• Combined Risk-Based Capital (RBC) Ratio: Estimated between 365% and 385% at the end of the third quarter.
• Holding Company Liquid Assets: Approximately $1.3 billion as of September 30.
• Common Stock Repurchase: $64 million repurchased in the third quarter, with an additional $25 million repurchased through November 1.
• Total Annuity Sales: $7.8 billion year-to-date through September 30, consistent with the same period in 2023.
• Shield Annuity Sales: $5.8 billion year-to-date, a 15% increase over 2023.
• Life Insurance Sales: $87 million year-to-date through September 30, a 19% increase compared to the same period last year.
• Corporate Expenses: $203 million in the third quarter and $610 million year-to-date, a 5% decrease year over year.
• Statutory Combined Total Adjusted Capital (TAC): $5.7 billion as of September 30, an increase of $300 million from the end of the second quarter.
• Adjusted Earnings (Excluding Notable Items): $243 million in the third quarter.
• Notable Items Impact: Net favorable impact on adjusted earnings of $524 million after tax due to actuarial assumption review and model refinements.
• Alternative Investment Yield: 1.6% in the third quarter.

• Warning! GuruFocus has detected 4 Warning Signs with BHF.

Release Date: November 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Brighthouse Financial Inc (NASDAQ:BHF) made progress on strategic initiatives to improve capital efficiency and unlock capital, aiming to return the RBC ratio to the target range of 400% to 450%.
• The company is in the final stages of a reinsurance agreement expected to enhance the RBC ratio, with completion anticipated before year-end.
• Brighthouse Financial Inc (NASDAQ:BHF) reported strong sales results, with total annuity sales reaching $7.8 billion year-to-date, consistent with the previous year.
• The Shield annuity products saw a 15% increase in sales over 2023, marking a record level for the company.
• Corporate expenses decreased by 5% year-over-year, demonstrating effective expense management.

Negative Points

• The RBC ratio remains under pressure, estimated between 365% and 385%, below the target range, due to new business strain and changes in the interest rate environment.
• Normalized statutory earnings were negatively impacted by new business strain, leading to a statutory loss of approximately $300 million in the quarter.
• The company experienced lower alternative investment returns, with a yield of 1.6% in the quarter, below the expected annual return range of 9% to 11%.
• The in-force block of business still had a negative impact on the RBC ratio, despite the growth in Shield sales and the runoff of legacy business.
• There is uncertainty around the timing and impact of future reinsurance deals and the development of a revised hedging strategy for the in-force block, which may extend into 2025.

Q & A Highlights

Q: Eric, have you and the Board considered bringing in more risk management experience due to the RBC pressure over the past quarters? A: Yes, we have brought in additional external resources and hired more staff in the hedging and finance areas. We are refining our hedging strategy and making progress, though there's still work to be done. The key change anticipated is less strain from new business, which will be more pronounced in the fourth quarter and beyond.

Q: Are you confident that the RBC ratio has bottomed out, assuming normal markets, and will you consider increasing stock buybacks given the current valuation? A: We don't project RBC ratios, but with the pending reinsurance deal, we expect our pro forma RBC ratio to be at the low end of our target range. We anticipate a substantial improvement in new business strain. We have a robust capital position and continue to buy back stock opportunistically.

Q: Can you explain why the in-force block still negatively impacts RBC despite the growth in Shield and runoff of legacy business? A: Our normalized statutory earnings, excluding strain, have trailed expectations due to various factors, including basis risk and actual-to-expected impacts. While this year hasn't been great for norm stat earnings, we don't predict them annually due to volatility. The calculation is conservative compared to adjusted earnings.

Q: Can you provide more details on the reinsurance opportunities beyond the expected year-end deal? A: We are exploring multiple opportunities, including in-force and flow reinsurance deals. While we can't provide specifics due to ongoing negotiations, we are confident in closing a particular reinsurance agreement in the fourth quarter.

Q: Is there an opportunity to optimize the investment portfolio, and how do you view the potential for enhanced annuitizations or buyouts? A: We are considering various possibilities, including the investment portfolio. However, we generally avoid buyouts due to distributor preferences and low take rates. While we explore numerous opportunities, buyouts are unlikely due to these factors.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.