Brighthouse Financial Inc. has modified its variable annuity hedging strategy in an effort to lower the company's risk profile and preserve distributable earnings across various capital market scenarios, according to CEO Eric Steigerwalt.

Brighthouse plans to operate with a first loss position, or deductible, of no more than $500 million, compared to a $2 billion deductible in 2020, in the initial hedging strategy, CFO Ed Spehar said during a conference call to discuss fourth-quarter 2019 earnings. Spehar said the company has changed since its initial hedging strategy was implemented, making it "prudent" to adopt a lower risk strategy in the future.

The company is aiming for a "more consistent" distributable earnings profile and will de-emphasize capturing market upside, the CFO added, and saying that the change would provide "a very significant benefit in terms of limiting downside." In the context of total hedge costs, Spehar said Brighthouse would have a "significant benefit" in down markets because of the much smaller first loss position, and would have reduced hedge costs in flat markets. He expects consistent hedge costs in normal markets and anticipates having more hedge costs when markets are moving up significantly.

On interest rates, Spehar said the insurer continues to have significant rate protection, which will be a part of the revised strategy.

Brighthouse also plans to take out $1.25 billion of dividends from Brighthouse Life Insurance Co. in 2020. About $1 billion is connected to the revised strategy, while the remaining $250 million is being treated as a normal dividend.

The company is scheduled to host a business update call in March that will provide an update on variable annuity distributable earnings, with the revised strategy included.

Brighthouse reported a fourth-quarter 2019 net loss available to shareholders of $1.08 billion, or a loss of $10.02 per share, compared with net income of $1.44 billion, or $12.14 per share, in the fourth quarter of 2018.