Holdings.
And no debt maturities until 2007.
We are positioned to comfortably manage through whatever equity interest rate our credit environment.
We think we'll face over the coming years.
Understood. Thank you.
Our next question comes from Andrew Lieberman with Credit Suisse. Your line is now open.
Hey, good morning.
Why don't come back to capital one moment better understand the development total adjusted capital so in the first quarter.
How's went from 9.7 7.2 billion.
Including 300 million dollar dividends. So there was a $2.2 billion.
Second quarter, you went from 7.27 0.7, including a 500 million dollar dividends. So there was a 1 billion Delta. So you are 2.2 against one.
William.
Yes.
Right impacts.
Given the magnitude of the markets with similar maybe interest rates played a role.
Last quarter much more so than most but why the big differential.
In the movements in two quarters on total adjusted capital.
Good morning, Good morning, Andrew So.
I think if you look at the the rebound in the this quarter. So as you said, we took a 500 million dollar dividends so the actual.
No increase in tack of a billion dollars. This quarter was really driven by a rebound in the capital markets and.
The equity market came back a lot in the second quarter, obviously, but was still down for the first six months. So you didnt recoup.
Everything that you lost.
I mean, that's the biggest.
So that's the biggest portion of the answer I and we also had like you know modest non V.A. losses as well. So the combination of those two factors really explains the dynamic here looking at.
Okay.
Also with respect to mortality so you have guidance around.
What is it like $70 million per 100000 lives and.
It seemed that the.
Yeah, the estimate for co big 19 mortality.
This quarter was around 25 million dollar.
So.
Far less than your sense pivoting provided last quarter. So you know is bright house in a pretty pretty.
Favorable position relative to the sensitivities.
Okay.
Okay.
Okay.
Andrew you cut out a little bit at the end, there, but I I think I get that the the just the question.
Let me, let me start off by sizing this a little bit for you.
Overall, okay. So we look at let's just put Colgate claims aside for a second.
You know our quarterly average direct claims in life insurance Arden are north of $400 million. Okay. So quarterly average of net.
Of direct claims north of 400 million and our net claims are around $250 million quarter.
So I think in the context of the number of claims that we have on both a direct the net basis, we ought to think about the numbers were talking about here with Covance and you know the difference between the sensitivity and is it going to be higher is it going to be lower we don't think it's worth.
Trying to get more specific on this we're happy that in the first in the in the second quarter, we had.
Better experience than what our guidance had suggested.
We had talked about as you said 70 million.
Which was an after tax number for 100000 us debts.
We had 120000 usdas deaths in our pretax number was around 25 million.
So obviously much better but you know we're this is still a an uncertainty where we just not going to provide any update beyond.
Beyond what we said so far.
Fair enough.
Our next question comes from John Barnidge with Piper Sandler Your line is now open.
Thank you Youre 150 million corporate expense reduction in 2020, an additional 25 million in 2021 does that reflect any potential lease or real estate savings as they emerge from changing working environment.
Hey, there.
Not really.
We you know we've been on that journey for awhile and so we don't have anything like that figured in we don't actually have we have maybe a small lease coming up soon but bigger ones are out so no.
[music].
Okay, and then can you also talk about rental forbearance and your commercial real estate portfolio and the investments.
Thank you.
Hi, it's John as of June Thirtyth, we had $763 million of loans.
A relatively small portion of the portfolio listen 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.
Our next question comes from Erik Bass with Autonomous Research. Your line is now open.
Hi, Thank you I'm, hoping you could talk a little bit more about the new annuity product with Blackrock in the potentially see for sales over time and is this a near term opportunity or is it something that's more gives you access to kind of new and potentially growing market.
Hey, Eric its Connor so as you know this was just announced in the second quarter. So.
It's it's near term, but it's going to its 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.
Until 2021, obviously, what we're very very excited about it and we think it's a great endorsement for write offs and it's a continuation of a great partnership we already have with Blackrock, it's too early to frame what the economics might might look like so we'll we'll certainly be back to you about that we're excited to be able to do that but it's too early at this stage.
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 are adapting to the current working environment.
Sure I mean, I can start a little bit on the product side, but but and then I'll give it took to miles you I talked a few months ago with Humphrey about the expansion of the annuity side as you know on the life side, we reentered.
The life space with Smart care last year, and we've been pleased with that and then we reentered the term space just this quarter, we launched the simply select term.
Policy genius.
I'm again bear in mind, those or when we say re enter we do.
Still retain almost $550 billion of life in force before reinsurance and and close to 400 after reinsurance, but I'm going to that miles speak to the the emerging strategy on the lives side.
Yes, so we're really pleased with what the progression we've made rich regarding smart care, we're selling the product now and over a dozen firms and we have access to approximately 60000 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 it competitive indemnity benefit and it's the only a link 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 we're going to look to just any to continue to expand on that as well and introduce new products at some point in time in the future as Conor just mentioned.
Got it thanks, and those new products Im assuming or things you would hope to kind of be able to.
Bring directly into the distribution that you're building out on smart care.
That's right I mean, we're we're highly focused on major financial institutions as well as.
The expansion into the BJ marketplace, and we will be developing products that are very complimentary.
Those type of advisors and financial professionals.
Yeah, just to elaborate a little further so you know smart care, which is a hybrid.
C product, we developed a lot of the infrastructure for that within within bright house and the data driven underwriting and so on so we were able to leverage a lot about when we did this simply select term and we continue to we expect will continue to develop other products that are complementary to those both in terms of architecture onto miles as point.
Our distribution capabilities bearing in mind that simply select term through policy genius is actually a different revenue for us.
But.
You should expect that a lot of what will develop from here will be more complimentary to the overarching core distribution.
Network.
Got it thank you.
Our next question comes from Suneet come up with Citi. Your line is now open.
Thanks, I think in your prepared remarks, he talked about lapse rates in VA and I'm, assuming the let legacy V.A.
Being lower than than usual has that been a one quarter phenomenon or is that been going on for awhile and can you talk about what your lapse rate assumption is that's built into your your statutory V.A. Kaplan reserves.
Well I'll start today. Thank you its Conor just from a flows perspective and what we've been seeing I would say the stage. It's been a four month phenomenal we we did see.
Lower I flows I think everybody knows our outflows have been running pretty consistently about a billion dollars. Among a 3 billion a quarter or we had lower outflows a little bit in the first quarter, because we had lower outflows in the month of March of this was already getting underway. So yes, so instead of 3 billion and outflows.
This quarter, it's closer to two.
As everybody knows those are really made up of four things we still have.
Almost exactly the same amount of people annuitizing and almost the same amount of people, who are dying, which leaves your partial and full withdrawals and we had a noticeable decline and partial withdrawals in a very significant decline in full withdrawals.
Which I think it speaks to the to the maybe the the safety Haven nature of Bright house in this environment I'm honored to say what will happen obviously from a from here, though I'm going to that speak to the overall up the lapse assumptions of viewership.
Yeah, Hey, good morning Suneet.
Obviously, there was a lot of work done around V.A. reform in terms of assumptions for a t. policyholder.
Behavior and.
I, obviously, we have dynamic lapse assumptions, we've always had them, but you know 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. It obviously, so that depends on market conditions.
But.
Consistent with.
V.A. reform.
Okay, and then just as we think about the third quarter assumption review.
You're not going to front run it but have you given any guidance in terms of or the impact. If you change that 3.75, a long term interest rate assumption.
We we have not given any guidance.
Uh huh.
We've not given any guidance areas on mute, we've not given any guidance I will tell you that obviously, we look at all of our assumptions in the third quarter. It is a significant undertaking with regard to this single assumption that you're talking about we would consider both internal and external models.
As well as the forward curve.
Okay. Thanks.
Ladies and gentlemen, I will now turn the call back over to Mr. Steigerwalt for closing remarks.
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 remains strong and our investment portfolio is in good shape.
We continue to believe that we are well positioned to whether the current downturn.
Also I'll just add a 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.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].