Morning, ladies and gentlemen, and welcome to the Brighthouse Financial's Third Quarter 2022 Earnings Conference Call. My name is Michelle, and I will be your coordinator today. At this time, all participants are in a listen only mode. We will facilitate a question and answer session towards the end of the conference call. In fairness to all participants, please limit yourself to one question and one follow-up.
As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Dana Amanti, Head of Investor Relations. Ms. Amanti, you may begin.
Thank you, and good morning. Welcome to Brighthouse Financial's Q3 2022 earnings call. Material for today's call were released Last night, and can be found on the Investor Relations section of our website. We encourage you to review all of these materials. Today, you will hear from Eric Stagerwalt, our President and Chief Executive Officer and Ed Spihar, our Chief Financial Officer.
Following our prepared remarks, we will open the call up for a question and answer period. Also here with us today to participate in the discussions are other members of senior management. Before we begin, I would like to note that our discussion during this call may include forward looking statements within the meaning of the federal securities laws. Brighthouse Financial's actual results may differ materially from the results anticipated in the forward looking statements as a result of risks and uncertainties described Information discussed on today's call speaks only as of today, November 8, 2022. The company undertakes no obligation to update any information discussed on today's call.
During this call, we will be discussing certain financial measures that are not based on Generally Accepted Accounting Principles Reconciliation of these non GAAP measures on a historical basis to the most directly comparable GAAP measures And related definitions may be found on the Investor Relations portion of our website, in our earnings release, slide presentation and financial supplement. And finally, references to statutory results, including certain statutory based measures used by management are preliminary due to the timing of the filing of the statutory statements. And now, I'll turn the call over to our CEO, Eric Stagerwalt.
Thank you, Dana, and good morning, everyone. In the Q3, despite an uncertain market environment, We remain disciplined in our financial and risk management and steadfast in our commitment to our partners, customers and shareholders. While equity markets have been volatile, interest rates increased significantly in the quarter, up over 80 basis points as measured by the 10 year U. S. Treasury as of September 30.
Our balance sheet and liquidity remained robust in the quarter And we continued to prudently manage our statutory capitalization. Our estimated combined risk based Capital or RBC ratio was above our target of 400% to 4 50% in normal markets. At the end of the quarter, we estimate that our combined RBC ratio was between 450 And 4 70 percent as our capitalization remained very strong. Additionally, We continue to have a substantial amount of cash at the holding company with $1,100,000,000 of holding company liquid assets at the end of the quarter. Turning to sales.
We are very pleased with our strong annuity sales results in the quarter, which reflect the strength of the Brighthouse Financial franchise and our ability to meet the evolving needs of our distributors and their clients. The company reported record annuity sales in the quarter of $3,700,000,000 An increase of 50% sequentially. 3rd quarter annuity sales results were largely driven by sales of our fixed deferred annuities And our flagship shield level annuities and demonstrate the strength and diversity of our annuity product portfolio in different market environments. The strong fixed deferred annuity sales were the primary driver Of the positive total annuity net flows of $970,000,000 in the quarter. As we have previously discussed, We continue to expect our business mix to evolve with the addition of higher cash flow generating and less capital intensive business, coupled with the runoff of older, less profitable business.
Additionally, We generated $19,000,000 of life insurance sales, which is flat sequentially. As I have said in the past, While the economic backdrop in 2022 has created some headwinds to life insurance sales, we remain confident in our life insurance strategy and intend to continue to broaden our product offerings and expand our distribution footprint. We continue to execute on our strategy. And with that, I would like to turn to capital return. In the Q3 of 2022, we returned additional capital to shareholders through the repurchase of $136,000,000 of our And we purchased an additional $52,000,000 of our common stock through November 3rd.
Year to date through November 3, we have repurchased $447,000,000 of our common stock, Representing a reduction of 11% of shares outstanding relative to year end 2021. Before I turn the call over to Ed, I would like to touch on the actions we have taken throughout 2022 to move toward a more strategic position on interest rate risk. With interest rates at historically low levels in recent years, We did not believe it made sense to fully hedge interest rate risk. We supported this strategy by holding substantial amounts of cash and capital. With interest rates gradually returning to what we perceive to be more normal levels, we have taken the opportunity to add substantial amount of low interest rate protection and shifted from a more tactical positioning on rates to a more strategic positioning.
We will continue to focus on protecting our balance sheet, Optimizing our distributable earnings and supporting the growth of our franchise through a broad range of market scenarios. To summarize, I'm very happy with our results in the quarter. Our balance sheet and liquidity Remained robust. Annuity sales were very strong and we continued to return capital to shareholders. I will now pass the call over to Ed and he'll go through more of the financial results in detail.
Thank you, Eric, and good morning, everyone. Despite substantial negative returns across asset classes in 2022, Our capital and liquidity position remained strong at September 30th. Additionally, 3rd quarter year to date normalized statutory earnings were approximately $500,000,000 as we have benefited from a substantial increase in interest rates and a conservative position in the hedge portfolio for equities. Our estimated combined risk based capital or RBC ratio Was between 450% and 4 70%, above our target of 400% To 4 50% in normal markets and down from an estimated range of 4 70% To 4 90% at June 30th. The largest driver of the sequential decline With capital used to fund new business growth, we believe that normal capital usage for growth Is approximately 5 RBC points per quarter and it was more than double this amount in the 3rd quarter.
We are excited to have the opportunity to deploy capital in new business. The franchise value for this company Is largely dependent on continuing the shift in our business mix toward lower risk, higher return products and away from legacy variable annuities. The new business trends in the Q3 have continued into the 4th. So we currently anticipate another quarter with above normal capital usage to fund growth. Therefore, We will assess capital development during the Q4 and decide whether it still is appropriate to take a 2 $50,000,000 dividend from Brighthouse Life Insurance Company before year end.
Combined total adjusted capital Or TAC was $8,000,000,000 at September 30, compared with $8,200,000,000 at June 30. The largest driver of the change in TAC was taxes, with the biggest portion being a reduction in admitted deferred tax Assets or DTAs. At the holding company, we ended the quarter with cash and liquid assets We feel very good about the position of our holding company as non dividend flows cover most of our fixed charges And we do not have any debt maturities until 2027. Before moving to adjusted earnings results, I would like to provide some perspective on the annual actuarial review and long duration targeted improvements or LDTI. As part of the annual actuarial review completed in the Q3 of 2022, We examined our long term assumptions, models and emerging experience.
On a GAAP basis, The impact to net income from the review was a net favorable $5,000,000 This included a $337,000,000 Positive impact from a 50 basis point increase in the assumed long term mean reversion rate for the 10 year U. S. Treasury From 3% to 3.5%. We continue to assume that mean reversion occurs over 10 years. Approximately 3 quarters of the interest rate related benefit impacted Universal Life with Secondary Guarantees for ULSG with the remainder in annuities.
There were 2 categories of items that offset the interest rate benefit. 1st, as a result of moving to a single model environment, we now have the ability to more Accurately model certain reinsurance agreements and the negative impact from this refinement was $124,000,000 after tax. 2nd, we had some policyholder behavior assumption updates, primarily in annuities. Updates related to policyholder behavior and mortality assumptions for our ULSG block of business were insignificant. Typically, the 3rd quarter actuarial review encompasses both GAAP and statutory assumptions.
We did not update statutory assumptions for variable annuities in the Q3. We are in the final stages of our annuity actuarial model conversion, which is our last model conversion. And we plan to complete this along with the VA statutory assumption updates in the Q4 of this year. Turning to LVTI. I want to begin with the reminder that the implementation of LVTI Has no impact on statutory accounting, distributable earnings or the underlying economics of our business.
As you know, a key element of our disciplined financial and risk management strategy is to manage the company on a statutory and cash basis to optimize distributable earnings. Our focus will remain on managing our statutory balance sheet post implementation of LDTI. However, the market risk benefit framework within LVTI can be a complementary tool that provides an alternate view of our VA liabilities. While LVTI accounting better aligns GAAP liability movements with our risk management approach. There are fundamental differences between the calculation of GAAP And statutory liabilities for VA and Shield.
As a result of these differences And our commitment to managing our statutory balance sheet, our GAAP financials will continue to exhibit volatility moving forward. We expect the new accounting standard to have a negative impact to total equity as of December 31, 2021 in the range of $6,000,000,000 to $8,000,000,000 As you can see on Slide 9 of the earnings presentation, the impact is split approximately half to retained earnings and half to accumulated other comprehensive income or AOCI. Importantly, with the significant rise in interest rates year to date through the Q3, We anticipate the total LVTI impact of stockholders' equity to be significantly improved With additional improvement in the expected impact based on current markets. Now turning to adjusted earnings results in the Q3. Adjusted earnings excluding the impact from notable items We're close to breakeven at a loss of $3,000,000 which compares with adjusted earnings on the same basis of $247,000,000 in the Q2 of 2022 $514,000,000 in the Q3 of 2021.
The notable items in the quarter, which on a combined basis benefited earnings By $100,000,000 after tax included a $117,000,000 net favorable impact Related to actuarial items in the quarter, including the annual actuarial assumption review And establishment costs of $17,000,000 Excluding the impact of these notable items, The results in the Q3 were primarily driven by adverse market factors, including negative alternative investment performance As a result of 2nd quarter market performance and the impact of the lower equity market in the 3rd quarter, Which drove actuarial adjustments and amortization of deferred acquisition costs or DAC and reserves. Net investment income was $182,000,000 or $2.53 per share below our quarterly run rate expectation, primarily driven by an alternative investment yield of negative 3.2% in the 3rd quarter. As a reminder, we expect 9% to 11% annual yield over the long term on our alternative investment portfolio. Asset growth mainly driven by continued strong annuity sales Was a benefit to net investment income. The decline in the equity market in the 3rd quarter Resulted in VA separate account returns of negative 5.4%.
This corresponded to actuarial adjustments, which drove an unfavorable impact to earnings of $83,000,000 post tax or $1.15 per share below our quarterly expectation and is reflected through higher DAC amortization and higher reserves in the annuity segment. Keep in mind, the quarter to quarter fluctuation we typically see in DAC amortization related to changes in the market Will not continue post implementation of LDTI. Turning to adjusted earnings by segment. The annuity segment reported adjusted earnings excluding notable items of $170,000,000 in the 3rd quarter. On a sequential basis, annuity results were primarily driven by the impact of lower VA separate account returns, which resulted in lower fees and higher reserves, partially offset by lower DAC amortization.
The Life segment reported an adjusted loss excluding notable items of $2,000,000 Sequentially, results were driven by lower net investment and income and higher expenses, partially offset by lower DAC amortization. The adjusted loss in the Runoff segment excluding notable items was $149,000,000 Sequentially, results reflect lower net investment income, a lower underwriting margin and higher expenses. Corporate and Other had an adjusted loss excluding notable items of $22,000,000 On a sequential basis, results were driven by higher net investment and income and lower expenses, partially offset by a lower tax benefit. In closing, I want to emphasize that our Top financial priority remains balance sheet strength. We continue to manage the company under a multi year, multi scenario framework to protect and support our distribution franchise.
Distribution is critical because ultimately it is growth that will drive the overall franchise value of this organization. With that, we would like to turn the call over to the operator for your questions. Thank
you. One moment while we compile the Q and A roster. Our first question comes from the line of Eric Bass with Autonomous. Your line is open. Please go ahead.
Hi, thank you. I was hoping you could provide some more Color on the implications of moving to a more strategic interest rate hedging program. Should we think of this materially raising the floor for
Hi, Eric, it's Ed. I mean, that's the goal. I would to give you some sense of size, if you look At year end 2021, when the 10 year treasury was 151, If we had the protection in place and the developments in the year to date related to rates And you look at where we would have been with the 10 year at 151 basis points, you would have had about 80 or 90 additional RBC So that gives you some sense of the type of benefit that we would see If rates were back down at the levels that we saw at year end 2021. I'd also add that if rates went lower, I mean, I think, Obviously, we had rates in the 50 to 100 basis point range for the 10 year. The gains associated with what we've done would be
Substantially more. Got it. Thank you. And is there a cost In terms of giving up any of the upside so that it kind of narrows the top end of the range or your upside scenario as well or?
Yes. I think it's fair to say that as we get To a level of rates that we consider to be more normal, right? I've said in the past that there's no reason Have a view directionally on interest rates once you get to a point that you consider it's more normal. So unlike equities where You have a business model that's predicated on stocks going up over time, which is borne out by both fundamentals and history. Rates, I think you get to a certain level and it's just whether it's going to go up or go down, you don't have a strong point of view.
So If you want to be in a more strategic position, as Eric said in his prepared remarks, I think by definition that means that You're not going to be benefiting one way or the other from rate movements to the extent that you want to protect yourself.
Got it. That makes sense. And then other questions, just you mentioned doing the VA stat review in the 4th quarter, And you had some policyholder behavior changes on a GAAP basis, at least in 3Q. Should we think of those being a read through at all in terms of what You may do on the statutory side, and if so just help us think of the impact there or the assumption base is different.
Yes. So as I said, the reason we are doing it in the 4th quarter is because we have the last model conversion occurring in the 4th quarter, which is VA. And so, it's premature for us to give any indication of what the impact of those two developments will be. And then the one last thing I want to just go back to your first question. When we're talking about protection here and rate impacts, It's obviously complicated, right?
And so when I'm talking about impacts, right, we think about, as you've heard me say repeatedly, Managing the company over a multi year, multi scenario framework. And so as you know, the interest rate impact will come in over time on the statutory framework. And so you have to balance the sort of how do you want to be positioned from a hedging standpoint In relation to how you will have those impacts flow into your statutory results over time.
Got it. Thank you.
Thank you. And one moment for our next question. Our next question comes from the line of Ryan Krueger with KBW. Your line is open. Please go ahead.
Hey, thanks. Good morning. First question was just following up on the variable annuity policyholder behavior update. Can you give a little bit more detail on What you changed in the GAAP review and maybe where you brought your ultimate lapse rate to?
Yes. Hi, Ryan. So, the first thing I would say is, as you heard in my prepared remarks, The big items we identified the impact from changing the mean reversion point and then The model refinement that we had as a result of being in our new Profit environment, which allows us to more model treaties on a more granular basis, right? You're left with like in the neighborhood of $200,000,000 if you just think about those two items and then the balance Of what the all other adjustments would be. You're talking about an $80,000,000,000 block of variable annuities.
So it's a big block and most of that $200,000,000 is going to relate to that. I would say that In terms of assumption updates, we had a slight benefit from mortality Assumptions for VA, and we had a slight negative impact from lapse rates. Again, I don't look at that number as being particularly significant relative to an $80,000,000,000 block. Also, we haven't had much in the way Of any real policyholder behavior adjustments in VA in recent years, this is not a big deal in my opinion. I think if you look at this question about what's your ultimate lapse rate, That's an impossible question to answer where I could give you a meaningful number.
Lapse rates, as You know, are going to vary by product type, guarantee levels, vintage, in the moneyness, out of the moneyness. And so a single lapse rate assumption is really not meaningful.
Thanks. Got it. Then on the potential Blick dividend in the Q4, Is growth the primary reason that you're considering if you want to still do that or not or does it also Relate to other factors as well.
Growth is the primary reason.
Okay. And then just one quick one. What how much of the how much of the fix of your fixed annuity business do you reinsure to Athene under that treaty? Can you give us any perspective on that?
Yes. Hey, Ryan. This is David. I'll take that one. So as you mentioned, we do reinsure a portion of sales to Athene.
We're not going to get into the details of the structure. But as we've said in the past, it is a Reinsurance agreement that does provide value to us and then we've said that in the past a few times on earnings calls. But this quarter, like Ed mentioned, we had the opportunity to deploy a meaningful amount of capital at an attractive return. And so we were Pleased to have the opportunity to do that.
Great. Thank you.
Thank you. And one moment for our next question. And our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.
Hi, thanks. Maybe going back to the RBC question a little bit. What level of growth, I guess, are you guys assuming For the Q4, obviously, the impact in RBC was greater than you normally expect in the Q3. So what are your expectations for the Q4? And Within what band of growth would you still consider a dividend, the $250,000,000 dividend in the quarter?
Hey, Elyse, it's Ed. So as I think you I said, we are seeing continuation of the trends we saw in the 3rd quarter In the Q4. And that's as far as we're going to go in terms of any indication of what Sales might be. And so, we're going to monitor it throughout the quarter to make a decision about whether we want to take the BLIC dividend. But this is good news for us.
If we think about the key driver of this story long term, it's really continuing to shift this business mix away from our legacy block of VA Toward these lower risk, higher profitability, better cash generative products that we sell today. And We love to return capital to shareholders. I mean, we've done a lot of it. I mean, 42% of shares outstanding since Separation at an average price of less than $38 a share, I mean, I think that's been a pretty value creating move at this point. But I would say that the primary thing we want to do is invest in this business to grow because ultimately to get the valuation we think we deserve, We need to continue to affect this mix shift.
Thanks. And then my second question is on the Life Sales, I mean those were flat sequentially. I know you highlighted some headwinds in your opening comments. So How are you thinking about just life sales trending from here, not just in the Q4, but really 'twenty three and beyond?
Hey, good morning. It's Myles. I'll take this question. So, I think I mentioned this on a prior call. I don't know how favorable the environment is right now for long term care cells, meaning that I just don't know how focused consumers are on this type of protection.
And I think as we look at what's happening in other sectors of the industry, if they're looking to purchase long term care insurance, It's probably a fixed product. And as I've spoke about on prior calls, SmartCare is a product where future benefits are tied into indices performance. Here's what I would say, we're focused on executing on our strategy. The SmartCare launch has been A great success for us and we're going to continue to expand distribution and we're going to introduce a new product next year so that we're focused on continuing to grow sales.
Okay. Thanks for the color. Thank you. And one moment for our next question. And our next question comes from the line of John Barnidge with Piper Sandler.
Your line is open. Please go ahead.
Thank you very much for the opportunity and good morning. Can you talk maybe about the lower underwriting margin in Life and Runoffs cited Outlook for durability of that isn't coming from a certain age cohort? I know there were some severity cited.
Hey, John, it's Ed. So you've heard me say in the past about Normal direct claims being in the range of $400,000,000 to $500,000,000 in a quarter. We were above the normal range this quarter. We had some higher severity. The reinsurance offset was a little bit better than I think is normal.
But I would say in the context certainly in the context of the market factors this quarter, underwriting is not really A meaningful story here. It is worse sequentially. It is worse year over year. You will see fluctuations, Obviously, overall and on a segment level basis, I mean, there really isn't a story to tell here on runoff Underwriting this quarter.
Okay. That's helpful. And then If I look at the NII of $182,000,000 below plan and actuarial adjustments of $83,000,000 below expectations and add that back, does that The $375,000,000 to just normal core earnings power in normal markets at this point with higher rates?
Hey, John. I think you're a little high on those on that number with Just those two adjustments. I don't know if you're making some other adjustment. I mean, I would say that if you look at some of the numbers that we have talked about in terms of Over the past few quarters, I've trying to kind of help with run rate. I think they've Generally, Ben, in the neighborhood of $3.50 I would say you're probably Plus that amount now and certainly if you make just those two adjustments, you'll come up with something that's a little bit above 360, I believe.
Okay. Thank you very much for the answers and best of luck in the quarter ahead.
Thank you.
Thank you. And one moment for our next question. Our next question comes from the line of Nik Kamath with Jefferies. Your line is open. Please go ahead.
Yes, thanks. Good morning. So just wanted to start on LDTI. Appreciate the balance sheet disclosure, but we're starting to hear from some companies On the operating earnings impact and as I think about what we're hearing from some VA focused companies, it's actually quite different with one company guiding to Pretty sizable decline in earnings in another company guiding to very little impact if any. So just curious if from a directional perspective, there's anything that you can provide at this point?
Sure. Good morning, Suneet. I think it's fair to say that adjusted earnings will Probably be somewhat less under LDTI than under current GAAP accounting. And I think it's for some of the reasons you may have heard from some others. I mean, A portion of it is going to be we'll have more attributed fees to VA below the line.
And the second piece would be There will no longer be any bifurcation of DAC amortization. Obviously, as you know, DAC amortization It's simplified to say the least relative to the current model and it's all going to be above the line now. So I think those two factors would suggest that adjusted earnings would be lower under LDTI than current GAAP, But we're not going to provide any specific detail on the income statement at this point.
Okay, got it. That's helpful. And then I guess As we think about growth, I hear what you're saying about the Blick dividend, but if we're really seeing sizable new opportunities, whether it's In annuities or in your institutional spread base, is there a thought to potentially putting more capital in or you just going to leave the capital that's in there and not infuse anything incremental from where we sit today. Thanks.
Yes. I mean, we feel very good about our statutory position. We're sitting here knee deep in a bear market with a 4.50 to 4.70 RBC ratio relative to our 400% to 4 percent normal markets target. So and a $1,000,000,000 plus cash at the holding company with no debt Coming due until 2027 and non dividend flows that cover most of our holding company obligations. So We feel like we're in a very good position.
I don't envision the need to put capital into the operating company to fund growth.
Got it. Thanks, Ed.
Thank you. And one moment for our next question. And our next question comes from the line of Tracy Baniglia with Barclays. Your line is open. Please go ahead.
Thank you. Good morning. You mentioned a stat review in the Q4 for VA risk, but what about your stat review on ULSG at BRCD? At least for GAAP, you mentioned that 3 quarters of the positive impact of raising your reversion to the mean assumption is benefiting ULSG. So when you look at your stock reserves, I believe the interest rate assumptions are prescribed, but could you see any benefit on BRCD as a result?
Hi, Tracy. So we said last quarter about nature of stat for ULSG. Just to add to that, we had no updates. I think I said in my prepared remarks, no real updates or impacts from ULSG in our 3rd quarter assumption update On GAAP, if you look at the numbers on stat, most of our block of business today has 0% Assumed lapse rate on stat and all of it will be at 0 by 2027. And if you were to take the point in time average lapse rate today, which includes surrenders, it's less than 50 basis points.
So On a stat basis, obviously, there's a lot of conservatism, which is not surprising considering the fact that statutory reserves for us for ULSG are around $25,000,000,000 versus a GAAP number that's more like, let's say, $16,000,000 plus or minus. From a cash flow testing standpoint, you heard me talk a lot about the significant Low rate protection we had at BRCD and why we felt good about where we were positioned when rates were low, I mean, obviously, that goes in the other direction. Rates go up. We alleviate some pressure on the investment side for that block of business, and then we also have the related hedge losses associated with that. So, I think we're in a good position.
I mean, I think The question, obviously, ULSG is getting a lot of attention right now. This is a block of business that got a lot of attention from us prior to separation. We took like $3,000,000,000 of GAAP charges for this thing. So it was scrubbed before separation. We've obviously Talked a lot about BRCD.
We've taken capital out of BRCD. And if we look at where we're positioned today, we feel good. I mean cash flow testing results will be Done based on the end of September balance sheet. So we're in the process of doing that now for BRCD. So there's nothing to report, but hopefully some of that background provides some context for you.
Yes. I completely recall your comments last quarter. I just heard from one of your competitors that when they were entering their exercise this year, They were thinking there might be some padding with respect to interest rates given they were at a better spot this year versus last. So on that comment on doing that cash flow testing, it was more on the opposite perspective. If there could be any benefit given what you said that you were able to take out capital from BRCD in the past.
Yes, I wouldn't be. Yes. So I've talked about BRCD. It's a runoff block of business, right? We're happy that we've been able to take some capital out, But I would not be looking at BRCD as a source of capital coming to this company going forward, at least in the immediate future.
Yes.
Okay. And then on the FA sales, I can see why growing there is compelling given higher interest rates, but usually crediting rates also rise. So where is that heading just to give us a sense of attractiveness of those spreads?
Hey, Tracy. This is David. I'll start with that. So as part of our partnership With Athene on reinsurance, we have been able to provide attractive rates and you could see that These sales really started increasing for us late in Q2 and we were able to Maintain consistent competitive rates across all of our fixed rate products and that really continued into 3Q. So We continue to monitor the environment and make adjustments if necessary, but as we talked about in the prepared remarks, really Comfortable with where we are at from a return and pricing perspective.
Because I remember we were lower for longer. I think It was something like 1%. I don't know if you could give us a sense of what the new minimum amount would be?
The minimum guarantee? Yes. It is north of 1%. I don't have the number offhand, but we did just adjust that Upwards back in September timeframe.
Thank you. Thank you. And one moment for our next question. Our next question comes from the line of Alex Scott with Goldman Sachs. Your line is open.
Please go ahead.
Hey, thanks for taking the question. First one I had is on the variable annuity Statutory review in 4Q, I think you mentioned that usually that's finished in 3Q, but there's some Completion of the system conversion is still ongoing. When I think about the actuarial changes you made this I don't think the ultimate mean reversion for rates translates, but the pieces of it that had a bit of a negative impact May, I'm not sure. So I just wanted to ask you about like how much of the changes you made on GAAP actually translate to statutory? And what are you thinking for the system conversion?
I mean, should I think about that? Isn't that I mean, I think when we've seen these things in the past with other companies, more often than not has a negative impact. So I was just interested in any commentary you could give there.
Hey, Alex. Look, we're not going to sort of talk about pieces of the 4th quarter actuarial assumption update
And the related model conversions.
I mean, there's a lot of stuff and I think picking out any one piece and focusing on it is premature. I would say when you look at model conversions that we have had, we have had pluses and we have had minuses. So I don't think there's been any specific trend in terms of a model conversion leads to X. We haven't seen that. We'll have to wait and see what the Q4 conversion brings for us in VA.
But It's just again, it's premature to talk about any impact for the Q4 on a stat basis.
Got it. I appreciate all that. So second question I had is on how to think about Just the total capital generation of the company heading into next year, I mean, I do tend to like to give some credit for the amount of Growth capital you're putting to work and it sounds like that's a little bit bigger piece of the picture here. So I just Was hoping to understand the changes in hedging, the gross capital, how does that all factor into distributable earnings As a baseline heading into next year and maybe if you can tell us about How you think about a budget for growth capital and how we can think about those two things together?
Yes, Alex, there's a lot of good stuff wrapped up in the question. I would say that We're going through the 3 year planning process right now. We will be providing you some update On our view of this multi year, multi scenario framework for distributable earnings next year, It's just early right now to give you any specifics. I think though this An earlier question from Eric, I think about trying to narrow the ranges of outcomes under different market scenarios. We feel really good about the rate protection we put into place and to have the opportunity to do that.
And we feel really good about continuing to shift the business mix, which will, by its nature lead to less volatile cash flows. So things are pointing in the right direction, for what we're trying to achieve. And next year, we'll try to give you
Hey, Alex, it's Eric. Maybe I'll jump in for a second too. Look, we've been waiting a long time for higher rates. A bunch of you have asked questions here about the protection we put on and I'll just repeat What I said earlier, which is we've gone from sort of a tactical situation for a number of years here to a strategic situation in rates. Now when you think about growth, we're in a position now where we're not only selling our flagship product, Shield, but we've got an opportunity to sell a fair amount of fixed annuities.
And to Miles' question that he got, We absolutely will put out yet another life insurance product next year. So we've been super pleased with our ability to buy back shares, But now I sort of feel like the growth element is picking up and were that to continue into next year, I mean That's exactly our strategy unfolding the way we hoped it possibly could. So maybe that helped a little.
Yes. That's all helpful. Thank you.
Thank you. One moment for our next question. And our next question comes from the line of Thomas Gallagher with Evercore ISI, your line is open. Please go ahead.
Good morning. First question is, It makes sense to me that you're waiting on a decision on the dividend, deciding whether to take a dividend at a blick until I guess there's the growth capital and then there's this review and seeing how that impacts the RBC. Assuming there is some kind of adverse impact and you don't take a dividend out, how should we think about holding company cash? How low would you be willing to take that level of buybacks? I think in the past, I think you had talked about a $400,000,000 Holding company target, which would give you considerable room, I just I haven't heard you commented on that in a while.
Curious how we should think about that?
Yes. Hi, Tom. So I never said $400,000,000 What I have said is that a Holding company target.
Sorry, Ed, your predecessor, I think might have said that.
Well, you might okay. So, What I have said about holding company cash is philosophically, number 1, when you're a financial company, when you're an insurance company, having a lot of holding company cash, A good position at the holding company is a good thing. Number 2, you'd never want to assume that you can roll your debt in my opinion. And so, the amount of cash that you want to have is going to flex based on what your debt towers look like. So, I mean, obviously, we've done a lot to get to our target capital structure, including substantial lengthening of our capital structure late last year.
So we've got a lot of long term funding At what we consider to be attractive pricing late last year and we don't have any debt coming due until 2027. So we're in a good position there. The question about how much of your holding company cash do you want to use, I mean, I just think You want to be conservative and we feel very good about where we sit today with holding company cash. And I think the combination of where we are at the statutory entity and at the holding company Is a good position to be in. And when we think about dividends, right, we think about it a little differently perhaps than some other companies from the standpoint of We don't have there's not a lot of optionality to have cash to holding company for us from a subsidiary standpoint, because If we needed capital somewhere, we know exactly where we would need it, right?
Unlike other companies that have a bunch of different subsidiaries, Getting everything to the holding company and then figuring out where you might want to put it when something bad happens, you've got optionality. It's less of an issue For us here, considering the nature of our business and the fact that all the risks that we have that we know would be that's volatile is in BLIC. So it's a long winded way to say that having a cushion at the holding company is a good thing. It gives us flexibility And some of that flexibility relates to the decision making about the Blick dividend here in the 4th quarter.
Okay. And I guess so $1,000,000,000 is not some magic line in the sand. I assume you would Continue with the strong pace of buybacks even if you dip below that. Is that a fair conclusion at this point? $1,000,000,000 is not a line in
the sand. And what we have consistently said on buyback is, We'll tell you what we do after we do it. We have obviously returned a lot of capital to shareholders And we've done it at very attractive prices. And we understand the importance of capital return to shareholders and financial services companies.
Okay. And then my follow-up is, how I heard everything you've said on the Change in rate hedging, which I think makes a lot of sense. How would you describe your position at this moment and where do you want to get Are you fully hedged economically on interest rates? Are you 80%? Just give any perspective on Where you are on an economic basis as it relates to your interest rate exposure and then with the plan B to still keep Some level of under hedging or any perspective on that would be appreciated.
Yes. So We measure ourselves and manage the company based on statutory and cash. And so all the decisions that We are making on our hedging portfolio is based on how do we think about those two factors. And so, I wouldn't say we're done, but we've done a lot. And I think that the comment I made earlier about once you get to a level of rates that you consider to be more normal, That you're not going to place a big directional bet on rates one way or the other.
Within the Statutory framework that we're talking about and managing that risk within that framework.
Okay. And can I just slip one more in? Just I have to ask this one on the fixed annuity sales. Whenever I see a spike in a commodity product like fixed annuities, you got to question whether that it's a blue light special going on here And whether you need to reprice. So curious, I'm sure that caught your attention when you all saw the spike And if your degree of confidence and comfort competitively that you haven't mispriced something and that you're very happy with the returns there.
I would say let me start. I think some others want to chime in here. You and I were side by side for many years asking those very same questions. I can tell you that we feel very good about the profitability of the business we've written this year.
Hey, Tom, it's Eric. I just have to comment on the was it the blue light special?
Blue light special? Blue
light special. Blue light special.
I'll lose my blue plate.
Okay. There's no blue light special. No issues with your question, obviously. But this company is run by a lot of financial professionals, and we don't do blue light specials. But David, you want to add anything?
No, I think you 2 covered it.
Okay. Thanks guys.
Thank you. And one moment. We do have a follow-up question from Tracy Banghi with Barclays. Your line is open. Please go ahead.
Thank you for taking me back in the queue. Just going back to your VA lapse rate assumptions, so your assumption update, how does it look
Hey, Tracy, it's Ed. I would say, let me let us follow-up with you on that. Okay. I would say I'm thinking in line, but let's just follow-up and make sure that and I guess I would also say that We're talking about you're asking me a sort of a statutory question before we've done the statutory review, Right. So I would caveat that to say that this is kind of a backward looking answer that I just gave you and we'll verify and follow-up.
Okay. Thank you. And I'm showing no further questions at this time. And I'd like to hand the conference back over to Dana Amanti for any further remarks.
Thank you, Michelle, and thank you all for joining us today and for your interest in Brighthouse Financial. Have a great day.