Brighthouse Slips After Spinoff -- WSJ

By Geoffrey Rogow and Leslie Scism Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 8, 2017).

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Shares of Brighthouse Financial Inc. fell more than 5% at one point on Monday on the insurance company's first day of trading after splitting off from MetLife Inc.

The stand-alone Brighthouse was created out of three parts of MetLife. The first two were MetLife's historic core selling life insurance to U.S. households, as well as one of the nation's biggest sellers of retirement-income annuities. Brighthouse also has a large segment of "runoff" business of contracts MetLife sold and Brighthouse is responsible for, but which aren't currently being marketed.

More than a half dozen brokerages started coverage of Brighthouse on Monday. The analysts gave price targets for the insurance company ranging from around $65 to $78. Shares of Brighthouse closed trading down 4.4% at $61.72.

A large part of Brighthouse's business has been pinched in recent years by a near decade of ultralow interest rates that were ushered in by the global financial crisis of 2008. These rates have hurt the profitability of many types of life insurance as low interest rates depress the income insurers earn by investing customers' premiums until claims are paid. They also drive up the cost of hedging annuities' lifetime-income guarantees.

For MetLife, the strategy behind the spinoff is hope for a higher share valuation once the company is freed of slower-growing operations and faces less pressure from low interest rates. After the spinoff, roughly 40% of MetLife's business will be international life insurance. MetLife also will continue selling insurance and pension products to employers, and it is keeping an asset-management unit and some other operations.

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With the spinoff, Prudential Financial Inc. becomes the top insurance company in America by assets.

Even so, the biggest source of Prudential's profits isn't insurance. Its crown jewels include a $1 trillion global investment-management unit, known as PGIM, that ranks among the world's largest and counts a couple dozen major corporate pension plans as clients. Among others: a large pension-risk-transfer operation and a Japan insurance business.

Analysts at Wells Fargo Securities said a stand-alone Brighthouse could perform well if markets and interest rates move up in tandem. On the other hand, an opposite move could be difficult for the firm.

"If interest rates fall from here or equity markets retrace, we would expect [Brighthouse] to be a heavily shorted name," said the analysts. Wells Fargo has a price target of $71.

In the short term, volatile trading is expected for Brighthouse as many MetLife shareholders sell their new shares because they won't be paying dividends.

The actual conversion took place late Friday, when MetLife common shareholders received one share of Brighthouse common stock for 11 MetLife shares. MetLife will initially hold on to about 20% of Brighthouse.

Write to Geoffrey Rogow at geoffrey.rogow@wsj.com and Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

August 08, 2017 02:48 ET (06:48 GMT)