US life insurers are expanding their toolkit for capital management, and Brighthouse Financial Inc. is assessing whether recent peer transactions involving reinsurance and private equity could offer similar advantages.
During a first-quarter earnings call, AM Best reported that Brighthouse president and CEO Eric Steigerwalt said the company continues to evaluate the relevance of such transactions, including Lincoln Financial Group’s new partnership with Bain Capital and a large reinsurance deal by MetLife Inc. He said the firm regularly reviews strategic opportunities without committing to a particular direction.
“We look at everything, we look in detail at everything and we’re constantly tinkering with our strategy at the edges as any good management team would be doing,” Steigerwalt said. Regarding Lincoln’s US$825 million deal with Bain Capital, he called it “interesting” and “opportunistic,” but added that Brighthouse considers these deals through the lens of what is operationally viable.
Brighthouse, which was spun off from MetLife in 2017, continues to monitor the divergence in business profiles between the two companies. According to Steigerwalt, variations in features such as surrender periods make direct comparisons between the insurers' annuity blocks increasingly difficult.
“Eight years have gone by,” he said. “Obviously, we’re looking at it. We’ve been looking at this kind of stuff for years and years.”
Earlier this month, MetLife disclosed a US$10 billion variable annuity risk transfer arrangement with Talcott Resolution Life Insurance Co.
The insurer expects to derive approximately US$250 million in value through a combination of ceding commission and capital release, chief financial officer John McCallion said. The agreement is projected to result in a US$100 million annual reduction in earnings, partially offset by US$45 million in yearly hedge cost savings.
Meanwhile, Lincoln Financial’s deal with Bain Capital includes a US$1.4 billion allocation of assets under management to a new investment platform, with plans to scale up to at least US$20 billion by year six.
As reported by AM Best, Lincoln CFO Christopher Neczypor said the partnership will invest across asset classes including structured credit, private equity, and residential mortgage loans. The capital raised will support Lincoln’s strategy in spread-based businesses.
“The insurance industry has been going through an evolution over the past decade as alternative investment firms have been able to add considerable value to the insurance universe,” Neczypor said, citing ongoing changes in general account investing, product development, and capital access.
Brighthouse narrowed its first-quarter net loss available to shareholders to US$294 million, down from US$519 million in the same period last year, according to a company statement. It maintained a risk-based capital ratio between 420% and 440%, with liquid assets totaling US$1 billion. The company said its net results remain subject to fluctuations due to differences between its hedging approach and market-sensitive GAAP reserve calculations.
As more life insurers explore nontraditional capital strategies, will Brighthouse follow suit? Share your thoughts in the comments.
