Brighthouse Financial, Inc. (BHF) is a leading provider of annuity and life insurance products in the United States, serving the needs of individuals and families through a diverse distribution network. With a rich history dating back to its origins as a part of MetLife, Brighthouse Financial has emerged as an independent, publicly-traded company committed to innovation, financial strength, and customer-centric solutions.
Business Overview and History Brighthouse Financial was established in 2016 as a spin-off from MetLife, one of the largest insurance and financial services companies in the world. The company was formed to own the legal entities that historically operated a substantial portion of MetLife’s former retail segment. In August 2017, Brighthouse Financial completed its separation from MetLife and became an independent, publicly-traded company, listing its shares on the Nasdaq under the ticker symbol BHF.
Following its separation, Brighthouse Financial faced challenges related to managing risk in its variable annuity business. In response, the company took actions to derisk its business, including steps to equity derisk and strategically position its interest rate hedging program. These efforts were aimed at reducing the company’s exposure to market volatility.
As an independent public company, Brighthouse Financial has continued to focus on improving its capital position and managing risk. The company has successfully navigated through periods of market stress, including the COVID-19 pandemic, while maintaining a conservative capital and liquidity profile. Brighthouse Financial has made significant progress in efficiently managing expenses and maintaining a low-cost producer profile in the industry.
Today, Brighthouse Financial operates through three main segments: Annuities, Life, and Run-off. The Annuities segment offers a variety of fixed, variable, index-linked, and income annuity products designed to address the wealth accumulation, wealth transfer, and retirement income needs of its clients. The Life segment provides a range of insurance products, including term, universal, whole, and variable life insurance, catering to the financial security and wealth transfer needs of policyholders. The Run-off segment primarily consists of products that are no longer actively sold and are separately managed.
Financials Financial Performance and Ratios Brighthouse Financial has demonstrated a solid financial performance in recent years, despite the challenges posed by the COVID-19 pandemic and the volatile market conditions. As of the latest reported quarter ended September 30, 2024, the company reported total revenue of $2.02 billion, a slight increase compared to the same period in the previous year. The company’s net income available to shareholders was $150 million, or $2.47 per diluted share.
For the most recent quarter, Brighthouse Financial reported revenue of $2,018,000,000 and net income of $176,000,000. The company’s operating cash flow (OCF) for the quarter was $24,000,000, which was also equal to its free cash flow (FCF) for the same period.
The company’s financial ratios paint a picture of its overall financial health. As of September 30, 2024, Brighthouse Financial’s debt-to-equity ratio stood at 0.57, indicating a relatively low level of leverage compared to its equity. The company’s current ratio, a measure of liquidity, was 0.92, suggesting the ability to meet its short-term obligations. Additionally, Brighthouse Financial’s return on equity (ROE) for the nine months ended September 30, 2024, was -25.52%, reflecting the impact of market conditions and strategic initiatives on the company’s profitability.
Segment Performance The Annuities segment, which consists of various annuity products, generated universal life and investment-type product policy fees of $560 million in the third quarter of 2024, up from $542 million in the prior year period. Net investment income for this segment was $729 million, compared to $652 million in the prior year period. The increase was driven by higher average invested assets resulting from positive net flows in the general account and higher investment yields on the fixed income portfolio. Pre-tax adjusted earnings for the Annuities segment were $403 million, up from $393 million in the prior year period.
The Life segment, which offers various life insurance products, reported fee income of $74 million in the third quarter of 2024, up from $60 million in the prior year period. Net investment income was $57 million, down from $62 million in the prior year quarter. Pre-tax adjusted earnings for the Life segment were $32 million, down from $93 million in the prior year period, primarily due to lower costs associated with insurance-related activities.
The Run-off segment, consisting of products no longer actively sold, reported fee income of $101 million in the third quarter of 2024, down from $111 million in the prior year period. Net investment income was $215 million, down from $233 million in the prior year quarter. Pre-tax adjusted earnings for the Run-off segment were $584 million, up significantly from $120 million in the prior year period, largely driven by lower net costs associated with insurance-related activities.
Sales Performance and Guidance On a year-to-date basis through September 30, Brighthouse Financial’s total annuity sales were $7.8 billion, consistent with the same period in 2023. Sales of the company’s flagship Shield Annuity products have remained very strong at $5.8 billion year-to-date, a 15% increase over 2023 and a record level for the company. Life insurance sales were $87 million year-to-date through September 30, an increase of 19% compared to the same period last year.
The company’s corporate expenses were $610 million on a year-to-date basis, a 5% decrease year-over-year. Brighthouse Financial expects an increase in fourth quarter 2024 expenses due to typical seasonality but still anticipates full year 2024 corporate expenses to come in lower than 2023.
Liquidity Solvency and Liquidity Brighthouse Financial maintains a strong solvency position, as evidenced by its estimated combined risk-based capital (RBC) ratio, which was between 365% and 385% as of September 30, 2024. This ratio, a key measure of an insurance company’s financial strength, exceeds the regulatory minimum and demonstrates Brighthouse Financial’s ability to withstand market volatility and meet its obligations to policyholders.
The company’s liquidity position also remains robust, with $1.3 billion in holding company liquid assets as of September 30, 2024. This substantial cash reserve provides Brighthouse Financial with the flexibility to navigate challenging market conditions, fund strategic initiatives, and support its ongoing operations.
Brighthouse Financial remains confident in its financial position, which is a combination of its statutory balance sheet and cash at the holding company. The company continues to have substantial protection for adverse market environments.
Strategic Initiatives and Outlook Brighthouse Financial has been actively implementing various strategic initiatives to enhance its capital efficiency, unlock capital, and return its combined RBC ratio to its target range of 400% to 450% under normal market conditions. These initiatives include reinsurance transactions, as well as the simplification of its hedging strategy for the company’s variable annuity and shield annuity businesses.
In the third quarter of 2024, Brighthouse Financial announced the completion of a reinsurance transaction with a third party to reinsure a legacy block of its fixed and payout annuities. This transaction is expected to have a positive impact on the company’s capital position and contribute to its efforts to optimize its balance sheet and returns.
Additionally, Brighthouse Financial has been streamlining its hedging approach by separating the management of its new shield annuity business from the legacy variable annuity and shield annuity blocks. This shift is designed to simplify the company’s risk management processes and reduce the complexity of managing these two distinct business lines.
Looking ahead, Brighthouse Financial expects to enter into a reinsurance agreement on a legacy block of fixed and payout annuities before the end of 2024. Pro forma for this reinsurance agreement, the company’s estimated combined RBC ratio would be at the lower end of their targeted range of 400% to 450% in normal markets as of September 30.
Furthermore, Brighthouse Financial is expanding its stand-alone hedging strategy for new Shield business to include their Shield Level Pay+ product and any remaining sales associated with their Shield product suite in the fourth quarter of 2024.
Risks and Challenges As with any financial services company, Brighthouse Financial faces a range of risks and challenges that could impact its performance. These include market volatility, interest rate fluctuations, regulatory changes, and competition from other industry players. The company’s exposure to variable annuity guarantees and the need to effectively manage its hedging strategies are also key areas of focus.
Furthermore, the annuity and life insurance industry is subject to constant evolution, with changing consumer preferences and the ongoing digital transformation of the sector presenting both opportunities and risks for Brighthouse Financial. The company’s ability to adapt to these market dynamics and continue innovating its product offerings will be crucial to its long-term success.
Conclusion Brighthouse Financial, with its rich history, strong financial position, and strategic initiatives, is well-positioned to navigate the dynamic annuity and life insurance landscape. The company’s focus on capital efficiency, risk management, and delivering innovative solutions to its customers has enabled it to weather market challenges and position itself for future growth. As Brighthouse Financial continues to execute on its strategic priorities, investors will closely monitor the company’s progress in maintaining its financial strength and delivering value to its shareholders.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.