10-K: Brighthouse Financial Reports Strong 2025 Earnings Amidst Aquarian Merger

Brighthouse Financial, Inc. reported increased net income and adjusted earnings for 2025, while progressing towards its acquisition by Aquarian Holdings VI L.P. for $70.00 per share.

Summary

• Net income available to shareholders increased to $331 million in 2025, up from $286 million in 2024.
• Pre-tax adjusted earnings rose to $1,996 million in 2025 from $1,623 million in 2024, reflecting a $373 million increase.
• Adjusted earnings, a non-GAAP measure, increased by $298 million to $1,617 million in 2025.
• Total revenues for 2025 were $6,766 million, a significant increase from $4,724 million in 2024.
• Assets under management (AUM) grew to $206,157 million at December 31, 2025, from $203,023 million at December 31, 2024.
• The company's preliminary Combined RBC Ratio stood at 456% at December 31, 2025, exceeding its target range of 400% to 450%.
• Annuity sales increased to $8,715 million in 2025 from $8,300 million in 2024.
• The company completed an initiative in Q3 2025 to establish standalone hedging programs for its variable annuity and first-generation Shield Annuity contracts.
• ULSG liabilities decreased by $359 million in 2025 due to an increase in the long-term general account earned rate from 4.00% to 4.50% as part of the Annual Actuarial Review.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this filing positively due to strong financial performance, robust capital metrics, and strategic advancements in risk management, despite the inherent uncertainties and restrictions associated with the pending merger.

Positives

• Net income available to shareholders increased by $45 million year-over-year.
• Pre-tax adjusted earnings saw a substantial increase of $373 million, driven by lower net costs in insurance-related activities and higher net fee income.
• The preliminary Combined RBC Ratio of 456% demonstrates strong capital adequacy, surpassing the target range of 400%-450%.
• Annuity sales experienced growth, reaching $8,715 million in 2025.
• The establishment of standalone hedging programs for variable annuities and first-generation Shield Annuities is expected to enhance risk management effectiveness.
• A net investment gain on the sale of a subsidiary owning mineral rights contributed favorably to net income.
• Lower losses from the impact of interest rates on ULSG derivatives due to relatively flat long-term rates in 2025 compared to increases in 2024.

Negatives

• The company recorded higher losses from variable annuity guaranteed benefit riders in 2025.
• Unfavorable changes in Shield embedded derivatives, net of variable annuity and Shield hedges, due to market factors negatively impacted results.
• A weakening U.S. dollar unfavorably impacted foreign currency forwards and swaps.
• Net investment losses on sales of fixed maturity securities and mortgage loans (due to increased allowance for credit losses) partially offset positive impacts.
• Lower net investment spread was observed due to higher interest credited to policyholders, lower yields on institutional spread margin business, and reduced returns on other limited partnerships and short-term investments.
• Other expenses increased due to higher operational expenses.
• Amortization of DAC and VOBA increased primarily due to changes in policyholder behavior in the Annuities segment.

Risks

• The completion of the Merger is subject to various conditions, including regulatory approvals, and may not be completed within the expected timeframe or at all, potentially leading to business disruption and a termination fee of approximately $144 million.
• Differences between actual experience and actuarial assumptions, particularly regarding policyholder behavior and persistency, may adversely affect financial results, capitalization, and financial condition, potentially requiring increased liabilities.
• Guarantees within certain annuity products (GMDBs, GMWBs) may decrease earnings, capitalization, increase volatility, and expose the company to increased market risk, especially during periods of negative or low separate account returns, increased equity volatility, or reduced interest rates.
• The hedging strategy may not be fully effective, leading to significant volatility in profitability measures or negative impacts on statutory capital, and the cost of hedging may be greater than anticipated.
• The company may not have sufficient assets to meet future ULSG policyholder obligations, and changes in interest rates may result in volatility of profitability measures and capital.
• Changes in accounting standards, such as those issued by FASB (e.g., LDTI, new guidance on financial instrument credit losses, income statement expense disclosures), could adversely affect financial statements.
• A downgrade or potential downgrade in financial strength or credit ratings could result in a loss of business, increased policy surrenders, higher costs, and limited access to capital markets.
• Indebtedness and leverage could adversely affect financial condition and results of operations, and failure to comply with debt covenants could lead to an event of default.
• Reinsurance may not be available, affordable, or adequate to protect against losses, and counterparties to reinsurance or indemnification arrangements may default.
• Factors affecting competitiveness, including product features, pricing, and financial strength, may adversely affect market share and profitability.
• Difficulty in marketing and distributing products through distribution channels due to distributor changes, consolidation, or termination of relationships.
• Failure of third parties to provide essential services could have a material adverse effect on business operations and financial results.
• Changes in deferred income tax assets or liabilities, including the ability to realize deferred income tax assets, could adversely affect financial condition or results of operations.
• As a holding company, BHF depends on its subsidiaries' ability to pay dividends, which are subject to regulatory restrictions and business conditions.
• Risks associated with climate change, including increased frequency of weather-related disasters, impact on investment asset valuations, and regulatory responses, could adversely affect the business.
• Public health crises, extreme mortality events, or similar occurrences may adversely impact business, financial condition, or results of operations, as well as the economy in general.
• Difficulties, unforeseen liabilities, asset impairments, or rating actions could arise from business acquisitions or dispositions.
• Continued scrutiny and evolving expectations regarding environmental, social, and governance (ESG) matters may adversely affect reputation or business.
• Difficult conditions in capital markets and the U.S. economy generally may materially adversely affect business and results of operations.
• Adverse capital and credit market conditions may significantly affect the ability to meet liquidity needs and access capital.
• The investment portfolio is subject to significant financial risks, including credit risk, interest rate risk, inflation risk, market valuation risk, liquidity risk, real estate risk, and derivatives risk.
• Ongoing military actions, the continued threat of terrorism, and other catastrophic events may adversely affect the value of the investment portfolio and the level of claim losses.
• Changes in insurance regulation and supervisory policies may materially impact capitalization, cash flows, profitability, and growth.
• A decrease in the RBC ratio of insurance subsidiaries or changes in rating agency capital models could result in increased scrutiny or require capital contributions.
• Changes in tax laws or interpretations could reduce earnings and make products less attractive to consumers.
• Legal disputes and regulatory investigations are common and may result in significant financial losses or harm to reputation.
• Gaps in policies, procedures, or processes, or errors in models, could adversely affect business, financial condition, or results of operations.
• Any failure in the cybersecurity risk management program or unanticipated events in disaster recovery systems could result in loss or disclosure of confidential information, damage to reputation, and impairment of business effectiveness.
• Employees and third-party service providers may take excessive risks, negatively affecting financial condition and business.
• Failure to protect the confidentiality of customer, employee, or other third-party information could adversely affect reputation and business.
• If the Separation from MetLife were to fail to qualify for non-recognition treatment for federal income tax purposes, the company could be subject to significant tax liabilities.
• Disputes or disagreements with MetLife may affect financial statements and business operations, and contractual remedies may not be sufficient; the company may also be required to share in certain of MetLife's liabilities.
• The company is not currently permitted to declare and pay dividends on common stock, and legal restrictions could limit its ability to pay dividends on capital stock and repurchase common stock in the future.

Future Outlook

The company expects the merger with Aquarian Holdings VI L.P. to close in 2026, subject to regulatory approvals. Management intends to focus on selling its new suite of Shield Annuity products, along with variable annuities with GMWBs and GMDBs only. The company will continue to assess the applicability of the Corporate Alternative Minimum Tax (CAMT) annually, though it was not subject to it for 2023-2025. The DOL intends to engage in further rulemaking concerning fiduciary investment advice to ERISA Plans and IRAs, which could impact product sales and compensation practices. The NAIC's new principle-based reserving framework for non-variable annuities and the Generator of Economic Scenarios (GOES) will become effective in 2026, with potential impacts on statutory surplus and required capital. The company continues to monitor litigation related to COI class actions and data security incidents.

Management Comments

• We believe we are a financially disciplined company with an emphasis on independent distribution and that our strategy of offering a targeted set of products to serve our customers and distribution partners will enhance our ability to invest in our business and distribute cash to our shareholders over time.
• We believe that general demographic trends in the U.S. population, the increase in under-insured individuals, the potential risk to governmental social safety net programs and the shifting of responsibility for retirement planning and financial security from employers and other institutions to individuals will create opportunities to generate significant demand for our products.
• Risk management of both our in-force book and our new business to enhance sustained, long-term shareholder value is fundamental to our strategy.
• We remain focused on maintaining our strong capital base and excess liquidity at the holding company, and we have established a risk management approach that seeks to mitigate the effects of severe market disruptions and other economic events on our business.
• We believe we have the underwriting approach, product design capabilities and distribution relationships that allows us to offer new products that meet our risk-adjusted return objectives and that such capabilities will enhance our ability to maintain market presence and relevance over the long-term.
• We intend to meet our risk management objectives by continuing to hedge significant market risks associated with our existing annuity products, as well as new business.
• We believe the level of our capital protection provides us financial flexibility and supports deploying capital for growing long-term, sustainable shareholder value.

Industry Context

StockSavvy.ai notes that Brighthouse Financial's strategic shift towards fixed products with lower guaranteed minimum crediting rates and variable annuity products with less risky living benefits, alongside an increased emphasis on index-linked annuities, aligns with broader industry trends seeking to de-risk product portfolios in a volatile market. The company's focus on independent distribution channels is a common strategy among insurers to maximize market penetration without incurring the fixed costs of proprietary distribution. The ongoing regulatory changes, particularly around AI, cybersecurity, and fiduciary standards (like the DOL Fiduciary Advice Rule and NAIC SAT), reflect a tightening compliance environment across the financial services industry, which could increase operational costs and influence product offerings for all players. The proposed acquisition by Aquarian Holdings highlights a trend of private equity interest in the insurance sector, often driven by opportunities to optimize capital and operational efficiencies.

Comparison to Industry Standards

• The preliminary Combined RBC Ratio of 456% for Brighthouse Financial's insurance subsidiaries is well above the typical regulatory minimums (often 200-300%) and exceeds the company's own target range of 400%-450%, indicating a strong capital position compared to industry benchmarks.
• The increase in net income and adjusted earnings, alongside AUM growth, suggests a solid performance in a competitive U.S. annuity and life insurance market, where many peers are also navigating interest rate fluctuations and evolving product demands.
• The company's strategy of establishing standalone hedging programs for different annuity products (variable and Shield) is a sophisticated approach to risk management, potentially offering more granular control over market exposures compared to more aggregated hedging strategies used by some competitors.
• The average loan-to-value ratio of 67% for commercial mortgage loans and 46% for agricultural mortgage loans at December 31, 2025, indicates conservative lending practices, generally below the 75-80% thresholds often seen in the industry, suggesting lower credit risk in its mortgage portfolio compared to some peers.
• The average debt-service coverage ratio of 2.2x for commercial mortgage loans is robust, well above the 1.0x threshold, indicating strong cash flow generation from underlying properties to cover debt payments, which is a positive indicator relative to industry averages.

Management Changes

Corporate Governance

Legal Proceedings

• Richard A. Newton v. Brighthouse Life Insurance Company: A class action lawsuit alleging improper COI rates on universal life insurance policies in Georgia. A class was certified in September 2025, with an amended order in October 2025. The company intends to vigorously defend this matter.
• Lawrence Martin v. Brighthouse Life Insurance Company: A class action lawsuit alleging improper COI rates on universal life insurance policies nationwide. A class was certified in September 2025, and a petition to appeal was denied in February 2026. The company intends to vigorously defend this matter.
• Kennedy v. Progress Software Corporation, et al.: A purported class action lawsuit against Brighthouse Financial related to a data security incident at a third-party vendor (PBI) involving the MOVEit file transfer system. Claims for injunctive relief against BHF were dismissed, but the remainder of a motion to dismiss was denied. The company intends to vigorously defend this matter.
• The aggregate range of reasonably possible losses for estimable litigation matters is up to approximately $10 million as of December 31, 2025.
• Other loss contingencies, including certain tax and reinsurance matters, have an estimated range of reasonably possible losses in excess of accrued amounts from zero up to approximately $100 million as of December 31, 2025.

Related Party Transactions

• The company has a payable to MetLife of $328 million at December 31, 2025 and 2024, related to the Tax Receivables Agreement, which would be accelerated upon closing of the Merger.
• The company has a current income tax receivable of $17 million and $16 million at December 31, 2025 and 2024, respectively, related to the Tax Separation Agreement with MetLife.
• The company reinsures 90% of the risk associated with participating whole life policies to a former affiliate and assumes certain term life policies and universal life policies with secondary death benefit guarantees issued by a former affiliate.
• An employee matters agreement (EMA) exists between BHF and MetLife, whereby MetLife has agreed to reimburse BHF for obligations under certain non-qualified and other unfunded benefit plans sponsored by NELICO. The receivable under the EMA was $142 million at December 31, 2025.

Stakeholder Impact

• Shareholders: Common stockholders will receive $70.00 per share in cash upon the merger's completion, representing a significant liquidity event. However, common stock dividends and share repurchases are currently restricted by the merger agreement.
• Employees: The Employee Stock Purchase Plan (ESPP) has been suspended due to the merger. Outstanding RSUs, PSUs, and stock options will become fully vested and converted into cash payments upon the merger's effective time.
• Policyholders/Contract Holders: The company's strong capital position (456% RBC Ratio) and robust risk management strategies aim to ensure the ability to meet future policy obligations. The shift towards less risky annuity products and enhanced hedging programs are designed to protect policyholder benefits.
• Distributors: The company's focus on independent distribution and support through Strategic Relationship Managers and wholesalers aims to maintain strong partnerships, but regulatory changes and competitive pressures could impact these relationships.
• Creditors: The company's ability to service its $3.2 billion long-term debt and maintain compliance with financial covenants is crucial. The merger introduces new considerations for debt holders, including potential acceleration of certain payables.

Next Steps

• Complete the merger with Aquarian Holdings VI L.P. in 2026, subject to regulatory approvals.
• Continue to focus on selling the new suite of Shield Annuity products, along with variable annuities with GMWBs and GMDBs only.
• Monitor and adapt to further rulemaking by the DOL concerning fiduciary investment advice to ERISA Plans and IRAs.
• Implement NAIC's new principle-based reserving framework for non-variable annuities and the new Generator of Economic Scenarios (GOES) by their respective deadlines in 2026.
• Continue to monitor litigation related to COI class actions and the MOVEit data security incident.
• Assess the applicability of the Corporate Alternative Minimum Tax (CAMT) annually and monitor developments in related regulations.
• Monitor the litigation surrounding California's Climate Corporate Data Accountability Act (CCDAA) and Climate-Related Financial Risk Act (CRFRA).

Key Dates

Recommendation

The pending merger with Aquarian Holdings VI L.P. at $70.00 per share in cash provides a clear and attractive exit price for common stockholders. Given the current market price of BHF common stock (implied by the June 30, 2025 market value of $3.0 billion for 57.18 million shares outstanding as of Feb 20, 2026, which is approximately $52.46 per share), the $70.00 per share offer represents a substantial premium. The merger agreement has been adopted by stockholders and the Hart-Scott-Rodino waiting period has expired, indicating significant progress towards closing. While regulatory approvals remain, the company's strong financial performance in 2025, including increased net income and adjusted earnings, and a robust RBC ratio, suggest a healthy underlying business. The restrictions on common stock dividends and repurchases are temporary and directly related to the impending acquisition, which offers a superior return. For investors seeking a near-term, high-probability return, the current valuation relative to the merger price makes Brighthouse Financial a strong buy.

Keywords

Annuities, Life Insurance, SEC Filing, 10-K, Financial Results, Merger Agreement, Aquarian Holdings, Risk Management, Capital Adequacy, RBC Ratio, Adjusted Earnings, Net Income, Investment Portfolio, Derivatives, Actuarial Assumptions, Regulatory Compliance, Cybersecurity, Legal Proceedings, Share Repurchase, Dividend Restrictions, ULSG, Shield Annuities