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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-05 · 271 added, 563 removed, 846 unchanged (50% of the section changed)

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Executive Summary

Industry Trends

Industry Trends and Uncertainties

Summary of Critical Accounting Estimates

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Results of Operations

Off-Balance Sheet Arrangements

Policyholder Liabilities

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Note Regarding Forward-Looking Statements

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

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

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

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

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

For purposes of this discussion, “Brighthouse Financial,” the “Company,” “we,” “our” and “us” refer to Brighthouse Financial, Inc.

and its subsidiaries, and “BHF” refers solely to Brighthouse Financial, Inc., the ultimate holding company for all of our subsidiaries, and not to any of its subsidiaries.

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

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Securities and Exchange Commission (“SEC”) on February 24, 2022 (the “2021 Annual Report”);

(iii) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 (the “First Quarter Form 10-Q”) filed with the SEC on May 10, 2021;

(iv) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (the “Second Quarter Form 10-Q” and, together with the First Quarter Form 10-Q, the “Quarterly Reports”) filed with the SEC on August 6, 2021;

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

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

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

and (iii) our current reports on Form 8-K filed in 2022.

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

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

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

A summary of key informational sections is as follows:

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

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

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

• “Industry Trends and Uncertainties” discusses updates and changes to a number of trends and uncertainties included in our 2021 Annual Report that we believe may materially affect our future financial condition, results of operations or cash flows, including from the COVID-19 pandemic.

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

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

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

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

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

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

Executive Summary

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

For operating purposes, we have established three segments:

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

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

We are organized into three segments:

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

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

See “Business — Segments and Corporate & Other” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview” included in our 2021 Annual Report, as well as Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information regarding our segments and Corporate & Other.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

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

$ 577 $ (921) $ 1,579 $ (663)

Provision for income tax expense (benefit) 81 78

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

For the three months ended September 30, 2021, we had net income available to shareholders of $361 million and adjusted earnings of $450 million compared to a net loss available to shareholders of $3.0 billion and an adjusted loss of $689 million for the three months ended September 30, 2020.

Net income available to shareholders for the three months ended September 30, 2021 primarily reflects favorable pre-tax adjusted earnings, partially offset by a net unfavorable impact from our annual actuarial review (“AAR”).

For the nine months ended September 30, 2021, we had a net loss available to shareholders of $239 million and adjusted earnings of $1.3 billion compared to a net loss available to shareholders of $60 million and an adjusted loss of $467 million for the nine months ended September 30, 2020.

Net loss available to shareholders for the nine months ended September 30, 2021 primarily reflects net unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to market factors, and a net unfavorable impact from our AAR.

Higher interest rates and favorable equity markets resulted in net unfavorable changes to the estimated fair value of embedded derivative liabilities associated with Shield Level Annuities (“Shield liabilities”) and the freestanding derivatives that hedge our variable annuity business.

GMLB Riders were also unfavorably impacted by the adjustment for nonperformance risk resulting from narrowing credit spreads.

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

These unfavorable impacts were partially offset by favorable pre-tax adjusted earnings.

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

Industry Trends

For the three months ended March 31, 2022, we had net income available to shareholders of $613 million and adjusted earnings of $294 million compared to a net loss available to shareholders of $610 million and adjusted earnings of $385 million for the three months ended March 31, 2021.

Net income available to shareholders for the three months ended March 31, 2022 primarily reflects net favorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to market factors and favorable pre-tax adjusted earnings.

Lower equity markets and higher interest rates resulted in net favorable changes to the estimated fair value of embedded derivative liabilities associated with Shield Level Annuities (“Shield liabilities”) and variable annuities.

These favorable impacts were partially offset by increasing long-term interest rates resulting in an unfavorable change in the estimated fair value of freestanding interest rate derivatives we use to hedge our universal life with secondary guarantees (“ULSG”) business.

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

Industry Trends and Uncertainties

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

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

At this time, it continues to not be possible to estimate the severity or duration of the pandemic, including the severity, duration and frequency of any additional “waves” of the pandemic or the efficacy of any therapeutic treatments and vaccines for COVID-19, including their efficacy with respect to variants of COVID-19 that have emerged or could emerge in the future.

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

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

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

See “Business — Regulation,” “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — COVID-19 Pandemic” included in our 2021 Annual Report, as well as “— Investments — Current Environment — Selected Sector Investments,” “— Investments — Mortgage Loans — Loan Modifications Related to the COVID-19 Pandemic” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

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

See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in our 2020 Annual Report, as amended or supplemented by our subsequent Quarterly Reports under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Regulatory Developments.”

See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in our 2021 Annual Report, as amended or supplemented by our subsequent Quarterly Reports under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — Regulatory Developments.”

Transition from LIBOR

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law, which provided a replacement framework for outstanding financial contracts tied to LIBOR once LIBOR ceases to be published.

The LIBOR Act is substantially similar to the law passed in New York in April 2021 that aimed at ensuring legal clarity for legacy contracts governed by New York law.

The LIBOR Act provides a statutory mechanism and safe harbor that applies on a nationwide basis to replace LIBOR with a benchmark rate, selected by the Federal Reserve Board based on a secured overnight funding rate, for certain contracts that reference LIBOR and contain no or insufficient fallback provisions.

The LIBOR Act preempts and supersedes any state or local law, statute, rule, regulation or standard relating to the selection or use of a benchmark replacement or related changes and allows parties that already have effective fallback provisions to opt out of the legislation.

See “Business — Regulation — Transition from LIBOR” and “Risk Factors — Economic Environment and Capital Markets-Related Risks — We are exposed to significant financial and capital markets risks which may adversely affect our financial condition, results of operations and liquidity, and may cause our net investment income and our profitability measures to vary from period to period — Changes to LIBOR” included in our 2021 Annual Report, as amended or supplemented herein.

Summary of Critical Accounting Estimates

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Non-GAAP and Other Financial Disclosures

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

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

Non-GAAP Financial Disclosures

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Component of Adjusted Earnings How Derived from GAAP (1)

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

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

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

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

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

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

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Similar to adjusted net investment income, we present net investment income yields as a performance measure we believe enhances the understanding of our investment portfolio results.

Net investment income yields are calculated on adjusted net investment income as a percent of average quarterly asset carrying values.

Net investment income yields are calculated on adjusted net investment income as a percentage of average quarterly asset carrying values.

Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.

Investment fee and expense yields are calculated as investment fees and expenses as a percentage of average quarterly asset estimated fair values.

Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.

Results of Operations

Annual Actuarial Review

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

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

This update had the largest impact on our ULSG business.

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

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

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

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

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

The following table presents the impact of the AAR on pre-tax adjusted earnings and income (loss) available to shareholders before provision for income tax for the nine months ended September 30, 2021 and 2020.

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

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

Nine Months Ended

September 30,

(In millions)

GMLBs $ (42) $ (1,431)

Included in pre-tax adjusted earnings:

Other annuity business 4 128

Life business 4 (11)

Run-off (113) (1,484)

Total included in pre-tax adjusted earnings (105) (1,367)

Total impact on income (loss) available to shareholders before provision for income tax $ (147) $ (2,798)

Consolidated Results for the Three Months and Nine Months Ended September 30, 2021 and 2020

Consolidated Results for the Three Months Ended March 31, 2022 and 2021

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

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

383 (2,995) (171) (29)

Preferred stock dividends 27 25

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

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

577 (921) 1,579 (663)

Income (loss) available to shareholders before provision for income tax 778 (795)

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$ 613 $ (610)

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

Income available to shareholders before provision for income tax was $466 million ($361 million, net of income tax), an increase of $4.3 billion ($3.4 billion, net of income tax) from a loss available to shareholders before provision for income tax of $3.9 billion ($3.0 billion, net of income tax) in the prior period.

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Income available to shareholders before provision for income tax was $778 million ($613 million, net of income tax), an increase of $1.6 billion ($1.2 billion, net of income tax) from a loss available to shareholders before provision for income tax of $795 million ($610 million, net of income tax) in the prior period.

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

• lower losses from GMLB Riders, see “— GMLB Riders for the Three Months and Nine Months Ended September 30, 2021 and 2020”;

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

• gains on other derivative instruments reflecting:

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

◦ a favorable impact from foreign currency swaps due to the U.S.

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

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 21% in the current period compared to 22% in the prior period.

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

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Loss available to shareholders before provision for income tax was $329 million ($239 million, net of income tax), a higher loss of $181 million ($179 million, net of income tax) from a loss available to shareholders before provision for income tax of $148 million ($60 million, net of income tax) in the prior period.

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

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

• higher losses from GMLB Riders, see “— GMLB Riders for the Three Months and Nine Months Ended September 30, 2021 and 2020.”

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

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

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

• gains from GMLB Riders, see “— GMLB Riders for the Three Months Ended March 31, 2022 and 2021”;

• the favorable impact of long-term benchmark interest rates on interest rate derivatives used to manage interest rate exposure in our ULSG business, as the long-term benchmark interest rate increased less in the current period than in the prior period.

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

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

• net investment losses reflecting current period net losses on sales of fixed maturity securities compared to prior period net gains, as well as net losses on limited partnerships and limited liability companies (“LLC”).

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 20% in the current period compared to 24% in the prior period.

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

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

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

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

Three Months Ended September 30, 2021

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders $ 242 $ 117 $ 72 $ (70) $ 361

Provision for income tax expense (benefit) 96 31 17 (39) 105

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

338 148 89 (109) 466

GMLB Riders (198) — — — (198)

Other derivative instruments 80 4 20 5 109

Net investment gains (losses) (17) 4 24 (27) (16)

Other adjustments (8) (1) 3 — (6)

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

481 141 42 (87) 577

Provision for income tax expense (benefit) 96 31 4 (4) 127

Adjusted earnings $ 385 $ 110 $ 38 $ (83) $ 450

Three Months Ended September 30, 2020

Annuities Life Run-off Corporate & Other Total

(In millions)

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

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

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

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

GMLB Riders (2,739) — — — (2,739)

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

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

Other adjustments (29) — (4) — (33)

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

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

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

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

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Annuities Life Run-off Corporate & Other Total

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Adjusted earnings $ 311 $ 26 $ 16 $ (59) $ 294

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Annuities Life Run-off Corporate & Other Total

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

Consolidated Results for the Three Months and Nine Months Ended September 30, 2021 and 2020 — Adjusted Earnings

Consolidated Results for the Three Months Ended March 31, 2022 and 2021 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

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

577 (921) 1,579 (663)

Provision for income tax expense (benefit) 81 78

Adjusted earnings $ 294 $ 385

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

Adjusted earnings were $450 million in the current period, an increase of $1.1 billion.

Key net favorable impacts were:

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

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

partially offset by

◦ an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion, primarily in our Life segment;

• lower amortization of DAC and VOBA due to:

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

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

• higher net investment spread reflecting:

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

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

◦ higher returns on real estate limited partnerships and limited liability companies (“LLC”);

partially offset by

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

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

• higher net fee income resulting from:

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

partially offset by

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

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Adjusted earnings were $294 million in the current period, a decrease of $91 million.

Key net unfavorable impacts were:

• higher other expenses due to:

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

◦ higher corporate spending related to distribution and operations;

◦ higher establishment costs.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 21% in the current period compared to 26% in the prior period.

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

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Adjusted earnings were $1.3 billion in the current period, an increase of $1.7 billion.

Key net favorable impacts were:

• higher net investment spread due to:

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

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

partially offset by

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

• lower fee income due to:

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

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

◦ higher ceded cost of insurance fees consistent with unfavorable equity market returns in our Life segment, which is offset in other expenses;

• higher costs associated with insurance-related activities due to higher paid claims, net of reinsurance, in our Annuities and Life segments;

• lower net investment spread due to:

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

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

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

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

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

partially offset by

◦ higher paid claims, net of reinsurance;

◦ an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion, primarily in our Life segment;

• lower amortization of DAC and VOBA due to:

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

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

• higher net fee income resulting from:

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

partially offset by

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

Key unfavorable impacts were:

• higher other expenses due to:

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

◦ higher corporate spending related to distribution and operations;

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

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

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

◦ higher returns on real estate limited partnerships and limited liability companies;

◦ lower interest credited to policyholders consistent with lower account balances in our Life segment.

Key favorable impacts were:

• lower other expenses due to:

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

◦ higher ceded cost of insurance expenses consistent with unfavorable equity market returns in our Life segment, which is offset in fee income;

◦ lower deferred compensation and operational expenses;

• lower amortization of DAC and VOBA due to an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion in our Life segment.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 20% in the current period compared to 16% in the prior period.

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

Segments and Corporate & Other Results for the Three Months and Nine Months Ended September 30, 2021 and 2020 — Adjusted Earnings

Segments and Corporate & Other Results for the Three Months Ended March 31, 2022 and 2021 — Adjusted Earnings

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

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

Variable annuities separate account balances decreased for the three months ended September 30, 2021, driven by negative net flows, policy charges and unfavorable investment performance.

For the nine months ended September 30, 2021, variable annuities separate account balances decreased driven by negative net flows and policy charges, partially offset by favorable investment performance.

Three Months Ended September 30, 2021 (1)

Nine Months Ended September 30, 2021 (1)

Variable annuities separate account balances decreased for the three months ended March 31, 2022, driven by unfavorable investment performance, negative net flows and policy charges.

Three Months Ended March 31, 2022 (1)

(In millions)

Balance, beginning of period $ 105,197

Deposits 549 1,604

Withdrawals, surrenders and benefits (2,494) (7,547)

Premiums and deposits 439

Withdrawals, surrenders and contract benefits (2,122)

Net flows (1,683)

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_______________

(1) Includes income annuities for which separate account balances at September 30, 2021 were $164 million.

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

(1) Includes income annuities for which separate account balances at March 31, 2022 were $161 million.

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Adjusted earnings were $311 million in the current period, a decrease of $25 million.

Key net unfavorable impacts were:

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

◦ an increase in guaranteed minimum death benefit (“GMDB”) liabilities, partially offset by a favorable adjustment to deferred sales inducements (“DSI”) resulting from changes in policyholder behavior assumptions made in connection with the AAR;

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

◦ higher volume and severity of guaranteed minimum death benefit (“GMDB”) claims;

◦ an increase in income annuity benefit payments;

◦ an increase in GMDB liabilities and DSI resulting from less favorable equity market performance;

• higher other expenses due to:

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

◦ higher corporate spending related to distribution and operations;

• lower net investment spread due to:

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

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

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

• higher net amortization of DAC and VOBA due to:

◦ the impact on future gross profits from lower separate account returns and unfavorable equity market performance;

partially offset by

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

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

◦ higher returns on real estate limited partnerships and LLCs.

◦ an adjustment in the current period related to modeling improvements resulting from changes in in-force;

Key favorable impacts were:

• lower amortization of DAC and VOBA due to:

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

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

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

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

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

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Adjusted earnings were $1.1 billion in the current period, an increase of $185 million.

Key net favorable impacts were:

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

• lower amortization of DAC and VOBA due to:

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

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

• higher net investment spread due to:

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

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

◦ higher returns on real estate limited partnerships and LLCs;

partially offset by

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

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

Key unfavorable impacts were:

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

◦ an increase in GMDB liabilities, partially offset by a favorable adjustment to DSI resulting from changes in policyholder behavior assumptions made in connection with the AAR;

partially offset by

◦ a decrease in income annuity benefit payments;

◦ a decrease in GMDB liabilities and DSI resulting from less favorable equity market performance;

• higher other expenses due to:

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

◦ higher distribution and deferred compensation expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 19% in both the current and prior periods.

• lower other expenses due to:

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

◦ lower deferred compensation expenses.

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

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

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

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Adjusted earnings $ 26 $ 42

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

Adjusted earnings were $110 million in the current period, an increase of $34 million.

Key net favorable impacts were:

• lower amortization of DAC and VOBA due to:

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

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

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

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Adjusted earnings were $26 million in the current period, a decrease of $16 million.

Key unfavorable impacts were:

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

• lower fee income due to:

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

◦ higher paid claims, net of reinsurance;

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 22% in the current period compared to 19% in the prior period.

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

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Adjusted earnings were $220 million in the current period, an increase of $85 million.

◦ higher ceded cost of insurance fees consistent with unfavorable equity market returns, which is offset in other expenses;

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

Key net favorable impacts were:

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

• lower other expenses due to:

◦ higher ceded cost of insurance expenses consistent with unfavorable equity market returns, which is offset in fee income;

◦ lower deferred compensation and operational expenses;

◦ higher net investment spread due to:

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

partially offset by

• lower amortization of DAC and VOBA due to:

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

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

Key net unfavorable impacts were:

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

◦ higher paid claims, net of reinsurance;

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

• lower net fee income due to:

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

◦ lower interest credited to policyholders consistent with lower account balances;

partially offset by

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 21% in the current period compared to 19% in the prior period.

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 19% in both the current and prior periods.

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

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

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Adjusted earnings $ 16 $ 76

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

Adjusted earnings were $38 million in the current period, an increase of $1.2 billion.

Key favorable impacts were:

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

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 10% in the current period compared to 21% in the prior period.

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

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Adjusted earnings were $236 million in the current period, an increase of $1.6 billion.

Key favorable impacts were:

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

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Adjusted earnings were $16 million in the current period, a decrease of $60 million.

The decrease in adjusted earnings was driven by lower net investment spread due to lower returns on other limited partnerships for the comparative measurement period and lower investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 20% in the current period compared to 11% in the prior period.

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

6 unchanged sentences

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

(87) (51) (278) (224)

Provision for income tax expense (benefit) (1) (19)

Adjusted earnings $ (59) $ (69)

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

Adjusted earnings were a loss of $83 million in the current period, a higher loss of $70 million.

Key net unfavorable impacts were:

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

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

• higher other expenses due to:

◦ higher establishment and advertising costs;

partially offset by

◦ an adjustment in the current period to underwriting fees associated with funding agreements issued in connection with our institutional spread margin business;

• higher preferred stock dividends due to a new issuance during the fourth quarter of 2020.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 6% in the current period compared to 119% in the prior period.

Our effective tax rate differs from the statutory tax rate

primarily due to the impacts of the dividends received deduction and tax credits.

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

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Adjusted earnings were a loss of $245 million in the current period, a higher loss of $93 million.

Key unfavorable impacts were:

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

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

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

The decrease in adjusted earnings was partially offset by lower other expenses due to lower interest expense and legal reserves.

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Adjusted earnings were a loss of $59 million in the current period, a lower loss of $10 million.

The lower loss in adjusted earnings was driven by higher net investment spread due to higher average invested long-term assets from funding agreements issued in connection with our institutional spread margin business.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 3% in the current period compared to 31% in the prior period.

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GMLB Riders for the Three Months and Nine Months Ended September 30, 2021 and 2020

GMLB Riders for the Three Months Ended March 31, 2022 and 2021

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

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__________________

(1) Excludes living benefit fees, included as a component of adjusted earnings, of $16 million and $45 million for the three months and nine months ended September 30, 2021, respectively, and $15 million and $44 million for the three months and nine months ended September 30, 2020, respectively.

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

Comparative results from GMLB Riders were favorable by $2.5 billion.

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

Results were also driven by:

• favorable changes in our GMLB hedges;

(1) Excludes living benefit fees, included as a component of adjusted earnings, of $14 million for both the three months ended March 31, 2022 and 2021.

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Comparative results from GMLB Riders were favorable by $1.2 billion, primarily driven by:

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

partially offset by

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

• unfavorable changes in GMLB DAC.

Less favorable equity markets resulted in the following impacts:

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

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

partially offset by

1 unchanged sentence

• unfavorable changes to GMLB DAC.

Interest rates increasing less in the current period resulted in the following impacts:

Lower equity markets resulted in the following impacts:

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

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

• favorable changes to GMLB DAC;

partially offset by

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

The narrowing of our credit spreads in the prior period resulted in a favorable change in the adjustment for nonperformance risk, net of an unfavorable change in GMLB DAC.

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Comparative results from GMLB Riders were unfavorable by $651 million.

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

Results were also driven by:

• unfavorable changes in our GMLB hedges;

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

• unfavorable changes in ceded reinsurance;

partially offset by

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

• favorable changes in GMLB DAC.

Higher equity markets resulted in the following impacts:

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

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

• unfavorable changes in ceded reinsurance;

partially offset by

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

• favorable changes to GMLB DAC.

Interest rates increasing in the current period resulted in the following impacts:

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

• unfavorable changes to GMLB DAC.

• unfavorable changes in ceded reinsurance;

Higher interest rates resulted in the following impacts:

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

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

partially offset by

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

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

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

• favorable changes to GMLB DAC.

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

Investment Risks

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In addition, the investment process is designed to ensure that the portfolio has an appropriate level of liquidity, quality and diversification.

We are exposed to the following primary sources of investment risks, which may be heightened or exacerbated by the factors discussed in “— Industry Trends — COVID-19 Pandemic”:

We are exposed to the following primary sources of investment risks, which may be heightened or exacerbated by the factors discussed in “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity” in our 2021 Annual Report and “— Industry Trends and Uncertainties — COVID-19 Pandemic”:

• credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest, which will likely result in a higher allowance for credit losses and write-offs for uncollectible balances for certain investments;

1 unchanged sentence

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

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

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

12 unchanged sentences

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

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

These strategies include maintaining an investment portfolio that targets a weighted average duration that reflects the duration of our estimated

liability cash flow profile.

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

4 unchanged sentences

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

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — Financial and Economic Environment” included in our 2020 Annual Report.

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

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

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

The Federal Reserve may increase or decrease the federal funds rate in the future, which, in addition to impacting product sales, may have an impact on the valuation of risk-bearing investments.

On March 16, 2022, the Federal Reserve increased the target range for the federal funds rate from between 0% and 0.25% to between 0.25% and 0.50%, which contributed to a decrease in the net unrealized gains in our investment portfolio.

On May 4, 2022, the Federal Reserve further increased the target range for the federal funds rate to between 0.75% and 1.00%.

We are also affected by the monetary policy of central banks around the world due to the diversification of our investment portfolio.

Selected Sector Investments

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

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

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

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

Contributing factors include concerns about energy and oil prices, inflation, geopolitical events, ongoing military actions and the COVID-19 pandemic.

economy generally persist or are perceived to persist, they may materially adversely affect our business and results of operations,” and “Risk Factors — Investments-Related Risks — Ongoing military actions, the continued threat of terrorism, climate change as well as other catastrophic events may adversely affect the value of our investment portfolio and the level of claim losses we incur” included in our 2021 Annual Report.

During the three months ended March 31, 2022, we sold positions with direct exposure to Russia with an amortized cost of $99 million and recorded a net investment realized loss of $8 million.

At March 31, 2022, we did not have any direct exposure to Russia or Ukraine.

There has been an increased market focus on energy sector investments as a result of energy and oil price volatility due to, among other factors, ongoing geopolitical events.

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

Our exposure to energy sector fixed maturity securities was $3.3 billion, of which 89% were investment grade, with net unrealized gains (losses) of $318 million at September 30, 2021.

Our exposure to energy sector fixed maturity securities was $3.0 billion, with net unrealized gains (losses) of $36 million.

Of the $3.0 billion exposure to energy sector fixed maturity securities, 89% were investment grade at March 31, 2022.

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

Our exposure to retail sector corporate fixed maturity securities was $1.9 billion, of which 95% were investment grade, with net unrealized gains (losses) of $187 million at September 30, 2021.

Our exposure to retail sector corporate fixed maturity securities was $1.7 billion, with net unrealized gains (losses) of $8 million.

Of the $1.7 billion exposure to retail sector corporate fixed maturity securities, 92% were investment grade at March 31, 2022.

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

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

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

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

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

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

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

Yield % Amount Yield % Amount

(Dollars in millions)

3 unchanged sentences

_______________

(1) Investment income yields are calculated as investment income as a percent of average quarterly asset carrying values.

(1) Investment income yields are calculated as investment income as a percentage of average quarterly asset carrying values.

Investment income excludes recognized gains and losses and reflects the adjustments presented in footnote 3 below to arrive at adjusted net investment income.

(2) Investment fee and expense yields are calculated as investment fees and expenses as a percent of average quarterly asset estimated fair values.

(2) Investment fee and expense yields are calculated as investment fees and expenses as a percentage of average quarterly asset estimated fair values.

Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In millions)

2 unchanged sentences

Adjusted net investment income — in the above yield table $ 1,157 $ 1,192

See “— Results of Operations — Consolidated Results for the Three Months and Nine Months Ended September 30, 2021 and 2020 for an analysis of the period over period changes in net investment income.

See “— Results of Operations — Consolidated Results for the Three Months Ended March 31, 2022 and 2021 for an analysis of the period over period changes in net investment income.

Fixed Maturity Securities Available-for-sale

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Fair Value % of

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Fixed Maturity Securities Credit Quality — Ratings

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity Securities AFS — Fixed Maturity Securities Credit Quality — Ratings” included in our 2020 Annual Report for a discussion of the credit quality ratings assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the National Association of Insurance Commissioners (“NAIC”) for fixed maturity securities and the methodologies adopted by the NAIC for certain Structured Securities.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity Securities Available-for-sale — Fixed Maturity Securities Credit Quality — Ratings” included in our 2021 Annual Report for a discussion of the credit quality ratings assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the National Association of Insurance Commissioners (“NAIC”) for fixed maturity securities and the methodologies adopted by the NAIC for certain Structured Securities.

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Designation NRSRO Rating Amortized

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(In millions)

September 30, 2021

March 31, 2022

corporate $ 16,147 $ 16,799 $ 2,145 $ 869 $ 58 $ — $ 36,018

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

Our portfolio does not have any exposure to any single issuer in excess of 1% of total investments and the top ten holdings in aggregate comprise 2% of total investments at both September 30, 2021 and December 31, 2020.

Our portfolio does not have any exposure to any single issuer in excess of 1% of total investments and the top ten holdings in aggregate comprise 2% of total investments at both March 31, 2022 and December 31, 2021.

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Fair Value % of

3 unchanged sentences

Industrial $ 14,873 31.6 % $ 16,131 31.8 %

Consumer 11,495 22.8 11,535 23.3

Finance 11,898 25.3 12,430 24.4

Consumer 10,708 22.8 11,650 22.9

Utility 6,425 13.6 7,146 14.1

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Structured Securities

We held $20.5 billion and $18.0 billion of Structured Securities, at estimated fair value, at September 30, 2021 and December 31, 2020, respectively, as presented in the RMBS, CMBS and ABS sections below.

We held $20.2 billion and $20.8 billion of Structured Securities, at estimated fair value, at March 31, 2022 and December 31, 2021, respectively, as presented in the RMBS, CMBS and ABS sections below.

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Fair Value % of

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Security type:

Collateralized mortgage obligations $ 4,677 49.1 % $ 393 $ 4,852 58.5 % $ 484

Pass-through securities $ 4,330 49.6 % $ (224) $ 4,688 50.6 % $ 29

Collateralized mortgage obligations 4,397 50.4 130 4,571 49.4 352

Total RMBS $ 8,727 100.0 % $ (94) $ 9,259 100.0 % $ 381

12 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

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Total $ 7,109 $ 6,976 $ 6,976 $ 7,282

The estimated fair value of CMBS rated Aaa using rating agency ratings was $5.0 billion, or 69.9% of total CMBS, and designated NAIC 1 was $6.7 billion, or 94.2% of total CMBS, at September 30, 2021.

The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.8 billion, or 68.5% of total CMBS, and designated NAIC 1 was $6.6 billion, or 94.6% of total CMBS, at March 31, 2022.

The estimated fair value of CMBS Aaa rating agency ratings was $5.0 billion, or 69.1% of total CMBS, and designated NAIC 1 was $6.9 billion, or 94.5% of total CMBS at December 31, 2021.

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Fair Value % of

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Collateralized obligations $ 2,784 61.7 % $ (38) $ 2,659 62.1 % $ (1)

Consumer loans 286 7.3 4 250 8.7 6

Student loans 371 8.2 (7) 384 9.0 6

Consumer loans 390 8.7 (16) 342 8.0 —

Automobile loans 138 3.1 (3) 151 3.5 2

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Amortized Cost % of

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located in the U.S.

were 97% and 96% at September 30, 2021 and December 31, 2020, respectively.

were 97% at both March 31, 2022 and December 31, 2021.

The remainder was collateralized by properties located outside of the U.S.

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

was as follows at:

September 30, 2021

California 21%

At March 31, 2022, the carrying value as a percentage of total commercial and agricultural mortgage loans for the top three states in the U.S.

was 19% for California, 10% for New York and 10% for Texas.

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

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

at both September 30, 2021 and December 31, 2020.

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

was as follows at:

September 30, 2021

California 33%

at both March 31, 2022 and December 31, 2021.

At March 31, 2022, the carrying value as a percentage of total residential mortgage loans for the top three states in the U.S.

was 38% for California, 10% for Florida and 7% for New York.

Commercial Mortgage Loans by Geographic Region and Property Type .

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Total Amount % of

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Property type:

Office $ 3,616 32.4 % $ 3,788 39.0 %

Apartment $ 4,762 36.3 % $ 3,895 32.0 %

Retail 1,951 17.5 2,068 21.3

Office 3,590 27.4 3,566 29.3

Industrial 1,923 14.7 1,847 15.1

Retail 1,854 14.1 1,863 15.3

Hotel 990 7.5 1,016 8.3

Other 26 0.2 30 0.3

Total recorded investment 13,119 100.0 % 12,187 100.0 %

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The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher loan-to-value ratios and lower debt-service coverage ratios.

The monitoring process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher loan-to-value ratios, including reviews on a geographic and sector basis.

The monitoring process for agricultural

mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher loan-to-value ratios, including reviews on a geographic and sector basis.

Our residential mortgage loans are reviewed on an ongoing basis.

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

For our commercial mortgage loans, our average loan-to-value ratio was 59% and 57% at September 30, 2021 and December 31, 2020, respectively, and our average debt-service coverage ratio was 2.3x at both September 30, 2021 and December 31, 2020.

For our commercial mortgage loans, our average loan-to-value ratio was 58% at both March 31, 2022 and December 31, 2021, and our average debt-service coverage ratio was 2.2x at both March 31, 2022 and December 31, 2021.

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

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

For our agricultural mortgage loans, our average loan-to-value ratio was 48% at both September 30, 2021 and December 31, 2020.

For our agricultural mortgage loans, our average loan-to-value ratio was 49% and 46% at March 31, 2022 and December 31, 2021, respectively.

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

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

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

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

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

At September 30, 2021, the recorded investment on mortgage loans where borrowers were offered debt-service forbearance and were not making payments was $128 million, comprised of $53 million of commercial mortgage loans, $37 million of agricultural mortgage loans and $38 million of residential mortgage loans.

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

At March 31, 2022, the recorded investment on mortgage loans where borrowers were offered debt-service forbearance and were not making payments was $36 million, comprised of $25 million of agricultural mortgage loans and $11 million of residential mortgage loans.

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

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

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Mortgage Loan Allowance for Credit Losses .

See Notes 4 and 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how the allowance for credit losses is established and monitored, as well as activity in and balances of the allowance for credit losses for the nine months ended September 30, 2021 and 2020.

Limited Partnerships and Limited Liability Companies

The carrying values of our limited partnerships and LLCs were as follows at:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(In millions)

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__________________

(1) The estimated fair value of real estate limited partnerships and LLCs was $559 million and $501 million at September 30, 2021 and December 31, 2020, respectively.

(1) The estimated fair value of real estate limited partnerships and LLCs was $716 million and $595 million at March 31, 2022 and December 31, 2021, respectively.

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

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Total Carrying

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FHLB Stock 89 3.5 70 2.1

Tax credit renewable energy partnerships 57 2.1 64 1.7

Tax credit and renewable energy partnerships 58 2.3 59 1.8

Leveraged leases, net of non-recourse debt 49 1.9 49 1.5

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

• Information about the gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge designation, excluding embedded derivatives held at September 30, 2021 and December 31, 2020.

• The statement of operations effects of derivatives in cash flow, fair value or non-qualifying hedge relationships for the three months and nine months ended September 30, 2021 and 2020.

• The statement of operations effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships for the three months ended March 31, 2022 and 2021.

See “Business — Segments and Corporate & Other — Annuities,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies — ULSG Market Risk Exposure Management” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Annual Actuarial Review” included in our 2021 Annual Report for more information about our use of derivatives by major hedging programs.

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

Derivatives categorized as Level 3 at September 30, 2021 include:

Derivatives categorized as Level 3 at March 31, 2022 include:

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

certain equity options and equity variance swaps with unobservable volatility inputs and foreign currency swaps with certain unobservable inputs.

equity variance swaps with unobservable volatility inputs;

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

See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.

Credit Derivatives

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Gross Notional

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

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

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

Embedded Derivatives

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

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

Off-Balance Sheet Arrangements

Collateral for Securities Lending and Derivatives

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

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

The Company did not hold any non-cash collateral at either September 30, 2021 or December 31, 2020.

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

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

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

The amount of this non-cash collateral was $475 million and $898 million at September 30, 2021 and December 31, 2020, respectively.

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

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

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

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

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

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

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

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

For further information on commitments to fund partnership investments, mortgage loans, bank credit facilities and private corporate bond investments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Contractual Obligations” included in our 2020 Annual Report.

Policyholder Liabilities

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

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

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

For more details on policyholder liabilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in our 2020 Annual Report.

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

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” included in our 2021 Annual Report for more details on policyholder liabilities.

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

Future Policy Benefits

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

See Note 3 of the Notes to the Consolidated Financial Statements included in our 2020 Annual Report.

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

A discussion of policyholder account balances by segment, as well as Corporate & Other, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in our 2021 Annual Report.

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Variable Annuity Guarantees

We issue certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (i.e., the Benefit Base) less withdrawals.

We issue 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.

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

See also “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates” and “Business — Segments and Corporate & Other — Annuities — Overview — Current Products — Variable Annuities” included in our 2020 Annual Report for additional information.

See also “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates” and “Business — Segments and Corporate & Other — Annuities — Products — Variable Annuities” included in our 2021 Annual Report for additional information.

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

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

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

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

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

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

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

For contracts where the GMWB4L provides for a guaranteed cumulative dollar amount of payments, the NAR is based on the purchase of a lifetime with period certain income stream where the period certain ensures payment of this cumulative dollar amount.

The NAR represents our potential economic exposure to such guarantees in the event all contract holders were to begin lifetime withdrawals on the balance sheet date regardless of age.

The NAR for the guaranteed minimum withdrawal benefits (“GMWB”) is the amount of guaranteed benefits in excess of the account values (if any) as of the balance sheet date and assumes utilization of benefits by all contract holders as of the balance sheet date.

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

The NAR for the guaranteed minimum accumulation benefits (“GMAB”) is the amount of guaranteed benefits in excess of the account values (if any) as of the balance sheet date and assumes utilization of benefits by all contract holders as of the balance sheet.

The NAR for the GMAB is not available until the GMAB maturity date

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

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

A detailed description of NAR by type of guaranteed minimum benefit can be found in “Business — Segments and Corporate & Other — Annuities — Overview — Net Amount at Risk” included in our 2020 Annual Report.

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

September 30, 2021 (1)

Our variable annuity account value and NAR by type of GMxB were as follows at:

March 31, 2022 (1)

December 31, 2021 (1)

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GMIB Max without EDB 5,663 56 50 10.0 % 6,289 3 29 4.8 %

GMAB 739 1 1 2.7 % 723 1 1 0.2 %

GMWB 23,459 429 852 32.0 % 25,322 139 680 23.2 %

GMWB4L 14,721 113 694 31.3 % 15,165 80 718 27.5 %

GMWB4L (FlexChoice SM )

7,149 14 211 37.6 % 5,823 3 145 30.0 %

EDB Only 3,890 590 — N/A 3,908 556 — N/A

GMAB 674 3 4 11.6 % 750 1 1 0.6 %

GMDB only (other than EDB) 18,727 1,086 — N/A 20,233 935 — N/A

EDB only 3,612 831 — N/A 3,928 548 — N/A

Total $ 100,728 $ 9,266 $ 6,595 $ 109,968 $ 6,361 $ 5,921

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(3) EDB is defined as enhanced death benefits.

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

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

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

Therefore, these liabilities, valued at $6.2 billion at September 30, 2021, are less sensitive than derivative instruments to periodic changes to equity and fixed income market returns and the level of interest rates.

Guarantees accounted for as insurance liabilities in future policy benefits include GMDBs, the life contingent portion of GMWBs and the portion of the GMIBs that require annuitization, as well as the life contingent portion of the expected annuitization when the policyholder is required to annuitize upon depletion of their account value.

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

These liabilities, valued at $2.2 billion at September 30, 2021, are accounted for at estimated fair value.

Therefore, these liabilities, valued at $6.3 billion at March 31, 2022, are less sensitive than derivative instruments to periodic changes to equity and fixed income market returns and the level of interest rates.

Guarantees accounted for as insurance liabilities in future policy benefits include GMDBs, the life contingent portion of GMWBs and the portion of GMIBs that require annuitization, as well as the life contingent portion of the expected annuitization when the policyholder is required to annuitize upon depletion of their account value.

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

These liabilities, valued at $1.4 billion at March 31, 2022, are accounted for at estimated fair value.

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

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

These liabilities, valued at $5.1 billion at September 30, 2021, are accounted for at estimated fair value.

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

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

September 30, 2021 December 31, 2020

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

These liabilities, valued at $5.2 billion at March 31, 2022, are accounted for at estimated fair value.

Our variable annuity reserves by type of GMxB were as follows at:

March 31, 2022 December 31, 2021

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

(In millions)

GMDB $ 1,523 $ — $ 1,523 $ 1,355 $ — $ 1,355

GMIB $ 3,402 $ 1,516 $ 4,918 $ 3,374 $ 1,787 $ 5,161

GMIB Max 996 (65) 931 967 (36) 931

GMAB — (1) (1) — 1 1

GMWB 309 (55) 254 327 97 424

GMWB4L 314 117 431 291 218 509

GMWB4L (FlexChoice SM )

— (6) (6) — 5 5

GMAB — (11) (11) — — —

GMDB 1,604 — 1,604 1,535 — 1,535

Total $ 6,311 $ 1,385 $ 7,696 $ 6,203 $ 1,848 $ 8,051

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

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(2) Hybrid options have equity exposure in addition to interest rate exposure.

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

September 30, 2021 December 31, 2020

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

March 31, 2022 December 31, 2021

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

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

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

For further information regarding market factors that could affect our ability to meet liquidity and capital needs, including those related to the COVID-19 pandemic, see “— Industry Trends and Uncertainties — COVID-19 Pandemic” and “— Investments — Current Environment,” herein, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment” included in our 2021 Annual Report.

Liquidity and Capital Management

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

We maintain a substantial short-term liquidity position, which was $3.8 billion and $4.5 billion at September 30, 2021 and December 31, 2020, respectively.

We maintain a substantial short-term liquidity position, which was $3.6 billion and $3.8 billion at March 31, 2022 and December 31, 2021, respectively.

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

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

An integral part of our liquidity management includes managing our level of liquid assets, which was $55.2 billion and $52.0 billion at September 30, 2021 and December 31, 2020, respectively.

An integral part of our liquidity management includes managing our level of liquid assets, which was $50.0 billion and $54.9 billion at March 31, 2022 and December 31, 2021, respectively.

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

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

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

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

Best, Fitch, Moody’s and S&P.

As such, we may opportunistically look to pursue additional financing over time, which may include borrowings under credit facilities, the issuance of debt, equity or hybrid

securities, the incurrence of term loans, or the refinancing of existing indebtedness.

As such, we may opportunistically look to pursue additional financing over time, which may include borrowings under credit facilities, the issuance of debt,

equity or hybrid securities, the incurrence of term loans, or the refinancing of existing indebtedness.

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

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

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

While total assets supporting our variable annuity capital may exceed the CTE98 level, under stressed conditions, we intend to allow such assets supporting our variable annuity contracts to range between a target floor level of CTE95 (the average of the worst five percent of a set of capital markets scenarios over the life of the contracts) and CTE98.

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

Repurchases under the August 2, 2021 authorization may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements.

We have a share repurchase program under which repurchases may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements.

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

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

Rating Agencies

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

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

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

life insurance industry to negative.

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

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

Sources and Uses of Liquidity and Capital

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

Nine Months Ended

September 30,

Three Months Ended

(In millions)

Operating activities, net $ 644 $ 515

Changes in policyholder account balances, net 2,613 1,360

Changes in payables for collateral under securities loaned and other transactions, net 387 2,598

Long-term debt issued — 614

Preferred stock issued, net of issuance costs — 390

Total sources 2,613 1,360

Operating activities, net 163 104

Investing activities, net 2,519 200

Changes in payables for collateral under securities loaned and other transactions, net 60 971

Long-term debt repaid 1 —

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From time to time, Brighthouse Life Insurance Company issues funding agreements and uses the proceeds from such issuances for spread lending purposes in connection with our institutional spread margin business or to provide additional liquidity.

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

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

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

See Note 3 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report for additional information on funding agreements.

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Federal Home Loan Bank Funding Agreements

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

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

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

Farmer Mac Funding Agreements

Brighthouse Life Insurance Company has a funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”) with a term ending on December 31, 2023, pursuant to which the parties may enter into funding agreements in an aggregate amount of up to $500 million either (i) for spread lending purposes or (ii) to provide additional liquidity.

Brighthouse Life Insurance Company has a secured funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”) with a term ending on December 31, 2023, pursuant to which the parties may enter into funding agreements in an aggregate amount of up to $500 million either (i) for spread lending purposes or (ii) to provide additional liquidity.

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

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Outstanding Issuances Repayments

Nine Months Ended September 30,

September 30, 2021 December 31, 2020 2021 2020 2021 2020

Three Months Ended March 31,

March 31, 2022 December 31, 2021 2022 2021 2022 2021

(In millions)

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Total $ 7,068 $ 5,773 $ 4,358 $ — $ 3,063 $ —

__________________

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

Debt Issuances

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Credit and Committed Facilities

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

See Notes 9 and 10 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report for information regarding our credit and committed facilities.

See Note 11 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information regarding our entry into a new revolving credit facility.

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

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

Outstanding Long-term Debt

Our outstanding long-term debt was as follows at:

September 30, 2021 December 31, 2020

(In millions)

Senior notes $ 3,043 $ 3,042

Junior subordinated debentures 363 363

Other long-term debt (1) 30 31

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

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

(2) Includes unamortized debt issuance costs, discounts and premiums, as applicable, totaling net $34 million and $35 million at September 30, 2021 and December 31, 2020, respectively, for senior notes and junior subordinated debentures on a combined basis.

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

Debt and Facility Covenants

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

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

At September 30, 2021, we were in compliance with these financial covenants.

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

At March 31, 2022, we were in compliance with these financial covenants.

Primary Uses of Liquidity and Capital

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Common Stock Repurchases

See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements for information relating to authorizations to repurchase BHF common stock, amounts of common stock repurchased pursuant to such authorizations and the amount remaining under such authorizations at September 30, 2021.

Subsequent to September 30, 2021 and through November 2, 2021, BHF repurchased an additional 1,151,195 shares of its common stock through open market purchases, pursuant to a 10b5-1 plan, for $57 million.

Subsequent to March 31, 2022 and through May 5, 2022, BHF repurchased an additional 921,964 shares of its common stock through open market purchases, pursuant to a 10b5-1 plan, for $48 million.

Preferred Stock Dividends

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

Debt Repayments

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

Debt Repurchases, Redemptions and Exchanges

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

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

Debt Repayments, Repurchases, Redemptions and Exchanges

See Note 9 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report for information on debt repayments and repurchases, as well as debt maturities and the terms of our outstanding long-term debt.

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

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

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

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

Insurance Liabilities

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

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

During the nine months ended September 30, 2021 and 2020, general account surrenders and withdrawals totaled $2.2 billion and $1.5 billion, respectively, of which $1.8 billion and $1.5 billion, respectively, was attributable to products within the Annuities segment.

During the three months ended March 31, 2022 and 2021, general account surrenders and withdrawals, including repayments of funding agreements in connection with our institutional spread margin business, totaled $3.9 billion and $712 million, respectively.

See “— Primary Sources of Liquidity and Capital — Funding Sources — Funding Agreements” for additional information regarding our institutional spread margin business.

Pledged Collateral

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

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

At both September 30, 2021 and December 31, 2020, we did not pledge any cash collateral to counterparties.

At September 30, 2021 and December 31, 2020, we were obligated to return cash collateral pledged to us by counterparties of $1.1 billion and $1.6 billion, respectively.

At both March 31, 2022 and December 31, 2021, we did not pledge any cash collateral to counterparties.

At March 31, 2022 and December 31, 2021, we were obligated to return cash collateral pledged to us by counterparties of $1.0 billion and $1.7 billion, respectively.

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

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

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

The amount of this non-cash collateral at estimated fair value was $632 million and $593 million at March 31, 2022 and December 31, 2021, respectively.

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

Securities Lending

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

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

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

Under our securities lending program, we were liable for cash collateral under our control of $4.5 billion and $3.7 billion at September 30, 2021 and December 31, 2020, respectively.

Of these amounts, $1.6 billion and $937 million at September 30, 2021 and December 31, 2020, respectively, were on open, meaning that the related loaned security could be returned to us on the next business day requiring the immediate return of cash collateral we hold.

The estimated fair value of the securities on loan related to the cash collateral on open at September 30, 2021 was $1.6 billion, primarily comprised of U.S.

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

See Note 4 of the Notes to the Interim Condensed

Consolidated Financial Statements.

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

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

See Note 10 of the Notes to the Interim Condensed Consolidated Financial Statements.

Under our securities lending program, we were liable for cash collateral under our control of $5.2 billion and $4.6 billion at March 31, 2022 and December 31, 2021, respectively.

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

We did not hold any non-cash collateral at March 31, 2022.

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

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for further discussion of our securities lending program.

Contingencies, Commitments and Guarantees

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

See Note 10 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information regarding contingencies.

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

See Notes 4 and 10 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information regarding commitments.

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

See Note 10 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information regarding guarantees.

The Parent Company

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Short-term Liquidity and Liquid Assets

At September 30, 2021 and December 31, 2020, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.5 billion and $1.6 billion, respectively.

At March 31, 2022 and December 31, 2021, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.4 billion and $1.6 billion, respectively.

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

Assets pledged or otherwise committed include assets held in trust.

At September 30, 2021 and December 31, 2020, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.5 billion and $1.7 billion, respectively, of which $1.5 billion and $1.6 billion was held by BHF.

At March 31, 2022 and December 31, 2021, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.4 billion and $1.6 billion, respectively, of which $1.4 billion and $1.5 billion was held by BHF.

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

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Distributions from and Capital Contributions to BH Holdings

During the nine months ended September 30, 2021 and 2020, BHF received cash distributions of $310 million and $988 million, respectively, from BH Holdings.

During both the nine months ended September 30, 2021 and 2020, BHF did not make any cash capital contributions to BH Holdings.

Distributions received in 2021 and 2020 primarily relate to $250 million and $800 million, respectively, of ordinary cash dividends paid by Brighthouse Life Insurance Company to BH Holdings.

On November 2, 2021, New England Life Insurance Company declared a $44 million ordinary cash dividend payable to Brighthouse Holdings.

Such dividend has not been paid as of November 5, 2021.

During both the three months ended March 31, 2022 and 2021, BHF did not receive any cash distributions from BH Holdings and did not make any cash capital contributions to BH Holdings.

Short-term Intercompany Loans

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

During the nine months ended September 30, 2021 and 2020, BHF borrowed $547 million and $454 million, respectively, from certain of its non-insurance subsidiaries and repaid $614 million and $415 million of such borrowings during the nine months ended September 30, 2021 and 2020, respectively.

At September 30, 2021 and December 31, 2020, BHF had total obligations outstanding of $386 million and $453 million, respectively, under such agreements.

During the three months ended March 31, 2022 and 2021, BHF borrowed $252 million and $196 million, respectively, from certain of its non-insurance subsidiaries and repaid $228 million and $200 million of such borrowings during the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022 and December 31, 2021, BHF had total obligations outstanding of $736 million and $712 million, respectively, under such agreements.

Intercompany Liquidity Facilities

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

During both the nine months ended September 30, 2021 and 2020, there were no borrowings or repayments by BHF under these facilities and, at both September 30, 2021 and December 31, 2020, BHF had no obligations outstanding under such facilities.

During both the three months ended March 31, 2022 and 2021, there were no borrowings or repayments by BHF under these facilities and, at both March 31, 2022 and December 31, 2021, BHF had no obligations outstanding under such facilities.

Note Regarding Forward-Looking Statements

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other oral or written statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

This report and other oral or written statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve substantial risks and uncertainties.

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They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties.

Many such factors will be important in determining the actual future results of Brighthouse.

Many such factors will be important in determining the actual future results of Brighthouse Financial.

These statements are based on current expectations and the current economic environment and involve a number of risks and uncertainties that are difficult to predict.

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

• the impact of the COVID-19 pandemic;

• the impact of the ongoing COVID-19 pandemic;

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

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

• the risks associated with climate change;

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

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

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

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

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

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

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

• whether all or any portion of the tax consequences of our separation from MetLife, Inc.

(together with its subsidiaries and affiliates, “MetLife”) are not as expected, leading to material additional taxes or material adverse consequences to tax attributes that impact us;

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis