Q4 2024 Brighthouse Financial Inc Earnings Call
Before we begin I'd like to note that our discussion. During this call may include forward looking statements within the meaning of the federal Securities laws.
Brighthouse Financial's actual results may differ materially from the results anticipated in the forward looking statements as a result of risks and uncertainties described from time to time in Brighthouse Financial's filings with the SEC.
Information discussed on today's call speaks only as of today February 12, 2025, the company undertakes no obligation to update any information discussed on today's call.
During this call.
We will be discussing certain financial measures that are not based on generally accepted accounting principles also known as non-GAAP measures rec.
A reconciliation of these non-GAAP measures on a historical basis to the most directly comparable GAAP measures and related definitions maybe found in our earnings release slide presentation and financial supplement.
And finally references to statutory results, including certain statutory based measures used by management are preliminary due to the timing of the filing of the statutory statements.
And now I'll turn the call over to our CEO Eric Steigerwalt.
Eric Steigerwalt: Thank you Dana good morning, everyone and thanks for joining the call today.
Eric Steigerwalt: 2024 was a year of successes and also some challenges for Brighthouse financial.
Eric Steigerwalt: While we made significant strides in our growth strategy last year, our statutory results as we have discussed over the past few quarters had been disappointing how's.
Eric Steigerwalt: However, as we have said before we have been actively engaged in and continue to make progress on several strategic initiatives designed to improve capital efficiency.
Eric Steigerwalt: Unlock capital and remain within our target combined risk based capital or RBC ratio range in normal market conditions.
Speaker Change: And I am very pleased with the progress that we've made on those initiatives and I'll touch on that in a minute.
Eric Steigerwalt: First.
Eric Steigerwalt: Like to take a moment to highlight some of our accomplishments in 2024 <unk>.
Eric Steigerwalt: Including the significant strides we made in our growth strategy.
Eric Steigerwalt: This is demonstrated by our consistent growth in sales of our flagship shield product suite.
Eric Steigerwalt: In fixed indexed annuity product.
Eric Steigerwalt: Our entrance into the Worksite channel with the launch of Blackrock life path paycheck.
Eric Steigerwalt: Our continued steady growth in our life insurance product sales.
Eric Steigerwalt: And our launch of the newest generation of our shield product as well as enhancements to our smart care product suite.
Eric Steigerwalt: Regarding annuity sales.
Eric Steigerwalt: We reported 10 billion of total annuity sales in 2024.
Eric Steigerwalt: In addition, we delivered record sales of our flagship shield level annuities product suite of $7.7 billion.
Eric Steigerwalt: Which is an increase of 12% compared with 2023.
Eric Steigerwalt: As a reminder, our shield products are what are known as registered index linked annuities or <unk>.
Eric Steigerwalt: And we remain proud to be a leader in the <unk> marketplace.
Eric Steigerwalt: In 2024, we also announced updates to our shield product suite designed to help our shield suite remain competitive.
Eric Steigerwalt: Adapt to changes in the industry.
Eric Steigerwalt: And reflect our ongoing focus on meeting clients' evolving needs.
Eric Steigerwalt: I'm also pleased with the accomplishments we achieved last year in our life insurance business, we delivered steady growth of $120 million of life insurance sales for the full year, which is an 18% increase over 2023.
Eric Steigerwalt: We also launched new enhancements to our flagship life insurance products Smart care.
Eric Steigerwalt: Also last year, we joined Blackrock and announcing the availability of blackhawk's life path paycheck or L. P. P solution in defined contribution plans.
Eric Steigerwalt: And we received our first deposits from L. P P.
Eric Steigerwalt: All of which is extremely exciting.
Eric Steigerwalt: Last month.
Eric Steigerwalt: Blackrock announced that L. P. P is now live in six employer retirement plans.
Totaling $16 billion in assets under management.
Eric Steigerwalt: Which we're also very excited about.
Eric Steigerwalt: We remain thrilled to work with Blackrock on this an innovative retirement solution and I expect our involvement with L. P. P to enable us to reach new customers through the Worksite channel.
Eric Steigerwalt: As we've said in the past expense discipline is extremely important.
Eric Steigerwalt: Therefore, I am pleased that our full year corporate expenses were down over 7% compared with last year.
Eric Steigerwalt: Our accomplishments in 2024 reflect an ongoing commitment to and execution of our focused strategy, which I've spoken about before.
Eric Steigerwalt: As you've heard us discuss in 2024.
Eric Steigerwalt: Tremendous success, we have had in growing our shield annuity block of business over the past several years with our shield block now, making up approximately 30% of our total annuity account value.
Eric Steigerwalt: Has created increased complexity associated with managing our variable annuity or VA and shield business on a combined basis.
Eric Steigerwalt: This resulted in a strain on our statutory results last year in 2024.
Eric Steigerwalt: However, as you've heard us talk about in recent months, we continue to execute our capital focused strategic initiatives.
Eric Steigerwalt: And we've made significant progress against those initiatives.
Eric Steigerwalt: For instance, as we said in our third quarter earnings Conference call. We have made substantial progress on simplifying our V I N shield hedging strategy.
As of the end of the year, we are fully transitioned to hedging all shield annuity new business on a standalone basis.
Eric Steigerwalt: And we continue to work on revising our hedging strategy for our in force VA and Shield book, which is now managed as you know I think of it as a closed block of business.
Eric Steigerwalt: As a reminder, despite the refinements to our hedging program.
Eric Steigerwalt: The overall focus of our financial and risk management strategy remains the same which is to protect our statutory balance sheet under adverse market scenarios.
Eric Steigerwalt: Our statistics are strategic initiatives also include reinsurance opportunities.
Eric Steigerwalt: As we announced on our third quarter earnings call effective as of September 30th 'twenty 'twenty four we completed a reinsurance transaction with a third party to reinsure, a legacy block of our fixed in payout annuities.
Eric Steigerwalt: That transaction helped to create capital efficiencies and reduced our required capital.
Eric Steigerwalt: It helped to bring our estimated combined RBC ratio back to within our target range of 400% to 450% in normal market conditions as of September 30th.
Eric Steigerwalt: I'm also pleased to announce that in the fourth quarter, we entered into another reinsurance agreement with a third party to reinsure, a legacy block of Universal life, and variable universal life products residing within our life insurance segment.
Eric Steigerwalt: This reinsurance agreement resulted in additional capital benefit in the fourth quarter.
Eric Steigerwalt: As I mentioned, a moment ago, the focus of our financial and risk management strategy remains the same which is to protect our statutory balance sheet under adverse market scenarios. This.
Eric Steigerwalt: This is especially important to support our distribution franchise, including our distribution partners and the customers that they serve.
Eric Steigerwalt: As of December 31, 2024.
Eric Steigerwalt: Our estimated combined RBC ratio was approximately 400%.
Eric Steigerwalt: At the low end of our target range of 400% to 450% in normal markets.
Eric Steigerwalt: This reflects a $100 million capital contribution made to Brighthouse life insurance company or black from the holding company.
Eric Steigerwalt: Ed will provide more detail on our statutory results in a moment.
Eric Steigerwalt: Illiquid assets at the holding company were $1 $1 billion as of December 31, 24.
Eric Steigerwalt: Pro forma for the contribution to black liquid assets at the holding company continue to be a robust $1 billion.
Eric Steigerwalt: Additionally, in 2024, we return capital to our shareholders through the repurchase of $250 million of common stock, which.
Eric Steigerwalt: Which included $60 million of common stock repurchased in the fourth quarter.
Eric Steigerwalt: As of year end 2024, we have reduced the number of shares outstanding by over 50%. Since we began our common stock repurchase program in August of 2018.
Eric Steigerwalt: And year to date through February 7th.
Eric Steigerwalt: We repurchased an additional $25 million of our common stock.
Eric Steigerwalt: As we look towards 2025, we remain committed to further executing on our business strategy.
Eric Steigerwalt: And we continue to focus on delivering on our capital focused strategic initiatives.
Eric Steigerwalt: To improve capital efficiency unlock capital and remain within our combined RBC ratio target range.
Eric Steigerwalt: To wrap up.
Eric Steigerwalt: I am proud of all that we accomplished in 2024, despite certain challenges that we faced.
Eric Steigerwalt: We maintained our robust liquidity position.
Eric Steigerwalt: And our corporate expenses were down 7% versus 2023.
Eric Steigerwalt: As we also maintained our focus on expense discipline.
Eric Steigerwalt: We delivered record sales of our shield level annuities product suite.
Eric Steigerwalt: And we received our first deposits with the launch of Blackrock life path paycheck product.
Eric Steigerwalt: We ended the year with an estimated combined RBC ratio of approximately 400%.
Eric Steigerwalt: And continue to make progress against our capital focused strategic initiatives.
Ed: With that I'll turn the call over to Ed to discuss the financial results.
Eric Steigerwalt: Yeah.
Eric Steigerwalt: Yes.
Eric Steigerwalt: Thank you, Eric and good morning, everyone.
Eric Steigerwalt: As Eric mentioned, we contributed $100 million to black effective for year end statutory financial statements to bring our estimated combined RBC ratio to approximately 400%.
Eric Steigerwalt: Or the low end of our target range in normal market conditions.
Eric Steigerwalt: Given that it is year end, which is the only time our subsidiaries officially report an RBC figure.
Eric Steigerwalt: We felt it was appropriate to be in our range.
Eric Steigerwalt: Our combined total adjusted capital or Tac was approximately $5 $4 billion at December 31.
Eric Steigerwalt: Which also reflects the capital contribution.
Eric Steigerwalt: Without the contribution we estimate that our combined RBC ratio would have been in the mid three nineties.
Eric Steigerwalt: I would like to make a few comments on the decision to contribute capital to black.
Eric Steigerwalt: First we have repeatedly stated that we believe our franchise value is driven by distribution and we are committed to our distribution partners and the customers that they serve.
Eric Steigerwalt: Given the importance of both distribution and the financial strength of our operating companies. We determined it was prudent to make a relatively modest contribution from the holding company to our largest operating subsidiary.
Eric Steigerwalt: Second we have consistently highlighted the importance of maintaining a conservative position at the holding company both in terms of cash and capital structure.
Eric Steigerwalt: It is critical to have flexibility to deal with the uncertainty that is inherent in the financial services industry and our results last year illustrate this fact.
Eric Steigerwalt: After the contribution we still have approximately $1 billion of cash and liquid assets at the holding company.
Eric Steigerwalt: Finally, while we do not typically provide a forward look on RBC.
Eric Steigerwalt: We're making an exception in this instance, given this is the first time, we've contributed cash from the holding company to an operating subsidiary since our early days as a public company.
Eric Steigerwalt: Our financial plan currently anticipates that our combined RBC ratio will be relatively stable over the next few years without additional support from the holding company.
Eric Steigerwalt: As Eric discussed we made significant progress in 2024 on our capital focus strategic initiatives designed to improve capital efficiency unlock capital and return our combined RBC ratio to our target range in normal market conditions.
Eric Steigerwalt: Keep in mind that while our statutory results benefited from the reinsurance agreement entered in the fourth quarter as well as us hedging shield new business on a standalone basis.
Eric Steigerwalt: Our VA and shield business is not immune to large quarterly market moves.
Eric Steigerwalt: Specifically in the fourth quarter interest rates were up approximately 80 basis points as measured by the 10 year U S. Treasury and there was a significant steepening in the yield curve.
Eric Steigerwalt: The combined impact of the significant changes in interest rates and the yield curve shape resulted in a negative impact on our annuity statutory results.
Eric Steigerwalt: Which contributed to the 300 million dollar decline in Tac in the quarter.
As I have discussed in the past there is an element of timing from market impacts.
Eric Steigerwalt: In this case there was a current period cost from the movement in rates. However, we would expect to see the benefit from higher interest rates over time.
Eric Steigerwalt: Additionally, there was a net 200 million dollar increase in asset adequacy testing reserves.
Eric Steigerwalt: Which contributed to the decline in Tac.
Eric Steigerwalt: Driven by legacy fixed annuity blocks.
Eric Steigerwalt: At December 31st holding company liquid assets were approximately $1.1 billion.
Eric Steigerwalt: Pro forma for the capital contribution holding company liquid assets are approximately $1 billion.
Eric Steigerwalt: Now turning to adjusted earnings results in the fourth quarter.
Eric Steigerwalt: Adjusted earnings for the quarter of $304 million reflect a $48 million unfavorable notable items or <unk> 80 per share related to actuarial model updates.
Eric Steigerwalt: Adjusted earnings excluding the impact from the notable items were $352 million, which compares with adjusted earnings on the same basis of $243 million in the third quarter of 2024 and $189 million in the fourth quarter of 2023.
Eric Steigerwalt: Excluding the impact of the notable item the adjusted earnings results in the fourth quarter were approximately $70 million or $1 17 per share.
Eric Steigerwalt: Above our average quarterly run rate expectation.
Eric Steigerwalt: Our underwriting margin was approximately $40 million higher than our average quarterly expectation driven by lower claim volume net of reinsurance and both our life and run off segments.
Eric Steigerwalt: There was also a benefit of approximately $30 million versus our average quarterly run rate expectation from non <unk> items.
Eric Steigerwalt: Equally split among investments tax and corporate expenses.
Eric Steigerwalt: Yeah.
Eric Steigerwalt: Alternative investment income was at the upper end of our long term expectation of a 9% to 11% annual return.
Yielding approximately two 6% in the fourth quarter.
Eric Steigerwalt: This contributed to higher net investment income compared with the third quarter.
Eric Steigerwalt: Shifting to results by segment.
Eric Steigerwalt: The annuity segment reported adjusted earnings less notable items of $327 million.
Eric Steigerwalt: Sequentially annuity results were driven by higher net investment income, partially offset by a lower underwriting margin.
Eric Steigerwalt: The life segment reported adjusted earnings of $52 million and were higher sequentially, which was driven by higher net investment income and a higher underwriting margin.
Eric Steigerwalt: This was partially offset by higher expenses.
Eric Steigerwalt: Okay.
Eric Steigerwalt: The runoff segment had an adjusted loss of $27 million.
Eric Steigerwalt: Sequentially results reflected higher net investment income and a higher underwriting margin.
Eric Steigerwalt: The corporate and other segment reported zero adjusted earnings, which reflected a lower tax benefit in the quarter.
Eric Steigerwalt: Actually offset by lower expenses sequentially.
Eric Steigerwalt: In closing we are pleased with our progress on strategic initiatives and believe we have illustrated our commitment to maintaining a strong statutory balance sheet.
Eric Steigerwalt: Finally, we continue to have substantial cash at the holding company.
Eric Steigerwalt: We will now turn the call over to the operator to begin the question and answer session.
Thank you to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment, while we compile the Q&A roster.
Speaker Change: Our first question is going to come from the line of Wes Carmichael with Autonomous Research. Your line is open. Please go ahead.
Wes Carmichael: Hey, Thank you good morning.
Wes Carmichael: I was hoping you could touch a little bit on the drivers RBC in the quarter I think it declined if you exclude the capital contribution reinsurance, but maybe you could just touch on I know you quantified the capital contribution, but reinsurance transactions well can be great. Thank you.
Wes Carmichael: Okay.
Wes Carmichael: Yeah, good morning Wes.
Wes Carmichael: This is going to be a long answer, but hopefully it'll help you with that understanding of quarter.
Wes Carmichael: There was a lot going on this quarter.
Wes Carmichael: Had the benefit from our strategic initiatives.
Including the reinsurance that you mentioned the standalone hedging for shield new business.
Wes Carmichael: As well as some of the market factors and then finally, the year end asset adequacy testing.
Wes Carmichael: So let me start with the.
Wes Carmichael: The strategic initiatives.
Wes Carmichael: If you look at our supplement Youll see we.
Wes Carmichael: We show some normalizing adjustments for norm stat and there there are it's a positive number in the fourth quarter.
Wes Carmichael: And that and that's despite the fact that it includes this a a T impacts so if you're looking at.
Wes Carmichael: You know roughly at around when you do the math it shows to 300 million the actual impact from these positive items is north of $400 million.
Wes Carmichael: Okay.
Wes Carmichael: And so.
Wes Carmichael: The benefits that we realized from these strategic initiatives would really be captured in that bucket.
Wes Carmichael: And Theres really two things first of all you've heard us talk about our.
Wes Carmichael: Hedging shield, new business on a standalone basis beginning in July.
Wes Carmichael: The real benefit that you get from that is when you build it into your statutory.
Wes Carmichael: Modeling.
Wes Carmichael: And so in the fourth quarter, we implemented that that the statutory modeling adjustments associated with hedging shield new business on a standalone basis as well as our shield level pay plus product.
Which is both the new version as well as the old version.
Wes Carmichael: The reason this is important is because when you build it into your financial statements.
Wes Carmichael: You are required to take into account.
Wes Carmichael: The future hedges that will be associated with the standalone hedging approach into your liability cash flows.
Wes Carmichael: And so we saw a significant benefit from that impact in the fourth quarter.
Wes Carmichael: The second strategic initiative that was positive was the reinsurance deal. So we did a a legacy block of U L V U L life reinsurance deal.
Wes Carmichael: And you know that benefited us overall to RBC about 10 to 15 points. So that's in that number as well.
Wes Carmichael: So that's the real positive here from the strategic initiatives, which which as I said was significant and.
Wes Carmichael: You know north of $400 million.
Wes Carmichael: Turning to norm Stat, we had a 200 million dollar norm stat loss in the quarter approximately.
Wes Carmichael: In the quarter I mentioned, the interest rate impact in my prepared remarks.
Wes Carmichael: And norm Stat, there was about a.
Wes Carmichael: Roughly at $350 million negative from rates.
Wes Carmichael: So let me explain obviously fundamentally higher interest rates are positive for a VA block.
Wes Carmichael: They are positive because you have a lower present value of future claims.
Wes Carmichael: You have lower future claims.
Wes Carmichael: And that's partially offset by lower button bond fund values. So that's the fundamental impact of higher interest rates for V. A.
Wes Carmichael: Let's talk about the statutory impact both near and long term.
Wes Carmichael: In the near term in immediately with long rates up and the yield curve steepening.
Wes Carmichael: You lose on your derivatives that hedged the rate risk.
Wes Carmichael: And you don't get the full benefit you would expect to see from the right move because a the.
Wes Carmichael: The yield curve.
Wes Carmichael: Did not move in a parallel fashion.
Wes Carmichael: And the way the statutory framework.
Wes Carmichael: Works is its very dependent on the one year and the 'twenty year.
Wes Carmichael: And so.
Wes Carmichael: The the fact that the long rates went up had more of an impact on your hedge assets.
Wes Carmichael: And the fact that the yield curve did not move in parallel fashion did not have as much of a positive impact on your liabilities as you would expect to see.
Wes Carmichael: Now over time, the benefit you will realize.
Wes Carmichael: Is clearly the most obvious benefit is in the mean reversion point adjustment in the statutory framework for for the 20 year Treasury.
Wes Carmichael: And just to illustrate at the end of September in our three year financial plan. We thought we would have to MRP increases over the three year period now.
Wes Carmichael: Now based on year end.
Wes Carmichael: Actuals, we would expect to see three increases in the MRP. So there is a timing issue associated with rates.
Wes Carmichael: Yeah.
Wes Carmichael: The final piece I want to talk about is the asset adequacy testing reserve and that was approximately a $200 million increase.
Wes Carmichael: This is related to a legacy block of fixed annuities, it's approximately $8 billion of reserves.
Wes Carmichael: This is an old block of business without.
Wes Carmichael: Material surrender charge protection.
Wes Carmichael: And so what we saw this year in our testing was in high rates scenarios.
Wes Carmichael: You would see a material increase in lapses.
Wes Carmichael: On this block, which could cause a you to sell bonds at a loss to fund the outflows.
Wes Carmichael: So you know youre looking at a variety of of conservative scenarios. When you look at cash flow testing. This year, we saw that the up rate scenario was going to cause some shortfall and that's why.
Wes Carmichael: We set up the $200 million.
Wes Carmichael: So I know that's a lot, but hopefully you can put those pieces together and I think you can get a pretty good you know a pretty good understanding of what drove the results in the quarter.
Wes Carmichael: Okay.
Speaker Change: No I appreciate it and I guess my follow up is just on hedging.
Speaker Change: And the shield is fully transitioned to it can you just comment on where you are with the legacy legacy VA portfolio.
Speaker Change: And maybe just any update on timing of long term free cash flow projections would be helpful.
Speaker Change: Sure so.
Speaker Change: We continue to focus on what our strategy will be for this legacy block a V E and shield the old shield.
Speaker Change: Right.
That is a there's a lot of work that's still underway. This is a very important initiative for us I want to remind everyone, though that our underlying approach to managing this risk has not changed which is we have a maximum loss tolerance of up to $500 million.
Speaker Change: And we are on a statutory basis and we are focused on relative to Cte 98, and we are focused on managing that risk. So that there is no issue for us.
Speaker Change: Market movements and interest rate movements. So there's no change in managing the AR the risk itself.
Speaker Change: But we are looking at what is the appropriate strategy going forward for that back book now that we are hedging all of our new business on a standalone basis.
Speaker Change: The.
Speaker Change: The long term statutory free cash flow projections, I think I had a question while I know I had a question last quarter about timing and related to our work on the on the hedging change.
We need to complete the work on what we do with this back book.
Speaker Change: Before we would.
Speaker Change: Complete those free cash flow projections so.
Speaker Change: We said last last quarter that we were targeting mid year I said that you know that is going to be dependent on the progress we make on this key strategic initiative and so you know.
Speaker Change: I think I would just say.
Speaker Change: We're gonna have to wait and see what the timing is if I had to guess I would say, it's probably going to slip from what I said last quarter, but it's much more important for us to get this back book hedging strategy factored into those projections than it is to rush getting those projections out.
Speaker Change: Got it thank you.
Speaker Change: Thank you and one moment as we move onto our next question.
Speaker Change: And our next question comes from the line of Sidney Smith with Jefferies. Your line is open. Please go ahead.
Sidney Smith: Hi, Thanks. Good morning first question just on the stable RBC should.
Speaker Change: Should we think stable, meaning at 400% or somewhere in that range that you target and then does that outlook contemplate any subsidiary dividends out of Blake.
Speaker Change: Hi, good morning <unk>.
Speaker Change: So I think you know.
Speaker Change: We're going to we're not going to get any more specific than stable I mean, you could interpret stable.
Speaker Change: You know in a variety of ways, but I would say that if it's approximately 400%.
Speaker Change: At year end, and we are targeting to be in a range in normal markets. If you assume normal markets that should give you some indication of what stable means.
Speaker Change: And in terms of dividends.
Speaker Change: Our financial plan does contemplate taking money from operating companies.
Speaker Change: After this year.
Speaker Change: Yeah.
Speaker Change: Got it and then I guess the second question is a higher level question for Eric.
Speaker Change: And I get the strategy and all that but.
Speaker Change: Just thinking about the setup here I mean does it makes sense for this company to be public on a standalone basis and the reason I ask is you know Ed just spent.
Speaker Change: Talking about the quarterly change in RBC with all of the moving pieces and it's a level of complexity and confusion I think that we just are not seeing from other companies I think because they are more diversified and have other businesses other than just primarily annuity. So just how do you think about.
Speaker Change: The complexity of what you have versus perhaps not being public on a go forward basis. Thanks.
Speaker Change: You got it <unk> you broke up a touch there, but I think I got it all.
Speaker Change: Look.
Speaker Change: We've we've been dealing with with complexity for seven and a half years now there have been a number of periods where that complexity is has been far less recently as we've discussed in whether it's part of Ed's answer here answer.
Speaker Change: As we've given in the past.
Speaker Change: When we ended up with as much shield on the books.
Speaker Change: As we were hoping for.
Speaker Change: Sort of balance the old V a book.
Speaker Change: That created an interesting situation for us and I would agree that that situation not only sounds complex, but it is complex and so what we've done is broken it apart into essentially two pieces I'm overly simplifying here one for all shield new business to be hedged on a standalone basis and then two.
Speaker Change: Two as ed's previous answer sort of illuminated figuring out how we're going to hedge what I called a previously kind of a closed block of VA in older Shield.
Speaker Change: So when we think about what we've got to do to manage this complexity. Some years, it's been far more simple. This last year 2024, I agree it was complicated and so whether it's running the company as efficiently as we can on sort of a b E U.
Speaker Change: [noise] basis, right everything that we do on a normal basis to run this company and then adding in these strategic initiatives, whether it's things like reinsurance.
Speaker Change: Other initiatives that we're thinking about we're always trying to think of of new initiatives or the fairly large initiatives associated with the hedging program.
Speaker Change: You know we are a public company and we're running this company every day.
Speaker Change: Two over time create long term shareholder value.
Speaker Change: Even as you think about it at year, we're roughly at year, seven and a half we've repurchased 2.5.
Speaker Change: Billion dollars of stock.
Speaker Change: And that adds up to more than 50% of the original shares outstanding.
Speaker Change: So all I can tell you is we're going to continue to run the company.
Speaker Change: As we have and when you do hit periods of complexity.
Speaker Change: You just power through it which is exactly what you've seen us do over the last couple of quarters, including the fourth quarter and that won't stop as we go through 2025.
Speaker Change: Okay. Thanks for the answer.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of <unk> with Raymond James Your line is open. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hey, good morning could you just I know you talked about work here, but could you just give us a broad sense of what's been leading to normalize that losses in.
Speaker Change: You know I guess several of the most recent quarters.
Speaker Change: Is it <unk>.
Speaker Change: Our higher equity market hedging on traditional Bas, maybe just give us a broad sense.
Speaker Change: Sure good morning.
Speaker Change: One of the things we've talked about along with just the normal volatility that you can have associated with market moves, which we've had a variety of things that we've talked about in prior quarters, which.
I'm sure we could follow up with you to just remind you of what we have said in each of those quarters on the market moves, but the other thing we've talked about is the.
Speaker Change: The strain from new business.
Speaker Change: And the fact that we.
Speaker Change: We are and what drove our decision to change our approach for hedging new business is once we achieve this balance in our.
Speaker Change: Risk profile between VA and shield that we were no longer seeing the same benefit that we used to see from the way, we managed and so that we needed to we needed to change. So there was some additional strain impact that you saw in 2024 beyond what we would anticipate going forward and really.
Speaker Change: To speak going forward for a couple of reasons number one because of the approach we're taking to managing the business from a hedging standpoint and number two you've heard us talk about exploring.
Speaker Change: Flow reinsurance deal for shield, new business, which would also help alleviate capital strained and we continue on that path. We have multiple interested parties in a deal of that nature and so that's something you know in terms of another initiative that we have in the works for this year.
Speaker Change: You know I'd make sure I remind everyone of that one because it continues to be an important one.
Speaker Change: Okay. Thank you and then.
Speaker Change: There are there opportunities to Christmas increase the portfolio yield.
Speaker Change: And if so could you talk about how much capital that require it along the same lines nice.
Speaker Change: Good job on the expense management. This year is there more that can be cut too I guess it helps.
Speaker Change: Improved organic cash flow generation.
Speaker Change: Yeah.
Speaker Change: Hi, wellness, John Yes, there probably are some opportunities to increase yield I think at a high level our portfolio allocation has remained.
Speaker Change: Roughly stable during the year, we still have more of a risk on risk off approach excuse me.
Speaker Change: We don't see we invest across the board in all fixed income and all fixed income asset classes spreads are tight. So we don't see any compelling reason to pile into any one sector, but we are positioned to take advantage of widening spreads and dislocations should.
Speaker Change: Should they present themselves Eric do you want to follow up on this yeah I'll take the second half Wilma.
Eric Steigerwalt: Yeah, we had a good year with respect to expenses in 2024 expenses down 7% year over year as I've said over the years actually.
Eric Steigerwalt: My real focus is on the expense ratio right.
Eric Steigerwalt: So.
Eric Steigerwalt: Keeping that expense ratio down has been a focus frankly since day, one and that was that was a long time ago.
Eric Steigerwalt: We're not afraid though to invest in growth. So I would just sort of say Wilma as you think about 2025, certainly there are inflationary effects out there and they will affect all companies, including ours, but my real focus is to grow revenues sort of faster.
Eric Steigerwalt: You know than our than our expense margins and I expect that to continue in 2025. So the expense discipline is alive and well.
Eric Steigerwalt: Thank you.
Eric Steigerwalt: Thank you and one moment as we move onto our next question.
Speaker Change: And our next question is going to come from the line of Jimmy <unk> with J P. Morgan. Your line is open. Please go ahead.
Jimmy: Hey, good morning, So just had a question in the.
Speaker Change: Or maybe Eric on what just your intention on where you'd like to run the company in terms of RBC ratio and there is it that you as long as youre above 400% should we assume that you'd be taking sort of additional actions like reinsurance or anything else to get it even higher and give you a.
Jimmy: Little bit of cushion or are you comfortable running it at 400%.
Jimmy: Okay.
Jimmy: Good morning, Jimmy.
Speaker Change: So the first thing I'd say is we're comfortable running at 400%.
Speaker Change: In normal market conditions, we say a range of 400 to 450 <unk>.
And you know.
Speaker Change: I think over time as your mix shifts.
Speaker Change: You can argue for the the range coming down I'm, not saying near term, but over time that would make sense given the changing risk profile of the company.
Speaker Change: The second thing is we're always looking for opportunities to.
Speaker Change: Unlock capital. So you know that is not that's nothing different than what we've tried to do over the years in a variety of different ways and so.
Speaker Change: That that that's just been a consistent effort on our part and it will continue to be.
Speaker Change: And these different strategic initiatives that we have in place.
Speaker Change: The approach, we're going to take with the back book of a V. A N shield.
Speaker Change: Any additional reinsurance that we might put in place you know, we we think that you know that is going to improve capital efficiency potentially unlock capital and you know that's why we continue to be focused on those initiatives.
Speaker Change: Hey, Jimmy it's Eric I'll, just add a little bit because I think it's a good question.
Speaker Change: So remember you know this very well you've got the interplay between what's your capital level at your at your insurance subsidiaries, especially Black and then what you got the holding company and of course, we still got a $1 billion up at the holding company and Ed and I have talked about that for years, we always felt that was prudent and we.
Speaker Change: We still think it's prudent obviously, but yeah, we we can run at 400%.
Speaker Change: You've got the liquidity at the holding company.
And you know we've never pushed money down, but we just thought is as you heard Ed say I don't know, maybe 20 minutes ago that it just made a lot of sense to get the RBC ratio at the end of the year.
Speaker Change: Within the range, it's it's really helpful for distributors and I like helping our distributors. So even after we did that we still got a $1 billion up at the holding company.
Speaker Change: And you know as you heard <unk> say, we do in our in our three year plan and expect to have dividends up to the holding company. So yes, we are comfortable.
Speaker Change: Okay.
Speaker Change: And just on the dividend point are you expecting dividends every year or was that more of a cumulative are common.
Speaker Change: That is more of a cumulative comment I think as we've done in the past we prefer to talk about any forward looking.
Speaker Change: The metrics on a multiyear basis, rather than any single period.
Speaker Change: Okay.
Speaker Change: And then on fixed annuity sales they were down this quarter a decent amount so is that because of competition or something from.
Speaker Change: In distribution or just a desire to sort of preserve capital can you talk about what drove the decline there.
Speaker Change: Hey, good morning, Jamie It's Myles speaking so FRE sales were down for the year as expected as a reminder, mid year, we had a transition into a new reinsurance partner, our FIA sales were up for the year driven by our success.
Speaker Change: Our successful launch of our secure key product on.
Speaker Change: On a combined basis, we exceeded our expectations for fixed sales, but we continue to balance growth pricing discipline, and managing capital and we're happy with our overall results.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and one open as we move onto our next question.
Speaker Change: And our next question comes from the line of.
Speaker Change: John Barnidge with Piper Sandler Your line is open. Please go ahead.
John Barnidge: Good morning, Thanks for the opportunity.
Speaker Change: My question is on the investment management of the portfolio, how much expenses there associated with the outsourcing of that.
Speaker Change: Hey, John It's Sean we don't really provide that we provide an overall investment expense number.
Speaker Change: You can see in our financials and you can assume that.
Speaker Change: I'm a type fees are the majority of that.
Speaker Change: Thank you for that and my follow up question.
Speaker Change: How much outsourcing is concentrated in the most hands as a percent basis I'm not looking for him.
Speaker Change: And which end.
Speaker Change: You outsource it to third parties is there any guess is there any one party that has a demonstrable amount and how much is that about oh, we have a dozen or so outside managers, who we believe and believe a world class and in the capabilities, we use them for across various sectors I don't think.
Speaker Change: We want to get into.
Speaker Change: Who who manages how much money.
Speaker Change: Thank you for it.
Speaker Change: Thank you and one woman has now move onto our next question.
Speaker Change: Our next question comes from the line of Ryan Krueger with <unk>. Your line is open. Please go ahead.
Ryan Krueger: Thanks, Good morning.
Ryan Krueger: I guess a question on reinsurance so you've done a couple law enforced deals.
Ryan Krueger: When you when you look forward are you.
Ryan Krueger: Still looking to do more things like that and I guess would you broaden the scope to also perhaps include some of the liabilities that CLO liabilities and <unk> as well.
Ryan Krueger: Hey, good morning, Ryan.
Speaker Change: So you know in my response to Jimmy's question I said, we're always looking for ways to.
Speaker Change: Do what's right from a capital standpoint, and if it makes sense for us to.
Speaker Change: Do additional.
Speaker Change: Transactions are we will do that and we will look at everything to consider whether or not it makes sense to do that so to this point we've done.
Speaker Change: You know some legacy blocks, we did the annuity block that we talked about in the third quarter we.
Speaker Change: Did the life.
Speaker Change: Deal that we talked about this quarter, which was U L. N V O L. So we will look I think we've gone in the directions. So far of things that were.
Speaker Change:
Speaker Change: More straightforward.
Speaker Change: And I would say I wouldn't say easy to do because there was a ton of work that went into doing all of this but.
Speaker Change: Relatively easy I think as you start to talk about some of these other.
Speaker Change: Businesses are legacy businesses that you mentioned there would be more complexity. It would make take more work, but it is something that we have been thinking about.
Speaker Change: Okay.
Speaker Change: Thanks, and then going back to the stable RBC comment.
Speaker Change: Over the next few years I think there's different moving parts over the next few years when you I guess on your own.
Speaker Change: Company specific side the change to the hedging of the closed block of variable annuities and shield and then you have some changes going into effect I think our case scheduled for next year on variable annuity capital and reserving requirements.
Speaker Change: Have you have you tried to contemplate all of these moving parts into that forward outlook already or do you have any thoughts there.
Speaker Change: Yeah.
Speaker Change: Sure. So you you you highlight two areas that we.
Speaker Change: We will create some.
Speaker Change: Level of uncertainty about what the framework will look like most of you know I would say in particular, you're referring to the upcoming the.
Speaker Change: The upcoming change in the economic scenario generator, which is scheduled at this point for the 2026 financial statements correct.
Speaker Change: That's what you're asking about.
Speaker Change: That was a piece of it and then yeah. I think also just also euro and changes to the legacy hedging as well.
Speaker Change: Yeah. So those those are not factored in my comments because.
Speaker Change: First of all there's no way to assess what the framework will look like the final framework for the ESG for example.
Speaker Change: And you know I I would make the case that for example, if you Institute a a very conservative economic scenario generator.
Speaker Change: That you would not have to have as high an RBC ratio.
Speaker Change: That that's one possible way to look at it because if you are going to reflect a lot of the risk in.
Speaker Change: In your balance sheet today, the excess Ah you know the capital.
Speaker Change: <unk> that you need for adverse deviation should be less so.
Speaker Change: So that is not factored into my comments just another thing I'd just underscore I think it's clear to everyone on this call but.
Speaker Change: Our expectations about the RBC ratio are going to be driven by normal market. So when we look at our financial plan.
Speaker Change: I would say we have a moderate type of scenario going forward it's not.
Speaker Change: You know I would say somewhat less than a normal market returns.
Speaker Change: Somewhat higher than normal credit losses, you know nothing that I would identify is.
Speaker Change: That significant outside of a.
Normal markets and so that's why we talk about stable. If you had something different than that in terms of market environment. You know you would have a different.
Speaker Change: You would have a different outcome for your RBC ratio either positive or negative.
Speaker Change: And then on the the the hedging piece one of our overarching goals of everything we're doing here.
Speaker Change: Is to try to simplify.
Speaker Change: This is never going to be simple as you probably got from my <unk>.
Speaker Change: Very long answer to the first question, but our goal is to make it simpler and so there you know we might decide if it made sense for a more straightforward and clear picture.
Speaker Change: Of of managing the risk you might choose to.
Speaker Change: Some sort of a capital.
Speaker Change: Impact from doing that if you thought it made sense. So you know I'm.
Speaker Change: I'm, not saying that that is going to happen I expect that to happen I'm, just saying that that would be a tradeoff that we might make a which is not contemplated in anything that I have talked about today in terms of stable RBC ratio.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you and one woman as we move onto our next question.
Speaker Change: Our next question is going to come from the line of Nick <unk> with Wells Fargo. Your line is open. Please go ahead.
Speaker Change: Hey, good morning, maybe just more of a high level question, maybe for miles or David but Ken can you just comment on the kind of competitive environment or dynamics in the railway business just seems like a lot of companies are already in it and starting to launch.
Speaker Change: Launching newer refresh products would be good to get your kind of near term or intermediate term outlook on it.
Speaker Change: Yes, good morning, it's Myles I'll take it and David can certainly chime in but look there's a lot of demand for these products in the marketplace customers are looking to stay invested with protection, they're focused on retirement planning. So the market has expanded quite a bit. It is 800 expanded as it relates to.
Speaker Change: Two new distributors selling these products Theres a lot of new features on these products, including income riders, but we feel really great about our competitive positioning last year was our best year, yet as it relates to shield sales and we continue to do a number of different things to enhance our offering whether its shield level play plus which is shield with an income.
Speaker Change: Rider or separate edge, which is a new crediting strategy, David anything you wanted to add to that.
David: No I think you've covered it.
David: Okay.
Speaker Change: Thank you and one moment as we move onto our next question.
Speaker Change: Our next question comes from the line of Tom Gallagher with Evercore ISI. Your line is open. Please go ahead.
Speaker Change: Good morning few questions.
Speaker Change: So the stable RBC.
Speaker Change: Is that should we assume that means you'll have positive stat earnings but.
Speaker Change: Increasing required capital.
Speaker Change: So that's my.
Speaker Change: First question and just Relatedly.
Speaker Change: Would you expect to still execute share repurchase here.
Speaker Change: Which presumably at least for the near term is going to rely on drawdown of Holdco access.
Speaker Change: Hey, Tom.
Speaker Change: Uh huh.
Speaker Change: So I don't want to go too far down the path of this forward looking plan <unk>.
Speaker Change: Topic, but.
Speaker Change: The answer to your question is yes. It does it does assume that the results over the planned period would be positive earnings.
Speaker Change: And what if anything.
Speaker Change: Anything on.
Speaker Change: Yeah. He is pointing at me Tom.
Speaker Change:
Speaker Change: Look generally as as Ed just said and as you know we don't talk about share repurchases going forward. We just haven't done that all I can do to help you out is point to our history, which is is pretty consistent and as I mentioned I'm not sure on.
Speaker Change: Whose question, maybe Jimmy as you know over.
Speaker Change: Over you know our history as a public company has added up to repurchases of Av.
Speaker Change: North of $2 5 billion.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Gotcha and then.
Speaker Change: For my follow up can you give a little more color are these these risk transfer deals you did the annuity deal.
Speaker Change: Where the deposit size on those fixed annuities and payout annuities and then how how big were the life deals.
Speaker Change: Maybe I don't know a reserve or insurance in force, how how big were those.
Speaker Change: Hey, Tom so on the.
You know I don't know how far I wanted to go down the path on the reserves for the life deal because we continue to look at other opportunities and I gave a.
Speaker Change: I gave a comment on it.
Speaker Change: Earlier in response to West his question about it.
Speaker Change: Probably you could you you can assume 10% to 15 RBC points.
Speaker Change: And it was all driven by the numerator.
Speaker Change: The calculation. So you can do some math to come up with a range, but I'm not going to get more specific on that.
Speaker Change: Okay.
Speaker Change: And then how should repeat the question again annuity side, Yeah, just just the size of the three Q annuity deal how big were the assets or.
Speaker Change: Deposits on those.
Speaker Change: Yeah, It was approximately $8 billion.
Speaker Change: Okay.
Speaker Change: Got you and if I can I can I just sneak in one more just from a standpoint of B or C. D I.
Speaker Change: I would expect that over.
Speaker Change: At this time.
Speaker Change: Yeah.
Speaker Change: Hey, I'm at the at the end of the chain here, So I'm I'm, a I'm doing my best but anyway.
Speaker Change: The V R B or C D.
Speaker Change: Is there any way you can frame that because you.
Speaker Change: I think investors are trying to figure out is there a is that a still a source of value.
Speaker Change: He has been in the past.
Speaker Change: Because when I look at the $5 4 billion of pack and black and Alico.
Speaker Change: There's also some additional value from B R E D.
Speaker Change: Do you have a surplus number that's back in the $24 billion of SQL reserves or.
Speaker Change: Do you really just fund the reserves.
Speaker Change: Yeah, it's more of the latter I mean, you know that the well.
Speaker Change: Well first to your point about B or C. D. We've taken $1 $2 billion of dividends at a b or C. D and E 600 twice and in each instance, you needed to get regulatory approval, because all dividends from B or C. D are extraordinary so obviously, we were able to.
Speaker Change: Illustrate that it was appropriate to be able to take money out I've also said that a number of times that I would not view b or C. D. As an ongoing source of capital to.
Speaker Change: To Brighthouse I think it's appropriately obviously appropriately capitalized, but you know, it's a runoff block of old business.
Speaker Change: And.
Speaker Change: I don't see it as a source of of.
Speaker Change: Of additional cash to.
Speaker Change: To black because the four or the holding company.
Speaker Change: Gotcha, Thanks, guys.
Speaker Change: Yeah.
Speaker Change: Thank you, ladies and gentlemen, I will now turn the call over to Dana Amato for closing remarks.
Dana Amato: Thank you Michelle Thank you everyone for joining today's call and have a good day.
Dana Amato: This concludes today's conference call. Thank you for participating and you may now disconnect.
Dana Amato: Okay.
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