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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-24 · 383 added, 557 removed, 1102 unchanged (46% of the section changed)

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Results of Operations

Effects of Inflation

Off-Balance Sheet Arrangements

Policyholder Liabilities

Liquidity and Capital Resources

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 Delaware corporation, and its subsidiaries.

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

Until August 4, 2017, BHF was a wholly-owned subsidiary of MetLife, Inc.

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

Following this summary is a discussion addressing the consolidated financial conditions 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 “Note Regarding Forward-Looking Statements and Summary of Risk Factors,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk” and the Company’s consolidated financial statements included elsewhere herein.

The term “Separation” refers to the separation of MetLife, Inc.’s former Brighthouse Financial segment from MetLife’s other businesses and the creation of a separate, publicly-traded company, BHF, as well as the 2017 distribution by MetLife, Inc.

of approximately 80.8% of the then outstanding shares of BHF common stock to holders of MetLife, Inc.

common stock as of the record date for the distribution.

The term “MetLife Divestiture” refers to the disposition by MetLife, Inc.

on June 14, 2018 of all its remaining shares of BHF common stock.

Effective with the MetLife Divestiture, MetLife, Inc.

and its subsidiaries and affiliates were no longer considered related parties to BHF and its subsidiaries and affiliates.

See Note 1 of the Notes to the Consolidated Financial Statements.

The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs.

Our actual results could differ materially from those discussed in these forward-looking statements.

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.

This information precedes the Results of Operations and is most beneficial when read in the sequence presented.

Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this report, particularly in “Note Regarding Forward-Looking Statements and Summary of Risk Factors” and “Risk Factors.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with “Quantitative and Qualitative Disclosures About Market Risk” and our consolidated financial statements included elsewhere herein.

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 Financial for the periods indicated.

In addition to Brighthouse Financial, Inc., the companies and businesses included in the results of operations, financial condition and cash flows are:

• Brighthouse Life Insurance Company (together with its subsidiaries and affiliates, “BLIC”), our largest insurance subsidiary, domiciled in Delaware and licensed to write business in all U.S.

states (except New York), the District of Columbia, the Bahamas, Guam, Puerto Rico, the British Virgin Islands and the U.S.

Virgin Islands;

• New England Life Insurance Company (“NELICO”), domiciled in Massachusetts and licensed to write business in all U.S.

states and the District of Columbia;

• Brighthouse Life Insurance Company of NY (“BHNY”), domiciled in New York and licensed to write business only in New York, which is a subsidiary of Brighthouse Life Insurance Company;

• Brighthouse Reinsurance Company of Delaware (“BRCD”), our reinsurance subsidiary domiciled and licensed in Delaware, which is a subsidiary of Brighthouse Life Insurance Company;

• Brighthouse Investment Advisers, LLC (“Brighthouse Advisers”), serving as investment advisor to certain proprietary mutual funds that are underlying investments under our and MetLife’s variable insurance products;

• Brighthouse Services, LLC (“Brighthouse Services”), an internal services and payroll company;

• Brighthouse Securities, LLC (“Brighthouse Securities”), registered as a broker-dealer with the SEC, approved as a member of FINRA and registered as a broker-dealer and licensed as an insurance agency in all required states;

• Brighthouse Holdings, LLC (“BH Holdings”), a direct holding company subsidiary of Brighthouse Financial, Inc.

domiciled in Delaware.

Prior to discussing our results of operations, we present information that we believe is useful to understanding the discussion of our financial results.

This information precedes our results of operations discussion and is most beneficial when read in the sequence presented.

A summary of key informational sections is as follows:

• “Executive Summary” contains the following sub-sections:

◦ “Overview” provides information regarding our business, segments and results as discussed in the Results of Operations.

◦ “Background” presents details of the Company’s legal entity structure.

• “Risk Management Strategies” describes the Company’s risk management strategy to protect against capital market risks specific to our variable annuity and universal life with secondary guarantees (“ULSG”) businesses.

• “Industry Trends and Uncertainties” discusses updates and changes to a number of trends and uncertainties 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”).

• “Executive Summary” provides summarized information regarding our business, segments and financial results.

• “Risk Management Strategies” describes the Company’s risk management strategy to protect against capital markets risks specific to our variable annuity and universal life with secondary guarantees (“ULSG”) businesses.

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

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

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

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

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.

• “Results of Operations” begins with a discussion of our “Annual Actuarial Review.” Annual actuarial review (the “AAR”) describes the changes in key assumptions applied in 2020 and 2019, respectively, resulting in an unfavorable impact on net income (loss) available to shareholders in each period.

• “Results of Operations” begins with a discussion of our AAR, including a summary of the changes made to the key assumptions in 2021 and 2020, as well as the resulting impact on net income (loss) available to shareholders in each period.

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

Our Results of Operations discussion and analysis presents a review for the years ended December 31, 2020 and 2019 and year-to-year comparisons between these years.

Our results of operations discussion and analysis for the year ended December 31, 2019, including a review of the 2019 AAR and year-to-year comparisons between the years ended December 31, 2019 and 2018 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Annual Report”), which was filed with the SEC on February 26, 2020, and such discussions are incorporated herein by reference.

Executive Summary

We are one of the largest providers of annuity and life insurance products in the United States through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners.

For operating purposes, we have established three segments:

We are one of the largest providers of annuity and life insurance products in the U.S.

through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners.

We are organized into three segments:

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

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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 year ended December 31, 2020, we had a net loss of $1.1 billion and an adjusted loss of $278 million, as compared to a net loss of $761 million and adjusted earnings of $599 million for the year ended December 31, 2019.

The net loss for the year ended December 31, 2020 was driven primarily by a net unfavorable impact from our AAR and unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to equity markets increasing less in the current period than in the prior period, net of declining interest rates and widening credit spreads, which was partially offset by the favorable impact of declining long-term interest rates on the estimated fair value of the ULSG hedge program and pre-tax adjusted earnings.

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

For the year ended December 31, 2021, we had a net loss available to shareholders of $197 million and adjusted earnings of $1.6 billion, compared to a net loss available to shareholders of $1.1 billion and an adjusted loss of $278 million for the year ended December 31, 2020.

The net loss available to shareholders for the year ended December 31, 2021 is primarily due to net unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) partially offset by favorable pre-tax adjusted earnings.

GMLB Riders results reflect impacts from higher equity markets and interest rates, as well as narrowing credit spreads resulting in an unfavorable adjustment for nonperformance risk.

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

See Note 1 of the Notes to the Consolidated Financial Statements for information regarding the adoption of new accounting pronouncements in 2021.

In addition to Brighthouse Financial, Inc., the companies and businesses included in the results of operations, financial condition and cash flows are:

• Brighthouse Life Insurance Company (together with its subsidiaries and affiliates, “BLIC”), our largest insurance subsidiary, domiciled in Delaware and licensed to write business in all U.S.

states (except New York), the District of Columbia, the Bahamas, Guam, Puerto Rico, the British Virgin Islands and the U.S.

Virgin Islands;

• New England Life Insurance Company (“NELICO”), domiciled in Massachusetts and licensed to write business in all U.S.

states and the District of Columbia;

• Brighthouse Life Insurance Company of NY (“BHNY”), domiciled in New York and licensed to write business in New York, which is a subsidiary of Brighthouse Life Insurance Company;

• Brighthouse Reinsurance Company of Delaware (“BRCD”), our reinsurance subsidiary domiciled and licensed in Delaware, which is a subsidiary of Brighthouse Life Insurance Company;

• Brighthouse Services, LLC (“Brighthouse Services”), an internal services and payroll company;

• Brighthouse Holdings, LLC (“BH Holdings”), a direct holding company subsidiary of Brighthouse Financial, Inc.

domiciled in Delaware.

Risk Management Strategies

The Company employs risk management strategies to protect against capital markets risk.

These strategies are specific to our variable annuity and ULSG businesses, and they also include a macro hedge strategy to manage the Company’s exposure to interest rate risk.

We employ risk management strategies to protect against capital markets risk.

These strategies are specific to our variable annuity and ULSG businesses, and they also include a macro hedge strategy to manage our exposure to interest rate risk.

Interest Rate Hedging

The Company is exposed to interest rate risk in most of its products with the more significant longer dated exposure residing in our in-force variable annuity guarantees and ULSG.

We are exposed to interest rate risk in most of our products, with the more significant longer dated exposure residing in our in-force variable annuity guarantees and ULSG business.

Historically, we individually managed the interest rate risk in these two blocks with hedge targets based on statutory metrics designed principally to protect the capital of our largest insurance subsidiary, BLIC.

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We manage the interest rate risk in our variable annuity and ULSG businesses together, although individual hedge targets still exist for variable annuities and ULSG.

Accordingly, the related portfolio of interest rate derivatives will be managed in the aggregate with rebalancing and trade executions determined by the net exposure.

Accordingly, the related portfolio of interest rate derivatives are managed in the aggregate with rebalancing and trade executions determined by the net exposure.

By managing the interest rate exposure on a net basis, we expect to more efficiently manage the derivative portfolio, protect capital and reduce costs.

We refer to this aggregated approach to managing interest rate risk as our macro interest rate hedging program.

We refer to this aggregated approach to managing interest rate risk as our macro interest rate

hedging program.

This program may also include hybrid options that have other risk exposure in addition to interest rate exposure.

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

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Interest rate forwards 9,808 627 109 8,086 851 78

Hybrid options 900 8 — — — —

Total $ 20,538 $ 947 $ 126 $ 36,246 $ 1,921 $ 199

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Allocations are primarily for purposes of calculating certain product specific metrics needed to run the business which in some cases are still individually measured and to facilitate the quarterly settlement of reinsurance activity associated with BRCD.

We intend to maintain an adequate

amount of liquid investments in the investment portfolios supporting these businesses to cover any contingent collateral posting requirements from this hedging strategy.

We intend to maintain an adequate amount of liquid investments in the investment portfolios supporting these businesses to cover any contingent collateral posting requirements from this hedging strategy.

Variable Annuity Exposure Risk Management

With the adoption of VA Reform, our management of and hedging strategy associated with our variable annuity business aligns with the regulatory framework.

Given this alignment and the fact that we have a large non-variable annuity business, we are focused on the capital metrics of a combined RBC ratio.

With the adoption of VA Reform, our management of and our hedging strategy associated with our variable annuity business aligns with the regulatory framework.

Given this alignment and the fact that we have a large non-variable annuity business, we manage capital metrics on a combined RBC ratio.

In support of our target combined 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 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 and CTE98.

CTE95 and CTE98 are defined in “— Glossary.”

We have enhanced our risk management focus on the core drivers of our combined RBC ratio and have refined our hedge program to better manage our RBC in stressed market scenarios.

See “Glossary” for the definition of CTE98.

Our exposure risk management program seeks to mitigate the potential adverse effects of changes in capital markets, specifically equity markets and interest rates, on our Variable Annuity Target Funding Level, as well as on our statutory distributable earnings.

We utilize a combination of short-term and longer-term derivative instruments to establish a layered maturity of protection, which we believe will reduce rollover risk during periods of market disruption or higher volatility.

When setting our hedge target, we consider the fact that our obligations under Shield Annuity (“Shield” and “Shield Annuity”) contracts decrease in falling equity markets when variable annuity guarantee obligations increase, and increase in rising equity markets when variable annuity guarantee obligations decrease.

Shield Annuities are included with variable annuities in our statutory reserve requirements, as well as in our CTE95 and CTE98 estimates.

When setting our hedge target, we consider the fact that our obligations under Shield Annuity contracts decrease in falling equity markets when variable annuity guarantee obligations increase, and increase in rising equity markets when variable annuity guarantee obligations decrease.

Shield Annuities are included with variable annuities in our statutory reserve requirements, as well as in our CTE estimates.

See “Glossary” for the definition of CTE.

We continually review our hedging strategy in the context of our overall capitalization targets as well as monitor the capital markets for opportunities to adjust our derivative positions to manage our variable annuity exposure, as appropriate.

Our hedging strategy after the Separation initially focused on option-based derivatives protecting against larger market movements and reducing hedge losses in rising market scenarios.

Given recent robust equity market returns from the Separation through 2019 and the related increase in our statutory capital, we re-assessed our hedging strategy in late 2019.

As a result of this review, we revised our hedging strategy to reduce the use of options and move to more swap-based instruments to protect statutory capital against smaller market moves.

This revised strategy is designed to preserve distributable earnings across more market scenarios.

While we have experienced lower time decay expense as a result of adopting this revised strategy, we also expect to incur larger hedge mark-to-market losses in rising equity markets as compared to our previous strategy.

We revised our hedging strategy in 2019 to reduce the use of options and move to more swap-based instruments to protect statutory capital against smaller market moves.

This strategy is designed to preserve distributable earnings across more market scenarios.

While we have generally experienced lower time decay expense as a result of adopting this strategy, we also expect to incur larger hedge mark-to-market losses in rising equity markets as compared to our previous strategy.

We intend to maintain an adequate amount of liquid investments in our variable annuity investment portfolio to support any contingent collateral posting requirements from this hedging strategy.

Under our revised strategy, we plan to operate with a first loss position of no more than $500 million.

Under this strategy, we plan to operate with a first loss position of no more than $500 million.

The first loss position is relative to our Variable Annuity Target Funding Level such that the impact on reserves and thus total adjusted capital could be greater than the first loss position.

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Interest rate forwards 4,440 218 13 3,466 208 26

Hybrid options 900 8 — — — —

Total $ 68,265 $ 1,874 $ 1,495 $ 75,535 $ 2,195 $ 1,827

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Likewise, if interest rates rise, our ULSG Target declines.

The interest rate derivatives allocated to ULSG Assets prioritizes the ULSG Target (comprised of ULSG CFT and statutory considerations), with less emphasis on mitigating GAAP net income volatility.

The interest rate derivatives allocated to ULSG Assets prioritizes the ULSG Target (comprised of ULSG CFT and statutory considerations), with less emphasis on

mitigating GAAP net income volatility.

This could increase the period to period volatility of net income and equity due to differences in the sensitivity of the ULSG Target and GAAP liabilities to the changes in interest rates.

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We continue to closely monitor developments related to the COVID-19 pandemic, which has negatively impacted us in certain respects, 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 implementation, and 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 targets previously provided to the markets or aspects of our business model.

At this time, it continues to not be possible to estimate the severity or duration of the pandemic, including (i) the severity, duration and frequency of any additional “waves” or emerging variants of COVID-19 and (ii) the efficacy or utilization of any therapeutic treatments and vaccines for COVID-19 or variants thereof.

It likewise remains 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 any targets we may provide to the markets or aspects of our business model.

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.”

In March 2020, in response to the COVID-19 pandemic, 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.

In response to the COVID-19 pandemic, management promptly implemented our business continuity plans, and we shifted all our employees to a remote-work 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.

Additionally, we continue to closely monitor 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, financial condition or results of operations.

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

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

Circumstances resulting from the COVID-19 pandemic have also impacted the incidence 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 year-end 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 may 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 6 of the Notes to the Consolidated Financial Statements.

Economic uncertainty resulting from the COVID-19 pandemic continues to impact sales of certain of our products, and we are providing relief to customers affected by adverse circumstances due to the COVID-19 pandemic, as disclosed in “Business — Regulation — Insurance Regulation.” While the relief granted to customers to date has not had a material impact on our financial condition or results of operations, it continues to not be possible to estimate the potential impact of any future relief.

Circumstances resulting from the COVID-19 pandemic have also impacted the incidence of claims, 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 2021.

Additionally, while circumstances resulting from the COVID-19 pandemic have not materially impacted services we receive from third-party vendors or led to the identification of new loss contingencies or any increases in existing loss contingencies, 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 may have been, and may in the future 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 6 of the Notes to the 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.

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” and “— Liquidity and Capital Resources — The Company — Rating Agencies.”

Changes in Accounting Standards

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

The ASU will have a significant impact on our results of operations, including our net income, and at current market interest rate levels would ultimately result in a material decrease in our stockholders’ equity.

The ASU will change the pattern and market sensitivity of our results of operations, including our net income, and, at prevailing interest rate levels at the end of 2021, the Company expects the ASU, upon adoption, would likely result in a material decrease in stockholders’ equity.

Financial and Economic Environment

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Stressed conditions, volatility and disruptions in the capital markets or financial asset classes can have an adverse effect on us.

The impact on capital markets and the economy generally of the priorities and policies of the Biden administration is uncertain.

See “Risk Factors — Economic Environment and Capital Markets-Related Risks — If difficult conditions in the capital markets and the U.S.

economy generally persist or are perceived to persist, they may materially adversely affect our business and results of operations.” Equity market performance can affect our profitability for variable annuities and other separate account products as a result of the effects it has on product demand, revenues, expenses, reserves and our risk management effectiveness.

Equity market performance can affect our profitability for variable annuities and other separate account products as a result of the effects it has on product demand, revenues, expenses, reserves and our risk management effectiveness.

The level of long-term interest rates and the shape of the yield curve can have a negative effect on the profitability for variable annuities and the demand for, and the profitability of, spread-based products such as fixed annuities, index-linked annuities and universal life insurance.

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economic activity.

A sustained or material increase in inflation could also affect our business in several ways.

During inflationary periods, the value of fixed income investments falls which could increase realized and unrealized losses.

Interest rates may increase due to central bank policy responses to combat inflation, which may positively impact our business in certain respects, but could also increase the risk of a recession or an equity market downturn and could negatively impact various portions of our business, including our investment portfolio.

Inflation also increases our expenses (including, among others, for labor and third-party services), potentially putting pressure on profitability if such costs cannot be passed through to policyholders in our product prices.

Prolonged and elevated inflation could adversely affect the financial markets and the economy generally and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic activity and inhibit revenue growth.

See “Risk Factors — Economic Environment and Capital Markets-Related Risks — If difficult conditions in the capital markets and the U.S.

economy generally persist or are perceived to persist, they may materially adversely affect our business and results of operations.”

The above factors affect our expectations regarding future margins, which in turn, affect the amortization of certain of our intangible assets such as DAC.

Significantly lower expected margins may cause us to accelerate the amortization of DAC, thereby reducing net income in the affected reporting period.

We review our long-term assumptions about capital market returns and interest rates, along with other assumptions such as contract holder behavior, as part of our annual actuarial review.

We review our long-term assumptions about capital markets returns and interest rates, along with other assumptions such as contract holder behavior, as part of our annual actuarial review.

As additional company specific or industry information on contract holder behavior becomes available, related assumptions may change and may potentially have a material impact on liability valuations and net income.

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The life insurance industry remains highly fragmented and competitive.

See “Business — Segments and Corporate & Other” for each of our segments.

See “Business — Competition”.

In particular, we believe that financial strength and financial flexibility are highly relevant differentiators from the perspective of customers and distributors.

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The Company also maintains a profit followed by losses reserve on universal life insurance with secondary guarantees, determined by projecting future earnings and establishing a liability to offset losses that are expected to occur in later years.

The most significant assumptions used in estimating our ULSG liabilities are the general account rate of return, premium persistency, mortality and lapses, which are reviewed and updated at least annually.

The most significant assumptions used in estimating our ULSG

liabilities are the general account rate of return, premium persistency, mortality and lapses, which are reviewed and updated at least annually.

The measurement of our ULSG liabilities can be significantly impacted by changes in our expected general account rate of return, which is driven by our assumption for long-term treasury yields.

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Our current projections assume reversion to a ten-year treasury rate of 3.00% over a period of ten years.

As part of our 2020 AAR, we lowered our projected long-term treasury rate from 3.75% to 3.00%, which reduced our general account earned rate, resulting in an increase in our ULSG liabilities of $1.2 billion.

As part of our 2021 AAR, we increased our projected long-term general account earned rate, while maintaining our mean reversion rate at 3.00%, which resulted in a decrease in our ULSG liabilities of $12 million.

We also updated other assumptions related to ULSG, see “— Results of Operations — Annual Actuarial Review” for more information.

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See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information relating to DAC accounting policy and amortization.

We use freestanding derivative instruments to hedge various capital market risks in our products, including:

We use freestanding derivative instruments to hedge various capital markets risks in our products, including:

(i) certain guarantees, some of which are reported as embedded derivatives;

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and (iii) current or future changes in cash flows.

All derivatives, whether freestanding or embedded, are required to be carried on the balance sheet at fair value with changes reflected in either net income (loss) available to shareholders or in other comprehensive income (“OCI”), depending on the type of hedge.

Below is a summary of critical accounting estimates by type of derivative.

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The estimated fair values of these embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees attributable to the guarantee.

The projections of future benefits and future fees require capital markets and actuarial assumptions, including expectations

concerning policyholder behavior.

A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital market scenarios using observable risk-free rates and implied equity volatilities.

Market conditions, including, but not limited to, changes in interest rates, equity indices, market volatility and variations in actuarial assumptions, including policyholder behavior, mortality and risk margins related to non-capital market inputs, as well as changes in our nonperformance risk may result in significant fluctuations in the estimated fair value of the guarantees that could have a material impact on net income.

The projections of future benefits and future fees require capital markets and actuarial assumptions, including expectations concerning policyholder behavior.

A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital markets scenarios using observable risk-free rates and implied equity volatilities.

Market conditions, including, but not limited to, changes in interest rates, equity indices, market volatility and variations in actuarial assumptions, including policyholder behavior, mortality and risk margins related to non-capital markets inputs, as well as changes in our nonperformance risk may result in significant fluctuations in the estimated fair value of the guarantees that could have a material impact on net income.

Changes to actuarial assumptions, principally related to contract holder behavior such as annuitization utilization and withdrawals associated with GMIB riders, can result in a change of expected future cash outflows of a guarantee between the accrual-based model for insurance liabilities and the fair value-based model for embedded derivatives.

See Note 1 of the Notes to the Consolidated Financial Statements for additional information relating to the determination of the accounting model.

Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions.

Risk margins are established to capture the non-capital markets risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions.

The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.

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The crediting rates are measured at estimated fair value which is determined using a combination of an option pricing methodology and an option-budget approach.

The estimated fair value includes capital market and actuarial policyholder behavior and biometric assumptions, including expectations for renewals at the end of the term period.

The estimated fair value includes capital markets and actuarial policyholder behavior and biometric assumptions, including expectations for renewals at the end of the term period.

Market conditions, including interest rates and implied volatilities, and variations in actuarial assumptions and risk margins, as well as changes in our nonperformance risk adjustment may result in significant fluctuations in the estimated fair value that could have a material impact on net income.

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Non-GAAP and Other Financial Disclosures

Our definitions of the non-GAAP and other financial measures may differ from those used by other companies.

Our definitions of non-GAAP and other financial measures may differ from those used by other companies.

Non-GAAP Financial Disclosures

Adjusted Earnings

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.

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.

In this report, we present adjusted earnings as a measure of our performance that is not calculated in accordance with GAAP.

Adjusted earnings is used by management to evaluate performance and facilitate comparisons to industry results.

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

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.

See “— Results of Operations” for a reconciliation of adjusted earnings to net income (loss) available to Brighthouse Financial, Inc.’s common shareholders.

Adjusted earnings, which may be positive or negative, is used by management to evaluate performance, allocate resources and facilitate comparisons to industry results.

This financial measure focuses on our primary businesses principally by excluding the impact of market volatility, which could distort trends.

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

Adjusted earnings, which may be positive or negative, focuses on our primary businesses by excluding the impact of market volatility, which could distort trends.

The following are significant items excluded from total revenues in calculating adjusted earnings:

• Net investment gains (losses);

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• Certain variable annuity GMIB fees (“GMIB Fees”).

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

The following are significant items excluded from total expenses in calculating adjusted earnings:

• Amounts associated with benefits related to GMIBs (“GMIB Costs”);

• Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”);

• Amortization of DAC and value of business acquired (“VOBA”) related to (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments.

The tax impact of the adjustments mentioned is calculated net of the statutory tax rate, which could differ from our effective tax rate.

• Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets (“Market Value Adjustments”);

• Amortization of DAC and value of business acquired (“VOBA”) related to (i) net investment gains (losses), (ii) net derivative gains (losses) and (iii) GMIB Fees and GMIB Costs.

The tax impact of the adjustments discussed above is calculated net of the statutory tax rate, which could differ from our effective tax rate.

We present adjusted earnings in a manner consistent with management’s view of the primary business activities that drive the profitability of our core businesses.

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Component of Adjusted Earnings How Derived from GAAP (1)

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

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

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

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

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

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

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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 on our ULSG business.

As a result of the 2021 AAR, we updated assumptions regarding policyholder behavior, including mortality, premium persistency, lapses, withdrawals and maintenance expenses.

We also increased our long-term general account earned rate, while maintaining our mean reversion rate at 3.00%.

These updates had the largest impact on our ULSG business.

For our variable annuity business, we updated our annuitization and separate account assumptions, including fund fees, allocations and volatility, in addition to the policyholder behavior assumptions noted above.

In 2020, 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 3.75% to 3.00%, which had the largest impact on 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.

In our life business, we updated assumptions related to policyholder behavior, mortality and maintenance 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 years ended December 31, 2021 and 2020.

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Net income (loss) available to shareholders $ (197) $ (1,105)

The guaranteed minimum living benefits reflect (i) changes in the carrying value of GMLB liabilities, including GMIBs, GMWBs and GMABs, and Shield Annuities;

The guaranteed minimum living benefits reflect (i) changes in the carrying value of GMLB liabilities, including GMIBs, GMWBs and GMABs, as well as Shield Annuities;

(ii) changes in the estimated fair value of the related hedges, as well as any ceded reinsurance of the liabilities;

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Pre-tax Adjusted Earnings.

As more fully described in “— Non-GAAP and Other Financial Disclosures,” we use adjusted earnings, which does not equate to net income (loss) available to shareholders, as determined in accordance with GAAP.

We believe that the presentation of adjusted earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business.

Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results.

Adjusted earnings should not be viewed as a substitute for net income (loss).

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

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Loss available to shareholders before provision for income tax was $1.5 billion ($1.1 billion, net of income tax), an increased loss of $390 million ($344 million, net of income tax) from a loss available to shareholders before provision for income tax of $1.1 billion ($761 million, net of income tax) in the prior period.

The decrease in income before provision for income tax was driven by lower pre-tax adjusted earnings, discussed in greater detail below.

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 index annuity business;

partially offset by

◦ an unfavorable impact from equity options;

• higher net investment gains (losses) reflecting:

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

partially offset by

◦ 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;

◦ lower net gains on real estate joint ventures in the current period;

• lower losses from GMLB Riders in the current period, see “— GMLB Riders for the Years Ended December 31, 2020 and 2019.”

Loss available to shareholders before provision for income tax was $302 million ($197 million, net of income tax), a lower loss of $1.2 billion ($908 million, net of income tax) from a loss available to shareholders before provision for income tax of $1.5 billion ($1.1 billion, net of income tax) in the prior period.

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

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

• lower losses from GMLB Riders, see “— GMLB Riders for the Years Ended December 31, 2021 and 2020.”

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

• losses on interest rate derivatives used to manage interest rate exposure in our ULSG business due to the long-term benchmark interest rate increasing in the current period and decreasing in the prior period, partially offset by favorable returns on equity options from equity markets increasing more in the current period than in the prior period;

• net investment losses reflecting current period net losses on sales of fixed maturity securities compared to prior period net gains.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 50% in the current period compared to 26% in the prior period.

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

The increase in the effective tax rate was driven by higher pre-tax adjusted earnings, as 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.

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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Adjusted earnings were a loss of $278 million, a decrease of $877 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;

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

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

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 fee income due to:

◦ a decline in the net cost of insurance fees driven by the aging in-force business and a favorable adjustment resulting from a recapture transaction in the prior year in our Run-off segment;

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

Adjusted earnings were $1.6 billion in the current period, an increase of $1.9 billion.

Key net favorable impacts were:

• higher net investment spread due to:

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

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

partially offset by

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

• lower net investment spread due to:

◦ higher interest credited to policyholders in our Annuities and Life segments;

net of lower interest credited to policyholders in our Run-off segment;

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

◦ higher interest credited resulting from changes in interest accrual assumptions in connection with the AAR and the related modeling changes in our Annuities segment;

◦ higher interest credited to policyholders due to higher imputed interest on insurance liabilities related to modeling improvements in the prior period resulting from an actuarial system conversion in our Life segment;

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

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

partially offset by

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

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

• higher net amortization of DAC and VOBA due to:

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

◦ higher paid claims, net of reinsurance;

• lower amortization of DAC and VOBA due to:

◦ a favorable impact resulting from changes in assumptions made in connection with the AAR in our Annuities and Life segments;

◦ an adjustment in the current period related to modeling improvements resulting from an actuarial system conversion in our Annuities segment;

• higher net fee income resulting from:

◦ higher average separate account balances, a portion of which is offset in other expenses;

partially offset by

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

Key favorable impacts were:

• lower other expenses due to:

◦ the exit of various transition services 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.

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

◦ lower unearned revenue amortization in our Life segment resulting from changes in connection with the AAR.

Key net unfavorable impacts were:

• 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 premium paid in excess of debt principal in connection with the repurchase of senior notes in the current period;

◦ higher corporate spending related to distribution and operations;

partially offset by

◦ lower interest expense and legal reserves;

• higher preferred stock dividends due to new issuances during the second and fourth quarters of 2020.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 18% in the current period compared to 38% in the prior period.

Certain one-time tax adjustments recognized in the prior period, primarily due to the revaluation of certain liabilities related to the Separation, 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 deduction 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.

Segments and Corporate & Other Results for the Years Ended December 31, 2021 and 2020 — Adjusted Earnings

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

Variable annuities separate account balances increased for the year ended December 31, 2020, driven by positive equity market performance;

partially offset by negative net flows and policy charges.

December 31, 2020 (1)

Variable annuities separate account balances increased for the year ended December 31, 2021, driven by favorable investment performance, partially offset by negative net flows and policy charges.

Year Ended December 31, 2021 (1)

(In millions)

Balance, beginning of period $ 103,450

Deposits 1,651

Withdrawals, surrenders and benefits (7,964)

Premiums and deposits 2,130

Withdrawals, surrenders and contract benefits (10,139)

Net flows (8,009)

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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Adjusted earnings were $1.2 billion for the current period, an increase of $139 million.

Adjusted earnings were $1.4 billion in the current period, an increase of $282 million.

Key net favorable impacts were:

• lower other expenses due to:

◦ the exit of various transition services 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;

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

• lower 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 net of the impact on estimated gross profits from lower separate account returns;

◦ 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;

• 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;

◦ a favorable impact resulting primarily from the AAR, which included changes in policyholder behavior and capital markets assumptions, as well as model refinements;

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

• 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;

◦ higher returns on real estate limited partnerships and LLCs;

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:

◦ higher interest credited resulting from changes in interest accrual assumptions in connection with the AAR and the related modeling changes;

◦ 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;

Key net unfavorable impacts were:

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

◦ a net increase in guaranteed minimum death benefit (“GMDB”) liabilities resulting from changes in policyholder behavior assumptions made in connection with the AAR and favorable equity market performance;

partially offset by

◦ higher average invested assets net of interest credited on average policyholder account balances, 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.

◦ a decrease in income annuity benefit payments;

• 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 distribution expenses.

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 deduction.

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:

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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Adjusted earnings were $148 million for the current period, a decrease of $83 million.

Key net unfavorable impacts were:

• higher amortization of DAC and VOBA due to:

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

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

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

◦ higher paid claims, net of reinsurance;

Adjusted earnings were $287 million in the current period, an increase of $139 million.

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

◦ 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:

◦ higher interest credited to policyholders in the current period due to higher imputed interest on insurance liabilities, related to modeling improvements resulting from an actuarial system conversion;

• lower amortization of DAC and VOBA due to:

◦ a favorable impact resulting primarily from changes in policyholder behavior assumptions made in connection with the AAR;

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

Key net unfavorable impacts were:

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

• lower net fee income due to:

◦ lower unearned revenue amortization from changes in policyholder behavior assumptions made in connection with the AAR;

partially offset by

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

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 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 19% in the prior period.

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

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:

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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Adjusted earnings were a loss of $1.3 billion for the current period, a higher loss of $845 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 fee income in our ULSG business due to:

◦ a decline in the net cost of insurance fees driven by the aging in-force business and a favorable adjustment resulting from a recapture transaction in the prior year;

◦ 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.

The higher adjusted loss was partially offset by higher net investment spread due to a decrease in average crediting rates in the current period in connection with the low interest rate environment and higher returns on other limited partnerships for the comparative measurement period, partially offset by lower investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average.

Adjusted earnings were $191 million in the current period, an increase of $1.5 billion.

Key favorable impacts were:

• lower costs associated with insurance-related activities, primarily in our ULSG business, due to a decrease in liability balances resulting from changes in the long-term general account earned rate assumptions made in connection with the AAR;

• 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 a decline in the net cost of insurance fees driven by the aging in-force business.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 22% 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 deduction and tax credits.

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

Corporate & Other

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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Adjusted earnings were a loss of $294 million for the current period, a higher loss of $88 million.

Key net unfavorable impacts were:

• higher other expenses driven by:

◦ a premium paid in excess of debt principal and the write off of unamortized debt issuance costs in connection with the repurchase of senior notes in the current period;

◦ the allowance for credit losses recorded in the current period;

Adjusted earnings were a loss of $334 million in the current period, a higher loss of $40 million.

Key unfavorable impacts were:

• higher preferred stock dividends due to new issuances during the second and fourth quarters of 2020;

• higher amortization of DAC and VOBA due to an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion;

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

Key net favorable impacts were:

• lower other expenses due to:

◦ lower establishment costs, interest expense and legal reserves;

partially offset by

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

• timing of our preferred stock dividend payments.

The higher adjusted loss was partially offset by 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, primarily in our Life segment.

◦ higher premium paid in excess of debt principal in connection with the repurchase of senior notes in the current period;

• higher net investment spread due to:

◦ higher average invested long-term assets from funding agreements issued in connection with our institutional spread margin business;

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

partially offset by

◦ lower returns on 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 26% in the prior period.

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An increase in these liabilities would result in a decrease to our net income (loss) available to shareholders, which could be significant.

Shield Annuities currently offered provide the ability for the contract holder to participate in the appreciation of certain financial markets up to a stated level, while offering protection from a portion of declines in the applicable indices or benchmark.

Shield Annuities provide the contract holder the ability to participate in the appreciation of certain financial markets up to a stated level, while offering protection from a portion of declines in the applicable indices or benchmark.

We believe that Shield Annuities provide us with risk offset to liabilities related to guarantee rider benefits.

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While the DAC offset is generally the most significant driver of GMLB DAC, it can be impacted by other adjustments including amortization related to guarantee benefit riders accounted for as insurance.

See “— Risk Management Strategies — Variable Annuity Exposure Risk Management” for discussion of our management of and our hedging strategy associated with our variable annuity business.

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Comparative results from GMLB Riders were favorable by $61 million, primarily driven by:

• favorable changes in our GMLB hedges;

• favorable changes in our ceded reinsurance;

Comparative results from GMLB Riders were favorable by $255 million.

The AAR primarily resulted in favorable changes in reserves and DAC amortization recognized in the current period.

Results were also driven by:

• unfavorable changes in our GMLB hedges;

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

• unfavorable changes in ceded reinsurance;

partially offset by

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

• unfavorable changes in GMLB DAC.

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

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

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

• favorable changes to GMLB DAC;

• favorable changes in our ceded reinsurance;

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

• favorable changes in 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 to the estimated fair value of Shield liabilities;

• unfavorable changes in ceded reinsurance;

partially offset by

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

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

• unfavorable changes to the estimated fair value of variable annuity liability reserves driven by smaller gains in the current period;

• unfavorable changes to the estimated fair value of Shield liabilities resulting from larger losses in the current period, partially due to the continued growth in the block;

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

Higher equity markets resulted in the following impacts:

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

partially offset by

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• favorable changes to GMLB DAC.

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.

Effects of Inflation

Management believes that inflation has not had a material effect on the Company’s results of operations, except insofar as inflation may affect interest rates.

An increase in inflation could affect our business in several ways.

During inflationary periods, the value of fixed income investments falls which could increase realized and unrealized losses.

Inflation also increases expenses for labor and other materials, potentially putting pressure on profitability if such costs cannot be passed through in our product prices.

The narrowing of our credit spreads in the current period combined with a 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

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• interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates.

Changes in market interest rates will impact the net unrealized gain or loss position of our fixed income

investment portfolio and the rates of return we receive on both new funds invested and reinvestment of existing funds;

Changes in market interest rates will impact the net unrealized gain or loss position of our fixed income investment portfolio and the rates of return we receive on both new funds invested and reinvestment of existing funds;

• inflation risk, relating to a sustained or material increase in inflation, which could increase realized and unrealized losses or increase expenses;

• market valuation risk, relating to the variability in the estimated fair value of investments associated with changes in market factors such as credit spreads and equity market levels.

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

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

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

The Federal Reserve may increase or decrease the federal funds rate in the future, which may have an impact on the pricing levels of risk-bearing investments and may adversely impact the level of product sales.

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

Our exposure to energy sector fixed maturity securities was $3.2 billion, of which 91% were investment grade, with net unrealized gains (losses) of $383 million at December 31, 2020.

Our exposure to energy sector fixed maturity securities was $3.3 billion, with net unrealized gains (losses) of $291 million, of which 90% were investment grade, at December 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 $1.9 billion, of which 97% were investment grade, with net unrealized gains (losses) of $265 million at December 31, 2020.

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.

Our exposure to retail sector corporate fixed maturity securities was $1.9 billion, with net unrealized gains (losses) of $177 million, of which 94% were investment grade, at December 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 ABS (collectively, “Structured Securities”) that may be impacted by the COVID-19 pandemic.

See “— Investments — Mortgage Loans” and Note 6 of the Notes to the Consolidated Financial Statements for information on mortgage loans, including credit quality by portfolio segment and commercial mortgage loans by property type.

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See “— Results of Operations — Consolidated Results for the Years Ended December 31, 2021 and 2020” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Consolidated Results for the Years Ended December 31, 2020 and 2019” in our 2020 Annual Report for an analysis of the year over year changes in net investment income.

Fixed Maturity Securities AFS

Fixed Maturity Securities Available-for-sale

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

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The methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from Structured Securities.

In 2021, these methodologies were updated to only apply to those Structured Securities issued prior to 2013.

We apply the NAIC methodologies to Structured Securities held by our insurance subsidiaries and BRCD.

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Industrial $ 16,131 31.8 % $ 15,541 31.5 %

Consumer 11,535 23.3 9,719 23.7

Finance 12,430 24.4 11,452 23.2

Consumer 11,650 22.9 11,535 23.3

Utility 7,146 14.1 7,412 15.0

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Security type:

Collateralized mortgage obligations $ 4,852 58.5 % $ 484 $ 4,857 53.3 % $ 360

Pass-through securities $ 4,688 50.6 % $ 29 $ 3,442 41.5 % $ 157

Collateralized mortgage obligations 4,571 49.4 352 4,852 58.5 484

Total RMBS $ 9,259 100.0 % $ 381 $ 8,294 100.0 % $ 641

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Collateralized obligations $ 2,659 62.1 % $ (1) $ 1,762 61.1 % $ 5

Consumer loans 250 8.7 6 171 8.7 2

Student loans 384 9.0 6 247 8.6 5

Consumer loans 342 8.0 — 250 8.7 6

Automobile loans 151 3.5 2 92 3.2 5

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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.

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.

Securities loaned under such transactions may be sold or re-pledged by the transferee.

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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:

December 31, 2020

California 24%

At December 31, 2021, the carrying value as a percentage of total commercial and agricultural mortgage loans for the top three states in the U.S.

was 21% for California, 10% for New York and 10% for Texas.

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

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at both December 31, 2021 and 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:

December 31, 2020

California 35%

At December 31, 2021, the carrying value as a percentage of total residential mortgage loans for the top three states in the U.S.

was 35% for California,10% for Florida and 8% for New York.

Commercial Mortgage Loans by Geographic Region and Property Type.

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Pacific $ 2,601 21.3 % $ 2,670 27.5 %

Middle Atlantic 1,861 19.1 1,875 19.3

South Atlantic 2,383 19.6 1,832 18.9

Middle Atlantic 2,115 17.3 1,861 19.1

West South Central 1,425 11.7 802 8.2

Mountain 1,062 8.7 736 7.6

New England 789 6.5 453 4.7

East North Central 717 5.9 596 6.1

International 495 4.1 506 5.2

New England 453 4.7 412 4.2

West North Central 318 2.6 113 1.2

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Property type:

Office $ 3,788 39.0 % $ 3,839 39.5 %

Apartment $ 3,895 32.0 % $ 2,072 21.3 %

Office 3,566 29.3 3,788 39.0

Retail 1,863 15.3 2,068 21.3

Hotel 934 9.6 930 9.6

Industrial 1,847 15.1 822 8.5

Hotel 1,016 8.3 934 9.6

Other — — 30 0.3

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

The debt-service coverage ratio compares a property’s net operating income to amounts needed to service the principal and interest due under the loan.

The debt-service coverage ratio compares a property’s net operating

income to amounts needed to service the principal and interest due under the loan.

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

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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 December 31, 2021, the recorded investment on mortgage loans where borrowers were offered debt-service forbearance and were not making payments was $55 million, comprised of $31 million of agricultural mortgage loans and $24 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.

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

federal legislation in March 2020.

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Limited Partnerships and Limited Liability Companies

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

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

December 31, 2021 December 31, 2020

(In millions)

Other limited partnerships interests $ 2,373 $ 1,941

Other limited partnerships $ 3,786 $ 2,373

Real estate limited partnerships and LLCs (1) 485 437

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Freestanding derivatives with positive estimated fair values $ 3,126 94.3 % $ 3,582 95.6 %

Tax credit renewable energy partnerships 64 1.7 82 2.6

Leveraged leases, net of non-recourse debt 50 1.3 64 2.0

FHLB Stock 70 2.1 39 1.1

Tax credit and renewable energy partnerships 59 1.8 64 1.7

Leveraged leases, net of non-recourse debt 49 1.5 50 1.3

Other 12 0.3 12 0.3

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Fair Value Hierarchy

See Note 8 of the Notes to the Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy.

See Note 8 of the Notes to the Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy, as well as a rollforward of the fair value measurements for derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs as discussed below.

The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives.

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foreign currency swaps with certain unobservable inputs and equity index options with unobservable correlation inputs.

See Note 8 of the Notes to Consolidated Financial Statements for a rollforward of the fair value measurements for derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.

See Note 7 of the Notes to the Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.

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 on the balance sheets and does not affect our legal right of offset.

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

Credit Derivatives

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(In millions)

Purchased $ 18 $ — $ 18 $ —

Written $ 1,724 $ 38 $ 1,755 $ 41

Purchased — — 18 —

Total $ 1,724 $ 38 $ 1,773 $ 41

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In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies.

Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company.

Replications are entered into in accordance with

the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company.

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

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Embedded Derivatives

See Note 8 of the Notes to the Consolidated Financial Statements for information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy.

See Note 8 of the Notes to the Consolidated Financial Statements for 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 8 of the Notes to the 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 7 of the Notes to the Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits accounted for as embedded derivatives.

See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect embedded derivatives.

Off-Balance Sheet Arrangements

Collateral for Securities Lending and Derivatives

We have a securities lending program for the purpose of enhancing the total return on our investment portfolio.

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

The Company did not hold non-cash collateral at either December 31, 2020 or 2019.

See Note 6 of the Notes to the 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.

We enter into derivatives to manage various risks relating to our ongoing business operations.

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 $898 million and $593 million at December 31, 2020 and 2019, respectively.

See Note 7 of the Notes to the 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 15 of the Notes to the Consolidated Financial Statements.

Additionally, we enter into commitments for the purpose of enhancing the total return on our investment portfolio:

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

See Note 6 of the Notes to the Consolidated Financial Statements for information on the investment income, investment expense, gains and losses from such investments.

See also “— Investments — Fixed Maturity and Equity 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 15 of the Notes to the 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 “— Liquidity and Capital Resources — The Company — Contractual Obligations.”

Policyholder Liabilities

We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments.

We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity and life insurance benefit payments.

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

For more details on policyholder liabilities, see “— Summary of Critical Accounting Estimates.”

See “— Summary of Critical Accounting Estimates” for more details on policyholder liabilities.

Due to the nature of the underlying risks and the uncertainty associated with the determination of actuarial liabilities, we cannot precisely determine the amounts that will ultimately be paid with respect to these actuarial liabilities, and the ultimate amounts may vary from the estimated amounts, particularly when payments may not occur until well into the future.

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We have experienced, and will likely in the future experience, catastrophe losses and possibly acts of terrorism, as well as turbulent financial markets that may have an adverse impact on our business, financial condition and results of operations.

Due to their nature, we cannot predict the incidence, timing, severity or amount of losses from catastrophes and acts of terrorism, but we make broad use of catastrophic and non-catastrophic reinsurance to manage risk from these perils.

Moreover, the impact of climate change could cause changes in the frequency or severity of outbreaks of certain diseases.

Due to their nature, we cannot predict the incidence, timing, severity or amount of losses from catastrophes, acts of terrorism or climate change, but we make broad use of catastrophic and non-catastrophic reinsurance to manage risk from these perils.

Future Policy Benefits

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Future policy benefits for the annuities business are comprised mainly of liabilities for life contingent income annuities and liabilities for the variable annuity guaranteed minimum benefits accounted for as insurance.

Future policy benefits for the life business are comprised mainly of liabilities for traditional life and for universal and variable life insurance contracts.

In order to manage risk, we have often reinsured a portion of the mortality risk on life

insurance policies.

Future policy benefits for the life business are comprised mainly of liabilities for term, whole, universal and variable life insurance contracts.

In order to manage risk, we have often reinsured a portion of the mortality risk on life insurance policies.

The reinsurance programs are routinely evaluated, and this may result in increases or decreases to existing coverage.

We have entered into various derivative positions, primarily interest rate swaps, to mitigate the risk that investment of premiums received and reinvestment of maturing assets over the life of the policy will be at rates below those assumed in the original pricing of these contracts.

Future policy benefits primarily include liabilities for structured settlement annuities and pension risk transfers.

There is no interest rate crediting flexibility on the liabilities for payout annuities.

We have entered into various derivative positions, primarily interest rate swaps, to mitigate the risk that

investment of premiums received and reinvestment of maturing assets over the life of the policy will be at rates below those assumed in the original pricing of these contracts.

Future policy benefits primarily include liabilities for structured settlements and pension risk transfer contracts.

There is no interest rate crediting flexibility on the liabilities for immediate annuities.

As a result, a sustained low interest rate environment could negatively impact earnings;

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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 “— Variable Annuity Guarantees” and “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates.” See Notes 1 and 3 of the Notes to the Consolidated Financial Statements for additional information.

A discussion of policyholder account balances by segment, as well as Corporate & Other, follows.

Also, see “— Variable Annuity Guarantees,” “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates” and Notes 1 and 3 of the Notes to the Consolidated Financial Statements for additional information.

Policyholder account balances also include amounts associated with funding agreements issued in connection with our institutional spread margin business or for additional liquidity.

See “— Liquidity and Capital Resources — The Company — Primary Sources of Liquidity and Capital — Funding Sources — Funding Agreements.”

Policyholder account balances for annuities are held for fixed deferred annuities, the fixed account portion of variable annuities and non-life contingent income annuities.

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Excess interest reserves for Life were $40 million and $36 million at December 31, 2021 and 2020, respectively.

Policyholder account balances in Run-off are comprised of ULSG funding agreements and COLI.

Policyholder account balances in Run-off are comprised of ULSG, certain company-owned life insurance policies and certain funding agreements.

Interest crediting rates vary by type of contract and can be fixed or variable.

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Certain of our variable annuity guarantee features are accounted for as insurance liabilities and recorded in future policy benefits while others are accounted for at fair value as embedded derivatives and recorded in policyholder account balances.

Generally speaking, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific insurable event, or (ii) annuitization.

Alternatively, a guarantee is accounted for as an embedded derivative if a guarantee is paid without requiring (i) the occurrence of specific insurable event, or (ii) the policyholder to annuitize, that is, the policyholder can receive the guarantee on a net basis.

Generally, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific insurable event, or (ii) annuitization.

Alternatively, a guarantee is accounted for as an embedded derivative if a guarantee is paid without requiring (i) the occurrence of specific insurable event, or (ii) the policyholder to annuitize, resulting in the policyholder receiving the guarantee on a net basis.

In certain cases, a guarantee may have elements of both an insurance liability and an embedded derivative and in such cases the guarantee is split and accounted for under both models.

Further, changes in assumptions, principally involving behavior, can result in a change of expected future cash outflows of a guarantee between portions accounted for as insurance liabilities and portions accounted for as embedded derivatives.

Guarantees accounted for as insurance liabilities in future policy benefits include GMDBs, the life contingent portion of the 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 forced into an annuitization upon depletion of their account value.

Further, changes in assumptions, principally involving behavior, can result in a change of expected future cash

outflows of a guarantee between portions accounted for as insurance liabilities and portions accounted for as embedded derivatives.

Guarantees accounted for as insurance liabilities in future policy benefits include GMDBs, the life contingent portion of GMWBs and the portion of 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.

These insurance liabilities are accrued over the accumulation phase of the contract in proportion to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate account returns.

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In valuing the embedded derivative, the percentage of fees included in the fair value measurement is locked-in at inception.

The projections of future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder behavior.

A risk neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital market scenarios to determine an economic liability.

The projections of future benefits and future fees require capital markets and actuarial assumptions including expectations concerning policyholder behavior.

A risk neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital markets scenarios to determine an economic liability.

The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin.

For more information on the determination of estimated fair value.

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

See Note 8 of the Notes to the Consolidated Financial Statements for more information on the determination of estimated fair value.

Liquidity and Capital Resources

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

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

Liquidity refers to our ability to generate adequate cash flows from our normal operations to meet the cash requirements of our operating, investing and financing activities.

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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 under a variety of 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.

Under current GAAP, 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.

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There can be no assurance that we will be able to complete any such financing transactions on terms and conditions favorable to us or at all.

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

We refer to our target level of assets as our Variable Annuity Target Funding Level.

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, and on February 10, 2021, we authorized the repurchase of up to an additional $200 million of our common stock.

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.

Repurchases made under the February 6, 2020 and February 10, 2021 authorizations 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.

We have enhanced our risk management focus on the core drivers of our combined RBC ratio and have refined our hedge program to better manage our RBC in stressed market scenarios.

On August 2, 2021, we authorized the repurchase of up to $1.0 billion of our common stock, which was in addition to our prior and subsequently fully utilized $200 million repurchase authorization announced on February 10, 2021.

Repurchases under the August 2, 2021 authorization, of which $781 million was remaining at December 31, 2021, 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.

Common stock repurchases are dependent upon several factors, including our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of our common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors.

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

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.

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

The following financial strength ratings represent each rating agency’s current opinion of our insurance subsidiaries’ ability to pay obligations under insurance policies and contracts in accordance with their terms and are not evaluations directed toward the protection of investors in our securities.

Financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell any security, contract or policy.

Financial strength ratings represent the opinion of rating agencies regarding the ability of an insurance company to pay obligations under insurance policies and contracts in accordance with their terms.

Credit ratings indicate the rating agency’s opinion regarding a debt issuer’s ability to meet the terms of debt obligations in a timely manner.

They are important factors in our overall funding profile and ability to access certain types of liquidity and capital.

The level and composition of our regulatory capital at the subsidiary level and our equity capital are among the many factors considered in determining our financial strength ratings and credit ratings.

Each agency has its own capital adequacy evaluation methodology, and assessments are generally based on a combination of factors.

Financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell security, contract or policy.

Each rating should be evaluated independently of any other rating.

Our financial strength ratings as of the date of this filing are indicated in the following table.

All financial strength ratings have a stable outlook unless otherwise indicated.

Our financial strength ratings and long-term issuer credit ratings as of the date of this filing were as follows:

Best (1) Fitch (2) Moody’s (3) S&P (4)

“A++ (superior)” to “S (suspended)” “AAA (exceptionally strong)” to “C (distressed)” “Aaa (highest quality)” to “C (lowest rated)” “AAA (extremely strong)” to “SD (Selective Default)” or “D (Default)”

Current outlook Stable Stable Stable Stable

Financial Strength Ratings:

Brighthouse Life Insurance Company A A A3 A+

3rd of 16 6th of 19 7th of 21 5th of 22

New England Life Insurance Company A A A3 A+

3rd of 16 6th of 19 7th of 21 5th of 22

Brighthouse Life Insurance Company of NY A NR NR A+

3rd of 16 5th of 22

_______________

NR = Not rated

(1) Negative outlook.

Our long-term issuer credit ratings as of the date of this filing are indicated in the following table.

All long-term issuer credit ratings have a stable outlook unless otherwise indicated.

Best Fitch Moody’s S&P

“aaa (Exceptional)” to “S (suspended)” “AAA (highest credit quality)” to “D (default)” “Aaa (highest quality)” to “C (lowest rated)” “AAA (extremely strong)” to “SD (Selective Default)” or “D (Default)”

Long-term Issuer Credit Ratings:

Brighthouse Financial, Inc.

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_______________

(1) Long-term Issuer Credit Rating refers to issuer credit rating, issuer default rating, long-term issuer rating and long-term counterparty credit rating for A.M.

Best, Fitch, Moody’s and S&P, respectively.

(2) Negative outlook.

Additional information about financial strength ratings and credit ratings can be found on the respective websites of the rating agencies.

Best’s financial strength ratings for insurance companies range from “A++ (Superior)” to “S (Suspended).” A.M.

Best’s long-term issuer credit ratings range from “aaa (exceptional)” to “s (suspended).”

(2) Fitch’s financial strength ratings for insurance companies range from “AAA (highest rating)” to “C (distressed).” Fitch’s long-term issuer credit ratings range from “AAA (highest rating)” to “D (default).”

(3) Moody’s financial strength ratings for insurance companies and long-term issuer credit ratings range from “Aaa (highest quality)” to “C (lowest rated).”

(4) S&P’s financial strength ratings for insurance companies and long-term issuer credit ratings range from “AAA (extremely strong)” to “SD (selective default)” or “D (default).”

NR = Not rated

Rating agencies may continue to review and adjust our ratings.

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life insurance industry to negative.

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” for an in-depth description of the impact of a ratings downgrade.

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” for a description of the impact of a potential ratings downgrade.

Sources and Uses of Liquidity and Capital

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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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See Note 10 of the Notes to the Consolidated Financial Statements 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 for spread lending purposes in connection with our institutional spread margin business or to provide additional liquidity.

The institutional spread margin business is comprised of funding agreements issued in connection with the programs described in more detail below.

See “Obligations Under Funding Agreements” in Note 3 of the Notes to the Consolidated Financial Statements.

Funding Agreement-Backed Commercial Paper Program

In July 2021, Brighthouse Life Insurance Company established a funding agreement-backed commercial paper program (the “FABCP Program”) for spread lending purposes, pursuant to which a special purpose limited liability company (the “SPLLC”) may issue commercial paper and deposit the proceeds with Brighthouse Life Insurance Company under a funding agreement issued by Brighthouse Life Insurance Company to the SPLLC.

The maximum aggregate principal amount permitted to be outstanding at any one time under the FABCP Program is $3.0 billion.

Activity related to this funding agreement is reported in Corporate & Other.

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 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.

Activity related to these funding agreements is 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 we maintain an active funding agreement program, along with inactive funding agreement programs with certain other regional banks in the FHLB system.

Brighthouse Life Insurance Company had obligations outstanding under funding agreements of $595 million at both December 31, 2020 and 2019, respectively, which are reported in policyholder account balances.

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

During each of the years ended December 31, 2019 and 2018, there were no issuances or repayments under this funding agreement program.

See Note 3 of the Notes to the Consolidated Financial Statements for additional information on FHLB funding agreements.

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

Activity related to these funding agreements is 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.

Any such borrowings would be reported in policyholder account balances.

At both December 31, 2020 and 2019, there were no borrowings under this funding agreement program.

See Note 3 of the Notes to the Consolidated Financial Statements for additional information on Farmer Mac funding agreements.

Brighthouse Life Insurance Company has a secured 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) for spread lending purposes or (ii) to provide additional liquidity.

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

Information regarding funding agreements issued for spread lending purposes is as follows:

Aggregate Principal Amount Outstanding Issuances Repayments

December 31, Years Ended December 31,

2021 2020 2021 2020 2019 2021 2020 2019

(In millions)

FABCP Program $ 1,848 $ — $ 2,939 $ — $ — $ 1,091 $ — $ —

FABN Program 2,900 — 2,900 — — — — —

FHLB Funding Agreements (1) 900 — 1,352 — — 452 — —

Farmer Mac Funding Agreements 125 — 125 — — — — —

Total $ 5,773 $ — $ 7,316 $ — $ — $ 1,543 $ — $ —

_______________

(1) Additionally, in April 2020, Brighthouse Life Insurance Company issued funding agreements for an aggregate collateralized borrowing of $1.0 billion to provide a readily available source of contingent liquidity and repaid such borrowing during the fourth quarter of 2020.

Debt Issuances

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Credit and Committed Facilities

See Note 9 of the Notes to the Consolidated Financial Statements for information regarding our credit and committed facilities.

See Notes 9 and 10 of the Notes to the Consolidated Financial Statements 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:

December 31, 2020 December 31, 2019

(In millions)

Senior notes $ 3,042 $ 2,970

Term loan — 1,000

Junior subordinated debentures 363 363

Other long-term debt (1) 31 32

Total long-term debt (2) $ 3,436 $ 4,365

_______________

(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 and $42 million at December 31, 2020 and 2019, respectively, for senior notes and junior subordinated debentures on a combined basis.

See Note 9 of the Notes to the Consolidated Financial Statements 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 2019 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.

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

Primary Uses of Liquidity and Capital

In addition to the summarized description of liquidity and capital uses discussed in “— Sources and Uses of Liquidity and Capital,” and “— Contractual Obligations,” the following additional information is provided regarding our primary uses of liquidity and capital:

In addition to the summarized description of liquidity and capital uses discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary uses of liquidity and capital:

Common Stock Repurchases

See Note 10 of the Notes to the 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 December 31, 2021.

In 2021, through February 22, 2021, BHF repurchased an additional 855,261 shares of its common stock through open market purchases, pursuant to 10b5-1 plans, for $34 million.

See Note 17 of the Notes to the Consolidated Financial Statements for information relating to the authorization of share repurchases subsequent to December 31, 2020.

In 2022, through February 18, 2022, BHF repurchased an additional 1,337,835 shares of its common stock through open market purchases, pursuant to a 10b5-1 plan, for $75 million.

Preferred Stock Dividends

See Notes 10 and 16 of the Notes to the Consolidated Financial Statements for information relating to dividends declared and paid on our preferred stock.

Debt Repayments

See Note 9 of the Notes to the Consolidated Financial Statements for information on debt repayments.

Debt Repurchases, Redemptions and Exchanges

Debt Repayments, Repurchases, Redemptions and Exchanges

See Note 9 of the Notes to the Consolidated Financial Statements for information on debt repayments and repurchases, as well as debt maturities and the terms of our long-term debt outstanding.

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.

Any such repurchases or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, as well as 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 for additional information on debt repurchases.

Insurance Liabilities

Liabilities arising from our insurance activities primarily relate to benefit payments under various annuity and life insurance products, as well as payments for policy surrenders, withdrawals and loans.

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

During the years ended December 31, 2020, 2019 and 2018, general account surrenders and withdrawals totaled $2.1 billion, $2.3 billion and $3.0 billion, respectively, of which $1.4 billion, $2.1 billion and $2.4 billion, respectively, was attributable to products within the Annuities segment.

During the years ended December 31, 2021, 2020 and 2019, general account surrenders and withdrawals totaled $4.6 billion, $2.1 billion and $2.3 billion, respectively.

At December 31, 2021, our insurance liabilities, excluding obligations under our institutional spread margin business, totaled $108.3 billion and the related future estimated cash payments totaled $111.2 billion, of which $9.0 billion is due in the next twelve months.

These estimated cash payments are based on assumptions related to mortality, morbidity, policy lapses, withdrawals, surrender charges, annuitization, future interest credited and other assumptions comparable with our experience and expectations of future payment patterns, as well as other contingent events as appropriate for the respective product type.

These amounts are undiscounted and, therefore, exceed the liabilities included on the consolidated balance sheet.

Actual cash payments on insurance liabilities may differ significantly from future estimated cash payments due to differences between actual experience and the assumptions used in the establishment of the liabilities and the estimation of the future cash payments.

All future estimated cash payments are presented gross of any reinsurance recoverable.

At December 31, 2021, obligations under our institutional spread margin business totaled $5.8 billion and the related future estimated cash payments, including interest, totaled $5.9 billion, of which $2.6 billion is due in the next twelve months.

Pledged Collateral

We enter into derivatives to manage various risks relating to our ongoing business operations.

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

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At December 31, 2021 and 2020, we were obligated to return cash collateral pledged to us by counterparties of $1.7 billion and $1.6 billion, respectively.

See Note 7 of the Notes to the Consolidated Financial Statements for additional information about pledged collateral.

We also pledge collateral from time to time in connection with funding agreements.

The timing of the return of the derivatives collateral is uncertain.

We also pledge collateral from time to time in connection with certain funding agreements.

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

The amount of this non-cash collateral at estimated fair value was $593 million and $898 million at December 31, 2021 and 2020, respectively.

See Note 7 of the Notes to the Consolidated Financial Statements for additional information regarding pledged collateral.

Securities Lending

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

We have a securities lending program that aims to enhance the total return on our investment portfolio, whereby securities are loaned to third parties, primarily brokerage firms and commercial banks.

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

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

Of these amounts, $937 million and $1.3 billion at December 31, 2020 and 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 December 31, 2020 was $920 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.

See Note 6 of the Notes to the Consolidated Financial Statements.

Putative or certified class action litigation and other litigation, and claims and assessments against us, in addition to those discussed elsewhere herein and those otherwise provided for in the financial statements, have arisen in the course of our business, including, but not limited to, in connection with our activities as an insurer, employer, investor, investment advisor, and taxpayer.

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

Generally, our securities lending contracts expire within twelve months of issuance.

We were liable for cash collateral under our control of $4.6 billion and $3.7 billion at December 31, 2021 and 2020, respectively.

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 non-cash collateral was $2 million at estimated fair value at December 31, 2021.

The Company did not hold any non-cash collateral at December 31, 2020.

See Note 6 of the Notes to the Consolidated Financial Statements for further discussion of our securities lending program.

Contingencies, Commitments and Guarantees

We establish liabilities for litigation, regulatory and other loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

See “Contingencies” in Note 15 of the Notes to the Consolidated Financial Statements.

We enter into commitments for the purpose of enhancing the total return on our investment portfolio consisting of commitments to fund partnership investments, bank credit facilities and private corporate bond investments, as well as commitments to lend funds under mortgage loan commitments.

We anticipate these commitments could be invested any time over the next five years.

See Note 6 of the Notes to the Consolidated Financial Statements.

Contractual Obligations

Our major contractual obligations were as follows at December 31, 2020:

Total One Year

or Less More than

Three Years More than

to Five Years More than Five Years

(In millions)

Insurance liabilities $ 70,404 $ 4,191 $ 3,006 $ 3,272 $ 59,935

Policyholder account balances 52,023 5,494 10,105 8,098 28,326

Payables for collateral under securities loaned and other transactions

5,252 5,252 — — —

Long-term debt 6,443 152 329 330 5,632

Investment commitments 1,871 1,871 — — —

Other 4,698 4,624 — — 74

Total $ 140,691 $ 21,584 $ 13,440 $ 11,700 $ 93,967

Insurance Liabilities

Insurance liabilities reflect future estimated cash flows and (i) are based on mortality, morbidity, lapse and other assumptions comparable with our experience and expectations of future payment patterns;

and (ii) consider future premium receipts on current policies in-force.

Additionally, the more than five years category includes estimated payments due for periods extending for more than 100 years.

The total amount presented for insurance liabilities of $70.4 billion exceeds the sum of the liability amounts for future policy benefits and of $47.9 billion presented on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference;

and (ii) differences in assumptions, most significantly mortality, between the date the liabilities were initially established and the current date;

and are partially offset by liabilities related to accounting conventions (such as interest reserves and unearned revenue), or which are not contractually due, which are excluded.

Actual cash payments on insurance liabilities may differ significantly from the liabilities as presented on the consolidated balance sheet and the estimated cash payments as presented in the table above due to differences between actual experience and the assumptions used in the establishment of the liabilities and the estimation of the cash payments.

All estimated cash payments are presented gross of any reinsurance recoverable.

Policyholder Account Balances

Policyholder account balances generally represent the estimated cash payments on customer deposits and are based on assumptions related to withdrawals, including unscheduled or partial withdrawals;

policy lapses;

surrender charges;

annuitization;

future interest credited;

policy loans and other contingent events as appropriate for the respective product type.

The total amount presented for policyholder account balances of $52.0 billion exceeds the liability amount of $54.5 billion presented on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference;

(ii) differences in assumptions between the date the liabilities were initially established and the current date;

and (iii) liabilities related to accounting conventions (such as interest reserves and embedded derivatives), or which are not contractually due, which are excluded.

Actual cash payments on policyholder account balances may differ significantly from the liabilities as presented on the consolidated balance sheet and the estimated cash payments as presented in the table above due to differences between actual experience and the assumptions used in the establishment of the liabilities and the estimation of the cash payments.

All estimated cash payments are presented gross of any reinsurance recoverable.

Payables for Collateral Under Securities Loaned and Other Transactions

We have accepted cash collateral in connection with securities lending and derivatives.

As the securities lending transactions expire within the next year and the timing of the return of the derivatives collateral is uncertain, the return of the collateral has been included in the one year or less category in the table.

We also held non-cash collateral, which is not reflected as a liability on the consolidated balance sheet of $840 million at December 31, 2020.

Long-term Debt

The total amount presented for long-term debt differs from the total amount presented on the consolidated balance sheet as the amounts presented herein do not include unamortized premiums or discounts and debt issuance costs incurred upon issuance and include future interest on such obligations for the period from January 1, 2021 through maturity.

Future interest on variable rate debt was computed using prevailing rates at December 31, 2020 and, as such, does not consider the impact of future rate movements.

Future interest on fixed rate debt was computed using the stated rate on the obligations.

Investment Commitments

Investment commitments primarily include commitments to lend funds under partnership investments, which we anticipate could be invested any time over the next five years;

however, as the timing of the fulfillment of the obligation cannot be predicted, such obligations are presented in the one year or less category.

See Note 15 of the Notes to the Consolidated Financial Statements and “— Off-Balance Sheet Arrangements.”

Other obligations are principally comprised of (i) the estimated fair value of derivative obligations, (ii) amounts due under reinsurance agreements, (iii) obligations under deferred compensation arrangements, (iv) payables related to securities purchased but not yet settled and (v) other accruals and accounts payable for which the Company is contractually liable, which are reported in other liabilities on the consolidated balance sheet.

If the timing of any of these other obligations is sufficiently uncertain, the amounts are included within the one year or less category.

Separate account liabilities are excluded as they are fully funded by cash flows from the corresponding separate account assets and are set equal to the estimated fair value of separate account assets.

See “Commitments” in Note 15 of the Notes to the Consolidated Financial Statements.

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

See “Guarantees” in Note 15 of the Notes to the Consolidated Financial Statements.

The Parent Company

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Short-term Liquidity and Liquid Assets

At December 31, 2020 and 2019, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.6 billion and $723 million, respectively.

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

At December 31, 2020 and 2019, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.7 billion and $767 million, respectively, of which $1.6 billion and $715 million, respectively, was held by BHF.

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

At both December 31, 2021 and 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, excluding assets that are pledged or otherwise committed.

Assets pledged or otherwise committed include assets held in trust.

At December 31, 2021 and 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, excluding assets that are pledged or otherwise committed.

Assets pledged or otherwise committed include assets held in trust.

Statutory Capital and Dividends

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Normalized Statutory Earnings

Normalized statutory earnings is used by management to measure our insurance companies’ ability to pay future distributions and is reflective of whether our hedging program functions as intended.

Normalized statutory earnings is calculated as statutory pre-tax net gain from operations adjusted for the favorable or unfavorable impacts of (i) net realized capital gains (losses), (ii) the change in total asset requirement at CTE95, net of the change in our variable annuity reserves, and (iii) unrealized gains (losses) associated with our variable annuities risk management strategy.

Normalized statutory earnings may be further adjusted for certain unanticipated items that impacted our results in order to help management and investors better understand, evaluate and forecast those results.

Our variable annuity block is managed by funding the balance sheet with assets equal to or greater than a CTE95 level.

We also manage market-related risks of increases in these asset requirements by hedging the market sensitivity of the CTE95 level to changes in the capital markets.

By including hedge gains and losses related to our variable annuity risk management strategy in our calculation of normalized statutory earnings, we are able to fully reflect the change in value of the hedges, as well as the change in the value of the underlying CTE95 total asset requirement level.

Normalized statutory earnings (loss) is used by management to measure our insurance companies’ ability to pay future distributions and is reflective of whether our hedging program functions as intended.

Normalized statutory earnings (loss) is calculated as statutory pre-tax net gain (loss) from operations adjusted for the favorable or unfavorable impacts of (i) net realized capital gains (losses), (ii) the change in total asset requirement at CTE95, net of the change in our variable annuity reserves, and (iii) unrealized gains (losses) associated with our variable annuities risk management strategy.

See “Glossary” for the definition of CTE95.

In the first quarter of 2022, we will revise the calculation of normalized statutory earnings to better align with VA Reform and therefore our combined RBC ratio, where the relevant CTE measure is CTE98 rather than CTE95.

Normalized statutory earnings (loss) may be further adjusted for certain unanticipated items that impact our results in order to help management and investors better understand, evaluate and forecast those results.

Our variable annuity block has been managed by funding the balance sheet with assets equal to or greater than a CTE95 level.

We have also managed market-related risks of increases in these asset requirements by hedging the market sensitivity of the CTE95 level to changes in the capital markets.

By including hedge gains and losses related to our variable annuity risk management strategy in our calculation of normalized statutory earnings (loss), we are able to fully reflect the change in value of the hedges, as well as the change in the value of the underlying CTE95 total asset requirement level.

We believe this allows us to determine whether our hedging program is providing the desired level of protection.

The following table presents the components of normalized statutory earnings:

Beginning in the first quarter of 2022, in support of our target combined RBC ratio, our hedge program will target CTE98, rather than CTE95.

See “— Risk Management Strategies — Variable Annuity Exposure Risk Management” for additional details regarding our hedge program.

The following table presents the components of combined normalized statutory earnings for Brighthouse Life Insurance Company and New England Life Insurance Company:

Years Ended December 31,

(In millions)

Statutory net gain from operations, pre-tax $ (0.5) $ 2.2

(In billions)

Statutory net gain (loss) from operations, pre-tax $ 1.4 $ (0.5)

net realized capital gains (losses) (1.6) (0.4)

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unrealized gains (losses) on VA hedging program 0.3 1.4

impact of NAIC VA capital reform and actuarial assumption update (0.6) 0.1

impact of actuarial items and other insurance adjustments 0.1 (0.6)

other adjustments, net 0.1 0.3

Normalized statutory earnings $ (0.4) $ 1.9

Normalized statutory earnings (loss) $ (0.3) $ (0.4)

Primary Sources and Uses of Liquidity and Capital

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See Note 3 of Schedule II — Condensed Financial Information (Parent Company Only) for information relating to short-term intercompany loans and our intercompany liquidity facilities including obligations outstanding, issuances and repayments.

Glossary of Selected Financial Terms

Account value The amount of money in a policyholder’s account.

The value increases with additional premiums and investment gains, and it decreases with withdrawals, investment losses and fees.

Adjusted earnings See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures.”

Alternative investments General account investments in other limited partnership interests.

Assets under management (“AUM”) General account investments and separate account assets.

Conditional tail expectation (“CTE”)

A statistical tail risk measure used to assess the adequacy of assets supporting variable annuity contract liabilities, which is calculated as the average amount of total assets required to satisfy obligations over the life of the contract or policy in the worst “x%” of scenarios.

Represented as CTE (100 less x).

CTE95 represents the five worst percent of scenarios and CTE98 represents the two worst percent of scenarios.

Credit loss on investments The difference between the amortized cost of the security and the present value of the cash flows expected to be collected that is attributed to credit risk, is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings, or if deemed uncollectible, as a permanent write-off of book value.

Deferred policy acquisition cost (“DAC”) Represents the incremental costs related directly to the successful acquisition of new and renewal insurance and annuity contracts and which have been deferred on the balance sheet as an asset.

Deferred sales inducements (“DSI”) Represent amounts that are credited to a policyholder’s account balance that are higher than the expected crediting rates on similar contracts without such an inducement and that are an incentive to purchase a contract and also meet the accounting criteria to be deferred as an asset that is amortized over the life of the contract.

General account assets All insurance company assets not allocated to separate accounts.

Invested assets General account investments in fixed maturity securities, equity securities, mortgage loans, policy loans, other limited partnership interests, real estate limited partnerships and limited liability companies, short-term investments and other invested assets.

Investment Hedge Adjustments 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.

Market Value Adjustments Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts.

Net amount at risk (“NAR”)

Represents the difference between a claim amount payable if a specific event occurs and the amount set aside to support the claim.

The calculation of NAR can differ by policy type or guarantee.

Net investment spread See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures.”

Normalized statutory earnings See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Parent Company — Liquidity and Capital — Normalized Statutory Earnings.”

Reinsurance Insurance that an insurance company buys for its own protection.

Reinsurance enables an insurance company to expand its capacity, stabilize its underwriting results, or finance its expanding volume.

Risk-based capital (“RBC”) ratio

The risk-based capital ratio is a method of measuring an insurance company’s capital, taking into consideration its relative size and risk profile, in order to ensure compliance with minimum regulatory capital requirements set by the National Association of Insurance Commissioners.

When referred to as “combined,” represents that of our insurance subsidiaries as a whole.

Total adjusted capital (“TAC”) Total adjusted capital primarily consists of statutory capital and surplus, as well as the statutory asset valuation reserve.

When referred to as “combined,” represents that of our insurance subsidiaries as a whole.

Value of business acquired (“VOBA”) Present value of projected future gross profits from in-force policies of acquired businesses.

Glossary of Product Terms

Accumulation phase The phase of a variable annuity contract during which assets accumulate based on the policyholder’s lump sum or periodic deposits and reinvested interest, capital gains and dividends that are generally tax-deferred.

Annuitant The person who receives annuity payments or the person whose life expectancy determines the amount of variable annuity payments upon annuitization of a life contingent annuity.

Annuities Long-term, tax-deferred investments designed to help investors save for retirement.

Annuitization The process of converting an annuity investment into a series of periodic income payments, generally for life.

Annuity sales Annuity sales consist of 100 percent of direct statutory premiums, except for fixed index annuity sales distributed through MassMutual that consist of 90 percent of gross sales.

Annuity sales exclude certain internal exchanges.

Benefit Base A notional amount (not actual cash value) used to calculate the owner’s guaranteed benefits within an annuity contract.

The death benefit and living benefit within the same contract may not have the same Benefit Base.

Cash surrender value The amount an insurance company pays (minus any surrender charge) to the variable annuity owner when the contract is voluntarily terminated prematurely.

Deferred annuity An annuity purchased with premiums paid either over a period of years or as a lump sum, for which savings accumulate prior to annuitization or surrender, and upon annuitization, such savings are exchanged for either a future lump sum or periodic payments for a specified period of time or for a lifetime.

Deferred income annuity (“DIA”) An annuity that provides a pension-like stream of income payments after a specified deferral period.

Dollar-for-dollar withdrawal A method of calculating the reduction of a variable annuity Benefit Base after a withdrawal in which the benefit is reduced by one dollar for every dollar withdrawn.

Enhanced death benefit (“EDB”) An optional benefit that locks in investment gains annually, or every few years, or pays a minimum stated interest rate on purchase payments to the beneficiary.

Fixed annuity An annuity that guarantees a set annual rate of return with interest at rates we determine, subject to specified minimums.

Credited interest rates are guaranteed not to change for certain limited periods of time.

Future policy benefits Future policy benefits for the annuities business are comprised mainly of liabilities for life contingent income annuities, and liabilities for the variable annuity guaranteed minimum benefits accounted for as insurance.

Guaranteed minimum accumulation benefits (“GMAB”)

An optional benefit (available for an additional cost) which entitles an annuitant to a minimum payment, typically in lump sum, after a set period of time, typically referred to as the accumulation period.

The minimum payment is based on the Benefit Base, which could be greater than the underlying account value.

Guaranteed minimum death benefits (“GMDB”)

An optional benefit (available for an additional cost) that guarantees an annuitant’s beneficiaries are entitled to a minimum payment based on the Benefit Base, which could be greater than the underlying account value, upon the death of the annuitant.

Guaranteed minimum income benefits (“GMIB”)

An optional benefit (available for an additional cost) where an annuitant is entitled to annuitize the policy and receive a minimum payment stream based on the Benefit Base, which could be greater than the underlying account value.

Guaranteed minimum living benefits (“GMLB”) A reference to all forms of guaranteed minimum living benefits, including GMIBs, GMWBs and GMABs (does not include GMDBs).

Guaranteed minimum withdrawal benefit for life (“GMWB4L”)

An optional benefit (available for an additional cost) where an annuitant is entitled to withdraw a maximum amount of their Benefit Base each year, for the duration of the contract holder’s life, regardless of account performance.

Guaranteed minimum withdrawal benefit riders (“GMLB Riders”) Changes in the carrying value of GMLB liabilities, related hedges and reinsurance;

the fees earned directly from the GMLB liabilities;

and related DAC offsets.

Guaranteed minimum withdrawal benefits (“GMWB”)

An optional benefit (available for an additional cost) where an annuitant is entitled to withdraw a maximum amount of their Benefit Base each year, for which cumulative payments to the annuitant could be greater than the underlying account value.

Guaranteed minimum benefits (“GMxB”) A general reference to all forms of guaranteed minimum benefits, inclusive of living benefits and death benefits.

Immediate annuity An annuity for which the owner pays a lump sum and receives periodic payments immediately or soon after purchase.

Single premium immediate annuities (“SPIAs”) are single premium annuity products that provide a guaranteed level of income to the owner generally for a specified number of years or for the life of the annuitant.

Index-linked annuity An annuity that provides for asset accumulation and asset distribution needs with an ability to share in the upside from certain financial markets such as equity indices, or an interest rate benchmark.

The customer’s account value can grow or decline due to various external financial market indices performance.

Life insurance sales Life insurance sales consist of 100 percent of annualized new premium for term life, first-year paid premium for whole life, universal life, and variable universal life, and total paid premium for indexed universal life.

We exclude company-sponsored internal exchanges, corporate-owned life insurance, bank-owned life insurance, and private placement variable universal life.

Living benefits Optional benefits (available at an additional cost) that guarantee that the owner will get back at least his original investment when the money is withdrawn.

Mortality and expense risk fees (“M&E Fees”) Fees charged by insurance companies to compensate for the risk they take by issuing variable annuity contracts.

Net flows Net change in customer account balances in a period including, but not limited to, new sales, full or partial exits and the net impact of clients utilizing or withdrawing their funds.

It excludes the impact of markets on account balances.

Period certain annuity An annuity that guarantees payment to the annuitant for a specified period of time and to the beneficiary if the annuitant dies before the period ends.

Policyholder account balances Annuities:

Policyholder account balances are held for fixed deferred annuities, the fixed account portion of variable annuities, and non-life contingent income annuities.

Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums.

Life Insurance Policies:

Policyholder account balances are held for retained asset accounts, universal life policies and the fixed account of universal variable life insurance policies.

Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums.

Rider An optional feature or benefit that a variable annuity contract holder can purchase at an additional cost.

Roll-up rate The guaranteed percentage that the Benefit Base increases by each year.

Separate account An insurance company account, legally segregated from the general account, that holds the contract assets or subaccount investments that can be actively or passively managed and invest in stock, bonds or money market portfolios.

Step-up An optional variable annuity feature (available at an additional cost) that can increase the Benefit Base amount if the variable annuity account value is higher than the Benefit Base on specified dates.

Surrender charge A fee paid by a contract owner for the early withdrawal of an amount that exceeds a specific percentage or for cancellation of the contract within a specified amount of time after purchase.

Term life Life insurance that provides a fixed death benefit in exchange for a guaranteed level premium over a specified period of time, usually ten to thirty years.

Generally, term life insurance does not include any cash value, savings or investment components.

Universal life Life insurance that provides a death benefit in return for payment of specified annual policy charges that are generally related to specific costs, which may change over time.

To the extent that the policyholder chooses to pay more than the charges required in any given year to keep the policy in-force, the excess premium will be placed into the account value of the policy and credited with a stated interest rate on a monthly basis.

Variable annuity An annuity that offers guaranteed periodic payments for a specified period of time or for a lifetime and gives owners the ability to invest in various markets though the underlying investment options, which may result in potentially higher, but variable, returns.

Variable universal life Universal life insurance where the excess amount paid over policy charges can be directed by the policyholder into a variety of separate account investment options.

In the separate account investment options, the policyholder bears the entire risk and returns of the investment results.

Whole life Life insurance that provides a guaranteed death benefit in exchange for a guaranteed level premium for a specified period of time in order to maintain coverage for the life of the insured.

Whole life products also have guaranteed minimum cash surrender values.

Although the primary purpose is protection, the policyholder can withdraw or borrow against the policy (sometimes on a tax favored basis).

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What changed 10-K

Item 7. Management’s Discussion and Analysis