Brighthouse Financial, Inc. Q2 FY2024 earnings call

Key Points - Second quarter had positive developments like record Shield Annuities sales, first deposits via BlackRock's LifePath Paycheck, and strong adjusted earnings. - Statutory combined RBC ratio was between 380% - 400%, below target range, but capital and liquidity remain strong. - Corporate expenses in second quarter were $200 million, year-to-date through June 30 was $407 million, 6% lower than same period 2023, expecting full-year 2024 expenses lower than 2023. - Annuity sales year-to-date through June 30 were $5.3 billion, consistent with 2023; Shield annuities had record sales in second quarter, year-to-date over $3.9 billion, up 23% from 2023; FIA sales $351 million, up 60% driven by SecureKey. Life insurance sales in second quarter $28 million, year-to-date $57 million, up 19% from 2023. - Launched newest Shield product and enhancements to SmartCare; received first deposits over $340 million through BlackRock's LifePath Paycheck. - Repurchased $151 million of common stock year-to-date, with $64 million in second quarter. - Actively engaged in initiatives like reinsurance to improve capital efficiency and restore RBC ratio to target range within 6 - 12 months.

In the second quarter, the Annuities segment reported adjusted earnings of $332 million. The Life segment had adjusted earnings of $42 million. The runoff segment had an adjusted loss of $30 million. Corporate & Other reported adjusted earnings of $2 million. Annuity results reflect a higher underwriting margin for income annuities, higher fees, and lower expenses sequentially. The Life segment's results reflect higher net investment income partially offset by a lower underwriting margin. The runoff segment's adjusted loss has a higher underwriting margin sequentially. Corporate & Other's adjusted earnings reflect higher net investment income and a higher tax benefit sequentially.

Guidance - Expect to restore RBC ratio to target range of 400% - 450% within next 6 - 12 months through reinsurance and other initiatives. - Anticipate full-year 2024 corporate expenses to be lower than 2023. - BlackRock's LifePath Paycheck inflows expected to be uneven, with little activity in third quarter and more in fourth quarter. - Continue share repurchase program as strong capital and liquidity position supports it.

Risks - Statutory results affected by basis risk, underperformance of equity hedges, and capital strain from new Shield business. - Market volatility could impact future results. - Uncertainty in execution of reinsurance and other initiatives to improve capital efficiency and RBC ratio.

Q: Wes Carmichael asked about basis risk and if it would be an ongoing drag.

A: Ed Spehar said basis risk is volatile quarter-to-quarter but no reason to expect it to be a long-term drag, and they never gave quarterly guidance on norm stat earnings.

Q: Tom Gallagher asked about time to execute reinsurance contracts and pro forma free cash flow.

A: Ed Spehar said expect to be back in target range by year-end; Tom asked about free cash flow and Ed said they plan to update long-term statutory free cash flows in first half of next year and historical average was just under $400 million a year.

Q: Elyse Greenspan asked about downstreaming capital and buyback program.

A: Ed Spehar said capital return plan not dependent on cash from operating company, and they'll see how second half plays out; Eric Steigerwalt added they're slightly below target range but have $1.2 billion at holding company and no debt until 2027.

Q: Suneet Kamath asked about RBC surprise, market volatility impact, and capital consumption.

A: Ed Spehar said 70% of norm stat loss was unanticipated, and they've been more conservative on equity market; Eric Steigerwalt added they're working on initiatives.

Q: Wilma Burdis asked about BlackRock flows trajectory and buyback pace.

A: Eric Steigerwalt said little activity in third quarter, more in fourth; Ed Spehar said they've been opportunistic with buybacks.

Q: Ryan Krueger asked about internal reinsurance and holding company liquidity.

A: Ed Spehar said they have a reinsurance captive and consider different options, and holding company has strong liquidity with $1.2 billion and no debt until 2027.

Q: John Barnidge asked about exposure to floaters and external partnerships.

A: John Rosenthal said floating rate assets' impact on net margin from rate decline is minor; Eric Steigerwalt said they'll consider external partnerships but have no specific plans for LifePath Paycheck.