Company Overview

Brighthouse Financial, Inc. (BHF) is a leading provider of annuity and life insurance products in the United States, serving a diverse customer base through a wide range of distribution channels. With a rich history spanning over a century, the company has weathered numerous industry challenges and adapted its strategy to capitalize on emerging opportunities.

Brighthouse Financial, Inc. was formed in 2016 to own the legal entities that historically operated a substantial portion of MetLife, Inc.'s former retail segment. The company became a separate, publicly-traded entity in August 2017, establishing itself as one of the largest providers of annuity and life insurance products in the U.S. Through multiple independent distribution channels and marketing arrangements, Brighthouse Financial has cultivated a diverse network of distribution partners to reach its customers.

Historical Challenges and Adaptations

In the early years following its spinoff from MetLife, Brighthouse Financial faced challenges related to the complexity of managing its variable annuity and Shield annuity businesses together. This resulted in volatility in the company's statutory capital position as it worked to optimize its hedging strategies. To address these issues, Brighthouse Financial took decisive actions to derisk its equity exposure and refine its interest rate hedging approach, demonstrating its commitment to prudent risk management.

Product Portfolio and Market Position

Over time, Brighthouse Financial's product portfolio and distribution footprint have evolved significantly. The company has emerged as a leader in the registered index-linked annuity (RILA) market, driven by strong sales of its Shield annuity products. This success has been complemented by growth in its life insurance business, which has seen a 19% year-over-year increase in sales through the third quarter of 2024.

Brighthouse Financial operates in several key business segments:

1. Annuities Segment: This segment offers a variety of variable, fixed, index-linked, and income annuities designed to address contract holders' needs for protected wealth accumulation on a tax-deferred basis, wealth transfer, and income security. The financial performance of this segment is driven by fee income from variable annuity account values, reinsurance fees on fixed annuities, net investment spread, and insurance-related activities.

2. Life Segment: This segment provides insurance products including term, universal, whole, and variable life products. These offerings are designed to address policyholders' needs for financial security and protected wealth transfer, often on a tax-advantaged basis. The segment's financial performance is influenced by fee income, net investment spread, and insurance-related activities.

3. Run-off Segment: This segment manages products that are no longer actively sold, including universal life with secondary guarantees (ULSG), structured settlements, pension risk transfer contracts, certain company-owned life insurance policies, and certain funding agreements.

4. Corporate & Other: This segment contains excess capital not allocated to other segments, interest expense related to outstanding debt, expenses associated with legal proceedings and income tax audit issues, long-term care business reinsured through 100% quota share reinsurance agreements, and activities related to funding agreements associated with the institutional spread margin business.

Financials

Financially, Brighthouse Financial has demonstrated resilience in the face of market volatility. As of September 30, 2024, the company reported a statutory combined risk-based capital (RBC) ratio between 365% and 385%, highlighting its robust capital position. Additionally, the firm maintained a healthy $1.3 billion in holding company liquid assets, providing a cushion against potential market disruptions.

Brighthouse Financial's annuity sales have remained strong, with total annuity sales of $7.8 billion on a year-to-date basis through September 30, 2024, consistent with the same period in 2023. The company's flagship Shield Annuity products have been a standout, with sales of $5.8 billion year-to-date, a 15% increase over the prior year and a record level for the company.

In the life insurance segment, Brighthouse Financial has also demonstrated growth, with life insurance sales of $87 million year-to-date through September 30, 2024, an increase of 19% compared to the same period in 2023. This performance underscores the company's ability to capitalize on evolving customer preferences and market conditions.

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) and free cash flow (FCF) for the quarter both stood at $24,000,000.

Liquidity

To enhance its capital efficiency and unlock additional capital, Brighthouse Financial has been actively pursuing strategic initiatives. In the third quarter of 2024, the company completed a reinsurance transaction to offload a legacy block of fixed and payout annuities, which is expected to have a positive impact on its RBC ratio. Additionally, the company is simplifying its hedging strategy, separating the management of its new Shield Annuity business from the legacy variable annuity block, aiming to reduce the complexity of its risk management approach.

Brighthouse Financial expects to enter into another 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.

Capital Management and Expense Control

Brighthouse Financial's commitment to prudent financial management is further exemplified by its share repurchase program. Since the company's spin-off in 2017, it has repurchased over $2.4 billion of its common stock, reducing the shares outstanding by more than 50%. This disciplined approach to capital management has been complemented by a focus on expense control, with corporate expenses decreasing 5% year-over-year on a year-to-date basis through September 2024, totaling $610 million.

Looking ahead, Brighthouse Financial expects an increase in fourth-quarter expenses due to typical seasonality but anticipates full-year 2024 corporate expenses to come in lower than 2023.

Industry Outlook and Future Prospects

Despite the challenges posed by the ongoing low-interest-rate environment and market volatility, Brighthouse Financial has demonstrated its ability to navigate the evolving landscape of the annuity and life insurance industry. The company's diversified product portfolio, expansive distribution network, and strategic initiatives have positioned it well to capitalize on future opportunities and deliver value to its shareholders.

Brighthouse Financial plans to expand 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. Furthermore, the company is developing a separate hedging strategy for their legacy VA and Shield in-force block, which they expect to continue into 2025.

The company remains excited about the success of the BlackRock LifePath Paycheck product launched earlier in 2024 and expects to see additional inflows in 2025. This innovative offering further demonstrates Brighthouse Financial's commitment to meeting evolving customer needs and expanding its market presence.

As Brighthouse Financial continues to execute its growth strategy and optimize its capital structure, investors will closely monitor the company's ability to maintain its strong market position, enhance profitability, and navigate the dynamic industry trends. With a focus on innovation, risk management, and shareholder value creation, Brighthouse Financial remains well-equipped to navigate the evolving annuity and life insurance landscape.