Brighthouse Financial Announces Fourth Quarter 2018 Results

  • Fourth quarter 2018 net income available to shareholders of $1,442
    million, or $12.14 on a per diluted share basis, driven primarily by
    net derivative mark-to-market gains
  • Adjusted earnings, less notable items*, of $199 million, or $1.68
    on a per diluted share basis
  • Annuity sales grew 27 percent over the fourth quarter of 2017
  • Variable annuity assets remained above CTE98*
  • Company repurchased $63 million of its common stock during the
    quarter, bringing the 2018 total to $105 million

CHARLOTTE, N.C.–(BUSINESS WIRE)–Brighthouse Financial, Inc. (“Brighthouse Financial” or the “company”)
(Nasdaq: BHF) announced today its financial results for the fourth
quarter ended December 31, 2018.

Fourth Quarter 2018 Results

The company reported net income available to shareholders of $1,442
million in the fourth quarter of 2018, or $12.14 on a per diluted share
basis, compared to net income available to shareholders of $668 million
in the fourth quarter of 2017. The company ended the fourth quarter of
2018 with stockholders’ equity (“book value”) of $14.4 billion, or
$122.67 on a per share basis, and book value, excluding accumulated
other comprehensive income (“AOCI”) of $13.7 billion, or $116.58 on a
per share basis.

For the fourth quarter of 2018, the company reported adjusted earnings*
of $186 million, or $1.56 on a per diluted share basis.

The adjusted earnings for the quarter reflected $13 million of net
unfavorable notable items, or $0.11 on a per diluted share basis,
including:

  • A $26 million net favorable impact related to modeling improvements
    resulting from an actuarial system conversion; and
  • Establishment costs of $39 million related to planned technology and
    branding 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 is 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 Fourth Quarter 2018 Brighthouse Financial,
Inc. Financial Supplement and/or the Fourth Quarter 2018 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.


For the full year 2018, the company reported net income available to
shareholders of $865 million, or $7.21 on a per diluted share basis. The
company reported full year adjusted earnings of $892 million, or $7.44
on a per diluted share basis, and full year adjusted earnings, less
notable items, of $998 million, or $8.33 on a per diluted share basis.

Corporate expenses in the fourth quarter of 2018 were $233 million
pre-tax, down from $242 million pre-tax in the third quarter of 2018.

Annuity sales increased 27 percent quarter-over-quarter and 10 percent
sequentially, driven by an increase in sales of Shield and fixed indexed
annuities. The company’s fourth quarter 2018 sales results were its
highest since becoming an independent company.

During the quarter, the company repurchased $63 million of its common
stock under its stock repurchase program announced on August 6, 2018,
resulting in a total of $105 million of its shares repurchased during
2018.

We are pleased with our continued strong growth in annuity sales as
well as the solid performance of our hedging program in the face of
financial market headwinds during the quarter,” commented Eric
Steigerwalt, president and chief executive officer, Brighthouse
Financial. “We made significant progress executing our strategy during
2018, which we believe will enable us to achieve our longer-term
financial targets and generate value for shareholders.”

 

Key Metrics (Unaudited, dollars in millions except share and
per share amounts)

 
 
      As of or For the Three Months Ended
December 31, 2018     December 31, 2017
Total     Per share Total     Per share
Net income (loss) available to shareholders (1) $1,442 $12.14 $668 $5.57
Adjusted earnings (1) $186 $1.56 $992 $8.28
Weighted average common shares outstanding – diluted 118,685,082 N/A 119,773,106 N/A
 
Book value $14,418 $122.67 $14,515 $121.19
Book value, excluding AOCI $13,702 $116.58 $12,839 $107.19
Ending common shares outstanding 117,532,336 N/A 119,773,106 N/A
 
(1) Per share amounts are on a diluted basis and may not recalculate
due to rounding.
 
 
 

Results by Business Segment and Corporate & Other (Unaudited,
in millions)

 
    For the Three Months Ended
Adjusted earnings December 31,
2018
  September 30,
2018
  December 31,
2017
Annuities $175 $401 $208
Life $64 $61 $5
Run-off $18 $(105) $(80)
Corporate & Other (1) $(71) $(87) $859
 
(1) The company uses the term “adjusted loss” throughout this news
release to refer to negative adjusted earnings values.
 
 

Sales (Unaudited, in millions)

 
For the Three Months Ended
December 31,
2018
September 30,
2018
December 31,
2017
Annuities (1) $1,698 $1,541 $1,341
Life $1 $2 $3
 
(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 $368
million for the fourth quarter of 2018, $302 million for the third
quarter of 2018, and $203 million for the fourth quarter of 2017.
 
 

Annuities

Adjusted earnings in the Annuities segment were $175 million in the
current quarter, compared to adjusted earnings of $208 million in the
fourth quarter of 2017 and adjusted earnings of $401 million in the
third quarter of 2018.

The current quarter includes a $12 million favorable notable item
related to an actuarial system conversion, as described above. The
fourth quarter of 2017 did not include any notable items. The third
quarter of 2018 included a $154 million favorable notable item related
to the annual actuarial review completed during the third quarter.

On a quarter-over-quarter basis, adjusted earnings, less notable items,
reflect higher deferred acquisition costs (“DAC”) amortization, higher
reserves and lower fees, driven primarily by negative market performance
in the quarter, and higher claims, partially offset by higher net
investment income and lower expenses. On a sequential basis, adjusted
earnings, less notable items, reflect higher DAC amortization, higher
reserves and lower fees, driven by negative market performance in the
quarter, partially offset by lower expenses.

As mentioned above, annuity sales increased 27 percent
quarter-over-quarter and 10 percent sequentially, driven by an increase
in sales of Shield and fixed indexed annuities.

Life

Adjusted earnings in the Life segment were $64 million in the current
quarter, compared to adjusted earnings of $5 million in the fourth
quarter of 2017 and adjusted earnings of $61 million in the third
quarter of 2018.

There were no notable items in the current quarter or in the fourth
quarter of 2017. The third quarter of 2018 included $11 million of
favorable notable items, primarily related to the annual actuarial
review completed during the third quarter.

On a quarter-over-quarter basis, adjusted earnings, less notable items,
reflect lower claims and higher net investment income. On a sequential
basis, adjusted earnings, less notable items, reflect lower claims,
partially offset by higher DAC amortization driven by negative market
performance in the quarter.

Run-off

The Run-off segment had adjusted earnings of $18 million in the current
quarter, compared to an adjusted loss of $80 million in the fourth
quarter of 2017 and an adjusted loss of $105 million in the third
quarter of 2018.

The current quarter includes a $14 million favorable notable item
related to an actuarial system conversion, as described above. The
fourth quarter of 2017 included $91 million of unfavorable notable
items, primarily related to reserve adjustments. The third quarter of
2018 included $140 million of unfavorable notable items, primarily
related to reinsurance recaptures.

On a quarter-over-quarter basis, adjusted earnings, less notable items,
reflect lower net investment income. On a sequential basis, adjusted
earnings, less notable items, reflect higher claims and lower fees.

Corporate & Other

Corporate & Other had an adjusted loss of $71 million in the current
quarter, compared to adjusted earnings of $859 million in the fourth
quarter of 2017 and an adjusted loss of $87 million in the third quarter
of 2018.

The current quarter includes a $39 million unfavorable notable item
related to establishment costs, as described above. The fourth quarter
of 2017 included $886 million of favorable notable items, primarily
related to tax reform. The third quarter of 2018 included $69 million of
unfavorable notable items related to establishment costs.

On a quarter-over-quarter basis, the adjusted loss, less notable items,
reflects lower net investment income and higher interest expense on
debt. On a sequential basis, the adjusted loss, less notable items,
reflects higher expenses, including higher interest expense on debt.

 
 

Net Investment Income and Adjusted Net Investment Income
(Unaudited, in millions)

 
      For the Three Months Ended
December 31,
2018
    September 30,
2018
    December 31,
2017
Net investment income $862 $853 $769
Adjusted net investment income* $863 $852 $780
 
 

Net Investment Income

Net investment income for the fourth quarter of 2018 was $862 million.

Adjusted net investment income for the quarter was $863 million. On a
quarter-over-quarter basis, adjusted net investment income increased $83
million, primarily driven by growth in average invested assets, the
ongoing repositioning of the investment portfolio, and higher
alternative investment income. On a sequential basis, adjusted net
investment income increased $11 million, primarily driven by growth in
average invested assets and the ongoing repositioning of the investment
portfolio, partially offset by lower alternative investment income.

The net investment income yield was 4.48 percent during the quarter.

 

Statutory Capital and Liquidity (Unaudited, in billions)

 
    As of

December 31,

2018 (1)

    September 30,
2018
    December 31,
2017
Statutory combined total adjusted capital $7.4 $6.0 $6.6
 
(1) Reflects preliminary statutory results as of December 31, 2018.
 
 

Capitalization

Holding company liquid assets were $752 million at December 31, 2018.

For the full year 2018, adjusted statutory earnings were approximately
$320 million.

Statutory combined total adjusted capital on a preliminary basis
increased to $7.4 billion at December 31, 2018, driven by the
performance of the variable annuity exposure management program.

Variable annuity assets remained above the CTE98 level at December 31,
2018.

As previously announced, on February 1, 2019, the company entered into a
new term loan agreement with respect to a new $1.0 billion unsecured
term loan facility. The company used the borrowings under this facility
to prepay in full all loans outstanding under its $600 million term loan
facility that was scheduled to mature in December 2019 and to pay
related fees and expenses, with the remainder to be used for general
corporate purposes. The company has no outstanding debt maturing prior
to 2024.

Earnings Conference Call

Brighthouse Financial plans to hold a conference call and audio webcast
to discuss its financial results for the fourth quarter of 2018 at 8:00
a.m. Eastern Time on Tuesday, February 12, 2019.

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 from within the U.S., please
dial (844) 358-9117 and use conference ID 3028509. To join the
conference call via telephone from outside the U.S., please dial +1
(209) 905-5952 and use conference ID 3028509.

A replay of the conference call will be made available until Friday,
March 1, 2019 on the Brighthouse Financial Investor Relations web page
at http://investor.brighthousefinancial.com.

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 equity return on equity
adjusted return on equity, less notable items return on equity
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.
 

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 (i) the impact of market
volatility, which could distort trends, and (ii) businesses that have
been or will be sold or exited by us, referred to as divested businesses.

Adjusted earnings reflects adjusted revenues less adjusted expenses,
both net of income tax, and excludes net income (loss) attributable to
noncontrolling interests. Provided below are the adjustments to GAAP
revenues and GAAP expenses used to calculate adjusted revenues and
adjusted expenses, respectively.

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 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
  • Amortization of unearned revenue related to net investment gains
    (losses) and net derivative gains (losses) and certain variable
    annuity GMIB fees (“GMIB Fees”)(1).

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 and hedging costs related to GMIBs
    (“GMIB Costs”)(1);
  • 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(1).

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 Equity

Adjusted earnings per common share and adjusted return on 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.

Adjusted return on 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
stockholders’ equity, excluding AOCI.

_______________________
(1) Collectively, amounts related to
GMIB, excluding amounts recorded in NDGL, may be referred to as “GMIB
adjustments.”


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 “stockholders’
equity.” Book value per common share is defined as ending Brighthouse
Financial, Inc.’s 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 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 5 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 2 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.

Sales

Statistical sales information for life sales is calculated using the
LIMRA definition of sales for core direct sales, excluding
company-sponsored internal exchanges, corporate-owned life insurance,
bank-owned life insurance, and private placement variable universal life
insurance. 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.

Adjusted Statutory Earnings

Adjusted statutory earnings is a measure of our insurance companies’
ability to pay future distributions and are reflective of whether our
hedging program functions as intended. Adjusted statutory earnings is
calculated as statutory pre-tax income less the change in the variable
annuities reserve methodology (Actuarial Guideline 43) while including
the change in both the reserve and capital methodology based CTE95
calculation, as well as unrealized gains (losses) associated with the
variable annuities risk management strategy. Adjusted statutory earnings
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.

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, future performance or
results of current and anticipated services or products, sales efforts,
expenses, the outcome of contingencies such as legal proceedings, trends
in operating and financial results, as well as statements regarding the
expected benefits of the separation (the “Separation”) from MetLife,
Inc.

Contacts

FOR INVESTORS
David Rosenbaum
(980) 949-3326
david.rosenbaum@brighthousefinancial.com

FOR MEDIA
Tim Miller
(980) 949-3121
tim.w.miller@brighthousefinancial.com

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