Earnings Call Transcript
Brighthouse Financial, Inc. (BHF)
Earnings Call Transcript - BHF Q3 2022
Operator, Operator
Good morning, ladies and gentlemen, and welcome to the Brighthouse Financial's Third Quarter 2022 Earnings Conference Call. My name is Michelle, and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference call. As a reminder, the conference is being recorded for replay purposes. I would now like to turn the presentation over to Dana Amante, Head of Investor Relations. Ms. Amante, you may begin.
Dana Amante, Head of Investor Relations
Thank you and good morning. Welcome to Brighthouse Financial's third quarter 2022 earnings call. The materials for today's call were released last night and are available in the Investor Relations section of our website. We encourage you to review all these materials. Today, you will hear from Eric Steigerwalt, our President and Chief Executive Officer, and Ed Spehar, our Chief Financial Officer. After our prepared remarks, we will open the call for a question-and-answer session. Other members of senior management are also here today to participate in the discussions. Before we begin, I want to note that our conversation may include forward-looking statements under federal securities laws. Brighthouse Financial's actual results may vary significantly from the anticipated results in these forward-looking statements due to risks and uncertainties described periodically in our filings with the US Securities and Exchange Commission. The information shared during this call is only accurate as of today, November 8, 2022. The company does not intend to update any information discussed on this call. We will also discuss certain financial measures that are not based on Generally Accepted Accounting Principles, referred to as non-GAAP measures. You can find a reconciliation of these non-GAAP measures to the most comparable GAAP measures and related definitions in the Investor Relations section of our website in our earnings release, slide presentation, and financial supplement. Lastly, references to statutory results, including certain measures used by management, are preliminary due to the timing of the filing of statutory statements. Now, I'll hand the call over to our CEO, Eric Steigerwalt.
Eric Steigerwalt, President and CEO
Thank you, Dana, and good morning, everyone. In the third quarter, despite an uncertain market environment, we remain disciplined in our financial and risk management and steadfast in our commitment to our partners, customers and shareholders. While equity markets have been volatile, interest rates increased significantly in the quarter, up over 80 basis points as measured by the 10-year US Treasury as of September 30. Our balance sheet and liquidity remained robust in the quarter, and we continue to prudently manage our statutory capitalization. Our estimated combined risk-based capital, or RBC ratio was above our target of 400% to 450% in normal markets. At the end of the quarter, we estimate that our combined RBC ratio was between 450% and 470%, as our capitalization remained very strong. Additionally, we continue to have a substantial amount of cash at the holding company with $1.1 billion of holding company liquid assets at the end of the quarter. Turning to sales. We are very pleased with our strong annuity sales results in the quarter, which reflect the strength of Brighthouse Financial and our ability to meet the evolving needs of our distributors and their clients. The company reported record annuity sales in the quarter of $3.7 billion, an increase of 50% sequentially. Third quarter annuity sales results were largely driven by sales of our fixed deferred annuities and our flagship Shield Level annuities and demonstrate the strength and diversity of our annuity product portfolio in different market environments. The strong fixed deferred annuity sales were the primary driver of the positive total annuity net flows of $970 million in the quarter. As we have previously discussed, we continue to expect our business mix to evolve with the addition of higher cash flow generating and less capital-intensive business, coupled with the runoff of older, less profitable business. Additionally, we generated $19 million of life insurance sales, which is flat sequentially. As I have said in the past, while the economic backdrop in 2022 has created some headwinds to life insurance sales, we remain confident in our life insurance strategy and intend to continue to broaden our product offerings and expand our distribution footprint. We continue to execute on our strategy. And with that, I would like to turn to capital return. In the third quarter of 2022, we returned additional capital to shareholders through the repurchase of $136 million of our common stock, and we purchased an additional $52 million of our common stock through November 3. Year-to-date through November 3, we have repurchased $447 million of our common stock, representing a reduction of 11% of shares outstanding relative to year-end 2021. Before I turn the call over to Ed, I would like to touch on the actions we have taken throughout 2022 to move toward a more strategic position on interest rate risk. With interest rates at historically low levels in recent years, we did not believe it made sense to fully hedge interest rate risk. We supported this strategy by holding substantial amounts of cash and capital. With interest rates gradually returning to what we perceive to be more normal levels, we have taken the opportunity to add a substantial amount of low interest rate protection and shifted from a more tactical positioning on rates to a more strategic positioning. We will continue to focus on protecting our balance sheet, optimizing our distributable earnings, and supporting the growth of our franchise through a broad range of market scenarios. To summarize, I am very happy with our results in the quarter. Our balance sheet and liquidity remained robust. Annuity sales were very strong, and we continue to return capital to shareholders. I will now pass the call over to Ed, and he'll go through more of the financial results in detail.
Ed Spehar, Chief Financial Officer
Thank you, Eric, and good morning, everyone. Despite substantial negative returns across asset classes in 2022, our capital and liquidity position remained strong at September 30. Additionally, third quarter year-to-date normalized statutory earnings were approximately $500 million, as we have benefited from a substantial increase in interest rates and a conservative position in the hedge portfolio for equities. Our estimated combined risk-based capital or RBC ratio was between $450 and 470%, above our target of 400% to 450% in normal markets and down from an estimated range of 470% to 490% at June 30. The largest driver of the sequential decline was capital used to fund new business growth. We believe that normal capital usage for growth is approximately 5 RBC points per quarter, and it was more than double this amount in the third quarter. We are excited to have the opportunity to deploy capital in new business. The franchise value for this company is largely dependent on continuing the shift in our business mix, toward lower risk, higher return products and away from legacy variable annuities. The new business trends in the third quarter have continued into the fourth. So we currently anticipate another quarter with above-normal capital usage to fund growth. Therefore, we will assess capital development during the fourth quarter and decide whether it still is appropriate to take a dividend from Brighthouse Life Insurance Company before year-end. Combined Total Adjusted Capital, or TAC, was $8 billion at September 30, compared with $8.2 billion at June 30. The largest driver of the change in TAC was taxes, with the biggest portion being a reduction in admitted Deferred Tax Assets, or DTAs. At the holding company, we ended the quarter with cash and liquid assets at $1.1 billion. We feel very good about the position of our holding company, as non-dividend flows cover most of our fixed charges and we do not have any debt maturities until 2027. Before moving to adjusted earnings results, I would like to provide some perspective on the annual actuarial review and Long Duration Targeted Improvements or LDTI. As part of the annual actuarial review completed in the third quarter of 2022, we examined our long-term assumptions, models and emerging experience. On a GAAP basis, the impact to net income from the review was a net favorable $5 million. This included a $337 million positive impact from a 50 basis point increase in the assumed long-term mean reversion rate 10-year US Treasury from 3% to 3.5%. We continue to assume that mean reversion occurs over 10 years. Approximately three quarters of the interest rate-related benefit impacted universal life with secondary guarantees or ULSG, with the remainder in annuities. There were two categories of items that offset the interest rate benefit. First, as a result of moving to a single model environment, we now have the ability to more accurately model certain reinsurance agreements and the negative impact from this refinement was $124 million after tax. Second, we had some policyholder behavior assumption updates, primarily in annuities. Updates related to policyholder behavior and mortality assumptions for our ULSG block of business were insignificant. Typically, the third quarter actuarial review encompasses both GAAP and statutory assumptions. We did not update statutory assumptions for variable annuities in the third quarter. We are in the final stages of our annuity actuarial model conversion, which is our last model conversion. And we plan to complete this along with the VA statutory assumption updates in the fourth quarter of this year. Turning to LDTI. I want to begin with a reminder that the implementation of LDTI has no impact on statutory accounting, distributable earnings or the underlying economics of our business. As you know, a key element of our disciplined financial and risk management strategy is to manage the company on a statutory and cash basis to optimize distributable earnings. Our focus will remain on managing our statutory balance sheet post implementation of LDTI. However, the market risk-benefit framework within LDTI can be a complementary tool that provides an alternate view of our VA liabilities. While LDTI accounting better aligns GAAP liability movements with our risk management approach, there are fundamental differences between the calculation of GAAP and statutory liabilities for VA and Shield. As a result of these differences, and our commitment to managing our statutory balance sheet, our GAAP financials will continue to exhibit volatility moving forward. We expect the new accounting standard to have a negative impact to total equity as of December 31, 2021 in the range of $6 billion to $8 billion. As you can see on Slide 9 of the earnings presentation, the impact is split approximately half to retained earnings and half to accumulated other comprehensive income or AOCI. Importantly, with the significant rise in interest rates year-to-date through the third quarter, we anticipate the total LDTI impact on stockholders' equity to be significantly improved with additional improvement in the expected impact based on current markets. Now turning to adjusted earnings results in the third quarter. Adjusted earnings, excluding the impact from notable items, were close to breakeven at a loss of $3 million, which compares with adjusted earnings on the same basis of $247 million in the second quarter of 2022 and $514 million in the third quarter of 2021. The notable items in the quarter, which on a combined basis benefited earnings by $100 million after-tax included a $117 million net favorable impact related to actuarial items in the quarter, including the annual actuarial assumption review and establishment costs of $17 million. Excluding the impact of these notable items, the results in the third quarter were primarily driven by adverse market factors, including negative alternative investment performance as a result of second quarter market performance and the impact of the lower equity market in the third quarter, which drove actuarial adjustments and amortization of deferred acquisition costs, or DAC, and reserves. Net investment income was $182 million, or $2.53 per share below our quarterly run rate expectation, primarily driven by an alternative investment yield of negative 3.2% in the third quarter. As a reminder, we expect 9% to 11% annual yield over the long-term on our alternative investment portfolio. Asset growth, mainly driven by continued strong annuity sales was a benefit to net investment income. The decline in the equity market in the third quarter resulted in VA separate account returns of negative 5.4%. This corresponded to actuarial adjustments, which drove an unfavorable impact to earnings of $83 million post-tax or $1.15 per share below our quarterly expectation and is reflected through higher DAC amortization and higher reserves in the annuity segment. Keep in mind, the quarter-to-quarter fluctuation we typically see in DAC amortization related to changes in the market will not continue post implementation of LDTI. Turning to adjusted earnings by segment. The annuities segment reported adjusted earnings, excluding notable items of $170 million in the third quarter. On a sequential basis, annuity results were primarily driven by the impact of lower VA separate account returns, which resulted in lower fees and higher reserves, partially offset by lower DAC amortization. The Life segment reported an adjusted loss, excluding notable items of $2 million. Sequentially, results were driven by lower net investment income and higher expenses, partially offset by lower DAC amortization. The adjusted loss in the Run-off segment, excluding notable items was $149 million. Sequentially, results reflect lower net investment income, a lower underwriting margin, and higher expenses. Corporate and Other had an adjusted loss, excluding notable items of $22 million. On a sequential basis, results were driven by higher net investment income and lower expenses, partially offset by a lower tax benefit. In closing, I want to emphasize that our top financial priority remains balance sheet strength. We continue to manage the company under a multiyear, multi-scenario framework to protect and support our distribution franchise. Distribution is critical because, ultimately, it is growth that will drive the overall franchise value of this organization.
Operator, Operator
Thank you. Our first question comes from the line of Erik Bass with Autonomous. Your line is open. Please go ahead.
Erik Bass, Analyst
Hi. Thank you. I was hoping you could provide some more color on the implications of moving to a more strategic interest rate hedging program. Should we think of this materially raising the floor for distributable earnings and narrowing the range of expected outcomes going forward?
Ed Spehar, Chief Financial Officer
Hi, Erik, it's Ed. So, I mean, that's the goal. I would – to give you some sense of size, if you look at year-end 2021, when the 10-year treasury was 151, if we had the protection in place and the developments in the year-to-date related to rates, and you look at where we would have been with the 10-year at 15 1 basis points, you would have had about 80 or 90 additional RBC points. So that gives you some sense of the type of benefit that we would see, if rates were back down to levels that we saw at year-end 2021. I'd also add that if rates went lower, I mean, I think obviously, we had rates in the 50 to 100 basis point range for the 10-year. The gains associated with what we've done would be substantially more.
Erik Bass, Analyst
Got it. Thank you. And is there a cost in terms of giving up any of the upside so that it kind of narrows the top end of the range or your upside scenario as well or?
Ed Spehar, Chief Financial Officer
Yeah, I think it's fair to say that as we get to a level of rates that we consider to be more normal, right? I've said in the past that there's no reason to have a view directionally on interest rates once you get to a point that you consider it's more normal. So, unlike equities, where you have a business model that's predicated on stocks going up over time, which is borne out by both fundamentals and history. Rates, I think you get to a certain level, and it's just whether it's going to go up or go down, you don't have a strong point of view. So if you want to be in a more strategic position, as Eric said in his prepared remarks, I think, by definition that means that you're not going to be benefiting one way or the other from rate movements to the extent that you want to protect yourself.
Erik Bass, Analyst
Got it. That makes sense. And then my other question is just you mentioned doing the VA stat review in the fourth quarter, and you had some policyholder behavior changes on a GAAP basis at least in 3Q. Should we think of those being a read-through at all in terms of what you may do on the statutory side? And if so, just help us think of the impact there or the assumption base is different.
Ed Spehar, Chief Financial Officer
Yeah. So as I said, the reason we are doing it in the fourth quarter is because we have the last model conversion occurring in the fourth quarter, which is VA. And so it's premature for us to give any indication of what the impact of those two developments will be. And then the one last thing I want to just go back to your first question. When we're talking about protection here and rate impacts, it's obviously complicated, right. And so when I'm talking about impacts, right. We think about, as you've heard me say repeatedly, managing the company over a multi-year, multi-scenario framework. And so as you know, the interest rate impact will come in over time on the statutory framework. And so you have to balance the sort of how do you want to be positioned from a hedging standpoint in relation to how you will have those impacts flow into your statutory results over time.
Erik Bass, Analyst
Got it. Thank you.
Operator, Operator
Thank you. And one moment for our next question. Our next question comes from the line of Ryan Krueger with KBW. Your line is open. Please go ahead.
Ryan Krueger, Analyst
Hey, thanks. Good morning. First question was just following up on the variable annuity policyholder behavior update. Can you give a little bit more detail on what you changed in the GAAP review and maybe where you brought your ultimate last rate to?
Ed Spehar, Chief Financial Officer
Yes, Ryan. To start, as I mentioned in my prepared remarks, the significant factors we identified include the impact from adjusting the mean reversion point and the model refinement arising from our new profit environment, which permits us to model treaties more precisely. This leads to around $200 million, focusing on those two aspects, in relation to the overall $80 billion block of variable annuities. Most of the $200 million pertains to that block. In terms of assumption updates, we saw a slight positive effect from mortality assumptions for variable annuities, while there was a minor negative effect from lapse rates. I don’t consider this number particularly significant in the context of an $80 billion block. Additionally, there haven't been many substantial changes in policyholder behavior for variable annuities in recent years, which I don't see as a major issue. Regarding the query about the ultimate lapse rate, it’s a challenging question to answer with a meaningful figure, as lapse rates will differ based on product type, guarantee levels, and moneyness. Therefore, a single lapse rate assumption lacks significance.
Ryan Krueger, Analyst
Got it. Then on the potential BLIC dividend in the fourth quarter. Is growth the primary reason that you're considering if you want to still do that or not, or is it also related to other factors as well?
Ed Spehar, Chief Financial Officer
Growth is the primary reason.
Ryan Krueger, Analyst
Okay. And then just one quick one. What – how much of the – of your fixed annuity business you reinsure to under that treaty? Can you give us any perspective on that?
Unidentified Company Representative, Company Representative
Yeah. Hey, Ryan, this is David. I'll take that one. So as you mentioned, we do reinsure a portion of sales to Athene. We're not going to get into the details of the structure. But as we've said in the past, it is a reinsurance agreement that does provide value to us and we've said that in the past a few times on earnings calls. But this quarter, like Ed mentioned, we had the opportunity to deploy a meaningful amount of capital at an attractive return. And so we were pleased to have the opportunity to do that.
Ryan Krueger, Analyst
Great. Thank you.
Operator, Operator
Thank you. One moment for our next question. And our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.
Elyse Greenspan, Analyst
Hi. Thanks. Maybe going back to the RBC question a little bit. What level of growth, I guess, are you guys assuming for the fourth quarter? Obviously, the impact on RBC was greater than you normally expected in Q3. So, what are your expectations for the Q4? And within what band of growth would you still consider a dividend, the $215 million dividend in the quarter?
Ed Spehar, Chief Financial Officer
Hey, Elyse, it's Ed. So as I think you – I said, we are seeing continuation of the trends we saw in the third quarter, in the fourth quarter. And that's as far as we're going to go in terms of any indication of what sales might be. And so we're going to monitor it throughout the quarter to make a decision about whether we want to take the BLIC dividend. But this is good news for us. If we think about the key driver of this story long term, it's really continuing to shift this business mix away from our legacy block of VA toward these lower risk, higher profitability, better cash generative products that we sell today. And so we'd love to return capital to shareholders. I mean, we've done a lot of it. I mean 42% of shares outstanding since separation at an average price of less than $38 a share. I mean, I think that's been a pretty value-creating move at this point. But I would say that, the primary thing we want to do is invest in this business to grow, because ultimately, to get the valuation we think we deserve, we need to continue to affect this mix shift.
Elyse Greenspan, Analyst
Thanks. And then my second question is on the life sales. I mean, those were flat sequentially. I know you highlighted some headwinds in your opening comments on. So how are you thinking about just life sales trending from here, not just in the fourth quarter, but really 2023 and beyond?
Myles Lambert, Company Representative
Hey, good morning, It's Myles. I'll take this question. So, I think I mentioned this on a prior call, I don't know how favorable the environment is right now for long-term care sales, meaning that I just don't know how focused consumers are on this type of protection. And I think as we look at what's happening in other sectors of the industry, if they're looking to purchase long-term care insurance, it's probably a fixed product. And as I spoke about on prior calls, SmartCare is a product where future benefits are tied into industry performance. Here's what I would say. We're focused on executing on our strategy. The SmartCare launch has been a great success for us, and we're going to continue to expand distribution, and we're going to introduce a new product next year so that we're focused on continuing to grow sales.
Elyse Greenspan, Analyst
Okay. Thanks for the color.
Operator, Operator
Thank you. And one moment for our next question. Our next question comes from the line of John Barnidge with Piper Sandler. Your line is open. Please go ahead.
John Barnidge, Analyst
Thank you very much for the opportunity and good morning. Can you talk maybe about the lower underwriting margin in Life and Run-off sided outlook for durability of that? And is it coming from a certain age cohort and now there were some severity side?
Ed Spehar, Chief Financial Officer
Hey John, it's Ed. As I've mentioned before, normal direct claims typically range from $400 million to $500 million per quarter, and this quarter, we exceeded that range due to higher severity. The reinsurance offset performed slightly better than usual. However, in light of the current market factors, underwriting isn’t particularly significant this time. It's deteriorated both sequentially and year-over-year. You can expect some fluctuations overall and at a segment level, but there's really not much to report on Run-off underwriting this quarter.
John Barnidge, Analyst
Okay. That's helpful. And then if I look at the NII of 182 below plan and actuarial adjustments of $83 million below expectations and add that back, does that the 375 suggest normal core earnings power in normal markets, I think, with higher rates?
Ed Spehar, Chief Financial Officer
Hey, John, I think you're a little high on those that number with just those two adjustments. I don't know if you're making some other adjustment. I mean, I would say that if you look at some of the numbers that we have talked about in terms of over the past few quarters of trying to kind of help with run rate. I think they've generally been in the neighborhood of 350, I would say, you're probably plus that amount now. And certainly, if you make just those two adjustments, you'll come up with something that's a little bit above 360, I believe.
John Barnidge, Analyst
Okay. Thank you very much for the answers and best of luck in the quarter ahead.
Ed Spehar, Chief Financial Officer
Thank you.
Operator, Operator
Thank you. And one moment for our next question. Our next question comes from the line of Suneet Kamath with Jefferies. Your line is open. Please go ahead.
Suneet Kamath, Analyst
Yes. Thanks. Good morning. I just wanted to start on LDTI. I appreciate the balance sheet disclosure, but we're starting to hear from some companies around the operating earnings impact. And as I think about what we're hearing from some VA-focused companies, it's actually quite different with one company guiding to a pretty sizable decline in earnings and another company guiding to very little impact, if any. So just curious if from a directional perspective, is there anything that you can provide at this point?
Ed Spehar, Chief Financial Officer
Sure. Good morning, Suneet. I believe it's accurate to say that adjusted earnings are likely to be somewhat lower under LDTI compared to current GAAP accounting. This is due to a few reasons you might have heard from others. One reason is that we'll have more attributed fees to variable annuities below the line. Another reason is that DAC amortization will no longer be bifurcated. As you know, DAC amortization has been simplified compared to the current model, and everything will now be above the line. Therefore, these two factors suggest that adjusted earnings will be lower under LDTI than under current GAAP. However, we will not provide any specific details about the income statement at this time.
Suneet Kamath, Analyst
I understand. That's helpful. As we consider growth, I appreciate your comments about the BLIC dividend. However, if we are indeed encountering significant new opportunities, whether in annuities or in your institutional spread business, is there a possibility of allocating more capital, or are you planning to maintain the current capital without any additional input from our current perspective? Thank you.
Ed Spehar, Chief Financial Officer
Yeah. I mean, we feel very good about our statutory position. I mean, we're sitting here knee-deep in a bear market with a 450 to 470 RBC ratio relative to our 400% to 450% normal markets target. So – and $1 billion plus cash at the holding company with no debt coming due until 2027 and non-dividend flows that cover most of our holding company obligations. So we feel like we're in a very good position. I don't envision the need to put capital into the operating company to fund growth.
Suneet Kamath, Analyst
Got it. Thanks, Ed.
Operator, Operator
Thank you. And one moment for our next question. And our next of Tracy Benguigui with Barclays. Your line is open. Please go ahead.
Tracy Benguigui, Analyst
Thank you. Good morning. You mentioned stock review in the fourth quarter for VA risk. But what about your stat review on ULSG at BRCD, at least for GAAP, you mentioned that three quarters of the positive impact of raising your reversion to the mean assumption is benefiting ULSG? So when you look at your stock reserves, I believe the interest rate assumptions are prescribed, but could you see any benefit on BRCD as a result?
Ed Spehar, Chief Financial Officer
Hi, Tracy. Last quarter, we mentioned the conservative nature of statutory accounting for ULSG, and I want to clarify that we have no updates. As I noted in my prepared remarks, there are no significant impacts from ULSG on our third quarter GAAP assumption update. Currently, most of our business block has a 0% assumed lapse rate for statutory purposes, and we're on track to have all of it at zero by 2027. If we look at the current average lapse rate, including surrenders, it is below 50 basis points. This conservative approach is expected, given that our statutory reserves for ULSG are around $25 billion, while the GAAP figure is closer to 16 billion, give or take. Regarding cash flow testing, I've previously highlighted the significant low-rate protection we have at BRCD, which gave us confidence during low-rate environments. As rates rise, we lessen some pressure on the investment side of that business block, although this comes with related hedge losses. Overall, we feel well-positioned. ULSG is certainly receiving attention, but this block was thoroughly assessed before our separation, which included about $3 billion in GAAP charges. We've also discussed BRCD extensively and removed capital from it. As we assess our current positioning, we feel optimistic. The cash flow testing will be based on the September end balance sheet, and we are currently preparing that for BRCD. There's nothing to report just yet, but I hope this background offers some useful context for you.
Tracy Benguigui, Analyst
Got it. I completely recall your comments last quarter. I just heard from one of your competitors that when you're entering their exercise this year, they were thinking there might be some padding with respect to interest rates, given that we're at a better spot this year versus last. So on that comment on doing that cash flow testing, was more on the opposite perspective, if there could be any benefit given what you said that you were able to take out capital from BRCD in the past?
Ed Spehar, Chief Financial Officer
Yes, I've discussed BRCD. It's a Run-off block of business. We're pleased that we've managed to extract some capital from it. However, I do not see BRCD as a potential source of capital for the company in the near future.
Tracy Benguigui, Analyst
Yes. Okay. And then on the FA sales, I can see why growing there is compelling given higher interest rates. But usually, credit rates also rise. So where is that heading? Just to give us a sense of the attractiveness of the spreads?
Unidentified Company Representative, Company Representative
Hey, Tracy, this is David. I'll start with that. So as part of our partnership with Athene on reinsurance, we have been able to provide attractive rates. And you could see that these sales really started increasing for us late in the second quarter, and we were able to maintain consistent competitive rates across all of our fixed rate products, and that really continued into 3Q. So we continue to monitor the environment and make adjustments as necessary, but as we talked about in the prepared remarks, really comfortable with where we are at from a return and pricing perspective.
Tracy Benguigui, Analyst
I remember we were lower for longer. I think it was something like 1%. I don't know if you could give us a sense of what the new minimum amount would be?
Unidentified Company Representative, Company Representative
The minimum guarantee? It is north of 1%. I don't have the number off-hand, but we did just adjust that upwards back in September timeframe.
Tracy Benguigui, Analyst
Thank you.
Operator, Operator
Thank you. And one moment for our next question. Our next question comes from the line of Alex Scott with Goldman Sachs. Your line is open. Please go ahead.
Alex Scott, Analyst
Hey, thanks for taking the question. First one I had is on the variable annuity statutory review in 4Q. I think you mentioned that usually that's finished in 3Q, but there's some completion of the system conversion is still ongoing. When I think about the actuarial changes you made this quarter, I don't think the ultimate mean reversion for rates translates, but the pieces of it that had a bit of a negative impact May, I'm not sure. So I just wanted to ask you about like how much of the changes you made on GAAP actually translate to statutory? And what are you thinking for the system conversion? I mean, should I think about that? Is that neutral? I mean, I think when we've seen these things in the past with other companies, more often than not has a negative impact. So, I was just interested in any commentary you could give there.
Ed Spehar, Chief Financial Officer
Hey, Alex, so look, we're not going to sort of talk about pieces of the fourth quarter actuarial assumption update and the related model conversions. I mean, there's a lot of stuff. And I think picking out any one piece and focusing on it is premature. I would say, when you look at model conversions that we have had, we have had pluses and we have had minuses. So I don't think there's been any specific trend in terms of model conversion leads to x. We haven't seen that. We'll have to wait and see what the fourth quarter conversion brings for us in VA. But it's just – again, it's premature to talk about any impact for the fourth quarter on a stat basis.
Alex Scott, Analyst
Got it. No, I appreciate all that. So second question I had is on how to think about just the total capital ratio of the company heading into next year? I mean, I do tend to like to give some credit for the amount of growth capital you're putting to work and it sounds like that's a little bit bigger piece of the picture here. So I just was hoping to understand the changes in hedging the gross capital. How does that all factor into distributable earnings as a baseline heading into next year? And maybe if you can tell us about how you think about a budget for growth capital and how we can think about those two things together?
Ed Spehar, Chief Financial Officer
Yeah, Alex, there's a lot of good stuff wrapped up in that question. I would say that, when we're going through the three-year planning process right now, we will be providing you some update on our view of this multiyear, multi-scenario framework for distributable earnings next year. It's just early right now to give you any specifics. I think though this an earlier question from Erik, I think about trying to narrow the ranges of outcomes under different market scenarios. We feel really good about the rate protection we put into place and to have the opportunity to do that. And we feel really good about continuing to shift the business mix, which will, by its nature, lead to less volatile cash flows. So things are pointing in the right direction for what we're trying to achieve. And next year, we'll try to give you some color around what that means in terms of numbers.
Eric Steigerwalt, President and CEO
Hey, Alex, it's Eric. I'll jump in for a second. We've been waiting a long time for higher rates. Many of you have asked about the protection we've implemented, so I'll reiterate what I mentioned earlier. We've shifted from a tactical approach to a strategic one regarding rates. Now, when considering growth, we're not just selling our flagship product, Shield; we also have a chance to sell a significant amount of fixed annuities. In response to Myles' question, we will definitely introduce another life insurance product next year. We're very pleased with our ability to buy back shares, and I feel that the growth aspect is gaining momentum. If this continues into next year, it would mean our strategy is unfolding as we hoped. I hope that clarifies things a bit.
Operator, Operator
Thank you. One moment for our next question. And our next question comes from the line of Thomas Gallagher with Evercore ISI. Your line is open. Please go ahead.
Thomas Gallagher, Analyst
Good morning. My first question is about the decision on the dividend. It makes sense to wait on that until there's more clarity on growth capital and its impact on the RBC. If there is a negative impact and a dividend isn't issued, how should we view the cash available at the holding company? What is the lowest level you would accept for buybacks? Previously, you mentioned a $400 million target for the holding company, which would allow for some flexibility. I haven't heard an update on that in a while, so I'm curious about your thoughts.
Ed Spehar, Chief Financial Officer
Yes. Hi, Tom, so I never said $400 million. What I have said is that the holding company target.
Thomas Gallagher, Analyst
Sorry, Ed, your predecessor, I think might have said that.
Ed Spehar, Chief Financial Officer
When discussing holding company cash, it's important to note that for a financial firm like ours, having a strong cash position at the holding company is favorable. Additionally, I believe it’s unwise to presume you can easily refinance your debt. The desired amount of cash you maintain will depend on your specific debt structure. We've made significant progress in achieving our target capital structure, which includes a major extension of our capital structure last year. We secured long-term funding at attractive rates and do not have any debt maturing until 2027, placing us in a solid position. Regarding how much holding company cash to utilize, we prefer to take a conservative approach and are comfortable with our current cash levels. The statutory position at the holding company is advantageous. When planning dividends, we approach it differently than some companies. We don’t have much flexibility with holding company cash from our subsidiaries, as we clearly understand where any needed capital would be directed. Unlike firms with various subsidiaries that can maneuver cash to the holding company for unpredictable needs, we have a clearer view of our risks and the volatile aspects are concentrated in BLIC. Therefore, a cushion at the holding company is beneficial as it provides us with necessary flexibility, including in our decisions regarding the BLIC dividend for the fourth quarter.
Thomas Gallagher, Analyst
Okay. And I guess – so $1 billion is not some magic line in the sand. I assume you would continue with the strong pace of buybacks even if you dip below that. Is that a fair conclusion at this point?
Ed Spehar, Chief Financial Officer
$1 billion is not a line in the sand. And what we have consistently said on buyback is we'll tell you what we do after we do it. We have obviously returned a lot of capital to shareholders, and we've done it at very attractive prices. And we understand, the importance of capital return to shareholders and financial services companies.
Thomas Gallagher, Analyst
Okay. And then my follow-up is – I heard everything you've said on the change in rate hedging, which I think makes a lot of sense. How would you describe your position at this moment? And where do you want to get to? Are you fully hedged economically on interest rates? Are you 80%? Just give any perspective on where you are on an economic basis as it relates to your interest rate exposure? And then would the plan be to still keep some level of under hedging, or any perspective on that would be appreciated.
Ed Spehar, Chief Financial Officer
Yeah. So we measure ourselves and manage the company based on statutory and cash. And so all the decisions that we are making on our hedging portfolio is based on how do we think about those two factors. And so I wouldn't say we're done, but we've done a lot. And I think that the comment, I made earlier about once you get to a level of rates that you consider to be more normal that you're not going to place a big directional bet on rates one way or the other, within the statutory framework that we're talking about and managing that risk within that framework.
Thomas Gallagher, Analyst
Okay. And can I just slip one more in. And just – I have to ask this one on the fixed annuity sales. Whenever I see a spike in a commodity product like fixed annuities, you got a question whether it's a blue light special going on here and whether you need to reprice. So curious, I'm sure that caught your attention when you all saw a spike. And if your degree of confidence and comfort competitively, that you haven't mispriced something in that you're very happy with the returns there?
Ed Spehar, Chief Financial Officer
I would say – let me start. I think some others want to chime in here. You and I were side by side for many years asking those very same questions. I can tell you that, we feel very good about the profitability of the business we've written this year.
Eric Steigerwalt, President and CEO
Hey, Tom, it's Eric. I just have to comment on the – was it the blue light special? Okay.
Thomas Gallagher, Analyst
Blue light special – I'm sorry blue play –
Eric Steigerwalt, President and CEO
Okay. There's no special deal here. There are no issues with your question, obviously. This company is managed by many financial professionals, and we don't offer special deals. David, do you want to add anything?
Unidentified Company Representative, Company Representative
No, I think you two covered it.
Thomas Gallagher, Analyst
Okay. Thanks guys.
Operator, Operator
Thank you. And one moment. We do have a follow-up question from Tracy Benguiqui with Barclays. Your line is open. Please go ahead.
Tracy Benguigui, Analyst
Thank you for taking me back in the queue. Just going back to your VA lapse rate assumptions. So your assumption update, how does it look versus VM 2021 requirements? Are they in line or more conservative?
Ed Spehar, Chief Financial Officer
Hey, Tracy, it's Ed. I would say let us follow up with you on that. I'm thinking in line, but let's just follow up to make sure that I would also say that you're asking me a sort of a statutory question before we've done the statutory review, right? So I want to mention that this is kind of a backward-looking answer that I just gave you, and we'll verify and follow up.
Tracy Benguigui, Analyst
Okay.
Operator, Operator
Thank you. And I’m showing no further questions at this time. And I would like to hand the conference back over to Dana Amante for any further remarks.
Dana Amante, Head of Investor Relations
Thank you, Michelle, and thank you all for joining us today and for your interest in Brighthouse Financial. Have a great day.
Operator, Operator
This concludes today's program. You may all disconnect. Everyone, have a great day.