Brighthouse Financial, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements, Notes and Schedules Page Report of Independent Registered Public Accounting Firm 116 Financial Statements at December 31, 2021 and 2020 and for the Years Ended December 31, 2021, 2020 and 2019: Consolidated Balance Sheets 119 Consolidated Statements of Operations 120 Consolidated Statements of Comprehensive Income (Loss) 121 Consolidated Statements of Equity 122 Consolidated Statements of Cash Flows 123 Notes to the Consolidated Financial Statements Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies 125 Note 2 — Segment Information 135 Note 3 — Insurance 139 Note 4 — Deferred Policy Acquisition Costs, Value of Business Acquired and Deferred Sales Inducements 143 Note 5 — Reinsurance 143 Note 6 — Investments 146 Note 7 — Derivatives 158 Note 8 — Fair Value 164 Note 9 — Long-term Debt 174 Note 10 — Equity 176 Note 11 — Other Revenues and Other Expenses 184 Note 12 — Employee Benefit Plans 185 Note 13 — Income Tax 186 Note 14 — Earnings Per Common Share 189 Note 15 — Contingencies, Commitments and Guarantees 189 Note 16 — Subsequent Event 192 Financial Statement Schedules at December 31, 2021 and 2020 and for the Years Ended December 31, 2021, 2020 and 2019: Schedule I — Consolidated Summary of Investments — Other Than Investments in Related Parties 193 Schedule II — Condensed Financial Information (Parent Company Only) 194 Schedule III — Consolidated Supplementary Insurance Information 199 Schedule IV — Consolidated Reinsurance 201 115 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Brighthouse Financial, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Brighthouse Financial, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the schedules listed in the Index to Consolidated Financial Statements, Notes and Schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Liability for Future Policy Benefits – Refer to Notes 1 and 3 to the consolidated financial statements Critical Audit Matter Description As of December 31, 2021, the liability for future policy benefits totaled $43.8 billion, and included benefits related to variable annuity contracts with guaranteed benefit riders and universal life insurance contracts with secondary guarantees. Management regularly reviews its assumptions supporting the estimates of these actuarial liabilities and differences between actual experience and the assumptions used in pricing the policies and guarantees may require a change to the assumptions 116 Table of Contents recorded at inception as well as an adjustment to the related liabilities. Updating such assumptions can result in variability of profits or the recognition of losses. Given the future policy benefit obligation for these contracts is sensitive to changes in the assumptions related to general account and separate account investment returns, and policyholder behavior including mortality, lapses, premium persistency, benefit election and utilization, and withdrawals, auditing management’s selection of these assumptions involves an especially high degree of estimation. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the updating of assumptions by management included the following, among others: • We tested the effectiveness of management’s controls over the assumption review process, including those over the selection of the significant assumptions used related to general account and separate account investment returns, and policyholder behavior including mortality, lapses, premium persistency, benefit election and utilization, and withdrawals. • With the assistance of our actuarial specialists, we evaluated the appropriateness of the significant assumptions used, developed an independent estimate of the future policy benefit liability for a sample of policies, and compared our estimates to management’s estimates. • We tested the completeness and accuracy of the underlying data that served as the basis for the actuarial analysis, including experience studies, to test that the inputs to the actuarial estimate were reasonable. • We evaluated the methods and significant assumptions used by management to identify potential bias. • We evaluated whether the significant assumptions used were consistent with evidence obtained in other areas of the audit. Deferred Acquisition Cost (DAC) – Refer to Notes 1 and 4 to the consolidated financial statements Critical Audit Matter Description The Company incurs and defers certain costs in connection with acquiring new and renewal insurance business. These deferred costs, amounting to $5.4 billion as of December 31, 2021, are amortized over the expected life of the policy contract in proportion to actual and expected future gross profits, premiums, or margins. For deferred annuities and universal life contracts, expected future gross profits utilized in the amortization calculation are derived using assumptions such as separate account and general account investment returns, mortality, in-force or persistency, benefit elections and utilization, and withdrawals. The assumptions used in the calculation of expected future gross profits are reviewed at least annually. Given the significance of the estimates and uncertainty associated with the long-term assumptions utilized in the determination of expected future gross profits, auditing management’s determination of the appropriateness of the assumptions used in the calculation of DAC amortization involves an especially high degree of estimation. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s determination of DAC amortization included the following, among others: • We tested the effectiveness of management’s controls related to the determination of expected future gross profits, including those over management’s review that the significant assumptions utilized related to separate account and general account investment returns, mortality, in-force or persistency, benefit elections and utilization, and withdrawals represented a reasonable estimate. • With assistance from our actuarial specialists, we evaluated the data included in the estimate provided by the Company’s actuaries and the methodology utilized, and evaluated the process used by the Company to determine whether the significant assumptions used were reasonable estimates based on the Company’s own experience and industry studies. 117 Table of Contents • We inquired of the Company’s actuarial specialists whether there were any changes in the methodology utilized during the year in the determination of expected future gross profits. • We inspected supporting documentation underlying the Company’s experience studies and, utilizing our actuarial specialists, independently recalculated the amortization for a sample of policies, and compared our estimates to management’s estimates. • We evaluated whether the significant assumptions used by the Company were consistent with evidence obtained in other areas of the audit and to identify potential bias. • We evaluated the sufficiency of the Company’s disclosures related to DAC amortization. Embedded Derivative Liabilities Related to Variable Annuity Guarantees – Refer to Notes 1, 7, and 8 to the consolidated financial statements. Critical Audit Matter Description The Company sells index-linked annuities and variable annuity products with guaranteed minimum benefits, some of which are embedded derivatives that are required to be bifurcated from the host contract, separately accounted for, and measured at fair value. As of December 31, 2021, the fair value of the embedded derivative liability associated with certain of the Company’s annuity contracts was $8.5 billion. Management utilizes various assumptions in order to measure the embedded liability including expectations concerning policyholder behavior, mortality and risk margins, as well as changes in the Company’s own nonperformance risk. These assumptions are reviewed at least annually by management, and if they change significantly, the estimated fair value is adjusted by a cumulative charge or credit to net income. Given the embedded derivative liability is sensitive to changes in these assumptions, auditing management’s selection of these assumptions involves an especially high degree of estimation. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the assumptions selected by management for the embedded derivative liability included the following, among others: • We tested the effectiveness of management’s controls over the embedded derivative liability, including those over the selection of the significant assumptions related to policyholder behavior, mortality, risk margins and the Company’s nonperformance risk. • With the assistance of our actuarial specialists, we evaluated the appropriateness of the significant assumptions, tested the completeness and accuracy of the underlying data and the mathematical accuracy of the Company’s valuation model. • We evaluated the reasonableness of the Company’s assumptions by comparing those selected by management to those independently derived by our actuarial specialists, drawing upon standard actuarial and industry practice. • We evaluated the methods and assumptions used by management to identify potential bias in the determination of the embedded liability. • We evaluated whether the assumptions used were consistent with evidence obtained in other areas of the audit. /s/ DELOITTE & TOUCHE LLP Charlotte, North Carolina February 24, 2022 We have served as the Company’s auditor since 2016. 118 Table of Contents Brighthouse Financial, Inc. Consolidated Balance Sheets December 31, 2021 and 2020 (In millions, except share and per share data) 2021 2020 Assets Investments: Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $ 79,246 and $ 70,529 , respectively; allowance for credit losses of $ 11 and $ 2 , respectively) $ 87,582 $ 82,495 Equity securities, at estimated fair value 101 138 Mortgage loans (net of allowance for credit losses of $ 123 and $ 94 , respectively) 19,850 15,808 Policy loans 1,264 1,291 Limited partnerships and limited liability companies 4,271 2,810 Short-term investments, principally at estimated fair value 1,841 3,242 Other invested assets, principally at estimated fair value (net of allowance for credit losses of $ 13 and $ 13 , respectively) 3,316 3,747 Total investments 118,225 109,531 Cash and cash equivalents 4,474 4,108 Accrued investment income 724 676 Premiums, reinsurance and other receivables (net of allowance for credit losses of $ 10 and $ 10 , respectively) 16,094 16,158 Deferred policy acquisition costs and value of business acquired 5,377 4,911 Other assets 482 516 Separate account assets 114,464 111,969 Total assets $ 259,840 $ 247,869 Liabilities and Equity Liabilities Future policy benefits $ 43,807 $ 44,448 Policyholder account balances 66,851 54,508 Other policy-related balances 3,457 3,411 Payables for collateral under securities loaned and other transactions 6,269 5,252 Long-term debt 3,157 3,436 Current income tax payable 62 126 Deferred income tax liability 1,062 1,620 Other liabilities 4,504 5,011 Separate account liabilities 114,464 111,969 Total liabilities 243,633 229,781 Contingencies, Commitments and Guarantees (Note 15) Equity Brighthouse Financial, Inc.’s stockholders’ equity: Preferred stock, par value $ 0.01 per share; $ 1,753 and $ 1,403 , respectively, aggregate liquidation preference — — Common stock, par value $ 0.01 per share; 1,000,000,000 shares authorized; 121,513,442 and 121,002,523 shares issued, respectively; 77,870,072 and 88,211,618 shares outstanding, respectively 1 1 Additional paid-in capital 14,154 13,878 Retained earnings (deficit) ( 642 ) ( 534 ) Treasury stock, at cost; 43,643,370 and 32,790,905 shares, respectively ( 1,543 ) ( 1,038 ) Accumulated other comprehensive income (loss) 4,172 5,716 Total Brighthouse Financial, Inc.’s stockholders’ equity 16,142 18,023 Noncontrolling interests 65 65 Total equity 16,207 18,088 Total liabilities and equity $ 259,840 $ 247,869 See accompanying notes to the consolidated financial statements. 119 Table of Contents Brighthouse Financial, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2021, 2020 and 2019 (In millions, except per share data) 2021 2020 2019 Revenues Premiums $ 707 $ 766 $ 882 Universal life and investment-type product policy fees 3,636 3,463 3,580 Net investment income 4,881 3,601 3,579 Other revenues 446 413 389 Net investment gains (losses) ( 59 ) 278 112 Net derivative gains (losses) ( 2,469 ) ( 18 ) ( 1,988 ) Total revenues 7,142 8,503 6,554 Expenses Policyholder benefits and claims 3,443 5,711 3,670 Interest credited to policyholder account balances 1,312 1,092 1,063 Amortization of deferred policy acquisition costs and value of business acquired 144 766 382 Other expenses 2,451 2,353 2,491 Total expenses 7,350 9,922 7,606 Income (loss) before provision for income tax ( 208 ) ( 1,419 ) ( 1,052 ) Provision for income tax expense (benefit) ( 105 ) ( 363 ) ( 317 ) Net income (loss) ( 103 ) ( 1,056 ) ( 735 ) Less: Net income (loss) attributable to noncontrolling interests 5 5 5 Net income (loss) attributable to Brighthouse Financial, Inc. ( 108 ) ( 1,061 ) ( 740 ) Less: Preferred stock dividends 89 44 21 Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ ( 197 ) $ ( 1,105 ) $ ( 761 ) Earnings per common share Basic $ ( 2.36 ) $ ( 11.58 ) $ ( 6.76 ) Diluted $ ( 2.36 ) $ ( 11.58 ) $ ( 6.76 ) See accompanying notes to the consolidated financial statements. 120 Table of Contents Brighthouse Financial, Inc. Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2021, 2020 and 2019 (In millions) 2021 2020 2019 Net income (loss) $ ( 103 ) $ ( 1,056 ) $ ( 735 ) Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets ( 2,107 ) 3,208 3,209 Unrealized gains (losses) on derivatives 156 ( 72 ) ( 19 ) Foreign currency translation adjustments 1 20 12 Defined benefit plans adjustment ( 4 ) ( 13 ) ( 10 ) Other comprehensive income (loss), before income tax ( 1,954 ) 3,143 3,192 Income tax (expense) benefit related to items of other comprehensive income (loss) 410 ( 667 ) ( 668 ) Other comprehensive income (loss), net of income tax ( 1,544 ) 2,476 2,524 Comprehensive income (loss) ( 1,647 ) 1,420 1,789 Less: Comprehensive income (loss) attributable to noncontrolling interests, net of income tax 5 5 5 Comprehensive income (loss) attributable to Brighthouse Financial, Inc. $ ( 1,652 ) $ 1,415 $ 1,784 See accompanying notes to the consolidated financial statements. 121 Table of Contents Brighthouse Financial, Inc. Consolidated Statements of Equity For the Years Ended December 31, 2021, 2020 and 2019 (In millions) Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Deficit) Treasury Stock at Cost Accumulated Other Comprehensive Income (Loss) Brighthouse Financial, Inc.’s Stockholders’ Equity Noncontrolling Interests Total Equity Balance at December 31, 2018 $ — $ 1 $ 12,473 $ 1,346 $ ( 118 ) $ 716 $ 14,418 $ 65 $ 14,483 Preferred stock issuance — 412 412 412 Treasury stock acquired in connection with share repurchases ( 442 ) ( 442 ) ( 442 ) Share-based compensation — 23 ( 2 ) 21 21 Dividends on preferred stock ( 21 ) ( 21 ) ( 21 ) Change in noncontrolling interests — ( 5 ) ( 5 ) Net income (loss) ( 740 ) ( 740 ) 5 ( 735 ) Other comprehensive income (loss), net of income tax 2,524 2,524 2,524 Balance at December 31, 2019 — 1 12,908 585 ( 562 ) 3,240 16,172 65 16,237 Cumulative effect of change in accounting principle, net of income tax ( 14 ) 3 ( 11 ) ( 11 ) Balance at January 1, 2020 — 1 12,908 571 ( 562 ) 3,243 16,161 65 16,226 Preferred stock issuances — 948 948 948 Treasury stock acquired in connection with share repurchases ( 473 ) ( 473 ) ( 473 ) Share-based compensation — 22 ( 3 ) 19 19 Dividends on preferred stock ( 44 ) ( 44 ) ( 44 ) Change in noncontrolling interests — ( 5 ) ( 5 ) Net income (loss) ( 1,061 ) ( 1,061 ) 5 ( 1,056 ) Other comprehensive income (loss), net of income tax 2,473 2,473 2,473 Balance at December 31, 2020 — 1 13,878 ( 534 ) ( 1,038 ) 5,716 18,023 65 18,088 Preferred stock issuance — 339 339 339 Treasury stock acquired in connection with share repurchases ( 499 ) ( 499 ) ( 499 ) Share-based compensation — 26 ( 6 ) 20 20 Dividends on preferred stock ( 89 ) ( 89 ) ( 89 ) Change in noncontrolling interests — ( 5 ) ( 5 ) Net income (loss) ( 108 ) ( 108 ) 5 ( 103 ) Other comprehensive income (loss), net of income tax ( 1,544 ) ( 1,544 ) ( 1,544 ) Balance at December 31, 2021 $ — $ 1 $ 14,154 $ ( 642 ) $ ( 1,543 ) $ 4,172 $ 16,142 $ 65 $ 16,207 See accompanying notes to the consolidated financial statements. 122 Table of Contents Brighthouse Financial, Inc. Consolidated Statements of Cash Flows For the Years Ended December 31, 2021, 2020 and 2019 (In millions) 2021 2020 2019 Cash flows from operating activities Net income (loss) $ ( 103 ) $ ( 1,056 ) $ ( 735 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization of premiums and accretion of discounts associated with investments, net ( 254 ) ( 260 ) ( 283 ) (Gains) losses on investments, net 59 ( 278 ) ( 112 ) (Gains) losses on derivatives, net 2,120 424 2,547 (Income) loss from equity method investments, net of dividends and distributions ( 987 ) ( 54 ) 70 Interest credited to policyholder account balances 1,312 1,092 1,063 Universal life and investment-type product policy fees ( 3,636 ) ( 3,463 ) ( 3,580 ) Change in accrued investment income ( 44 ) ( 9 ) 84 Change in premiums, reinsurance and other receivables 56 ( 1,346 ) ( 629 ) Change in deferred policy acquisition costs and value of business acquired, net ( 349 ) 358 8 Change in income tax ( 210 ) ( 243 ) ( 316 ) Change in other assets 2,086 1,968 1,974 Change in future policy benefits and other policy-related balances 741 3,395 1,688 Change in other liabilities ( 153 ) 285 ( 26 ) Other, net 108 75 75 Net cash provided by (used in) operating activities 746 888 1,828 Cash flows from investing activities Sales, maturities and repayments of: Fixed maturity securities 12,616 8,459 14,146 Equity securities 129 68 57 Mortgage loans 2,900 1,935 1,538 Limited partnerships and limited liability companies 271 177 302 Purchases of: Fixed maturity securities ( 21,158 ) ( 14,401 ) ( 16,915 ) Equity securities ( 18 ) ( 23 ) ( 22 ) Mortgage loans ( 6,913 ) ( 2,076 ) ( 3,610 ) Limited partnerships and limited liability companies ( 837 ) ( 581 ) ( 463 ) Cash received in connection with freestanding derivatives 3,965 6,356 2,041 Cash paid in connection with freestanding derivatives ( 4,592 ) ( 4,515 ) ( 2,639 ) Net change in policy loans 27 1 129 Net change in short-term investments 1,397 ( 1,271 ) ( 1,942 ) Net change in other invested assets ( 25 ) 28 37 Net cash provided by (used in) investing activities $ ( 12,238 ) $ ( 5,843 ) $ ( 7,341 ) See accompanying notes to the consolidated financial statements. 123 Table of Contents Brighthouse Financial, Inc. Consolidated Statements of Cash Flows (continued) For the Years Ended December 31, 2021, 2020 and 2019 (In millions) 2021 2020 2019 Cash flows from financing activities Policyholder account balances: Deposits $ 16,059 $ 10,095 $ 7,672 Withdrawals ( 4,235 ) ( 3,270 ) ( 2,849 ) Net change in payables for collateral under securities loaned and other transactions 1,017 861 ( 666 ) Long-term debt issued 400 615 1,000 Long-term debt repaid ( 680 ) ( 1,552 ) ( 602 ) Preferred stock issued, net of issuance costs 339 948 412 Dividends on preferred stock ( 89 ) ( 44 ) ( 21 ) Treasury stock acquired in connection with share repurchases ( 499 ) ( 473 ) ( 442 ) Financing element on certain derivative instruments and other derivative related transactions, net ( 368 ) ( 948 ) ( 203 ) Other, net ( 86 ) ( 46 ) ( 56 ) Net cash provided by (used in) financing activities 11,858 6,186 4,245 Change in cash, cash equivalents and restricted cash 366 1,231 ( 1,268 ) Cash, cash equivalents and restricted cash, beginning of year 4,108 2,877 4,145 Cash, cash equivalents and restricted cash, end of year $ 4,474 $ 4,108 $ 2,877 Supplemental disclosures of cash flow information Net cash paid (received) for: Interest $ 160 $ 186 $ 187 Income tax $ 103 $ ( 100 ) $ 16 See accompanying notes to the consolidated financial statements. 124 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements 1. Business, Basis of Presentation and Summary of Significant Accounting Policies Business Brighthouse Financial, Inc. (“BHF” and together with its subsidiaries, “Brighthouse Financial” or the “Company”) is 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. BHF is a holding company that was incorporated in Delaware in 2016 in preparation for the separation of a substantial portion of MetLife, Inc.’s (together with its subsidiaries and affiliates, “MetLife”) former Retail segment, as well as certain portions of its former Corporate Benefit Funding segment, into a separate, publicly-traded company, Brighthouse Financial (the “Separation”), which was completed on August 4, 2017. The Company is organized into three segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other. Basis of Presentation The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates. Consolidation The accompanying consolidated financial statements include the accounts of Brighthouse Financial, as well as partnerships and limited liability companies (“LLC”) that the Company controls. Intercompany accounts and transactions have been eliminated. The Company uses the equity method of accounting for investments in limited partnerships and LLCs when it has more than a minor ownership interest or more than a minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. When the Company has virtually no influence over the investee’s operations, the investment is carried at fair value. Reclassifications Certain amounts in the prior years’ consolidated financial statements and related footnotes thereto have been reclassified to conform with the current year presentation as may be discussed when applicable in the Notes to the Consolidated Financial Statements. Summary of Significant Accounting Policies Insurance Future Policy Benefit Liabilities and Policyholder Account Balances The Company establishes liabilities for future amounts payable under insurance policies. Insurance liabilities are generally equal to the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums. Assumptions used to measure the liability are based on the Company’s experience and include a margin for adverse deviation. The most significant assumptions used in the establishment of liabilities for future policy benefits are mortality, benefit election and utilization, withdrawals, policy lapse, and investment returns as appropriate to the respective product type. For traditional long-duration insurance contracts (term, non-participating whole life insurance and income annuities), assumptions are determined at issuance of the policy and are not updated unless a premium deficiency exists. A premium deficiency exists when the liability for future policy benefits plus the present value of expected future gross premiums are less than expected future benefits and expenses (based on current assumptions). When a premium deficiency exists, the Company will reduce any deferred acquisition costs and may also establish an additional liability to eliminate the deficiency. To assess whether a premium deficiency exists, the Company groups insurance contracts based on the manner acquired, serviced and measured for profitability. In applying the profitability criteria, groupings are limited by segment. 125 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) The Company is also required to reflect the effect of investment gains and losses in its premium deficiency testing. When a premium deficiency exists related to unrealized gains and losses, any reductions in deferred acquisition costs or increases in insurance liabilities are recorded to other comprehensive income (loss) (“OCI”). Policyholder account balances relate to customer deposits on universal life insurance and deferred annuity contracts and are equal to the sum of deposits, plus interest credited, less charges and withdrawals. The Company may also hold additional liabilities for certain guaranteed benefits related to these contracts. Policyholder account balances also include liabilities related to funding agreements which are equal to the unpaid principal balance, adjusted for any unamortized premium or discount. Liabilities for secondary guarantees on universal life insurance contracts are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the contract period based on total expected assessments. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. The Company also maintains a liability for profits followed by losses on universal life with secondary guarantees (“ULSG”) determined by projecting future earnings and establishing a liability to offset losses that are expected to occur in later years. Changes in ULSG liabilities are recorded to net income, except for the effects of unrealized gains and losses, which are recorded to OCI. Recognition of Insurance Revenues and Deposits Premiums related to traditional life insurance and annuity contracts are recognized as revenues when due from policyholders. When premiums for income annuities are due over a significantly shorter period than the period over which policyholder benefits are incurred, any excess profit is deferred and recognized into earnings in proportion to the amount of expected future benefit payments. Deposits related to universal life insurance, deferred annuity contracts and investment contracts are credited to policyholder account balances. Revenues from such contracts consist of asset-based investment management fees, cost of insurance charges, risk charges, policy administration fees and surrender charges. These fees, which are included in universal life and investment-type product policy fees, are recognized when assessed to the contract holder, except for non-level insurance charges which are deferred and amortized over the life of the contracts. Premiums, policy fees, policyholder benefits and expenses are presented net of reinsurance. Deferred Policy Acquisition Costs, Value of Business Acquired and Deferred Sales Inducements The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the successful acquisition or renewal of insurance contracts are capitalized as deferred policy acquisition costs (“DAC”). These costs mainly consist of commissions and include the portion of employees’ compensation and benefits related to time spent selling, underwriting or processing the issuance of new insurance contracts. All other acquisition-related costs are expensed as incurred. Value of business acquired (“VOBA”) is an intangible asset resulting from a business combination that represents the excess of book value over the estimated fair value of acquired insurance, annuity and investment-type contracts in-force as of the acquisition date. The Company amortizes DAC and VOBA related to term non-participating whole life insurance over the appropriate premium paying period in proportion to the actual and expected future gross premiums that were set at contract issue. The expected premiums are based upon the premium requirement of each policy and assumptions for mortality, in-force or persistency and investment returns at policy issuance, or policy acquisition (as it relates to VOBA), include provisions for adverse deviation, and are consistent with the assumptions used to calculate future policy benefit liabilities. These assumptions are not revised after policy issuance or acquisition unless the DAC or VOBA balance is deemed to be unrecoverable from future expected profits. 126 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) The Company amortizes DAC and VOBA on deferred annuities and universal life insurance contracts over the estimated lives of the contracts in proportion to actual and expected future gross profits. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The amount of future gross profits is dependent principally upon investment returns in excess of the amounts credited to policyholders, mortality, in-force or persistency, benefit elections and utilization, and withdrawals. When significant negative gross profits are expected in future periods, the Company substitutes the amount of insurance in-force for expected future gross profits as the amortization basis for DAC. Assumptions for DAC and VOBA are reviewed at least annually, and if they change significantly, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to net income. When expected future gross profits are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to net income. The opposite result occurs when the expected future gross profits are above the previously estimated expected future gross profits. The Company updates expected future gross profits to reflect the actual gross profits for each period, including changes to its nonperformance risk related to embedded derivatives and the actual amount of business remaining in-force. When actual gross profits exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to net income. The opposite result occurs when the actual gross profits are below the previously expected future gross profits. DAC and VOBA balances on deferred annuities and universal life insurance contracts are also adjusted to reflect the effect of investment gains and losses and certain embedded derivatives (including changes in nonperformance risk). These adjustments can create fluctuations in net income from period to period. Changes in DAC and VOBA balances related to unrealized gains and losses are recorded to OCI. DAC and VOBA balances and amortization for variable contracts can be significantly impacted by changes in expected future gross profits related to projected separate account rates of return. The Company’s practice of determining changes in separate account returns assumes that long-term appreciation in equity markets is only changed when sustained interim deviations are expected. The Company monitors these events and only changes the assumption when its long-term expectation changes. Periodically, the Company modifies product benefits, features, rights or coverages that occur by the exchange of an existing contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If a modification is considered to have substantially changed the contract, the associated DAC or VOBA is written off immediately as net income and any new acquisition costs associated with the replacement contract are deferred. If the modification does not substantially change the contract, the DAC or VOBA amortization on the original contract will continue and any acquisition costs associated with the related modification are expensed. The Company also has intangible assets representing deferred sales inducements (“DSI”) which are included in other assets. The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. The amortization of DSI is included in policyholder benefits and claims. Each year, or more frequently if circumstances indicate a possible impairment exists, the Company reviews DSI to determine whether the assets are impaired. Reinsurance The Company enters into reinsurance arrangements pursuant to which it cedes certain insurance risks to unaffiliated reinsurers. Cessions under reinsurance agreements do not discharge the Company’s obligations as the primary insurer. The accounting for reinsurance arrangements depends on whether the arrangement provides indemnification against loss or liability relating to insurance risk in accordance with GAAP. For ceded reinsurance of existing in-force blocks of insurance contracts that transfer significant insurance risk, premiums, benefits and the amortization of DAC are reported net of reinsurance ceded. Amounts recoverable from reinsurers related to incurred claims and ceded reserves are included in premiums, reinsurance and other receivables and amounts payable to reinsurers included in other liabilities. 127 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate. The funds withheld liability represents amounts withheld by the Company in accordance with the terms of the reinsurance agreements. Under certain reinsurance agreements, the Company withholds the funds rather than transferring the underlying investments and, as a result, records a funds withheld liability within other liabilities. The Company recognizes interest on funds withheld, included in other expenses, at rates defined by the terms of the agreement which may be contractually specified or directly related to the investment portfolio. Certain funds withheld arrangements may also contain embedded derivatives measured at fair value that are related to the investment return on the assets withheld. The Company accounts for assumed reinsurance similar to directly written business, except for guaranteed minimum income benefits (“GMIB”), where a portion of the directly written GMIBs are accounted for as insurance liabilities, but the associated reinsurance agreements contain embedded derivatives. Variable Annuity Guarantees The Company issues certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (the “Benefit Base”) less withdrawals. In some cases, the Benefit Base may be increased by additional deposits, bonus amounts, accruals or optional market value step-ups. Certain of the Company’s 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, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either the occurrence of a specific insurable event, or annuitization. Alternatively, a guarantee is accounted for as an embedded derivative if a guarantee is paid without requiring the occurrence of specific insurable event, or the policyholder to annuitize, that is, the policyholder can receive 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 policyholder 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 guaranteed minimum death benefits (“GMDB”), the life contingent portion of the guaranteed minimum withdrawal benefits (“GMWB”) 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. 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. The scenarios are based on best estimate assumptions consistent with those used to amortize DAC. When current estimates of future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities will increase, resulting in a current period charge to net income. The opposite result occurs when the current estimates of future benefits are lower than those previously projected or when current estimates of future assessments exceed those previously projected. At each reporting period, the actual amount of business remaining in-force is updated, which impacts expected future assessments and the projection of estimated future benefits resulting in a current period charge or increase to earnings. Guarantees accounted for as embedded derivatives in policyholder account balances include the non-life contingent portion of GMWBs, guaranteed minimum accumulation benefits (“GMAB”), and for GMIBs the non-life contingent portion of the expected annuitization when the policyholder is forced into an annuitization upon depletion of their account value, as well as the guaranteed principal option. 128 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. At policy inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees are considered revenue and are reported in universal life and investment-type product policy fees. The percentage of fees included in the initial fair value measurement is not updated in subsequent periods. The Company updates the estimated fair value of guarantees in subsequent periods by projecting future benefits using capital markets and actuarial assumptions including expectations of 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 the Company’s nonperformance risk and adding a risk margin. For more information on the determination of estimated fair value of embedded derivatives, see Note 8. Assumptions for all variable guarantees are reviewed at least annually, and if they change significantly, the estimated fair value is adjusted by a cumulative charge or credit to net income. Index-linked Annuities The Company issues and assumes through reinsurance index-linked annuities. The crediting rate associated with index-linked annuities is accounted for at fair value as an embedded derivative. The estimated fair value is determined using a combination of an option pricing model and an option-budget approach. Under this approach, the Company estimates the cost of funding the crediting rate using option pricing and establishes that cost on the balance sheet as a reduction to the initial deposit amount. In subsequent periods, the embedded derivative is remeasured at fair value while the reduction in initial deposit is accreted back up to the initial deposit over the estimated life of the contract. Investments Net Investment Income and Net Investment Gains (Losses) Income from investments is reported within net investment income, unless otherwise stated herein. Gains and losses on sales of investments, impairment losses and changes in valuation allowances are reported within net investment gains (losses), unless otherwise stated herein. Fixed Maturity Securities Available-For-Sale The Company’s fixed maturity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on these securities are recorded as a separate component of OCI, net of policy-related amounts and deferred income taxes. Publicly-traded security transactions are recorded on a trade date basis, while privately-placed and bank loan security transactions are recorded on a settlement date basis. Investment gains and losses on sales are determined on a specific identification basis. Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premiums and accretion of discounts and is based on the estimated economic life of the securities, which for residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”) considers the estimated timing and amount of prepayments of the underlying loans. The amortization of premium and accretion of discount of fixed maturity securities also takes into consideration call and maturity dates. Amortization of premium and accretion of discount on Structured Securities considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed, and effective yields are recalculated when differences arise between the originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for Structured Securities are estimated using inputs obtained from third-party specialists and based on management’s knowledge of the current market. For credit-sensitive Structured Securities and certain prepayment-sensitive securities, the effective yield is recalculated on a prospective basis. For all other Structured Securities, the effective yield is recalculated on a retrospective basis. 129 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) The Company regularly evaluates fixed maturity securities for declines in fair value to determine if a credit loss exists. This evaluation is based on management’s case-by-case evaluation of the underlying reasons for the decline in fair value including, but not limited to an analysis of the gross unrealized losses by severity and financial condition of the issuer. For fixed maturity securities in an unrealized loss position, when the Company has the intent to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery, the amortized cost basis of the security is written down to fair value through net investment gains (losses). For fixed maturity securities that do not meet the aforementioned criteria, management evaluates whether the decline in estimated fair value has resulted from credit losses or other factors. If the Company determines the decline in estimated fair value is due to credit losses, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized as an allowance through net investment gains (losses). If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of the allowance related to other-than-credit factors is recorded in OCI. Once a security specific allowance for credit losses is established, the present value of cash flows expected to be collected from the security continues to be reassessed. Any changes in the security specific allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense in net investment gains (losses). Fixed maturity securities are also evaluated to determine whether any amounts have become uncollectible. When all, or a portion, of a security is deemed uncollectible, the uncollectible portion is written-off with an adjustment to amortized cost and a corresponding reduction to the allowance for credit losses. Mortgage Loans Mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and any deferred fees or expenses, and net of an allowance for credit losses. Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premiums and accretion of discounts. The allowance for credit losses for mortgage loans represents the Company’s best estimate of expected credit losses over the remaining life of the loans and is determined using relevant available information from internal and external sources, relating to past events, current conditions, and a reasonable and supportable forecast. Policy Loans Policy loans are stated at unpaid principal balances. Interest income is recorded as earned using the contractual interest rate. Generally, accrued interest is capitalized on the policy’s anniversary date. Any unpaid principal and accrued interest is deducted from the cash surrender value or the death benefit prior to settlement of the insurance policy. Limited Partnerships and LLCs The Company uses the equity method of accounting for investments when it has more than a minor ownership interest or more than a minor influence over the investee’s operations; when the Company has virtually no influence over the investee’s operations the investment is carried at estimated fair value. The Company generally recognizes its share of the equity method investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period; while distributions on investments carried at estimated fair value are recognized as earned or received. Short-term Investments Short-term investments include securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase and are stated at estimated fair value or amortized cost, which approximates estimated fair value. Other Invested Assets Other invested assets consist principally of freestanding derivatives with positive estimated fair values which are described in “— Derivatives” below. 130 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Securities Lending Program Securities lending transactions whereby blocks of securities are loaned to third parties, primarily brokerage firms and commercial banks, are treated as financing arrangements and the associated liability is recorded at the amount of cash received. Income and expenses associated with securities lending transactions are reported as investment income and investment expense, respectively, within net investment income. The Company obtains collateral at the inception of the loan, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned and maintains it at a level greater than or equal to 100% for the duration of the loan. The Company monitors the estimated fair value of the securities loaned on a daily basis and additional collateral is obtained as necessary throughout the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. The Company is liable to return to the counterparties the cash collateral received. Derivatives Freestanding Derivatives Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. If a derivative is not designated or did not qualify as an accounting hedge, changes in the estimated fair value of the derivative are reported in net derivative gains (losses). The Company generally reports cash received or paid for a derivative in the investing activity section of the statement of cash flows except for cash flows of certain derivative options with deferred premiums, which are reported in the financing activity section of the statement of cash flows. Hedge Accounting The Company primarily designates derivatives as a hedge of a forecasted transaction or a variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). When a derivative is designated as a cash flow hedge and is determined to be highly effective, changes in fair value are recorded in OCI and subsequently reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item. To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge. In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship. The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative or hedged item expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument. When hedge accounting is discontinued the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses). The changes in estimated fair value of derivatives previously recorded in OCI related to discontinued cash flow hedges are released into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item. When the hedged item matures or is sold, or the forecasted transaction is not probable of occurring, the Company immediately reclassifies any remaining balances in OCI to net derivative gains (losses). 131 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Embedded Derivatives The Company has certain insurance and reinsurance contracts that contain embedded derivatives which are required to be separated from their host contracts and reported as derivatives. These host contracts include: variable annuities with guaranteed minimum benefits, including GMWBs, GMABs and certain GMIBs; index-linked annuities that are directly written or assumed through reinsurance; and ceded reinsurance of variable annuity GMIBs. Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances on the consolidated balance sheets. Changes in the estimated fair value of the embedded derivative are reported in net derivative gains (losses). See “— Variable Annuity Guarantees,” “— Index-Linked Annuities” and “— Reinsurance” for additional information on the accounting policies for embedded derivatives bifurcated from variable annuity and reinsurance host contracts. Fair Value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In most cases, the exit price and the transaction (or entry) price will be the same at initial recognition. In determining the estimated fair value of the Company’s investments, fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such quoted prices are not available, fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical investments, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring management judgment are used to determine the estimated fair value of investments. Separate Accounts Separate accounts underlying the Company’s variable life and annuity contracts are reported at fair value. Assets in separate accounts supporting the contract liabilities are legally insulated from the Company’s general account liabilities. Investments in these separate accounts are directed by the contract holder and all investment performance, net of contract fees and assessments, is passed through to the contract holder. Investment performance and the corresponding amounts credited to contract holders of such separate accounts are offset within the same line on the statements of operations. Separate accounts that do not pass all investment performance to the contract holder, including those underlying certain index-linked annuities, are combined on a line-by-line basis with the Company’s general account assets, liabilities, revenues and expenses. The accounting for investments in these separate accounts is consistent with the methodologies described herein for similar financial instruments held within the general account. The Company receives asset-based distribution and service fees from mutual funds available to the variable life and annuity contract holders as investment options in its separate accounts. These fees are recognized in the period in which the related services are performed and are included in other revenues on the statements of operations. Income Tax The Company’s income tax provision was prepared following the modified separate return method. The modified separate return method applies the Accounting Standards Codification 740 — Income Taxes (“ASC 740”) to the standalone financial statements of each member of the consolidated group as if the member were a separate taxpayer and a standalone enterprise, after providing benefits for losses. The Company’s accounting for income taxes represents management’s best estimate of various events and transactions. Current and deferred income taxes included herein and attributable to periods up until the Separation have been allocated to the Company in a manner that is systematic, rational and consistent with the asset and liability method prescribed by ASC 740. Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. 132 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances. When making such determination, the Company considers many factors, including the jurisdiction in which the deferred tax asset was generated, the length of time that carryforward can be utilized in the various taxing jurisdictions, future taxable income exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences, taxable income in prior carryback years, tax planning strategies and the nature, frequency, and amount of cumulative financial reporting income and losses in recent years. The Company may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, the effect of changes in tax laws, tax regulations, or interpretations of such laws or regulations, is recognized in net income tax expense (benefit) in the period of change. The Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded on the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made. The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax expense. Litigation Contingencies The Company is a party to a number of legal actions and may be involved in a number of regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on the Company’s financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Legal costs are recognized as incurred. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected on the Company’s financial statements. Other Accounting Policies Cash and Cash Equivalents The Company considers all highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents are stated at estimated fair value or amortized cost, which approximates estimated fair value. Employee Benefit Plans Brighthouse Services, LLC (“Brighthouse Services”), sponsors qualified and non-qualified defined contribution plans, and New England Life Insurance Company (“NELICO”) sponsors certain frozen defined benefit pension and postretirement plans. NELICO recognizes the funded status of each of its pension plans, measured as the difference between the fair value of plan assets and the benefit obligation, which is the projected benefit obligation (“PBO”) for pension benefits in other assets or other liabilities. Brighthouse Services and NELICO are both indirect wholly-owned subsidiaries. Actuarial gains and losses result from differences between the actual experience and the assumed experience on plan assets or PBO during a particular period and are recorded in accumulated other comprehensive income (loss) (“AOCI”). To the extent such gains and losses exceed 10% of the greater of the PBO or the estimated fair value of plan assets, the excess is amortized into net periodic benefit costs over the average projected future lifetime of all plan participants or projected future working lifetime, as appropriate. Prior service costs (credit) are recognized in AOCI at the time of the amendment and then amortized into net periodic benefit costs over the average projected future lifetime of all plan participants or projected future working lifetime, as appropriate. 133 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Net periodic benefit costs are determined using management estimates and actuarial assumptions; and are comprised of service cost, interest cost, expected return on plan assets, amortization of net actuarial (gains) losses, settlement and curtailment costs, and amortization of prior service costs (credit). Adoption of New Accounting Pronouncements Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASU”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. There were no significant ASUs adopted as of December 31, 2021. Future Adoption of New Accounting Pronouncements In August 2018, the FASB issued new guidance on long-duration contracts (ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts) . This new guidance is effective for fiscal years beginning after January 1, 2023. The amendments to Topic 944 will result in significant changes to the measurement, presentation and disclosure requirements for long-duration insurance contracts. A summary of the most significant changes is provided below: (1) Guaranteed benefits associated with variable annuity and certain fixed annuity contracts will be classified and presented separately on the consolidated balance sheets as market risk benefits (“MRB”). MRBs will be measured at fair value through net income and reported separately on the consolidated statements of operations, except for instrument-specific credit risk changes, which will be recognized in OCI. (2) Cash flow assumptions used to measure the liability for future policy benefits on traditional long-duration contracts (including term and non-participating whole life insurance and immediate annuities) will be updated on an annual basis using a retrospective method. The resulting remeasurement gain or loss will be reported separately on the consolidated statements of operations along with the remeasurement gain or loss on universal life-type contract liabilities. (3) The discount rate assumption used to measure the liability for traditional long-duration contracts will be based on an upper-medium grade fixed income yield, updated quarterly, with changes recognized in OCI. (4) DAC for all insurance products are required to be amortized on a constant-level basis over the expected term of the contracts, using amortization methods that are not a function of revenue or profit emergence. Changes in assumptions used to amortize DAC will be recognized as a revision to future amortization amounts. (5) There will be a significant increase in required disclosures, including disaggregated rollforwards of insurance contract assets and liabilities supplemented by qualitative and quantitative information regarding the cash flows, assumptions, methods and judgements used to measure those balances. The amendments to Topic 944 will be applied to the earliest period presented in the financial statements, making the transition date January 1, 2021. The MRB guidance is required to be applied on a retrospective basis, while the guidance for insurance liability assumption updates and DAC amortization will be applied to existing carrying amounts on the transition date. The new guidance will have a significant impact to the Company’s financial statements upon adoption, and will change the pattern and market sensitivity of the Company’s earnings after the transition date. The most significant impact will be the requirement that all variable annuity guarantees are considered MRBs and measured at fair value, because a significant amount of variable annuity guarantees are classified as insurance liabilities under current guidance. The impacts to the financial statements at adoption are highly dependent on market conditions, especially interest rates. The Company is, therefore, unable to currently estimate the ultimate impact of the new guidance on the financial statements; however, at prevailing interest rate levels at the end of 2021, the Company expects the new guidance, upon adoption, would likely result in a material decrease in stockholders’ equity. 134 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 2. Segment Information The Company is organized into three segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other. Annuities The Annuities segment consists of a variety of variable, fixed, index-linked and income annuities designed to address contract holders’ needs for protected wealth accumulation on a tax-deferred basis, wealth transfer and income security. Life The Life segment consists of insurance products and services, including term, universal, whole and variable life products designed to address policyholders’ needs for financial security and protected wealth transfer, which may be on a tax-advantaged basis. Run-off The Run-off segment consists of products that are no longer actively sold and are separately managed, including ULSG, structured settlements, pension risk transfer contracts, certain company-owned life insurance policies and certain funding agreements. Corporate & Other Corporate & Other contains the excess capital not allocated to the segments and interest expense related to the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes long-term care and workers’ compensation business reinsured through 100% quota share reinsurance agreements, activities related to funding agreements associated with the Company’s institutional spread margin business, as well as direct-to-consumer life insurance that is no longer actively sold. Financial Measures and Segment Accounting Policies Adjusted earnings is a financial measure used by management to evaluate performance and facilitate comparisons to industry results. Consistent with GAAP guidance for segment reporting, adjusted earnings is also used to measure segment performance. The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by the investor community by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings, which may be positive or negative, focuses on the Company’s 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); • Net derivative gains (losses) except earned income and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment; and • Certain variable annuity GMIB fees (“GMIB Fees”). 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 • Amortization of DAC and 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 the Company’s effective tax rate. 135 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 2. Segment Information (continued) The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for the adjustments to calculate adjusted earnings described above. In addition, segment accounting policies include the methods of capital allocation described below. Segment investment and capitalization targets are based on statutory oriented risk principles and metrics. Segment invested assets backing liabilities are based on net statutory liabilities plus excess capital. For the variable annuity business, the excess capital held is based on the target statutory total asset requirement consistent with the Company’s variable annuity risk management strategy. For insurance businesses other than variable annuities, excess capital held is based on a percentage of required statutory risk-based capital (“RBC”). Assets in excess of those allocated to the segments, if any, are held in Corporate & Other. Segment net investment income reflects the performance of each segment’s respective invested assets. Operating results by segment, as well as Corporate & Other, were as follows: Year Ended December 31, 2021 Annuities Life Run-off Corporate & Other Total (In millions) Pre-tax adjusted earnings $ 1,796 $ 362 $ 244 $ ( 347 ) $ 2,055 Provision for income tax expense (benefit) 347 75 53 ( 107 ) 368 Post-tax adjusted earnings 1,449 287 191 ( 240 ) 1,687 Less: Net income (loss) attributable to noncontrolling interests — — — 5 5 Less: Preferred stock dividends — — — 89 89 Adjusted earnings $ 1,449 $ 287 $ 191 $ ( 334 ) 1,593 Adjustments for: Net investment gains (losses) ( 59 ) Net derivative gains (losses) ( 2,469 ) Other adjustments to net income (loss) 265 Provision for income tax (expense) benefit 473 Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ ( 197 ) Interest revenue $ 2,217 $ 673 $ 1,910 $ 102 Interest expense $ — $ — $ — $ 163 136 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 2. Segment Information (continued) Year Ended December 31, 2020 Annuities Life Run-off Corporate & Other Total (In millions) Pre-tax adjusted earnings $ 1,433 $ 182 $ ( 1,655 ) $ ( 332 ) $ ( 372 ) Provision for income tax expense (benefit) 266 34 ( 356 ) ( 87 ) ( 143 ) Post-tax adjusted earnings 1,167 148 ( 1,299 ) ( 245 ) ( 229 ) Less: Net income (loss) attributable to noncontrolling interests — — — 5 5 Less: Preferred stock dividends — — — 44 44 Adjusted earnings $ 1,167 $ 148 $ ( 1,299 ) $ ( 294 ) ( 278 ) Adjustments for: Net investment gains (losses) 278 Net derivative gains (losses) ( 18 ) Other adjustments to net income (loss) ( 1,307 ) Provision for income tax (expense) benefit 220 Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ ( 1,105 ) Interest revenue $ 1,820 $ 460 $ 1,269 $ 70 Interest expense $ — $ — $ — $ 184 Year Ended December 31, 2019 Annuities Life Run-off Corporate & Other Total (In millions) Pre-tax adjusted earnings $ 1,263 $ 288 $ ( 580 ) $ ( 301 ) $ 670 Provision for income tax expense (benefit) 235 57 ( 126 ) ( 121 ) 45 Post-tax adjusted earnings 1,028 231 ( 454 ) ( 180 ) 625 Less: Net income (loss) attributable to noncontrolling interests — — — 5 5 Less: Preferred stock dividends — — — 21 21 Adjusted earnings $ 1,028 $ 231 $ ( 454 ) $ ( 206 ) 599 Adjustments for: Net investment gains (losses) 112 Net derivative gains (losses) ( 1,988 ) Other adjustments to net income (loss) 154 Provision for income tax (expense) benefit 362 Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ ( 761 ) Interest revenue $ 1,809 $ 436 $ 1,265 $ 75 Interest expense $ — $ — $ — $ 191 137 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 2. Segment Information (continued) Total revenues by segment, as well as Corporate & Other, were as follows: Years Ended December 31, 2021 2020 2019 (In millions) Annuities $ 5,216 $ 4,563 $ 4,648 Life 1,491 1,334 1,328 Run-off 2,557 1,938 2,009 Corporate & Other 181 156 176 Adjustments ( 2,303 ) 512 ( 1,607 ) Total $ 7,142 $ 8,503 $ 6,554 Total assets by segment, as well as Corporate & Other, were as follows at: December 31, 2021 2020 (In millions) Annuities $ 178,700 $ 172,233 Life 24,514 23,809 Run-off 37,055 38,366 Corporate & Other 19,571 13,461 Total $ 259,840 $ 247,869 Total premiums, universal life and investment-type product policy fees and other revenues by major product group were as follows: Years Ended December 31, 2021 2020 2019 (In millions) Annuity products $ 3,252 $ 3,010 $ 3,106 Life insurance products 1,527 1,619 1,709 Other products 10 13 36 Total $ 4,789 $ 4,642 $ 4,851 Substantially all of the Company’s premiums, universal life and investment-type product policy fees and other revenues originated in the U.S. Revenues derived from any individual customer did not exceed 10% of premiums, universal life and investment-type product policy fees and other revenues for the years ended December 31, 2021, 2020 and 2019. 138 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 3. Insurance Insurance Liabilities Insurance liabilities are comprised of future policy benefits, policyholder account balances and other policy-related balances included on the consolidated balance sheets. Assumptions for Future Policyholder Benefits and Policyholder Account Balances For term and non-participating whole life insurance, assumptions for mortality and persistency are based upon the Company’s experience. Interest rate assumptions for the aggregate future policy benefit liabilities range from 3 % to 9 %. The liability for single premium immediate annuities is based on the present value of expected future payments using the Company’s experience for mortality assumptions, with interest rate assumptions used in establishing such liabilities ranging from 0 % to 8 %. Participating whole life insurance uses an interest assumption based upon non-forfeiture interest rate, ranging from 4 % to 5 %, and mortality rates guaranteed in calculating the cash surrender values described in such contracts, and also includes a liability for terminal dividends. Participating whole life insurance represented 3 % of the Company’s life insurance in-force at both December 31, 2021 and 2020, and 39 %, 40 % and 38 % of gross traditional life insurance premiums for the years ended December 31, 2021, 2020 and 2019, respectively. The liability for future policyholder benefits for long-term care insurance (included in Corporate & Other) includes assumptions for morbidity, withdrawals and interest. Interest rate assumptions used for establishing long-term care claim liabilities range from 3 % to 6 %. Claim reserves for long-term care insurance include best estimate assumptions for claim terminations, expenses and interest. Policyholder account balances liabilities for fixed deferred annuities and universal life insurance have interest credited rates ranging from 1 % to 7 %. Guarantees The Company issues variable annuity contracts with guaranteed minimum benefits. GMDBs, the life contingent portion of GMWBs and certain portions of GMIBs are accounted for as insurance liabilities in future policyholder benefits, while other guarantees are accounted for in whole or in part as embedded derivatives in policyholder account balances and are further discussed in Note 7. The most significant assumptions for variable annuity guarantees included in future policyholder benefits are projected general account and separate account investment returns, and policyholder behavior including mortality, benefit election and utilization, and withdrawals. The Company also has secondary guarantees on universal life insurance accounted for as insurance liabilities. The most significant assumptions used in estimating the secondary guarantee liabilities are general account rates of return, premium persistency, mortality and lapses, which are reviewed and updated at least annually. See Note 1 for more information on guarantees accounted for as insurance liabilities. 139 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 3. Insurance (continued) Information regarding the liabilities for guarantees (excluding policyholder account balances and embedded derivatives) relating to variable annuity contracts and universal and variable life insurance contracts was as follows: Variable Annuity Contracts Universal and Variable Life Contracts GMDBs GMIBs Secondary Guarantees Total (In millions) Direct Balance at January 1, 2019 $ 1,567 $ 3,074 $ 4,716 $ 9,357 Incurred guaranteed benefits 143 163 874 1,180 Paid guaranteed benefits ( 90 ) — — ( 90 ) Balance at December 31, 2019 1,620 3,237 5,590 10,447 Incurred guaranteed benefits 129 1,133 1,244 2,506 Paid guaranteed benefits ( 103 ) — ( 169 ) ( 272 ) Balance at December 31, 2020 1,646 4,370 6,665 12,681 Incurred guaranteed benefits 295 ( 29 ) 688 954 Paid guaranteed benefits ( 78 ) — ( 275 ) ( 353 ) Balance at December 31, 2021 $ 1,863 $ 4,341 $ 7,078 $ 13,282 Net Ceded/(Assumed) Balance at January 1, 2019 $ 11 $ — $ 963 $ 974 Incurred guaranteed benefits 86 — 120 206 Paid guaranteed benefits ( 88 ) — — ( 88 ) Balance at December 31, 2019 9 — 1,083 1,092 Incurred guaranteed benefits 96 — 102 198 Paid guaranteed benefits ( 101 ) — ( 39 ) ( 140 ) Balance at December 31, 2020 4 — 1,146 1,150 Incurred guaranteed benefits 71 — 102 173 Paid guaranteed benefits ( 76 ) — ( 39 ) ( 115 ) Balance at December 31, 2021 $ ( 1 ) $ — $ 1,209 $ 1,208 Net Balance at January 1, 2019 $ 1,556 $ 3,074 $ 3,753 $ 8,383 Incurred guaranteed benefits 57 163 754 974 Paid guaranteed benefits ( 2 ) — — ( 2 ) Balance at December 31, 2019 1,611 3,237 4,507 9,355 Incurred guaranteed benefits 33 1,133 1,142 2,308 Paid guaranteed benefits ( 2 ) — ( 130 ) ( 132 ) Balance at December 31, 2020 1,642 4,370 5,519 11,531 Incurred guaranteed benefits 224 ( 29 ) 586 781 Paid guaranteed benefits ( 2 ) — ( 236 ) ( 238 ) Balance at December 31, 2021 $ 1,864 $ 4,341 $ 5,869 $ 12,074 140 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 3. Insurance (continued) Information regarding the Company’s guarantee exposure was as follows at: December 31, 2021 2020 In the Event of Death At Annuitization In the Event of Death At Annuitization (Dollars in millions) Annuity Contracts (1), (2) Variable Annuity Guarantees Total account value (3) $ 109,968 $ 59,735 $ 108,424 $ 60,674 Separate account value $ 105,023 $ 58,555 $ 103,315 $ 59,419 Net amount at risk $ 6,361 (4) $ 5,240 (5) $ 6,438 (4) $ 6,692 (5) Average attained age of contract holders 71 years 70 years 70 years 70 years December 31, 2021 2020 Secondary Guarantees (Dollars in millions) Universal Life Contracts Total account value (3) $ 5,518 $ 5,772 Net amount at risk (6) $ 67,248 $ 69,083 Average attained age of policyholders 68 years 67 years Variable Life Contracts Total account value (3) $ 4,785 $ 3,926 Net amount at risk (6) $ 18,857 $ 19,909 Average attained age of policyholders 52 years 51 years _______________ (1) The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive. (2) Includes direct business, but excludes offsets from hedging or reinsurance, if any. Therefore, the net amount at risk presented reflects the economic exposures of living and death benefit guarantees associated with variable annuities, but not necessarily their impact on the Company. See Note 5 for a discussion of guaranteed minimum benefits which have been reinsured. (3) Includes the contract holder’s investments in the general account and separate account, if applicable. (4) Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death. (5) Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contract holders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contract holders have achieved. (6) Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date. 141 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 3. Insurance (continued) Account balances of contracts with guarantees were invested in separate account asset classes as follows at: December 31, 2021 2020 (In millions) Fund Groupings: Balanced $ 64,449 $ 64,736 Equity 34,894 32,811 Bond 9,297 9,105 Money Market 15 16 Total $ 108,655 $ 106,668 Obligations Under Funding Agreements Institutional Spread Margin Business Brighthouse Life Insurance Company has issued unsecured fixed and floating rate funding agreements to certain special purpose entities that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. The Company had obligations outstanding under these funding agreements of $ 4.7 billion and $ 0 at December 31, 2021 and 2020, respectively. Brighthouse Life Insurance Company has a secured funding agreement program with the Federal Home Loan Bank (“FHLB”) of Atlanta. The Company had obligations outstanding under this program of $ 900 million and $ 0 at December 31, 2021 and 2020, respectively. Funding agreements are issued to FHLBs in exchange for cash, for which the FHLBs have been granted liens on certain assets, some of which are in their custody to collateralize the Company’s obligations under the funding agreements. The Company is permitted to withdraw any portion of the collateral in the custody of the FHLBs as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by the Company, the FHLBs’ recovery on the collateral is limited to the amount of the Company’s liabilities to the FHLBs. See Note 6 for information on invested assets pledged as collateral in connection with 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”). The Company had obligations outstanding under this program of $ 125 million and $ 0 at December 31, 2021 and 2020, respectively. Funding agreements are issued to Farmer Mac in exchange for cash, for which Farmer Mac have been granted liens on certain assets to collateralize the Company’s obligations under the funding agreements. Upon any event of default by the Company, Farmer Mac’s recovery on the collateral is limited to the amount of the Company’s liabilities to Farmer Mac. See Note 6 for information on invested assets pledged as collateral in connection with funding agreements. Inactive Funding Agreement Programs Brighthouse Life Insurance Company issued a floating rate funding agreement, which is denominated in foreign currency, to a special purpose entity that issued debt securities for which payment of interest and principal is secured by such funding agreement. The Company had an obligation outstanding under this funding agreement of $ 134 million and $ 144 million at December 31, 2021 and 2020, respectively. The remaining obligation at December 31, 2021 matures in June 2022. Brighthouse Life Insurance Company had obligations with certain regional banks in the FHLB system outstanding under an inactive program of $ 500 million and $ 595 million at December 31, 2021 and 2020, respectively. The remaining obligation at December 31, 2021 matures in February 2025. 142 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 4. Deferred Policy Acquisition Costs, Value of Business Acquired and Deferred Sales Inducements See Note 1 for a description of capitalized acquisition costs. Information regarding DAC and VOBA was as follows: Years Ended December 31, 2021 2020 2019 (In millions) DAC: Balance at January 1, $ 4,407 $ 4,946 $ 5,149 Capitalizations 493 408 369 Amortization related to net investment gains (losses) and net derivative gains (losses) 61 95 204 All other amortization ( 212 ) ( 833 ) ( 577 ) Total amortization ( 151 ) ( 738 ) ( 373 ) Unrealized investment gains (losses) 98 ( 209 ) ( 199 ) Balance at December 31, 4,847 4,407 4,946 VOBA: Balance at January 1, 504 502 568 Amortization related to net investment gains (losses) and net derivative gains (losses) — — ( 1 ) All other amortization 7 ( 28 ) ( 8 ) Total amortization 7 ( 28 ) ( 9 ) Unrealized investment gains (losses) 19 30 ( 57 ) Balance at December 31, 530 504 502 Total DAC and VOBA: Balance at December 31, $ 5,377 $ 4,911 $ 5,448 The estimated future VOBA amortization expense to be reported in other expenses for the next five years is $ 73 million in 2022, $ 63 million in 2023, $ 54 million in 2024, $ 46 million in 2025 and $ 40 million in 2026. Information regarding DSI was as follows: Years Ended December 31, 2021 2020 2019 (In millions) DSI: Balance at January 1, $ 310 $ 379 $ 410 Capitalization 1 2 2 Amortization ( 4 ) ( 71 ) ( 38 ) Unrealized investment gains (losses) — — 5 Balance at December 31, $ 307 $ 310 $ 379 5. Reinsurance The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider of reinsurance for some insurance products issued by former affiliated and unaffiliated companies. The Company participates in reinsurance activities in order to limit losses, minimize exposure to significant risks and provide additional capacity for future growth. Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed in Note 6. 143 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 5. Reinsurance (continued) Annuities and Life For annuities, the Company reinsures portions of the living and death benefit guarantees issued in connection with certain variable annuities to unaffiliated reinsurers. Under these reinsurance agreements, the Company pays a reinsurance premium generally based on fees associated with the guarantees collected from policyholders and receives reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations. The value of embedded derivatives on the ceded risk is determined using a methodology consistent with the guarantees directly written by the Company with the exception of the input for nonperformance risk that reflects the credit of the reinsurer. The Company cedes certain fixed rate annuities to unaffiliated third-party reinsurers and assumes certain index-linked annuities from an unaffiliated third-party insurer. These reinsurance arrangements are structured on a coinsurance basis and are reported as deposit accounting. For its life products, the Company has historically reinsured the mortality risk primarily on an excess of retention basis or on a quota share basis. In addition to reinsuring mortality risk as described above, the Company reinsures other risks, as well as specific coverages. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specified characteristics. On a case-by-case basis, the Company may retain up to $ 20 million per life and reinsure 100 % of amounts in excess of the amount the Company retains. The Company also reinsures 90 % of the risk associated with participating whole life policies to a former affiliate and assumes certain term life policies and universal life policies with secondary death benefit guarantees issued by a former affiliate. The Company evaluates its reinsurance programs routinely and may increase or decrease its retention at any time. Corporate & Other The Company reinsures, through 100 % quota share reinsurance agreements, certain run-off long-term care and workers’ compensation business written by the Company. At December 31, 2021, the Company had $ 6.6 billion of reinsurance recoverables associated with its reinsured long-term care business. The reinsurer has established trust accounts for the Company’s benefit to secure their obligations under the reinsurance agreements. Additionally, the Company is indemnified for losses and certain other payment obligations it might incur with respect to such reinsured long-term care insurance business. Catastrophe Coverage The Company has exposure to catastrophes which could contribute to significant fluctuations in the Company’s results of operations. The Company uses excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks . Reinsurance Recoverables The Company reinsures its business through a diversified group of primarily highly rated reinsurers. The Company analyzes recent trends in arbitration and litigation outcomes in disputes, if any, with its reinsurers and monitors ratings and the financial strength of its reinsurers. In addition, the reinsurance recoverable balance due from each reinsurer and the recoverability of such balance is evaluated as part of this overall monitoring process. The Company generally secures large reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. These reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, which at both December 31, 2021 and 2020, were not significant. The Company had $ 6.0 billion and $ 5.9 billion of unsecured reinsurance recoverable balances with third-party reinsurers at December 31, 2021 and 2020, respectively. The Company records an allowance for credit losses which is a valuation account that reduces reinsurance recoverable balances to present the net amount expected to be collected from reinsurers. When assessing the creditworthiness of the Company’s reinsurance recoverable balances, beyond the analysis of individual claims disputes, the Company considers the financial strength of its reinsurers using public ratings and ratings reports, current existing credit enhancements to reinsurance agreements and the statutory and GAAP financial statements of the reinsurers. Impairments are then determined based on probable and estimable defaults. At both December 31, 2021 and 2020, the Company had an allowance for credit losses of $ 10 million on its reinsurance recoverable balances. 144 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 5. Reinsurance (continued) At December 31, 2021, the Company had $ 15.1 billion of net ceded reinsurance recoverables with third-party reinsurers. Of this total, $ 13.0 billion, or 86 %, were with the Company’s five largest ceded reinsurers, including $ 4.1 billion of net ceded reinsurance recoverables which were unsecured. At December 31, 2020, the Company had $ 15.1 billion of net ceded reinsurance recoverables with third-party reinsurers. Of this total, $ 12.9 billion, or 85 %, were with the Company’s five largest ceded reinsurers, including $ 4.0 billion of net ceded reinsurance recoverables which were unsecured. The amounts on the consolidated statements of operations include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows: Years Ended December 31, 2021 2020 2019 (In millions) Premiums Direct premiums $ 1,440 $ 1,509 $ 1,651 Reinsurance assumed ( 12 ) 10 10 Reinsurance ceded ( 721 ) ( 753 ) ( 779 ) Net premiums $ 707 $ 766 $ 882 Universal life and investment-type product policy fees Direct universal life and investment-type product policy fees $ 4,211 $ 4,022 $ 4,048 Reinsurance assumed 44 48 72 Reinsurance ceded ( 619 ) ( 607 ) ( 540 ) Net universal life and investment-type product policy fees $ 3,636 $ 3,463 $ 3,580 Other revenues Direct other revenues $ 373 $ 351 $ 366 Reinsurance assumed 4 16 1 Reinsurance ceded 69 46 22 Net other revenues $ 446 $ 413 $ 389 Policyholder benefits and claims Direct policyholder benefits and claims $ 4,984 $ 7,545 $ 5,441 Reinsurance assumed 100 103 36 Reinsurance ceded ( 1,641 ) ( 1,937 ) ( 1,807 ) Net policyholder benefits and claims $ 3,443 $ 5,711 $ 3,670 The amounts on the consolidated balance sheets include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows at: December 31, 2021 2020 Direct Assumed Ceded Total Balance Sheet Direct Assumed Ceded Total Balance Sheet (In millions) Assets Premiums, reinsurance and other receivables (net of allowance for credit losses) $ 634 $ ( 9 ) $ 15,469 $ 16,094 $ 728 $ 6 $ 15,424 $ 16,158 Liabilities Future policy benefits $ 43,682 $ 125 $ — $ 43,807 $ 44,329 $ 119 $ — $ 44,448 Policyholder account balances $ 63,163 $ 3,688 $ — $ 66,851 $ 51,451 $ 3,057 $ — $ 54,508 Other policy-related balances $ 1,813 $ 1,644 $ — $ 3,457 $ 1,723 $ 1,688 $ — $ 3,411 Other liabilities $ 3,245 $ 32 $ 1,227 $ 4,504 $ 3,832 $ 31 $ 1,148 $ 5,011 145 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 5. Reinsurance (continued) Reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. The deposit assets on reinsurance at both December 31, 2021 and 2020 were $ 3.2 billion. The deposit liabilities on reinsurance were $ 3.3 billion and $ 2.6 billion at December 31, 2021 and 2020, respectively. 6. Investments See Note 8 for information about the fair value hierarchy for investments and the related valuation methodologies. In connection with the adoption of new guidance related to the credit losses, effective January 1, 2020, the Company updated its accounting policies on certain investments. Any accounting policy updates required by the new guidance are described in this footnote. Fixed Maturity Securities Available-for-sale Fixed Maturity Securities by Sector Fixed maturity securities by sector were as follows at: December 31, 2021 December 31, 2020 Amortized Cost Allowance for Credit Losses Gross Unrealized Estimated Fair Value Amortized Cost Allowance for Credit Losses Gross Unrealized Estimated Fair Value Gains Losses Gains Losses (In millions) U.S. corporate $ 35,326 $ 2 $ 3,946 $ 189 $ 39,081 $ 32,608 $ 2 $ 5,370 $ 70 $ 37,906 Foreign corporate 10,916 7 906 109 11,706 10,060 — 1,501 50 11,511 U.S. government and agency 7,301 — 2,066 60 9,307 6,007 — 2,637 6 8,638 RMBS 8,878 — 432 51 9,259 7,653 — 644 3 8,294 CMBS 6,976 2 333 25 7,282 6,207 — 592 9 6,790 State and political subdivision 3,995 — 846 6 4,835 3,673 — 967 — 4,640 ABS 4,261 — 33 14 4,280 2,834 — 60 10 2,884 Foreign government 1,593 — 244 5 1,832 1,487 — 346 1 1,832 Total fixed maturity securities $ 79,246 $ 11 $ 8,806 $ 459 $ 87,582 $ 70,529 $ 2 $ 12,117 $ 149 $ 82,495 The Company held non-income producing fixed maturity securities with an estimated fair value of $ 3 million and $ 5 million at December 31, 2021 and 2020, respectively. Maturities of Fixed Maturity Securities The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at December 31, 2021: Due in One Year or Less Due After One Year Through Five Years Due After Five Years Through Ten Years Due After Ten Years Structured Securities Total Fixed Maturity Securities (In millions) Amortized cost $ 947 $ 10,060 $ 16,916 $ 31,208 $ 20,115 $ 79,246 Estimated fair value $ 960 $ 10,443 $ 17,893 $ 37,465 $ 20,821 $ 87,582 Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities not due at a single maturity date have been presented in the year of final contractual maturity. Structured Securities are shown separately, as they are not due at a single maturity. 146 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) Continuous Gross Unrealized Losses for Fixed Maturity Securities by Sector The estimated fair value and gross unrealized losses of fixed maturity securities in an unrealized loss position, by sector and by length of time that the securities have been in a continuous unrealized loss position, were as follows at: December 31, 2021 December 31, 2020 Less than 12 Months 12 Months or Greater Less than 12 Months 12 Months or Greater Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses (Dollars in millions) U.S. corporate $ 5,131 $ 113 $ 888 $ 76 $ 1,737 $ 57 $ 185 $ 13 Foreign corporate 2,044 62 326 47 254 8 387 42 U.S. government and agency 1,716 40 222 20 236 6 — — RMBS 3,488 51 32 — 180 2 22 1 CMBS 1,401 21 95 4 332 7 44 2 State and political subdivision 356 6 7 — 48 — — — ABS 2,459 13 93 1 506 3 629 7 Foreign government 278 4 18 1 54 1 — — Total fixed maturity securities $ 16,873 $ 310 $ 1,681 $ 149 $ 3,347 $ 84 $ 1,267 $ 65 Total number of securities in an unrealized loss position 2,454 369 667 244 Allowance for Credit Losses for Fixed Maturity Securities Evaluation and Measurement Methodologies For fixed maturity securities in an unrealized loss position, management first assesses whether the Company intends to sell, or whether it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to estimated fair value through net investment gains (losses). For fixed maturity securities that do not meet the aforementioned criteria, management evaluates whether the decline in estimated fair value has resulted from credit losses or other factors. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the allowance for credit loss evaluation process include, but are not limited to: (i) the extent to which estimated fair value is less than amortized cost; (ii) any changes to the rating of the security by a rating agency; (iii) adverse conditions specifically related to the security, industry or geographic area; and (iv) payment structure of the fixed maturity security and the likelihood of the issuer being able to make payments in the future or the issuer’s failure to make scheduled interest and principal payments. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss is deemed to exist and an allowance for credit losses is recorded, limited by the amount that the estimated fair value is less than the amortized cost basis, with a corresponding charge to net investment gains (losses). Any unrealized losses that have not been recorded through an allowance for credit losses are recognized in OCI. Once a security specific allowance for credit losses is established, the present value of cash flows expected to be collected from the security continues to be reassessed. Any changes in the security specific allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense in net investment gains (losses). Fixed maturity securities are also evaluated to determine whether any amounts have become uncollectible. When all, or a portion, of a security is deemed uncollectible, the uncollectible portion is written-off with an adjustment to amortized cost and a corresponding reduction to the allowance for credit losses. Accrued interest receivables are presented separate from the amortized cost basis of fixed maturity securities. An allowance for credit losses is not estimated on an accrued interest receivable, rather receivable balances 90-days past due are deemed uncollectible and are written off with a corresponding reduction to net investment income. The accrued interest receivable on fixed maturity securities totaled $ 534 million and $ 514 million at December 31, 2021 and 2020, respectively, and is included in accrued investment income. 147 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) Fixed maturity securities are also evaluated to determine if they qualify as purchased financial assets with credit deterioration (“PCD”). To determine if the credit deterioration experienced since origination is more than insignificant, both (i) the extent of the credit deterioration and (ii) any rating agency downgrades are evaluated. For securities categorized as PCD assets, the present value of cash flows expected to be collected from the security are compared to the par value of the security. If the present value of cash flows expected to be collected is less than the par value, credit losses are embedded in the purchase price of the PCD asset. In this situation, both an allowance for credit losses and amortized cost gross-up is recorded, limited by the amount that the estimated fair value is less than the grossed-up amortized cost basis. Any difference between the purchase price and the present value of cash flows is amortized or accreted into net investment income over the life of the PCD asset. Any subsequent PCD asset allowance for credit losses is evaluated in a manner similar to the process described above for fixed maturity securities. Current Period Evaluation Based on the Company’s current evaluation of its fixed maturity securities in an unrealized loss position and the current intent or requirement to sell, the Company recorded an allowance for credit losses of $ 11 million, relating to eight securities at December 31, 2021. Management concluded that for all other fixed maturity securities in an unrealized loss position, the unrealized loss was not due to issuer-specific credit-related factors and as a result was recognized in OCI. Where unrealized losses have not been recognized into income, it is primarily because the securities’ bond issuer(s) are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in estimated fair value is largely due to changes in interest rates and non-issuer specific credit spreads. These issuers continued to make timely principal and interest payments and the estimated fair value is expected to recover as the securities approach maturity. Rollforward of the Allowance for Credit Losses for Fixed Maturity Securities by Sector The changes in the allowance for credit losses by sector were as follows: U.S. Corporate CMBS Foreign Corporate Total (In millions) Balance at January 1, 2020 $ 3 $ — $ 1 $ 4 Allowance on securities where credit losses were not previously recorded 3 — 1 4 Reductions for securities sold ( 1 ) — — ( 1 ) Change in allowance on securities with an allowance recorded in a previous period — — ( 1 ) ( 1 ) Write-offs charged against allowance (1) ( 3 ) — ( 1 ) ( 4 ) Balance at December 31, 2020 2 — — 2 Allowance on securities where credit losses were not previously recorded 2 2 7 11 Reductions for securities sold ( 2 ) — — ( 2 ) Change in allowance on securities with an allowance recorded in a previous period — — — — Write-offs charged against allowance (1) — — — — Balance at December 31, 2021 $ 2 $ 2 $ 7 $ 11 _______________ (1) The Company recorded total write-offs of $ 5 million and $ 13 million for the years ended December 31, 2021 and 2020, respectively. 148 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) Mortgage Loans Mortgage Loans by Portfolio Segment Mortgage loans are summarized as follows at: December 31, 2021 2020 Carrying Value % of Total Carrying Value % of Total (Dollars in millions) Commercial $ 12,187 61.4 % $ 9,714 61.4 % Agricultural 4,163 21.0 3,538 22.4 Residential 3,623 18.2 2,650 16.8 Total mortgage loans (1) 19,973 100.6 15,902 100.6 Allowance for credit losses ( 123 ) ( 0.6 ) ( 94 ) ( 0.6 ) Total mortgage loans, net $ 19,850 100.0 % $ 15,808 100.0 % _______________ (1) Purchases of mortgage loans from third parties were $ 2.1 billion and $ 815 million for the years ended December 31, 2021 and 2020, respectively, and were primarily comprised of residential mortgage loans. Allowance for Credit Losses for Mortgage Loans Evaluation and Measurement Methodologies The allowance for credit losses is a valuation account that is deducted from the mortgage loan’s amortized cost basis to present the net amount expected to be collected on the mortgage loan. The loan balance, or a portion of the loan balance, is written-off against the allowance when management believes this amount is uncollectible. Accrued interest receivables are presented separate from the amortized cost basis of mortgage loans. An allowance for credit losses is generally not estimated on an accrued interest receivable, rather when a loan is placed in nonaccrual status the associated accrued interest receivable balance is written off with a corresponding reduction to net investment income. For mortgage loans that are granted payment deferrals due to the COVID-19 pandemic, interest continues to be accrued during the deferral period if the loan was less than 30 days past due at December 31, 2019 and performing at the onset of the pandemic. Accrued interest on COVID-19 pandemic impacted loans was not significant at both December 31, 2021 and 2020. The accrued interest receivable on mortgage loans is included in accrued investment income and totaled $ 95 million and $ 89 million at December 31, 2021 and 2020, respectively. The allowance for credit losses is estimated using relevant available information, from internal and external sources, relating to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience provides the basis for estimating expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics and environmental conditions. A reasonable and supportable forecast period of two-years is used with an input reversion period of one-year. Mortgage loans are evaluated in each of the three portfolio segments to determine the allowance for credit losses. The loan-level loss rates are determined using individual loan terms and characteristics, risk pools/internal ratings, national economic forecasts, prepayment speeds, and estimated default and loss severity. The resulting loss rates are applied to the mortgage loan’s amortized cost to generate an allowance for credit losses. In certain situations, the allowance for credit losses is measured as the difference between the loan’s amortized cost and liquidation value of the collateral. These situations include collateral dependent loans, expected troubled debt restructurings (“TDR”), foreclosure probable loans, and loans with dissimilar risk characteristics. 149 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) Mortgage loans are also evaluated to determine if they qualify as PCD assets. To determine if the credit deterioration experienced since origination is more than insignificant, the extent of credit deterioration is evaluated. All re-performing/modified loan (“RPL”) pools purchased after December 31, 2019 are determined to have been acquired with evidence of more than insignificant credit deterioration since origination and are classified as PCD assets. RPLs are pools of residential mortgage loans acquired at a discount or premium which have both credit and non-credit components. For PCD mortgage loans, the allowance for credit losses is determined using a similar methodology described above, except the loss-rate is determined at the pool level instead of the individual loan level. The initial allowance for credit losses, determined on a collective basis, is then allocated to the individual loans. The initial amortized cost of the loan is grossed-up to reflect the sum of the loan’s purchase price and allowance for credit losses. The difference between the grossed-up amortized cost basis and the par value of the loan is a noncredit discount or premium, which is accreted or amortized into net investment income over the remaining life of the loan. Any subsequent PCD mortgage loan allowance for credit losses is evaluated in a manner similar to the process described above for each of the three portfolio segments. Rollforward of the Allowance for Credit Losses for Mortgage Loans by Portfolio Segment The changes in the allowance for credit losses by portfolio segment were as follows: Commercial Agricultural Residential Total (In millions) Balance at December 31, 2019 $ 47 $ 10 $ 7 $ 64 Cumulative effect of change in accounting principle ( 20 ) 7 15 2 Balance at January 1, 2020 27 17 22 66 Current period provision 17 ( 2 ) 13 28 Balance at December 31, 2020 44 15 35 94 Current period provision 23 ( 3 ) 7 27 PCD credit allowance — — 2 2 Balance at December 31, 2021 $ 67 $ 12 $ 44 $ 123 PCD Mortgage Loans Purchases of PCD mortgage loans are summarized as follows: December 31, 2021 2020 (In millions) Purchase price $ 462 $ 159 Allowance at acquisition date 2 3 Discount or premium attributable to other factors ( 29 ) ( 2 ) Par value $ 435 $ 160 150 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) Credit Quality of Mortgage Loans by Portfolio Segment The amortized cost of mortgage loans by year of origination and credit quality indicator was as follows at: 2021 2020 2019 2018 2017 Prior Total (In millions) December 31, 2021 Commercial mortgage loans Loan-to-value ratios: Less than 65% $ 2,771 $ 437 $ 1,539 $ 986 $ 554 $ 3,303 $ 9,590 65% to 75% 633 92 383 406 128 481 2,123 76% to 80% — — 55 29 59 31 174 Greater than 80% — — — 30 — 270 300 Total commercial mortgage loans 3,404 529 1,977 1,451 741 4,085 12,187 Agricultural mortgage loans Loan-to-value ratios: Less than 65% 1,150 541 510 674 292 633 3,800 65% to 75% 114 77 61 26 33 52 363 Total agricultural mortgage loans 1,264 618 571 700 325 685 4,163 Residential mortgage loans Performing 1,124 202 270 230 132 1,606 3,564 Nonperforming 1 — 3 3 1 51 59 Total residential mortgage loans 1,125 202 273 233 133 1,657 3,623 Total $ 5,793 $ 1,349 $ 2,821 $ 2,384 $ 1,199 $ 6,427 $ 19,973 2020 2019 2018 2017 2016 Prior Total (In millions) December 31, 2020 Commercial mortgage loans Loan-to-value ratios: Less than 65% $ 317 $ 1,527 $ 1,004 $ 515 $ 1,109 $ 2,808 $ 7,280 65% to 75% 200 450 482 322 59 521 2,034 76% to 80% — — — 44 79 8 131 Greater than 80% — — 29 — 6 234 269 Total commercial mortgage loans 517 1,977 1,515 881 1,253 3,571 9,714 Agricultural mortgage loans Loan-to-value ratios: Less than 65% 569 526 749 391 417 663 3,315 65% to 75% 81 81 10 33 — 18 223 Total agricultural mortgage loans 650 607 759 424 417 681 3,538 Residential mortgage loans Performing 214 381 413 131 70 1,375 2,584 Nonperforming 2 6 4 — 1 53 66 Total residential mortgage loans 216 387 417 131 71 1,428 2,650 Total $ 1,383 $ 2,971 $ 2,691 $ 1,436 $ 1,741 $ 5,680 $ 15,902 151 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) The loan-to-value ratio is a measure commonly used to assess the quality of commercial and agricultural mortgage loans. The loan-to-value ratio compares the amount of the loan to the estimated fair value of the underlying property collateralizing the loan and is commonly expressed as a percentage. A loan-to-value ratio less than 100% indicates an excess of collateral value over the loan amount. Loan-to-value ratios greater than 100% indicate that the loan amount exceeds the collateral value. Performing status is a measure commonly used to assess the quality of residential mortgage loans. A loan is considered performing when the borrower makes consistent and timely payments. The amortized cost of commercial mortgage loans by debt-service coverage ratio was as follows at: December 31, 2021 2020 Amortized Cost % of Total Amortized Cost % of Total (Dollars in millions) Debt-service coverage ratios: Greater than 1.20x $ 10,289 84.4 % $ 9,450 97.3 % 1.00x - 1.20x 596 4.9 204 2.1 Less than 1.00x 1,302 10.7 60 0.6 Total $ 12,187 100.0 % $ 9,714 100.0 % The debt-service coverage ratio compares a property’s net operating income to its debt-service payments. Debt-service coverage ratios less than 1.00 times indicate that property operations do not generate enough income to cover the loan’s current debt payments. A debt-service coverage ratio greater than 1.00 times indicates an excess of net operating income over the debt-service payments. Past Due Mortgage Loans by Portfolio Segment The Company has a high-quality, well-performing mortgage loan portfolio, with over 99 % of all mortgage loans classified as performing at both December 31, 2021 and 2020. Delinquency is defined consistent with industry practice, when mortgage loans are past due as follows: commercial and residential mortgage loans — 60 days and agricultural mortgage loans — 90 days. To the extent a payment deferral is agreed to with a borrower, in response to the COVID-19 pandemic, the past due status of the impacted loans during the forbearance period is locked-in as of March 1, 2020, which reflects the date on which the COVID-19 pandemic began to affect the borrower’s ability to make payments. At December 31, 2021 and 2020, $ 30 million and $ 38 million, respectively, of the COVID-19 pandemic modified loans were classified as delinquent. The aging of the amortized cost of past due mortgage loans by portfolio segment was as follows at: December 31, 2021 2020 Commercial Agricultural Residential Total Commercial Agricultural Residential Total (In millions) Current $ 12,187 $ 4,163 $ 3,550 $ 19,900 $ 9,714 $ 3,538 $ 2,575 $ 15,827 30-59 days past due — — 14 14 — — 9 9 60-89 days past due — — 14 14 — — 24 24 90-179 days past due — — 29 29 — — 27 27 180+ days past due — — 16 16 — — 15 15 Total $ 12,187 $ 4,163 $ 3,623 $ 19,973 $ 9,714 $ 3,538 $ 2,650 $ 15,902 152 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) Mortgage Loans in Nonaccrual Status by Portfolio Segment Mortgage loans are placed in a nonaccrual status if there are concerns regarding collectability of future payments or the loan is past due, unless the past due loan is well collateralized. To the extent a payment deferral is agreed to with a borrower, in response to the COVID-19 pandemic, the impacted loans generally will not be reported as in a nonaccrual status during the period of deferral. A COVID-19 pandemic modified loan is only reported as a nonaccrual asset in the event a borrower declares bankruptcy, the borrower experiences significant credit deterioration such that the Company does not expect to collect all principal and interest due, or the loan was 90 days past due at the onset of the pandemic. At December 31, 2021 and 2020, $ 30 million and $ 38 million, respectively, of the COVID-19 pandemic modified loans were in nonaccrual status. The amortized cost of mortgage loans in a nonaccrual status by portfolio segment were as follows at: Commercial Agricultural Residential (1) Total (In millions) December 31, 2021 $ — $ — $ 59 $ 59 December 31, 2020 $ — $ — $ 66 $ 66 _______________ (1) The Company had $ 0 and $ 7 million of residential mortgage loans in nonaccrual status for which there was no related allowance for credit losses for the years ended December 31, 2021 and 2020, respectively. Current period investment income on mortgage loans in nonaccrual status was $ 1 million and $ 2 million for the years ended December 31, 2021 and 2020, respectively. Modified Mortgage Loans by Portfolio Segment Under certain circumstances, modifications are granted to nonperforming mortgage loans. Each modification is evaluated to determine if a TDR has occurred. A modification is a TDR when the borrower is in financial difficulty and the creditor makes concessions. Generally, the types of concessions may include reducing the amount of debt owed, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest. The Company did not have a significant amount of mortgage loans modified in a TDR during both the years ended December 31, 2021 and 2020. Short-term modifications made on a good faith basis to borrowers who were not more than 30 days past due at December 31, 2019 and in response to the COVID-19 pandemic are not considered TDRs. Other Invested Assets Over 90 % of other invested assets is comprised of freestanding derivatives with positive estimated fair values. See Note 7 for information about freestanding derivatives with positive estimated fair values. Other invested assets also includes FHLB stock, tax credit and renewable energy partnerships and leveraged leases. Leveraged Leases The carrying value of leveraged leases was $ 49 million and $ 50 million at December 31, 2021 and 2020, respectively. The allowance for credit losses was $ 13 million, at both December 31, 2021 and 2020. Rental receivables are generally due in periodic installments. The payment periods for leveraged leases generally range from one to 11 years. For rental receivables, the primary credit quality indicator is whether the rental receivable is performing or nonperforming, which is assessed monthly. Nonperforming rental receivables are generally defined as those that are 90 days or more past due. At both December 31, 2021 and 2020, all leveraged leases were performing. Net Unrealized Investment Gains (Losses) Unrealized investment gains (losses) on fixed maturity securities and the effect on DAC, VOBA, DSI and future policy benefits, that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in AOCI. 153 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) The components of net unrealized investment gains (losses), included in AOCI, were as follows: Years Ended December 31, 2021 2020 2019 (In millions) Fixed maturity securities $ 8,347 $ 11,968 $ 6,957 Derivatives 329 173 245 Other ( 29 ) ( 16 ) ( 13 ) Subtotal 8,647 12,125 7,189 Amounts allocated from: Future policy benefits ( 2,903 ) ( 4,313 ) ( 2,692 ) DAC, VOBA and DSI ( 403 ) ( 520 ) ( 341 ) Subtotal ( 3,306 ) ( 4,833 ) ( 3,033 ) Deferred income tax benefit (expense) ( 1,121 ) ( 1,531 ) ( 873 ) Net unrealized investment gains (losses) $ 4,220 $ 5,761 $ 3,283 The changes in net unrealized investment gains (losses) were as follows: Years Ended December 31, 2021 2020 2019 (In millions) Balance at January 1, $ 5,761 $ 3,283 $ 763 Unrealized investment gains (losses) during the year ( 3,478 ) 4,936 5,247 Unrealized investment gains (losses) relating to: Future policy benefits 1,410 ( 1,621 ) ( 1,806 ) DAC, VOBA and DSI 117 ( 179 ) ( 251 ) Deferred income tax benefit (expense) 410 ( 658 ) ( 670 ) Balance at December 31, $ 4,220 $ 5,761 $ 3,283 Change in net unrealized investment gains (losses) $ ( 1,541 ) $ 2,478 $ 2,520 Concentrations of Credit Risk There were no investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, at both December 31, 2021 and 2020. Securities Lending Elements of the securities lending program are presented below at: December 31, 2021 2020 (In millions) Securities on loan: (1) Amortized cost $ 3,573 $ 2,373 Estimated fair value $ 4,539 $ 3,603 Cash collateral received from counterparties (2) $ 4,611 $ 3,674 Securities collateral received from counterparties (3) $ 2 $ — Reinvestment portfolio — estimated fair value $ 4,730 $ 3,830 _______________ (1) Included within fixed maturity securities. (2) Included within payables for collateral under securities loaned and other transactions. 154 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) (3) Securities collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reported on the consolidated financial statements. The cash collateral liability by loaned security type and remaining tenor of the agreements were as follows at: December 31, 2021 December 31, 2020 Open (1) 1 Month or Less 1 to 6 Months Total Open (1) 1 Month or Less 1 to 6 Months Total (In millions) U.S. government and agency $ 1,094 $ 2,125 $ 1,391 $ 4,610 $ 937 $ 2,300 $ 437 $ 3,674 U.S. corporate 1 — — 1 — — — — Total $ 1,095 $ 2,125 $ 1,391 $ 4,611 $ 937 $ 2,300 $ 437 $ 3,674 _______________ (1) The related loaned security could be returned to the Company on the next business day which would require the Company to immediately return the cash collateral. If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than what otherwise would have been realized in normal market conditions, or both. The estimated fair value of the securities on loan related to the cash collateral on open at December 31, 2021 was $ 1.1 billion, primarily comprised of U.S. government and agency securities which, if put back to the Company, could be immediately sold to satisfy the cash requirement. The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including agency RMBS, ABS, U.S. government and agency securities, non-agency RMBS and CMBS) with 52 % invested in agency RMBS, U.S. government and agency securities and short-term investments at December 31, 2021. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company. Invested Assets on Deposit, Held in Trust and Pledged as Collateral Invested assets on deposit, held in trust and pledged as collateral at estimated fair value were as follows at: December 31, 2021 2020 (In millions) Invested assets on deposit (regulatory deposits) (1) $ 10,000 $ 10,135 Invested assets held in trust (reinsurance agreements) (2) 6,029 5,717 Invested assets pledged as collateral (3) 5,116 5,595 Total invested assets on deposit, held in trust and pledged as collateral $ 21,145 $ 21,447 _______________ (1) The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which $ 25 million and $ 60 million of the assets on deposit represents restricted cash and cash equivalents at December 31, 2021 and 2020, respectively. (2) The Company has assets, primarily fixed maturity securities, held in trust relating to certain reinsurance transactions, of which $ 119 million and $ 101 million of the assets held in trust balance represents restricted cash and cash equivalents at December 31, 2021 and 2020, respectively. (3) The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 3) and derivative transactions (see Note 7). See “— Securities Lending” for information regarding securities on loan. In addition, the Company’s investment in FHLB common stock, which is considered restricted until redeemed by the issuer, was $ 70 million and $ 39 million at redemption value at December 31, 2021 and 2020, respectively. 155 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) Collectively Significant Equity Method Investments The Company holds investments in limited partnerships and LLCs consisting of leveraged buy-out funds, private equity funds, joint ventures and other funds. The portion of these investments accounted for under the equity method had a carrying value of $ 4.3 billion at December 31, 2021. The Company’s maximum exposure to loss related to these equity method investments is the carrying value of these investments plus unfunded commitments of $ 1.7 billion at December 31, 2021. The Company’s investments in limited partnerships and LLCs are generally of a passive nature in that the Company does not participate in the management of the entities. As described in Note 1, the Company generally records its share of earnings in its equity method investments using a three-month lag methodology and within net investment income. Aggregate net investment income from these equity method investments exceeded 10% of the Company’s consolidated pre-tax income (loss) for each of the years ended December 31, 2021, 2020 and 2019. This aggregated summarized financial data does not represent the Company’s proportionate share of the assets, liabilities or earnings of such entities. The aggregated summarized financial data presented below reflects the latest available financial information and is as of and for the years ended December 31, 2021, 2020 and 2019. Aggregate total assets of these entities totaled $ 811.9 billion and $ 504.0 billion at December 31, 2021 and 2020, respectively. Aggregate total liabilities of these entities totaled $ 103.2 billion and $ 63.0 billion at December 31, 2021 and 2020, respectively. Aggregate net income (loss) of these entities totaled $ 22.6 billion, $ 37.7 billion and $ 33.3 billion for the years ended December 31, 2021, 2020 and 2019, respectively. Aggregate net income (loss) from the underlying entities in which the Company invests is primarily comprised of investment income, including recurring investment income and realized and unrealized investment gains (losses). Variable Interest Entities A variable interest entity (“VIE”) is a legal entity that does not have sufficient equity at risk to finance its activities or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains and losses of the entity. The Company enters into various arrangements with VIEs in the normal course of business and has invested in legal entities that are VIEs. VIEs are consolidated when it is determined that the Company is the primary beneficiary. A primary beneficiary is the variable interest holder in a VIE with both (i) the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In addition, the evaluation of whether a legal entity is a VIE and if the Company is a primary beneficiary includes a review of the capital structure of the VIE, the related contractual relationships and terms, the nature of the operations and purpose of the VIE, the nature of the VIE interests issued and the Company’s involvement with the entity. There were no material VIEs for which the Company has concluded that it is the primary beneficiary at either December 31, 2021 or 2020. The carrying amount and maximum exposure to loss related to the VIEs for which the Company has concluded that it holds a variable interest, but is not the primary beneficiary, were as follows at: December 31, 2021 2020 Carrying Amount Maximum Exposure to Loss Carrying Amount Maximum Exposure to Loss (In millions) Fixed maturity securities $ 16,472 $ 15,802 $ 13,665 $ 12,581 Limited partnerships and LLCs 3,679 5,115 2,319 3,578 Total $ 20,151 $ 20,917 $ 15,984 $ 16,159 156 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) The Company’s investments in unconsolidated VIEs are described below. Fixed Maturity Securities The Company invests in U.S. corporate bonds, foreign corporate bonds and Structured Securities issued by VIEs. The Company is not obligated to provide any financial or other support to these VIEs, other than the original investment. The Company’s involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer, or investment manager, which are generally viewed as having the power to direct the activities that most significantly impact the economic performance of the VIE, nor does the Company function in any of these roles. The Company does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity; as a result, the Company has determined it is not the primary beneficiary, or consolidator, of the VIE. The Company’s maximum exposure to loss on these fixed maturity securities is limited to the amortized cost of these investments. See “— Fixed Maturity Securities Available-for-sale” for information on these securities. Limited Partnerships and LLCs The Company holds investments in certain limited partnerships and LLCs which are VIEs. These ventures include limited partnerships, LLCs, private equity funds, and to a lesser extent tax credit and renewable energy partnerships. The Company is not considered the primary beneficiary, or consolidator, when its involvement takes the form of a limited partner interest and is restricted to a role of a passive investor, as a limited partner’s interest does not provide the Company with any substantive kick-out or participating rights, nor does it provide the Company with the power to direct the activities of the fund. The Company’s maximum exposure to loss on these investments is limited to: (i) the amount invested in debt or equity of the VIE and (ii) commitments to the VIE, as described in Note 15. Net Investment Income The components of net investment income were as follows: Years Ended December 31, 2021 2020 2019 (In millions) Investment income: Fixed maturity securities $ 2,832 $ 2,700 $ 2,673 Equity securities 5 6 8 Mortgage loans 689 666 680 Policy loans 65 56 67 Limited partnerships and LLCs (1) 1,391 240 220 Cash, cash equivalents and short-term investments 5 49 93 Other 44 54 41 Total investment income 5,031 3,771 3,782 Less: Investment expenses 150 170 203 Net investment income $ 4,881 $ 3,601 $ 3,579 _______________ (1) Includes net investment income pertaining to other limited partnership interests of $ 1.3 billion, $ 225 million and $ 181 million for the years ended December 31, 2021, 2020 and 2019, respectively. 157 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 6. Investments (continued) Net Investment Gains (Losses) Components of Net Investment Gains (Losses) The components of net investment gains (losses) were as follows: Years Ended December 31, 2021 2020 2019 (In millions) Fixed maturity securities $ ( 21 ) $ 297 $ 106 Equity securities — — 17 Mortgage loans ( 27 ) ( 27 ) ( 10 ) Limited partnerships and LLCs — ( 3 ) 7 Other ( 11 ) 11 ( 8 ) Total net investment gains (losses) $ ( 59 ) $ 278 $ 112 Sales or Disposals of Fixed Maturity Securities Investment gains and losses on sales of securities are determined on a specific identification basis. Proceeds from sales or disposals of fixed maturity securities and the components of fixed maturity securities net investment gains (losses) were as follows: Years Ended December 31, 2021 2020 2019 (In millions) Proceeds $ 6,329 $ 3,218 $ 9,259 Gross investment gains $ 99 $ 390 $ 257 Gross investment losses ( 103 ) ( 78 ) ( 151 ) Net investment gains (losses) $ ( 4 ) $ 312 $ 106 7. Derivatives Accounting for Derivatives See Note 1 for a description of the Company’s accounting policies for derivatives and Note 8 for information about the fair value hierarchy for derivatives. Derivative Strategies The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize its exposure to various market risks, including interest rate, foreign currency exchange rate, credit and equity market. Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”). Interest Rate Derivatives Interest rate swaps: The Company uses interest rate swaps to manage the collective interest rate risks primarily in variable annuity products and ULSG. Interest rate swaps are used in non-qualifying hedging relationships. Interest rate caps: The Company uses interest rate caps to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities. Interest rate caps are used in non-qualifying hedging relationships. 158 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 7. Derivatives (continued) Interest rate swaptions: The Company uses interest rate swaptions to manage the collective interest rate risks primarily in variable annuity products and ULSG. Interest rate swaptions are used in non-qualifying hedging relationships. Interest rate swaptions are included in interest rate options. Interest rate forwards: The Company uses interest rate forwards to manage the collective interest rate risks primarily in variable annuity products and ULSG. Interest rate forwards are used in cash flow and non-qualifying hedging relationships. Foreign Currency Exchange Rate Derivatives Foreign currency swaps: The Company uses foreign currency swaps to convert foreign currency denominated cash flows to U.S. dollars to reduce cash flow fluctuations due to changes in currency exchange rates. Foreign currency swaps are used in cash flow and non-qualifying hedging relationships. Foreign currency forwards: The Company uses foreign currency forwards to hedge currency exposure on its invested assets. Foreign currency forwards are used in non-qualifying hedging relationships. Credit Derivatives Credit default swaps: The Company uses credit default swaps to create synthetic credit investments to replicate credit exposure that is more economically attractive than what is available in the market or otherwise unavailable (written credit protection), or to reduce credit loss exposure on certain assets that the Company owns (purchased credit protection). Credit default swaps are used in non-qualifying hedging relationships. Credit default swaptions: The Company uses credit default swaptions to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. Swaptions are used to create callable bonds from replication synthetic asset transaction (“RSAT”) positions. This enhances the income of the RSAT program through earned premiums while not changing the credit profile of the RSATs. Credit default swaptions are used in non-qualifying hedging relationships. Equity Market Derivatives Equity index options: The Company uses equity index options primarily to hedge minimum guarantees embedded in certain variable annuity products against adverse changes in equity markets. Additionally, the Company uses equity index options to hedge index-linked annuity products and certain invested assets against adverse changes in equity markets. Certain of these contracts may also contain settlement provisions linked to interest rates (“hybrid options”). Equity index options are used in non-qualifying hedging relationships. Equity total return swaps: The Company uses equity total return swaps to hedge minimum guarantees embedded in certain variable annuity products against adverse changes in equity markets. Additionally, the Company uses equity total return swaps to hedge index-linked annuity products against adverse changes in equity markets. Equity total return swaps are used in non-qualifying hedging relationships. Equity variance swaps: The Company uses equity variance swaps to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. Equity variance swaps are used in non-qualifying hedging relationships. 159 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 7. Derivatives (continued) Primary Risks Managed by Derivatives The primary underlying risk exposure, gross notional amount and estimated fair value of derivatives held were as follows at: December 31, 2021 2020 Primary Underlying Risk Exposure Gross Notional Amount Estimated Fair Value Gross Notional Amount Estimated Fair Value Assets Liabilities Assets Liabilities (In millions) Derivatives Designated as Hedging Instruments: Cash flow hedges: Interest rate forwards Interest rate $ 180 $ 30 $ — $ 290 $ 66 $ — Foreign currency swaps Foreign currency exchange rate 3,282 229 22 2,812 134 112 Total qualifying hedges 3,462 259 22 3,102 200 112 Derivatives Not Designated or Not Qualifying as Hedging Instruments: Interest rate swaps Interest rate 2,595 325 17 2,295 463 — Interest rate caps Interest rate 5,100 29 4 2,350 2 — Interest rate options Interest rate 8,050 83 — 25,980 712 122 Interest rate forwards Interest rate 9,808 627 109 8,086 851 78 Foreign currency swaps Foreign currency exchange rate 967 96 21 1,000 86 32 Foreign currency forwards Foreign currency exchange rate 483 3 4 201 — — Credit default swaps — purchased Credit — — — 18 — — Credit default swaps — written Credit 1,724 39 1 1,755 41 — Credit default swaptions Credit 150 — — 100 — — Equity index options Equity market 24,692 1,155 877 30,976 1,071 838 Equity variance swaps Equity market 281 9 1 1,098 13 20 Equity total return swaps Equity market 32,719 493 588 15,056 143 822 Hybrid options Equity market 900 8 — 600 — — Total non-designated or non-qualifying derivatives 87,469 2,867 1,622 89,515 3,382 1,912 Embedded derivatives: Ceded guaranteed minimum income benefits Other N/A 186 — N/A 283 — Direct index-linked annuities Other N/A — 6,211 N/A — 3,855 Direct guaranteed minimum benefits Other N/A — 1,848 N/A — 2,920 Assumed index-linked annuities Other N/A — 437 N/A — 382 Total embedded derivatives N/A 186 8,496 N/A 283 7,157 Total $ 90,931 $ 3,312 $ 10,140 $ 92,617 $ 3,865 $ 9,181 Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both December 31, 2021 and 2020. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and generally do not qualify for hedge accounting because they do not meet the criteria required under portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities and generally do not qualify for hedge accounting because they do not meet the criteria of being “highly effective” as outlined in Accounting Standards Codification 815 — Derivatives and Hedging; (iii) derivatives that economically hedge embedded derivatives that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivatives are already recorded in net income; and (iv) written credit default swaps that are used to create synthetic credit investments and that do not qualify for hedge accounting because they do not involve a hedging relationship. 160 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 7. Derivatives (continued) The amount and location of gains (losses), including earned income, recognized for derivatives and gains (losses) pertaining to hedged items presented in net derivative gains (losses) were as follows: Year Ended December 31, 2021 Net Derivative Gains (Losses) Recognized for Derivatives Net Derivative Gains (Losses) Recognized for Hedged Items Net Investment Income Amount of Gains (Losses) Deferred in AOCI (In millions) Derivatives Designated as Hedging Instruments: Cash flow hedges: Interest rate derivatives $ 2 $ — $ 3 $ ( 20 ) Foreign currency exchange rate derivatives 10 ( 4 ) 36 191 Total cash flow hedges 12 ( 4 ) 39 171 Derivatives Not Designated or Not Qualifying as Hedging Instruments: Interest rate derivatives ( 717 ) — — — Foreign currency exchange rate derivatives 57 ( 7 ) — — Credit derivatives 17 — — — Equity market derivatives ( 486 ) — — — Embedded derivatives ( 1,341 ) — — — Total non-qualifying hedges ( 2,470 ) ( 7 ) — — Total $ ( 2,458 ) $ ( 11 ) $ 39 $ 171 Year Ended December 31, 2020 Net Derivative Gains (Losses) Recognized for Derivatives Net Derivative Gains (Losses) Recognized for Hedged Items Net Investment Income Amount of Gains (Losses) Deferred in AOCI (In millions) Derivatives Designated as Hedging Instruments: Cash flow hedges: Interest rate derivatives $ 2 $ — $ 3 $ 77 Foreign currency exchange rate derivatives 15 ( 7 ) 37 ( 129 ) Total cash flow hedges 17 ( 7 ) 40 ( 52 ) Derivatives Not Designated or Not Qualifying as Hedging Instruments: Interest rate derivatives 3,565 — — — Foreign currency exchange rate derivatives ( 16 ) ( 7 ) — — Credit derivatives 18 — — — Equity market derivatives ( 1,367 ) — — — Embedded derivatives ( 2,221 ) — — — Total non-qualifying hedges ( 21 ) ( 7 ) — — Total $ ( 4 ) $ ( 14 ) $ 40 $ ( 52 ) 161 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 7. Derivatives (continued) Year Ended December 31, 2019 Net Derivative Gains (Losses) Recognized for Derivatives Net Derivative Gains (Losses) Recognized for Hedged Items Net Investment Income Amount of Gains (Losses) Deferred in AOCI (In millions) Derivatives Designated as Hedging Instruments: Cash flow hedges: Interest rate derivatives $ 32 $ — $ 2 $ 25 Foreign currency exchange rate derivatives 25 ( 29 ) 34 15 Total cash flow hedges 57 ( 29 ) 36 40 Derivatives Not Designated or Not Qualifying as Hedging Instruments: Interest rate derivatives 1,589 — — — Foreign currency exchange rate derivatives 22 ( 3 ) — — Credit derivatives 44 — — — Equity market derivatives ( 2,476 ) — — — Embedded derivatives ( 1,192 ) — — — Total non-qualifying hedges ( 2,013 ) ( 3 ) — — Total $ ( 1,956 ) $ ( 32 ) $ 36 $ 40 At December 31, 2021 and 2020, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions was two years and three years, respectively. At December 31, 2021 and 2020, the balance in AOCI associated with cash flow hedges was $ 329 million and $ 173 million, respectively. Credit Derivatives In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps were as follows at: December 31, 2021 2020 Rating Agency Designation of Referenced Credit Obligations (1) Estimated Fair Value of Credit Default Swaps Maximum Amount of Future Payments under Credit Default Swaps Weighted Average Years to Maturity (2) Estimated Fair Value of Credit Default Swaps Maximum Amount of Future Payments under Credit Default Swaps Weighted Average Years to Maturity (2) (Dollars in millions) Aaa/Aa/A $ 12 $ 589 2.4 $ 15 $ 683 2.9 Baa 27 1,131 5.0 26 1,072 5.2 Caa and Lower ( 1 ) 4 4.0 — — 0.0 Total $ 38 $ 1,724 4.1 $ 41 $ 1,755 4.3 _______________ (1) The Company has written credit protection on both single name and index references. The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s, S&P and Fitch. If no rating is available from a rating agency, then an internally developed rating is used. (2) The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts. 162 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 7. Derivatives (continued) Counterparty Credit Risk The Company may be exposed to credit-related losses in the event of counterparty nonperformance on derivative instruments. Generally, the credit exposure is the fair value at the reporting date less any collateral received from the counterparty. The Company manages its credit risk by: (i) entering into derivative transactions with creditworthy counterparties governed by master netting agreements; (ii) trading through regulated exchanges and central clearing counterparties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single party credit exposures which are subject to periodic management review. See Note 8 for a description of the impact of credit risk on the valuation of derivatives. The estimated fair values of net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at: Gross Amounts Not Offset on the Consolidated Balance Sheets Gross Amount Recognized Financial Instruments (1) Collateral Received/Pledged (2) Net Amount Securities Collateral Received/Pledged (3) Net Amount After Securities Collateral (In millions) December 31, 2021 Derivative assets $ 3,128 $ ( 1,155 ) $ ( 1,494 ) $ 479 $ ( 413 ) $ 66 Derivative liabilities $ 1,632 $ ( 1,155 ) $ — $ 477 $ ( 477 ) $ — December 31, 2020 Derivative assets $ 3,588 $ ( 1,342 ) $ ( 1,340 ) $ 906 $ ( 840 ) $ 66 Derivative liabilities $ 2,010 $ ( 1,342 ) $ — $ 668 $ ( 630 ) $ 38 _______________ (1) Represents amounts subject to an enforceable master netting agreement or similar agreement. (2) The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreement. (3) Securities collateral received from counterparties is not reported on the consolidated balance sheets and may not be sold or re-pledged unless the counterparty is in default. Amounts do not include excess of collateral pledged or received. The Company’s collateral arrangements generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the amount owed by that counterparty reaches a minimum transfer amount. Certain of these arrangements also include credit-contingent provisions which permit the party with positive fair value to terminate the derivative at the current fair value or demand immediate full collateralization from the party in a net liability position, in the event that the financial strength or credit rating of the party in a net liability position falls below a certain level. The aggregate estimated fair values of derivatives in a net liability position containing such credit-contingent provisions and the aggregate estimated fair value of assets posted as collateral for such instruments were as follows at: December 31, 2021 2020 (In millions) Estimated fair value of derivatives in a net liability position (1) $ 477 $ 668 Estimated Fair Value of Collateral Provided (2): Fixed maturity securities $ 839 $ 1,205 _______________ (1) After taking into consideration the existence of netting agreements. 163 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 7. Derivatives (continued) (2) Substantially all of the Company’s collateral arrangements provide for daily posting of collateral for the full value of the derivative contract. As a result, if the credit-contingent provisions of derivative contracts in a net liability position were triggered minimal additional assets would be required to be posted as collateral or needed to settle the instruments immediately. 8. Fair Value When developing estimated fair values, the Company considers three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs, giving priority to observable inputs. The Company categorizes its assets and liabilities measured at estimated fair value into a three level hierarchy, based on the significant input with the lowest level in its valuation. The input levels are as follows: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities. Level 2 Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. These inputs can include quoted prices for similar assets or liabilities other than quoted prices in Level 1, quoted prices in markets that are not active, or other significant inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 Unobservable inputs that are supported by little or no market activity and are significant to the determination of estimated fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. 164 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) Recurring Fair Value Measurements The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy are presented in the tables below. Investments that do not have a readily determinable fair value and are measured at net asset value (or equivalent) as a practical expedient to estimated fair value are excluded from the fair value hierarchy. December 31, 2021 Fair Value Hierarchy Level 1 Level 2 Level 3 Total Estimated Fair Value (In millions) Assets Fixed maturity securities: U.S. corporate $ — $ 38,176 $ 905 $ 39,081 Foreign corporate — 11,212 494 11,706 U.S. government and agency 3,236 6,071 — 9,307 RMBS — 9,247 12 9,259 CMBS — 7,239 43 7,282 State and political subdivision — 4,835 — 4,835 ABS — 4,115 165 4,280 Foreign government — 1,806 26 1,832 Total fixed maturity securities 3,236 82,701 1,645 87,582 Equity securities 27 61 13 101 Short-term investments 1,503 336 2 1,841 Derivative assets: (1) Interest rate — 1,094 — 1,094 Foreign currency exchange rate — 318 10 328 Credit — 27 12 39 Equity market — 1,649 16 1,665 Total derivative assets — 3,088 38 3,126 Embedded derivatives within asset host contracts (2) — — 186 186 Separate account assets 41 114,423 — 114,464 Total assets $ 4,807 $ 200,609 $ 1,884 $ 207,300 Liabilities Derivative liabilities: (1) Interest rate $ — $ 130 $ — $ 130 Foreign currency exchange rate — 47 — 47 Credit — — 1 1 Equity market — 1,465 1 1,466 Total derivative liabilities — 1,642 2 1,644 Embedded derivatives within liability host contracts (2) — — 8,496 8,496 Total liabilities $ — $ 1,642 $ 8,498 $ 10,140 165 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) December 31, 2020 Fair Value Hierarchy Level 1 Level 2 Level 3 Total Estimated Fair Value (In millions) Assets Fixed maturity securities: U.S. corporate $ — $ 37,415 $ 491 $ 37,906 Foreign corporate — 11,314 197 11,511 U.S. government and agency 2,217 6,421 — 8,638 RMBS — 8,272 22 8,294 CMBS — 6,785 5 6,790 State and political subdivision — 4,640 — 4,640 ABS — 2,844 40 2,884 Foreign government — 1,832 — 1,832 Total fixed maturity securities 2,217 79,523 755 82,495 Equity securities 36 99 3 138 Short-term investments 2,782 460 — 3,242 Derivative assets: (1) Interest rate — 2,094 — 2,094 Foreign currency exchange rate — 219 1 220 Credit — 27 14 41 Equity market — 1,213 14 1,227 Total derivative assets — 3,553 29 3,582 Embedded derivatives within asset host contracts (2) — — 283 283 Separate account assets 86 111,880 3 111,969 Total assets $ 5,121 $ 195,515 $ 1,073 $ 201,709 Liabilities Derivative liabilities: (1) Interest rate $ — $ 200 $ — $ 200 Foreign currency exchange rate — 137 7 144 Equity market — 1,660 20 1,680 Total derivative liabilities — 1,997 27 2,024 Embedded derivatives within liability host contracts (2) — — 7,157 7,157 Total liabilities $ — $ 1,997 $ 7,184 $ 9,181 _______________ (1) Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the consolidated balance sheets. (2) Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances on the consolidated balance sheets. Valuation Controls and Procedures The Company monitors and provides oversight of valuation controls and policies for securities, mortgage loans and derivatives, which are primarily executed by its valuation service providers. The valuation methodologies used to determine fair values prioritize the use of observable market prices and market-based parameters and determines that judgmental valuation adjustments, when applied, are based upon established policies and are applied consistently over time. The valuation methodologies for securities, mortgage loans and derivatives are reviewed on an ongoing basis and revised when necessary. In addition, the Chief Accounting Officer periodically reports to the Audit Committee of Brighthouse Financial’s Board of Directors regarding compliance with fair value accounting standards. 166 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) The fair value of financial assets and financial liabilities is based on quoted market prices, where available. Prices received are assessed to determine if they represent a reasonable estimate of fair value. Several controls are performed, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing whether these inputs can be corroborated by observable market data. Independent non-binding broker quotes, also referred to herein as “consensus pricing,” are used for a non-significant portion of the portfolio. Prices received from independent brokers are assessed to determine if they represent a reasonable estimate of fair value by considering such pricing relative to the current market dynamics and current pricing for similar financial instruments. A formal process is also applied to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations are obtained. If obtaining an independent non-binding broker quotation is unsuccessful, the last available price will be used. Additional controls are performed, such as, balance sheet analytics to assess reasonableness of period to period pricing changes, including any price adjustments. Price adjustments are applied if prices or quotes received from independent pricing services or brokers are not considered reflective of market activity or representative of estimated fair value. The Company did not have significant price adjustments during the year ended December 31, 2021. Determination of Fair Value Fixed Maturity Securities The fair values for actively traded marketable bonds, primarily U.S. government and agency securities, are determined using the quoted market prices and are classified as Level 1 assets. For fixed maturity securities classified as Level 2 assets, fair values are determined using either a market or income approach and are valued based on a variety of observable inputs as described below. U.S. corporate and foreign corporate securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, benchmark yields, spreads off benchmark yields, new issuances, issuer rating, trades of identical or comparable securities, or duration. Privately-placed securities are valued using the additional key inputs: market yield curve, call provisions, observable prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer, and delta spread adjustments to reflect specific credit-related issues. U.S. government and agency, state and political subdivision and foreign government securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, benchmark U.S. Treasury yield or other yields, spread off the U.S. Treasury yield curve for the identical security, issuer ratings and issuer spreads, broker-dealer quotes, and comparable securities that are actively traded. Structured Securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, ratings, geographic region, weighted average coupon and weighted average maturity, average delinquency rates and debt-service coverage ratios. Other issuance-specific information is also used, including, but not limited to; collateral type, structure of the security, vintage of the loans, payment terms of the underlying asset, payment priority within tranche, and deal performance. Equity Securities and Short-term Investments The fair value for actively traded equity securities and short-term investments are determined using quoted market prices and are classified as Level 1 assets. For financial instruments classified as Level 2 assets, fair values are determined using a market approach and are valued based on a variety of observable inputs as described below. Equity securities and short-term investments: Fair value is determined using third-party commercial pricing services, with the primary input being quoted prices in markets that are not active. 167 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) Derivatives The fair values for exchange-traded derivatives are determined using the quoted market prices and are classified as Level 1 assets. For OTC-bilateral derivatives and OTC-cleared derivatives classified as Level 2 assets or liabilities, fair values are determined using the income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models which are based on market standard valuation methodologies and a variety of observable inputs. The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Certain OTC-bilateral and OTC-cleared derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and management believes they are consistent with what other market participants would use when pricing such instruments. Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income. The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period. Embedded Derivatives Embedded derivatives principally include certain direct and ceded variable annuity guarantees and equity crediting rates within index-linked annuity contracts. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income. The Company issues certain variable annuity products with guaranteed minimum benefits. GMABs, the non-life contingent portion of GMWBs and certain portions of GMIBs are accounted for as embedded derivatives and measured at estimated fair value separately from the host variable annuity contract. These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets, with changes in estimated fair value reported in net derivative gains (losses). The Company determines the fair value of these embedded derivatives by estimating the present value of projected future benefits minus the present value of projected future fees using actuarial and capital markets assumptions including expectations of policyholder behavior. The calculation is based on in-force business and is performed using standard actuarial valuation software which projects future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates. The percentage of fees included in the initial fair value measurement is not updated in subsequent periods. Capital markets assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly-traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience. 168 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital markets inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for BHF’s debt. These observable spreads are then adjusted to reflect the priority of these liabilities and claims-paying ability of the issuing insurance subsidiaries as compared to BHF’s overall financial strength. 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 of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. 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. The Company issues and assumes through reinsurance index-linked annuities which allow the policyholder to participate in returns from equity indices. The crediting rates associated with these features are embedded derivatives which are measured at estimated fair value separately from the host fixed annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets. The estimated fair value of crediting rates associated with index-linked annuities is determined using a combination of an option pricing model and an option-budget approach. The valuation of these embedded derivatives also includes the establishment of a risk margin, as well as changes in nonperformance risk. Transfers Into or Out of Level 3: Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable. Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) Certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were as follows at: December 31, 2021 December 31, 2020 Impact of Increase in Input on Estimated Fair Value Valuation Techniques Significant Unobservable Inputs Range Range Embedded derivatives Direct, assumed and ceded guaranteed minimum benefits • Option pricing techniques • Mortality rates 0.03 % - 12.62 % 0.03 % - 12.13 % Decrease (1) • Lapse rates 0.30 % - 14.50 % 0.25 % - 15.00 % Decrease (2) • Utilization rates 0.00 % - 25.00 % 0.00 % - 25.00 % Increase (3) • Withdrawal rates 0.25 % - 10.00 % 0.25 % - 10.00 % (4) • Long-term equity volatilities 16.44 % - 22.16 % 16.66 % - 22.21 % Increase (5) • Nonperformance risk spread ( 0.38 )% - 1.49 % 0.47 % - 1.97 % Decrease (6) _______________ (1) Mortality rates vary by age and by demographic characteristics such as gender. The range shown reflects the mortality rate for policyholders between 35 and 90 years old, which represents the majority of the business with living benefits. Mortality rate assumptions are set based on company experience and include an assumption for mortality improvement. 169 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) (2) The range shown reflects base lapse rates for major product categories for duration 1-20, which represents majority of business with living benefit riders. Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in-the-money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. (3) The utilization rate assumption estimates the percentage of contract holders with a GMIB or lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible in a given year. The range shown represents the floor and cap of the GMIB dynamic election rates across varying levels of in-the-money. For lifetime withdrawal guarantee riders, the assumption is that everyone will begin withdrawals once account value reaches zero which is equivalent to a 100% utilization rate. Utilization rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. (4) The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value. (5) Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. (6) Nonperformance risk spread varies by duration. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative. The Company does not develop unobservable inputs used in measuring fair value for all other assets and liabilities classified within Level 3; therefore, these are not included in the table above. The other Level 3 assets and liabilities primarily included fixed maturity securities and derivatives. For fixed maturity securities valued based on non-binding broker quotes, an increase (decrease) in credit spreads would result in a higher (lower) fair value. For derivatives valued based on third-party pricing models, an increase (decrease) in credit spreads would generally result in a higher (lower) fair value. 170 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) The changes in assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3) were summarized as follows: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Fixed Maturity Securities Corporate (1) Structured Securities State and Political Subdivision Foreign Government Equity Securities Short-term Investments Net Derivatives (2) Net Embedded Derivatives (3) Separate Account Assets (4) (In millions) Balance, January 1, 2020 $ 461 $ 117 $ 73 $ — $ 8 $ 5 $ 16 $ ( 4,031 ) $ 3 Total realized/unrealized gains (losses) included in net income (loss) (5) (6) ( 6 ) — — — — — 9 ( 2,221 ) — Total realized/unrealized gains (losses) included in AOCI ( 3 ) 1 — — — — ( 9 ) — — Purchases (7) 409 58 — — — — — — — Sales (7) ( 117 ) ( 5 ) — — — ( 5 ) ( 14 ) — — Issuances (7) — — — — — — — — — Settlements (7) — — — — — — — ( 622 ) — Transfers into Level 3 (8) 186 11 — — — — — — — Transfers out of Level 3 (8) ( 242 ) ( 115 ) ( 73 ) — ( 5 ) — — — — Balance, December 31, 2020 688 67 — — 3 — 2 ( 6,874 ) 3 Total realized/unrealized gains (losses) included in net income (loss) (5) (6) ( 1 ) — — — — — 1 ( 1,341 ) — Total realized/unrealized gains (losses) included in AOCI ( 7 ) — — — — — 12 — — Purchases (7) 951 202 — 26 10 2 20 — — Sales (7) ( 53 ) ( 12 ) — — — — — — — Issuances (7) — — — — — — — — — Settlements (7) — — — — — — — ( 95 ) — Transfers into Level 3 (8) 52 — — — — — — — — Transfers out of Level 3 (8) ( 231 ) ( 37 ) — — — — 1 — ( 3 ) Balance, December 31, 2021 $ 1,399 $ 220 $ — $ 26 $ 13 $ 2 $ 36 $ ( 8,310 ) $ — Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2019 (9) $ — $ — $ 1 $ — $ — $ — $ ( 10 ) $ ( 1,450 ) $ — Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2020 (9) $ ( 5 ) $ — $ — $ — $ — $ — $ ( 4 ) $ ( 2,297 ) $ — Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2021 (9) $ ( 2 ) $ — $ — $ — $ — $ — $ ( 11 ) $ ( 874 ) $ — Changes in unrealized gains (losses) included in OCI for the instruments still held as of December 31, 2020 (9) $ ( 3 ) $ 1 $ — $ — $ — $ — $ ( 9 ) $ — $ — Changes in unrealized gains (losses) included in OCI for the instruments still held as of December 31, 2021 (9) $ ( 6 ) $ — $ — $ — $ — $ — $ 12 $ — $ — Gains (Losses) Data for the year ended December 31, 2019: Total realized/unrealized gains (losses) included in net income (loss) (5) (6) $ — $ 1 $ 1 $ — $ — $ — $ ( 12 ) $ ( 1,192 ) $ — Total realized/unrealized gains (losses) included in AOCI $ 15 $ 2 $ ( 1 ) $ — $ — $ — $ ( 1 ) $ — $ — _______________ 171 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) (1) Comprised of U.S. and foreign corporate securities. (2) Freestanding derivative assets and liabilities are presented net for purposes of the rollforward. (3) Embedded derivative assets and liabilities are presented net for purposes of the rollforward. (4) Investment performance related to separate account assets is fully offset by corresponding amounts credited to contract holders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure, these changes are presented within net investment gains (losses). (5) Amortization of premium/accretion of discount is included within net investment income. Changes in the allowance for credit losses and direct write-offs are charged to net income (loss) on securities are included in net investment gains (losses). Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses). (6) Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward. (7) Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements. (8) Gains and losses, in net income (loss) and OCI, are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward. (9) Changes in unrealized gains (losses) included in net income (loss) for fixed maturities are reported in either net investment income or net investment gains (losses). Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses). Fair Value of Financial Instruments Carried at Other Than Fair Value The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, and payables for collateral under securities loaned and other transactions. The estimated fair value of the excluded financial instruments, which are primarily classified in Level 2, approximates carrying value as they are short-term in nature such that the Company believes there is minimal risk of material changes in interest rates or credit quality. All remaining balance sheet amounts excluded from the tables below are not considered financial instruments subject to this disclosure. 172 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 8. Fair Value (continued) The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at: December 31, 2021 Fair Value Hierarchy Carrying Value Level 1 Level 2 Level 3 Total Estimated Fair Value (In millions) Assets Mortgage loans $ 19,850 $ — $ — $ 20,656 $ 20,656 Policy loans $ 1,264 $ — $ 508 $ 1,148 $ 1,656 Other invested assets $ 82 $ — $ 70 $ 12 $ 82 Premiums, reinsurance and other receivables $ 3,242 $ — $ 20 $ 3,749 $ 3,769 Liabilities Policyholder account balances $ 23,637 $ — $ — $ 23,614 $ 23,614 Long-term debt $ 3,157 $ — $ 3,504 $ — $ 3,504 Other liabilities $ 854 $ — $ 138 $ 716 $ 854 Separate account liabilities $ 1,440 $ — $ 1,440 $ — $ 1,440 December 31, 2020 Fair Value Hierarchy Carrying Value Level 1 Level 2 Level 3 Total Estimated Fair Value (In millions) Assets Mortgage loans $ 15,808 $ — $ — $ 16,926 $ 16,926 Policy loans $ 1,291 $ — $ 512 $ 1,530 $ 2,042 Other invested assets $ 51 $ — $ 39 $ 12 $ 51 Premiums, reinsurance and other receivables $ 3,277 $ — $ 90 $ 3,975 $ 4,065 Liabilities Policyholder account balances $ 17,497 $ — $ — $ 19,100 $ 19,100 Long-term debt $ 3,436 $ — $ 3,858 $ — $ 3,858 Other liabilities $ 807 $ — $ 163 $ 644 $ 807 Separate account liabilities $ 1,334 $ — $ 1,334 $ — $ 1,334 173 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 9. Long-term Debt Long-term debt outstanding was as follows at: December 31, 2021 2020 Stated Interest Rate Maturity Face Value Carrying Value Face Value Carrying Value (In millions) Senior notes (1) 3.700 % 2027 $ 757 $ 755 $ 1,300 $ 1,294 Senior notes (1) 5.625 % 2030 615 614 615 614 Senior notes (1) 4.700 % 2047 1,014 1,000 1,150 1,134 Senior notes (1) 3.850 % 2051 400 396 — — Junior subordinated debentures (1) 6.250 % 2058 375 363 375 363 Other long-term debt (2) 7.028 % 2030 29 29 31 31 Total long-term debt (3) $ 3,190 $ 3,157 $ 3,471 $ 3,436 _______________ (1) Interest on senior notes is payable semi-annually. Interest on junior subordinated debentures is payable quarterly subject to BHF’s right to defer interest payments in accordance with the terms of the debentures. (2) Represents non-recourse debt for which creditors have no access, subject to customary exceptions, to the general assets of the Company other than recourse to certain investment companies. (3) Includes unamortized debt issuance costs, discounts and premiums, as applicable, totaling net $ 33 million and $ 35 million for the senior notes and junior subordinated debentures on a combined basis at December 31, 2021 and 2020, respectively. The aggregate maturities of long-term debt at December 31, 2021 were $ 2 million in each of 2022, 2023 and 2024, $ 3 million in each of 2025 and 2026, and $ 3.2 billion thereafter. Unsecured senior notes rank highest in priority, followed by subordinated debt consisting of junior subordinated debentures. Interest expense related to long-term debt of $ 163 million, $ 184 million and $ 191 million for the years ended December 31, 2021, 2020 and 2019, respectively, is included in other expenses. The Company’s debt instruments and credit and committed facilities contain certain administrative, reporting and legal covenants. Additionally, the Revolving Credit Facility (as defined below) contain financial covenants, including requirements to maintain a specified minimum adjusted consolidated net worth, to maintain a ratio of total indebtedness to total capitalization not in excess of a specified percentage and that place limitations on the dollar amount of indebtedness that may be incurred by the Company’ subsidiaries. At December 31, 2021, the Company was in compliance with these financial covenants. Senior Notes In November 2021, BHF used the net proceeds from the issuances of the Series D Depositary Shares (as defined in Note 10) and the 2051 Senior Notes (as defined below) to repurchase $ 543 million principal amount of senior notes due 2027 and $ 136 million principal amount of senior notes due 2047. In connection with this repurchase, BHF recorded a premium of $ 71 million paid in excess of the debt principal and wrote off $ 4 million of unamortized debt issuance costs, which is included in other expenses. In November 2021, BHF issued $ 400 million aggregate principal amount of senior notes due December 2051 (the “2051 Senior Notes”) for aggregate net cash proceeds of $ 396 million. The 2051 Senior Notes bear interest at a fixed rate of 3.850 %, payable semi-annually. 174 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 9. Long-term Debt (continued) During the fourth quarter of 2020, BHF used the net proceeds from the issuance of the Series C Depositary Shares (as defined in Note 10) to repurchase $ 200 million principal amount of senior notes due 2027 and $ 350 million principal amount of senior notes due 2047. In connection with this repurchase, BHF recorded a premium of $ 37 million paid in excess of the debt principal and wrote off $ 6 million of unamortized debt issuance costs, which is included in other expenses. During the second quarter of 2020, BHF issued $ 615 million aggregate principal amount of senior notes due May 2030 (the “2030 Senior Notes”) for aggregate net cash proceeds of $ 614 million. The 2030 Senior Notes bear interest at a fixed rate of 5.625 %, payable semi-annually. Credit Facilities Revolving Credit Facility At December 31, 2021, BHF maintains a $ 1.0 billion senior unsecured revolving credit facility maturing May 7, 2024 (the “Revolving Credit Facility”), which may be used for revolving loans or letters of credit. At December 31, 2021, there were no borrowings or letters of credit outstanding under the Revolving Credit Facility. Term Loan Facility During the second quarter of 2020, BHF used the aggregate net proceeds from the issuances of the 2030 Senior Notes and the Series B Depositary Shares (as defined in Note 10) to repay $ 1.0 billion of borrowings outstanding under an unsecured term loan facility and terminated the facility without penalty. For the years ended December 31, 2021, 2020 and 2019, fees associated with these credit facilities were not significant. Committed Facilities Reinsurance Financing Arrangement At December 31, 2021, Brighthouse Reinsurance Company of Delaware (“BRCD”) maintains a $ 12.0 billion financing arrangement with a pool of highly rated third-party reinsurers consisting of credit-linked notes that each mature in 2039. At December 31, 2021, there were no borrowings and there was $ 11.3 billion of funding available under this financing arrangement. For the years ended December 31, 2021, 2020 and 2019, the Company recognized commitment fees of $ 34 million, $ 30 million and $ 41 million, respectively, in other expenses associated with this financing arrangement. Repurchase Facilities At December 31, 2021, Brighthouse Life Insurance Company maintains secured committed repurchase facilities (the “Repurchase Facilities”) under which Brighthouse Life Insurance Company may enter into repurchase transactions in an aggregate amount up to $ 2.0 billion for a term of up to three years. Under the Repurchase Facilities, Brighthouse Life Insurance Company may sell certain eligible securities at a purchase price based on the market value of the securities less an applicable margin based on the types of securities sold, with a concurrent agreement to repurchase such securities at a predetermined future date (up to three months) and at a price which represents the original purchase price plus interest. At December 31, 2021, there were no borrowings under the Repurchase Facilities. For the years ended December 31, 2021, 2020 and 2019, fees associated with the Repurchase Facilities were not significant. 175 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity Preferred Stock Preferred stock shares authorized, issued and outstanding were as follows at: December 31, 2021 2020 Shares Authorized Shares Issued Shares Outstanding Shares Authorized Shares Issued Shares Outstanding 6.600 % Non-Cumulative Preferred Stock, Series A 17,000 17,000 17,000 17,000 17,000 17,000 6.750 % Non-Cumulative Preferred Stock, Series B 16,100 16,100 16,100 16,100 16,100 16,100 5.375 % Non-Cumulative Preferred Stock, Series C 23,000 23,000 23,000 23,000 23,000 23,000 4.625 % Non-Cumulative Preferred Stock, Series D 14,000 14,000 14,000 — — — Not designated 99,929,900 — — 99,943,900 — — Total 100,000,000 70,100 70,100 100,000,000 56,100 56,100 In November 2021, BHF issued depositary shares (the “Series D Depositary Shares”), each representing a 1/1,000th ownership interest in a share of BHF’s perpetual 4.625 % Series D non-cumulative preferred stock (the “Series D Preferred Stock”) and in the aggregate representing 14,000 shares of Series D Preferred Stock, with a stated amount of $ 25,000 per share, for aggregate net cash proceeds of $ 339 million. Dividends, if declared, will be payable commencing on March 25, 2022 and will accrue and be payable quarterly, in arrears, at an annual rate of 4.625 % on the stated amount per share. In connection with the issuance of the Series D Depositary Shares and the underlying Series D Preferred Stock, BHF incurred $ 11 million of issuance costs, which have been recorded as a reduction of additional paid-in capital. In November 2020, BHF issued depositary shares (the “Series C Depositary Shares”), each representing a 1/1,000th ownership interest in a share of BHF’s perpetual 5.375 % Series C non-cumulative preferred stock (the “Series C Preferred Stock”) and in the aggregate representing 23,000 shares of Series C Preferred Stock, with a stated amount of $ 25,000 per share, for aggregate net cash proceeds of $ 558 million. Dividends, if declared, will accrue and be payable quarterly, in arrears, at an annual rate of 5.375 % on the stated amount per share. In connection with the issuance of the Series C Depositary Shares and the underlying Series C Preferred Stock, BHF incurred $ 17 million of issuance costs, which have been recorded as a reduction of additional paid-in capital. In May 2020, BHF issued depositary shares (the “Series B Depositary Shares”), each representing a 1/1,000th ownership interest in a share of its perpetual 6.750 % non-cumulative preferred stock, Series B (the “Series B Preferred Stock”) and in the aggregate representing 16,100 shares of Series B Preferred Stock, with a stated amount of $ 25,000 per share, for aggregate net cash proceeds of $ 390 million. Dividends, if declared, will accrue and be payable quarterly, in arrears, at an annual rate of 6.750 % on the stated amount per share. In connection with the issuance of the Series B Depositary Shares and the underlying Series B Preferred Stock, BHF incurred $ 13 million of issuance costs, which have been recorded as a reduction of additional paid-in capital. In March 2019, BHF issued depositary shares, each representing a 1/1,000th ownership interest in a share of BHF’s perpetual 6.600 % Series A non-cumulative preferred stock (the “Series A Preferred Stock”) and in the aggregate representing 17,000 shares of Series A Preferred Stock, with a stated amount of $ 25,000 per share, for aggregate net cash proceeds of $ 412 million. Dividends, if declared, will accrue and be payable quarterly, in arrears, at an annual rate of 6.600 % on the stated amount per share. In connection with the issuance of the depositary shares and the underlying Series A Preferred Stock, BHF incurred $ 13 million of issuance costs, which have been recorded as a reduction of additional paid-in capital. 176 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity (continued) The Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock (together, the “Preferred Stock”) rank equally with each other. The Preferred Stock ranks senior to common stock with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding-up of the Company. Holders of the Preferred Stock are not entitled to any other amounts from the Company after they have received their full liquidation preference and do not have voting rights except in certain limited circumstances, including where dividends have not been paid in full for at least six dividend payment periods, whether or not such periods are consecutive. In such circumstances, the holders of the Preferred Stock, and, in turn, the underlying depositary shares, will have certain voting rights with respect to the election of additional directors to the BHF Board of Directors, as provided in the Certificate of Designations for each series of Preferred Stock. Each series of Preferred Stock has a stated amount of $ 25,000 per share, is perpetual and has no maturity date. Dividends are payable, if declared, quarterly in arrears on the 25th day of March, June, September and December of each year at a specified annual rate on the stated amount per share applicable to each particular series. Dividends are recorded when declared. No dividends may be paid or declared on BHF’s common stock and BHF may not purchase, redeem, or otherwise acquire its common stock unless the full dividends for the latest completed dividend period on all outstanding Preferred Stock have been declared and either paid or a sum sufficient for the payment thereof has been set aside. The Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company or its subsidiaries and is not subject to any mandatory redemption, sinking fund, retirement fund, purchase fund or similar provisions. Each series of the Preferred Stock is redeemable at the Company’s option in whole or in part on or after a specified optional redemption date applicable to that series (March 25, 2024 for the Series A Preferred Stock, June 25, 2025 for the Series B Preferred Stock, December 25, 2025 for the Series C Preferred Stock and December 25, 2026 for the Series D Preferred Stock) at a redemption price equal to $ 25,000 per share, plus any accrued but unpaid dividends. Prior to the optional redemption date applicable to each series of Preferred Stock, the Preferred Stock is redeemable at the Company’s option in whole but not in part within 90 days of the occurrence of (i) a specified rating agency event or (ii) a specified regulatory capital event, in each case at a specified redemption price. The declaration, record and payment dates, as well as per share and aggregate dividend amounts for BHF’s preferred stock by series for the years ended December 31, 2021, 2020 and 2019 were as follows: Series A Series B Series C Declaration Date Record Date Payment Date Per Share Aggregate Per Share Aggregate Per Share Aggregate (In millions, except per share data) November 15, 2021 December 10, 2021 December 27, 2021 $ 412.50 $ 7 $ 421.88 $ 6 $ 335.94 $ 8 August 16, 2021 September 10, 2021 September 27, 2021 412.50 7 421.88 7 335.94 8 May 17, 2021 June 10, 2021 June 25, 2021 412.50 7 421.88 7 335.94 7 February 16, 2021 March 10, 2021 March 25, 2021 412.50 7 421.88 7 466.58 11 $ 1,650.00 $ 28 $ 1,687.52 $ 27 $ 1,474.40 $ 34 November 16, 2020 December 10, 2020 December 28, 2020 $ 412.50 $ 7 $ 421.88 $ 6 $ — $ — August 17, 2020 September 10, 2020 September 25, 2020 412.50 7 595.31 10 — — May 15, 2020 June 10, 2020 June 25, 2020 412.50 7 — — — — February 14, 2020 March 10, 2020 March 25, 2020 412.50 7 — — — — $ 1,650.00 $ 28 $ 1,017.19 $ 16 $ — $ — November 15, 2019 December 10, 2019 December 26, 2019 $ 412.50 $ 7 $ — $ — $ — $ — August 15, 2019 September 10, 2019 September 25, 2019 412.50 7 — — — — May 15, 2019 June 10, 2019 June 25, 2019 412.50 7 — — — — $ 1,237.50 $ 21 $ — $ — $ — $ — See Note 16 for information relating to preferred dividends declared subsequent to December 31, 2021. 177 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity (continued) Common Stock Changes in common shares outstanding were as follows: Years Ended December 31, 2021 2020 2019 Shares outstanding at beginning of year 88,211,618 106,027,301 117,532,336 Shares issued 510,919 354,652 199,853 Shares repurchased (1) ( 10,852,465 ) ( 18,170,335 ) ( 11,704,888 ) Shares outstanding at end of year 77,870,072 88,211,618 106,027,301 _______________ (1) Includes shares of common stock withheld with respect to tax withholding obligations associated with the vesting of share-based compensation awards under the Company’s publicly announced benefit plans or programs. On August 2, 2021, BHF authorized the repurchase of up to $ 1.0 billion of its common stock, which is in addition to the $ 200 million repurchase announced on February 10, 2021. Repurchases under the August 2, 2021 authorization may be made through open market purchases, including pursuant to a 10b5-1 plan or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements. During the years ended December 31, 2021, 2020 and 2019, BHF repurchased 10,703,165 shares, 18,097,084 shares and 11,658,208 shares, respectively, of its common stock through open market purchases pursuant to 10b5-1 plans for $ 499 million, $ 473 million and $ 442 million, respectively. At December 31, 2021, BHF had $ 781 million remaining under its common stock repurchase program. Share-Based Compensation Plans The Company’s share-based compensation plans provide awards to employees and non-employee directors and may be in the form of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSU”), performance shares, performance share units (“PSU”), or other share-based awards. Additionally, employees may purchase shares at a discount under an employee stock purchase plan (the “ESPP”). The aggregate number of authorized shares available for issuance at December 31, 2021 under the Company’s various share-based compensation plans was 6,241,114 . The Company issues new shares to satisfy vested RSUs and PSUs, as well as stock option exercises. All share-based compensation is measured at fair value as of the grant date. The Company recognizes compensation expense related to share-based awards based on the number of awards expected to vest, which for some award types represent the awards granted less expected forfeitures over the life of the award, as estimated at the date of grant and actual forfeitures for other award types. Unless a material deviation from the assumed forfeiture rate is observed during the term in which the awards are expensed, the Company recognizes any adjustment necessary to reflect differences in actual experience in the period the award becomes payable or exercisable. Compensation expense related to share-based awards, which is included in other expenses, is principally related to the issuance of restricted stock units and performance share units with other costs incurred relating to stock options. The Company grants the majority of each year’s awards in the first quarter of the year. 178 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity (continued) Compensation Expense Related to Share-Based Compensation The following table presents total share-based compensation expense: Years Ended December 31, 2021 2020 2019 (In millions) RSUs $ 13 $ 15 $ 15 PSUs 9 5 4 Stock options — — 1 Employee stock purchase plan 1 1 1 Total share-based compensation expense $ 23 $ 21 $ 21 Income tax benefit $ 5 $ 4 $ 4 At December 31, 2021, unrecognized share-based compensation and the weighted average remaining recognition period was $ 8 million and 0.8 years, respectively, for RSUs and $ 14 million and 1.3 years, respectively, for PSUs. Equity Awards Restricted Stock Units RSUs are units that, if vested, are payable in shares of BHF common stock. The Company does not credit RSUs with dividend-equivalents as RSUs do not accrue dividends. Accordingly, the estimated fair value of RSUs is based upon the closing price of shares on the date of grant. Most RSUs use graded vesting and vest in thirds on, or shortly after, the first three anniversaries of their grant date, while other RSUs vest in their entirety on the specified anniversary of their grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria, and in certain other limited circumstances. Performance Share Units PSUs are units that, if vested, are multiplied by a performance factor to produce a final number of BHF common stock shares. PSUs cliff vest at the end of a three-year performance period. Vesting is subject to continued service, except for employees who meet specified age and service criteria, and in certain other limited circumstances. The performance factors are based on the achievement of corporate expense reduction, capital return, net cash flow to Brighthouse Holdings, LLC and statutory expense ratio targets over the respective performance period depending on year of issue. For awards granted for performance periods in progress through December 31, 2021, the vested PSUs will be multiplied by a performance factor up to a maximum payout of 150 %. Assuming the Company has met certain threshold performance targets, the Compensation and Human Capital Committee of BHF’s Board of Directors will determine the performance factor at its discretion. The following table presents a summary of PSU and RSU activity: RSUs PSUs Units Weighted Average Grant Date Fair Value Units Weighted Average Grant Date Fair Value Nonvested at January 1, 2021 791,100 $ 37.80 453,971 $ 38.64 Granted 309,036 $ 41.81 310,402 $ 41.26 Performance factor adjustment — $ — 17,110 $ 48.10 Forfeited 327 $ 40.80 ( 4,220 ) $ 41.26 Vested ( 375,886 ) $ 39.14 ( 74,157 ) $ 48.10 Nonvested at December 31, 2021 724,577 $ 38.80 703,106 $ 39.01 179 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity (continued) The weighted average grant date fair value of RSUs granted during the years ended December 31, 2020 and 2019, was $ 35.68 and $ 38.81 , respectively. The weighted average grant date fair value of PSUs granted during the years ended December 31, 2020 and 2019, was $ 35.84 and $ 38.97 , respectively. The total fair value of RSUs that vested during the years ended December 31, 2021, 2020 and 2019, was $ 15 million, $ 10 million and $ 6 million, respectively. The total fair value of PSUs that vested during the years ended December 31, 2021, 2020 and 2019, was $ 4 million, $ 0 and $ 0 , respectively. Stock Options Stock options represent the contingent right of award holders to purchase shares of BHF common stock at a stated price for a limited time. All stock options have an exercise price equal to the closing price of a share on the date of grant and have a maximum term of ten years. Stock options granted are exercisable at a rate of one-third of each award on each of the first three anniversaries of the grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria, and in certain other limited circumstances. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes model. The significant assumptions the Company uses in its model include: expected volatility of the price of shares; risk-free rate of return; graded three-year vesting; and expected option life. At December 31, 2021, there were 187,371 stock options outstanding and exercisable with a weighted average exercise price of $ 53.47 and aggregate intrinsic value of $ 0 , which expire on February 29, 2028. During the year ended December 31, 2021, there were no stock options granted, exercised, forfeited or expired. During the years ended December 31, 2020 and 2019, no stock options were granted or exercised. Employee Stock Purchase Plan Shares Under the ESPP, eligible employees of the Company purchase common stock at a discount rate of 15 % of the market price per share on the lesser of the first or last trading day of the offering period. Employees purchase a variable number of shares of stock through payroll deductions elected just prior to the beginning of the offering period. During the years ended December 31, 2021, 2020 and 2019, employees purchased 73,999 shares, 117,950 shares and 68,897 shares, respectively. The weighted average per share fair value of the discount under the ESPP was $ 10.06 , $ 8.34 and $ 6.99 during the years ended December 31, 2021, 2020 and 2019, respectively, which was recorded in other expenses. Statutory Financial Information The states of domicile of the Company’s insurance subsidiaries impose RBC requirements that were developed by the National Association of Insurance Commissioners (“NAIC”). The requirements are used by regulators to assess the minimum amount of statutory capital needed for an insurance company to support its operations, based on its size and risk profile. RBC is based on the statutory financial statements and is calculated in a manner prescribed by the NAIC, with the RBC ratio equal to the Company’s Total Adjusted Capital (“TAC”) divided by the Company Action Level. Companies below specific trigger levels or RBC ratios are subject to specified corrective action. The minimum level of TAC before corrective action commences is the Company Action Level RBC. The RBC ratios for the Company’s insurance subsidiaries were each in excess of 400% for all periods presented. The Company’s insurance subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile. Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting of reinsurance agreements and valuing investments and deferred tax assets on a different basis. The tables below present amounts from certain of the Company’s insurance subsidiaries, which are derived from the statutory-basis financial statements as filed with the insurance regulators. 180 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity (continued) Statutory net income (loss) was as follows: Years Ended December 31, Company State of Domicile 2021 2020 2019 (In millions) Brighthouse Life Insurance Company Delaware $ ( 156 ) $ ( 979 ) $ 1,074 New England Life Insurance Company Massachusetts $ 40 $ 105 $ 61 Statutory capital and surplus was as follows at: December 31, Company 2021 2020 (In millions) Brighthouse Life Insurance Company $ 7,763 $ 7,410 New England Life Insurance Company $ 139 $ 150 The Company has a reinsurance subsidiary, BRCD which reinsures risks including level premium term life and ULSG assumed from other Brighthouse Financial life insurance subsidiaries. BRCD, with the explicit permission of the Delaware Insurance Commissioner (“Delaware Commissioner”), has included the value of credit-linked notes as admitted assets, which resulted in higher statutory capital and surplus of $ 8.6 billion and $ 8.0 billion for the years ended December 31, 2021 and 2020, respectively. The statutory net income (loss) of BRCD was $ 543 million, $ 145 million and ($ 316 ) million for the years ended December 31, 2021, 2020 and 2019, respectively, and the combined statutory capital and surplus, including the aforementioned prescribed practices, were $ 644 million and $ 624 million at December 31, 2021 and 2020, respectively. Dividend Restrictions The table below sets forth the dividends permitted to be paid by certain of the Company’s insurance companies without insurance regulatory approval and dividends paid: 2022 2021 2020 2019 Company Permitted Without Approval (1) Paid (2) Paid (2) Paid (2) (In millions) Brighthouse Life Insurance Company $ 1,475 $ 550 $ 1,250 $ — New England Life Insurance Company $ 37 $ 44 $ 61 $ 131 ______________ (1) Reflects dividend amounts that may be paid during 2022 without prior regulatory approval. However, because dividend tests may be based on dividends previously paid over rolling 12-month periods, if paid before a specified date during 2022, some or all of such dividends may require regulatory approval. (2) Reflects all amounts paid, including those requiring regulatory approval. 181 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity (continued) Under the Delaware Insurance Law, Brighthouse Life Insurance Company is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend as long as the amount of the dividend when aggregated with all other dividends in the preceding 12 months does not exceed the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year; or (ii) its net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not including pro rata distributions of Brighthouse Life Insurance Company’s own securities. Brighthouse Life Insurance Company will be permitted to pay a stockholder dividend in excess of the greater of such two amounts only if it files notice of the declaration of such a dividend and the amount thereof with the Delaware Commissioner and the Delaware Commissioner either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined as “unassigned funds (surplus)”) as of the immediately preceding calendar year requires insurance regulatory approval. Under the Delaware Insurance Law, the Delaware Commissioner has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. Under the Massachusetts State Insurance Law, NELICO is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend as long as the aggregate amount of the dividend, when aggregated with all other dividends paid in the preceding 12 months, does not exceed the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year; or (ii) its net gain from operations for the immediately preceding calendar year, not including pro rata distributions of NELICO’s own securities. NELICO will be permitted to pay a dividend in excess of the greater of such two amounts only if it files notice of the declaration of such a dividend and the amount thereof with the Massachusetts Commissioner of Insurance (the “Massachusetts Commissioner”) and the Massachusetts Commissioner either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined as “unassigned funds (surplus)”) as of the last filed annual statutory statement requires insurance regulatory approval. Under the Massachusetts State Insurance Law, the Massachusetts Commissioner has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. Under BRCD’s plan of operations, no dividend or distribution may be made by BRCD without the prior approval of the Delaware Commissioner. During the year ended December 31, 2021, BRCD paid an extraordinary dividend in the form of the settlement of affiliated reinsurance balances of $ 400 million, invested assets of $ 197 million and cash of $ 3 million. During the year ended December 31, 2020, BRCD paid an extraordinary dividend in the form of invested assets of $ 423 million and the settlement of affiliated reinsurance balances of $ 177 million, which was approved by the Delaware Commissioner in December 2019. BRCD did no t pay any extraordinary dividends during the year ended December 31, 2019. During each of the years ended December 31, 2021, 2020 and 2019, BRCD paid cash dividends of $ 1 million to its preferred shareholders. 182 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity (continued) Accumulated Other Comprehensive Income (Loss) Information regarding changes in the balances of each component of AOCI was as follows: Unrealized Investment Gains (Losses), Net of Related Offsets (1) Unrealized Gains (Losses) on Derivatives Foreign Currency Translation Adjustments Defined Benefit Plans Adjustment Total (In millions) Balance at December 31, 2018 $ 576 $ 187 $ ( 27 ) $ ( 20 ) $ 716 OCI before reclassifications 3,285 40 12 ( 10 ) 3,327 Deferred income tax benefit (expense) (3) ( 690 ) ( 8 ) — 2 ( 696 ) AOCI before reclassifications, net of income tax 3,171 219 ( 15 ) ( 28 ) 3,347 Amounts reclassified from AOCI ( 76 ) ( 59 ) — — ( 135 ) Deferred income tax benefit (expense) (3) 16 12 — — 28 Amounts reclassified from AOCI, net of income tax ( 60 ) ( 47 ) — — ( 107 ) Balance at December 31, 2019 3,111 172 ( 15 ) ( 28 ) 3,240 OCI before reclassifications (2) 3,511 ( 52 ) 20 ( 14 ) 3,465 Deferred income tax benefit (expense) (3) ( 737 ) 11 ( 13 ) 4 ( 735 ) AOCI before reclassifications, net of income tax 5,885 131 ( 8 ) ( 38 ) 5,970 Amounts reclassified from AOCI ( 303 ) ( 20 ) — 1 ( 322 ) Deferred income tax benefit (expense) (3) 64 4 — — 68 Amounts reclassified from AOCI, net of income tax ( 239 ) ( 16 ) — 1 ( 254 ) Balance at December 31, 2020 5,646 115 ( 8 ) ( 37 ) 5,716 OCI before reclassifications ( 2,122 ) 171 1 ( 3 ) ( 1,953 ) Deferred income tax benefit (expense) (3) 446 ( 36 ) — — 410 AOCI before reclassifications, net of income tax 3,970 250 ( 7 ) ( 40 ) 4,173 Amounts reclassified from AOCI 15 ( 15 ) — ( 1 ) ( 1 ) Deferred income tax benefit (expense) (3) ( 3 ) 3 — — — Amounts reclassified from AOCI, net of income tax 12 ( 12 ) — ( 1 ) ( 1 ) Balance at December 31, 2021 $ 3,982 $ 238 $ ( 7 ) $ ( 41 ) $ 4,172 _______________ (1) See Note 6 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI. (2) Includes $ 3 million related to the adoption of the allowance for credit losses guidance. (3) The effects of income taxes on amounts recorded to AOCI are also recognized in AOCI. These income tax effects are released from AOCI when the related activity is reclassified into results from operations. Information regarding amounts reclassified out of each component of AOCI was as follows: 183 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 10. Equity (continued) AOCI Components Amounts Reclassified from AOCI Consolidated Statements of Operations Locations Years Ended December 31, 2021 2020 2019 (In millions) Net unrealized investment gains (losses): Net unrealized investment gains (losses) $ ( 4 ) $ 318 $ 113 Net investment gains (losses) Net unrealized investment gains (losses) ( 11 ) ( 15 ) ( 37 ) Net derivative gains (losses) Net unrealized investment gains (losses), before income tax ( 15 ) 303 76 Income tax (expense) benefit 3 ( 64 ) ( 16 ) Net unrealized investment gains (losses), net of income tax ( 12 ) 239 60 Unrealized gains (losses) on derivatives - cash flow hedges: Interest rate swaps 2 2 32 Net derivative gains (losses) Interest rate swaps 3 3 2 Net investment income Foreign currency swaps 10 15 25 Net derivative gains (losses) Gains (losses) on cash flow hedges, before income tax 15 20 59 Income tax (expense) benefit ( 3 ) ( 4 ) ( 12 ) Gains (losses) on cash flow hedges, net of income tax 12 16 47 Defined benefit plans adjustment: Amortization of net actuarial gains (losses) 1 ( 1 ) — Amortization of defined benefit plans, before income tax 1 ( 1 ) — Amortization of defined benefit plans, net of income tax 1 ( 1 ) — Total reclassifications, net of income tax $ 1 $ 254 $ 107 11. Other Revenues and Other Expenses Other Revenues The Company has entered into contracts with mutual funds, fund managers, and their affiliates (collectively, the “Funds”) whereby the Company is paid monthly or quarterly fees (“12b-1 fees”) for providing certain services to customers and distributors of the Funds. The 12b-1 fees are generally equal to a fixed percentage of the average daily balance of the customer’s investment in a fund. The percentage is specified in the contract between the Company and the Funds. Payments are generally collected when due and are neither refundable nor able to offset future fees. To earn these fees, the Company performs services such as responding to phone inquiries, maintaining records, providing information to distributors and shareholders about fund performance and providing training to account managers and sales agents. The passage of time reflects the satisfaction of the Company’s performance obligations to the Funds and is used to recognize revenue associated with 12b-1 fees. Other revenues consisted primarily of 12b-1 fees of $ 360 million, $ 325 million and $ 336 million for the years ended December 31, 2021, 2020 and 2019, respectively, of which substantially all were reported in the Annuities segment. 184 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 11. Other Revenues and Other Expenses (continued) Other Expenses Information on other expenses was as follows: Years Ended December 31, 2021 2020 2019 (In millions) Compensation $ 385 $ 346 $ 333 Contracted services and other labor costs 280 281 287 Transition services agreements 124 127 245 Establishment costs 98 112 118 Premium and other taxes, licenses and fees 52 44 48 Separate account fees 508 466 488 Volume related costs, excluding compensation, net of DAC capitalization 682 625 636 Interest expense on debt 163 184 191 Debt repayment costs 75 43 — Other 84 125 145 Total other expenses $ 2,451 $ 2,353 $ 2,491 Capitalization of DAC See Note 4 for additional information on the capitalization of DAC. Interest Expense on Debt See Note 9 for attribution of interest expense by debt issuance. 12. Employee Benefit Plans BHF Active Defined Contribution Plans Brighthouse Services sponsors qualified and non-qualified defined contribution plans. For the years ended December 31, 2021, 2020 and 2019, the total employer contributions for the qualified defined contribution plan were $ 18 million, $ 17 million and $ 15 million, respectively, and the total expense recognition for the non-qualified defined contribution plans were $ 9 million, $ 7 million and $ 6 million, respectively, all of which are reported in other expenses. NELICO Legacy Pension and Other Unfunded Benefit Plans NELICO sponsors both a qualified and a non-qualified defined benefit pension plan, a postretirement plan and other unfunded benefit plans. These pension and other unfunded benefit plans were amended to cease benefit accruals and are closed to new entrants. The qualified defined benefit pension plan had an accumulated benefit obligation of $ 174 million and $ 182 million at December 31, 2021 and 2020, respectively. This plan was fully funded at both December 31, 2021 and 2020 with assets in excess of the accumulated benefit obligation of $ 8 million. The Company did not make any employer contributions to this qualified plan during 2020 or 2019. The non-qualified defined benefit pension plan and the postretirement plan had a combined accumulated benefit obligation totaling $ 105 million and $ 111 million at December 31, 2021 and 2020, respectively. These amounts are unfunded. The other unfunded benefit plans consist primarily of deferred compensation due to former agents which represent general unsecured liabilities of NELICO. The amounts due under these other unfunded benefit plans were $ 69 million and $ 65 million at December 31, 2021 and 2020, respectively. 185 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 12. Employee Benefit Plans (continued) Although NELICO remains the legal obligor for these plans, an employee matters agreement (“EMA”) exists between BHF and MetLife whereby MetLife has agreed to reimburse BHF for the obligations under the non-qualified and other unfunded plans as payments are made. At the time of Separation, BHF established a receivable from MetLife in the amount of the unfunded obligations due under these plans. MetLife is required to annually reimburse BHF for each prior year’s benefit payments, claims and premiums under the NELICO plans that are listed in the EMA. The Company’s receivable from MetLife under the EMA for future total estimated benefit payments, claims and premiums was $ 194 million and $ 197 million at December 31, 2021 and 2020, respectively. The receivable is reported in premiums, reinsurance and other receivables. Increases and decreases to the EMA receivable are reported in other revenues. 13. Income Tax The provision for income tax was as follows: Years Ended December 31, 2021 2020 2019 (In millions) Current: Federal $ 32 $ 30 $ ( 36 ) State and local 12 6 4 Subtotal 44 36 ( 32 ) Deferred: Federal ( 149 ) ( 399 ) ( 285 ) Provision for income tax expense (benefit) $ ( 105 ) $ ( 363 ) $ ( 317 ) The reconciliation of the income tax provision at the statutory tax rate to the provision for income tax as reported was as follows: Years Ended December 31, 2021 2020 2019 (In millions) Tax provision at statutory rate $ ( 44 ) $ ( 298 ) $ ( 221 ) Tax effect of: Dividends received deduction ( 37 ) ( 42 ) ( 42 ) Tax credits ( 16 ) ( 25 ) ( 31 ) Change in valuation allowance 18 1 — Return to provision 14 2 ( 5 ) Adjustments to deferred tax ( 48 ) ( 5 ) ( 21 ) Other, net 8 4 3 Provision for income tax expense (benefit) $ ( 105 ) $ ( 363 ) $ ( 317 ) Effective tax rate 50 % 26 % 30 % 186 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 13. Income Tax (continued) Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at: December 31, 2021 2020 (In millions) Deferred income tax assets: Net operating loss carryforwards $ 1,254 $ 1,486 Tax credit carryforwards 151 133 Employee benefits 24 15 Intangibles 42 58 Other 6 — Total deferred income tax assets 1,477 1,692 Less: Valuation allowance 19 — Total net deferred income tax assets 1,458 1,692 Deferred income tax liabilities: Net unrealized investment gains 1,122 1,532 Policyholder liabilities and receivables 404 905 DAC 798 720 Investments, including derivatives 196 154 Other — 1 Total deferred income tax liabilities 2,520 3,312 Net deferred income tax asset (liability) $ ( 1,062 ) $ ( 1,620 ) The following table sets forth the net operating loss carryforwards for tax purposes at December 31, 2021. Net Operating Loss Carryforwards (In millions) Expiration 2032-2037 $ 2,054 Indefinite 3,918 $ 5,972 The following table sets forth the general business credits and foreign tax credits available for carryforward for tax purposes at December 31, 2021. Tax Credit Carryforwards General Business Credits Foreign Tax Credits (In millions) Expiration 2022-2025 $ — $ 18 2026-2030 — 96 2031-2035 — 20 2036-2040 17 — Indefinite — — $ 17 $ 134 The Company believes that it is more likely than not that the benefit from certain tax credit carryforwards will not be realized. Accordingly, a valuation allowance of $ 18 million has been established on the deferred tax assets related to the tax credit carryforwards at December 31, 2021. 187 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 13. Income Tax (continued) The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate in the future. A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows: Years Ended December 31, 2021 2020 2019 (In millions) Balance at January 1, $ 35 $ 35 $ 35 Additions for tax positions of prior years — — — Reductions for tax positions of prior years — — — Additions for tax positions of current year — — — Reductions for tax positions of current year — — — Settlements with tax authorities — — — Balance at December 31, $ 35 $ 35 $ 35 Unrecognized tax benefits that, if recognized would impact the effective rate $ 35 $ 35 $ 35 The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses, while penalties are included in income tax expense. Interest related to unrecognized tax benefits was not significant. The Company had no penalties for each of the years ended December 31, 2021, 2020 and 2019. The Company is subject to examination by the Internal Revenue Service and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to federal, state or local income tax examinations for years prior to 2010. Management believes it has established adequate tax liabilities, and final resolution of the audit for the years 2010 and forward is not expected to have a material impact on the Company’s consolidated financial statements. Tax Sharing Agreements For the periods prior to the Separation, Brighthouse Financial filed a consolidated federal life and non-life income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended. Current taxes (and the benefits of tax attributes such as losses) are allocated to Brighthouse Financial, Inc., and its includable subsidiaries, under the consolidated tax return regulations and a tax sharing agreement with MetLife. This tax sharing agreement states that federal taxes will be computed on a modified separate return basis with benefits for losses. For periods after the Separation, Brighthouse Financial entered into two separate tax sharing agreements. Brighthouse Life Insurance Company and any directly owned life insurance and reinsurance subsidiaries (including Brighthouse Life Insurance Company of NY and BRCD) entered in a tax sharing agreement to join a life consolidated federal income tax return. Brighthouse Financial, Inc. and its includable subsidiaries entered into a tax sharing agreement to join a non-life consolidated federal income tax return. NELICO and the non-life subsidiaries of Brighthouse Life Insurance Company will file their own federal income tax returns. The tax sharing agreements state that federal taxes are computed on a modified separate return basis with benefit for losses. Income Tax Transactions with Former Parent In connection with the Separation, the Company entered into a tax receivables agreement (the “Tax Receivables Agreement”) with MetLife that provides MetLife with the right to receive as partial consideration for its contribution of assets to BHF future payments from BHF, equal to 86 % of the amount of cash savings, if any, in federal income tax that Brighthouse Financial actually, or are deemed to, realize as a result of the utilization of Brighthouse Financial, Inc. and its subsidiaries’ net operating losses, capital losses, tax basis and amortization or depreciation deductions in respect of certain tax benefits it may realize as a result of certain transactions involved in the Separation. In connection with the Tax Receivables Agreement, the Company has a payable to MetLife of $ 328 million at both December 31, 2021 and 2020 included in other liabilities. 188 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 13. Income Tax (continued) The Company also entered into a tax separation agreement with MetLife. Among other things, the tax separation agreement governs the allocation between MetLife and the Company of the responsibility for the taxes of the MetLife group. The tax separation agreement also allocates rights, obligations and responsibilities in connection with certain administrative matters relating to the preparation of tax returns and control of tax audits and other proceedings relating to taxes. For the years ended December 31, 2021, 2020 and 2019, Brighthouse Financial paid MetLife $ 81 million, $ 0 and $ 3 million, respectively, under the tax separation agreement. At December 31, 2021 and 2020, the current income tax liability included $ 76 million and $ 136 million, respectively, payable to MetLife related to this agreement. 14. Earnings Per Common Share The calculation of earnings per common share was as follows: Years Ended December 31, 2021 2020 2019 (In millions, except share and per share data) Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ ( 197 ) $ ( 1,105 ) $ ( 761 ) Weighted average common shares outstanding — basic 83,783,664 95,350,822 112,508,650 Dilutive effect of share-based awards — — — Weighted average common shares outstanding — diluted 83,783,664 95,350,822 112,508,650 Earnings per common share: Basic $ ( 2.36 ) $ ( 11.58 ) $ ( 6.76 ) Diluted $ ( 2.36 ) $ ( 11.58 ) $ ( 6.76 ) For the years ended December 31, 2021, 2020 and 2019, basic loss per common share equaled diluted loss per common share. The diluted shares were not utilized in the per share calculation for these periods as the inclusion of such shares would have an antidilutive effect. See Note 10 for further information on share-based compensation plans. 15. Contingencies, Commitments and Guarantees Contingencies Litigation The Company is a defendant in a number of litigation matters. In some of the matters, large or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value. The Company also receives and responds to subpoenas or other inquiries seeking a broad range of information from various state and federal regulators, agencies and officials. The issues involved in information requests and regulatory matters vary widely, but can include inquiries or investigations concerning the Company’s compliance with applicable insurance and other laws and regulations. The Company cooperates in these inquiries. Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law. 189 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 15. Contingencies, Commitments and Guarantees (continued) The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be estimated at December 31, 2021. Matters as to Which an Estimate Can Be Made For some loss contingency matters, the Company is able to estimate a reasonably possible range of loss. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. In addition to amounts accrued for probable and reasonably estimable losses, as of December 31, 2021, the Company estimates the aggregate range of reasonably possible losses to be up to approximately $ 10 million. Matters as to Which an Estimate Cannot Be Made For other matters, the Company is not currently able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation contingencies and updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews. Sales Practices Claims Over the past several years, the Company has faced claims and regulatory inquiries and investigations, alleging improper marketing or sales of individual life insurance policies, annuities or other products. The Company continues to defend vigorously against the claims in these matters. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices matters. Cost of Insurance Class Actions Richard A. Newton v. Brighthouse Life Insurance Company (U.S. District Court, Northern District of Georgia, Atlanta Division, filed May 8, 2020). Plaintiff has filed a purported class action lawsuit against Brighthouse Life Insurance Company. Plaintiff was the owner of a universal life insurance policy issued by Travelers Insurance Company, a predecessor to Brighthouse Life Insurance Company. Plaintiff seeks to certify a class of all persons who own or owned life insurance policies issued where the terms of the life insurance policy provide or provided, among other things, a guarantee that the cost of insurance rates would not be increased by more than a specified percentage in any contract year. Plaintiff alleges, among other things, causes of action for breach of contract, fraud, suppression and concealment, and violation of the Georgia Racketeer Influenced and Corrupt Organizations Act. Plaintiff seeks to recover damages, including punitive damages, interest and treble damages, attorneys’ fees, and injunctive and declaratory relief. Brighthouse Life Insurance Company filed a motion to dismiss in June 2020, which was granted in part and denied in part in March 2021. Plaintiff was granted leave to amend the complaint. The Company intends to vigorously defend this matter. Lawrence Martin v. Brighthouse Life Insurance Company and Brighthouse Life Insurance Company of NY (U.S. District Court, Southern District of New York, filed April 6, 2021). Plaintiff has filed a purported class action lawsuit against Brighthouse Life Insurance Company and Brighthouse Life Insurance Company of NY. Plaintiff is the owner of a universal life insurance policy issued by Travelers Insurance Company, a predecessor to Brighthouse Life Insurance Company. Plaintiff seeks to certify a class of similarly situated owners of universal life insurance policies issued or administered by defendants and alleges that cost of insurance charges should have decreased over time due to improving mortality but did not. Plaintiff alleges, among other things, causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment. Plaintiff seeks to recover compensatory damages, attorney’s fees, interest, and equitable relief including a constructive trust. Brighthouse Life Insurance Company and Brighthouse Life Insurance Company of NY filed a motion to dismiss in June 2021, which was denied in February 2022. The Company intends to vigorously defend this matter. 190 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 15. Contingencies, Commitments and Guarantees (continued) Summary Various litigations, claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, investor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to previously, large or indeterminate amounts, including punitive and treble damages, are sought. Although, in light of these considerations, it is possible that an adverse outcome in certain cases could have a material effect upon the Company’s financial position, based on information currently known by the Company’s management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods. Other Loss Contingencies As with litigation and regulatory loss contingencies, the Company considers establishing liabilities for loss contingencies associated with disputes or other matters involving third parties, including counterparties to contractual arrangements entered into by the Company (e.g., third-party vendors and reinsurers), as well as with tax authorities (“other loss contingencies”). The Company establishes liabilities for such other loss contingencies when it is probable that a loss will be incurred and the amount of the loss can be reasonably estimated. In matters where it is not probable, but is reasonably possible that a loss will be incurred and the amount of loss can be reasonably estimated, such losses or range of losses are disclosed, and no accrual is made. In the absence of sufficient information to support an assessment of the reasonably possible loss or range of loss, no accrual is made and no loss or range of loss is disclosed. In the disputes where the Company’s subsidiaries are acting as the reinsured or the reinsurer, such matters involve assertions by third parties primarily related to rates, fees or reinsured benefit calculations, and in certain of such matters, the counterparty has made a request to arbitrate. As of December 31, 2021, the Company estimates the range of reasonably possible losses in excess of the amounts accrued for certain other loss contingencies to be from zero up to approximately $ 250 million, which are primarily associated with the above reinsurance-related matters. For certain other matters, the Company may not currently be able to estimate the reasonably possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of such loss. On a quarterly basis, the Company reviews relevant information with respect to other loss contingencies and, when applicable, updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews. Commitments Mortgage Loan Commitments The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $ 719 million and $ 210 million at December 31, 2021 and 2020, respectively. Commitments to Fund Partnership Investments, Bank Credit Facilities and Private Corporate Bond Investments The Company commits to fund partnership investments and to lend funds under bank credit facilities and private corporate bond investments. The amounts of these unfunded commitments were $ 2.3 billion and $ 1.7 billion at December 31, 2021 and 2020, respectively. 191 Table of Contents Brighthouse Financial, Inc. Notes to the Consolidated Financial Statements (continued) 15. Contingencies, Commitments and Guarantees (continued) Guarantees In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties such that it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $ 1 million to $ 112 million, with a cumulative maximum of $ 118 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments. In addition, the Company indemnifies its directors and officers as provided in its charters and bylaws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future. The Company’s recorded liabilities were $ 1 million at both December 31, 2021 and 2020 for indemnities, guarantees and commitments. 16. Subsequent Event Preferred Stock Dividend On February 15, 2022, BHF declared a dividend of $ 412.50 per share on its Series A Preferred Stock, $ 421.88 per share on its Series B Preferred Stock, $ 335.94 per share on its Series C Preferred Stock and $ 395.05 per share on its Series D Preferred Stock for a total of $ 27 million, which will be paid on March 25, 2022 to stockholders of record as of March 10, 2022. 192 Table of Contents Brighthouse Financial, Inc. Schedule I Consolidated Summary of Investments — Other Than Investments in Related Parties December 31, 2021 (In millions) Types of Investments Cost or Amortized Cost (1) Estimated Fair Value Amount at Which Shown on Balance Sheet Fixed maturity securities: Bonds: U.S. government and agency $ 7,301 $ 9,307 $ 9,307 State and political subdivision 3,995 4,835 4,835 Public utilities 3,628 4,177 4,177 Foreign government 1,593 1,832 1,832 All other corporate bonds 42,202 46,177 46,177 Total bonds 58,719 66,328 66,328 Mortgage-backed and asset-backed securities 20,115 20,821 20,821 Redeemable preferred stock 412 433 433 Total fixed maturity securities 79,246 87,582 87,582 Equity securities: Non-redeemable preferred stock 70 71 71 Common stock: Industrial, miscellaneous and all other 24 28 28 Public utilities — 2 2 Total equity securities 94 101 101 Mortgage loans 19,850 19,850 Policy loans 1,264 1,264 Limited partnerships and LLCs 4,271 4,271 Short-term investments 1,841 1,841 Other invested assets 3,316 3,316 Total investments $ 109,882 $ 118,225 _______________ (1) Cost or amortized cost for fixed maturity securities represents original cost reduced by impairments that are charged to earnings and adjusted for amortization of premiums or accretion of discounts; for mortgage loans, cost represents original cost reduced by repayments and valuation allowances and adjusted for amortization of premiums or accretion of discounts; for equity securities, cost represents original cost; for limited partnerships and LLCs, cost represents original cost adjusted for equity in earnings and distributions. 193 Table of Contents Brighthouse Financial, Inc. Schedule II Condensed Financial Information (Parent Company Only) December 31, 2021 and 2020 (In millions, except share and per share data) 2021 2020 Condensed Balance Sheets Assets Investments: Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $ 0 and $ 45 , respectively; allowance for credit losses of $ 0 and $ 0 , respectively) $ — $ 47 Short-term investments, principally at estimated fair value 1,168 1,333 Other invested assets, at estimated fair value 3 — Investment in subsidiary 18,557 20,326 Total investments 19,728 21,706 Cash and cash equivalents 372 262 Premiums and other receivables 197 197 Current income tax recoverable 2 62 Deferred income tax receivable 26 1 Other assets 2 4 Total assets $ 20,327 $ 22,232 Liabilities and Stockholders’ Equity Liabilities Long-term and short-term debt $ 3,840 $ 3,858 Other liabilities 345 351 Total liabilities 4,185 4,209 Stockholders’ Equity Preferred stock, par value $ 0.01 per share; $ 1,753 and $ 1,403 , respectively, aggregate liquidation preference — — Common stock, par value $ 0.01 per share; 1,000,000,000 shares authorized; 121,513,442 and 121,002,523 shares issued, respectively; 77,870,072 and 88,211,618 shares outstanding, respectively 1 1 Additional paid-in capital 14,154 13,878 Retained earnings (deficit) ( 642 ) ( 534 ) Treasury stock, at cost; 43,643,370 and 32,790,905 shares, respectively ( 1,543 ) ( 1,038 ) Accumulated other comprehensive income (loss) 4,172 5,716 Total stockholders’ equity 16,142 18,023 Total liabilities and stockholders’ equity $ 20,327 $ 22,232 See accompanying notes to the condensed financial information. 194 Table of Contents Brighthouse Financial, Inc. Schedule II Condensed Financial Information (continued) (Parent Company Only) For the Years Ended December 31, 2021, 2020 and 2019 (In millions) 2021 2020 2019 Condensed Statements of Operations Revenues Net investment income $ 1 $ 7 $ 20 Other revenues 13 19 24 Net investment gains (losses) 2 — — Net derivative gains (losses) 2 8 — Total revenues 18 34 44 Expenses Debt repayment costs 77 43 — Other expenses 179 211 219 Total expenses 256 254 219 Income (loss) before provision for income tax and equity in earnings (losses) of subsidiaries ( 238 ) ( 220 ) ( 175 ) Provision for income tax expense (benefit) ( 50 ) ( 45 ) ( 37 ) Income (loss) before equity in earnings (losses) of subsidiaries ( 188 ) ( 175 ) ( 138 ) Equity in earnings (losses) of subsidiaries 80 ( 886 ) ( 602 ) Net income (loss) ( 108 ) ( 1,061 ) ( 740 ) Less: Preferred stock dividends 89 44 21 Net income (loss) available to common shareholders $ ( 197 ) $ ( 1,105 ) $ ( 761 ) Comprehensive income (loss) $ ( 1,652 ) $ 1,415 $ 1,784 See accompanying notes to the condensed financial information. 195 Table of Contents Brighthouse Financial, Inc. Schedule II Condensed Financial Information (continued) (Parent Company Only) For the Years Ended December 31, 2021, 2020 and 2019 (In millions) 2021 2020 2019 Condensed Statements of Cash Flows Cash flows from operating activities Net income (loss) $ ( 108 ) $ ( 1,061 ) $ ( 740 ) Equity in (earnings) losses of subsidiaries ( 80 ) 886 602 Distributions from subsidiary 310 1,468 195 Other, net 122 68 ( 16 ) Net cash provided by (used in) operating activities 244 1,361 41 Cash flows from investing activities Sales, maturities and repayments of fixed maturity securities 46 11 194 Purchases of fixed maturity securities — ( 12 ) ( 4 ) Cash received in connection with freestanding derivatives 7 — — Cash paid in connection with freestanding derivatives ( 2 ) — — Capital contributions to subsidiary — — ( 412 ) Net change in short-term investments 162 ( 873 ) ( 455 ) Net cash provided by (used in) investing activities 213 ( 874 ) ( 677 ) Cash flows from financing activities Long-term and short-term debt issued 1,464 1,764 2,156 Long-term and short-term debt repaid ( 1,484 ) ( 2,590 ) ( 1,716 ) Debt repayment costs ( 71 ) ( 37 ) — Preferred stock issued, net of issuance costs 339 948 412 Dividends on preferred stock ( 89 ) ( 44 ) ( 21 ) Treasury stock acquired in connection with share repurchases ( 499 ) ( 473 ) ( 442 ) Other, net ( 7 ) ( 5 ) ( 2 ) Net cash provided by (used in) financing activities ( 347 ) ( 437 ) 387 Change in cash and cash equivalents 110 50 ( 249 ) Cash and cash equivalents, beginning of year 262 212 461 Cash and cash equivalents, end of year $ 372 $ 262 $ 212 Supplemental disclosures of cash flow information Net cash paid (received) for: Interest $ 158 $ 184 $ 187 Income tax $ ( 86 ) $ ( 25 ) $ ( 4 ) See accompanying notes to the condensed financial information. 196 Table of Contents Brighthouse Financial, Inc. Schedule II Notes to the Condensed Financial Information (Parent Company Only) 1. Basis of Presentation The condensed financial information of Brighthouse Financial, Inc. (the “Parent Company”) should be read in conjunction with the consolidated financial statements of Brighthouse Financial, Inc. and its subsidiaries and the notes thereto (the “Consolidated Financial Statements”). These condensed unconsolidated financial statements reflect the results of operations, financial position and cash flows for Brighthouse Financial, Inc. Investments in subsidiaries are accounted for using the equity method of accounting. The preparation of these condensed unconsolidated financial statements in conformity with GAAP requires management to adopt accounting policies and make certain estimates and assumptions. The most important of these estimates and assumptions relate to the fair value measurements, identifiable intangible assets and the provision for potential losses that may arise from litigation and regulatory proceedings and tax audits, which may affect the amounts reported in the condensed unconsolidated financial statements and accompanying notes. Actual results could differ from these estimates. 2. Investment in Subsidiary During the years ended December 31, 2021, 2020 and 2019, BHF received cash distributions of $ 310 million, $ 1.5 billion and $ 195 million, respectively, from Brighthouse Holdings, LLC (“BH Holdings”) and made cash capital contributions of $ 0 , $ 0 and $ 412 million, respectively, to BH Holdings. Distributions received during the years ended December 31, 2021 and 2020 primarily relate to $ 550 million and $ 1.3 billion, respectively, of ordinary cash dividends paid by Brighthouse Life Insurance Company to BH Holdings. 3. Long-term and Short-term Debt Long-term and short-term debt outstanding was as follows at: December 31, Stated Interest Rate Maturity 2021 2020 (In millions) Senior notes — unaffiliated 3.700 % 2027 $ 755 $ 1,294 Senior notes — unaffiliated 5.625 % 2030 614 614 Senior notes — unaffiliated 4.700 % 2047 1,000 1,134 Senior notes — unaffiliated 3.850 % 2051 396 — Junior subordinated debentures — unaffiliated 6.250 % 2058 363 363 Total long-term debt (1) 3,128 3,405 Short-term intercompany loans 712 453 Total long-term and short-term debt (1) $ 3,840 $ 3,858 _______________ (1) Includes unamortized debt issuance costs, discounts and premiums, as applicable, totaling net $ 33 million and $ 35 million for the senior notes and junior subordinated debentures on a combined basis at December 31, 2021 and 2020, respectively. The aggregate maturities of long-term and short-term debt at December 31, 2021 were $ 712 million in 2022, $ 0 in each of 2023, 2024, 2025 and 2026, and $ 3.2 billion thereafter. Interest expense related to long-term and short-term debt of $ 159 million, $ 183 million and $ 191 million for the years ended December 31, 2021, 2020 and 2019, respectively, is included in other expenses. Senior Notes and Junior Subordinated Debentures See Note 9 of the Notes to the Consolidated Financial Statements for information regarding the unaffiliated senior notes and junior subordinated debentures. Credit Facilities See Note 9 of the Notes to the Consolidated Financial Statements for information regarding BHF’s credit facilities. 197 Table of Contents Brighthouse Financial, Inc. Schedule II Notes to the Condensed Financial Information (continued) (Parent Company Only) Short-term Intercompany Loans BHF, as borrower, has a short-term intercompany loan agreement with certain of its non-insurance subsidiaries, as lenders, for the purposes of facilitating the management of the available cash of the borrower and the lenders on a short-term and consolidated basis. Such intercompany loan agreement allows management to optimize the efficient use of and maximize the yield on cash between BHF and its subsidiary lenders. Each loan entered into under this intercompany loan agreement has a term not more than 364 days and bears interest on the unpaid principal amount at a variable rate, payable monthly. During the years ended December 31, 2021, 2020 and 2019, BHF borrowed $ 1.1 billion, $ 1.2 billion and $ 1.2 billion, respectively, from certain of its non-insurance subsidiaries and repaid $ 805 million, $ 1.0 billion and $ 1.1 billion of such borrowings during the years ended December 31, 2021, 2020 and 2019, respectively. The weighted average interest rate on short-term intercompany loans outstanding at December 31, 2021, 2020 and 2019 was 0.05 %, 0.05 % and 0.95 %, respectively. Intercompany Liquidity Facilities BHF has established intercompany liquidity facilities with certain of its insurance and non-insurance subsidiaries to provide short-term liquidity within and across the combined group of companies. Under these facilities, which are comprised of a series of revolving loan agreements among BHF and its participating subsidiaries, each company may lend to or borrow from each other, subject to certain maximum limits for a term not more than 364 days. During the years ended December 31, 2021, 2020 and 2019, there were no borrowings or repayments by BHF under these facilities. 198 Table of Contents Brighthouse Financial, Inc. Schedule III Consolidated Supplementary Insurance Information December 31, 2021 and 2020 (In millions) Segment DAC and VOBA Future Policy Benefits and Other Policy-Related Balances Policyholder Account Balances Unearned Premiums (1)(2) Unearned Revenue (1) 2021 Annuities $ 4,331 $ 10,423 $ 50,791 $ — $ 83 Life 947 6,302 3,083 10 398 Run-off 4 23,031 7,207 — 213 Corporate & Other 95 7,508 5,770 5 — Total $ 5,377 $ 47,264 $ 66,851 $ 15 $ 694 2020 Annuities $ 3,829 $ 10,452 $ 43,784 $ — $ 86 Life 971 6,242 3,085 10 350 Run-off 5 23,558 7,638 — 184 Corporate & Other 106 7,607 1 5 — Total $ 4,911 $ 47,859 $ 54,508 $ 15 $ 620 _______________ (1) Amounts are included within the future policy benefits and other policy-related balances column. (2) Includes premiums received in advance. 199 Table of Contents Brighthouse Financial, Inc. Schedule III Consolidated Supplementary Insurance Information (continued) December 31, 2021, 2020 and 2019 (In millions) Segment Premiums and Universal Life and Investment-Type Product Policy Fees Net Investment Income (1) Policyholder Benefits and Claims and Interest Credited to Policyholder Account Balances Amortization of DAC and VOBA Other Expenses 2021 Annuities $ 2,862 $ 2,207 $ 1,628 $ 111 $ 1,654 Life 784 671 927 22 180 Run-off 618 1,900 2,109 — 191 Corporate & Other 79 103 91 11 426 Total $ 4,343 $ 4,881 $ 4,755 $ 144 $ 2,451 2020 Annuities $ 2,656 $ 1,809 $ 2,452 $ 668 $ 1,554 Life 848 459 869 107 176 Run-off 641 1,263 3,422 — 186 Corporate & Other 84 70 60 ( 9 ) 437 Total $ 4,229 $ 3,601 $ 6,803 $ 766 $ 2,353 2019 Annuities $ 2,788 $ 1,797 $ 1,414 $ 363 $ 1,676 Life 871 434 824 5 211 Run-off 718 1,273 2,436 — 200 Corporate & Other 85 75 59 14 404 Total $ 4,462 $ 3,579 $ 4,733 $ 382 $ 2,491 _______________ (1) See Note 2 of the Notes to the Consolidated Financial Statements for the basis of allocation of net investment income. 200 Table of Contents Brighthouse Financial, Inc. Schedule IV Consolidated Reinsurance December 31, 2021, 2020 and 2019 (Dollars in millions) Gross Amount Ceded Assumed Net Amount % Amount Assumed to Net 2021 Life insurance in-force $ 524,398 $ 152,764 $ 7,341 $ 378,975 1.9 % Insurance premium Life insurance (1) $ 1,230 $ 516 $ ( 12 ) $ 702 ( 1.7 )% Accident & health insurance 210 205 — 5 — % Total insurance premium $ 1,440 $ 721 $ ( 12 ) $ 707 ( 1.7 )% 2020 Life insurance in-force $ 541,463 $ 164,336 $ 7,293 $ 384,420 1.9 % Insurance premium Life insurance (1) $ 1,289 $ 538 $ 10 $ 761 1.3 % Accident & health insurance 220 215 — 5 — % Total insurance premium $ 1,509 $ 753 $ 10 $ 766 1.3 % 2019 Life insurance in-force $ 568,120 $ 175,728 $ 7,153 $ 399,545 1.8 % Insurance premium Life insurance (1) $ 1,424 $ 556 $ 10 $ 878 1.1 % Accident & health insurance 227 223 — 4 — % Total insurance premium $ 1,651 $ 779 $ 10 $ 882 1.1 % _______________ (1) Includes annuities with life contingencies. 201 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.