Earnings Call Transcript
Brighthouse Financial, Inc. (BHF)
Earnings Call Transcript - BHF Q2 2022
Operator, Operator
Good morning, ladies and gentlemen, and welcome to Brighthouse Financial's Second Quarter 2022 Earnings Conference Call. My name is Shannon, and I will be the coordinator today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of the conference call. In fairness to all participants, please limit yourself to one question and one follow-up. As a reminder, the conference is being recorded for replay purposes. I will now put the call over to Dana Amante, Head of Investor Relations. Ms. Amante, you may proceed.
Dana Amante, Head of Investor Relations
Thank you, and good morning. Welcome to Brighthouse Financial's second quarter 2022 earnings call. Materials for today's call were released last night and can be found on the Investor Relations section of our website. We encourage you to review all of these materials. Today, you will hear from Eric Steigerwalt, our President and Chief Executive Officer; and Ed Spehar, our Chief Financial Officer. Following our prepared remarks, we will open the call up for a question-and-answer period. Also here with us today to participate in the discussions are other members of senior management. Before we begin, I would like to note that our discussion during this call may include forward-looking statements within the meaning of the federal securities laws. Brighthouse Financial's actual results may differ materially from the results anticipated in the forward-looking statements. As a result of risks and uncertainties described from time to time in Brighthouse Financial's filings with the U.S. Securities and Exchange Commission. Information discussed on today's call speaks only as of today, August 5, 2022. The company undertakes no obligation to update any information discussed on today's call. During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliation of these non-GAAP measures on a historical basis to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website, in our earnings release, slide presentation, and financial supplement. And finally, references to statutory results, including certain statutory-based measures used by management, are preliminary due to the timing of the filing of the statutory statements. And now I'll turn the call over to our CEO, Eric Steigerwalt.
Eric Steigerwalt, CEO
Thank you, Dana. Good morning, everyone, and thank you for joining our second quarter 2022 earnings call. Before discussing our results in the quarter, I want to take a moment to acknowledge that this month marks Brighthouse Financial's fifth anniversary as an independent public company. It is an understatement to say that I am incredibly proud of our strategic and operational accomplishments as well as the franchise that we have built over the past five years. Although we were by no means new when we launched Brighthouse as our company has a rich heritage with roots tracing back to 1863, we did have to build the Brighthouse Financial brand with focused marketing initiatives as well as through our strategic and diverse distribution relationships. Today, we are an established U.S. retail franchise trusted by over 2 million customers and one of the largest providers of annuities and life insurance in the United States. From the beginning, as we deliver on our mission to help people achieve financial security, we have had a simple strategy built on three focus areas as well as a commitment to consistently returning capital to shareholders over time. Our focused strategy, which has guided our approach to our financial management strategy and managing our business consists of offering a target set of annuity and life insurance solutions that are simpler, more transparent and provide value to our distribution partners and the clients they serve. Selling our products through a diverse, well-established network of distribution partners, continuing to build strategic distribution relationships and entering new channels as we expand our distribution footprint in the United States. And finally, effectively managing our expenses by adopting and maintaining an operating model designed to drive our statutory expense ratio down over time. The accomplishments that we have made over the past five years are directly aligned with these elements of our strategy to highlight just some of our key accomplishments. Early in 2017, we rolled out a focused set of advertising campaigns designed to introduce the Brighthouse brand and showcase our flagship Shield level suite of annuities. These campaigns, which helped generate brand awareness in the market and increased adviser awareness, enabled us to hit the ground running as a new public company and were instrumental in expanding our sales footprint. The results of our work are reflected in our sales growth. Our annuity sales have more than doubled since the end of 2017, with 2021 full year total annuity sales exceeding $9 billion, led by variable and Shield level annuities. In addition, we reestablished a competitive presence in the life insurance market. In 2019, we launched our first Brighthouse Financial life insurance product, which we called SmartCare. This was followed by the launch of our term product, Simply Select in 2020 in collaboration with Policygenius. Additionally, in 2020, we expanded our relationship with BlackRock as we were selected to join the efforts to deliver BlackRock's LifePath Paycheck investment solution. And in 2021, we entered the institutional spread margin business. As of June 30 of this year, we had balances of over $8 billion. We expect this business to enhance and diversify our earnings profile over time. As a result of these growth initiatives, we have made significant strides towards shifting our business mix as we seek to continue to increase the level and predictability of earnings and cash flows going forward. As we execute our strategy, we also remain focused on managing our risk profile and optimizing statutory capital to further strengthen the balance sheet. In 2019, we revised our variable annuity hedging strategy, which fundamentally lowered our company's risk profile and allowed for the release of $1 billion of capital. This revision, along with continued efforts to optimize our statutory capital, enabled Brighthouse Financial to buy back a significant amount of its common stock since becoming an independent public company, and, to have a substantial amount of liquid assets at the holding company of $1.2 billion as of June 30. We began returning capital to shareholders approximately two years ahead of our initial timeline, achieved our target of returning $1.5 billion of capital to shareholders by year-end 2021, and we continue to execute on the $1 billion authorization that we announced in August of last year. Through our common stock repurchase program, we have repurchased a total of approximately $1.8 billion of common stock as of August 3, 2022, and we have reduced the number of our shares of common stock outstanding by approximately 40% over the past five years. We remain committed to consistently returning capital to shareholders over time. We have accomplished all of this while effectively managing our expenses and making great strides in the transition to our future state operations and technology platform. As we reflect on all that we have achieved over the past five years, I want to give a heartfelt thank you to all of our employees for their tremendous hard work and dedication, and to all of our distributors whom we very much appreciate. Now turning to our second quarter results, while global equity markets have declined, interest rates rose significantly in the quarter with the 10-year U.S. Treasury increasing almost 70 basis points. Amid this turbulent market environment, Brighthouse delivered another quarter of solid results. Our capitalization was strong in the quarter with an estimated combined risk-based capital, or RBC ratio between 470% and 490%. As a reminder, we continue to target an RBC ratio between 400% and 450% in normal markets. Additionally, we ended the quarter with liquid assets at the holding company of approximately $1.2 billion. Turning to sales, our sales results were strong in the quarter. Total annuity sales were up 20% sequentially and 8% quarter-over-quarter, driven by fixed deferred annuities and Shield level annuities. Through the second quarter of this year, our annuity sales results were up 3% compared with the first half of 2021, which we believe demonstrates the strength and diversity of our annuity product portfolio as we continue to effectively navigate the current market environment. In addition, we continue to focus on enhancing our product portfolio. To that end, I am pleased to announce that this month, we plan to launch our next generation of Shield, which is Shield Level Pay Plus. This new product is designed to help strengthen clients' retirement portfolios by providing a stream of guaranteed lifetime income while offering them opportunities to participate in market growth combined with a level of protection against market volatility. Additionally, in the second quarter, we generated approximately $19 million of life insurance sales, down 5% sequentially and down 27% compared with the second quarter of 2021. While we have experienced some headwinds from the economic backdrop in the past two quarters, we remain focused on and confident in our life insurance strategy and intend to continue to broaden our product offerings and expand our distribution footprint. Finally, let me discuss share repurchases in the quarter. We continue to repurchase our common stock with $132 million repurchased in the second quarter, and an additional $58 million repurchased through August 3. We plan to continue to execute on each element of our simple and focused strategy, enhancing our product suite for both annuities and life insurance, which will continue to shift our business mix and increase the level and predictability of earnings and cash flows over time. And with that, I'll turn the call over to Ed to discuss our financial results in more detail.
Ed Spehar, CFO
Thank you, Eric, and good morning, everyone. As you heard from Eric, the second quarter was a good one for Brighthouse Financial. Despite an equity bear market and an elevated level of uncertainty for markets in the economy, we grew annuity sales, controlled expenses, and delivered an increase in our statutory risk-based capital, or RBC ratio. Our estimated combined RBC ratio was between 470% and 490%, which is an increase from the estimated range of 450% to 470% at the end of the first quarter. The increased RBC ratio was primarily driven by strong variable annuity or VA results as we were positioned to benefit from rising interest rates, and we had a protected position on equities, relative to our maximum targeted first loss position of $500 million. Non-VA results were also good in the quarter, including mortality returning to a normal level. Additionally, the second quarter RBC ratio benefited from targeted derisking actions in our investment portfolio. The positive impact from these items was partially offset by capital used to fund growth, a decrease in the admitted deferred tax assets, or DTA, and the settlement of a reinsurance matter. Estimated statutory combined total adjusted capital, or TAC, was $8.2 billion at June 30 compared with $8.5 billion at March 31. The reduction in TAC was driven by two non-trendable items, the decrease in the admitted DTA and the reinsurance settlement. As I discussed during our first quarter earnings call, statutory accounting for a deferred tax asset is conservative. The admitted DTA on our statutory balance sheet is only a fraction of our total tax attributes, which we still anticipate using over the long term. Year-to-date normalized statutory earnings were approximately $400 million, with approximately $600 million of normalized statutory earnings in the second quarter. As I mentioned, we were well positioned for rising interest rates, and we were conservatively positioned on equities relative to our maximum first loss target. In addition, non-VA results were favorable in the quarter. We continue to have a substantial amount of cash at the holding company as holding company liquid assets were $1.2 billion at June 30. There were no dividends from the operating companies in the first half of 2022. However, we still anticipate taking approximately $300 million of ordinary subsidiary dividends to the holding company this year. Moving to adjusted earnings, adjusted earnings, excluding the impact from notable items, were $247 million, which compares with adjusted earnings on the same basis of $315 million in the first quarter of 2022 and $458 million in the second quarter of 2021. Notable items in the quarter totaled $223 million after tax and included a settlement of a reinsurance matter for $111 million impacting the runoff segment, $89 million associated with new reinsurance agreements to opportunistically manage exposure to large face amount legacy life insurance policies, primarily in the runoff segment; $14 million from model refinements for our Shield Level annuities; and establishment costs of $9 million. Excluding these items, adjusted earnings results were below expectations, driven by market performance in the second quarter, partially offset by expenses and the underwriting margin, which were both favorable relative to our expected quarterly run rate. I would like to discuss each of these drivers in more detail, beginning with market performance. VA's separate account returns were negative 12.6% in the quarter, which drove a reduction in average separate account balances. As a reminder, approximately two-thirds of our separate account portfolio is invested in equities and one-third is invested in fixed income. The market performance in the quarter reduced second quarter adjusted earnings by $142 million on an after-tax basis. This was primarily driven by higher deferred acquisition cost, or DAC, amortization and a change in VA reserves, as well as lower fees on lower separate account balances. We also expect a reduction in fees in the third quarter based on the lower separate account balances at the end of the second quarter. Turning to expenses, total expenses in the second quarter were $61 million below expectations after tax. This was driven by lower corporate expenses along with a favorable variance in DAC amortization unrelated to the market. Lastly, the underwriting margin was higher sequentially and was higher than our quarterly run rate expectation by $8 million on an after-tax basis. Claim volume was down significantly relative to the first quarter and average severity of claims was also lower. Total direct claims were near the midpoint of the $400 million to $500 million quarterly range that we typically expect. The impact from COVID-related claims was insignificant in the quarter. Moving to adjusted earnings at the segment level, adjusted earnings excluding notable items in the annuities segment were $218 million in the second quarter. Sequentially, annuity results reflect higher reserves, lower fees and higher DAC amortization as well as lower net investment income, partially offset by lower expenses. The life segment reported adjusted earnings, excluding notable items, of $25 million in the quarter. On a sequential basis, results were driven by lower net investment income partially offset by a higher underwriting margin and lower expenses. Adjusted earnings in the runoff segment, excluding notable items, were $34 million. Sequentially, results reflect a higher underwriting margin and lower expenses, partially offset by lower net investment income. Corporate and other had an adjusted loss, excluding notable items, of $30 million. On a sequential basis, results were driven by a higher tax benefit and higher net investment income partially offset by higher expenses. In closing, Brighthouse reported strong underlying results in the second quarter of 2022. Our balance sheet and liquidity position remain robust, and we continued to repurchase a significant amount of common stock. We remain focused on managing the company under a multi-year, multi-scenario framework to protect and support our distribution franchise. With that, we would like to turn the call over to the operator for your questions.
Operator, Operator
Our first question comes from Elyse Greenspan with Wells Fargo. Your line is now open.
Elyse Greenspan, Analyst
My first question relates to your ULSG block. If you could comment on your last assumptions there? And any color that you could provide as we head into your annual review this coming quarter?
Ed Spehar, CFO
Elyse, it's Ed. So we have about $25 billion of stat ULSG reserves, about $16 billion of GAAP. And first, I'd start by saying this was a block that received a lot of attention from us at separation. And as a result of detailed analysis years ago, we took about $3 billion worth of GAAP charges and no charges for stat. And when we talk about stat, stat is very conservative for us under AXXX. For example, lapses are essentially zero. And it's historically been recognized as just generally redundant reserves. I can tell you that for us, we've had consistently positive cash flow testing margins for that block of business. On a GAAP basis, our ultimate lapse rates are less than 1%.
Elyse Greenspan, Analyst
And then my second question, Ed, you mentioned that you guys expect to take $300 million of ordinary dividends this year. Do you have the expected timing for that in the second half of the year? And I know you guys don't typically guide on quarterly level of buyback. But how do you feel about, I guess, buyback levels going forward just given the volatile markets that we're in?
Ed Spehar, CFO
Yes, I would just stick with the second half of the year for dividends rather than being specific in which quarter. You probably noticed from the buyback numbers this past quarter and in the third quarter to date. It's up a little bit from where it was in the previous quarter. The reason for that is we've taken advantage of certain days when the stock price has been particularly weak to buy more. So I would just say, if you look at our track record, we have been pretty aggressive in stepping up the pace when the stock is what we consider to be an exceptional value. I'm not going to give you any guide, but I think the historical behavior as well as the recent history should be helpful.
Operator, Operator
Our next question comes from Tracy Benguigui with Barclays. Your line is now open.
Tracy Benguigui, Analyst
Let's touch upon your reinsurance settlement. We tend to see these reinsurance settlements every now and then. I'm just wondering how much of your gross net amount of risk is still in the pipeline for these types of reinsurance controversies?
Ed Spehar, CFO
Yes. So we had this settlement, a disputed reinsurance matter, and it was had an impact on GAAP and statutory results. It was contemplated in our contingency disclosures in our SEC filings. You'll see that that range used to be 0 million to $250 million, and now it's 0 million to $125 million.
Tracy Benguigui, Analyst
Could you also elaborate on your derisking actions in your investment portfolio that helps your RBC?
John Rosenthal, Analyst
Tracy, it's John. So over the last number of months, the macroeconomic outlook, as both Eric and Ed have suggested, has become more uncertain. So in Q4 last year, we started to position the portfolio more defensively by selling down the riskiest portions of our emerging markets and corporate high-yield portfolios. As economic uncertainty increased, we continued to derisk throughout the first half of this year through sales, up in quality trades and more conservatively investing new cash flow. In the second quarter, for example, we reduced our below-investment-grade holdings by about $500 million, primarily focused on the single B category. We feel pretty good about where we're positioned right now.
Tracy Benguigui, Analyst
Maybe just a quick follow-up there. Was that all contemplated in your distributable earnings scenario?
Ed Spehar, CFO
Tracy. So let me give a little bit on that. When we released these DE tables, the short answer is no. But just going back to the DE tables. When we released these back in March of this year, we've received some questions about why didn't they improve even more given what had happened in the markets? Part of the answer to that was that we entered this year in a very protected position on the equity side. In those scenarios, that was a cost to us. The benefit of that is what you see in our mid-year RBC ratio and our normalized statutory earnings.
Operator, Operator
Our next question comes from Erik Bass with Autonomous. Your line is now open.
Erik Bass, Analyst
First, Ed, can you touch a little bit on the drivers of the decline in statutory required capital this quarter?
Ed Spehar, CFO
Sure. As I said, we increased the range of our RBC ratio by 20 points. So we're at $4.70 to $4.90. If you look at our TAC of $8.2 billion, you would conclude that there was a pretty material decline in required capital, and that would be correct. There were two drivers. The biggest driver was convergence. You've all heard me talk about convergence in the past, which is what happens when markets are bad, you tend to see CTE70 reserves go up more than CTE98 total asset requirement. The capital charge under VA reform is determined by the difference between the total asset requirement at 98% and the total asset requirement at 70. So that was the biggest driver of the decline in required capital. Another driver was the derisking of the investment portfolio, which John had commented on previously.
Erik Bass, Analyst
And I guess, how should we think about the level where this convergence benefit kind of comes into play? And when that happens, is there a material change in required capital? So I guess is it a material benefit when it happens? Or is there a kind of a headwind if it reverses?
Ed Spehar, CFO
I think we should hope for the situation to reverse, as that would suggest very good markets. If we consider it this way, CTE98 anticipates some negative events, while CTE70 reflects a less challenging environment, representing the average of the 30% worst market scenarios. Therefore, when something negative occurs, it is more evident in CTE70 because it rises more than CTE98, which already factors in potential negative events. This is why convergence is generally expected in challenging market conditions. Conversely, if the markets are particularly strong, we would see a decrease in the CTE70 figure, as it does not anticipate many adverse outcomes, while the drop in CTE98 would be less pronounced since it considers the average of the 2% worst scenarios. CTE98 always reflects a conservative asset requirement.
Erik Bass, Analyst
And then if I could just ask quickly for some more color on the new Shield product you mentioned. It sounds like this has an income guarantee. So it's just curious how that changes the risk profile of the product or the capital intensity of it.
Unidentified Company Representative, Company Representative
Eric, this is David. I'll start with that. We are excited about the next iteration of Shield that's launching next week, and really the evolution of guaranteed income of Brighthouse. This is going to build on the existing shield chassis and the success that we've had there and really designed for those clients looking to supplement retirement income, utilizing existing Shield crediting strategies. As you said, we're adding a built-in living benefit feature. From a risk profile perspective, we'll really be hedged with the rest of our VA and Shield products.
Erik Bass, Analyst
And presumably, there's a separate additional charge if you opt in for the guarantee?
Unidentified Company Representative, Company Representative
That's right. The product will have a writer fee attached with it, but no other fees.
Operator, Operator
Our next question comes from John Barnidge with Piper Sandler. Your line is now open.
John Barnidge, Analyst
Are we at the point of the TSA roll-off where expenses could actually end up below expectations maybe on a go-forward basis? Since I think you had previously mentioned the last TSAs to roll off are generally the most expensive.
Eric Steigerwalt, CEO
John, it's Eric. Just repeat the part below expectations. So expenses, what are you saying worse?
John Barnidge, Analyst
No, better. I'm talking better.
Eric Steigerwalt, CEO
We've made significant progress on our expenses. We're close to completing all of our go-forward platforms this year after seven years of work. You can already see the benefits as some of the costly transitional service agreements are decreasing. Next year, what's left will mainly be the older closed block pieces, which are not as costly. The more expensive components are what we are finalizing now. Over the last two quarters, our expenses have shown improvement. Although we might see a slight increase in the third and fourth quarters, overall, we have reduced expenses significantly. We are nearing the completion of the go-forward platforms and dealing with the remaining closed blocks.
Erik Bass, Analyst
My follow-up, and I'm sure at times the seven years seem like yesterday and others, it seems like a lifetime ago. But when you think about the next iteration of Shield level pay us, I believe you talked about it. Can you maybe talk about, are you gearing up for any distribution expansion plans within annuities ahead of that? And then maybe your outlook for distribution expansion for life as well.
Myles Lambert, Analyst
Yes, sure. It's Myles. I'll start with Shield Level Pay Plus. As you know, we have a very strong franchise right now as it relates to a number of major national distributors that we sell our Shield suite of products through. So we feel really good about our distribution footprint. We also sell Shield through the IMO channel as well. And lastly, look, we're always looking for new distributors to sell our products through, especially Shield, but the current footprint is really solid. As it relates to life insurance expansion in the second quarter, we brought on a major national distributor to sell our SmartCare product, and we did something again, very similar early in the third quarter. We have access to approximately 1000 advisers that we can sell SmartCare through, and that's going to be a continued focus of ours as it relates to growing expansion and expanding distribution for that product.
Operator, Operator
Our next question comes from Ryan Krueger with KBW. Your line is open.
Ryan Krueger, Analyst
Could you provide any insights on the changes you've made to the hedging for variable annuities as the year has progressed, particularly in light of rising rates and declining equities?
Ed Spehar, CFO
Ryan. We commented last quarter. First, starting out with the fact that I said that our interest rate hedging has been a combination of strategic and tactical. The strategic component of that means that we had a lot of out-of-the-money protection. We have a lot of out-of-money protection for rates dropping to very low levels, and that's strategic. The tactical element I said was that rates have been very low, and we have been positioned to benefit from rates going up. We mentioned on last quarter's call that we had taken some actions associated with the hedge portfolio because rates were higher. I'll tell you that we took some additional actions since then. I'd just remind you that we manage this risk on a continuum, and we will, therefore, continue to look at opportunities with rates up to perhaps do some other things as well.
Ryan Krueger, Analyst
I guess, as the equity market has fallen, have you also chosen to take off any protection there? Or is it largely the same?
Ed Spehar, CFO
Yes. I don't really want to get into sort of where we are today looking forward. I think I'd rather talk about our results as they emerge over time.
Ryan Krueger, Analyst
Is the actuarial systems conversion scheduled for the third quarter or the fourth quarter? Any insights you can provide at this point would be appreciated.
Ed Spehar, CFO
Yes. I'm just sticking with it will be completed this year. As a reminder, we've been in the midst of actuarial transformation, moving all of our models to one environment. It's been a herculean effort. It's already paying dividends in that we have simplified, more standardized models. We're looking at one environment versus multiple environments. In 2020, we completed the Life model migration. In 2021, we did Shield and all of the other annuity lines, except VA, and all we have left is VA this year. So we're on track, and I feel very good about getting this done this year.
Operator, Operator
Our next question comes from Alex Scott with Goldman Sachs. Your line is now open.
Alex Scott, Analyst
First one I had for you was on annuity sales. I was the changes in Secure Act and some of the partnerships that you guys made to maybe distribute more product through group distribution channels over time, is any of that taking shape? Over what time do you to start benefiting from your growth?
Myles Lambert, Analyst
So this is Myles. I'll take that question. Secure Act is terrific for retirement. But it hasn't had a huge effect as it relates to the sale of retail annuity products. As it relates to our group annuity business, that's a legacy business that we do see new flows into, but we're not actively signing up new plans. Our strategy for institutional retirement opportunities will be LifePath Paycheck moving forward.
Alex Scott, Analyst
Second one had is on just some of the disclosures your former parent made on LDTI. I realize you guys aren't prepared to probably give that at this point. But are there any differences between your block of annuities and their block of annuities that we should be thinking about?
Ed Spehar, CFO
Alex, it's Ed. I believe they gave the opening balance sheet disclosure. Is that correct?
Alex Scott, Analyst
That's correct. Yes.
Ed Spehar, CFO
Okay. That was as of the beginning of '21, right? Year-end '20, 10-year Treasury was 92 basis points or 93 basis points, I think. The first thing I would start out with is we are obviously in a very different rate environment. The market risk benefit calculation is very sensitive to rate movements, which is the first thing that I would point out. The second thing is, when it comes to LDTI, we're not talking about numbers today, and it really relates to my answer to the previous question. We are in the final stages of the VA model conversion. Obviously, we're doing all the LDTI calculations within that environment. It's premature for us to talk about estimates. I would expect that we would be in a position to talk about it on the third quarter call.
Alex Scott, Analyst
And then maybe one quick follow-up for me. What credit metrics are you focused on, on the other side of this? I mean I get that there's a lot of noneconomic pieces, statutory, your RBC result, which I thought was fantastic in this kind of environment, etc., is very important. But I guess as we think about holdco and debt load, like what are you going to be managing to? And what are the rating agencies going to be looking hardest at? Like, where are those goalposts going? How can we think about all that?
Ed Spehar, CFO
Sure. The first thing is we’ll have to see. You probably should talk to the rating agencies, but I would say, if I look at their comments to date, they've been pretty consistent in saying that they look through and saying that they look through accounting changes. Nothing changes with our statutory balance sheet or cash generation, anything January 1 of '23 versus year-end '22. That's the first point. The second point is we have a completely different model now under GAAP than what we have today. The idea that we would continue to have the same targets and metrics under a completely different model doesn't seem to me to be likely.
Alex Scott, Analyst
Yes. That's kind of the intent of my question. is like I agree. So what are the new metrics that we should think about?
Ed Spehar, CFO
Yes, I'm not sure that you would think about new metrics. You can look at our balance sheet, see the debt we have, see the preferred we have. You see our statutory capital, you see our holding company cash. I mean, I don't know. Those are the things I focus on.
Operator, Operator
Our next question comes from Tom Gallagher with Evercore ISI. Your line is now open.
Tom Gallagher, Analyst
Speaking of holding company cash, I haven't heard you talk about your target in a while. I think it used to be $400 million. Is that still the case? Or have you changed your thinking on that?
Ed Spehar, CFO
Yes. I don't think I've ever given that number. But I guess I would say this, and I have said this, I don't know that there is a target for holding company cash because it's going to be dependent on a number of factors. It's not just fixed charges. It's also like what do your maturities look like. I would say we're in a great position from that standpoint. We issued $750 million of 30-year debt and fixed for life preferred in the fall of last year at the absolute made of for funding costs. We extended the maturity profile by using most of those proceeds to take out debt that was coming due in 2027. I think our 2027 debt now is less than $800 million to maturity. So we have no maturities between now and then. We've overall extended the capital structure in the last few years and added more preferred. I feel very good about kind of the funding side. I've also made comments about how having the amount of cash that we have at the holding company gives us a lot of flexibility in terms of buybacks because of the fact that you see our remaining authorization and you see that cash level. We're taking $300 million out in the second half of the year. We really don't have to rely on dividends from our primary operating company to continue buying back stock.
Tom Gallagher, Analyst
Yes. Ed, it might have been your predecessor that said $400 million. That was a while back.
Ed Spehar, CFO
Yes, I think it really helps to have cash on hand, but you wouldn't want to hold $400 million if you were facing $1 billion in debt that is due next year, for example.
Tom Gallagher, Analyst
Yes, I understand. My follow-up is about wanting to clarify something. I know you prefer not to discuss future hedging or your current positioning. However, there is a concern regarding your recent strong results, suggesting you might be closer to fully hedged in your overall strategy amidst the challenging conditions of the second quarter. If you are closer to being fully hedged than the $500 million initial position, and with the upcoming divergence in CTE70 and CTE98 in the third quarter, will there be a near-term impact on RBC? While I’m not seeking an exact figure, could it be significant enough to potentially create unintended consequences in Q3 for RBC?
Ed Spehar, CFO
Sure. I don't think you should view convergence or divergence as indicators of good or bad performance for RBC because both convergence and divergence actually contribute to the stability of RBC. For a Variable Annuity company, a CTE98 would represent a 400% RBC ratio. The shift between 98 and 70 will influence the structure of that ratio, specifically the numerator and the denominator, rather than the final result. Regarding the first dollar, Eric mentioned in last quarter's call that we have a potential first loss of up to $500 million. However, this doesn’t imply we are necessarily at that amount; it is all based on our modeling and forecasting different market conditions. This year-to-date, we have reported norm street earnings of $400 million, and norm street earnings for Variable Annuities refer to asset generation above 98. We indicated last quarter that we didn't tap into our first loss position despite the fluctuations we observed in RBC. In the second quarter, given the strong statutory results, it's evident that there was no need for any first loss.
Tom Gallagher, Analyst
And can I just sneak in one more quick one? Did you guys participate in that study? I heard what you said on lapse rates, which sounds like you're fine on the lapse rate assumption. They also changed our ultimate mortality assumption, it sounds like? Is that something that we should be considering or something you're contemplating?
Ed Spehar, CFO
Yes. I just would reiterate what I said before. Statutory is very conservative for us under AXXX. You have prescribed assumptions that are very conservative. It's the reason when we talk about how we think about capitalization at BRCD, is looking at cash flow testing margins. I've said repeatedly that those margins have been good. That's all there is to say, I think, on the topic.
Operator, Operator
Our next question comes from Suneet Kamath with Jefferies. Your line is open.
Suneet Kamath, Analyst
I think that's me. Ed, you mentioned the $142 million impact in annuities, and you referred to it being divided among DAC, VA reserves, and lower fees. Can you provide more details on how that is split?
Ed Spehar, CFO
Suneet, I'm going to just keep it at the $142 million, but what I can help you out with is all the numbers we put in the slide, I think talked about last night were related to the impacts in the second quarter. If you were to look at separate account balances as of the end of the second quarter, you would probably talk about another $40 million to $50 million after-tax impact negative impact to go-forward earnings from the markets. You got the number there, and then you would add on to that, let's say you're not going to have an additional $40 million to $50 million. When you're thinking about your add-back, if you wanted to add something back, it's not going to be the full $142 million.
Suneet Kamath, Analyst
And then just my second question is, I think yesterday, Lincoln talked about principles-based preserving in their life insurance business due to the weaker markets and that had an impact on their RBC. Just wondering if that affected your at all in the quarter? And if not, because maybe your block is smaller or that resides in the captive, just a sense of any impact there?
Ed Spehar, CFO
Sure. When it comes to ULSG, none of our ULSG is PBR because it's all runoff. I think PBR was what started in a couple of years ago.
Operator, Operator
Thank you. Ladies and gentlemen, I will now turn the call over to Dana Amante for closing remarks.
Dana Amante, Head of Investor Relations
Thank you, Shannon. 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 conference call. Thank you for participating. You may now disconnect.