What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-05 · 301 added, 193 removed, 1108 unchanged (31% of the section changed)

15 unchanged sentences

(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.

(iv) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (the “Second Quarter Form 10-Q” and, together with the First Quarter Form 10-Q, the “Quarterly Reports”) filed with the SEC on August 5, 2022;

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

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

15 unchanged sentences

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.

See “Business — Segments and Corporate & Other” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary” 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.

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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

10 unchanged sentences

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

For the three months ended 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.

For the three months ended September 30, 2022, we had a net loss available to shareholders of $702 million and adjusted earnings of $97 million compared to net income available to shareholders of $361 million and adjusted earnings of $450 million for the three months ended September 30, 2021.

Net loss available to shareholders for the three months ended September 30, 2022 primarily reflects net unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to 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 variable annuity and universal life with secondary guarantees (“ULSG”) business.

These unfavorable impacts were partially offset by favorable changes to the estimated fair value of embedded derivative liabilities associated with Shield Level Annuities (“Shield liabilities”), which was driven by lower equity markets and favorable pre-tax adjusted earnings.

For the nine months ended September 30, 2022, we had net income available to shareholders of $868 million and adjusted earnings of $415 million compared to a net loss available to shareholders of $239 million and adjusted earnings of $1.3 billion for the nine months ended September 30, 2021.

Net income available to shareholders for the nine months ended September 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.

5 unchanged sentences

In addition, significant changes or updates in certain of these trends and uncertainties are discussed below.

Financial and Economic Environment

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

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

Equity market performance can affect our profitability for variable annuities and other separate account products

as a result of the effects it has on product demand, revenues, expenses, reserves and our risk management effectiveness.

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

Low interest rates and risk premium, including credit spread, affect new money rates on invested assets and the cost of product guarantees.

Insurance premium growth and demand for our products is impacted by the general health of U.S.

economic activity.

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

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

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

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

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

We continue to closely monitor political and economic conditions that might contribute to market volatility and its impact on our business operations, investment portfolio and derivatives, such as global inflation, supply chain disruptions, the Russia-Ukraine conflict and the COVID-19 pandemic.

See “— Investments — Current Environment” herein, as well as “Risk Factors — Economic Environment and Capital Markets-Related Risks,” “Risk Factors — Investments-Related Risks,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies,” “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” included in our 2021 Annual Report for a detailed discussion of financial and economic impacts on our business, including the potential impacts of interest rate risk and inflation risk on our investments and overall business.

COVID-19 Pandemic

2 unchanged sentences

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.

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 and Uncertainties — 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

4 unchanged sentences

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.”

Federal Tax Reform

On August 16, 2022, the Inflation Reduction Act was signed into law by President Biden.

The Inflation Reduction Act establishes a 15% corporate alternative minimum tax (“CAMT”) for corporations whose average annual adjusted financial statement income for any consecutive three–tax year period ending after December 31, 2021 and preceding the tax year

exceeds $1 billion.

The Inflation Reduction Act also establishes a one percent excise tax on stock repurchases made by publicly traded U.S.

corporations.

Both provisions are effective for tax years beginning after December 31, 2022.

Department of Treasury is expected to issue further guidance regarding the CAMT.

Accordingly, the Company is currently unable to assess the applicability of the CAMT or the potential impact the CAMT may have on the Company’s financial statements.

The excise tax for stock repurchases will be applicable to any net repurchases of the Company’s common or preferred stock made after December 31, 2022.

It is possible that the CAMT could result in an additional tax liability over the regular federal corporate tax liability in a given year based on differences between book and taxable income (including as a result of temporary differences).

The CAMT could result in our incurring materially higher federal income taxes.

New York Regulation 47

In August 2022, the New York Department of Financial Services (“NYDFS”) amended Insurance Regulation 47 (as amended, “Regulation 47”), which implemented new requirements for certain annuity products.

Certain sections of Regulation 47 will be effective as of January 1, 2023, with the remainder effective January 1, 2024.

The regulation is likely to open the New York market to new competitors and will impact some components of our current product designs.

We continue to assess the impact of these new factors on our sales in New York.

See “Risk Factors — Risks Related to our Business — Factors affecting our competitiveness may adversely affect our market share or profitability” and “Risk Factors — Risks Related to our Business — We may experience difficulty in marketing and distributing products through our distribution channels” in our 2021 Annual Report.

New York Regulation 187

In July 2018, the NYDFS amended Insurance Regulation 187 (as amended, “Regulation 187”), adopting a “best interest” standard for the sale of annuities and life insurance products in New York.

Regulation 187 generally requires that an insurance producer or insurer consider only a consumer’s best interest, and not the financial interests of the producer or insurer, in making a recommendation as to which life insurance or annuity product a consumer should purchase.

In addition, Regulation 187 imposes a best interest standard on consumer in-force transactions.

We have assessed the impact to our annuity and life insurance businesses and have adopted certain changes to promote compliance with the provisions by their respective effective dates.

On April 29, 2021, the Appellate Division of the New York State Supreme Court overturned the amendment to Regulation 187 for being unconstitutionally vague, and the NYDFS filed an appeal to the New York Court of Appeals on May 27, 2021.

On October 20, 2022, the New York Court of Appeals held that the amendment to Regulation 187 is constitutional, which leaves Regulation 187 in effect.

Summary of Critical Accounting Estimates

54 unchanged sentences

Results of Operations

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

Annual Actuarial Review

We typically conduct our annual actuarial review (“AAR”) in the third quarter of each year.

As a result of the 2022 AAR, we increased the long-term general account earned rate, driven by an increase in our mean reversion rate from 3.00% to 3.50%, which had the largest impact on our ULSG business.

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

For our life business, in addition to the update in the long-term general account earned rate, we updated assumptions regarding policyholder behavior, including mortality, premium persistency, lapses, withdrawals, as well as maintenance expenses.

In 2021, the most significant impact from our AAR was updating assumptions regarding policyholder behavior, including mortality, premium persistency, lapses, withdrawals and maintenance expenses.

This update had the largest impact on our ULSG business.

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

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

The following table presents the impact of the AAR on income (loss) available to shareholders before provision for income tax for the nine months ended September 30, 2022 and 2021.

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

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

Nine Months Ended

September 30,

(In millions)

GMLBs $ (94) $ (42)

Included in pre-tax adjusted earnings:

Other annuity business (57) 4

Life business (6) 4

Run-off 162 (113)

Total included in pre-tax adjusted earnings 99 (105)

Total impact on income (loss) available to shareholders before provision for income tax $ 5 $ (147)

Consolidated Results for the Three Months and Nine Months Ended September 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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

25 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

10 unchanged sentences

$ (702) $ 361 $ 868 $ (239)

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:

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

Loss available to shareholders before provision for income tax was $895 million ($702 million, net of income tax), a decrease of $1.4 billion ($1.1 billion, net of income tax) from income available to shareholders before provision for income tax of $466 million ($361 million, net of income tax) in the prior period.

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

• the unfavorable impact of long-term benchmark interest rates on interest rate derivatives used to manage interest rate exposure in our ULSG business, as the long-term benchmark interest rate increased in the current period and decreased in the prior period;

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

• losses from GMLB Riders, see “— GMLB Riders for the Three Months and Nine Months Ended September 30, 2022 and 2021.”

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

The increase 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.

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Income available to shareholders before provision for income tax was $1.1 billion ($868 million, net of income tax), an increase of $1.4 billion ($1.1 billion, net of income tax) from a loss available to shareholders before provision for income tax of $329 million ($239 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.”

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

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

7 unchanged sentences

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

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Annuities Life Run-off Corporate & Other Total

12 unchanged sentences

Adjusted earnings $ 125 $ (7) $ (21) $ — $ 97

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Annuities Life Run-off Corporate & Other Total

12 unchanged sentences

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

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Annuities Life Run-off Corporate & Other Total

12 unchanged sentences

Adjusted earnings $ 640 $ 42 $ (169) $ (98) $ 415

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Annuities Life Run-off Corporate & Other Total

12 unchanged sentences

Adjusted earnings $ 1,059 $ 220 $ 236 $ (245) $ 1,270

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

Consolidated Results for the Three Months and Nine Months Ended September 30, 2022 and 2021 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

10 unchanged sentences

Adjusted earnings $ 97 $ 450 $ 415 $ 1,270

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

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

Adjusted earnings were $97 million in the current period, a decrease of $353 million.

Key net unfavorable impacts were:

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

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

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

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

partially offset by

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

• lower net investment spread due to:

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

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

partially offset by

1 unchanged sentence

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

◦ higher returns on real estate limited partnerships and LLCs;

• lower fee income due to:

• higher net amortization of DAC and VOBA due to:

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

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

◦ 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 current period related to actuarial model refinements in Corporate & Other;

• lower net 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 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

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

Key net favorable impacts were:

• lower other expenses due to:

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

◦ lower transition services agreement expenses;

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

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

◦ an adjustment in the current period related to actuarial model refinements in Corporate & Other;

partially offset by

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

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 13% in the current period compared to 21% in the prior period.

Our effective tax rate differs from the statutory tax rate primarily due to the 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

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Adjusted earnings were $415 million in the current period, a decrease of $855 million.

Key net unfavorable impacts were:

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

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

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

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

partially offset by

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

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

• lower net investment spread due to:

4 unchanged sentences

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

◦ higher returns on real estate limited partnerships and LLCs;

• lower fee income due to:

◦ higher returns on real estate limited partnerships and LLC s ;

• lower net fee income due to:

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

1 unchanged sentence

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

partially offset by

◦ higher unearned revenue amortization resulting from changes made in connection with the AAR in our Life segment;

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

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

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

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

partially offset by

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

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

◦ an adjustment in the current period related to actuarial model refinements in Corporate & Other;

• 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;

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

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

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

◦ an adjustment in the current period related to actuarial model refinements in Corporate & Other.

Key net favorable impacts were:

2 unchanged sentences

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

◦ lower deferred compensation and operational expenses;

◦ lower transition services agreement expenses;

◦ lower deferred compensation and operational expenses;

partially offset by

2 unchanged sentences

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

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

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

11 unchanged sentences

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)

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

Three Months Ended September 30, 2022 (1)

Nine Months Ended September 30, 2022 (1)

(In millions)

9 unchanged sentences

_______________

(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

(1) Includes income annuities for which separate account balances at September 30, 2022 were $137 million.

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

Adjusted earnings were $125 million in the current period, a decrease of $260 million.

1 unchanged sentence

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

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

◦ higher volume and severity of GMDB claims;

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

◦ an increase in GMDB liabilities, partially offset by a favorable adjustment to deferred sales inducements (“DSI”), resulting primarily from changes in policyholder behavior and capital markets assumptions, as well as model refinements made in connection with the AAR;

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

◦ higher severity of GMDB claims;

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

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

• higher amortization of DAC and VOBA due to:

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

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

◦ an unfavorable impact resulting primarily from changes in policyholder behavior and capital markets assumptions, as well as model refinements made in connection with the AAR.

Key favorable impacts were:

5 unchanged sentences

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

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Adjusted earnings were $640 million in the current period, a decrease of $419 million.

2 unchanged sentences

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

◦ an increase in GMDB liabilities, partially offset by a favorable adjustment to DSI, resulting primarily from changes in policyholder behavior and capital markets assumptions, as well as model refinements made in connection with the AAR;

◦ higher volume and severity of GMDB claims;

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

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

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

• higher amortization of DAC and VOBA due to:

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

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

◦ an unfavorable impact resulting primarily from changes in policyholder behavior and capital markets assumptions, as well as model refinements made in connection with the AAR.

Key favorable impacts were:

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

8 unchanged sentences

Adjusted earnings $ (7) $ 110 $ 42 $ 220

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.

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

Adjusted earnings were a loss of $7 million in the current period, a decrease of $117 million.

Key unfavorable impacts were:

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

• lower fee income due to:

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

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

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

• higher amortization of DAC and VOBA resulting primarily from changes in policyholder behavior and capital markets assumptions, as well as model refinements made in connection with the AAR;

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

Key favorable impacts were:

• lower other expenses due to:

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

◦ lower transition services agreement expenses;

◦ lower deferred compensation expenses;

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

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

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 22% in both the current and prior periods.

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

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

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Adjusted earnings were $42 million in the current period, a decrease of $178 million.

Key unfavorable impacts were:

• lower fee income due to:

Key net unfavorable impacts were:

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

• lower net fee income due to:

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

1 unchanged sentence

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

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

partially offset by

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

• higher amortization of DAC and VOBA due to:

◦ an unfavorable impact resulting primarily from changes in policyholder behavior and capital markets assumptions, as well as model refinements made in connection with the AAR;

◦ the impact on gross profits from lower separate account returns;

partially offset by

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

Key favorable impacts were:

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

8 unchanged sentences

Adjusted earnings $ (21) $ 38 $ (169) $ 236

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

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

Adjusted earnings were a loss of $21 million in the current period, a decrease of $59 million.

Key unfavorable impacts were:

Key unfavorable impact was:

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

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

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

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

Key net favorable impacts were:

• lower net costs associated with insurance-related activities, primarily in our ULSG business, due to:

◦ a decrease in liability balances resulting primarily from changes in policyholder behavior and capital markets assumptions, as well as model refinements made in connection with the AAR;

partially offset by

◦ lower paid claims, net of reinsurance.

◦ higher paid claims, net of reinsurance;

• lower other expenses primarily due to lower transition services agreement expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 22% in the current period compared to 10% 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

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Adjusted earnings were a loss of $169 million in the current period, a decrease of $405 million.

4 unchanged sentences

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

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

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

partially offset by

◦ lower paid claims, net of reinsurance;

Key net favorable impacts were:

• lower net costs associated with insurance-related activities, primarily in our ULSG business, due to:

◦ a decrease in liability balances resulting primarily from changes in policyholder behavior and capital markets assumptions, as well as model refinements made in connection with the AAR;

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

partially offset by

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

◦ higher 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 12% in the prior period.

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

9 unchanged sentences

Adjusted earnings $ — $ (83) $ (98) $ (245)

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.

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

Adjusted earnings were $0 in the current period, an increase of $83 million.

Key favorable impacts were:

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

• lower costs associated with insurance-related activities due to an adjustment in the current period related to actuarial model refinements;

• lower amortization of DAC and VOBA due to an adjustment in the current period related to actuarial model refinements;

• lower other expenses due to lower establishment costs.

2 unchanged sentences

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

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Adjusted earnings were a loss of $98 million in the current period, a lower loss of $147 million.

1 unchanged sentence

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

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

◦ an adjustment in the current period related to actuarial model refinements;

◦ lower paid claims, net of reinsurance;

• lower other expenses due to lower establishment costs;

• lower amortization of DAC and VOBA due to an adjustment in the current period related to actuarial model refinements.

Key unfavorable impact was:

• higher preferred stock dividends 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 58% in the current period compared to 16% in the prior period.

1 unchanged sentence

GMLB Riders for the Three Months and Six Months Ended June 30, 2022 and 2021

GMLB Riders for the Three Months and Nine Months Ended September 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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

7 unchanged sentences

__________________

(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;

(1) Excludes living benefit fees, included as a component of adjusted earnings, of $13 million and $16 million for the three months ended September 30, 2022 and 2021, respectively, and $40 million and $45 million for the nine months ended September 30, 2022 and 2021, respectively.

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

Comparative results from GMLB Riders were unfavorable by $392 million, primarily driven by:

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

• unfavorable changes to GMLB DAC;

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

partially offset by

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

Lower equity markets resulted in the following impacts:

5 unchanged sentences

Higher interest rates resulted in the following impacts:

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

partially offset by

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

• unfavorable changes to GMLB DAC;

• unfavorable changes in ceded reinsurance;

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

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

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

• unfavorable changes to GMLB DAC;

partially offset by

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

There was an unfavorable change in the adjustment for nonperformance risk in the current period.

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Comparative results from GMLB Riders were favorable by $3.6 billion, primarily driven by:

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

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

partially offset by

1 unchanged sentence

• unfavorable changes to GMLB DAC;

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

Lower equity markets resulted in the following impacts:

12 unchanged sentences

• 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.

There was a favorable change in the adjustment for nonperformance risk in the current period.

Investment Risks

8 unchanged sentences

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

Credit spread tightening will reduce

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

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

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

18 unchanged sentences

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;

During the first nine months of 2022, the Federal Reserve has increased the target range for the federal funds rate five 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.

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

to between 2.25% and 2.50% on July 27, 2022;

and to between 3.00% and 3.25% on September 21, 2022.

On November 2, 2022, the Federal Reserve further increased the target range for the federal fund rate from between 3.00% and 3.25% to between 3.25% and 4.00%.

The Federal Reserve has indicated further increases to the target range for the federal funds rate could occur.

These target range increases have contributed to a decrease in the net unrealized gains in our investment portfolio, and any additional target increases could similarly contribute to further decreases.

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.

See “— Industry Trends and Uncertainties — Financial and Economic Environment,” as amended herein, as well as “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.

Selected Sector Investments

3 unchanged sentences

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.

During the nine months ended September 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 September 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.

1 unchanged sentence

Our exposure to energy sector fixed maturity securities was $2.6 billion, with net unrealized gains (losses) of ($377) million.

Of the $2.7 billion exposure to energy sector fixed maturity securities, 89% were investment grade at June 30, 2022.

Of the $2.6 billion exposure to energy sector fixed maturity securities, 89% were investment grade at September 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 $1.5 billion, with net unrealized gains (losses) of ($258) million.

Of the $1.6 billion exposure to retail sector corporate fixed maturity securities, 94% were investment grade at June 30, 2022.

Of the $1.5 billion exposure to retail sector corporate fixed maturity securities, 94% were investment grade at September 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.

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

7 unchanged sentences

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

Asset carrying values exclude unrealized gains (losses), collateral received in

connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.

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

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

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

3 unchanged sentences

Adjusted net investment income — in the above yield table $ 900 $ 1,287 $ 3,127 $ 3,696

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.

See “— Results of Operations — Consolidated Results for the Three Months and Nine Months Ended September 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

September 30, 2022 December 31, 2021

Fair Value % of

11 unchanged sentences

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

September 30, 2022 December 31, 2021

Designation NRSRO Rating Amortized

22 unchanged sentences

(In millions)

June 30, 2022

September 30, 2022

corporate $ 14,492 $ 15,379 $ 1,721 $ 500 $ 34 $ 12 $ 32,138

19 unchanged sentences

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 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 1% and 2% of total investments at September 30, 2022 and December 31, 2021, respectively.

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Fair Value % of

9 unchanged sentences

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.

We held $19.7 billion and $20.8 billion of Structured Securities, at estimated fair value, at September 30, 2022 and December 31, 2021, respectively, as presented in the RMBS, CMBS and ABS sections below.

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Fair Value % of

20 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

13 unchanged sentences

Total $ 7,321 $ 6,616 $ 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 rated Aaa using rating agency ratings was $4.6 billion, or 69.1% of total CMBS, and designated NAIC 1 was $6.3 billion, or 94.6% of total CMBS, at September 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.

1 unchanged sentence

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Fair Value % of

30 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Amortized Cost % of

7 unchanged sentences

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

located in the U.S.

were 97% at both September 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.

At September 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, 11% for Texas and 10% for New York.

2 unchanged sentences

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.

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

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

was 39% for California, 10% for Florida and 7% for New York.

2 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Total Amount % of

31 unchanged sentences

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

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

The monitoring process for agricultural

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

Our residential mortgage loans are reviewed on an ongoing basis.

8 unchanged sentences

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.

For our commercial mortgage loans, our average loan-to-value ratio was 57% and 58% at September 30, 2022 and December 31, 2021, respectively, and our average debt-service coverage ratio was 2.2x at both September 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.

For our agricultural mortgage loans, our average loan-to-value ratio was 47% and 46% at September 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.

3 unchanged sentences

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 September 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.

3 unchanged sentences

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

September 30, 2022 December 31, 2021

(In millions)

3 unchanged sentences

__________________

(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.

(1) The estimated fair value of real estate limited partnerships and LLCs was $834 million and $595 million at September 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.

2 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Total Carrying

11 unchanged sentences

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.

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

4 unchanged sentences

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:

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

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

4 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Gross Notional

19 unchanged sentences

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.

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

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

25 unchanged sentences

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

June 30, 2022 (1)

September 30, 2022 (1)

December 31, 2021 (1)

15 unchanged sentences

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.

Therefore, these liabilities, valued at $7.2 billion at September 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.

These liabilities, valued at $1.7 billion at September 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.

These liabilities, valued at $2.0 billion at September 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

September 30, 2022 December 31, 2021

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

12 unchanged sentences

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

September 30, 2022 December 31, 2021

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

10 unchanged sentences

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

September 30, 2022 December 31, 2021

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

22 unchanged sentences

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.

We maintain a substantial short-term liquidity position, which was $3.4 billion and $3.8 billion at September 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.

An integral part of our liquidity management includes managing our level of liquid assets, which was $41.5 billion and $54.9 billion at September 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.

23 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

(In millions)

3 unchanged sentences

Total sources 9,481 10,268

Operating activities, net 939 —

Investing activities, net 7,596 9,665

Changes in payables for collateral under securities loaned and other transactions, net — 109

Long-term debt repaid 2 1

40 unchanged sentences

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.

The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program was increased from $5.0 billion to $7.0 billion in August 2022.

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

3 unchanged sentences

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.

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”) pursuant to which the parties may enter into funding agreements either (i) for spread lending purposes or (ii) to provide additional liquidity.

In September 2022, Brighthouse Life Insurance Company amended this program to (i) extend the term from December 31, 2023 to December 1, 2026 and (ii) increase the maximum aggregate principal amount permitted to be outstanding from $500 million to $750 million.

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

2 unchanged sentences

Outstanding Issuances Repayments

Six Months Ended June 30,

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

Nine Months Ended September 30,

September 30, 2022 December 31, 2021 2022 2021 2022 2021

(In millions)

12 unchanged sentences

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.

At September 30, 2022, we were in compliance with these financial covenants.

Primary Uses of Liquidity and Capital

1 unchanged sentence

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.

Subsequent to September 30, 2022 and through November 3, 2022, BHF repurchased an additional 954,210 shares of its common stock through open market purchases, pursuant to a 10b5-1 plan, for $47 million.

Preferred Stock Dividends

7 unchanged sentences

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.

During the nine months ended September 30, 2022 and 2021, general account surrenders and withdrawals, including repayments of funding agreements in connection with our institutional spread margin business, totaled $14.3 billion and $2.2 billion, respectively.

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

2 unchanged sentences

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 September 30, 2022, we pledged $7 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.

At both September 30, 2022 and December 31, 2021, we were obligated to return cash collateral pledged to us by counterparties of $1.7 billion.

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

1 unchanged sentence

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.

The amount of this non-cash collateral at estimated fair value was $2.7 billion and $593 million at September 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.

2 unchanged sentences

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.

Under our securities lending program, we were liable for cash collateral under our control of $4.8 billion and $4.6 billion at September 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.

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

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

13 unchanged sentences

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.

At September 30, 2022 and December 31, 2021, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.1 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.

At September 30, 2022 and December 31, 2021, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.1 billion and $1.6 billion, respectively, of which $1.1 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.

21 unchanged sentences

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.

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

During the nine months ended September 30, 2022 and 2021, BHF did not make any cash capital contributions to BH Holdings.

Short-term Intercompany Loans

2 unchanged sentences

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.

During the nine months ended September 30, 2022 and 2021, BHF borrowed $661 million and $547 million, respectively, from certain of its non-insurance subsidiaries and repaid $945 million and $614 million of such borrowings during the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022 and December 31, 2021, BHF had total obligations outstanding of $428 million and $712 million, respectively, under such agreements.

Intercompany Liquidity Facilities

1 unchanged sentence

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.

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

Note Regarding Forward-Looking Statements

45 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis