Brighthouse Financial, Inc. (BHF) is a leading provider of annuity and life insurance products in the United States. With a focus on delivering innovative solutions and prioritizing the financial well-being of its customers, Brighthouse Financial has established itself as a prominent player in the industry.
Business Overview and History Brighthouse Financial was formed in 2016 as a holding company to own the legal entities that previously operated a substantial portion of MetLife, Inc.'s retail segment. In August 2017, Brighthouse Financial became a separate, publicly-traded company. The company is one of the largest providers of annuity and life insurance products in the U.S., operating through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners.
Organized into three main segments - Annuities, Life, and Run-off - Brighthouse Financial has faced various challenges throughout its history. The company has taken actions to derisk its business, including equity derisking and strategic positioning with respect to its interest rate hedging. As the Shield annuity business has grown significantly, Brighthouse Financial has had to navigate the complexity of managing the hedging of its variable annuity business together with its Shield annuity business. This has resulted in increased new business strain that has put pressure on the company's risk-based capital ratio.
To address these challenges, Brighthouse Financial has been working on strategic initiatives designed to improve capital efficiency, unlock capital, and return its combined risk-based capital ratio to its target range. These efforts have included reinsurance transactions and attempts to simplify the company's hedging strategy. Throughout its history, Brighthouse Financial has demonstrated a commitment to prudent financial management, maintaining a conservative cash and liquidity position at the holding company level. The company has also maintained a disciplined approach to expense management, with corporate expenses trending lower on a year-over-year basis.
Financial Overview Brighthouse Financial has demonstrated a consistent track record of financial stability and growth. As of the latest reporting period, the company reported annual revenue of $3.95 billion and a net loss of $1.11 billion in 2023. For the third quarter of 2024, the company reported revenue of $2.02 billion, up 73% year-over-year, and net income of $176 million, down 63% year-over-year. The company's strong financial position is further evidenced by its robust capital position, with a combined risk-based capital (RBC) ratio of 469% as of December 31, 2022, well above the industry's minimum requirement.
Liquidity In terms of liquidity, Brighthouse Financial maintains a substantial cash position, with $5.63 billion in cash as of the most recent reporting period. This ample liquidity provides the company with the financial flexibility to navigate market fluctuations and pursue strategic initiatives. The company's debt-to-equity ratio stands at 0.64, and it has a $1 billion revolving credit facility, which was undrawn as of September 30, 2024. Brighthouse Financial's current ratio and quick ratio both stand at 3.92, indicating strong short-term liquidity.
Operational Highlights and Initiatives Brighthouse Financial has consistently focused on enhancing its product offerings and distribution capabilities to meet the evolving needs of its customers. The company's flagship Shield Annuity product line has experienced strong sales performance, with year-to-date sales of $5.8 billion as of the third quarter of 2024, representing a 15% increase from the same period in 2023 and reaching a record level for the company.
In addition to its annuity business, Brighthouse Financial has also seen growth in its life insurance segment, with life insurance sales increasing by 19% year-over-year to $87 million in the first nine months of 2024. This growth reflects the company's strategic emphasis on diversifying its product mix and expanding its reach across the insurance landscape.
To further strengthen its competitive position, Brighthouse Financial has been actively pursuing initiatives to improve capital efficiency and unlock additional capital. This includes the recent completion of a reinsurance transaction to reinsure a legacy block of the company's fixed and payout annuities, which is expected to have a positive impact on the company's combined RBC ratio.
Segment Performance The Annuities segment, which consists of various annuity products, reported adjusted earnings of $972 million for the first nine months of 2024, an increase of $48 million compared to the prior year period. This increase was driven by higher fee income, partially offset by higher interest credited to policyholders and higher expenses.
The Life segment, which includes term, universal, whole, and variable life products, saw adjusted earnings of $19 million for the first nine months of 2024, a decrease of $38 million compared to the prior year period, primarily due to higher ceded cost of insurance fees.
The Run-off segment, which consists of products no longer actively sold, reported adjusted earnings of $92 million for the first nine months of 2024, an increase of $119 million compared to the prior year period. This improvement was driven by a decrease in insurance-related costs and higher net investment income.
Overall, Brighthouse Financial reported adjusted earnings of $1.01 billion for the first nine months of 2024, an increase of $223 million compared to the prior year period. This was driven by lower costs associated with insurance-related activities, higher net investment spread, and lower net fee income, partially offset by the impact of a reinsurance premium rate increase.
Risks and Challenges While Brighthouse Financial has demonstrated resilience and adaptability, the company faces a range of risks and challenges inherent to the insurance industry. These include interest rate risk, market volatility, regulatory changes, and evolving customer preferences.
The ongoing low interest rate environment has posed challenges for the company's investment portfolio and product profitability. Brighthouse Financial has taken steps to mitigate this risk, such as implementing hedging strategies and diversifying its product mix. However, the company remains vigilant in monitoring and addressing interest rate fluctuations.
Additionally, the insurance industry is subject to a complex and ever-changing regulatory landscape. Brighthouse Financial closely monitors regulatory developments and works proactively to ensure compliance with applicable laws and regulations.
Outlook and Guidance Brighthouse Financial expects its combined risk-based capital (RBC) ratio to be at the lower end of its target range of 400% to 450% in normal markets, assuming the entry into the reinsurance agreement on its fixed and payout annuity in-force business. The company anticipates a substantial benefit to its RBC ratio from reduced new business strain in the fourth quarter and beyond, as it expands its stand-alone hedging approach to 95% of its total Shield and variable annuity sales.
Looking ahead, Brighthouse Financial is exploring flow reinsurance opportunities that could further reduce new business strain in 2025. The company expects full-year 2024 corporate expenses to come in lower than 2023, despite an anticipated increase in fourth-quarter expenses due to seasonality.
Conclusion Brighthouse Financial's strong financial position, innovative product offerings, and strategic initiatives position the company well to navigate the evolving insurance industry landscape. The company's focus on customer-centricity, capital management, and operational efficiency are expected to drive continued growth and solidify its position as a leading provider of annuity and life insurance solutions.
As Brighthouse Financial continues to execute on its strategic priorities, investors will closely monitor the company's ability to adapt to market conditions, capitalize on emerging opportunities, and deliver consistent financial performance. With its proven track record and commitment to excellence, Brighthouse Financial remains well-equipped to navigate the challenges and seize the opportunities that lie ahead in the dynamic insurance industry.