Quantitative and Qualitative Disclosures About Market Risk
+Added: The quantitative and qualitative disclosures about Market Risk reflect the impact of the adoption of LDTI, including the requirement that all variable annuity guarantees are classified as MRBs and measured at fair value.
Risk Management
1 unchanged sentence
The process is designed to assess and manage exposures on a consolidated, company-wide basis.
−Removed: Brighthouse Financial, Inc.
−Removed: has established a Balance Sheet Committee (“BSC”).
−Removed: The BSC is responsible for periodically reviewing all material financial risks to us and, in the event risks exceed desired tolerances, informs the Finance and Risk Committee of the Board of Directors, considers possible courses of action and determines how best to resolve or mitigate such risks.
+Added: The Brighthouse Financial Balance Sheet Committee (“BSC”) is responsible for periodically reviewing all material financial risks and, in the event risks exceed desired tolerances, informs the Finance and Risk Committee of the Board of Directors, considers possible courses of action and determines how best to resolve or mitigate such risks.
In taking such actions, the BSC considers industry best practices and the current economic environment.
5 unchanged sentences
Managing Interest Rate Risk
−Removed: We manage interest rate risk as part of our asset and liability management strategies, which include (i) maintaining an investment portfolio that has a weighted average duration approximately equal to the duration of our estimated liability cash flow profile, and (ii) maintaining hedging programs, including a macro interest rate hedging program.
+Added: We manage interest rate risk as part of our asset and liability management strategies, which include (i) maintaining an investment portfolio that has a weighted average duration approximately equal to the duration of our estimated liability cash flow profile, and (ii) maintaining hedging programs.
For certain of our liability portfolios, it is not possible to invest assets to the full liability duration, thereby creating some asset/liability mismatch.
−Removed: Where a liability cash flow may exceed the maturity of available assets, as is the case with certain retirement products, we may support such liabilities with equity investments, derivatives or other mismatch mitigation strategies.
−Removed: Although we take measures to manage the economic risks of investing in a changing interest rate environment, we may not be able to mitigate completely the interest rate or other mismatch risk of our fixed income investments relative to our interest rate sensitive liabilities.
+Added: Where a liability cash flow may exceed the maturity of available assets, as is the case with certain life insurance and annuity products, we may support such liabilities with equity investments, derivatives or other mismatch mitigation strategies.
+Added: Although we take measures to manage the economic risks of investing in a changing interest rate environment, we may not be able to mitigate completely
+Added: the interest rate or other mismatch risk of our fixed income investments relative to our interest rate sensitive liabilities.
The level of interest rates also affects our liabilities for benefits under our annuity contracts.
1 unchanged sentence
We also employ product design and pricing strategies to mitigate the potential effects of interest rate movements.
−Removed: These strategies include the use of surrender charges or restrictions on withdrawals in some products and the ability to reset crediting rates for certain products.
+Added: These strategies include the use of surrender charges, market value adjustment features or restrictions on withdrawals, and for certain products, the ability to reset crediting rates.
We analyze interest rate risk using various models, including multi-scenario cash flow projection models that forecast cash flows of the liabilities and their supporting investments, including derivatives.
8 unchanged sentences
Managing Equity Market and Foreign Currency Risks
−Removed: We manage equity market risk in a coordinated process across our Risk Management, Investment and Finance Departments primarily by holding sufficient capital to permit us to absorb modest losses, which may be temporary, from changes in equity markets and interest rates without adversely affecting our financial strength ratings and through the use of derivatives, such as equity futures, equity index options contracts, equity variance swaps and equity total return swaps.
−Removed: We may also employ reinsurance strategies to manage these exposures.
+Added: We manage equity market risk in a coordinated process across our Risk Management, Investment and Finance Departments primarily by (i) holding sufficient capital to permit us to absorb modest losses, which may be temporary, from changes in equity markets and interest rates, and (ii) through the use of derivatives.
+Added: We also employ product design strategies to mitigate the effect of changes in equity markets such as prioritizing products that provide a risk offset and diversification to our legacy variable products.
Key management objectives include limiting losses, minimizing exposures to significant risks and providing additional capital capacity for future growth.
4 unchanged sentences
As a result of that analysis, we have determined that the estimated fair values of certain assets and liabilities are significantly exposed to changes in interest rates, and to a lesser extent, to changes in equity market prices and foreign currency exchange rates.
−Removed: We have exposure to market risk through our insurance and annuity operations and general account investment activities.
+Added: We have exposure to market risk through our insurance operations and general account investment activities.
For purposes of this discussion, “market risk” is defined as changes in estimated fair value resulting from changes in interest rates, equity market prices, credit spreads and foreign currency exchange rates.
3 unchanged sentences
Our fair value exposure to changes in interest rates arises most significantly from our interest rate sensitive liabilities and our holdings of fixed maturity securities, mortgage loans and derivatives that are used to support our policyholder liabilities.
−Removed: Our interest rate sensitive liabilities include long-term debt, policyholder account balances related to certain investment-type contracts, and embedded derivatives in variable annuity contracts with guaranteed minimum benefits.
+Added: Our interest rate sensitive liabilities include long-term debt, policyholder account balances related to certain investment contracts and variable annuity guarantees accounted for as MRBs.
Our fixed maturity securities including U.S.
and foreign government bonds, securities issued by government agencies, corporate bonds, mortgage-backed and other ABS, and our commercial, agricultural and residential mortgage loans, are exposed to changes in interest rates.
−Removed: We also use derivatives including swaps, caps, floors, forwards and options to mitigate the exposure related to interest rate risks from our product liabilities.
+Added: We also use interest rate derivatives to mitigate the exposure related to interest rate risks from our policyholder liabilities.
Equity Market
−Removed: Along with investments in equity securities, we have fair value exposure to equity market risk through certain liabilities that involve long-term guarantees on equity performance such as embedded derivatives in variable annuity contracts with guaranteed minimum benefits, as well as certain policyholder account balances.
−Removed: In addition, we have exposure to equity markets through derivatives including options and swaps that we enter into to mitigate potential equity market exposure from our product liabilities.
+Added: Our fair value exposure to equity market risk primarily arises from policyholder liabilities with long-term guarantees on equity performance, including crediting rates on index-linked annuities accounted for as embedded derivatives and variable annuity guarantees.
+Added: In addition, we have exposure to equity markets through equity derivatives that we enter into to mitigate potential equity market exposure from our policyholder liabilities.
Foreign Currency Exchange Rates
19 unchanged sentences
Limitations related to this sensitivity analysis include:
−Removed: • interest sensitive liabilities do not include $45.0 billion of insurance contracts at December 31, 2022, which are accounted for on a book value basis.
+Added: • interest sensitive liabilities do not include $36.4 billion of insurance contract liabilities at December 31, 2023.
Management believes that the changes in the economic value of those contracts under changing interest rates would offset a significant portion of the fair value changes of interest sensitive assets;
• the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the impact of prepayment rates on mortgage loans;
−Removed: • foreign currency exchange rate risk is not isolated for certain embedded derivatives within host asset and liability contracts, as the risk on these instruments is reflected as equity;
• for derivatives that qualify for hedge accounting, the impact on reported earnings may be materially different from the change in market values;
12 unchanged sentences
Premiums, reinsurance and other receivables $ 7,724 (117)
−Removed: Embedded derivatives within asset host contracts (2) $ 117 (32)
+Added: Reinsurance of market risk benefits $ 43 (30)
Increase (decrease) in estimated fair value of assets (6,371)
3 unchanged sentences
Other liabilities $ 1,142 (7)
−Removed: Embedded derivatives within liability host contracts (2) $ 5,387 500
+Added: Embedded derivatives on index-linked annuities (3) $ 8,186 (85)
(Increase) decrease in estimated fair value of liabilities 260
+Added: Market risk benefits associated with variable annuities $ 9,701 (3,025)
Derivative instruments with interest rate risk
Interest rate contracts $ 92,499 $ (1,964) (1,730)
−Removed: Equity contracts $ 50,138 $ 119 6
Foreign currency contracts $ 5,221 $ 394 (26)
+Added: Equity contracts $ 74,111 $ 169 13
Increase (decrease) in estimated fair value of derivative instruments (1,743)
2 unchanged sentences
(1) Separate account assets and liabilities, which are interest rate sensitive, are not included herein as any interest rate risk is borne by the contract holder.
−Removed: (2) Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
(2) Excludes $36.4 billion of liabilities at carrying value pursuant to insurance contracts reported within future policy benefits and other policy-related balances on the consolidated balance sheet at December 31, 2023.
Management believes that the changes in the economic value of those contracts under changing interest rates would offset a significant portion of the fair value changes of interest rate sensitive assets.
+Added: (3) Embedded derivatives on index-linked annuities are recognized on the consolidated balance sheet in the same caption as the host contract.
Sensitivity Summary
−Removed: Sensitivity to a 100 basis point rise in interest rates decreased by $1.1 billion, or 12%, to $7.8 billion at December 31, 2022 from $8.9 billion at December 31, 2021, primarily as a result of a decrease in the estimated fair value of our fixed maturity securities due to higher interest rates, in line with management expectation.
−Removed: Sensitivity to a 10% rise in equity prices decreased by $297 million, or 28%, to $764 million at December 31, 2022 from $1.1 billion at December 31, 2021.
+Added: Sensitivity to a 100 basis point rise in interest rates was $4.8 billion at December 31, 2023.
+Added: Sensitivity to a 10% decrease in equity prices was $89 million at December 31, 2023.
As discussed above, we economically hedge substantially all of our foreign currency exposure such that sensitivity to changes in foreign currencies is minimal.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.