What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-07 · 369 added, 359 removed, 1037 unchanged (41% of the section changed)

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(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.

(iv) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (the “Second Quarter Form 10-Q” and, together with the First Quarter Form 10-Q, the “Quarterly Reports”) filed with the SEC on August 7, 2020 and (v) 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, 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”).

• “Industry Trends” discusses updates and changes to a number of trends and uncertainties included in our 2019 Annual Report, as amended or supplemented by our subsequent Quarterly Reports on 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”).

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This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations, financial condition and cash flows of Brighthouse for the periods indicated.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview,” and “Business — Segments and Corporate & Other” included in the 2019 Annual Report along with Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on our segments and Corporate & Other.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview,” and “Business — Segments and Corporate & Other” included in our 2019 Annual Report along with Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on our segments and Corporate & Other.

Net income (loss) available to shareholders and adjusted earnings, a non-GAAP financial measure, were as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Provision for income tax expense (benefit) (850) 119 (88) (14)

(531) 85 762 (133)

Net income (loss) available to shareholders (1) $ (3,012) $ 676 $ (60) $ 316

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

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

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Adjusted earnings $ (689) $ (169) $ (467) $ 317

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.

__________________

(1) We use the term “net income (loss) available to shareholders” to refer to “net income (loss) available to Brighthouse Financial, Inc.’s common shareholders” throughout the results of operations discussions.

For the three months ended September 30, 2020, we had a net loss available to shareholders of $3.0 billion and an adjusted loss of $689 million compared to net income available to shareholders of $676 million and an adjusted loss of $169 million for the three months ended September 30, 2019.

Net loss available to shareholders for the three months ended September 30, 2020 primarily reflects an unfavorable impact from our annual actuarial review (“AAR”) and net unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to higher equity markets, lower interest rates and tightening credit spreads.

For the nine months ended September 30, 2020, we had a net loss available to shareholders of $60 million and an adjusted loss of $467 million compared to net income available to shareholders of $316 million and adjusted earnings of $317 million for the nine months ended September 30, 2019.

Net loss available to shareholders for the nine months ended September 30, 2020 was driven primarily by a net unfavorable impact from our AAR, which was largely offset by a favorable impact of declining long-term interest rates on the estimated 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.”

See Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding the adoption of new accounting pronouncements in 2020.

Administrative System Conversion

As we continue to execute on our strategy to leverage emerging technology and outsource our policy administration functions, during the third quarter of 2020, we completed the conversion of a significant portion of our in-force annuity business to a single third-party service provider.

Following the conversion, a number of our customers and distribution partners experienced delays and service interruptions.

While these issues have been largely resolved, there can be no assurance that in connection with this or any future conversion we will not incur unanticipated expenses or experience other economic or reputational harm, or be subject to litigation or regulatory investigations and actions, any of which could have a material adverse effect on our business, financial condition, and results of operations.

See “Risk Factors — Risks Related to Our Business — The failure of third parties to provide various services, or any failure of the practices and procedures that these third parties use to provide services to us, could have a material adverse effect on our business,” “Risk Factors — General Risks — We may experience difficulty in marketing and distributing products through our distribution channels” and “Risk Factors — Regulatory and Legal Risks — Litigation and regulatory investigations are common in our businesses and may result in significant financial losses and/or harm to our reputation” in our 2019 Annual Report.

Industry Trends

Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we discuss a number of trends and uncertainties that we believe may materially affect our future financial condition, results of operations or cash flows.

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, 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.

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 our 2019 Annual Report, as amended or supplemented by our subsequent Quarterly Reports on 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.

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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.

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.

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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, where they currently remain.

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

Our sales and support teams remain fully operational, and the COVID-19 pandemic has not interrupted our ability to service our distribution partners and customers.

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.

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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 previously disclosed in “— Regulatory Developments” in the First Quarter Form 10-Q.

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.

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Downgrades in our ratings or changes to our rating outlooks could have a material adverse effect on our results of operations and financial condition, including capitalization and liquidity.

There can be no assurance that Fitch will not take further adverse action with respect to our ratings or that other rating agencies will not take similar actions in the future.

There can be no assurance that Fitch will not take

further adverse action with respect to our ratings or that other rating agencies will not take similar actions in the future.

Each rating should be evaluated independently of any other rating.

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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 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.

See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in our 2019 Annual Report, as amended or supplemented by our subsequent Quarterly Reports under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Regulatory Developments.”

Summary of Critical Accounting Estimates

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Actual results could differ from these estimates.

The above critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and Note 1 of the Notes to the Consolidated Financial Statements included in the 2019 Annual Report.

Non-GAAP and Other Financial Disclosures

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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.

(i) Fee income (i) Universal life and investment-type policy fees (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.

(iii) 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.

(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).

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Results of Operations

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

Annual Actuarial Review

We typically conduct our AAR in the third quarter of each year.

As a result of the 2020 AAR, we lowered the long-term general account earned rate, driven by a reduction in our mean reversion rate from 3.75% to 3.00%, which had the largest impact to our ULSG business.

For our variable annuity business, in addition to the update in the long-term general account earned rate, we updated assumptions regarding policyholder behavior, mortality, separate account fund allocations and volatility, as well as maintenance expenses.

In our life business, we updated assumptions related to policyholder behavior, mortality and expenses.

In 2019, the most significant impact from our AAR was decreasing the long-term general account earned rate, driven by a reduction in our mean reversion rate from 4.25% to 3.75%, which primarily impacted our ULSG business.

For our variable annuity business, in addition to the update in the long-term general account earned rate, we updated assumptions regarding separate account fund allocations and volatility, as well as maintenance expenses.

In our life business, we updated assumptions related to mortality and expenses.

The following table presents the impact of the AAR on pre-tax adjusted earnings and income (loss) available to shareholders before provision for income tax for the nine months ended September 30, 2020 and 2019.

The impact related to GMLBs is included in income (loss) available to shareholders before provision for income tax, but is not included in pre-tax adjusted earnings.

See “— Non-GAAP and Other Financial Disclosures.”

Nine Months Ended

September 30,

(In millions)

GMLBs $ (1,431) $ 84

Included in pre-tax adjusted earnings:

Other annuity business 128 (38)

Life business (11) 24

Run-off (1,484) (545)

Total included in pre-tax adjusted earnings (1,367) (559)

Total impact on income (loss) available to shareholders before provision for income tax $ (2,798) $ (475)

Consolidated Results for the Three Months and Nine Months Ended September 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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

$ 193 $ 232 $ 391 $ 459

Premiums $ 184 $ 214 $ 575 $ 673

Universal life and investment-type product policy fees 882 867 2,595 2,630

827 888 1,713 1,763

Net investment income 996 928 2,564 2,681

652 942 1,568 1,753

Other revenues 99 94 294 282

93 96 195 188

Net investment gains (losses) 5 27 (48) 79

(34) 63 (53) 52

Net derivative gains (losses) (1,857) 1,057 2,392 (97)

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

Total revenues 309 3,187 8,372 6,248

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

Policyholder benefits and claims 3,047 1,319 5,073 2,936

839 845 2,026 1,617

Interest credited to policyholder account balances 281 272 816 795

276 265 535 523

Capitalization of DAC (90) (93) (279) (274)

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

Amortization of DAC and VOBA 244 181 922 373

(92) 170 678 192

Interest expense on debt 47 49 139 144

Other expenses 623 655 1,814 1,954

623 668 1,191 1,299

Total expenses 4,152 2,383 8,485 5,928

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

Income (loss) before provision for income tax (3,843) 804 (113) 320

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

Provision for income tax expense (benefit) (850) 119 (88) (14)

(531) 85 762 (133)

Net income (loss) (2,993) 685 (25) 334

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

Net income (loss) attributable to noncontrolling interests 2 2 4 4

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Net income (loss) available to shareholders

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

$ (3,012) $ 676 $ (60) $ 316

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

Loss available to shareholders before provision for income tax was $3.9 billion ($3.0 billion, net of income tax), a decrease of $4.7 billion ($3.7 billion, net of income tax) from income before provision for income tax of $795 million ($676 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 from GMLB Riders in the current period, compared to gains in the prior period, see “— GMLB Riders for the Three Months and Nine Months Ended September 30, 2020 and 2019”;

• losses on other derivative instruments reflecting:

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• 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.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 22% in the current period compared to 15% 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 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:

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

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Loss available to shareholders before provision for income tax was $148 million ($60 million, net of income tax), a decrease of $450 million ($376 million, net of income tax) from income before provision for income tax of $302 million ($316 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:

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

• 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;

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

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

The decrease in income before provision for income tax was partially offset by the following key net favorable items:

• long-term interest rates declining more and equity markets increasing less in the current period than in the prior period resulted in:

◦ current period gains on interest rate derivatives used to manage interest rate exposure in our ULSG business;

◦ a favorable change in the estimated fair value of the embedded derivatives associated with our fixed indexed annuity business;

partially offset by

◦ an unfavorable impact from equity options;

• lower losses from GMLB Riders in the current period, see “— GMLB Riders for the Three Months and Nine Months Ended September 30, 2020 and 2019.”

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 78% in the current period compared to 5% in the prior period.

The increase in the effective tax rate in the current period is driven by lower pre-tax adjusted earnings, discussed in greater detail below.

Certain one-time tax adjustments recognized in the prior period, primarily due to the revaluation of certain liabilities related to our separation from MetLife (“separation-related liabilities”), resulted in an unusually low effective tax rate in the prior period.

In addition to such one-time tax adjustments, 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 June 30, 2020

Three Months Ended September 30, 2020

Annuities Life Run-off Corporate & Other Total

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Net income (loss) available to shareholders $ (2,398) $ 78 $ (1,141) $ 449 $ (3,012)

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

Provision for income tax expense (benefit) 92 18 (460) (500) (850)

34 12 (371) (206) (531)

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

(2,306) 96 (1,601) (51) (3,862)

(2,466) — — — (2,466)

GMLB Riders (2,739) — — — (2,739)

Other derivative instruments (54) (4) (115) (1) (174)

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

Net investment gains (losses) 37 6 (39) 1 5

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

Other adjustments (29) — (4) — (33)

15 (1) 25 — 39

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

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Provision for income tax expense (benefit) 92 18 (304) (38) (232)

34 12 (31) (12) 3

Adjusted earnings $ 387 $ 76 $ (1,139) $ (13) $ (689)

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Annuities Life Run-off Corporate & Other Total

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Net income (loss) available to shareholders $ 576 $ 92 $ 234 $ (226) $ 676

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

Provision for income tax expense (benefit) 52 18 (116) 165 119

58 14 (41) 54 85

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

628 110 118 (61) 795

(233) — — — (233)

GMLB Riders 419 — — — 419

Other derivative instruments (43) 1 678 — 636

(3) 11 337 (1) 344

Net investment gains (losses) (2) 18 (4) 15 27

13 9 68 (27) 63

Other adjustments (1) — (13) — (14)

(1) — (16) — (17)

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

1 unchanged sentence

Provision for income tax expense (benefit) 52 18 (117) (57) (104)

58 14 — (21) 51

Adjusted earnings $ 203 $ 73 $ (426) $ (19) $ (169)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Annuities Life Run-off Corporate & Other Total

1 unchanged sentence

Net income (loss) available to shareholders $ 67 $ 79 $ 80 $ (286) $ (60)

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

Provision for income tax expense (benefit) 199 32 (344) 25 (88)

107 14 116 525 762

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

266 111 (264) (261) (148)

1,906 — — — 1,906

GMLB Riders (833) — — — (833)

Other derivative instruments 72 (64) 1,456 (2) 1,462

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

Net investment gains (losses) (3) 8 (18) (35) (48)

(40) 2 21 (36) (53)

Other adjustments (43) — (23) — (66)

(14) — (19) — (33)

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

1 unchanged sentence

Provision for income tax expense (benefit) 199 32 (355) (72) (196)

107 14 (51) (34) 36

Adjusted earnings $ 874 $ 135 $ (1,324) $ (152) $ (467)

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Annuities Life Run-off Corporate & Other Total

1 unchanged sentence

Net income (loss) available to shareholders $ (434) $ 186 $ 924 $ (360) $ 316

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

Provision for income tax expense (benefit) 165 38 (305) 88 (14)

113 20 (189) (77) (133)

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

(269) 224 619 (272) 302

(1,563) — — — (1,563)

GMLB Riders (1,144) — — — (1,144)

Other derivative instruments (78) 22 1,173 (1) 1,116

(35) 21 495 (1) 480

Net investment gains (losses) 15 8 85 (29) 79

17 (10) 89 (44) 52

Other adjustments (1) — (52) — (53)

— — (39) — (39)

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

1 unchanged sentence

Provision for income tax expense (benefit) 176 38 (127) (100) (13)

124 20 (10) (43) 91

Adjusted earnings $ 763 $ 156 $ (460) $ (142) $ 317

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

Consolidated Results for the Three Months and Nine Months Ended September 30, 2020 and 2019 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

10 unchanged sentences

Adjusted earnings $ (689) $ (169) $ (467) $ 317

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.

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

Adjusted earnings were a loss of $689 million, a decrease of $520 million.

Key net unfavorable impacts were:

• 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;

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

◦ a net increase in liability balances resulting from changes in connection with the AAR in our Run-off and Annuities segments;

partially offset by

◦ 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:

◦ a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion, primarily in our Life segment;

Key net favorable impacts were:

• lower other expenses due to:

◦ the exit of various transition service agreements with MetLife;

◦ interest expense recognized in the prior period on a tax liability associated with our separation from 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.

• higher net investment spread reflecting:

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

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

partially offset by

◦ 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;

• lower net amortization of DAC and VOBA due to:

◦ a favorable change in our variable annuity business from changes in actual to expected experience in our in-force blocks;

partially offset by

◦ a net unfavorable impact resulting from changes in connection with the AAR in our Annuities and Life segments;

• higher net fee income due to:

◦ higher unearned revenue amortization from changes in maintenance expense and policyholder behavior assumptions in connection with the AAR, primarily in our Life segment;

partially offset by

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 26% in the current period compared to 38% 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.

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Adjusted earnings were a loss of $467 million, a decrease of $784 million.

Key net unfavorable impacts were:

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

◦ a net increase in liability balances resulting from changes in connection with the AAR in our Run-off and Annuities segments;

partially offset by

◦ a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion, primarily in our Life segment;

• lower net investment spread due to:

3 unchanged sentences

◦ 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 net fee income due to:

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

partially offset by

◦ higher unearned revenue amortization from changes in maintenance expense and policyholder behavior assumptions made in connection with the AAR, primarily in our Life segment.

Key net favorable impacts were:

• lower other expenses due to:

1 unchanged sentence

◦ 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 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

◦ interest expense recognized in the prior period on a tax liability associated with our separation from MetLife;

• lower net amortization of DAC and VOBA due to:

◦ a favorable change in our variable annuity business from changes in actual to expected experience in our in-force blocks;

partially offset by

◦ a net unfavorable impact resulting from changes in connection with the AAR in our Annuities and Life segments.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 31% in the current period compared to 4% in the prior period.

Certain one-time tax adjustments recognized in the prior period, primarily due to the revaluation of certain separation-related liabilities, resulted in an unusually low effective tax rate in the prior period.

In addition to such one-time tax adjustments, 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 Nine Months Ended September 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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

6 unchanged sentences

Pre-tax adjusted earnings 479 255 1,073 939

205 323 594 684

Provision for income tax expense (benefit) 92 52 199 176

3 unchanged sentences

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

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.

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

Variable annuities separate account balances decreased for the nine months ended September 30, 2020 driven by negative net flows and policy charges partially offset by positive equity market performance.

Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2020

September 30, 2020 Nine Months Ended

September 30, 2020

(In millions)

2 unchanged sentences

Withdrawals, surrenders and benefits (1,755) (5,679)

(1,206) (3,158)

Net flows (1,312) (4,469)

Investment performance 5,337 2,636

2 unchanged sentences

Balance, end of period $ 95,461 $ 95,461

$ 92,211 $ 92,211

Average balance $ 95,718 $ 92,927

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.

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

Adjusted earnings were $387 million for the current period, an increase of $184 million.

Key net favorable impacts were:

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

◦ a decrease in guaranteed minimum death benefit (“GMDB”) liabilities and a favorable adjustment to deferred sales inducements (“DSI”) resulting from changes in connection with the AAR;

◦ a decrease in GMDB liabilities resulting from favorable equity market performance in the current period;

• lower amortization of DAC and VOBA due to:

◦ a favorable impact in the current period resulting primarily from changes in policyholder behavior and long-term general account earned rate assumptions made in connection with the AAR;

◦ a favorable change in our variable annuity business from changes in actual to expected experience in our in-force blocks;

• 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.

Key net unfavorable impacts were:

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

• lower net investment spread due to:

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

◦ higher interest credited on average policyholder account balances resulting from positive net flows;

◦ 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;

1 unchanged sentence

◦ 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:

◦ higher returns on other limited partnerships for the comparative measurement period.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 19% in the current period compared to 20% in the prior period.

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

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Adjusted earnings were $874 million for the current period, an increase of $111 million.

Key net favorable impacts were:

• lower other expenses due to:

1 unchanged sentence

◦ 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 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 amortization of DAC and VOBA due to:

◦ a favorable impact in the current period resulting primarily from changes in policyholder behavior and long-term general account earned rate assumptions made in connection with the AAR;

◦ a favorable change in our variable annuity business from changes in actual to expected experience in our in-force blocks net of the impact on estimated gross profits from lower separate account returns;

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

◦ a decrease in GMDB liabilities and a favorable adjustment to DSI resulting from changes in connection with the AAR;

partially offset by

◦ an increase in GMDB liabilities resulting from less favorable equity market performance in the current period, net of lower income annuity benefit payments.

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;

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

partially offset by

1 unchanged sentence

• 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.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in 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.

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

8 unchanged sentences

Adjusted earnings $ 76 $ 73 $ 135 $ 156

$ 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 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.

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

Adjusted earnings were $76 million for the current period, an increase of $3 million.

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.

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

◦ a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion;

◦ lower paid claims, net of reinsurance;

• higher fee income due to higher unearned revenue amortization from changes in maintenance expense and policyholder behavior assumptions made in connection with the AAR.

Key net unfavorable impacts were:

• higher net amortization of DAC and VOBA due to:

◦ changes in maintenance expense and policyholder assumptions in connection with the AAR;

◦ a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion;

partially offset by

◦ the impact on gross profits from higher separate account returns.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 19% in the current period compared to 20% 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

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Adjusted earnings were $135 million for the current period, a decrease of $21 million.

Key unfavorable impacts were:

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

Key net unfavorable impacts were:

• higher amortization of DAC and VOBA due to:

◦ changes in maintenance expense and policyholder assumptions in connection with the AAR;

◦ a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion;

• 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.

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

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

◦ higher paid claims, net of reinsurance;

partially offset by

◦ a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion.

Key favorable impacts were:

• higher fee income due to:

◦ higher unearned revenue amortization from changes in maintenance expense and policyholder behavior assumptions made in connection with the AAR;

◦ 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.

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 19% in the current period compared to 20% in the prior period.

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

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

6 unchanged sentences

Pre-tax adjusted earnings (1,443) (543) (1,679) (587)

(146) 2 (236) (44)

Provision for income tax expense (benefit) (304) (117) (355) (127)

Adjusted earnings $ (1,139) $ (426) $ (1,324) $ (460)

$ (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.

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

Adjusted earnings were a loss of $1.1 billion for the current period, a higher loss of $713 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.

• higher costs associated with insurance-related activities, primarily in our ULSG business, due to:

◦ an increase in liability balances resulting primarily from changes in the long-term general account earned rate assumptions made in connection with the AAR;

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

Key favorable impacts were:

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

• higher fee income in our ULSG business due to higher unearned revenue amortization resulting from changes in premium assumptions made in connection with the AAR.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 21% in the current period compared to 22% 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 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:

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Adjusted earnings were a loss of $1.3 billion for the current period, a higher loss of $864 million.

Key net unfavorable impacts were:

• higher costs associated with insurance-related activities, primarily in our ULSG business, due to:

◦ an increase in liability balances resulting primarily from changes in the long-term general account earned rate assumptions made in connection with the AAR;

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

• lower net investment spread due to lower returns on other limited partnerships for the comparative measurement period, net of decreases in average crediting rates in connection with the low interest rate environment;

• lower net 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;

• 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.

partially offset by

◦ higher unearned revenue amortization resulting from changes in premium assumptions made in connection with the AAR.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 21% in the current period compared to 22% 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.

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

10 unchanged sentences

Adjusted earnings $ (13) $ (19) $ (152) $ (142)

$ (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.

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

Adjusted earnings were a loss of $13 million, a lower loss of $6 million from the prior period.

Key favorable impacts were:

• lower amortization of DAC and VOBA due to a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion;

• lower other expenses driven by interest expense recognized in the prior period on a tax liability associated with our separation from MetLife.

The lower adjusted loss was partially offset by the timing of our preferred stock dividend payments.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 119% in the current period compared to 75% 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

We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a standalone basis nor for comparison to prior periods, since taxes for Corporate & Other are derived from the difference between the overall consolidated effective tax rate and total taxes for the combined operating segments.

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Adjusted earnings were a loss of $152 million, a higher loss of $10 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.

The higher adjusted loss was primarily due to the timing of our preferred stock dividend payments.

Key favorable impacts were:

• lower other expenses driven by:

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

◦ interest expense recognized in the prior period on a tax liability associated with our separation from MetLife;

• lower amortization of DAC and VOBA due to a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 38% in the current period compared to 41% 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

GMLB Riders for the Three Months and Nine Months Ended September 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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

7 unchanged sentences

__________________

(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:

(1) Excludes living benefit fees, included as a component of adjusted earnings, of $15 million and $44 million for the three months and nine months ended September 30, 2020, respectively, and $16 million and $48 million for the three months and nine months ended September 30, 2019, respectively.

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

Comparative results from GMLB Riders were unfavorable by $3.2 billion.

The AAR resulted in unfavorable changes in the current period primarily due to higher reserves and higher DAC amortization recognized in the current period.

Results were also 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.

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

• unfavorable changes in GMLB DAC.

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

2 unchanged sentences

partially offset by

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

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

• favorable changes to GMLB DAC.

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

Interest rates increasing in the current period, compared to decreasing in the prior period, resulted in the following impacts:

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

1 unchanged sentence

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:

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

The narrowing of credit default swap spreads in the current period resulted in an unfavorable change in the adjustment for nonperformance risk, net of an offsetting favorable change in GMLB DAC.

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Comparative results from GMLB Riders were favorable by $311 million, primarily driven by:

• favorable changes in our GMLB hedges;

1 unchanged sentence

partially offset by

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

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

• unfavorable changes in GMLB DAC.

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

Equity markets increasing less in the current period than in the prior period resulted in the following significant impacts:

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

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partially offset by

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

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

Lower interest rates in the current 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 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.

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.

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

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 nonperformance risk, net of an unfavorable change in GMLB DAC.

The AAR resulted in unfavorable changes in the current period primarily due to higher reserves and higher DAC amortization recognized in the current period.

Investment Risks

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Our business and results of operations are materially affected by conditions in capital markets and the economy, generally.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — Financial and Economic Environment” included in the 2019 Annual Report.

insurance company, we are affected by the monetary policy of the Federal Reserve Board in the United States.

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

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

Our exposure to energy sector fixed maturity securities was $3.0 billion, of which 91% were investment grade, with net unrealized gains (losses) of $236 million at September 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 $1.9 billion, of which 96% were investment grade, with net unrealized gains (losses) of $182 million at June 30, 2020.

Our exposure to retail sector corporate fixed maturity securities was $1.9 billion, of which 97% were investment grade, with net unrealized gains (losses) of $213 million at September 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.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Adjusted net investment income — in the above yield table $ 1,001 $ 928 $ 2,577 $ 2,681

$ 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.

See “— Results of Operations — Consolidated Results for the Three Months and Nine Months Ended September 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:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Fair Value % of

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Total fixed maturity securities $ 79,338 100.0 % $ 71,036 100.0 %

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

Percentage of cash and invested assets 69.3 % 72.0 %

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.

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Fixed Maturity Securities Credit Quality — Ratings

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity AFS — Fixed Maturity Securities Credit Quality — Ratings” included in the 2019 Annual Report for a discussion of the credit quality ratings assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the NAIC for fixed maturity securities and the methodologies adopted by the NAIC for certain Structured Securities.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity AFS — Fixed Maturity Securities Credit Quality — Ratings” included in our 2019 Annual Report for a discussion of the credit quality ratings assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the National Association of Insurance Commissioners (“NAIC”) for fixed maturity securities and the methodologies adopted by the NAIC for certain Structured Securities.

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:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Designation NRSRO Rating Amortized

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(In millions)

June 30, 2020

September 30, 2020

corporate $ 17,758 $ 15,782 $ 1,673 $ 630 $ 63 $ — $ 35,906

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

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Fair Value % of

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Communications 3,327 7.1 2,957 7.2

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

$ 46,566 100.0 % $ 41,004 100.0 %

Structured Securities

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.

We held $17.6 billion and $16.8 billion of Structured Securities, at estimated fair value, at September 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:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Fair Value % of

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Pass-through securities 3,536 41.9 127 4,261 46.7 66

3,620 42.2 138 4,261 46.7 66

Total RMBS $ 8,449 100.0 % $ 643 $ 9,118 100.0 % $ 426

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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 $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.

The estimated fair value of our sub-prime RMBS holdings purchased since 2012 was $816 million and $851 million at September 30, 2020 and December 31, 2019, with unrealized gains (losses) of $66 million and $61 million at September 30, 2020 and December 31, 2019, respectively.

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

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Total $ 5,865 $ 6,425 $ 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.

The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.8 billion, or 75.2% of total CMBS, and designated NAIC 1 was $6.3 billion, or 97.9% of total CMBS, at September 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:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Fair Value % of

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Collateralized obligations $ 1,647 60.7 % $ (5) $ 1,058 54.2 % $ (8)

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

Student loans 202 7.4 1 196 10.0 2

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We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks.

We obtain collateral, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, which is obtained at the inception of a loan and maintained at a level greater than or equal to 100% for the duration of the loan.

for the duration of the loan.

The estimated fair value of the securities loaned is monitored on a daily basis with additional collateral obtained as necessary throughout the duration of the loan.

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Amortized Cost % of

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Residential 2,626 16.6 % 30 1.1 % 2,708 17.1 % 7 0.3 %

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

Total $ 15,836 100.0 % $ 90 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 June 30, 2020 and December 31, 2019, and the remainder was collateralized by properties located outside of the U.S.

were 97% at both September 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:

June 30, 2020

September 30, 2020

California 24%

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

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

at both September 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:

June 30, 2020

September 30, 2020

California 37%

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Total Amount % of

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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 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.

For our commercial mortgage loans, our average loan-to-value ratio was 56% and 53% at September 30, 2020 and December 31, 2019, respectively, and our average debt-service coverage ratio was 2.2x at both September 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 June 30, 2020 and December 31, 2019, respectively.

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

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.

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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.

At September 30, 2020, the recorded investment on mortgage loans where borrowers were offered debt service forbearance and were not making payments was $700 million, comprised of $581 million commercial mortgage loans, $24 million of agricultural mortgage loans and $95 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”).

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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 six months ended June 30, 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:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(In millions)

Other limited partnerships interests $ 2,125 $ 1,941

$ 1,914 $ 1,941

Real estate limited partnerships and LLCs (1) 437 439

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__________________

(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.

(1) The estimated fair value of real estate limited partnerships and LLCs was $502 million and $529 million at September 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:

June 30, 2020 December 31, 2019

Carrying Value

Total Carrying Value % of

September 30, 2020 December 31, 2019

Total Carrying

(Dollars in millions)

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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 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.

• The statement of operations effects of derivatives in cash flow, fair value or non-qualifying hedge relationships for the three months and nine months ended September 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 our 2019 Annual Report for more information about our use of derivatives by major hedging programs.

Fair Value Hierarchy

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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 June 30, 2020 include:

Derivatives categorized as Level 3 at September 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:

June 30, 2020 December 31, 2019

Gross Notional

September 30, 2020 December 31, 2019

Gross Notional

Amount Estimated

Fair Value Gross Notional

Amount Estimated

(In millions)

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

The amount of this collateral was $ 6 million at estimated fair value at September 30, 2020.

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

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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 $938 million and $593 million at June 30, 2020 and December 31, 2019, respectively.

The amount of this non-cash collateral was $784 million and $593 million at September 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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See “Commitments” in Note 11 of the Notes to the Interim Condensed Consolidated Financial Statements.

For further information on commitments to fund partnership investments, mortgage loans, bank credit facilities and private corporate bond investments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Contractual Obligations” included in the 2019 Annual Report.

Policyholder Liabilities

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

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

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 our 2019 Annual Report.

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

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See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements.

A discussion of future policy benefits by segment, as well as Corporate & Other, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in the 2019 Annual Report.

Policyholder Account Balances

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See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements.

A discussion of PABs by segment, as well as Corporate & Other, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in the 2019 Annual Report.

Variable Annuity Guarantees

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See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements.

See also “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates” and “Business — Segments and Corporate & Other — Annuities — Overview — Current Products — Variable Annuities” included in the 2019 Annual Report for additional information.

Select information that management considers relevant to understanding our variable annuity risk management strategy has been included below.

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This amount represents our potential economic exposure to such guarantees in the event all contract holders were to annuitize on the balance sheet date, even though the guaranteed amount under the contracts may not be annuitized until after the waiting period of the contract.

A detailed description of NAR by type of guaranteed minimum benefit can be found in “Business — Segments and Corporate & Other — Annuities — Overview — Net Amount at Risk” included in the 2019 Annual Report.

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

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

September 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)

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GMIB Max without EDB 6,249 10 44 10.0 % 6,750 2 5 0.8 %

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

GMWB4L (FlexChoice SM )

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GMWB4L 14,063 106 1,022 38.6 % 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

EDB Only 3,652 763 — N/A 3,740 609 — N/A

GMDB Only (Other than EDB) 17,925 990 — N/A 18,183 971 — N/A

Total $ 100,471 $ 8,054 $ 9,185 $ 104,271 $ 6,671 $ 5,293

__________________

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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 $5.3 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.

Therefore, these liabilities, valued at $6.2 billion at September 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 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.

These liabilities, valued at $3.9 billion at September 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, 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.

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

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

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

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

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

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Interest rate forwards 7,332 1,179 25 5,418 94 114

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

Total $ 32,747 $ 3,253 $ 203 $ 42,512 $ 1,674 $ 330

__________________

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

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

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Period to period changes in the estimated fair value of these hedges affect our net income, as well as stockholders’ equity and these effects can be material in any given period.

See “Risk Factors — Risks Related to Our Business — Our variable annuity exposure risk management strategy may not be effective, may result in significant volatility in our profitability measures and may negatively affect our statutory capital,” “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 — Risk Management Strategies” all included in the 2019 Annual Report.

Liquidity and Capital Resources

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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 $6.1 billion and $2.8 billion at June 30, 2020 and December 31, 2019, respectively.

We maintain a substantial short-term liquidity position, which was $5.6 billion and $2.8 billion at September 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 $49.2 billion and $42.6 billion at June 30, 2020 and December 31, 2019, respectively.

An integral part of our liquidity management includes managing our level of liquid assets, which was $50.5 billion and $42.6 billion at September 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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There can be no assurance that we will be able to complete any such financing transactions on terms and conditions favorable to us or at all.

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 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).

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 market 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 annuity contracts to range between CTE98 and a target floor level of CTE95 (the average of 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 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.

On August 24, 2020, we resumed repurchases of our common stock, as was announced on August 21, 2020.

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.

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.

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:

Six Months Ended

Nine Months Ended

September 30,

(In millions)

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Investing activities, net 4,184 5,699

Changes in payables for collateral under securities loaned and other transactions, net — 963

Long-term debt repaid 1,001 601

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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.

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.

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

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

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

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

Upon maturity on October 9, 2020, Brighthouse Life Insurance Company repaid $250 million borrowed under the April 2020 funding agreements with the remainder maturing in December 2020.

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

Farmer Mac Funding Agreements, Reported in Policyholder Account Balances

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

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

Debt Issuances

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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.

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.”

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

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

Reinsurance Financing Arrangement

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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.

At September 30, 2020, there were no borrowings and there was $10.8 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.

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Our outstanding long-term debt was as follows at:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(In millions)

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__________________

(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.

(1) Includes unamortized debt issuance costs, discounts and premiums, as applicable, totaling $42 million at both September 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.

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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.

At September 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 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.

During the nine months ended September 30, 2020 and 2019, we repurchased 15,119,010 shares and 8,395,371 shares, respectively, of our common stock through open market purchases pursuant to 10b5-1 plans for $376 million and $314 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.

On August 24, 2020, we resumed repurchases of our common stock, as was announced on August 21, 2020.

Preferred Stock Dividends

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.

During the nine months ended September 30, 2020 and 2019, we paid dividends on our preferred stock of $31 million and $14 million, respectively.

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

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

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.

During the nine months ended September 30, 2020, general account surrenders and withdrawals totaled $1.5 billion, almost all of which was attributable to products within the Annuities segment.

During the nine months ended September 30, 2019, general account surrenders and withdrawals totaled $1.7 billion, of which $1.5 billion 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 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.

At both September 30, 2020 and December 31, 2019, we did not pledge any cash collateral to counterparties.

At September 30, 2020 and December 31, 2019, we were obligated to return cash collateral pledged to us by counterparties of $3.4 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 $3.7 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.

Under our securities lending program, we were liable for cash collateral under our control of $3.6 billion and $3.1 billion at September 30, 2020 and December 31, 2019, respectively.

Of these amounts, $1.2 billion and $1.3 billion at September 30, 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 September 30, 2020 was $1.2 billion, primarily U.S.

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

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Short-term Liquidity and Liquid Assets

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.

At September 30, 2020 and December 31, 2019, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.3 billion and $723 million, respectively.

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

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.

At September 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 $1.3 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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Furthermore, the payment of dividends and other distributions by our insurance subsidiaries is governed by insurance laws and regulations.

See Notes 10 and 18 of the Notes to the Consolidated Financial Statements in the 2019 Annual Report.

See Notes 10 and 18 of the Notes to the Consolidated Financial Statements in our 2019 Annual Report.

Primary Sources and Uses of Liquidity and Capital

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Distributions from and Capital Contributions to BH Holdings

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.

During the nine months ended September 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 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.

As of September 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 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.

During the nine months ended September 30, 2020 and 2019, BHF borrowed $454 million and $736 million, respectively, from certain of its non-insurance subsidiaries under short-term intercompany loan agreements and repaid $415 million and $837 million, respectively, to certain of its non-insurance company subsidiaries under short-term intercompany loan agreements.

At September 30, 2020 and December 31, 2019, BHF had total obligations outstanding of $382 million and $343 million, respectively, under such agreements.

Intercompany Liquidity Facilities

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.

As of September 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 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.

During both the nine months ended September 30, 2020 and 2019, there were no borrowings or repayments by BHF under intercompany liquidity facilities and, at both September 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