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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-06 · 314 added, 564 removed, 842 unchanged (51% of the section changed)

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Note Regarding Forward-Looking Statements

For purposes of this discussion, unless otherwise mentioned or unless the context indicates otherwise, “Brighthouse,” “Brighthouse Financial,” the “Company,” “we,” “our” and “us” refer to Brighthouse Financial, Inc.

a corporation incorporated in Delaware in 2016, and its subsidiaries.

We use the term “BHF” to refer solely to Brighthouse Financial, Inc., and not to any of its subsidiaries.

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(together with its subsidiaries and affiliates, “MetLife”).

Following this summary is a discussion addressing the consolidated results of operations and financial condition of the Company for the periods indicated.

Following this summary is a discussion addressing the consolidated financial condition and results of operations of the Company for the periods indicated.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with (i) the Interim Condensed Consolidated Financial Statements and related notes included elsewhere herein;

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Securities and Exchange Commission (“SEC”) on February 24, 2021 (the “2020 Annual Report”);

(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;

(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.

and (iii) our current reports on Form 8-K filed in 2021.

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 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”).

• “Industry Trends” discusses updates and changes to a number of trends and uncertainties included in our 2020 Annual Report that we believe may materially affect our future financial condition, results of operations or cash flows, including from the worldwide pandemic sparked by the novel coronavirus (the “COVID-19 pandemic”).

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

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This section also refers to certain other terms used to describe our insurance business and financial and operating metrics, but is not intended to be exhaustive.

Certain amounts presented in prior periods within the foregoing discussions of our financial results have been reclassified to conform with the current year presentation.

Certain amounts presented in prior periods within the following discussions of our financial results have been reclassified to conform with the current year presentation.

Executive Summary

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For operating purposes, we have established three segments:

(i) Annuities, (ii) Life and (iii) Run-off, which consists of operations relating to products we are not actively selling and which are separately managed.

(i) Annuities, (ii) Life and (iii) Run-off, which consists of products that are no longer actively sold and are separately managed.

In addition, we report certain of our results of operations in Corporate & Other.

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 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.

See “Business — Segments and Corporate & Other” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview” included in our 2020 Annual Report, as well as Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information regarding 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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

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

$ (921) $ (273) $ (663) $ 304

Provision for income tax expense (benefit) 78 33

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(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.

For the three months ended March 31, 2021, we had a net loss available to shareholders of $610 million and adjusted earnings of $385 million compared to net income available to shareholders of $5.0 billion and adjusted earnings of $211 million for the three months ended March 31, 2020.

The net loss available to shareholders for the three months ended March 31, 2021 primarily reflects net unfavorable changes in the estimated fair value of our derivatives due to market factors.

Higher interest rates and higher equity markets resulted in unfavorable changes to the freestanding derivatives that hedge our variable annuity business, which were partially offset by the favorable impact to the variable annuity embedded derivative liabilities.

Higher equity markets also unfavorably impacted the estimated fair value of the embedded derivative liabilities associated with Shield Level Annuities (“Shield”), which are referred to herein as “Shield 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.

Higher long-term interest rates resulted in unfavorable changes in the estimated fair value of freestanding interest-rate derivatives that we use to hedge our universal life with secondary guarantees (“ULSG”) business.

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 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.

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 2020 Annual Report for a comprehensive discussion of some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and results of operations in the future.

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

COVID-19 Pandemic

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

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

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

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

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 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.

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

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

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

Increased economic uncertainty and increased unemployment resulting from the economic impacts of the COVID-19 pandemic have also impacted sales of certain of our products and have prompted us to take actions to provide relief to customers affected by adverse circumstances due to the COVID-19 pandemic, as previously disclosed in “— Regulatory Developments” in our 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 third quarter of 2020.

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

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

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

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

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

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

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

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

life insurance industry to negative.

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.

Each rating should be evaluated independently of any other rating.

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

At this time, it continues to not be 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 efficacy of any therapeutic treatments and vaccines for COVID-19, including their efficacy with respect to variants of COVID-19 that have emerged or could emerge in the future.

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, financial condition, results of operations and prospects, including the impact on our investment portfolio and our ratings, or the need for us in the future to revisit or revise aspects of our business model or targets previously provided to the markets.

See “Business — Regulation,” “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity” and “Management’s Discussion and Analysis

of Financial Condition and Results of Operations — Industry Trends — COVID-19 Pandemic” included in our 2020 Annual Report, as well as “— Investments — Current Environment — Selected Sector Investments,” “— Investments — Mortgage Loans — Loan Modifications Related to the COVID-19 Pandemic” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

Regulatory Developments

Our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal regulation.

In addition, BHF and its subsidiaries are subject to regulation under the insurance holding company laws of various U.S.

Our insurance subsidiaries and Brighthouse Reinsurance Company of Delaware (“BRCD”) are regulated primarily at the state level, with some products and services also subject to federal regulation.

In addition, BHF and its insurance subsidiaries are subject to regulation under the insurance holding company laws of various U.S.

jurisdictions.

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 by our subsequent Quarterly Reports under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Regulatory Developments.”

See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in our 2020 Annual Report, as may be 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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• amortization of deferred policy acquisition costs (“DAC”);

• investment credit losses;

• estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation;

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In this report, we present adjusted earnings, which excludes net income (loss) attributable to noncontrolling interests and preferred stock dividends, as a measure of our performance that is not calculated in accordance with GAAP.

We believe that this non-GAAP financial measure highlights our results of operations and the underlying profitability drivers of our business, as well as enhances the understanding of our performance by the investor community.

We believe the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by the investor community by highlighting the results of operations and the underlying profitability drivers of our business.

However, adjusted earnings should not be viewed as a substitute for net income (loss) available to Brighthouse Financial, Inc.’s common shareholders, which is the most directly comparable financial measure calculated in accordance with GAAP.

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• Net derivative gains (losses) except earned income and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment (“Investment Hedge Adjustments”);

• Certain variable annuity guaranteed minimum income benefits (“GMIBs”) fees (“GMIB Fees”).

• Certain variable annuity guaranteed minimum income benefits (“GMIB”) fees (“GMIB Fees”).

The following are significant items excluded from total expenses, net of income tax, in calculating adjusted earnings:

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Results of Operations

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

Consolidated Results for the Three Months Ended March 31, 2021 and 2020

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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

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

(2,995) 683 (29) 330

Preferred stock dividends 25 7

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Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

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

(921) (273) (663) 304

Income (loss) available to shareholders before provision for income tax (795) 6,243

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$ (610) $ 4,950

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:

• 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:

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

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

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

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

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.

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;

◦ 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 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.”

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

Loss available to shareholders before provision for income tax was $795 million ($610 million, net of income tax), a decrease of $7.0 billion ($5.6 billion, net of income tax) from income before provision for income tax of $6.2 billion ($5.0 billion, net of income tax) in the prior period.

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

• losses from guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”), see “— GMLB Riders for the Three Months Ended March 31, 2021 and 2020”;

• current period losses on interest rate derivatives that we use to hedge our ULSG business due to the increase in the benchmark long-term interest rate, which unfavorably impacted bond forwards and interest rate swaps.

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

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

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

• higher net investment gains (losses) reflecting:

◦ lower current period mark-to-market losses on equity securities;

◦ lower current period write-downs on fixed maturity securities;

◦ net gains due to a release in mortgage loan reserves in the current period compared to an increase in reserves in the prior period;

◦ higher gains on sales of fixed maturity securities.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 24% in the current period compared to 21% 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.

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

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction 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 September 30, 2020

Annuities Life Run-off Corporate & Other Total

(In millions)

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

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

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

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

GMLB Riders (2,739) — — — (2,739)

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

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

Other adjustments (29) — (4) — (33)

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

479 94 (1,443) (51) (921)

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

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

Three Months Ended September 30, 2019

Annuities Life Run-off Corporate & Other Total

(In millions)

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

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

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

628 110 118 (61) 795

GMLB Riders 419 — — — 419

Other derivative instruments (43) 1 678 — 636

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

Other adjustments (1) — (13) — (14)

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

255 91 (543) (76) (273)

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

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

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Annuities Life Run-off Corporate & Other Total

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Adjusted earnings $ 336 $ 42 $ 76 $ (69) $ 385

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Annuities Life Run-off Corporate & Other Total

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Adjusted earnings $ 316 $ 11 $ (70) $ (46) $ 211

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

Consolidated Results for the Three Months Ended March 31, 2021 and 2020 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

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

(921) (273) (663) 304

Provision for income tax expense (benefit) 78 33

Adjusted earnings $ 385 $ 211

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:

• 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;

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

Adjusted earnings were $385 million, an increase of $174 million.

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;

• higher net investment spread reflecting:

• higher net investment spread due to:

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

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partially offset by

◦ higher interest credited to policyholders in our Life segment due to higher imputed interest on insurance liabilities;

◦ 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;

• higher fee income due to:

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

◦ lower paid claims, net of reinsurance in our Life segment;

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

◦ lower income annuity benefit payments and a decrease in guaranteed minimum death benefits (“GMDB”) liabilities resulting from favorable equity market performance;

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.

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.

◦ lower underwriting margin in our Run-off segment;

◦ an increase in GMDB death claims.

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:

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

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

partially offset by

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

• lower 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:

◦ 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;

◦ 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;

• higher net amortization of DAC and VOBA in our Annuities segment;

• higher other expenses due to:

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

◦ higher deferred compensation expenses;

partially offset by

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

◦ lower establishment costs related to planned technology expenses;

◦ lower expenses resulting from 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 16% in the current period compared to 14% 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

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

Segments and Corporate & Other Results for the Three Months Ended March 31, 2021 and 2020 — Adjusted Earnings

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

10 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 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

September 30, 2020 Nine Months Ended

September 30, 2020

Variable annuities separate account balances increased for the three months ended March 31, 2021 driven by positive equity market performance, partially offset by negative net flows and policy charges.

Three Months Ended March 31, 2021 (1)

(In millions)

Balance, beginning of period $ 103,450

Deposits 443 1,210

Withdrawals, surrenders and benefits (2,465)

5 unchanged sentences

Average balance $ 104,299

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

_______________

(1) Includes income annuities for which separate account balances at March 31, 2021 were $141 million.

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

Adjusted earnings were $336 million for the current period, an increase of $20 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:

◦ 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;

partially offset by

• higher net investment spread due to:

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

◦ 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:

◦ 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 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 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;

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

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

◦ lower income annuity benefit payments and a decrease in GMDB liabilities resulting from favorable equity market performance;

partially offset by

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

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

◦ an increase in GMDB death claims.

Key net unfavorable impacts were:

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

• higher other expenses due to:

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

◦ higher deferred compensation expenses;

partially offset by

◦ lower establishment costs related to planned technology expenses;

◦ lower expenses resulting from 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 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.

Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

7 unchanged sentences

Adjusted earnings $ 42 $ 11

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

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

Adjusted earnings were $42 million for the current period, an increase of $31 million.

Key favorable impacts were:

• 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;

Key net favorable impacts were:

• higher net investment spread due to:

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

partially offset by

◦ higher interest credited to policyholders due to higher imputed interest on insurance liabilities;

• higher fee income due to lower paid claims, net of reinsurance;

• lower amortization of DAC and VOBA due to:

◦ 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.

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 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 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;

• 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;

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

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

The increase in adjusted earnings was partially offset by higher other expenses driven by higher deferred compensation expenses.

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 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.

Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

7 unchanged sentences

Adjusted earnings $ 76 $ (70)

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:

• 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.

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;

partially offset by

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

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

Adjusted earnings were $76 million for the current period, an increase of $146 million.

The increase in adjusted earnings was driven by higher net investment spread due to higher returns on other limited partnerships for the comparative measurement period.

The increase in adjusted earnings was partially offset by higher costs associated with insurance-related activities driven by lower underwriting margin.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 11% 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.

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

Corporate & Other

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

6 unchanged sentences

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

(51) (76) (224) (242)

Provision for income tax expense (benefit) (19) (22)

Adjusted earnings $ (69) $ (46)

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.

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

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

Adjusted earnings were a loss of $69 million, a higher loss of $23 million from 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.

Key unfavorable impacts were:

• timing of our preferred stock dividend payments;

• lower net investment spread due to lower returns from short-term investments.

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 32% 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.

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

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:

GMLB Riders for the Three Months Ended March 31, 2021 and 2020

The overall impact on 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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

6 unchanged sentences

__________________

(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:

(1) Excludes living benefit fees, included as a component of adjusted earnings, of $14 million for both the three months ended March 31, 2021 and 2020.

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

Comparative results from GMLB Riders were unfavorable by $4.7 billion, primarily driven by:

• unfavorable changes in our GMLB hedges;

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

• 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:

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

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

• unfavorable changes to the estimated fair value of Shield liabilities;

• unfavorable changes in ceded reinsurance;

partially offset by

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

• favorable changes to GMLB DAC.

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

• favorable changes in GMLB DAC.

Higher relative equity markets resulted in the following impacts:

• unfavorable changes to the estimated fair value of Shield liabilities;

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

• unfavorable changes to GMLB DAC;

partially offset by

• favorable changes to the estimated fair value of 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;

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

partially offset by

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

• unfavorable changes in GMLB DAC.

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;

• 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;

• unfavorable changes in ceded reinsurance;

partially offset by

• 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 the estimated fair value of the variable annuity liability reserves;

• favorable changes to GMLB DAC.

Higher interest rates resulted in the following impacts:

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

• unfavorable changes to GMLB DAC;

• unfavorable changes in ceded reinsurance;

partially offset by

• 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.

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

The narrowing of our credit default swap spreads combined with a larger decrease in the underlying variable annuity liability reserves resulted in an unfavorable change in the adjustment for nonperformance risk, net of a favorable change in GMLB DAC.

Investment Risks

7 unchanged sentences

A widening of credit spreads will adversely impact the net unrealized gain (loss) position of the fixed income investment portfolio and will increase losses associated with credit-based non-qualifying derivatives where we assume credit exposure.

Credit spread tightening will reduce net investment income associated with new purchases of fixed maturity securities and will favorably impact the net unrealized gain (loss) position of the fixed income investment portfolio;

Credit spread tightening will reduce

net investment income associated with new purchases of fixed maturity securities and will favorably impact the net unrealized gain (loss) position of the fixed income investment portfolio;

• liquidity risk, relating to the diminished ability to sell certain investments, in times of strained market conditions;

3 unchanged sentences

• financial and operational risks related to using external investment managers.

See also “Risk Factors — Economic Environment and Capital markets-Related Risks — We are exposed to significant financial and capital markets risks which may adversely affect our financial condition, results of operations and liquidity, and may cause our net investment income and our profitability measures to vary from period to period” and “Risk Factors — Investments-Related Risks” in our 2020 Annual Report.

We manage these risks through asset-type allocation and industry and issuer diversification.

7 unchanged sentences

Investment Management Agreements

Other than our derivatives trading, which we manage in-house, we have engaged a select group of experienced external asset management firms to manage the investment of the assets comprising our general account portfolio and certain separate account assets of our insurance subsidiaries, as well as assets of BHF and our reinsurance subsidiary, Brighthouse Reinsurance Company of Delaware (“BRCD”).

Current Environment

6 unchanged sentences

Recent elevated levels of market volatility have affected the performance of various asset classes.

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

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

Contributing factors include concerns about energy and oil prices impacting the energy sector, as well as the impact of the COVID-19 pandemic.

See “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity” included in our 2020 Annual Report.

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

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

Our exposure to energy sector fixed maturity securities was $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 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.

Our exposure to energy sector fixed maturity securities was $3.0 billion, of which 90% were investment grade, with net unrealized gains (losses) of $219 million at March 31, 2021.

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

Our exposure to retail sector corporate fixed maturity securities was $1.8 billion, of which 96% were investment grade, with net unrealized gains (losses) of $129 million at March 31, 2021.

In addition to the fixed maturity securities discussed 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.

Our investment managers are actively working with borrowers who are experiencing short-term financial or operational problems as a result of the COVID-19 pandemic to provide temporary relief.

See “— Investments — Mortgage Loans” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on mortgage loans, including credit quality by portfolio segment and commercial mortgage loans by property type.

Additionally, see “— Investments — Structured Securities” for information on Structured Securities, including security type, risk profile and ratings profile.

Additionally, see “— Investments — Fixed Maturity Available-for-sale — Structured Securities” for information on Structured Securities, including security type, risk profile and ratings profile.

We monitor direct and indirect investment exposure across sectors and asset classes and adjust our level of investment exposure, as appropriate.

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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

Yield % Amount Yield % Amount

(Dollars in millions)

10 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In millions)

2 unchanged sentences

Adjusted net investment income — in the above yield table $ 1,192 $ 920

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”)

See “— Results of Operations — Consolidated Results for the Three Months Ended March 31, 2021 and 2020 for an analysis of the period over period changes in net investment income.

Fixed Maturity Securities Available-for-sale

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Fair Value % of

9 unchanged sentences

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 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.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity Securities AFS — Fixed Maturity Securities Credit Quality — Ratings” included in our 2020 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:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Designation NRSRO Rating Amortized

22 unchanged sentences

(In millions)

September 30, 2020

March 31, 2021

corporate $ 16,687 $ 16,834 $ 1,750 $ 695 $ 53 $ — $ 36,019

Foreign corporate 3,392 7,142 568 98 33 — 11,233

RMBS 8,376 15 19 12 27 — 8,449

government and agency 7,661 150 — — — — 7,811

RMBS 7,710 57 21 11 25 2 7,826

CMBS 6,295 206 103 52 10 — 6,666

6 unchanged sentences

Foreign corporate 3,520 7,286 572 124 9 — 11,511

RMBS 9,020 59 15 3 21 — 9,118

government and agency 8,481 157 — — — — 8,638

RMBS 8,204 40 19 11 20 — 8,294

CMBS 6,450 176 109 44 6 5 6,790

5 unchanged sentences

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

Our portfolio does not have any exposure to any single issuer in excess of 1% of total investments, and the top ten holdings in aggregate

comprise 2% of total investments at both September 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 March 31, 2021 and December 31, 2020.

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Fair Value % of

9 unchanged sentences

Structured Securities

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.

We held $17.5 billion and $18.0 billion of Structured Securities, at estimated fair value, at March 31, 2021 and December 31, 2020, 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:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Fair Value % of

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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 $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:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

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2020 555 538 558 567

2021 117 116 — —

Total $ 6,327 $ 6,666 $ 6,207 $ 6,790

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.

The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.8 billion, or 71.4% of total CMBS, and designated NAIC 1 was $6.3 billion, or 94.4% of total CMBS, at March 31, 2021.

The estimated fair value of CMBS Aaa rating agency ratings was $5.0 billion, or 73.4% of total CMBS, and designated NAIC 1 was $6.5 billion, or 95.0% of total CMBS at December 31, 2020.

Our ABS holdings are diversified by both collateral type and issuer.

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Fair Value % of

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Collateralized obligations $ 1,766 57.9 % $ 9 $ 1,762 61.1 % $ 5

Student loans 202 7.4 1 196 10.0 2

Consumer loans 246 8.1 4 250 8.7 6

Student loans 275 9.0 6 247 8.6 5

Automobile loans 114 3.7 4 92 3.2 5

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Allowance for Credit Losses for Fixed Maturity Securities

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information about the evaluation of fixed maturity securities for an allowance for credit losses or write-offs due to uncollectability.

Securities Lending

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.

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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Our mortgage loans are principally collateralized by commercial, agricultural and residential properties.

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

September 30, 2020 December 31, 2019

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

March 31, 2021 December 31, 2020

Amortized Cost % of

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

were 96% at both March 31, 2021 and December 31, 2020.

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:

September 30, 2020

March 31, 2021

California 23%

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

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

at both March 31, 2021 and December 31, 2020.

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

was as follows at:

September 30, 2020

March 31, 2021

California 35%

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Total Amount % of

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Our residential mortgage loans are reviewed on an ongoing basis.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on our evaluation of residential mortgage loans and related valuation allowance methodology.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on our evaluation of residential mortgage loans and related measurement of allowance for credit losses.

Loan-to-value ratios and debt-service coverage ratios are common measures in the assessment of the quality of commercial mortgage loans.

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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 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.

For our commercial mortgage loans, our average loan-to-value ratio was 58% and 57% at March 31, 2021 and December 31, 2020, respectively, and our average debt-service coverage ratio was 2.2x and 2.3x at March 31, 2021 and December 31, 2020, respectively.

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 47% at both September 30, 2020 and December 31, 2019.

For our agricultural mortgage loans, our average loan-to-value ratio was 49% and 48% at March 31, 2021 and December 31, 2020, respectively.

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

Loan Modifications Related to the COVID-19 Pandemic.

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

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

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

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

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

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

At 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”).

At March 31, 2021, the recorded investment on mortgage loans where borrowers were offered debt-service forbearance and were not making payments was $250 million, comprised of $155 million commercial mortgage loans, $23 million of agricultural mortgage loans and $72 million of residential mortgage loans.

At December 31, 2020, the recorded investment on mortgage loans where borrowers were offered debt-service forbearance and were not making payments was $299 million, comprised of $197 million commercial mortgage loans, $23 million of agricultural mortgage loans and $79 million of residential mortgage loans.

These types of modifications are generally not considered troubled debt restructurings (“TDRs”) due to certain relief granted by U.S.

federal legislation in March 2020.

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

Mortgage Loan Allowance for Credit Losses .

See Notes 4 and 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how the allowance for credit losses is established and monitored and activity in and balances of the allowance for credit losses for the nine months ended September 30, 2020 and 2019.

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, as well as activity in and balances of the allowance for credit losses for the three months ended March 31, 2021 and 2020.

Limited Partnerships and Limited Liability Companies

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

September 30, 2020 December 31, 2019

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

March 31, 2021 December 31, 2020

(In millions)

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__________________

(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.

(1) The estimated fair value of real estate limited partnerships and LLCs was $507 million and $501 million at March 31, 2021 and December 31, 2020, 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:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Total Carrying

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$ 2,103 92.8 % $ 3,582 95.6 %

FHLB stock 81 1.6 39 1.2

Tax credit renewable energy partnership 63 1.3 82 2.6

Tax credit renewable energy partnerships 61 2.7 64 1.7

Leveraged leases, net of non-recourse debt 50 2.2 50 1.3

FHLB Stock 40 1.8 39 1.1

Other 13 0.5 12 0.3

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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 September 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 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.

• The statement of operations effects of derivatives in cash flow, fair value or non-qualifying hedge relationships for the three months ended March 31, 2021 and 2020.

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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Annual Actuarial Review” included in our 2020 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 September 30, 2020 include:

Derivatives categorized as Level 3 at March 31, 2021 include:

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

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Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.

This policy applies to the recognition of derivatives in the balance sheets and does not affect our legal right of offset.

This policy applies to the recognition of derivatives on the balance sheets and does not affect our legal right of offset.

Credit Derivatives

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Gross Notional

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This can expose the Company to changes in credit spreads as the written credit default swap tenor is shorter than the maturity of Treasury bonds.

Embedded Derivatives

See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for (i) information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy and (ii) a rollforward of the fair value measurements for net embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.

See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits accounted for as embedded derivatives.

Off-Balance Sheet Arrangements

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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 $ 6 million at estimated fair value at September 30, 2020.

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

The Company did not hold non-cash collateral at either March 31, 2021 or December 31, 2020.

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

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

The amount of this non-cash collateral was $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.

The amount of this non-cash collateral was $70 million and $898 million at March 31, 2021 and December 31, 2020, respectively.

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

See “Guarantees” in Note 10 of the Notes to the Interim Condensed Consolidated Financial Statements.

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mortgage loan commitments and commitments to fund partnership investments, bank credit facilities and private corporate bond investments.

See “Commitments” in Note 11 of the Notes to the Interim Condensed Consolidated Financial Statements.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on the investment income, investment expense, gains and losses from such investments.

See also “— Investments — Fixed Maturity Securities AFS” and “— Investments — Mortgage Loans” for information on our investments in fixed maturity securities and mortgage loans.

See “— Investments — Limited Partnerships and Limited Liability Companies” for information on our partnership investments.

Other than the commitments disclosed in Note 10 of the Notes to the Interim Condensed Consolidated Financial Statements, there are no other material obligations or liabilities arising from the commitments to fund mortgage loans, partnership investments, bank credit facilities and private corporate bond investments.

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 our 2020 Annual Report.

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Policyholder Account Balances

Policyholder account balances (“PABs”) are generally equal to the account value, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender.

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 our 2019 Annual Report.

Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender.

See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements, as well as “— Liquidity and Capital Resources — The Company — Primary Sources of Liquidity and Capital — Funding Sources — Funding Agreements.” A discussion of policyholder account balances 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 our 2020 Annual Report.

Variable Annuity Guarantees

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Net Amount at Risk

The net amount at risk (“NAR”) for the net GMDB is the amount of death benefit in excess of the account value (if any) as of the balance sheet date.

It represents the amount of the claim we would incur if death claims were made on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.

The NAR for the guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”) is the amount of guaranteed benefits in excess of the account values (if any) as of the balance sheet date.

The net amount at risk (“NAR”) for the GMIB is the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit.

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 contract may not be annuitized until after the waiting period of the contract.

The NAR for the guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”) is the amount of guaranteed benefits in excess of the account values (if any) as of the balance sheet date.

The NAR assumes utilization of benefits by all contract holders as of the balance sheet date.

For the GMWB benefits, only a small portion of the Benefit Base is available for withdrawal on an annual basis.

For the GMAB, the NAR would not be available until the GMAB maturity date.

For the GMWB, only a small portion of the Benefit Base is available for withdrawal on an annual basis.

The NAR for the GMWB with lifetime payments (“GMWB4L”) is the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the lifetime amount provided under the guaranteed benefit.

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Only a small portion of the Benefit Base is available for withdrawal on an annual basis.

The NAR for the GMIB is the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit.

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.

The NAR for the GMDB is the amount of death benefit in excess of the account value (if any) as of the balance sheet date.

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 our 2020 Annual Report.

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

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

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

March 31, 2021 (1)

December 31, 2020 (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 6,312 4 33 6.3 % 6,524 2 37 7.2 %

GMWB4L (FlexChoice SM )

5,050 12 194 40.1 % 4,130 3 25 13.4 %

GMAB 725 1 1 2.1 % 723 1 1 0.2 %

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GMWB4L 15,135 89 520 21.4 % 15,165 80 718 27.5 %

GMWB4L (FlexChoice SM )

6,203 8 123 26.3 % 5,823 3 145 30.0 %

EDB Only 3,893 579 — N/A 3,908 556 — N/A

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(3) EDB is defined as enhanced death benefits.

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

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

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

Therefore, these liabilities, valued at $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 $3.9 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.

Therefore, these liabilities, valued at $6.0 billion at March 31, 2021, 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 as insurance liabilities in future policy benefits include GMDBs, the life contingent portion of GMWBs and the portion of the GMIBs that require annuitization, as well as the life contingent portion of the expected annuitization when the policyholder is required to annuitize upon depletion of their account value.

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

These liabilities, valued at $1.7 billion at March 31, 2021, are accounted for at estimated fair value.

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 $2.2 billion at September 30, 2020.

Additionally, the index protection and accumulation features of Shield are accounted for as embedded derivatives and reported on the balance sheet in policyholder account balances with changes reported in net derivative gains (losses).

These liabilities, valued at $4.5 billion at March 31, 2021, are accounted for at estimated fair value.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” included in our 2020 Annual Report.

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

September 30, 2020 December 31, 2019

The variable annuity reserve balances by guarantee type were as follows at:

March 31, 2021 December 31, 2020

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

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Total $ 5,997 $ 1,721 $ 7,718 $ 6,016 $ 2,920 $ 8,936

The carrying values of these guarantees can change significantly during periods of sizable and sustained shifts in equity market performance, equity market volatility, or interest rates.

Carrying values are also affected by our assumptions around mortality, separate account returns and policyholder behavior, including lapse, annuitization and withdrawal rates.

See “Risk Factors — Risks Related to Our Business — Guarantees within certain of our annuity products may decrease our earnings, decrease our capitalization, increase the volatility of our results, result in higher risk management costs and expose us to increased market risk” included in our 2020 Annual Report.

Furthermore, changes in policyholder behavior assumptions can result in additional changes in accounting estimates.

Derivatives Hedging Variable Annuity Guarantees

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

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

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

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

September 30, 2020 December 31, 2019

The gross notional amount and estimated fair value of the derivatives in our variable annuity hedging program as well as the interest rate hedges allocated from our macro interest rate hedging program were as follows at:

March 31, 2021 December 31, 2020

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 our 2019 Annual Report.

Liquidity and Capital Resources

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

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

For further information regarding market factors that could affect our ability to meet liquidity and capital needs, including those related to the COVID-19 pandemic, see “— Industry Trends — COVID-19 Pandemic” and “— Investments — Current Environment,” as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment” included in our 2020 Annual Report.

Liquidity and Capital Management

Based upon our capitalization, expectations regarding maintaining our business mix, ratings, and funding sources available to us, we believe we have sufficient liquidity to meet business requirements under current market conditions and certain stress scenarios.

Based upon our capitalization, expectations regarding maintaining our business mix, ratings, and funding sources available to us, we believe we have sufficient liquidity to meet business requirements in current market conditions and certain stress scenarios.

Our Board of Directors and senior management are directly involved in the governance of the capital management process, including proposed changes to the annual capital plan and capital targets.

We are targeting a debt-to-capital ratio commensurate with our parent company credit ratings and our insurance subsidiaries’ financial strength ratings.

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 $5.6 billion and $2.8 billion at September 30, 2020 and December 31, 2019, respectively.

We maintain a substantial short-term liquidity position, which was $3.9 billion and $4.5 billion at March 31, 2021 and December 31, 2020, 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 $50.5 billion and $42.6 billion at September 30, 2020 and December 31, 2019, respectively.

An integral part of our liquidity management includes managing our level of liquid assets, which was $48.9 billion and $52.0 billion at March 31, 2021 and December 31, 2020, 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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We manage our capital position to maintain our financial strength and credit ratings.

Our capital position is supported by our ability to generate cash flows within our insurance companies, our ability to effectively manage the risks of our businesses and our expected ability to borrow funds and raise additional capital to meet operating and growth needs in the event of adverse market and economic conditions.

We target to maintain a debt-to-capital ratio of approximately 25%, which we monitor using an average of our key leverage ratios as calculated by A.M.

Best, Fitch, Moody’s and S&P.

As such, we may opportunistically look to pursue additional financing over time, which may include the incurrence of additional term loans, borrowings under credit facilities, the issuance of debt, equity or hybrid securities or the refinancing of existing indebtedness.

As such, we may opportunistically look to pursue additional financing over time, which may include borrowings under credit facilities, the issuance of debt, equity or hybrid securities, the incurrence of term loans, or the refinancing of existing indebtedness.

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 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.

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

In support of our target combined risk-based capital (“RBC”) ratio between 400% and 450% in normal market conditions, 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 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) and CTE98.

On February 10, 2021, we authorized the repurchase of up to $200 million of our common stock, which is in addition to the $1.1 billion aggregate stock repurchase authorizations announced in February 2020, May 2019 and August 2018.

Repurchases made under the February 10, 2021 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.

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.

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 insurance 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.

Rating Agencies

Credit rating agencies may continue to review and adjust our ratings.

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

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

life insurance industry to negative.

In April 2021, Fitch revised the rating outlook for BHF and certain of its subsidiaries from negative back to stable.

See “Risk Factors — Risks Related to Our Business — A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and materially adversely affect our financial condition and results of operations” included in our 2020 Annual Report for an in-depth description of the impact of a potential ratings downgrade.

Sources and Uses of Liquidity and Capital

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

Nine Months Ended

September 30,

Three Months Ended

(In millions)

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Changes in payables for collateral under securities loaned and other transactions, net — 6,597

Long-term debt issued 614 1,000

Preferred stock issued, net of issuance costs 390 412

Financing element on certain derivative instruments and other derivative related transactions, net — 179

Total sources 1,360 8,189

Operating activities, net 104 —

Investing activities, net 200 1,484

Long-term debt repaid 1,001 601

Changes in payables for collateral under securities loaned and other transactions, net 971 —

Dividends on preferred stock 25 7

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Funding Sources

Liquidity is provided by a variety of funding sources, including secured funding agreements, unsecured credit facilities and secured committed facilities.

Liquidity is provided by a variety of funding sources, including secured and unsecured funding agreements, unsecured credit facilities and secured committed facilities.

Capital is provided by a variety of funding sources, including issuances of debt and equity securities, as well as borrowings under our credit facilities.

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Preferred Stock

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

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

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

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

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

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

See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements and Note 10 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report for information on preferred stock issuances.

Funding Agreements

From time to time, Brighthouse Life Insurance Company issues funding agreements and uses the proceeds from such issuances to provide additional liquidity or for spread lending purposes.

The activity under all such funding agreements is reported in policyholder account balances.

See Note 3 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report for additional information on funding agreements.

Funding Agreement-Backed Notes Program

In April 2021, Brighthouse Life Insurance Company established a funding agreement-backed notes program (the “FABN Program”), pursuant to which Brighthouse Life Insurance Company may issue funding agreements to a special purpose statutory trust (the “Trust”) for spread lending purposes.

The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program is $5.0 billion.

On April 12, 2021, Brighthouse Life Insurance Company issued funding agreements to the Trust in an aggregate principal amount of $700 million.

Activity related to these funding agreements will be reported in Corporate & Other.

Federal Home Loan Bank Funding Agreements

Brighthouse Life Insurance Company is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, where it maintains an active funding agreement program, under which funding agreements may be issued either (i) to provide additional liquidity or (ii) for spread lending purposes.

At both March 31, 2021 and December 31, 2020, there were no obligations outstanding under this funding agreement program and, during both the three months ended March 31, 2021 and 2020, there were no issuances or repayments under this funding agreement program.

On April 19, 2021, Brighthouse Life Insurance Company issued funding agreements to the FHLB of Atlanta for spread lending purposes in an aggregate principal amount of $500 million.

Activity related to these funding agreements will be reported in Corporate & Other.

Farmer Mac Funding Agreements

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”) with a term ending on December 31, 2023, pursuant to which the parties may enter into funding agreements in an aggregate amount of up to $500 million either (i) to provide additional liquidity or (ii) for spread lending purposes.

At both March 31, 2021 and December 31, 2020, there were no borrowings under this funding agreement program.

On April 30, 2021, Brighthouse Life Insurance Company issued funding agreements to Farmer Mac for spread lending purposes in an

aggregate principal amount of $25 million.

Activity related to these funding agreements will be reported in Corporate & Other.

Debt Issuances

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

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

Credit Facilities

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

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

Repurchase Facility

Brighthouse Life Insurance Company maintains a secured committed repurchase facility (the “Repurchase Facility”) with a financial institution, pursuant to which Brighthouse Life Insurance Company may enter into repurchase transactions in an aggregate amount of up to $2.0 billion.

The Repurchase Facility has a term ending on July 31, 2021.

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

Reinsurance Financing Arrangement

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

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

On June 11, 2020, BRCD, with the explicit permission of the Delaware Commissioner of Insurance, amended its financing arrangement to increase the maximum amount from $10.0 billion to $12.0 billion and to extend the term by two years to 2039.

At 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.

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

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

See Note 9 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report for information on debt issuances.

Credit and Committed Facilities

See Note 9 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report for information regarding our credit and committed facilities.

We have no reason to believe that our lending counterparties would be unable to fulfill their respective contractual obligations under these facilities.

As commitments under our credit and committed facilities may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements.

Outstanding Long-term Debt

Our outstanding long-term debt was as follows at:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(In millions)

Senior notes $ 3,042 $ 3,042

Term loan — 1,000

Junior subordinated debentures 363 363

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(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.

(1) 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.

(2) Includes unamortized debt issuance costs, discounts and premiums, as applicable, totaling net $35 million at both March 31, 2021 and December 31, 2020, for senior notes and junior subordinated debentures on a combined basis.

See Note 9 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report for additional information regarding the terms of our long-term debt.

Debt and Facility Covenants

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

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

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

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

At March 31, 2021, we were in compliance with these financial covenants.

Primary Uses of Liquidity and Capital

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Common Stock Repurchases

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.

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

See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements for information relating to authorizations to repurchase BHF common stock, amounts of common stock repurchased pursuant to such authorizations and the amount remaining under such authorizations at March 31, 2021.

Subsequent to March 31, 2021 and through May 6, 2021, BHF repurchased an additional 1,066,550 shares of its common stock through open market purchases, pursuant to 10b5-1 plans, for $49 million.

Preferred Stock Dividends

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.

See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements for information relating to dividends declared and paid on our preferred stock.

Debt Repayments

During the second quarter of 2020, BHF used the aggregate net proceeds from the issuances of the 2030 Senior Notes and the Series B Depositary Shares to repay $1.0 billion of borrowings outstanding under the Term Loan Facility.

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

Debt Repurchases

We may from time to time seek to retire or purchase our outstanding indebtedness through cash purchases and/or exchanges for other securities, purchases in the open market, privately negotiated transactions or otherwise.

See Note 9 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report for information on debt repayments.

Debt Repurchases, Redemptions and Exchanges

We may from time to time seek to retire or purchase our outstanding indebtedness through cash purchases or exchanges for other securities, purchases in the open market, privately negotiated transactions or otherwise.

Any such repurchases or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, and applicable regulatory, legal and accounting factors.

Whether or not we repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.

See Note 9 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report for additional information on debt repurchases.

Insurance Liabilities

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

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.

During the three months ended March 31, 2021 and 2020, general account surrenders and withdrawals totaled $712 million and $545 million, respectively, of which $612 million and $517 million, respectively, was attributable to products within the Annuities segment.

Pledged Collateral

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

At 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.

At both March 31, 2021 and December 31, 2020, we did not pledge any cash collateral to counterparties.

At March 31, 2021 and December 31, 2020, we were obligated to return cash collateral pledged to us by counterparties of $951 million and $1.6 billion, respectively.

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

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

Under our securities lending program, we were liable for cash collateral under our control of $3.6 billion and $3.1 billion at 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.

Under our securities lending program, we were liable for cash collateral under our control of $3.3 billion and $3.7 billion at March 31, 2021 and December 31, 2020, respectively.

Of these amounts, $907 million and $937 million at March 31, 2021 and December 31, 2020, respectively, were on open, meaning that the related loaned security could be returned to us on the next business day requiring the immediate return of cash collateral we hold.

The estimated fair value of the securities on loan related to the cash collateral on open at March 31, 2021 was $879 million, primarily comprised of 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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BHF is largely dependent on cash flows from its insurance subsidiaries to meet its obligations.

Constraints on BHF’s liquidity may occur as a result of operational demands and/or as a result of compliance with regulatory requirements.

Constraints on BHF’s liquidity may occur as a result of operational demands or as a result of compliance with regulatory requirements.

Short-term Liquidity and Liquid Assets

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.

At both March 31, 2021 and December 31, 2020, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.6 billion.

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

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.

At March 31, 2021 and December 31, 2020, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.6 billion and $1.7 billion, respectively, of which $1.5 billion and $1.6 billion, 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 our 2019 Annual Report.

See Note 10 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report.

Primary Sources and Uses of Liquidity and Capital

The principal sources of funds available to BHF include distributions from Brighthouse Holdings, LLC (“BH Holdings”), dividends and returns of capital from its insurance subsidiaries, capital markets issuances, as well as its own cash and cash equivalents and short-term investments.

The principal sources of funds available to BHF include distributions from Brighthouse Holdings, LLC (“BH Holdings”), dividends and returns of capital from its insurance subsidiaries and BRCD, capital markets issuances, as well as its own cash and cash equivalents and short-term investments.

These sources of funds may also be supplemented by alternate sources of liquidity either directly or indirectly through our insurance subsidiaries.

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Distributions from and Capital Contributions 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.

During the three months ended March 31, 2021 and 2020, BHF did not make any cash capital contributions to BH Holdings and received cash distributions of $0 and $488 million, respectively, from BH Holdings.

Short-term Intercompany Loans

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.

BHF, as borrower, has 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 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.

During the three months ended March 31, 2021 and 2020, BHF borrowed $196 million and $165 million, respectively, from certain of its non-insurance subsidiaries and repaid $200 million and $315 million of such borrowings during the three months ended March 31, 2021 and 2020, respectively.

At March 31, 2021 and December 31, 2020, BHF had total obligations outstanding of $449 million and $453 million, respectively, under such agreements.

Intercompany Liquidity Facilities

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.

BHF has established intercompany liquidity facilities with certain of its insurance and non-insurance 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 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.

During both the three months ended March 31, 2021 and 2020, there were no borrowings or repayments by BHF under these facilities and, at both March 31, 2021 and December 31, 2020, BHF had no obligations outstanding under such facilities.

Note Regarding Forward-Looking Statements

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Although it is not possible to identify all of these risks and factors, they include, among others:

• the impact of the ongoing COVID-19 pandemic;

• differences between actual experience and actuarial assumptions and the effectiveness of our actuarial models;

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• the effectiveness of our variable annuity exposure risk management strategy and the impact of such strategy on volatility in our profitability measures and negative effects on our statutory capital;

• the reserves we are required to hold against our variable annuities as a result of actuarial guidelines;

• the potential material adverse effect of changes in accounting standards, practices and/or policies applicable to us, including changes in the accounting for long-duration contracts;

• our degree of leverage due to indebtedness;

• the impact of adverse capital and credit market conditions, including with respect to our ability to meet liquidity needs and access capital;

• the impact of changes in regulation and in supervisory and enforcement policies on our insurance business or other operations;

• material differences from actual outcomes compared to the sensitivities calculated under certain scenarios and sensitivities that we may utilize in connection with our variable annuity risk management strategies;

• the impact of interest rates on our future ULSG policyholder obligations and net income volatility;

• the impact of the COVID-19 pandemic;

• the potential material adverse effect of changes in accounting standards, practices or policies applicable to us, including changes in the accounting for long-duration contracts;

• loss of business and other negative impacts resulting from a downgrade or a potential downgrade in our financial strength or credit ratings;

• the availability of reinsurance and the ability of the counterparties to our reinsurance or indemnification arrangements to perform their obligations thereunder;

• the adverse impact to liabilities for policyholder claims as a result of extreme mortality events;

• heightened competition, including with respect to service, product features, scale, price, actual or perceived financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition;

• our ability to market and distribute our products through distribution channels;

• any failure of third parties to provide services we need, any failure of the practices and procedures of such third parties and any inability to obtain information or assistance we need from third parties;

• the ability of our insurance subsidiaries to pay dividends to us, and our ability to pay dividends to our shareholders and repurchase our common stock;

• the ability of our subsidiaries to pay dividends to us, and our ability to pay dividends to our shareholders and repurchase our common stock;

• the adverse impact on liabilities for policyholder claims as a result of extreme mortality events;

• the impact of adverse capital and credit market conditions, including with respect to our ability to meet liquidity needs and access capital;

• the impact of economic conditions in the capital markets and the U.S.

and global economy, as well as geo-political or catastrophic events, on our investment portfolio, including on realized and unrealized losses and impairments, net investment spread and net investment income;

• the impact of events that adversely affect issuers, guarantors or collateral relating to our investments or our derivatives counterparties, on impairments, valuation allowances, reserves, net investment income and changes in unrealized gain or loss positions;

• the impact of changes in regulation and in supervisory and enforcement policies on our insurance business or other operations;

• the potential material negative tax impact of potential future tax legislation that could make some of our products less attractive to consumers;

• the effectiveness of our policies and procedures in managing risk;

• our ability to market and distribute our products through distribution channels;

• the loss or disclosure of confidential information, damage to our reputation and impairment of our ability to conduct business effectively as a result of any failure in cyber- or other information security systems;

• whether all or any portion of the tax consequences of our separation from MetLife are not as expected, leading to material additional taxes or material adverse consequences to tax attributes that impact us;

• the uncertainty of the outcome of any disputes with MetLife over tax-related or other matters and agreements or disagreements regarding MetLife’s or our obligations under our other agreements;

• the potential material negative tax impact of potential future tax legislation that could make some of our products less attractive to consumers;

• other factors described in this report and from time to time in documents that we file with the SEC.

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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