Brighthouse Financial, Inc. (BHFAM)

Brighthouse Financial is a company that sells insurance. Not car insurance or home insurance, but life insurance and retirement products called annuities. The company takes money from customers, invests it, and promises to pay that money back later — either as a guaranteed income for life, or to your family if you die. Think of it as a middleman between people saving for retirement and the investment markets.

The company has about 2 million customers and manages over 2 million active insurance contracts. That makes it one of the larger insurance companies in America, although not the largest. It is smaller than companies like MetLife or Prudential, but it is still a major player in life insurance and retirement savings.

Why this company exists

Brighthouse started in 2017 when MetLife decided to spin it off as a separate company. MetLife is a giant insurance conglomerate — one of the biggest in the world. It had so many different insurance products that it became complicated to run. So MetLife took out the life insurance and annuity business, made it its own company, and called it Brighthouse. The idea was that a smaller, focused company could run the insurance business better than a giant could.

When you spin off part of a big company, you are not starting fresh. Brighthouse inherited millions of insurance contracts that MetLife had already sold to customers. Some of those contracts were very old — people had been paying into them for decades. Brighthouse had to manage all of those contracts and keep the customers happy while also trying to grow and sell new insurance products.

What Brighthouse actually does: the three main lines

Brighthouse sells three types of products. The biggest is annuities.

Annuities. An annuity is a deal: you give Brighthouse a large chunk of money (say, $500,000 from a retirement account), and Brighthouse promises to pay you a fixed amount every month for the rest of your life. You get security and predictability. Brighthouse gets your money upfront and invests it, keeping whatever extra it earns. There are different kinds of annuities. Some give you a guaranteed amount no matter what happens in the stock market. Others give you a return that goes up and down with the market, but with a floor — Brighthouse guarantees you will not lose more than a certain percentage. Annuities appeal to older people nearing retirement who want to stop worrying about market swings and just have stable income.

Life insurance. Term life, whole life, and variable life. The idea is simple: you pay a monthly or annual premium. If you die, Brighthouse pays a death benefit to your family. Term life is cheapest and covers you for a set number of years. Whole life covers you for your entire life and builds cash value as you pay in — money that you can borrow against or withdraw if you need it. Life insurance is how people protect their families financially. It is unsexy but important.

Run-off products. These are old products Brighthouse is no longer actively selling. They are products like universal life insurance (a hybrid between term and whole life) or pension contracts that companies used to buy for their employees. Brighthouse keeps managing these because it has a legal obligation to customers, and it slowly collects the last premiums as policies lapse or people pass away.

The money side: how Brighthouse makes money

Customers pay premiums (monthly or yearly payments). Those premiums sit in Brighthouse’s accounts and grow. Brighthouse invests this money in stocks, bonds, real estate, and other assets. If the investments earn 5 percent annually and Brighthouse only promised customers 3 percent, Brighthouse keeps the 2 percent difference. That is spread income — the gap between what Brighthouse earns and what it promises to pay out.

But there are costs. Brighthouse has to pay claims. If you die, it pays your family. If you retire and take annuity payments, it pays you every month for decades. Brighthouse also has employees, offices, and systems to run. It has to set aside reserves — money it does not touch — in case claims turn out to be bigger than expected.

The trick to profitability is investing wisely and pricing products correctly. If Brighthouse promises too much return, it has to invest aggressively and hope the bets work out. If it prices products too cheaply, customers get a good deal but the company does not earn enough spread. The company has to balance being competitive against being profitable.

The shift from variable to fixed

For decades, insurance companies sold a lot of variable annuities. These products put the investment risk on the customer — your money goes into a basket of stocks, and your return depends on how the market does. But Brighthouse guaranteed a floor. If the stock market crashes 30 percent, your guaranteed floor might say you only lose 10 percent. Brighthouse has to make up that gap if markets go down too much. This is expensive to manage and risky.

In recent years, Brighthouse and other insurers have been moving away from variable annuities toward fixed and indexed annuities. Fixed annuities guarantee a specific return, period. Indexed annuities give you returns tied to a stock index but with a floor and a cap. These are simpler and less risky for the insurance company.

In 2023 and 2024, Brighthouse did a major deal: it sold off a huge chunk of its variable-annuity liabilities to another company through reinsurance. In plain English, it said to another insurer: “Here are all these variable annuity contracts with guarantees. You take them over, and you collect the premiums and pay the claims. We will pay you a fee.” This got the risk off Brighthouse’s books. The downside is that Brighthouse no longer earns the spread income from those contracts. But the company no longer has to worry about big losses if markets tank either.

The pressures Brighthouse faces

Market swings. When the stock market crashes, Brighthouse’s variable-annuity guarantees become more expensive to manage. When bond yields fall, it is harder to find good investments for customer premiums. Neither of these things is under Brighthouse’s control.

People living longer than expected. Brighthouse estimates how long people will live and sets aside enough money to pay lifetime annuities. If people live longer than expected, the company has to keep paying longer and spends more money than planned. This has been happening — people are living longer than insurance actuaries expected decades ago.

Regulation and taxes. Insurance is heavily regulated. Rules change. Regulators make insurance companies hold more capital (cash and liquid assets) to be safe. New tax rules can shift the economics of insurance products. These changes usually make insurance less profitable or more complicated.

Big competitors. Insurers like MetLife, Prudential, and Voya are enormous. They have more scale, cheaper capital, and bigger sales forces. Brighthouse is medium-sized. It has to be scrappy and efficient to compete.

How to understand Brighthouse as an investment

If you own Brighthouse shares, you are betting that the company will earn solid spreads on its insurance portfolio, manage its risks well, and return capital to shareholders through dividends and stock buybacks.

Read the quarterly earnings reports (filed with the SEC under CIK 0001685040). Pay attention to whether sales are growing (for life insurance, they were up in 2024, which is good; for annuities, they were flat, which is not). Look at how much profit the company made from each business line.

Watch the company’s capital levels. Insurance regulators watch this carefully, and if Brighthouse’s capital falls too low, it has to raise money or stop paying dividends.

Finally, compare Brighthouse to other insurers. Is it more profitable? Does it earn higher returns on its money? Is it managing its investment portfolio better? These comparisons help you understand if the company is running a tight ship or struggling.