What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-11 · 762 added, 256 removed, 1130 unchanged (47% of the section changed)

2 unchanged sentences

Interim Condensed Consolidated Balance Sheets

March 31, 2020 (Unaudited) and December 31, 2019

June 30, 2020 (Unaudited) and December 31, 2019

(In millions, except share and per share data)

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Fixed maturity securities available-for-sale, at estimated fair value (amortized cost:

1 unchanged sentence

allowance for credit losses of $ 5 and $ 0 , respectively)

$ 76,796 $ 71,036

Equity securities, at estimated fair value 129 147

Mortgage loans (net of allowance for credit losses of $ 92 and $ 64 , respectively)

15,791 15,753

Policy loans 1,201 1,292

Limited partnerships and limited liability companies 2,354 2,380

2 unchanged sentences

Total investments

107,172 95,782

Cash and cash equivalents 7,325 2,877

3 unchanged sentences

Current income tax recoverable 1 17

Other assets 532 584

Separate account assets 99,599 107,107

$ 235,367 $ 227,259

Liabilities and Equity

8 unchanged sentences

Total liabilities

214,393 211,022

Contingencies, Commitments and Guarantees (Note 11)

1 unchanged sentence

Preferred stock, par value $ 0.01 per share;

$425 aggregate liquidation preference

$ 828 and $ 425 , respectively, aggregate liquidation preference

Common stock, par value $ 0.01 per share;

6 unchanged sentences

27,941,592 and 14,620,570 shares, respectively

( 887 ) ( 562 )

Accumulated other comprehensive income (loss) 4,965 3,240

Total Brighthouse Financial, Inc.’s stockholders’ equity

20,909 16,172

Noncontrolling interests 65 65

20,974 16,237

Total liabilities and equity

$ 235,367 $ 227,259

See accompanying notes to the interim condensed consolidated financial statements.

1 unchanged sentence

Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Three Months Ended March 31, 2020 and 2019 (Unaudited)

For the Three Months and Six Months Ended June 30, 2020 and 2019 (Unaudited)

(In millions, except per share data)

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

$ 193 $ 232 $ 391 $ 459

Universal life and investment-type product policy fees

827 888 1,713 1,763

Net investment income

652 942 1,568 1,753

Other revenues

93 96 195 188

Net investment gains (losses)

( 34 ) 63 ( 53 ) 52

Net derivative gains (losses)

( 2,653 ) 149 4,249 ( 1,154 )

Total revenues

( 922 ) 2,370 8,063 3,061

Policyholder benefits and claims

839 845 2,026 1,617

Interest credited to policyholder account balances

276 265 535 523

Amortization of deferred policy acquisition costs and value of business acquired

( 92 ) 170 678 192

Other expenses

577 621 1,094 1,213

Total expenses

1,600 1,901 4,333 3,545

Income (loss) before provision for income tax

( 2,522 ) 469 3,730 ( 484 )

Provision for income tax expense (benefit)

( 531 ) 85 762 ( 133 )

Net income (loss)

( 1,991 ) 384 2,968 ( 351 )

Net income (loss) attributable to noncontrolling interests

Net income (loss) attributable to Brighthouse Financial, Inc.

( 1,991 ) 384 2,966 ( 353 )

Preferred stock dividends

Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders

$ ( 1,998 ) $ 377 $ 2,952 $ ( 360 )

Comprehensive income (loss) $ 327 $ 1,416 $ 4,693 $ 1,635

1 unchanged sentence

Comprehensive income (loss) attributable to Brighthouse Financial, Inc.

$ 327 $ 1,416 $ 4,691 $ 1,633

Earnings per common share

$ ( 21.10 ) $ 3.28 $ 29.60 $ ( 3.10 )

$ ( 21.10 ) $ 3.27 $ 29.56 $ ( 3.10 )

See accompanying notes to the interim condensed consolidated financial statements.

1 unchanged sentence

Interim Condensed Consolidated Statements of Equity

For the Three Months Ended March 31, 2020 and 2019 (Unaudited)

For the Three Months and Six Months Ended June 30, 2020 and 2019 (Unaudited)

(In millions)

Preferred Stock

Additional Paid-in Capital

Retained Earnings (Deficit)

Treasury Stock at Cost

Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Deficit) Treasury Stock at Cost Accumulated

Comprehensive

Income (Loss)

Brighthouse Financial, Inc.’s Stockholders’ Equity

Noncontrolling Interests

Income (Loss) Brighthouse Financial, Inc.’s Stockholders’ Equity Noncontrolling Interests Total Equity

Balance at December 31, 2019 $ — $ 1 $ 12,908 $ 585 $ ( 562 ) $ 3,240 $ 16,172 $ 65 $ 16,237

Cumulative effect of change in accounting principle, net of income tax (Note 1)

( 14 ) 3 ( 11 ) ( 11 )

Balance at January 1, 2020

— 1 12,908 571 ( 562 ) 3,243 16,161 65 16,226

Treasury stock acquired in connection with share repurchases

( 142 ) ( 142 ) ( 142 )

Share-based compensation

Dividends on preferred stock

( 7 ) ( 7 ) ( 7 )

Change in noncontrolling interests

— ( 2 ) ( 2 )

Net income (loss)

4,957 4,957 2 4,959

Other comprehensive income (loss), net of income tax

( 596 ) ( 596 ) ( 596 )

Balance at March 31, 2020

Preferred Stock

Additional Paid-in Capital

Retained Earnings (Deficit)

Treasury Stock at Cost

— 1 12,911 5,521 ( 706 ) 2,647 20,374 65 20,439

Preferred stock issuance

— 390 390 390

Treasury stock acquired in connection with share repurchases

( 180 ) ( 180 ) ( 180 )

Share-based compensation

— 6 ( 1 ) 5 5

Dividends on preferred stock

( 7 ) ( 7 ) ( 7 )

Change in noncontrolling interests

Net income (loss)

( 1,991 ) ( 1,991 ) — ( 1,991 )

Other comprehensive income (loss), net of income tax

2,318 2,318 2,318

Balance at June 30, 2020 $ — $ 1 $ 13,307 $ 3,523 $ ( 887 ) $ 4,965 $ 20,909 $ 65 $ 20,974

Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Deficit) Treasury Stock at Cost Accumulated

Comprehensive

Income (Loss)

Brighthouse Financial, Inc.’s Stockholders’ Equity

Noncontrolling Interests

Income (Loss) Brighthouse Financial, Inc.’s Stockholders’ Equity Noncontrolling Interests Total Equity

Balance at December 31, 2018 $ — $ 1 $ 12,473 $ 1,346 $ ( 118 ) $ 716 $ 14,418 $ 65 $ 14,483

Preferred stock issuance

— 412 412 412

Treasury stock acquired in connection with share repurchases

( 52 ) ( 52 ) ( 52 )

Share-based compensation

Change in noncontrolling interests

— ( 2 ) ( 2 )

Net income (loss)

( 737 ) ( 737 ) 2 ( 735 )

Other comprehensive income (loss), net of income tax

Balance at March 31, 2019 — 1 12,889 609 ( 170 ) 1,670 14,999 65 15,064

Treasury stock acquired in connection with share repurchases

( 136 ) ( 136 ) ( 136 )

Share-based compensation

Dividends on preferred stock

( 7 ) ( 7 ) ( 7 )

Change in noncontrolling interests

Net income (loss)

384 384 — 384

Other comprehensive income (loss), net of income tax

1,032 1,032 1,032

Balance at June 30, 2019

$ — $ 1 $ 12,893 $ 986 $ ( 306 ) $ 2,702 $ 16,276 $ 65 $ 16,341

See accompanying notes to the interim condensed consolidated financial statements.

1 unchanged sentence

Interim Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2020 and 2019 (Unaudited)

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

(In millions)

Three Months Ended

Six Months Ended

Net cash provided by (used in) operating activities $ 467 $ 809

7 unchanged sentences

Fixed maturity securities ( 5,894 ) ( 9,263 )

Equity securities — ( 3 )

Mortgage loans ( 923 ) ( 1,973 )

6 unchanged sentences

Net cash provided by (used in) investing activities

( 2,125 ) ( 2,932 )

Cash flows from financing activities

Policyholder account balances:

Deposits 4,835 3,794

Withdrawals ( 1,153 ) ( 1,504 )

Net change in payables for collateral under securities loaned and other transactions 3,485 ( 963 )

5 unchanged sentences

Financing element on certain derivative instruments and other derivative related transactions, net ( 698 ) 44

Other, net ( 30 ) ( 28 )

Net cash provided by (used in) financing activities 6,106 1,959

4 unchanged sentences

Net cash paid (received) for:

Interest $ 88 $ 92

Income tax $ 3 $ 5

See accompanying notes to the interim condensed consolidated financial statements.

16 unchanged sentences

Consolidation

The accompanying interim condensed consolidated financial statements include the accounts of Brighthouse Financial, as well as partnerships and limited liability companies (“LLCs”) in which the Company has control.

Intercompany accounts and transactions have been eliminated.

15 unchanged sentences

ASUs not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements.

ASUs adopted as of March 31, 2020 are summarized as follows:

Effective Date

Impact on Financial Statements

ASUs adopted as of June 30, 2020 are summarized as follows:

Standard Description Effective Date Impact on Financial Statements

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)

The amendments to Topic 326 replace the incurred loss impairment methodology for certain financial instruments with one that reflects expected credit losses based on historical loss information, current conditions, and reasonable and supportable forecasts.

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) The amendments to Topic 326 replace the incurred loss impairment methodology for certain financial instruments with one that reflects expected credit losses based on historical loss information, current conditions, and reasonable and supportable forecasts.

The new guidance also requires that an other-than-temporary impairment on a debt security will be recognized as an allowance going forward, such that improvements in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net investment income, but rather a reversal of the previous impairment and recognized through realized investment gains and losses.

January 1, 2020 using the modified retrospective method

The Company recorded an after tax net decrease to retained earnings of $14 million and a net increase to accumulated other comprehensive income (loss) (“AOCI”) of $3 million for the cumulative effect of adoption.

January 1, 2020 using the modified retrospective method The Company recorded an after tax net decrease to retained earnings of $ 14 million and a net increase to accumulated other comprehensive income (loss) (“AOCI”) of $ 3 million for the cumulative effect of adoption.

The adjustment included establishing or updating the allowance for credit losses on fixed maturity securities, mortgage loans, and other invested assets.

ASUs issued but not yet adopted as of March 31, 2020 are summarized as follows:

Effective Date

Impact on Financial Statements

ASUs issued but not yet adopted as of June 30, 2020 are summarized as follows:

Standard Description Effective Date Impact on Financial Statements

ASU 2018-12, Financial Services-Insurance (Topic 944):

Targeted Improvements to the Accounting for Long-Duration Contracts

The amendments to Topic 944 will result in significant changes to the accounting for long-duration insurance contracts.

Targeted Improvements to the Accounting for Long-Duration Contracts The amendments to Topic 944 will result in significant changes to the accounting for long-duration insurance contracts.

These changes (1) require all guarantees that qualify as market risk benefits to be measured at fair value, (2) require more frequent updating of assumptions and modify existing discount rate requirements for certain insurance liabilities, (3) modify the methods of amortization for deferred policy acquisition costs (“DAC”), and (4) require new qualitative and quantitative disclosures around insurance contract asset and liability balances and the judgments, assumptions and methods used to measure those balances.

The market risk benefit guidance is required to be applied on a retrospective basis, while the changes to guidance for insurance liabilities and DAC may be applied to existing carrying amounts on the effective date or on a retrospective basis.

January 1, 2022

The Company is in the early stages of evaluating the new guidance and therefore is unable to estimate the impact to its financial statements.

The amendments are currently effective for the Company on January 1, 2022.

On July 7, the FASB released an exposure draft which if adopted, will change the effective date of the amendments to January 1, 2023.

The Company continues to evaluate the new guidance and therefore is unable to estimate the impact to its financial statements.

The most significant impact is expected to be the measurement of liabilities for variable annuity guarantees.

42 unchanged sentences

Operating results by segment, as well as Corporate & Other, were as follows:

Three Months Ended March 31, 2020

Corporate & Other

Three Months Ended June 30, 2020

Annuities Life Run-off Corporate & Other Total

(In millions)

Pre-tax adjusted earnings

$ 205 $ 60 $ ( 146 ) $ ( 98 ) $ 21

Provision for income tax expense (benefit)

34 12 ( 31 ) ( 12 ) 3

Post-tax adjusted earnings 171 48 ( 115 ) ( 86 ) 18

2 unchanged sentences

Adjusted earnings

$ 171 $ 48 $ ( 115 ) $ ( 93 ) 11

Adjustments for:

5 unchanged sentences

Interest revenue

$ 405 $ 69 $ 166 $ 16

Interest expense

$ — $ — $ — $ 45

Brighthouse Financial, Inc.

1 unchanged sentence

Segment Information (continued)

Three Months Ended March 31, 2019

Corporate & Other

Three Months Ended June 30, 2019

Annuities Life Run-off Corporate & Other Total

(In millions)

Pre-tax adjusted earnings

$ 323 $ 72 $ 2 $ ( 85 ) $ 312

Provision for income tax expense (benefit)

58 14 — ( 21 ) 51

Post-tax adjusted earnings 265 58 2 ( 64 ) 261

2 unchanged sentences

Adjusted earnings

$ 265 $ 58 $ 2 $ ( 71 ) 254

Adjustments for:

5 unchanged sentences

Interest revenue

$ 470 $ 116 $ 339 $ 17

Interest expense

$ — $ — $ — $ 48

Six Months Ended June 30, 2020

Annuities Life Run-off Corporate & Other Total

(In millions)

Pre-tax adjusted earnings

$ 594 $ 73 $ ( 236 ) $ ( 157 ) $ 274

Provision for income tax expense (benefit)

107 14 ( 51 ) ( 34 ) 36

Post-tax adjusted earnings 487 59 ( 185 ) ( 123 ) 238

Net income (loss) attributable to noncontrolling interests

Preferred stock dividends — — — 14 14

Adjusted earnings

$ 487 $ 59 $ ( 185 ) $ ( 139 ) 222

Adjustments for:

Net investment gains (losses)

Net derivative gains (losses)

Other adjustments to net income (loss)

Provision for income tax (expense) benefit

Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders

Interest revenue

$ 865 $ 185 $ 490 $ 36

Interest expense

$ — $ — $ — $ 92

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Segment Information (continued)

Six Months Ended June 30, 2019

Annuities Life Run-off Corporate & Other Total

(In millions)

Pre-tax adjusted earnings

$ 684 $ 103 $ ( 44 ) $ ( 157 ) $ 586

Provision for income tax expense (benefit)

124 20 ( 10 ) ( 43 ) 91

Post-tax adjusted earnings 560 83 ( 34 ) ( 114 ) 495

Net income (loss) attributable to noncontrolling interests

Preferred stock dividends — — — 7 7

Adjusted earnings

$ 560 $ 83 $ ( 34 ) $ ( 123 ) 486

Adjustments for:

Net investment gains (losses)

Net derivative gains (losses)

Other adjustments to net income (loss)

Provision for income tax (expense) benefit

Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders

Interest revenue

$ 891 $ 213 $ 615 $ 34

Interest expense

$ — $ — $ — $ 95

Total revenues by segment, as well as Corporate & Other, were as follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

$ 1,052 $ 1,194 $ 2,203 $ 2,311

285 330 639 633

332 527 825 1,003

Corporate & Other 37 42 79 85

Adjustments ( 2,628 ) 277 4,317 ( 971 )

$ ( 922 ) $ 2,370 $ 8,063 $ 3,061

Total assets by segment, as well as Corporate & Other, were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

(In millions)

Annuities $ 158,152 $ 156,965

Life 22,299 21,876

Run-off 38,044 35,112

Corporate & Other 16,872 13,306

Total $ 235,367 $ 227,259

Brighthouse Financial, Inc.

4 unchanged sentences

Information regarding the Company’s guarantee exposure was as follows at:

March 31, 2020

December 31, 2019

Event of Death

Annuitization

Event of Death

June 30, 2020 December 31, 2019

Event of Death At

Annuitization In the

Event of Death At

Annuitization

4 unchanged sentences

Separate account value

$ 92,105 $ 53,830 $ 99,385 $ 58,694

Net amount at risk

Average attained age of contract holders

March 31, 2020

December 31, 2019

$ 8,812 (4) $ 8,045 (5) $ 6,671 (4) $ 4,750 (5)

Average attained age of contract holders 69 years 69 years 68 years 68 years

June 30, 2020 December 31, 2019

Secondary Guarantees

2 unchanged sentences

Total account value (3)

$ 5,866 $ 5,957

Net amount at risk (6)

Average attained age of policyholders

$ 70,092 $ 71,124

Average attained age of policyholders 67 years 66 years

Variable Life Contracts

Total account value (3)

$ 3,330 $ 3,526

Net amount at risk (6)

Average attained age of policyholders

$ 20,701 $ 21,325

Average attained age of policyholders 51 years 50 years

_______________

(1) The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract.

19 unchanged sentences

Fixed maturity securities by sector were as follows at:

March 31, 2020

December 31, 2019

Allowance for Credit Losses

Gross Unrealized

Allowance for Credit Losses

Gross Unrealized

June 30, 2020 December 31, 2019

Cost Allowance for Credit Losses Gross Unrealized Estimated

Value Amortized

Cost Allowance for Credit Losses Gross Unrealized Estimated

Gains Losses Gains Losses

(In millions)

corporate $ 30,157 $ 2 $ 4,314 $ 204 $ 34,265 $ 28,375 $ — $ 2,852 $ 67 $ 31,160

Foreign corporate 9,580 2 881 168 10,291 9,177 — 741 74 9,844

RMBS 7,980 1 617 12 8,584 8,692 — 438 12 9,118

government and agency 5,673 — 3,252 — 8,925 5,529 — 1,869 2 7,396

CMBS 5,805 — 473 23 6,255 5,500 — 264 9 5,755

State and political subdivision 3,329 — 904 1 4,232 3,358 — 701 2 4,057

ABS 2,469 — 40 46 2,463 1,945 — 21 11 1,955

Foreign government 1,503 — 285 7 1,781 1,503 — 250 2 1,751

Total fixed maturity securities $ 66,496 $ 5 $ 10,766 $ 461 $ 76,796 $ 64,079 $ — $ 7,136 $ 179 $ 71,036

The Company held non-income producing fixed maturity securities with an estimated fair value of $ 1 million at March 31, 2020 .

The Company did not hold any non-income producing fixed maturity securities at December 31, 2019 .

The Company held non-income producing fixed maturity securities with an estimated fair value of $ 1 million at June 30, 2020.

The Company did no t hold any non-income producing fixed maturity securities at December 31, 2019.

Maturities of Fixed Maturity Securities

The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at March 31, 2020 :

Due After One

Due After Five

Years Through Ten Years

Due After Ten

Securities (1)

The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at June 30, 2020:

Year or Less Due After One

Five Years Due After Five

Years Through Ten Years Due After Ten

Years Structured

Securities (1) Total Fixed

(In millions)

11 unchanged sentences

The estimated fair value and gross unrealized losses of fixed maturity securities in an unrealized loss position, by sector and by length of time that the securities have been in a continuous unrealized loss position, were as follows at:

March 31, 2020

December 31, 2019

Less than 12 Months

12 Months or Greater

Less than 12 Months

12 Months or Greater

June 30, 2020 December 31, 2019

Less than 12 Months 12 Months or Greater Less than 12 Months 12 Months or Greater

Losses Estimated

(Dollars in millions)

corporate $ 2,761 $ 152 $ 289 $ 52 $ 2,017 $ 44 $ 326 $ 23

Foreign corporate 1,260 70 590 98 576 12 561 62

RMBS 294 11 22 1 857 8 386 4

government and agency — — — — 40 2 — —

CMBS 567 21 90 2 559 7 171 2

State and political subdivision 38 1 — — 143 2 8 —

ABS 853 23 563 23 362 2 676 9

Foreign government 131 6 3 1 65 2 — —

1 unchanged sentence

Total number of securities in an unrealized loss position

1,332 265 720 302

Allowance for Credit Losses for Fixed Maturity Securities

21 unchanged sentences

An allowance for credit losses is not estimated on an accrued interest receivable, rather receivable balances 90-days past due are deemed uncollectible and are written off with a corresponding reduction to net investment income.

The accrued interest receivable on fixed maturity securities totaled $ 528 million at March 31, 2020 and is included in accrued investment income.

The accrued interest receivable on fixed maturity securities totaled $ 504 million at June 30, 2020 and is included in accrued investment income.

Fixed maturity securities are also evaluated to determine if they qualify as purchased financial assets with credit deterioration (“PCD”).

6 unchanged sentences

Current Period Evaluation

Based on the Company’s current evaluation of its fixed maturity securities in an unrealized loss position and the current intent or requirement to sell, the Company recorded an allowance for credit losses of $ 10 million , relating to 21 securities at March 31, 2020 .

Based on the Company’s current evaluation of its fixed maturity securities in an unrealized loss position and the current intent or requirement to sell, the Company recorded an allowance for credit losses of $ 5 million, relating to 18 securities at June 30, 2020.

Management concluded that for all other fixed maturity securities in an unrealized loss position, the unrealized loss was not due to issuer-specific credit-related factors and as a result was recognized in OCI.

3 unchanged sentences

The changes in the allowance for credit losses by sector were as follows:

Foreign Corporate

Foreign Government

Corporate RMBS Foreign Corporate Total

(In millions)

Balance at January 1, 2020

$ 3 $ — $ 1 $ 4

Allowance on securities where credit losses were not previously recorded

Allowance on securities that had an allowance recorded in a previous period

( 1 ) — — ( 1 )

Write-offs charged against allowance (1)

Balance at March 31, 2020

( 3 ) — ( 1 ) ( 4 )

The Company recorded total write-offs of $ 12 million during the three months ended March 31, 2020 .

PCD Fixed Maturity Securities

The Company did not purchase any PCD fixed maturity securities during the three months ended March 31, 2020 .

Balance at June 30, 2020

$ 2 $ 1 $ 2 $ 5

_______________

(1) The Company recorded total write-offs of $ 13 million during the six months ended June 30, 2020.

Brighthouse Financial, Inc.

4 unchanged sentences

Mortgage loans are summarized as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Total Carrying

(Dollars in millions)

$ 9,715 61.5 % $ 9,721 61.7 %

3,361 21.3 3,388 21.5

2,807 17.8 2,708 17.2

Total mortgage loans (1)

15,883 100.6 15,817 100.4

Allowance for credit losses ( 92 ) ( 0.6 ) ( 64 ) ( 0.4 )

1 unchanged sentence

$ 15,791 100.0 % $ 15,753 100.0 %

Purchases of mortgage loans from third parties were $ 157 million and $ 477 million for the three months ended March 31, 2020 and 2019 , respectively, and were primarily comprised of residential mortgage loans.

_______________

(1) Purchases of mortgage loans from third parties were $ 331 million and $ 488 million for the three months and six months ended June 30, 2020, respectively, and $ 86 million and $ 563 million for the three months and six months ended June 30, 2019, respectively, and were primarily comprised of residential mortgage loans.

Allowance for Credit Losses for Mortgage Loans

3 unchanged sentences

Accrued interest receivables are presented separate from the amortized cost basis of mortgage loans.

An allowance for credit losses is not estimated on an accrued interest receivable, rather when a loan is placed in nonaccrual status the associated accrued interest receivable balance is written off with a corresponding reduction to net investment income.

The accrued interest receivable on mortgage loans totaled $ 77 million at March 31, 2020 and is included in accrued investment income.

An allowance for credit losses is generally not estimated on an accrued interest receivable, rather when a loan is placed in nonaccrual status the associated accrued interest receivable balance is written off with a corresponding reduction to net investment income.

For mortgage loans that are granted payment deferrals due to the COVID-19 pandemic, interest continues to be accrued during the deferral period if the loan was less than 30 days past due at December 31, 2019 and performing at the onset of the pandemic.

Accrued interest on COVID-19 pandemic impacted loans was not significant at June 30, 2020.

The accrued interest receivable on mortgage loans is included in accrued investment income and totaled $ 86 million at June 30, 2020.

The allowance for credit losses is estimated using relevant available information, from internal and external sources, relating to past events, current conditions, and a reasonable and supportable forecast.

21 unchanged sentences

The changes in the allowance for credit losses by portfolio segment were as follows:

Commercial Agricultural Residential Total

(In millions)

Balance at December 31, 2019

$ 47 $ 10 $ 7 $ 64

Cumulative effect of change in accounting principle

( 20 ) 7 15 2

Balance at January 1, 2020

Current period provision

Balance at March 31, 2020

10 ( 1 ) 17 26

Balance at June 30, 2020

$ 37 $ 16 $ 39 $ 92

PCD Mortgage Loans

The Company did not purchase any PCD mortgage loans during the three months ended March 31, 2020 .

Purchases of PCD mortgage loans are summarized as follows:

Six Months Ended June 30, 2020

(In millions)

Purchase price $ 77

Allowance at acquisition date $ 2

Discount or premium attributable to other factors $ 2

Par value $ 81

Brighthouse Financial, Inc.

3 unchanged sentences

The amortized cost of mortgage loans by year of origination and credit quality indicator was as follows at:

2020 2019 2018 2017 2016 Prior Total

(In millions)

March 31, 2020

June 30, 2020

Commercial mortgage loans

1 unchanged sentence

Less than 65%

$ 193 $ 1,683 $ 1,109 $ 572 $ 1,124 $ 3,247 $ 7,928

59 306 456 340 10 275 1,446

— — — — 114 — 114

Greater than 80% — — 10 13 6 198 227

Total commercial mortgage loans

252 1,989 1,575 925 1,254 3,720 9,715

Agricultural mortgage loans

1 unchanged sentence

Less than 65%

Greater than 80%

110 564 784 445 492 801 3,196

2 76 10 45 — 19 152

8 5 — — — — 13

Total agricultural mortgage loans

120 645 794 490 492 820 3,361

Residential mortgage loans

168 497 540 132 51 1,371 2,759

Nonperforming

— 1 1 — 1 45 48

Total residential mortgage loans

168 498 541 132 52 1,416 2,807

$ 540 $ 3,132 $ 2,910 $ 1,547 $ 1,798 $ 5,956 $ 15,883

The loan-to-value ratio is a measure commonly used to assess the quality of commercial and agricultural mortgage loans.

5 unchanged sentences

The amortized cost of commercial mortgage loans by debt-service coverage ratio was as follows at:

March 31, 2020

December 31, 2019

Amortized Cost

June 30, 2020 December 31, 2019

Amortized Cost % of

Total Amortized Cost % of

(Dollars in millions)

1 unchanged sentence

Greater than 1.20x

$ 9,198 94.7 % $ 9,257 95.2 %

1.00x - 1.20x

314 3.2 298 3.1

Less than 1.00x

203 2.1 166 1.7

$ 9,715 100.0 % $ 9,721 100.0 %

The debt-service coverage ratio compares a property’s net operating income to its debt-service payments.

5 unchanged sentences

Past Due Mortgage Loans by Portfolio Segment

The Company has a high-quality, well-performing mortgage loan portfolio, with over 99 % of all mortgage loans classified as performing at both March 31, 2020 and December 31, 2019 .

The Company has a high-quality, well-performing mortgage loan portfolio, with over 99 % of all mortgage loans classified as performing at both June 30, 2020 and December 31, 2019.

Delinquency is defined consistent with industry practice, when mortgage loans are past due as follows:

commercial and residential mortgage loans — 60 days and agricultural mortgage loans — 90 days.

To the extent a payment deferral is agreed to with a borrower, in response to the COVID-19 pandemic, the impacted loans will not be considered past due during the period of deferral.

To the extent a payment deferral is agreed to with a borrower, in response to the COVID-19 pandemic, the past due status of the impacted loans is locked-in as of March 1, 2020, which reflects the date on which the COVID-19 pandemic began to affect the borrower’s ability to make payments, as provided in the CARES Act.

At June 30, 2020, 1 % of the COVID-19 pandemic modified loans were classified as delinquent.

The aging of the amortized cost of past due mortgage loans by portfolio segment was as follows at:

March 31, 2020

June 30, 2020

Commercial Agricultural Residential Total

(In millions)

$ 9,715 $ 3,350 $ 2,705 $ 15,770

30-59 days past due

2 unchanged sentences

180+ days past due

$ 9,715 $ 3,361 $ 2,807 $ 15,883

Mortgage Loans in Nonaccrual Status by Portfolio Segment

Mortgage loans are placed in a nonaccrual status if there are concerns regarding collectability of future payments or the loan is past due, unless the past due loan is well collateralized and in the process of foreclosure.

To the extent a payment deferral is agreed to with a borrower in response to the COVID-19 pandemic, the impacted loans will not be reported as in a nonaccrual status during the period of deferral.

Mortgage loans in a nonaccrual status by portfolio segment were as follows at:

Commercial (2)

Agricultural (2)

Residential (2)

To the extent a payment deferral is agreed to with a borrower, in response to the COVID-19 pandemic, the impacted loans generally will not be reported as in a nonaccrual status during the period of deferral.

A COVID-19 pandemic modified loan is only reported as a nonaccrual asset in the event a borrower declares bankruptcy, the borrower experiences significant credit deterioration such that the Company does not expect to collect all principal and interest due, or the loan was 90 days past due at the onset of the pandemic.

At June 30, 2020, 1 % of the COVID-19 pandemic modified loans were in nonaccrual status.

The amortized cost of mortgage loans in a nonaccrual status by portfolio segment were as follows at:

Commercial Agricultural Residential Total

(In millions)

Amortized cost at December 31, 2019

Amortized cost at March 31, 2020 (1)

December 31, 2019

$ — $ 21 $ 37 $ 58

All mortgage loans in nonaccrual status had a related allowance for credit losses.

The Company had $ 20 million of agricultural mortgage loans that were 90 days or more past due but were not in a nonaccrual status for the three months ended March 31, 2020 .

Current period investment income on mortgage loans in nonaccrual status was less than $ 1 million for the three months ended March 31, 2020 .

June 30, 2020 (1)

$ — $ 1 $ 48 $ 49

_______________

(1) The Company had $ 8 million of residential mortgage loans in nonaccrual status for which there was no related allowance for credit losses at June 30, 2020.

Current period investment income on mortgage loans in nonaccrual status was less than $ 1 million for the six months ended June 30, 2020.

Modified Mortgage Loans by Portfolio Segment

3 unchanged sentences

Generally, the types of concessions may include reducing the amount of debt owed, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest.

The Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring during the three months ended March 31, 2020 .

Short-term modifications made on a good faith basis to borrowers who were current prior to any relief and in response to the COVID-19 pandemic are not considered TDRs.

Such short-term modifications include payment deferrals, fee waivers, extension of repayment terms, or other delays in payment that are insignificant.

The Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring during the six months ended June 30, 2020.

Brighthouse Financial, Inc.

1 unchanged sentence

Investments (continued)

Short-term modifications made on a good faith basis to borrowers who were not more than 30 days past due at December 31, 2019 and in response to the COVID-19 pandemic are not considered TDRs.

Other Invested Assets

3 unchanged sentences

Leveraged Leases

The carrying value of leveraged leases at March 31, 2020 and December 31, 2019 was $ 51 million and $ 64 million , respectively, net of allowance for credit losses of $ 13 million and $ 0 , respectively.

The carrying value of leveraged leases at June 30, 2020 and December 31, 2019 was $ 50 million and $ 64 million, respectively, net of allowance for credit losses of $ 13 million and $ 0 , respectively.

Rental receivables are generally due in periodic installments.

2 unchanged sentences

Nonperforming rental receivables are generally defined as those that are 90 days or more past due.

At both March 31, 2020 and December 31, 2019 , all leveraged leases were performing.

At both June 30, 2020 and December 31, 2019, all leveraged leases were performing.

Net Unrealized Investment Gains (Losses)

1 unchanged sentence

The components of net unrealized investment gains (losses), included in AOCI, were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

(In millions)

Fixed maturity securities

$ 10,305 $ 6,957

( 16 ) ( 13 )

Amounts allocated from:

Future policy benefits

( 4,153 ) ( 2,692 )

DAC, VOBA and DSI

( 445 ) ( 341 )

( 4,598 ) ( 3,033 )

Deferred income tax benefit (expense)

( 1,334 ) ( 873 )

Net unrealized investment gains (losses)

$ 5,017 $ 3,283

The changes in net unrealized investment gains (losses) were as follows:

Three Months Ended

March 31, 2020

Six Months Ended June 30, 2020

(In millions)

5 unchanged sentences

Deferred income tax benefit (expense)

Balance at March 31, 2020

Balance at June 30, 2020

Change in net unrealized investment gains (losses)

Concentrations of Credit Risk

There were no investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S.

government and its agencies, at both March 31, 2020 and December 31, 2019 .

Brighthouse Financial, Inc.

1 unchanged sentence

Investments (continued)

Concentrations of Credit Risk

There were no investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S.

government and its agencies, at both June 30, 2020 and December 31, 2019.

Securities Lending

Elements of the securities lending program are presented below at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

(In millions)

3 unchanged sentences

Cash collateral received from counterparties (2) $ 3,674 $ 3,074

Securities collateral received from counterparties (3) $ 12 $ —

Reinvestment portfolio — estimated fair value $ 3,794 $ 3,174

2 unchanged sentences

(2) Included within payables for collateral under securities loaned and other transactions.

(3) Securities collateral received from counterparties is not reported on the consolidated balance sheets and may not be sold or re-pledged unless the counterparty is in default.

The cash collateral liability by loaned security type and remaining tenor of the agreements were as follows at:

March 31, 2020

December 31, 2019

Remaining Tenor of Securities Lending Agreements

1 Month or Less

1 to 6 Months

1 Month or Less

1 to 6 Months

June 30, 2020 December 31, 2019

Open (1) 1 Month or Less 1 to 6 Months Total Open (1) 1 Month or Less 1 to 6 Months Total

(In millions)

1 unchanged sentence

$ 1,284 $ 2,012 $ 373 $ 3,669 $ 1,279 $ 1,094 $ 701 $ 3,074

2 — — 2 — — — —

Foreign corporate

3 — — 3 — — — —

$ 1,289 $ 2,012 $ 373 $ 3,674 $ 1,279 $ 1,094 $ 701 $ 3,074

_______________

(1) The related loaned security could be returned to the Company on the next business day which would require the Company to immediately return the cash collateral.

If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both.

The estimated fair value of the securities on loan related to the cash collateral on open at March 31, 2020 was $ 1.2 billion , all of which were U.S.

The estimated fair value of the securities on loan related to the cash collateral on open at June 30, 2020 was $ 1.3 billion, primarily U.S.

government and agency securities which, if put back to the Company, could be immediately sold to satisfy the cash requirement.

2 unchanged sentences

government and agency securities) with 62 % invested in agency RMBS, cash and cash equivalents and U.S.

government and agency securities at March 31, 2020 .

government and agency securities at June 30, 2020.

If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.

4 unchanged sentences

Invested assets on deposit, held in trust and pledged as collateral at estimated fair value were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

(In millions)

4 unchanged sentences

_______________

The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which $ 70 million and $ 69 million of the assets on deposit represents restricted cash and cash equivalents at March 31, 2020 and December 31, 2019 , respectively.

The Company has assets, primarily fixed maturity securities, held in trust relating to certain reinsurance transactions, of which $ 77 million and $ 124 million of the assets held in trust balance represents restricted cash and cash equivalents at March 31, 2020 and December 31, 2019 , respectively.

(1) The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which $ 147 million and $ 69 million of the assets on deposit represents restricted cash and cash equivalents at June 30, 2020 and December 31, 2019, respectively.

(2) The Company has assets, primarily fixed maturity securities, held in trust relating to certain reinsurance transactions, of which $ 102 million and $ 124 million of the assets held in trust balance represents restricted cash and cash equivalents at June 30, 2020 and December 31, 2019, respectively.

(3) The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 3 of the Notes to the Consolidated Financial Statements included in the 2019 Annual Report) and derivative transactions (see Note 5).

4 unchanged sentences

A primary beneficiary is the variable interest holder in a VIE with both the power to (i) direct the activities of the VIE that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

There were no material VIEs for which the Company has concluded that it is the primary beneficiary at March 31, 2020 or December 31, 2019 .

There were no material VIEs for which the Company has concluded that it is the primary beneficiary at June 30, 2020 or December 31, 2019.

The carrying amount and maximum exposure to loss related to the VIEs for which the Company has concluded that it holds a variable interest, but is not the primary beneficiary, were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Amount Maximum

to Loss Carrying

Amount Maximum

(In millions)

1 unchanged sentence

Limited partnerships and LLCs 1,880 3,171 1,907 3,080

Total $ 15,023 $ 15,436 $ 15,001 $ 15,534

The Company’s investments in unconsolidated VIEs are described below.

21 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

1 unchanged sentence

Fixed maturity securities

$ 676 $ 679 $ 1,345 $ 1,332

Equity securities

Mortgage loans

166 176 332 335

Limited partnerships and LLCs (1)

( 189 ) 88 ( 107 ) 96

Cash, cash equivalents and short-term investments

Total investment income

692 990 1,660 1,856

Investment expenses 40 48 92 103

1 unchanged sentence

$ 652 $ 942 $ 1,568 $ 1,753

Includes net investment income pertaining to other limited partnership interests of $ 73 million and $ 0 for the three months ended March 31, 2020 and 2019 , respectively.

_______________

(1) Includes net investment income pertaining to other limited partnership interests of ($ 192 ) million and ($ 119 ) million for the three months and six months ended June 30, 2020, respectively, and $ 76 million for both the three months and six months ended June 30, 2019.

Brighthouse Financial, Inc.

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Fixed maturity securities

$ ( 21 ) $ 68 $ ( 27 ) $ 53

Equity securities 7 1 ( 7 ) 11

1 unchanged sentence

Limited partnerships and LLCs

( 2 ) ( 2 ) ( 3 ) ( 5 )

Other 4 ( 1 ) 10 —

Total net investment gains (losses)

$ ( 34 ) $ 63 $ ( 53 ) $ 52

Sales or Disposals of Fixed Maturity Securities

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

$ 622 $ 3,679 $ 1,271 $ 6,958

Gross investment gains

$ 15 $ 106 $ 32 $ 173

Gross investment losses

( 37 ) ( 38 ) ( 43 ) ( 120 )

Net investment gains (losses)

$ ( 22 ) $ 68 $ ( 11 ) $ 53

Accounting for Derivatives

See Note 1 of the Notes to the Consoli dated Financial Statements included in the 2019 Annual Report for a description of the Company’s accounting policies for derivatives and Note 8 for information about the fair value hierarchy for derivatives.

See Note 1 of the Notes to the Consolidated Financial Statements included in the 2019 Annual Report for a description of the Company’s accounting policies for derivatives and Note 8 for information about the fair value hierarchy for derivatives.

Derivative Strategies

16 unchanged sentences

The primary underlying risk exposure, gross notional amount and estimated fair value of derivatives held were as follows at:

March 31, 2020

December 31, 2019

Primary Underlying Risk Exposure

Estimated Fair Value

June 30, 2020 December 31, 2019

Primary Underlying Risk Exposure Gross

Amount Estimated Fair Value Gross

Amount Estimated Fair Value

Assets Liabilities Assets Liabilities

(In millions)

3 unchanged sentences

Interest rate

$ 360 $ 101 $ — $ 420 $ 22 $ —

Foreign currency swaps

Foreign currency exchange rate

2,811 492 1 2,765 190 27

Total qualifying hedges 3,171 593 1 3,185 212 27

2 unchanged sentences

Interest rate

3,434 746 9 7,559 878 29

Interest rate caps

Interest rate

2,350 1 — 3,350 2 —

Interest rate options

Interest rate

24,170 2,306 256 29,750 782 187

Interest rate forwards

Interest rate

7,160 1,349 — 5,418 94 114

Foreign currency swaps

Foreign currency exchange rate

1,020 186 14 1,051 96 15

Foreign currency forwards

Foreign currency exchange rate

147 — — 138 — 1

Credit default swaps — purchased

18 — — 18 — —

Credit default swaps — written

1,788 19 2 1,635 36 —

Equity index options

Equity market

46,537 834 1,246 51,509 850 1,728

Equity variance swaps

Equity market

1,098 11 27 2,136 69 69

Equity total return swaps

Equity market

10,120 105 696 7,723 2 367

Total non-designated or non-qualifying derivatives

97,842 5,557 2,250 110,287 2,809 2,510

Embedded derivatives:

Ceded guaranteed minimum income benefits

N/A 323 — N/A 217 —

Direct index-linked annuities

N/A — 1,526 N/A — 2,253

Direct guaranteed minimum benefits

N/A — 3,813 N/A — 1,656

Assumed index-linked annuities

Total embedded derivatives

Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both March 31, 2020 and December 31, 2019 .

N/A — 310 N/A — 339

Total embedded derivatives N/A 323 5,649 N/A 217 4,248

Total $ 101,013 $ 6,473 $ 7,900 $ 113,472 $ 3,238 $ 6,785

Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both June 30, 2020 and December 31, 2019.

The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and generally do not qualify for hedge accounting because they do not meet the criteria required under portfolio hedging rules;

7 unchanged sentences

Net Derivative Gains (Losses) Recognized for Derivatives

Net Derivative Gains (Losses) Recognized for Hedged Items

Net Investment Income

Policyholder Benefits and Claims

Amount of Gains (Losses) deferred in AOCI

Net Derivative Gains (Losses) Recognized for Hedged Items Net Investment Income Amount of Gains (Losses) Deferred in AOCI

(In millions)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Derivatives Designated as Hedging Instruments:

10 unchanged sentences

Total non-qualifying hedges ( 2,651 ) ( 2 ) — —

Three Months Ended March 31, 2019

Total $ ( 2,648 ) $ ( 5 ) $ 10 $ ( 140 )

Three Months Ended June 30, 2019

Derivatives Designated as Hedging Instruments:

10 unchanged sentences

Total non-qualifying hedges 153 ( 3 ) — —

At March 31, 2020 and December 31, 2019 , the balance in AOCI associated with cash flow hedges was $ 803 million and $ 245 million , respectively.

Total $ 175 $ ( 26 ) $ 9 $ 75

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Derivatives (continued)

Net Derivative Gains (Losses) Recognized for Derivatives Net Derivative Gains (Losses) Recognized for Hedged Items Net Investment Income Amount of Gains (Losses) Deferred in AOCI

(In millions)

Six Months Ended June 30, 2020

Derivatives Designated as Hedging Instruments:

Cash flow hedges:

Interest rate derivatives $ 1 $ — $ 1 $ 93

Foreign currency exchange rate derivatives 3 ( 3 ) 21 327

Total cash flow hedges 4 ( 3 ) 22 420

Derivatives Not Designated or Not Qualifying as Hedging Instruments:

Interest rate derivatives 4,756 — — —

Foreign currency exchange rate derivatives 107 ( 9 ) — —

Credit derivatives ( 3 ) — — —

Equity derivatives 359 — — —

Embedded derivatives ( 962 ) — — —

Total non-qualifying hedges 4,257 ( 9 ) — —

Total $ 4,261 $ ( 12 ) $ 22 $ 420

Six Months Ended June 30, 2019

Derivatives Designated as Hedging Instruments:

Cash flow hedges:

Interest rate derivatives $ 28 $ — $ 1 $ —

Foreign currency exchange rate derivatives 19 ( 23 ) 17 41

Total cash flow hedges 47 ( 23 ) 18 41

Derivatives Not Designated or Not Qualifying as Hedging Instruments:

Interest rate derivatives 1,249 — — —

Foreign currency exchange rate derivatives 22 ( 3 ) — —

Credit derivatives 30 — — —

Equity derivatives ( 1,790 ) — — —

Embedded derivatives ( 686 ) — — —

Total non-qualifying hedges ( 1,175 ) ( 3 ) — —

Total $ ( 1,128 ) $ ( 26 ) $ 18 $ 41

At June 30, 2020 and December 31, 2019, the balance in AOCI associated with cash flow hedges was $ 660 million and $ 245 million, respectively.

Credit Derivatives

In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk.

4 unchanged sentences

The estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Rating Agency Designation of Referenced

Credit Obligations (1)

Swaps Maximum

Payments under

Credit Default

Swaps Weighted

Maturity (2) Estimated

Swaps Maximum

Payments under

Credit Default

Swaps Weighted

(Dollars in millions)

$ 7 $ 879 2.8 $ 11 $ 615 2.5

10 909 5.3 25 1,020 5.1

Total $ 17 $ 1,788 4.0 $ 36 $ 1,635 4.1

_______________

(1) The Company has written credit protection on both single name and index references.

13 unchanged sentences

Gross Amounts Not Offset on the Consolidated Balance Sheets

Gross Amount Recognized

Financial Instruments (1)

Collateral Received/Pledged (2)

Securities Collateral Received/Pledged (3)

Net Amount After Securities Collateral

Gross Amount Recognized Financial Instruments (1) Collateral Received/Pledged (2) Net Amount Securities Collateral Received/Pledged (3) Net Amount After Securities Collateral

(In millions)

March 31, 2020

June 30, 2020

Derivative assets

$ 6,166 $ ( 1,733 ) $ ( 3,715 ) $ 718 $ ( 705 ) $ 13

Derivative liabilities

$ 2,248 $ ( 1,733 ) $ — $ 515 $ ( 514 ) $ 1

December 31, 2019

Derivative assets

$ 3,062 $ ( 1,458 ) $ ( 1,115 ) $ 489 $ ( 488 ) $ 1

Derivative liabilities

$ 2,522 $ ( 1,458 ) $ — $ 1,064 $ ( 1,061 ) $ 3

_______________

(1) Represents amounts subject to an enforceable master netting agreement or similar agreement.

3 unchanged sentences

Derivatives (continued)

Securities collateral received by the Company is not recorded on the balance sheet.

(3) Securities collateral received from counterparties is not reported on the consolidated balance sheets and may not be sold or re-pledged unless the counterparty is in default.

Amounts do not include excess of collateral pledged or received.

2 unchanged sentences

The aggregate estimated fair values of derivatives in a net liability position containing such credit-contingent provisions and the aggregate estimated fair value of assets posted as collateral for such instruments were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

(In millions)

Estimated fair value of derivatives in a net liability position (1)

$ 515 $ 1,064

Estimated Fair Value of Collateral Provided (2):

1 unchanged sentence

$ 1,144 $ 1,473

_______________

(1) After taking into consideration the existence of netting agreements.

7 unchanged sentences

Investments that do not have a readily determinable fair value and are measured at net asset value (or equivalent) as a practical expedient to estimated fair value are excluded from the fair value hierarchy.

March 31, 2020

June 30, 2020

Fair Value Hierarchy

Total Estimated

Level 1 Level 2 Level 3 Total Estimated

(In millions)

Fixed maturity securities:

$ — $ 33,566 $ 699 $ 34,265

Foreign corporate

— 10,096 195 10,291

— 8,544 40 8,584

government and agency

1,858 7,067 — 8,925

— 6,229 26 6,255

State and political subdivision

— 4,232 — 4,232

— 2,356 107 2,463

Foreign government

— 1,781 — 1,781

Total fixed maturity securities

1,858 73,871 1,067 76,796

Equity securities

Short-term investments

3,007 1,530 — 4,537

Derivative assets:

Interest rate

— 4,503 — 4,503

Foreign currency exchange rate

1 unchanged sentence

Total derivative assets

— 6,100 50 6,150

Embedded derivatives within asset host contracts (2) — — 323 323

Separate account assets

159 99,437 3 99,599

$ 5,036 $ 181,051 $ 1,447 $ 187,534

Derivative liabilities:

1 unchanged sentence

Foreign currency exchange rate — 15 — 15

Credit — 1 1 2

Equity market — 1,940 29 1,969

Total derivative liabilities

— 2,221 30 2,251

Embedded derivatives within liability host contracts (2) — — 5,649 5,649

Total liabilities

$ — $ 2,221 $ 5,679 $ 7,900

Brighthouse Financial, Inc.

3 unchanged sentences

Fair Value Hierarchy

Total Estimated

Level 1 Level 2 Level 3 Total Estimated

(In millions)

Fixed maturity securities:

$ — $ 30,831 $ 329 $ 31,160

Foreign corporate

— 9,712 132 9,844

— 9,074 44 9,118

government and agency

1,636 5,760 — 7,396

— 5,755 — 5,755

State and political subdivision

— 3,984 73 4,057

— 1,882 73 1,955

Foreign government

— 1,751 — 1,751

Total fixed maturity securities

1,636 68,749 651 71,036

Equity securities

Short-term investments

1,271 682 5 1,958

Derivative assets:

Interest rate

— 1,778 — 1,778

Foreign currency exchange rate

1 unchanged sentence

Total derivative assets

— 2,934 87 3,021

Embedded derivatives within asset host contracts (2)

Separate account assets

180 106,924 3 107,107

$ 3,101 $ 179,414 $ 971 $ 183,486

Derivative liabilities:

Interest rate

$ — $ 330 $ — $ 330

Foreign currency exchange rate

Equity market

— 2,093 71 2,164

Total derivative liabilities

— 2,466 71 2,537

Embedded derivatives within liability host contracts (2) — — 4,248 4,248

1 unchanged sentence

$ — $ 2,466 $ 4,319 $ 6,785

_______________

(1) Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets.

2 unchanged sentences

Embedded derivatives within liability host contracts are presented within policyholder account balances on the consolidated balance sheets.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

Valuation Controls and Procedures

3 unchanged sentences

In addition, the Chief Accounting Officer periodically reports to the Audit Committee of Brighthouse Financial’s Board of Directors regarding compliance with fair value accounting standards.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

The fair value of financial assets and financial liabilities is based on quoted market prices, where available.

9 unchanged sentences

Price adjustments are applied if prices or quotes received from independent pricing services or brokers are not considered reflective of market activity or representative of estimated fair value.

The Company did not have significant price adjustments during the three months ended March 31, 2020 .

The Company did not have significant price adjustments during the six months ended June 30, 2020.

Determination of Fair Value

11 unchanged sentences

Treasury yield curve for the identical security, issuer ratings and issuer spreads, broker-dealer quotes, and comparable securities that are actively traded.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

Structured Securities:

7 unchanged sentences

Fair value is determined using third-party commercial pricing services, with the primary input being quoted prices in markets that are not active.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices.

19 unchanged sentences

Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

The Company issues certain variable annuity products with guaranteed minimum benefits.

4 unchanged sentences

The percentage of fees included in the initial fair value measurement is not updated in subsequent periods.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly-traded instruments to the extent that prices for such instruments are observable.

21 unchanged sentences

Certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019 Impact of

Increase in Input

Valuation Techniques

Unobservable Inputs

Valuation Techniques Significant

Unobservable Inputs Range Range

Embedded derivatives

1 unchanged sentence

Option pricing techniques

Mortality rates

Utilization rates

Mortality rates 0.02 % - 11.31 % 0.02 % - 11.31 % Decrease (1)

Lapse rates 0.25 % - 16.00 % 0.25 % - 16.00 % Decrease (2)

Utilization rates 0.00 % - 25.00 % 0.00 % - 25.00 % Increase (3)

Withdrawal rates 0.25 % - 10.00 % 0.25 % - 10.00 % (4)

Long-term equity volatilities

16.24 % - 21.65 % 16.24 % - 21.65 % Increase (5)

Nonperformance risk spread

0.52 % - 2.78 % 0.54 % - 1.99 % Decrease (6)

_______________

30 unchanged sentences

Fixed Maturity Securities

Corporate (1)

Structured Securities

Derivatives (2)

Derivatives (3)

Corporate (1) Structured Securities State and

Subdivision Foreign

Government Equity

Securities Short-term

Investments Net

Derivatives (2) Net Embedded

Derivatives (3) Separate

Account Assets (4)

(In millions)

Three Months Ended

March 31, 2020

Three Months Ended June 30, 2020

Balance, beginning of period

$ 851 $ 218 $ 73 $ 7 $ 4 $ 2 $ 50 $ ( 4,263 ) $ 4

Total realized/unrealized gains (losses) included in net income (loss) (5) (6)

( 2 ) — — — — — ( 3 ) ( 883 ) —

Total realized/unrealized gains (losses)

included in AOCI

59 3 — — — — ( 10 ) — —

Purchases (7)

187 85 — — — — — — —

( 46 ) ( 1 ) — — — ( 2 ) ( 17 ) — —

Issuances (7)

— — — — — — — — —

Settlements (7)

— — — — — — — ( 180 ) —

Transfers into Level 3 (8)

86 26 — — — — — — —

Transfers out of Level 3 (8)

( 241 ) ( 158 ) ( 73 ) ( 7 ) — — — — ( 1 )

Balance, end of period

Three Months Ended

March 31, 2019

$ 894 $ 173 $ — $ — $ 4 $ — $ 20 $ ( 5,326 ) $ 3

Three Months Ended June 30, 2019

Balance, beginning of period

$ 697 $ 228 $ 74 $ — $ 4 $ — $ ( 136 ) $ ( 2,436 ) $ —

Total realized/unrealized gains (losses) included in net income (loss) (5) (6)

— — — — — — ( 1 ) ( 462 ) —

Total realized/unrealized gains (losses)

included in AOCI

1 1 — — — — 4 — —

Purchases (7)

64 15 — — — 6 — — —

( 49 ) ( 9 ) — — — — — — —

Issuances (7)

— — — — — — — — —

Settlements (7)

— — — — — — — ( 223 ) —

Transfers into Level 3 (8)

124 61 — — — — — — —

Transfers out of Level 3 (8)

( 72 ) ( 188 ) — — — — ( 1 ) — —

Balance, end of period

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2020 (9)

Changes in unrealized gains (losses) included in OCI for the instruments still held at March 31, 2020 (9)

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2019 (9)

$ 765 $ 108 $ 74 $ — $ 4 $ 6 $ ( 134 ) $ ( 3,121 ) $ —

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2020 (9)

$ — $ — $ — $ — $ — $ — $ 3 $ ( 928 ) $ —

Changes in unrealized gains (losses) included in other comprehensive income for the instruments still held at June 30, 2020 (9)

$ 58 $ 3 $ — $ — $ — $ — $ ( 10 ) $ — $ —

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2019 (9)

$ — $ — $ — $ — $ — $ — $ ( 1 ) $ ( 538 ) $ —

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Fixed Maturity Securities

Corporate (1) Structured Securities State and

Subdivision Foreign

Government Equity

Securities Short-term

Investments Net

Derivatives (2) Net Embedded

Derivatives (3) Separate

Account Assets (4)

(In millions)

Six Months Ended June 30, 2020

Balance, beginning of period

$ 461 $ 117 $ 73 $ — $ 8 $ 5 $ 16 $ ( 4,031 ) $ 3

Total realized/unrealized gains (losses) included in net income (loss) (5) (6)

( 4 ) — — — — — ( 2 ) ( 962 ) —

Total realized/unrealized gains (losses)

included in AOCI

15 — — — — — 20 — —

Purchases (7)

433 104 — — — — — — —

( 51 ) ( 5 ) — — — ( 5 ) ( 14 ) — —

Issuances (7)

— — — — — — — — —

Settlements (7)

— — — — — — — ( 333 ) —

Transfers into Level 3 (8)

153 30 — — — — — — —

Transfers out of Level 3 (8)

( 113 ) ( 73 ) ( 73 ) — ( 4 ) — — — —

Balance, end of period

$ 894 $ 173 $ — $ — $ 4 $ — $ 20 $ ( 5,326 ) $ 3

Six Months Ended June 30, 2019

Balance, beginning of period

$ 732 $ 173 $ 74 $ — $ 3 $ — $ ( 122 ) $ ( 1,998 ) $ 1

Total realized/unrealized gains (losses) included in net income (loss) (5) (6)

— — — — — — ( 10 ) ( 686 ) —

Total realized/unrealized gains (losses)

included in AOCI

10 2 — — — — 1 — —

Purchases (7)

67 15 — — — 6 — — —

( 55 ) ( 27 ) — — — — — — ( 1 )

Issuances (7)

— — — — — — — — —

Settlements (7)

— — — — — — — ( 437 ) —

Transfers into Level 3 (8)

141 87 — — 1 — — — —

Transfers out of Level 3 (8)

( 130 ) ( 142 ) — — — — ( 3 ) — —

Balance, end of period

$ 765 $ 108 $ 74 $ — $ 4 $ 6 $ ( 134 ) $ ( 3,121 ) $ —

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2020 (9)

$ ( 1 ) $ — $ — $ — $ — $ — $ ( 17 ) $ ( 1,019 ) $ —

Changes in unrealized gains (losses) included in other comprehensive income for the instruments still held at June 30, 2020 (9)

$ 16 $ — $ — $ — $ — $ — $ 20 $ — $ —

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2019 (9)

$ — $ — $ — $ — $ — $ — $ ( 9 ) $ ( 826 ) $ —

_______________

(1) Comprised of U.S.

2 unchanged sentences

(3) Embedded derivative assets and liabilities are presented net for purposes of the rollforward.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

(4) Investment performance related to separate account assets is fully offset by corresponding amounts credited to contract holders within separate account liabilities.

1 unchanged sentence

For the purpose of this disclosure, these changes are presented within net investment gains (losses).

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Fair Value (continued)

(5) Amortization of premium/accretion of discount is included within net investment income.

16 unchanged sentences

The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:

March 31, 2020

June 30, 2020

Fair Value Hierarchy

Value Level 1 Level 2 Level 3 Total

(In millions)

Mortgage loans

$ 15,791 $ — $ — $ 16,439 $ 16,439

$ 1,201 $ — $ 424 $ 1,588 $ 2,012

Other invested assets

$ 93 $ — $ 81 $ 12 $ 93

Premiums, reinsurance and other receivables

$ 2,518 $ — $ 56 $ 3,025 $ 3,081

Policyholder account balances

$ 16,926 $ — $ — $ 17,670 $ 17,670

Long-term debt

$ 3,979 $ — $ 4,017 $ — $ 4,017

Other liabilities

$ 998 $ — $ 351 $ 647 $ 998

Separate account liabilities

$ 1,146 $ — $ 1,146 $ — $ 1,146

Brighthouse Financial, Inc.

3 unchanged sentences

Fair Value Hierarchy

Value Level 1 Level 2 Level 3 Total

(In millions)

Mortgage loans

$ 15,753 $ — $ — $ 16,383 $ 16,383

$ 1,292 $ — $ 516 $ 1,062 $ 1,578

Other invested assets

$ 51 $ — $ 39 $ 12 $ 51

Premiums, reinsurance and other receivables

$ 2,224 $ — $ 41 $ 2,593 $ 2,634

Policyholder account balances

$ 15,614 $ — $ — $ 15,710 $ 15,710

Long-term debt

$ 4,365 $ — $ 3,334 $ 1,000 $ 4,334

Other liabilities

$ 846 $ — $ 191 $ 655 $ 846

Separate account liabilities

$ 1,189 $ — $ 1,189 $ — $ 1,189

Long-term Debt

During the second quarter of 2020, BHF issued $ 615 million aggregate principal amount of senior notes due May 2030 (the “2030 Senior Notes”) for aggregate net cash proceeds of $ 614 million.

The 2030 Senior Notes bear interest at a fixed rate of 5.625 %, payable semi-annually.

Term Loan Facility

During the second quarter of 2020, BHF used the aggregate net proceeds from the issuances of the 2030 Senior Notes and the Series B Depositary Shares (as defined in Note 8) to repay all outstanding borrowings under its $ 1.0 billion unsecured term loan facility (the “Term Loan Facility”).

On June 2, 2020, BHF terminated the Term Loan Facility without penalty.

Reinsurance Financing Arrangement

On June 11, 2020, Brighthouse Reinsurance Company of Delaware, with the explicit permission of the Delaware Commissioner of Insurance, amended its financing arrangement with a pool of highly rated third-party reinsurers to increase the maximum amount from $ 10.0 billion to $ 12.0 billion and to extend the term by two years to 2039.

At June 30, 2020, there were no borrowings and there was $ 10.6 billion of funding available under this financing arrangement.

Preferred Stock

On February 14, 2020, BHF declared a dividend of $ 412.50 per share, for a total of $ 7 million , on its perpetual 6.600 % Series A non-cumulative preferred stock, which was paid on March 25, 2020 to stockholders of record as of March 10, 2020.

Preferred stock authorized, issued and outstanding were as follows at:

June 30, 2020 December 31, 2019

Shares Authorized Shares Issued Shares Outstanding Shares Authorized Shares Issued Shares Outstanding

6.600 % Non-Cumulative Preferred Stock, Series A

17,000 17,000 17,000 17,000 17,000 17,000

6.750 % Non-Cumulative Preferred Stock, Series B

16,100 16,100 16,100 — — —

Not designated 99,966,900 — — 99,983,000 — —

Total 100,000,000 33,100 33,100 100,000,000 17,000 17,000

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Equity (continued)

In May 2020, BHF issued depositary shares (the “Series B Depositary Shares”), each representing a 1/1,000th ownership interest in a share of its perpetual 6.750 % non-cumulative preferred stock, Series B (the “Series B Preferred Stock”) and in the aggregate representing 16,100 shares of Series B Preferred Stock, with a stated amount of $ 25,000 per share, for aggregate net cash proceeds of $ 390 million.

Dividends, if declared, will accrue and be payable quarterly, in arrears, at an annual rate of 6.750 % on the stated amount per share.

In connection with the issuance of the Series B Depositary Shares and the underlying Series B Preferred Stock, BHF incurred $ 13 million of issuance costs, which have been recorded as a reduction of additional paid-in capital.

The declaration, record and payment dates, as well as per share and aggregate dividend amounts for BHF’s perpetual 6.600 % non-cumulative preferred stock, Series A for the six months ended June 30, 2020 and 2019 were as follows:

Declaration Date Record Date Payment Date Per Share Aggregate

(In millions)

May 15, 2020 June 10, 2020 June 25, 2020 $ 412.50 $ 7

February 14, 2020 March 10, 2020 March 25, 2020 412.50 7

$ 825.00 $ 14

May 15, 2019 June 10, 2019 June 25, 2019 $ 412.50 $ 7

Common Stock Repurchase Program

1 unchanged sentence

Repurchases under this authorization may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements.

During the three months ended March 31, 2020 and 2019 , BHF repurchased 5,674,387 and 1,417,582 shares, respectively, of its common stock through open market purchases pursuant to 10b5-1 plans for $ 142 million and $ 52 million , respectively.

At March 31, 2020 , BHF had $ 411 million remaining under its common stock repurchase program.

On May 11, 2020, the Company announced that it had temporarily suspended repurchases of its common stock.

The temporary suspension remains in effect while the Company continues to assess market conditions and other factors.

During the six months ended June 30, 2020 and 2019, BHF repurchased 13,250,927 and 4,993,424 shares, respectively, of its common stock through open market purchases pursuant to 10b5-1 plans for $ 322 million and $ 188 million, respectively.

At June 30, 2020, BHF had $ 231 million remaining under its common stock repurchase program.

Accumulated Other Comprehensive Income (Loss)

Information regarding changes in the balances of each component of AOCI was as follows:

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Investment Gains

(Losses), Net of

Related Offsets (1)

Related Offsets (1) Unrealized

Gains (Losses)

on Derivatives

Defined Benefit Plans Adjustment

on Derivatives Foreign

Adjustments Defined Benefit Plans Adjustment Total

(In millions)

Balance at December 31, 2019

Balance at March 31, 2020

$ 2,083 $ 612 $ ( 19 ) $ ( 29 ) $ 2,647

OCI before reclassifications

3,059 ( 140 ) 5 1 2,925

Deferred income tax benefit (expense) ( 643 ) 30 ( 10 ) — ( 623 )

AOCI before reclassifications, net of income tax

4,499 502 ( 24 ) ( 28 ) 4,949

Amounts reclassified from AOCI

23 ( 3 ) — — 20

Deferred income tax benefit (expense) ( 5 ) 1 — — ( 4 )

Amounts reclassified from AOCI, net of income tax

Balance at March 31, 2020

18 ( 2 ) — — 16

Balance at June 30, 2020

$ 4,517 $ 500 $ ( 24 ) $ ( 28 ) $ 4,965

Brighthouse Financial, Inc.

1 unchanged sentence

Equity (continued)

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Investment Gains

(Losses), Net of

Related Offsets (1)

Related Offsets (1) Unrealized

Gains (Losses)

on Derivatives

Defined Benefit Plans Adjustment

on Derivatives Foreign

Adjustments Defined Benefit Plans Adjustment Total

(In millions)

Balance at March 31, 2019

$ 1,580 $ 140 $ ( 27 ) $ ( 23 ) $ 1,670

OCI before reclassifications

1,293 75 7 — 1,375

Deferred income tax benefit (expense) ( 271 ) ( 16 ) — — ( 287 )

AOCI before reclassifications, net of income tax

2,602 199 ( 20 ) ( 23 ) 2,758

Amounts reclassified from AOCI

( 48 ) ( 22 ) — — ( 70 )

Deferred income tax benefit (expense) 10 4 — — 14

Amounts reclassified from AOCI, net of income tax

( 38 ) ( 18 ) — — ( 56 )

Balance at June 30, 2019

$ 2,564 $ 181 $ ( 20 ) $ ( 23 ) $ 2,702

Six Months Ended June 30, 2020

Investment Gains

(Losses), Net of

Related Offsets (1) Unrealized

Gains (Losses)

on Derivatives Foreign

Adjustments Defined Benefit Plans Adjustment Total

(In millions)

Balance at December 31, 2019

$ 3,111 $ 172 $ ( 15 ) $ ( 28 ) $ 3,240

OCI before reclassifications (2)

1,768 420 — — 2,188

Deferred income tax benefit (expense) ( 371 ) ( 88 ) ( 9 ) — ( 468 )

AOCI before reclassifications, net of income tax

4,508 504 ( 24 ) ( 28 ) 4,960

Amounts reclassified from AOCI

12 ( 5 ) — — 7

Deferred income tax benefit (expense) ( 3 ) 1 — — ( 2 )

Amounts reclassified from AOCI, net of income tax

Balance at March 31, 2019

9 ( 4 ) — — 5

Balance at June 30, 2020

$ 4,517 $ 500 $ ( 24 ) $ ( 28 ) $ 4,965

Six Months Ended June 30, 2019

Investment Gains

(Losses), Net of

Related Offsets (1) Unrealized

Gains (Losses)

on Derivatives Foreign

Adjustments Defined Benefit Plans Adjustment Total

(In millions)

Balance at December 31, 2018

$ 576 $ 187 $ ( 27 ) $ ( 20 ) $ 716

OCI before reclassifications

2,545 41 7 ( 3 ) 2,590

Deferred income tax benefit (expense) ( 534 ) ( 9 ) — — ( 543 )

AOCI before reclassifications, net of income tax

2,587 219 ( 20 ) ( 23 ) 2,763

Amounts reclassified from AOCI

( 29 ) ( 48 ) — — ( 77 )

Deferred income tax benefit (expense) 6 10 — — 16

Amounts reclassified from AOCI, net of income tax

( 23 ) ( 38 ) — — ( 61 )

Balance at June 30, 2019

$ 2,564 $ 181 $ ( 20 ) $ ( 23 ) $ 2,702

__________________

(1) See Note 4 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI.

(2) Includes $ 3 million related to the adoption of ASU 2016-13, see Note 1.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Equity (continued)

Information regarding amounts reclassified out of each component of AOCI was as follows:

AOCI Components

Amounts Reclassified from AOCI

Consolidated Statements of Operations and Comprehensive Income (Loss) Locations

AOCI Components Amounts Reclassified from AOCI Consolidated Statements of Operations and Comprehensive Income (Loss) Locations

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

5 unchanged sentences

Net unrealized investment gains (losses), before income tax

( 23 ) 48 ( 12 ) 29

Income tax (expense) benefit

5 ( 10 ) 3 ( 6 )

Net unrealized investment gains (losses), net of income tax

( 18 ) 38 ( 9 ) 23

Unrealized gains (losses) on derivatives - cash flow hedges:

7 unchanged sentences

Income tax (expense) benefit

( 1 ) ( 4 ) ( 1 ) ( 10 )

Gains (losses) on cash flow hedges, net of income tax

Total reclassifications, net of income tax

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

$ ( 16 ) $ 56 $ ( 5 ) $ 61

Other Revenues and Other Expenses

6 unchanged sentences

The passage of time reflects the satisfaction of the Company’s performance obligations to the Funds and is used to recognize revenue associated with 12b-1 fees.

Other revenues consisted primarily of 12b-1 fees of $ 81 million and $ 82 million for the three months ended March 31, 2020 and 2019 , respectively, of which substantially all were reported in the Annuities segment.

Other revenues consisted primarily of 12b-1 fees of $ 76 million and $ 157 million for the three months and six months ended June 30, 2020, respectively, and $ 85 million and $ 167 million for the three months and six months ended June 30, 2019, respectively, of which substantially all were reported in the Annuities segment.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Other Revenues and Other Expenses (continued)

Other Expenses

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Compensation $ 93 $ 80 $ 162 $ 162

Contracted services and other labor costs 78 65 146 112

5 unchanged sentences

Interest expense on debt 45 48 92 95

Other 27 37 47 61

Total other expenses $ 577 $ 621 $ 1,094 $ 1,213

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

Earnings Per Common Share

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions, except share and per share data)

Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders

$ ( 1,998 ) $ 377 $ 2,952 $ ( 360 )

Weighted average common shares outstanding — basic 94,698,169 114,931,224 99,728,754 115,863,127

2 unchanged sentences

Earnings per common share:

For the three months ended March 31, 2020 , weighted average shares used for calculating diluted earnings per common share excludes 196,492 out-of-the-money stock options as the inclusion of these shares would be antidilutive to the earnings per common share calculation due to the average share price for the three months ended March 31, 2020 .

For the three months ended March 31, 2019 , basic loss per common share equaled diluted loss per common share.

Basic $ ( 21.10 ) $ 3.28 $ 29.60 $ ( 3.10 )

Diluted $ ( 21.10 ) $ 3.27 $ 29.56 $ ( 3.10 )

For the six months ended June 30, 2020 and the three months ended June 30, 2019, weighted average shares used for calculating diluted earnings per common share excludes 187,371 and 196,492 , respectively, of out-of-the-money stock options, as the inclusion of these shares would be antidilutive to the earnings per common share calculation due to the average share price for the six months ended June 30, 2020 and the three months ended June 30, 2019.

For the three months ended June 30, 2020 and the six months ended June 30, 2019, basic loss per common share equaled diluted loss per common share.

The diluted shares were not utilized in the per share calculation for this period as the inclusion of such shares would have an antidilutive effect.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Contingencies, Commitments and Guarantees

11 unchanged sentences

The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

It is possible that some matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be estimated at March 31, 2020 .

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Contingencies, Commitments and Guarantees (continued)

It is possible that some matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be estimated at June 30, 2020.

Matters as to Which an Estimate Can Be Made

1 unchanged sentence

For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made.

As of March 31, 2020 , the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $ 0 to $ 10 million .

As of June 30, 2020, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $ 0 to $ 10 million.

Matters as to Which an Estimate Cannot Be Made

6 unchanged sentences

The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices matters.

Group Annuity Class Action

Leroy and Geraldine Atkins v.

Brighthouse Life Insurance Company, Brighthouse Financial, Inc., et al.

District Court, District of Nevada, filed November 18, 2019).

Plaintiffs have filed a purported class action lawsuit against Brighthouse Life Insurance Company, Brighthouse Financial, Inc., MetLife, Inc.

and Metropolitan Life Insurance Company relating to the pension closeout business.

Plaintiffs allege that annuity benefits were due but have not been paid.

Plaintiffs also allege they were not able to obtain information as to the group annuity contract and the benefit other than what was on a benefit election form.

Plaintiffs seek to represent a class of all annuitants and their designated beneficiaries who were due annuity payments pursuant to group annuity contracts purchased from defendants by sponsors of employer provided defined benefit plans.

Plaintiffs allege the defendants failed to timely contact, notify and pay overdue annuity benefits and interest to retirees.

The complaint alleges breach of contract, breach of the implied covenant of good faith and fair dealing (contract and tort), unjust enrichment, conversion and breach of fiduciary duty.

In March 2020, Brighthouse Life Insurance Company and Brighthouse Financial, Inc.

filed a joint motion to dismiss.

In April 2020, the parties filed a stipulation of dismissal without prejudice.

Various litigation, claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, investor and taxpayer.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Contingencies, Commitments and Guarantees (continued)

Cost of Insurance Class Action

Brighthouse Life Insurance Company (U.S.

District Court, Northern District of Georgia, Atlanta Division, filed May 8, 2020).

Plaintiff has filed a purported class action lawsuit against Brighthouse Life Insurance Company.

Plaintiff was the owner of a universal life insurance policy issued by Travelers Insurance Company, a predecessor to Brighthouse Life Insurance Company.

Plaintiff seeks to certify a class of all persons who own or owned life insurance policies issued where the terms of the life insurance policy provide or provided, among other things, a guarantee that the cost of insurance rates would not be increased by more than a specified percentage in any contract year.

Plaintiff alleges, among other things, causes of action for breach of contract, fraud, suppression and concealment, and violation of the Georgia Racketeer Influenced and Corrupt Organizations Act.

Plaintiff seeks to recover damages, including punitive damages, interest and treble damages, attorneys’ fees, and injunctive and declaratory relief.

Brighthouse Life Insurance Company filed a motion to dismiss in June 2020 and intends to vigorously defend this matter.

Various litigations, claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, investor and taxpayer.

Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations.

3 unchanged sentences

However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Contingencies, Commitments and Guarantees (continued)

Other Contingencies

The Company applies the same standard of recognition for non-litigation loss contingencies when assertions are made involving contract disputes with third-party vendors or with counterparties to contractual arrangements entered into by the Company.

In such cases, the Company establishes liabilities when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

For some asserted claims, the Company is not currently able to estimate any reasonably possible loss or range of loss associated with such matters, and will be unable to do so until developments have provided sufficient information to support any such assessments.

The Company applies the same standard of recognition for non-litigation loss contingencies when assertions are made involving disputes with counterparties to contractual arrangements entered into by the Company, including with third-party vendors.

In such cases, the Company establishes liabilities when it is probable that a loss will be incurred and the amount of the loss can be reasonably estimated.

In cases where it is not probable, but is reasonably possible that a loss will be incurred, no accrual is made.

The Company estimates the aggregate range of reasonably possible losses associated with such matters in excess of amounts accrued to be between $ 25 million and $ 75 million.

For all other asserted claims, the Company is not currently able to estimate any reasonably possible unrecorded loss or range of loss, and will be unable to do so until sufficient information to support any such assessments is available.

On a quarterly and annual basis, the Company reviews relevant information with respect to non-litigation contingencies and, when applicable, updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.

1 unchanged sentence

The Company commits to lend funds under mortgage loan commitments.

The amounts of these mortgage loan commitments were $ 325 million and $ 206 million at March 31, 2020 and December 31, 2019 , respectively.

The amounts of these mortgage loan commitments were $ 229 million and $ 206 million at June 30, 2020 and December 31, 2019, respectively.

Commitments to Fund Partnership Investments, Bank Credit Facilities and Private Corporate Bond Investments

The Company commits to fund partnership investments and to lend funds under bank credit facilities and private corporate bond investments.

The amounts of these unfunded commitments were $ 1.7 billion and $ 1.8 billion at March 31, 2020 and December 31, 2019 , respectively.

The amounts of these unfunded commitments were $ 1.8 billion at both June 30, 2020 and December 31, 2019.

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

Contingencies, Commitments and Guarantees (continued)

In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties such that it may be required to make payments now or in the future.

8 unchanged sentences

Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future.

The Company’s recorded liabilities were $ 1 million at both March 31, 2020 and December 31, 2019 for indemnities, guarantees and commitments.

Subsequent Events

Common Stock Repurchase Program

On May 11, 2020, the Company announced that it has temporarily suspended repurchases of its common stock while it continues to evaluate the impacts of the COVID-19 pandemic.

The Company’s recorded liabilities were $ 1 million at both June 30, 2020 and December 31, 2019 for indemnities, guarantees and commitments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements