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, the conference is being recorded for replay purposes. Also we ask that you refrain from using cell phones, speakerphones or headsets during the question-and-answer portion of today's call. I would now like to turn the presentation over to David Rosenbaum, Head of Investor Relations. Mr. Rosenbaum, you may proceed.

Thank you, James. Good morning, and thank you for joining Brighthouse Financial’s Fourth Quarter 2018 Earnings Call. Our earnings release, presentation, and financial supplement were released last night and can be accessed on the Investor Relations section of our website at brighthousefinancial.com. We encourage you to review all of these materials, and we will refer to the slide presentation in our prepared remarks. Today, you will hear from Eric Steigerwalt, our President and Chief Executive Officer, followed by Anant Bhalla, our Chief Financial Officer. Following our prepared comments, we will open the call up for a question-and-answer period. Also, here with us today to participate in the discussions are Conor Murphy, Chief Operating Officer; John Rosenthal, Chief Investment Officer; and Myles Lambert, Chief Distribution and Marketing Officer. Our discussion during this call will include forward-looking statements within the meaning of the federal securities laws. Brighthouse Financial’s actual results may differ materially from the results anticipated in the forward-looking statements as a result of risks and uncertainties, including those described from time to time in Brighthouse Financial’s filings with the U.S. Securities and Exchange Commission. Information discussed on today’s call speaks only as of today, February 12, 2019. 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-GAAP measures. Reconciliations of these non-GAAP measures on a historical basis to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website, in our earnings release, slide presentation or financial supplement. And finally, references to statuary results 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 Steigerwalt.

Thank you, David, and good morning, everyone. 2018, our first full year as an independent company, was a strong year for Brighthouse and we made significant progress executing our strategy. As we reflect on the year, we continue to believe that we have a solid strategy in place and that it will generate long-term shareholder value. 2018 provided many examples of our progress which are summarized on slide 3 of our earnings presentation. First, I'm very pleased with our outstanding sales results in 2018, which we capped off with approximately $1.7 billion of annuity sales in the fourth quarter, our highest quarterly sales since becoming an independent public company in 2017. Full year 2018 annuity sales of $5.9 billion are significantly ahead of our expectations at the time of separation and are a testament to the strength of our distribution relationships and the success of our branding initiatives. Annuity sales were up 36% in 2018 compared to full year 2017, led by shield and fixed indexed annuities. I'm especially pleased with the success of Index Horizon’s, a fixed indexed annuity product that is sold through MassMutual which had sales of over $1 billion in 2018. And this week, we are launching our new hybrid life insurance product, Brighthouse SmartCare. This launch marks our first life insurance product introduction since becoming an independent company and is part of our strategy to reestablish a competitive presence in the life insurance market. This product builds on our foundation of experience and knowledge in the life insurance space, as we enter the expanding hybrid market. Brighthouse SmartCare is currently approved for sale in 47 jurisdictions and then initially will be available through select distribution partners. We are continuing to see excitement from our long-standing distribution partners and remain focused on making our distribution network…

Thank you, Eric, and good morning, everyone. I will start with our fourth quarter results beginning on slide 4, and then provide some perspectives on the key underlying themes and our balance sheet position. Adjusted earnings excluding the impact from notable items were $199 million in the quarter compared to adjusted earnings on the same basis of $314 million in the third quarter of 2018 and $197 million in the fourth quarter of 2017. These results were inline with our expectations given the fourth quarter market performance. I want to point out two notable items in the quarter; these items resulted in a $13 million after-tax decrease in adjusted earnings or $0.11 per diluted share. The notable items included, a $26 million after-tax net favorable impact related to modeling improvements which resulted from an actuarial system conversion and establishment costs of $39 million after-tax. Now I'd like to provide some perspective on the market impact to adjusted earnings this quarter. Separate account returns were negative 9.2% in the quarter. This was favorable compared to various equity market index price decline of 13% to 20% as about one-third of our separate account assets are invested in funds that are more fixed income oriented. Nevertheless, separate account performance was below our base case assumptions by approximately 11 percentage points. Overall the market decline in the fourth quarter resulted in an unfavorable impact to adjusted earnings of approximately $95 million after-tax or approximately $0.81 per share as shown on slide 5. The quarterly market impact is not linear or symmetrical, primarily driven by DAC amortization and SOP reserves and can range from $0.07 to $0.11 per share for each percentage point change in separate account returns. Approximately three-fourth of the impact is from these two items, while the rest is from a change…

[Operator Instructions] Our first question comes from Josh Shanker with Deutsche Bank. Your line is now open.

Yes. Thank you and congratulations on tough quarter. I was curious, the market was down 9% in December. The 10-year treasury yield fell a little more than 30 bps and obviously you came close, I assume, to breaching the CTE98 level, maybe you can put some numbers behind that? Is that the kind of stress scenario that you're designed, I mean, to be able to succeed at? Clearly, look, we were all stressful at work during those days, but a 10% market correction is not an apocalypse. We're more concerned about 20% or even more than that. Should we be comfortable with the performance of the buffer over that period of time?

Good morning, Josh and thank you for the question. You're right. In the fourth quarter, CTE98 did move around. Assets above CTE98 did move around as designed. So let me provide a little color on that. CTE98 requirements increased by close to $4 billion in the quarter with the market move, but they were offset by hedging gains and VA and shield statutory cash flows resulting in assets above CTE98 absorbing and that's the key word, absorbing, the market impact of just under $600 million. This demonstrates the effectiveness of our out-of-the-money hedging program as assets above CTE98 is the level we were at the end of the quarter, even before putting in $200 million of capital into the company to continue to grow our out-of-the-money hedging program. So we ended at approximately $300 million over CTE98. The last point I would make on that is, capital is a shock absorber, and we have flexibility in the way we designed this to go below 98 and build back up to 98, because remember the flow is at 95. So there is a huge amount of margin of safety for us to operate over time.

And just for identification, if the market had fallen another 5% to 10% in December, but there was also the increase in volatility associated with that fall not that we can say exact numbers, but hypothetically would those two factors be equally offsetting and it wouldn't have a dramatic difference in the ultimate CTE98 level at year end?

The short answer is yes. Maybe, I'll add to that little short answer which is, wall going up is good for us. The bedrock of our program is a large number of long-dated options. So wall going up would help us. And I will dimensionalize because I'm sure this question will come up. The total market impacts were around $2 billion. You can see it in our NDGL line when you look at derivative gain. Of that, wall is a meaningful contributor, but most of it is level of market. And lastly, it doesn't matter if it says 10%, 20%, 30%, 40% throw the shock at it. The program would sustain it as we showed in our sensitivities back in December.

Okay. Well, thank you for the answers.

Thank you. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is now open.

Yes. Just as follow-up question, I guess two parts. You gave the RBC ratio in your prepared remarks. Could you comment about the target for that ratio, I guess over time? And then, can you give us an update where the CTE98 is at quarter-to-date?

Hi, Elyse, it's Eric. I'll start and Anant will jump in. As we said last year, as we get here to implementing the VA capital reform in the statutory financials. We will come up with our RBC target. And then of course, you're going to want to understand excess capital and that was all going to happen this year. We are not quite ready to do that yet, but it's on the way. Anant?

And in terms of – Elyse feel free to reframe the question, if I didn't get your question, the second question which is as markets would come back in January we expect the assets above CTE98 to go up.

Yeah, I just wasn't sure if you wanted to give us a frame of reference where that could potentially sit today since markets have come back a bit in January?

So January came back 6% on separate account returns as I said in my prepared comments. Fourth quarter was down 9.2%. While we're not going to run a clock on this to give it exactly point to point, you can see if it came down at around $600 million for that kind of decline, it's going to go back up in the same ballpark area for 6% rise.

Okay. Thank you. And then one other quick question. The tax rate was about 13% for the full year 2018. I know you guys have said kind of the target is high-teens tax rate. So when you say that you're going to target low-double digit EPS growth does that assume that your tax rate will go from 13% to something in the high-teens over this coming year?

Hi. It's Anant again. Yes. So we expect the tax rates to be in the teens as earnings grow it will go to the mid-teens while earnings are at current levels probably in the low-teens that's area we would be. We just had a benefit this time around, which is more one-time in nature, and hence the tax rate being low where it was this quarter. Effectively for the year it was 13%.

Okay. Thank you.

Thank you. Our next question comes from Andrew Kligerman with Credit Suisse. Your line is now open.

Hey good morning. Maybe you could help me triangulate a little bit better on the CTE98 number. You reported, let me start with adjusted statutory earnings you reported $320 million for the full year. Last quarter on the call you mentioned that you have earned in the third quarter alone $700 million of statutory adjusted earnings and I assume there were some good earnings in the first and second quarters as well. So it would strike -- let me give another data point. Last quarter when the market was up 7% it helped capital in excess of CTE98 by $400 million. So -- and that was with the management discussions. Now this quarter the market is down 14% and you are saying your capital in excess of CTE98 is $300-plus million. Last quarter you said it was $600-plus million. So that would only be $300 million drop-off. Is it not linear? I think I heard you allude to that. Help out with trying to triangulate why it was so different last quarter and why doesn't it seem to square with adjusted statutory earnings?

Good morning, Andrew. Happy to do so, it's Anant. I'm going to walk you through -- you laid out a very good construct for us to have a dialogue on this. So as you just said last quarter, statutory adjusted earnings were around $700 million. In the first half of the year I had shared earlier in the year in the second quarter earnings call we had made $175 million. So $175 million in the first half of the year another $700 million on statutory adjusted basis in the third quarter with separate account returns being up 3%, while equities were up 7% as we had mentioned. That would have given us ending the third quarter, statutory adjusted earnings north of around $900 million. In this quarter, the swing in assets above CTE98 was $600 million as I answered to Josh. So therefore the net statutory adjusted earnings for the full year go from north of $900 million through the third quarter down $600 million to $320 million approximately. The reason we have -- so we would have ended the year just based on results of the hedging program working and adjusted earnings in the year of north of CTE98 with them having come down -- assets above CTE98 having come down $600 million in the fourth quarter. We ended at $300 million because we redirected $200 million of capital from NELICO into BLIC to support the VA business to continue our journey of going up in our deductible from $1.2 billion to closer to $1.5 billion sometime later in 2019. So as results stand, my answer would get you to CTE98-plus, as we add the additional capital to grow the hedging deductible we would get to 98-plus $300 million.

I see. The NELICO would kind of get me closer. I'm missing by 100-or-so, but that was very helpful Anant. And the second question, how much capital at risk do you have right now, and how did the markets affect that in the quarter? You have your deductible rather, the $1.2 billion I think it is --is that right?

That is right. It ranges between $1 billion to $1.2 billion at this point in time. And I intend this to evaluate it from time-to-time and ramp up when it's opportunistic to do so. To answer your first question on the rounding part, it's because that we have 600 plus and that's the reason why we’ll get within $100 million.

Yeah, Andrew it's Eric, I'll jump in for a second too. Anant great job and Andrew that's a great question. It's going to be hard for anybody to get closer than $100 million or $200 million. I mean, you’d have to anticipate how wall worked in the down market and then how it works in an up market et cetera, et cetera. I think the point that we’re able to make now is the hedging program works in a lousy fourth quarter market. If you think about the answer to Andrew's question and Josh's question, hopefully we're starting to build some credibility around this hedging program. While you're never going to be able to get it down to the penny, I mean within $100 million or $200 million, I think can give people some real comfort. I know where this is going. If you think about Elyse's question, yes the market is up and I think all of you probably have a reasonable expectation of what would have happened if you had a January close. So any follow-up Andrew?

Yeah, just want to get a sense of where the $1.2 billion of deductible is right at year-end?

Yeah, so in the quarter we would have used approximately 600 of that $1.2-ish billion. And it's dynamic it ramps up and down as we look at it. But two data points I shared with you. So we probably have around $400 million, $500 million of additional downside to absorb if markets continue to fall whatever level they fall to, but that's just a shock absorber. It will come back as we build capital through earnings that's one. The second is, we don't have to really trade our program that actively as some others have to do. Frankly the natural way our deductible would increase if we didn't take any hedges off was with the next large maturities, which is not till June. So, very stable bedrock of hedges to protect the program. But to answer your question, we've used half the deductible and it's more of a shock absorber since the hedges are long-term in nature. As January would have shown, the shock absorber has given back.

Got it. Thanks, Anant and Eric. I appreciate it.

Thank you. Our next question comes from Tom Gallagher with Evercore. Your line is now open.

Good morning. Hey, just a few follow-ups there. The – Anant, I think, did you also take a dividend out of NELICO to the holding company during the quarter? Was that the major driver of cash flow to the increased cash at the holding company? And if so based on your comment you just made, you also redirected capital from NELICO to the VA company. So it seems like a considerable amount of money coming out of NELICO. Was that just because there is significant excess capital there? Have you drawn it all down? Anyway this is my first question.

Good morning, Tom. Yeah, so with us having to put NAIC reform behind us from a management point of view it will come through statuary reporting as we work through the year. It really allows us to think about excess capital where it is where can we take it out, where can we deploy it most judiciously for shareholders. We took $400 million out of NELICO, we put $200 million into BLIC because that's where the VA program is for all our entities. And then that helped holding company cash go up from around $600 million to $750 million in the quarter net of share repurchase.

Got you. And are there other -- as we think about enterprise-wide capital, so clearly, the HoldCo cash is higher. I think you also have the SGUL captive, I mean is that a potential source of capital or should we just think about that funding that required reserves and not necessarily a source of capital?

You've really seen us pivot from putting required behind us and talk about excess. So, over time, you're going to see us looking at taking out excess capital where we generate it through earnings or where it might be. To answer your question where it might be in our views to come out over time, it's not going to come out overnight. Yes, so NELICO, we've taken some out. We still have around $200 million of capacity in there. We'll probably take some out over there over time and be more sustainable. BRCD our life capital, specifically, answering your question is capitalized in a very robust manner. We believe that it's redundancy in BRCD in reserves and we expect to work with the regulators but that's more of a later part of 2019 or early part of 2020 dialogue as we can implement VA reform and start running the company on an RBC basis. And BLIC is very well-capitalized and continuing to put capital in as we grow the deductible and take capital out as we generate statutory earnings, but these dynamics are over time.

Got you. And then final question, Eric, as we head to the two-year anniversary of the spin, if all else is equal and the valuation doesn't change meaningfully, would you -- what are your thoughts on potentially doing something more strategic like whether it's annuity buyouts, or a transfer, where is your head at for things like that?

Sure Tom. It's no different place than it has been since the beginning. We will always think about how do we create long-term shareholder value. I think we are demonstrating that we are doing shareholder-friendly things and we will continue to do that. I can tell you our Board is extremely focused on shareholder value. But I get your point. Look we are heading down a journey here -- down a road, we're executing on everything we said we were going to do. And -- but over time our management goal is to add shareholder value, create shareholder value. So, I'm open to anything long-term. For the time being, we are going to keep sticking to our strategy and hitting or exceeding all of our marks which is what we've done so far in the two years.

Okay. Thanks.

Thank you. Our next question comes from Ryan Krueger with KBW. Your line is now open.

Hi, thanks. Good morning. On the 475% RBC, is that still under the old existing framework? And I guess if so when would you expect to fully shift to the new framework post the NAIC VA reform?

Morning Ryan. It is under the old RBC framework only to the tune of RBC is based on CTE90. The new framework will be 98. We did move to using the new framework for all our CTE calculations. So when we talk to you about CTE95, 98, 90 even for RBC reporting, we are reflecting the new framework assumptions, all the proposals that we worked through, we are largely reflecting those. So when it's market returns or behavior assumptions or anything like that. For us, we put that behind us. The only change that will happen is 90 will become 98, so they're two moving parts. For statutory reporting, when this year we get to adopted, reserves will come down which will take up. TAC will help unassigned funds and I'll talk a little bit about that in a minute. So the numerator will benefit, the denominator will go up, but 475-area is a good place to be and later in the year we'll update you about our long-term views on running the business. You can see us being very robustly capitalized, relative to single A targets, because we have this out-of-the-money hedging program. Lastly, on unassigned funds, one very important milestone for us with the program working and the results being strong is that unassigned funds is no longer a constraint or a governor on us. We have positive unassigned funds to the tune of $1 billion, 80% of that being in BLIC now. So if we generate -- as we generate over time, adjusted statutory earnings those have the ability to come out as regular ordinary dividends and all the dynamics I said to Tom about capital in the earlier questions still hold.

Great. Thanks. And then, similarly, I think, in the past you talked about the non-VA businesses, the cash flow generated from them, roughly equaling statutory strength from sales as well as, I think, holding company interest expense. Is that still roughly the case today?

Pretty much so.

Okay. Thank you.

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

Hi. Thank you. Can you talk about the rational for upsizing the term loan outstanding and your plan to use your proceeds? And also, given the increase in your debt outstanding, how are you thinking about the level of the holding company liquidity you want to maintain going forward?

Hi, Erik. Thanks for the question. Yes. So the term loan upsize was because, largely it provides us a lot of financial flexibility at the holding company. We've refinanced to our existing 2019 December maturity. So we have no debt maturities for the next five years. Sitting where we are in the economic cycle, that sounds like a good position to be in from the balance sheet holistically. So we can focus on executing our strategy and creating value for shareholders. In terms of what that puts us in leverage and how we think about hold-co cash, leverage is in the low 20s, which is where we wanted to be, as we prepare for GAAP accounting change in the coming years. And holding company, no change in our thinking. We want to hold 2 times annual interest costs, that's in the $300 million to $400 million range, but this excess liquidity at the holding company is a good place to be. And I'll let Eric add, if he wants to add something to that.

I would just say, demand was fantastic for this. So we took advantage of it. Most of our planning was, we would just refinance it and term it out in another five years, but when you have that kind of demand, it was very nice to take advantage of it. So nothing mysterious in there and the rest of Anant's answer stands.

Got it. And is it something that -- I mean, if you felt comfortable with dividend capacity and other things, that it would give you some flexibility to potentially accelerate capital return or other things in the back half of the year?

Look, overall the name of the game here as we've said since the beginning is flexibility. Capital is fungible. You've seen us put some down. We are very excited about the fact that now unassigned funds is not a constraint as you heard. Anant kind of to walk through. And by the way that's only going to get better. Okay? The unassigned funds numbers are just going to get better in 2020. So yeah, overall, it's flexibility. With respect to capital in return, obviously you see we're buying back stock. I don't want to get ahead of my Board and I never will. But as I said before in my answer to Tom's question, it is our notion, it is our desire to return capital to shareholders. And I'm hoping that, we will continue to do that. One thing that I will add as I've usually add each quarter is look the name of the game is to get to the point where you can return capital. Then continue to have added flexibility, but finally the ultimate position to be in is to be a consistent returner of capital and that is where we are focused here. And you've heard a number of things today that, I think are helpful for us, not the least of which is the conversation around unassigned funds. So that's what I will add.

Thank you. And I guess, Anant on the outlook call, you talked about eventually getting – excuse me, to a point where GAAP net income becomes a proxy for statutory earnings dividend capacity. As we look at 2018 really, you had adjusted statutory earnings, but – and I think the net income was a loss of $1 billion. Is switching this dynamic all of the function of reducing the hedge costs or is there something else that we should be expecting too?

Yeah. So hedge costs are the biggest driver of it. The way I'd probably dimensionalize it is adjusted statutory earnings has a liability measure CTE95 and hedges that are moving in tandem with each other. Therefore, you got a liability that's in our view a realistic view of the liability, the economic liability and we are protecting that. GAAP is not there yet, and statutory is going to get there with the VA and NAIC reform. And therefore, once GAAP gets there with accounting changes down the road that's when it will be closer to adjusted statutory. But yes, reducing hedge costs along the way will really converge those two.

Got it. Thank you.

Thank you. Our next question comes from the line of John Barnidge with Sandler O'Neill. Your line is now open.

Thanks. The fee environment in the asset management industry is certainly a buyer's market. Have you thought about how much you maybe able to save on the investment management agreement with Met when that comes up for renegotiation?

Hi. It's John. We actually filed an 8-K last Friday suggesting that we have renegotiated the IMA within Met and entered into a new IMA. Met's going to be an important asset manager for us going forward. We are also going to be – as we've suggested in the past we're moving to a multi-manager model. So we are going to be on-boarding other managers, during the first half of this year. The IMAs with them are not complete, so it's premature to name any names, but they're all world-class managers. And I would say, just in total, we are saving a material amount of money and that's all in our corporate cost savings projections that we have been discussing with you over the last two years.

Okay. So that sounds like additional savings per se?

No.

Okay. And then you talked a lot about not a ton – but going more into the IMO space, will you consider doing that inorganically if there was something compelling?

Sure. This is Myles speaking. Yes, we launched in the IMO space last year and we are partnering with a large national IMO and they are distributing our shield product to certain broker dealers. We have begun having conversations with that organization on about a joint product opportunity that will speak about more in the future.

What about M&A for that?

John, it's Eric. Look right now, we are using excess capital to buy back stock. So over time certainly something like that could be a consideration. The right situation, at the right time etcetera, etcetera, but right now we are focused on capital return obviously with the stock where it is, that has to be our number one focus.

Makes complete sense. Thank you for the answers.

Thank you. Our next question comes from the line of Jimmy Bhullar with JPMorgan. Your line is now open.

Hi, good morning. I had a couple of questions. First, can you just discuss what do you expect your dividends that you're able to take out from the subs to be, net of any sort of contributions you might be planning to make to BLIC? And then secondly on sales, on the indexed annuity inside, I think your results are benefiting a lot from the Index Horizon’s product with MassMutual. If you could just discuss, whether there is room to ramp that up further or do you feel that you're sort of getting your full level of production through those agents?

I will take the first one Jimmy, good morning, on the BLIC dividend. Look BLIC having unassigned funds of north of $800 million is really constructive because while we might put capital aimed to continue to grow the deductible to $1.5 billion and then to $2 billion eventually. Earnings as they come out through adjusted statutory earnings we can take those out as ordinary dividends, whenever. So if you ask me what is our plan? Our plan is right now to grow capital in BLIC through earnings or contributions to get to $2 billion deductible, but once we get there, we’ll take adjusted earnings out.

Yes, hi. It's Myles speaking. So as it relates to our FIA solution at MassMutual, we couldn’t be more pleased with the results that we’ve experienced. In the quarter we did $368 million of sales that's up 81% quarter-over-quarter and it marks the best quarter that we have had so far. We feel that the advisers there really like the product, it's simple, it's competitive, it provides them flexibility around protected accumulation and potentially providing income to their clients. So we're quite optimistic that we're going to continue to see sales growth with the product moving forward.

Thank you. Our next question comes from the line of John Nadel with UBS. Your line is now open.

Hey good morning. Anant I was hoping, you could actually walk us through the moving parts below the line on a GAAP basis. How much of the hedge results overall, would you characterize as sort of true mark-to-market gains versus the actual cost of the program? And sort of back to Eric's question, I know you've been targeting a reduction in those ongoing hedge costs and the convergence between net and operating income. So I was just hoping, you could sort of parse that out for us?

Happy to do so, John. So, I’ll answer your question in two parts. First of all, you asked what’s the cost of the program relative to the total change. If you look at our VA hedges line, it changed by around $1.84 billion, a gain of the -- the market movements were north of $2 billion positive and then there’s a cost of just the time value of options around $200 million a quarter. Hence the net 1.8…

Okay.

…so, that holds up as we've said in the past and really feel good about the fact that the gains played out as we expected. Walking from really adjusted earnings to net income, which is I think where you're going with the question, adjusted earnings post- tax of around just shy of $200 million, $185 million going to net income of $1.4 billion, you have the gains on the derivates. So you have the overall variable annuity, net derivative gain and loss, driven by the hedges and the fact that the embedded derivative while it moved, the rider liabilities moved, there was a benefit from the shield that's offset a lot of that line. So net-net we have gains from shields, gains from hedges north of $2.7 billion offsetting an embedded derivative movement of around $1.5 billion.

Got you.

The net of that is 1.2 swing and there’s $200 million more to explain roughly it’s driven by that own credit that other FAS 150’s adoptions assumptions was around net $200 million, $300 million good guide. Let me pause there threw a lot of numbers at you. So, is that in computer, I can go back?

No, no, no that's very helpful. And then if I switch over to statutory, Anant, and we think about the $1.4 billion increase in statutory capital 3Q to 4Q, how would you advise us to think about that? How much of that is market driven, i.e. we've got a nice bounce in the market to start this year and maybe some of that is a giveback. And how much of that would you categorize more as sort of a permanent increase in statutory capital?

Most of that is market driven as you can see with the movement. It's really adjusted statutory to earnings on what we can bank.

Got you. Okay. All right, that's helpful. And then if I can seek one last one then, just thinking about the Life segment earnings, it's been all over the place. I know you would characterize your expected run rate for the Run-off business at about $15 million quarterly give or take. Any change in your thoughts around the Life segment?

Sure. So Life results this quarter were very good. And I would look at the last four quarters and really 2018 is a good gauge of the earnings power of that business, because we come in pretty steady, second quarter, fourth quarter have had some ups and downs, but if you even average those out and look at all of the four quarters of last year that's a good view on the Life business. Did you have a Run-off question as well, or largely Life focused.

No, no. I’m all good then. Thank you.

Thank you. Our next question comes from the line of Alex Scott with Goldman Sachs. Your line is now open.

Hi, good morning. A lot of the questions have been answered, but I just had a follow-up on RBC. I guess, the BLIC RBC has been higher, significantly higher given by some of the VA elements of the existing framework. So, I guess those – just interested to hear some of the dynamics that lead to the 475, because it was a little bit lower of a number than I would have guess before implementing the VA capital standard. So just interested to know what extent did the SGUL captive dragged that down or are there any other dynamics I should be thinking about?

Hi, Alex, good morning. Let me start with the last part of your question. The SGUL captive does not drag that down at all. The operating companies are separate from BRCD. So, BRCD's capitalization does not impact those. Over time, we expect to release some capital out of BRCD, but it's not reflected in RBC ratios. In respect to what drove RBC ratio of around 475 area for a year-end 2018 relative to like north of 600 in the prior year end, I'll make a few points. And as we previously said, RBC on a pre-VA reform basis is less meaningful which is what we were at year end 2017. It did not reflect aspects of the VA capital reform. In 2018, though, we have implemented all the assumptions that need to go in to CTE calculations in RBC. The only thing we have left to do now is to actually start reporting financial results where you'll go from CTE90 to CTE98. Therefore the RBC today in the 475 area is we feel pretty good. And as the next step of VA capital reform when statutory financials come through, TAC will go up with reserve release and denominator will go down -- will go up with -- going to CTE98, but RBC ratio is in a good area. The good part is the standard scenario headwind is behind us and unassigned funds are in a positive situation.

Anant, I might add.

Okay, got it.

Hey Alex, hold on a second, it's Eric. I might ask you -- I think one thing that might be confusing is you're saying pre, right? It's sort of half pre, half post, right? I mean if you think about the RBC ratio. I'm asking him questions for Alex this is interesting.

Thank you, Alex and Eric. That's right. 2017 pre-VA reform, 2018 was sort of semi-post-VA reform. That's the key point Eric's rightly making over here, because we are reflecting post-VA reform in our CTE90 calculation. So we're already there.

That's really helpful. I think I got what I needed. And maybe if I could just do a quick follow-up. As it relates the deductible that you talked about , I think it sounds like the deductible is still intact, partly because the markets come back, partly because there is some injection. I mean if we had a scenario where the deductible got hit say half of it was gone and it stayed there. I mean is there anything you'd have to change around your hedging program, like can you continue to implement the same strategy or does it sort of work both ways where if you ever to increase the deductible hedge costs go down, but if the deductible is hit and it's got to be go back up over time whether things you have to do to the hedging program that could increase costs?

It's a great question. We got a lot of flexibility around how we manage the hedge program on the deductible. Because as we've shown -- so five quarters still at the end of third quarter, we made $1 billion the way we were running the hedge program with market upside participation. Now, even if we eat into the deductible, I'll make two points on that. First of all, we have to between CTE95 and CTE98, we can go below CTE98. So, there's a large margin of safety there. The second point is we can always toggle to being a little more at the money than out of the money. It's not that that toggle isn’t there for us. This margin of safety that we have and the peace of mind that we've been able to work with all our stakeholders to understand gives us a lot of flexibility here to generate capital in good times, to absorb loss in stress times, and then rebuild capital over time.

All right. Thank you very much.

Thank you. Ladies and gentlemen, I will now turn the call back over to Mr. Rosenblum for closing remarks.

Thank you, James, and thanks to everybody for joining us today for our fourth quarter earnings conference call and for your interest in Brighthouse Financial and we look forward to speaking to you next quarter.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.