Business Overview and History
Brighthouse Financial, Inc. (BHF) is a leading provider of annuity and life insurance products in the United States, serving millions of customers through a diverse network of distribution partners. The company’s strategic focus on delivering innovative solutions, enhancing its operational efficiency, and optimizing its capital structure has enabled it to navigate through various market and industry headwinds.
Brighthouse Financial was spun off from MetLife, Inc. in 2017, becoming an independent, publicly-traded company. The company’s formation began in 2016 when it was created to own the legal entities that previously operated a substantial portion of MetLife’s former retail segment. Brighthouse Financial officially became a separate, publicly-traded company in August 2017.
In its early years as an independent entity, Brighthouse Financial faced several challenges. The company had to establish itself as a standalone organization, which included building out critical functions and infrastructure that were previously provided by MetLife. Additionally, Brighthouse Financial had to navigate a changing regulatory environment, as it became subject to new rules and oversight as a public company.
Despite these initial hurdles, Brighthouse Financial successfully executed its strategy of providing a complementary suite of annuity and life insurance products through its expansive distribution network. The company achieved particular success with its Shield annuity product line, which gained significant market share. Brighthouse Financial also made notable progress in efficiently managing its expenses, recognizing the importance of being a low-cost producer in the industry.
Today, Brighthouse Financial operates through three core business segments: Annuities, Life, and Run-off. The Annuities segment offers a wide range of variable, fixed, index-linked, and income annuity products, catering to the wealth accumulation and income security needs of its customers. The Life segment provides term, universal, whole, and variable life insurance products, addressing policyholders’ needs for financial security and wealth transfer. The Run-off segment primarily consists of products that are no longer actively sold and are separately managed, including universal life with secondary guarantees, structured settlements, and certain company-owned life insurance policies.
Financial Performance and Liquidity
Brighthouse Financial’s financial performance has been marked by both challenges and strategic initiatives aimed at enhancing capital efficiency and unlocking value. In the latest reported quarter (Q3 2024), the company’s net income available to shareholders was $150 million, or $2.47 per diluted share, while its adjusted earnings, excluding notable items, were $243 million, or $3.99 per diluted share. These results reflect the ongoing impact of the company’s efforts to refine its hedging strategy and manage new business strain.
The company’s Q3 2024 revenue was $2,018,000,000, with a net income of $176,000,000. Operating cash flow (OCF) and free cash flow (FCF) for the quarter both stood at $24,000,000. On a year-to-date basis through September 30, 2024, 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 reached a record level of $5.8 billion year-to-date, representing a 15% increase over 2023.
In the Annuities segment, fee income for the first nine months of 2024 was $1.62 billion, and net investment spread was $1.14 billion, representing increases of 5.9% and 0.9% respectively compared to the prior year period. Pre-tax adjusted earnings for the Annuities segment were $1.20 billion, up 5.3% year-over-year, driven by higher fee income from increased asset-based fees and reinsurance fees, partially offset by higher interest credited to policyholders.
The Life segment reported fee income of $123 million and net investment spread of $179 million for the first nine months of 2024. Pre-tax adjusted earnings were $26 million, down 65.3% compared to the prior year period, primarily due to higher ceded cost of insurance fees related to the conclusion of a reinsurance arbitration. Life insurance sales were $87 million year-to-date through September 30, an increase of 19% compared to the same period last year.
The Run-off segment reported fee income of $255 million, net investment spread of $724 million, and pre-tax adjusted earnings of $115 million for the first nine months of 2024. The increase in pre-tax adjusted earnings was primarily driven by a net decrease in insurance-related liabilities resulting from changes made during the annual actuarial review, partially offset by an increase in liability balances related to a reinsurance premium rate increase.
As of September 30, 2024, Brighthouse Financial’s estimated combined risk-based capital (RBC) ratio was between 365% and 385%, with the company anticipating that the ratio would be at the lower end of its target range of 400% to 450% in normal market conditions, pro forma for a pending reinsurance transaction expected to close before year-end. The company’s holding company liquid assets remained robust at $1.3 billion, providing a strong buffer to support its growth and strategic initiatives.
Strategic Initiatives and Operational Improvements
Brighthouse Financial has been proactive in implementing a series of strategic initiatives to improve its capital efficiency, unlock capital, and enhance its overall financial position. These initiatives include:
Hedging Strategy Refinement: To address the increased complexity of managing its variable annuity and Shield annuity businesses together, Brighthouse Financial has been implementing a revised hedging strategy. This includes separating the hedging of new Shield annuity business from the legacy variable annuity and Shield blocks, which is expected to result in lower new business strain and greater stability in the company’s statutory capital position.
Expense Management: Brighthouse Financial has maintained a disciplined approach to expense management, with corporate expenses declining by 5% year-over-year on a nine-month basis. The company’s corporate expenses were $203 million in the third quarter and $610 million on a year-to-date basis, a 5% decrease year-over-year. Brighthouse Financial remains committed to delivering on its goal of reducing full-year 2024 corporate expenses compared to 2023.
Product Innovation and Diversification: The company has continued to introduce new and innovative annuity and life insurance products, such as the expanded Shield annuity suite, to meet the evolving needs of its customers. This has contributed to strong sales performance across its product lines. The company expects limited activity from the LifePath Paycheck product in the fourth quarter of 2024 but anticipates additional inflows in 2025.
Challenges and Risks
While Brighthouse Financial has demonstrated resilience and adaptability, the company is not immune to the challenges faced by the insurance and financial services industry. Some of the key risks and challenges include:
Regulatory and Compliance Risks: As a highly regulated industry, Brighthouse Financial must navigate a complex and evolving regulatory landscape, which can introduce compliance requirements and capital constraints.
Competitive Pressures: The company operates in a highly competitive market, where it must continuously innovate and differentiate its product offerings to maintain its market share and profitability.
Operational Risks: Effective operational and risk management practices are crucial to mitigate potential disruptions, technological failures, and cybersecurity threats that could impact the company’s business.
Conclusion
Brighthouse Financial has proven its ability to navigate through challenging market conditions and industry headwinds by implementing strategic initiatives focused on capital efficiency, operational improvements, and product innovation. The company’s diversified product portfolio, spanning across Annuities, Life, and Run-off segments, has contributed to its resilience in varying market conditions. While the company faces ongoing risks and uncertainties, its robust liquidity position, disciplined expense management, and strong sales performance in key product lines position it well to continue serving the evolving needs of its customers and creating value for its shareholders. As Brighthouse Financial looks to the future, its focus on strategic reinsurance transactions, hedging strategy refinement, and product innovation are expected to drive continued growth and financial stability.
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.