Brighthouse Financial, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY 2020. This is an annual filing, not a standalone fourth-quarter report.
Business context
Brighthouse is a U.S. life insurer focused on annuities and life insurance, with more than 2.7 million contracts and policies in force. It reports Annuities, Life and Run-off segments, plus Corporate & Other, and distributes through independent partners. Its strategy emphasizes risk management, targeted products and diversification away from legacy variable annuity guarantees.
Key financial and operating metrics
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Total revenue | $7.142 billion | $8.503 billion |
| Net income (loss) | $(103) million | $(1.056) billion |
| Net income (loss) available to common shareholders | $(197) million; $(2.36) per share | $(1.105) billion; $(11.58) per share |
| Adjusted earnings, after tax (non-GAAP) | $1.593 billion | $(278) million |
| Net investment income | $4.881 billion | $3.601 billion |
| Adjusted net investment income yield | 5.00% | 4.07% |
| Net cash from operating activities | $746 million | $888 million |
| Cash and cash equivalents, year-end | $4.474 billion | $4.108 billion |
| Total assets / total equity, year-end | $259.840 billion / $16.207 billion | $247.869 billion / $18.088 billion |
| Long-term debt, year-end | $3.157 billion | $3.436 billion |
Short-term liquidity was $3.8 billion and liquid assets were $54.9 billion at year-end; both measures exclude pledged or otherwise committed assets. Insurance subsidiaries reported combined statutory total adjusted capital of $9.5 billion and an approximately 500% combined company-action-level RBC ratio. Management’s normal-market target for the combined RBC ratio is 400%–450%; its GAAP debt-to-capital target is approximately 25%.
Segment adjusted earnings for 2021 were $1.449 billion in Annuities, $287 million in Life, $191 million in Run-off and a $334 million loss in Corporate & Other. FY 2021 cash flows included $12.238 billion used in investing activities and $11.858 billion provided by financing activities.
Material changes versus FY 2020
- Adjusted earnings improved by $1.871 billion, from a loss of $278 million to earnings of $1.593 billion. Management cited stronger investment spread, lower insurance-related costs and lower DAC/VOBA amortization, partly offset by higher expenses.
- GAAP net loss attributable to common shareholders narrowed by $908 million. Total revenue declined $1.361 billion, including a $2.451 billion net derivative loss versus an $18 million loss in 2020; lower policyholder benefits and claims and higher net investment income partly offset this.
- GMLB rider results remained materially unfavorable, a $2.166 billion loss versus $2.421 billion. The results reflect liability and hedge valuation movements; 2021’s higher equity markets and interest rates affected these items differently.
- Adjusted net investment income yield rose to 5.00%, reflecting notably higher returns from limited partnerships, while yields on fixed-income investments were lower as maturing proceeds and portfolio growth were reinvested.
- General-account surrenders and withdrawals increased to $4.6 billion from $2.1 billion. Annuity deposits increased to $8.201 billion from $6.039 billion, led by Shield Annuities ($6.201 billion versus $4.338 billion).
- Shareholders’ equity declined to $16.207 billion from $18.088 billion, including a $1.544 billion after-tax reduction in other comprehensive income. Common shares outstanding fell to 77.9 million from 88.2 million, reflecting repurchases.
Outlook, management commentary and risks
- No specific FY 2022 earnings or revenue guidance is provided. Management states it believes liquidity is sufficient for current conditions and certain stress scenarios, and intends to maintain its capital and risk-management targets.
- In 2021, the company repurchased $499 million of common stock; $781 million remained under its then-current authorization at year-end. It stated it had no plans to pay common dividends. Through February 18, 2022, it repurchased a further $75 million of shares.
- Management identified actuarial assumptions and policyholder behavior, variable annuity guarantee exposure, hedging effectiveness, interest rates, equity markets, credit and liquidity conditions, COVID-19, reinsurer performance, regulation, competition and cybersecurity as material risks.
- The company expects adoption of the long-duration insurance accounting standard on January 1, 2023 to materially affect financial statements and earnings patterns. At year-end 2021 market levels, management said adoption would likely materially reduce stockholders’ equity; the ultimate impact is uncertain and market-dependent.
- Reinsurance-related exposure warrants attention: $6.6 billion of long-term-care reserves were ceded to Genworth-related reinsurers, supported by trust collateral and a Citigroup indemnity. Brighthouse received a February 2021 arbitration demand concerning withdrawals from the trusts.
- At December 31, 2021, management estimated reasonably possible litigation losses of up to approximately $10 million for matters where a range could be estimated. Other reasonably possible losses beyond accrued amounts were estimated at up to approximately $250 million, primarily involving reinsurance matters. Some exposures could not be reasonably estimated.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included future policy benefit liabilities, deferred acquisition costs and embedded derivative liabilities.
Important facts for investors to verify
- Reconcile GAAP losses with non-GAAP adjusted earnings, including the treatment and volatility of GMLB liabilities, hedges and DAC.
- Review the basis, composition and stress sensitivity of statutory capital and the reported RBC ratio; confirm the gap between reported capital and management’s 400%–450% target.
- Assess holding-company liquidity and subsidiary dividend capacity, including regulatory restrictions, debt service and common-stock repurchase pace.
- Monitor the Genworth-related long-term-care reinsurance arbitration, collateral sufficiency and counterparty credit exposure.
- Evaluate the projected effects of the 2023 accounting change on equity, earnings volatility, leverage and ratings metrics.
- Track surrender and withdrawal trends, investment portfolio credit quality, and the sustainability of elevated limited-partnership investment income.