Brighthouse Financial, Inc. (BHF) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates several negative factors: slowed Shield sales due to competition, unclear responses on buybacks and cash flow issues, and heightened claims severity. Although management expressed confidence in their capabilities, the lack of quantitative guidance and avoidance of certain questions suggest underlying uncertainties. The market may react negatively due to these ambiguities and potential risks.
Key Financial Performance
Total Annuity Sales $2.6 billion, a 16% increase sequentially and an 8% increase compared with the second quarter of 2024. The increase was driven by strong sales in both annuities and life insurance, with Shield sales being a significant contributor.
Shield Sales $1.9 billion in the quarter, bringing year-to-date Shield sales to $3.9 billion, consistent with the same period last year. Shield sales were a significant contributor to total annuity sales.
Fixed Annuities Sales $500 million in the quarter. This was the second largest contributor to total annuity sales.
Life Insurance Sales $33 million in the second quarter, contributing to record year-to-date life insurance sales of $69 million, an increase of approximately 21% compared with the same period in 2024. The increase was attributed to strong sales performance.
Corporate Expenses $202 million on a pretax basis, down from $239 million in the first quarter, and up slightly from $200 million in the second quarter of 2024. The slight year-over-year increase was due to controlled expense management.
Common Stock Repurchases $43 million in the second quarter, bringing year-to-date repurchases to $102 million. Since the program began in August 2018, over $2.6 billion of common stock has been repurchased, representing 52% of outstanding shares.
Adjusted Earnings $198 million or $3.43 per share, compared with $346 million in the second quarter of 2024. The decrease was driven by lower alternative investment income and a lower underwriting margin.
Alternative Investment Portfolio Yield 1.5% in the quarter, resulting in lower alternative investment income of $32 million or approximately $0.55 below the quarterly average run rate expectation. Over the long term, the expected yield is 9% to 11% annually.
Annuities Segment Adjusted Earnings $332 million, reflecting lower expenses, partially offset by lower fees due to lower average separate account balances sequentially.
Life Segment Adjusted Loss $26 million, reflecting a lower underwriting margin and lower net investment income, partially offset by lower expenses.
Run-off Segment Adjusted Loss $83 million, reflecting a lower underwriting margin, partially offset by higher net investment income and lower expenses.
Corporate and Other Segment Adjusted Loss $25 million, which was flat sequentially.
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Operating Highlights
Annuity Sales: Total annuity sales were $2.6 billion, a 16% increase sequentially and an 8% increase compared with the second quarter of 2024. Shield sales contributed $1.9 billion, and fixed annuities contributed $500 million.
Life Insurance Sales: Life insurance sales in the second quarter were $33 million, contributing to record year-to-date sales of $69 million, a 21% increase compared to the same period in 2024.
BlackRock's LifePath Paycheck Deposits: Received $176 million of deposits through BlackRock's LifePath Paycheck product in the second quarter.
Market Positioning through BlackRock Partnership: The involvement with BlackRock's LifePath Paycheck product is expected to enable Brighthouse to reach new customers through the worksite channel.
Expense Management: Second quarter corporate expenses were $202 million, down from $239 million in the first quarter, and slightly up from $200 million in the second quarter of 2024.
Capital and Liquidity Position: Maintained a strong liquidity position with liquid assets at the holding company exceeding $900 million as of June 30. The estimated combined RBC ratio was between 405% and 425%, within the target range of 400%-450%.
Capital-Focused Strategic Initiatives: Progressed on initiatives to simplify and revise hedging strategies for in-force variable annuity and first-generation Shield books of business. Transition to revised hedging strategy expected to complete by September 2025.
Shareholder Returns: Returned $43 million to shareholders through common stock repurchases in Q2, bringing year-to-date repurchases to $102 million. Since 2018, over $2.6 billion of common stock has been repurchased, representing 52% of outstanding shares.
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Risk or Challenges
Combined Risk-Based Capital (RBC) Ratio: The RBC ratio decreased during the period due to seasonality, capital charges for fixed business, and adverse non-VA results, partially driven by mortality. This could impact the company's ability to maintain its target range in adverse market conditions.
Hedging Strategy Transition: The company is transitioning its hedging strategy for in-force variable annuity and first-generation Shield business. Any delays or inefficiencies in this transition could expose the company to financial risks, especially under adverse market scenarios.
Alternative Investment Income: The alternative investment portfolio yielded only 1.5% in the quarter, significantly below the long-term expectation of 9%-11%. This underperformance contributed to lower adjusted earnings and could impact financial stability if it persists.
Underwriting Margin: The company experienced a lower underwriting margin due to higher average severity of claims. This fluctuation in mortality and claims severity could adversely affect financial results.
Life Segment Performance: The Life segment reported an adjusted loss of $26 million, driven by a lower underwriting margin and lower net investment income. This underperformance could hinder the company's overall profitability.
Run-off Segment Performance: The Run-off segment reported an adjusted loss of $83 million, reflecting a lower underwriting margin. Persistent losses in this segment could strain financial resources.
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Guidance & Outlook
Capital-focused strategic initiatives: The company plans to complete the transition to a revised hedging strategy for its in-force variable annuity and first-generation Shield annuity block of business by the end of September 2025. This includes managing the VA and Shield businesses separately.
Risk-based capital (RBC) ratio: The company aims to maintain a target combined RBC ratio between 400% and 450% under normal market conditions. As of June 30, 2025, the estimated RBC ratio was between 405% and 425%.
Alternative investment portfolio yield: Over the long term, the company expects a yield of 9% to 11% annually on its alternative investment portfolio.
Expense management: The company remains committed to disciplined expense management to support its financial goals.
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Shareholder Return Plan
Share Repurchase Program: In the second quarter, Brighthouse Financial returned capital to shareholders through $43 million of common stock repurchases, bringing year-to-date common stock repurchases through June 30 to $102 million. Since the inception of the common stock repurchase program in August 2018, the company has repurchased over $2.6 billion of its common stock, representing 52% of its outstanding shares. The most recent Rule 10b5-1 plan for share repurchases expired at the end of May 2025, and no additional share repurchases have occurred since that date. The company has $441 million of capacity remaining under its Board-approved share repurchase program.
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Key Q&A
Q:Is there a risk of a charge on the statutory side due to continued losses?
A:Management stated that the actuarial review is a significant undertaking and is conducted annually. They are in the process of doing the work and have no updates to provide at this time.
Q:Will the actuarial review still follow the timeline of third quarter GAAP and fourth quarter statutory?
A:Management confirmed that the GAAP review will occur in the third quarter and the statutory review for annuities will occur in the fourth quarter. They also mentioned that the separation of VA and Shield will impact the third quarter balance sheet.
Q:What will be completed by the end of September, and will the company start generating positive capital after implementation?
A:Management explained that they are revising their hedging strategy by separating the Shield and VA books. By the end of the third quarter, they will have implemented modeling and valuation changes. They expect simplification, transparency, and less volatility in results over time but did not quantify the impact of the separation.
Q:Are buybacks part of the normal plan going forward?
A:Management stated that they have historically repurchased shares under 10b5-1 plans and will continue to evaluate this. They did not provide a definitive answer on future buybacks.
Q:What is the company's confidence in its ability to survive and thrive as a standalone entity?
A:Management expressed confidence in their operational and technological capabilities, distribution franchise, and product innovation. They emphasized their ability to manage legacy liabilities and their commitment to growth and profitability.
Q:Why have Shield sales slowed down this quarter?
A:Management attributed the slowdown to increased competition and emphasized their focus on pricing discipline. They noted that Shield sales remain strong, with $4 billion in sales for the first half of the year.
Q:What is the status of unassigned surplus in BLIC and its impact on taking cash out?
A:Management stated that the unassigned surplus remains around negative $2 billion but considers this a technical issue rather than a fundamental one. They emphasized their good relationships with regulators and their intention to take dividends as per their financial plan.
Q:Does the company plan to use Bermuda captives or alternative asset management partners?
A:Management stated that they use reinsurance to achieve capital efficiency and are always evaluating ways to optimize their capital structure. They did not indicate any immediate plans to adopt Bermuda captives or alternative asset management partnerships.
Q:How did TAC increase in the second quarter despite strong market performance?
A:Management explained that the increase in TAC was due to the framework for VA, where reserves dropped more than the total asset requirement in a strong market. This divergence led to a benefit in TAC despite normalized statutory losses.
Q:What is the company's appetite for continuing strong sales?
A:Management stated that there are no changes to their approach to new business and that they are having a strong start to the third quarter.
Q:Will the company consider findings from independent actuarial reviews as part of a rumored sales process?
A:Management declined to comment on rumors and speculation.
Q:What is the impact of C4 charges on the RBC ratio?
A:Management explained that C4 charges have a seasonal impact, with a benefit in the first quarter and a build-up over the year. They did not provide an overall projection for the RBC ratio.
Q:Can the company provide more disclosures on the capital in the Delaware Reinsurance Company?
A:Management stated that they disclose information in their filings but do not see excess capital in the entity. They emphasized that cash flow testing margins indicate appropriate capitalization.
Q:Why have cash flows fallen short of projections despite favorable market conditions?
A:Management stated that they will address this as part of their annual actuarial assumption update and did not provide further details.
Q:What is the company's commitment to paying dividends on preferred stock?
A:Management affirmed their intent to pay preferred dividends and emphasized their favorable capital structure.
Q:Will the hedging changes have a material impact on the balance sheet?
A:Management stated that the changes are not expected to have a significant impact on the balance sheet. They emphasized that the revisions are not a complete overhaul but adjustments to the existing strategy.
Q:Will the company provide long-term free cash flow projections this year?
A:Management stated that they need to complete ongoing initiatives before providing an outlook and do not expect to provide projections in 2025.
Q:What caused heightened claims severity in Life and Run-off segments?
A:Management reported that claims severity was 18% higher than normal, with impacts split roughly 2/3 in Life and 1/3 in Run-off.
Q:Review of Unclear Management Responses
A:Management avoided providing direct answers to questions about the potential impact of the actuarial review, the specifics of future buybacks, and the reasons for cash flow shortfalls despite favorable market conditions. They also declined to comment on rumors and speculation regarding M&A or independent actuarial reviews.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Alexander Scott
Allen Spehar
Annitto Wells
Associates Inc
Bank PLC
Barclays Bank
BlackRock LifePath
Executive VP
Inc Research
LLC Research
LifePath Paycheck
PLC Research
Research Division
contributor annuity
deposit BlackRock
expense discipline
insurance sale
liquidity position
market condition
plan
progress
ratio market
repurchase date
repurchase program
result deposit
sale date
sale increase
share repurchase
stock repurchase
success
BHF Transcript
Brighthouse Financial, Inc. (BHF) Q2 2025 Earnings Call Transcript
Unknown8-8
The earnings call summary indicates several negative factors: slowed Shield sales due to competition, unclear responses on buybacks and cash flow issues, and heightened claims severity. Although management expressed confidence in their capabilities, the lack of quantitative guidance and avoidance of certain questions suggest underlying uncertainties. The market may react negatively due to these ambiguities and potential risks.
Brighthouse Financial, Inc. (BHF) Q3 2024 Earnings Call Transcript
Unknown11-8
The earnings call summary reveals several negative factors: the company is operating below its RBC target range, faces risks with a reinsurance agreement, and has lower-than-expected investment returns. Despite share repurchases, financial metrics are weak with declining earnings. Management's vague responses in the Q&A add uncertainty. While there are positive aspects like increased life insurance sales, the overall sentiment is negative, especially given the market cap of $2.7 billion, which suggests a moderate reaction to these developments.
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Frequently Asked Questions
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