What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-10 · 327 added, 143 removed, 974 unchanged (33% of the section changed)

14 unchanged sentences

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

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

(iii) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (the “First Quarter Form 10-Q”) filed with the SEC on May 10, 2022;

and (iv) 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.

18 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

4 unchanged sentences

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

$ 5 $ 539 $ 380 $ 1,002

Provision for income tax expense (benefit) (19) 104 62 182

2 unchanged sentences

(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 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.

For the three months ended June 30, 2022, we had net income available to shareholders of $957 million and adjusted earnings of $24 million compared to net income available to shareholders of $10 million and adjusted earnings of $435 million for the three months ended June 30, 2021.

Net income available to shareholders for the three months ended June 30, 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.

Lower equity markets resulted in favorable changes to the estimated fair value of embedded derivative liabilities associated with Shield Level Annuities (“Shield liabilities”).

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.

For the six months ended June 30, 2022, we had net income available to shareholders of $1.6 billion and adjusted earnings of $318 million compared to a net loss available to shareholders of $600 million and adjusted earnings of $820 million for the six months ended June 30, 2021.

Net income available to shareholders for the six months ended June 30, 2022 primarily reflects net favorable changes in the estimated fair value of our GMLB Riders due to market factors and favorable pre-tax adjusted earnings.

Lower equity markets resulted in favorable changes to Shield liabilities.

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

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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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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 and amortization of deferred gain on reinsurance.

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

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Results of Operations

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

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

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

18 unchanged sentences

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

983 31 1,623 (554)

Preferred stock dividends 26 21 53 46

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

4 unchanged sentences

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

5 539 380 1,002

Income (loss) available to shareholders before provision for income tax 1,187 — 1,965 (795)

2 unchanged sentences

$ 957 $ 10 $ 1,570 $ (600)

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:

• 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.

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Income available to shareholders before provision for income tax was $1.2 billion ($957 million, net of income tax), an increase of $1.2 billion ($947 million, net of income tax) from income available to shareholders before provision for income tax of $0 ($10 million, net of income tax) in the prior period.

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

• gains from GMLB Riders, see “— GMLB Riders for the Three Months and Six Months Ended June 30, 2022 and 2021.”

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

• the unfavorable 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 in the current period and decreased in the prior period;

• 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 19% in the current period compared to 48% in the prior period.

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

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Income available to shareholders before provision for income tax was $2.0 billion ($1.6 billion, net of income tax), an increase of $2.8 billion ($2.2 billion, net of income tax) from a loss available to shareholders before provision for income tax of $795 million ($600 million, net of income tax) in the prior period.

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

• gains from GMLB Riders, see “— GMLB Riders for the Three Months and Six Months Ended June 30, 2022 and 2021.”

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;

• the unfavorable 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 more in the current period than in the prior period;

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

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 20% in the current period compared to 26% in the prior period.

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, tax credits and current period non-recurring items.

Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings

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

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Annuities Life Run-off Corporate & Other Total

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Adjusted earnings $ 204 $ 23 $ (164) $ (39) $ 24

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Annuities Life Run-off Corporate & Other Total

12 unchanged sentences

Adjusted earnings $ 338 $ 68 $ 122 $ (93) $ 435

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

Six Months Ended June 30, 2022

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders $ 3,192 $ 26 $ (2,000) $ 352 $ 1,570

Provision for income tax expense (benefit) 116 11 676 (408) 395

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

3,308 37 (1,324) (56) 1,965

GMLB Riders 2,722 — — — 2,722

Other derivative instruments 54 2 (1,169) 62 (1,051)

Net investment gains (losses) (79) (25) (36) 6 (134)

Other adjustments (20) — 68 — 48

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

631 60 (187) (124) 380

Provision for income tax expense (benefit) 116 11 (39) (26) 62

Adjusted earnings $ 515 $ 49 $ (148) $ (98) $ 318

Six Months Ended June 30, 2021

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders $ (585) $ 106 $ 61 $ (182) $ (600)

Provision for income tax expense (benefit) 157 27 (314) (65) (195)

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

(428) 133 (253) (247) (795)

GMLB Riders (1,286) — — — (1,286)

Other derivative instruments 42 2 (557) — (513)

Net investment gains (losses) (24) (5) 65 (56) (20)

Other adjustments 9 (1) 14 — 22

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

831 137 225 (191) 1,002

Provision for income tax expense (benefit) 157 27 27 (29) 182

Adjusted earnings $ 674 $ 110 $ 198 $ (162) $ 820

Consolidated Results for the Three Months and Six Months Ended June 30, 2022 and 2021 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

6 unchanged sentences

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

5 539 380 1,002

Provision for income tax expense (benefit) (19) 104 62 182

Adjusted earnings $ 24 $ 435 $ 318 $ 820

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

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Adjusted earnings were $24 million in the current period, a decrease of $411 million.

Key net unfavorable impacts were:

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

◦ a net increase in guaranteed minimum death benefit (“GMDB”) liabilities resulting from unfavorable equity market performance;

◦ higher liabilities in our ULSG business from the impact of new reinsurance agreements entered into in the current period;

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

partially offset by

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

partially offset by

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

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

◦ higher returns on real estate limited partnerships and LLCs;

• 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;

• higher amortization of DAC and VOBA due to the impact on future gross profits from lower separate account returns and unfavorable equity market performance in our Annuities segment.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 61% 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, tax credits and current period non-recurring items.

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Adjusted earnings were $318 million in the current period, a decrease of $502 million.

Key net unfavorable impacts were:

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

◦ a net increase in GMDB liabilities resulting from unfavorable equity market performance;

◦ higher liabilities in our ULSG business from the impact of new reinsurance agreements entered into in the current period;

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

partially offset by

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

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

• lower net investment spread due to:

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partially offset by

◦ 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:

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

◦ higher returns on real estate limited partnerships and LLCs;

• 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;

◦ higher ceded cost of insurance fees consistent with unfavorable equity market returns in our Life segment, which is mostly 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 net amortization of DAC and VOBA due to:

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

partially offset by

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

Key net 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;

◦ lower asset-based variable annuity expenses resulting from lower average separate account balances, a portion of which is mostly 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.

◦ lower transition services agreement expenses;

partially offset by

◦ the settlement of a reinsurance-related matter in the current period.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 14% in the current period compared to 17% 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 Ended March 31, 2022 and 2021 — Adjusted Earnings

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction, tax credits and current period non-recurring items.

Segments and Corporate & Other Results for the Three Months and Six Months Ended June 30, 2022 and 2021 — Adjusted Earnings

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

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(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 March 31, 2022, driven by unfavorable investment performance, negative net flows and policy charges.

Three Months Ended March 31, 2022 (1)

Variable annuities separate account balances decreased for the three months and the six months ended June 30, 2022, driven by unfavorable investment performance, negative net flows and policy charges.

Three Months Ended June 30, 2022 (1)

Six Months Ended June 30, 2022 (1)

(In millions)

9 unchanged sentences

_______________

(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

(1) Includes income annuities for which separate account balances at June 30, 2022 were $145 million.

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Adjusted earnings were $204 million in the current period, a decrease of $134 million.

Key net unfavorable impacts were:

Key unfavorable impacts were:

• 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;

◦ a net increase in GMDB liabilities resulting from unfavorable equity market performance;

◦ higher volume and severity of GMDB claims;

◦ an adjustment in the current period related to actuarial modeling improvements;

• 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

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

• 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.

Key favorable impacts were:

1 unchanged sentence

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

◦ lower transition services agreement expenses;

◦ 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.

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

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Adjusted earnings were $515 million in the current period, a decrease of $159 million.

Key unfavorable impacts were:

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

◦ a net increase in GMDB liabilities resulting from unfavorable equity market performance;

◦ higher volume and severity of GMDB claims;

◦ an adjustment in the current period related to actuarial modeling improvements;

• 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.

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;

◦ lower transition services agreement expenses;

◦ 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 18% 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.

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

7 unchanged sentences

Adjusted earnings $ 23 $ 68 $ 49 $ 110

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

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Adjusted earnings were $23 million in the current period, a decrease of $45 million.

Key unfavorable impacts were:

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

• lower fee income due to:

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

◦ higher ceded cost of insurance fees resulting from new reinsurance agreements entered into in the current period;

• higher amortization of DAC and VOBA due to the impact on gross profits from lower separate account returns.

Key favorable impacts were:

• lower other expenses due to:

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

◦ lower transition services agreement expenses;

◦ lower deferred compensation expenses;

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 18% in the current period compared to 20% in the prior period.

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

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Adjusted earnings were $49 million in the current period, a decrease of $61 million.

Key unfavorable impacts were:

• lower fee income due to:

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

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

◦ 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;

◦ higher ceded cost of insurance fees resulting from new reinsurance agreements entered into in the current period;

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

Key favorable impacts were:

• lower other expenses due to:

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

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

◦ lower transition services agreement expenses;

◦ lower deferred compensation and operational expenses.

◦ higher net investment spread due to:

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

partially offset by

◦ 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.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 18% in the current period compared to 20% in the prior period.

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

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

7 unchanged sentences

Adjusted earnings $ (164) $ 122 $ (148) $ 198

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.

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Adjusted earnings were a loss of $164 million in the current period, a decrease of $286 million.

Key unfavorable impacts were:

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

• higher other expenses due to the settlement of a reinsurance-related matter in the current period;

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

◦ higher liabilities in our ULSG business from the impact of new reinsurance agreements entered into in the current period;

partially offset by

◦ lower paid claims, net of reinsurance.

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 13% in the prior period.

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

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Adjusted earnings were a loss of $148 million in the current period, a decrease of $346 million.

Key unfavorable impacts were:

• lower net investment spread due to:

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

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

• higher other expenses due to the settlement of a reinsurance-related matter in the current period;

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

◦ higher liabilities in our ULSG business from the impact of new reinsurance agreements entered into in the current period;

partially offset by

◦ lower paid claims, net of reinsurance;

◦ an adjustment in the prior 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 12% in the prior period.

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

Corporate & Other

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

8 unchanged sentences

Adjusted earnings $ (39) $ (93) $ (98) $ (162)

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

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Adjusted earnings were a loss of $39 million in the current period, a lower loss of $54 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.

Key favorable impacts were:

• higher net investment spread due to higher average invested long-term assets from funding agreements issued in connection with our institutional spread margin business;

• lower other expenses due to lower establishment costs.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 66% in the current period compared to 12% 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.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction, tax credits and current period non-recurring items.

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.

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

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Adjusted earnings were a loss of $98 million in the current period, a lower loss of $64 million.

Key favorable impacts were:

• higher net investment spread due to higher average invested long-term assets from funding agreements issued in connection with our institutional spread margin business;

• lower other expenses due to lower establishment costs.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 38% in the current period compared to 20% in the prior period.

Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction, tax credits and current period non-recurring items.

GMLB Riders for the Three Months and Six Months Ended June 30, 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

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

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__________________

(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

(1) Excludes living benefit fees, included as a component of adjusted earnings, of $13 million and $15 million for the three months ended June 30, 2022 and 2021, respectively, and $27 million and $29 million for the six months ended June 30, 2022 and 2021, respectively.

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Comparative results from GMLB Riders were favorable by $2.8 billion, primarily driven by:

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

partially offset by

• unfavorable changes to GMLB DAC;

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

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

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;

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• unfavorable changes to GMLB DAC.

Higher interest rates resulted in the following impacts:

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

partially offset by

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

• unfavorable changes to GMLB DAC;

• unfavorable changes in ceded reinsurance;

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

The widening of our credit spreads in the current period resulted in a favorable change in the adjustment for nonperformance risk, net of unfavorable changes in GMLB DAC and Shield liabilities.

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Comparative results from GMLB Riders were favorable by $4.0 billion, primarily driven by:

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

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

partially offset by

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

• unfavorable changes to GMLB DAC.

Lower equity markets resulted in the following impacts:

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

• favorable changes in ceded reinsurance;

partially offset by

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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 our GMLB hedges;

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

• unfavorable changes to GMLB DAC;

• unfavorable changes in ceded reinsurance;

partially offset by

• 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.

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

The widening of our credit spreads in the current period resulted in a favorable change in the adjustment for nonperformance risk, net of unfavorable changes in GMLB DAC and Shield liabilities.

Investment Risks

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

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

Credit spread tightening will reduce

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

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

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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.

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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%.

During the first six months of 2022, the Federal Reserve has increased the target range for the federal funds rate three times — from between 0% and 0.25% to between 0.25% and 0.50% on March 16, 2022;

to between 0.75% and 1.00% on May 4, 2022;

and to between 1.50% and 1.75% on June 15, 2022.

On July 27, 2022, the Federal Reserve further increased the target range for the federal funds rate to between 2.25% and 2.50%.

These target range increases have contributed to a decrease in the net unrealized gains in our investment portfolio.

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

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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.

During the six months ended June 30, 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 June 30, 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.

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Our exposure to energy sector fixed maturity securities was $2.7 billion, with net unrealized gains (losses) of ($218) million.

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

Of the $2.7 billion exposure to energy sector fixed maturity securities, 89% were investment grade at June 30, 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 $1.6 billion, with net unrealized gains (losses) of ($157) million.

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

Of the $1.6 billion exposure to retail sector corporate fixed maturity securities, 94% were investment grade at June 30, 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.

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Three Months Ended

Yield % Amount Yield % Amount

June 30, Six Months Ended

2022 2021 2022 2021

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

(Dollars in millions)

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

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.

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.

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

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(In millions)

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Adjusted net investment income — in the above yield table $ 1,070 $ 1,217 $ 2,227 $ 2,409

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.

See “— Results of Operations — Consolidated Results for the Three Months and Six Months Ended June 30, 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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Fair Value % of

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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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Designation NRSRO Rating Amortized

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(In millions)

March 31, 2022

June 30, 2022

corporate $ 15,173 $ 15,777 $ 1,925 $ 547 $ 33 $ 17 $ 33,472

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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 March 31, 2022 and December 31, 2021.

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 less than 2% and 2% of total investments at June 30, 2022 and December 31, 2021, respectively.

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Fair Value % of

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Structured Securities

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.

We held $19.7 billion and $20.8 billion of Structured Securities, at estimated fair value, at June 30, 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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Fair Value % of

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

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Total $ 7,138 $ 6,714 $ 6,976 $ 7,282

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 rated Aaa using rating agency ratings was $4.6 billion, or 68.8% of total CMBS, and designated NAIC 1 was $6.4 billion, or 94.6% of total CMBS, at June 30, 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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Fair Value % of

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Amortized Cost % of

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Our mortgage loan portfolio is diversified by both geographic region and property type to reduce the risk of concentration.

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

located in the U.S.

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

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

were 97% at both June 30, 2022 and December 31, 2021.

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

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.

At June 30, 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 Texas and 10% for New York.

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 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.

at both June 30, 2022 and December 31, 2021.

At June 30, 2022, the carrying value as a percentage of total residential mortgage loans for the top three states in the U.S.

was 40% for California, 10% for Florida and 7% for New York.

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Total Amount % of

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Office 3,530 27.1 3,566 29.3

Industrial 1,923 14.7 1,847 15.1

Retail 1,875 14.4 1,863 15.3

Industrial 1,814 13.9 1,847 15.1

Hotel 928 7.1 1,016 8.3

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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 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.

For our commercial mortgage loans, our average loan-to-value ratio was 58% at both June 30, 2022 and December 31, 2021, and our average debt-service coverage ratio was 2.2x at both June 30, 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 49% and 46% at March 31, 2022 and December 31, 2021, respectively.

For our agricultural mortgage loans, our average loan-to-value ratio was 48% and 46% at June 30, 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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A subset of these modifications included short-term principal and interest forbearance.

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 June 30, 2022, the recorded investment on mortgage loans where borrowers were offered debt-service forbearance and were not making payments was $6 million, comprised entirely 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.

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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 three months ended March 31, 2022 and 2021.

Limited Partnerships and Limited Liability Companies

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(In millions)

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__________________

(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.

(1) The estimated fair value of real estate limited partnerships and LLCs was $785 million and $595 million at June 30, 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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Total Carrying

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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 March 31, 2022 and December 31, 2021.

• 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.

• The statement of operations effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships for the three months and six months ended June 30, 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 March 31, 2022 include:

Derivatives categorized as Level 3 at June 30, 2022 include:

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

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Gross Notional

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

March 31, 2022 (1)

June 30, 2022 (1)

December 31, 2021 (1)

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

Therefore, these liabilities, valued at $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.

Therefore, these liabilities, valued at $6.6 billion at June 30, 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.

These liabilities, valued at $1.7 billion at June 30, 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 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.

These liabilities, valued at $2.5 billion at June 30, 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

June 30, 2022 December 31, 2021

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

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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

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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

June 30, 2022 December 31, 2021

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

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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 $3.6 billion and $3.8 billion at March 31, 2022 and December 31, 2021, respectively.

We maintain a substantial short-term liquidity position, which was $4.0 billion and $3.8 billion at June 30, 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 $50.0 billion and $54.9 billion at March 31, 2022 and December 31, 2021, respectively.

An integral part of our liquidity management includes managing our level of liquid assets, which was $46.1 billion and $54.9 billion at June 30, 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 primary sources and uses of liquidity and capital were as follows at:

Three Months Ended

Six Months Ended

(In millions)

Operating activities, net $ 18 $ 69

Changes in policyholder account balances, net 5,630 5,591

Changes in payables for collateral under securities loaned and other transactions, net 406 —

Total sources 6,054 5,660

Operating activities, net 163 104

Investing activities, net 5,019 4,412

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Outstanding Issuances Repayments

Three Months Ended March 31,

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

Six Months Ended June 30,

June 30, 2022 December 31, 2021 2022 2021 2022 2021

(In millions)

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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.

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

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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.

At June 30, 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 March 31, 2022.

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.

See Note 8 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 June 30, 2022.

Subsequent to June 30, 2022 and through August 2, 2022, BHF repurchased an additional 1,279,660 shares of its common stock through open market purchases, pursuant to a 10b5-1 plan, for $52 million.

Preferred Stock Dividends

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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.

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.

During the six months ended June 30, 2022 and 2021, general account surrenders and withdrawals, including repayments of funding agreements in connection with our institutional spread margin business, totaled $5.6 billion and $1.4 billion, respectively.

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

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

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.

At June 30, 2022, we pledged $2 million of cash collateral to counterparties.

At December 31, 2021, we did not pledge any cash collateral to counterparties.

At June 30, 2022 and December 31, 2021, we were obligated to return cash collateral pledged to us by counterparties of $1.3 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.

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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.

The amount of this non-cash collateral at estimated fair value was $612 million and $593 million at June 30, 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.

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

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

Under our securities lending program, we were liable for cash collateral under our control of $5.4 billion and $4.6 billion at June 30, 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.

We did not hold any non-cash collateral at June 30, 2022.

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

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Short-term Liquidity and Liquid Assets

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.

At June 30, 2022 and December 31, 2021, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.2 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 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.

At June 30, 2022 and December 31, 2021, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.2 billion and $1.6 billion, respectively, of which $1.2 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 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.

During the six months ended June 30, 2022 and 2021, BHF received cash distributions of $350 million and $310 million, respectively, from BH Holdings.

During the six months ended June 30, 2022 and 2021, BHF 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 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.

During the six months ended June 30, 2022 and 2021, BHF borrowed $457 million and $352 million, respectively, from certain of its non-insurance subsidiaries and repaid $753 million and $481 million of such borrowings during the six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022 and December 31, 2021, BHF had total obligations outstanding of $416 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 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.

During both the six months ended June 30, 2022 and 2021, there were no borrowings or repayments by BHF under these facilities and, at both June 30, 2022 and December 31, 2021, BHF had no obligations outstanding under such facilities.

Note Regarding Forward-Looking Statements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis