BRIGHTHOUSE FIN(US:BHFAM)2025-05-09 20:11Part I Consolidated Financial Statements The consolidated financial statements present Brighthouse Financial's financial position and performance, showing a net loss of $266 million in Q1 2025, an improvement from $491 million in Q1 2024, with total assets at $234.7 billion Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Investments | $117,257 | $117,387 | | Total Assets | $234,681 | $238,537 | | Total Liabilities | $229,377 | $233,513 | | Total Equity | $5,304 | $5,024 | Consolidated Statements of Operations Highlights (in millions) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total Revenues | $2,390 | $74 | | Total Expenses | $2,744 | $688 | | Income (loss) before income tax | $(354) | $(614) | | Net income (loss) | $(266) | $(491) | | Net income (loss) available to common shareholders | $(294) | $(519) | | Basic EPS | $(5.04) | $(8.22) | Consolidated Statements of Cash Flows Highlights (in millions) | Cash Flow Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $146 | $(530) | | Net cash provided by (used in) investing activities | $563 | $(625) | | Net cash provided by (used in) financing activities | $(1,087) | $1,127 | | Change in cash, cash equivalents and restricted cash | $(378) | $(28) | Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies Brighthouse Financial operates through four segments, with Q1 2025 seeing a key accounting policy update for a new fixed income trading portfolio where gains and losses are now reported in net investment income - The company is organized into four reportable segments: Annuities, Life, Run-off, and Corporate & Other22 - In Q1 2025, the company established a trading portfolio of fixed maturity securities. Realized and unrealized gains/losses on these securities are now reported in net investment income2728 Note 2 — Segment Information Segment performance is evaluated using adjusted earnings, which improved to $235 million in Q1 2025 from a $98 million loss in Q1 2024, with the Annuities segment contributing most to earnings and holding $160.7 billion in assets Adjusted Earnings (Loss) by Segment (in millions) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Annuities | $314 | $313 | | Life | $9 | $(36) | | Run-off | $(64) | $(341) | | Corporate & Other | $(24) | $(34) | | Total | $235 | $(98) | Total Assets by Segment (in millions) | Segment | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Annuities | $160,690 | $163,830 | | Life | $26,147 | $26,261 | | Run-off | $25,034 | $24,873 | | Corporate & Other | $22,810 | $23,573 | | Total | $234,681 | $238,537 | Note 3 — Insurance Liabilities This note details insurance liabilities, with future policy benefits totaling $12.4 billion, policyholder account balances at $85.6 billion, and universal life-type contracts with secondary guarantees showing a net liability of $7.6 billion Net Liability for Future Policy Benefits (in millions) | Product Type | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Term and Whole Life Insurance | $2,497 | $2,408 | | Income Annuities | $3,779 | $3,687 | | Structured Settlement and Pension Risk Transfer | $6,050 | $6,375 | Policyholder Account Balances (in millions) | Product Type | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Universal Life Insurance | $2,597 | $2,561 | | Variable Annuities | $3,730 | $4,170 | | Index-linked Annuities | $47,896 | $44,350 | | Fixed Rate Annuities | $14,516 | $14,923 | | ULSG | $4,710 | $4,984 | | Company-Owned Life Insurance | $673 | $856 | | Total in Rollforward | $74,122 | $71,844 | Note 4 — Market Risk Benefits Market Risk Benefits, primarily from variable annuities, had a net balance of $8.22 billion at Q1 2025, with changes driven by interest rates, fund returns, and nonperformance risk Market Risk Benefits Rollforward (in millions) | Description | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Balance, beginning of period | $7,233 | $9,701 | | Effect of changes in interest rates | $676 | $(988) | | Effect of changes in fund returns | $87 | $(630) | | Balance, end of period, net of reinsurance | $8,221 | $8,117 | Note 5 — Separate Accounts Separate account liabilities decreased to $82.5 billion at March 31, 2025, primarily due to investment performance and net withdrawals, with variable annuities being the largest component and a net amount at risk of $13.3 billion Separate Account Liabilities by Product (in millions) | Product | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Variable Annuities | $73,889 | $81,792 | | Universal Life Insurance | $6,125 | $6,259 | | Company Owned Life Insurance | $2,249 | $2,054 | | Total in Rollforward | $82,263 | $90,105 | Note 6 — Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles The total DAC and VOBA balance was $4.67 billion at March 31, 2025, with variable annuities comprising $2.34 billion, and Q1 2025 amortization at $148 million Total DAC and VOBA by Product (in millions) | Product | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Variable Annuities | $2,344 | $2,554 | | Fixed Rate Annuities | $170 | $171 | | Index-linked Annuities | $1,492 | $1,363 | | Term and Whole Life Insurance | $302 | $347 | | Universal Life Insurance | $364 | $394 | | Total DAC and VOBA | $4,672 | $4,829 | Note 7 — Investments The investment portfolio totaled $117.3 billion at March 31, 2025, with fixed maturity securities at $80.6 billion and net investment income for Q1 2025 at $1.3 billion, up from $1.25 billion Fixed Maturity Securities by Sector (Fair Value, in millions) | Sector | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | U.S. corporate | $37,543 | $37,123 | | Foreign corporate | $11,629 | $11,830 | | Residential mortgage-backed | $7,588 | $7,287 | | U.S. government and agency | $6,831 | $6,747 | | Commercial mortgage-backed | $6,417 | $6,356 | | Total Fixed Maturity Securities | $80,640 | $80,055 | Mortgage Loans by Portfolio Segment (Carrying Value, in millions) | Segment | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial | $13,134 | $13,330 | | Agricultural | $4,543 | $4,591 | | Residential | $5,583 | $5,543 | | Total Mortgage Loans (Gross) | $23,260 | $23,464 | Net Investment Income Components (in millions) | Source | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Fixed maturity securities | $924 | $919 | | Mortgage loans | $257 | $245 | | Limited partnerships and LLCs | $71 | $74 | | Total Net Investment Income | $1,297 | $1,254 | Note 8 — Derivatives The company uses derivatives to manage market risks, with a total gross notional amount of $271.4 billion at March 31, 2025, primarily for economic hedging and not designated as accounting hedges Derivatives by Primary Risk Exposure (Notional Amount, in millions) | Risk Exposure | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Interest rate | $93,169 | $116,736 | | Foreign currency exchange rate | $4,849 | $4,894 | | Credit | $780 | $780 | | Equity market | $164,081 | $146,514 | | Total | $262,879 | $268,924 | - A substantial portion of the company's derivatives were not designated or did not qualify as part of a formal hedging relationship for accounting purposes152 Note 9 — Fair Value Total assets measured at fair value on a recurring basis were $170.3 billion at March 31, 2025, with $164.3 billion in Level 2 and $2.0 billion in Level 3, while Level 3 liabilities included $9.2 billion in Market Risk Benefits and $10.0 billion in embedded derivatives Assets and Liabilities Measured at Fair Value (Recurring, in millions) - March 31, 2025 | Category | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Assets | | | | | | Fixed maturity securities | $2,702 | $76,910 | $1,028 | $80,640 | | Derivative assets | $1 | $4,147 | $9 | $4,157 | | Market risk benefit assets | $— | $— | $914 | $914 | | Separate account assets | $3 | $82,521 | $— | $82,524 | | Total Assets | $4,023 | $164,252 | $2,005 | $170,280 | | Liabilities | | | | | | Market risk benefit liabilities | $— | $— | $9,165 | $9,165 | | Derivative liabilities | $— | $5,287 | $— | $5,287 | | Embedded derivatives on index-linked annuities | $— | $— | $9,963 | $9,963 | | Total Liabilities | $— | $5,287 | $19,128 | $24,415 | Note 10 — Equity The company's equity includes $1.75 billion in preferred stock, and in Q1 2025, 1.06 million common shares were repurchased for $59 million, with $484 million remaining under the repurchase authorization - During Q1 2025, BHF repurchased 1,062,596 shares of its common stock for $59 million224 - At March 31, 2025, $484 million remained available under the company's common stock repurchase program224 - Quarterly dividends declared on preferred stock totaled $26 million for both Q1 2025 and Q1 2024223 Note 11 — Other Revenues and Other Expenses Other revenues for Q1 2025 were $136 million, primarily from $65 million in 12b-1 fees, while total other expenses were $493 million, driven by volume-related costs, compensation, and separate account fees - 12b-1 fees, included in other revenues, were $65 million for Q1 2025, compared to $67 million for Q1 2024233 Other Expenses Breakdown (in millions) | Expense Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Compensation | $130 | $111 | | Contracted services and other labor costs | $72 | $63 | | Separate account fees | $83 | $92 | | Volume related costs, net of DAC | $132 | $147 | | Interest expense on debt | $38 | $38 | | Total other expenses | $493 | $507 | Note 12 — Earnings Per Common Share Brighthouse Financial reported a basic and diluted loss per common share of $5.04 for Q1 2025, an improvement from $8.22 in Q1 2024, based on a net loss of $294 million and 58.3 million weighted average shares Earnings Per Common Share Calculation | Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net loss available to common shareholders (millions) | $(294) | $(519) | | Weighted average common shares outstanding (millions) | 58.3 | 63.0 | | Basic and Diluted EPS | $(5.04) | $(8.22) | Note 13 — Contingencies, Commitments and Guarantees The company faces litigation with possible losses up to $10 million and tax-related contingencies up to $100 million, alongside $1.8 billion in commitments to lend funds and fund partnerships - The company estimates the aggregate range of reasonably possible losses for certain litigation matters to be up to approximately $10 million as of March 31, 2025243 - For certain tax matters, the company estimates the range of reasonably possible losses in excess of accrued amounts to be from zero up to approximately $100 million254 - Commitments to fund partnership investments, bank credit facilities, and private corporate bond investments totaled $1.6 billion, and mortgage loan commitments were $249 million at March 31, 2025256257 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a Q1 2025 net loss of $294 million but positive adjusted earnings of $235 million, detailing operational results, investment performance, derivative strategies, policyholder liabilities, and the company's strong liquidity and capital position Executive Summary Brighthouse Financial reported a Q1 2025 net loss of $294 million, an improvement from $519 million in Q1 2024, while generating positive adjusted earnings of $235 million, a significant turnaround from a $98 million adjusted loss Q1 2025 vs Q1 2024 Performance (in millions) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) available to shareholders | $(294) | $(519) | | Adjusted earnings (loss) | $235 | $(98) | Industry Trends and Uncertainties The company's performance is significantly influenced by capital markets, interest rates, and economic conditions, with ongoing monitoring of inflation, geopolitical conflicts, and commercial real estate market stress - The business is materially affected by equity market performance, interest rates, and the general health of the U.S. economy272 - The Federal Reserve's rate decreases in late 2024 may negatively impact the investment portfolio by lowering long-term interest rates272 - The company continues to monitor risks from global inflation, geopolitical conflicts, and instability in asset classes like commercial real estate276 Non-GAAP Financial Disclosures This section defines 'Adjusted Earnings' as a non-GAAP measure, excluding market volatility impacts like net investment gains/losses and changes in Market Risk Benefits, to highlight core business profitability - Adjusted earnings excludes the impact of market volatility to focus on the primary business drivers284 - Items excluded from adjusted earnings include: Net investment gains/losses, most net derivative gains/losses, and changes in market risk benefits285 Results of Operations Net loss available to shareholders improved to $294 million in Q1 2025 from $519 million in Q1 2024, driven by increased pre-tax adjusted earnings of $287 million and favorable derivative movements, with segment performance showing Annuities at $314 million and Run-off loss narrowing to $64 million Reconciliation of Net Income (Loss) to Adjusted Earnings (Loss) (in millions) | Description | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) available to shareholders | $(294) | $(519) | | Add: Provision for income tax expense (benefit) | (88) | (123) | | Less: Net investment gains (losses) | (83) | (42) | | Less: Net derivative gains (losses), excluding investment hedge adjustments | 311 | (1,934) | | Less: Change in market risk benefits | (893) | 1,440 | | Less: Other adjustments | (4) | 4 | | Pre-tax adjusted earnings (loss), adjusted | 287 | (110) | | Less: Provision for income tax expense (benefit) | 52 | (12) | | Adjusted earnings (loss) | $235 | $(98) | - The improvement in results was driven by higher pre-tax adjusted earnings and favorable impacts from interest rate derivatives hedging the ULSG business295 - The Run-off segment's adjusted loss narrowed significantly to $64 million from $341 million, primarily due to lower insurance-related costs following a reinsurance arbitration conclusion in the prior period311312 Investments The investment portfolio's adjusted net investment income yield remained stable at 4.25%, with the $80.6 billion fixed maturity securities portfolio being 97.3% investment grade, and the $13.1 billion commercial mortgage loan portfolio diversified across property types Adjusted Net Investment Income and Yield | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Adjusted Net Investment Income (millions) | $1,291 | $1,267 | | Yield % | 4.25% | 4.25% | - At March 31, 2025, 97.3% of the fixed maturity securities portfolio was rated investment grade (NAIC 1 or 2), consistent with year-end 2024337 - The commercial mortgage loan portfolio's largest property type exposures are Apartment (38.3%) and Office (22.9%) as of March 31, 2025350 Derivatives Brighthouse uses various derivative instruments to manage interest rate, foreign currency, credit, and equity market risks, primarily for economic hedging of insurance liabilities and market risk benefits, with counterparty risk managed through netting and collateral arrangements - The company uses derivatives to manage interest rate, foreign currency exchange rate, credit, and equity market risks358 - The company writes credit default swaps in replication transactions to synthetically create corporate bond exposures, which is an important tool for managing overall corporate credit risk and ALM needs365 Policyholder Liabilities This section details major policyholder liabilities, including future policy benefits, policyholder account balances, and Market Risk Benefits (MRBs), with the Net Amount at Risk for living benefits at $5.8 billion as of March 31, 2025 Variable Annuity Net Amount at Risk (NAR) by Benefit Type (in millions) | Benefit Type | Account Value | Death Benefit NAR | Living Benefit NAR | | :--- | :--- | :--- | :--- | | GMIB | $29,023 | $3,857 | $4,267 | | GMWB | $18,379 | $320 | $319 | | GMAB | $255 | $1 | $1 | | Total (Selected) | $47,657 | $4,178 | $4,587 | Variable Annuity MRB Liabilities by Benefit Type (in millions) | Benefit Type | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | GMIB | $8,322 | $7,560 | | GMWB | $13 | $7 | | GMDB | $800 | $740 | | Total | $9,135 | $8,307 | Liquidity and Capital Resources Brighthouse maintains a strong liquidity position with $4.7 billion in short-term liquidity and $48.0 billion in total liquid assets, targeting a combined RBC ratio of 400% to 450%, and utilized capital for $59 million in share repurchases and $26 million in preferred stock dividends in Q1 2025 - The company maintained a short-term liquidity position of $4.7 billion and total liquid assets of $48.0 billion at March 31, 2025383384 - The parent company, BHF, held short-term liquidity of $872 million at March 31, 2025423 - The company targets a combined risk-based capital (RBC) ratio of 400% to 450% in normal market conditions389 - In Q1 2025, the company used $59 million to repurchase common stock and paid $26 million in preferred stock dividends392 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, equity prices, credit spreads, and foreign currency, with no material changes to these exposures from the 2024 Annual Report - There have been no material changes to the company's market risk exposures from those previously disclosed in the 2024 Annual Report437 Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2025, noting ongoing changes related to the MetLife transition as material to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2025439 - Ongoing changes related to the separation from MetLife, including process changes and new systems, are considered material changes to internal control over financial reporting440 Part II — Other Information Legal Proceedings This section refers to Note 13 for details on legal proceedings, including class actions and a data security incident, with estimated possible losses up to $10 million for certain matters - For detailed information on legal proceedings, refer to Note 13 of the Notes to the Interim Condensed Consolidated Financial Statements442 Risk Factors There have been no material changes to the company's risk factors from those disclosed in its 2024 Annual Report - There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report443 Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, Brighthouse Financial repurchased 1,062,596 common shares, with approximately $484 million remaining under the stock repurchase authorization as of March 31, 2025 Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2025 | 374,009 | $50.56 | | Feb 2025 | 317,600 | $60.10 | | Mar 2025 | 370,987 | $56.52 | | Total | 1,062,596 | - | - As of March 31, 2025, approximately $484 million remained available for repurchase under the company's stock buyback program444 Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during Q1 2025445 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits filed include CEO/CFO certifications and XBRL data files447