Brighthouse Financial, Inc.

Good morning, ladies and gentlemen, and welcome to Bright House Financial's First Quarter 2024 Earnings Conference Call. My name is Norma, and I'll 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 Amante, head of Investor Relations. Ms. Amante, you may proceed.

Thank you, and good morning. Welcome to Bright House Financial's First Quarter 2024 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 Stagerwald, our president and chief executive officer, and Ed Spiehar, 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 Miles Lambert, our chief distribution and marketing officer, David Rosenbaum, head of product and underwriting, and John Rosenthal, our chief investment officer. Before we begin, I'd like to note that our discussion during this call may include forward-looking statements within the meaning of the federal securities laws. Bright House Financial's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risks and uncertainties described from time to time in Bright House Financial's filings with the SEC. Information discussed on today's call speaks only as of today, May 8th, 2024. 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, also known as non-GAT measures. Reconciliation of these non-GAT measures on a historical basis to the most directly comparable GAT measures and related definitions may be found 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 statement. And now I'll turn the call over to our CEO, Eric Stagerwald.

Thank you, Dana. Good morning, and thank you to everyone for joining today's call. Bright House Financial's first quarter results demonstrate the steady execution of our strategy. During the quarter, we maintained a strong balance sheet, continued to focus on executing our growth strategy, and sustained a disciplined approach to expense management. As you've heard us say in the past, the strength of our balance sheet is essential to support our distribution franchise, and we continue to focus on prudent financial and risk management. We ended the first quarter with $1.3 billion of liquid assets at the holding company, and an estimated risk-based capital, or RBC ratio, between 415% and 435%, which is in the middle of our target range of 400% to 450% in normal markets. Our strong RBC ratio and robust holding company liquid assets support our ability to consistently return capital to shareholders through our common stock repurchase program. In the first quarter of 2024, we returned $62 million of capital to shareholders through repurchases of our common stock. Since we began our common stock repurchase program in 2018, through the first quarter of 2024, we have reduced shares outstanding by just short of 50%. We remain committed to returning capital to our shareholders, and through May 3rd, have repurchased an additional $27 million of common stock. Now, I would like to take a moment to talk about the success of our distribution franchise. The execution of our growth strategy is focused on providing a complimentary suite of annuity and life insurance products designed to help people achieve financial security. I am very pleased with our first quarter 2024 annuity sales, especially with the continued steady growth in our Shield annuity product suite, as we remain a leader in the registered index-linked annuity, or RYLA market. Our total Shield annuity sales were $1.9 billion for the first quarter of 2024, a 2% increase sequentially, and a 20% increase compared with the first quarter of 2023. Additionally, we are very pleased with our fixed indexed annuity, or FIA sales, with $191 million of total FIA sales in the first quarter driven by our SecureKey product. As I mentioned on our fourth quarter call, in November of 2023, we launched our new FIA, SecureKey, expanding our distribution footprint in the fixed indexed annuity market. Fixed deferred annuities were also a strong driver of total annuity sales in the first quarter, with $637 million of sales. This is down from the fourth quarter of 2023, as expected. Overall, our annuity sales totaled $2.9 billion in the first quarter, an increase of 5% sequentially, and 3% compared with the first quarter of 2023. These strong annuity sales results demonstrate the strength and complimentary nature of Bright House Financial's annuity product portfolio. First quarter annuity net outflows were approximately $1.5 billion. As we discussed last quarter, annuity outflows were elevated in 2023, given the interest rate environment, coupled with business coming out of the surrender charge period. And we expected elevated surrenders in 2024. That was the case for the first quarter, with outflows in line with the fourth quarter of 2023, partially offset by continued strong annuity sales. Over the last several years, the combination of our steady annuity sales growth and the outflows of legacy business has led to a meaningful shift in our business mix away from the legacy block of higher capital intensive business to more spread-based, less capital intensive business. On an account value basis, spread-based business made up roughly 15% of our annuity product mix in 2016, and approximately 40% at the end of 2023, and is expected to make up approximately 55% by the end of 2027. In the past, we have talked about our SHIELD business as a natural offset to the equity risk on our legacy VA business. With the growth we have seen with SHIELD sales, which has helped drive the significant shift in business mix, we have now achieved a point of balance for equity market risk. This demonstrates the success of our core strategy to diversify away from our legacy block of business. Turning to life insurance sales, we continue to see steady sales in our life insurance product suite with $29 million in the first quarter, a 26% increase compared with the first quarter of 2023. Overall, our first quarter sales results were a strong start to the year, and I am especially pleased that on April 24th, we joined BlackRock in announcing that BlackRock's Life Path Paycheck is now available in defined contribution plans. Life Path Paycheck offers US workers an opportunity to access a guaranteed income stream in retirement. This solution is a target date strategy that will over time include an allocation to innovative annuity contracts to be issued by Bright House Financial and another selected insurer. This is a significant breakthrough for the industry, and it's exciting to see plan participants already beginning to take advantage of this solution. As I mentioned last quarter, BlackRock is currently working with 14 plan sponsors to implement Life Path Paycheck as an investment option for their employees defined contribution plan. These 14 plan sponsors, with plans totaling $27 billion in target date assets, are planning to make this solution available to over 500,000 employees. As a company whose mission is to help people achieve financial security, Bright House is pleased to assist even more Americans with preparing for retirement through Life Path Paycheck, and we are excited to work with BlackRock on this solution. In supporting our distribution franchise, along with our focus on balance sheet strength, we recognize that maintaining a disciplined approach to expense management is

extremely important.

Our corporate expenses in the first quarter of 2024 were $207 million on a pre-tax basis, which was down 1% compared with the first quarter of 2023 and down 15% sequentially. First quarter expenses are typically lower, driven by seasonality. However, with our continued commitment to controlling expenses and realizing efficiency gains, we do expect 2024 full year corporate expenses to be lower than 2023. We remain committed to executing on our growth strategy with continued growth in our shield product suite and expanded presence in the fixed index annuity market and our entrance into the worksite channel through working with BlackRock on its Life Path Paycheck solution. Our focus remains on balance sheet strength and controlling expenses, and we continue to return capital to shareholders supported by our strong RBC ratio and robust holding company liquid assets. I will now turn the call over to Ed to discuss our first quarter financial results in some more detail.

Thank you, Eric, and good morning, everyone. After the market closed yesterday, Bright House Financial reported results for the first quarter of 2024, including preliminary statutory metrics. Through the first quarter of 2024, Bright House Financial maintained a strong statutory balance sheet and robust liquidity position. The company also reported adjusted earnings, less notable items, in line with our expectations for the quarter. Starting with preliminary statutory results, combined total adjusted capital, or TAC, was $6 billion as of March 31st, 2024, an approximately $300 million reduction from year-end 2023. The primary driver of the decrease in TAC was the impact from a reinsurance premium rate increase retroactive to September 2019, which resulted from the conclusion of a reinsurance arbitration. This rate increase is associated with the legacy block of life insurance, and there was no statutory reserve impact from this item. Moving to normalized statutory earnings, the first quarter results reflect a $250 to $300 million benefit from a 50 basis point increase in the prescribed 20-year treasury yield mean reversion point, or MRP. This benefit was largely offset by normal fluctuations in quarterly results, which as we have said in the past, can be plus or minus a couple hundred million dollars. A key source of variability this quarter was actual to expected changes in our Inforce annuity book. Keep in mind that small variations from quarter to quarter associated with an approximately $125 billion block of business can have a magnified impact on results. We have also started to see a negative impact on normalized statutory earnings associated with growth. In recent years, growth has largely been funded outside of normalized statutory earnings in the form of higher required capital associated with business risk. More recently, we are seeing the growth in shield annuities reduce normalized statutory earnings as our shield business is now consuming capital, which contrasts with providing a capital offset to the equity risk associated with our Inforce VA block, as has been the case historically. The impact of this shift has been more pronounced than we originally anticipated, partially as a result of significant growth in shield annuities. As Eric mentioned, shield sales increase 20% quarter over quarter. This development highlights the success of our core strategy to diversify away from our legacy block of variable annuities, or VA. Capital consumption for shield reflects that we are now close to a delta neutral position on equities, meaning market movements that benefit VA are adverse for shield and vice versa. As a reminder, the life insurance industry is a business where you commit meaningful capital up front to generate cash in the future. As we have said in the past, we are focused on generating more consistent long-term statutory free cash flows. A substantial increase in interest rate hedges in 2022 was a significant step toward narrowing the range of outcomes under different market scenarios. And we believe our balanced exposure to equities today is another step toward more predictable results over the long term. At March 31st, our estimated combined risk-based capital, or RBC ratio, was between 415% and 435%, which is the middle of our target range of 400% to 450% in normal markets. The impact for a reduction in TAC was mostly offset by a benefit in required capital associated with lower new business risk charges for fixed annuities. Our liquidity position remains robust with holding company liquid assets of $1.3 billion as of March 31st. I would also remind you that the non-dividend flows to the holding company cover most of our fixed charges and we do not have any debt maturities until 2027. Moving to adjusted earnings results. The first quarter adjusted loss was $98 million, which compares with adjusted earnings of $177 million in the fourth quarter of 2023 and adjusted earnings of $195 million in the first quarter of 2023. The adjusted loss in the first quarter of 2024 includes a $366 million unfavorable notable item, or $5.81 per diluted share, entirely related to the reinsurance premium rate increase retroactive to September 2019 and the related reserve increase from the impact of the higher premium rate over the expected life of the block of business. As with any reinsurance rate increase, we evaluate the option of recapturing the business versus accepting the price increase. In this case, we determined to accept the rate increase. Excluding the impact of the notable item, adjusted earnings were $268 million, or $4.25 per share, which is consistent with our expectations for the quarter. The alternative investment yield was .3% in the quarter, or consistent with our long-term annual return assumption of 9 to 11%. Alternative investment returns in the quarter were the primary driver of the sequential increase in net investment income. The underwriting margin was in line with our expectations for the quarter. However, net claims were higher compared with the fourth quarter of 2023, as there is seasonality in direct claims. Additionally, corporate expenses were lower sequentially, mainly driven by seasonality. Turning to the sequential results by segment. Adjusted earnings, excluding notable items, in the annuity segment were $313 million in the quarter. Sequentially, annuity results reflect higher fees driven by variable annuity separate account returns of 5.96%. Along with higher fees, expenses were lower sequentially, which was partially offset by lower net investment income. The life segment reported adjusted earnings, excluding notable items, of $37 million in the quarter. On a sequential basis, results reflect a higher underwriting margin, higher net investment income, and lower expenses. The runoff segment reported an adjusted loss of $48 million, which was relatively flat on a sequential basis. Higher net investment income was offset by a lower underwriting margin. Corporate and other had an adjusted loss, excluding notable items, of $34 million. On a sequential basis, results were driven by a lower tax benefit. In conclusion, we continue to focus on diversifying away from our legacy business and generating more predictable statutory free cash flow over the long term. While we have reduced the range of outcomes associated with movements in equity markets and interest rates, we still anticipate near term volatility in results. However, we believe that our strong balance sheet and robust liquidity position continue to support the consistent return of capital to shareholders. With that, we would like to turn the call over to the operator for your questions.

Thank you. To ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be announced. We ask that you please limit your questions to one and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question, please. And our first question will come from the line of Sunid Kamath with Jeffries. Your line is now open.

Thanks, good morning. Ed, in your prepared remarks, you talked about some actual too expected impacts in the annuity business that affected regulatory capital. Can you just provide a little bit more color in terms of what happened in the quarter?

Sure, good morning, Sunid. So I also mentioned in my remarks that we're talking about a $125 billion block of annuity business. So you will have fluctuations between expected in-force and actual in-force in every quarter. And it will be driven by mortality, withdrawals, annuitizations. And again, you don't need to have much of a deviation for it to matter for earnings. You know, we spend a lot of time working on attributions and analyzing results versus expectations. For example, you've heard us talk about basis risk in the past as an item that was notable. There are many factors in every quarter that move around. And in this quarter, this was the one that was notable to point out.

Got it, okay. And then I guess on the growth in SHIELD, and now you're sort of more of an equity market neutral situation, is that gonna impact those distributable earnings scenarios that you typically give us in the spring?

So let me start with some of the things that I said in prepared remarks and then expand a little bit. We have experienced SHIELD's sales growth that's been better than our expectations. And this has exerted some pressure on norm stat earnings. And now that SHIELD is a capital consumer, I would say that we are moving into a new phase for how we manage this product. So as a reminder, historically we have managed VA risk and SHIELD together. And that has been beneficial to us from a capital standpoint as well as from a risk management standpoint. Now that we are in this delta neutral position for equities, we see an opportunity to modify our hedging approach for SHIELD. And specifically what we are planning on doing going forward is managing SHIELD on a standalone basis versus mixing with VA. And that will entail purchasing a basket of options that will directly offset the guarantee that we are selling in the product. So we will see a change in how we manage this, which we think is going to be beneficial for us going forward. Okay, thanks. And just specifically on the cash flows, you know, there's a lot of work, as you know, that goes into providing those numbers. And there are a lot of factors that move things plus and minus. And so I don't think it's appropriate to give any indication of those numbers until it's time for us to disclose them again.

Okay.

Thank you. Our next question will come from the line of Tom Gallagher with Evercore ISI. Your line is now open.

Good morning. First question just on the reinsurance arbitration. Ed, as you alluded to, historically you've done more recaptures, and they've been maybe modest charges. This one was a lot larger. You know, was there something unique to this? Or is it possible we'll see some other larger settlements as you think about your overall docket for various arbitrations, you know, any perspective you can give on that? Thanks.

Hey, good morning, Tom. So this was different from the standpoint of it's a retroactive premium rate increase because we have been involved in a dispute around this specific contract. So you're looking back at four and a half years' worth of premium rate increases, and that's the reason that this is sizable relative to the stuff we've had in the past. And if you look, we've had seven instances of reinsurers coming to us with rate increases, and we have chosen to recapture in six of those instances, and we decided to take the rate increase in this case.

Gotcha. And anything beyond,

as you think about other situations, that we might see something directionally similar over the next couple of years? Or do you feel like this was unique and kind of a one-off?

I feel like it is different from the standpoint of it was a multiple-year, dispute that was resolved, and therefore the size was material. I think if you look at our book of business, which is really, I think, the question you're trying to get at here, we have had very little changes to our mortality assumptions over the years. So every year we go through a deep analysis of all of our critical actuarial assumptions, which you know we do in the third quarter, and every year we're looking at our actual experience versus what we had assumed for mortality, and we've had very little change associated with that. So I don't believe that this is indicative of anything to do with our overall book of business.

Yeah, Tom, it's Eric. I'll just jump in for a second, too, maybe to wrap this up. It was a pretty unique situation, as Ed said. In my mind here, going forward, with respect to the concept of what you're talking about, it's business as usual. Hopefully that's helpful to try to distinguish the difference.

That is, appreciate that, guys. And just one final follow-up on the question about, Ed, how you were describing managing SHIELD differently and how you're going to do more standalone hedging. Considering that it sounds like your costs will be going up, you know, just through standalone purchase of hedges, but is that something that you may need to change pricing on as a result if you are going to make this change? Can you help us think through what that kind of means through a broader lens?

Sure. I'll start out, and maybe David will have some follow-up. If we look at our pricing, we are already assuming that we are hedging SHIELD in the fashion that I am talking about going forward. So that's already assumed in how we price the business, but I'm going to give it to David to give us some more details on pricing.

Hey, Tom. Just maybe a couple of comments here. You know, you've heard Ed say before many times that we manage the company across a multi-scenario, multi-year view, and that approach applies to our pricing of new products as well. And we talked a little bit about the tremendous growth that we've seen in SHIELD over time, and that was 2% of account value back in 2016 and was around 26% at the end of the quarter. So we have maintained our pricing discipline during that period of growth and are comfortable with the economics of the business that we have written and are writing, and just to kind of wrap up, as I mentioned, we have always looked at pricing SHIELD on a standalone basis, so this will not change that.

Okay, thanks.

Thank you. One moment for our next question, please. Our next question will come from the line of Elise Greenspan with Wells Fargo. Your line is open.

Hi, thanks. Good morning. My first one, I guess, Ed, you were talking about the distributable earnings earlier. Is the plan still to provide them, actually I don't know if you have told us a specific timeframe, would it be, I guess, kind of in line with September when they were disclosed last year?

Good morning, Elise.

So we haven't determined when we're going to do it yet, but I would remind you that last year was a bit of an off-cycle time for the release of distributable earnings. We had a number of things that were going on related to LDTI. I remember, I think I talked about that. There were a number of things moving to all of our in-house modeling versus some external modeling that we had been using, and so that's why we did it in September. If you recall, prior to that, we had been doing it in March of the year, so just to point that out, we haven't made a decision yet, but last year was a little bit different from a timing standpoint.

Okay, thanks. And then you typically talk about kind of a five-point strain on RBC from new business. I know it was different in the Q1, just given the lower charges on the fixed annuity business, so how would you think, should we still use that same kind of rule of thumb of kind of five points a quarter going forward?

Yes, so on the five points a quarter, as you correctly note, we have said that you will see the first quarter be actually beneficial to capital because of the timing of the business risk charge, which will roll off at the end of each year, and then it grows over time. And so we would assume that you will be using capital beyond the five points, everything else being equal, but everything else is not always equal. I mean, you know, obviously have to consider what is the level of fixed sales in one year versus another because that's going to be the key driver of that business risk charge. So sales levels will be important for fixed when you think about that. In terms of the amount of strain that we're seeing now starting to emerge in our normalized statutory earnings, again, I would say we're in the process of making this change and hedging, and I don't really think it's time to talk about, you know, the specifics of what we're seeing that's coming through norm stat earnings. So for now, I think you would stick with what I've given you as sort of the outlook for capital strain associated with the business that comes directly through the denominator of the RBC ratio.

But, Elise, it's Eric. I would say, look, we have no intention of slowing down sales here with respect to Shield, and of course, as you heard me discuss, Lifepath Paycheck is going to be coming online throughout the year. Just to give you a little sense, though, in the second quarter, you will see a small amount of FRA sales. So it'll be down a fair amount. David, you want to comment on that?

Sure. So, you know, Elise, we do manage fixed rate annuities in the FIA and the fixed index annuity business together. And as Eric mentioned, you know, we do expect really lower sales and fixed rate annuities this year relative to last year, and more specifically this quarter relative to the first quarter. We expect it to be lower, the second quarter versus the first quarter. And really, that is as we are transitioning reinsurers for our FRA business. So that is really the driver of why we expect sales to be lower in the second quarter.

Okay. Thank you.

Thank you. Our next question comes from the line of Wes Carmichael with Autonomous Research. Your line is now open.

Hi. Good morning. On the reinsurance impact, I think you mentioned there was no impact on statutory reserves, but was there a statutory impact related to the retroactive nature of that item?

Good morning, Wes. Yes, it was $187 million for STAT.

Got it. Thanks, Ed. And just on annuity surrenders, in VA and SHIELD, you mentioned they picked up sequentially. You talked about that a little bit in prepared remarks. But should we think about this as kind of being more of a run rate level in 2024? I think, you know, outflows in that bucket were about $3.8 billion in the quarter.

Hey, Wes. This is David. Good morning. So, you know, one of the things that Eric had commented on in his prepared remarks and that we talked about really on the last earnings call is that we expected the elevated surrender activity that we saw in 2023 to continue in 2024, albeit with a different mix, and we're seeing that. So with respect to kind of the total outflows, they were flat compared to the last quarter and up over the first quarter, given full surrenders of VA and SHIELD really on a higher account and higher average balance given equity market performance. So when we think about it kind of on a sequential basis, so versus the fourth quarter, the majority of that outflows are cash driven by VA. You know, we do see quarter to quarter volatility, and we saw that in the quarter driving higher outflows. We also had the higher account balances and a slight increase in SHIELD. You know, overall outflows are weighted to VA, and we do continue to benefit from outflows of the capital intensive legacy blocks. And, you know, with respect to the comments we made a minute ago on fixed rate annuity sales, that could have an impact on sort of driving overall net flows in the second quarter higher.

Thank you. One moment

for our next question, please. Our next question comes from the line of Wilma Burdis with Raymond James. Your line is now open.

Hey, good morning. Could you just talk a little bit about the products that were impacted by the reinsurance re-pricing? Thank you.

Hey, good morning, Wilma.

Yeah, so, you know, we had, it was UL, VUL, primarily, ULSG to a lesser extent.

Okay, thank you.

Thank you. One moment for our next question. Our next question comes from the line of Ryan Krueger with KBW.

Your line is now open.

Hey, good morning. A couple companies had COI litigation outcomes in the first quarter. I'm not sure if that was a coincidence or something broader is going on, so just curious if you have anything outstanding there.

Hey, Ryan, it's Eric. If you look at the 10K from 23, you can see that we have two things in there on COIs, but our situation is a little different from what you've probably seen previously. We have not raised COI rates on any class of policyholders, and so the two Bright House COI litigations are not based on allegations that Bright House raised COI rates on a class of policyholders. So it's a little different than what you've seen in at least some of the other cases. So the disclosures identify these two COI litigations, but they are not related to COI rate increases.

Okay, that's helpful. Thank you. And then on the Lifepass Paycheck, anything you can do to frame the potential size, I guess, when you think about the 27 billion of eligible AUM, I guess would you anticipate a low single-digit allocation to annuities to start or anything you can do to frame that?

Ryan, you can't believe how much I would love to frame that, but we're just going to take it step by step. We are extremely excited about this. As you see, we got the first money in here in April, and you're going to see more coming through as companies adopt Lifepass Paycheck in their 401K plan, and then we start to get the allocation from those folks who are 55 and older, you know, buying income units from the two carriers. So I think what we'll do is over this year, we're going to start to be able to give some sense of what it looks like, you know, and then hopefully be able to give a sense of what it might look like going forward. I'm going to wait until later in the year, but I will just say we are very excited. This has been a long time coming, and it's an exciting development for all of us.

Thanks. Will you report those in the annuity segment, or where will that come through? Yes, we

will.

Okay, great.

Thank you.

Thank you.

So just very quickly, if I could follow up on Wilma's question, because I want to clarify. The breakdown that I was providing you was as a percentage or relative to our reinsurance in force for those various categories. So if you're looking specifically at this contract, this was more ULSG than it was UL and VUL, but as a percentage of our total reinsured book, it's the other way around.

Thank you. As a reminder, to ask a question, you'll need to press star 1-1 and wait for your name to be announced. Our next question will come from the line of Jimmy Bula from JPMorgan. Your line is now open.

Hey, good morning. Hey, Ed, can you talk about the DOL rule and if you expect any impact on your business from that, to the extent you can give us any details or cover?

Oh, good morning, Jimmy. It's Eric. Look, you've heard a lot about this now all the way back to the previous situation a number of years ago. I think companies are still trying to figure out exactly what it will mean, but we're working with all of our distributors on what to do here, what we think might happen. We don't really have any sense with respect to a sales hit, but look, we've got the NAIC suitability. It's called Suitability and Annuities Transactions Model out there. It's been adopted by 45 states. It is designed to protect consumers. You've heard this before. So generally, we share the concerns of many in the industry regarding the potential impact here, even with respect to just regulation that is not necessary. So it's hard to quantify any sales, potential sales hit. I would say that it would be fair to think that a number of companies are going to have higher compliance costs, etc., etc. But I can't really quantify it. And I can tell you, for the time being, sales are strong. So we'll have to see how this plays out in future months, but that's about all I can really tell you.

And then on the reinsurance price increase, should we assume a modestly negative impact on future gap and STAD income? And I'm not sure if you're able to quantify what it would be.

Hi, Jimmy. It's Ed.

So I've said that normal run rate EPS for us is something around north of $4, $4. You saw this quarter, if you adjusted for the notables, it was four and a quarter, which we said was in line with our expectations. This price increase does not change any of the outlook I've given in terms of what the normal run rate would be for gap earnings. It does have a negative impact because you're paying more. But in terms of significance, it's not going to change my view on what

the run rate earnings for the company are.

Okay, thanks. So there's something in the division, but it gets absorbed, I guess it's not major enough to move the needle on overall EPS, right? Correct. And then if I could just ask one more on the shield product, you've obviously grown pretty fast over time and many of your peers have as well. How is that market overall in terms of terms, conditions, attractiveness from your standpoint? And the reason I'm asking is a lot of other companies have similar products. So are you seeing fairly rational and disciplined competition or are there some companies that have come in that are trying to sort of offer better terms and conditions just to gain share?

Jimmy, maybe I'll start and then Miles, you're going to jump in, correct? Look, this market has grown really well. You've probably heard Miles say, I know you've heard Miles say over the last couple of years, that we welcome the competition because it has grown the market. And this is a good product for consumers and it's a good product for manufacturers. I think it's still rational. We don't see situations where we just can't understand and we continue to grow very nicely even as we enter the second quarter here. So we want to keep growing this business here at Bright House, certainly. Miles, any additional conversation you want to make?

I guess what I would say, Eric, is I agree. I believe competition has been appropriate and we think it's a good thing for advisors and consumers. I think it certainly has had some impact on sales, but overall I think the category is strong and it is growing from our perspective. We remain very pleased with sales. The first quarter is one of our best quarters yet as it relates to overall shield sales. We like the competitiveness of our product and we continue to round out our offering with things like Shield Level Pay Plus and a new crediting strategy that we offered last year, which was Step Right Edge. So we like our competitive positioning and we like where the category is at overall. Thank you.

Thank you. This concludes our Q&A session. I will now turn the call back to Dana Amante for closing remarks.

Thank you, Norma, and thank you everyone for joining the call today. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

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Then, roll into the freezing portion while curing exemption Now you can 렁 Good morning, ladies and gentlemen, and welcome to Bright House Financial's first quarter 2024 earnings conference call. My name is Norma, and I'll 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 Amante, Head of Investor Relations. Ms. Amante, you may proceed.

Thank you, and good morning. Welcome to Bright House Financial's first quarter 2024 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 Stagerwald, our President and Chief Executive Officer, and Ed Spiehar, 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 Miles Lambert, our Chief Distribution and Marketing Officer, David Rosenbaum, Head of Product and Underwriting, and John Rosenthal, our Chief Investment Officer. Before we begin, I'd like to note that our discussion during this call may include forward-looking statements within the meaning of the federal securities laws. Bright House Financial's actual results may differ materially from the results anticipated in the forward-looking statements as a result of risks and uncertainties described from time to time in Bright House Financial's filings with the SEC. Information discussed on today's call speaks only as of today, May 8, 2024. 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, also known as non-GAT measures. Reconciliation of these non-GAT measures on a historical basis to the most directly comparable GAT measures and related definitions may be found 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 statement. And now I'll turn the call over to our CEO, Eric Stagerwald.

Thank you, Dana. Good morning, and thank you to everyone for joining today's call. Bright House Financial's first quarter results demonstrate the steady execution of our strategy. During the quarter, we maintained a strong balance sheet, continued to focus on executing our growth strategy, and sustained a disciplined approach to expense management. As you've heard us say in the past, the strength of our balance sheet is essential to support our distribution franchise, and we continue to focus on prudent financial and risk management. We ended the first quarter with $1.3 billion of liquid assets at the holding company, and an estimated risk-based capital, or RBC, ratio between 415% and 435%, which is in the middle of our target range of 400% to 450% in normal markets. Our strong RBC ratio and robust holding company liquid assets support our ability to consistently return capital to shareholders through our common stock repurchase program. In the first quarter of 2024, we returned $62 million of capital to shareholders through repurchases of our common stock. Since we began our common stock repurchase program in 2018, through the first quarter of 2024, we have reduced shares outstanding by just short of 50%. We remain committed to returning capital to our shareholders, and through May 3rd, we have repurchased an additional $27 million of common stock. Now, I would like to take a moment to talk about the success of our distribution franchise. The execution of our growth strategy is focused on providing a complementary suite of annuity and life insurance products designed to help people achieve financial security. I am very pleased with our first quarter 2024 annuity sales, especially with the continued steady growth in our Shield annuity product suite as we remain a leader in the registered index linked annuity or RYLA market. Our total Shield annuity sales were $1.9 billion for the first quarter of 2024, a 2% increase sequentially, and a 20% increase compared with the first quarter of 2023. Additionally, we are very pleased with our fixed indexed annuity or FIA sales, with $191 million of total FIA sales in the first quarter driven by our SecureKey product. As I mentioned on our fourth quarter call, in November of 2023, we launched our new FIA, SecureKey, expanding our distribution footprint in the fixed indexed annuity market. Fixed deferred annuities were also a strong driver of total annuity sales in the first quarter, with $637 million of sales. This is down from the fourth quarter of 2023 as expected. Overall, our annuity sales totaled $2.9 billion in the first quarter, an increase of 5% sequentially and 3% compared with the first quarter of 2023. These strong annuity sales demonstrate the strength and complementary nature of Bright House Financial's annuity product portfolio. First quarter annuity net outflows were approximately $1.5 billion. As we discussed last quarter, annuity outflows were elevated in 2023, given the interest rate environment, coupled with business coming out of the surrender charge period. We expected elevated surrenders in 2024. That was the case for the first quarter, with outflows in line with the fourth quarter of 2023, partially offset by continued strong annuity sales. Over the last several years, the combination of our steady annuity sales growth and the outflows of legacy business has led to a meaningful shift in our business mix away from the legacy block of higher capital-intensive business to more spread-based, less capital-intensive business. On an account value basis, spread-based business made up roughly 15% of our annuity product mix in 2016 and approximately 40% at the end of 2023, and is expected to make up approximately 55% by the end of 2027. In the past, we have talked about our SHIELD business as a natural offset to the equity risk on our legacy VA business. With the growth we have seen with SHIELD sales, which has helped drive the significant shift in business mix, we have now achieved a point of balance for equity market risk. This demonstrates the success of our core strategy to diversify away from our legacy block of business. Turning to life insurance sales, we continue to see steady sales in our life insurance product suite with $29 million in the first quarter, a 26% increase compared with the first quarter of 2023. Overall, our first quarter sales results were a strong start to the year, and I am especially pleased that on April 24th, we joined BlackRock in announcing that BlackRock's Life Path Paycheck is now available in defined contribution plans. Life Path Paycheck offers US workers an opportunity to access a guaranteed income stream in retirement. This solution is a target date strategy that will over time include an allocation to innovative annuity contracts to be issued by Brighthouse Financial and another selected insurer. This is a significant breakthrough for the industry, and it's exciting to see plan participants already beginning to take advantage of this solution. As I mentioned last quarter, BlackRock is currently working with 14 plan sponsors to implement Life Path Paycheck as an investment option for their employees' defined contribution plan. These 14 plan sponsors, with plans totaling $27 billion in target date assets, are planning to make this solution available to over 500,000 employees. As a company whose mission is to help people achieve financial security, Brighthouse is pleased to assist even more Americans with preparing for retirement through Life Path Paycheck, and we are excited to work with BlackRock on this solution. In supporting our distribution franchise, along with our focus on talent, sheet, string, we recognize that maintaining a disciplined approach to expense management is

extremely important.

Our corporate expenses in the first quarter of 2024 were $207 million on a pre-tax basis, which was down 1% compared with the first quarter of 2023 and down 15% sequentially. First quarter expenses are typically lower, driven by seasonality. However, with our continued commitment to controlling expenses and realizing efficiency gains, we do expect 2024 full-year corporate expenses to be lower than 2023. We remain committed to executing on our growth strategy with continued growth in our SHIELD product suite, an expanded presence in the fixed indexed annuity market, and our entrance into the worksite channel through working with BlackRock on its Life Path Paycheck solution. Our focus remains on balance sheet strength and controlling expenses, and we continue to return capital to shareholders, supported by our strong RBC ratio and robust holding company liquid assets. I will now turn the call over to Ed to discuss our first quarter financial results in some more detail.

Thank you, Eric, and good morning, everyone. After the market closed yesterday, Bright House Financial reported results for the first quarter of 2024, including preliminary statutory metrics. Through the first quarter of 2024, Bright House Financial maintained a strong statutory balance sheet and robust liquidity position. The company also reported adjusted earnings, less notable items, in line with our expectations for quarter. Starting with preliminary statutory results, combined total adjusted capital, or TAC, was $6 billion as of March 31, 2024, an approximately $300 million reduction from year end 2023. The primary driver of the decrease in TAC was the impact from a reinsurance premium rate increase retroactive to September 2019, which resulted from the conclusion of a reinsurance arbitration. This rate increase is associated with the legacy block of life insurance, and there was no statutory reserve impact from this item. Moving to normalized statutory earnings, the first quarter results reflect a $250 to $300 million benefit from a 50 basis point increase in the prescribed 20-year treasury yield mean reversion point, or MRP. This benefit was largely offset by normal fluctuations in quarterly results, which as we have said in the past, can be plus or minus a couple hundred million dollars. A key source of variability this quarter was actual to expected changes in our Enforce annuity book. Keep in mind that small variations from quarter to quarter associated with an approximately $125 billion block of business can have a magnified impact on results. We have also started to see a negative impact on normalized statutory earnings associated with growth. In recent years, growth has largely been funded outside of normalized statutory earnings in the form of higher required capital associated with business risk. More recently, we are seeing the growth in SHIELD annuities reduce normalized statutory earnings as our SHIELD business is now consuming capital, which contrasts with providing a capital offset to the equity risk associated with our Enforce VA block, as has been the case historically. The impact of this shift has been more pronounced than we originally anticipated, partially as a result of significant growth in SHIELD annuities. As Eric mentioned, SHIELD sales increased 20 percent quarter over quarter. This development highlights the success of our core strategy to diversify away from our legacy block of variable annuities, or VA. Capital consumption for SHIELD reflects that we are now close to a delta neutral position on equities, meaning market movements that benefit VA are adverse for SHIELD and vice versa. As a reminder, the life insurance industry is a business where you commit meaningful capital upfront to generate cash in the future. As we have said in the past, we are focused on generating more consistent long-term statutory free cash flows. A substantial increase in interest rate hedges in 2022 was a significant step toward narrowing the range of outcomes under different market scenarios. And we believe our balanced exposure to equities today is another step toward more predictable results over the long term. At March 31, our estimated combined risk-based capital, or RBC ratio, was between 415 percent and 435 percent, which is the middle of our target range of 400 percent to 450 percent in normal markets. The impact for a reduction in TAC was mostly offset by a benefit in required capital associated with lower new business risk charges for fixed annuities. Our liquidity position remains robust, with holding company liquid assets of $1.3 billion as of March 31. I would also remind you that the non-dividend flows to the holding company cover most of our fixed charges, and we do not have any debt maturities until 2027. Moving to adjusted earnings results. The first quarter adjusted loss was $98 million, which compares with adjusted earnings of $177 million in the fourth quarter of 2023 and adjusted earnings of $195 million in the first quarter of 2023. The adjusted loss in the first quarter of 2024 includes a $366 million unfavorable notable item, or $5.81 per diluted share, entirely related to the reinsurance premium rate increase retroactive to September 2019, and the related reserve increase from the impact of the higher premium rate over the expected life of the block of business. As with any reinsurance rate increase, we evaluate the option of recapturing the business versus accepting the price increase. In this case, we determine to accept the rate increase. Excluding the impact of the notable item, adjusted earnings were $268 million, or $4.25 per share, which is consistent with our expectations for the quarter. The alternative investment yield was .3% in the quarter, or consistent with our long-term annual return assumption of 9 to 11%. Alternative investment returns in the quarter were the primary driver of the sequential increase in net investment income. The underwriting margin was in line with our expectations for the quarter. However, net claims were higher compared with the fourth quarter of 2023, as there is seasonality in direct claims. Additionally, corporate expenses were lower sequentially, mainly driven by seasonality. Turning to the sequential results by segment. Adjusted earnings, excluding notable items, in the annuity segment were $313 million in the quarter. Sequentially, annuity results reflect higher fees driven by variable annuity separate account returns of 5.96%. Along with higher fees, expenses were lower sequentially, which was partially offset by lower net investment income. The life segment reported adjusted earnings, excluding notable items, of $37 million in the quarter. On a sequential basis, results reflect a higher underwriting margin, higher net investment income, and lower expenses. The runoff segment reported an adjusted loss of $48 million, which was relatively flat on a sequential basis. Higher net investment income was offset by a lower underwriting margin. Corporate and other had an adjusted loss, excluding notable items, of $34 million. On a sequential basis, results were driven by a lower tax benefit. In conclusion, we continue to focus on diversifying away from our legacy business and generating more predictable statutory free cash flow over the long term. While we have reduced the range of outcomes associated with movements in equity marketing, and markets, and interest rates, we still anticipate near term volatility in results. However, we believe that our strong balance sheet and robust liquidity position continue to support the consistent return of capital to shareholders. With that, we would like to turn the call over to the operator for your questions.

Thank you. To ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. We ask that you please limit your questions to one and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question, please. And our first question will come from the line of Sunit Kamath with Jeffries. Your line is now open.

Thanks. Good morning. Ed, in your prepared remarks, you talked about some actual to expected impacts in the annuity business that affected regulatory capital. Can you just provide a little bit more color in terms of what happened in the quarter?

Sure. Good morning, Sunit. So I also mentioned in my remarks that we're talking about a $125 billion block of annuity business. So you will have fluctuations between expected inflows and actual inflows in every quarter. And it will be driven by mortality, withdrawals, annuitizations. And again, you don't need to have much of a deviation for it to matter for earnings. We spend a lot of time working on attributions and analyzing results versus expectations. For example, you've heard us talk about basis risk in the past as an item that was notable. There are many factors in every quarter that move around. And in this quarter, this was the one that was notable to point out.

Got it. Okay. And then I guess on the growth in shield, and now you're sort of more of an equity market neutral situation, is that going to impact those distributable earnings scenarios that you typically give us in the spring?

So let me start with some of the things that I said in prepared remarks and then expand a little bit. We have experienced shield sales growth that's been better than our expectations. And this has exerted some pressure on norm stat earnings. And now that shield is a capital consumer, I would say that we are moving into a new phase for how we manage this product. So as a reminder, historically, we have managed VA risk and shield together. And that has been beneficial to us from a capital standpoint as well as from a risk management standpoint. Now that we are in this delta neutral position for equities, we see an opportunity to modify our hedging approach for shield. And specifically, what we are planning on doing going forward is managing shield on a standalone basis versus mixing with VA. And that will entail purchasing a basket of options that will directly offset the guarantee that we are selling in the product. So we will see a change in how we manage this, which we think is going to be beneficial for us going forward.

Okay, thanks.

And just specifically on the cash flows, there's a lot of work, as you know, that goes into providing those numbers. And there are a lot of factors that move things plus and minus. And so I don't think it's appropriate to give any indication of those numbers until it's time for us to disclose them again.

Okay.

Thank you. Our next question will come from the line of Tom Gallagher with Evercore ISI. Your line is now open.

Good morning. First question just on the reinsurance arbitration. Ed, as you alluded to, historically, you've done more recaptures and they've been maybe modest charges. This one was a lot larger. Was there something unique to this? Or is it possible we'll see some other larger settlements as you think about your overall docket for various arbitrations? Any perspective you can give on that? Thanks.

Hey, good morning, Tom. So this was different from the standpoint of it's a retroactive premium rate increase because we have been involved in a dispute around this specific contract. So you're looking back at four and a half years worth of premium rate increases and that's the reason that this is sizable relative to the stuff we've had in the past. And if you look, we've had seven instances of reinsurers coming to us with rate increases. And we have chosen to recapture in those instances and we decided to take the rate increase in this case.

Gotcha. And anything beyond

as you think about other situations that we might see something directionally similar over the next couple of years or do you feel like this was a unique and kind of a one-off?

I feel like it is different from the standpoint of it was a multiple year dispute that was resolved and therefore the size was material. I think if you look at our book of business, which is really I think the question you're trying to get at here, we have had very little changes to our mortality assumptions over the years. So every year we go through a deep analysis of all of our critical actuarial assumptions, which you know we do in the third quarter. And every year we're looking at our actual experience versus what we had assumed for mortality. And we've had very little change associated with that. So I don't believe that this is indicative of anything to do with our overall book of business.

Yeah, Tom, it's Eric. I'll just jump in for a second too maybe to wrap this up. It was a pretty unique situation as Ed said. In my mind here going forward with respect to the concept of what you're talking about, it's business as usual. Hopefully that's helpful to try to distinguish the difference.

That is appreciate that guys. And just one final follow-up on the question about how you were describing managing SHIELD differently and how you're going to do more standalone hedging. Considering that, it sounds like your cost will be going up just through standalone purchase of hedges. But is that something that you may need to change pricing on as a result if you are going to make this change? Can you help us think through what that means through a broader lens?

Sure. I'll start out and maybe David will have some follow-up. If we look at our pricing, we are already assuming that we are hedging SHIELD in the fashion that I am talking about going forward. So that's already assumed in how we price the business. But I'm going to give it to David to give some more details on pricing.

Hey, Tom. Just maybe a couple of comments here. You've heard Ed say before many times that we manage the company across a multi-scenario, multi-year view. And that approach applies to our pricing of new products as well. And we talked a little bit about the tremendous growth that we've seen in SHIELD over time. And that was 2% of account value back in 2016 and was around 26% at the end of the quarter. So we have maintained our pricing discipline during that period of growth and are comfortable with the economics of the business that we have written and are writing. And just to kind of wrap up, as I mentioned, we have always looked at pricing SHIELD on a standalone basis. So this will not change that.

Okay. Thanks.

Thank you. One moment for our next question, please. Our next question will come from the line of Elise Greenspan with Wells Fargo. Your line is open.

Hi. Thanks. Good morning. My first one, I guess, Ed, you were talking about the distributable earnings earlier. Is the plan still to provide them? I don't actually I don't know if you have told us a specific timeframe. Would it be, I guess, kind of in line with September when they were disclosed last year?

Good morning, Elise.

So I would we haven't determined when we're going to do it yet. But I would remind you that last year was a bit of an off cycle time for the release of distributable earnings. We had a number of things that were going on related to LDTI. I remember I think I talked about that. There were a number of things that in moving to all of our in-house modeling versus some external modeling that we had been using. And so that's why we did it in September. If you recall prior to that, we had been doing it in March of the year. So just to point that out, we haven't made a decision yet, but last year was a little bit different from a timing standpoint.

Okay, thanks. And then, you know, you typically talk about, you know, kind of a five point, you know, strain on RBC from new business. I know it was different in the Q1, just given the lower charges on the fixed annuity business. So how would you think, should we still use that same kind of rule of thumb of kind of five points a quarter going forward?

Yes, so on the five points a quarter, as you correctly note, we have said that you will see the first quarter be actually beneficial to capital because of the timing of the business risk charge, which will roll off at the end of each year, and then it grows over time. And so we would assume that you will be using capital beyond the five points, everything else being equal, but everything else is not always equal. I mean, you know, obviously have to consider what is the level of fixed sales in one year versus another, because that's going to be the key driver of that business risk charge. So, you know, sales levels will be important for fixed when you think about that. In terms of the amount of strain that we're seeing now starting to emerge in our normalized statutory earnings, again, I would say we're in the process of of making this change in hedging, and I don't really think it's time to talk about, you know, the specifics of what we're seeing that's coming through norm stat earnings. So for now, I think you would stick with what I've given you as sort of the outlook for capital strain associated with the business that comes directly through the denominator of the RBC ratio.

But, Elyse, it's Eric. I would say, look, we have no intention of slowing down sales here with respect to SHIELD. And of course, as you heard me discuss, Lifepath Paycheck is going to be coming online throughout the year. Just to give you a little sense, though, in the second quarter, you will see a small amount of FRA sales. So it'll be down a fair amount. David, you want to comment on that?

Sure. So, you know, Elyse, we do manage fixed rate annuities in the FIA and the fixed index annuity business together. And as Eric mentioned, we do expect really lower sales and fixed rate annuities this year relative to last year, and more specifically this quarter relative to the first quarter. We expect it to be lower, the second quarter versus the first quarter. And really, that is as we are transitioning reinsurers for our FRA business. So that is really the driver of why we expect sales to be lower in the second quarter.

Okay. Thank you.

Thank you. Our next question comes from the line of Wes Carmichael with Autonomous Research. Your line is now open.

Hi. Good morning. On the reinsurance impact, I think you mentioned there was no impact on statutory reserves, but was there a statutory impact related to the retroactive nature of that item?

Good morning, Wes. Yes, it was $187 million for STAT.

Got it. Thanks, Ed. And just on annuity surrenders, in VA and SHIELD, you mentioned they picked up sequentially. You talked about that a little bit in prepared remarks, but should we think about this as being more of a run rate level in 2024? I think outflows in that bucket were about $3.8 billion in the quarter.

Hey, Wes. This is David. Good morning. So one of the things that Eric had commented on in his prepared remarks and that we talked about really on the last earnings call is that we expected the elevated surrender activity that we saw in 2023 to continue in 2024, albeit with a different mix, and we're seeing that. So with respect to the total outflows, they were flat compared to the last quarter and up over the first quarter, given full surrenders of VA and SHIELD, really on a higher account and higher average balance given equity market performance. So when we think about it on a sequential basis, so versus the fourth quarter, the majority of that is driven by VA. We do see quarter to quarter volatility, and we saw that in the quarter, driving higher outflows. We also had the higher account balances and a slight increase in SHIELD. Overall, outflows are weighted to VA, and we do continue to benefit from outflows of the capital intensive legacy blocks. And with respect to the comments we made a minute ago on fixed rate annuity sales, that could have an impact on sort of driving overall net flows in the second quarter higher.

Thank you. One moment for

our next question, please. Our next question comes from the line of Wilma Burdis with Raymond James. Your line is now open.

Hey, good morning. Could you just talk a little bit about the products that were impacted by the reinsurance repricing? Thank you.

Hey, good morning, Wilma.

Yeah, so, you know, we had, it was UL, VUL primarily, ULSG to lesser extent.

Okay, thank you.

Thank you. One moment for our next question.

Our

next question comes from the line of

Ryan Krueger with KBW. Your line is now open.

Hey, good morning. A couple companies had COI litigation outcomes in the first quarter. I'm not sure if that was a coincidence or if something broader is going on, so just curious if you have anything outstanding there.

Hey, Ryan, it's Eric. If you look at the 10K from 23, you can see that we have two things in there on COIs, but our situation is a little different from what you've probably seen previously. We have not raised COI rates on any class of policyholders, and so the two Bright House COI litigations are not based on allegations that Bright House raised COI rates on, you know, on a class of policyholders. So it's a little different than what you've seen in at least some of the other cases. So the disclosures identify these two COI litigations, but they are not related to COI rate increases.

Okay, that's helpful. Thank you. And then on the Lifepath Paycheck, anything you can do to frame the potential size, I guess, when you think about the $27 billion of eligible AUM? Like, you know, would you anticipate a low single-digit allocation to annuities to start, or anything you can do to frame that?

Ryan, you can't believe how much I would love to frame that, but we're just going to take it step by step. We are extremely excited about this. As you see, we got the first money in April, and you're going to see more coming through as companies adopt Lifepath Paycheck in their 401k plan, and then we start to get the allocation from those folks who are 55 and older, you know, buying income units from the two carriers. So I think what we'll do is over this year, we're going to start to be able to give some sense of what it looks like, you know, and then hopefully be able to give a sense of what it might look like going forward. I'm going to wait until in the year, but I will just say we are very excited. This has been a long time coming, and it's an exciting development for all of us.

Will you report those in the annuity segment, or where will that come through? Yes, we will. Okay, great. Thank

you.

Thank you.

So just very quickly, if I could follow up on Wilma's question, because I want to clarify, the breakdown that I was providing you was as a percentage or relative to our reinsurance in force for those various categories. So if you're looking specifically at this contract, this was more ULSG than it was UL and VUL, but as a percentage of our total reinsured book, it's the other way around.

Thank you. As a reminder, to ask a question, you'll need to press star 1-1 and wait for your name to be announced. Our next question will come from the line of Jimmy Vula from JP Morgan. Your line is now open.

Hey, good morning. Hey, can you talk about the DOL rule and if you expect any impact on your business from that to the extent you can give us any details, we'll cover.

Oh, good morning, Jimmy. It's Eric. Look, you've heard a lot about this now all the way back to the previous situation a number of years ago. I think companies are still trying to figure out exactly what it'll mean, but we're working with all of our distributors on what to do here, what we think might happen. We don't really have any sense with respect to a sales hit, but look, we've got the NAIC suitability. It's called Suitability and Annuities Transactions Model out there. It's been adopted by 45 states. It is designed to protect consumers. You've heard this before. Generally, we share the concerns of many in the industry regarding the potential impact here, even with respect to just regulation that is not necessary. It's hard to quantify any sales, potential sales hit. I would say that it would be fair to think that a number of companies are going to have higher compliance costs, et cetera, et cetera, but I can't really quantify it. I can tell you for the time being, sales are strong. We'll have to see how this plays out in future months, but that's about all I can really tell you.

Okay. Then on the reinsurance price increase, should we assume a modestly negative impact on future gap and stat income? I'm not sure if you're able to quantify what it would be.

Hi, Jimmy. It's Ed.

I've said that normal run rate EPS for us is something around north of $4, you saw this quarter, if you adjusted for the notables, it was four and a quarter, which we said was in line with our expectations. This price increase does not change any of the outlook I've given in terms of what the normal run rate would be for gap earnings. It does have a negative impact because you're paying more, but in terms of significance, it's not going to change my view on what the

run rate earnings for the company are.

Okay. Thanks. There's something in the division, but it gets absorbed, I guess, not major enough to move the needle on overall EPS, right? Correct. Then if I could just ask one more. On the Shield product, you've obviously grown pretty fast over time, and many of your peers have as well. How is that market overall in terms of terms, conditions, attractiveness from your standpoint? The reason I'm asking is a lot of other companies have similar products, so are you seeing fairly rational and disciplined competition, or are there some companies that have come in that are trying to offer better terms and conditions just to gain share?

Jimmy, maybe I'll start, and then Miles, you're going to jump in, correct? Look, this market has grown really well. You've probably heard Miles say, I know you've heard Miles say over the last couple of years, that we welcome the competition because it has grown the market, and this is a good product for consumers, and it's a good product for manufacturers. I think it's still rational. We don't see situations where we just can't understand, and we continue to grow very nicely even as we enter the second quarter here. We want to keep growing this business here at Bright House, certainly. Miles, any additional conversation you want to make?

I guess what I would say, Eric, is I agree. I believe competition has been appropriate, and we think it's a good thing for advisors and consumers. I think it certainly has had some impact on sales, but overall, I think the category is strong, and it is growing. From our perspective, we have remained very pleased with sales. The first quarter is one of our best quarters yet as it relates to overall shield sales. We like the competitiveness of our product, and we continue to round out our offering with things like Shield Level Pay Plus and a new credit strategy that we offered last year, which was Step Right Edge. We like our competitive positioning, and we like where the category is at overall. Thank you.

Thank you. This concludes our Q&A session. I will now turn the call back to Dana Amante for closing remarks.

Thank you, Norma, and thank you, everyone, for joining the call today. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.