Brighthouse Financial Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2025

There are 15 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Brighthouse Financial's First Quarter twenty twenty five Earnings Conference Call. My name is Michelle, and I will be your coordinator today. At this time, all participants are in a listen only mode. We will facilitate a question and answer session towards the end of the conference call. In fairness to all participants, please limit yourself to one question and one follow-up.

Operator

As a reminder, the conference is being recorded for replay purposes. I would now like to turn the presentation over to Dana Amonte, Head of Investor Relations. Ms. Amonte, you may proceed.

Speaker 1

Thank you, and good morning. Welcome to Brighthouse Financial's First Quarter twenty twenty five Earnings Call. Material for today's call were released last night and can be found on the Investor Relations section of our website. We encourage you to review all of these materials. Today, you will hear from Eric Steigerwalt, our President and Chief Executive Officer and Ed Behar, our Chief Financial Officer.

Speaker 1

Following our prepared remarks, we will open the call up for a question and answer period. Also here with us today to participate in the discussions are Miles Lambert, our Chief Distribution and Marketing Officer David Rosenbaum, Head of Product and Underwriting and John Rosenthal, our Chief Investment Officer. Before we begin, I'd like to note that our discussion during this call may include forward looking statements within the meaning of the federal securities laws. Brighthouse Financial's actual results may differ materially from the results anticipated in the forward looking statements as a result of risks and uncertainties described from time to time in Brighthouse Financial's filings with the SEC. Information discussed on today's call speaks only as of today, 05/09/2025.

Speaker 1

The company undertakes no obligation to update any information discussed on today's call. During this call, we will be discussing certain financial measures that are not based on Generally Accepted Accounting Principles, also known as non GAAP measures. Reconciliation of these non GAAP measures on a historical basis to the most directly comparable GAAP measures and related definitions may be found on our earnings release, slide presentation, and financial supplement. And finally, references to statutory results, including certain statutory based measures used by management, are preliminary due to the timing of the filing of the statutory statements. And now I'll turn the call over to our CEO, Eric Staggerwald.

Speaker 2

Thank you, Dana, and good morning, everyone. Brighthouse Financial reported solid results in the first quarter of twenty twenty five. During the quarter, we made further progress against our focused business strategy, including delivering strong sales results in both annuities and life insurance. We also made additional progress against the capital focused strategic initiatives that we announced last year and that we continue to execute. We ended the quarter with holding company liquid assets of approximately $1,000,000,000 maintaining a robust cash position.

Speaker 2

We also ended the quarter with an estimated combined risk based capital or RBC, ratio between 420440%, which is within our target RBC ratio range of 400% to 450% in normal markets. As we have said in the past, balance sheet strength is essential to support our distribution franchise. I am pleased with the progress that we have made against our capital focused strategic initiatives, which includes our ongoing work to simplify our variable annuity or VA and shield hedging strategy. As we discussed on our fourth quarter earnings call, as of year end twenty twenty four, we have fully transitioned to hedging shield annuity new business on a standalone basis, an important milestone in simplifying our hedging strategy. In 2025, we have continued to revise our hedging strategy for both our in force VA and our first generation Shield book of business.

Speaker 2

While the execution of our capital focused strategic initiatives continues, it is important to note that our focus on protecting our statutory balance sheet under adverse market scenarios remains unchanged. Shifting to sales. As I mentioned earlier, we delivered strong sales results in the quarter. I'm especially pleased with the continued sales growth of our flagship Shield annuity product suite, which I will discuss in more detail in a moment. Also in the quarter, we continued to drive steady growth in sales of our life insurance products.

Speaker 2

Our total annuity sales in the quarter were strong at approximately $2,300,000,000 This includes approximately $2,000,000,000 in total Shield sales, which increased 3% sequentially and 5% compared with the first quarter of twenty twenty four. As we have said previously, last year we launched updates to our Shield Suite that are designed to help these products remain competitive and adapt to changes in the industry, and we remain proud to be a leader in the registered index linked annuity marketplace. While our total annuity sales were strong in the quarter, they were down 21% compared with the first quarter of twenty twenty four, primarily driven by lower sales of fixed annuities. Sequentially, annuity sales increased 1%. We're pleased to be one of the top annuity providers in The United States, and we continue to leverage the depth and breadth of our expertise, along with our strong distribution relationships to competitively position ourselves in the markets that we choose to compete in.

Speaker 2

As I mentioned earlier, we continue to drive steady growth in sales of our life insurance product suite in the quarter. Life sales totaled $36,000,000 which is a 24% increase compared with the first quarter of twenty twenty four and a 9% increase sequentially. As we have discussed previously, we have expanded into the institutional space with BlackRock's LifePath Paycheck or LPP product becoming available in defined contribution plans last year. Earlier this year, BlackRock announced that LPP is now live in six employer retirement plans, $16,000,000,000 in assets under management. While inflows associated with LPP are expected to be uneven on a quarter to quarter basis, as defined contribution plans implement the solution, we do expect to see additional flows in 2025.

Speaker 2

We remain very excited about LPP and its success to date, and we expect our involvement with this product to enable Brighthouse to reach new customers through the worksite channel. Turning to expenses. Corporate expenses in the quarter were $239,000,000 on a pretax basis, which was higher than our run rate expectation. It is important to note that this higher level of corporate expenses is non trendable, and we expect corporate expenses to normalize the remainder of 2025. Additionally, we remain focused on maintaining a disciplined approach to expense management, which is an important aspect of our business strategy.

Speaker 2

Regarding capital return to shareholders, in the quarter, we continued to return capital through the repurchase of our common stock. We repurchased $59,000,000 of our common stock in the quarter, with an additional $26,000,000 repurchased through May 6. Before wrapping up, I would like to briefly touch on the current macro environment. Brighthouse Financial has a proven track record of being able to navigate volatile markets and periods of uncertainty, and we believe that we are well positioned to navigate this current environment. We remain focused on our mission and strategy and on delivering for our partners, customers and shareholders.

Speaker 2

To wrap up, we delivered a solid quarter to start the year, and I'm pleased with our progress as we continue to execute our business strategy. We continued to generate strong sales in both annuities and life insurance as well as support our distribution franchise through our strong balance sheet and robust liquidity position. In addition, we continue to make progress against our strategic initiatives designed to improve capital efficiency, unlock capital and remain within our target combined RBC ratio range in normal markets. I'll now turn the call over to Ed to discuss our first quarter financial results.

Speaker 3

Thank you, Eric, and good morning, everyone. After the market closed yesterday, Brighthouse Financial reported results for the first quarter of twenty twenty five, including preliminary statutory results. Statutory combined total adjusted capital, or TAC, was approximately $5,500,000,000 at March 31, compared with approximately $5,400,000,000 at December 31. The estimated combined risk based capital or RBC ratio was between 420440%, within our target range of 400% to 450% in normal market conditions. And normalized statutory earnings for the quarter were approximately $300,000,000 Statutory results benefited from a 25 basis point increase in the prescribed twenty year Treasury yield mean reversion point, which increased from 3.75% to 4%.

Speaker 3

Additionally, as Eric mentioned earlier, we continue to make progress on our capital focused strategic initiatives. As we discussed on the fourth quarter earnings call, as of year end twenty twenty four, we fully transitioned to hedging new business for our Shield product suite on a standalone basis. We continue to develop a separate hedging strategy for our variable annuity and first generation shield annuity block of business. We expect to complete the transition to this revised strategy for this legacy block of business before year end. Importantly, we continue to focus on protecting our statutory balance sheet under adverse market scenarios.

Speaker 3

Holding company liquid assets are still substantial, with approximately $1,000,000,000 at March 31. We think about our capital strength as a combination of the operating companies RBC ratio, holding company liquid assets, and a conservative capital structure. Now turning to first quarter adjusted earnings results. Adjusted earnings for the quarter were $235,000,000 including an unfavorable notable item of $10,000,000 or zero one seven dollars per share related to an actuarial model refinement. Adjusted earnings excluding the impact from the notable item were $245,000,000 which compares with adjusted earnings on the same basis of $352,000,000 in the fourth quarter of twenty twenty four and $268,000,000 in the first quarter of twenty twenty four.

Speaker 3

Adjusted earnings results, excluding the impact of the notable item, were approximately $15,000,000 or $0.26 per share below our average quarterly run rate expectation. Alternative investment income was $39,000,000 or approximately $0.66 below our quarterly average run rate expectation. The alternative investment portfolio yield in the quarter was 1.4%. As a reminder, we continue to expect a yield on this portfolio of 9% to 11% annually over the long term. Our underwriting margin was above our run rate expectation, which more than offset the impact from corporate expenses that were high relative to our quarterly run rate expectation.

Speaker 3

While the underwriting margin was higher versus our run rate expectation, it was lower sequentially driven by normal fluctuations in the volume and severity of claims net of reinsurance. Shifting to results by segment. The Annuities segment reported adjusted earnings less notable items of $324,000,000 which was relatively flat sequentially. The Life segment reported adjusted earnings of $9,000,000 Sequentially, results reflected a lower underwriting margin, lower net investment income and higher expenses. The Runoff segment had an adjusted loss of $64,000,000 Results reflected lower net investment income, partially offset by a higher underwriting margin sequentially.

Speaker 3

The Corporate and Other segment reported an adjusted loss of $24,000,000 which reflected higher expenses sequentially. In closing, we are pleased with our first quarter results, particularly because statutory results were in line with our expectations. The estimated combined RBC ratio ended the quarter within our target range, and we maintained a robust level of holding company liquid assets. We will now turn the call over to the operator to begin the question and answer session.

Operator

Thank you. In fairness to all participants, we ask that you please limit yourself to one question and one follow-up. One moment for our first question. Our first question is going to come from the line of Wes Carmichael with Autonomous Research. Your line is open.

Operator

Please go ahead.

Speaker 4

Hey, good morning, everybody. Sorry if I missed one clarification, but Ed, the 25 basis point increase in mean reversion point, did you quantify how much a benefit that was to normalized stat earnings?

Speaker 3

Sure. Good morning, Wes. It was around $200,000,000

Speaker 5

Okay. Thank you.

Speaker 4

I guess my second question on sales and fixed annuities. It's been a little bit softer the last couple of quarters. And I know you had some change in a reinsurance partner, but would you expect that to accelerate from here or is the competitive environment just not very attractive?

Speaker 6

Wes, this is David. I'll start with that. Sales move around a bit and you've seen that in our results for fixed annuities. The first quarter of last year, '20 '20 '4 was a big sales volume for us. And then the third quarter, as you mentioned, was also a solid quarter after we reestablished ourselves in the fixed market, after we brought on a new reinsurance partner.

Speaker 6

So, when we think about this market, there's a lot of competition, as you mentioned. It is very rate dependent and we're going to continue to monitor sales volumes and the competitive environment in conjunction with our reinsurance partners. And our goal here is to really have consistent competitive rates while maintaining our pricing discipline. So, we are looking to build momentum to drive fixed sales over the remainder of the year.

Speaker 5

Thank you.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of John Varnaj with Piper Sandler. Your line is open. Please go ahead.

Speaker 4

Thank you very much for the opportunity. My question is on your outlook for flows and surrender activity this year. How are you thinking about that trending given a dynamic macro environment?

Speaker 6

Yeah. Thanks, John. So, let me just start with the drivers that we've seen over the last five to six quarters continued in the first quarter of this year as expected. So, outflows were modestly lower than the fourth quarter and up over the first quarter of last year driven by VA and Shield outflows, but specifically full surrenders. So, when we think about 2025, we have a substantial amount of fixed rate annuities, particularly the three and five year coming out of surrender in 2025, but weighted to the second half of twenty twenty five.

Speaker 6

We continue to have more shield come out of surrender each month, as you've seen, as we've had growing sales over the last few years. And then third, not surrender charge related, but we do continue to see outflows of our variable annuity block. So given these factors, I currently expect flows to be at the 2024 level or higher this year.

Speaker 4

Thank you for that. And my follow-up question, how do you think about the opportunity to better optimize your investment portfolio to be more competitive in

Speaker 7

the RILE market? Thank you.

Speaker 8

Hi, John. It's John. We're always thinking about ways to optimize the investment portfolio and the investment return. I can't give you any specifics, but we're always, you know, we're always working on it. So, I I think we're, you know, improving, but we're always working on it.

Speaker 7

Thank you.

Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.

Speaker 9

Thanks. My first question is just on the RBC move in the quarter. And I think the mean reversion change was probably something within the neighborhood of 25 basis points. So were there any other pushes and pulls within RBC? It seems like it might have been stable to slightly up, excluding the mean reversion change in the quarter.

Speaker 3

Good morning, Elyse. I think it's closer to 15 percentage points, the $200,000,000 number that I cited, not 25.

Speaker 9

Okay. So then anything else you would highlight within RBC away from that?

Speaker 3

Sure. So we had higher we had norm stat earnings beyond the $200,000,000. You see, we said it was approximately 300. I've also talked in the past about the seasonality of the capital charges associated with our fixed business. So in the past, I had said, you know, you could think about maybe 20 RBC points a year from strain in total.

Speaker 3

I would say that number is higher now than it was. And, you know, that's a good thing from the standpoint of we're writing business that we think is generating shareholder value. So, we all know that strain is a fact of life in the life insurance industry. You have to put up capital when you write business and then you get the cash over time. So we do have more strain, would say, than the 20 RBC points I've talked about in the past.

Speaker 3

But we still have the seasonality impact that I've discussed, which is related to the business risk capital charge for fixed, the C4 charge, right? It comes in once a year and then, I mean, it comes in over the course of a year and then it's released and you start again in the new year. So, you will see in the first quarter an impact from strain that's much more modest than what you would see in the subsequent quarters. So there is some benefit in the RBC from the seasonality of the capital charges.

Speaker 9

Thanks. And then, my follow-up, in past quarters, you guys have spoken about actions to increase value. I think last quarter you were talking about flow reinsurance and there's been other actions mentioned. Can you just talk about things that you guys are considering right now?

Speaker 3

Sure. We did talk about flow reinsurance. We continue to look at reinsurance options, including flow reinsurance. So that still is something that we're considering over time. I think the top priority today would be the simplification of our hedging strategy for our in force VA and first generation Shield business.

Speaker 3

You've heard us talk about how beginning in July of last year, we started to hedge our new product suite, Shield two point zero, on a standalone basis. We extended that to the, entire, in force block of our LevelPay Plus Shield products and implemented the modeling associated with that in our financial, in our actuarial modeling to realize the full benefit of that standalone hedging for new business. And we've talked about modifying our strategy for this block of in force VA and first generation shield. So an underlying goal of that effort is to simplify. I would stress though that we continue to manage to protect our statutory balance sheet.

Speaker 3

Our hedging position is, again, maintaining that up to $500,000,000 first loss tolerance that we've talked about. So we still have significant protection. It's not like a wholesale change in how we're managing the risk, but it is an approach that we are taking to simplify how we're going to address this in force VA and first generation shield block.

Operator

Thank you. Thank you. One moment for our next question. Our next question is going to come from the line of Suneet Kamath with Jefferies. Your line is open.

Operator

Please go ahead.

Speaker 10

Great. Thanks. I think on the last call, Ed, you mentioned that you weren't expecting distributable earnings out of BLIC in 2025. Is that still your expectation? And if that's the case, I guess, what changes in '26 to get the distributable earnings going again?

Speaker 10

Thanks.

Speaker 3

Good morning, Suneet. I recall on the last call that I said that our final financial plan anticipated dividends over the three year period from the operating companies. I don't remember a specific comment that I made about BLIC. And, you know, I guess I would just say I wouldn't go beyond what I said last time, which is that our plan over the three year period contemplates that we will take money up to the holding company. We don't get into specifics about any annual forecast for statutory results.

Speaker 10

Got it. I thought you had said something about starting next year, but I get the point that you're making. And I guess

Speaker 3

And maybe I did. I don't it doesn't I didn't recall, but perhaps I did. But I know my point was that I was trying to make a comment about the three year outlook for cash flow from the operating companies.

Speaker 10

I got it. That's fine. Thanks. And then I guess maybe a bigger question for Eric. If I look at your stock price at the end of 'seventeen, it was 58.

Speaker 10

If I look at where it is now, it's 58. So in seven plus years, we're flat despite all the buybacks that you've done. And I guess the question sort of like what I asked last time is, you know, does it make sense to just be part of a larger organization where you can benefit from more capital and more diversification and all those sort of things versus being a standalone kind of, you know, annuity writer?

Speaker 11

Good morning, Suneet. How are you? And look, my answer is gonna be pretty much the same as last time. Right? I think last time you commented on complexity as well.

Speaker 11

And look, every single day we're dealing with whether it's complexity or capital generation or sales, etcetera, we're doing our jobs here. We've got a strategy that I think logically can produce shareholder value. And so we're just gonna keep following that strategy, whether it's, you know, sort of from a BAU point of view or when we talk about some strategic initiatives that we have. I talked about them last time. You know, I won't repeat them because I I think Ed kinda listed some of them off, from Elise's question.

Speaker 11

But even in addition to what he said, there are other sort of value drivers that we can unlock over time, and it's our job to do that. So we're just gonna keep doing what we're doing. We have bought back about, you know, two roughly 2,500,000,000.0 of stock over the years. And our strategy with the inclusion of strategic initiatives from time to time is unchanged.

Speaker 10

Alright. Thanks for the answer.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Wilma Burdis with Raymond James. Your line is open. Please go ahead.

Speaker 12

Hey, good morning. You guys touched on this a little bit with Elyse's question, but could you just give us a little bit more detail on where you are with hedging the, legacy block, where where you're at right now, what steps you have left to complete? And then I know you kinda touched on this a little bit, but if you could just help me understand what you guys did in July with the new business versus year end and just how the kind of new business hedging played out? Thanks.

Speaker 3

Sure, Wilma. Let me start with the second one first. So when I said standalone hedging, it means, essentially, you're buying a call spread and writing an out of the money put. And that is the, option basket that creates the payout profile that matches the, what you're what you're, guaranteeing the customer. On the first question, we're not gonna get into more detail about what we're doing.

Speaker 3

The primary reason not to do that is we run a very large derivative book. We have a very large hedging program. And we're not going to talk about things that we are working on and things that we will be doing that could be used to drive what actions we might be taking in the marketplace. That would not be in the interest of shareholders.

Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Ryan Krueger with KBW. Your line is open. Please go ahead.

Speaker 13

Hey, thanks. Good morning. I guess just one more question on the changes you're making to the hedging strategy. Understand the simplification point. I guess I was just hoping to better understand like what is it like how do you expect the changes to from a practical standpoint to benefit the company going forward?

Speaker 13

Like what are the what are really the intended outcomes of what you're doing? And then are you making changes along the way? Or are you more studying what you want to do and then you're going to make all the changes at once later this year?

Speaker 3

Yeah. So it is more the latter for your second question. So we will decide what we're going to do. We will then implement. So, it is not a gradual, approach.

Speaker 3

It is more as you described. I would go back to your first question. I highlighted that an underlying goal here is simplification. So if we look at our block of business, historically, the approach we took managing this block of business with Shield and VA, was driven by the capital benefits that we were achieving from writing Shield relative to the offset of, VA. That had an inherent level of complexity that was more than tolerable given the clear capital benefit that we were getting.

Speaker 3

As we have now achieved what we have targeted since the separation, which is a balanced risk profile between, the VA block and our shield block, we have decided that we would like to pivot away from complexity toward, simplification. And so that is the overarching goal of what we're doing here.

Speaker 12

Got

Speaker 13

it. And then are you able to give us any perspective on how the VA heads program performed in the volatility of April?

Speaker 3

Sure. So, there are we look at grids when we think about our up to $500,000,000 max loss tolerance. And those grids have the equity market and interest rates on the axes. And if we look at our vertical for the equity market, now again, this is a grid. There are obviously other things that happen in market environments.

Speaker 3

Basis risk, for example, is something you've heard us talk about in the past is one thing. But if we look at our grid today and you think about this vertical of the down equity market, we show very little impact between zero and down 30. And we show an impact between down 30 to down 50 that is underneath that $500,000,000 max loss.

Speaker 5

Thank you.

Operator

Thank you. And one moment for our next question. Our next question is going to come from the line of Wilma Burtis with Raymond James. Your line is open. Please go ahead.

Speaker 12

Hey, good morning. Could you just talk a little bit more about your share repurchase program and how it works, given it seems like you leaned in on buybacks in April when prices were low? Thanks.

Speaker 11

I'll start if Ed wants to jump in, he can. In the first quarter, I think I laid this all out, but I'll just tell you again, we repurchased 59,000,000. Since then, since the end of the first quarter through the May 6, we repurchased another 26,000,000. And so, you know, we haven't you can you can look historically at what we've done. We haven't given any forward looking guidance in quite a while.

Speaker 11

So, you know, each time we're giving what we were purchased in the quarter and then up to close to the call date. That's what we did in the first quarter and then post the first quarter through May 6.

Speaker 12

Thank you.

Operator

Thank you. One moment for our next question. And our next question does come from the line of Tom Gallagher with Evercore ISI. Your line is open. Please go ahead.

Speaker 14

Good morning. I guess first question is the was the 100,000,000 to $150,000,000 of, let's call it, normal capital generation, excluding the mean reversion, was that more or less in line with your plan? Like did the hedges actually perform the way they were supposed to on both the VA and the RILA side this quarter within a certain tolerance? And then I guess I'm a little surprised to hear you saying, sounds like everything is being reevaluated from a hedging standpoint. You guys have been at this for a year.

Speaker 14

So is it like what's changed other than performance and about what you're seeing? Is it you've done more work on the cash flow projections and now you're wanting to have better outcomes? Like why is it you're now reevaluating trying to simplify what you've been spending a lot of time on already? Just want to understand kind of what's going on behind the scenes. Thanks.

Speaker 3

Yeah. So let me start with your first question. I think I said in my prepared remarks that results were in line with our expectations. And so, I would just reiterate that again that the first quarter statutory results were close to what we thought they were going to be. And obviously, the performance of our hedge portfolio is a key component of that expectation.

Speaker 3

The second part of your question, I guess I would go back first to what I said to Ryan. And second, in terms of the timeline here, we started talking about hedging new business on a standalone basis on our third quarter earnings call. We talked about some additional steps on our fourth quarter call. And we have been talking about how we are working on what revised approach might make sense for this, in force VA and first generation shield, given the size of the blocks now. Given the fact that we have this more balanced risk profile than what we had seen historically.

Speaker 3

So don't know that it's, I guess I would characterize it a little differently than what you have, which is, this is not a surprise. We've been talking about this. It's not a wholesale change. I just described to you, for example, that we're very protected for, and what we believe we're very protected for an adverse market environment, which has always been our overarching goal to protect the statutory balance sheet. So I wouldn't say that it's a wholesale change.

Speaker 3

It's an approach that we think now makes sense, given where we are in this current market environment with the current mix of business that we have.

Speaker 14

Okay. Appreciate that, Ed. So really, this isn't going back to the drawing board wanting to do something meaningfully different. Would you say it's not wanting to pigeonhole you to sound bite, not would you say the framework's in place and this is going to be you know, making making some changes to it, or or is it possible there's gonna be something more meaningful? I just I just I just wanna make sure I'm fully understanding, like, what what the message is.

Speaker 14

Thanks.

Speaker 3

Yeah. This is not going back to the drawing board.

Speaker 5

Okay. Thank you. Okay.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Alex Scott with Barclays. Your line is open. Please go ahead.

Speaker 7

Hey, good morning. Maybe the first one for you, just on the cash flow projections you've given us over time. And I know you don't have any that are sort of officially out there right now. But I feel like there was a time where we expected these cash flows to really inflect up over time. It seems to be getting pushed out.

Speaker 7

Is it just keep getting pushing? Is it is it getting pushed out? Or, you know, at this point, is it not reasonable to expect the cash flows would inflect up on the enforced block? I'm just trying to understand that. And, you know, if if it's not, like, what what is it that's causing that?

Speaker 7

And, like, why why wouldn't you need to, like, you know, adjust your balance sheet for that if, you know, if if it's not coming to fruition?

Speaker 3

Yeah. Could you clarify good morning, Alex. Could you clarify that last comment? You trailed off a little bit. Adjust our balance sheet for Sure.

Speaker 7

I I I'm saying if you thought that eventually the reserves would release and you'd have more cash flow coming through and they're not, then do we need to be concerned that if you don't find some strategic alternatives here that you'd need to make a bigger adjustment to the statutory balance sheet, I guess, or the GAAP balance sheet, right, which I guess is more the GAAP balance sheet just given the GAAP equity is a heck of a lot higher than the stat. But I'm just trying to think about risk around reserves, liability valuation, whether GAAP or stat, if there's no strategic alternatives, and if the cash flows really aren't inflecting upwards the way that you guys have kind of thought over the last few years.

Speaker 3

Yeah. So, Alex, there's a lot that you're talking about here. I mean, know, I mean, look, we're not going to discuss cash flow projections prior to having cash flow projections. I mean, we have put them out. You can deduce what you would like from what we have put out in the past.

Speaker 3

But, you know, as I've said, over the years, this is a very significant effort to create those cash flows. Flows. And as I said on the last call, we have things that we're working on to make sure that we have the right positioning, like I just said, on this revision to how we're going to hedge this in force VA and first generation shield block, before we would be putting out new projected cash flows. So it's number one, priority of the people in the finance organization and elsewhere to work on this simplification effort for the hedging strategy. And then after that, it would be to turn our attention to, you know, other things which would include the the cash flow projections.

Speaker 3

So, you know, clearly we're in May right now and you could probably deduce from my comments that the mid year target for releasing the, long term statutory free cash flow projections is no longer realistic. I had suggested on the last quarter call that, you know, there was a chance it was slipping because of, the other things we're focused on. And I would confirm now that, you know, we don't have an updated date for when we would do it. But I don't think we would continue to stick with the mid year that we had said to you in the past. And so, you know, everything else that you're asking, I think, you know, you would have to think about what questions you would want to ask, you know, after you see the updated numbers because, you know, we're not going to go into discussions about, cash flow projections that were put out, I guess, last September.

Speaker 14

No, sorry. No,

Speaker 3

sorry. Sorry, sorry, two Septembers ago.

Speaker 7

Got it. That's helpful. And thank you for entertaining the question. Maybe one that's much more on a positive note. As much as we focus about the in force, you all have talked about the growth opportunities.

Speaker 7

When you think across Ryla, demographic changes, implant annuities and the potential for that to take much bigger share of four zero one ks assets over time. I mean, how do you think about the value there and just, you know, you could do with that if you had more capital flexibility? I mean, Brighthouse had more capital flexibility, would it be a game changer for what you could do in terms of growth into some of those opportunities and how big could those opportunities be?

Speaker 11

Hey, I'll start and Miles or David might want to jump in. So far we've been able to grow everywhere we want to. I don't think we said this. Maybe I said it in my prepared remarks. I can't remember.

Speaker 11

But March was our highest Ryla sales month ever. So, I mean, we're we're growing well. LifePath paycheck, I think you mentioned, that's gonna take some time, obviously. And I've said over and over that the, you know, the flows will be intermittent, but we certainly expect more this year. And I and others, you know, think that the growth possibilities are fantastic potentially.

Speaker 11

We're not constrained there. You do have to remember, right, as David said, thought pretty eloquently, it's about growth, it's about, you know, our fabulous distributors, but it's also about pricing discipline. So, you know, we we're constantly looking at that balance. And, you know, right now, I don't feel like we're constrained to grow. We've we've never once I have never once, I'm staring at Miles here, told him, you know, you can't sell.

Speaker 11

He's unconstrained, but but we are gonna run this company for profitable growth. David or Miles, you wanna add anything?

Speaker 4

Nailed it, Eric. Okay.

Speaker 7

Thank you.

Operator

Thank you. And one moment for our next question. And our next question comes from the line of Wes Carmichael with Autonomous Research. Your line is open. Please go ahead.

Speaker 4

Hey, good morning. Thanks for taking the follow-up. I had a question on surrenders in the annuity business. And if I look at the AUM roll forward for VA and Shield, that surrender rate, maybe it's consistent quarter to quarter, but it's been picking up steam So, just hoping you could talk a little bit about what you're seeing is that legacy VA, what types of products are surrendering here and would you expect that pace to continue?

Speaker 6

Yep, thanks Wes. So, very similar remarks to John's question earlier, but the drivers that we've seen over the last five to six quarters continued in the first quarter of twenty twenty five. So, we're seeing full surrenders of Shield and VA. And you think about Shield, we have more business coming out of the surrender charge period. Outflows are weighted to VA, continue to benefit from the outflows of the capital intensive legacy blocks.

Speaker 6

But given the volume of business that we've written, Shield is becoming a larger contributor to the outflows. And from time to time, based on sales volumes, fixed annuities as well. So, where I think about the flows for 2025, at the 2024 level or higher in 2025 is the current expectation. And really the difference year over year is more business from our fixed annuities coming out of surrender charge and that sort of weighted to the second half of the year.

Speaker 4

Got it. That's helpful, David. And just last one, I think last quarter, was 100,000,000 or so cash injection into BLIC from the parent. And as we move forward to this quarter, RBC has improved here. I guess, would you expect capital that's injected down there stay down there?

Speaker 4

It seems like you've got a lot of liquidity at the holdco, but I guess in my mind it always gives you a bit more flexibility if capital's at the top of the house.

Speaker 3

Yeah, Wes. Hey, I would just go back to what I said, I think, in response to Suneet's question, which is our three year financial plan does contemplate dividends to the holding company.

Speaker 5

Got you. Thanks.

Operator

Thank you. And one moment for our next question. Our next question is a follow-up question from the line of Tom Gallagher with Evercore ISI. Your line is open. Please go ahead.

Speaker 14

Thanks. Hey, Eric, just wanted to get your perspective. We obviously have had two recent industry transactions that certainly matter for Brighthouse from a business mix standpoint on the private side. You had the METVA risk transfer deal, you had the Lincoln partnership announcement with Bain. I'm sure you guys are paying close attention to those.

Speaker 14

Anything you read into those on, we'll call it, market pricing points as it relates to private public, anything that informs you on your business, risk, market dynamics, anything you can comment on either one of those or kind of in a broader sense, what do you think is happening from an industry standpoint? Thanks.

Speaker 11

Sure, Tom. So you're referring to the Bain Lincoln transaction, think, and then I think you mentioned the MetLife transaction. So maybe overall, look, you're right, and we've known each other for a long time. We look at everything. We look in detail at everything.

Speaker 11

We're constantly, you know, tinkering with our strategy at the edges as as any good management team would be doing. So, you know, the the Bain Lincoln transaction, I'm not really gonna talk about it. I don't think it's my place to talk about it at all, but it's interesting, and it was opportunistic, I'm sure, on their part. And we look at transactions like that with an eye towards, okay, the art of the possible. Here's a here's another transaction that we have to look about at and think about.

Speaker 11

What could it possibly mean for Brighthouse in the future? And then with respect to the the VA transaction, look, I I can't comment on any specifics, but I I I will tell you this. Certainly, again, your gut is always right on stuff like this, Tom. Obviously, we're looking at it. We've been looking at at this kind of stuff for years and years.

Speaker 11

We have not done a transaction. We've done other reinsurance transactions as you know. But I would say one thing. You know, this block of business isn't you you can't logically draw a straight line to large blocks of business. Right?

Speaker 11

So it it doesn't really tell us anything with respect to our overall block of business. It's a small piece and therefore, even though at separation, which is now almost eight years ago, there were a lot of similarities between us and our former parents blocks. You know, eight years has gone by, very different potentially surrender patterns, etcetera, and then of course, this is just one block. So you can't extrapolate one block to an average of much larger blocks and really in any company's cases. However, of course, Tom, as now I've already said, we're looking at all these things and if they could potentially be an avenue down a road that we ought to go, then then at some point we could go there.

Speaker 11

Oh, I hope that's helpful to some degree.

Speaker 14

That is. Thanks.

Operator

Thank you. And one moment for our last question. Our last question is going to come from the line of Jimmy Bhullar with JPMorgan. Your line is open. Please go ahead.

Speaker 5

Hey, morning. So first, I had a question on the RBC ratio. I think, Ed, you mentioned that the mean reversion benefit was around 15 points on the RBC. I don't know if you quantified the benefit of the lower C4 charge, the seasonal impact. Could you tell us what that was?

Speaker 3

Yeah. Good morning, Jimmy. I did not quantify it, but I would just say, like I've said in the past, I think the first quarter of maybe twenty three, I made a comment about this. There was a capital benefit in the first quarter because of this C4 release. And then you will have this business risk charge release.

Speaker 3

And then you will have it come in as you write business over the course of the year. You know, while I have said that the strain, I used to say 20 RBC points, I'd say it's more than that now. You know, the average you can take whatever that number is and divide by four. But I'm telling you that the first quarter is generally going to be pretty insignificant from a strain standpoint, so you'll have more in the subsequent three quarters.

Speaker 5

So, then I think in the past, your comments about five points a quarter and then that's coming back sort of implies that it would be a five, maybe 10 benefit. But if I'm not off by a lot, is it reasonable to assume that that's that your RBC could drop in 2Q as at least that tailwind goes away? Obviously, the mean reversion tailwind goes away, assuming normal hedging results, assuming normal statutory results outside of hedging.

Speaker 3

Yeah. So, Jimmy, I guess, I mean, I said we don't give annual RBC forecast, so I'm certainly not gonna get into quarterly RBC forecast. Sorry.

Speaker 5

And then just on the strategic, initiative that you're thinking about, it seems like capital is not a constraint for growth. So is the reason that you've thought of doing things and some of the actions that you've already taken more to just improve your capital cushion on the balance sheet for from a sort of balance sheet standpoint as opposed to accelerating growth. Is that a fair point?

Speaker 11

Well, we're we're compete we're dueling buttons here, Jimmy. Look, we're trying to unlock capital all the time and we're gonna continue to do that. It it helps you eventually remain unconstrained from a from a growth point of view. So, you've seen some of the ones that we've already executed on and you should expect us to be looking at other things as well. I wanna try to stay ahead of the curve so that we can remain, as I already said, unconstrained from a growth perspective, both on the retail side and on the institutional side.

Speaker 5

And just lastly, if you look at your valuation, obviously, the market's concerned about your capital and hedges and other results. You've been on buying back stock, which implies that you're comfortable with how things are, and you're willing to let capital out the door to buy stock at a reasonable price. So for a company that's buying back stock and has been buying back very actively over the past several years, considering the sale at such a low multiple would seem odd unless there was a need for capital and sort of a dire need for capital. Otherwise, you're capitalizing your business at a a relatively low valuation. So what are your views on that?

Speaker 5

Because I can understand the logic of someone having somebody come in and take a small stake and give you a little bit of more cushion, but exploring the sale of an entire company at a multiple that's so low where you're actively, so actively buying back stock seems a little odd, unless you really need the money.

Speaker 11

Hey Jimmy, it's Eric. Look, I mean, I've already commented now a couple of times during the call with respect to the fact that we have not been constrained with respect to growth since the beginning. And then I'm gonna assume that you're asking about some reports in the press and I'm just gonna say we don't comment on market rumors or speculation. So I'm just gonna leave it at that.

Speaker 5

Alright. Good luck. Thanks.

Operator

Thank you. And I'm showing no further questions at this time and I would like to hand the conference back over to Dana Amonte for closing remarks.

Speaker 1

Thank you, Michelle, and thank you everyone for joining the call today. Have a great day.

Operator

This does conclude today's conference call. Thank you for participating, and you may now disconnect.

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Earnings Conference Call
Brighthouse Financial Q1 2025
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