• Statutory Combined RBC Ratio: Estimated between 380% and 400%, below the target range of 400% to 450%.
• Statutory Combined Total Adjusted Capital: $5.4 billion as of June 30, down from $6 billion as of March 31.
• Normalized Statutory Loss: Approximately $600 million in the quarter.
• Holding Company Liquid Assets: $1.2 billion as of June 30.
• Corporate Expenses: $200 million in Q2, with year-to-date expenses of $407 million, approximately 6% lower than the same period in 2023.
• Total Annuity Sales: $5.3 billion year-to-date through June 30, consistent with the same period in 2023.
• Shield Annuities Sales: Exceeded $2 billion in Q2; $3.9 billion year-to-date, a 23% increase over the same period in 2023.
• Fixed Indexed Annuity Sales: $351 million in the first half of 2024, a 60% increase over 2023.
• Life Insurance Sales: $28 million in Q2; $57 million year-to-date, a 19% increase compared to the same period in 2023.
• Adjusted Earnings: $346 million or $5.57 per share in Q2.
• Annuities Segment Adjusted Earnings: $332 million in Q2.
• Life Segment Adjusted Earnings: $42 million in Q2.
• Runoff Segment Adjusted Loss: $30 million in Q2.
• Corporate & Other Adjusted Earnings: $2 million in Q2.
• Common Stock Repurchases: $151 million year-to-date through August 2, with $64 million repurchased in Q2.

• Warning! GuruFocus has detected 3 Warning Signs with BHF.

Release Date: August 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) reported record sales of its flagship Shield Annuities, with sales exceeding $2 billion in the second quarter.
• The company maintained a robust liquidity position with $1.2 billion in liquid assets at the holding company as of June 30.
• Year-to-date Shield sales exceeded $3.9 billion, marking a 23% increase over the same period in 2023.
• Brighthouse Financial Inc (NASDAQ:BHF) achieved strong adjusted earnings results, with second quarter adjusted earnings of $346 million or $5.57 per share.
• The company successfully launched BlackRock's LifePath Paycheck, receiving first deposits of over $340 million in the quarter.

Negative Points

• The estimated statutory combined risk-based capital (RBC) ratio was between 380% and 400%, below the target range of 400% to 450%.
• There was an approximately $600 million decline in statutory combined total adjusted capital due to the performance of the variable annuity and Shield business.
• The company experienced a normalized statutory loss of approximately $600 million in the quarter.
• Basis risk accounted for almost 40% of the normalized statutory loss, indicating volatility in the performance of separate account funds versus market indices.
• The underperformance of equity hedges relative to Shield liability movement accounted for approximately 30% of the loss in the quarter.

Q & A Highlights

Q: Can you elaborate on the basis risk and its impact on statutory earnings, given the recent volatility in equities? A: Edward Spehar, CFO, explained that basis risk is volatile from quarter to quarter but is expected to be neutral over the long term. The recent quarter saw basis risk as a significant driver of statutory losses, but it is not expected to be a consistent drag moving forward.

Q: How do you plan to address the capital consumption from Shield sales, and will this affect your growth strategy? A: Edward Spehar, CFO, stated that initiatives, including reinsurance, are in place to improve near-term capital generation without harming long-term franchise value. The company remains committed to growth in its core businesses, such as Shield and LifePath Paycheck, without slowing down sales.

Q: What is the expected timeline for executing reinsurance contracts to improve the RBC ratio? A: Edward Spehar, CFO, expects that the combination of initiatives and second-half results will bring the RBC ratio back to the target range of 400% to 450% by year-end. Eric Steigerwalt, CEO, added that multiple initiatives are underway, and some may come online sooner than others.

Q: Given the current RBC position, why not pause the buyback program or downstream capital to improve the RBC ratio? A: Edward Spehar, CFO, emphasized that the capital return plan is not dependent on cash from the operating company, and the holding company has sufficient liquidity. Eric Steigerwalt, CEO, added that they are slightly below the target range but feel comfortable with their current capital position and ongoing initiatives.

Q: How are you addressing the hedging performance issues with both Shield and VA, and what changes are being made? A: Edward Spehar, CFO, mentioned that they are pursuing multiple avenues to simplify the hedging process, acknowledging the complexity due to new statutory requirements and the balanced risk profile between Shield and VA. The focus is on reducing volatility and improving risk management.

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