Q1 2024 Brighthouse Financial Inc Earnings Call
Norma: Good morning, ladies and gentlemen, and welcome to Brighthouse Financial's first quarter 2024 earnings conference call. My name is Norma, and I'll be your coordinator today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session toward the end of the conference call. In fairness to all participants, please limit yourself to one question and one follow-up.
Good morning, ladies and gentlemen, and welcome to Brighthouse Financial's first quarter 'twenty 'twenty four earnings conference call. My name is normal and I'll be your coordinator today at this time all participants are in a listen only mode.
All.
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.
Dana Amante: As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Dana Amante, Head of Investor Relations. Ms. Amante, you may proceed.
I would now like to turn the presentation over to Dana our Monte head of Investor Relations. Mr. <unk> you May proceed.
Dana Amante: Thank you and good morning. Welcome to Brighthouse Financial's first quarter 2024 earnings call. Materials for today's call were released last night and can be found in the investor relations section of our website. We encourage you to review all of these materials.
Dana: Thank you and good morning, welcome to Brighthouse Financial's first quarter 2024 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.
Dana Amante: Today, you will hear from Erik Steigerwalt, our President and Chief Executive Officer, and Ed Spehar, 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 Myles Lambert, our Chief Distribution and Marketing Officer, David Rosenbaum, Head of Product and Underwriting, and John Rosenthal, our Chief Investment Officer. Before we begin, I'd like to note that our discussion during this call may include forward-looking statements within the meaning of the federal securities laws.
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.
Dana: Also here with us today to participate in the discussions are Myles Lambert chief distribution, and marketing officer, David Rosenbaum head of product and underwriting and John Rosenthal, Our Chief investment Officer.
Dana Amante: 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 with the SEC. Information discussed on today's call applies only as of today, May 8th, 2024. 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, also known as non-GAAP measures.
Dana: Before we begin I'd 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.
Dana: <unk> filings with the SEC.
Dana: Information discussed on today's call speaks only as of today May eight 2024, the company undertakes no obligation to update any information discussed on today's call.
Dana: During this call we will be discussing certain financial measures that are not based on generally 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 and related definitions may be found in our earnings release slide.
Dana: Asian and financial supplement.
Dana Amante: Reconciliation of these non-GAAP measures on a historical basis to the most directly comparable GAAP measures and related definitions may be found in our earnings release, slide presentation, and financial support. 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 statement. Now, I'll turn the call over to our CEO, Erik Steigerwalt.
Dana: 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.
Dana: And now I'll turn the call over to our CEO Eric Steigerwalt.
Eric Thomas Steigerwalt: Thank you, Dana. Good morning, and thank you to everyone for joining today's call. Brighthouse Financial's first quarter results demonstrate the steady execution of our strategy. During the quarter, we maintained a strong balance sheet, continued to focus on executing our growth strategy, and sustained a disciplined approach to expense management. As we've heard us say in the past, the strength of our balance sheet is essential to support our distribution franchise, and we continue to focus on prudent financial and risk management.
Eric Thomas Steigerwalt: Thank you Dana good morning, and thank you to everyone for joining today's call Brighthouse Financial's first quarter results demonstrate the steady execution of our strategy during the quarter. We maintained a strong balance sheet continue to focus on executing our growth strategy and sustained a disciplined approach to expense.
Eric Thomas Steigerwalt: Management as you've heard us say in the past the strength of our balance sheet is essential to support our distribution franchise and we continue to focus on prudent financial and risk management. We ended the first quarter with $1 $3 billion of liquid assets at the holding company and an estimated risk based capital or RBC.
Eric Thomas Steigerwalt: We ended the first quarter with $1.3 billion of liquid assets at the holding company and an estimated risk-based capital, or RBC, ratio between 415% and 435%, which is in the middle of our target range of 400% to 450% in normal markets.
Eric Thomas Steigerwalt: The ratio between 415% and 435%, which is in the middle of our target range of 400% to 450% in normal markets are strong RBC ratio and robust holding company liquid assets support our ability to consistently return.
Eric Thomas Steigerwalt: Our strong RBC ratio and robust holding company liquid assets support our ability to consistently return capital to shareholders through our common stock repurchase program. In the first quarter of 2024, we returned $62 million of capital to shareholders through repurchases of our common stock. Since we began our common stock repurchase program in 2018, through the first quarter of 2024, we have reduced shares outstanding by just short of 50%.
Eric Thomas Steigerwalt: <unk> to shareholders through our common stock repurchase program in the first quarter of 2024, we returned $62 million of capital to shareholders through repurchases of our common stock since we began our common stock repurchase program in 2018 through the first quarter of 2020 before we ever do.
Eric Thomas Steigerwalt: <unk> shares outstanding by just short of 50%, we remain committed to returning capital to our shareholders and through May 3rd have repurchased an additional $27 million of common stock now I would like to take a moment to talk about the success of our distribution franchise the execution of our growth.
Eric Thomas Steigerwalt: We remain committed to returning capital to our shareholders and, through May 3rd, have repurchased an additional $27 million of common stock. Now, I would like to take a moment to talk about the success of our distribution franchise. The execution of our growth strategy is focused on providing a complementary suite of annuity and life insurance products designed to help people achieve financial security. I am very pleased with our first quarter 2024 annuity sales, especially the continued steady growth in our Shield annuity product suite as we remain a leader in the registered index-linked annuity or RILA market.
Eric Thomas Steigerwalt: Strategy is focused on providing a complementary suite of annuity and life insurance products designed to help people achieve financial security I am very pleased with our first quarter 2020 for annuity sales, especially with the continued steady growth in our shield annuity product suite as we remain a leader in the Reg.
Eric Thomas Steigerwalt: Our total Shield annuity sales were $1.9 billion for the first quarter of 2024, a 2% increase sequentially and a 20% increase compared with the first quarter of 2023. Additionally, we are very pleased with our fixed indexed annuity or FIA sales, with 191 million total FIA sales in the first quarter driven by our Secure Key product. As I mentioned on our fourth-quarter call, in November of 2023, we launched our new FIA Secure Key, expanding our distribution footprint in the fixed indexed annuity market. Fixed deferred annuities were also a strong driver of total annuity sales in the first quarter, with $637 million in sales. This is down from the fourth quarter of 2023, as expected.
Eric Thomas Steigerwalt: Stirred index linked annuity or rail or market. Our total shield annuity sales were $1.9 billion for the first quarter of 2024% to 2% increase sequentially and a 20% increase compared with the first quarter of 2023. Additionally, we are very pleased with our fixed indexed.
Eric Thomas Steigerwalt: Our FIA sales with $191 million of total FIA sales in the first quarter driven by our secure key product as I mentioned on our fourth quarter call in November of 2023, we launched our new FIA secure key expanding our distribution footprint in the fixed indexed.
Eric Thomas Steigerwalt: Annuity market.
Eric Thomas Steigerwalt: Fixed deferred annuities were also a strong driver of total annuity sales in the first quarter with $637 million of sales. This is down from the fourth quarter of 2023 as expected.
Eric Thomas Steigerwalt: Overall, our annuity sales totaled $2.9 billion in the first quarter, an increase of 5% sequentially and 3% compared with the first quarter of 2023. These strong annuity sales results demonstrate the strength and complementary nature of Brighthouse Financial's annuity product portfolio. First quarter annuity net outflows were approximately $1.5 billion. As we discussed last quarter, annuity outflows are elevated in 2023, given the interest rate environment, coupled with business coming out of the surrender charge period. And we expected elevated surrenders in 2024.
Eric Thomas Steigerwalt: Overall, our annuity sales totaled $2.9 billion in the first quarter, an increase of 5% sequentially and 3% compared with the first quarter of 2023.
Eric Thomas Steigerwalt: These strong annuity sales results demonstrate the strength and complementary nature of Brighthouse financial's annuity product portfolio.
Eric Thomas Steigerwalt: First quarter annuity net outflows were approximately $1.5 billion.
Eric Thomas Steigerwalt: As we discussed last quarter, the annuity outflows were elevated in 2023, given the interest rate environment, coupled with business coming out of the surrender charge period, and we expected elevated surrenders in 'twenty 'twenty four that was the case for the first quarter without flows in line with the <unk>.
Eric Thomas Steigerwalt: That was the case for the first quarter, with outflows in line with the fourth quarter of 2023, partially offset by continued strong annuity sales. Over the last several years, the combination of our steady annuity sales growth and the outflows of legacy business has led to a meaningful shift in our business mix, away from the legacy block of higher capital-intensive business to more spread-based, less capital-intensive business. On an account value basis, spread-based business made up roughly 15% of our annuity product mix in 2016, and approximately 40% at the end of 2023, and is expected to make up approximately 55% by the end of 2027.
Eric Thomas Steigerwalt: Fourth quarter of 2023, partially offset by continued strong annuity sales over the last several years the combination of our steady annuity sales growth and the outflows of legacy business has led to a meaningful shift in our business mix away from the legacy block of higher capital intensive business.
Eric Thomas Steigerwalt: To more spread base.
Eric Thomas Steigerwalt: Less capital intensive business on an account value basis spread based business made up roughly 15% of our annuity product mix in 2016, and approximately 40% at the end of 2023 and is expected to make up approximately 55%.
Eric Thomas Steigerwalt: By the end of 2027 in the past, we have talked about our shield business as a natural offset to the equity risk on our legacy VA business with the growth we have seen with shield sales, which has helped drive the significant shift in business mix. We have now achieved a point of balance for.
Eric Thomas Steigerwalt: In the past, we have talked about our Shield business as a natural offset to the equity risk on our legacy VA business, and with the growth we have seen in Shield sales, which has helped drive the significant shift in business mix, we have now achieved a point of balance for equity market risk.
Eric Thomas Steigerwalt: This demonstrates the success of our core strategy to diversify away from our legacy block of business. Turning to life insurance sales, we continue to see steady sales in our life insurance product suite with $29 million in the first quarter, a 26% increase compared with the first quarter of 2023. Overall, our first quarter sales results were a strong start to the year, and I am especially pleased that on April 24th.
Eric Thomas Steigerwalt: Market risk. This demonstrates the success of our core strategy to diversify away from our legacy block of business turning to life insurance sales, we continue to see steady sales in our life insurance product suite for $29 million in the first quarter of 26.
Eric Thomas Steigerwalt: <unk> increased compared with the first quarter of 2023 overall, our first quarter sales results were a strong start to the year.
Eric Thomas Steigerwalt: And I am, especially pleased that on April 24th we joined Blackrock and announcing that Blackrock life path Paycheck is now available in defined contribution plans.
Eric Thomas Steigerwalt: We joined BlackRock in announcing that BlackRock's life path paycheck is now available in a defined contribution plan. Life Path Paycheck offers U.S. workers an opportunity to access a guaranteed income stream in retirement. This solution is a target date strategy that will, over time, include an allocation to innovative annuity contracts to be issued by Brighthouse Financial and another selected insurer. This is a significant breakthrough for the industry, and it's exciting to see plan participants already beginning to take advantage of this solution.
Eric Thomas Steigerwalt: Life path Paycheck offers U S workers and opportunity to access a guaranteed income stream in retirement. This solution as a target date strategy that will over time include an allocation to innovative annuity contracts to be issued by Brighthouse financial and another.
Eric Thomas Steigerwalt: Selected insurer. This is a significant breakthrough for the industry and it's exciting to see plan participants already beginning to take advantage of this solution as I mentioned last quarter. Blackrock is currently working with 14 planned sponsors to implement life path paycheck as an investment option for <unk>.
Eric Thomas Steigerwalt: As I mentioned last quarter, BlackRock is currently working with 14 plan sponsors to implement LifePath Paycheck as an investment option for their employees' defined contribution plans. These 14 plan sponsors, with plans totaling $27 billion in target date assets, are planning to make this solution available to over 500,000 employees. As a company whose mission is to help people achieve financial security, Brighthouse is pleased to assist even more Americans with preparing for retirement through Life Path Paycheck, and we are excited to work with BlackRock on this solution.
Eric Thomas Steigerwalt: Their employees defined contribution plan. These 14 planned sponsors with plans totaling $27 billion in target date assets are planning to make this solution available to over 500000 employees as a company, whose mission is to help people achieve financial security.
Eric Thomas Steigerwalt: Brighthouse is pleased to assist even more Americans with preparing for retirement through life path Paycheck and we are excited to work with Blackrock on this solution and supporting our distribution franchise, along with our focus on balance sheet strength, we recognize that maintaining a disciplined approach.
Eric Thomas Steigerwalt: In supporting our distribution franchise, along with our focus on balance sheet strength, we recognize that maintaining a disciplined approach to expense management is extremely important. Our corporate expenses in the first quarter of 2024 were $207 million on a pre-tax basis, which was down 1% compared with the first quarter of 2023 and down 15% sequentially. First quarter expenses are typically lower, driven by seasonality. However, with our continued commitment to controlling expenses and realizing efficiency gains, we do expect 2024 full-year corporate expenses to be lower than 2023.
Eric Thomas Steigerwalt: To expense management is extremely important our corporate expenses in the first quarter of 2024 were $207 million on a pretax basis, which was down 1% compared with the first quarter of 2023 and down 15% sequentially first quarter expenses are typically lower.
Eric Thomas Steigerwalt: <unk> driven by seasonality, however, with our continued commitment to controlling expenses and realizing efficiency gains. We do expect 2020 for full year corporate expenses to be lower than 2023, we remain committed to executing on our growth strategy with continued growth in.
Eric Thomas Steigerwalt: We remain committed to executing on our growth strategy with continued growth in our Shield product suite, an expanded presence in the fixed indexed annuity market, and our entrance into the worksite channel through working with BlackRock on its Life Path Paycheck solution. Our focus remains on balance sheet strength and controlling expenses, and we continue to return capital to shareholders, supported by our strong RBC ratio and robust holding company liquid assets. I will now turn the call over to Ed to discuss our first quarter financial results in some more detail.
Eric Thomas Steigerwalt: Our shield product suite and expanded presence in the fixed indexed annuity market and our entrance into the Worksite channel through working with Blackrock on its life path Paychex solution. Our focus remains on balance sheet strength and controlling expenses and we continue to return capital to shareholders supported by our.
Eric Thomas Steigerwalt: Wrong, RBC ratio and robust holding company liquid assets I will now turn the call over to Ed to discuss our first quarter financial results in some more detail.
Edward Allen Spehar: Thank you, Erik, and good morning, everyone. After the market closed yesterday, Brighthouse Financial reported results for the first quarter of 2024, including preliminary statutory metrics. Through the first quarter of 2024, Brighthouse Financial maintained a strong statutory balance sheet and robust liquidity position. The company also reported adjusted earnings, less notable items, in line with our expectations for the quarter. Starting with preliminary statutory results, Combined Total Adjusted Capital, or TAC, was $6 billion as of March 31, 2024.
Ed: Thank you, Eric and good morning, everyone.
Ed: After the market closed yesterday Brighthouse financial reported results for the first quarter of 2024, including preliminary statutory metrics.
Ed: Through the first quarter of 2020 for Brighthouse financial and maintained a strong statutory balance sheet and robust liquidity position.
Ed: The company also reported adjusted earnings less notable items in line with our expectations for the quarter.
Ed: Starting with preliminary statutory results.
Ed: Combined total adjusted capital or Tac was $6 billion as of March 31, 2024 and.
Edward Allen Spehar: An approximately 300 million dollar reduction from year end 2020. The primary driver of the decrease in TAC was the impact of a reinsurance premium rate increase retroactive to September 2019, which resulted from the conclusion of a reinsurance arbitration. This rate increase is associated with the legacy block of life insurance, so there was no statutory reserve impact from this item.
Ed: And approximately $300 million reduction from year end 2023.
Ed: The primary.
Ed: Driver of the decrease in TAC was the impact from our reinsurance premium rate increase retroactive to September 2019.
Ed: Which resulted from the conclusion of our reinsurance arbitration.
Ed: This rate increase is associated with the legacy block of life insurance.
Ed: And there was no statutory reserve impact from this item.
Edward Allen Spehar: Moving to normalized statutory earnings, the first quarter results reflect a $250 to $300 million benefit from a 50 basis point increase in the prescribed 20-year treasury yield mean reversion point, or MRP. This benefit was largely offset by normal fluctuations in quarterly results, which, as we have said in the past, can be plus or minus a couple hundred million dollars. A key source of variability this quarter was actual to expected changes in our in-force annuity.
Ed: Moving to normalized statutory earnings.
Ed: First quarter results reflect a $250 million to $300 million benefit from a 50 basis point increase in the prescribed 20 year Treasury yield mean reversion point our MRP.
Ed: This benefit was largely offset by normal fluctuations in quarterly results, which as we have said in the past can be plus or minus a couple hundred million dollars.
Ed: A key source of variability this quarter was actual to expected changes in our in force annuity book.
Edward Allen Spehar: Keep in mind that small variations from quarter to quarter associated with an approximately $125 billion block of business can have a magnified impact on results. We have also started to see a negative impact on normalized statutory earnings associated with growth.
Ed: Keep in mind that small variations from quarter to quarter associated with an approximately $125 billion block of business can have a magnified impact on results.
Ed: We have also started to see a negative impact on normalized statutory earnings associated with growth.
Edward Allen Spehar: In recent years, growth has largely been funded outside of normalized statutory earnings in the form of higher required capital associated with business. More recently, we are seeing the growth in SHIELD annuities reduce normalized statutory earnings as our SHIELD business is now consuming capital, which contrasts with providing a capital offset to the equity risk associated with our Enforce VA block, as has been the case historically. The impact of this shift has been more pronounced than we originally anticipated, partially as a result of the significant growth in shield annuities.
Ed: In recent years growth has largely been funded outside of normalized statutory earnings in the form of higher required capital associated with business risk.
Ed: More recently, we are seeing the growth in shield annuities reduced normalized statutory earnings as our shield business is now consuming capital.
Ed: Which contrasts with providing a capital offset to the equity risk associated with our in force VA block as has been the case historically.
Ed: The impact of this shift has been more pronounced than we originally anticipated partially as a result of significant growth and shield annuities.
Edward Allen Spehar: As Erik mentioned, SHIELD sales increased 20% quarter over quarter. This development highlights the success of our core strategy to diversify away from our legacy block of variable annuities, or VA. Capital consumption for SHIELD reflects that we are now close to a delta neutral position on equity, meaning market movements that benefit VA are adverse for SHIELD, and vice versa.
Ed: As Eric mentioned shield sales increased 20% quarter over quarter.
Ed: This development highlights the success of our core strategy to diversify away from our legacy block of variable annuities or VA.
Ed: Capital consumption for shield reflects that we are now close to a delta neutral position on equities, meaning.
Ed: Meaning market movements that benefit VA or adverse for shield and vice versa.
Edward Allen Spehar: As a reminder, the life insurance industry is a business where you commit meaningful capital up front to generate cash in the future. As we have said in the past, we are focused on generating more consistent, long-term statutory free cash flows. A substantial increase in interest rate hedges in 2022 was a significant step toward narrowing the range of outcomes under different market scenarios, and we believe our balanced exposure to equities today is another step toward more predictable results over the long term.
Ed: As a reminder, the life insurance industry is a business, where you commit meaningful capital upfront to generate cash in the future.
Ed: As we have said in the past we are focused on generating more consistent long term statutory free cash flows.
Ed: A substantial increase in interest rate hedges in 2022 was a significant step toward narrowing the range of outcomes under different market scenarios.
Ed: And we believe our balanced exposure to equities today is another step towards more predictable results over the long term.
Edward Allen Spehar: At March 31st, our estimated combined risk-based capital, or RBC ratio, was between 415% and 435%, which is the middle of our target range of 400% to 450% in normal markets. The impact of a reduction in TAC was mostly offset by a benefit in required capital associated with lower new business risk charges for fixed annuities. Our liquidity position remains robust, with holding company liquid assets of $1.3 billion as of March 31st.
Ed: At March 31, our estimated combined risk based capital or RBC ratio was between 415% and 435%, which is the middle of our target range of 400% to 450% in normal markets.
Ed: The impact from a reduction in CAC was mostly offset by a benefit in required capital associated with lower new business risk charges for fixed annuities.
Ed: Our liquidity position remains robust with holding company liquid assets of $1 $3 billion as of March 31.
Edward Allen Spehar: I would also remind you that the non-dividend flows to the holding company cover most of our fixed charges, and we do not have any debt maturities until 2027. Moving to Adjusted Earnings Results The first quarter adjusted loss was $98 million, which compares with adjusted earnings of $177 million in the fourth quarter of 2023 and adjusted earnings of $195 million in the first quarter of 2023. The adjusted loss in the first quarter of 2024 includes a $366 million unfavorable notable item, or $5.81 per diluted share.
Ed: I would also remind you that the non dividend flows to the holding company cover most of our fixed charges and we do not have any debt maturities until 2027.
Ed: Moving to adjusted earnings results.
Ed: The first quarter adjusted loss was $98 million, which compares with adjusted earnings of $177 million in the fourth quarter of 2023, and adjusted earnings of $195 million in the first quarter of 2023.
Ed: The adjusted loss in the first quarter of 2024 includes a $366 million unfavorable notable item or $5 81 per diluted share.
Edward Allen Spehar: Entirely related to the reinsurance premium rate increase retroactive to September 2019, and the related reserve increase from the impact of the higher premium rate over the expected life of the block of business. As with any reinsurance rating, we evaluate the option of recapturing the business versus accepting the price. In this case, we determined to accept the rating.
Ed: Entire entirely related to the reinsurance premium rate increase retroactive to September 2019.
Ed: And the related reserve increase from the impact of the higher premium rate over the expected life of the block of business.
Ed: As with any reinsurance rate increase.
Ed: We evaluate the option of recapturing the business versus accepting the price increase.
Ed: In this case, we determined to accept the rate increase.
Edward Allen Spehar: Excluding the impact of the notable item, adjusted earnings were $268 million, or $4.25 per share, which is consistent with our expectations for the quarter. The alternative investment yield was 2.3% in the quarter, which is consistent with our long-term annual return assumption of 9 to 11%. Alternative investment returns in the quarter were the primary driver of the sequential increase in net investment income. The underwriting margin was in line with our expectations for the quarter; however, net claims were higher compared with the fourth quarter of 2023, as there is seasonality in direct claims. Additionally, corporate expenses were lower sequentially, mainly driven by seasonality. Turning to the sequential results by segment,
Ed: Excluding the impact of the notable items adjusted earnings were $268 million or $4 25 per share.
Ed: Which is consistent with our expectations for the quarter.
Ed: The alternative investment yield was two 3% in the quarter are consistent with our long term annual return assumption of 9% to 11%.
Ed: Alternative investment returns in the quarter were the primary driver of the sequential increase in net investment income.
Ed: The underwriting margin was in line with our expectations for the quarter.
Ed: However, net claims were higher compared with the fourth quarter of 2023 as there is seasonality indirect claims.
Ed: Additionally, corporate expenses were lower sequentially, mainly driven by seasonality.
Ed: Turning to the sequential results by segment.
Edward Allen Spehar: Adjusted earnings excluding notable items in the annuity segment were $313 million in the quarter. Sequentially, annuity results reflect higher fees driven by variable annuity separate account returns of 5.96%. Along with higher fees, expenses were lower sequentially, which was partially offset by lower net investment in GDP. The Life segment reported adjusted earnings, excluding notable items, of $37 million in the quarter. On a sequential basis, results reflect a higher underwriting margin, higher net investment income, and lower expenses.
Ed: Adjusted earnings excluding notable items in the annuity segment were $313 million in the quarter.
Ed: Sequentially annuity results reflect higher fees driven by variable annuity separate account returns of 596%.
Ed: Along with higher fees expenses were lower sequentially, which was partially offset by lower net investment income.
Ed: The life segment reported adjusted earnings excluding notable items of $37 million in the quarter.
Ed: On a sequential basis results reflect a higher underwriting margin.
Ed: Net investment income and lower expenses.
Edward Allen Spehar: The runoff segment reported an adjusted loss of $48 million, which was relatively flat on a sequential basis. Higher net investment income was offset by a lower underwriting margin. Corporate and other had an adjusted loss, excluding notable items, of $34 million.
Ed: The run off segment reported an adjusted loss of $48 million.
Ed: <unk>, which was relatively flat on a sequential basis.
Ed: Higher net investment income was offset by a lower underwriting margin.
Ed: Corporate <unk> other had an adjusted loss excluding notable items of $34 million.
Edward Allen Spehar: On a sequential basis, results were driven by a lower tax base. In conclusion, we continue to focus on diversifying away from our legacy business and generating more predictable statutory free cash flow over the long term. While we have reduced the range of outcomes associated with movements in equity markets and interest rates, we still anticipate near-term volatility in results. However, we believe that our strong balance sheet and robust liquidity position continue to support the consistent return of capital to shareholders. With that, we would like to turn the call over to the operator for your question. Thank you.
Ed: On a sequential basis results were driven by a lower tax benefit.
Ed: In conclusion, we continue to focus on diversifying away from our legacy business and generating more predictable statutory free cash flow over the long term.
Ed: While we have reduced the range of outcomes associated with movements in equity markets and interest rates, we still anticipate near term volatility in results.
Ed: However, we believe that our strong balance sheet and robust liquidity position continue to support the consistent return of capital to shareholders.
Speaker Change: With that we would like to turn the call over to the operator for your questions.
Speaker Change: Thank you.
Operator: To ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again.
To ask a question you will need to press star one on your telephone selector or your question. Please press star one again, please wait for your name to be announced we ask that you. Please limit your questions to one and one follow up please standby, while we compile the Q&A roster one moment for your first question. Please.
Operator: Please wait for your name to be announced. We ask that you please limit your questions to one and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question. And our first question will come from the line of Suneet Kamath with Jeffries. Your line is now open.
Speaker Change: And our first question will come from the line of Sydney Kamath with Jefferies. Your line is now open.
Suneet Laxman L. Kamath: Thanks. Good morning, Ed. In your prepared remarks, you talked about some actual to expected impacts in the annuity business that affected regulatory capital. Can you just provide a little bit more color in terms of what happened in the quarter?
Suneet Laxman L. Kamath: Thanks, Good morning, Ed in your prepared remarks, you talked about some actual to expected impacts on the annuity business that affected regulatory capital can you just provide a little bit more color in terms of what happened in the quarter.
Edward Allen Spehar: Sure. Good morning, Suneet.
Speaker Change: Sure Good morning <unk>.
Edward Allen Spehar: So I also mentioned in my remarks that we're talking about a $125 billion block of annuity business. So, you will have fluctuations between expected in force and actual in force in every quarter. And it will be driven by mortality, withdrawals, annuitizations, and again, you don't need to have much of a much of a deviation for it to matter for earnings.
Speaker Change: So I also mentioned in my remarks, we're talking about a $125 billion block of annuity business. So you will have fluctuations between <unk>.
Speaker Change: Expected in force and actual enforce in every quarter.
Speaker Change: And it will be driven by mortality withdrawals annuities nations and again, you don't need to have much of it.
Speaker Change: Much of a deviation for it to matter for earnings.
Edward Allen Spehar: You know, we've spent a lot of time working on attributions and analyzing results versus expectations. For example, you've heard us talk about basis risk in the past as an item that was notable. There are many factors in every quarter, you know, in every quarter that move around. And in this quarter, this was the one that was notable to point out.
Speaker Change: We spend a lot of time working on attributions in analyzing results versus expectations. For example, you've heard us talk about basis risk in the past is an item that was notable there are many factors quarter and every quarter that move around.
Speaker Change: And in this quarter. This was the one that was notable to point out.
Suneet Laxman L. Kamath: Got it. OK. And then I guess on the growth in SHIELD and now you're sort of in a more equity market neutral situation. Is that going to impact those distributable earnings scenarios that you typically give us in the spring?
Speaker Change: Okay.
Speaker Change: Got it Okay, and then I guess.
Speaker Change: The growth in shield and now you are sort of more of an equity market neutral situation.
Speaker Change: Is that going to impact those distributable earnings scenarios that you typically give us in the spring.
Edward Allen Spehar: Let me start with some of the things that I said in prepared remarks and then expand a little bit. We have experienced SHIELD's sales growth that has been better than our expectations, and this has exerted some pressure on Norm Stattery. And now that S.H.I.E.L.D.
Speaker Change: So.
Speaker Change: Let me, let me start with some.
Speaker Change: Some of the things that I said in prepared remarks, and then expand a little bit.
Speaker Change: Have experienced shield sales growth, that's been better than our expectations and this has exerted some pressure on norm stat earnings.
Edward Allen Spehar: is a capital consumer, I would say that we are moving into a new phase for how we manage this product. So, as a reminder, historically, we have managed VA risk and SHIELD together. And that has been beneficial to us from a capital standpoint as well as from a risk management perspective. Now that we are in this delta-neutral position for equities, we see an opportunity to modify our hedging approach for SHIELD. And specifically, what we are planning on doing going forward is managing SHIELD on a standalone basis versus mixing with VA. And, you know, that will entail purchasing a basket of options that will directly offset the guarantee that we are selling in the product.
Speaker Change: And now that shield is a capital consumer I would say that we are moving into <unk>.
Speaker Change: New phase for how we manage this product.
Speaker Change: So as a reminder, historically, we have managed VA risk and shield together and that has been beneficial to us from a capital standpoint, as well as from a risk management standpoint.
Speaker Change: Now that we are in this delta neutral position for equities, we see an opportunity to modify our hedging approach for shield.
Speaker Change: And specifically what we are planning on doing going forward is managing shield on a standalone basis versus mixing with VA.
Speaker Change: And.
Speaker Change: That will entail purchasing a basket of options that will directly offset the guarantee that we are we are selling in the product. So.
Edward Allen Spehar: So, we will see a change in how we manage this, which we think is going to be beneficial for us going forward. [inaudible] And just specifically on the cash flows, there's a lot of work, as you know, that goes into providing those numbers, and there are a lot of factors that move things plus and minus. And so I don't think it's appropriate to give any indication of those numbers until it's time for us to disclose them again.
Speaker Change: We will see a change in how we manage this which we think is going to be beneficial for us going forward.
Speaker Change: Okay.
Speaker Change: Okay. Thanks.
Speaker Change: Just specifically on the cash flows.
Speaker Change: There is a lot of work as you know that goes into providing those numbers and.
Speaker Change: There are a lot of factors that move things plus and minus and so I don't think its appropriate to give any indication of those numbers until it's time for us to disclose them again.
Speaker Change: Okay.
Speaker Change: Thank you.
Thomas George Gallagher: Our next question will come from the line of Tom Gallagher with Evercore ISI. Your line is now open.
Speaker Change: Our next question will come from the line of Tom Gallagher with Evercore ISI. Your line is now open.
Thomas George Gallagher: Morning, first question just on the reinsurance arbitration. Ed, as you alluded to, historically, you've done more recaptures, and they've been maybe modest charges. This one was a lot larger. You know, is there something unique to this? Or is it possible we'll see some other larger settlements as you think about your overall docket for various arbitrations? Any perspective you can give on that? Thanks.
Thomas George Gallagher: Good morning first question just on the reinsurance arbitration.
Thomas George Gallagher: Ed as you alluded to historically, you've done more recaptures and they've been maybe modest charges. This one was a lot larger.
Thomas George Gallagher: Was there something unique to this.
Thomas George Gallagher: Or is it possible we will see some other larger settlements as you think about your overall docket for various arbitrations any any perspective, you can give on that thanks.
Edward Allen Spehar: Hey, good morning, Tom. So this was different from the standpoint of it's a retroactive premium rate increase because we have been involved in a dispute around this specific contract. So you're looking back on four and a half years worth of premium rate increases, and that's the reason that this is sizable relative to the stuff we've had in the past. And if you look, we've had seven instances of re-insurers coming to us with rate increases, and we have chosen to recapture in six of those instances, and we decided to take the rate increase in this case.
Ed: Hey, good morning, Tom.
Speaker Change: This was different.
Speaker Change: From the standpoint of it's a retroactive premium rate increase because we have been involved in a dispute around this this specific contract so.
Speaker Change: Youre looking back at four and a half years' worth of premium rate increases and that's the reason that this is sizable relative to the stuff we've.
Speaker Change: In the past.
Speaker Change: And if you look we've had seven instances of reinsurers coming to us with rate increases and we have chosen to recapture and six of those instances and we decided to take the rate increase in this case.
Thomas George Gallagher: Gotcha. And anything beyond. As you think about other situations, do you think we might see something directionally similar over the next couple of years? Or do you feel like this was unique and kind of a one-off?
Speaker Change: Gotcha and any and.
Speaker Change: Anything beyond.
Speaker Change: As you think about other situations.
Speaker Change: That we might see something directionally similar over the next couple of years or do you feel like this was unique and kind of a one off.
Edward Allen Spehar: I feel like it is different from the standpoint of it being a multiple-year dispute that was resolved, and therefore, the size was material.
Speaker Change: Yes.
Speaker Change: I feel like it is different from the standpoint of it was a multiple year.
Speaker Change: Dispute that was resolved and therefore the size was material.
Eric Thomas Steigerwalt: I think if you look at our book of business, which is really the question you're trying to get at here, we have had very few changes to our mortality assumptions over the years. So every year we go through a deep analysis of all of our critical actuarial assumptions, which you know we do in the third quarter, and every year we're looking at our actual experience versus what we had assumed for mortality, and we've had very little change associated with that. So I don't believe that this is indicative of anything to do with our overall book of business.
Speaker Change: I think if you look at our book of business, which is really I think the question Youre trying to get at here.
Speaker Change: We have had very little changes to our mortality assumptions over the years. So every year. We go through a deep analysis of our all of our critical actuarial assumptions, which you know we do in the third quarter.
Speaker Change: And every year, we're looking at our actual experience versus what we had assumed for mortality and we've had very little change associated with that so I don't believe that this is indicative of anything to do with our overall book of business.
Eric Thomas Steigerwalt: Yeah, Tom, it's Erik. I'll just jump in for a second, too, maybe to wrap this up.
Speaker Change: Yes, Tom it's Eric I'll, just jump in for a second to maybe to wrap this up it was a pretty unique situation as Ed said.
Eric Thomas Steigerwalt: It was a pretty unique situation, as Ed said. In my mind here, going forward, with respect to the concept of what you're talking about, it's business as usual. Hopefully, that's helpful to try to distinguish the difference.
Eric Thomas Steigerwalt: In my mind here going forward with respect to the concept of what you're talking about it's business as usual.
Eric Thomas Steigerwalt: Hopefully that's helpful to try to distinguish the difference.
Thomas George Gallagher: That is appreciated, guys, and just one final follow-up on the question about how you were describing managing shield differently and how you're going to do more standalone hedging considering that. It sounds like your costs will be going up, you know, just through the standalone purchase of hedges. But is that something that you may need to change pricing on as a result if you are going to make this change? Can you help us think through, you know, what that kind of means through a broader lens?
Eric Thomas Steigerwalt: Okay.
Speaker Change: I appreciate that guys and just one final follow up on the question about.
Speaker Change: You were describing managing shield differently, and how youre going to do more standalone hedging.
Speaker Change: Considering that.
Speaker Change: It sounds like your cost will be going up.
Speaker Change: Just just through Standalone purchase of hedges, but.
Speaker Change: That something that you may need to change pricing on as a result, if you are going to make make this change can you help us think through what that kind of means and abroad through a broader lens.
Edward Allen Spehar: Sure, I'll start out, and maybe David will have some follow-up. If we, you know, if we look at our pricing, we are already assuming that we are hedging SHIELD in the fashion that I am talking about going forward. So that's already assumed and how we price the business. Unknown Speaker Hey, Tom. You know,
Speaker Change: Sure I'll start out and maybe David will have some follow up.
Speaker Change: If we if we look at our pricing.
Speaker Change: We're already assuming that we are hedging shield in the fashion that I'm that I am talking about going forward. So that's already assumed in how we price the business.
Speaker Change: But I'm going to give it to David to give some more details on pricing.
David Alan Rosenbaum: You know, you've heard Ed say many times that we manage the company across a multi-scenario, multi-year view, and that approach applies to our pricing of new products as well. And we talked a little bit about the tremendous growth that we've seen in Shield over time, which was 2% of account value back in 2016 and was around 26% at the end of the quarter. So we have maintained our pricing discipline during that period of growth and are comfortable with the economics of the business that we have written about in our writing. And just to kind of wrap it up, as I mentioned, we have always looked at pricing Shield on a standalone basis, so this will not change.
David Alan Rosenbaum: Hey, Tom. You know, just maybe a couple of comments here.
David Alan Rosenbaum: Hey, Tom.
David Alan Rosenbaum: Just the.
David Alan Rosenbaum: Maybe a couple of comments here, you've heard Ed say.
David Alan Rosenbaum: Before many times that we manage the company across the multi scenario multi year view and that approach applies to our pricing of new products as well.
David Alan Rosenbaum: We talked a little bit about.
David Alan Rosenbaum: The tremendous growth that we've seen in shield over time and that was 2% of account value back in 2016 and was around 26% at the end of the quarter. So we have maintained our pricing discipline during that period of growth.
David Alan Rosenbaum: And are comfortable with the economics of the business that we have written in our writing and then and just to kind of wrap up as I mentioned, we have always looked at pricing shield on a standalone basis. So this will not change that.
Speaker Change: Okay. Thanks.
Operator: One moment for our next question, please. Our next question will come from the line of Elyse Greenspan with Wells Fargo. Your line is open. Hi, thanks.
Speaker Change: Thank you.
Speaker Change: For our next question please.
Speaker Change: Our next question will come from the line of Elyse Greenspan with Wells Fargo. Your line is open.
Elyse Beth Greenspan: My first one, Ed, we were talking about the distributable earnings earlier. Is the plan still to provide them? I don't actually, I don't know if you have told us a specific timeframe, but would it be, I guess, kind of in line with September when they were disclosed last year?
Elyse Beth Greenspan: Hi, thanks. Good morning.
Elyse Beth Greenspan: Hi, Thanks.
Elyse Beth Greenspan: Good morning, My first one I guess.
Elyse Beth Greenspan: You were talking about this distributable earnings earlier is the plan still to provide them.
Elyse Beth Greenspan: I don't know if you have told US a specific timeframe would it be I guess kind of in line with September when they were disclosed last year.
Edward Allen Spehar: Good morning, Elyse. I would, but we haven't determined when we're going to do it yet. But I would remind you that last year was a bit of an off cycle, time for the release of distributable earnings. We had a number of things that were going on, LDTI, I remember; I think I talked about that. There were a number of things that in moving to all of our in-house modeling versus some external modeling that we had been using.
Speaker Change: Good morning Elyse.
Speaker Change: No.
Speaker Change: We havent determined when we're going to do it yet.
Speaker Change: But I would remind you that last year was a bit of an off cycle.
Elyse Beth Greenspan: Time for the release of distributable earnings we had a number of things that were going on related to that.
Elyse Beth Greenspan: L. DTI I remember I think I talked about that there were a number of things that in moving to all of our in house modeling versus some external.
Elyse Beth Greenspan: Modeling that we had been using and so that's why we did it in September if you recall prior to that we had been doing it in March.
Edward Allen Spehar: And so that's why we did it in September. If you recall, prior to that, we had been doing it in March of the year. So just to point that out, we haven't made a decision yet, but last year was a little bit different from a timing standpoint.
Elyse Beth Greenspan: Of the year, so just to point that out we haven't made a decision yet but last year was a little bit different from a timing standpoint.
Elyse Beth Greenspan: Okay, thanks. And then, you typically talk about, you know, kind of a five point strain on RBC from new business. I know it's different in Q1, just given the lower charges on the fixed annuity business. So how would you think, should we still use that same kind of rule of thumb of kind of five points a quarter going forward?
Speaker Change: Okay. Thanks, and then you have to.
Elyse Beth Greenspan: Talk about.
Elyse Beth Greenspan: Kind of a five point strain on RBC from new business I know, it's different in the Q1, just given the lower charges on the fixed annuity business. So how would you think should we still use that same kind of rule of thumb of kind of five points a quarter.
Elyse Beth Greenspan: Going forward.
Edward Allen Spehar: Yes, so on the five points a quarter, as you correctly note, we have said that you will see the first quarter be actually beneficial to capital because of the timing of the business risk charge, which will roll off at the end of each year, and then it grows over time. And so, we would assume that you will be using capital beyond the five points, everything else being equal, but everything else is not always equal.
Speaker Change: Yes, so on the five points a quarter as you correctly note.
Speaker Change: We have said that you will see.
Speaker Change: The first quarter, B, b actually beneficial to capital because of the.
Speaker Change: Timing of the business risk charge, which will roll off at the end of each year and then it grows over time and so we would assume that you will be using capital beyond the five points everything else being equal, but everything else is not always equal I mean, you obviously have to consider what is the level of.
Edward Allen Spehar: Fixed sales in one year versus another because that's going to be the key driver of that business risk charge. So, you know, sales levels will be important for fixed assets when you think about that. In terms of the amount of strain that we're seeing now starting to emerge in our normalized statutory earnings, again, I would say. We're in the process of making this change to hedging, and I don't really think it's time to talk about, you know, the specifics of what we're seeing that's coming through Normstadt Earnings. So for now, I think you should stick with what I've given you as sort of the outlook for capital strain associated with the business that comes directly through the denominator of the RBC ratio.
Speaker Change: Fixed sales in one year versus another because thats going to be the key driver of that business risk charge. So.
Speaker Change: Sales levels will be important for fixed when you think about that in terms of the <unk>.
Speaker Change: Out of.
Speaker Change: Strain that we're seeing now starting to emerge and in.
Speaker Change: Our normalized statutory earnings again, I would I would say.
Speaker Change: We're in the process of making this change in hedging and I don't really think it's it's time to talk about.
Speaker Change: The specifics of what we're seeing that's coming through normal stat earnings. So for now I think you would stick with the what I've. Given you is sort of the outlook for capital strain associated with the business that comes directly through the denominator of the RBC ratio.
Eric Thomas Steigerwalt: But Elyse, it's Erik. I would say, look, we have no intention of slowing down sales here with respect to SHIELD, and, of course, as you heard me discuss, Life Path Paycheck is going to be coming online throughout the year. Just to give you a little sense, though, in the second quarter, you will see a small amount of FRA sales, so it will be down a fair amount. David, do you want to comment on that? Sure.
Speaker Change: But at least it's Erica.
Speaker Change: Look we have no intention of slowing down sales here with respect to shield and of course as you heard me discuss Lightpath paycheck.
Speaker Change: It is going to be coming online throughout the year.
Speaker Change: Just to give you a little sense, though.
Speaker Change: In the second quarter, you will you will see a <unk>.
Speaker Change: Small amount of fri sales, so it'll be down a fair amount of David you want to comment on that.
David Alan Rosenbaum: Sure. So, you know, Elyse, we do manage fixed-rate annuities in the FIA, in the fixed-indexed annuity business together. And as Erik mentioned, you know, we do expect really lower sales in fixed-rate annuities this year relative to last year, and more specifically this quarter relative to the first quarter. We expect it to be lower in the second quarter versus the first quarter. And really that is because we are transitioning reinsurers for our FRA business. So that is really the driver of why we expect sales to be lower in the second quarter.
David Alan Rosenbaum: Sure so.
David Alan Rosenbaum: We do manage fixed rate annuities in the Fi and the.
Elyse Beth Greenspan: Okay, thank you.
David Alan Rosenbaum: Fixed index annuity business together it as Eric mentioned.
David Alan Rosenbaum: We do expect really lower sales and fixed rate annuities. This year relative to last year and more specifically this quarter relative to the first quarter, we expect it to be lower.
David Alan Rosenbaum: The second quarter versus the first quarter and really that is as we are transitioning reinsurers for our FIA business. So that is really the driver of why we expect sales to be lower in the second quarter.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Operator: Our next question comes from the line of Wes Carmichael with Autonomous Research. Your line is now open.
Speaker Change: Our next question comes from the line of Wes Carmichael with Autonomous Research. Your line is now open.
Wes Carmichael: Hey, good morning. On the reinsurance impact, I think you mentioned there was no impact on statutory reserves, but was there a statutory impact related to the retroactive nature of that item?
Wes Carmichael: Hey, good morning.
Wes Carmichael: On the reinsurance impact I think you mentioned there was no impact on statutory reserves, but was there a statutory impact related to the retroactive nature of that item.
Edward Allen Spehar: Good morning, Wes. Yes, it was $187 million.
Wes Carmichael: Hey, good morning, Wes, Yes, it was $187 million.
Wes Carmichael: For stat.
Wes Carmichael: Yeah, I think that and just on annuity surrenders and in VA and shield, you mentioned they picked up sequentially, you talked about that a little bit in prepared remarks, but should we think about this as kind of being more of a run rate level in 2024? I think, you know, outflows, and in that bucket, we're about 3.8 billion in the quarter.
Speaker Change: Got it thank you.
Wes Carmichael: Annuity surrenders in VA and shield you mentioned they picked up sequentially.
Speaker Change: Sequentially.
Speaker Change: About that a little bit in prepared remarks, but should we think about this as being more of a run rate level in 2024, I think outflows in that bucket were about $3 8 billion in the quarter.
David Alan Rosenbaum: Hey, Wes. This is David. Good morning.
David Alan Rosenbaum: Hey, Wes, this is David. Good morning. So, you know,
Speaker Change: Hey, David Good morning.
David Alan Rosenbaum: So one of the things that Eric had commented on in his prepared remarks, and then we talked about.
David Alan Rosenbaum: So, you know, one of the things that Erik commented on in his prepared remarks that we talked about on the last earnings call is that we expected the elevated surrender activity that we saw in 2023 to continue in 2024, albeit with a different mix. And we're seeing that. So with respect to the kind of total outflows, they were flat compared to the last quarter and up over the first quarter, given full surrenders of VA and SHIELD, really on a higher account and higher average balance given equity market performance.
David Alan Rosenbaum: Really on the last earnings call is that we expected the elevated surrender activity that we saw in 2023 to continue in 2024, and albeit with a different mix and where we're seeing that so.
David Alan Rosenbaum: With respect to kind of the total outflows they were flat compared to the last quarter and up over the first quarter, given full surrenders of VA and she'll really on higher account and higher <unk>.
David Alan Rosenbaum: Average balance given equity market performance. So when we think about it kind of on a sequential basis, so versus the fourth quarter <unk>.
David Alan Rosenbaum: So when we think about it kind of on a sequential basis, so versus the fourth quarter, the majority of that is driven by VA. You know, we do see quarter-to-quarter volatility, and we saw that in the quarter driving higher outflows. We also had higher account balances and a slight increase in SHIELD. You know, overall, outflows are weighted to VA, and we do continue to benefit from outflows of the capital-intensive legacy blocks. And, you know, with respect to the comments we made a minute ago on fixed-rate annuity sales, that could have an impact on sort of driving overall net flows in the second quarter higher.
David Alan Rosenbaum: The majority of that is driven by VA.
David Alan Rosenbaum: We do see quarter to quarter volatility.
David Alan Rosenbaum: And we saw that in the quarter driving higher <unk>.
David Alan Rosenbaum: Outflows, we also had the higher account balances and a slight increase in shield.
David Alan Rosenbaum: Overall outflows are weighted to the VA and we do continue to benefit from outflows of capital intensive legacy blocks and with respect to the comments, we made a minute ago on it.
David Alan Rosenbaum: Fixed rate annuity sales that that could have an impact on sort of driving overall net flows in the second quarter higher.
David Alan Rosenbaum: Okay.
Speaker Change: Thank you.
Speaker Change: One moment for our next question please.
David Alan Rosenbaum: Thank you. One moment for our next question, please. Our next question comes from the line of Wilma Burdis with Raymond James. Your line is now open.
David Alan Rosenbaum: Our next question comes from the line of Wall Novartis with Raymond James Your line is now open.
Wall Novartis: Hey, good morning could you just talk a little bit about the products that were impacted by the reinsurance repricing. Thank you.
Wilma Carter Jackson Burdis: Hey, good morning, Wilma. Yeah, so. You know, we had it was UL. D U L. Primarily ULSG, to a lesser extent.
Wall Novartis: Hey, good morning Wilma.
Wilma: Yes so.
David Alan Rosenbaum: We had it was.
David Alan Rosenbaum: UL.
David Alan Rosenbaum: <unk>.
David Alan Rosenbaum: Primarily USG.
David Alan Rosenbaum: To a lesser extent.
Speaker Change: Okay. Thank you.
Wilma Carter Jackson Burdis: Thank you. One moment for our next question. Our next question comes from the line of Ryan Krueger with KBW. Your line is now open.
Speaker Change: Thank you one moment our next question.
Speaker Change: Our next question comes from the line of Ryan Krueger with <unk>. Your line is now open.
Ryan Joel Krueger: Hey, good morning. A couple companies had COI litigation outcomes in the first quarter. Not sure if that was a coincidence or if something broader is going on, but just curious if you have anything outstanding there.
Ryan Joel Krueger: Hey, good morning.
Ryan Joel Krueger: A couple of companies had COI litigation outcome.
Ryan Joel Krueger: Outcomes.
Ryan Joel Krueger: First quarter I'm not sure if that was a coincidence there something broader going on so just curious if you have anything outstanding there.
Eric Thomas Steigerwalt: Hey Ryan, it's Erik. If you look at the 10K from 23, you can see that we have two things in there on COIs, but Our situation is a little different from what you've probably seen previously. We have not raised COI rates on any class of policyholders. And so the two Brighthouse COI litigations are not based on allegations that Brighthouse raised COI rates on, you know, a class of policyholders. So it's a little different than what you've seen in at least some of the other cases. So the disclosures identify these two COI litigations, but they are not related to COI rate increases.
Ryan Joel Krueger: Hey, Ryan it's Eric if you look at the 10-K from 23, you can see that we have.
Eric Thomas Steigerwalt: Two things in there on <unk>, but.
Eric Thomas Steigerwalt: Our situation is a little different from what you've probably seen previously we have not raised COI rates on any class of policyholders and so the two bright house COI litigations are not based on allegations that brighthouse raise COI rates on an a class a.
Eric Thomas Steigerwalt: Policyholders, so it's a little different than than what <unk> seen in at least some of the other cases.
Eric Thomas Steigerwalt: So the disclosures identify these two cys litigations, but they are not related to CLI rate increases.
Ryan Joel Krueger: Okay, that's helpful. Thank you. And then on the life path paycheck, anything you can do to frame the potential size, I guess, when you think about the 27 billion of eligible AUM, like, you know, I guess, would you anticipate a low single-digit allocation to annuities to start or anything you can do to frame that?
Eric Thomas Steigerwalt: Okay. That's helpful. Thank you and then on the.
Eric Thomas Steigerwalt: Life's path paycheck anything you can do to frame the potential size I guess, when you think about the $27 billion of eligible.
Eric Thomas Steigerwalt: Mike.
Eric Thomas Steigerwalt: I guess, what would you anticipate like a low single digit allocation due to annuities.
Eric Thomas Steigerwalt: Anything you can do to frame that.
Eric Thomas Steigerwalt: Ryan, you can't believe how much I would love to frame that. But I'm going to, we're just going to take it step by step. We are extremely excited about this. As you can see, we got the first money in here in April. And you're going to see more coming through as companies adopt a life path paycheck in their 401k plans, and then we start to get the allocation from those folks who are 55 and older, you know, buying income units from the two carriers.
Eric Thomas Steigerwalt: Ryan you can't believe how much I would love to frame that but.
Ryan Joel Krueger: We're just going to take it step by step we are <unk>.
Speaker Change: Extremely excited about this.
Eric Thomas Steigerwalt: As you as you see we got the first money in here.
Eric Thomas Steigerwalt: In April and Youre going to see more coming through as companies adopt a lifestyle paycheck and therefore, one K plan and then we start to get the allocation from those folks who are 55 and older.
Eric Thomas Steigerwalt: Buying income units.
Eric Thomas Steigerwalt: From the two carriers. So I think what we'll do is over this year, we're going to start to be able to give some sense of what it looks like.
Eric Thomas Steigerwalt: So, I think what we'll do is, this year, we're going to start to be able to give some sense of what it looks like, you know, and then hopefully, be able to give a sense of what it might look like going forward. I'm going to wait till later in the year, but I will just say we are very excited. This has been a long time coming, and it's an exciting development for all of us.
Eric Thomas Steigerwalt: And then hopefully be able to give a sense of what it might look like going forward.
Eric Thomas Steigerwalt: I'm going to wait until later in the year, but I will just say we are very excited this has been a longtime coming and it's and it's an exciting development for all of us.
Ryan Joel Krueger: Thanks. Will you report those in the annuity segment? Or where will that come from? Yes, we will.
Speaker Change: Thanks will you report those in the annuity segment.
Speaker Change: Where will that come through.
Eric Thomas Steigerwalt: Okay, great. Thank you. Thank you.
Speaker Change: Yes, we will.
Speaker Change: Okay, great. Thank you.
Edward Allen Spehar: Thank you. So just very quickly, if I could follow up on Wilma's question, because I want to clarify. The breakdown that I was providing you was as a percentage or relative to our reinsurance in force for those various categories. So if you're looking specifically at this contract, this was more ULSG than it was UL and VUL, but as a percentage of our total reinsured book, it's the other way
Speaker Change: Thank you. So just just very quickly if I could follow up on <unk> question, because I wanted to clarify.
Speaker Change: The breakdown that I was providing you was.
Speaker Change: As a percentage or relative to our reinsurance in force for those various categories. So.
Speaker Change: If youre looking specifically at this contract. This was more USG then it was <unk>, but as a percentage of our total reinsured book, it's the it's the other way around.
Operator: Thank you. As a reminder, to ask a question, you'll need to press star 11 and wait for your name to be announced. Our next question will come from the line of Jimmy Bhullar from J.P. Morgan. Your line is now open.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one one and wait for your name to be announced and next question will come from the line of Jimmy <unk> from J P. Morgan. Your line is now open.
Jamminder Singh Bhullar: Hey, good morning. Hey, Ed, can you talk about the DOL rule and if you expect any impact on your business from that, to the extent that you can give us any details or comments?
Jimmy: Hey, Good morning, Ed can you talk about the Dol rule and if you expect any impact on your business from that.
Jimmy: To the extent you can give us any details or color.
Jamminder Singh Bhullar: Oh, good morning, Jimmy. It's Erik.
Jimmy: Good morning, Jimmy it's Eric.
Eric Thomas Steigerwalt: Look, you've heard a lot about this now, all the way back to the previous situation a number of years ago. I think companies are still trying to figure out exactly what it'll mean, but we... We're working with all of our distributors on what to do here, what we think might happen. We don't really have any sense with respect to a sales hit, but Look, we've got the NAIC suitability, it's called suitability and annuities transactions model out there. It's been adopted by 45 states.
Jimmy: Look you've heard a lot about this now all the way back to the previous situation a number of years ago.
Jimmy: I think companies are still trying to figure out exactly what it will mean.
Jimmy: But we.
Jimmy: We're working with all of our distributors.
Jimmy: On what to do here, what we think might might happen, we don't really have any.
Jimmy: With respect to our sales hit but.
Jimmy: Look we've got the SAIC suitability, it's called suitability and annuities transactions model out there it's been adopted by 45 states.
Eric Thomas Steigerwalt: It is designed to protect consumers, you've heard this before. So generally, we share the concerns of many in the industry regarding the potential impact here, even with respect to just regulation that is not necessary. So it's hard to quantify any sales, potential sales hit. I would say that it would be fair to think that a number of companies are gonna have higher compliance costs, et cetera, et cetera. But I can't really quantify it, and I can tell you that, for the time being, sales are strong. So we'll have to see how this plays out in the coming months, but that's about all I can really tell you.
Jimmy: It is designed to protect consumers you've heard this before.
Jimmy: So generally we share the concerns of many in the industry regarding the potential impact here, even with respect to just regulation that is not necessary.
Jimmy: It's hard to quantify any any sales potential sales hit I would say that it would be fair to think that a number of companies are going to have higher compliance costs et cetera et cetera.
Jimmy: I can't really quantify it and I can tell you for the time being sales are strong. So we'll have to see how this plays out.
Jimmy: In future months, but that's about all I can really tell you.
Jamminder Singh Bhullar: Okay, and then on the reinsurance price increase, should we assume a modestly negative impact on future GAAP and STAT income? And I'm not sure if you're able to quantify what that impact would be.
Jimmy: Okay, and then on the reinsurance.
Jimmy: The price increase.
Jimmy: Should we assume a modestly negative impact on future <unk>.
Jimmy: GAAP and stat income and I'm not.
Jimmy: Not sure if you're able to quantify what it would be.
Edward Allen Spehar: Hi Jimmy, it's Ed. So we have said I have said that the normal run rate EPS for us is something around north of $4. You saw this quarter, if you adjusted for the notables, it was four and a quarter, which we said was in line with our expectations. This price increase does not change any of the outlook I've given in terms of what the normal run rate would be for gap earnings. You know, it does have a negative impact because you're paying more. But in terms of significance. You know, it's not going to change my view on what the run rate earnings for the company are.
Jimmy: Hi, Jimmy it's Ed so.
Jamminder Singh Bhullar: Okay, thanks. So there's something in the division, but it gets absorbed, sort of, I guess it's not major enough to move the overall needle on overall APS, right? Correct.
Ed: We have said I've said that normal run rate EPS for us is something around north of $4 $4. You saw this quarter. If you adjusted for the notables. It was four in a quarter, which we said was in line with our expectations.
Ed: This this price increase does not change any of the.
Jimmy: Outlook I've given in terms of what the normal run rate would be for GAAP earnings.
Jimmy: It does have a negative impact because you are paying more but in terms of significance.
Jimmy: It's not going to change my view on what the.
Jimmy: Run rate earnings.
Jimmy: For the company.
Speaker Change: Okay. Thanks.
Jimmy: There is something in the division, but it would get absorbed the sort of I guess.
Jimmy: Non major enough to move the overall needle on overall EPS right.
Jamminder Singh Bhullar: And then if I could just ask one more question, on the Shield product. You've obviously grown pretty fast over time, and many of your peers have as well. How is that market overall in terms of terms, conditions, and attractiveness from your standpoint? And the reason I'm asking is that a lot of other companies have similar products, so are you seeing fairly rational and disciplined competition, or are there some companies that have come in that are trying to sort of offer better terms and conditions just to gain share?
Jimmy: Correct.
Speaker Change: And then if I could just ask one more.
Speaker Change: On the shield product view of our business growing pretty fast over time and many of your peers have as well.
Speaker Change: Is that market overall in terms of terms conditions attractiveness from your standpoint.
Speaker Change: And the reason I'm asking is a lot of other companies have similar products, though are you seeing the rational and disciplined competition or are there. Some companies that have come in that are trying to sort.
Speaker Change: Offer better terms and conditions.
Eric Thomas Steigerwalt: Jimmy, maybe I'll start and then Myles, you're going to jump in, correct? [inaudible] Look, this market has grown really well. You've probably heard Myles say, I know you've heard Myles say over the last couple of years that we welcome competition because it has grown the market, and this is a good product for consumers, and it's a good product for manufacturers. I think it's still rational. We don't see situations where we just can't understand, and we continue to grow very nicely as we enter the second quarter here. We want to keep growing this business here at Brighthouse, certainly. Myles, any additional conversation you want to have? I guess what I would say, Eric...
Speaker Change: Just to gain share.
Speaker Change: Jamie maybe I'll start and then miles youre going to jump in and correct.
Jamie: Look this market has grown really well, you've probably heard miles I know you've heard miles over the last couple of years that.
Jamie: We welcome the competition because it has grown the market and this is a good product for consumers and it's a good product for manufacturers I think it's still rational.
Jamie: We don't see situations, where we just can't understand and we continue to grow very nicely, even even as we enter the second quarter here. So we want to keep growing this business here at Brighthouse certainly miles any any continue or any additional conversation you want to make.
Myles Joseph Lambert: I guess what I would say, Erik, is that I agree. I believe competition has been appropriate, and we think it's a good thing for advisors and consumers. I think it certainly has had some impact on sales, but overall, I think the category is strong, and it is growing. From our perspective, we remain very pleased with sales. The first quarter was one of our best quarters yet as it relates to overall shield sales.
Speaker Change: I guess, what I would say, Eric because I agree I believe competition has been.
Eric Thomas Steigerwalt: Appropriate and we think it's a good thing for advisors and consumers I think it certainly has had some impact on sales, but overall I think the category is strong and it is growing from our perspective, we remain very pleased with sales.
Speaker Change: First quarter is one of our best quarters, yet as it relates to overall shield sales, we'd like the competitiveness of our product and we continue to round out our offering with things like show level pay plus.
Myles Joseph Lambert: We like the competitiveness of our product, and we continue to round out our offering with things like Shield Level Pay Plus and a new crediting strategy that we offered last year, which was Step Right Edge. We like our competitive positioning, and we like where the category is going overall.
Speaker Change: And our new crediting strategy that we offered last year, which was separate edge. So we like our competitive positioning and we like where the category is that overall.
Speaker Change: Thank you.
Dana Amante: This concludes our Q&A session. I will now turn the call back to Dana Amante for closing remarks.
Speaker Change: Thank you this.
Speaker Change: This concludes our Q&A session I will now turn the call back to Dana our mantra for closing remarks.
Dana Amante: Thank you, Norma, and thank you, everyone, for joining the call today. Have a great day.
Dana: Thank you Norma and thank you everyone for joining the call today have a great day.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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