8-K
Brighthouse Financial, Inc. (BHF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 11, 2020
Brighthouse Financial, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-37905 | 81-3846992 | |||||
|---|---|---|---|---|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | 11225 North Community House Road | ||||
| --- | --- | --- | --- | ||||
| Charlotte, | North Carolina | 28277 | |||||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (980) 365-7100
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | BHF | The Nasdaq Stock Market LLC |
| Depositary Shares, each representing a 1/1,000th interest in a share of 6.600% Non-Cumulative Preferred Stock, Series A | BHFAP | The Nasdaq Stock Market LLC |
| 6.250% Junior Subordinated Debentures due 2058 | BHFAL | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| Emerging growth company | ☐ |
|---|---|
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Item 2.02. Results of Operations and Financial Condition.
On May 11, 2020, Brighthouse Financial, Inc. (“Brighthouse Financial” or the “Company”) issued (i) a news release announcing its results for the quarter ended March 31, 2020, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference, and (ii) a Financial Supplement for the quarter ended March 31, 2020, a copy of which is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
In accordance with General Instruction B.2 of Form 8-K, the information in Items 2.02, 7.01 and Exhibits 99.1 and 99.2 listed in Item 9.01 of this Current Report on Form 8-K shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01. Regulation FD Disclosure.
In connection with its earnings call for the quarter ended March 31, 2020, Brighthouse Financial has prepared a presentation for use with investors and other members of the investment community. This presentation is available on the Brighthouse Financial investor relations website at http://investor.brighthousefinancial.com.
Brighthouse Financial routinely uses its investor relations website to provide presentations, press releases and other information that may be deemed material to investors. Accordingly, the Company encourages investors and others interested in the Company to review the information that it shares at http://investor.brighthousefinancial.com.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| Exhibit No. | Description |
|---|---|
| 99.1** | News release of Brighthouse Financial, Inc., dated May 11, 2020, announcing its results for the quarter ended March 31, 2020 |
| 99.2** | Financial Supplement for the quarter ended March 31, 2020 |
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BRIGHTHOUSE FINANCIAL, INC. | ||
|---|---|---|
| By: | /s/ Lynn A. Dumais | |
| Name: | Lynn A. Dumais | |
| Title: | Chief Accounting Officer |
Date: May 11, 2020
2
Document
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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Exhibit 99.1
FOR IMMEDIATE RELEASE
Brighthouse Financial Announces First Quarter 2020 Results
•First quarter 2020 net income available to shareholders of $4,950 million, or $47.11 per diluted share, driven primarily by net derivative mark-to-market gains
•First quarter 2020 adjusted earnings, less notable items*, of $273 million, or $2.60 per diluted share
•Annuity sales grew 15 percent over the first quarter of 2019
•Estimated combined risk-based capital ("RBC") ratio between 515 and 535 percent
•$300 million ordinary subsidiary dividend paid to the holding company in the first quarter of 2020; additional $500 million ordinary subsidiary dividend paid in April
•Company repurchased approximately $316 million of its common stock year-to-date through May 8, 2020, representing over 12% of shares outstanding relative to year-end 2019; repurchases temporarily suspended while the company continues to evaluate the impacts of the COVID-19 pandemic
CHARLOTTE, NC, May 11, 2020 — Brighthouse Financial, Inc. ("Brighthouse Financial" or the "company") (Nasdaq: BHF) announced today its financial results for the first quarter ended March 31, 2020.
First Quarter 2020 Results
The company reported net income available to shareholders of $4,950 million in the first quarter of 2020, or $47.11 per diluted share, compared with a net loss available to shareholders of $737 million in the first quarter of 2019. During the quarter, as a result of significantly lower equity markets and lower interest rates, the value of our hedges, which the company uses to protect its balance sheet against adverse market conditions, increased, as expected, while corresponding liabilities are not reflected at fair value under U.S. GAAP accounting, and thus are less sensitive to market movements. The company ended the first quarter of 2020 with common stockholders' equity ("book value") of $20.0 billion, or $198.62 per common share, and book value, excluding accumulated other comprehensive income ("AOCI") of $17.3 billion, or $172.28 per common share.
For the first quarter of 2020, the company reported adjusted earnings* of $211 million, or $2.01 per diluted share.
Adjusted earnings for the quarter reflected $62 million after tax of the following unfavorable notable items, or $0.59 per diluted share:
•$48 million unfavorable impact to the Run-off segment related to a reinsurance recapture and a one-time adjustment related to the transition to a new vendor, and
•$14 million unfavorable impact to Corporate & Other as a result of establishment costs related to planned technology and other expenses associated with the company's separation from its former parent company.
__________________
* Information regarding the non-GAAP and other financial measures included in this news release and a reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures are provided in the Non-GAAP and Other Financial Disclosures discussion below, as well as in the tables that accompany this news release and/or the First Quarter 2020 Brighthouse Financial, Inc. Financial Supplement and/or the First Quarter 2020 Brighthouse Financial, Inc. Earnings Call Presentation (which are available on the Brighthouse Financial Investor Relations web page at http://investor.brighthousefinancial.com). Additional information regarding notable items can be found on the last page of this news release.
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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Corporate expenses in the first quarter of 2020 were $214 million, down from $283 million in the fourth quarter of 2019, both on a pre-tax basis.
Annuity sales increased 15 percent quarter-over-quarter and 5 percent sequentially. Life sales increased 33 percent sequentially.
The company repurchased approximately $316 million of its common stock year-to-date through May 8, 2020, representing over 12% of shares outstanding relative to year-end 2019. During the first quarter of 2020, the company repurchased approximately $142 million of its common stock, with an additional approximately $174 million of its common stock repurchased through May 8. Since the announcement of the company's first stock repurchase authorization in August 2018, the company has repurchased a total of approximately $864 million of its common stock through May 8, 2020. The company has temporarily suspended repurchases while it continues to evaluate the impacts of the COVID-19 pandemic.
"Brighthouse Financial’s top priority at this time remains the well-being and safety of our employees, their families, our partners and our customers," said Eric Steigerwalt, president and CEO, Brighthouse Financial. "In March, we promptly implemented our business continuity plans and transitioned to a fully remote-work environment. Due to our employees’ outstanding adaptability and commitment, we are able to continue to support our customers and financial professionals as usual. We entered the current climate from a position of strength and our balance sheet and liquidity remain strong, our investment portfolio is well-diversified and we believe that we are well-positioned to weather the current downturn."
“Regarding our results in the first quarter of 2020, our sales were very strong, we continued to make necessary investments in our technology infrastructure and in our businesses, and our hedging program performed well. I am particularly pleased with our life insurance sales in the quarter. While the immediate future may be more difficult from a sales perspective, I am proud of what we've been able to accomplish so far since our introduction last year of Brighthouse SmartCare, our first life insurance product launched as an independent, public company,” Steigerwalt continued. “Although it is not possible to estimate the severity or duration of the COVID-19 pandemic, we remain confident in our strategy and continue to believe it will generate long-term shareholder value.”
Key Metrics (Unaudited, dollars in millions except share and per share amounts)
| As of or For the Three Months Ended | ||||
|---|---|---|---|---|
| March 31, 2020 | March 31, 2019 | |||
| Total | Per share | Total | Per share | |
| Net income (loss) available to shareholders (1) | $4,950 | $47.11 | $(737) | $(6.31) |
| Adjusted earnings (1) | $211 | $2.01 | $232 | $1.98 |
| Adjusted earnings, less notable items (1) | $273 | $2.60 | $259 | $2.21 |
| Weighted average common shares outstanding - diluted (1) | 105,093,515 | N/A | 117,229,854 | N/A |
| Book value | $19,962 | $198.62 | $14,587 | $125.55 |
| Book value, excluding AOCI | $17,315 | $172.28 | $12,917 | $111.18 |
| Ending common shares outstanding | 100,502,488 | N/A | 116,182,687 | N/A |
| (1) Per share amounts are on a diluted basis and may not recalculate due to rounding. For loss periods, dilutive shares were not included in the calculation as inclusion of such shares would have an anti-dilutive effect. See Non-GAAP and Other Financial Disclosures discussion in this news release. | ||||
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 | ||||
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Results by Business Segment and Corporate & Other (Unaudited, in millions)
| For the Three Months Ended | |||
|---|---|---|---|
| ADJUSTED EARNINGS | March 31,<br>2020 | December 31,<br>2019 | March 31,<br>2019 |
| Annuities | $316 | $265 | $295 |
| Life | $11 | $75 | $25 |
| Run-off (1) | $(70) | $6 | $(36) |
| Corporate & Other (1) | $(46) | $(64) | $(52) |
| (1) The company uses the term “adjusted loss” throughout this news release to refer to negative adjusted earnings values. |
Sales (Unaudited, in millions)
| December 31,<br>2019 | March 31,<br>2019 | |
| Annuities (1) | $1,871 | $1,707 |
| Life | $12 | $1 |
| (1) Annuities sales include sales of a fixed indexed annuity product sold by Massachusetts Mutual Life Insurance Company, representing 90% of gross sales of that product. Sales of this product were 208 million for the first quarter of 2020, 261 million for the fourth quarter of 2019, and 281 million for the first quarter of 2019. |
All values are in US Dollars.
Annuities
Adjusted earnings in the Annuities segment were $316 million in the current quarter, compared with adjusted earnings of $295 million in the first quarter of 2019 and adjusted earnings of $265 million in the fourth quarter of 2019.
There were no notable items in the current quarter or in the first quarter of 2019. The fourth quarter of 2019 included $42 million of favorable notable items.
On a quarter-over-quarter basis, adjusted earnings, less notable items, reflect lower amortization of deferred acquisition costs ("DAC"), lower expenses, and higher net investment income, partially offset by higher reserves. On a sequential basis, adjusted earnings, less notable items, reflect lower DAC amortization and lower expenses, partially offset by higher reserves and lower fees.
As mentioned above, annuity sales increased 15 percent quarter-over-quarter and increased 5 percent sequentially.
Life
Adjusted earnings in the Life segment were $11 million in the current quarter, compared with adjusted earnings of $25 million in the first quarter of 2019 and adjusted earnings of $75 million in the fourth quarter of 2019.
There were no notable items in the current quarter or the comparison quarters.
On a quarter-over-quarter and sequential basis, adjusted earnings reflect higher DAC amortization and a lower underwriting margin, partially offset by lower expenses and higher net investment income.
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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As mentioned above, life sales increased 33 percent sequentially.
Run-off
The Run-off segment had an adjusted loss of $70 million in the current quarter, compared with an adjusted loss of $36 million in the first quarter of 2019 and adjusted earnings of $6 million in the fourth quarter of 2019.
There was $48 million of unfavorable notable items in the current quarter. There were no notable items in the comparison quarters.
On a quarter-over-quarter basis, the adjusted loss, less notable items, reflects higher net investment income, partially offset by a lower underwriting margin and higher expenses. On a sequential basis, the adjusted loss, less notable items, reflects a lower underwriting margin, partially offset by higher alternative investment income.
Corporate & Other
Corporate & Other had an adjusted loss of $46 million in the current quarter, compared with an adjusted loss of $52 million in the first quarter of 2019 and an adjusted loss of $64 million in the fourth quarter of 2019.
The current quarter included a $14 million unfavorable notable item related to establishment costs, as described above. The first quarter of 2019 included a $27 million unfavorable notable item and the fourth quarter of 2019 included a $25 million unfavorable notable item, both also related to establishment costs.
On a quarter-over-quarter basis, the adjusted loss, less notable items, reflects the preferred stock dividends which the company began paying in the second quarter of 2019. On a sequential basis, the adjusted loss, less notable items, reflects lower expenses.
Net Investment Income and Adjusted Net Investment Income (Unaudited, in millions)
| For the Three Months Ended | |||
|---|---|---|---|
| March 31,<br>2020 | December 31,<br>2019 | March 31,<br>2019 | |
| Net investment income | $916 | $898 | $811 |
| Adjusted net investment income | $920 | $904 | $811 |
Net Investment Income
Net investment income was $916 million and adjusted net investment income* was $920 million for the first quarter of 2020. On a quarter-over-quarter basis, adjusted net investment income increased $109 million and on a sequential basis increased $16 million. The quarter-over-quarter and sequential results were primarily driven by higher alternative investment income and asset growth.
The net investment income yield was 4.30 percent during the quarter.
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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Statutory Capital and Liquidity (Unaudited, in billions)
| As of | |||
|---|---|---|---|
| March 31, <br>2020 (1) | December 31,<br>2019 | March 31,<br>2019 | |
| Statutory combined total adjusted capital | $7.2 | $9.7 | $6.3 |
| (1) Reflects preliminary statutory results as of March 31, 2020. |
Capitalization
At March 31, 2020:
•Holding company liquid assets were approximately $1.0 billion
•Statutory combined total adjusted capital on a preliminary basis decreased to approximately $7.2 billion, driven primarily by equity market and interest rate declines, a $300 million ordinary subsidiary dividend paid to the holding company, and unfavorable non-variable annuity results
•Estimated combined RBC ratio between 515 and 535 percent, which includes the decline in statutory combined total adjusted capital noted above, mostly offset by a decline in required capital
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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Earnings Conference Call
Brighthouse Financial will hold a conference call and audio webcast to discuss its financial results for the first quarter 2020 at 8:00 a.m. Eastern Time on Tuesday, May 12, 2020. In connection with this call, the company has prepared a presentation for use with investors and other members of the investment community. This presentation is available on the Brighthouse Financial Investor Relations web page at http://investor.brighthousefinancial.com.
To listen to the audio webcast via the internet and to access the related presentation, please visit the Brighthouse Financial Investor Relations web page at http://investor.brighthousefinancial.com. To join the conference call via telephone, please dial (844) 358-9117 (+1 (209) 905-5952 from outside the U.S.) and use conference ID 4360648.
A replay of the conference call will be made available until Friday, May 29, 2020, on the Brighthouse Financial Investor Relations web page at http://investor.brighthousefinancial.com.
About Brighthouse Financial, Inc.
Brighthouse Financial, Inc. (Brighthouse Financial) (Nasdaq: BHF) is on a mission to help people achieve financial security. As one of the largest providers of annuities and life insurance in the U.S., we specialize in products designed to help people protect what they've earned and ensure it lasts. Learn more at brighthousefinancial.com.
CONTACT
| FOR INVESTORS<br><br>David Rosenbaum<br><br>(980) 949-3326<br><br>david.rosenbaum@brighthousefinancial.com | FOR MEDIA<br><br>Deon Roberts<br><br>(980) 949-3071<br><br>deon.roberts@brighthousefinancial.com |
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| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 | |
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Note Regarding Forward-Looking Statements
This news release and other oral or written statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements using words such as "anticipate," "estimate," "expect," "project," "may," "will," "could," "intend," "goal," "target," "guidance," "forecast," "preliminary," "objective," "continue," "aim," "plan," "believe" and other words and terms of similar meaning, or that are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include, without limitation, statements relating to future actions, prospective services or products, financial projections, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, as well as trends in operating and financial results.
Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of Brighthouse Financial. These statements are based on current expectations and the current economic environment and involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others: the impact of the ongoing COVID-19 pandemic; differences between actual experience and actuarial assumptions and the effectiveness of our actuarial models; higher risk management costs and exposure to increased market risk due to guarantees within certain of our products; the effectiveness of our variable annuity exposure risk management strategy and the impact of such strategy on volatility in our profitability measures and negative effects on our statutory capital; the reserves we are required to hold against our variable annuities as a result of actuarial guidelines; the potential material adverse effect of changes in accounting standards, practices and/or policies applicable to us, including changes in the accounting for long-duration contracts; our degree of leverage due to indebtedness; the impact of adverse capital and credit market conditions, including with respect to our ability to meet liquidity needs and access capital; the impact of changes in regulation and in supervisory and enforcement policies on our insurance business or other operations; the availability of reinsurance and the ability of the counterparties to our reinsurance or indemnification arrangements to perform their obligations thereunder; the adverse impact to liabilities for policyholder claims as a result of extreme mortality events; heightened competition, including with respect to service, product features, scale, price, actual or perceived financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition; any failure of third parties to provide services we need, any failure of the practices and procedures of such third parties and any inability to obtain information or assistance we need from third parties; the ability of our insurance subsidiaries to pay dividends to us, and our ability to pay dividends to our shareholders and repurchase our common stock; the effectiveness of our policies and procedures in managing risk; our ability to market and distribute our products through distribution channels; whether all or any portion of the tax consequences of our separation from MetLife, Inc. (“MetLife”) are not as expected, leading to material additional taxes or material adverse consequences to tax attributes that impact us; the uncertainty of the outcome of any disputes with MetLife over tax-related or other matters and agreements or disagreements regarding MetLife’s or our obligations under our other agreements; the potential material negative tax impact of potential future tax legislation that could make some of our products less attractive to consumers; and other factors described from time to time in documents that we file with the U.S. Securities and Exchange Commission (the "SEC").
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements included and the risks, uncertainties and other factors identified in our Annual Report on Form 10-K for the year ended December 31, 2019, particularly in the sections entitled "Risk Factors" and "Quantitative and Qualitative Disclosures About Market Risk," as well as in our other subsequent filings with the SEC. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.
Non-GAAP and Other Financial Disclosures
Our definitions of the non-GAAP and other financial measures may differ from those used by other companies.
Non-GAAP Financial Disclosures
We present certain measures of our performance that are not calculated in accordance with accounting principles generally accepted in the United States of America, also known as "GAAP." We believe that these non-GAAP financial measures highlight our results of operations and the underlying profitability drivers of our business, as well as enhance the understanding of our performance by the investor community.
The following non-GAAP financial measures, previously referred to as operating measures, should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:
| Non-GAAP financial measures: | Most directly comparable GAAP financial measures: |
|---|---|
| adjusted earnings | net income (loss) available to shareholders (1) |
| adjusted earnings, less notable items | net income (loss) available to shareholders (1) |
| adjusted revenues | revenues |
| adjusted expenses | expenses |
| adjusted earnings per common share | earnings per common share, diluted (1) |
| adjusted earnings per common share, less notable items | earnings per common share, diluted (1) |
| adjusted return on common equity | return on common equity (2) |
| adjusted return on common equity, less notable items | return on common equity (2) |
| adjusted net investment income | net investment income |
| __________________ | |
| (1) Brighthouse uses net income (loss) available to shareholders to refer to net income (loss) available to Brighthouse Financial, Inc.'s common shareholders, and earnings per common share, diluted to refer to net income (loss) available to shareholders per common share. | |
| (2) Brighthouse uses return on common equity to refer to return on Brighthouse Financial, Inc.'s common stockholders' equity. |
Reconciliations to the most directly comparable historical GAAP measures are included for those measures which are presented herein. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are not accessible on a forward-looking basis because we believe it is not possible without unreasonable efforts to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income (loss) available to shareholders.
Adjusted Earnings, Adjusted Revenues and Adjusted Expenses
Adjusted earnings, which may be positive or negative, is used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. This financial measure focuses on our primary businesses principally by excluding the impact of market volatility, which could distort trends.
Adjusted earnings reflects adjusted revenues less adjusted expenses, both net of income tax, and excludes net income (loss) attributable to noncontrolling interests and preferred stock dividends. Provided below are the adjustments to GAAP revenues and GAAP expenses used to calculate adjusted revenues and adjusted expenses, respectively.
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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The following are significant items excluded from total revenues, net of income tax, in calculating the adjusted revenues component of adjusted earnings:
•Net investment gains (losses);
•Net derivative gains (losses) ("NDGL"), except earned income and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment ("Investment Hedge Adjustments"); and
•Certain variable annuity GMIB fees ("GMIB Fees").
The following are significant items excluded from total expenses, net of income tax, in calculating the adjusted expenses component of adjusted earnings:
•Amounts associated with benefits related to GMIBs ("GMIB Costs");
•Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts ("Market Value Adjustments"); and
•Amortization of DAC and value of business acquired ("VOBA") related to (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments.
The tax impact of the adjustments mentioned is calculated net of the statutory tax rate, which could differ from our effective tax rate.
Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance.
Adjusted Earnings per Common Share and Adjusted Return on Common Equity
Adjusted earnings per common share and adjusted return on common equity are measures used by management to evaluate the execution of our business strategy and align such strategy with our shareholders' interests.
Adjusted earnings per common share is defined as adjusted earnings for the period divided by the weighted average number of fully diluted shares of common stock outstanding for the period. The weighted average common shares outstanding used to calculate adjusted earnings per share will differ from such shares used to calculate diluted net income (loss) available to shareholders per common share when the inclusion of dilutive shares has an anti-dilutive effect for one calculation but not for the other.
Adjusted return on common equity is defined as total annual adjusted earnings on a four quarter trailing basis, divided by the simple average of the most recent five quarters of total Brighthouse Financial, Inc.'s common stockholders' equity, excluding AOCI.
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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Adjusted Net Investment Income
We present adjusted net investment income to measure our performance for management purposes, and we believe it enhances the understanding of our investment portfolio results. Adjusted net investment income represents net investment income including investment hedge adjustments.
Other Financial Disclosures
Corporate Expenses
Corporate expenses includes functional department expenses, public company expenses, certain investment expenses, retirement funding and incentive compensation; and excludes establishment costs.
Notable items
Certain of the non-GAAP measures described above may be presented further adjusted to exclude notable items. Notable items reflect the impact on our results of certain unanticipated items and events, as well as certain items and events that were anticipated, such as establishment costs. The presentation of notable items and non-GAAP measures, less notable items is intended to help investors better understand our results and to evaluate and forecast those results.
Book Value per Common Share and Book Value per Common Share, excluding AOCI
Brighthouse uses the term "book value" to refer to "Brighthouse Financial, Inc.'s common stockholders' equity, including AOCI." Book value per common share is defined as ending Brighthouse Financial, Inc.'s common stockholders' equity, including AOCI, divided by ending common shares outstanding. Book value per common share, excluding AOCI, is defined as ending Brighthouse Financial, Inc.'s common stockholders' equity, excluding AOCI, divided by ending common shares outstanding.
CTE95
CTE95 is defined as the amount of assets required to satisfy contract holder obligations across market environments in the average of the worst five percent of a set of capital market scenarios over the life of the contracts.
CTE98
CTE98 is defined as the amount of assets required to satisfy contract holder obligations across market environments in the average of the worst two percent of a set of capital market scenarios over the life of the contracts.
Holding Company Liquid Assets
Holding company liquid assets include liquid assets in Brighthouse Financial, Inc., Brighthouse Holdings, LLC, and Brighthouse Services, LLC. Liquid assets include cash and cash equivalents, short-term investments and publicly traded securities excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with derivatives and collateral financing arrangements.
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
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Total Adjusted Capital
Total adjusted capital primarily consists of statutory capital and surplus, as well as the statutory asset valuation reserve. When referred to as “combined,” represents that of our insurance subsidiaries as a whole.
Sales
Life insurance sales consist of 100 percent of annualized new premium for term life, first-year paid premium for whole life, universal life, and variable universal life, and total paid premium for indexed universal life. We exclude company-sponsored internal exchanges, corporate-owned life insurance, bank-owned life insurance, and private placement variable universal life.
Annuity sales consist of 100 percent of direct statutory premiums, except for fixed indexed annuity sales distributed through MassMutual that consist of 90 percent of gross sales. Annuity sales exclude company sponsored internal exchanges. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity.
Net Investment Income Yield
Similar to adjusted net investment income, we present net investment income yields as a performance measure we believe enhances the understanding of our investment portfolio results. Net investment income yields are calculated on adjusted net investment income as a percent of average quarterly asset carrying values. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties. Investment fee and expense yields are calculated as investment fees and expenses as a percent of average quarterly asset estimated fair values. Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.
Normalized Statutory Earnings (Loss)
Normalized statutory earnings (loss) is used by management to measure our insurance companies’ ability to pay future distributions and is reflective of whether our hedging program functions as intended. Normalized statutory earnings (loss) is calculated as statutory pre-tax net gain from operations adjusted for the favorable or unfavorable impacts of (i) net realized capital gains (losses), (ii) the change in both the reserve-based and capital methodology-based CTE95 calculation, net of the change in our variable annuity reserves, and (iii) unrealized gains (losses) associated with our variable annuities risk management strategy. Normalized statutory earnings (loss) may be further adjusted for certain unanticipated items that impacted our results in order to help management and investors better understand, evaluate and forecast those results.
Risk-Based Capital Ratio
The risk-based capital ratio is a method of measuring an insurance company’s capital, taking into consideration its relative size and risk profile, in order to ensure compliance with minimum regulatory capital requirements set by the National Association of Insurance Commissioners. When referred to as “combined,” represents that of our insurance subsidiaries as a whole. The reporting of our combined risk-based capital ratio is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 |
|---|
Condensed Statements of Operations (Unaudited, in millions)
| For the Three Months Ended | |||
|---|---|---|---|
| Revenues | March 31,<br>2020 | December 31,<br>2019 | March 31,<br>2019 |
| Premiums | $198 | $209 | $227 |
| Universal life and investment-type product policy fees | 886 | 950 | 875 |
| Net investment income | 916 | 898 | 811 |
| Other revenues | 102 | 107 | 92 |
| Revenues before NIGL and NDGL | 2,102 | 2,164 | 2,005 |
| Net investment gains (losses) | (19) | 33 | (11) |
| Net derivative gains (losses) | 6,902 | (1,891) | (1,303) |
| Total revenues | $8,985 | $306 | $691 |
| Expenses | |||
| Interest credited to policyholder account balances | $259 | $268 | $258 |
| Policyholder benefits and claims | 1,187 | 734 | 772 |
| Amortization of DAC and VOBA | 770 | 9 | 22 |
| Interest expense on debt | 47 | 47 | 47 |
| Other expenses | 470 | 620 | 545 |
| Total expenses | 2,733 | 1,678 | 1,644 |
| Income (loss) before provision for income tax | 6,252 | (1,372) | (953) |
| Provision for income tax expense (benefit) | 1,293 | (303) | (218) |
| Net income (loss) | 4,959 | (1,069) | (735) |
| Less: Net income (loss) attributable to noncontrolling interests | 2 | 1 | 2 |
| Net income (loss) attributable to Brighthouse Financial, Inc. | 4,957 | (1,070) | (737) |
| Less: Preferred stock dividends | 7 | 7 | — |
| Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders | $4,950 | $(1,077) | $(737) |
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 | |||
| --- |
Condensed Balance Sheets (Unaudited, in millions)
| As of | |||
|---|---|---|---|
| ASSETS | March 31,<br>2020 | December 31,<br>2019 | March 31,<br>2019 |
| Investments: | |||
| Fixed maturity securities available-for-sale | $71,302 | $71,036 | $64,847 |
| Equity securities | 122 | 147 | 150 |
| Mortgage loans, net | 15,547 | 15,753 | 14,504 |
| Policy loans | 1,250 | 1,292 | 1,385 |
| Limited partnerships and limited liability companies | 2,505 | 2,380 | 2,253 |
| Short-term investments | 4,348 | 1,958 | 799 |
| Other invested assets | 9,658 | 3,216 | 2,302 |
| Total investments | 104,732 | 95,782 | 86,240 |
| Cash and cash equivalents | 8,930 | 2,877 | 3,864 |
| Accrued investment income | 868 | 684 | 791 |
| Reinsurance recoverables | 14,220 | 13,990 | 13,098 |
| Premiums and other receivables | 774 | 770 | 928 |
| DAC and VOBA | 4,862 | 5,448 | 5,680 |
| Current income tax recoverable | 9 | 17 | — |
| Other assets | 550 | 584 | 618 |
| Separate account assets | 89,008 | 107,107 | 105,211 |
| Total assets | $223,953 | $227,259 | $216,430 |
| LIABILITIES AND EQUITY | |||
| Liabilities | |||
| Future policy benefits | $40,653 | $39,686 | $37,157 |
| Policyholder account balances | 47,288 | 45,771 | 41,177 |
| Other policy-related balances | 3,169 | 3,111 | 3,005 |
| Payables for collateral under securities loaned and other transactions | 10,988 | 4,391 | 3,990 |
| Long-term debt | 4,365 | 4,365 | 4,364 |
| Current income tax payable | — | — | 19 |
| Deferred income tax liability | 2,482 | 1,355 | 1,005 |
| Other liabilities | 5,561 | 5,236 | 5,438 |
| Separate account liabilities | 89,008 | 107,107 | 105,211 |
| Total liabilities | 203,514 | 211,022 | 201,366 |
| Equity | |||
| Preferred Stock, at par value | — | — | — |
| Common stock, at par value | 1 | 1 | 1 |
| Additional paid-in capital | 12,911 | 12,908 | 12,889 |
| Retained earnings (deficit) | 5,521 | 585 | 609 |
| Treasury stock | (706) | (562) | (170) |
| Accumulated other comprehensive income (loss) | 2,647 | 3,240 | 1,670 |
| Total Brighthouse Financial, Inc.’s stockholders’ equity | 20,374 | 16,172 | 14,999 |
| Noncontrolling interests | 65 | 65 | 65 |
| Total equity | 20,439 | 16,237 | 15,064 |
| Total liabilities and equity | $223,953 | $227,259 | $216,430 |
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 | |||
| --- |
Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings and Adjusted Earnings, Less Notable Items, and Reconciliation of Net Income (Loss) Available to Shareholders per Common Share to Adjusted Earnings per Common Share and Adjusted Earnings, Less Notable Items per Common Share (Unaudited, in millions except per share data)
| For the Three Months Ended | For the Year Ended | |||
|---|---|---|---|---|
| ADJUSTED EARNINGS, LESS NOTABLE ITEMS | March 31,<br>2020 | December 31,<br>2019 | March 31,<br>2019 | |
| Net income (loss) available to shareholders | $4,950 | $(1,077) | $(737) | |
| Less: Net investment gains (losses) | (19) | 33 | (11) | |
| Less: Net derivative gains (losses), excluding investment hedge adjustments | 6,898 | (1,897) | (1,303) | |
| Less: GMIB Fees and GMIB Costs | (166) | 34 | 35 | |
| Less: Amortization of DAC and VOBA | (671) | 93 | 75 | |
| Less: Market value adjustments and other | (43) | 17 | (23) | |
| Less: Provision for income tax (expense) benefit on reconciling adjustments | (1,260) | 361 | 258 | |
| Adjusted earnings | 211 | 282 | 232 | |
| Less: Notable items | (62) | 17 | (27) | |
| Adjusted earnings, less notable items | $273 | $265 | $259 | |
| ADJUSTED EARNINGS, LESS NOTABLE ITEMS PER COMMON SHARE (1) | ||||
| Net income (loss) available to shareholders per common share | $47.11 | $(10.02) | $(6.31) | |
| Less: Net investment gains (losses) | (0.18) | 0.31 | (0.09) | |
| Less: Net derivative gains (losses), excluding investment hedge adjustments | 65.64 | (17.65) | (11.16) | |
| Less: GMIB Fees and GMIB Costs | (1.58) | 0.32 | 0.30 | |
| Less: Amortization of DAC and VOBA | (6.38) | 0.87 | 0.64 | |
| Less: Market value adjustments and other | (0.41) | 0.16 | (0.20) | |
| Less: Provision for income tax (expense) benefit on reconciling adjustments | (11.99) | 3.36 | 2.21 | |
| Less: Impact of inclusion of dilutive shares | — | 0.01 | 0.01 | |
| Adjusted earnings per common share | 2.01 | 2.61 | 1.98 | |
| Less: Notable items | (0.59) | 0.16 | (0.23) | |
| Adjusted earnings, less notable items per common share | $2.60 | $2.46 | $2.21 | |
| (1) Per share calculations are on a diluted basis and may not recalculate or foot due to rounding. For loss periods, dilutive shares were not included in the calculation as inclusion of such shares would have an anti-dilutive effect. See Non-GAAP and Other Financial Disclosures discussion in this news release. | ||||
| PUBLIC RELATIONS<br><br><br><br>Brighthouse Financial, Inc.<br><br>11225 N. Community House Rd.<br><br>Charlotte, NC 28277 | ||||
| --- |
Reconciliation of Net Investment Income to Adjusted Net Investment Income (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||
|---|---|---|---|---|
| March 31,<br>2020 | December 31,<br>2019 | March 31,<br>2019 | ||
| Net investment income | $916 | $898 | $811 | |
| Less: Investment hedge adjustments | (4) | (6) | — | |
| Adjusted net investment income | $920 | $904 | $811 |
Notable Items (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||
|---|---|---|---|---|
| NOTABLE ITEMS IMPACTING ADJUSTED EARNINGS | March 31,<br>2020 | December 31,<br>2019 | March 31,<br>2019 | |
| Actuarial items and other insurance adjustments | $48 | $(42) | $— | |
| Establishment costs | 14 | 25 | 27 | |
| Total notable items (1) | $62 | $(17) | $27 | |
| NOTABLE ITEMS BY SEGMENT AND CORPORATE & OTHER | ||||
| Annuities | $— | $(42) | $— | |
| Life | — | — | — | |
| Run-off | 48 | — | — | |
| Corporate & Other | 14 | 25 | 27 | |
| Total notable items (1) | $62 | $(17) | $27 | |
| (1) Notable items reflect the negative (positive) after-tax impact to adjusted earnings of certain unanticipated items and events, as well as certain items and events that were anticipated, such as establishment costs. The presentation of notable items is intended to help investors better understand our results and to evaluate and forecast those results. |
15
Document
Exhibit 99.2
Brighthouse Financial, Inc.
Financial Supplement
First Quarter 2020
| Table of Contents | Financial Results | |||
|---|---|---|---|---|
| 1 | Key Metrics | |||
| 2 | GAAPCondensed Statements of Operations | |||
| 3 | GAAPBalance Sheets | |||
| Earnings and Select Metrics from Business Segments and Corporate & Other | ||||
| 5 | Statements of Adjusted Earnings by Segment and Corporate & Other | |||
| 6 | Annuities — Statements of Adjusted Earnings | |||
| 7 | Annuities — Select Operating Metrics | |||
| 9 | Life — Statements of Adjusted Earnings | |||
| 10 | Life — Select Operating Metrics | |||
| 12 | Run-off — Statements of Adjusted Earnings | |||
| 13 | Run-off — Select Operating Metrics | |||
| 14 | Corporate & Other — Statements of Adjusted Earnings | |||
| Other Information | ||||
| 16 | DAC and VOBA and Net Derivative Gains (Losses) | |||
| 17 | Notable Items | |||
| 18 | Variable Annuity Separate Account Returns and Allocations | |||
| 19 | Summary of Investments | |||
| 20 | Statutory Statement of Operations Information | |||
| 21 | Statutory Balance Sheet and Surplus Information | |||
| Appendix | ||||
| A-1 | Note Regarding Forward-Looking Statements | |||
| A-2 | Non-GAAP and Other Financial Disclosures | |||
| A-6 | Acronyms | |||
| A-7 | Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings andAdjusted Earnings, Less Notable Items, and Reconciliation of Net Income (Loss) Available to Shareholders per Common Share to Adjusted Earnings per Common Share andAdjusted Earnings, Less Notable Items per Common Share | |||
| A-8 | Reconciliation of Return on Common Equity to Adjusted Return on Common Equity | |||
| A-9 | Reconciliation of Total Revenues to Adjusted Revenues and Reconciliation of Total Expenses to Adjusted Expenses | |||
| A-10 | Investment Reconciliation Details |
Note: See the Appendix for non-GAAP financial information, definitions and reconciliations. Financial information, unless otherwise noted, is rounded to millions. Some financial information, therefore, may not sum to the corresponding total.
As used in this financial supplement, “Brighthouse Financial,” “Brighthouse,” the “Company,” “we,” “our” and “us” refer to Brighthouse Financial, Inc.
Financial Results
| Financial Supplement | 1 |
|---|
Key Metrics (Unaudited, dollars in millions except per share amounts)
| As of or For the Three Months Ended | |||||
|---|---|---|---|---|---|
| Financial Results and Metrics (1) | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Net income (loss) available to shareholders | $4,950 | $(1,077) | $676 | $377 | $(737) |
| Adjusted earnings | $211 | $282 | $(169) | $254 | $232 |
| Adjusted earnings, less notable items (2) | $273 | $265 | $260 | $296 | $259 |
| Total corporate expenses (3) | $214 | $283 | $248 | $242 | $225 |
| Combined total adjusted capital (4) | $7,200 | $9,694 | $8,406 | $6,897 | $6,314 |
| Combined risk-based capital ratio (4), (5) | 515% - 535% | 552% | N/A | N/A | N/A |
| Stockholders' Equity | |||||
| Brighthouse Financial, Inc.’s stockholders’ equity | $20,374 | $16,172 | $17,695 | $16,276 | $14,999 |
| Less: Preferred stock, net | 412 | 412 | 412 | 412 | 412 |
| Brighthouse Financial, Inc.’s common stockholders’ equity, including AOCI | $19,962 | $15,760 | $17,283 | $15,864 | $14,587 |
| Less: AOCI | 2,647 | 3,240 | 3,567 | 2,702 | 1,670 |
| Brighthouse Financial, Inc.’s common stockholders’ equity, excluding AOCI | $17,315 | $12,520 | $13,716 | $13,162 | $12,917 |
| Return on Common Equity (1) | |||||
| Return on common equity | 29.5% | (4.9)% | 11.7% | 5.7% | 1.4% |
| Return on common equity, excluding AOCI | 35.4% | (5.8)% | 13.4% | 6.3% | 1.5% |
| Adjusted return on common equity | 4.2% | 4.5% | 3.8% | 7.3% | 6.5% |
| Earnings Per Common Share, Diluted (1), (6) | |||||
| Net income (loss) available to shareholders per common share | $47.11 | $(10.02) | $6.06 | $3.27 | $(6.31) |
| Adjusted earnings per common share | $2.01 | $2.61 | $(1.52) | $2.19 | $1.98 |
| Adjusted earnings, less notable items per common share | $2.60 | $2.46 | $2.33 | $2.56 | $2.21 |
| Weighted average common shares outstanding | 105,093,515 | 107,840,324 | 111,527,480 | 115,536,654 | 117,229,854 |
| Book Value Per Common Share | |||||
| Book value per common share (1) | $198.62 | $148.64 | $158.18 | $140.83 | $125.55 |
| Book value per common share, excluding AOCI (1) | $172.28 | $118.08 | $125.53 | $116.85 | $111.18 |
| Ending common shares outstanding | 100,502,488 | 106,027,301 | 109,264,305 | 112,644,952 | 116,182,687 |
| (1) See definitions for Non-GAAP and Other Financial Disclosures in the Appendix beginning on page A-2. | |||||
| (2) See additional information regarding notable items on page 17. | |||||
| (3) Includes functional department expenses, public company expenses, certain investment expenses, retirement funding and incentive compensation; and excludes establishment costs. | |||||
| (4) Reflects preliminary statutory results for the three months ended March 31, 2020. See additional information on page 5. | |||||
| (5) RBC ratios prior to the implementation of variable annuity capital reform are not presented. | |||||
| (6) For loss periods, dilutive shares were not included in the calculation of net income (loss) available to shareholders per common share or adjusted earnings per common share as inclusion of such shares would have an anti-dilutive effect. |
| Financial Supplement | 2 |
|---|
GAAP Condensed Statements of Operations (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| Revenues | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | |
| Premiums | $198 | $209 | $214 | $232 | $227 | $198 | $227 | |
| Universal life and investment-type product policy fees | 886 | 950 | 867 | 888 | 875 | 886 | 875 | |
| Net investment income | 916 | 898 | 928 | 942 | 811 | 916 | 811 | |
| Other revenues | 102 | 107 | 94 | 96 | 92 | 102 | 92 | |
| Revenues before NIGL and NDGL | 2,102 | 2,164 | 2,103 | 2,158 | 2,005 | 2,102 | 2,005 | |
| Net investment gains (losses) | (19) | 33 | 27 | 63 | (11) | (19) | (11) | |
| Net derivative gains (losses) | 6,902 | (1,891) | 1,057 | 149 | (1,303) | 6,902 | (1,303) | |
| Total revenues | $8,985 | $306 | $3,187 | $2,370 | $691 | $8,985 | $691 | |
| Expenses | ||||||||
| Interest credited to policyholder account balances | $259 | $268 | $272 | $265 | $258 | $259 | $258 | |
| Policyholder benefits and claims | 1,187 | 734 | 1,319 | 845 | 772 | 1,187 | 772 | |
| Amortization of DAC and VOBA | 770 | 9 | 181 | 170 | 22 | 770 | 22 | |
| Interest expense on debt | 47 | 47 | 49 | 48 | 47 | 47 | 47 | |
| Other expenses | 470 | 620 | 562 | 573 | 545 | 470 | 545 | |
| Total expenses | 2,733 | 1,678 | 2,383 | 1,901 | 1,644 | 2,733 | 1,644 | |
| Income (loss) before provision for income tax | 6,252 | (1,372) | 804 | 469 | (953) | 6,252 | (953) | |
| Provision for income tax expense (benefit) | 1,293 | (303) | 119 | 85 | (218) | 1,293 | (218) | |
| Net income (loss) | 4,959 | (1,069) | 685 | 384 | (735) | 4,959 | (735) | |
| Less: Net income (loss) attributable to noncontrolling interests | 2 | 1 | 2 | — | 2 | 2 | 2 | |
| Net income (loss) attributable to Brighthouse Financial, Inc. | 4,957 | (1,070) | 683 | 384 | (737) | 4,957 | (737) | |
| Less: Preferred stock dividends | 7 | 7 | 7 | 7 | — | 7 | — | |
| Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders | $4,950 | $(1,077) | $676 | $377 | $(737) | $4,950 | $(737) |
| Financial Supplement | 3 |
|---|
GAAP Balance Sheets (Unaudited, in millions)
| As of | |||||
|---|---|---|---|---|---|
| ASSETS | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Investments: | |||||
| Fixed maturity securities available-for-sale | $71,302 | $71,036 | $70,723 | $67,211 | $64,847 |
| Equity securities | 122 | 147 | 148 | 153 | 150 |
| Mortgage loans, net | 15,547 | 15,753 | 15,359 | 15,078 | 14,504 |
| Policy loans | 1,250 | 1,292 | 1,332 | 1,342 | 1,385 |
| Limited partnerships and limited liability companies | 2,505 | 2,380 | 2,353 | 2,296 | 2,253 |
| Short-term investments | 4,348 | 1,958 | 1,985 | 793 | 799 |
| Other invested assets | 9,658 | 3,216 | 4,734 | 3,064 | 2,302 |
| Total investments | 104,732 | 95,782 | 96,634 | 89,937 | 86,240 |
| Cash and cash equivalents | 8,930 | 2,877 | 4,289 | 3,981 | 3,864 |
| Accrued investment income | 868 | 684 | 732 | 747 | 791 |
| Reinsurance recoverables | 14,220 | 13,990 | 13,412 | 13,366 | 13,098 |
| Premiums and other receivables | 774 | 770 | 973 | 865 | 928 |
| DAC and VOBA | 4,862 | 5,448 | 5,317 | 5,492 | 5,680 |
| Current income tax recoverable | 9 | 17 | 14 | — | — |
| Other assets | 550 | 584 | 577 | 610 | 618 |
| Separate account assets | 89,008 | 107,107 | 103,928 | 106,214 | 105,211 |
| Total assets | $223,953 | $227,259 | $225,876 | $221,212 | $216,430 |
| LIABILITIES AND EQUITY | |||||
| Liabilities | |||||
| Future policy benefits | $40,653 | $39,686 | $39,846 | $38,280 | $37,157 |
| Policyholder account balances | 47,288 | 45,771 | 44,919 | 42,941 | 41,177 |
| Other policy-related balances | 3,169 | 3,111 | 3,079 | 3,041 | 3,005 |
| Payables for collateral under securities loaned and other transactions | 10,988 | 4,391 | 5,291 | 4,094 | 3,990 |
| Long-term debt | 4,365 | 4,365 | 4,365 | 4,365 | 4,364 |
| Current income tax payable | — | — | — | 14 | 19 |
| Deferred income tax liability | 2,482 | 1,355 | 1,749 | 1,364 | 1,005 |
| Other liabilities | 5,561 | 5,236 | 4,939 | 4,558 | 5,438 |
| Separate account liabilities | 89,008 | 107,107 | 103,928 | 106,214 | 105,211 |
| Total liabilities | 203,514 | 211,022 | 208,116 | 204,871 | 201,366 |
| Equity | |||||
| Preferred Stock, at par value | — | — | — | — | — |
| Common stock, at par value | 1 | 1 | 1 | 1 | 1 |
| Additional paid-in capital | 12,911 | 12,908 | 12,897 | 12,893 | 12,889 |
| Retained earnings (deficit) | 5,521 | 585 | 1,662 | 986 | 609 |
| Treasury stock | (706) | (562) | (432) | (306) | (170) |
| Accumulated other comprehensive income (loss) | 2,647 | 3,240 | 3,567 | 2,702 | 1,670 |
| Total Brighthouse Financial, Inc.’s stockholders’ equity | 20,374 | 16,172 | 17,695 | 16,276 | 14,999 |
| Noncontrolling interests | 65 | 65 | 65 | 65 | 65 |
| Total equity | 20,439 | 16,237 | 17,760 | 16,341 | 15,064 |
| Total liabilities and equity | $223,953 | $227,259 | $225,876 | $221,212 | $216,430 |
Earnings and Select
Metrics from
Business Segments and Corporate & Other
| Financial Supplement | 5 |
|---|
Statements of Adjusted Earnings by Segment and Corporate & Other (Unaudited, in millions)
| For the Three Months Ended March 31, 2020 | |||||
|---|---|---|---|---|---|
| Adjusted revenues | Annuities | Life | Run-off | Corporate & Other | Total |
| Premiums | $35 | $141 | $— | $22 | $198 |
| Universal life and investment-type product policy fees | 566 | 93 | 162 | — | 821 |
| Net investment income | 460 | 116 | 324 | 20 | 920 |
| Other revenues | 90 | 4 | 7 | — | 101 |
| Total adjusted revenues | $1,151 | $354 | $493 | $42 | $2,040 |
| Adjusted expenses | |||||
| Interest credited to policyholder account balances | $155 | $27 | $77 | $— | $259 |
| Policyholder benefits and claims | 204 | 237 | 454 | 17 | 912 |
| Amortization of DAC and VOBA | 38 | 58 | — | 3 | 99 |
| Interest expense on debt | — | — | — | 47 | 47 |
| Other operating costs | 365 | 19 | 52 | 34 | 470 |
| Total adjusted expenses | 762 | 341 | 583 | 101 | 1,787 |
| Adjusted earnings before provision for income tax | 389 | 13 | (90) | (59) | 253 |
| Provision for income tax expense (benefit) | 73 | 2 | (20) | (22) | 33 |
| Adjusted earnings after provision for income tax | 316 | 11 | (70) | (37) | 220 |
| Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends | — | — | — | 9 | 9 |
| Adjusted earnings | $316 | $11 | $(70) | $(46) | $211 |
| For the Three Months Ended March 31, 2019 | |||||
| Adjusted revenues | Annuities | Life | Run-off | Corporate & Other | Total |
| Premiums | $58 | $145 | $1 | $23 | $227 |
| Universal life and investment-type product policy fees | 561 | 58 | 193 | (3) | 809 |
| Net investment income | 421 | 97 | 276 | 17 | 811 |
| Other revenues | 77 | 3 | 6 | 6 | 92 |
| Total adjusted revenues | $1,117 | $303 | $476 | $43 | $1,939 |
| Adjusted expenses | |||||
| Interest credited to policyholder account balances | $137 | $25 | $96 | $— | $258 |
| Policyholder benefits and claims | 143 | 181 | 380 | 14 | 718 |
| Amortization of DAC and VOBA | 82 | 11 | — | 4 | 97 |
| Interest expense on debt | — | — | — | 47 | 47 |
| Other operating costs | 394 | 55 | 46 | 50 | 545 |
| Total adjusted expenses | 756 | 272 | 522 | 115 | 1,665 |
| Adjusted earnings before provision for income tax | 361 | 31 | (46) | (72) | 274 |
| Provision for income tax expense (benefit) | 66 | 6 | (10) | (22) | 40 |
| Adjusted earnings after provision for income tax | 295 | 25 | (36) | (50) | 234 |
| Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends | — | — | — | 2 | 2 |
| Adjusted earnings | $295 | $25 | $(36) | $(52) | $232 |
| Financial Supplement | 6 |
|---|
Annuities — Statements of Adjusted Earnings (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| Adjusted revenues | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | |
| Premiums | $35 | $32 | $48 | $60 | $58 | $35 | $58 | |
| Universal life and investment-type product policy fees | 566 | 585 | 596 | 584 | 561 | 566 | 561 | |
| Net investment income | 460 | 457 | 461 | 470 | 421 | 460 | 421 | |
| Other revenues | 90 | 79 | 79 | 80 | 77 | 90 | 77 | |
| Total adjusted revenues | $1,151 | $1,153 | $1,184 | $1,194 | $1,117 | $1,151 | $1,117 | |
| Adjusted expenses | ||||||||
| Interest credited to policyholder account balances | $155 | $151 | $149 | $147 | $137 | $155 | $137 | |
| Policyholder benefits and claims | 204 | 134 | 152 | 180 | 143 | 204 | 143 | |
| Amortization of DAC and VOBA | 38 | 95 | 211 | 128 | 82 | 38 | 82 | |
| Interest expense on debt | — | — | — | — | — | — | — | |
| Other operating costs | 365 | 449 | 417 | 416 | 394 | 365 | 394 | |
| Total adjusted expenses | 762 | 829 | 929 | 871 | 756 | 762 | 756 | |
| Adjusted earnings before provision for income tax | 389 | 324 | 255 | 323 | 361 | 389 | 361 | |
| Provision for income tax expense (benefit) | 73 | 59 | 52 | 58 | 66 | 73 | 66 | |
| Adjusted earnings | $316 | $265 | $203 | $265 | $295 | $316 | $295 |
| Financial Supplement | 7 |
|---|
Annuities — Select Operating Metrics (Unaudited, in millions)
| For the Three Months Ended | |||||
|---|---|---|---|---|---|
| VARIABLE & SHIELD LEVEL ANNUITIES ACCOUNT VALUE (1) | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Account value, beginning of period | $116,426 | $112,707 | $114,041 | $112,247 | $105,089 |
| Deposits | 1,607 | 1,608 | 1,490 | 1,511 | 1,327 |
| Withdrawals, surrenders and contract benefits | (2,656) | (2,826) | (2,667) | (2,716) | (2,479) |
| Net flows (2) | (1,049) | (1,218) | (1,177) | (1,205) | (1,152) |
| Investment performance (3) | (14,066) | 5,693 | 650 | 3,687 | 8,971 |
| Policy charges and other | (620) | (756) | (807) | (688) | (661) |
| Account value, end of period | $100,691 | $116,426 | $112,707 | $114,041 | $112,247 |
| FIXED ANNUITIES ACCOUNT VALUE (4) | |||||
| Account value, beginning of period | $13,113 | $13,069 | $12,900 | $12,734 | $12,770 |
| Deposits | 402 | 314 | 355 | 410 | 416 |
| Withdrawals, surrenders and contract benefits | (272) | (332) | (250) | (312) | (521) |
| Net flows (2) | 130 | (18) | 105 | 98 | (105) |
| Interest credited | 89 | 88 | 92 | 87 | 90 |
| Other | (19) | (26) | (28) | (19) | (21) |
| Account value, end of period | $13,313 | $13,113 | $13,069 | $12,900 | $12,734 |
| INCOME ANNUITIES (1) | |||||
| Income annuity insurance liabilities | $4,565 | $4,588 | $4,590 | $4,515 | $4,541 |
| (1) Includes general account and separate account. | |||||
| (2) Deposits and withdrawals include policy exchanges. | |||||
| (3) Includes imputed interest on indexed annuities and the interest credited on the general account investment option of variable products. | |||||
| (4) Includes fixed indexed annuities. |
| Financial Supplement | 8 |
|---|
Annuities — Select Operating Metrics (Cont.) (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| VARIABLE & SHIELD LEVEL ANNUITY SALES | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | |
| Shield Level Annuities (1) | $1,140 | $1,197 | $1,137 | $1,140 | $985 | $1,140 | $985 | |
| GMWB/GMAB | 322 | 264 | 223 | 227 | 198 | 322 | 198 | |
| GMDB only | 87 | 80 | 72 | 80 | 78 | 87 | 78 | |
| GMIB | 19 | 17 | 18 | 26 | 23 | 19 | 23 | |
| Total variable & Shield Level annuity sales | $1,568 | $1,558 | $1,450 | $1,473 | $1,284 | $1,568 | $1,284 | |
| FIXED ANNUITY SALES | ||||||||
| Fixed indexed annuities (2) | $208 | $261 | $296 | $291 | $281 | $208 | $281 | |
| Fixed deferred annuities | 191 | 49 | 55 | 114 | 133 | 191 | 133 | |
| Single premium immediate annuities | 1 | 3 | 5 | 8 | 6 | 1 | 6 | |
| Other fixed annuities | 1 | — | 2 | 4 | 3 | 1 | 3 | |
| Total fixed annuity sales | $401 | $313 | $358 | $417 | $423 | $401 | $423 | |
| (1) Shield Level Annuities refers to our suite of structured annuities consisting of products marketed under various names. | ||||||||
| (2) Represents 90% of gross sales assumed via reinsurance agreements. |
| Financial Supplement | 9 |
|---|
Life — Statements of Adjusted Earnings (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| Adjusted revenues | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | |
| Premiums | $141 | $154 | $143 | $150 | $145 | $141 | $145 | |
| Universal life and investment-type product policy fees | 93 | 109 | 53 | 59 | 58 | 93 | 58 | |
| Net investment income | 116 | 106 | 117 | 116 | 97 | 116 | 97 | |
| Other revenues | 4 | 6 | 7 | 5 | 3 | 4 | 3 | |
| Total adjusted revenues | $354 | $375 | $320 | $330 | $303 | $354 | $303 | |
| Adjusted expenses | ||||||||
| Interest credited to policyholder account balances | $27 | $26 | $30 | $24 | $25 | $27 | $25 | |
| Policyholder benefits and claims | 237 | 190 | 179 | 169 | 181 | 237 | 181 | |
| Amortization of DAC and VOBA | 58 | 4 | (31) | 21 | 11 | 58 | 11 | |
| Interest expense on debt | — | — | — | — | — | — | — | |
| Other operating costs | 19 | 61 | 51 | 44 | 55 | 19 | 55 | |
| Total adjusted expenses | 341 | 281 | 229 | 258 | 272 | 341 | 272 | |
| Adjusted earnings before provision for income tax | 13 | 94 | 91 | 72 | 31 | 13 | 31 | |
| Provision for income tax expense (benefit) | 2 | 19 | 18 | 14 | 6 | 2 | 6 | |
| Adjusted earnings | $11 | $75 | $73 | $58 | $25 | $11 | $25 |
| Financial Supplement | 10 |
|---|
Life — Select Operating Metrics (Unaudited, in millions)
| For the Three Months Ended | |||||
|---|---|---|---|---|---|
| LIFE ACCOUNT VALUE: GENERAL ACCOUNT | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Variable universal and universal life account value, beginning of period | $2,682 | $2,699 | $2,707 | $2,727 | $2,747 |
| Premiums and deposits (1) | 74 | 62 | 62 | 58 | 65 |
| Surrenders and contract benefits | (33) | (37) | (42) | (49) | (52) |
| Net flows | 41 | 25 | 20 | 9 | 13 |
| Net transfers from (to) separate account | 19 | 12 | 17 | 18 | 13 |
| Interest credited | 25 | 26 | 26 | 26 | 25 |
| Policy charges and other | (76) | (80) | (71) | (73) | (71) |
| Variable universal and universal life account value, end of period | $2,691 | $2,682 | $2,699 | $2,707 | $2,727 |
| LIFE ACCOUNT VALUE: SEPARATE ACCOUNT | |||||
| Variable universal life account value, beginning of period | $5,493 | $5,200 | $5,269 | $5,138 | $4,679 |
| Premiums and deposits | 52 | 54 | 54 | 55 | 59 |
| Surrenders and contract benefits | (65) | (60) | (63) | (63) | (69) |
| Net flows | (13) | (6) | (9) | (8) | (10) |
| Investment performance | (928) | 366 | 15 | 212 | 539 |
| Net transfers from (to) general account | (19) | (12) | (17) | (18) | (15) |
| Policy charges and other | (55) | (55) | (58) | (55) | (55) |
| Variable universal life account value, end of period | $4,478 | $5,493 | $5,200 | $5,269 | $5,138 |
| (1) Includes premiums and sales directed to the general account investment option of variable products. |
| Financial Supplement | 11 |
|---|
Life — Select Operating Metrics (Cont.) (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| LIFE SALES | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | |
| Total life sales | $16 | $12 | $8 | $4 | $1 | $16 | $1 | |
| As of | ||||||||
| --- | --- | --- | --- | --- | --- | |||
| LIFE INSURANCE IN-FORCE | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | |||
| Whole Life | ||||||||
| Life Insurance in-force, before reinsurance | $20,298 | $20,602 | $20,954 | $21,212 | $21,518 | |||
| Life Insurance in-force, net of reinsurance | $3,105 | $3,163 | $3,150 | $3,172 | $3,638 | |||
| Term Life | ||||||||
| Life Insurance in-force, before reinsurance | $402,720 | $409,427 | $415,478 | $421,507 | $427,239 | |||
| Life Insurance in-force, net of reinsurance | $309,500 | $314,034 | $317,274 | $321,285 | $324,941 | |||
| Universal and Variable Universal Life | ||||||||
| Life Insurance in-force, before reinsurance | $53,009 | $54,269 | $54,892 | $55,628 | $56,378 | |||
| Life Insurance in-force, net of reinsurance | $39,466 | $40,461 | $38,543 | $39,139 | $39,844 |
| Financial Supplement | 12 |
|---|
Run-off — Statements of Adjusted Earnings (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| Adjusted revenues | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | |
| Premiums | $— | $1 | $— | $— | $1 | $— | $1 | |
| Universal life and investment-type product policy fees | 162 | 191 | 150 | 182 | 193 | 162 | 193 | |
| Net investment income | 324 | 323 | 327 | 339 | 276 | 324 | 276 | |
| Other revenues | 7 | 7 | 7 | 6 | 6 | 7 | 6 | |
| Total adjusted revenues | $493 | $522 | $484 | $527 | $476 | $493 | $476 | |
| Adjusted expenses | ||||||||
| Interest credited to policyholder account balances | $77 | $91 | $92 | $94 | $96 | $77 | $96 | |
| Policyholder benefits and claims | 454 | 371 | 885 | 380 | 380 | 454 | 380 | |
| Amortization of DAC and VOBA | — | — | — | — | — | — | — | |
| Interest expense on debt | — | — | — | — | — | — | — | |
| Other operating costs | 52 | 53 | 50 | 51 | 46 | 52 | 46 | |
| Total adjusted expenses | 583 | 515 | 1,027 | 525 | 522 | 583 | 522 | |
| Adjusted earnings before provision for income tax | (90) | 7 | (543) | 2 | (46) | (90) | (46) | |
| Provision for income tax expense (benefit) | (20) | 1 | (117) | — | (10) | (20) | (10) | |
| Adjusted earnings | $(70) | $6 | $(426) | $2 | $(36) | $(70) | $(36) |
| Financial Supplement | 13 |
|---|
Run-off — Select Operating Metrics (Unaudited, in millions)
| For the Three Months Ended | |||||
|---|---|---|---|---|---|
| UNIVERSAL LIFE WITH SECONDARY GUARANTEES ACCOUNT VALUE | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Account value, beginning of period | $6,018 | $6,058 | $6,084 | $6,110 | $6,154 |
| Premiums and deposits (1) | 180 | 186 | 184 | 191 | 187 |
| Surrenders and contract benefits | (24) | (34) | (18) | (27) | (39) |
| Net flows | 156 | 152 | 166 | 164 | 148 |
| Interest credited | 57 | 59 | 58 | 58 | 57 |
| Policy charges and other | (252) | (251) | (250) | (248) | (249) |
| Account value, end of period | $5,979 | $6,018 | $6,058 | $6,084 | $6,110 |
| As of | |||||
| --- | --- | --- | --- | --- | --- |
| LIFE INSURANCE IN-FORCE | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Universal Life with Secondary Guarantees | |||||
| Life Insurance in-force, before reinsurance | $77,428 | $78,008 | $78,722 | $79,243 | $79,817 |
| Life Insurance in-force, net of reinsurance | $37,481 | $37,740 | $36,698 | $36,945 | $37,233 |
| (1) Includes premiums and sales directed to the general account investment option of variable products. |
| Financial Supplement | 14 |
|---|
Corporate & Other — Statements of Adjusted Earnings (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| Adjusted revenues | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | |
| Premiums | $22 | $22 | $23 | $22 | $23 | $22 | $23 | |
| Universal life and investment-type product policy fees | — | — | — | (2) | (3) | — | (3) | |
| Net investment income | 20 | 18 | 23 | 17 | 17 | 20 | 17 | |
| Other revenues | — | 4 | 1 | 5 | 6 | — | 6 | |
| Total adjusted revenues | $42 | $44 | $47 | $42 | $43 | $42 | $43 | |
| Adjusted expenses | ||||||||
| Interest credited to policyholder account balances | $— | $— | $— | $— | $— | $— | $— | |
| Policyholder benefits and claims | 17 | 14 | 18 | 13 | 14 | 17 | 14 | |
| Amortization of DAC and VOBA | 3 | 3 | 3 | 4 | 4 | 3 | 4 | |
| Interest expense on debt | 47 | 47 | 49 | 48 | 47 | 47 | 47 | |
| Other operating costs | 34 | 57 | 44 | 62 | 50 | 34 | 50 | |
| Total adjusted expenses | 101 | 121 | 114 | 127 | 115 | 101 | 115 | |
| Adjusted earnings before provision for income tax | (59) | (77) | (67) | (85) | (72) | (59) | (72) | |
| Provision for income tax expense (benefit) | (22) | (21) | (57) | (21) | (22) | (22) | (22) | |
| Adjusted earnings after provision for income tax | (37) | (56) | (10) | (64) | (50) | (37) | (50) | |
| Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends | 9 | 8 | 9 | 7 | 2 | 9 | 2 | |
| Adjusted earnings | $(46) | $(64) | $(19) | $(71) | $(52) | $(46) | $(52) |
Other
Information
| Financial Supplement | 16 |
|---|
DAC and VOBA and Net Derivative Gains (Losses) (Unaudited, in millions)
| For the Three Months Ended | |||||
|---|---|---|---|---|---|
| DAC AND VOBA ROLLFORWARD | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Balance, beginning of period | $5,448 | $5,317 | $5,492 | $5,680 | $5,717 |
| Capitalization | 98 | 95 | 93 | 96 | 86 |
| Amortization: | |||||
| Included in adjusted earnings, excluding notable items | (99) | (137) | (162) | (153) | (97) |
| Related to notable items, included in adjusted expenses | — | 35 | (21) | — | — |
| Related to items not included in adjusted expenses | (671) | 93 | 2 | (17) | 75 |
| Total amortization | (770) | (9) | (181) | (170) | (22) |
| Unrealized investment gains (losses) | 86 | 45 | (87) | (114) | (101) |
| Balance, end of period | $4,862 | $5,448 | $5,317 | $5,492 | $5,680 |
| As of | |||||
| DAC AND VOBA BY SEGMENT AND CORPORATE & OTHER | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Annuities | $3,745 | $4,327 | $4,191 | $4,382 | $4,534 |
| Life | 1,018 | 1,019 | 1,021 | 1,001 | 1,034 |
| Run-off | 5 | 5 | 5 | 5 | 5 |
| Corporate & Other | 94 | 97 | 100 | 104 | 107 |
| Total DAC and VOBA | $4,862 | $5,448 | $5,317 | $5,492 | $5,680 |
| For the Three Months Ended | |||||
| --- | --- | --- | --- | --- | --- |
| NET DERIVATIVE GAINS (LOSSES) | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Net derivative gains (losses): | |||||
| Variable annuity hedges and embedded derivatives, net | $5,181 | $(1,419) | $418 | $(194) | $(1,439) |
| ULSG hedges | 1,583 | (446) | 656 | 312 | 122 |
| Other hedges and embedded derivatives | 134 | (32) | (17) | 31 | 14 |
| Subtotal | 6,898 | (1,897) | 1,057 | 149 | (1,303) |
| Investment hedge adjustments | 4 | 6 | — | — | — |
| Total net derivative gains (losses) | $6,902 | $(1,891) | $1,057 | $149 | $(1,303) |
| Financial Supplement | 17 |
|---|
Notable Items (Unaudited, in millions)
| For the Three Months Ended | |||||
|---|---|---|---|---|---|
| NOTABLE ITEMS IMPACTING ADJUSTED EARNINGS | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Actuarial items and other insurance adjustments | $48 | $(42) | $442 | $12 | $— |
| Establishment costs | 14 | 25 | 10 | 30 | 27 |
| Separation-related transactions | — | — | (23) | — | — |
| Total notable items (1) | $62 | $(17) | $429 | $42 | $27 |
| NOTABLE ITEMS BY SEGMENT AND CORPORATE & OTHER | |||||
| Annuities | $— | $(42) | $30 | $— | $— |
| Life | — | — | (19) | — | — |
| Run-off | 48 | — | 431 | 12 | — |
| Corporate & Other | 14 | 25 | (13) | 30 | 27 |
| Total notable items (1) | $62 | $(17) | $429 | $42 | $27 |
| (1) Notable items reflect the negative (positive) after-tax impact to adjusted earnings of certain unanticipated items and events, as well as certain items and events that were anticipated, such as establishment costs. The presentation of notable items is intended to help investors better understand our results and to evaluate and forecast those results. |
| Financial Supplement | 18 |
|---|
Variable Annuity Separate Account Returns and Allocations (Unaudited)
| For the Three Months Ended | |||||
|---|---|---|---|---|---|
| VARIABLE ANNUITY SEPARATE ACCOUNT RETURNS | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Total Quarterly VA separate account gross returns | (14.31)% | 6.14% | 0.83% | 3.84% | 10.02% |
| TOTAL VARIABLE ANNUITY SEPARATE ACCOUNT ALLOCATIONS | |||||
| Percent allocated to equity funds | 24.11% | 26.19% | 25.52% | 25.04% | 25.72% |
| Percent allocated to bond funds/other funds | 9.59% | 8.23% | 8.50% | 8.23% | 8.30% |
| Percent allocated to target volatility funds | 24.41% | 23.10% | 23.51% | 24.11% | 22.97% |
| Percent allocated to balanced funds | 41.89% | 42.48% | 42.47% | 42.62% | 43.01% |
| Financial Supplement | 19 |
|---|
Summary of Investments (Unaudited, dollars in millions)
| March 31, 2020 | December 31, 2019 | ||||
|---|---|---|---|---|---|
| Amount | % of Total | Amount | % of Total | ||
| Fixed maturity securities: | |||||
| U.S. corporate securities | $30,670 | 26.98% | $31,160 | 31.58% | |
| Foreign corporate securities | 9,244 | 8.13% | 9,844 | 9.98% | |
| Residential mortgage-backed securities | 8,900 | 7.83% | 9,118 | 9.24% | |
| U.S. government and agency securities | 8,926 | 7.85% | 7,396 | 7.50% | |
| Commercial mortgage-backed securities | 5,745 | 5.06% | 5,755 | 5.83% | |
| State and political subdivision securities | 4,143 | 3.65% | 4,057 | 4.11% | |
| Asset-backed securities | 2,027 | 1.78% | 1,955 | 1.98% | |
| Foreign government securities | 1,647 | 1.45% | 1,751 | 1.78% | |
| Total fixed maturity securities | 71,302 | 62.73% | 71,036 | 72.00% | |
| Equity securities | 122 | 0.11% | 147 | 0.15% | |
| Mortgage loans: | |||||
| Commercial mortgage loans | 9,512 | 8.37% | 9,721 | 9.85% | |
| Agricultural mortgage loans | 3,403 | 2.99% | 3,388 | 3.44% | |
| Residential mortgage loans | 2,701 | 2.38% | 2,708 | 2.74% | |
| Allowance for credit losses | (69) | (0.06)% | (64) | (0.06)% | |
| Total mortgage loans, net | 15,547 | 13.68% | 15,753 | 15.97% | |
| Policy loans | 1,250 | 1.10% | 1,292 | 1.31% | |
| Limited partnerships and limited liability companies | 2,505 | 2.20% | 2,380 | 2.41% | |
| Cash, cash equivalents and short-term investments | 13,278 | 11.68% | 4,835 | 4.90% | |
| Other invested assets: | |||||
| Derivatives: | |||||
| Interest rate | 5,950 | 5.23% | 1,778 | 1.80% | |
| Equity market | 2,677 | 2.35% | 921 | 0.93% | |
| Foreign currency exchange rate | 850 | 0.75% | 286 | 0.29% | |
| Credit | 7 | 0.01% | 36 | 0.04% | |
| Total derivatives | 9,484 | 8.34% | 3,021 | 3.06% | |
| FHLB common stock | 39 | 0.04% | 39 | 0.04% | |
| Other | 135 | 0.12% | 156 | 0.16% | |
| Total other invested assets | 9,658 | 8.50% | 3,216 | 3.26% | |
| Total investments and cash and cash equivalents | $113,662 | 100.00% | $98,659 | 100.00% | |
| For the Three Months Ended | |||||
| --- | --- | --- | --- | --- | --- |
| March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | |
| Net investment income yield (1), (2) | 4.30% | 4.32% | 4.52% | 4.67% | 4.10% |
| (1) Yields are calculated on investment income as a percent of average quarterly asset carrying values. Investment income includes investment hedge adjustments, excludes realized gains and losses and reflects the GAAP adjustments described beginning on page A-1 of the Appendix hereto. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties. | |||||
| (2) Investment fee and expense yields are calculated as investment fees and expenses as a percent of average quarterly asset estimated fair values. Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties. |
| Financial Supplement | 20 |
|---|
Statutory Statement of Operations Information (Unaudited, in millions except Normalized Statutory Earnings (Loss))
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| COMBINED REVENUES AND EXPENSES (1) | PRELIMINARY<br>March 31,<br>2020 (2) | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | PRELIMINARY<br>March 31,<br>2020 (2) | March 31,<br>2019 | |
| Total revenues (Line 9) | $5,700 | $2,086 | $3,443 | $3,436 | $2,393 | $5,700 | $2,393 | |
| Total benefits and expenses before dividends to policyholders (Line 28) | $13,000 | $1,008 | $3,047 | $2,839 | $2,429 | $13,000 | $2,429 | |
| COMBINED NET INCOME (LOSS) (1) | ||||||||
| Gain (loss) from operations net of taxes and dividends to policyholders (Line 33) | $(7,300) | $1,089 | $314 | $597 | $(43) | $(7,300) | $(43) | |
| Net realized capital gains (losses), net of taxes and certain transfers to interest maintenance reserve (Line 34) | 500 | (297) | 185 | (701) | (147) | 500 | (147) | |
| Net income (loss) (Line 35) | $(6,800) | $792 | $499 | $(104) | $(190) | $(6,800) | $(190) | |
| For the Three Months Ended | ||||||||
| NORMALIZED STATUTORY EARNINGS (LOSS) (3), (4) | PRELIMINARY<br>March 31,<br>2020 (2) | March 31,<br>2019 | ||||||
| (In billions) | ||||||||
| Statutory net gain (loss) from operations, pre-tax | $(7.4) | $— | ||||||
| Add: net realized capital gains (losses) | 0.5 | (0.1) | ||||||
| Add: change in CTE95 capital requirements, net of the change in VA reserves | 1.1 | 1.6 | ||||||
| Add: unrealized gains (losses) on VA hedging program | 5.0 | (1.2) | ||||||
| Normalized statutory earnings (loss) | $(0.8) | $0.3 | ||||||
| (1) Combined statutory results are for Brighthouse Life Insurance Company, Brighthouse Life Insurance Company of NY and New England Life Insurance Company. | ||||||||
| (2) Reflects preliminary statutory results for the three months ended March 31, 2020. | ||||||||
| (3) See definitions for Non-GAAP and Other Financial Disclosures in the Appendix beginning on page A-2. | ||||||||
| (4) Normalized statutory earnings (loss), presented in billions, is for Brighthouse Life Insurance Company and New England Life Insurance Company. |
| Financial Supplement | 21 |
|---|
Statutory Balance Sheet and Surplus Information (Unaudited, in millions)
| As of | |||||
|---|---|---|---|---|---|
| COMBINED ASSETS, LIABILITIES, AND CAPITAL AND SURPLUS (1) | PRELIMINARY<br>March 31,<br>2020 (2) | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Total assets (Line 28) | $185,000 | $186,564 | $185,743 | $181,989 | $178,745 |
| Total liabilities (Line 28) | $178,700 | $177,702 | $178,103 | $175,788 | $172,788 |
| Total capital and surplus (Line 38) | $6,300 | $8,862 | $7,640 | $6,201 | $5,957 |
| COMBINED TAC AND RBC RATIO (1), (3) | |||||
| Combined total adjusted capital | $7,200 | $9,694 | $8,406 | $6,897 | $6,314 |
| Combined risk-based capital ratio (4) | 515% - 535% | 552% | N/A | N/A | N/A |
| As of | |||||
| COMBINED ORDINARY DIVIDEND CAPACITY (1) | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Dividends paid to Holding Company | $300 | $131 | $— | $— | $— |
| Remaining ordinary dividend capacity (5) | $1,827 | $798 | $929 | $929 | $929 |
| (1) Combined statutory results are for Brighthouse Life Insurance Company and New England Life Insurance Company. | |||||
| (2) Reflects preliminary statutory results as of March 31, 2020. | |||||
| (3) See definitions for Non-GAAP and Other Financial Disclosures in the Appendix beginning on page A-2. | |||||
| (4) RBC ratios prior to the implementation of variable annuity capital reform are not presented. | |||||
| (5) Reflects remaining dividend amounts that may be paid during the respective calendar year without prior regulatory approval. However, because dividend tests may be based on dividends previously paid over rolling 12-month periods, if paid before a specified date during such calendar year, some or all of such dividends may require regulatory approval. |
Appendix
| Financial Supplement | A-1 |
|---|
Note Regarding Forward-Looking Statements
This financial supplement and other oral or written statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements using words such as “anticipate,” “estimate,” “expect,” “project,” “may,” “will,” “could,” “intend,” “goal,” “target,” “guidance,” “forecast,” “preliminary,” “objective,” “continue,” “aim,” “plan,” “believe” and other words and terms of similar meaning, or that are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include, without limitation, statements relating to future actions, prospective services or products, financial projections, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, as well as trends in operating and financial results.
Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of Brighthouse Financial. These statements are based on current expectations and the current economic environment and involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others: the impact of the ongoing COVID-19 pandemic; differences between actual experience and actuarial assumptions and the effectiveness of our actuarial models; higher risk management costs and exposure to increased market risk due to guarantees within certain of our products; the effectiveness of our variable annuity exposure risk management strategy and the impact of such strategy on volatility in our profitability measures and negative effects on our statutory capital; the reserves we are required to hold against our variable annuities as a result of actuarial guidelines; the potential material adverse effect of changes in accounting standards, practices and/or policies applicable to us, including changes in the accounting for long-duration contracts; our degree of leverage due to indebtedness; the impact of adverse capital and credit market conditions, including with respect to our ability to meet liquidity needs and access capital; the impact of changes in regulation and in supervisory and enforcement policies on our insurance business or other operations; the availability of reinsurance and the ability of the counterparties to our reinsurance or indemnification arrangements to perform their obligations thereunder; the adverse impact to liabilities for policyholder claims as a result of extreme mortality events; heightened competition, including with respect to service, product features, scale, price, actual or perceived financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition; any failure of third parties to provide services we need, any failure of the practices and procedures of such third parties and any inability to obtain information or assistance we need from third parties; the ability of our insurance subsidiaries to pay dividends to us, and our ability to pay dividends to our shareholders and repurchase our common stock; the effectiveness of our policies and procedures in managing risk; our ability to market and distribute our products through distribution channels; whether all or any portion of the tax consequences of our separation from MetLife, Inc. (“MetLife”) are not as expected, leading to material additional taxes or material adverse consequences to tax attributes that impact us; the uncertainty of the outcome of any disputes with MetLife over tax-related or other matters and agreements or disagreements regarding MetLife’s or our obligations under our other agreements; the potential material negative tax impact of potential future tax legislation that could make some of our products less attractive to consumers; and other factors described from time to time in documents that we file with the U.S. Securities and Exchange Commission (the “SEC”).
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements included and the risks, uncertainties and other factors identified in our Annual Report on Form 10-K for the year ended December 31, 2019, particularly in the sections entitled “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk,” as well as in our other subsequent filings with the SEC. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.
| Financial Supplement | A-2 |
|---|
Non-GAAP and Other Financial Disclosures
Our definitions of the non-GAAP and other financial measures may differ from those used by other companies.
Non-GAAP Financial Disclosures
We present certain measures of our performance that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures highlight our results of operations and the underlying profitability drivers of our business, as well as enhance the understanding of our performance by the investor community.
The following non-GAAP financial measures, previously referred to as operating measures, should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:
| Non-GAAP financial measures: | Most directly comparable GAAP financial measures: | ||
|---|---|---|---|
| (i) | adjusted earnings | (i) | net income (loss) available to shareholders (1) |
| (ii) | adjusted earnings, less notable items | (ii) | net income (loss) available to shareholders (1) |
| (iii) | adjusted revenues | (iii) | revenues |
| (iv) | adjusted expenses | (iv) | expenses |
| (v) | adjusted earnings per common share | (v) | earnings per common share, diluted (1) |
| (vi) | adjusted earnings per common share, less notable items | (vi) | earnings per common share, diluted (1) |
| (vii) | adjusted return on common equity | (vii) | return on common equity (2) |
| (viii) | adjusted return on common equity, less notable items | (viii) | return on common equity (2) |
| (ix) | adjusted net investment income | (ix) | net investment income |
| __________________ | |||
| (1) Brighthouse uses net income (loss) available to shareholders to refer to net income (loss) available to Brighthouse Financial, Inc.'s common shareholders, and earnings per common share, diluted to refer to net income (loss) available to shareholders per common share. | |||
| (2) Brighthouse uses return on common equity to refer to return on Brighthouse Financial, Inc.'s common stockholders' equity. |
Reconciliations to the most directly comparable historical GAAP measures are included for those measures which are presented herein. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are not accessible on a forward-looking basis because we believe it is not possible without unreasonable efforts to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income (loss) available to shareholders.
Adjusted Earnings, Adjusted Revenues and Adjusted Expenses
Adjusted earnings, which may be positive or negative, is used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. This financial measure focuses on our primary businesses principally by excluding the impact of market volatility, which could distort trends.
Adjusted earnings reflects adjusted revenues less adjusted expenses, both net of income tax, and excludes net income (loss) attributable to noncontrolling interests and preferred stock dividends. Provided below are the adjustments to GAAP revenues and GAAP expenses used to calculate adjusted revenues and adjusted expenses, respectively.
| Financial Supplement | A-3 |
|---|
Non-GAAP and Other Financial Disclosures (Cont.)
The following are significant items excluded from total revenues, net of income tax, in calculating the adjusted revenues component of adjusted earnings:
•Net investment gains (losses);
•Net derivative gains (losses), except earned income and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment (“Investment Hedge Adjustments”); and
•Certain variable annuity GMIB fees (“GMIB Fees”).
The following are significant items excluded from total expenses, net of income tax, in calculating the adjusted expenses component of adjusted earnings:
•Amounts associated with benefits related to GMIBs (“GMIB Costs”);
•Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”); and
•Amortization of DAC and VOBA related to (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments.
The tax impact of the adjustments mentioned is calculated net of the statutory tax rate, which could differ from our effective tax rate.
Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance.
Adjusted Earnings per Common Share and Adjusted Return on Common Equity
Adjusted earnings per common share and adjusted return on common equity are measures used by management to evaluate the execution of our business strategy and align such strategy with our shareholders’ interests.
Adjusted earnings per common share is defined as adjusted earnings for the period divided by the weighted average number of fully diluted shares of common stock outstanding for the period. The weighted average common shares outstanding used to calculate adjusted earnings per share will differ from such shares used to calculate diluted net income (loss) available to shareholders per common share when the inclusion of dilutive shares has an anti-dilutive effect for one calculation but not for the other.
Adjusted return on common equity is defined as total annual adjusted earnings on a four quarter trailing basis, divided by the simple average of the most recent five quarters of total Brighthouse Financial, Inc.'s common stockholders’ equity, excluding AOCI.
Adjusted Net Investment Income
We present adjusted net investment income to measure our performance for management purposes, and we believe it enhances the understanding of our investment portfolio results. Adjusted net investment income represents net investment income including investment hedge adjustments.
| Financial Supplement | A-4 |
|---|
Non-GAAP and Other Financial Disclosures (Cont.)
Other Financial Disclosures
Corporate Expenses
Corporate expenses includes functional department expenses, public company expenses, certain investment expenses, retirement funding and incentive compensation; and excludes establishment costs.
Notable items
Certain of the non-GAAP measures described above may be presented further adjusted to exclude notable items. Notable items reflect the impact on our results of certain unanticipated items and events, as well as certain items and events that were anticipated, such as establishment costs. The presentation of notable items and non-GAAP measures, less notable items is intended to help investors better understand our results and to evaluate and forecast those results.
Book Value per Common Share and Book Value per Common Share, excluding AOCI
Brighthouse uses the term “book value” to refer to “Brighthouse Financial, Inc.'s common stockholders’ equity, including AOCI.” Book value per common share is defined as ending Brighthouse Financial, Inc.'s common stockholders’ equity, including AOCI, divided by ending common shares outstanding. Book value per common share, excluding AOCI, is defined as ending Brighthouse Financial, Inc.'s common stockholders’ equity, excluding AOCI, divided by ending common shares outstanding.
CTE95
CTE95 is defined as the amount of assets required to satisfy contract holder obligations across market environments in the average of the worst five percent of a set of capital market scenarios over the life of the contracts.
CTE98
CTE98 is defined as the amount of assets required to satisfy contract holder obligations across market environments in the average of the worst two percent of a set of capital market scenarios over the life of the contracts.
Holding Company Liquid Assets
Holding company liquid assets include liquid assets in Brighthouse Financial, Inc., Brighthouse Holdings, LLC, and Brighthouse Services, LLC. Liquid assets include cash and cash equivalents, short-term investments and publicly traded securities excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with derivatives and collateral financing arrangements.
Total Adjusted Capital
Total adjusted capital primarily consists of statutory capital and surplus, as well as the statutory asset valuation reserve. When referred to as “combined,” represents that of our insurance subsidiaries as a whole.
| Financial Supplement | A-5 |
|---|
Non-GAAP and Other Financial Disclosures (Cont.)
Other Financial Disclosures (cont.)
Sales
Life insurance sales consist of 100 percent of annualized new premium for term life, first-year paid premium for whole life, universal life, and variable universal life, and total paid premium for indexed universal life. We exclude company-sponsored internal exchanges, corporate-owned life insurance, bank-owned life insurance, and private placement variable universal life.
Annuity sales consist of 100 percent of direct statutory premiums, except for fixed indexed annuity sales distributed through MassMutual that consist of 90 percent of gross sales. Annuity sales exclude company sponsored internal exchanges. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity.
Net Investment Income Yield
Similar to adjusted net investment income, we present net investment income yields as a performance measure we believe enhances the understanding of our investment portfolio results. Net investment income yields are calculated on adjusted net investment income as a percent of average quarterly asset carrying values. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties. Investment fee and expense yields are calculated as investment fees and expenses as a percent of average quarterly asset estimated fair values. Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.
Normalized Statutory Earnings (Loss)
Normalized statutory earnings (loss) is used by management to measure our insurance companies’ ability to pay future distributions and is reflective of whether our hedging program functions as intended. Normalized statutory earnings (loss) is calculated as statutory pre-tax net gain from operations adjusted for the favorable or unfavorable impacts of (i) net realized capital gains (losses), (ii) the change in both the reserve-based and capital methodology-based CTE95 calculation, net of the change in our variable annuity reserves, and (iii) unrealized gains (losses) associated with our variable annuities risk management strategy. Normalized statutory earnings (loss) may be further adjusted for certain unanticipated items that impacted our results in order to help management and investors better understand, evaluate and forecast those results.
Risk-Based Capital Ratio
The risk-based capital ratio is a method of measuring an insurance company’s capital, taking into consideration its relative size and risk profile, in order to ensure compliance with minimum regulatory capital requirements set by the National Association of Insurance Commissioners. When referred to as “combined,” represents that of our insurance subsidiaries as a whole. The reporting of our combined risk-based capital ratio is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.
| Financial Supplement | A-6 |
|---|
Acronyms
| AOCI | Accumulated other comprehensive income (loss) |
|---|---|
| CTE | Conditional tail expectations |
| DAC | Deferred policy acquisition costs |
| FHLB | Federal Home Loan Bank |
| GAAP | Accounting principles generally accepted in the United States of America |
| GMAB | Guaranteed minimum accumulation benefits |
| GMDB | Guaranteed minimum death benefits |
| GMIB | Guaranteed minimum income benefits |
| GMWB | Guaranteed minimum withdrawal benefits |
| LIMRA | Life Insurance Marketing and Research Association |
| NDGL | Net derivative gains (losses) |
| NIGL | Net investment gains (losses) |
| RBC | Risk-based capital |
| TAC | Total adjusted capital |
| ULSG | Universal life insurance with secondary guarantees |
| VA | Variable annuity |
| VOBA | Value of business acquired |
| Financial Supplement | A-7 |
|---|
Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings and Adjusted Earnings, Less Notable Items, and Reconciliation of Net Income (Loss) Available to Shareholders per Common Share to Adjusted Earnings per Common Share and Adjusted Earnings, Less Notable Items per Common Share (Unaudited, in millions except per share data)
| For the Three Months Ended | |||||
|---|---|---|---|---|---|
| ADJUSTED EARNINGS, LESS NOTABLE ITEMS | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Net income (loss) available to shareholders | $4,950 | $(1,077) | $676 | $377 | $(737) |
| Less: Net investment gains (losses) | (19) | 33 | 27 | 63 | (11) |
| Less: Net derivative gains (losses), excluding investment hedge adjustments | 6,898 | (1,897) | 1,057 | 149 | (1,303) |
| Less: GMIB Fees and GMIB Costs | (166) | 34 | (4) | (22) | 35 |
| Less: Amortization of DAC and VOBA | (671) | 93 | 2 | (17) | 75 |
| Less: Market value adjustments and other | (43) | 17 | (14) | (16) | (23) |
| Less: Provision for income tax (expense) benefit on reconciling adjustments | (1,260) | 361 | (223) | (34) | 258 |
| Adjusted earnings | 211 | 282 | (169) | 254 | 232 |
| Less: Notable items | (62) | 17 | (429) | (42) | (27) |
| Adjusted earnings, less notable items | $273 | $265 | $260 | $296 | $259 |
| ADJUSTED EARNINGS, LESS NOTABLE ITEMS PER COMMON SHARE (1), (2) | |||||
| Net income (loss) available to shareholders per common share | $47.11 | $(10.02) | $6.06 | $3.27 | $(6.31) |
| Less: Net investment gains (losses) | (0.18) | 0.31 | 0.24 | 0.55 | (0.09) |
| Less: Net derivative gains (losses), excluding investment hedge adjustments | 65.64 | (17.65) | 9.48 | 1.29 | (11.16) |
| Less: GMIB Fees and GMIB Costs | (1.58) | 0.32 | (0.04) | (0.19) | 0.30 |
| Less: Amortization of DAC and VOBA | (6.38) | 0.87 | 0.02 | (0.15) | 0.64 |
| Less: Market value adjustments and other | (0.41) | 0.16 | (0.13) | (0.14) | (0.20) |
| Less: Provision for income tax (expense) benefit on reconciling adjustments | (11.99) | 3.36 | (2.00) | (0.29) | 2.21 |
| Less: Impact of inclusion of dilutive shares | — | 0.01 | — | — | 0.01 |
| Adjusted earnings per common share | 2.01 | 2.61 | (1.52) | 2.19 | 1.98 |
| Less: Notable items | (0.59) | 0.16 | (3.85) | (0.36) | (0.23) |
| Adjusted earnings, less notable items per common share | $2.60 | $2.46 | $2.33 | $2.56 | $2.21 |
| (1) See definitions for Non-GAAP and Other Financial Disclosures in this Appendix. | |||||
| (2) Per share calculations are on a diluted basis and may not recalculate or foot due to rounding. For loss periods, dilutive shares were not included in the calculation as inclusion of such shares would have an anti-dilutive effect. |
| Financial Supplement | A-8 |
|---|
Reconciliation of Return on Common Equity to Adjusted Return on Common Equity (Unaudited, dollars in millions)
| Four Quarters Cumulative Trailing Basis | |||||
|---|---|---|---|---|---|
| ADJUSTED EARNINGS | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Net income (loss) available to shareholders | $4,926 | $(761) | $1,758 | $811 | $195 |
| Less: Net investment gains (losses) | 104 | 112 | (7) | (76) | (214) |
| Less: Net derivative gains (losses), excluding investment hedge adjustments | 6,207 | (1,994) | 1,941 | 191 | (274) |
| Less: GMIB Fees and GMIB Costs | (158) | 43 | (128) | (96) | (93) |
| Less: Amortization of DAC and VOBA | (593) | 153 | (173) | (153) | (232) |
| Less: Market value adjustments and other | (56) | (36) | (54) | (37) | (12) |
| Less: Provision for income tax (expense) benefit on reconciling adjustments | (1,156) | 362 | (324) | 40 | 179 |
| Adjusted earnings | $578 | $599 | $503 | $942 | $841 |
| Five Quarters Average Stockholders' Equity Basis | |||||
| BRIGHTHOUSE FINANCIAL, INC.’S COMMON STOCKHOLDERS’ EQUITY, EXCLUDING AOCI | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Brighthouse Financial, Inc.’s stockholders’ equity | $17,103 | $15,912 | $15,254 | $14,402 | $13,864 |
| Less: Preferred stock, net | 412 | 330 | 247 | 165 | 82 |
| Brighthouse Financial, Inc.’s common stockholders’ equity | 16,691 | 15,582 | 15,007 | 14,237 | 13,782 |
| Less: AOCI | 2,765 | 2,379 | 1,841 | 1,291 | 898 |
| Brighthouse Financial, Inc.’s common stockholders’ equity, excluding AOCI | $13,926 | $13,203 | $13,166 | $12,946 | $12,884 |
| Five Quarters Average Common Stockholders' Equity Basis | |||||
| ADJUSTED RETURN ON COMMON EQUITY | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 |
| Return on common equity | 29.5% | (4.9)% | 11.7% | 5.7% | 1.4% |
| Return on AOCI | 178.2% | (32.0)% | 95.5% | 62.8% | 21.7% |
| Return on common equity, excluding AOCI | 35.4% | (5.8)% | 13.4% | 6.3% | 1.5% |
| Less: Return on net investment gains (losses) | 0.7% | 0.8% | —% | (0.6)% | (1.7)% |
| Less: Return on net derivative gains (losses), excluding investment hedge adjustments | 44.6% | (15.1)% | 14.7% | 1.5% | (2.1)% |
| Less: Return on GMIB Fees and GMIB Costs | (1.1)% | 0.3% | (0.9)% | (0.7)% | (0.7)% |
| Less: Return on amortization of DAC and VOBA | (4.3)% | 1.2% | (1.3)% | (1.2)% | (1.8)% |
| Less: Return on market value adjustments and other | (0.4)% | (0.2)% | (0.4)% | (0.3)% | (0.1)% |
| Less: Return on provision for income tax (expense) benefit on reconciling adjustments | (8.3)% | 2.7% | (2.5)% | 0.3% | 1.4% |
| Adjusted return on common equity | 4.2% | 4.5% | 3.8% | 7.3% | 6.5% |
| Financial Supplement | A-9 |
|---|
Reconciliation of Total Revenues to Adjusted Revenues and Reconciliation of Total Expenses to Adjusted Expenses (Unaudited, in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | ||
| Total revenues | $8,985 | $306 | $3,187 | $2,370 | $691 | $8,985 | $691 | |
| Less: Net investment gains (losses) | (19) | 33 | 27 | 63 | (11) | (19) | (11) | |
| Less: Net derivative gains (losses) | 6,902 | (1,891) | 1,057 | 149 | (1,303) | 6,902 | (1,303) | |
| Less: GMIB Fees | 65 | 66 | 67 | 65 | 66 | 65 | 66 | |
| Less: Investment hedge adjustments | (4) | (6) | — | — | — | (4) | — | |
| Less: Other | 1 | 10 | 1 | — | — | 1 | — | |
| Total adjusted revenues | $2,040 | $2,094 | $2,035 | $2,093 | $1,939 | $2,040 | $1,939 | |
| Total expenses | $2,733 | $1,678 | $2,383 | $1,901 | $1,644 | $2,733 | $1,644 | |
| Less: Amortization of DAC and VOBA | 671 | (93) | (2) | 17 | (75) | 671 | (75) | |
| Less: GMIB Costs | 231 | 32 | 71 | 87 | 31 | 231 | 31 | |
| Less: Other | 44 | (7) | 15 | 16 | 23 | 44 | 23 | |
| Total adjusted expenses | $1,787 | $1,746 | $2,299 | $1,781 | $1,665 | $1,787 | $1,665 |
| Financial Supplement | A-10 |
|---|
Investment Reconciliation Details (Unaudited, dollars in millions)
| For the Three Months Ended | For the Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| NET INVESTMENT GAINS (LOSSES) | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | March 31,<br>2020 | March 31,<br>2019 | |
| Investment portfolio gains (losses) | $2 | $43 | $30 | $68 | $(8) | $2 | $(8) | |
| Investment portfolio writedowns | (21) | (10) | (3) | (5) | (3) | (21) | (3) | |
| Total net investment portfolio gains (losses) | (19) | 33 | 27 | 63 | (11) | (19) | (11) | |
| Other incremental net investment income | — | — | — | — | — | — | — | |
| Net investment gains (losses) | $(19) | $33 | $27 | $63 | $(11) | $(19) | $(11) | |
| For the Three Months Ended | ||||||||
| --- | --- | --- | --- | --- | --- | |||
| NET INVESTMENT INCOME YIELD | March 31,<br>2020 | December 31,<br>2019 | September 30,<br>2019 | June 30,<br>2019 | March 31,<br>2019 | |||
| Investment income yield (1) | 4.44% | 4.43% | 4.62% | 4.79% | 4.24% | |||
| Investment fees and expenses (2) | (0.14)% | (0.11)% | (0.10)% | (0.12)% | (0.14)% | |||
| Net investment income yield | 4.30% | 4.32% | 4.52% | 4.67% | 4.10% | |||
| (1) Yields are calculated on investment income as a percent of average quarterly asset carrying values. Investment income includes investment hedge adjustments, excludes realized gains and losses and reflects the GAAP adjustments described beginning on page A-1 of this Appendix. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties. | ||||||||
| (2) Investment fee and expense yields are calculated as investment fees and expenses as a percent of average quarterly asset estimated fair values. Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties. |