Credit Suisse Downgrades Brighthouse Financial On Higher Risk Profile

Brighthouse Financial Inc’s BHF stock appears expensive in view of the company’s volatile distributable earnings and new accounting pressures, according to Credit Suisse.

The Analyst

Andrew Kligerman downgraded Brighthouse Financial from Neutral to Underperform and  lowered the price target from $35 to $22.

The Thesis

Lower interest rates year-to-date could adversely impact Brighthouse Financial’s distributable earnings between 2019 and 2021 by $1 billion, according to Credit Suisse. 

Although this may be largely offset by favorable equity markets, it shows the company is much more sensitive to markets than its peers, Kligerman said in the Tuesday downgrade note. (See his track record here.)

In 2021 or 2022 at the latest, the Financial Accounting Standards Board is expected to enact new fair value accounting standards for insurance products that have market risk guarantees, which includes most variable annuities, the analyst said. 

BHF has $81 billion in VAs, and the new standards could translate to a substantial hit to the company’s GAAP book value, he said. 

In the event that lower rates persist, the discount rate at which the VAs will be marked to fair value suggests that the hit to Brighthouse Financial’s GAAP book value may be even more significant, Klingerman said. 

Price Action

Brighthouse Financial shares were down 13.98% at $32.79 at the time of publication Tuesday. 

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