Brighthouse Financial, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Brighthouse is a U.S. life insurer and annuity provider, reporting Annuities, Life and Run-off segments, plus Corporate & Other. Amounts below are in U.S. dollars; financial statement amounts are generally in millions.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1,170 | $1,121 | $2,717 | $7,000 |
| Net income (loss) available to common shareholders | $453 | $388 | $(272) | $3,665 |
| Adjusted earnings, non-GAAP | $326 | $115 | $792 | $639 |
| Net investment income | $1,202 | $877 | $3,457 | $3,089 |
| Net derivative gains (losses) | $(840) | $(592) | $(3,226) | $1,331 |
| Operating cash flow | Not separately presented for the quarter | $(289) | $(1,002) |
The filing does not present a conventional operating margin measure. Adjusted net investment income yield was 4.20% for Q3 2023 and 4.08% for the nine-month period, compared with 3.20% and 3.82%, respectively, in 2022; these are non-GAAP investment performance measures.
- Balance sheet at September 30: Assets $223.5 billion; liabilities $219.4 billion; total equity $4.1 billion, including $4.1 billion of Brighthouse stockholders’ equity.
- Investments and valuation: Total investments were $108.7 billion. Available-for-sale fixed maturities had $75.4 billion fair value against $86.4 billion amortized cost; the resulting gross unrealized loss was $10.9 billion before related offsets and tax.
- Debt: Long-term debt was $3.157 billion, essentially unchanged from year-end 2022.
- Liquidity: Company-wide short-term liquidity was $3.2 billion and liquid assets were $42.0 billion, excluding pledged or otherwise committed assets. Cash and cash equivalents were $3.839 billion.
Changes versus comparable periods
- Q3 common-shareholder income rose to $453 million from $388 million; adjusted earnings increased to $326 million from $115 million. Management cited stronger investment spread and lower expenses, partly offset by lower fee income and higher insurance-related costs.
- Nine-month common-shareholder results shifted from $3.665 billion income to a $272 million loss. The principal driver was the reversal in derivative results, alongside unfavorable variable-annuity guarantee and hedge effects. Adjusted earnings nevertheless increased to $792 million from $639 million.
- Net investment income rose in both comparisons, reflecting higher investment yields and average invested assets. The adjusted investment yield also increased.
- Stockholders’ equity fell from $5.533 billion at December 31, 2022 to $4.069 billion at September 30, 2023. Accumulated other comprehensive loss widened to $7.116 billion from $6.106 billion, and the company repurchased $190 million of common stock during the nine months.
Outlook, management commentary and risks
- The filing provides no specific quantitative earnings or revenue guidance. Management said it believes liquidity is sufficient for business needs in current conditions and certain stress scenarios. Its stated target for combined risk-based capital is 400%–450% in normal market conditions; an actual current combined ratio is not provided here.
- The 2023 annual actuarial review updated assumptions across ULSG, variable annuity, and life businesses. The review reduced nine-month pre-tax income by a net $207 million, including a $251 million adverse MRB impact, partly offset by $44 million favorable impact within adjusted earnings.
- Results remain sensitive to interest rates, equity markets, volatility, credit spreads, policyholder behavior, mortality and actuarial estimates. Management highlighted inflation, recession and market-liquidity risks, and exposure to commercial real estate, including office properties. Higher rates can benefit some investment spreads but increase unrealized fixed-income losses and create hedge volatility.
- Variable-annuity guarantees and related hedges can produce significant, potentially asymmetric earnings swings. During the nine months, the combined impact of annuity guaranteed benefits and Shield annuity liabilities was unfavorable by $717 million, versus favorable by $5.350 billion in 2022.
- Litigation and regulatory matters include sales-practices and cost-of-insurance cases. The estimated aggregate reasonably possible litigation loss range was up to approximately $10 million for matters where an estimate could be made. For certain other contingencies, primarily reinsurance-related, the reasonably possible loss above accruals ranged from zero to approximately $125 million; some matters could not be estimated. A MOVEit-related purported class action naming BHF was filed October 3, 2023.
- The company reported effective disclosure controls as of September 30. It also noted continuing changes to processes, systems and third-party arrangements as it transitions services previously provided by MetLife.
Important facts for investors to verify
- Review the reconciliation of GAAP earnings to adjusted earnings: the non-GAAP measure excludes significant derivative, MRB and investment effects and is not a substitute for GAAP results.
- Assess the drivers and potential duration of derivative and variable-annuity guarantee volatility, including hedge effectiveness under different rate and equity scenarios.
- Monitor the fixed-income unrealized loss position, commercial real estate loan exposure and any deterioration in investment credit quality or liquidity.
- Confirm statutory capital and dividend capacity at insurance subsidiaries; the filing gives a target combined RBC range but not a current combined RBC ratio.
- Track the outcome and potential financial effect of disclosed litigation, reinsurance contingencies and the MOVEit incident-related claims.
- Consider capital allocation: $104 million remained under the repurchase authorization at September 30, followed by $25 million of additional repurchases through November 3, 2023; management stated it had no current plan to pay common-stock dividends.