BRIGHTHOUSE FIN(BHFAM) - 2024 Q2 - Quarterly Report

Part I — Financial Information This section presents the company's consolidated financial statements and management's analysis of its financial condition and operations Item 1. Consolidated Financial Statements This section presents Brighthouse Financial, Inc.'s unaudited interim consolidated financial statements and explanatory notes Interim Condensed Consolidated Balance Sheets Consolidated Balance Sheet Summary (in millions) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $237,438 | $236,340 | | Total Investments | $115,299 | $115,456 | | Separate Account Assets | $88,260 | $88,271 | | Total Liabilities | $233,232 | $231,332 | | Policyholder Account Balances | $85,865 | $81,068 | | Separate Account Liabilities | $88,260 | $88,271 | | Total Equity | $4,206 | $5,008 | - Total assets increased slightly to $237.4 billion as of June 30, 2024, from $236.3 billion at year-end 2023. However, total equity decreased significantly to $4.2 billion from $5.0 billion, primarily due to a retained deficit increase and treasury stock purchases[8] Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Consolidated Statements of Operations Summary (in millions, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,427 | $263 | $1,501 | $1,547 | | Total Expenses | $1,413 | $500 | $2,101 | $2,437 | | Net Income (Loss) | $34 | $(175) | $(457) | $(672) | | Net Income (Loss) Available to Common Shareholders | $9 | $(200) | $(510) | $(725) | | Diluted EPS | $0.12 | $(3.01) | $(8.17) | $(10.77) | - The company reported net income available to common shareholders of $9 million for Q2 2024, a significant improvement from a net loss of $200 million in Q2 2023. The improvement was largely driven by lower net derivative losses and a positive change in market risk benefits[11] Interim Condensed Consolidated Statements of Equity - Total equity decreased from $5,008 million at December 31, 2023, to $4,206 million at June 30, 2024. The decrease was primarily driven by a net loss of $459 million and treasury stock repurchases totaling $126 million during the six-month period[15] Interim Condensed Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Summary (in millions) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(196) | $(628) | | Net cash provided by (used in) investing activities | $(1,707) | $(1,659) | | Net cash provided by (used in) financing activities | $2,493 | $1,909 | | Change in cash, cash equivalents and restricted cash | $590 | $(378) | - For the first six months of 2024, the company saw a net increase in cash of $590 million, a reversal from a $378 million decrease in the same period of 2023. This was driven by strong net cash from financing activities, which included $20.6 billion in policyholder deposits, offsetting cash used in operating and investing activities[17] Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) - Brighthouse Financial is a major U.S. provider of annuity and life insurance products, organized into three segments: Annuities, Life, and Run-off, in addition to a Corporate & Other category[21] - The company's financial statements are prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that can affect reported amounts[22] 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 Executive Summary Financial Highlights (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) Available to Shareholders | $9 | $(200) | $(510) | $(725) | | Adjusted Earnings (Loss) | $346 | $271 | $248 | $466 | - For Q2 2024, the company reported net income of $9 million and adjusted earnings of $346 million. The net income for the quarter was primarily driven by favorable pre-tax adjusted earnings, which was partially offset by unfavorable market impacts on variable annuity guarantees and derivatives[264] Industry Trends and Uncertainties - The company's business is materially affected by capital markets and economic conditions, including equity market performance, interest rates, and inflation. The Federal Reserve's interest rate policy has contributed to unrealized losses in the investment portfolio[269][270] - Regulatory developments, particularly the Department of Labor's (DOL) Fiduciary Advice Rule issued in April 2024, are being monitored. The implementation of this rule has been stayed by federal court decisions in July 2024, but these rulings are subject to appeal[273][274] Results of Operations Adjusted Earnings by Segment (in millions) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Annuities | $332 | $291 | $645 | $605 | | Life | $42 | $15 | $6 | $16 | | Run-off | $(30) | $(16) | $(371) | $(122) | | Corporate & Other | $2 | $(19) | $(32) | $(33) | | Total Adjusted Earnings | $346 | $271 | $248 | $466 | - Consolidated adjusted earnings increased by $75 million in Q2 2024 compared to Q2 2023, driven by higher net investment spread and lower other expenses. For the first six months of 2024, adjusted earnings decreased by $218 million, primarily due to higher costs in the Run-off segment related to a reinsurance arbitration[296][298] Investments - The company manages investment risk through diversification by asset type, industry, and issuer. The investment portfolio is primarily managed by external asset managers[328][329] Fixed Maturity Securities Credit Quality (by NAIC Designation, Estimated Fair Value) | NAIC Designation | June 30, 2024 | % of Total | December 31, 2023 | % of Total | | :--- | :--- | :--- | :--- | :--- | | 1 (Highest Quality) | $53,131M | 65.9% | $53,353M | 65.8% | | 2 (High Quality) | $25,179M | 31.2% | $25,236M | 31.2% | | Subtotal Investment Grade | $78,310M | 97.1% | $78,589M | 97.0% | | Below Investment Grade | $2,271M | 2.9% | $2,402M | 3.0% | - The commercial mortgage loan portfolio, totaling $13.1 billion, is diversified by property type, with Apartment (40.0%) and Office (23.6%) being the largest exposures[360] Derivatives - The company uses a variety of derivative instruments to manage interest rate, foreign currency, credit, and equity market risks. At June 30, 2024, the total gross notional amount of derivatives was $197.7 billion[368][143] - The company writes credit default swaps as part of replication transactions to synthetically create corporate bond exposures, which helps in managing overall corporate credit risk and matching long-dated insurance liabilities[375] Policyholder Liabilities Variable Annuity Net Amount at Risk (NAR) by Benefit Type (in millions) | Benefit Type | Account Value (June 30, 2024) | Death Benefit NAR (June 30, 2024) | Living Benefit NAR (June 30, 2024) | | :--- | :--- | :--- | :--- | | GMIB | $31,522 | $3,727 | $3,718 | | GMWB | $19,749 | $314 | $234 | | GMDB only | $17,172 | $973 | N/A | | Total (All Types) | $83,566 | $12,642 | $4,703 | - Variable annuity guaranteed benefits are classified as Market Risk Benefits (MRBs) and measured at fair value. The total liability for these benefits was $8.7 billion as of June 30, 2024, down from $10.3 billion at year-end 2023[389] Liquidity and Capital Resources - The company maintains a substantial short-term liquidity position of $4.3 billion and total liquid assets of $48.5 billion as of June 30, 2024[396][397] - The parent holding company, BHF, is largely dependent on cash flows from its insurance subsidiaries. BHF held $1.2 billion in short-term liquidity and liquid assets as of June 30, 2024[436][437][438] - During the first six months of 2024, the company repurchased $126 million of its common stock. As of June 30, 2024, $667 million remained under the common stock repurchase authorization[216][404] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to market risks, including changes in interest rates, equity market prices, credit spreads, and foreign currency exchange rates - The company has determined that there have been no material changes to its market risk exposures from those previously disclosed in its 2023 Annual Report on Form 10-K[451] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2024 - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[453] - The company identified ongoing changes in business processes, system implementations, and new third-party arrangements related to transitional services from MetLife as material changes in its internal control over financial reporting[454] Part II — Other Information This section covers legal proceedings, risk factors, equity sales, and other key disclosures Item 1. Legal Proceedings This section refers to Note 13 of the financial statements for details on legal proceedings - For information regarding legal proceedings, the report refers to Note 13 of the Notes to the Interim Condensed Consolidated Financial Statements[456] Item 1A. Risk Factors The company states that there have been no material changes to its risk factors from those disclosed in its 2023 Annual Report on Form 10-K - There have been no material changes to the company's risk factors from those previously disclosed in the 2023 Annual Report[457] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during the second quarter of 2024 Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining for Purchase (End of Period) | | :--- | :--- | :--- | :--- | | April 2024 | 444,121 | $49.51 | $709M | | May 2024 | 515,699 | $46.08 | $686M | | June 2024 | 426,910 | $42.76 | $667M | | Total Q2 | 1,386,730 | N/A | $667M | Item 5. Other Information This section reports on director and officer trading plans - During the three months ended June 30, 2024, none of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[459] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and Inline XBRL documents[461]