BHF

Brighthouse Financial, Inc. 2024 Annual Report (10-K) Summary

Business Context and Reporting Period

This summary covers the fiscal year ended December 31, 2024. Brighthouse Financial, Inc. (BHF) is a leading provider of annuity and life insurance products in the U.S., operating through four reportable segments: Annuities, Life, Run-off, and Corporate & Other. The company distributes products through a diverse network of over 400 independent distribution partners. As of December 31, 2024, BHF held over 2.2 million annuity contracts and insurance policies in force.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Turnaround: The company reported a net income of $286 million in 2024, a significant improvement from a net loss of $1.2 billion in 2023. This was driven by favorable pre-tax adjusted earnings and lower losses from variable annuity guaranteed benefit riders.
• Reinsurance Arbitration Impact: A reinsurance arbitration concluded in 2024 resulted in a retroactive premium rate increase (dating to September 2019), causing an unfavorable impact of approximately $187 million ($167 million in fees, $20 million in expenses).
• Market Volatility: Net derivative losses were $3.7 billion in 2024 compared to $3.9 billion in 2023. The 2024 results included a $557 million loss on interest rate derivatives used to hedge ULSG business due to rising long-term interest rates.
• Investment Performance: Net investment income increased by $558 million year-over-year, driven by higher average invested assets and higher yields on the fixed income portfolio.

Guidance, Outlook, and Risks

Management Commentary: Management continues to focus on maintaining a strong capital base and excess liquidity. The company targets a Combined Risk-Based Capital (RBC) ratio of 400% to 450% in normal market conditions. In 2024, the company launched updated versions of its Shield Annuity products, which are now managed and hedged separately from variable annuities.

Rating Agency Outlook: In November 2024, Fitch revised the outlook on BHF's financial strength and credit ratings to Negative from Stable. In January 2025, A.M. Best also revised the outlook on the long-term issuer credit rating to Negative from Stable.

Key Risks:

• Interest Rate Risk: Rising rates increase the cost of hedging ULSG obligations and can cause volatility in GAAP net income due to the mismatch between derivative valuations and GAAP liability valuations.
• Actuarial Assumptions: Differences between actual experience and assumptions regarding mortality, lapses, and policyholder behavior can materially impact liabilities and earnings.
• Reinsurance Counterparty Risk: Significant exposure exists to reinsurers, including a large block of long-term care business reinsured to Genworth (rated C++ by A.M. Best), though secured by trust accounts and Citigroup indemnification.
• Regulatory Changes: Potential impacts from the Department of Labor's Fiduciary Advice Rule (currently stayed by court order) and evolving state insurance regulations.

Investor Verification Checklist

• Reinsurance Arbitration Details: Verify the specific long-term impact of the $187 million reinsurance arbitration loss on future fee income and expense structures.
• Rating Agency Actions: Monitor the implications of the "Negative" outlooks from Fitch and A.M. Best on the company's cost of capital and ability to access liquidity.
• ULSG Hedging Strategy: Review the effectiveness of the interest rate hedging strategy for Universal Life with Secondary Guarantees (ULSG) in a rising rate environment and its impact on statutory capital vs. GAAP earnings.
• Genworth Reinsurance Exposure: Assess the sufficiency of the trust accounts and Citigroup indemnification securing the $5.4 billion long-term care reinsurance block.
• Dividend Capacity: Confirm the ability of insurance subsidiaries to pay dividends to the holding company, noting that any dividend from Brighthouse Life Insurance Company in 2024 required regulatory approval.