Issue for August 9, 2017
Brighthouse to Expand Headcount by 200-Plus Amid Growth Push
Brighthouse Financial has offered details on its future business strategy as an independent company now that it is officially spun out from MetLife.
The Charlotte, N.C.-based firm plans to hire more than 200 employees in the future, the Charlotte Business Journal reports. Meanwhile, Brighthouse is offering insight into how it will use its $79 billion investment portfolio to hedge future risks and strengthen protections for investors, according to Bloomberg.
On the hiring front, Brighthouse is seeking to add marketing, digital technology, actuarial, finance and operations jobs, among others, with the majority located in its Charlotte area homebase. Some jobs will also be added to the firm’s satellite offices in Morris County, N.J., Tampa, Fla., and Boston, Mass. While 61 open jobs are posted on the firm’s website, CEO Eric Steigerwalt told the CBJ that he expects 200 to 300 positions to be added overall to help support the firm’s growth plans.
Some distribution-related jobs of note include an external wholesaler position (Dallas), a brand marketing director role (Charlotte) and chief product and strategy officer position (Charlotte). Brighthouse has 1,200 employees overall, including roughly 800 staff in its headquarters in Charlotte’s upscale Ballantyne neighborhood, the CBJ reported.
The hiring binge stands in contrast to the firm’s previous existence under the roof of MetLife, where the large New York-based insurer was focused on reducing costs via headcount reduction, business expense reductions and other means, Bloomberg notes.
Brighthouse, a retail life insurance and annuity provider, has already revealed key personnel appointments, including tapping MetLife investment executive John Rosenthal to be the lead manager of Brighthouse’s investment portfolio, which is allocated mainly to bonds, Bloomberg reports. His appointment is part of a long-term strategy that's expected to result in the use of external asset managers to invest certain allocations of the investment fund.
“It’s a sleep-at-night investment portfolio, so that when we make these guarantees, we know that we’re going to be there when customers need us to pay off on our promises,” Steigerwalt told Bloomberg last week in a phone interview before Monday's first trading day. Steigerwalt added that since Brighthouse manages products with "market sensitivity," it had to hedge such risks to "make sure that the company is protected always."
Steigerwalt's focus on portfolio security first, as opposed to maximizing investment returns, is positioned to help safeguard it from peers that saw investment portfolios damaged by the 2008-09 financial crisis, including The Hartford Financial Services Group Bloomberg notes.
Brighthouse (Nasdaq: BHF) closed its second day of trading at $56.90, down $4.82 or 7.81% from Monday and below the consensus mean price target of $71.00 per share from Thomson Reuters. The company has a market capitalization just shy of $7 billion.
The spinoff will help MetLife focus on less interest-rate sensitive and capital intensive business such as group life insurance, employee benefit products, retirement services and asset management. MetLife CEO Steven Kandarian expects a solid portion of post-spinoff growth to come from international markets where interest rates are more attractive than in the U.S. He also believed MetLife’s retail life insurance and annuity business (i.e., today’s Brighthouse) would be able to grow faster and more nimbly as an independent company. MetLife owns a 20% stake in Brighthouse and will take up to five years to dispose of its shares.
Brighthouse began its first week as a company with an ad and video campaign highlighting MetLife's influence on the independent firm, its veteran management team, strong financial ratings, $219 billion in assets under management, and 2.7 million customers, Life Annuity Specialist reported. The retail insurer placed ads in influential business publications such as the New York Times, Barron’s, and the Financial Times. Brighthouse’s tagline in the advertisement campaign is “established by MetLife.”
US Judge Rules Sales Agents Are Employees, Not Contractors
A U.S. District Court has ruled that multi-line insurer American Family missclassified thousands of its agents as independent contractors, rather than as employees, according to a Wisconsin State Journal article.
The decision follows on the heels of other lawsuits against major U.S. insurers — including Northwestern Mutual, MassMutual and New York Life — centering on the same issue, although it had no direct impact on those cases.
The decision by U.S. District Judge Donald Nugent for the Northern District of Ohio upholds an advisory jury's verdict against American Family. If sustained on appeal, the ruling would force American Family to pay up to $1 billion in retirement benefits.
In a follow-up decision, the judge also rejected a motion by American Family to decertify a class action suit against the carrier. In rejecting the decertification request, the judged noted that only one of American Family’s producers who testified during the two-week trial, conducted in April, expressed satisfaction with the current independent contractor arrangement, according to the article.
The two decisions could be a major concern for other life-annuity carriers that distribute product through independent agents. Not least among them: Northwestern Mutual.
As reported, a lawsuit seeking class action certification alleging Northwestern Mutual misclassified and underpaid its sales reps is also moving to federal court. Plaintiffs in two similar lawsuits filed against MassMutual and New York Life claim the insurers misclassified sales reps’ employment designations and therefore owe sales reps minimum wages for hourly work and overtime pay.
While ruling in favor of the plaintiffs, Judge Nugent granted the insurer’s motion for an immediate appellate review. The case now goes before the 6th U.S. Circuit Court of Appeals. Pending a decision of the court’s three-judge panel, a restructuring of the carrier's retirement program will be put on hold, according to the article.
Citing the judge's opinion, the piece adds that prior case law exists to support both parties to the suit; and that a final ruling could have a significant industry-wide impact.
American Family Chief Legal Officer Mark Aflable expressed confidence that the appeals court will ultimately support American Family's position, the Journal notes. Also quoted in the piece is American Family's spokesperson, who asserts that the $1 billion figure significantly overstates amounts due the plaintiffs.
If the appeals court sides with the lower court’s decision, retirement benefits would have to be paid to nearly 7,000 current and former agents nationwide — all now plaintiffs to the suit — the article notes. A March 2016 procedural ruling to reclassify the case as a class action suit followed three years of litigation, begun in 2013 with a complaint by four former agents of the Madison, Wisconsin-based insurer.
In his ruling, Judge Nugent supported plaintiffs’ contention that they should be classified as employees. Among the reasons: American Family’s requirements limited the agents’ sales to products from the insurer or those of carriers financially connected with American Family; agents had to abide by a one-year non-compete agreement following their departure from the company; and the insurer circumscribed their business activities and vacation time.
According to the Journal, the judge also noted in his opinion that American Family directed managers to "exercise control" over agents' sales activities — and rebuked them when they failed to do so. Such managerial control, he wrote, is "inconsistent" with the producers' designation as independent contractors, but does align with the status of employees.
In a press statement contesting the judge’s decision, American Family notes that its agents are “solely responsible for the manner and means by which they sell insurance and run their agencies." The carrier adds that, like, other independent contractors, the producers retain ultimate control of their hours, support staff, as well as development and implementation of business plans.
As noted in a 2016 annual report, American Family had $95.6 billion in life insurance in force and $427.5 million in life insurance premiums earned last year.
Read the Wisconsin State Journal article here.
Talk of Breakup of Jackson National Parent Company Intensifies
Prudential plc., the parent company of Jackson National, is becoming more open to spinning off its U.K. operations, according to investors, the Financial Times writes. It remains unclear how a breakup would affect Prudential’s North American business, including Jackson National Life, if it were ever to occur.
Talk of a breakup has been going on for a decade, the FT writes. But speculation picked up following recent reports that Prudential was talking to investment bankers about unloading £10 billion of its annuities business. The company decided to stop pursuing new business in the U.K. annuity market, its hometown market, in February. But it’s been moving out of the business since 2016, first ditching its bulk annuities business and later exiting from the market for insurers peddling annuities to pension savers.
However, despite the ongoing withdrawal from the U.K. annuities arena, there have been no plans in regard to Jackson National, which isn’t mentioned in the FT article. Prudential declined comment to the publication.
Getting rid of its U.K. business and instead focusing on the more promising units in Asia and the U.S. would allow Prudential to grow faster, analysts and investors tell the FT.
Profits in its Asia business have grown by two-thirds since 2012, while Prudential’s U.K. insurance operations only grew 14% during the same time period, the paper writes.
A breakup could boost valuation by about a third above the firm’s current value, although it will be affected by the amount of capital the firm will need, Abid Hussain, an analyst at Credit Suisse, tells the FT.
It’s also a sensible time for Prudential to consider a breakup, given the wide availability of cash for deals and hungry buyers, Guy de Blonay, fund manager at Jupiter Asset Management, tells the publication. Nonetheless, a sale would likely take many years as few buyers could handle the entire operation, bankers tell the FT.
Prudential would be far from the first company to spinoff a portion of its annuities product line. This summer MetLife formalized the spinoff of Brighthouse, allowing it to exit the retail life and annuities business and emphasize more growth-oriented business lines. Manulife Financial, meanwhile, is reportedly investigating a spinoff or IPO of its U.S. unit, John Hancock, according to an article in The Wall Street Journal.
Last month, in a Best's Review article, Prudential plc. Group CEO Mike Wells expressed confidence in Jackson National’s opportunity to take advantage of industry shifts brought on by the Department of Labor’s fiduciary rule, as a result of its prep work on technology and compliance, Best’s Review writes.
Wells told the publication that “product innovation” aimed at compliance with the rule, in addition to Jackson’s existing IT capabilities, will allow the U.S. firm to tap into retirement assets it couldn’t access before. Further, Jackson stands to benefit from the demographic changes in the U.S., namely, an aging population searching for ways to ensure retirement income, Wells tells Best’s Review.
In 2016, Jackson was the industry leader in U.S. individual annuity sales, according to LIMRA. Prudential Plc has no business affiliation with Prudential Financial of Newark, N.J.
- To read the Financial Times article cited in this story, go to https://www.ft.com/content/411cc68c-7b68-11e7-9108-edda0bcbc928 if you have a paid subscription.
ICI, IRI: Fiduciary Rule Already ‘Orphaning’ Accounts
The Labor Department’s fiduciary rule is already cutting into smaller accountholders’ access to investment products, underscoring the need for intervention by the Securities and Exchange Commission, according to the Investment Company Institute and Insured Retirement Institute.
The two trade groups were among scores of commenters weighing in ahead of the DOL’s deadline this week for comments on "more streamlined compliance options" for the rule.
The IRI said its members have reported that approximately 155,000 clients have been "orphaned" by the rule, and "far more" are expected to be as implementation proceeds.
"Sadly, we now have significant evidence that our fears have been realized," the IRI letter states.
Seventy-one percent of advisors plan to stop providing advice to at least some of their current small accounts due to the risk and increased costs of the rule, while 35% intend to stop serving accounts under $25,000, and 25% will raise their minimum account thresholds, the IRI survey results also show.
The ICI letter similarly cites member data suggesting a retreat from serving smaller clients.
"These so-called ’orphaned’ accountholders already number in the hundreds of thousands and will be left without access to advice (and industry participants indicate that the numbers will climb substantially as implementation efforts proceed)," the letter reads. "In short, there is now clear evidence that the rule is already harming, and will increasingly harm, investors in a number of ways."
Meanwhile, fund industry costs are compounding, the ICI said.
Disputing DOL estimates of $5 billion in first-year implementation costs, the ICI said the projection fails to consider the money asset managers would spend in developing products to assist brokers, such as T and clean shares, which the ICI puts at a minimum of $111 million.
"The move toward T shares is a primary example of the inadvertent market disruption that the fiduciary rulemaking has caused," the letter says.
Both trade groups reiterated earlier calls for the applicability date for the full rule to be postponed until Jan. 1, 2020, and for the SEC to develop a best interest standard for broker-dealers in collaboration with the DOL. The ICI stressed that the SEC should "take the lead" in the new rule process, while keeping the current fiduciary standard for registered investment advisors "solidly in place."
"We urge the SEC to coordinate closely with DOL so that DOL explicitly recognizes the best interest standard of conduct in a new, streamlined prohibited transaction exemption for financial services providers that are subject to an SEC-governed standard of conduct," the letter says.
Unum's Colonial Life Unit to Expand Agent Force, Open New Offices
Major disability insurer Unum plans to put more agents on the ground for its Colonial Life unit across more territories, ThinkAdvisor writes.
Columbia, S.C.-based Colonial Life has opened three new territory offices in the first six months of the year, Tim Arnold, the life insurance group's CEO, said in a recent conference call with securities analysts, according to ThinkAdvisor.
Unum wants to grow the total number of Colonial Life offices from 45 to the upper 50s over the new few years, according to the publication. And Rick McKenney, Unum’s president and CEO, told the analysts that Colonial Life’s recent increase in sales was "a result of getting a lot more feet on the street," according to ThinkAdvisor.
Sales at Colonial Life grew 7.5% to $117 million in the second quarter, the publication writes. Life insurance sales did particularly well, growing 15% to $25 million, ThinkAdvisor writes.
Meanwhile, Chattanooga, Tenn.-based Unum has posted $245 million in net income in the second quarter, up from $237 million the year prior, according to the publication.
Colonial Life offers life, accident, disability insurance and other products. The Unum business unit has set a goal of serving 5 million customers by 2020 and has invested heavily in digital technology during the past year, the firm’s annual report states.
- To read the ThinkAdvisor article cited in this story, go to http://www.thinkadvisor.com/2017/07/29/unum-wants-more-colonial-life-agents-in-more-terri?t=health-insurance?ref=channel-feature&slreturn=1501513934.
Brighthouse's Stock Debut Also a Moment to Boost Biz Culture (Photos)
Brighthouse Financial's debut as a public company this week offered an opportunity for its home office to reinforce key themes of its corporate culture, including its camaraderie and inclusion. That's according to a series of photos that show how the Charlotte, N.C.-based retail life insurer and annuity provider celebrated its opening moments as an independent company that's traded on the Nasdaq under ticker symbol BHF.
Employees at the firm's Charlotte headquarters, in the Ballantyne neighborhood, gathered around a giant flat screen to watch CEO Eric Steigerwalt ring the opening bell of the Nasdaq at 9:30 a.m. EDT. He then traveled back to Charlotte, to be with staff, to ceremoniously close the exchange via live-streaming. (The picture above is the closing bell ceremony in Charlotte) In both cases, Brighthouse employees — all dressed in t-shirts displaying the company’s Nasdaq ticker symbol — had opportunities to stand with their peers in a show of solidarity on the historic day.
But beyond Charlotte, the milestone was honored throughout the country, including Brighthouse's offices in Boston, Tampa, Morris County, N.J., and New York City, where celebrations occurred, a company spokeswoman said. Brighthouse was previously an operating unit of New York-based MetLife.