Q2 2024 Brighthouse Financial Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Brighthouse Financial second quarter 2024 earnings conference call. My name is Victor, and I'll be your coordinator today.
Operator: 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.
Speaker Change: Good morning, ladies and gentlemen, and welcome to the Brighthouse Financial second quarter 2024 earnings conference call.
Victor: My name is Victor, 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 towards the end of the conference call. In fairness to all participants, please limit yourself to one question and one follow-up.
Operator: As a reminder, the conference is being recorded for replay purposes. I would like to hand the presentation over to Dana Amante, head of investor relations. Ms. Amante, you may proceed.
Victor: As a reminder, the conference is being recorded for replay purposes. I would now like to hand the presentation over to Dana Amante, Head of Investor Relations. Ms. Amante, you may proceed.
Dana Amante: Thank you and good morning. Welcome to Brighthouse Financial's second 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.
Unknown Executive: Thank you and good morning. Welcome to Brighthouse Financial's second 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. Brighthouse Financial's actual results may differ materially from the results anticipated in the forward-looking statements as a result of the risk and uncertainties described from time to time in its filings with the SEC. Information discussed on today's call applies only as of today, August 8, 2024. The company undertakes no obligation to update any information discussed on today's call.
Unknown Executive: Our preliminary statutory results were disappointing. Our estimated statutory combined risk-based capital, or RBC ratio, was between 380 and 400%, which is at or modestly below the low end of our target range of 400% to 450% in normal markets. I would like to provide a few perspectives on the change in statutory capital and our estimated RBC ratio, and Ed will provide more details during his prepared remarks. As we have said in the past, the financial and risk management strategy at Brighthouse was founded on maintaining a strong capital position at our life insurance companies, as defined by a target combined RBC ratio of between 400 and 450 percent under normal market conditions, coupled with substantial liquidity at the holding company.
Unknown Executive: In the second quarter, our capital and liquidity position remained strong, resulting in an approximately $600 million decline in statutory combined total adjusted capital. However, we have maintained a robust liquidity position with liquid assets at the holding company of $1.2 billion as of June 30, including reinsurance opportunities, which are designed to improve capital efficiency, unlock capital, and restore the RBC ratio to the target range within the next six to 12 months. Since year-end 2017, our spread-based business has grown by over 225% on an account value basis. Now, let me turn to our continued progress in executing our focus strategy. Bringing year-to-date corporate expenses through June 30th to $407 million.
Unknown Executive: This is approximately 6% lower compared with the same period in 2023. The growth in SHIELD and FIA was offset by lower fixed deferred annuity sales. We expected second quarter fixed deferred annuity sales to be lower as we transition to a new reinsurer for this product, which went into effect in June of this year.
Unknown Executive: I am pleased with the continued steady growth in both our annuity and life insurance sales, and we continue to focus on refreshing our products over time. But we expect more activity in the fourth quarter and an additional $25 million of common stock repurchased through August 2nd. Through our disciplined and focused execution, we have accomplished a significant amount over the last several years, and we expect to continue that progress in the future. We have a strategy in place that we are focused on executing.
Unknown Executive: And then close with a review of our adjusted earnings. Our statutory combined risk-based capital, or RBC ratio, was estimated to be between 380 and 400 percent. And we had a normalized statutory loss of approximately $600 million in the quarter. First, basis risk, which, as we have said before, fluctuates quarter to quarter, accounted for almost 40 percent of the normalized statutory loss in the quarter, which I discussed on the first quarter earnings call.
Unknown Executive: This dynamic contrasts with a capital benefit or a contribution to normalized statutory earnings associated with New Shield Sales for most of our existence as a public company, and one of these initiatives is related to Shield New Business. While our RBC ratio was at or modestly below the lower end of our target range, our liquidity position remains robust.
Dana Amante: Thank you and good morning. Welcome to Brighthouse Financial's second quarter 2024 earnings call. Materials for today's call were released last night and can be found on the investor relations section of our website.
Unknown Executive: Withholding company liquid assets of $1.2 billion as of June 30, Moving to Adjusted Earnings Results. Driven by a higher underwriting margin and seasonal items, which include lower corporate expenses, which compares with adjusted earnings, less notable items of $268 million in the first quarter of 2024. Turning to the sequential results by segment.
Unknown Executive: Adjusted earnings in the annuity segment were $332 million in the quarter. Annuity results reflect a higher underwriting margin for our income annuities, higher fees, and lower expenses sequentially. The adjusted loss of $30 million in the runoff segment reflects a higher underwriting margin sequentially. To wrap up, Our confidence in our financial position and ability to execute on initiatives to unlock capital and improve capital efficiency is reflected in our plan to continue our share repurchase program. With that, we would like to turn the call over to the operator for your questions.
Unknown Executive: The answer to the question is no, because we believe that basis risk, and our work would suggest that this will continue, that it is volatile from quarter to quarter, but there is no reason to expect it to be either positive long-term or negative long-term.
Unknown Executive: Sure, so let me start with maybe how I would think conceptually about what we're trying to accomplish with these initiatives. And you heard our comments on life.
Unknown Executive: Our thought process is similar to the actions we took back in 2022 to narrow the range of outcomes for market scenarios. So when we were looking at the environment in 22 with interest rates up a lot, we decided that it made sense to trade some of the upside cash flows in good environments to create a much more favorable outcome in an adverse scenario. What we're looking at today, and you've seen it in all of our statutory free cash flow disclosures over the years, is that we show significant...
Unknown Executive: These initiatives, which were started earlier in the year, will get us back to the $400 to $450 that we want to be at. I mean, we're slightly below it right now. That doesn't overly concern me because we've got $1.2 billion in the holding company. You know, we're continuing to buy back stock because we feel comfortable here. But these initiatives, of course, will serve double duty. They will not only work on capital efficiency, as Ed has already said, but they will also help us restore our RBC ratio to the 400 to 450 that we want to operate at.
Operator: Thank you. Please take a moment for our next question.
Unknown Executive: Good morning. The first question is, how long do you think it's going to take to execute these reinsurance contracts? Will it take six to 12 months for those to begin, or do you think it'll happen sooner? And what would we anticipate.
Ed: Yeah, Tom, it's Ed. So because of the fact that we manage VA and SHIELD together and that we're focused on stat, with this, the net impact would have been about $100 million.
Unknown Executive: Yeah, I don't know that I would say. I think the idea here is that we are pursuing different avenues for simplicity. It'll never be simple, as you know, but it will be simpler. And so, you know, I think that that is going to be a key driver of how we manage the risk overall.
Unknown Executive: I would say that given our performance in the first half, which is off of our plan, it doesn't seem likely today that we would take money up from Brighthouse Life Insurance Company. But we'll see how the second half plays out before we make a final decision later this year.
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 discussion 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.
Unknown Executive: I mean, certainly there should be some transactions, multiple, I don't know, we'll have to see how this plays out. Look, when I said, and I think Ed reiterated it in his comments as well, six to 12 months here, look, we don't want to be cavalier about just saying, you know, getting back to our 400 to 450 range will happen, you know, in the course of a couple of weeks. That just doesn't seem appropriate to do that. We've never operated that way, and I've never spoken that way. So I'm saying we feel comfortable that we can be within our target range within six to 12 months.
Unknown Executive: As much margin, I guess, to handle volatility that it has now that it's gone from a capital contributor to a capital consumer. Now, obviously, its credit's been fine, but that was a motivator for us. I would say in concert with that, it wouldn't be surprising to you, I don't think, to assume that if we're worried a little bit about credit, we probably weren't overly excited about the equity market. But we're not hoping for that.
Speaker Change: We encourage you to review all of these materials.
Operator: Thank you. Please take a moment for our next question.
Unknown Executive: Okay, thank you. And then. I know you've talked a lot about the buyback, but,
Unknown Executive: Yeah, Wilma, I would just add that we've not been forward-looking. We have said historically that we have been opportunistic.
Unknown Executive: Hey, thanks. Good morning. On the initiatives that you're looking into, I think most of the questions have been revolving around external reinsurance, but is internal reinsurance also part of the potential initiatives that you're looking into?
Speaker Change: Today, you will hear from Erik Steigerwalt, our President and Chief Executive Officer, and Ed Spehar, our Chief Financial Officer.
Speaker Change: Following our prepared remarks, we will open the call up for a question and answer period.
Speaker Change: 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.
Dana Amante: Brighthouse Financial's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risk and uncertainties described from time to time in Brighthouse Financial's filings with the SEC. Information discussed on today's call speaks only as of today, August 8, 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-gap measures.
Speaker Change: 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.
Speaker Change: Brighthouse Financial's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risk and uncertainties described from time to time in Brighthouse Financial's filings with the SEC.
Speaker Change: Information discussed on today's call speaks only as of today, August 8, 2024. The company undertakes no obligation to update any information discussed on today's call.
Dana Amante: Reconciliation of these non-gap measures on an historical basis to the most directly comparable gap measures and related definitions may be found in our earnings release, the fly presentation, and financial supplements. 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 seat. Now, I'll turn the call over to our CEO, Eric Steigerwalt.
Speaker Change: 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.
Speaker Change: 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 supplement. Thank you.
Speaker Change: 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.
Eric Steigerwalt: Dana, good morning to everyone, and thank you for joining the call. The second quarter had many positive developments, including record sales of our flagship Shield annuities, the first deposits received through BlackRock's Lifepath Paycheck, and Strong Adjusted Earnings Results. Our preliminary statutory results were disappointing. Our estimated statutory combined risk-based capital, or RBC ratio, was between 380 and 400 percent, which is at or modestly below the low end of our target range of 400 percent to 450 percent for the normal market.
Speaker Change: And now I'll turn the call over to our CEO , Erik Steigerwalt.
Eric Steigerwalt: Thank you, Dana. Good morning to everyone, and thank you for joining the call.
Eric Steigerwalt: While the second quarter had many positive developments, including record sales of our flagship Shield annuities,
Speaker Change: The first deposits received through BlackRock's Lifepath Paycheck and strong adjusted earnings results. Our preliminary statutory results were disappointing.
Speaker Change: Our estimated statutory combined risk-based capital, or RBC ratio, was between 380 and 400 percent, which is at or modestly below the low end of our target range of 400 percent to 450 percent normal markets.
Eric Steigerwalt: I would like to provide a few perspectives on the change in statutory capital and our estimated RBC ratio, and Ed will provide more details during his prepared remarks. As we have said in the past, the financial and risk management strategy at Brighthouse was founded on maintaining a strong capital position at our life insurance companies, as defined by a target combined RBC ratio of between 400 and 450 percent under normal market conditions, coupled with substantial liquidity at the holding company.
Speaker Change: I would like to provide a few perspectives on the change in statutory capital and our estimated RBC ratio, and Ed will provide more details during his prepared remarks.
Ed Spehar: As we have said in the past, the financial and risk management strategy at Brighthouse
Ed Spehar: was founded on maintaining a strong capital position at our life insurance companies, as defined by a target combined RBC ratio of between 400 and 450 percent normal market conditions,
Eric Steigerwalt: In the second quarter, our capital and liquidity position remained strong. The RBC ratio declined, driven by the underlying performance of our variable annuity or VA and shield business, resulting in an approximately $600 million decline in statutory combined total adjusted capital.
Ed Spehar: coupled with substantial liquidity at the holding company.
Ed Spehar: In the second quarter, our capital and liquidity position remain strong.
Ed Spehar: But the RBC ratio declined driven by the underlying performance of our Variable Annuity, or VA, and SHIELD business, resulting in an approximately $600 million decline in statutory combined total adjusted capital.
Eric Steigerwalt: However, we have maintained a robust liquidity position with liquid assets at the holding company of $1.2 billion as of June 30th. However, while our capital and liquidity position remains strong, we are not pleased with our statutory results this year. To that end, we have been actively engaged in a number of specific initiatives, including reinsurance opportunities, which are designed to improve capital efficiency, unlock capital, and restore the RBC ratio to the target range within the next six to 12 months. Importantly, we believe that our strong capital and liquidity position supports continued capital return to shareholders.
Ed Spehar: However, we have maintained a robust liquidity position with liquid assets at the holding company of $1.2 billion as of June 30th.
Ed Spehar: While our capital and liquidity position remain strong, we are not pleased with our statutory results this year.
Ed Spehar: To that end, we have been actively engaged in a number of specific initiatives.
Ed Spehar: including reinsurance opportunities, which are designed to improve capital efficiency, unlock capital, and restore the RBC ratio to the target range within the next 6 to 12 months.
Ed Spehar: Importantly, we believe that our strong capital and liquidity position supports continued capital return to shareholders.
Eric Steigerwalt: Although the year-to-date results are below our plan, we continue to be pleased with the progress we have made de-risking the company since our separation from MetLife. Since year-end 2017, our spread-based business has grown by over 225% on an account value basis, primarily driven by continued growth in our SHIELD business, and our variable annuity account value has decreased by approximately 27% over that same period.
Ed Spehar: Although the year-to-date results are below our plan, we continue to be pleased with the progress we have made de-risking the company since our separation from MetLife.
Ed Spehar: Since year-end 2017, our spread-based business has grown by over 225 percent on an account value basis.
Ed Spehar: Primarily driven by continued growth in our SHIELD business.
Ed Spehar: And our variable annuity account value has decreased by approximately 27 percent over that same period.
Eric Steigerwalt: Along the way, we also substantially de-risked the company by lowering our equity risk tolerance before the pandemic and moving from a tactical to strategic position on interest rate risk in 2022, when long-term interest rates were roughly 350 to 4%. Now, let me turn to our continued progress on executing our focus strategy. In the second quarter, corporate expenses were $200 million.
Ed Spehar: Along the way, we also substantially de-risked the company by lowering our equity risk tolerance before the pandemic.
Ed Spehar: and moving from a tactical to strategic position on interest rate risk in 2022, when long-term interest rates were roughly 350 to 4%.
Ed Spehar: Now, let me turn to our continued progress on executing our focus strategy.
Eric Steigerwalt: Bringing year-to-date corporate expenses through June 30th to $407 million, which is approximately 6% lower compared with the same period in 2023. While we expect expenses to increase in the second half of 2024, we still anticipate full year 2024 corporate expenses to be lower than full year 2023 corporate expenses. We remain committed to disciplined expense management and continue to evaluate potential areas of improvement to manage expenses and generate additional savings over the next several years.
Ed Spehar: In the second quarter, corporate expenses were $200 million, bringing year-to-date corporate expenses through June 30th to $407 million.
Ed Spehar: Which is approximately 6% lower compared with the same period in 2023.
Ed Spehar: While we expect expenses to increase in the second half of 2024, we still anticipate full-year 2024 corporate expenses to be lower than full-year 2023 corporate expenses.
Ed Spehar: We remain committed to discipline expense management and continue to evaluate potential areas of improvement to manage expenses and generate additional savings over the next several years.
Eric Steigerwalt: Moving to Distribution and Sales. I'm proud of the success of our distribution franchise. I've said that before.
Ed Spehar: Moving to distribution and sales.
Eric Steigerwalt: The second quarter sales results further demonstrate our complementary and diversified suite of annuity and life insurance products. Year-to-date through June 30th, total annuity sales were $5.3 billion, consistent with the same period in 2023. We remain a leader in the registered index-linked annuity market with record sales of our Shield annuities, which exceeded $2 billion in the quarter. Year-to-date SHIELD sales exceeded $3.9 billion, a record level for the first half of the year and an increase of 23% over the same period in 2023.
Speaker Change: I'm proud of the success of our distribution franchise. I've said that before. The second quarter sales results further demonstrate our complementary and diversified suite of annuity and life insurance products.
Eric Steigerwalt: Also contributing to total annuity sales in the first half of 2024 were $351 million in fixed indexed annuity, or FIA, sales. A 60% increase over 2023 driven by our SecureKey product, which was launched last November. The growth in S.H.I.E.L.D. and F.I.A.
Ed Spehar: Year-to-date through June 30th, total annuity sales were $5.3 billion, consistent with the same period in 2023.
Ed Spehar: We remain a leader in the registered index-linked annuity market with record sales of our SHIELD annuities, which exceeded $2 billion in the quarter.
Speaker Change: Year-to-date SHIELD sales exceeded $3.9 billion, a record level for the first half of the year, and an increase of 23% over the same period in 2023.
Speaker Change: Also contributing to total annuity sales in the first half of 2024 were $351 million in Fixed Indexed Annuity, or FIA, sales.
Speaker Change: A 60% increase over 2023, driven by our SecureKey product, which was launched last November .
Eric Steigerwalt: was offset by lower fixed deferred annuity sales. As we mentioned on our first quarter earnings call, we expected second quarter fixed deferred annuity sales to be lower as we transition to a new reinsurer for this product, which went into effect in June of this year.
Speaker Change: The growth in S.H.I.E.L.D. and F.I.A. was offset by lower fixed deferred annuity sales.
Speaker Change: As we mentioned on our first quarter earnings call, we expected second quarter fixed deferred annuity sales to be lower as we transition to a new reinsurer for this product. That went into effect in June of this year.
Eric Steigerwalt: Life Insurance Sales in the second quarter were 28 million dollars, which contributed to record year-to-date life insurance sales of 57 million dollars, an increase of approximately 19 percent compared with the same period last year. I am pleased with the continued steady growth in both our annuity and life insurance sales. And we continue to focus on refreshing our products over time. Last month, as an example, we launched our newest iteration of our Shield product, along with new enhancements to our SmartCare product suite.
Speaker Change: Life insurance sales in the second quarter were $28 million, which contributed to record year-to-date life insurance sales of $57 million, an increase of approximately 19% compared with the same period of 2023.
Speaker Change: I am pleased with the continued steady growth in both our annuity and life insurance sales. And we continue to focus on refreshing our products over time.
Speaker Change: Last month, as an example, we launched our newest iteration of our Shield product, along with new enhancements to our SmartCare product suite.
Eric Steigerwalt: I am also extremely excited about BlackRock's Lifepath Paycheck, which launched at the end of April. In the quarter, we received our first deposits of over $340 million through this innovative solution. We expect inflows associated with Life Path Paycheck to be uneven on a quarter-to-quarter basis as defined contribution plans implement the solution.
Blackrock: I am also extremely excited about BlackRock's Lifepath Paycheck that launched at the end of April .
Speaker Change: In the quarter, we received our first deposits of over $340 million through this innovative solution.
Speaker Change: We expect inflows associated with life path paycheck to be uneven on a quarter to quarter basis as defined contribution plans implement the solution.
Eric Steigerwalt: So we do not expect much activity in the third quarter. But we expect more activity in the fourth quarter. We are thrilled with the launch and Lifepath Paychecks Success Today.
Speaker Change: So, we do not expect much activity in the third quarter, but we expect more activity in the fourth quarter.
Speaker Change: We are thrilled with the launch and Lifepath Paycheck's success to date.
Eric Steigerwalt: In addition, year-to-date through August 2nd, we repurchased $151 million of our common stock, with $64 million repurchased in the second quarter and an additional $25 million of common stock repurchased through August 2nd. We continue to believe that our strong capital and liquidity position supports our commitment to returning capital to shareholders through common stock repurchases. In closing, while we had many successes in the quarter, we have a number of specific initiatives underway designed to improve capital efficiency, unlock capital, and return the RBC ratio to our target range within the next six to twelve months. We have successfully managed through many challenges over the last several years related to macroeconomic volatility. Regulatory changes and, of course, a global pandemic.
Speaker Change: In addition, year-to-date through August 2nd, we repurchased $151 million of our common stock.
Speaker Change: with $64 million repurchased in the second quarter, and an additional $25 million of common stock repurchased through August 2nd.
Speaker Change: We continue to believe that our strong capital and liquidity position supports our commitment to returning capital to shareholders through common stock repurchases.
Speaker Change: In closing, while we had many successes in the quarter, we have a number of specific initiatives underway designed to improve capital efficiency, unlock capital, and return the RBC ratio to our target range within the next 6 to 12 months.
Speaker Change: We have successfully managed through many challenges over the last several years related to macroeconomic volatility.
Edward Spehar: With our disciplined and focused execution, we have accomplished a significant amount over the last several years, and we expect to continue that progress in the future. We have a strategy in place that we are focused on executing. And I look forward to updating you on our progress later this year. I will now turn the call over to Ed to discuss our second quarter financial results in some more detail.
Speaker Change: Regulatory changes, and of course, a global pandemic.
Speaker Change: With our disciplined and focused execution, we have accomplished a significant amount over the last several years, and we expect to continue that progress in the future.
Speaker Change: We have a strategy in place that we are focused on executing.
Speaker Change: And I look forward to updating you on our progress later this year.
Speaker Change: I will now turn the call over to Ed to discuss our second quarter financial results in some more detail.
Edward Spehar: Thank you, Erik, and good morning, everyone. I will begin with commentary on our preliminary statutory results and the change in capital in the second quarter, and then close with a review of our Adjusted Earnings. As of June 30th, 2024, our statutory combined risk-based capital, or RBC ratio, was estimated to be between 380 and 400%. Which, as Erik mentioned, is at or modestly below the lower end of our target range of 400 to 450% in normal market conditions. Our statutory combined total adjusted capital, or TAC, was $5.4 billion at June 30, down from $6 billion as of March 31st.
Ed Spehar: Thank you, Erik, and good morning, everyone.
Ed Spehar: I will begin with commentary on our preliminary statutory results.
Ed Spehar: and the change in capital in the second quarter.
Ed Spehar: And then close with a review of our adjusted earnings.
Ed Spehar: As of June 30th, 2024, our statutory combined risk-based capital, or RBC ratio, was estimated to be between 380 and 400 percent.
Speaker Change: Which, as Erik mentioned, is at or modestly below the lower end of our target range of 400 to 450 percent in normal market conditions.
Erik: Our Statutory Combined Total Adjusted Capital, or TAC, was $5.4 billion on June 30th.
Edward Spehar: And we had a normalized statutory loss of approximately $600 million in the quarter. The statutory results in the quarter were driven by the performance of our Variable Annuity, or VA, and SHIELD business as a result of three primary factors. First, basis risk, which, as we have said before, fluctuates quarter to quarter, accounted for almost 40 percent of the normalized statutory loss in the quarter. Basis risk refers to the difference between the performance of separate account funds and the corresponding hedges linked to various market indices.
Erik: Down from $6 billion as of March 31.
Speaker Change: And we had a normalized statutory loss of approximately $600 million in the quarter.
Speaker Change: The statutory results in the quarter were driven by the performance of our Variable Annuity, or VA, and SHIELD business.
Speaker Change: As a result of three primary factors.
Speaker Change: First, basis risk, which, as we have said before, fluctuates quarter to quarter, accounted for almost 40% of the normalized statutory loss in the quarter.
Speaker Change: Basis risk refers to the difference between the performance of separate account funds and the corresponding hedges linked to various market indices.
Edward Spehar: Second, the underperformance of equity hedges relative to shield liability movement accounts for approximately 30% of the loss in the quarter. [inaudible] We are seeing additional complexity associated with managing the VA and shield risk on a combined basis now that we have achieved a balanced risk profile. Now that we have achieved the balanced risk profile, which I discussed on the first quarter earnings call, and post the implementation of the new statutory requirement at year end 2023 to reflect all future anticipated hedges on our balance sheet. We have a number of initiatives underway designed to address these issues.
Speaker Change: Second, the underperformance of equity hedges relative to shield liability movement.
Speaker Change: Accounted for approximately 30% of the loss in the quarter.
Speaker Change: We are seeing additional complexity associated with managing the VA and SHIELD risk on a combined basis now that we have achieved a balanced risk profile, which I discussed on the first quarter earnings call.
Speaker Change: and post the implementation of the new statutory requirement at year end 2023 to reflect all future anticipated hedges on our balance sheet.
Speaker Change: we have a number of initiatives underway designed to address these issues
Speaker Change: and one specific action that was implemented last month is standalone hedging for all Shield new business.
Edward Spehar: And one specific action that was implemented last month is standalone hedging for all SHIELD new business. Finally, as discussed on the first quarter earnings call, we are now in a position where capital strain from new shield business reduces normalized statutory earnings. And this accounted for approximately 10% of the loss in the quarter. This dynamic contrasts with a capital benefit or a contribution to normalized statutory earnings. Associated with New Shield Sales for most of our existence as a public company because of the historical risk offset provided by S.H.I.E.L.D. to the variable annuity business. As Erik said,
Speaker Change: Finally, as discussed on the first quarter earnings call, we are now in a position where capital strain from new shield business reduces normalized statutory earnings.
Speaker Change: and this accounted for approximately 10% of the loss in the quarter.
Speaker Change: This dynamic contrasts with a capital benefit or a contribution to normalized statutory earnings associated with new shield sales for most of our existence as a public company.
Speaker Change: Because of the historical risk offset provided by S.H.I.E.L.D. to the variable annuity business.
Edward Spehar: We have a number of specific initiatives underway designed to unlock capital and improve capital efficiency, and one of these initiatives is related to Shield New Business. While our RBC ratio was at or modestly below the lower end of our target range, our liquidity position remains robust. Withholding company liquid assets of $1.2 billion as of June 30, we have a solid capital structure with no debt maturities until 2027 and annual non-dividend flows to the holding company that cover most of our fixed charts.
Speaker Change: As Erik said, we have a number of specific initiatives underway designed to unlock capital and improve capital efficiency.
Erik: And one of these initiatives is related to Shield New Business.
Erik: While our RBC ratio was at or modestly below the lower end of our target range.
Erik: Our liquidity position remains robust.
Speaker Change: Withholding company liquid assets of $1.2 billion as of June 30th.
Speaker Change: We have a solid capital structure with no debt maturities until 2027 and annual non-dividend flows to the holding company that cover most of our fixed charges.
Edward Spehar: Moving to Adjusted Earnings Results. Adjusted earnings were strong in the second quarter and approximately $60 million above our quarterly average run rate. Driven by a higher underwriting margin and seasonal items, which include lower corporate expenses. There were no notable items in the quarter.
Speaker Change: Moving to Adjusted Earnings Results.
Speaker Change: Adjusted earnings were strong in the second quarter and approximately $60 million above our quarterly average run rate.
Speaker Change: driven by a higher underwriting margin
Edward Spehar: Second quarter adjusted earnings were $346 million, or $5.57 per share, which compares with adjusted earnings, less notable items, of $268 million in the first quarter of 2024 and adjusted earnings of $271 million in the second quarter of 2023. The underwriting margin was higher compared with the first quarter of 2024 and above our quarterly average run rate expectation. Net claims were favorable versus expectations as claim volume and severity of claims were lower in the second quarter. Corporate expenses were lower than our quarterly average run rate and were favorable sequentially. Turning to the sequential results by seconds.
Speaker Change: There were no notable items in the quarter.
Speaker Change: second quarter adjusted earnings were three hundred and forty-six million dollars or five dollars in fifty-seven cents per share
Speaker Change: which compares with adjusted earnings, less notable items of $268 million in the first quarter of 2024.
Speaker Change: and adjusted earnings of $271 million in the second quarter of 2023.
Speaker Change: The underwriting margin was higher compared with the first quarter of 2024 and above our quarterly average run rate expectation.
Speaker Change: Net claims were favorable versus expectations as claim volume and severity of claims were lower in the second quarter.
Speaker Change: Corporate expenses were lower than our quarterly average run rate and were favorable sequentially.
Edward Spehar: Adjusted earnings in the annuity segment were $332 million in the quarter. Annuity results reflect a higher underwriting margin for our income annuities, higher fees, and lower expenses sequentially. The Life segment reported adjusted earnings of $42 million in the quarter. On a sequential basis, results reflect higher net investment income, partially offset by a lower underwriting margin. The adjusted loss of $30 million in the runoff segment reflects a higher underwriting margin sequentially. Corporate and other reported adjusted earnings of $2 million, which reflects higher net investment income and higher tax benefits sequentially.
Speaker Change: Turning to the sequential results by segment.
Speaker Change: Adjusted earnings in the annuity segment were $332 million in the quarter.
Speaker Change: Annuity results reflect a higher underwriting margin for our income annuities, higher fees, and lower expenses sequentially.
Speaker Change: The Life Segment reported adjusted earnings of $42 million in the quarter.
Speaker Change: on a sequential basis results reflect higher net investment income partially offset by a lower underwriting margin
Speaker Change: The adjusted loss of $30 million in the runoff segment reflects a higher underwriting margin sequentially.
Speaker Change: corporitt and other reported adjusted earnings of two million dollars which reflects higher net investment income and a higher tax benefit sequentially
Edward Spehar: To wrap up, we are committed to a strong balance sheet and an RBC ratio of 400 to 450% in normal markets. Our confidence in our financial position and ability to execute on initiatives to unlock capital and improve capital efficiency is reflected in our plan to continue our share repurchase program. With that, we would like to turn the call over to the operator for your questions.
Speaker Change: To wrap up,
Speaker Change: We are committed to a strong balance sheet and an RBC ratio of 400 to 450% in normal markets.
Speaker Change: Our confidence in our financial position and ability to execute on initiatives to unlock capital and improve capital efficiency.
Speaker Change: is reflected in our plan to continue our share repurchase program.
Speaker Change: With that, we would like to turn the call over to the operator for your questions.
Operator: Thank you. And to ask a question, you will need to press star 1 1 on your telephone and wait for a name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from Elena West Carmichael from Autonomous Research. Your line is open.
Speaker Change: thank you and ask a question you need to push st one one your telephone and wait for name to be announced to draw your question please first ress start one one again please send by with compil the cunate roster
Speaker Change: One moment for our first question.
Speaker Change: Our first question will come from West Carmichael from Autonomous Research. Your line is open.
Wesley Carmichael: Hey, good morning. Thanks for taking my question. Ed, I was hoping you could talk a little bit more about your comments on basis risk. And, you know, we've seen a little bit more volatility inequities this quarter and a pretty significant divergence between smaller cap stocks and the S&P 500. So I'm just trying to get a sense of if you think that's going to be an ongoing drag in the near future
West Carmichael: good morning thanks taking the question and i's hoping you could talk a little bit more about your comments on basis risk and youknow we seeseen a little bit morevolatility in inequities this quarter and a pretty significant divergence between smallercat stocksin the m five hundred so i'm justtrying toget senseso if you think that's going to bean ongoing drag inthenear term
Edward Spehar: Yeah, good morning, Wes. So the answer to the question is no, because we believe that basis risk, and our work would suggest that this will continue, that it is volatile from quarter to quarter, but there is no reason to expect it to be either positive long-term or negative long-term. So, this was a quarter where it was the biggest driver of the results, the Normstadt loss, but it is not something that I would be forecasting either positively or negatively going forward.
Speaker Change: Yeah, good morning, Wes. So...
Speaker Change: The answer to the question is no, because we believe that basis risk, and our work would suggest that this will continue, that it is volatile from quarter to quarter, but there is no reason to expect it to be either positive long-term or negative long-term.
Speaker Change: So, this was a quarter where we had it as the biggest driver of the results, the Normstadt loss, but it is not something that I would be forecasting either positive or negative going forward.
Edward Spehar: That's helpful. Now, just one last thing to say, and sorry, Wes, just to be clear, though, we have never given quarterly guidance on Normstat earnings because we don't feel that it's appropriate to be that precise about a number that can move around. And so when we focused on Outlook for Normstat, it was more in the context of the long-term statutory free cash flow disclosures that we provide that are multi-year in nature.
Speaker Change: Okay, that's helpful. Now the other, but just one last thing to say, and sorry Wes, just to be clear though, we have never given a quarterly guidance on Normstat earnings.
Wes: Because we don't feel that it's appropriate to be that precise about a number that can move around.
Speaker Change: And so, when we focused on our outlook for Norm Stat, it's been more in the context of the long-term statutory free cash flow disclosures that we provide that are multi-year in nature.
Edward Spehar: And I think you talked a little bit about your initiatives on capital, including reinsurance, but it also sounds like sales and shields are consuming some more capital at this point. So is that a lever, or would you expect gross sales to continue to grow and maybe just use reinsurance on new business?
Wes: Yep, got it.
Speaker Change: And I think you talked a little bit about your initiatives on capital, including re-insurance, but also sounds like sales in Shields are consuming some more capital at this point. So is that a lever or would you expect gross sales to continue to grow and maybe just use re-insurance on new business?
Edward Spehar: Sure, so let me start with maybe how I would think about conceptually what we're trying to accomplish with these initiatives. So all of the initiatives that we are looking at, and we did mention reinsurance, and we mentioned it as both, enforcement as well as new business. They are all to benefit near-term capital generation and will not harm the long-term franchise value.
Speaker Change: Sure, so let me start with maybe how I would think about conceptually what we're trying to accomplish with these initiatives.
Speaker Change: So, all of the initiatives that we are looking at, and we did mention reinsurance, and we mentioned it as both.
Wes: Enforce, as well as New Business.
Wes: They are all to benefit near-term capital generation.
Edward Spehar: So the answer to the question about whether there is any change in our view of growth and what we would like to accomplish, the answer is no. We're very excited about our SHIELD product. We're very excited about Life Path Paycheck, as two examples. So, and you heard our comments on life.
Wes: And will not harm the long-term franchise value of the company.
Wes: So, the answer to the question about is there any change in our view of growth and what we would like to accomplish, the answer is no. We're very excited about our SHIELD product, we're very excited about LifePath Paycheck as two examples. And you heard our comments on life as well.
Eric Steigerwalt: So there is no intention to slow growth at our core. Our thought process is similar to the actions we took back in 2022 to narrow the range of outcomes for market scenarios. So when we were looking at the environment in 22 with interest rates up a lot, we decided that it made sense to trade some of the upside cash flows in good environments to create a much more favorable outcome in an adverse scenario.
Wes: so there is no intention to slow growth in our core business
Wes: Our thought process is similar to the actions we took back in 2022 to narrow the range of outcomes for market scenarios.
Wes: So, when we were looking at the environment in 22 with interest rates up a lot, we decided that it made sense to trade some of the upside cash flows in good environments.
Wes: to create a much more favorable outcome in an adverse scenario.
Eric Steigerwalt: What we're looking at today, and you've seen it in all of our statutory free cash flow disclosures over the years, is that we show significant... cash flows and out years, and there's always been a material improvement in the latter part of those projections versus the near term. So what we're trying to do here is think about trading some of the strong cash flows in the future to create a better statutory cash generation profile.
Wes: What we're looking at today, and you've seen it in all of our statutory free cash flow disclosures over the years, is we show significant...
Wes: cash flows and out years. And there's always been a material improvement in the latter part of those projections versus the near term.
Speaker Change: So, what we're trying to do here is think about trading some of the strong cash flows in the future to create a better statutory cash generation profile today.
Eric Steigerwalt: So that's one way I would think about this conceptually. When you talk about the impact of new shield sales, you know, this is clearly a change versus what we've had historically as a public company because it has gone from being a capital generator to being a capital user. Hey, what?
Wes: So, that's one way I would think about this conceptually. When you talk about the impact of new SHIELD sales...
Speaker Change: You know, this is clearly a change versus what we've had historically as a public company because it has gone from a capital generator to a capital user.
Eric Steigerwalt: Hey Wes, it's Erik. I'll just, I'll just add in here, you know... These initiatives were started earlier in the year. So, before the second quarter, I mean, obviously, we're tying in here now the notion that both changes to the hedging program and these initiatives, which are material, will get us back to the 400 to 450 that we want to be at. I mean, we're slightly below it right now. That doesn't overly concern me because we've got $1.2 billion in the holding company.
Speaker Change: Hey Wes, it's Erik. I'll just, I'll just add in here, you know,
Wes: These initiatives were started earlier in the year.
Wes: So, before the second quarter. I mean, obviously, we're tying in here now the notion that both changes to the hedging program and these initiatives, which are material,
Speaker Change: We'll get us back to the 400 to 450 that we want to be at. I mean, we're slightly below it right now.
Wes: um
Eric Steigerwalt: We're continuing to buy back stock because we feel comfortable here. But these initiatives, of course, will serve double duty. They will not only work on capital efficiency, as Ed already said, but they will also help us restore our RBC ratio to the 400 to 450 that we want to operate in.
Wes: That doesn't overly concern me.
Wes: Because we've got $1.2 billion at the holding company.
Wes: You know, we're continuing to buy back stock because we feel comfortable here. But these initiatives, of course, will serve double duty.
Wes: They will not only work on capital efficiency, as Ed already said, but they will also help us restore our RBC ratio to the 400 to 450 that we want to operate in.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Tom Gallagher from Evacor. Your line is open.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you. One moment for our next question.
Speaker Change: Our next question will come from the line of Tom Gallagher from Evercore. Your line is open.
Thomas Gallagher: Good morning. The first question is, how long do you think it's going to take to execute these reinsurance contracts? Will it take six to 12 months for those to begin, or do you think it'll happen sooner? Hey, Tom. It's Ed.
Tom Gallagher: Good morning. First question is, how long do you think it's going to take to execute these reinsurance contracts? Will it take six to 12 months for those to begin, or do you think it'll happen sooner?
Edward Spehar: So, uh, our expectation is the combination of these initiatives and what we would anticipate from our results in the second half of the year. I mean, obviously, they can be volatile, but the combination of those two would get us back to our target range of 400 to 450% for normal markets by year-end.
Speaker Change: Hey, Tom, it's Ed. So our expectation is the combination of these initiatives.
Tom Gallagher: And what we would anticipate from our results in the second half of the year, I mean, obviously, they can be volatile, but the combination of those two would get us back to our target range of 400 to 450% normal markets by year-end.
Eric Steigerwalt: Hey, Tom and Sarah. I'll just add this. Look, we've got a number of initiatives, right? So we're not dependent on anyone. And you know, these will happen when they happen. We started them previously. Some of the initiatives, including some of the reinsurance initiatives, could come on. [inaudible] sooner than later, but I expect various of these to come online over the coming quarters.
Tom Gallagher: Hey, Tom, it's Erik. I'll just add this. Look, we've got a number of initiatives, right? So we're not dependent on any one.
Tom Gallagher: And, you know, these will happen when they happen. We started them previously. Some of the initiatives, including some of the reinsurance initiatives, could come on
Tom Gallagher: Sooner than later, but I expect various of these to come online over the coming quarters.
Thomas Gallagher: Gotcha, that's helpful, guys. And then But I have two other questions, if I could.
Speaker Change: Gotcha that's that's helpful guys and then
Speaker Change: But two other questions, if I could. One is just...
Speaker Change: fafty you would expect to fully implement these reinsurance arrangements and let's just assume for a minute
Edward Spehar: But if you then said, OK, what is the normal run rate after you execute these? Just ballpark; I'm not looking for a precise number. I'm not looking for a precise number. I'm looking for a precise number. Yeah, Thomas said so.
Speaker Change: Some of this volatility in hedge results, basis risk, etc., calms down and you have a neutral result. What do you expect the pro forma pre-cash flow generation level to be? And I get the point that...
Speaker Change: It's going to be elevated now, it's going to reduce some of the future cash flow, but if you then said, okay, what is the normal run rate after you execute these? Just ballpark, I'm not looking for a precise number.
Tom Gallagher: okay
Edward Spehar: We plan to put out the updated long-term statutory free cash flows in the first half of next year, and we're going back to our more normal schedule of disclosure on this versus last year. We provided it in September because there were a couple of things happening in twenty-three that made sense for us to do that. Part of it was LDTI, and part of it was the transition to fully in-house modeling results.
Ed Spehar: Yeah, Tom, it's Ed.
Speaker Change: We plan to put out the updated long-term statutory free cash flows in the first half of next year.
Speaker Change: And we're going back to our more normal schedule of disclosure on this versus last year we provided it in September because there were a couple of things happening in 23 that where it made sense for us to do that.
Ed Spehar: Part of it was LDTI, part of it was, you know, the transition to fully in-house modeling results. So we plan to put that out.
Edward Spehar: So we plan to put that out. You know, to give you a view of kind of normal free cash flow at this point, I think it's, I think it's challenging. I think if you look at the historical record, you will see that there is a fair amount of volatility, but the average has been just under four hundred million dollars of normal stat earnings a year.
Speaker Change: You know, to give you a view of kind of normal free cash flow at this point, I think it's, I think it's, it's challenging. I think if you look at the historical record, you will see that
Speaker Change: There is a fair amount of volatility, but the average has been just under $400 million of norm stat earnings a year. Now, that was driven by two big years, right? We had a big year in 2019, which is when we, you know, de-risked equities and...
Edward Spehar: Now, that was driven by two big years, right? We had a big year in 2019, which is when we, you know, de-risked equities and took a large dividend in 2020 to reflect that after benefiting from, you know, I think what was a risk profile we thought made sense to change. And also in 2022, when we made about a billion of norm stat, which, you know, benefited from, you know, the positioning on rates heading into a rising rate environment. So you'll see that there's been a fair amount of fluctuation. That's the average over five years.
Speaker Change: And took a large dividend in 2020 to reflect that after benefiting from, you know, I think what was a risk profile we thought made sense to change. And also in 2022 when we made about a billion of norm stat, which, you know, was benefited from.
Speaker Change: You know, the positioning on rates heading into a rising rate environment. So, you'll see that there's been a fair amount of fluctuation. That's the average over five years.
Edward Spehar: And I'd say we have the disclosures that we put out in September, but again, we put those out in September. And so I would be careful of that, given the fact that we are where we are today. But it's not possible for me to give you a number right now in advance of the free cash flow work. I don't think that would be appropriate.
Speaker Change: And, you know, you've...
Speaker Change: I'd say we have the disclosures that we put out in September, but you know again those are you know We put those out in September and so I would be careful of of that given the fact that we are where we are today, but
Speaker Change: It's not possible for me to give you a number right now in advance of the free cash flow work. I don't think that would be appropriate.
Thomas Gallagher: Okay, I guess we can sort of back into something based on your RBC improvement guidance as well. But the final question I had is just on hedging. I heard what you said about hedging new sales on a standalone basis for Shield. And then, I guess my question is, Given that most of the loss this quarter was driven by the hedging performance of both SHIELD and VA, do you need to make changes there? Are there any?
Speaker Change: Okay, I guess we can sort of back into something based on your RBC improvement guidance as well. But the final question I had is just on hedging. I heard what you said about hedging new sales on a stand-alone basis for SHIELD.
Speaker Change: And then, I guess my question is...
Speaker Change: Given that most of the loss this quarter was driven by hedging performance of both SHIELD and VA,
Thomas Gallagher: Is it something about the new framework that's creating greater volatility? What are you doing about both the VA standalone volatility and the shield volatility? And what's your level of confidence that we'll see less breakage going forward? Yeah, Tom, so let me take a look. There are a couple of questions in there, I think.
Speaker Change: Do you need to make changes there? Are there, is it something about the new framework that's creating greater volatility? What are you doing about both the VA standalone volatility and the shield volatility and what's your level of confidence that
Speaker Change: We'll see less breakage going forward.
Speaker Change: Yeah, Tom, so let me take, there are a couple of questions in there, I think. So,
Edward Spehar: I'd start off by saying that we're pursuing multiple avenues to address what is a somewhat more complex system now that we have this new statutory requirement and we have this balanced risk profile between SHIELD and VA. And, you know, just to emphasize here that the inflection point for this book of business was anticipated and desired, and we have been talking about it for years. So we shouldn't lose sight of the fact that moving from the type of risk that we had when we separated from MetLife to where we are today has been a very significant accomplishment.
Speaker Change: I'd start off by saying that we're pursuing multiple avenues to address what is a somewhat more complex system now that we have this new statutory requirement and we have this balanced risk profile between SHIELD and VA.
Speaker Change: And, you know, just to emphasize here that, um...
Speaker Change: The inflection point for this book of business was anticipated and desired, and we have been talking about it for years. So, we shouldn't lose sight of the fact that moving from the type of risk that we had when we separated from MetLife to where we are today has been a very significant accomplishment.
Edward Spehar: So it has entailed some level of complexity, especially now that we have this new statutory requirement. And so, I'd say a few things about that new statutory requirement. We do have a more complex situation than others based on the work we've done in industry because of the fact that we manage VA and SHIELD together and that we're focused on stat. So that does create a slightly different situation. I'd also point out that there have always been some fluctuations in our results. I mean, I talked about that in response to Wes' question.
Speaker Change: So, it has entailed some level of complexity, especially now that we have this new statutory requirement.
Speaker Change: And so, I'd say a few things about the new statutory requirement. We do have a more complex situation than others based on work we've done in industry sources because of the fact that we manage VA and SHIELD together.
Speaker Change: and that we're focused on statutory
Speaker Change: So, that does create a slightly different situation for us.
Edward Spehar: I'd say what's different now is we do have the relative size of S.H.I.E.L.D. versus V.A., which has changed over time given the significant growth in S.H.I.E.L.D. and no growth in V.A. given that most of it, a lot of it, is just a legacy block.
Speaker Change: I'd also point out that there's always been...
Speaker Change: some fluctuations in our results. I mean, I talked about that in response to Wes's question. I'd say what's different now is we do have the relative size of SHIELD versus VA, which has changed over time given the significant growth.
Speaker Change: Shield and you know no growth in VA given that it's you know most of it a lot of it is just a legacy block.
Edward Spehar: The other thing that I want to just give you an example of, we've talked about this shield of going from a capital generator to a capital consumer. If we take this quarter and we think about the net impact of S.H.I.E.L.D. on our normal stat results,
Speaker Change: The other thing that I want to just give you an example of, we've talked about this shield of going from a capital generator to a capital consumer.
Speaker Change: If we take this quarter and we think about the net impact of S.H.I.E.L.D. in our Normstat results.
Edward Spehar: The net impact of SHIELD, with this funding growth as well as some volatility in the performance of the equity hedges relative to the SHIELD liability, that hurt our normal stat earnings this quarter by about $250 million. If you go back over time and we would have had the same order that we had this quarter for this shield, you know, fluctuation, the net impact would have been about $100 million.
Speaker Change: The Net Impact of SHIELD.
Speaker Change: Funding growth as well as some volatility in the performance of the equity hedges relative to the SHIELD liability.
Speaker Change: that hur our norm sat earnings this quarter by about two hundred and fifty million dollars
Speaker Change: If you go back over time and we would have had the same quarter that we had this quarter for this shield, you know, fluctuation, the net impact would have been about $100 million.
Edward Spehar: And the reason for that change is that you go from generating capital with SHIELD to consuming capital. So that's why you're seeing a little bit more pronounced volatility, and it's a driver of certain actions that we are taking to try to mitigate that. Gotcha. And then that's super helpful. Thanks.
Speaker Change: And the reason for that change is because you go from generating capital with shield to consuming capital. So that's why you're seeing a little bit more pronounced volatility and it's a driver of, you know, certain actions that we are taking to try to mitigate it.
Thomas Gallagher: And then just anything on VA that you think you need to change from hedging. Yeah, I don't know that I would say... I don't know.
Speaker Change: got you and then that's 's super helpful banks and then just anything on va you think you need to change from hedging
Edward Spehar: I think the idea here is that we are pursuing different avenues for simplicity. I'm making it simple. It'll never be simple, as you know, but it will be simple. And so, you know, I think that that is going to be a key driver of how we manage the risk overall. Okay.
Speaker Change: Yeah, I don't know that I would say...
Speaker Change: I think the idea here is that, you know, we are pursuing different avenues for simplicity.
Speaker Change: I'm making it simplifying. It'll never be simple, as you know, but simplifying. And so, you know, I think that that is that's going to be a key driver of how we manage the risk overall.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Elyse Greenspan, from Osfargo. Your line is open.
Speaker Change: Okay, thanks.
Speaker Change: Thank you. One moment for our next question.
Speaker Change: our next question cause the line of at least greenspan for most fargo line is open
Elyse Greenspan: Hi, thanks. Good morning.
Liz Greenspan: Hi, thanks. Good morning. I guess my first question, you know, you guys obviously, you know, have a good amount of capital at parent.
Elyse Greenspan: I guess my first question, you guys obviously have a good amount of capital at parent. Why not, you know, A, just downstream some capital to help shore up the RBC position right away? And then B, you know, can you just provide more details on why you guys, I guess, did not, you know, are choosing not to take a pause with the buyback program?
Speaker Change: Why not, you know, A, just downstream some capital to help shore up the RBC position right away? And then B, you know, I guess, can you just provide more details on, you know, why you guys, I guess, did not, you know, are choosing not to take a pause with the buyback program here?
Elyse Greenspan: Hi, Elyse. I'll start, and I think Erik probably is going to want to add something here. I just, just, um.
Speaker Change: Hi, Elyse. I'll start, and I think Erik probably is going to want to add something here.
Edward Spehar: [inaudible] Starting off, first of all, our capital return plan isn't dependent on cash from the operating company. So, I mean, I think that's an important point to make. I would say that given our performance in the first half, which is off of our plan, it doesn't seem likely today that we would take money up from Brighthouse Life Insurance Company. But we'll see how the second half plays out before we make a final decision later this year.
Speaker Change: starting off first of all our capital return plan is independent on cash from the operating company so i mean i think that's a that's an important an important point to make
Erik: I would say that given our performance in the first half, which is off of our plan,
Erik: It doesn't seem likely today that we would take money up.
Speaker Change: from Brighthouse Life Insurance Company. But we'll see how the second half plays out before we make a final decision later this year.
Edward Spehar: We have the equivalent of 85 RBC points at the hold, with no reliance on cash to cover fixed charges and no debt coming due until 2027. You know, I would say that where we are today with the first half results is the reason I've said for years that a life insurance company should always have a conservative cash position at the holding. We don't feel the need to change our approach on repurchase because of the combination of where we are with the holding company's cash, where we are with the initiatives, and where we are with where we think things are going to play out.
Speaker Change: We have the equivalent of 85 RBC points at the holding company.
Speaker Change: With no reliance on cash to cover fixed charges and no debt coming due until 2027.
Speaker Change: So.
Speaker Change: You know, I would, I would say that where we are today with the first half results.
Speaker Change: is the reason i've said for years that a life insurance company should always have a conservative cash position at the holding company
Speaker Change: We don't feel the need to change our our approach on repurchase because of the combination of where we are with holding company cash, where we are with the initiatives, and where we are with where we think things are going to play out.
Edward Spehar: One is just... After you would expect to fully implement these reinsurance arrangements, and let's just assume for a minute that some of this volatility in hedge results, basis risk, et cetera, calms down, and you have a neutral result. What do you expect the pro forma free cash flow generation level to be? And I get the point that it's going to be elevated now. It's going to reduce some of the future cash flow
Eric Steigerwalt: Well, Elyse, it's Erik. Obviously, I agree with what I just said. I would just add, look, we're slightly below our targeted range, okay? I am not happy with our statutory earnings, as you can imagine, but where we stand from a capital position, slightly below the normal operating range where we generally want to be, $1.2 billion at the holding company and no debt coming due until 27, I just don't see any reason that we need to downstream anything right now.
Erik: Well, Elyse, it's Erik. Obviously, I agree with what I just said. I would just add, look, we're slightly below our targeted range, okay? I am not happy with our statutory earnings, as you can imagine, but where we stand from sort of a capital position,
Speaker Change: Slightly below the normal operating range where we generally want to be, $1.2 billion at the holding company, and no debt coming due until 27.
Eric Steigerwalt: We're just going to operate the way we operate right now, and we are going to work on both the initiatives that I talked about and the specific hedging initiatives that Ed talked about. So I think between the two of us, we have the answer. Thanks, and then
Speaker Change: i just don't see any reason that we need to downstream anything right now
Ed Spehar: We're just going to operate the way we operate right now, and we are going to work on both the initiatives that I talked about and the specific hedging initiatives that Ed talked about. So I think between the two of us, there's the answer.
Elyse Greenspan: And then my follow-up, you know, it sounds like from your comments earlier in the call in response to some of the questions that there's obviously multiple initiatives at play here in terms of just reinsurance and potential block deals. So, is the right way to think about it that, you know, I guess, regardless, and it sounds like there's some benefit from just your business and RBC in the back half, but regardless, we should see, I guess, potentially multiple transactions as you look to get back within that range before the end of the year.
Speaker Change: thanks and then my follow up you know it sounds like you know your comments earer on the call and responseto some of the questions right that there's obviously multiple initiatives that play here in terms of just
Ed Spehar: reinsurance some potential blockdeals so itis a right way to think about it that
Speaker Change: i guess regardless and it sounds like there's some you expect some benefit from just your business in rbc in the back half but regardless that we should see i guess potentially multiple transactions as you look to get get back within that range before the end of the year
Eric Steigerwalt: I mean, certainly there should be some transactions, multiple, I don't know, we'll have to see how this plays out. Look, when I said, and I think Ed reiterated it in his comments as well, six to 12 months here, look, we don't want to be cavalier about just saying, you know, getting back to our 400 to 450 range will happen, you know, in the course of a couple of weeks. That just doesn't seem appropriate to do that. We've never operated that way, and I've never spoken that way.
Speaker Change: um
Speaker Change: I mean, certainly there should be some transactions.
Speaker Change: Multiple, I don't know, we'll have to see how this plays out.
Speaker Change: I mean, look, when I said, and I think Ed reiterated it in his comments as well.
Speaker Change: six to twelve months here look we don't want to be cavalier about just saying you know this's getting back to our four hundred four fifty range will happen you know in the course of a couple of weeks that just doesn't seem appropriate to do that we've never operated that way and i've never spoken that way
Eric Steigerwalt: So I'm saying we feel comfortable that we can be within our target range within six to 12 months. Do I think we're going to be in our target range before the end of the year? Yes, I do, but I think it's prudent to throw a range out like I just did.
Speaker Change: So, I'm saying we feel comfortable that we can be within our target range, within 6-12 months.
Speaker Change: Do I think we're going to be in our target range before the end of the year? I do.
Edward Spehar: And is there a possibility of more than one initiative coming to fruition before year end? Yes, there is. I think that answered your question. So, Elyse, I would just, let me just add one thing to this.
Speaker Change: But, I think it's prudent to throw a range out like I just did, and is there a possibility of more than one initiative coming to fruition before year end? Yes, there is. I think that answered your question.
Edward Spehar: So, Elyse, I would just, let me just add one thing to this, because I would like to focus on the word initiative rather than transaction, because I think transaction suggests sort of some long lead time and some, you know, it. I would, I would just encourage you to think about this a little bit more broadly and focus on initiatives versus transactions.
Speaker Change: So, Elyse, I would just, let me just add one thing onto this, because I would like to focus on the word initiative.
Speaker Change: rather than transaction because I think transaction suggests sort of some long lead time and some you know it I would I would just
Speaker Change: encourage you to think about this a little bit more broadly and focus on initiatives versus transaction
Elyse: Okay, thanks Ed.
Operator: Thank you. One moment for our next question. Thank you. Our next question will come from the line of Suneet Kamath from Jefferies. Your line is open.
Speaker Change: thank you one moment for a next question
Speaker Change: Our next question will come from the line of Suneet Kamath from Jefferies. Your line is open.
Speaker Change: Thanks.
Speaker Change: Going back to RBC for a minute, I guess, as I think about it, for the past sort of three quarters,
Speaker Change: We've had some sort of RBC issue that came as a bit of a surprise to us, at least to us externally.
Speaker Change: i guess the first question is did this what happened here in the second quarter
Speaker Change: come as a surprise to you like what what pieces of the tact decline we sort of thinking ok this could happen and then what pieces were sort of a surprise and then relatedly obviously here in the third quarter we've seen volatility spike
Speaker Change: how confident are you that your rbc might not take another step down before you start to put in these initiatives to build it back up
Edward Spehar: Good morning, Suneet. So I would start off by saying that 70% roughly of this Normstadt loss would be what I would call, you know, something that was not anticipated. We do anticipate bassist risk, but we anticipate that over time it's zero. So it was negative.
Speaker Change: Good morning, Suneet. So, I would start off by saying that
Speaker Change: You know, 70% roughly of this Normstadt loss would be what I would call, um,
Edward Spehar: And that is why I would throw in that 70% of the performance here. The other comment that I would make is that with this, you know, I've talked about the shield that doesn't allow for as much.
Speaker Change: you know something that was not anticipated now we do anticipate basis risk but we anticipate that over time it's to zero so it was negative and that is why i would thro in that seventy percent of the performance here
Speaker Change: the other the other comment that i would make is that
Speaker Change: with this i've talked about the shield that that doesn't allow for as much
Edward Spehar: As much margin, I guess, to handle volatility that it has now that it's gone from a capital contributor to a capital consumer. But specifically, on your question about the market environment seeming to be a little bit more unsettled today, given what we've seen in the last couple of weeks. I would say if you go back and look at the decision we made in the fourth quarter of 2022 to cut our share buyback in half.
Speaker Change: A much as much margin, I guess, to handle volatility that it's now that it's gone from a capital contributor to a capital consumer.
Speaker Change: But specifically on your question about, you know, the market environment seeming to be a little bit more unsettled today, given what we've seen in the last couple weeks.
Speaker Change: I would say if you go back and look at the decision we made in the fourth quarter of 2022 to cut our share buyback in half. And at the time we said we were doing that because we were a little concerned about credit.
Edward Spehar: And at the time, we said we were doing that because we were a little concerned about credit. Now, obviously, it's credit has been fine, but that was a motivator for us. I would say in concert with that, it wouldn't be surprising to you, I don't think, to assume that if we were worried a little bit about credit, we probably weren't overly excited about the equity market. But again, that was premature. But if you look at our profile,
Speaker Change: Now, obviously, its credit's been fine, but that was a motivator for us.
Speaker Change: I would say in concert with that, it wouldn't be surprising to you, I don't think, to assume that if we're worried a little bit about credit, we probably weren't overly excited about the equity market.
Speaker Change: again that was premature
Edward Spehar: We show in our modeling substantial gains in a significant bear market. Now, we're not hoping for that. But I would say that we have tactically been more conservative on big equity market down moves than what I would consider to be our normal strategic positioning. So that has cost us some Normstadt earnings in 2023 and year-to-date in 2024.
Speaker Change: But if you look at our profile,
Speaker Change: We show in our modeling substantial gains in a significant bear market.
Suneet Kamath: Got it. Okay. So they are better positioned against market volatility. Okay.
Speaker Change: Now, we're not hoping for that, but I would say that we have tactically been more, more
Speaker Change: conservative on big equity market down moves than what I would consider to be our normal strategic positioning. So that has cost us some norm stat earnings in 2023 and year-to-date 2024.
Edward Spehar: And then I guess now that we have LifePath Paycheck and we have Shield consuming capital, where are you in terms of just capital consumption due to sales? Like, what is the strain level that you're at now? I think in the past, Ed, you talked about five RBC points. Is that significantly higher now with LPP and Shield on its own?
Speaker Change: got it okay so better positioned against market volatility okay and then i guess now that we have lifepath paycheck and we have shielded consuming capital
Speaker Change: where are you in terms of just
Speaker Change: capital consumption due to sales. Like what is the strain level that you're at now? I think in the past, Ed, you talked about five RBC points. Is that significantly higher now with LPP and Shield on its own?
Suneet Kamath: Yes, Suneet, I would say that with SHIELD, that is definitely a factor that we are, you know, considering as we look at capital efficiency, specifically on the capital efficiency side of the initiatives that we've mentioned.
Suneet: Yes, Suneet, I would say that with SHIELD, that is definitely a factor that we are, you know, considering as we look at these capital efficiency, specifically on the capital efficiency side of the initiatives that we've referred to.
Suneet Kamath: Okay, and if I could just throw one more in, the higher costs that you talked about at the corporate level in the second half, is that just seasonality, or are those some expenses related to some of these initiatives that you're considering?
Speaker Change: Okay, and if I could just throw one more in, the higher costs that you talked about at the corporate level in the second half, is that just seasonality or is that some expenses related to some of these initiatives that you're considering?
Eric Steigerwalt: Oh, hey, Suneet, it's Erik. You're talking about second half costs being slightly higher than first half? Yeah, I think that's what you're saying. Generally, our fourth quarter is the highest, and I know that's the situation in a lot of companies. So, I would say, maybe a little bit of it could be with respect to some of the initiatives, but I think mostly that's just seasonality. I mean, we've had two very good quarters.
Speaker Change: ohpace in you to eric you're talking about second half costs being slightly higher than first half
Speaker Change: Yeah, I think that's what you said.
Speaker Change: yeah i mean
Speaker Change: generally relate our fourth quarter is the highest and i know that's a situation in a lot of companies
Speaker Change: So I would say, yeah, maybe a little bit of it could be with respect to some of the initiatives.
Speaker Change: But I think mostly that's just seasonality. I mean, we've had two very good quarters.
Eric Steigerwalt: The second quarter, with respect to corporate expenses, was the lowest that we've ever had. So, while we're going to keep our belt tight no matter what, generally, we'll have expenses in the second half a little higher, and I think you know that. But it's, you know, I don't expect it to be crazy. We are going to be incredibly disciplined about expenses as we move into the second half of the year. So, I would just call it seasonality.
Speaker Change: The second quarter, with respect to corporate expenses, was the lowest that we've ever had.
Speaker Change: So, while we're going to keep our belt tight no matter what, generally we'll have expenses in the second half a little higher, and I think you know that. But it's, you know, I don't expect it to be crazy.
Speaker Change: We are going to be incredibly disciplined about expenses as we move into the second half of the year, so I would just call it seasonality.
Operator: Thank you. A moment for our next question. Our next question will come from Wilma Burdis from Raymond James. Your line is open. Hey, good morning. Could you talk a little bit about the trajectory for BlackRockFlows? I understand, you know, it's a little bit lumpy, but is there any color you can give on the future?
Speaker Change: look thanks
Speaker Change: thank you a moment for next question
Unknown Executive: Our next question will come from Wilma Burdis from Raymond James. Your line is open.
Speaker Change: Hey, good morning. Could you talk a little bit about the trajectory for Black Rock Flows? I understand you noted it's a little bit lumpy, but is there any color you can give on the coming quarters? Thanks.
Wilma Burdis: Sure, it's Erik. We don't expect a lot in the third quarter, but we are expecting more in the fourth. You know, obviously, this is still pretty new. We're bringing on a lot of new companies quarter after quarter after quarter.
Unknown Executive: Sure. It's Erik. We don't expect a lot in the third quarter, but we are expecting more in the fourth. You know, obviously, this is still pretty new. We're bringing on a lot of new companies quarter after quarter after quarter. But we do have enough insights here for the next two, and I just gave you those.
Eric Steigerwalt: But we do have enough insights here for the next two, and I just gave you those. Thank you, and then. [inaudible] I know you've talked a lot about the buyback, but could you just talk about the pace?
Speaker Change: Thank you for watching!
Speaker Change: Okay, thank you. And then, I know you've talked a lot about the buyback, but...
Wilma Burdis: Is there any, you know, I know you're continuing it, but will there be any pullback or maybe even any possibility to lean in? Thanks. Sorry about that. I began a great answer without my microphone on.
Speaker Change: could you just talk about the pace is there any i know you're continuing but it will to be any pullback or maybe even any possibilities to leanin s
Speaker Change: Sorry about that. I began a great answer without my microphone on.
Unknown Executive: So, as we have said in the past, we have not been forward-looking in what we're doing with respect to the buyback. But I think it's reasonable to at least assume that it's going to be roughly the same for the foreseeable future.
Speaker Change: So as we have said in the past, we have not been forward-looking on what we're doing with respect to the buybacks.
Speaker Change: But, I think it's reasonable to at least assume that it's going to be roughly the same for the foreseeable future.
Eric Steigerwalt: Yeah, Wilma, I would just add that we've not been forward-looking. We have said historically that we have been opportunistic.
Unknown Executive: yes well i would just add we've not been forward-looking we have said historically that we have been opportunistic
Wilma Burdis: Thank you. One moment for our next question. Our next question will come from Ryan Krueger from KBW. Your line is open.
Speaker Change: Thank you.
Speaker Change: Thank you. One moment for our next question.
Speaker Change: Our next question will come from Ryan Krueger from KBW. Your line is open.
Ryan Krueger: Hey, thanks. Good morning. On the initiatives that you're looking into, I think most of the questions have been revolving around external reinsurance, but is internal reinsurance also part of the potential initiatives that you're looking into?
Speaker Change: hey thanks morning on the initiatives that you're looking into i think most of the questions have been revolving around external reinsurance but is internal reinsurance also part of the potential initiatives that you're looking into
Unknown Executive: Good morning, Ryan. So a couple of things. First of all, we already have a lot of capital efficiency, we believe, with our reinsurance captive Brighthouse Reinsurance Company in Delaware. So we are benefiting from that, from a captive in our structure, structures without necessarily creating the structures ourselves.
Edward Spehar: Good morning, Ryan. So, a couple things. First of all, we already have a lot of capital efficiency, we believe, with our reinsurance captive Brighthouse Reinsurance Company in Delaware. So we are benefiting from that as a captive in our structure. The second thing I would say is that in the state of the reinsurance market today, we believe that we can avail ourselves of the attractive characteristics of certain structures without necessarily creating the structures ourselves.
Unknown Executive: Good morning, Ryan. So, a couple things.
Unknown Executive: First of all, we already have a lot of capital efficiency, we believe, with our reinsurance captive Brighthouse Reinsurance Company in Delaware. So we are benefitting from that.
Unknown Executive: from a captive in our structure.
Unknown Executive: The second thing I would say is that the state of the reinsurance market today, we believe that we can avail ourselves of the attractive characteristics of certain
Edward Spehar: The final thing I would say is that we are always looking at and considering different options. Given that, you know, we've talked today about initiatives where we expect them to have a material impact in a reasonable period of time, you know, that's something also to consider versus the idea of... You know, the lead time and the effort involved in creating the type of structure you're talking about, especially if you feel like you can leverage those structures already as they exist in the marketplace. You know, hopefully that gives you some sense of where our head is.
Unknown Executive: structures without necessarily creating the structures ourself
Unknown Executive: The final thing I would say is we are always looking at and considering different options.
Speaker Change: Given where, you know, we've talked today about initiatives where we expect them to have a material impact in a reasonable period of time, you know, that's something also to consider versus the idea of...
Speaker Change: you know the lead time in the effort involved in creating the type of structure you're talking about especially if you feel like you can lever those structures already as they exist in the marketplace you know hopefully that gives you some sense of where our head is on this
Ryan Krueger: Got it. Thank you.
Ryan Krueger: And then maybe just on the whole holding company. Can you give us some sense of where you target minimum liquidity at the holding company, whether it be something like two times fixed charge coverage or anything you can help us to think about? What is the minimum buffer you'd like to have there?
Speaker Change: got it thank you and then maybe this on the whole holding company
Speaker Change: Can you give us some sense of where you target minimum liquidity at the holding company, whether it be something like two times fixed charge coverage or anything you can help us to think about?
Ed: Yeah, Ryan, it's that again.
Edward Spehar: Yeah, Ryan, it's that again. So, you know, I think this is a good quarter to remind people of what I've said repeatedly over the years, which is we don't give out that minimum buffer target because it's situational. And I've given you examples in the past of, you know, where we are in terms of debt maturities, right? Because the amount of cash you're going to want to have if you have a debt maturity in the next 12 to 24 months is going to be different than if you have a debt maturity that's beyond 24 months, for example. Where are you based on, you know, what might be happening in the market environment? What might be happening on an idiosyncratic basis?
Ryan: What's the minimum buffer you'd like to have there?
Ryan: yeah ryin it's said again so
Speaker Change: You know, I think this is a good quarter to remind people of what I've said repeatedly over the years, which is we don't give out that minimum buffer target because it's situational, and I've given you examples in the past of
Speaker Change: you know where are we in terms of debt maturities right because the amount of cash you're going to want to have if you have a detur in the tlve twenty four months going to be different if you have a det maturity that's beond twenty four months for example
Ryan: Where are you based on, you know, what might be happening in the market environment? What might be happening on an idiosyncratic basis?
Edward Spehar: You know, we're very happy to be sitting here with $1.2 billion of cash right now as we're talking about, you know, the fact that we were at or slightly below the low end of the, you know, target range in normal markets because 85 RBC points at the holding company is a, you know, a very nice position to have. So I'm not going to give you a number, but I will say that when you talk about these minimums that others have referred to, they frequently look at some coverage relative to fixed charges, right?
Speaker Change: You know, we're very happy to be sitting here with 1.2 billion of cash right now as we're talking about, you know, the fact that we were at or slightly below the low end of the, you know, target range in normal markets.
Speaker Change: Because 85 RBC points at the holding company is a, you know, a very nice position to have.
Ed: um
Speaker Change: so i'm not going to give a number but i will say that when you talk about these minimum that others have referred to they frequently look at some coverage relative to fixed charges right
Edward Spehar: And, you know, in my comments today and in the past, I've said we don't need holding company cash for fixed charges. We have most of those fixed charges covered by non-dividend flows. And also, you know, the amount of money that we have consistently taken up from New England Life Insurance Company, which is a run-off entity.
Ed: And, you know, in my comments today and in the past, I've said we don't need holding company cash for fixed charges.
Ed: We have most of those fixed charges covered by non-dividend flows and also, you know, the amount of money that we have consistently taken up from New England Life Insurance Company, which is a runoff entity.
Operator: And once again, as a reminder, that's star 11 for questions, star 11. One moment for our next question. Our next question will come from the line of John Barnidge from Piper Sandler. The line is open.
Ryan: Thank you.
Ryan: Thank you.
Operator: One moment for our next question.
Speaker Change: And once again, as a reminder, that's star 11 for questions, star 11. One moment for our next question.
Speaker Change: s for earnnext question compline of john barnage from tyypercentler i is open
John Barnidge: Good morning. Thanks for the opportunity. My first question: can you talk about your exposure sensitivity to floaters should rates decline? Thank you.
Speaker Change: Good morning. Thanks for the opportunity. My first question, can you talk about your exposure sensitivity to floaters? Should rates decline, please? Thank you.
John Barnidge: Hey, John, we didn't quite catch that. Could you just repeat it? Yeah, sure. Can you talk about your exposure or sensitivity to floaters? Should rates decline, please?
Unknown Executive: Yeah, sure. Um, can you talk about your exposure or sensitivity to floaters? Should rates decline, please?
John Barnidge: Yeah, sure. Um, can you talk about your exposure or sensitivity to floaters? Should rates decline, please? Hey, John, it's John.
Unknown Executive: Hey John , we didn't quite catch that. Could you just repeat it?
Speaker Change: Yeah, sure. Can you talk about your exposure or sensitivity to floaters? Should rates decline, please?
John Rosenthal: Our floating rate assets generally back floating rate or short-term liabilities, so any net margin impact from declining short-term rates should really be minor. Okay, great. And then my follow-up question: is there an opportunity for external partnerships to alleviate some of the capital strain brought about by executing on that opportunity for not just SHIELD but now Lifepath Paycheck? I don't know, maybe an external asset management partnership beyond just the reinsurance that you're exploring? Thank you.
Unknown Executive: Hey John , it's John . Our floating rate assets generally back floating rate or short-term liabilities, so any net margin impact from declining short-term rates should really be minor.
Ryan: okay great and then my follow question
Speaker Change: is there an opportunity for external partnerships to leviate some of the capital string brought about executing on that opportunity for not just shield but now lifepath payche i don't know maybe an external assetof management partnership beyond just that reinsurance that you're exploring thank you
John Barnidge: Thanks, John. It's Erik.
Eric Steigerwalt: While we don't have any plans right now with respect to LPP, look, we'll consider anything. We're constantly evaluating opportunities. So I think it's a good question. We'll see what might happen in the future. I don't really have anything really on LPP specifically, though.
Unknown Executive: Thanks, John . It's Erik.
Speaker Change: While we don't have any plans right now with respect to LPP, look, we'll consider anything. We're constantly evaluating opportunities.
Speaker Change: so i think it's a good question we'll see what might happen in the future i don't have anything really on lp p specifically though
Eric Steigerwalt: I would just add, we're obviously very happy with the position we're in. I don't know if you could pick a better company to be partnered with on an initiative like this. So we're very happy about that.
Eric Steigerwalt: How would you...
Speaker Change: I would just add, we're obviously very happy with the position we're in with, you know, I don't know if you could pick a better company to be partnered with on an initiative like this. So, we're very happy about that.
Dana Amante: Thank you. I'm not showing any further questions in the queue. I will now return the call to Dana Amante for any closing remarks.
Unknown Executive: Better company to be partnered with on an initiative like this, so we're very happy about that.
Speaker Change: thank you
Unknown Executive: Thank you. I'm not showing any further questions in the queue. I will now turn the call back over to Dana Amante for any closing remarks.
Unknown Executive: Thank you, Victor, and thank you, everyone, for joining the call today. Have a great day.
Operator: Thank you, Victor, and thank you, everyone, for joining the call today. Have a great day.
Unknown Executive: thank you victor and thank you everyone for joining the call today have a great day
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.
Suneet Kamath: Thanks, going back to RBC for a minute. I guess, as I think about it, for the past sort of three quarters, we've had some sort of RBC issue that came as a bit of a surprise to us, at least to us externally. I guess the first question is, did this what happened here in the second quarter come as a surprise to you? What pieces of the stock decline were you sort of thinking, okay, this could happen, and then what pieces were sort of a surprise?
Suneet Kamath: And then, relatedly, obviously here in the third quarter, we've seen volatility spike. How confident are you that your RBC might not take another step down before you start to put in these initiatives to build it back up? Thanks.