Brighthouse Financial, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021 unless otherwise noted. Brighthouse is a U.S. life insurer and annuity provider, reporting Annuities, Life and Run-off segments, plus Corporate & Other. Dollar amounts are in millions unless stated otherwise.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $2,740 | $938 |
| Net income (loss) available to common shareholders | $613 | $(610) |
| Adjusted earnings, a non-GAAP measure | $294 | $385 |
| Basic / diluted earnings (loss) per share | $7.98 / $7.91 | $(6.96) / $(6.96) |
| Net cash from (used in) operating activities | $(163) | $(104) |
The sharp swing in GAAP revenue and earnings was primarily market-driven: net derivative gains were $513, versus losses of $1,504 a year earlier. Management attributed the current-period result largely to favorable changes in the estimated fair value of guaranteed minimum living benefit riders. These mark-to-market effects do not represent the same underlying performance measured by adjusted earnings, which fell by $91.
Adjusted earnings by segment were Annuities $311 (down from $336), Life $26 (down from $42), Run-off $16 (down from $76), and Corporate & Other $(59) (versus $(69)). Management cited lower fee income, higher insurance claims and lower investment yields and limited-partnership returns as key pressures; lower expenses partly offset them.
Financial position, liquidity and capital
- Assets and equity: Total assets were $245,052 at March 31, versus $259,840 at year-end 2021. Total equity was $12,879, down from $16,207; accumulated other comprehensive income (loss) fell to $363 from $4,172. Comprehensive loss for the quarter was $3,167, largely reflecting investment-related OCI losses.
- Investments: Total investments were $113,420, compared with $118,225 at year-end. Available-for-sale fixed maturity securities had estimated fair value of $82,496, down from $87,582; 95.3% were investment grade. The company reported $21,357 of net mortgage loans, and over 99% of mortgage loans were classified as performing.
- Insurance and separate accounts: Separate account assets and liabilities each declined to $104,441 from $114,464. Policyholder account balances were $67,887, up from $66,851.
- Debt and liquidity: Long-term debt was $3,157, unchanged from year-end. Company-wide short-term liquidity was $3.6 billion and liquid assets were $50.0 billion, versus $3.8 billion and $54.9 billion, respectively. Management said it believed liquidity was sufficient for business needs under current conditions and certain stress scenarios. The company targets debt-to-capital of approximately 25% and combined risk-based capital of 400%–450% in normal markets; these are targets, not reported quarter-end ratios.
- Cash flows: Investing activities used $2,519 and financing activities provided $2,309. Cash and cash equivalents ended the quarter at $4,101, down from $4,474. Policyholder account deposits and withdrawals were $6,340 and $3,727, respectively.
- Capital returns and facility: The company repurchased 2.4 million shares for $127 during the quarter, with $654 remaining under the program at March 31. It reported a new $1.0 billion senior unsecured revolving facility entered into April 15, 2022, replacing the prior facility; no borrowings or letters of credit were outstanding at May 10.
Material changes, outlook and risks
- Management provided no specific earnings or revenue guidance in the supplied filing text. It noted that results remain sensitive to equity markets, interest rates, credit spreads, policyholder behavior and other market conditions.
- Rising interest rates and market volatility contributed to lower unrealized fixed-income values. The company reported no direct Russia or Ukraine exposure at March 31 after selling positions with $99 of amortized cost and recording an $8 realized loss. It cited inflation, geopolitical events, energy prices and the ongoing effects of COVID-19 as uncertainties.
- Long-duration contract accounting (ASU 2018-12) is scheduled to take effect in 2023. Brighthouse said the adoption impact is highly dependent on market conditions and cannot yet be estimated; using prevailing year-end 2021 rates, it expected adoption would likely materially decrease stockholders’ equity.
- Litigation includes sales-practices matters and cost-of-insurance class actions. For certain litigation and regulatory matters, estimated reasonably possible losses were up to approximately $10; for certain other contingencies, primarily reinsurance-related, the disclosed range was zero to approximately $250 in excess of accruals. Some matters could not be reasonably estimated.
- Other material risks include annuity guarantee and hedging volatility, investment credit and liquidity risk, reinsurance counterparty performance, insurance-subsidiary dividend restrictions, and the possibility that adverse legal outcomes could affect particular reporting periods.
Most important facts for investors to verify
- How much of GAAP earnings reflects market-sensitive derivative and guarantee revaluations, and whether adjusted earnings trends persist.
- Drivers of lower adjusted earnings, especially claims, fees, investment spreads and returns from limited partnerships.
- Changes in equity, OCI and fixed-income fair values, and the company’s exposure to further rate, spread and market moves.
- Actual statutory capital and liquidity at regulated subsidiaries, in addition to the company’s stated capital targets.
- Developments in the disclosed litigation and reinsurance contingencies, including amounts that are not currently estimable.
- Implementation progress and eventual financial effects of long-duration contract accounting in 2023.