Brighthouse Financial(BHF) - 2019 Q3 - Quarterly Report

Part I — Financial Information This section presents the company's consolidated financial statements and management's analysis of financial condition and operations Item 1. Consolidated Financial Statements This section presents Brighthouse Financial, Inc.'s unaudited interim consolidated financial statements and related notes Interim Condensed Consolidated Balance Sheets This subsection provides the company's consolidated balance sheets as of September 30, 2019, and December 31, 2018 Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Total Investments | $96,634 | $83,181 | | Cash and cash equivalents | $4,289 | $4,145 | | Separate account assets | $103,928 | $98,256 | | Total assets | $225,876 | $206,294 | | Liabilities & Equity | | | | Future policy benefits | $39,846 | $36,209 | | Policyholder account balances | $44,919 | $40,054 | | Separate account liabilities | $103,928 | $98,256 | | Total liabilities | $208,116 | $191,811 | | Total equity | $17,760 | $14,483 | Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This subsection presents the company's consolidated statements of operations and comprehensive income (loss) for specified periods Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $3,187 | $1,422 | $6,248 | $4,939 | | Net income (loss) | $685 | $(269) | $334 | $(572) | | Net income (loss) available to common shareholders | $676 | $(271) | $316 | $(577) | | Basic EPS | $6.09 | $(2.26) | $2.77 | $(4.82) | | Diluted EPS | $6.06 | $(2.26) | $2.75 | $(4.82) | Interim Condensed Consolidated Statements of Equity This subsection details changes in the company's total equity for the periods presented - Total equity increased from $14.48 billion at December 31, 2018, to $17.76 billion at September 30, 2019, primarily driven by net income of $330 million and other comprehensive income of $2.85 billion, partially offset by share repurchases of $314 million[10][11] Interim Condensed Consolidated Statements of Cash Flows This subsection outlines the company's cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in millions) | Cash Flow Activity | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,322 | $1,496 | | Net cash used in investing activities | $(5,699) | $(3,469) | | Net cash provided by financing activities | $4,521 | $2,260 | | Change in cash, cash equivalents and restricted cash | $144 | $287 | Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) This subsection provides detailed accounting policies and explanatory information supporting the consolidated financial statements - The company operates through three segments: Annuities, Life, and Run-off, with Corporate & Other capturing unallocated items, and is one of the largest providers of annuity and life insurance products in the U.S[15] - The company is evaluating the impact of ASU 2018-12 regarding long-duration insurance contracts, effective January 1, 2022, which is expected to significantly impact the measurement of liabilities for variable annuity guarantees[21] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including segment performance, investments, and liquidity Financial Performance Summary (in millions) | Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) available to shareholders | $676 | $(271) | $316 | $(577) | | Adjusted earnings (Non-GAAP) | $(169) | $270 | $317 | $706 | - Net income for Q3 2019 was primarily driven by favorable market impacts from declining long-term interest rates on the ULSG hedging program and GMLB riders, partially offset by an unfavorable impact from the annual actuarial review (AAR), which was reflected in the adjusted earnings loss[165] Results of Operations This subsection analyzes the company's operating performance, including segment results and key drivers Impact of Annual Actuarial Review (AAR) on Pre-tax Earnings (in millions) | Business Line | 2019 Impact | 2018 Impact | | :--- | :--- | :--- | | GMLBs (not in adjusted earnings) | $(84) | $(226) | | Other annuity business | $(38) | $195 | | Life business | $24 | $15 | | Run-off | $(545) | $(24) | | Total included in pre-tax adjusted earnings | $(559) | $186 | - Annuity sales increased 28% in the first nine months of 2019 compared to the same period in 2018, driven by higher sales of Shield Annuities, fixed indexed annuities, and fixed annuities[184] Investments This subsection reviews the company's investment portfolio, including fixed maturity securities and mortgage loans Fixed Maturity Securities by Credit Quality (Est. Fair Value, in millions) | NAIC Designation | Rating | Sep 30, 2019 | % of Total | Dec 31, 2018 | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | | 1 & 2 | Investment Grade | $67,743 | 95.8% | $59,706 | 95.4% | | 3 - 6 | Below Investment Grade | $2,980 | 4.2% | $2,902 | 4.6% | | Total | | $70,723 | 100.0% | $62,608 | 100.0% | Mortgage Loan Portfolio (Recorded Investment, in millions) | Type | Sep 30, 2019 | % of Total | Dec 31, 2018 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Commercial | $9,473 | 61.4% | $8,529 | 62.0% | | Agricultural | $3,291 | 21.4% | $2,946 | 21.4% | | Residential | $2,659 | 17.2% | $2,276 | 16.6% | | Total | $15,423 | 100.0% | $13,751 | 100.0% | Derivatives This subsection describes the company's use of derivative instruments to manage various market risks - The company uses a variety of derivative instruments, including interest rate swaps, options, futures, and equity derivatives, to manage risks associated with interest rates, foreign currency, credit, and equity markets, with a significant portion used for macro hedges not qualifying for hedge accounting[250][92] Credit Default Swaps (in millions) | Type | Gross Notional Amount | Estimated Fair Value | | :--- | :--- | :--- | | Written | $1,734 | $31 | | Purchased | $12 | $0 | | Total | $1,746 | $31 | Policyholder Liabilities This subsection details the company's policyholder liabilities, including variable annuity net amount at risk Variable Annuity Net Amount at Risk (NAR) by Guarantee Type (in millions) | Guarantee Type | Account Value (Sep 30, 2019) | Death Benefit NAR (Sep 30, 2019) | Living Benefit NAR (Sep 30, 2019) | | :--- | :--- | :--- | :--- | | GMIB | $40,143 | $2,673 | $4,982 | | GMWB4L | $14,641 | $96 | $607 | | GMDB Only | $17,628 | $997 | N/A | | Total | $101,594 | $7,393 | $5,651 | Liquidity and Capital Resources This subsection discusses the company's liquidity position, capital management, and financing activities - The company targets a debt-to-capital ratio of approximately 25% and maintains a substantial short-term liquidity position, which was $3.1 billion at September 30, 2019, up from $2.2 billion at December 31, 2018[271][272] - On May 3, 2019, the company authorized an additional $400 million for its common stock repurchase program, and during the nine months ended September 30, 2019, it repurchased $314 million of its common stock[274][288] - In Q1 2019, the company issued $412 million in net proceeds of Series A Preferred Stock and entered into a new $1.0 billion unsecured term loan facility, using part of the proceeds to repay a $600 million term loan[281][283] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, including interest rate, equity, credit, and foreign currency, noting increased interest rate sensitivity - The company's sensitivity to a 100 basis point rise in interest rates increased by $2.5 billion (43%), from $5.8 billion at year-end 2018 to $8.3 billion as of September 30, 2019[314] Item 4. Controls and Procedures Management concluded that disclosure controls were effective, while ongoing changes from the MetLife separation represent material changes to internal controls over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[315] - The company continues to implement changes to business processes and systems following its separation from MetLife, which are considered material changes in its internal control over financial reporting[316] Part II — Other Information This section provides disclosures on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section states that there have been no new material legal proceedings or material developments in previously disclosed legal proceedings since the 2018 Annual Report - There have been no new material legal proceedings and no material developments in previously disclosed legal proceedings[319] Item 1A. Risk Factors This section confirms that there have been no material changes to the company's risk factors from those previously disclosed in the 2018 Annual Report and subsequent quarterly filings - There have been no material changes to the company's risk factors from those previously disclosed[320] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during Q3 2019, including shares purchased, average price, and remaining authorization Issuer Purchases of Equity Securities (Q3 2019) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining under Program (in millions) | | :--- | :--- | :--- | :--- | | July 2019 | 1,159,220 | $37.42 | $264 | | August 2019 | 1,195,757 | $35.30 | $221 | | September 2019 | 1,047,072 | $38.52 | $181 | | Total Q3 | 3,402,049 | N/A | $181 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various agreements and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act