10-Q: Brighthouse Financial Reports Strong Q3, Announces Aquarian Merger

Brighthouse Financial, Inc. reported a significant increase in net income and adjusted earnings for the third quarter and year-to-date 2025, alongside the announcement of a definitive merger agreement with Aquarian Holdings VI L.P. at $70.00 per share.

Summary

• Net income available to common shareholders increased to $453 million for Q3 2025, up from $150 million in Q3 2024.
• Year-to-date net income available to common shareholders improved significantly to $219 million in 2025, compared to a loss of $(360) million in 2024.
• Adjusted earnings rose to $970 million for Q3 2025, from $767 million in Q3 2024.
• Year-to-date adjusted earnings increased to $1.4 billion in 2025, up from $1.0 billion in 2024.
• Entered into a Merger Agreement with Aquarian Holdings VI L.P. on November 6, 2025, where common stock will be converted to $70.00 per share in cash.
• Operating cash flow significantly improved to $262 million for the nine months ended September 30, 2025, from a use of $(172) million in the prior year.
• Total equity increased to $6,428 million at September 30, 2025, from $5,024 million at December 31, 2024.
• Completed the 2025 GAAP Annual Actuarial Review, which resulted in a $400 million favorable impact on income before tax for the nine months ended September 30, 2025.

Sentiment

Score: 7

Explanation: The company reported strong financial improvements in net income and adjusted earnings, along with positive cash flow generation. The announced merger provides a clear exit strategy for shareholders at a fixed price. However, the merger introduces new risks and credit rating agencies have placed the company on negative watch/review for downgrade, which tempers the overall positive sentiment.

Positives

• Net income available to common shareholders increased by $303 million (net of tax) for Q3 2025 compared to Q3 2024.
• Year-to-date net income available to common shareholders improved by $579 million (net of tax) from a loss to a gain.
• Adjusted earnings increased by $203 million for Q3 2025 and $388 million for YTD 2025.
• Operating activities generated $262 million in cash for YTD 2025, a significant improvement from a $(172) million use in YTD 2024.
• Investing activities generated $2,047 million in cash for YTD 2025, a significant improvement from a $(1,837) million use in YTD 2024.
• Life segment adjusted earnings improved from a loss of $(25) million in Q3 2024 to a gain of $40 million in Q3 2025, and from a loss of $(19) million in YTD 2024 to a gain of $23 million in YTD 2025.
• Run-off segment adjusted earnings increased by $178 million for Q3 2025 and $402 million for YTD 2025.
• A $66 million gain was recognized from the sale of a subsidiary owning mineral rights in July 2025.
• The 2025 GAAP Annual Actuarial Review had a $400 million favorable impact on income before tax for the nine months ended September 30, 2025.
• The company expects to remain within its target combined risk-based capital (RBC) ratio range of 400% to 450% in normal market conditions at the end of 2025.

Negatives

• Total revenues decreased to $1,816 million in Q3 2025 from $2,018 million in Q3 2024.
• Annuities segment adjusted earnings decreased by $23 million for Q3 2025 and $22 million for YTD 2025.
• Corporate & Other segment adjusted earnings shifted from a $2 million gain in Q3 2024 to a $(15) million loss in Q3 2025, and the YTD loss increased from $(30) million to $(64) million.
• Net derivative losses were $(410) million for Q3 2025 and $(1,336) million for YTD 2025, primarily due to unfavorable changes in variable annuity guaranteed benefit riders and interest rate derivatives.
• Net cash used in financing activities was $(748) million for YTD 2025, a significant shift from $3,788 million provided in YTD 2024, partly due to a negative financing element on derivatives.
• No common stock repurchases occurred during Q3 2025.
• S&P revised long-term issuer credit ratings for BHF and BH Holdings to BBB from BBB+ and financial strength ratings for insurance subsidiaries to A from A+ in July 2025.
• S&P placed BHF, BH Holdings, and certain insurance subsidiaries on CreditWatch Negative on November 6, 2025, following the merger announcement.
• Moody's placed BHF, BH Holdings, and certain insurance subsidiaries on review for a downgrade on November 7, 2025, following the merger announcement.

Risks

• Failure to complete the Merger within the expected timeframe or at all, due to unmet conditions (shareholder vote, regulatory approvals, absence of Material Adverse Effect or Burdensome Condition).
• Adverse effects on business, results of operations, or financial condition if the Merger is not completed, including a potential decline in common stock market price, significant transaction expenses, negative publicity, and a termination fee of approximately $143.5 million.
• Business uncertainties and contractual restrictions during the Merger's pendency, such as management diversion, inability to pursue strategic transactions, challenges in recruiting and retaining key personnel, and potential litigation.
• Litigation risks, including class action lawsuits related to Universal Life (UL) insurance policy cost of insurance (COI) charges (Richard A. Newton v. Brighthouse Life Insurance Company and Lawrence Martin v. Brighthouse Life Insurance Company).
• Data security incident litigation (Kennedy v. Progress Software Corporation, et al.) related to a third-party vendor's MOVEit file transfer system.
• Aggregate reasonably possible losses for estimable litigation matters up to approximately $10 million.
• Aggregate reasonably possible losses for certain tax and reinsurance matters from zero up to approximately $100 million.
• Exposure to various market risks (interest rate, equity market prices, credit spreads, foreign currency exchange rates) through insurance operations and general account investment activities.
• Sensitivity of financial instruments to a 100 basis point increase in interest rates increased potential losses to $4.8 billion at September 30, 2025, from $4.4 billion at December 31, 2024.
• Sensitivity of financial instruments to a 10% decrease in equity prices increased potential losses to $530 million at September 30, 2025, from $322 million at December 31, 2024.
• Impact of difficult conditions, volatility, and disruptions in capital markets and the economy on business, investment portfolio, and risk management effectiveness.
• Potential negative impact of future decreases in the federal funds rate on the investment portfolio and profitability of spread-based products.
• Adverse effects of sustained or material increase in inflation on fixed income investments, expenses, and overall economic activity.
• Differences between actual experience and actuarial assumptions may adversely affect financial results, capitalization, and financial condition.
• Guarantees within certain annuity products may decrease earnings, capitalization, increase volatility, and result in higher risk management costs.
• Impact of changes in regulation and supervisory policies, including federal tax reform (CAMT uncertainties) and California climate disclosure requirements.
• Dependence on cash flows from insurance subsidiaries to meet parent company obligations, with potential constraints from regulatory requirements.
• A downgrade or potential downgrade in financial strength or credit ratings could result in business loss and materially adversely affect financial condition.

Future Outlook

The company is currently assessing the impact of new FASB guidance on income statement expense disclosures (ASU 2024-03) and income tax disclosures (ASU 2023-09). It does not expect to be subject to the Corporate Alternative Minimum Tax (CAMT) for 2025 but will continue to assess annually. The company anticipates an increase to statutory reserves from the 2025 statutory AAR but expects to remain within its target combined risk-based capital (RBC) ratio range of 400% to 450% in normal market conditions at the end of 2025 without contributing capital to its insurance subsidiaries. The proposed merger with Aquarian Holdings is subject to customary closing conditions, including shareholder and regulatory approvals, and is expected to convert each common share into $70.00 in cash.

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 our business.
• We are currently assessing the impact of the proposed regulations and the Notices, including the impact on the applicability of the CAMT. Based on guidance issued by the U.S. Treasury and the IRS to date, the Company was not subject to the CAMT for the years ended December 31, 2023 and 2024 and does not currently expect to be subject to the CAMT for the year ended December 31, 2025.
• We anticipate that the 2025 statutory AAR will result in an increase to our statutory reserves; however, we expect to remain within our target combined risk-based capital (RBC) ratio range of 400% to 450% in normal market conditions at the end of 2025, without contributing capital to our insurance subsidiaries.
• Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments.
• Based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such a material effect [on financial position].
• We continuously monitor and adjust our liquidity and capital plans in light of market conditions, as well as changing needs and opportunities.
• Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enable BHF to make payments on debt, pay preferred stock dividends, contribute capital to its subsidiaries, repurchase its common stock, pay all general operating expenses and meet its cash needs.

Industry Context

The company operates in a financial and economic environment affected by capital market conditions, interest rate changes by the Federal Reserve (which decreased rates in September and October 2025), and global economic uncertainties like inflation and geopolitical conflicts. Regulatory developments, including federal tax reform (Inflation Reduction Act, OBBBA) and California climate disclosure laws (CCDAA, CRFRA), are also shaping the operating landscape. The company's performance is influenced by these macro factors, with a focus on managing risks related to variable annuities and other insurance products in a dynamic market.

Comparison to Industry Standards

• The company's adjusted earnings definition was updated in Q1 2025 due to the establishment of a trading portfolio, which may affect direct comparability with historical industry results.
• The company monitors its debt-to-capital ratio using an average of key leverage ratios calculated by A.M. Best, Fitch, Moody's, and S&P, aiming for a ratio commensurate with its financial strength and credit ratings.
• The company targets a combined RBC ratio of 400% to 450% in normal market conditions, a common metric for insurance companies.
• The company's investment portfolio management includes asset-type allocation, industry and issuer diversification, and risk limits, which are standard practices in the insurance industry.
• The company's use of derivatives for risk management (interest rate, foreign currency, credit, equity market risks) aligns with common industry practices for managing complex insurance liabilities.

Corporate Governance

Legal Proceedings

• Richard A. Newton v. Brighthouse Life Insurance Company: A class action lawsuit alleging improper COI rates for UL policies in Georgia. Class certified for breach of contract (from March 14, 2014) and RICO (from March 14, 2015).
• Lawrence Martin v. Brighthouse Life Insurance Company: A class action lawsuit alleging improper COI rates for UL policies nationwide. Class certified for breach of contract. Plaintiff filed a petition for permission to appeal to the United States Court of Appeals for the Second Circuit.
• Kennedy v. Progress Software Corporation, et al.: A purported class action lawsuit against BHF related to a data security incident at a third-party vendor (PBI) involving the MOVEit file transfer system. Claims include negligence and unjust enrichment.
• The aggregate range of reasonably possible losses for estimable litigation matters is up to approximately $10 million.
• The aggregate range of reasonably possible losses for certain tax and reinsurance matters is from zero up to approximately $100 million.

Stakeholder Impact

• Shareholders: The proposed merger offers a cash payout of $70.00 per share, providing liquidity and a defined return. However, failure to complete the merger could negatively impact the stock price and incur significant costs.
• Employees: Uncertainty regarding the merger's outcome could adversely affect the ability to recruit and retain key personnel and other employees.
• Customers: Potential disruption to business relationships with existing and potential customers due to merger uncertainty.
• Creditors: Credit rating downgrades by S&P and Moody's (CreditWatch Negative/review for downgrade) could increase borrowing costs or affect access to capital.
• Distribution Partners: Uncertainty regarding the merger's outcome could disrupt business relationships with distribution partners.

Next Steps

• Shareholder vote on the Merger Agreement.
• Obtain regulatory approvals for the Merger from insurance regulators in Delaware, New York, and Massachusetts, and FINRA.
• Complete the 2025 statutory Annual Actuarial Review.
• Evaluate the impact of new FASB guidance on income statement expense disclosures (ASU 2024-03) and income tax disclosures (ASU 2023-09).
• Report Scope 1 and 2 greenhouse gas (GHG) emissions annually starting in 2026 under California's CCDAA.
• Report Scope 3 GHG emissions annually starting in 2027 under California's CCDAA.
• Disclose climate-related financial risks and mitigation measures biennially, with the first report due January 1, 2026, under California's CRFRA.
• Continue to vigorously defend against ongoing litigation matters, including class actions and data security incidents.

Key Dates

Keywords

Brighthouse Financial, SEC Filing, 10-Q, Quarterly Report, Financial Results, Annuities, Life Insurance, Run-off Segment, Adjusted Earnings, Net Income, EPS, Merger Agreement, Aquarian Holdings, Share Repurchase, Actuarial Review, Market Risk Benefits, Derivatives, Credit Ratings, Litigation, Class Action, Data Security, Investment Portfolio, Interest Rates, Equity Markets, Capital Management, RBC Ratio, Corporate Governance