Brighthouse Financial, Inc. (NASDAQ:BHF) is one of the largest providers of annuity and life insurance products in the U.S. through multiple independent distribution channels and marketing arrangements. The company reported net loss available to shareholders of $519 million and adjusted loss of $98 million for the first quarter of 2024. While the results were impacted by a $366 million unfavorable notable item related to a reinsurance premium rate increase, the company's underlying performance was in line with expectations.

Business Overview

Maintaining a Strong Balance Sheet and Liquidity Position

Brighthouse Financial ended the first quarter of 2024 with a strong statutory balance sheet, reporting combined total adjusted capital (TAC) of $6 billion, a reduction of approximately $300 million from year-end 2023. The decrease in TAC was primarily driven by the impact of a reinsurance premium rate increase retroactive to September 2019, which resulted from the conclusion of a reinsurance arbitration. Importantly, there was no statutory reserve impact from this item.

The company's estimated risk-based capital (RBC) ratio was between 415% and 435% as of March 31, 2024, which is in the middle of its target range of 400% to 450% in normal market conditions. Brighthouse Financial's liquidity position also remained robust, with holding company liquid assets of $1.3 billion as of the end of the first quarter.

Executing on Growth Strategy and Diversifying Away from Legacy Business

Brighthouse Financial continued to execute on its growth strategy during the first quarter of 2024, reporting strong annuity sales of $2.9 billion, a 5% sequential increase and a 3% year-over-year improvement. The company's SHIELD Annuity product suite, which includes Registered Index-Linked Annuities (RILAs), saw a 20% year-over-year increase in sales to $1.9 billion. Additionally, the company's Fixed Indexed Annuity (FIA) sales, driven by the SecureKey product, were $191 million in the quarter.

The strong annuity sales results demonstrate the strength and complementary nature of Brighthouse Financial's annuity product portfolio. Over the last several years, the combination of steady annuity sales growth and the runoff of legacy business has led to a meaningful shift in the company's business mix, with spread-based business now making up approximately 40% of the annuity product mix at the end of 2023, up from around 15% in 2016. This shift is expected to continue, with spread-based business projected to make up approximately 55% of the annuity product mix by the end of 2027.

Brighthouse Financial's life insurance sales also showed steady progress, with a 26% year-over-year increase to $29 million in the first quarter of 2024. The company's overall sales results were a strong start to the year, and the company is excited about the potential of the LifePath Paycheck solution, a target date strategy that will include an allocation to annuity contracts issued by Brighthouse Financial and another selected insurer.

Disciplined Expense Management

In addition to its focus on balance sheet strength and executing its growth strategy, Brighthouse Financial remains committed to maintaining a disciplined approach to expense management. The company's corporate expenses in the first quarter of 2024 were $207 million on a pre-tax basis, down 1% compared to the first quarter of 2023 and 15% sequentially. The company expects full-year 2024 corporate expenses to be lower than 2023.

Statutory Financial Performance

Brighthouse Financial's preliminary statutory results for the first quarter of 2024 reflect the impact of the reinsurance premium rate increase, which resulted in a $250 million to $300 million benefit from a 50 basis point increase in the prescribed 20-year treasury yield mean reversion point (MRP). This benefit was largely offset by normal fluctuations in quarterly results, which can vary by a couple hundred million dollars.

The company also noted that the growth in its SHIELD Annuity business has started to have a negative impact on normalized statutory earnings, as this business is now consuming capital, in contrast to its historical role of providing a capital offset to the equity risk associated with the in-force variable annuity block. Brighthouse Financial is in the process of modifying its hedging approach for SHIELD to manage it on a stand-alone basis, which the company believes will be beneficial going forward.

Financials

Segment Performance

Annuities:

Adjusted earnings, excluding notable items, were $313 million in the first quarter of 2024, relatively flat sequentially. The results reflect higher fees driven by variable annuity separate account returns of 5.96%, partially offset by lower net investment income.

Life:

Adjusted earnings, excluding notable items, were $37 million, an increase from the prior quarter, driven by a higher underwriting margin, higher net investment income, and lower expenses.

Run-off:

The segment reported an adjusted loss of $48 million, relatively flat sequentially, with higher net investment income offset by a lower underwriting margin.

Corporate & Other:

Adjusted loss, excluding notable items, was $34 million, higher than the prior quarter due to a lower tax benefit.

Risks and Challenges

Brighthouse Financial's business and results of operations are materially affected by conditions in the capital markets and the economy generally. Stressed conditions, volatility, and disruptions in the capital markets or financial asset classes can have an adverse effect on the company. Equity market performance can affect profitability for variable annuities and other separate account products, while the level of long-term interest rates and the shape of the yield curve can negatively impact the profitability of variable annuities and spread-based products.

The company is also subject to various regulatory developments, including the Department of Labor's Fiduciary Advice Rule, which could impact sales of its products through independent distribution partners, change compliance requirements, or increase litigation risk.

Outlook

Brighthouse Financial remains focused on maintaining a strong balance sheet and liquidity position, executing on its growth strategy, and controlling expenses. The company's diversification away from its legacy variable annuity business and towards more spread-based products has been a key strategic priority, and this shift is expected to continue.

While the company anticipates near-term volatility in its results, Brighthouse Financial's robust capital and liquidity position support its ability to consistently return capital to shareholders through its common stock repurchase program. The company's entrance into the worksite channel through the LifePath Paycheck solution with BlackRock also represents an exciting growth opportunity.

Conclusion

Overall, Brighthouse Financial's first quarter 2024 results demonstrate the steady execution of its strategy, and the company appears well-positioned to navigate the evolving market and regulatory landscape.