10-Q: Brighthouse Financial Q2 Profit Rises, Adjusted Earnings Decline

Brighthouse Financial, Inc. reported a significant increase in net income for Q2 2025, reaching $60 million, while adjusted earnings saw a decline to $198 million.

Summary

• Net income available to common shareholders for Q2 2025 increased to $60 million, up from $9 million in Q2 2024.
• Adjusted earnings for Q2 2025 decreased by $148 million to $198 million compared to $346 million in Q2 2024.
• For the six months ended June 30, 2025, net loss available to common shareholders narrowed to $234 million from $510 million in the prior year period.
• Year-to-date adjusted earnings increased by $185 million to $433 million for the six months ended June 30, 2025, up from $248 million in the prior year period.
• The Annuities segment's adjusted earnings remained flat at $332 million for Q2 2025 and increased slightly to $646 million year-to-date.
• The Life segment reported an adjusted loss of $26 million for Q2 2025 and $17 million year-to-date, a decrease from prior year periods.
• The Run-off segment's adjusted loss increased to $83 million for Q2 2025 but significantly narrowed to $147 million year-to-date due to a reinsurance premium rate increase.
• The Corporate & Other segment reported an adjusted loss of $25 million for Q2 2025 and $49 million year-to-date.

Sentiment

Score: 7

Explanation: Net income improved significantly, and the year-to-date loss narrowed, indicating positive financial momentum. Adjusted earnings also grew year-to-date, reflecting underlying business strength. However, the decline in Q2 adjusted earnings and a recent credit rating downgrade introduce some caution.

Positives

• Net income available to common shareholders significantly increased to $60 million for Q2 2025, up from $9 million in Q2 2024.
• Net loss available to common shareholders for the six months ended June 30, 2025, narrowed to $234 million, a $276 million improvement from the $510 million loss in the prior year period.
• Adjusted earnings for the six months ended June 30, 2025, increased by $185 million to $433 million, demonstrating underlying business profitability growth.
• Favorable decreases in variable annuity guaranteed benefits liabilities were observed due to increasing equity markets and interest rates.
• Net investment gains (losses) reflected lower net losses on sales of fixed maturity securities.
• The net unrealized loss position on fixed maturity securities improved to $(5,860) million at June 30, 2025, from $(7,467) million at December 31, 2024.
• The allowance for credit losses for fixed maturity securities decreased to $67 million at June 30, 2025, from $81 million at December 31, 2024.
• The company maintains a strong liquidity position with $4.6 billion in short-term liquidity and $48.9 billion in liquid assets as of June 30, 2025.
• The mortgage loan portfolio remains high-quality, with 99% of all mortgage loans classified as performing at June 30, 2025.

Negatives

• Adjusted earnings for Q2 2025 decreased by $148 million to $198 million compared to $346 million in Q2 2024.
• Net derivative losses significantly increased to $(1,237) million in Q2 2025 from $(662) million in Q2 2024, primarily due to the impact of long-term interest rates on ULSG derivatives and the weakening U.S. dollar.
• The Life segment's adjusted earnings shifted to a loss of $26 million in Q2 2025 from a gain of $42 million in Q2 2024, driven by higher claims and lower net investment spread.
• The Run-off segment's adjusted loss increased to $83 million in Q2 2025 from $30 million in Q2 2024, primarily due to lower net investment spread and higher insurance-related activity costs.
• The Corporate & Other segment's adjusted loss increased to $25 million in Q2 2025 from a gain of $2 million in Q2 2024, mainly due to lower net investment spread.
• The allowance for credit losses for mortgage loans increased to $209 million at June 30, 2025, from $178 million at December 31, 2024.
• S&P revised the long-term issuer credit ratings for Brighthouse Financial and Brighthouse Holdings, LLC to BBB from BBB+ in July 2025, and financial strength ratings for certain subsidiaries to A from A+.

Risks

• Exposure to market volatility, including equity market performance, which can affect product demand, revenues, expenses, reserves, and risk management effectiveness for variable annuities and separate account products.
• Impact of interest rate changes, particularly lower long-term interest rates, on the profitability of spread-based products such as fixed annuities, index-linked annuities, and universal life insurance, and the cost of product guarantees.
• Sustained or material increases in inflation could lead to increased realized and unrealized losses on fixed income investments and higher operating expenses.
• Adverse conditions in capital and credit markets, including limited liquidity, defaults, or nonperformance by financial institutions, could negatively impact the investment portfolio and overall business.
• Differences between actual experience and actuarial assumptions (e.g., contract holder behavior, mortality) may adversely affect financial results, capitalization, and financial condition.
• Guarantees within certain annuity products may decrease earnings, capitalization, increase volatility, and lead to higher risk management costs and increased market risk exposure.
• Dependence on third parties for services, which could lead to business disruption if these parties fail to perform or if information/assistance is not obtained.
• Potential for a downgrade in financial strength or credit ratings, which could result in a loss of business and materially adversely affect financial condition and results of operations.
• Ongoing litigation matters, including sales practices claims and cost of insurance class actions, where large or indeterminate amounts, including punitive and treble damages, are sought.
• Exposure to data security incidents, such as the MOVEit Data Security Incident, which could lead to negligence claims, damages, and reputational harm.
• Potential material negative tax impact from future tax legislation that could make products less attractive or increase tax liability.
• Geopolitical conflicts, tariffs, supply chain disruptions, and uncertainty in certain asset classes (e.g., commercial real estate) could adversely affect the investment portfolio and overall business.

Future Outlook

The company continuously monitors and adjusts its liquidity and capital plans in light of market conditions, changing needs, and opportunities. It aims to maintain a debt-to-capital ratio commensurate with its financial strength and credit ratings and targets a combined risk-based capital (RBC) ratio of 400% to 450% in normal market conditions. The company expects to continue maintaining a capital and risk management strategy that targets total assets supporting variable annuity and Shield Annuity contracts at or above the average of the worst two percent of a set of capital markets scenarios over the life of the contracts in normal market conditions. There are currently no plans to declare and pay dividends on common stock, with any future declarations subject to Board discretion and various financial and regulatory factors.

Management Comments

• We believe the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of our performance by the investor community by highlighting the results of operations and the underlying profitability drivers of the business.
• We continue to closely monitor political and economic conditions that might contribute to market volatility and their impact on our business operations, investment portfolio and derivatives, such as global inflation, tariffs imposed or threatened by the U.S. or foreign governments, uncertainty and instability in certain asset classes (including commercial real estate), supply chain disruptions and recent geopolitical conflicts, including in Europe and the Middle East.
• Based upon our capitalization, expectations regarding maintaining our business mix, ratings and funding sources available to us, we believe we have sufficient liquidity to meet business requirements in current market conditions and certain stress scenarios.
• We proactively take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial resources from internal or external sources of capital.

Industry Context

The financial and economic environment, including capital market conditions and interest rate fluctuations, significantly impacts the company's business. Decreases in the federal funds rate, as seen in late 2024, can negatively affect investment portfolios and the profitability of spread-based products. Prolonged inflation could increase expenses and adversely affect financial markets. The company's performance is also influenced by broader market trends, such as the continued focus on commercial real estate due to hybrid work arrangements, which presents both direct and indirect investment exposure risks. Regulatory developments, particularly at the state level for insurance and federal oversight for products and services, continue to shape the operating landscape.

Comparison to Industry Standards

• The company's target combined risk-based capital (RBC) ratio of 400% to 450% in normal market conditions is a key internal benchmark for capital management, aligning with industry best practices for maintaining financial strength.
• The company's average loan-to-value ratio for commercial mortgage loans was 68% at June 30, 2025, and 46% for agricultural mortgage loans, indicating conservative lending practices compared to typical industry thresholds (often 75-80% for commercial).
• The average debt-service coverage ratio for commercial mortgage loans was 2.2x at June 30, 2025, which is generally considered strong and indicative of healthy property cash flows, exceeding the common industry benchmark of 1.20x.
• The company's sub-prime RMBS portfolio predominantly consists of investment-grade securities (NAIC 1 and NAIC 2), suggesting a more conservative approach within this asset class compared to some historical industry practices.

Corporate Governance

Legal Proceedings

• Richard A. Newton v. Brighthouse Life Insurance Company: A purported class action lawsuit filed May 8, 2020, alleging improper cost of insurance charges on universal life insurance policies, seeking damages including punitive and treble damages, interest, attorneys fees, and injunctive/declaratory relief. The class scope was narrowed to Georgia policies on January 23, 2023.
• Lawrence Martin v. Brighthouse Life Insurance Company: A purported class action lawsuit filed April 6, 2021, alleging improper cost of insurance charges on universal life insurance policies, seeking compensatory damages, attorneys fees, interest, and equitable relief.
• Kennedy v. Progress Software Corporation, et al.: A purported class action lawsuit filed October 3, 2023, against BHF related to a data security incident at a third-party vendor (PBI Research Services) involving the MOVEit file transfer system, alleging negligence and seeking declaratory/injunctive relief, damages, attorneys fees, and prejudgment interest.
• Estimated aggregate range of reasonably possible losses for some matters is up to approximately $10 million, in addition to amounts accrued.
• Estimated range of reasonably possible losses for certain tax matters is from zero up to approximately $100 million.
• An arbitration panel ruled in favor of a reinsurer in Q1 2024, resulting in a $187 million loss (retroactive to September 2019) related to a premium rate increase.

Related Party Transactions

• MetLife provides certain services to the Company on a transitional basis through services agreements.
• BHF, as borrower, has a short-term intercompany loan agreement with certain of its non-insurance subsidiaries, as lenders, for managing available cash.
• BHF has established intercompany liquidity facilities with certain of its insurance and non-insurance subsidiaries to provide short-term liquidity.

Stakeholder Impact

• Shareholders: Potential for increased value due to share repurchase program and improved net income, but also risk from adjusted earnings decline and credit rating downgrade.
• Policyholders/Contract Holders: Impacted by product features, crediting rates, and the company's financial stability, with potential for early withdrawals/lapses.
• Employees: Affected by compensation and operational expenses, and potentially by changes in business processes and systems.
• Customers: Services provided by the company and its third-party vendors directly impact customers, with data security incidents posing a risk.
• Regulatory Authorities: Ongoing inquiries and investigations, and compliance with capital requirements (RBC ratios) and dividend restrictions.
• Creditors: Affected by the company's debt-to-capital ratio, credit ratings, and ability to meet debt obligations.

Next Steps

• Continue to monitor and adjust liquidity and capital plans in light of market conditions.
• Maintain a debt-to-capital ratio commensurate with financial strength and credit ratings.
• Maintain a capital and risk management strategy targeting total assets supporting variable annuity and Shield Annuity contracts at or above the average of the worst two percent of capital markets scenarios.
• Future declaration and payment of common stock dividends will be at the discretion of the Board of Directors.
• Potential opportunistic pursuit of additional financing, including debt, equity, or hybrid securities.
• Ongoing defense against litigation matters, including sales practices claims and cost of insurance class actions.
• Evaluation of the impact of new FASB guidance on income statement expense disclosures (ASU 2024-03) and income tax disclosures (ASU 2023-09).

Key Dates

Recommendation

While Brighthouse Financial demonstrated a significant improvement in net income and a reduction in year-to-date net loss, the decline in Q2 adjusted earnings and the recent S&P credit rating downgrade introduce uncertainty. The company's strong liquidity and capital management strategies are positive, but ongoing litigation and market volatility, particularly in derivatives, present headwinds. The mixed financial performance and the ratings downgrade suggest a 'hold' position, as investors should monitor the company's ability to stabilize adjusted earnings and manage the implications of the revised credit ratings before making further investment decisions.

Keywords

Annuities, Life Insurance, SEC Filing, 10-Q, Financial Results, Adjusted Earnings, Net Income, Market Risk Benefits, Variable Annuities, Fixed Maturity Securities, Mortgage Loans, Credit Ratings, Share Repurchase, Insurance, Financial Services, Investment Portfolio, Capital Management, Liquidity, Risk Management, Corporate Governance, Litigation