Investor reaction to Brighthouse Financial Inc.’s latest earnings appears to show that Wall Street is getting used to “mark to market” accounting making life insurers’ results go up and down a lot.
Brighthouse reported Monday that had experienced a net loss of $735 million in the first quarter on $691 million in revenue, mainly because of the effects of a $1.3 billion net drop in the value of its derivatives.
Brighthouse uses large amounts of derivatives to hedge against the effects of swings in stock prices on its variable annuity products and its universal life policies with secondary guarantees.
But adjusted earnings amounted to $259 million, or $2.21 per share, and market reaction was muted.
The Charlotte, North Carolina-based company was spun off from MetLife Inc. in the summer of 2017. It holds MetLife’s old individual annuity and individual life insurance businesses.
The price of the company’s stock fell about $39 at the open of trading today, down from a closing price of $42.83 Monday.
But the share price quickly bounced up to $41.62 around 10 a.m. The price was hovering around $40.50 at press time.
Brighthouse executives held a conference call this morning to go over their results with securities analysts.
Neither the executives nor the securities analysts used the word “derivatives,” and the executives and analysts referred to the Brighthouse hedging operation only briefly.
Eric Steigerwalt, the president of Brighthouse, said the company is happy with its annuity capitalization levels.
“Our hedging strategy continues to perform in line with our expectations,” Steigerwalt said.
Analysts asked about the company’s hedging strategy only in passing and did not mention the impact of marking the derivatives to market on net income.
— Read Brighthouse Posts Variable Annuity Strength Analysis, on ThinkAdvisor.