Q1 2022 Brighthouse Financial Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Brighthouse financial first quarter 2022 earnings Conference call. My name is Kevin and I'll be your coordinator today at this time all participants are in a listen only mode.
So, let's say the question and answer session towards the end of the conference call in fairness to all participants please limit yourself to one question and one follow up.
As a reminder, this conference is being recorded for replay purposes also we ask that you retain from using cell phones speaker phones or headsets. During the question and answer portion of today's call I would now like to turn the call over to Dana <unk> head of Investor Relations. Sir you May proceed.
Thank you good morning, and thank you for joining Brighthouse Financial's first quarter 2022 earnings call materials for today's call were released last night and can be found on the Investor Relations section of our website.
We encourage you to review all of these materials.
Today, you will hear from Eric Steigerwalt, our President and Chief Executive Officer, and M. Bihar, Our Chief Financial Officer.
Following our prepared comments, we will open the call for a question and answer period.
Also here with us today to participate in the discussion are other members of senior management.
Before we begin I would like to note that our discussion. During this call may include forward looking statements within the meaning of the federal Securities laws.
Brighthouse Financial's actual results may differ materially from the results anticipated in the forward looking statements as a result of risks and uncertainties described from time to time in Brighthouse Financial's filings within the U S Securities and Exchange Commission.
Information discussed on today's call speaks only as of today May 10 2022.
The company undertakes no obligation to update any information discussed on today's call.
During this call we will be discussing certain financial measures that are not based on generally account accepted accounting principles also known as non-GAAP measures.
Reconciliation of these non-GAAP measures on a historical basis to the most directly comparable GAAP measures unrelated definition may be found on the Investor relations portion of our website in our earnings presentation slide presentation and financial supplement.
And finally references to statutory results, including certain statutory based measure used by management are preliminary due to the timing of the filing of the statutory feet.
And now I'll turn the call over to our CEO Eric Steigerwalt.
Thank you Dana good morning, everyone and thank you for joining the call today, we all know that much has happened in the world. Since we last spoke with you in February and that our operating environment continues to rapidly evolves. We have seen the emergence of geopolitical and market headwinds that had an impact on our sales performance in the quarter.
That said, we are pleased that interest rates have increased meaningfully and remind you that brighthouse financial entered 2022 from a position of strength our balance sheet and liquidity are strong our investment portfolio remains high quality and well diversified and we continue.
You to believe that we are well positioned to weather challenging environments.
Brighthouse financial delivered solid results in the first quarter of 2022 key highlights for the quarter are summarized on slide three of our earnings presentation.
First our balance sheet and liquidity position remained robust in the first quarter and our hedging program performed well importantly, we estimate that our combined risk based capital or RBC ratio was between 450 and 470% above our target of 400 to four.
<unk> 50 in normal markets. Additionally, we continue to have significant holding company liquid assets, which totaled $1 $4 billion at the end of the first quarter as we've said before one of our top priorities is to further drive the evolution of our business mix by adding her.
High quality new business in the first quarter of 2020 to annuity sales were approximately $2 1 billion down 3% compared with the first quarter of 2021, driven by total variable annuity or VA and shield sales while V. A N shield sales were low.
Sure for Brighthouse in the quarter, which is consistent with the preliminary industry sales results for VA and registered index linked annuities, we believe the value proposition our annuity products provide in volatile markets remained strong and we still currently expect to see overall annuity sales growth.
This year.
As reflected in the distributable earnings update that we issued on March 29 of this year, we have seen a substantial shift in our annuity enforced book since the launch of the Brighthouse brand in 2016, we expect our business mix to continue to evolve as we add more higher cash flow Gen.
Writing and less capital intensive business, coupled with the run off of older less profitable business. Additionally, in the first quarter, we generated approximately $20 million of life insurance sales down 13% compared with the first quarter of 2021.
While the current climate may create some challenges to near term growth in life insurance sales for Brighthouse and for the industry. We remain very pleased with our progress as we continue to execute our focused life insurance strategy and remain confident in our strategy to broaden our product offerings and expand our distribution.
Footprint now.
Now turning to expenses corporate expenses, which do not include establishment costs were $208 million before tax in the first quarter establishment costs were approximately $15 million before tax in the quarter. We continue to prudently manage our exit from the remaining transition serve.
This agreements as we implement our future state operations and technology platform as I have said before we expect our remaining establishment costs to be incurred this year.
Lastly, we continued to deliver on our ongoing commitment to return capital to our shareholders in the first quarter of 2022, we repurchased approximately $127 million of our common stock and since the end of the quarter through may 5th we repurchased an additional 50.
$3 million of our common stock since the announcement of our first stock repurchase authorization in August of 2018 through May 5th of this year, our repurchases have reduced the number of outstanding shares of our common stock relative to when we became an independent public company.
By more than 37%.
To wrap up we delivered solid results in the first quarter of 2022, our balance sheet and liquidity positions remain strong we continue to make additional progress towards shifting our business mix profile and we feel good about the value our products provide in volatile markets we remain.
Well positioned to continue to execute our strategy and with that I'll turn the call over to Ed to discuss the financial results Ed.
Thank you, Eric and good morning, everyone.
After the market close yesterday.
Brighthouse financial reported results for the first quarter of 2022.
Before getting into those results I would like to take a moment to discuss the projected distributable earnings scenarios, we issued on March 29th.
That Eric mentioned earlier.
There are a few key messages to take away from those projections.
First.
We continue to expect a significant level of projected total company distributable earnings.
Even in a market scenario, assuming a low separate account return and a low interest rate environment.
And we expect less volatile cash flows as we look out over the long term.
As Eric mentioned earlier, we have seen a substantial shift in our annuity enforce book since 2016.
And we expect our business mix to continue to evolve with the outflow of older capital intensive business.
And the addition of higher cash flow generating and less capital intensive business.
We expect this continued mix shift to benefit distributable earnings over time.
As distributable earnings are projected to become less market sensitive and more predictable.
Second the variable annuity and shield distributable earnings in the three and five year views are better in most scenarios than what we published a year ago.
This illustrates the positive go forward impact of the strong market returns and higher interest rates in 2021.
Importantly in the equity and rate shock scenario based on current projections, we would expect to be in a stronger capital position relative to what was reflected in the projections published last year.
Lastly, the positive equity market performance and higher interest rates in 2021 resulted in materially better distributable earnings over the same five year period than projected in the scenarios. We published in March of 2021.
Now moving to the first quarter results.
Brighthouse financial reported solid results for the first quarter of 2022 despite the decline in the equity markets.
Starting with preliminary statutory results.
Statutory combined total adjusted capital or Tac was approximately $8 $5 billion at March 31.
Compared with $9.4 billion at December 31.
There are a few non trend double items that drove approximately 60% of the sequential decline in Tac.
First the prescribed 20 year Treasury yield mean reversion point for statutory calculations was reduced from 3.25% to 3%.
Resulting in a 250 million to $300 million unfavorable impact in the quarter.
The impact in the first quarter reflects the full year effect of this change.
Second the first quarter included a reduction in admitted deferred tax assets or D. T A's.
It is important to note that the admissibility of D T as under statutory accounting is very conservative.
And reflects only the amount of DTA is projected to be used in the next three years.
The admitted DTA on our statutory balance sheet are only a fraction of our total tax attributes.
Which we still anticipate using over the long term.
Third we had adverse mortality in the first quarter, which was only partially offset by favorable alternative investment returns.
The other driver of the sequential decline in TAC was an increase in variable annuity or VA reserves as a result of the decline in equity markets.
Which was only partially offset by the beneficial impact from higher interest rates hedge gains and lower reserves for our shield annuities.
As I have discussed in the past when adverse market events occur like the equity market decline in the first quarter.
More of the total asset requirement necessary to support V a risk shifts to reserves.
Which reduces Tac.
However, there is a substantial offset in required capital, which mutes the impact from market movements on the risk based capital or RBC ratio.
At March 30, <unk>, our estimated combined RBC ratio was 450% to 470%.
This compares with the combined RBC ratio of 500% at year end 2021.
The change in the RBC ratio was driven by the decline in the statutory mean reversion point there.
The reduction in the admitted DTA.
And adverse mortality as discussed a moment ago.
Additionally, the first quarter RBC ratio reflects capital requirements associated with growth in the business.
Which was more than offset.
By strong core <unk> results.
We had a normalized statutory loss of approximately $200 million in the quarter.
Strong core V. A results were more than offset by the 250 million to $300 million negative impact from the statutory interest rate change and adverse mortality.
Lastly, holding company cash remained robust in the quarter with liquid assets of $1.4 billion as of March 31.
Turning to adjusted earnings results.
First quarter adjusted earnings excluding the impact from notable items were $315 million, which compares with adjusted earnings on the same basis of $416 million in the fourth quarter of 'twenty, 'twenty, one and $428 million in the first quarter of 2021.
There were two unfavorable notable items, which totaled $21 million.
The notable items on an after tax basis water establishment costs of $12 million included in corporate and other.
And a $9 million unfavorable notable item in the life segment related to a system migration associated with the company's transition to its future state platform.
Adjusted earnings results were ahead of expectations, primarily driven by strong net investment income offset by a lower underwriting margin.
Starting with net investment income.
While net investment income was lower sequentially. The first quarter was approximately $115 million above quarterly run rate expectations, primarily due to a 5.4% alternative investment yield.
As a reminder, we report alternative investment income on a one quarter lag.
Asset growth also contributed to the favorable favorable net investment income performance in the quarter.
Turning to underwriting the underwriting margin was lower sequentially and was lower than our quarterly run rate expectation by $100 million to $120 million on an after tax basis, which included $58 million of pre tax net claims related to COVID-19.
As we have said before we anticipate potential volatility in underwriting on a quarterly basis driven by fluctuations in a number of factors, including frequency of claims severity of claims and the offset from reinsurance.
Severity was the driver in the first quarter, which resulted in direct claims experience above the average quarterly expectation of 400 million to $500 million.
When thinking about run rate earnings there are two other adjustments that should be considered.
First variable annuity separate account returns were negative 6.4% in the first quarter.
Which drove a reduction in V a separate account balances.
We anticipate lower separate account balances will reduce quarterly adjusted earnings going forward.
Second expenses were favorable relative to expectations in the first quarter.
We believe the go forward market impact.
Along with expenses returning to our quarterly run rate expectation will lower adjusted earnings by approximately $40 million compared with adjusted earnings less notable items in the first quarter.
Moving to adjusted earnings at the segment level.
Annuity adjusted earnings excluding notable items were $311 million in the quarter.
Sequentially, the annuity results reflect higher deferred acquisition costs or DAC amortization Andrew.
And reserves and lower net investment income.
Partially offset by lower expenses.
Adjusted earnings excluding notable items in the life segment were $35 million in the quarter.
On a sequential basis results were driven by a lower underwriting margin and higher DAC amortization.
Partially offset by lower expenses.
Adjusted earnings in the run off segment, excluding notable items were $16 million in the quarter.
Sequentially results reflect a tax true up in the prior quarter that was offset in corporate and other.
A higher underwriting margin and lower expenses.
Partially offset by lower net investment income.
Corporate and other had an adjusted loss excluding notable items of $47 million.
On a sequential basis results were driven by the previously mentioned prior quarter tax true up and a lower tax benefit.
Partially offset by lower expenses.
Overall, we had another quarter of solid performance.
We continue to prudently manage our balance sheet using a multi scenario multiyear framework.
While returning a substantial amount of capital to shareholders.
With that we would like to turn the call over to the operator for your questions.
Well, ladies and gentlemen, if you have a question or comment at this time. Please press Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.
Our first question comes from Ryan Krueger with K B W.
Hi, Thanks, good morning.
I guess first can you can you help us think about the impact of of accurate lower equity market than in isolation on on the RBC ratio I think based on the detail you gave.
That that that in and of itself did not.
RBC to go down in the first quarter, just trying to think about the second quarter given the continued weakness.
Hi, Good morning, Ryan It said.
So you're correct, if we parse through all of the impacts the underlying performance of the V. A risk management, which obviously is including the hedging was a positive for the RBC ratio in the first quarter.
That's excluding the.
Mean reversion point interest rate change.
Got it I guess separately given the increase in interest rates can you discuss if you're considering.
Changing your interest rate hedging and putting on I guess more interest rate hedging at this point a lock in a higher rates or at or at what point you may consider doing that.
Hey, Ryan it's Eric.
So we've said all along and you can see in the D. E tables that we take capital markets risk you've heard me say, you've heard Ed say it many times and we support this strategy by holding.
Reasonably substantial amounts of cash and capital.
We have long duration liabilities. So an increase in interest rates has a material positive impact on the value of Brighthouse. Let me just state that sort of categorically. So from both vantage points, we are I.
I would go as far as to say extremely pleased with where the 10 year Treasury is.
Look before it's about 301, right now and it's more than doubled since year end 'twenty. One so we view managing interest rate risk on sort of a continuum. Obviously, we've been doing that for the last five years and while we have always had substantial out of the money protection for low rates or what you might think of it.
It's very low rates.
We have taken some incremental actions recently to increase protection I mean, we've taken advantage of the fact that the 10 year is up a lot. So we have made some some trades and a probable we will make some more as we go into the second quarter, Ed do you want to add anything sure. So just to build a little bit on what.
Eric was saying.
As you know in recent years, we've been positioned to benefit from higher interest rates and rising equities.
And I would say that our equity positioning has been strategic.
Both history and fundamental support that stock prices go up over time.
Growth in profits equals growth and stock prices I would say our interest rate positioning has been a combination of strategic and somewhat tactical.
The strategic portion has been that we've always had substantial out of the money protection for low rates.
But we're still positioned to benefit from an increase in rates. So as Eric said, we're managing this risk on a continuum, we have taken some actions already.
And we could take additional actions.
Thanks, I appreciate the color.
Our next question comes from Elyse Greenspan with Wells Fargo.
Okay.
Hi, Thanks, good morning.
First question.
You guys called out in the quarter.
Way from Covid can you just give us a sense of how that compares to a normal Q1, but I think Q1 underwriting is typically below normal and then can you give us a sense of how that impacted both the life and.
Run off segments in the quarter.
Okay.
Sure Hi, Alicia So first of all you're right.
Q1 underwriting tends to be worse, I would say are nor.
Normalizing our run rate adjustment discussion that we had in our slide overnight was more to a sort of a normal quarter and you know.
I I hesitate even to use the word normal because as I've said in the past underwriting can bounce around.
A fair amount from quarter to quarter and this quarter was one of those quarters. So I guess I'll keep it sort of broader ranges here you've heard me talk about the direct claims number for us being in a range of $4 million to $500 million a quarter and you know we've talked about some quarters where.
Obviously with Covid, you could be outside that range.
I would say if you look at this quarter, if you excluded COVID-19.
And you just looked at direct claims we were in the neighborhood of $6 million to $700 million in the quarter.
So that should give you some sense of the deviation now remember that's before reinsurance before taxes, so you'd need to.
A walk that down from that differential which is what we did for you in our a run rate analysis.
And so you know.
That was all really due to severity. So if you look at the number of claims over $5 million that was a big number for us this quarter.
And that was mostly split between life and run off.
Yeah, I think if you look at both.
No. If you look at both life and run off.
The underwriting margin was worse than what we would have assumed it would be.
Okay.
Thanks.
My second question you guys used to give like a run rate core earnings figure and I know you.
You know a little kind of in the range of tweaking them a little bit above.
Given now that we're dealing with.
Higher interest rate by weaker equity markets. When you think of the pushes in the polls.
Where do you see kind of run rate earnings EPS expectation.
Yes, well, we gave you all the pieces right two to.
To calculate a number and.
If you do the math youre going to come up with something in the neighborhood of $3 50 right.
You know that only takes into account the weakness in the equity market through the end of the first quarter. Obviously, the second quarter is not off to a good start from a stock market standpoint.
But on the other hand, we are also you know we did we're not talking about the fact that our share buyback probably adds a dime.
I must share per quarter based on what we've been doing inside a projection of what we're going to do but just if you look back you're probably getting a dime a share every quarter just from share repurchase. So those are a couple of things to think about beyond what we showed you in the.
In this slide we put out last night.
Okay. Thanks for the color.
Our next question comes from Erik bass with Autonomous research.
Hi, Thank you I wanted to come back to your VA hedging results in the first quarter I think in the past you've talked about taking up to roughly $500 million of first dollar risk, but it doesn't sound like this was used during the quarter. So it is still there's still kind of the right level of volatility to think about it.
I guess as we contemplate what's happened in the second quarter.
Hi, its Eric.
Look we've said for a while now our position has been we would take up to 500, which I think is kind of what you said, but yeah in any in any given quarter. It may be a lot lower than that and.
And I would also just reiterate and maybe Ed wants to jump in here too, but I would reiterate you know we were positioned pretty well for higher rates as as you've watched the treasury move up here. So so it's still nothing has changed with respect to that 500 million, but that doesn't mean, we're at that and then.
In any given quarter or do you want to add anything no I think that covers it.
Got it so I've been in the quarter then it sounds like gains on the interest rate hedges offset pressure on the equity is that correct.
Yes, I wouldn't I'm not going to really get into the specifics of one versus the other but I mean, you see that interest rates went up a lot in the equity market went down so you probably can draw some reasonable conclusions on that.
Got it. Thank you and then just to confirm do you still I think on the last call I talked about planning to pay roughly 300 million of dividends to the holding company in 2022 at this point is that still your base case scenario.
Yes that is still our base case scenario.
Okay. Thank you.
Our next question comes from choice, even Google with Barclays.
Good morning.
It feels like statutory rules are going to take forever to bake in higher interest rate.
They are prescribed statutory floor, even under any IC ESG proposal.
So there's a pretty long look back period in Portland.
I'm just wondering if interest rates will rise further is there anything you could do strategically like use captives as it feels like GAAP accounting, especially on your LDP I will take one more.
Of interest rate.
Hi, Tracy.
Just say we're always considering.
What makes the most sense for us I would say there is no plan at this point to be doing anything with captives.
<unk>.
Obviously.
Things could change you never know.
Got it and then when you add up here the scenarios I think you were using the one 5% 10 year treasury rate as of year end 2021, So can you.
Quantify the incremental increase in earnings based on where interest rates are today, maybe Andrew you are lower separate account return scenario.
Well I'm not going to I'm not going to give an update to the D. E tables, obviously theres a lot of work that goes into putting those together, it's complicated analysis and I think as you know we're not going to just provide us.
Updates along the way I would tell you that when you looked at our.
Starting from $1 51 in the 10 year.
Under the.
Reverting to the 3% mean, we were coming up with the.
The mean reversion point for the 20 year Treasury in the statutory ESG going to 3%, which is where we are.
Over the three and five year period and for the low separate account low.
Low separate account return low rate scenario, we had it dropping another 25 basis points over that three to five year period to 275%.
If you look at where the 20 year Treasury is today.
Instead of the mean reversion point being flat to down over the next three to five years. If you were to just build in where the 10 year Treasury is today, it's up at least 50 basis points over that period.
Yeah.
Okay.
If I could just sneak it in your 40 million reduction quarterly earnings guide you called out lower separate account balances and return to expense run rate.
But is there any offset for higher interest rates.
Right.
Well, we've factored in and remember this is the this is the gap.
Our adjusted earnings.
That's what you are talking about here right yeah, Yeah, Yeah, Yeah, Yeah, Yeah, Everything's factored in based on what we saw at the end of the first quarter in terms of separate accounts.
Okay, So equity markets move and insurance rate.
Correct.
Thank you.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone.
Our next question comes from Alex Scott with Goldman Sachs.
Hi.
First one I had is back on these distributable earnings projections and like I get you guys provided good amount of transparency here and I appreciate it a lot I guess.
The issue is we have a scenario here that looks nothing like any of the projections you gave right its upgrades and pretty significantly down equity markets and as a result, you have people looking at this lower separate account return first the lower AUR and trying to extrapolate and then try to extrapolate between the base and upside to.
Gage equities and frankly like.
I'm pretty uncomfortable with.
Doing that it feels like there's a lot more consideration should be given to the correlation between rates and equity so.
In an effort to not have a flawed analysis and looking at this stuff I mean could you help us even if it's just thinking directionally about which is the bigger impact.
20% down equities.
Considering that and or upgrades, you know 100 basis points.
How do I, even begin to gauge.
How those two things sort of work together and.
I mean, if at some point you guys can provide that kind of scenario would be massively helpful. I think and just.
We are working through what maybe.
Maybe it.
Hi, Alex had said.
So it sounded like a different way to ask the question when we update the distributable earnings scenarios I'm going to have the same answer Unfortunately, I'll try to help you a little bit though.
You know, we've you've seen over the last few years that both equities and interest rates are important for us.
And I would go back to the distributable earnings disclosure that we provided in early 'twenty one.
Where the 10 year Treasury had dropped by 100 basis points.
Over that period.
So we.
We had the 10 year had gone from 190 ish basis points to 90 ish basis points.
So that was that that was in early 'twenty one when we disclose this.
If you.
If you looked at the distributable earnings picture when you adjusted for the billion dollars of capital that we had freed up in early 2020 associated with Derisking the hedging program right the distributable.
Well earnings picture was.
Pretty much unchanged from what it was the prior year. So when we published in early 2020.
And so I get that gives you some sense right, we had a strong stock market and yet interest rates down 100 basis points and you kind of ended up in the same place.
So the other thing I would say is if you use the scenarios that we provided you can derive some sensitivities around rates and separate account returns based on you know comparing some of the scenarios and deriving some related sensitivities.
But the qualitative comment I would make is that as you know we have very long duration liabilities and you know the nature of the guarantees associated with those liabilities.
With the 10 year treasury yield almost double.
You know I would say that that more than offsets.
Fundamentally when we think about the value of this company.
The cyclical ups and downs of the equity market.
Okay.
Got it.
That's all helpful. Thank you.
And.
One I had is just do you have any updated thoughts on on this economic scenario generator, that's being worked on and I know theres been some updates with I think the field testing some different things.
Do you have any commentary there.
Or is that going to impact.
Distributable earnings projections at some point in the future.
Is that a risk I should think about and just from the context of I think this year switching from Cte 95 to <unk> 98 had a negative impact on your D. Projections. So I mean is that is that something that I need to worry about impacting those at some point over the next two or three years.
So you know on the economic scenario generator, there's there's obviously still a lot of work to do it's going to take time and as I'm sure. You can appreciate we are actively involved in the process.
We continue to think that the regulators and industry are ultimately going to agree on an appropriate framework.
But this is complicated stuff and so you know just like we saw a long involved process for things like VA reform.
The recent change in the C. One risk factors for RBC you know the you know the regulators take a thoughtful approach, we see and that requires a lot of time and effort. So.
In terms of.
You worry about it like I cant tell you, what you should or shouldn't worry about but we feel like we're going to be able to manage through this and we'll ultimately get something that works.
For us and for the regulators.
Alright, thank you.
Our next question comes from Tom Gallagher with Evercore.
Yeah.
Good morning, just a.
I guess, Eric a higher level question for you based on everything I'm hearing you guys talk about.
Just wanted to make sure we don't Miss the forest for the trees, you still have over $1 billion of excess capital.
Markets are weaker to start to Q.
I'm not hearing any sort of hedging your bets on.
Your view that you're going to continue to return capital and continue to buy back stock even even in the current market climate. So by that I would take that to mean and if I look at your performance in Q1.
On the macro sensitivities, who was in that positive if I exclude those other adjustment so I take that to mean.
You wouldn't expect a meaningful negative adjustment in Q2 based on what you know today and I'm not asking you to get to that.
Decimal place of describing what you expect your.
There are impacts to be from hedging in <unk>, but.
Is it fair to say that you don't expect a meaningful negative adjustment or negative meaningful negative impact on excess capital you would expect to continue to return capital let.
Let me just start with that question.
Okay.
Sorry about that time, we had a huge truck outside here I heard everything you just said look I'll say a couple of things.
I think you could glean that from my previous answer in a couple of Ed's answer is look we're feeling really good having said that look sales were off a little bit nobody asked Myles a question about that but I'll. Just say you know I feel pretty good about April but market volatility tends to you know make give you some.
Some headwinds.
Interest rates, where they are are very positive for this company and you can see our hedging program has worked really well over the last five years, so I'm feeling very positive.
Cautiously optimistic because we are as we're into the second quarter now but of course as Ed said I mean equity markets are down.
I do not expect.
Big changes to excess capital and I can tell you I do not expect to not be buying back stock.
So I think I covered everything if theres something you want to point out again, Tom. Please go ahead.
No that was it that was that was exactly what I was looking for I appreciate it.
So my follow up is Ed Ed can you quantify how big of an impact the change to the.
The non admitted DTA was how big of a delta was that for the quarter and what are the scenarios I assume the scenarios, where you could potentially readmit that would be.
Greater stat earnings.
It would've been negative stat earnings that resulted in that.
And the non admission of it is that so.
And any color on that.
Sure Good morning, Tom.
So the the write down was somewhat above $200 million in the quarter.
And the remaining balance is around $300 million.
It's important to point out that the reduction in the DTA is entirely due to the conservative nature of statutory accounting. So this value as determined by earnings over a three year time frame.
But we.
We have a substantial amount of tax attributes and we continue to expect to use them over the long term. So for example, we have about a $5 billion loss carryforward, which is you know translates to approximately $1 billion tax benefit and we have assumed and continue to assume that.
That will get used.
So I don't view this DTA write down as an economic.
Adjustments and in fact, we had anticipated that we were going to have something like this in 2022.
Okay. Okay. Thanks, if I can just sneak one more in.
Eric you had mentioned.
<unk>.
<unk> made some changes to interest rate hedging.
Just want to make sure I understand directionally.
How to interpret that because my understanding was.
You were.
In a lower for longer scenario. There was some level of continued negative adjustment like you had this year and right on the mean reversion change.
The 300 $250 million to $300 million negative adjustment based on the changes you've made.
If rates were to go back down.
Not that that's in the cards for the <unk>.
Seeable future, but if they were to fall back down.
I'm, assuming that means you wouldnt.
<unk> had a negative true up like you had.
<unk> mean reversion interest rates is that the right interpretation of it.
Since you've made those interest rate hedging changes.
Yes, sorry, Tom.
Look I think one of the things that you can glean off of our comments over over a number of quarters is the difference between economics, and the accounting and I don't think anybody knows that better than Utah. So we always got to think about what's the true <unk>.
Economics behind what happened and then what is the accounting due in any given quarter that might not necessarily be a reflection of the true economics right. So with respect to the hedging program I've said it before on your on your other question.
Or maybe it was the first question I cant remember look we're always going to be protected for down rates. The company is always going to be hedged for down rates, but remember at the margin that doesn't mean that we're not positioned for higher rates. If you heard my comment before now with respect to the accounting I mean, I'll, let Ed.
Jump in here on what May happen in the first quarter and like you said, it's not necessarily expected, but whatever the accounting is what it is given where we ended in any given quarter I feel really good about the economics, the fundamental economics of where we're at and how we're positioned both from a macro point of view.
On the hedging program and then at the margin, but you know look at some of the things that happened in the first quarter with respect to the accounting I. Just told you like we don't really think about this as being the ultimate economics with respect to the DTA, but the accounting says you can only take three years. So Ed you want to jump in.
Yeah, I mean, there are two things I would go back to what I had said earlier I think in response to.
Either Tracy or Alex's question on the rate impact.
We had assumed that the mean reversion point would be where it is now or come down when.
When we put those D E tables out and now we're in a position where you know the 20 year Treasury I think is $3 33, this morning or something.
You know you're in a position where you're it looks like you've got at least a 50 basis point increase in the mean reversion point from where we are now if rates were to stay where they are today right. So.
You know when you think about what's economic and what's non economic we talked about the DTA and how I would consider that 200 plus million write down to be non economic in nature.
Given the current interest rate environment, you could argue that the $2 50 to 300 million MRP adjustment is non economic in nature, because where we sit today, it's actually going back up again, if rates are where they are today. So you've got two pieces of the impact on Tac that are in the neighborhood of a half of $1 billion this quarter.
<unk>.
Given the environment, we have we're in today I would say are not economic.
Got you thanks, guys I appreciate it.
Our next question comes from so need come out with Jefferies.
Hi, Thanks, good morning.
Just first I wanted to start with just a quick definitional issue or question.
Target of 400 to 450, RBC and in normal markets, Yes, obviously, it doesn't feel so normal today.
So sitting in this environment would you still expect to be in that range higher lower.
Good morning <unk>.
I would say I agree with you about what it feels like today and I think we got this question on the fourth quarter call also about like is this a normal market and we said well it doesn't really feel like it and I guess I would say again it doesn't feel like this is normal market now either.
So I feel really good about the fact that our RBC ratio is above the top end of what we considered to be the normal markets range of 400% to 450%. So you know I think we are well positioned for.
Let's say less than normal markets, given the RBC ratio and.
Let's not forget the $1 4 billion of holding company cash.
We're not going to give us any sort of forecast of what would happen to RBC.
But I would say, we're starting from a position where we are.
We're able to handle some some challenges if the market continues to be rough.
Got it and then maybe I'll just to please Eric throw out a sales question.
We've seen buffered annuity sales results kind of all over the map this quarter or some companies reporting record results for some months some companies reporting down results. So maybe just a sense of how.
How you think about the competitive environment for that product and have you had to make changes in pricing for that product over the past little while here.
Well I'm, just going to start and say, thank you Sidney and now I'll turn it over to miles.
Well good morning, and thank you Sydney as well so look obviously the environment in the <unk> category has gotten more competitive there's about 17 carriers that are either in market with a product right now are a file to have a product in market. Ultimately we think that's a good thing for advisers.
And consumers as it represents more choice look we like the competitiveness of our product we launched several enhancements to the product last year and Youll see the next evolution of the product. This year sales remained strong for US we picked up some momentum as the year has gone on and we're excited about some of these some of these <unk>.
Enhancements will be making.
Okay. Thanks.
And I'm not showing any further questions at this time I'd like to turn the call back to Dana for any remarks.
Yes.
Thank you Kevin. Thank you all for joining us today and for your interest in Brighthouse financial and have a great day.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
[music].
Sure.
Okay.