Q3 2022 Brighthouse Financial Inc Earnings Call

[music].

Good morning, ladies and gentlemen, and welcome to the Brighthouse Financial's third quarter 2022 earnings Conference call. My name is Michelle and I will be your coordinator today at this time all participants are in a listen only mode. We will facilitate.

A 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.

I would now like to turn the presentation over to Dana on Monday head of Investor Relations. Mr. Martin you may begin.

Thank you and good morning, welcome to Brighthouse Financial's third quarter 2022 earnings call material 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 Ed Bihar, Our Chief Financial Officer.

Following our prepared remarks, we will open the call up for a question and answer period also here with us today to participate in the discussions 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.

<unk> 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 with the U S Securities and Exchange Commission.

Information discussed on today's call speaks only as of today November eight 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 accepted accounting principles.

non-GAAP measures.

Reconciliation of these non-GAAP measures on a historical basis.

Most directly comparable GAAP measures and related definitions.

And on the Investor Relations portion of our website in our earnings release slide presentation and financial supplement.

And finally references to statutory results, including certain statutory based measures used by management are preliminary due to the timing of the filing of the statutory statements.

And now I'll turn the call over to our CEO Eric Steigerwalt.

Thank you Dana and good morning, everyone.

In the third quarter, despite an uncertain market environment, we remain disciplined in our financial and risk management and steadfast in our commitment to our partners customers and shareholders.

While equity markets have been volatile intra.

Interest rates increased significantly in the quarter up over 80 basis points as measured by the 10 year U S Treasury as of September 30th.

Our balance sheet and liquidity remained robust in the quarter and we continued to prudently manage our statutory capitalization.

Our estimated combined risk based capital or RBC ratio was above our target of 400% to 450% in normal markets.

At the end of the quarter, we estimate that our combined RBC ratio was between 450 and 470% as our capitalization remained very strong.

Additionally, we continue to have a substantial amount of cash at the holding company with $1 $1 billion of holding company liquid assets at the end of the quarter.

Turning to sales we are very pleased with our strong annuity sales results in the quarter, which reflect the strength of the Brighthouse financial franchise, and our ability to meet the evolving needs of our distributors and their clients.

The company reported record annuity sales in the quarter of $3 7 billion.

An increase of 50% sequentially.

Third quarter annuity sales results were largely driven by sales of our fixed deferred annuities.

And our flagship shield level annuities and demonstrate the strength and diversity of our new <unk> product portfolio in different market environments.

The strong fixed deferred annuity sales were the primary driver of the positive total annuity net flows of $970 million in the quarter.

As we have previously discussed we continue to expect our business mix to evolve with the addition of higher cash flow generating and less capital intensive business.

Coupled with the run off of older less profitable business.

Additionally, we generated $19 million of life insurance sales, which was flat sequentially.

As I have said in the past while the economic backdrop in 2022 has created some headwinds to life insurance sales, we remain confident in our life insurance strategy and intend to continue to broaden our product offerings.

And expand our distribution footprint.

We continue to execute on our strategy and with that I would like to turn to capital return.

In the third quarter of 2022 returned additional capital to shareholders through the repurchase of $136 million of our common stock.

And we purchased an additional $52 million of our common stock through November three.

Year to date through November three we have repurchased $447 million of our common stock.

Representing a reduction of 11% of shares outstanding relative to year end 2021.

Before I turn the call over to Ed I would like to touch on the actions we have taken throughout 2022 to move toward a more strategic position on interest rate risk.

With interest rates at historically low levels in recent years, we did not believe it made sense to fully hedge interest rate risk.

We supported this strategy by holding substantial amounts of cash and capital.

With interest rates gradually returning to what we perceive to be more normal levels.

We have taken the opportunity to add a substantial amount of low interest rate protection.

And shifted from a more tactical positioning on rates to a more strategic positioning.

We will continue to focus on protecting our balance sheet.

Optimizing our distributable earnings and supporting the growth of our franchise through a broad range of market scenarios.

To summarize.

I am very happy with our results in the quarter.

Our balance sheet and liquidity remained robust.

Annuity sales were very strong.

We continued to return capital to shareholders.

I will now pass the call over to Ed.

And he'll go through more of the financial results in detail.

Thank you, Eric and good morning, everyone.

Despite substantial negative returns across asset classes in 2022.

Our capital and liquidity position remains strong at September 30th.

Additionally, third quarter year to date normalized statutory earnings were approximately $500 million.

As we have benefited from a substantial increase in interest rates.

In a conservative position on the hedge portfolio for equities.

Our estimated combined risk based capital or RBC ratio was between 450 and 470%.

Above our target of 400% to 450% in normal markets.

And down from an estimated range of 470% to 490% at June 30.

The largest driver of the sequential decline with capital used to fund new business growth.

We believe that normal capital usage for growth is approximately five RBC points per quarter.

And it was more than double this amount in the third quarter.

We are excited to have the opportunity to deploy capital in new business.

The franchise value for this company is largely dependent on continuing the shift in our business mix towards lower risk higher return products and away from legacy variable annuities.

The new business trends in the third quarter have continued into the fourth.

So we currently anticipate another quarter with above normal capital usage to fund growth.

Therefore, we will assess capital development during the fourth quarter and.

And decide whether it's still is appropriate to take a $250 million dividend from Brighthouse life insurance company before year end.

Combined total adjusted capital or Tac was $8 billion at September 30.

Compared with $8 2 billion at June 30th.

The largest driver of the change in cash was taxes with.

With the biggest portion being a reduction in admitted deferred tax assets or DTA.

At the holding company, we ended the quarter with cash and liquid assets at $1 $1 billion.

We feel very good about the position of our holding company.

Non dividend flows cover most of our fixed charges and.

And we do not have any debt maturities until 2027.

Before moving to adjusted earnings results.

I'd like to provide some perspective on the annual actuarial review and long duration targeted improvements are L. DTI.

As part of the annual actuarial review completed in the third quarter of 2022 weeks.

We examined our long term assumptions models and emerging experience.

On a GAAP basis, the impact to net income from the review was a net favorable $5 million.

This included a $337 million positive impact from a 50 basis point increase in the assumed long term mean reversion rate for the 10 year U S Treasury.

From 3% to three 5%.

We continue to assume that mean reversion occurs over 10 years.

Approximately three quarters of the interest rate related benefit impacted universal life with secondary guarantees or U S. G with.

With the remainder in annuities.

There were two categories of items that offset the interest rate benefit.

First as a result of moving to a single model environment.

We now have the ability to more accurately model certain reinsurance agreements.

And the negative impact from this refinement was $124 million after tax.

Second we had some policyholder behavior assumption updates primarily in annuities.

Updates related to policyholder behavior and mortality assumptions for our USG block of business were insignificant.

Typically the third quarter actuarial review encompasses both GAAP and statutory assumptions.

We did not update statutory assumptions for variable annuities in the third quarter.

We are in the final stages of our annuity actuarial model conversion, which is our last model conversion.

And we plan to complete this along with the VA statutory assumption updates in the fourth quarter of this year.

Turning to LPTA.

I want to begin with the reminder, that the implementation of L. DTI has no impact on statutory accounting.

Distributable earnings or the underlying economics of our business.

As you know a key element of our disciplined financial and risk management strategy.

Is to manage the company on a statutory and cash basis to optimize distributable earnings.

Our focus will remain on managing our statutory balance sheet post implementation of LD Ti.

However, the market risk benefit framework within L. DTI can be a complementary tool that provides an alternative view of our VA liabilities.

While L DTI accounting better aligns GAAP liability movements with our risk management approach.

There are fundamental differences between the calculation of GAAP and statutory liabilities for VA and shield.

As a result of these differences and our commitment to managing our statutory balance sheet.

Our GAAP financials will continue to exhibit volatility moving forward.

We expect the new accounting standard to have a negative impact to total equity as of December 31 2021.

In the range of $6 billion to $8 billion.

As you can see on slide nine of the earnings presentation. The impact is split approximately half to retained earnings and half to accumulated other comprehensive income or OCI.

Importantly, with the significant rise in interest rates year to date through the third quarter, we anticipate the total Lv ti impact of stockholders' equity to be significantly improved.

With additional improvement in the expected impact based on current markets.

Now turning to adjusted earnings results in the third quarter.

Adjusted earnings excluding the impact from notable items were close to breakeven at a loss of $3 million.

Which compares with adjusted earnings on the same basis of $247 million in the second quarter of 2022.

And $514 million in the third quarter of 2021.

The notable items in the quarter, which on a combined basis benefited earnings by $100 million after tax included.

A $117 million net favorable impact related to actuarial items in the quarter incur.

Including the annual actuarial assumption review.

And establishment costs of $17 million.

Excluding the impact of these notable items the results in the third quarter were primarily driven by adverse market factors.

Including negative alternative investment performance as a result of second quarter market performance.

And the impact of the lower equity market in the third quarter.

Each drove actuarial adjustments and amortization of deferred acquisition costs or DAC and reserves.

Net investment income was $182 million or $2 53 per share below our quarterly run rate expectation.

Primarily driven by an alternative investment yield of negative three 2% in the third quarter.

As a reminder, we expect 9% to 11% annual yield over the long term on our alternative investment portfolio.

Asset growth, mainly driven by continued strong annuity sales was a benefit to net investment income.

The decline in the equity market in the third quarter resulted in VA separate account returns of negative five 4%.

This corresponded to actuarial adjustments, which drove an unfavorable impact to earnings of $83 million post tax.

Our $1 15 per share below our quarterly expectation.

And as reflected through higher DAC amortization and higher reserves in the annuity segment.

Keep in mind the quarter to quarter fluctuation, we typically see in DAC amortization related to changes in the market will not continue post implementation of ELD DTI.

Turning to adjusted earnings by segment.

The annuity segment reported adjusted earnings excluding notable items of $170 million in the third quarter.

On a sequential basis annuity results were primarily driven by the impact of lower VA separate account returns.

This resulted in lower fees and higher reserves.

Partially offset by lower DAC amortization.

The life segment reported an adjusted loss, excluding notable items of $2 million.

Sequentially results were driven by lower net investment income and higher expenses, partially offset by lower DAC amortization.

The adjusted loss in the run off segment, excluding notable items was $149 million.

Sequentially results reflect lower net investment income.

A lower underwriting margins and higher expenses.

Corporate and other had an adjusted loss excluding notable items of $22 million.

On a sequential basis results were driven by higher net investment income and lower expenses.

Really offset by a lower tax benefit.

In closing I want to emphasize that our top financial priority remains balance sheet strength.

We continue to manage the company under a multi year multi scenario framework to protect and support our distribution franchise.

Distribution is critical because ultimately it is growth that will drive the overall franchise value of this organization.

With that we'd like to turn the call over to the operator for your questions.

Thank you if you have a question at this time. Please press star one one on your Touchtone telephone one moment, while we compile the Q&A roster.

Our first question comes from the line of Erik bass with Autonomous Your line is open. Please go ahead.

Hi, Thank you I was hoping you could provide some more color on the implications of moving to a more strategic interest rate hedging program.

Should we think of this materially raising the floor for distributable earnings and narrowing the range of expected outcomes going forward.

Hi, Eric It's Ed.

So.

I mean thats the goal.

I would to give you some sense of size if you look at.

At year end 'twenty one.

When the 10 year Treasury was $1 51.

If we had the protection in place.

And the developments in the year to date.

Related to rates.

And you look at where we would have been with the 10 year at 151 basis points.

You would have had about 80 or 90 additional RBC points.

So that gives you some sense of the type of benefit that we would see.

If rates were back down to levels that we saw at year end 'twenty. One I'd also add that if rates went lower I mean, I think obviously.

Obviously, we had rates in the 50 to 100 basis point range for the 10 year.

The gains associated with what we've done would be.

Substantially more.

Got it. Thank you Ed is there a cost in terms of giving up any of the upside so.

It kind of narrows the top end of the range.

Outside scenario as well or.

Yes, I think it's fair to say that.

As we get to a level of rates that we considered to be more normal right.

I've said in the past that there is no reason to have a view directionally on interest rates. Once you get to a point that you consider it's more normal so unlike equities where.

You have a business model thats predicated on stocks going up over time, which is borne out by both fundamentals and history.

Rates I think you get to a certain level and its just whether its going to go up or go down you don't have a strong point of view. So if you want to be at a more strategic position.

As Eric said in his prepared remarks.

I think by definition that means that youre not going to be benefiting one way or the other from rate movements to the extent that you want to protect yourself.

Got it that makes sense.

Other question is just you mentioned doing that.

Stat review it in the fourth quarter and.

And you had some policyholder behavior changes on a GAAP basis at least in <unk>.

I think that those being read through at all in terms of what.

You may do on the statutory side.

And if so just help us think of the impact there or the assumption basis difference.

Yes, so as I said the reason we are doing it in the fourth quarters, because we have the last model conversion occurring in the fourth quarter, which is VA and so it's premature for us to give you any indication of what the impact of those two.

Developments will be and then the one last thing I wanted to just go back to your first question.

When we're talking about.

Protection here and rate impacts, it's obviously complicated right and so when I'm talking about impacts right. We think about as you've heard me say repeatedly managing the company over a multi year multi scenario a framework and so as you know the interest rate impact will come in over time.

On the statutory framework.

And so you have to balance the sort of how do you want to be positioned from a hedging standpoint in relation to how you will have those impacts flow into your statutory results over time.

Got it thank you.

Thank you and one moment for our next question.

Our next question comes from the line of Ryan Krueger with <unk>. Your line is open. Please go ahead.

Hey, Thanks, good morning.

Question is following up on the variable annuity policyholder behavior update can you give a little bit more detail on what you what you've changed in the GAAP review.

And maybe where you brought here youre ultimate lapse rate too.

Yeah, Hi, Ryan so.

The first thing I would say is as you heard in my prepared remarks.

The big items, we identified the impact from changing the mean reversion point and then.

The model refinement that we had as a result of being in our.

Our new our new.

Profit environment, which allows us to more.

Model.

<unk> on a more granular basis right you are left with like in the neighborhood of $200 million.

If you just think about those two items and then the balance of of of what the all other adjustments would be.

You are talking about an $80 billion block of variable annuities. So.

It's a big block and.

Most of that $200 million is going to relate to that.

Would say that.

In terms of.

Assumption updates, we had a slight benefit from mortality assumptions for VA, and we had a slight negative impact from lapse rates.

Again.

Don't look at that number as being particularly significant relative to an $80 billion block also we haven't had much in the way of any real.

Policyholder behavior adjustments in VA in recent years.

This is not a big deal in my opinion I think if you.

If you look at this question about what's your ultimate lapse rate, that's an impossible question to answer where I could give you a meaningful number.

Lapse rates as you know.

Are going to vary by product type guarantee levels.

Vintage in the money is out of the money is and so a single a single lapse rate assumption is really not meaningful.

Sure.

Thanks.

Got it and then on the flip.

Blake potential <unk> dividend in the in the fourth quarter is that it.

Is growth the primary.

Reason.

Youre, considering if you wanted to do that or not or is the Gulf, though relate to other factors as well.

Growth is the primary reason.

Okay, and then just one quick one what how much of the how much of the fixed of your fixed annuity business.

Reinsured to SDA under that Treaty can you give us any perspective on that.

Yeah, Hey, Ryan this is David.

Ill take that one so as you mentioned, we do reinsure a portion of sales to athene.

We're not going to get into the details of the structure, but as we said in the past it is a <unk>.

Reinsurance agreement that does provide value to us and then we said that in the past a few times on earnings calls.

But this quarter like Ed mentioned, we had the opportunity to deploy a meaningful amount of capital at an attractive return and so we were pleased to have the opportunity to do that.

Great. Thank you.

Thank you and one moment for our next question.

And our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.

Hi, Thanks, maybe going back to the RBC question a little bit.

What level of growth I think you guys assuming for the fourth quarter, obviously the impact on RBC was greater than you normally expect into Q3. So what are your expectations for the Q4 and within what band of growth would you still consider that.

The dividend.

The $215 million dividend in the quarter.

Thanks.

Hey, Elyse, it's Ed so.

As I think you.

Said.

We are seeing a continuation.

<unk> of the trends we saw in the third quarter in the fourth quarter.

And thats as far as we're going to go in terms of any.

<unk> of what sales might be and so.

We're going to monitor it throughout the quarter to make a decision about whether we want to take the <unk> dividend.

But this is good news for us if we think about the key driver of this story long term, it's really continuing to shift this business mix away from our legacy block of VA.

Towards these lower risk higher profitability better cash generative products that we sell today.

And so.

We have.

To return capital to shareholders I mean, we've done a lot of it I mean, 42% of shares outstanding since separation.

At an average price of less than $38 a share I mean, I think that's been a pretty value creating move at this point.

But I would say that the primary thing we want to do is invest in this business to grow because ultimately to get the valuation. We think we deserve we need to continue to affect this mix shift.

Thanks, and then my second question is on the lifestyle.

Were flat sequentially and you highlighted some headwinds in your opening comments. So how are you thinking about.

Lights down trending from here.

Not just in the fourth quarter, but really 'twenty three and beyond.

Hey, good morning, It's Myles I'll take this question. So I think I mentioned this on our prior call.

Don't know how favorable the environment is right now for long term care sales, meaning that I just don't know how focused consumers are on this type of protection and I think as when you look at what's happening in other sectors of the industry, if they're looking to purchase long term care insurance.

Robley, a fixed product and as I spoke about on prior calls smart carrier as a product where future benefits are tied into industry performance, Here's what I would say we're focused on executing on our strategy. This smart care launch has been a great success for us and we're going to continue to expand distribution.

And we're going to introduce a new product next year. So that we're focused on continuing to grow sales.

Okay. Thanks for the color.

Thank you and one moment for our next question.

And our next question comes from the line of John Barnidge with Piper Sandler. Your line is open. Please go ahead.

Thank you very much for the opportunity and good morning can you talk maybe about the lower underwriting margin in life and run off sided dour outlook for durability of that is coming from a certain age cohort I know there was some severity sighted.

Hey, John It's Ed.

So.

You've heard me say in the past about nor.

Normal direct claims being in the range of four $400 million to $500 million in the quarter, we were above the normal range. This quarter, we had some higher severity.

The reinsurance offset was.

A little bit better than I think is normal but.

I would say in the context, certainly in the context of the market factors this quarter.

Underwriting is not really a meaningful.

A meaningful story here. It is worse sequentially. It is worse year over year, you will see fluctuations.

Obviously.

Overall and on a segment level basis, I mean, there really isn't a story to tell here on run off underwriting.

This quarter.

Okay. That's helpful. And then if I look at the NII 182 below plan and actuarial adjustments 83 billion below expectations and add that back to the $3 75 suggest.

Normal core earnings power in normal markets at this point with higher rates.

Hey, John I think I think Youre, a little high on those.

On that number with just those two adjustments I don't know if youre, making some other adjustments.

I would say that if you look at.

Some of the numbers that we have talked about in terms of.

Over the past few quarters I've tried to kind of help with run rate.

I think they've.

Generally been in the neighborhood of $3 50.

I would say youre probably.

Plus <unk> plus that amount now and certainly if you make just those two adjustments you'll come up with something that's a little bit above 360 I believe.

Okay. Thank you very much for the answers and best of luck in the quarter ahead.

Thank you.

And one moment for our next question.

Our next question comes from the line of Nick.

MS with Jefferies. Your line is open. Please go ahead.

Thanks, Good morning.

So just wanted to start on <unk> I appreciate the balance sheet disclosure, but we're starting to hear from some companies around the operating earnings impact and as I think about what we're hearing from some VA focused companies that it's actually quite different with one company guiding to pretty sizable decline in earnings in another company guiding to very little impact if any so just curious.

If from a directional perspective, if there's anything that you can provide at this point.

Sure. Good morning, <unk> I think it's fair to say that adjusted earnings will probably be somewhat less under L. DTI then under current GAAP accounting.

And I think it is for some of the reasons you may have heard from some others. A portion of it is going to be we'll have more attributed fees to VA below the line and the second piece would be there is there will no longer be any bifurcation of DAC amortization.

Obviously as you know DAC amortization DAC amortization as is.

Simplified to say the least relative to the current model and it's all going to be above the line now. So I think those two factors would suggest that adjusted earnings would be lower under L. DTI, then current gap, but we're not going to provide any specific detail on the income statement at this point.

Okay got it that's helpful. And then I guess as we think about growth I hear what youre, saying about the dividend, but if we're really seeing sizable new opportunities, whether it's in annuities or in your institutional spread based.

Is there a thought to potentially putting more capital in or are you just going to leave the capital that's in there.

And not infuse anything incremental from where we sit today. Thanks.

Yes, I mean, we.

We feel very good about our statutory position.

We're sitting here knee deep in a bear market with a $4 50 to $4 70, RBC ratio relative to our 400% to 450% normal markets target. So.

And $1 billion billion.

<unk> plus cash at the holding company with no debt coming due until 2027 and non dividend flows that cover most of our holding company obligations. So we feel like we're in a very good position I don't envision the need to put capital into the operating company to fund growth.

Got it thanks Ed.

Thank you and one moment for our next question.

And our next question comes from the line of Tracy <unk> with Barclays. Your line is open. Please go ahead.

Good morning.

You mentioned the start review in the fourth quarter for VA risk, but what about your start reveal on USG at BRC D. Elise for gap, you mentioned that three quarters of the positive impact of raising <unk> assumption is benefiting you all S. G. So when you look at your stock reserves I believe interest rate assumptions are prescribed.

But did you see any benefit on VR CD as a result.

Hi, Tracy.

So.

We said last we said last quarter about the conservative nature of Stat for USG.

Just to add to that we had no updates I think I said in my prepared remarks no no.

Real updates impacts from U S. G in our third quarter assumption update on GAAP.

You look at the numbers on stat.

Most of our block of business today has zero percent assumed lapse rate on stat and all of it will be at zero by 2027.

And if you were to take the point in time average lapse rate today, which includes surrenders, it's less than 50 basis points. So on a stat basis. Obviously, there is a lot of conservatism, which is not surprising considering the fact that statutory reserves for us for USG are in around $25 billion versus the GAAP number that's more like let's say.

16, plus or minus.

<unk>.

From a from a cash flow testing standpoint.

You heard me talk a lot about the significant low rate protection, we had a b or C. D and why we felt good about where we were positioned when rates were low.

Obviously that goes in the other direction rates go up.

We alleviate some pressure on the investment side for that block of business and then we also have the related hedge losses associated with that so.

I think we're in a good position I mean, I think that the.

The question, obviously USG is getting a lot of attention right. Now. This is a block of business has got a lot of attention from us prior to separation.

Look like $3 billion of GAAP charges for this thing.

So.

It was scrubbed before separation, we've obviously talked a lot about BRC D. We've taken capital ought to be RCD.

And if we look at where we're positioned today, we feel good I mean cash flow testing results will be done based on the.

The end of September balance sheet. So we're in the process of doing that now for <unk>. So there is there is nothing to report but.

Hopefully some of that background provide.

Provide some context for you.

Got it concluded recall your comments last quarter I, just heard from one of your competitors that when youre answering their exercise this year.

They were thinking there might be some pattern with respect to interest rates given that we're at a better spot this year versus last so on that comment on do you mean that cash flow testing.

On the opposite perspective.

There could be any benefit given what you said that you were able to take out capital from BRC D. In the past.

Yes.

Yeah. So you know.

I've talked about <unk> its a run off block of business right. We're happy that we've been able to take some capital out, but I would not be looking at <unk> as a source of capital come into this company going forward at least in the immediate future.

Okay.

And then on the assay sales I can see why growing there is compelling given higher interest rates, but usually crediting rates also rise so whereas that heading just to give us a sense of the attractiveness of the spreads.

Hey, Tracy this is David I'll start with that so.

As part of our.

Partnership with with Athene on reinsurance, we have been able to provide attractive.

Rates and you could see that.

Sales really started increasing for us.

Late in the second quarter.

And we were able to maintain consistent competitive rates across all of our fixed rate products and that really continued into <unk>. So we continue to monitor.

The environment and make adjustments if necessary, but as we talked about in the prepared remarks really comfortable with where we are at from a return and pricing perspective.

And I remember, we were a lower for longer I think it was something like 1% or if you could give us a sense of what.

The new minimum amount would be.

The minimum guarantee it.

It is it is north of 1% I don't have the number off hand, but we did just adjust that upwards back in September timeframe.

Yeah.

Thank you.

Thank you and one moment for our next question.

Our next question comes from the line of Alex Scott with Goldman Sachs. Your line is open. Please go ahead.

Hey, Thanks for taking the question.

First one I had is on the variable annuity.

Statutory review and <unk> I think you mentioned that usually thats finished in <unk>, but there is some completion of the system conversion still ongoing.

When I think about the actuarial changes you made this quarter I don't think the ultimate mean reversion for rates translates.

The pieces of it did add a bit of a negative impact may I am not sure. So I just wanted to ask you about like how much of the changes you made on GAAP actually translate to SaaS story.

And what are you what are you thinking for the <unk>.

System conversion I mean should I think about that as net neutral I mean, I think when we've seen these things in the past with other companies.

More often than not is a negative impact.

So I was just interested in any commentary you could give there.

Hey, Alex so.

Look we're not going to just sort of talk about pieces of the fourth quarter actuarial assumption update.

And the related model conversions, I mean, theres, a lot of stuff and I think picking out any one piece and focusing on it is premature.

I would say when you look at model conversions that we've had.

We have had pluses and we have had minuses. So I don't think theres been any specific.

Trend in terms of.

Model conversion.

Leads to X, we haven't seen that.

We'll have to wait and see what the fourth quarter conversion brings for us and VA, but.

It's just again, it's premature to talk about any impact for the fourth quarter on a stat basis.

Got it.

I appreciate all that.

Second question I had is on.

How to think about just the total capital generation of the company heading into next year.

I do tend to like to give some credit for the amount of growth capital, you're putting to work and it sounds like that's a little bit bigger piece of the picture here.

So I just was hoping to understand.

Changes in hedging the gross capital how does that all factor ended distributable earnings as a baseline heading into next year.

And.

Maybe if you can tell us about.

How you think about our budget for growth capital and.

How we can think about those two things together.

Yes, Alex says, there's a lot of good stuff wrapped up in that question I would say that.

We're going through the three year planning process right now we will be providing you some update on.

Our view of this multi year multi scenario framework for distributable earnings next year.

It's just early right now to give you any.

Any specifics.

I think though this on earlier question from Eric I think about trying to narrow the ranges of outcomes under different market scenarios.

We feel really good about the rate protection, we put into place and.

And to have the opportunity to do that and we feel really good about continuing to shift the business mix, which will be.

By its nature lead to less volatile cash flows so things are pointing in the right direction.

For what we're trying to achieve and next year, we'll try to give you some color around what that means in terms of numbers.

Hey, Alex it's Eric maybe I'll jump in for a second to look we've been waiting a long time for higher rates.

A bunch of you have asked questions here about the protection, we put on and I'll just repeat what I said earlier, which is we've gone from sort of a tactical situation for a number of years here to a strategic situation in rates now and you think about growth. We're in a position now where we're not only selling our flagship <unk>.

<unk> shield, but we've got an opportunity to sell a fair amount of fixed annuities.

And.

To miles as question that he got we absolutely will put out yet another life insurance product next year. So we've been super pleased with our ability to buy back shares, but now are sort of feel like the growth element.

Picking up and were that to continue into next year I mean, that's that's exactly our strategy unfolding the way we hoped it possibly could so maybe that helped a little.

That's all helpful. Thank you.

Thank you.

Again, if you would like to ask a question at this time. Please press star one on your telephone one moment for our next question.

And our next question comes from the line of Thomas Gallagher with Evercore ISI. Your line is open. Please go ahead.

Good morning first question is.

It makes sense to me that you are waiting on a decision on the dividend.

Deciding whether to take a dividend out of black until.

I guess, there's the growth capital and then there is this review and seeing how that impacts the RBC.

But assuming there is some kind of adverse impact and you don't take a dividend out how should we think about.

Holding company cash how low would you be willing to take that.

Level of buybacks I think.

In the past I think you had talked about a $400 million holding company target, which would give you a considerable room I just I Havent heard you commented on that in a while curious how should we should think about that.

Yes, Hi, Tom So I never said $400 million.

What I have said is that the holding company.

Predecessor, I think might have said that.

Okay.

So.

What I have said about holding company cash is philosophically number one.

When you're a financial company when you're an insurance company, having a lot of holding company cash.

A good position at the holding company is a good thing.

Number two.

You'd never want to assume that you can roll your debt in my opinion and so the amount of cash that you want to have is going to is.

It's going to flex based on what your debt towers look like so I mean, obviously, we've done a lot.

To get to our target capital structure, including substantial lengthening of our capital structure late last year. So we've got a lot of long term funding at what we consider to be attractive pricing late last year and.

We don't have any debt coming due until 2027, so we're in a good position there.

The question about how much of your holding company cash do you want to use I mean, I just think.

You want to be conservative and we feel very good about where we sit today with holding company cash.

And.

I think the combination of.

Where we are at the statutory entities at the holding company is a good position to be in and when we think about dividends right. We think about it a little differently, perhaps than some other companies from the standpoint of.

No. We don't have there's not a lot of optionality to have to have cash at the holding company for us from a subsidiary standpoint because.

If we needed capital somewhere we know we know exactly where we would need it right. Unlike other companies that have a bunch of different subsidiaries getting everything to the holding company and then figuring out where you might want to put it when something bad happens you've got Optionality, it's less of an issue for us here, considering the nature of our business and the fact that.

All the risk that we have that we know would be that as volatile as it is and as it is in black.

So it's a long winded way to say that having a cushion at the holding company is a good thing it gives us flexibility.

And some of that flexibility relates to the decision making about.

The blip dividend here in the fourth quarter.

Okay, and I guess, so so $1 billion is not some.

Magic line in the sand I assume you would.

Continue with the strong pace of buybacks, even if you dip below that is that a fair conclusion at this point.

$1 billion is not a line in the sand.

And what we have consistently said on buyback as we'll tell you what we do after we do it we have obviously returned a lot of capital to shareholders.

And we've done it at very attractive prices and we understand the importance of capital return to.

To shareholders and financial services companies.

Okay and then my follow up is.

I've heard everything you've said on on the change in rate hedging.

I think it makes a lot of sense, how would you describe your position at this moment and where do you want to get too are you fully hedged economically on interest rates are you <unk>.

80% just give any perspective on where you are on an economic basis as it relates to your interest rate exposure and then would the plan be to still keep some level of under hedging or any any perspective on that would be appreciated.

Yes so.

We measure that.

We measure ourselves and manage the company based on statutory and cash.

So.

All the decisions that we're making on our.

Hedging portfolio is based on how do we think about the those two factors and so.

I wouldn't say we're done.

But.

We've done a lot.

And.

I think that.

The comment I made earlier about once you get to a level of rates that you considered to be more normal.

That youre not going to place a big directional bet on rates, one way or the other within the <unk>.

Statutory framework that we're talking about and managing that risk within that framework.

Okay and can I just slip one more in just.

I have to ask this one on the fixed annuity sales.

Whenever I see a spike in a commodity product like fixed annuities you got a question whether that it's a blue light special going on here and whether you need to reprice.

So curious I am sure that caught your attention when you all saw the spike and if your degree of confidence and comfort competitively that you Havent misprice something in that Youre very happy with the returns there.

Yeah.

I would say, let me start I think some others want to chime in here.

You and I were side by side for many years asking those very same questions.

I can tell you that we feel very good about the profitability of the business business. We've written this year.

Hey, Tom It's Eric I'd, just have to comment on the was it the blue light special.

What was the actual plate special I'll, sorry, it looks like it came okay.

There is no blue light special no issues with your question obviously.

But this company is run by a lot of financial professionals, and we don't do Blue light specials, but David you want to add anything nope I think <unk> covered it.

Okay. Thanks, guys.

Thank you and one moment.

We do have a follow up question from Jcpenney EBITDA got it.

With Barclays. Your line is open. Please go ahead.

Thank you for taking me back in the queue.

Just going back to VA lapse rate assumption. So the our assumption update how is that look versus beyond 'twenty. One requirements are they in line or more conservative.

Hey, Tracy it said.

I would say let me let me.

Alright.

Let us follow up with you on that.

Okay, I would say I'm thinking inline, but let's just follow up and make sure that.

And I guess I would also say that.

We're talking about Youre asking me is sort of a statutory question before we've done the statutory.

Reveal right. So I would caveat that to say that this is kind of a backward looking.

The.

Answer that I, just gave you and we'll verify and follow up.

Okay.

Thank you and I'm showing no further questions at this time I would like to hand, the conference back over to Dana for any further remarks.

Thank you Michelle and thank you all for joining us today and for your interest in Brighthouse financial I have a great day.

Yes.

The conference will begin shortly to raise Johan during Q&A, you can dial star one one.

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Okay.

Yeah.

Okay.

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Uh huh.

Okay.

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Yes.

Yes.

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So.

Dan.

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Yes.

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Yes.

Yes.

The conference will begin shortly to raise Johan during Q&A, you can dial star one one.

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Okay.