What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-07 compared with 2020-05-11 · 626 added, 277 removed, 770 unchanged (54% of the section changed)

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Securities and Exchange Commission (“SEC”) on February 26, 2020 (the “2019 Annual Report”);

and (iii) our current reports on Form 8-K filed in 2020.

(iii) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “First Quarter Form 10-Q”) filed with the SEC on May 11, 2020;

and (iv) our current reports on Form 8-K filed in 2020.

Prior to discussing our Results of Operations, we present background information and definitions that we believe are useful to understanding the discussion of our financial results.

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• “Executive Summary” provides information regarding our business, segments and results as discussed in the Results of Operations.

“Industry Trends” discusses updates and changes to a number of trends and uncertainties included in the 2019 Annual Report that we believe may materially affect our future financial condition, results of operations or cash flows, including from the worldwide pandemic sparked by the novel coronavirus (the “COVID-19 pandemic”).

“Summary of Critical Accounting Estimates” explains the most critical estimates and judgments applied in determining our GAAP results.

“Non-GAAP and Other Financial Disclosures” defines key financial measures presented in the Results of Operations that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”) but are used by management in evaluating company and segment performance.

• “Industry Trends” discusses updates and changes to a number of trends and uncertainties included in the 2019 Annual Report, as amended or supplemented by our First Quarter Form 10-Q, that we believe may materially affect our future financial condition, results of operations or cash flows, including from the worldwide pandemic sparked by the novel coronavirus (the “COVID-19 pandemic”).

• “Summary of Critical Accounting Estimates” explains the most critical estimates and judgments applied in determining our results in accordance with accounting principles generally accepted in the United States of America (“GAAP”) .

• “Non-GAAP and Other Financial Disclosures” defines key financial measures presented in the Results of Operations that are not calculated in accordance with GAAP but are used by management in evaluating company and segment performance.

As described in this section, adjusted earnings is presented by key business activities which are derived from, but different than, the line items presented in the GAAP statement of operations.

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Income (loss) available to shareholders before provision for income tax

$ (2,529) $ 462 $ 3,714 $ (493)

Provision for income tax expense (benefit)

(531) 85 762 (133)

Net income (loss) available to shareholders

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

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends

$ 14 $ 305 $ 258 $ 577

Provision for income tax expense (benefit)

Adjusted earnings $ 11 $ 254 $ 222 $ 486

For the three months ended March 31, 2020 , we had net income available to shareholders of $5.0 billion and adjusted earnings of $211 million , compared to a net loss available to shareholders of $737 million and adjusted earnings of $232 million , for the three months ended March 31, 2019 .

Net income for the three months ended March 31, 2020 primarily reflects net favorable changes in the estimated fair value of our derivatives due to market factors.

Lower long-term interest rates and lower equity markets resulted in favorable changes to the freestanding derivatives that hedge our variable annuity business, which more than exceeded the unfavorable impact to the embedded derivative liabilities.

In addition, the widening of credit spreads resulted in a favorable adjustment for non-performance risk related to the variable annuity embedded derivative liabilities.

Lower equity markets favorably impacted the estimated fair value of S hield Level Annuity (“Shield” and “Shield Annuities”) , a suite of structured annuities consisting of products marketed under various names, embedded derivative liabilities (“Shield Annuity liabilities”) .

Lower long-term interest rates also resulted in favorable changes in the estimated fair value of the freestanding interest-rate derivatives that hedge our universal life with secondary guarantees (“ULSG”) business.

For the three months ended June 30, 2020, we had a net loss available to shareholders of $2.0 billion and adjusted earnings of $11 million, compared to net income available to shareholders of $377 million and adjusted earnings of $254 million, for the three months ended June 30, 2019.

Net loss available to shareholders for the three months ended June 30, 2020 primarily reflects net unfavorable changes in the estimated fair value of our derivatives due to market factors.

Higher equity markets unfavorably impacted the estimated fair value of Shield Level Annuities (“Shield” and “Shield Annuities”), a suite of structured annuities consisting of products marketed under various names, embedded derivative liabilities (“Shield Annuity liabilities”).

Higher equity markets also resulted in unfavorable changes to the freestanding derivatives that hedge our variable annuity business, which more than exceeded the favorable impact to the embedded derivative liabilities.

In addition, the impact of narrowing credit spreads resulted in an unfavorable adjustment for non-performance risk related to the variable annuity embedded derivative liabilities.

For the six months ended June 30, 2020, we had net income available to shareholders of $3.0 billion and adjusted earnings of $222 million, compared to a net loss available to shareholders of $360 million and adjusted earnings of $486 million for the six months ended June 30, 2019.

Net income available to shareholders for the six months ended June 30, 2020 was driven by net favorable comparative results in guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) as declining long-term interest rates favorably impacted the fair value of the freestanding derivatives that hedge our variable annuity business, which more than offset the unfavorable change in the fair value of the embedded derivative liabilities.

Results in GMLB Riders were also favorably impacted by the adjustment for non-performance risk resulting from the widening of credit spreads.

Declining long-term interest rates resulted in favorable changes in the fair value of the universal life with secondary guarantees (“ULSG”) hedge program.

See “— Non-GAAP and Other Financial Disclosures.” For a detailed discussion of our results see “— Results of Operations.”

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Where these trends or uncertainties are specific to a particular aspect of our business, we often include such a discussion under the relevant caption of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, as part of our broader analysis of that area of our business.

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” included in the 2019 Annual Report for a comprehensive discussion of some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and results of operations in the future.

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” included in the 2019 Annual Report, as amended or supplemented by our First Quarter Form 10-Q, for a comprehensive discussion of some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and results of operations in the future.

In addition, significant changes or updates in certain of these trends and uncertainties are discussed below.

COVID-19 Pandemic

We are closely monitoring developments related to the COVID-19 pandemic, which has already negatively impacted us, including as discussed below.

At this time, it is not possible to estimate the severity or duration of the pandemic, including the severity, duration and frequency of any additional “waves” of the pandemic or the timetable for the development and implementation, and the efficacy, of any therapeutic treatment or vaccine for COVID-19.

We continue to closely monitor developments related to the COVID-19 pandemic, which has negatively impacted us in certain respects, including as discussed below.

At this time, it is not possible to estimate the severity or duration of the

pandemic, including the severity, duration and frequency of any additional “waves” of the pandemic or the timetable for the development and implementation, and the efficacy, of any therapeutic treatment or vaccine for COVID-19.

It is likewise not possible to predict or estimate the longer-term effects of the pandemic, or any actions taken to contain or address the pandemic, on the economy at large and on our business, results of operations, financial condition and prospects, including the impact on our investment portfolio and our ratings, or the need for us in the future to revisit or revise targets previously provided to the markets and/or aspects of our business model.

See also “Risk Factors — The ongoing COVID-19 pandemic may materially adversely affect our business, results of operations and financial condition, including capitalization and liquidity.”

In March, in response to this extraordinary event, management promptly implemented our business continuity plans, and quickly and successfully shifted all our employees to a work-from-home environment.

See “Risk Factors — The ongoing COVID-19 pandemic may materially adversely affect our business, results of operations and financial condition, including capitalization and liquidity” in our First Quarter Form 10-Q.

Our sales and support teams remain fully operational, and we have continued to serve our distribution partners and customers without interruption.

Additionally, we are closely monitoring all aspects of our business, including but not limited to, levels of sales and claims activity, policy lapses or surrenders, payments of premiums, sources and uses of liquidity, the valuation of our investments and the performance of our

derivatives programs.

We have observed varying degrees of impact in these areas, and have taken prudent and proportionate measures to address such impacts;

We have observed varying degrees of impact in these areas, and we have taken prudent and proportionate measures to address such impacts;

however, at this time it is impossible to predict if the COVID-19 pandemic will have a material adverse impact on our business, results of operations or financial condition.

We continue to closely monitor this evolving situation as we remain focused on ensuring the health and safety of our employees, on supporting our partners and customers as usual and on mitigating potential adverse impacts to our business.

Increased economic uncertainty and increased unemployment resulting from the economic impacts of the COVID-19 pandemic have also impacted sales of certain of our products and have prompted us to take actions to provide relief to customers affected by adverse circumstances due to the COVID-19 pandemic, as further described in “ — Regulatory Developments.” While the relief granted to customers to date has not had a material impact on our financial condition or results of operations, it is not possible to estimate the potential impact of any future relief.

Circumstances resulting from the COVID-19 pandemic may affect the incidence of claims, utilization of benefits, lapses or surrenders of policies and payments on insurance premiums, any of which could impact future revenues and expenses associated with our products.

Our investment portfolio (and, specifically, the valuations of certain investment assets we hold) has been, and we expect will continue to be, adversely affected as a result of the impact of the COVID-19 pandemic on capital markets and the global economy, as well as uncertainty regarding its duration and outcome.

See “ — Investments — Current Environment — Selected Sector Investments ” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

While the relief granted to customers to date has not had a material impact on our financial condition or results of operations, it is not possible to estimate the potential impact of any future relief.

Circumstances resulting from the COVID-19 pandemic have also impacted the incidents of claims and may have impacted the utilization of benefits, lapses or surrenders of policies and payments on insurance premiums, though such impacts have not been material through the end of the second quarter of 2020.

Additionally, circumstances resulting from the COVID-19 pandemic have not materially impacted services we receive from third-party vendors, nor have such circumstances led to the identification of new loss contingencies or any increases in existing loss contingencies.

However, there can be no assurance that any future impact from the COVID-19 pandemic, including, without limitation, with respect to revenues and expenses associated with our products, services we receive from third-party vendors, or loss contingencies, will not be material.

Certain sectors of our investment portfolio have been, and are expected to continue to be, adversely affected as a result of the impact of the COVID-19 pandemic on capital markets and the global economy, as well as uncertainty regarding its duration and outcome.

See “— Investments — Current Environment — Selected Sector Investments,” “— Investments — Mortgage Loans — Loan Modifications Related to the COVID-19 Pandemic” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

Credit rating agencies may continue to review and adjust their ratings for the companies that they rate, including us.

The credit rating agencies also evaluate the insurance industry as a whole and may change our credit rating based on their overall view of our industry.

For example, Fitch recently revised the rating outlook for BHF and certain of its subsidiaries to negative from stable due to the disruption to economic activity and the financial markets from the COVID-19 pandemic.

For example, during the second quarter of 2020, Fitch revised the rating outlook for BHF and certain of its subsidiaries to negative from stable due to the disruption to economic activity and the financial markets from the COVID-19 pandemic.

This action by Fitch followed its revision of the rating outlook on the U.S.

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Furthermore, some of our operations, products and services are subject to the Employee Retirement Income Security Act of 1974, consumer protection laws, securities, broker-dealer and investment advisor regulations, as well as environmental and unclaimed property laws and regulations.

See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in our 2019 Annual Report, as amended or supplemented herein.

State Insurance Regulatory Actions Related to the COVID-19 Pandemic

states have declared states of emergency, many state insurance regulators have mandated or recommended that insurers implement policies to provide relief to consumers who have been adversely impacted by the COVID-19 pandemic.

As a result, we have taken actions to provide relief to our life insurance policyholders, annuitants and other contract holders who have claimed hardship as a result of the COVID-19 pandemic.

Such relief may include extending the grace period for payment of insurance premiums, offering additional time to exercise contractual rights or options or extending maturity dates on annuities.

See “Business — Regulation,” as well as

“Risk Factors — Regulatory and Legal Risks” included in our 2019 Annual Report, as amended or supplemented herein and by our First Quarter Form 10-Q.

Department of Labor and ERISA Considerations

We manufacture individual retirement annuities (“IRAs”) that are subject to the Internal Revenue Code of 1986, as amended (the “Tax Code”), for third parties to sell to individuals.

Also, a portion of our in-force life insurance products and annuity products are held by tax-qualified pension and retirement plans that are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or the Tax Code.

While we currently believe manufacturers do not have as much exposure to ERISA and the Tax Code as distributors, certain activities are subject to the restrictions imposed by ERISA and the Tax Code, including restrictions on the provision of investment advice to ERISA qualified plans, plan participants and IRA owners if the investment recommendation results in fees paid to an individual advisor, the firm that employs the advisor or their affiliates.

On June 29, 2020, the Department of Labor (“DOL”) issued guidance that expands the definition of “investment advice.” See “— Department of Labor Fiduciary Advice Rule.”

The DOL has issued a number of regulations that increase the level of disclosure that must be provided to plan sponsors and participants.

The participant disclosure regulations and the regulations which require service providers to disclose fee and other information to plan sponsors took effect in 2012.

Our insurance subsidiaries have taken and continue to take steps designed to ensure compliance with these regulations as they apply to service providers.

In John Hancock Mutual Life Insurance Company v.

Harris Trust and Savings Bank (1993), the U.S.

Supreme Court held that certain assets in excess of amounts necessary to satisfy guaranteed obligations under a participating group annuity general account contract are “plan assets.” Therefore, these assets are subject to certain fiduciary obligations under ERISA, which requires fiduciaries to perform their duties solely in the interest of participants and beneficiaries of a plan subject to Title I of ERISA (an “ERISA Plan”).

DOL regulations issued thereafter provide that, if an insurer satisfies certain requirements, assets supporting a policy backed by the insurer’s general account and issued before 1999 will not constitute “plan assets” We have taken and continue to take steps designed to ensure compliance with these regulations.

An insurer issuing a new policy that is backed by its general account and is issued to or for an employee benefit plan after December 31, 1998 is generally subject to fiduciary obligations under ERISA, unless the policy is a guaranteed benefit policy.

We have taken and continue to take steps designed to ensure that policies issued after 1998 to ERISA plans qualify as guaranteed benefit policies.

Department of Labor Fiduciary Advice Rule

On June 29, 2020, the DOL announced new regulatory action (the “Fiduciary Advice Rule”) that reinstates the text of the DOL’s 1975 investment advice regulation defining what constitutes fiduciary “investment advice” to ERISA Plans and IRAs and provides guidance interpreting such regulation.

The guidance provided by the DOL broadens the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Tax Code.

In particular, the DOL states that a recommendation to “roll over” assets from a qualified retirement plan to an IRA, or from an IRA to another IRA, can be considered fiduciary investment advice if provided by someone with an existing relationship with the ERISA Plan or an IRA owner (or in anticipation of establishing such a relationship).

This guidance reverses an earlier DOL interpretation suggesting that roll over advice did not constitute investment advice giving rise to a fiduciary relationship.

Under the Fiduciary Advice Rule, individuals or entities providing such advice would be considered fiduciaries under ERISA or the Tax Code, as applicable, and would therefore be required to act solely in the interest of ERISA Plan participants or IRA beneficiaries, or risk exposure to fiduciary liability with respect to their advice.

They would further be prohibited from receiving compensation for this advice, unless an exemption applied.

In connection with the Fiduciary Advice Rule, the DOL also issued a proposed exemption that would allow fiduciaries to receive compensation in connection with providing investment advice, including advice about roll overs, that would otherwise be prohibited as a result of their fiduciary relationship to the ERISA Plan or IRA.

In order to be eligible for the exemption, among other conditions, the investment advice fiduciary would be required to acknowledge its fiduciary status, refrain from putting its own interests ahead of the plan beneficiaries’ interests or making material misleading statements, act in accordance with ERISA’s “prudent person” standard of care, and receive no more than reasonable compensation for the advice.

In addition, the DOL has issued an amendment repealing the provisions of its previous fiduciary rule, which was promulgated in 2016 and vacated in 2018.

The amendment also restored certain other prohibited transaction exemptions (“PTE”) to their pre-2016 forms, including PTE 84-24, which provides relief, among other things, for receipt of commissions by insurance agents, broker-dealers, and others in connection with the sale of insurance and annuity

Such exemptions may provide further relief in connection with the provision of fiduciary advice in the context of sales of insurance products.

Because we do not engage in direct distribution of retail products, including IRA products and retail annuities sold to ERISA plan participants and to IRA owners, we believe that we will have limited exposure to the new Fiduciary Advice Rule.

However, we continue to analyze the impact of the Fiduciary Advice Rule, and, while we cannot predict the rule’s impact, it could have an adverse effect on sales of annuity products through our independent distribution partners, as a significant portion of our annuity sales are to IRAs.

The Fiduciary Advice Rule may also lead to changes to our compensation practices and product offerings and increased litigation risk, which could adversely affect our results of operations and financial condition.

We may also need to take certain additional actions in order to comply with, or assist our distributors in their compliance with, the Fiduciary Advice Rule.

Summary of Critical Accounting Estimates

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The following table illustrates how each component of adjusted earnings is calculated from the GAAP statement of operations line items:

Component of Adjusted Earnings

How Derived from GAAP (1)

Universal life and investment-type policy fee s (excluding (a) unearned revenue adjustments related to net investment gains (losses) and net derivative gains (losses) and (b) GMIB Fees) plus Other revenues (excluding other revenues associated with related party reinsurance) and amortization of deferred gain on reinsurance.

Net investment spread

Net investment income plus Investment Hedge Adjustments and interest received on ceded fixed annuity reinsurance deposit funds reduced by Interest credited to policyholder account balances and interest on future policy benefits.

Insurance-related activities

Component of Adjusted Earnings How Derived from GAAP (1)

(i) Fee income (i) Universal life and investment-type policy fee s (excluding (a) unearned revenue adjustments related to net investment gains (losses) and net derivative gains (losses) and (b) GMIB Fees) plus Other revenues (excluding other revenues associated with related party reinsurance) and amortization of deferred gain on reinsurance.

(ii) Net investment spread (ii) Net investment income plus Investment Hedge Adjustments and interest received on ceded fixed annuity reinsurance deposit funds reduced by Interest credited to policyholder account balances and interest on future policy benefits.

Insurance-related activities (iii)

Premiums less Policyholder benefits and claims (excluding (a) GMIB Costs, (b) Market Value Adjustments, (c) interest on future policy benefits and (d) amortization of deferred gain on reinsurance) plus the pass through of performance of ceded separate account assets.

Amortization of DAC and VOBA

Amortization of DAC and VOBA (excluding amounts related to (a) net investment gains (losses), (b) net derivative gains (losses) , (c) GMIB Fees and GMIB Costs and (d) Market Value Adjustments).

Other expenses, net of DAC capitalization

Other expenses reduced by capitalization of DAC.

Provision for income tax expense (benefit)

Tax impact of the above items.

(iv) Amortization of DAC and VOBA (iv) Amortization of DAC and VOBA (excluding amounts related to (a) net investment gains (losses), (b) net derivative gains (losses) , (c) GMIB Fees and GMIB Costs and (d) Market Value Adjustments).

(v) Other expenses, net of DAC capitalization (v) Other expenses reduced by capitalization of DAC.

(vi) Provision for income tax expense (benefit) (vi) Tax impact of the above items.

__________________

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Results of Operations

Consolidated Results for the Three Months Ended March 31, 2020 and 2019

Consolidated Results for the Three Months and Six Months Ended June 30, 2020 and 2019

Unless otherwise noted, all amounts in the following discussions of our results of operations are stated before income tax except for adjusted earnings, which are presented net of income tax.

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

$ 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

Capitalization of DAC

(91) (95) (189) (181)

Amortization of DAC and VOBA

(92) 170 678 192

Interest expense on debt

Other expenses

623 668 1,191 1,299

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)

The components of net income (loss) available to shareholders were as follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

GMLB Riders $ (2,466) $ (233) $ 1,906 $ (1,563)

Other derivative instruments (82) 344 1,636 480

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Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends

14 305 258 577

Income (loss) available to shareholders before provision for income tax (2,529) 462 3,714 (493)

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Net income (loss) available to shareholders $ (1,998) $ 377 $ 2,952 $ (360)

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019

Loss available to shareholders before provision for income tax was $2.5 billion ($2.0 billion, net of income tax), a decrease of $3.0 billion ($2.4 billion, net of income tax) from income before provision for income tax of $462 million ($377 million, net of income tax) in the prior period.

The decrease in income before provision for income tax was driven by the following key unfavorable items:

• higher losses from GMLB Riders in the current period, see “— GMLB Riders for the Three Months and Six Months Ended June 30, 2020 and 2019”;

• losses on other derivative instruments reflecting:

◦ losses on interest rate derivatives used to manage interest rate exposure in our ULSG business due to the benchmark long-term interest rate increasing in the current period and decreasing in the prior period;

◦ an unfavorable impact from foreign currency swaps due to the U.S.

dollar mostly weakening in the current period and strengthening in the prior period;

• lower pre-tax adjusted earnings, discussed in greater detail below;

• net losses on sales of fixed maturity securities compared to prior period net gains, and an increase in mortgage loan reserves, partially offset by current period net mark-to-market gains on equity securities.

The decrease in income before provision for income tax was partially offset by lower policyholder benefits and claims, included in other adjustments, resulting from the adjustment for market performance related to participating products in the Run-off segment.

The provision for income tax in the current period led to an effective tax rate of 21% compared to 18% in the prior period.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019

Income available to shareholders before provision for income tax was $3.7 billion ($3.0 billion, net of income tax), an increase of $4.2 billion ($3.3 billion, net of income tax) from a loss before provision for income tax of $493 million ($360 million, net of income tax) in the prior period.

The increase in income before provision for income tax was driven by the following key favorable items:

gains from guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) in the current period, compared to losses in the prior period, see “— GMLB Riders for the Three Months Ended March 31, 2020 and 2019”;

current period gains on interest rate derivatives used to manage interest rate exposure in our ULSG business due to declining long-term interest rates.

• gains from GMLB Riders in the current period, compared to losses in the prior period, see “— GMLB Riders for the Three Months and Six Months Ended June 30, 2020 and 2019”;

• current period gains on interest rate derivatives used to manage interest rate exposure in our ULSG business due to the benchmark long-term interest rate declining more in the current period than in the prior period.

The increase in income before provision for income tax was partially offset by the following key unfavorable items:

higher policyholder benefits and claims, included in other adjustments, resulting from the adjustment for market performance related to participating products in the Run-off segment;

lower pre-tax adjusted earnings, discussed in greater detail below.

• lower pre-tax adjusted earnings, discussed in greater detail below, and

• lower net investment gains (losses) reflecting:

◦ net losses on sales of fixed maturity securities compared to prior period net gains;

◦ net losses due to an increase in mortgage loan reserves;

◦ current period mark-to-market losses on equity securities compared to prior period net gains;

◦ higher impairments on fixed maturity securities in the current period.

The provision for income tax in the current period led to an effective tax rate of 21% compared to 27% in the prior period.

Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings

The reconciliation of net income (loss) available to shareholders to adjusted earnings was 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)

Net income (loss) available to shareholders

$ (2,332) $ 43 $ 196 $ 95 $ (1,998)

Provision for income tax expense (benefit)

34 12 (371) (206) (531)

Income (loss) available to shareholders before provision for income tax

(2,298) 55 (175) (111) (2,529)

(2,466) — — — (2,466)

Other derivative instruments

(23) (1) (60) 2 (82)

Net investment gains (losses)

(29) (3) 6 (8) (34)

Other adjustments

15 (1) 25 — 39

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends

205 60 (146) (105) 14

Provision for income tax expense (benefit)

34 12 (31) (12) 3

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

Three Months Ended March 31, 2019

Corporate & Other

Three Months Ended June 30, 2019

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders

$ 41 $ 78 $ 432 $ (174) $ 377

Provision for income tax expense (benefit)

58 14 (41) 54 85

Income (loss) available to shareholders before provision for income tax

99 92 391 (120) 462

(233) — — — (233)

Other derivative instruments

(3) 11 337 (1) 344

Net investment gains (losses)

13 9 68 (27) 63

Other adjustments

(1) — (16) — (17)

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends

323 72 2 (92) 305

Provision for income tax expense (benefit)

58 14 — (21) 51

Adjusted earnings $ 265 $ 58 $ 2 $ (71) $ 254

Consolidated Results for the Three Months Ended March 31, 2020 and 2019 — Adjusted Earnings

Six Months Ended June 30, 2020

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders

$ 2,465 $ 1 $ 1,221 $ (735) $ 2,952

Provision for income tax expense (benefit)

107 14 116 525 762

Income (loss) available to shareholders before provision for income tax

2,572 15 1,337 (210) 3,714

1,906 — — — 1,906

Other derivative instruments

126 (60) 1,571 (1) 1,636

Net investment gains (losses)

(40) 2 21 (36) (53)

Other adjustments

(14) — (19) — (33)

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends

594 73 (236) (173) 258

Provision for income tax expense (benefit)

107 14 (51) (34) 36

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

Six Months Ended June 30, 2019

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders

$ (1,010) $ 94 $ 690 $ (134) $ (360)

Provision for income tax expense (benefit)

113 20 (189) (77) (133)

Income (loss) available to shareholders before provision for income tax

(897) 114 501 (211) (493)

(1,563) — — — (1,563)

Other derivative instruments

(35) 21 495 (1) 480

Net investment gains (losses)

17 (10) 89 (44) 52

Other adjustments

— — (39) — (39)

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends

684 103 (44) (166) 577

Provision for income tax expense (benefit)

124 20 (10) (43) 91

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

Consolidated Results for the Three Months and Six Months Ended June 30, 2020 and 2019 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Fee income $ 857 $ 919 $ 1,779 $ 1,820

Net investment spread 160 459 601 794

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Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends

14 305 258 577

Provision for income tax expense (benefit) 3 51 36 91

Adjusted earnings $ 11 $ 254 $ 222 $ 486

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019

Adjusted earnings were $11 million, a decrease of $243 million.

Key net unfavorable impacts were:

higher costs associated with insurance-related activities due to:

an increase in guaranteed minimum death benefits (“GMDB”) liability balances resulting from unfavorable equity market performance;

unfavorable underwriting margin in our Life and Run-off segments.

Key favorable impacts were:

higher net investment spread reflecting:

higher net investment income from higher returns on other limited partnerships for the comparative measurement period;

higher average invested assets resulting from positive net flows in the general account;

• lower net investment spread reflecting:

◦ lower returns on other limited partnerships for the comparative measurement period;

◦ lower investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average;

partially offset by

lower investment yields on the fixed income portfolio, as proceeds from maturing investments and growth in the investment portfolio were invested at lower yields than the portfolio average;

◦ higher average invested assets resulting from positive net flows in the general account;

• lower fee income due to lower asset-based fees from lower average separate account balances, a portion of which is offset in other expenses.

Key favorable impacts were:

• lower other expenses due to:

lower deferred compensation expense driven by the decline in equity markets;

lower establishment costs in the current period related to planned technology expenses;

higher fee income due to:

higher unearned revenue amortization in the current period in our Life segment from lower separate account growth;

a net reinsurance benefit in the current period as a result of a decline in the underlying market conditions in our Annuity segment;

◦ the exit of various transition service agreements with MetLife;

◦ lower asset-based variable annuity expenses resulting from lower average separate account balances, a portion of which are offset in fee income;

• lower costs associated with insurance-related activities in our Run-off segment.

The provision for income tax in the current period led to an effective tax rate of 21% compared to 17% in the prior period.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019

Adjusted earnings were $222 million, a decrease of $264 million.

Key net unfavorable impacts were:

• lower net investment spread due to:

◦ lower returns on other limited partnerships for the comparative measurement period;

◦ lower investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average;

partially offset by

lower retained fees in our Run-off segment driven by the aging in-force and lower average balances.

◦ higher average invested assets resulting from positive net flows in the general account;

• higher costs associated with insurance-related activities due to:

◦ an increase in guaranteed minimum death benefits (“GMDB”) liability balances resulting from unfavorable equity market performance and declining interest rates in the current period;

◦ higher paid claims net of reinsurance in our Life and Run-off segments;

• lower fee income due to lower asset-based fees from lower average separate account balances, a portion of which is offset in other expenses.

Key favorable impacts were:

• lower other expenses due to:

◦ the exit of various transition service agreements with MetLife;

◦ lower asset-based variable annuity expenses resulting from lower average separate account balances, a portion of which are offset in fee income.

The provision for income tax in the current period led to an effective tax rate of 14% compared to 16% in the prior period.

Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

Segments and Corporate & Other Results for the Three Months Ended March 31, 2020 and 2019 — Adjusted Earnings

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

Segments and Corporate & Other Results for the Three Months and Six Months Ended June 30, 2020 and 2019 — Adjusted Earnings

The components of adjusted earnings for our Annuities segment were as follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Fee income $ 607 $ 664 $ 1,263 $ 1,302

Net investment spread 201 280 463 521

3 unchanged sentences

Pre-tax adjusted earnings

205 323 594 684

Provision for income tax expense (benefit) 34 58 107 124

3 unchanged sentences

The changes in our variable annuities separate account balances are presented in the table below.

Variable annuities separate account balances decreased for the three months ended March 31, 2020 .

The decrease was primarily driven by lower equity market performance and negative net flows.

March 31, 2020

Variable annuities separate account balances increased for the three months ended June 30, 2020 driven by positive equity markets partially offset by negative net flows.

Variable annuities separate account balances decreased for the six months ended June 30, 2020 driven by lower equity market performance, negative net flows and policy charges.

Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2020

(In millions)

Balance, beginning of period $ 82,648 $ 99,498

Deposits 355 767

Withdrawals, surrenders and benefits (1,561) (3,925)

(1,206) (3,158)

Investment performance 11,430 (2,701)

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Balance, end of period

$ 92,211 $ 92,211

Average balance $ 88,740 $ 91,499

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

Adjusted earnings were $316 million for the current period, an increase of $21 million .

Key favorable impacts were:

lower amortization of DAC and VOBA driven by the net reduction of future gross profits from the decline in equity markets;

lower deferred compensation expense driven by the decline in equity markets;

higher net investment spread driven by:

higher average invested assets resulting from positive net flows in the general account;

higher net investment income from higher returns on other limited partnerships for the comparative measurement period;

Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019

Adjusted earnings were $171 million for the current period, a decrease of $94 million.

Key net unfavorable impacts were:

• lower net investment spread due to:

◦ lower returns on other limited partnerships for the comparative measurement period;

◦ lower investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average;

partially offset by

lower investment yields on the fixed income portfolio, as proceeds from maturing investments and growth in the investment portfolio were invested at lower yields than the portfolio average;

higher fee income driven by a net reinsurance benefit in the current period as a result of a decline in the underlying market conditions.

The increase in adjusted earnings was partially offset by higher costs associated with insurance-related activities due to an increase in GMDB liabilities resulting from unfavorable equity market performance in the current period, net of lower income annuity benefit payments.

◦ higher average invested assets resulting from positive net flows in the general account;

• lower asset-based fees from lower average separate account balances, a portion of which is offset in other expenses;

• higher amortization of DAC and VOBA as the increase in equity market performance resulted in an unfavorable change in our Shield Annuities business, which more than offset the favorable change in our variable annuity business.

Key favorable impacts were:

• lower other expenses due to:

◦ the exit of various transition service agreements with MetLife;

◦ lower asset-based variable annuity expenses resulting from lower average separate account balances, a portion of which are offset in fee income.

The provision for income tax in the current period led to an effective tax rate of 17% compared to 18% in the prior period.

Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions.

Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019

Adjusted earnings were $487 million for the current period, a decrease of $73 million.

Key unfavorable impacts were:

• higher costs associated with insurance-related activities due to an increase in GMDB liability balances resulting from unfavorable equity market performance and declining interest rates in the current period;

• lower net investment spread due to:

◦ lower returns on other limited partnerships for the comparative measurement period;

◦ lower investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average;

partially offset by

◦ higher average invested assets resulting from positive net flows in the general account;

• lower asset-based fees from lower average separate account balances, a portion of which is offset in other expenses.

Key favorable impacts were:

• lower other expenses due to:

◦ the exit of various transition service agreements with MetLife;

◦ lower asset-based variable annuity expenses resulting from lower average separate account balances, a portion of which are offset in fee income;

• lower amortization of DAC and VOBA as the decline in equity market performance resulted in a favorable change in our Shield Annuities business, which more than offset the unfavorable change in our variable annuity business.

The provision for income tax led to an effective tax rate of 18% in both the current and prior periods.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions.

The components of adjusted earnings for our Life segment were as follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Fee income $ 84 $ 64 $ 181 $ 125

Net investment spread 14 61 73 103

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Adjusted earnings

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

$ 48 $ 58 $ 59 $ 83

Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019

Adjusted earnings were $48 million for the current period, a decrease of $10 million.

Key net unfavorable impacts were:

higher costs associated with insurance-related activities due to lower underwriting margin driven by higher paid claims, net of reinsurance, in the current period;

higher amortization of DAC and VOBA reflecting the impact on gross profits from lower separate account returns.

Key net favorable impacts were:

higher fee income due to higher unearned revenue amortization in the current period from lower separate account growth;

lower deferred compensation expense driven by the decline in equity markets;

higher net investment spread from higher returns on other limited partnerships for the comparative measurement period.

Key unfavorable impacts were:

• lower net investment spread due to:

◦ lower returns on other limited partnerships for the comparative measurement period;

◦ lower investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average.

Key favorable impacts were:

• lower amortization of DAC and VOBA reflecting the impact on gross profits from higher separate account returns;

• higher fee income due to lower ongoing net reinsurance costs as a result of reinsurance recaptured in prior periods .

The provision for income tax led to an effective tax rate of 20% compared to 19% in the prior period.

Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions.

Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019

Adjusted earnings were $59 million for the current period, a decrease of $24 million.

Key unfavorable impacts were:

• higher costs associated with insurance-related activities due to higher paid claims, net of reinsurance;

• lower net investment spread due to:

◦ lower returns on other limited partnerships for the comparative measurement period;

◦ lower investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average;

• higher amortization of DAC and VOBA reflecting the impact on gross profits from lower separate account returns.

Key favorable impacts were:

• higher fee income due to:

◦ lower ongoing net reinsurance costs as a result of reinsurance recaptured in prior periods;

◦ higher unearned revenue amortization in the current period from lower separate account growth;

• lower other expenses due to the exit of various transition services agreements with MetLife and lower deferred compensation expense.

The provision for income tax led to an effective tax rate of 19% in both the current and prior periods.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions.

The components of adjusted earnings for our Run-off segment were as follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Fee income $ 166 $ 188 $ 335 $ 387

Net investment spread (70) 101 30 136

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Pre-tax adjusted earnings

(146) 2 (236) (44)

Provision for income tax expense (benefit) (31) — (51) (10)

Adjusted earnings

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

$ (115) $ 2 $ (185) $ (34)

Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019

Adjusted earnings were a loss of $115 million for the current period, a decrease of $117 million.

Key unfavorable impacts were:

• lower net investment spread due to lower returns on other limited partnerships for the comparative measurement period;

• lower fee income in our ULSG business due to:

◦ a decline in the net cost of insurance fees driven by the aging in-force business;

◦ a decrease in policyholder fees consistent with lower average account balances.

The decrease in adjusted earnings was partially offset by lower costs associated with insurance-related activities driven by an increase in liability balances in the prior period in connection with higher reinsurance rates on certain assumed ULSG business.

The provision for income tax in the current period led to an effective tax rate of 21% compared to a minimal income tax expense and effective tax rate in the prior period.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions.

Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019

Adjusted earnings were a loss of $185 million for the current period, a higher loss of $151 million.

Key net unfavorable impacts were:

higher costs associated with insurance-related activities due to:

an increase in liability balances from the impact of recapture transactions in our ULSG business in the current period;

a one-time adjustment to paid claims in our company-owned life insurance business resulting from the transition to a new vendor;

lower underwriting margin driven by higher paid claims, net of reinsurance, in the current period;

Key unfavorable impacts were:

• lower net investment spread due to lower returns on other limited partnerships for the comparative measurement period;

• lower fee income in our ULSG business due to:

1 unchanged sentence

◦ a decrease in policyholder fees consistent with lower average account balances;

The decrease in adjusted earnings was partially offset by higher net investment spread from higher returns on other limited partnerships for the comparative measurement period.

The provision for income tax led to an effective tax rate of 22% in both the current and prior periods.

Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions.

• higher costs associated with insurance-related activities due to:

◦ higher paid claims, net of reinsurance, in the current period;

◦ an increase in liability balances from the impact of recapture transactions in our ULSG business in the current period;

◦ a one-time adjustment to paid claims in our company-owned life insurance business resulting from the transition to a new vendor in the current period.

The provision for income tax in the current period led to an effective tax rate of 22% compared to 23% in the prior period.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

Corporate & Other

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Fee income $ — $ 3 $ — $ 6

Net investment spread 15 17 35 34

4 unchanged sentences

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends

(105) (92) (173) (166)

Provision for income tax expense (benefit) (12) (21) (34) (43)

Adjusted earnings

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

Adjusted earnings were a loss of $46 million , an improvement of $6 million from the prior period.

The increase in adjusted earnings was primarily due to lower other expenses driven by lower establishment costs in the current period related to planned technology expenses, partially offset by the commencement of preferred stock dividend payments in the current period.

$ (93) $ (71) $ (139) $ (123)

Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019

Adjusted earnings were a loss of $93 million, a higher loss of $22 million from the prior period.

The increase in the adjusted loss was primarily due to higher other expenses driven by higher media spend in the current period.

The provision for income tax in the current period led to an effective tax rate of 11% compared to 23% in the prior period.

Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

GMLB Riders for the Three Months Ended March 31, 2020 and 2019

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019

Adjusted earnings were a loss of $139 million, a higher loss of $16 million from the prior period.

The increase in the adjusted loss was driven by the commencement of preferred stock dividend payments in the second quarter of 2019;

partially offset by lower other expenses driven by lower establishment costs in the current period related to planned technology expenses.

The provision for income tax in the current period led to an effective tax rate of 20% compared to 26% in the prior period.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

GMLB Riders for the Three Months and Six Months Ended June 30, 2020 and 2019

The overall impact to income (loss) available to shareholders before provision for income tax from the performance of GMLB Riders, which includes (i) changes in carrying value of the GAAP liabilities, (ii) the mark-to-market of hedges and reinsurance, (iii) fees and (iv) associated DAC offsets, was as follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

Liabilities $ (1,186) $ (702) $ (1,805) $ (1,051)

Hedges (1,720) 245 3,617 (999)

Ceded reinsurance 8 34 105 24

Fees (1) 198 207 396 406

GMLB DAC 234 (17) (407) 57

Total GMLB Riders $ (2,466) $ (233) $ 1,906 $ (1,563)

__________________

Excludes living benefit fees, included as a component of adjusted earnings, of $14 million and $16 million for the three months ended March 31, 2020 and 2019, respectively.

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

(1) Excludes living benefit fees, included as a component of adjusted earnings, of $15 million and $29 million for the three months and six months ended June 30, 2020, respectively, and $16 million and $32 million for the three months and six months ended June 30, 2019, respectively.

Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019

Comparative results from GMLB Riders were unfavorable by $2.2 billion, primarily driven by:

• unfavorable changes in our GMLB hedges;

• unfavorable changes to the estimated fair value of Shield Annuity liabilities, net of favorable changes to the estimated fair value of the related hedges;

partially offset by

• favorable changes to the estimated fair value of the variable annuity liability reserve;

• favorable changes in GMLB DAC.

Higher relative equity markets in the current period resulted in the following significant impacts:

• unfavorable changes to the estimated fair value of our GMLB hedges;

• unfavorable changes to the estimated fair value of Shield Annuity liabilities, net of favorable changes to the estimated fair value of the related hedges;

partially offset by

• favorable changes to the estimated fair value of the variable annuity liability reserve;

• favorable changes to GMLB DAC.

Interest rates declining less in the current period than in the prior period resulted in the following impacts:

• unfavorable changes to the estimated fair value of our GMLB hedges;

• unfavorable changes to GMLB DAC;

partially offset by

• favorable changes to the estimated fair value of the variable annuity liability reserve.

The narrowing of credit default swap spreads in the current period resulted in an unfavorable change in the adjustment for non-performance risk, net of a favorable change in GMLB DAC, compared to an insignificant favorable impact recognized in the prior period.

Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019

Comparative results from GMLB Riders were favorable by $3.5 billion, primarily driven by:

a net favorable change in the GMLB hedges;

favorable changes in S hield Annuity liability reserves;

• favorable changes in our GMLB hedges;

• favorable changes to the estimated fair value of Shield Annuity liabilities, net of unfavorable changes to the estimated fair value of the related hedges;

partially offset by

unfavorable change to the estimated fair value of the variable annuity liability reserve;

• unfavorable changes to the estimated fair value of the variable annuity liability reserve;

• unfavorable changes in GMLB DAC.

Lower relative equity markets in the current period significantly impacted the following:

Declining equity markets in the current period, compared to increasing equity markets in the prior period, resulted in the following significant impacts:

• favorable changes to the estimated fair value of our GMLB hedges;

favorable changes to the estimated fair value of the Shield Annuity liability reserves, net of unfavorable changes to the estimated fair value of the related hedges;

• favorable changes to the estimated fair value of Shield Annuity liabilities, net of unfavorable changes to the estimated fair value of the related hedges;

• favorable changes to GMLB DAC;

partially offset by

• unfavorable changes to the estimated fair value of the variable annuity liability reserve.

Lower interest rates in the current period significantly impacted the following:

Lower interest rates in the current period resulted in the following significant impacts:

• favorable changes to the estimated fair value of our GMLB hedges;

2 unchanged sentences

• unfavorable changes to the estimated fair value of the variable annuity liability reserve.

The widening of our credit default swap spreads combined with an increase in the underlying variable annuity liability reserves resulted in a favorable change in non-performance risk net of an unfavorable change in the GMLB DAC offset.

The widening of credit default swap spreads combined with a larger increase in the underlying variable annuity liability reserves in the current period resulted in a favorable change in the adjustment for non-performance risk, net of an unfavorable change in GMLB DAC, compared to an insignificant unfavorable impact recognized in the prior period.

Investment Risks

18 unchanged sentences

Product design, such as the use of market value adjustment features and surrender charges, is also utilized to manage interest rate risk.

These strategies include maintaining an investment portfolio

that targets a weighted average duration that reflects the duration of our estimated liability cash flow profile.

These strategies include maintaining an investment portfolio that targets a weighted average duration that reflects the duration of our estimated liability cash flow profile.

For certain of our liability portfolios, it is not possible to invest assets to the full liability duration, thereby creating some asset/liability mismatch.

11 unchanged sentences

Contributing factors include concerns about lower energy and oil prices impacting the energy sector and the COVID-19 pandemic.

See “Risk Factors — The ongoing COVID-19 pandemic may materially adversely affect our business, results of operations and financial condition, including capitalization and liquidity.”

There has been an increased market focus on energy sector investments as a result of lower energy and oil prices.

We maintain a diversified energy sector fixed maturity securities portfolio across sub-sectors and issuers.

Our exposure to energy sector fixed maturity securities was $2.5 billion, of which 91% were investment grade, with net unrealized gains (losses) of ($289) million at March 31, 2020 .

Our exposure to energy sector fixed maturity securities was $2.9 billion, of which 90% were investment grade, with net unrealized gains (losses) of $175 million at June 30, 2020.

There has also been an increased market focus on retail sector investments as a result of the COVID-19 pandemic and uncertainty regarding its outcome.

Our exposure to retail sector corporate fixed maturity securities was $1.7 billion, of which 98% were investment grade, with net unrealized gains (losses) of $34 million at March 31, 2020 .

Our exposure to retail sector corporate fixed maturity securities was $1.9 billion, of which 96% were investment grade, with net unrealized gains (losses) of $182 million at June 30, 2020.

In addition to the fixed maturity securities disclosed above, we have exposure to mortgage loans and certain residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”) that may be impacted by the COVID-19 pandemic.

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Yield % Amount Yield % Amount Yield % Amount Yield % Amount

(Dollars in millions)

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(In millions)

2 unchanged sentences

Adjusted net investment income — in the above yield table

See “— Results of Operations — Consolidated Results for the Three Months Ended March 31, 2020 and 2019 — Adjusted Earnings” for an analysis of the period over period changes in net investment income.

$ 656 $ 942 $ 1,576 $ 1,753

See “— Results of Operations — Consolidated Results for the Three Months and Six Months Ended June 30, 2020 and 2019 — Adjusted Earnings” for an analysis of the period over period changes in net investment income.

Fixed Maturity Securities Available-for-sale (“AFS”)

Fixed maturity securities held by type (public or private) were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Fair Value % of

Total Estimated

Fair Value % of

(Dollars in millions)

2 unchanged sentences

Total fixed maturity securities

$ 76,796 100.0 % $ 71,036 100.0 %

Percentage of cash and invested assets

Valuation of Securities.

67.1 % 72.0 %

See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on our valuation controls and procedures including our formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value.

Fixed Maturity Securities AFS

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information about fixed maturity securities by sector, contractual maturities, continuous gross unrealized losses and the allowance for credit losses.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for further information about fixed maturity securities by sector, contractual maturities, continuous gross unrealized losses and the allowance for credit losses.

Fixed Maturity Securities Credit Quality — Ratings

1 unchanged sentence

The following table presents total fixed maturity securities by NRSRO rating and the applicable NAIC designation from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the NAIC methodologies, as well as the percentage, based on estimated fair value that each NAIC designation is comprised of at:

March 31, 2020

December 31, 2019

Allowance for Credit Losses

Estimated Fair Value

Allowance for Credit Losses

Estimated Fair Value

June 30, 2020 December 31, 2019

Designation NRSRO Rating Amortized

Cost Allowance for Credit Losses Unrealized

Gain (Loss) Estimated Fair Value % of

Total Amortized

Cost Allowance for Credit Losses Unrealized

Gain (Loss) Estimated Fair Value % of

(Dollars in millions)

1 Aaa/Aa/A $ 42,462 $ — $ 8,321 $ 50,783 66.1 % $ 41,463 $ — $ 5,252 $ 46,715 65.8 %

2 Baa 20,575 — 2,042 22,617 29.5 19,838 — 1,610 21,448 30.2

Subtotal investment grade 63,037 — 10,363 73,400 95.6 61,301 — 6,862 68,163 96.0

3 Ba 2,463 — (33) 2,430 3.1 2,015 — 72 2,087 2.9

4 B 869 1 (22) 846 1.1 673 — 23 696 1.0

5 Caa and lower 126 4 (3) 119 0.2 90 — — 90 0.1

6 In or near default

1 — — 1 — — — — — —

Subtotal below investment grade

3,459 5 (58) 3,396 4.4 2,778 — 95 2,873 4

Total fixed maturity securities $ 66,496 $ 5 $ 10,305 $ 76,796 100 % $ 64,079 $ — $ 6,957 $ 71,036 100 %

1 unchanged sentence

Fixed Maturity Securities — by Sector & Credit Quality Rating

NAIC Designation

NAIC Designation 1 2 3 4 5 6 Total

NRSRO Rating Aaa/Aa/A Baa Ba B Caa and

Lower In or Near

(In millions)

March 31, 2020

June 30, 2020

corporate $ 17,056 $ 14,770 $ 1,695 $ 676 $ 68 $ — $ 34,265

Foreign corporate 3,227 6,353 561 142 8 — 10,291

RMBS 8,515 20 14 3 32 — 8,584

government and agency 8,826 99 — — — — 8,925

CMBS 6,126 117 2 10 — — 6,255

State and political subdivision 4,042 181 2 — 7 — 4,232

ABS 2,172 278 13 — — — 2,463

Foreign government 819 799 143 15 4 1 1,781

1 unchanged sentence

December 31, 2019

corporate $ 15,313 $ 13,770 $ 1,479 $ 556 $ 42 $ — $ 31,160

Foreign corporate 3,162 6,113 466 90 13 — 9,844

RMBS 9,020 59 15 3 21 — 9,118

government and agency 7,303 93 — — — — 7,396

CMBS 5,612 126 6 11 — — 5,755

State and political subdivision 3,863 185 — — 9 — 4,057

ABS 1,696 240 19 — — — 1,955

Foreign government 746 862 102 36 5 — 1,751

2 unchanged sentences

We maintain a diversified portfolio of corporate fixed maturity securities across industries and issuers.

Our portfolio does not have any exposure to any single issuer in excess of 1% of total investments, and the top ten holdings in aggregate comprise 2% of total investments at March 31, 2020 and December 31, 2019 .

Our portfolio does not have any exposure to any single issuer in excess of 1% of total investments, and the top ten holdings in aggregate comprise 2% of total investments at June 30, 2020 and December 31, 2019.

and foreign corporate fixed maturity securities holdings by industry were as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Fair Value % of

Total Estimated

Fair Value % of

(Dollars in millions)

Industrial $ 13,735 30.8 % $ 12,633 30.9 %

Consumer 10,642 23.9 9,719 23.7

Finance 10,283 23.1 9,448 23.0

Utility 6,693 15.0 6,247 15.2

Communications 3,203 7.2 2,957 7.2

Total $ 44,556 100.0 % $ 41,004 100.0 %

Structured Securities

We held $16.7 billion and $16.8 billion of Structured Securities, at estimated fair value, at March 31, 2020 and December 31, 2019 , respectively, as presented in the RMBS, CMBS and ABS sections below.

We held $17.3 billion and $16.8 billion of Structured Securities, at estimated fair value, at June 30, 2020 and December 31, 2019, respectively, as presented in the RMBS, CMBS and ABS sections below.

Our RMBS holdings are diversified by security type, risk profile and ratings profile, which were as follows at:

March 31, 2020

December 31, 2019

Net Unrealized Gains (Losses)

June 30, 2020 December 31, 2019

Fair Value % of

Total Net Unrealized Gains (Losses) Estimated

Fair Value % of

Total Net Unrealized Gains (Losses)

(Dollars in millions)

2 unchanged sentences

Pass-through securities

3,620 42.2 138 4,261 46.7 66

Total RMBS $ 8,584 100.0 % $ 605 $ 9,118 100.0 % $ 426

Risk profile:

Agency $ 6,759 78.7 % $ 503 $ 7,216 79.2 % $ 256

Prime 124 1.4 1 141 1.5 9

Alt-A 846 9.9 47 883 9.7 96

Sub-prime 855 10.0 54 878 9.6 65

Total RMBS $ 8,584 100.0 % $ 605 $ 9,118 100.0 % $ 426

Ratings profile:

Rated Aaa $ 6,941 80.9 % $ 7,329 80.4 %

Designated NAIC 1 $ 8,515 99.2 % $ 9,020 98.9 %

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The vast majority of these securities are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2).

The estimated fair value of our sub-prime RMBS holdings purchased since 2012 was $779 million and $851 million at March 31, 2020 and December 31, 2019 , with unrealized gains (losses) of $7 million and $61 million at March 31, 2020 and December 31, 2019 , respectively.

The estimated fair value of our sub-prime RMBS holdings purchased since 2012 was $830 million and $851 million at June 30, 2020 and December 31, 2019, with unrealized gains (losses) of $51 million and $61 million at June 30, 2020 and December 31, 2019, respectively.

Our CMBS holdings are diversified by vintage year, which were as follows at:

March 31, 2020

December 31, 2019

Amortized Cost

June 30, 2020 December 31, 2019

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

(In millions)

The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.4 billion, or 76.2% of total CMBS, and designated NAIC 1 was $5.6 billion, or 97.7% of total CMBS, at March 31, 2020 .

2003 - 2010 $ 100 $ 112 $ 109 $ 123

2011 170 170 223 223

2012 147 146 138 141

2013 215 213 199 205

2014 339 352 332 346

2015 958 1,013 938 977

2016 476 505 480 497

2017 691 752 683 717

2018 1,653 1,870 1,580 1,700

2019 917 981 818 826

2020 139 141 — —

Total $ 5,805 $ 6,255 $ 5,500 $ 5,755

The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.8 billion, or 76.1% of total CMBS, and designated NAIC 1 was $6.1 billion, or 97.9% of total CMBS, at June 30, 2020.

CMBS Aaa rating agency ratings was $4.3 billion, or 74.9% of total CMBS, and designated NAIC 1 was $5.6 billion, or 97.5% of total CMBS at December 31, 2019.

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Our ABS holdings by collateral type and ratings profile were as follows at:

March 31, 2020

December 31, 2019

Net Unrealized

Gains (Losses)

Net Unrealized

June 30, 2020 December 31, 2019

Fair Value % of

Total Net Unrealized

Gains (Losses) Estimated

Fair Value % of

Total Net Unrealized

Gains (Losses)

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Collateralized obligations

$ 1,492 60.6 % $ (30) $ 1,058 54.2 % $ (8)

Student loans 188 7.6 (4) 196 10.0 2

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Credit card loans 58 2.4 7 60 3.1 3

Other loans 438 17.8 17 356 18.2 9

Total $ 2,463 100.0 % $ (6) $ 1,955 100.0 % $ 10

Ratings profile:

Rated Aaa $ 1,285 52.2 % $ 879 45.0 %

Designated NAIC 1 $ 2,172 88.2 % $ 1,696 86.8 %

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Information regarding mortgage loans by portfolio segment was summarized as follows at:

March 31, 2020

December 31, 2019

Amortized Cost

Allowance for Credit Losses

% of Amortized Cost

Amortized Cost

Allowance for Credit Losses

% of Amortized Cost

June 30, 2020 December 31, 2019

Amortized Cost % of

Total Allowance for Credit Losses % of Amortized Cost Amortized Cost % of

Total Allowance for Credit Losses % of Amortized Cost

(Dollars in millions)

Commercial $ 9,715 61.2 % $ 37 0.2 % $ 9,721 61.5 % $ 47 0.5 %

Agricultural 3,361 21.1 % 16 0.1 % 3,388 21.4 % 10 0.3 %

Residential 2,807 17.7 % 39 0.3 % 2,708 17.1 % 7 0.3 %

$ 15,883 100.0 % $ 92 0.6 % $ 15,817 100.0 % $ 64 0.4 %

Our mortgage loan portfolio is diversified by both geographic region and property type to reduce the risk of concentration.

The percentage of our commercial and agricultural mortgage loan portfolios collateralized by properties located in the U.S.

were 97% at both March 31, 2020 and December 31, 2019 , and the remainder was collateralized by properties located outside of the U.S.

were 97% at both June 30, 2020 and December 31, 2019, and the remainder was collateralized by properties located outside of the U.S.

The carrying value as a percentage of total commercial and agricultural mortgage loans for the top three states in the U.S.

was as follows at:

March 31, 2020

June 30, 2020

California 24%

Additionally, we manage risk when originating commercial and agricultural mortgage loans by generally lending up to 75% of the estimated fair value of the underlying real estate collateral.

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All residential mortgage loans were collateralized by properties located in the U.S.

at both March 31, 2020 and December 31, 2019 .

at both June 30, 2020 and December 31, 2019.

The carrying value as a percentage of total residential mortgage loans for the top three states in the U.S.

was as follows at:

March 31, 2020

June 30, 2020

California 37%

Commercial Mortgage Loans by Geographic Region and Property Type .

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The diversification across geographic regions and property types of commercial mortgage loans was as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Total Amount % of

(Dollars in millions)

Geographic Region:

Middle Atlantic

Pacific $ 2,655 27.3 % $ 2,666 27.4 %

South Atlantic 1,929 19.8 1,887 19.4

Middle Atlantic 1,874 19.3 1,875 19.3

West South Central 802 8.2 809 8.3

Mountain 698 7.2 668 6.9

East North Central 553 5.7 555 5.7

International 486 5.0 494 5.1

New England 411 4.2 412 4.2

West North Central 123 1.3 125 1.3

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Property Type:

Office $ 3,746 38.6 % $ 3,839 39.5 %

Apartment 2,198 22.6 2,181 22.4

Retail 2,107 21.7 2,115 21.8

Hotel 922 9.5 930 9.6

Industrial 712 7.3 626 6.4

Other 30 0.3 30 0.3

Total recorded investment 9,715 100.0 % 9,721 100.0 %

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Loan-to-value ratios are a common measure in the assessment of the quality of agricultural mortgage loans.

to-value ratios compare the amount of the loan to the estimated fair value of the underlying collateral.

Loan-to-value ratios compare the amount of the loan to the estimated fair value of the underlying collateral.

A loan-to-value ratio greater than 100% indicates that the loan amount is greater than the collateral value.

A loan-to-value ratio of less than 100% indicates an excess of collateral value over the loan amount.

A loan-to-value

ratio of less than 100% indicates an excess of collateral value over the loan amount.

Generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss.

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Generally, the lower the debt-service coverage ratio, the higher the risk of experiencing a credit loss.

For our commercial mortgage loans, our average loan-to-value ratio was 53% at both March 31, 2020 and December 31, 2019 , and our average debt-service coverage ratio was 2.3x and 2.2x at March 31, 2020 and December 31, 2019 , respectively.

For our commercial mortgage loans, our average loan-to-value ratio was 55% and 53% at June 30, 2020 and December 31, 2019, respectively and our average debt-service coverage ratio was 2.2x at both June 30, 2020 and December 31, 2019.

The debt-service coverage ratio, as well as the values utilized in calculating the ratio, is updated annually on a rolling basis, with a portion of the portfolio updated each quarter.

In addition, the loan-to-value ratio is routinely updated for all but the lowest risk loans as part of our ongoing review of our commercial mortgage loan portfolio.

For our agricultural mortgage loans, our average loan-to-value ratio was 48% and 47% at March 31, 2020 and December 31, 2019 , respectively.

For our agricultural mortgage loans, our average loan-to-value ratio was 48% and 47% at June 30, 2020 and December 31, 2019, respectively.

The values utilized in calculating the agricultural mortgage loan loan-to-value ratio are developed in connection with the ongoing review of the agricultural loan portfolio and are routinely updated.

Loan Modifications Related to the COVID-19 Pandemic.

Our underwriting and credit management practices are proactively refined to meet the changing economic environment.

To actively mitigate losses and enhance borrower support across the mortgage loan portfolio segments, we have expanded loan modification and customer assistance infrastructures.

Since March 1, 2020, we have completed loan modifications and have provided waivers to certain covenants, including the furniture, fixture and expense reserves, tenant rent payment deferrals or lease modifications, rate reductions, maturity date extensions, and other actions with a number of our borrowers impacted by the COVID-19 pandemic.

A subset of these modifications included short-term principal and interest forbearance.

At June 30, 2020, the recorded investment on mortgage loans where borrowers were offered debt service forbearance and were not making payments was $1.1 billion, comprised of $763 million commercial mortgage loans, $18 million of agricultural mortgage loans and $271 million of residential mortgage loans.

These types of modifications are generally not considered troubled debt restructurings (“TDRs”) due to the relief granted by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

For more information on TDRs, see Note 4 to the Interim Condensed Consolidated Financial Statements.

Mortgage Loan Allowance for Credit Losses .

See Notes 4 and 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how the allowance for credit losses is established and monitored and activity in and balances of the allowance for credit losses for the three months ended March 31, 2020 and 2019 .

Limited Partnerships and Limited Liability Companies

The carrying value of our limited partnerships and limited liability companies (“LLCs”) was as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

(In millions)

Other limited partnerships interests

$ 1,914 $ 1,941

Real estate limited partnerships and LLCs (1) 440 439

Total $ 2,354 $ 2,380

__________________

The estimated fair value of real estate limited partnerships and LLCs was $495 million and $529 million at March 31, 2020 and December 31, 2019 , respectively.

(1) The estimated fair value of real estate limited partnerships and LLCs was $510 million and $529 million at June 30, 2020 and December 31, 2019, respectively.

Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds.

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The carrying value of our other invested assets by type was as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Carrying Value

Total Carrying Value % of

(Dollars in millions)

Freestanding derivatives with positive estimated fair values

Tax credit and renewable energy partnerships

$ 6,150 96.6 % $ 3,021 93.9 %

FHLB stock 81 1.3 39 1.2

Tax credit renewable energy partnership 64 1.0 82 2.6

Leveraged leases, net of non-recourse debt 50 0.8 64 2.0

Other 19 0.3 10 0.3

Total $ 6,364 100.0 % $ 3,216 100.0 %

Derivative Risks

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See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements:

Information about the gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge designation, excluding embedded derivatives held at March 31, 2020 and December 31, 2019 .

The statement of operations effects of derivatives in cash flow, fair value or non-qualifying hedge relationships for the three months and three months ended March 31, 2020 and 2019 .

• Information about the gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge designation, excluding embedded derivatives held at June 30, 2020 and December 31, 2019.

• The statement of operations effects of derivatives in cash flow, fair value or non-qualifying hedge relationships for the three months and six months ended June 30, 2020 and 2019.

See “Business — Segments and Corporate & Other — Annuities,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies — ULSG Market Risk Exposure Management” and “— Annual Actuarial Review” included in the 2019 Annual Report for more information about our use of derivatives by major hedging programs.

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The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect net income.

Derivatives categorized as Level 3 at March 31, 2020 include:

Derivatives categorized as Level 3 at June 30, 2020 include:

credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations;

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The gross notional amount and estimated fair value of credit default swaps were as follows at:

March 31, 2020

December 31, 2019

Gross Notional Amount

June 30, 2020 December 31, 2019

Gross Notional

(In millions)

Written $ 1,788 $ 17 $ 1,635 $ 36

Purchased 18 — 18 —

Total $ 1,806 $ 17 $ 1,653 $ 36

The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount.

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In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds.

In some instances,

these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure.

In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure.

For example, by purchasing Treasury bonds (or other high-quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate the desired bond exposures and meet our ALM needs.

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Periodically we receive non-cash collateral for securities lending from counterparties, which cannot be sold or re-pledged, and which is not recorded on our consolidated balance sheets.

The Company did not hold non-cash collateral at both March 31, 2020 and December 31, 2019 .

The amount of this collateral was $ 12 million at estimated fair value at June 30, 2020.

The Company did not hold non-cash collateral at December 31, 2019.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements, as well as “— Investments — Securities Lending” for discussion of our securities lending program, the classification of revenues and expenses, and the nature of the secured financing arrangement and associated liability.

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We have non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which has not been recorded on our consolidated balance sheets.

The amount of this non-cash collateral was $797 million and $593 million at March 31, 2020 and December 31, 2019 , respectively.

The amount of this non-cash collateral was $938 million and $593 million at June 30, 2020 and December 31, 2019, respectively.

See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding the earned income and the gross notional amount, estimated fair value of assets and liabilities and primary underlying risk exposure of our derivatives.

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Amounts for actuarial liabilities are computed and reported in the financial statements in conformity with GAAP.

For more details on policyholder liabilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in the 2019 Annual Report.

Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in the 2019 Annual Report.

Except as otherwise discussed below, there have been no material changes to our actuarial liabilities.

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The account values and NAR of contract holders by type of guaranteed minimum benefit for variable annuity contracts were as follows at:

March 31, 2020 (1)

December 31, 2019 (1)

Account Value

Death Benefit NAR (1)

Living Benefit NAR (1)

% of Account Value In-the-Money (2)

Account Value

Death Benefit NAR (1)

Living Benefit NAR (1)

% of Account Value In-the-Money (2)

June 30, 2020 (1) December 31, 2019 (1)

Account Value Death Benefit NAR (1) Living Benefit NAR (1) % of Account Value In-the-Money (2) Account Value Death Benefit NAR (1) Living Benefit NAR (1) % of Account Value In-the-Money (2)

(Dollars in millions)

GMIB Max w/ Enhanced DB

GMIB Max w/o Enhanced DB

GMIB $ 38,021 $ 3,102 $ 7,851 61.9 % $ 41,302 $ 2,302 $ 4,722 42.0 %

GMIB Max with EDB (3) 10,839 3,550 161 18.1 % 11,807 2,673 23 2.3 %

GMIB Max without EDB

6,188 20 33 7.7 % 6,750 2 5 0.8 %

GMWB4L (FlexChoice SM )

4,537 23 174 40.6 % 4,130 3 25 13.4 %

GMAB 647 1 2 5.4 % 672 1 1 0.6 %

GMWB 2,508 56 22 13.7 % 2,783 39 8 1.4 %

GMWB4L 13,682 170 1,127 43.6 % 14,904 71 509 23.7 %

3,529 842 — N/A 3,740 609 — N/A

GMDB Only (Other than EDB)

17,182 1,048 — N/A 18,183 971 — N/A

$ 97,133 $ 8,812 $ 9,370 $ 104,271 $ 6,671 $ 5,293

__________________

(1) The “Death Benefit NAR” and “Living Benefit NAR” are not additive at the contract level.

(2) In-the-money is defined as any contract with a living benefit NAR in excess of zero.

Under GAAP, certain of our variable annuity guarantee features are accounted for as insurance liabilities and recorded on the balance sheet in future policy benefits with changes reported in policyholder benefits and claims.

(3) EDB is defined as enhanced death benefits.

Under GAAP, certain of our variable annuity guarantee features are accounted for as insurance liabilities and reported on the consolidated balance sheets in future policy benefits with changes reported in policyholder benefits and claims.

These liabilities are accounted for using long-term assumptions of equity and bond market returns and the level of interest rates.

Therefore, these liabilities, valued at $5.1 billion at March 31, 2020 , are less sensitive than derivative instruments to periodic changes to equity and fixed income market returns and the level of interest rates.

Therefore, these liabilities, valued at $5.3 billion at June 30, 2020, are less sensitive than derivative instruments to periodic changes to equity and fixed income market returns and the level of interest rates.

Guarantees accounted for in this manner include GMDBs, as well as the life contingent portion of GMIBs and certain GMWBs.

All other variable annuity guarantee features are accounted for as embedded derivatives and recorded on the balance sheet in PABs with changes reported in net derivative gains (losses).

These liabilities, valued at $4.4 billion at March 31, 2020 , are accounted for at estimated fair value.

All other variable annuity guarantee features are accounted for as embedded derivatives and reported on the consolidated balance sheets in PABs with changes reported in net derivative gains (losses).

These liabilities, valued at $3.8 billion at June 30, 2020, are accounted for at estimated fair value.

Guarantees accounted for in this manner include GMABs, GMWBs and the non-life contingent portions of GMIBs.

In some cases, a guarantee will have multiple features or options that require separate accounting such that the guarantee is not fully accounted for under only one of the accounting models (known as “split accounting”).

Additionally, the index protection and accumulation features of Shield Annuities are accounted for as embedded derivatives, recorded on the balance sheet in PABs with changes reported in net derivative gains (losses) and valued at ($116) million at March 31, 2020 .

Additionally, the index protection and accumulation features of Shield Annuities are accounted for as embedded derivatives, reported on the consolidated balance sheets in PABs with changes reported in net derivative gains (losses) and valued at $1.5 billion at June 30, 2020.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” included in the 2019 Annual Report.

The GAAP variable annuity reserve balances by guarantee type and accounting model were as follows at:

March 31, 2020

December 31, 2019

Future Policy Benefits

Policyholder Account Balances

Total Reserves

Future Policy Benefits

Policyholder Account Balances

Total Reserves

June 30, 2020 December 31, 2019

Future Policy Benefits Policyholder Account Balances Total Reserves Future Policy Benefits Policyholder Account Balances Total Reserves

(In millions)

GMDB $ 1,461 $ — $ 1,461 $ 1,362 $ — $ 1,362

GMIB 2,975 3,106 6,081 2,677 1,844 4,521

GMIB Max 629 247 876 560 (84) 476

GMAB — 1 1 — (17) (17)

GMWB — 51 51 — 6 6

GMWB4L 259 334 593 258 (93) 165

GMWB4L (FlexChoice SM )

— 74 74 — — —

Total $ 5,324 $ 3,813 $ 9,137 $ 4,857 $ 1,656 $ 6,513

Derivatives Hedging Variable Annuity Guarantees

The gross notional amount and estimated fair value of the derivatives held in our macro interest rate hedging program were as follows at:

March 31, 2020

December 31, 2019

Instrument Type

Gross Notional Amount (1)

Estimated Fair Value

Gross Notional Amount (1)

Estimated Fair Value

June 30, 2020 December 31, 2019

Instrument Type Gross Notional Amount (1) Estimated Fair Value Gross Notional Amount (1) Estimated Fair Value

Assets Liabilities Assets Liabilities

(In millions)

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$ 34,575 $ 4,281 $ 253 $ 42,512 $ 1,674 $ 330

__________________

(1) The gross notional amounts presented do not necessarily represent the relative economic coverage provided by option instruments because certain positions were closed out by entering into offsetting positions that are not netted in the above table.

The gross notional amount and estimated fair value of the derivatives in our variable annuity hedging program were as follows at:

March 31, 2020

December 31, 2019

Instrument Type

Gross Notional Amount (1)

Estimated Fair Value

Gross Notional Amount (1)

Estimated Fair Value

June 30, 2020 December 31, 2019

Instrument Type Gross Notional Amount (1) Estimated Fair Value Gross Notional Amount (1) Estimated Fair Value

Assets Liabilities Assets Liabilities

(In millions)

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Interest rate forwards 2,722 405 — — — —

Total $ 77,765 $ 3,672 $ 2,201 $ 92,121 $ 2,395 $ 2,354

__________________

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Changing conditions in the global capital markets and the economy may affect our financing costs and market interest rates for our debt or equity securities.

Other Information — Item 1A.

Risk Factors” herein, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment” in our 2019 Annual Report.

For further information regarding market factors that could affect our ability to meet liquidity and capital needs, including those related to the COVID-19 pandemic, see “— Industry Trends — COVID-19 Pandemic,” “— Investments — Current Environment” herein, as well as (i) “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment” in our 2019 Annual Report and (ii) “Risk Factors — The ongoing COVID-19 pandemic may materially adversely affect our business, results of operations and financial condition, including capitalization and liquidity” in our First Quarter Form 10-Q.

Liquidity and Capital Management

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We continuously monitor and adjust our liquidity and capital plans in light of market conditions, as well as changing needs and opportunities.

We maintain a substantial short-term liquidity position, which was $4.5 billion and $2.8 billion at March 31, 2020 and December 31, 2019 , respectively.

We maintain a substantial short-term liquidity position, which was $6.1 billion and $2.8 billion at June 30, 2020 and December 31, 2019, respectively.

Short-term liquidity is comprised of cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise committed.

Assets pledged or otherwise committed include amounts received in connection with securities lending, derivatives and assets held on deposit or in trust.

An integral part of our liquidity management includes managing our level of liquid assets, which was $44.9 billion and $42.6 billion at March 31, 2020 and December 31, 2019 , respectively.

An integral part of our liquidity management includes managing our level of liquid assets, which was $49.2 billion and $42.6 billion at June 30, 2020 and December 31, 2019, respectively.

Liquid assets are comprised of cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed.

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In support of our target combined risk based capital (“RBC”) ratio between 400% and 450%, we expect to continue to maintain a capital and exposure risk management program that targets total assets supporting our variable annuity contracts at or above the average of the worst two percent of a set of capital markets scenarios over the life of the contracts (“CTE98”) level in normal market conditions.

We refer to our target level of assets as our “Variable Annuity Target Funding Level.” While total assets supporting our variable annuity capital may exceed the CTE98 level, under stressed conditions we intend to allow such assets supporting our variable annuities to range between a target floor level of CTE95 and CTE98.

We refer to our target level of assets as our “Variable Annuity Target Funding Level.” While total assets supporting our variable annuity capital may exceed the CTE98 level, under stressed conditions, we intend to allow such assets supporting our variable annuities to range between CTE98 and a target floor level of CTE95 (the worst five percent of a set of capital market scenarios over the life of the contracts).

On February 6, 2020, we authorized the repurchase of up to $500 million of our common stock, which is in addition to the $600 million aggregate stock repurchase authorizations announced in May 2019 and August 2018.

On May 11, 2020, we announced the temporary suspension of repurchases of our common stock while we continue to evaluate the impacts of the COVID-19 pandemic.

On May 11, 2020, we announced that we had temporarily suspended repurchases of our common stock.

The temporary suspension remains in effect while we continue to assess market conditions and other factors.

Repurchases made under the February 6, 2020 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.

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We currently have no plans to declare and pay dividends on our common stock.

Any future declaration and payment of dividends or other distributions or returns of capital will be at the discretion of our Board of Directors and will depend on and be subject to our financial condition, results of operations, cash needs, regulatory and other constraints, capital requirements (including capital requirements of our subsidiaries), contractual restrictions and any other factors that our Board of Directors deems relevant in making such a determination.

Board of Directors deems relevant in making such a determination.

Therefore, there can be no assurance that we will pay any dividends or make other distributions or returns of capital on our common stock, or as to the amount of any such dividends, distributions or returns of capital.

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Our primary sources and uses of liquidity and capital were as follows at:

Three Months Ended

Six Months Ended

(In millions)

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Preferred stock issued, net of issuance costs 390 412

Financing element on certain derivative instruments and other derivative related transactions, net — 44

Total sources 8,638 4,555

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Financing element on certain derivative instruments and other derivative related transactions, net 698 —

Other, net 30 28

Total uses 4,190 4,719

Net increase (decrease) in cash and cash equivalents $ 4,448 $ (164)

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Preferred Stock

See Note 10 of the Notes to the Consolidated Financial Statements included in the 2019 Annual Report.

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.

Under the terms of the Series B Preferred Stock, our ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our common stock or shares of any other class or series of our capital stock (if any) that ranks junior to the Series B Preferred Stock will be subject to certain restrictions in the event that we do not declare and pay (or set aside) full dividends on the Series B Preferred Stock for the latest completed dividend period, and our ability to declare and pay full dividends on our perpetual 6.600% non-cumulative preferred stock, Series A or any other series of preferred stock that ranks equally with the Series B Preferred Stock (if any) will be subject to certain limitations in the event we do not declare and pay full dividends on the Series B Preferred Stock.

See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements.

Federal Home Loan Bank Funding Agreements, Reported in Policyholder Account Balances

Brighthouse Life Insurance Company is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, where we maintain an active funding agreement program, along with inactive funding agreement programs with certain other FHLBs.

At both March 31, 2020 and December 31, 2019 , Brighthouse Life Insurance Company had obligations outstanding under funding agreements of $595 million .

During the three months ended March 31, 2020 and 2019 , there were no issuances or repayments under funding agreements.

On April 2, 2020, Brighthouse Life Insurance Company issued funding agreements for an aggregate collateralized borrowing of $1.0 billion to provide a readily available source of contingent liquidity.

The April 2020 funding agreements mature in the fourth quarter of 2020.

Brighthouse Life Insurance Company had obligations outstanding under funding agreements of $1.6 billion and $595 million at June 30, 2020 and December 31, 2019, respectively.

During the six months ended June 30, 2020, there were the aforementioned $1.0 billion of issuances and no repayments under funding agreements.

During the six months ended June 30, 2019, there were no issuances or repayments under funding agreements.

For additional information regarding the funding agreement program, see Note 3 of the Notes to the Consolidated Financial Statements included in the 2019 Annual Report.

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Brighthouse Life Insurance Company has a funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”), pursuant to which the parties may enter into funding agreements in an aggregate amount of up to $500 million.

At March 31, 2020 , there were no borrowings under this funding agreement program.

At June 30, 2020, there were no borrowings under this funding agreement program.

Debt Issuances

During the second quarter of 2020, BHF issued $615 million aggregate principal amount of 5.625% unsecured senior notes due 2030 (the “2030 Senior Notes”) for aggregate net cash proceeds of $614 million.

See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements.

Credit Facilities

We maintain a $1.0 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) scheduled to mature in May 2024, all of which may be used for revolving loans and/or letters of credit, and a $1.0 billion unsecured term loan facility (the “Term Loan Facility”) scheduled to mature in February 2024.

At March 31, 2020 , there were no borrowings or letters of credit outstanding under the Revolving Credit Facility and there was $1.0 billion outstanding under the Term Loan Facility.

At June 30, 2020, there were no borrowings or letters of credit outstanding under the Revolving Credit Facility.

In connection with the repayment of all outstanding borrowings under our $1.0 billion unsecured term loan facility (the “Term Loan

Facility”), the Term Loan Facility was terminated without penalty on June 2, 2020, as discussed further in “— Primary Uses of Liquidity and Capital — Debt Repayments.”

Committed Facilities

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Under the Repurchase Facility, Brighthouse Life Insurance Company may sell certain eligible securities at a purchase price based on the market value of the securities less an applicable margin based on the types of securities sold, with a concurrent agreement to repurchase such securities at a predetermined future date (ranging from two weeks to three months) and at a price which represents the original purchase price plus interest.

At March 31, 2020 , there were no borrowings under the Repurchase Facility.

At June 30, 2020, there were no borrowings under the Repurchase Facility.

Reinsurance Financing Arrangement

Our reinsurance subsidiary, BRCD, was formed to manage our capital and risk exposures and to support our term and ULSG businesses through the use of affiliated reinsurance arrangements and related reserve financing.

BRCD maintains a $10.0 billion financing arrangement with a pool of highly rated third-party reinsurers consisting of credit-linked notes that each mature in 2037.

At March 31, 2020 , there were no borrowings and there was $10.0 billion of funding available under this financing arrangement.

BRCD maintains a financing arrangement with a pool of highly rated third-party reinsurers consisting of credit-linked notes.

On June 11, 2020, BRCD, with the explicit permission of the Delaware Commissioner of Insurance, amended its financing arrangement 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.

BRCD is capitalized with cash and invested assets, including funds withheld (“Minimum Initial Target Assets”) at a level we believe to be sufficient to satisfy its future cash obligations assuming a permanent level yield curve, consistent with NAIC cash flow testing scenarios.

BRCD utilizes the above referenced financing arrangement to cover the difference

between full required statutory assets (i.e., NAIC Valuation of Life Insurance Policies Model Regulation (Regulation XXX) and NAIC Actuarial Guideline 38 (Guideline AXXX) reserves plus target risk margin appropriate to meet capital needs) and Minimum Initial Target Assets.

BRCD utilizes the above referenced financing arrangement to cover the difference between full required statutory assets (i.e., NAIC Valuation of Life Insurance Policies Model Regulation (Regulation XXX) and NAIC Actuarial Guideline 38 (Guideline AXXX) reserves plus target risk margin appropriate to meet capital needs) and Minimum Initial Target Assets.

An admitted deferred tax asset could also serve to reduce the amount of funding required under the above referenced financing arrangement.

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Our outstanding long-term debt was as follows at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

(In millions)

Senior notes (1) $ 3,585 $ 2,970

Term loan — 1,000

Junior subordinated debentures (1) 363 363

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Includes unamortized debt issuance costs and debt discount totaling $42 million at both March 31, 2020 and December 31, 2019 for senior notes and junior subordinated debentures on a combined basis.

(1) Includes unamortized debt issuance costs, discounts and premiums, as applicable, totaling $42 million at both June 30, 2020 and December 31, 2019 for senior notes and junior subordinated debentures on a combined basis.

(2) Represents non-recourse debt for which creditors have no access, subject to customary exceptions, to the general assets of the Company other than recourse to certain investment companies.

Debt and Facility Covenants

The Company’s debt instruments and credit and committed facilities contain certain administrative, reporting and legal covenants.

Additionally, the Company’s credit facilities contain financial covenants, including requirements to maintain a specified minimum adjusted consolidated net worth, to maintain a ratio of total indebtedness to total capitalization not in excess of a specified percentage and that place limitations on the dollar amount of indebtedness that may be incurred by the Company, which could restrict our operations and use of funds.

At March 31, 2020 , the Company was in compliance with these financial covenants.

Our debt instruments and credit and committed facilities contain certain administrative, reporting and legal covenants.

Additionally, our Revolving Credit Facility contains financial covenants, including requirements to maintain a specified minimum adjusted consolidated net worth, to maintain a ratio of total indebtedness to total capitalization not in excess of a specified percentage and that place limitations on the dollar amount of indebtedness that we may incur, which could restrict our operations and use of funds.

At June 30, 2020, we were in compliance with these financial covenants.

Primary Uses of Liquidity and Capital

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Common Stock Repurchases

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

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.

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

On May 11, 2020, we announced that we had temporarily suspended repurchases of our common stock.

The temporary suspension remains in effect while we continue to assess market conditions and other factors.

Preferred Stock Dividends

On February 14, 2020, BHF declared a dividend of $412.50 per share, for a total of $7 million, on our 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.

During the six months ended June 30, 2020 and 2019, we paid dividends on our perpetual 6.600% non-cumulative preferred stock, Series A of $14 million and $7 million, respectively.

See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements.

Debt Repayments

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 to repay $1.0 billion of borrowings outstanding under the Term Loan Facility.

See Notes 7 and 8 of the Notes to the Interim Condensed Consolidated Financial Statements.

Debt Repurchases

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Surrender or lapse behavior differs somewhat by product but tends to occur in the ordinary course of business.

During the three months ended March 31, 2020 and 2019 , general account surrenders and withdrawals totaled $545 million and $740 million , respectively, of which $517 million and $615 million , respectively, was attributable to products within the Annuities segment.

During the six months ended June 30, 2020 and 2019, general account surrenders and withdrawals totaled $1.1 billion and $1.3 billion, respectively, of which $1.0 billion and $1.1 billion, respectively, was attributable to products within the Annuities segment.

Pledged Collateral

We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives.

At March 31, 2020 and December 31, 2019 , counterparties were obligated to return cash collateral pledged by us of $5 million and $0 , respectively.

At March 31, 2020 and December 31, 2019 , we were obligated to return cash collateral pledged to us by counterparties of $7.4 billion and $1.3 billion , respectively.

At June 30, 2020 and December 31, 2019, counterparties were obligated to return cash collateral pledged by us of $133 million and $0, respectively.

At June 30, 2020 and December 31, 2019, we were obligated to return cash collateral pledged to us by counterparties of $4.2 billion and $1.3 billion, respectively.

See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information about pledged collateral.

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We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities are returned to us.

Under our securities lending program, we were liable for cash collateral under our control of $3.6 billion and $3.1 billion at March 31, 2020 and December 31, 2019 , respectively.

Of these amounts, $1.2 billion and $1.3 billion at March 31, 2020 and December 31, 2019 , respectively, were on open, meaning that the related loaned security could be returned to us on the next business day requiring the immediate return of cash collateral we hold.

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.

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

Under our securities lending program, we were liable for cash collateral under our control of $3.7 billion and $3.1 billion at June 30, 2020 and December 31, 2019, respectively.

Of these amounts, $1.3 billion at both June 30, 2020 and December 31, 2019 were on open, meaning that the related loaned security could be returned to us on the next business day requiring the immediate return of cash collateral we hold.

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 that, if put back to us, could be immediately sold to satisfy the cash requirement.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

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Short-term Liquidity and Liquid Assets

At March 31, 2020 and December 31, 2019 , BHF and certain of its non-insurance subsidiaries had short-term liquidity of $905 million and $723 million , respectively.

At June 30, 2020 and December 31, 2019, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.2 billion and $723 million, respectively.

Short-term liquidity is comprised of cash and cash equivalents and short-term investments.

At March 31, 2020 and December 31, 2019 , BHF and certain of its non-insurance subsidiaries had liquid assets of $955 million and $767 million , respectively, of which $902 million and $715 million , respectively, was held by BHF.

At June 30, 2020 and December 31, 2019, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.3 billion and $767 million, respectively, of which $1.2 billion and $715 million, respectively, was held by BHF.

Liquid assets are comprised of cash and cash equivalents, short-term investments and publicly-traded securities.

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The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally.

State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose the total adjusted capital (“TAC”) does not meet or exceed certain RBC levels.

State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital (“TAC”) does not meet or exceed certain RBC levels.

As of the date of the most recent annual statutory financial statements filed with insurance regulators, the TAC of each of our insurance subsidiaries subject to these requirements was in excess of each of those RBC levels.

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Distributions from and Capital Contributions to BH Holdings

During the three months ended March 31, 2020 and 2019 , BHF received cash distributions of $488 million and $195 million , respectively, from BH Holdings and made cash capital contributions of $0 and $412 million , respectively, to BH Holdings.

The $488 million distribution was primarily related to a $300 million ordinary cash dividend paid by Brighthouse Life Insurance Company to BH Holdings in the first quarter of 2020.

On April 24, 2020, BHF received a $500 million cash distribution from BH Holdings, which related to a $500 million ordinary cash dividend paid by Brighthouse Life Insurance Company to BH Holdings also on April 24, 2020.

During the six months ended June 30, 2020 and 2019, BHF received cash distributions of $988 million and $195 million, respectively, from BH Holdings and made cash capital contributions of $0 and $412 million, respectively, to BH Holdings.

Distributions received in 2020 primarily relate to $800 million of ordinary cash dividends paid by Brighthouse Life Insurance Company to BH Holdings.

Short-term Intercompany Loans

As of March 31, 2020 , BHF, as borrower, had a short-term intercompany loan agreement with certain of its non-insurance subsidiaries, as lenders, for the purposes of facilitating the management of the available cash of the borrower and the lenders on a short-term and consolidated basis.

As of June 30, 2020, BHF, as borrower, had a short-term intercompany loan agreement with certain of its non-insurance subsidiaries, as lenders, for the purposes of facilitating the management of the available cash of the borrower and the lenders on a short-term and consolidated basis.

Such intercompany loan agreement allows management to optimize the efficient use of and maximize the yield on cash between BHF and its subsidiary lenders.

Each loan entered into under this intercompany loan agreement has a term not more than 364 days and bears interest on the unpaid principal amount at a variable rate, payable monthly.

During the three months ended March 31, 2020 and 2019 , BHF borrowed $165 million and $188 million , respectively, from certain of its non-insurance subsidiaries under short-term intercompany loan agreements and repaid $315 million and $384 million , respectively, to certain of its non-insurance company subsidiaries under short-term intercompany loan agreements.

At March 31, 2020 and December 31, 2019 , BHF had total obligations outstanding of $193 million and $343 million , respectively, under such agreements.

During the six months ended June 30, 2020 and 2019, BHF borrowed $287 million and $493 million, respectively, from certain of its non-insurance subsidiaries under short-term intercompany loan agreements and repaid $350 million and $645 million, respectively, to certain of its non-insurance company subsidiaries under short-term intercompany loan agreements.

At June 30, 2020 and December 31, 2019, BHF had total obligations outstanding of $280 million and $343 million, respectively, under such agreements.

Intercompany Liquidity Facilities

As of March 31, 2020 , we maintained intercompany liquidity facilities with certain of our insurance and non-insurance company subsidiaries to provide short-term liquidity within and across the combined group of companies.

As of June 30, 2020, we maintained intercompany liquidity facilities with certain of our insurance and non-insurance company subsidiaries to provide short-term liquidity within and across the combined group of companies.

Under these facilities, which are comprised of a series of revolving loan agreements among BHF and its participating subsidiaries, each company may lend to or borrow from each other, subject to certain maximum limits for a term not more than 364 days.

During the three months ended March 31, 2020 and 2019 , there were no borrowings or repayments by BHF under intercompany liquidity facilities and, at both March 31, 2020 and December 31, 2019 , BHF had no obligations outstanding under such facilities.

During the six months ended June 30, 2020 and 2019, there were no borrowings or repayments by BHF under intercompany liquidity facilities and, at both June 30, 2020 and December 31, 2019, BHF had no obligations outstanding under such facilities.

Note Regarding Forward-Looking Statements

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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 2. Management’s Discussion and Analysis