BHF — Q2 2026 Financial Report Analysis

Hedge gains drive a $956 million profit; the core business improved 30%

Brighthouse Financial sells annuities (retirement savings and income products) and life insurance. In the second quarter of 2026 it reported net income available to shareholders of $956 million, or $16.53 per diluted share, up from $60 million ($1.02) a year earlier. Most of that jump came from rising stock markets, which changed the accounting value of its annuity guarantees and the hedges against them. It did not come from selling more policies. The company's own adjusted earnings strip out those market swings. On that basis it earned $258 million, or $4.45 per share, up from $198 million ($3.43), and there were no one-off "notable items" in either quarter. All of this happens while the company waits to be taken private: Aquarian Capital agreed in November 2025 to buy it for $70.00 per share in cash, and the deal now needs only insurance-regulator approvals in Delaware, New York and Massachusetts.

At a glance

• $4.45 adjusted EPS, up 29.7%. Lower claims in the Life and Run-off segments and higher fees did most of the work. Weaker investment income pulled the other way.
• $956M GAAP profit vs $258M adjusted. The ~$700M gap is mark-to-market accounting on annuity guarantees and hedges. It reverses when markets fall: Q1 2026 was a $792M loss.
• Book value $84.35/share, up 21.2%. Excluding unrealized bond losses it was $156.10, up 8.3%. Both are above the $70.00 cash offer, which says more about how hard these balance sheets are to value than about a bargain.

Key figures

AOCI (accumulated other comprehensive income) is mainly unrealized gains or losses on the company's bond portfolio. Brighthouse's is a $4.1 billion loss, so book value including it is much lower than book value excluding it.

GAAP total revenue rose 86%, but that figure is close to meaningless here. It includes a $477 million derivative loss this quarter against a $1,237 million loss a year ago. The revenue line that tracks the actual business (premiums, policy fees, investment income and other revenue) slipped 2.0% to $2,105 million.

Why GAAP profit swings so much

Many of Brighthouse's variable annuities carry guarantees, such as a minimum lifetime withdrawal amount or a minimum death benefit. GAAP counts these guarantees as market risk benefits and revalues them every quarter. When stocks rise, customers' account values grow, the guarantees are less likely to be needed, and their liability shrinks, which books a gain. The company hedges the same exposure with derivatives, and it also sells Shield Level Annuities, which pass part of market gains through to the customer. GAAP values that pass-through promise as an "embedded derivative".

The 10-Q breaks down how these pieces netted out this quarter (pre-tax):

The MD&A puts it down to "favorable changes in variable annuity and Shield hedges due to increasing equity markets", offset by the Shield liability growing for the same reason. The 10-Q also cites gains on interest-rate derivatives that protect the universal-life-with-secondary-guarantees book, and gains on currency hedges as the dollar strengthened. The tax rate on GAAP pre-tax income was 20%, against 9% a year earlier.

The reverse case was visible one quarter earlier. In Q1 2026 the same accounting produced a $792 million net loss (−$13.82 per share), even though adjusted earnings that quarter were $239 million. Over the first half, net income available to shareholders was $164 million ($2.84 per share), while adjusted earnings were $497 million. For the six months, the combined guarantees-plus-hedges line in the table above was a −$364 million pre-tax hit.

Where the adjusted earnings came from

By segment, adjusted earnings (Brighthouse's GAAP segment measure):

• Annuities (+$17M). Investment yields improved "as proceeds from maturing investments... were invested at higher yields than the portfolio average", and the company paid less interest to customers because fixed-annuity balances shrank. Three things partly offset this: lower income-annuity underwriting margins, higher DAC amortization (the write-off of past sales costs), which the filing ties to "changes in policyholder behavior", and lower reinsurance fees on the shrinking fixed-annuity book.
• Life and Run-off (+$49M combined). The 10-Q credits "lower claims, net of reinsurance" in both segments. Run-off is the closed block of older universal life policies. It still lost money, but less.
• Investment income was a drag across the company. Adjusted net investment income fell $53 million to $1,239 million. The release attributes the drop to "lower alternative investment income". The 10-Q shows other limited-partnership income was just $5 million in the quarter, against $63 million a year ago. The yield fell from 4.28% to 4.17%.

Sales: Shield up, fixed annuities down

Annuity sales fell 7.1% to $2.4 billion. Shield Level Annuities set a record at more than $2.1 billion, about $4.0 billion in the first half. The decline came from lower fixed annuity sales. In practice, the product mix is moving toward Shield, a product whose market-linked liability is behind much of the GAAP volatility described above. Life sales rose to $39 million, mostly SmartCare (life insurance combined with long-term-care coverage). That is small next to an annuity business 60 times its size.

What the headline numbers hide

• GAAP vs adjusted. Adjusted earnings exclude net derivative gains or losses (−$477M), the change in market risk benefits (+$1,370M), investment gains or losses (−$6M), trading-security gains (+$2M) and market value adjustments (−$4M), plus the tax on all of these (−$187M). Taken together, these items explain about $698 million of the $956 million profit. They are real accounting results, but they move with the market and depend on the quarter-end date. The first half shows that: GAAP earnings of $164 million against adjusted earnings of $497 million.
• Cash flow ran negative. Operating cash flow for the first six months was −$652 million, against net income of $217 million (+$145 million a year earlier). Cash on the balance sheet still rose from $4.9 billion to $7.1 billion over the quarter. The liquidity table shows the main six-month source was a $2,076 million increase in collateral posted to Brighthouse by derivative and securities-lending counterparties. That collateral has to be returned, so the bigger cash balance is mostly not earnings.
• Statutory capital is lower than a year ago even though GAAP equity is higher. Statutory total adjusted capital is the capital measure insurance regulators actually supervise. It was $4.9 billion at June 30, 2026, against $5.6 billion a year earlier. The estimated risk-based capital ratio of 430%–450% is still at the top of the company's 400%–450% target range. Holding-company liquid assets were $0.9 billion.
• No help from buybacks. Brighthouse repurchased no shares in the first half of 2026, because the merger agreement bars it. In H1 2025 it bought back $102 million. Diluted shares were essentially flat (57.84M vs 57.73M), so the 29.7% adjusted EPS growth came from earnings. The adjusted tax rate was 17% in both years, so it played no part either.
• Merger costs are excluded from corporate expenses. Corporate expenses were $204 million, against $202 million a year earlier. From 2026, costs related to the Aquarian deal are no longer counted as corporate expenses, so that line isn't fully comparable with past years.
• No one-offs this quarter. There were no notable items in Q2 2026 or Q2 2025. Q1 2026 had a net $12 million unfavorable actuarial item.

Takeaway: The underlying business had a good quarter. Adjusted EPS rose 29.7% with no buyback or tax help, mainly because claims fell in the closed Life and Run-off books. The $16.53 GAAP EPS is mostly the stock market revaluing annuity guarantees. Q1 shows the same accounting can produce a $792 million loss. For the stock, though, none of this matters as much as one fixed number: Aquarian's $70.00-per-share cash offer.

What to watch

• Regulatory approval. Closing needs approvals from Delaware, New York and Massachusetts insurance regulators. All other conditions have been met. Under the merger agreement, the deadline extends automatically to December 6, 2026 if the deal hasn't closed by September 6, 2026 for lack of those approvals. The 10-Q says the merger "is expected to close in 2026", and no closing announcement had been filed with the SEC as of early October. Once the deal closes, BHF shares will be cancelled for cash and the company will stop reporting as a listed company. That makes Q3 2026 possibly its last public quarterly report.
• Investment income. Two quarters in a row of falling alternative-investment income have cut the portfolio yield to 4.17%. If private-fund returns stay weak, that will keep weighing on adjusted earnings even though new bonds are being bought at higher yields.
• Statutory capital vs GAAP. For an acquirer, the measures that count are the RBC ratio and statutory capital, not GAAP book value. Statutory capital fell about $0.7 billion over the year. Watch whether it holds steady at around $4.9 billion.
• Our view. Without the deal, Brighthouse's earnings power would look like the adjusted numbers: about $500 million of adjusted earnings in the first half. Its GAAP results will keep swinging hundreds of millions of dollars either way with the stock market as long as Shield keeps growing. No financial guidance was given, which is consistent with a company awaiting a cash takeout.