Robust Business History and Transformation

Brighthouse Financial, Inc. (BHF) is a leading provider of annuity and life insurance products in the United States, serving a diverse customer base through independent distribution channels. The company's strategic focus on driving growth, managing expenses, and enhancing capital efficiency has been the cornerstone of its success in navigating the dynamic financial landscape.

Brighthouse Financial's roots can be traced back to 2016 when it was established as a spin-off from MetLife, Inc. to own and operate a substantial portion of MetLife's former retail segment. The company became a separate, publicly-traded entity in August 2017, marking a significant milestone in its journey as an independent financial services provider. In its early years as a standalone company, Brighthouse Financial faced initial challenges as it worked to establish its own infrastructure and operations. This included creating new corporate functions, IT systems, distribution channels, and other capabilities that were previously provided by MetLife.

A key milestone for Brighthouse Financial was the successful completion of its initial public offering in 2017, which provided the company with additional capital and resources to invest in its business. Over the subsequent years, Brighthouse Financial focused on optimizing its product portfolio, enhancing its distribution network, and improving its financial and operational performance.

In the early 2020s, Brighthouse Financial encountered headwinds related to market volatility and economic uncertainty, which impacted its statutory capital position. The company responded proactively by taking actions to derisk its business, including enhancing its hedging strategies and making adjustments to certain product offerings. These efforts played a crucial role in stabilizing Brighthouse Financial's financial position during a challenging period.

Today, Brighthouse Financial has solidified its position as one of the largest providers of annuity and life insurance products in the U.S. The company operates through three main business segments - Annuities, Life, and Run-off - and has built a diverse distribution network to offer a range of products designed to help customers with their financial security and wealth management needs.

During its time as an independent public company, Brighthouse Financial has demonstrated its ability to adapt to changing market conditions and customer preferences. The company's flagship Shield Annuity products have gained significant traction, with sales reaching a record level of $5.8 billion on a year-to-date basis through September 30, 2024, a 15% increase over the same period in 2023. This growth is a testament to Brighthouse Financial's agility and its commitment to delivering innovative solutions to meet the evolving needs of its customer base.

Navigating Complexity and Optimizing Capital Efficiency

One of the key challenges Brighthouse Financial has faced in recent quarters has been the complexity arising from the convergence of its variable annuity (VA) and Shield annuity businesses. As the company has achieved a balanced risk profile between these two product lines, the need to manage the hedging strategy effectively has become increasingly crucial.

In response, Brighthouse Financial has taken proactive steps to simplify its hedging approach. The company has begun hedging its new Shield business on a stand-alone basis, which is expected to result in less new business strain and a more stable capital position. Additionally, the company is developing a separate hedging strategy for its in-force block of legacy VA and Shield contracts, which can be considered a closed block.

These strategic initiatives, coupled with a pending reinsurance transaction expected to be completed by the end of 2024, are designed to improve Brighthouse Financial's capital efficiency and unlock capital. As of September 30, 2024, the company's estimated combined risk-based capital (RBC) ratio was between 365% and 385%, and pro forma for the pending reinsurance agreement, the ratio would have been at the lower end of the company's target range of 400% to 450% in normal market conditions.

Demonstrating Financial Discipline and Shareholder Value Creation

Brighthouse Financial's commitment to financial discipline is evident in its proactive measures to manage expenses. The company has reported a 5% year-over-year decrease in corporate expenses on a year-to-date basis through September 30, 2024, reflecting its focus on operational efficiency. This disciplined approach has enabled Brighthouse Financial to continue investing in growth initiatives while maintaining a strong balance sheet.

Furthermore, the company has demonstrated its dedication to shareholder value creation through its ongoing share repurchase program. From the beginning of the program in August 2018 through November 1, 2024, Brighthouse Financial has repurchased over $2.4 billion of its common stock, reducing its shares outstanding by more than 50% since becoming an independent public company in 2017.

Financials

Brighthouse Financial's financial performance has been marked by steady growth and resilience in the face of market challenges. The company's revenue streams have diversified over time, with a growing emphasis on its Shield Annuity products. As of September 30, 2024, Brighthouse Financial reported total assets of $235 billion and total liabilities of $220 billion, underscoring its significant market presence and financial strength.

The company's net income has shown volatility due to market fluctuations and changes in interest rates, which are inherent in the insurance industry. However, Brighthouse Financial has maintained a focus on adjusted earnings, which provide a more stable measure of its underlying performance. For the first nine months of 2024, the company reported adjusted earnings of $1.2 billion, demonstrating its ability to generate consistent profits despite market uncertainties.

For the most recent quarter ended September 30, 2024, 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.

Breaking down the performance by business segments, the Annuities segment generated $1.31 billion in revenue for the three months ended September 30, 2024, up from $1.21 billion in the prior year period. Adjusted earnings for the Annuities segment were $327 million, an increase of $8 million compared to the prior year period, primarily driven by higher fee income due to higher asset-based fees and higher reinsurance fees, partially offset by lower net investment spread.

The Life segment reported adjusted earnings of $25 million for the three months ended September 30, 2024, a decrease of $48 million from the prior year period, primarily due to lower costs associated with insurance-related activities.

The Run-off segment saw a significant improvement in adjusted earnings, reporting $463 million for the three months ended September 30, 2024, an increase of $368 million compared to the prior year period. This increase was primarily due to lower net costs associated with insurance-related activities.

Corporate & Other reported an adjusted loss of $2 million for the three months ended September 30, 2024, an improvement of $17 million compared to the prior year period, primarily due to higher net investment spread.

Overall, Brighthouse Financial reported adjusted earnings of $767 million for the three months ended September 30, 2024, an increase of $441 million compared to the prior year period, driven by favorable results in the Run-off segment and lower net costs associated with insurance-related activities across the business.

Liquidity

Brighthouse Financial maintains a strong liquidity position, which is crucial for meeting its obligations and supporting growth initiatives. As of September 30, 2024, the company held cash and liquid assets of $1.5 billion at the holding company level. This conservative approach to liquidity management provides Brighthouse Financial with flexibility to navigate market volatility and capitalize on strategic opportunities.

The company's liquidity is further supported by its diverse funding sources, including a $1 billion revolving credit facility that remains undrawn. This robust liquidity profile enables Brighthouse Financial to maintain financial stability and continue its share repurchase program, which has been a key component of its capital management strategy.

As of the most recent quarter, Brighthouse Financial reported cash holdings of $5,630,000,000. The company's current ratio and quick ratio both stand at 3,915, indicating a strong ability to meet short-term obligations. These liquidity metrics underscore Brighthouse Financial's solid financial position and ability to withstand potential market fluctuations.

Navigating Uncertainties and Unlocking Potential

Brighthouse Financial operates in a dynamic industry that is subject to various market and regulatory risks. The company's ability to navigate these uncertainties and capitalize on emerging opportunities will be crucial in driving long-term success.

The ongoing COVID-19 pandemic and its impact on the broader economy have presented challenges, but Brighthouse Financial has demonstrated resilience in adapting to the changing landscape. The company's conservative cash and liquidity position at the holding company level have served as a strategic advantage, providing the necessary resources to weather market volatility and invest in growth initiatives.

Looking ahead, Brighthouse Financial's diversified product portfolio, strong distribution partnerships, and commitment to innovation position the company well to capture market share and deliver sustainable value to its shareholders. The company's focus on simplifying its hedging strategy and optimizing capital efficiency should enhance its ability to navigate the complexities of the industry and capitalize on future growth opportunities.

Brighthouse Financial has provided guidance on several key areas of its business. The company expects its combined RBC ratio to be at the lower end of its target range of 400% to 450% in normal markets, assuming the completion of a reinsurance agreement on its fixed and payout annuity in-force business before year-end. This initiative, along with the company's efforts to hedge Shield new business on a stand-alone basis and potential flow reinsurance deals, is expected to substantially improve the strain from new business going forward.

In terms of expenses, Brighthouse Financial anticipates full-year 2024 corporate expenses to come in lower than 2023, continuing its trend of cost management and operational efficiency. The company also expects to see additional inflows for its institutional LifePath Paycheck product in 2025, signaling potential growth in this area of its business.

Conclusion

Brighthouse Financial's transformation and strategic initiatives have positioned the company as a formidable player in the annuity and life insurance market. By navigating the complexities of its business, optimizing capital efficiency, and demonstrating financial discipline, Brighthouse Financial has laid the foundation for long-term success. As the company continues to execute its growth strategy and unlock the potential of its diversified product portfolio, it remains well-equipped to create value for its shareholders and customers alike. The company's strong performance across its business segments, particularly in the Annuities and Run-off segments, coupled with its robust liquidity position and strategic focus on expense management and capital efficiency, provide a solid foundation for future growth and stability in the dynamic insurance industry landscape.