Brighthouse Financial, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations Page Introduction 48 Executive Summary 48 Industry Trends and Uncertainties 49 Summary of Critical Accounting Estimates 50 Non-GAAP and Other Financial Disclosures 51 Results of Operations 53 Investments 65 Derivatives 75 Policyholder Liabilities 76 Liquidity and Capital Resources 80 Note Regarding Forward-Looking Statements 87 47 Table of Contents 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; (ii) our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. 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, 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. Introduction 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 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 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. Executive Summary 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. 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. 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. 48 Table of Contents Net income (loss) available to shareholders and adjusted earnings, a non-GAAP financial measure, were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions) Income (loss) available to shareholders before provision for income tax $ 1,187 $ — $ 1,965 $ (795) Less: Provision for income tax expense (benefit) 230 (10) 395 (195) Net income (loss) available to shareholders (1) $ 957 $ 10 $ 1,570 $ (600) Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends $ 5 $ 539 $ 380 $ 1,002 Less: Provision for income tax expense (benefit) (19) 104 62 182 Adjusted earnings $ 24 $ 435 $ 318 $ 820 __________________ (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 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. 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 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. Where these trends or uncertainties are specific to a particular aspect of our business, we often include such a discussion under the relevant caption of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, as part of our broader analysis of that area of our business. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” included in our 2021 Annual Report for a comprehensive discussion of some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and results of operations in the future. In addition, significant changes or updates in certain of these trends and uncertainties are discussed below. 49 Table of Contents COVID-19 Pandemic 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 (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. Regulatory Developments Our insurance subsidiaries and Brighthouse Reinsurance Company of Delaware (“BRCD”) are regulated primarily at the state level, with some products and services also subject to federal regulation. In addition, BHF and its insurance subsidiaries are subject to regulation under the insurance holding company laws of various U.S. jurisdictions. Furthermore, some of our operations, products and services are subject to the Employee Retirement Income Security Act of 1974, consumer protection laws, securities, broker-dealer and investment advisor regulations, as well as environmental and unclaimed property laws and regulations. See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in our 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.” Summary of Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Interim Condensed Consolidated Financial Statements. The most critical estimates include those used in determining: • liabilities for future policy benefits; • amortization of deferred policy acquisition costs (“DAC”); • estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation; and • measurement of income taxes and the valuation of deferred tax assets. In applying our accounting policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates. The above critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and Note 1 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report. 50 Table of Contents Non-GAAP and Other Financial Disclosures Our definitions of non-GAAP and other financial measures may differ from those used by other companies. Non-GAAP Financial Disclosures Adjusted Earnings In this report, we present adjusted earnings as a measure of our performance that is not calculated in accordance with GAAP. Adjusted earnings is used by management to evaluate performance and facilitate comparisons to industry results. We believe the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of our performance by the investor community by highlighting the results of operations and the underlying profitability drivers of our business. Adjusted earnings should not be viewed as a substitute for net income (loss) available to Brighthouse Financial, Inc.’s common shareholders, which is the most directly comparable financial measure calculated in accordance with GAAP. See “— Results of Operations” for a reconciliation of adjusted earnings to net income (loss) available to Brighthouse Financial, Inc.’s common shareholders. Adjusted earnings, which may be positive or negative, focuses on our primary businesses by excluding the impact of market volatility, which could distort trends. The following are significant items excluded from total revenues in calculating adjusted earnings: • Net investment gains (losses); • Net derivative gains (losses) except earned income and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment (“Investment Hedge Adjustments”); and • Certain variable annuity guaranteed minimum income benefits (“GMIB”) fees (“GMIB Fees”). The following are significant items excluded from total expenses in calculating adjusted earnings: • Amounts associated with benefits related to GMIBs (“GMIB Costs”); • Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets (“Market Value Adjustments”); and • 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. 51 Table of Contents We present adjusted earnings in a manner consistent with management’s view of the primary business activities that drive the profitability of our core businesses. The following table illustrates how each component of adjusted earnings is calculated from the GAAP statement of operations line items: Component of Adjusted Earnings How Derived from GAAP (1) (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. (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) and (c) GMIB Fees and GMIB Costs). (v) Other expenses, net of DAC capitalization (v) Other expenses reduced by capitalization of DAC. (vi) Provision for income tax expense (benefit) (vi) Tax impact of the above items. __________________ (1) Italicized items indicate GAAP statement of operations line items. Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Accordingly, we report adjusted earnings by segment in Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements. Adjusted Net Investment Income We present adjusted net investment income, which is not calculated in accordance with GAAP. We present adjusted net investment income to measure our performance for management purposes, and we believe it enhances the understanding of our investment portfolio results. Adjusted net investment income represents net investment income, including Investment Hedge Adjustments. For a reconciliation of adjusted net investment income to net investment income, the most directly comparable GAAP measure, see footnote 3 to the summary yield table located in “— Investments — Current Environment — Investment Portfolio Results.” Other Financial Disclosures 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 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. 52 Table of Contents Results of Operations 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 June 30, 2022 2021 2022 2021 (In millions) Revenues Premiums $ 167 $ 162 $ 333 $ 346 Universal life and investment-type product policy fees 784 919 1,625 1,849 Net investment income 1,061 1,212 2,212 2,399 Other revenues 118 101 255 228 Net investment gains (losses) (66) (34) (134) (20) Net derivative gains (losses) 1,733 (684) 2,246 (2,188) Total revenues 3,797 1,676 6,537 2,614 Expenses Policyholder benefits and claims 1,108 752 2,014 1,508 Interest credited to policyholder account balances 319 287 609 584 Capitalization of DAC (115) (120) (224) (234) Amortization of DAC and VOBA 566 8 793 99 Interest expense on debt 38 40 76 81 Other expenses 668 688 1,249 1,323 Total expenses 2,584 1,655 4,517 3,361 Income (loss) before provision for income tax 1,213 21 2,020 (747) Provision for income tax expense (benefit) 230 (10) 395 (195) Net income (loss) 983 31 1,625 (552) Less: Net income (loss) attributable to noncontrolling interests — — 2 2 Net income (loss) attributable to Brighthouse Financial, Inc. 983 31 1,623 (554) Less: Preferred stock dividends 26 21 53 46 Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ 957 $ 10 $ 1,570 $ (600) The components of net income (loss) available to shareholders were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions) GMLB Riders $ 1,832 $ (933) $ 2,722 $ (1,286) Other derivative instruments (605) 443 (1,051) (513) Net investment gains (losses) (66) (34) (134) (20) Other adjustments 21 (15) 48 22 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) Provision for income tax expense (benefit) 230 (10) 395 (195) Net income (loss) available to shareholders $ 957 $ 10 $ 1,570 $ (600) 53 Table of Contents 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; and • lower pre-tax adjusted earnings, as discussed in greater detail below. The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 19% in the current period compared to 48% 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 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; and • 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. 54 Table of Contents 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 June 30, 2022 Annuities Life Run-off Corporate & Other Total (In millions) Net income (loss) available to shareholders $ 1,999 $ 16 $ (1,387) $ 329 $ 957 Add: Provision for income tax expense (benefit) 44 5 530 (349) 230 Income (loss) available to shareholders before provision for income tax 2,043 21 (857) (20) 1,187 Less: GMLB Riders 1,832 — — — 1,832 Less: Other derivative instruments 12 1 (634) 16 (605) Less: Net investment gains (losses) (39) (8) (47) 28 (66) Less: Other adjustments (10) — 31 — 21 Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends 248 28 (207) (64) 5 Less: Provision for income tax expense (benefit) 44 5 (43) (25) (19) Adjusted earnings $ 204 $ 23 $ (164) $ (39) $ 24 Three Months Ended June 30, 2021 Annuities Life Run-off Corporate & Other Total (In millions) Net income (loss) available to shareholders $ (601) $ 61 $ 742 $ (192) $ 10 Add: Provision for income tax expense (benefit) 79 17 (175) 69 (10) Income (loss) available to shareholders before provision for income tax (522) 78 567 (123) — Less: GMLB Riders (933) — — — (933) Less: Other derivative instruments 12 4 427 — 443 Less: Net investment gains (losses) (21) (10) 17 (20) (34) Less: Other adjustments 3 (1) (17) — (15) Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends 417 85 140 (103) 539 Less: Provision for income tax expense (benefit) 79 17 18 (10) 104 Adjusted earnings $ 338 $ 68 $ 122 $ (93) $ 435 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 Add: 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 Less: GMLB Riders 2,722 — — — 2,722 Less: Other derivative instruments 54 2 (1,169) 62 (1,051) Less: Net investment gains (losses) (79) (25) (36) 6 (134) Less: 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 Less: Provision for income tax expense (benefit) 116 11 (39) (26) 62 Adjusted earnings $ 515 $ 49 $ (148) $ (98) $ 318 55 Table of Contents 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) Add: 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) Less: GMLB Riders (1,286) — — — (1,286) Less: Other derivative instruments 42 2 (557) — (513) Less: Net investment gains (losses) (24) (5) 65 (56) (20) Less: 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 Less: 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 June 30, 2022 2021 2022 2021 (In millions) Fee income $ 841 $ 959 $ 1,759 $ 1,954 Net investment spread 572 749 1,260 1,460 Insurance-related activities (596) (404) (1,125) (883) Amortization of DAC and VOBA (195) (136) (358) (311) Other expenses, net of DAC capitalization (591) (608) (1,101) (1,170) Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends 26 21 55 48 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 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; and ◦ 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; and 56 Table of Contents ◦ 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; and ◦ 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; and • 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; and ◦ 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; and ◦ 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: ◦ 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; 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; and ◦ 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; and 57 Table of Contents ◦ an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion in our Life segment; and • 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 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; and ◦ 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, 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 Annuities The components of adjusted earnings for our Annuities segment were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions) Fee income $ 632 $ 706 $ 1,324 $ 1,418 Net investment spread 315 310 640 633 Insurance-related activities (200) (59) (327) (154) Amortization of DAC and VOBA (160) (123) (294) (250) Other expenses, net of DAC capitalization (339) (417) (712) (816) Pre-tax adjusted earnings 248 417 631 831 Provision for income tax expense (benefit) 44 79 116 157 Adjusted earnings $ 204 $ 338 $ 515 $ 674 58 Table of Contents A significant portion of our adjusted earnings is driven by separate account balances related to our variable annuity business. Most directly, these balances determine asset-based fee income, but they also impact DAC amortization and asset-based commissions. 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 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) Balance, beginning of period $ 95,944 $ 105,197 Premiums and deposits 375 814 Withdrawals, surrenders and contract benefits (1,834) (3,955) Net flows (1,459) (3,141) Investment performance (12,199) (19,105) Policy charges (586) (1,167) Net transfers from (to) general account (67) (151) Balance, end of period $ 81,633 $ 81,633 Average balance $ 87,644 $ 92,716 _______________ (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 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; and ◦ 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; and • 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; and ◦ 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 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: 59 Table of Contents ◦ a net increase in GMDB liabilities resulting from unfavorable equity market performance; ◦ higher volume and severity of GMDB claims; and ◦ 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; and • 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; and ◦ 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. Life The components of adjusted earnings for our Life segment were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions) Fee income $ 45 $ 90 $ 110 $ 207 Net investment spread 35 94 133 179 Insurance-related activities (16) (41) (96) (102) Amortization of DAC and VOBA (33) (10) (59) (55) Other expenses, net of DAC capitalization (3) (48) (28) (92) Pre-tax adjusted earnings 28 85 60 137 Provision for income tax expense (benefit) 5 17 11 27 Adjusted earnings $ 23 $ 68 $ 49 $ 110 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; and ◦ higher ceded cost of insurance fees resulting from new reinsurance agreements entered into in the current period; and • 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: 60 Table of Contents ◦ higher ceded cost of insurance expenses consistent with unfavorable equity market returns, which is mostly offset in fee income; ◦ lower transition services agreement expenses; and ◦ lower deferred compensation expenses; and • 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; and ◦ higher ceded cost of insurance fees resulting from new reinsurance agreements entered into in the current period; and • 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 mostly offset in fee income; ◦ lower transition services agreement expenses; and ◦ lower deferred compensation and operational 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 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. Run-off The components of adjusted earnings for our Run-off segment were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions) Fee income $ 164 $ 163 $ 325 $ 329 Net investment spread 189 332 422 623 Insurance-related activities (394) (309) (724) (637) Amortization of DAC and VOBA — — — — Other expenses, net of DAC capitalization (166) (46) (210) (90) Pre-tax adjusted earnings (207) 140 (187) 225 Provision for income tax expense (benefit) (43) 18 (39) 27 Adjusted earnings $ (164) $ 122 $ (148) $ 198 61 Table of Contents 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; and • 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; 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; • higher other expenses due to the settlement of a reinsurance-related matter in the current period; and • 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; and ◦ 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. 62 Table of Contents Corporate & Other The components of adjusted earnings for Corporate & Other were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions) Fee income $ — $ — $ — $ — Net investment spread 33 13 65 25 Insurance-related activities 14 5 22 10 Amortization of DAC and VOBA (2) (3) (5) (6) Other expenses, net of DAC capitalization (83) (97) (151) (172) Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends 26 21 55 48 Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends (64) (103) (124) (191) Provision for income tax expense (benefit) (25) (10) (26) (29) Adjusted earnings $ (39) $ (93) $ (98) $ (162) 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. 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; and • 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, 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. 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; and • 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. 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. 63 Table of Contents 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 June 30, 2022 2021 2022 2021 (In millions) Liabilities $ 2,193 $ (1,239) $ 3,287 $ (686) Hedges (188) (43) (505) (1,140) Ceded reinsurance (19) 21 (52) (63) Fees (1) 208 204 408 401 GMLB DAC (362) 124 (416) 202 Total GMLB Riders $ 1,832 $ (933) $ 2,722 $ (1,286) __________________ (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; and • 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; and • 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; and • 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; and • 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: 64 Table of Contents • favorable changes to the estimated fair value of Shield liabilities; and • 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; and • unfavorable changes to GMLB DAC. 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; and • favorable changes in ceded reinsurance; partially offset by • unfavorable changes to the estimated fair value of variable annuity liability reserves; and • unfavorable changes to GMLB DAC. Higher interest rates resulted in the following impacts: • unfavorable changes to the estimated fair value of our GMLB hedges; • unfavorable changes to the estimated fair value of Shield liabilities; • unfavorable changes to GMLB DAC; and • unfavorable changes in ceded reinsurance; partially offset by • 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. Investments Investment Risks Our primary investment objective is to optimize risk-adjusted net investment income and risk-adjusted total return while appropriately matching assets and liabilities. 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 “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; • interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates. Changes in market interest rates will impact the net unrealized gain or loss position of our fixed income investment portfolio and the rates of return we receive on both new funds invested and reinvestment of existing funds; • 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. 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 65 Table of Contents 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; • real estate risk, relating to commercial, agricultural and residential real estate, and stemming from factors, which include, but are not limited to, market conditions, including the demand and supply of leasable commercial space, creditworthiness of borrowers and their tenants and joint venture partners, capital markets volatility and inherent interest rate movements; • currency risk, relating to the variability in currency exchange rates for non-U.S. dollar denominated investments; and • financial and operational risks related to using external investment managers. See also “Risk Factors — Economic Environment and Capital Markets-Related Risks — We are exposed to significant financial and capital markets risks which may adversely affect our financial condition, results of operations and liquidity, and may cause our net investment income and our profitability measures to vary from period to period” and “Risk Factors — Investments-Related Risks” in our 2021 Annual Report. We manage these risks through asset-type allocation and industry and issuer diversification. Risk limits are also used to promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit and equity risk exposure. Real estate risk is managed through geographic and property type and product type diversification. Interest rate risk is managed as part of our Asset Liability Management (“ALM”) strategies. 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. For certain of our liability portfolios, it is not possible to invest assets to the full liability duration, thereby creating some asset/liability mismatch. We also use certain derivatives in the management of currency, credit, interest rate, and equity market risks. Investment Management Agreements Other than our derivatives trading, which we manage in-house, we have engaged a select group of experienced external asset management firms to manage the investment of the assets comprising our general account portfolio and certain separate account assets of our insurance subsidiaries, as well as assets of BHF and our reinsurance subsidiary BRCD. Current Environment Our business and results of operations are materially affected by conditions in capital markets and the economy, generally. As a U.S. 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. 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — Financial and Economic Environment” included in our 2021 Annual Report. 66 Table of Contents 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, inflation, geopolitical events, ongoing military actions and 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,” “Risk Factors — Economic Environment and Capital Markets-Related Risks — If difficult conditions in the capital markets and the U.S. economy generally persist or are perceived to persist, they may materially adversely affect our business and results of operations,” 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 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. We maintain a diversified energy sector fixed maturity securities portfolio across sub-sectors and issuers. Our exposure to energy sector fixed maturity securities was $2.7 billion, with net unrealized gains (losses) of ($218) million. 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 $1.6 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. 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 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. At this time, we do not expect that our general account investments in these sectors and asset classes will have a material adverse effect on our results of operations or financial condition. Investment Portfolio Results The following summary yield table presents the yield and adjusted net investment income for our investment portfolio for the periods indicated. As described below, this table reflects certain differences from the presentation of net investment income presented in the GAAP statement of operations. This summary yield table presentation is consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Yield % Amount Yield % Amount Yield % Amount Yield % Amount (Dollars in millions) Investment income (1) 4.06 % $ 1,109 5.21 % $ 1,251 4.28 % $ 2,304 5.23 % $ 2,476 Investment fees and expenses (2) (0.14) (39) (0.13) (34) (0.14) (77) (0.13) (67) Adjusted net investment income (3) 3.92 % $ 1,070 5.08 % $ 1,217 4.14 % $ 2,227 5.10 % $ 2,409 _______________ (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. Asset carrying values exclude unrealized gains (losses), collateral received in 67 Table of Contents 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. Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties. (3) Adjusted net investment income presented in the yield table varies from the most directly comparable GAAP measure due to certain reclassifications, as presented below. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In millions) Net investment income $ 1,061 $ 1,212 $ 2,212 $ 2,399 Less: Investment hedge adjustments (9) (5) (15) (10) 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 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: June 30, 2022 December 31, 2021 Estimated Fair Value % of Total Estimated Fair Value % of Total (Dollars in millions) Publicly-traded $ 65,267 83.0 % $ 72,925 83.3 % Privately-placed 13,339 17.0 14,657 16.7 Total fixed maturity securities $ 78,606 100.0 % $ 87,582 100.0 % Percentage of cash and invested assets 68.1 % 71.4 % See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on our valuation controls and procedures including our formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for further information about fixed maturity securities by sector, contractual maturities, continuous gross unrealized losses and the allowance for credit losses. Fixed Maturity Securities Credit Quality — Ratings 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. 68 Table of Contents 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: June 30, 2022 December 31, 2021 NAIC Designation NRSRO Rating Amortized Cost Allowance for Credit Losses Unrealized Gain (Loss) Estimated Fair Value % of Total Amortized Cost Allowance for Credit Losses Unrealized Gain (Loss) Estimated Fair Value % of Total (Dollars in millions) 1 Aaa/Aa/A $ 53,390 $ — $ (2,010) $ 51,380 65.4 % $ 49,729 $ — $ 6,133 $ 55,862 63.8 % 2 Baa 26,678 — (2,599) 24,079 30.6 25,493 — 2,142 27,635 31.6 Subtotal investment grade 80,068 — (4,609) 75,459 96.0 75,222 — 8,275 83,497 95.4 3 Ba 2,710 — (288) 2,422 3.1 2,634 — 65 2,699 3.1 4 B 735 1 (94) 640 0.8 1,244 3 12 1,253 1.4 5 Caa and lower 68 3 — 65 0.1 142 8 (4) 130 0.1 6 In or near default 32 — (12) 20 — 4 — (1) 3 — Subtotal below investment grade 3,545 4 (394) 3,147 4.0 4,024 11 72 4,085 4.6 Total fixed maturity securities $ 83,613 $ 4 $ (5,003) $ 78,606 100.0 % $ 79,246 $ 11 $ 8,347 $ 87,582 100.0 % The following tables present total fixed maturity securities, based on estimated fair value, by sector classification and by NRSRO rating and the applicable NAIC designations from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the NAIC methodologies as described above: Fixed Maturity Securities — by Sector & Credit Quality Rating NAIC Designation 1 2 3 4 5 6 Total Estimated Fair Value NRSRO Rating Aaa/Aa/A Baa Ba B Caa and Lower In or Near Default (In millions) June 30, 2022 U.S. corporate $ 15,173 $ 15,777 $ 1,925 $ 547 $ 33 $ 17 $ 33,472 Foreign corporate 3,421 6,624 432 70 — — 10,547 U.S. government and agency 9,464 143 — — — — 9,607 RMBS 8,307 11 8 4 10 3 8,343 CMBS 6,350 345 11 5 3 — 6,714 State and political subdivision 3,913 126 1 — 9 — 4,049 ABS 4,004 638 18 14 10 — 4,684 Foreign government 748 415 27 — — — 1,190 Total fixed maturity securities $ 51,380 $ 24,079 $ 2,422 $ 640 $ 65 $ 20 $ 78,606 December 31, 2021 U.S. corporate $ 17,828 $ 18,074 $ 2,008 $ 1,103 $ 68 $ — $ 39,081 Foreign corporate 3,518 7,478 554 125 31 — 11,706 U.S. government and agency 9,160 147 — — — — 9,307 RMBS 9,179 46 15 5 11 3 9,259 CMBS 6,882 391 1 5 3 — 7,282 State and political subdivision 4,646 181 1 — 7 — 4,835 ABS 3,686 550 19 15 10 — 4,280 Foreign government 963 768 101 — — — 1,832 Total fixed maturity securities $ 55,862 $ 27,635 $ 2,699 $ 1,253 $ 130 $ 3 $ 87,582 69 Table of Contents U.S. and Foreign Corporate Fixed Maturity Securities 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 less than 2% and 2% of total investments at June 30, 2022 and December 31, 2021, respectively. Our U.S. and foreign corporate fixed maturity securities holdings by industry were as follows at: June 30, 2022 December 31, 2021 Estimated Fair Value % of Total Estimated Fair Value % of Total (Dollars in millions) Industrial $ 13,543 30.8 % $ 16,131 31.8 % Finance 11,878 27.0 12,430 24.4 Consumer 9,809 22.3 11,650 22.9 Utility 5,963 13.5 7,146 14.1 Communications 2,826 6.4 3,430 6.8 Total $ 44,019 100.0 % $ 50,787 100.0 % Structured Securities 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. RMBS Our RMBS holdings are diversified by security type, risk profile and ratings profile, which were as follows at: June 30, 2022 December 31, 2021 Estimated Fair Value % of Total Net Unrealized Gains (Losses) Estimated Fair Value % of Total Net Unrealized Gains (Losses) (Dollars in millions) Security type: Pass-through securities $ 4,162 49.9 % $ (49) $ 4,688 50.6 % $ 29 Collateralized mortgage obligations 4,181 50.1 (398) 4,571 49.4 352 Total RMBS $ 8,343 100.0 % $ (447) $ 9,259 100.0 % $ 381 Risk profile: Agency $ 6,722 80.6 % $ (459) $ 7,563 81.7 % $ 264 Prime 183 2.2 (11) 192 2.1 4 Alt-A 853 10.2 6 801 8.6 60 Sub-prime 585 7.0 17 703 7.6 53 Total RMBS $ 8,343 100.0 % $ (447) $ 9,259 100.0 % $ 381 Ratings profile: Rated Aaa $ 7,252 86.9 % $ 7,905 85.4 % Designated NAIC 1 $ 8,307 99.6 % $ 9,179 99.1 % Historically, our exposure to sub-prime RMBS holdings has been managed by focusing primarily on senior tranche securities, stress-testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio. Our sub-prime RMBS portfolio consists predominantly of securities that were purchased after 2012 at significant discounts to par value and discounts to the expected principal recovery value of these securities. The vast majority of these securities are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2). 70 Table of Contents CMBS Our CMBS holdings are diversified by vintage year, which were as follows at: June 30, 2022 December 31, 2021 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value (In millions) 2003 - 2011 $ 91 $ 85 $ 95 $ 106 2012 97 95 141 140 2013 209 205 209 213 2014 332 315 322 334 2015 959 916 953 997 2016 464 441 465 485 2017 719 686 707 751 2018 1,674 1,621 1,675 1,827 2019 1,027 931 1,044 1,079 2020 539 457 555 544 2021 816 759 810 806 2022 211 203 — — Total $ 7,138 $ 6,714 $ 6,976 $ 7,282 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. ABS Our ABS holdings are diversified by both collateral type and issuer. Our ABS holdings by collateral type and ratings profile were as follows at: June 30, 2022 December 31, 2021 Estimated Fair Value % of Total Net Unrealized Gains (Losses) Estimated Fair Value % of Total Net Unrealized Gains (Losses) (Dollars in millions) Collateral type: Collateralized obligations $ 2,801 59.8 % $ (120) $ 2,659 62.1 % $ (1) Student loans 384 8.2 (21) 384 9.0 6 Consumer loans 381 8.1 (25) 342 8.0 — Automobile loans 162 3.5 (6) 151 3.5 2 Credit card loans 152 3.2 (6) 132 3.1 4 Other loans 804 17.2 (49) 612 14.3 8 Total $ 4,684 100.0 % $ (227) $ 4,280 100.0 % $ 19 Ratings profile: Rated Aaa $ 1,928 41.2 % $ 1,837 42.9 % Designated NAIC 1 $ 4,004 85.5 % $ 3,686 86.1 % Allowance for Credit Losses for Fixed Maturity Securities See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information about the evaluation of fixed maturity securities for an allowance for credit losses or write-offs due to uncollectibility. 71 Table of Contents Securities Lending We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, which is obtained at the inception of a loan and maintained at a level greater than or equal to 100% for the duration of the loan. The estimated fair value of the securities loaned is monitored on a daily basis with additional collateral obtained as necessary throughout the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. We are liable to return to our counterparties the cash collateral under our control. Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected in the financial statements. These transactions are treated as financing arrangements and the associated cash collateral liability is recorded at the amount of the cash received. See “— Liquidity and Capital Resources — The Company — Primary Uses of Liquidity and Capital — Securities Lending” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding our securities lending program. Mortgage Loans Our mortgage loans are principally collateralized by commercial, agricultural and residential properties. Information regarding mortgage loans by portfolio segment is summarized as follows at: June 30, 2022 December 31, 2021 Amortized Cost % of Total Allowance for Credit Losses % of Amortized Cost Amortized Cost % of Total Allowance for Credit Losses % of Amortized Cost (Dollars in millions) Commercial $ 13,046 60.4 % $ 44 0.3 % $ 12,187 61.0 % $ 67 0.5 % Agricultural 4,144 19.2 % 15 0.4 % 4,163 20.9 % 12 0.3 % Residential 4,421 20.4 % 44 1.0 % 3,623 18.1 % 44 1.2 % Total $ 21,611 100.0 % $ 103 0.5 % $ 19,973 100.0 % $ 123 0.6 % 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 June 30, 2022 and December 31, 2021. The remainder was collateralized by properties located outside of the U.S. 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. Our residential mortgage loan portfolio is managed in a similar manner to reduce risk of concentration. All residential mortgage loans were collateralized by properties located 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. 72 Table of Contents Commercial Mortgage Loans by Geographic Region and Property Type . Commercial mortgage loans are the largest component of the mortgage loan invested asset class. The diversification across geographic regions and property types of commercial mortgage loans was as follows at: June 30, 2022 December 31, 2021 Amount % of Total Amount % of Total (Dollars in millions) Geographic region: Pacific $ 2,785 21.3 % $ 2,601 21.3 % South Atlantic 2,661 20.4 2,383 19.6 Middle Atlantic 2,311 17.7 2,115 17.3 West South Central 1,489 11.4 1,425 11.7 Mountain 1,175 9.0 1,062 8.7 New England 742 5.7 789 6.5 East North Central 692 5.3 717 5.9 International 476 3.7 495 4.1 West North Central 342 2.6 318 2.6 East South Central 308 2.4 217 1.8 Multi-region and Other 65 0.5 65 0.5 Total recorded investment 13,046 100.0 % 12,187 100.0 % Less: allowance for credit losses 44 67 Carrying value, net of allowance for credit losses $ 13,002 $ 12,120 Property type: Apartment $ 4,899 37.5 % $ 3,895 32.0 % Office 3,530 27.1 3,566 29.3 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 Total recorded investment 13,046 100.0 % 12,187 100.0 % Less: allowance for credit losses 44 67 Carrying value, net of allowance for credit losses $ 13,002 $ 12,120 Mortgage Loan Credit Quality — Monitoring Process. Our mortgage loan investments are monitored on an ongoing basis, including a review of loans that are current, past due, restructured and under foreclosure. Quarterly, we conduct a formal review of the portfolio with our investment managers. See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on mortgage loans by credit quality indicator, past due status, nonaccrual status and modified mortgage loans. Our commercial mortgage loans are reviewed on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, loan-to-value ratios, debt-service coverage ratios and tenant creditworthiness. 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. Our residential mortgage loans are reviewed on an ongoing basis. See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on our evaluation of residential mortgage loans and related measurement of allowance for credit losses. 73 Table of Contents Loan-to-value ratios and debt-service coverage ratios are common measures in the assessment of the quality of commercial mortgage loans. Loan-to-value ratios are a common measure in the assessment of the quality of agricultural mortgage loans. Loan-to-value ratios compare the amount of the loan to the estimated fair value of the underlying collateral. A loan-to-value ratio greater than 100% indicates that the loan amount is greater than the collateral value. A loan-to-value ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss. The debt-service coverage ratio compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. 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 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 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. Loan Modifications Related to the COVID-19 Pandemic. Our investment managers’ underwriting and credit management practices are proactively refined to meet the changing economic environment. 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 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. These types of modifications are generally not considered troubled debt restructurings (“TDR”) due to certain relief granted by U.S. federal legislation in March 2020. For more information on TDRs, see Note 4 to the Interim Condensed Consolidated Financial Statements. Mortgage Loan Allowance for Credit Losses . See Notes 4 and 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how the allowance for credit losses is established and monitored, as well as activity in and balances of the allowance for credit losses for the six months ended June 30, 2022 and 2021. Limited Partnerships and Limited Liability Companies The carrying values of our limited partnerships and LLCs were as follows at: June 30, 2022 December 31, 2021 (In millions) Other limited partnerships $ 4,037 $ 3,786 Real estate limited partnerships and LLCs (1) 646 485 Total $ 4,683 $ 4,271 __________________ (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. We estimate that the underlying investment of the private equity funds will typically be liquidated over the next 10 to 20 years. 74 Table of Contents Other Invested Assets The carrying value of our other invested assets by type was as follows at: June 30, 2022 December 31, 2021 Carrying Value % of Total Carrying Value % of Total (Dollars in millions) Freestanding derivatives with positive estimated fair values $ 3,095 92.5 % $ 3,126 94.3 % FHLB Stock 144 4.3 70 2.1 Tax credit and renewable energy partnerships 56 1.7 59 1.8 Leveraged leases, net of non-recourse debt 49 1.5 49 1.5 Other 1 — 12 0.3 Total $ 3,345 100.0 % $ 3,316 100.0 % Derivatives Derivative Risks We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. We use a variety of strategies to manage these risks, including the use of derivatives. 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 June 30, 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 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. Fair Value Hierarchy See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy, as well as a rollforward of the fair value measurements for derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs as discussed below. The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives. Although Level 3 inputs are unobservable, management believes they are consistent with what other market participants would use when pricing such instruments and are considered appropriate given the circumstances. 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 June 30, 2022 include: credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations; equity variance swaps with unobservable volatility inputs; foreign currency swaps with certain unobservable inputs and equity index options with unobservable correlation inputs. Credit Risk 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. 75 Table of Contents Credit Derivatives The gross notional amount and estimated fair value of credit default swaps were as follows at: June 30, 2022 December 31, 2021 Gross Notional Amount Estimated Fair Value Gross Notional Amount Estimated Fair Value (In millions) Written $ 1,923 $ — $ 1,724 $ 38 Purchased — — — — Total $ 1,923 $ — $ 1,724 $ 38 The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies. Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by purchasing Treasury bonds (or other high-quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate the desired bond exposures and meet our ALM needs. This can expose the Company to changes in credit spreads as the written credit default swap tenor is shorter than the maturity of Treasury bonds. Embedded Derivatives See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for (i) information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy and (ii) a rollforward of the fair value measurements for net embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs. See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits (“GMxB”) accounted for as embedded derivatives. Policyholder Liabilities 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. 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 We establish liabilities for amounts payable under insurance policies. See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements. A discussion of future policy benefits 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. Policyholder Account Balances Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender. See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements. 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. Policyholder account balances also include amounts associated with funding agreements issued in connection with our institutional spread margin business. See “— Liquidity and Capital Resources — The Company — Primary Sources of Liquidity and Capital — Funding Sources — Funding Agreements.” 76 Table of Contents 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 (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 — 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. Net Amount at Risk The net amount at risk (“NAR”) for the GMIB is the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents our potential economic exposure to such guarantees in the event all contract holders were to annuitize on the balance sheet date, even though the guaranteed amount under the contract may not be annuitized until after the waiting period of the contract. The NAR for the guaranteed minimum 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. Our variable annuity account value and NAR by type of GMxB were as follows at: June 30, 2022 (1) December 31, 2021 (1) Account Value Death Benefit NAR (1) Living Benefit NAR (1) % of Account Value In-the-Money (2) Account Value Death Benefit NAR (1) Living Benefit NAR (1) % of Account Value In-the-Money (2) (Dollars in millions) GMIB $ 32,871 $ 5,368 $ 5,923 58.2 % $ 42,328 $ 1,809 $ 5,056 37.3 % GMIB Max with EDB (3) 8,697 5,273 382 34.1 % 11,118 2,926 155 13.1 % GMIB Max without EDB 4,909 158 84 17.8 % 6,289 3 29 4.8 % GMWB 20,113 1,626 888 34.2 % 25,322 139 680 23.2 % GMAB 550 19 19 23.0 % 750 1 1 0.6 % GMDB only (other than EDB) 16,161 1,795 — N/A 20,233 935 — N/A EDB only 3,137 1,298 — N/A 3,928 548 — N/A Total $ 86,438 $ 15,537 $ 7,296 $ 109,968 $ 6,361 $ 5,921 __________________ (1) The “Death Benefit NAR” and “Living Benefit NAR” are not additive at the contract level. (2) In-the-money is defined as any contract with a living benefit NAR in excess of zero. (3) EDB is defined as enhanced death benefits. 77 Table of Contents Reserves 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 $6.6 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 $1.7 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 $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: June 30, 2022 December 31, 2021 Future Policy Benefits Policyholder Account Balances Total Reserves Future Policy Benefits Policyholder Account Balances Total Reserves (In millions) GMIB $ 3,503 $ 1,644 $ 5,147 $ 3,374 $ 1,787 $ 5,161 GMIB Max 1,055 103 1,158 967 (36) 931 GMWB 326 9 335 327 97 424 GMAB — (10) (10) — — — GMDB 1,712 — 1,712 1,535 — 1,535 Total $ 6,596 $ 1,746 $ 8,342 $ 6,203 $ 1,848 $ 8,051 The carrying values of these guarantees can change significantly during periods of sizable and sustained shifts in equity market performance, equity market volatility, or interest rates. Carrying values are also affected by our assumptions around mortality, separate account returns and policyholder behavior, including lapse, annuitization and withdrawal rates. See “Risk Factors — Risks Related to Our Business — Guarantees within certain of our annuity products may decrease our earnings, decrease our capitalization, increase the volatility of our results, result in higher risk management costs and expose us to increased market risk” included in our 2021 Annual Report. Furthermore, changes in policyholder behavior assumptions can result in additional changes in accounting estimates. 78 Table of Contents Derivatives Hedging Variable Annuity Guarantees The gross notional amount and estimated fair value of the derivatives held in our macro interest rate hedging program were as follows at: June 30, 2022 December 31, 2021 Instrument Type Gross Notional Amount (1) Estimated Fair Value Gross Notional Amount (1) Estimated Fair Value Assets Liabilities Assets Liabilities (In millions) Interest rate swaps $ 2,480 $ 126 $ — $ 1,780 $ 229 $ 17 Interest rate options 16,414 63 33 8,050 83 — Interest rate forwards 12,095 19 1,684 9,808 627 109 Hybrid options (2) 900 — — 900 8 — Total $ 31,889 $ 208 $ 1,717 $ 20,538 $ 947 $ 126 __________________ (1) The gross notional amounts presented do not necessarily represent the relative economic coverage provided by option instruments because certain positions were closed out by entering into offsetting positions that are not netted in the above table. (2) Hybrid options have equity exposure in addition to interest rate exposure. 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: June 30, 2022 December 31, 2021 Instrument Type Gross Notional Amount (1) Estimated Fair Value Gross Notional Amount (1) Estimated Fair Value Assets Liabilities Assets Liabilities (In millions) Equity index options $ 21,842 $ 553 $ 834 $ 20,695 $ 889 $ 876 Equity total return swaps 25,258 1,235 829 32,719 493 588 Equity variance swaps 281 9 1 281 9 1 Interest rate swaps 2,480 125 — 1,780 229 17 Interest rate options 15,813 63 19 7,450 28 — Interest rate forwards 6,727 19 865 4,440 218 13 Hybrid options 900 — — 900 8 — Total $ 73,301 $ 2,004 $ 2,548 $ 68,265 $ 1,874 $ 1,495 __________________ (1) The gross notional amounts presented do not necessarily represent the relative economic coverage provided by option instruments because certain positions were closed out by entering into offsetting positions that are not netted in the above table. Period-to-period changes in the estimated fair value of these hedges affect our net income, as well as stockholders’ equity and these effects can be material in any given period. See “Risk Factors — Risks Related to Our Business — Our variable annuity exposure risk management strategy may not be effective, may result in significant volatility in our profitability measures and may negatively affect our statutory capital,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies” included in our 2021 Annual Report. 79 Table of Contents Liquidity and Capital Resources Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility or disruptions in global capital markets, particular markets or financial asset classes can impact us adversely, in part because we have a large investment portfolio and our insurance liabilities and derivatives are sensitive to changing market factors. 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 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 Based upon our capitalization, expectations regarding maintaining our business mix, ratings, and funding sources available to us, we believe we have sufficient liquidity to meet business requirements in current market conditions and certain stress scenarios. Our Board of Directors and senior management are directly involved in the governance of the capital management process, including proposed changes to the annual capital plan and capital targets. We 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 $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 $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. Assets pledged or otherwise committed include amounts received in connection with securities lending, funding agreements, derivatives and assets held on deposit or in trust. The Company Liquidity Liquidity refers to our ability to generate adequate cash flows from our normal operations to meet the cash requirements of our operating, investing and financing activities. We determine our liquidity needs based on a rolling 12-month forecast by portfolio of invested assets, which we monitor daily. We adjust the general account asset and derivatives mix and general account asset maturities based on this rolling 12-month forecast. To support this forecast, we conduct cash flow and stress testing, which reflect the impact of various scenarios, including (i) the potential increase in our requirement to pledge additional collateral or return collateral to our counterparties, (ii) a reduction in new business sales, and (iii) the risk of early contract holder and policyholder withdrawals, as well as lapses and surrenders of existing policies and contracts. We include provisions limiting withdrawal rights in many of our products, which deter the customer from making withdrawals prior to the maturity date of the product. If significant cash is required beyond our anticipated liquidity needs, we have various alternatives available depending on market conditions and the amount and timing of the liquidity need. These available alternative sources of liquidity include cash flows from operations, sales of liquid assets and funding sources, including secured funding agreements, unsecured credit facilities and secured committed facilities. Under certain adverse market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase. Capital We manage our capital position to maintain our financial strength and credit ratings. Our capital position is supported by our ability to generate cash flows within our insurance companies, our ability to effectively manage the risks of our businesses and our expected ability to borrow funds and raise additional capital to meet operating and growth needs under a variety of market and economic conditions. 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, 80 Table of Contents 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 level in normal market conditions. 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. We currently have no plans to declare and pay dividends on our common stock. Any future declaration and payment of dividends or other distributions or returns of capital will be at the discretion of our Board of Directors and will depend on and be subject to our financial condition, results of operations, cash needs, regulatory and other constraints, capital requirements (including capital requirements of our insurance subsidiaries), contractual restrictions and any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we will pay any dividends or make other distributions or returns of capital on our common stock, or as to the amount of any such dividends, distributions or returns of capital. Sources and Uses of Liquidity and Capital Our primary sources and uses of liquidity and capital were as follows at: Six Months Ended June 30, 2022 2021 (In millions) Sources: 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 Uses: Investing activities, net 5,019 4,412 Changes in payables for collateral under securities loaned and other transactions, net — 109 Long-term debt repaid 1 1 Dividends on preferred stock 53 46 Treasury stock acquired in connection with share repurchases 259 192 Financing element on certain derivative instruments and other derivative related transactions, net 112 118 Other, net 13 8 Total uses 5,457 4,886 Net increase (decrease) in cash and cash equivalents $ 597 $ 774 Cash Flows from Operating Activities The principal cash inflows from our insurance activities come from insurance premiums, annuity considerations and net investment income. The principal cash outflows are the result of various annuity and life insurance products, operating expenses and income tax, as well as interest expense. The primary liquidity concern with respect to these cash flows is the risk of early contract holder and policyholder withdrawal. 81 Table of Contents Cash Flows from Investing Activities The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments and settlements of freestanding derivatives. We typically can have a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our ALM discipline to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. Cash Flows from Financing Activities The principal cash inflows from our financing activities come from issuances of debt and equity securities, deposits of funds associated with policyholder account balances and lending of securities. The principal cash outflows come from repayments of debt, common stock repurchases, preferred stock dividends, withdrawals associated with policyholder account balances and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal. Primary Sources of Liquidity and Capital In addition to the summary description of liquidity and capital sources discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary sources of liquidity and capital: Funding Sources Liquidity is provided by a variety of funding sources, including secured and unsecured funding agreements, unsecured credit facilities and secured committed facilities. Capital is provided by a variety of funding sources, including issuances of debt and equity securities, as well as borrowings under our credit facilities. We maintain a shelf registration statement with the SEC that permits the issuance of public debt, equity and hybrid securities. As a “Well-Known Seasoned Issuer” under SEC rules, our shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity. The diversity of our funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary funding sources include: Preferred Stock See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements and Note 10 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report for information on preferred stock issuances. Funding Agreements From time to time, Brighthouse Life Insurance Company issues funding agreements and uses the proceeds from such issuances for spread lending purposes in connection with our institutional spread margin business or to provide additional liquidity. The institutional spread margin business is comprised of funding agreements issued in connection with the programs described in more detail below. See Note 3 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report for additional information on funding agreements. Funding Agreement-Backed Commercial Paper Program In July 2021, Brighthouse Life Insurance Company established a funding agreement-backed commercial paper program (the “FABCP Program”) for spread lending purposes, pursuant to which a special purpose limited liability company (the “SPLLC”) may issue commercial paper and deposit the proceeds with Brighthouse Life Insurance Company under a funding agreement issued by Brighthouse Life Insurance Company to the SPLLC. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABCP Program is $3.0 billion. Activity related to this funding agreement is reported in Corporate & Other. Funding Agreement-Backed Notes Program In April 2021, Brighthouse Life Insurance Company established a funding agreement-backed notes program (the “FABN Program”), pursuant to which Brighthouse Life Insurance Company may issue funding agreements to a special purpose statutory trust for spread lending purposes. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program is $5.0 billion. Activity related to these funding agreements is reported in Corporate & Other. 82 Table of Contents 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 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 secured funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”) with a term ending on December 31, 2023, pursuant to which the parties may enter into funding agreements in an aggregate amount of up to $500 million either (i) for spread lending purposes or (ii) to provide additional liquidity. Activity related to these funding agreements is reported in Corporate & Other. Information regarding funding agreements issued for spread lending purposes is as follows: Aggregate Principal Amount Outstanding Issuances Repayments Six Months Ended June 30, June 30, 2022 December 31, 2021 2022 2021 2022 2021 (In millions) FABCP Program $ 1,721 $ 1,848 $ 5,015 $ — $ 5,142 $ — FABN Program 3,450 2,900 550 2,000 — — FHLB Funding Agreements 2,900 900 3,750 600 1,750 — Farmer Mac Funding Agreements 500 125 400 25 25 — Total $ 8,571 $ 5,773 $ 9,715 $ 2,625 $ 6,917 $ — Debt Issuances See Note 9 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report for information on debt issuances. 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 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. As commitments under our credit and committed facilities may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements. 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 June 30, 2022, we were in compliance with these financial covenants. Primary Uses of Liquidity and Capital In addition to the summarized description of liquidity and capital uses discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary uses of liquidity and capital: Common Stock Repurchases 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. 83 Table of Contents Preferred Stock Dividends See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements for information relating to dividends declared and paid on our preferred stock. 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. 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. 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. 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 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. 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 $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. Securities Lending 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 $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 June 30, 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 11 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information regarding contingencies. 84 Table of Contents 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 11 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 11 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information regarding guarantees. The Parent Company Liquidity and Capital In evaluating liquidity, it is important to distinguish the cash flow needs of the parent company from the cash flow needs of the combined group of companies. BHF is largely dependent on cash flows from its insurance subsidiaries to meet its obligations. Constraints on BHF’s liquidity may occur as a result of operational demands or as a result of compliance with regulatory requirements. Short-term Liquidity and Liquid Assets 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 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. Assets pledged or otherwise committed include assets held in trust. Statutory Capital and Dividends The NAIC and state insurance departments have established regulations that provide minimum capitalization requirements based on RBC formulas for insurance companies. RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital (“TAC”) does not meet or exceed certain RBC levels. As of the date of the most recent annual statutory financial statements filed with insurance regulators, the TAC of each of our insurance subsidiaries subject to these requirements was in excess of each of those RBC levels. The amount of dividends that our insurance subsidiaries can ultimately pay to BHF through their various parent entities provides an additional margin for risk protection and investment in our businesses. Such dividends are constrained by the amount of surplus our insurance subsidiaries hold to maintain their ratings, which is generally higher than minimum RBC requirements. We proactively take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial resources from internal or external sources of capital. Certain of these activities may require regulatory approval. Furthermore, the payment of dividends and other distributions by our insurance subsidiaries is governed by insurance laws and regulations. See Note 10 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report. Primary Sources and Uses of Liquidity and Capital The principal sources of funds available to BHF include distributions from Brighthouse Holdings, LLC (“BH Holdings”), dividends and returns of capital from its insurance subsidiaries and BRCD, capital markets issuances, as well as its own cash and cash equivalents and short-term investments. These sources of funds may also be supplemented by alternate sources of liquidity either directly or indirectly through our insurance subsidiaries. For example, we have established internal liquidity facilities to provide liquidity within and across our regulated and non-regulated entities to support our businesses. 85 Table of Contents The primary uses of liquidity of BHF include debt-service obligations (including interest expense and debt repayments), preferred stock dividends, capital contributions to subsidiaries, common stock repurchases and payment of general operating expenses. Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enable BHF to make payments on debt, pay preferred stock dividends, contribute capital to its subsidiaries, repurchase its common stock, pay all general operating expenses and meet its cash needs. In addition to the liquidity and capital sources discussed in “— The Company — Primary Sources of Liquidity and Capital” and “— The Company — Primary Uses of Liquidity and Capital,” the following additional information is provided regarding BHF’s primary sources and uses of liquidity and capital: Distributions from and 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 BHF, as borrower, has a short-term intercompany loan agreement with certain of its non-insurance subsidiaries, as lenders, for the purposes of facilitating the management of the available cash of the borrower and the lenders on a short-term and consolidated basis. Such intercompany loan agreement allows management to optimize the efficient use of and maximize the yield on cash between BHF and its subsidiary lenders. Each loan entered into under this intercompany loan agreement has a term not more than 364 days and bears interest on the unpaid principal amount at a variable rate, payable monthly. During the 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 BHF has established intercompany liquidity facilities with certain of its insurance and non-insurance subsidiaries to provide short-term liquidity within and across the combined group of companies. Under these facilities, which are comprised of a series of revolving loan agreements among BHF and its participating subsidiaries, each company may lend to or borrow from each other, subject to certain maximum limits for a term not more than 364 days. During both the 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. 86 Table of Contents Note Regarding Forward-Looking Statements 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. We have tried, wherever possible, to identify such statements using words such as “anticipate,” “estimate,” “expect,” “project,” “may,” “will,” “could,” “intend,” “goal,” “target,” “guidance,” “forecast,” “preliminary,” “objective,” “continue,” “aim,” “plan,” “believe” and other words and terms of similar meaning, or that are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include, without limitation, statements relating to future actions, prospective services or products, financial projections, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, as well as trends in operating and financial results. Any or all forward-looking statements may turn out to be wrong. 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 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. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others: • differences between actual experience and actuarial assumptions and the effectiveness of our actuarial models; • higher risk management costs and exposure to increased market risk due to guarantees within certain of our products; • the effectiveness of our variable annuity exposure risk management strategy and the impact of such strategy on volatility in our profitability measures and negative effects on our statutory capital; • material differences from actual outcomes compared to the sensitivities calculated under certain scenarios and sensitivities that we may utilize in connection with our variable annuity risk management strategies; • the impact of interest rates on our future ULSG policyholder obligations and net income volatility; • the impact of the 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; • loss of business and other negative impacts resulting from a downgrade or a potential downgrade in our financial strength or credit ratings; • the availability of reinsurance and the ability of the counterparties to our reinsurance or indemnification arrangements to perform their obligations thereunder; • heightened competition, including with respect to service, product features, scale, price, actual or perceived financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition; • our ability to market and distribute our products through distribution channels; • any failure of third parties to provide services we need, any failure of the practices and procedures of such third parties and any inability to obtain information or assistance we need from third parties; • the ability of our 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; • the impact of adverse capital and credit market conditions, including with respect to our ability to meet liquidity needs and access capital; • the impact of economic conditions in the capital markets and the U.S. and global economy, as well as geo-political 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; 87 Table of Contents • the impact of events that adversely affect issuers, guarantors or collateral relating to our investments or our derivatives counterparties, on impairments, valuation allowances, reserves, net investment income and changes in unrealized gain or loss positions; • the impact of changes in regulation and in supervisory and enforcement policies on our insurance business or other operations; • the potential material negative tax impact of potential future tax legislation that could make some of our products less attractive to consumers; • the effectiveness of our policies and procedures in managing risk; • 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, 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; and • other factors described in this report and from time to time in documents that we file with the SEC. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements included and the risks, uncertainties and other factors identified in our 2021 Annual Report, particularly in the sections entitled “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk,” as well as in our other subsequent filings with the SEC. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law. Corporate Information We routinely use our Investor Relations website to provide presentations, press releases and other information that may be deemed material to investors. Accordingly, we encourage investors and others interested in the Company to review the information that we share at http://investor.brighthousefinancial.com. In addition, our Investor Relations website allows interested persons to sign up to automatically receive e-mail alerts when we post financial information. Information contained on or connected to any website referenced in this report or any of our other filings with the SEC is not incorporated by reference in this report or in any other report or document we file with the SEC, and any website references are intended to be inactive textual references only unless expressly noted.