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Brighthouse Financial(BHF) - 2023 Q2 - Earnings Call Transcript
BHFBrighthouse Financial(BHF)2023-08-09 14:11
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Financial Data and Key Metrics - The company's estimated combined risk-based capital (RBC) ratio was between 430% and 450%, down from 460% to 480% at March 31, primarily driven by the annuity business, particularly the variable annuity book impacted by basis risk and market volatility [8] - Adjusted earnings for the annuity segment were 291millioninthequarter,drivenbyhigherreservesandexpenses,partiallyoffsetbyhigherfeesandnetinvestmentincome[9]−Thelifeinsurancesegmentreportedadjustedearningsof291 million in the quarter, driven by higher reserves and expenses, partially offset by higher fees and net investment income [9] - The life insurance segment reported adjusted earnings of 15 million, with higher net investment income being the primary driver [9] - The holding company's cash position was 900millionasofJune30,downfrom900 million as of June 30, down from 1.1 billion at March 31, due to timing of interest expenses, subsidiary dividends, and share repurchases [35] Business Line Performance - Annuity sales, particularly Shield annuities, totaled 3.2billionyear−to−date,a53.2 billion year-to-date, a 5% increase compared to the first half of 2022 [78] - Fixed deferred annuity sales reached 1.5 billion in the first half of 2023, reflecting the complementary nature of the annuity product portfolio [78] - Life insurance sales increased by 23% in the first half of 2023 compared to the same period in 2022, driven by the launch of new products like SmartGuard Plus [6][89] Market and Competitive Dynamics - The company launched SmartGuard Plus, a registered index-linked universal life insurance product, in July 2023, offering guaranteed distribution payments and a death benefit [6] - The company is working on a new fixed indexed annuity product, expected to launch later in 2023, targeting a broader market with sales of 80billionin2022and80 billion in 2022 and 50 billion year-to-date in 2023 [44][116] - The competitive landscape for buffer annuities has expanded, with 19 carriers in the market and more expected to enter, driving product enhancements and increased competition [130] Strategic Direction and Industry Competition - The company is focused on shifting its business mix toward higher cash flow, lower-risk products, with Shield and fixed annuities now representing 40% of total annuity account value, up from 25% in 2016 [61][79] - The company plans to optimize capital through a reinsurance agreement between Brighthouse Life Insurance Company (BLIC) and its New York affiliate, expected to reverse 200millionofthesecond−quarterdeclineintotaladjustedcapital(TAC)[91]−ThecompanyisenhancingitsShieldproductofferings,includingthelaunchofShieldLevelPayPlusinAugust2022,whichhasbeenwell−receivedinthemarket[48][109]ManagementCommentaryonOperatingEnvironmentandOutlook−ManagementexpectscontinuedgrowthinShieldannuitysalesinthesecondhalfof2023,drivenbyproductenhancementsandacompetitivemarketenvironment[120]−Thecompanyremainsfocusedonmaintainingarobustcapitalposition,withanRBCratioattheupperendofitstargetrange(400200 million of the second-quarter decline in total adjusted capital (TAC) [91] - The company is enhancing its Shield product offerings, including the launch of Shield Level Pay Plus in August 2022, which has been well-received in the market [48][109] Management Commentary on Operating Environment and Outlook - Management expects continued growth in Shield annuity sales in the second half of 2023, driven by product enhancements and a competitive market environment [120] - The company remains focused on maintaining a robust capital position, with an RBC ratio at the upper end of its target range (400% to 450%) and a strong liquidity position [90] - Management highlighted the importance of managing basis risk and optimizing hedging strategies, particularly in the variable annuity business, to protect the statutory balance sheet [31][38] Other Key Information - The company repurchased 152 million of common stock year-to-date through August 4, 2023, as part of its active and opportunistic share repurchase program [117] - The company plans to release updated long-term free cash flow projections in September 2023, providing further clarity on its capital generation and distribution strategy [81] Q&A Session Summary Question: Shield Sales and Competitive Conditions - Management expects Shield sales to remain strong in the second half of 2023, with no significant changes in the competitive environment [12][36] Question: Dividend Timing and Share Repurchases - The company reaffirmed its expectation to take a 300milliondividendfromBLICinthesecondhalfof2023,withnospecifictimingprovided[16][118]−Sharerepurchasesarenotdirectlylinkedtothetimingofsubsidiarydividends[83]Question:NormalizedStatutoryEarnings−Managementnotedthatnormalizedstatutoryearningscanvarybyhundredsofmillionsofdollarsquarterlyduetoequityandinterestratemovements,makingitdifficulttopredictarunrate[39]Question:BasisRiskandHedgingPerformance−Basisriskwasasignificantdriverofthe300 million dividend from BLIC in the second half of 2023, with no specific timing provided [16][118] - Share repurchases are not directly linked to the timing of subsidiary dividends [83] Question: Normalized Statutory Earnings - Management noted that normalized statutory earnings can vary by hundreds of millions of dollars quarterly due to equity and interest rate movements, making it difficult to predict a run rate [39] Question: Basis Risk and Hedging Performance - Basis risk was a significant driver of the 200 million normalized statutory loss in the quarter, primarily related to the variable annuity book [41] - The company manages its hedging strategy to protect the statutory balance sheet, with net income expected to remain volatile [31] Question: Office Exposure Reduction - The company has reduced its office exposure to 24% of the portfolio and expects further reductions as the portfolio rolls off, with no specific target level [26][45] Question: Reinsurance Transaction Impact - The internal reinsurance transaction is expected to reverse $200 million of the second-quarter decline in TAC, with no additional impacts anticipated [108] Question: Fixed Indexed Annuity Product Launch - The company is developing a new fixed indexed annuity product, targeting a handful of distribution partners for its initial launch later in 2023 [44][116] Question: Competitive Dynamics in Buffer Annuities - The buffer annuity market is highly competitive, with 19 carriers and more expected to enter, driving product enhancements and increased competition [130]