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February 11, 2020 at 01:11 PM
Brighthouse Financial Inc. posted a net loss over $1 billion late Monday — and its share price rose about 12% this morning, to close to $48.
The Charlotte, North Carolina-based life insurer showed that an accounting approach that’s supposed to make financial services companies’ strength easier to track has instead caused investors to pay less attention to net income.
Resources
The U.S. Securities and Exchange Commission’s Fast Search company filing search tool is available here. Enter the company’s stock symbol (such as, BHF, for Brighthouse) in the search form to see the official earnings filings.
Brighthouse uses financial instruments called derivatives to limit life insurance and annuity investment risk. Many accounting experts say that financial services companies that use derivatives should include changes in the value of the derivatives in the ultimate measure of how the companies are doing: their net income.
Brighthouse adds changes in the value of its derivatives to its net income every quarter.
The result: Brighthouse investors are now focusing mainly on adjusted revenue and income figures that leave out of the effects of short-term changes in the value of the derivatives.
Brighthouse controls individual life and annuity operations that were once part of MetLife Inc. MetLife spun Brighthouse off as a separate company in 2017.
Eric Steigerwalt, the chief executive officer of Brighthouse, said in a comment about the latest results that annuity sales have been strong, and that the company exceeded its targets for annuity deposits.
The company also launched its first new life insurance product as an independent public company, Steigerwalt said.
“Moving forward, I believe we are well-positioned to continue executing our strategy and further generate value for our shareholders, our distribution partners and the clients they serve,” Steigerwalt said.
The Earnings
Brighthouse is reporting a $1.1 billion net loss for the fourth quarter of 2019 on $306 million in revenue, compared with $1.4 billion in net income on $4 billion in revenue for the fourth quarter of 2018.
Those results include $1.9 billion in derivatives losses, compared with a $2 billion gain on derivatives for the year-earlier quarter.
Brighthouse also provided a separate table of adjusted earnings, which excludes the effects of the derivative value swing.
Brighthouse is reporting $265 million in adjusted earnings for the latest quarter on $1.2 billion in adjusted revenue, up from $175 million in adjusted earnings on $1.1 billion in adjusted revenue for the year-earlier quarter.
The Derivatives
A derivative is an arrangement the a value that depends on the performance of some other product or benchmark, such as the S&P 500, or an interest rate benchmark. Some life insurers use derivatives to serve as a form of insurance against changes that could affect the value of investments supporting life insurance and annuity obligations.
