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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 287 added, 301 removed, 1184 unchanged (33% of the section changed)

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Virgin Islands;

• New England Life Insurance Company (“NELICO”), domiciled in Massachusetts and licensed to write business in all U.S.

• NELICO, domiciled in Massachusetts and licensed to write business in all U.S.

states and the District of Columbia;

• Brighthouse Life Insurance Company of NY (“BHNY”), domiciled in New York and licensed to write business only in New York, which is a subsidiary of Brighthouse Life Insurance Company;

• Brighthouse Reinsurance Company of Delaware (“BRCD”), our reinsurance subsidiary domiciled and licensed in Delaware, which is a subsidiary of Brighthouse Life Insurance Company;

• Brighthouse Investment Advisers, LLC (“Brighthouse Advisers”), serving as investment advisor to certain proprietary mutual funds that are underlying investments under our and MetLife’s variable insurance products;

• Brighthouse Services, LLC (“Brighthouse Services”), an internal services and payroll company;

• Brighthouse Securities, LLC (“Brighthouse Securities”), registered as a broker-dealer with the SEC, approved as a member of FINRA and registered as a broker-dealer and licensed as an insurance agency in all required states;

• BHNY, domiciled in New York and licensed to write business only in New York, which is a subsidiary of Brighthouse Life Insurance Company;

• BRCD, our reinsurance subsidiary domiciled and licensed in Delaware, which is a subsidiary of Brighthouse Life Insurance Company;

• Brighthouse Advisers, serving as investment advisor to certain proprietary funds that are underlying investments under our and MetLife’s variable insurance products;

• Brighthouse Services, LLC, an internal services and payroll company;

• Brighthouse Securities, registered as a broker-dealer with the SEC, approved as a member of FINRA and registered as a broker-dealer and licensed as an insurance agency in all required states;

• Brighthouse Holdings, LLC (“BH Holdings”), a direct holding company subsidiary of Brighthouse Financial, Inc.

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

• “Risk Management Strategies” describes the Company’s risk management strategy to protect against capital markets risks specific to our variable annuity and universal life with secondary guarantees (“ULSG”) businesses.

• “Industry Trends and Uncertainties” discusses updates and changes to a number of trends and uncertainties 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 GAAP results.

• “Risk Management Strategies” describes the Company’s risk management strategy to protect against capital markets risks specific to our variable annuity and ULSG businesses.

• “Summary of Critical Accounting Estimates” explains the most critical estimates and judgments applied in determining our results in accordance with 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.

As described in this section, adjusted earnings is presented by key business activities which are derived, but different, from 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.

• “Results of Operations” begins with a discussion of our AAR, including a summary of the changes made to the key assumptions in 2022 and 2021, as well as the resulting impact on net income (loss) available to shareholders in each period.

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

Our Results of Operations discussion and analysis presents a review for the years ended December 31, 2022 and 2021 and year-to-year comparisons between these years.

Our Results of Operations discussion and analysis for the year ended December 31, 2021, including a review of the 2021 AAR and year-to-year comparisons between the years ended December

31, 2021 and 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Annual Report”), which was filed with the SEC on February 24, 2022, and such discussions are incorporated herein by reference.

Executive Summary

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

For the year ended December 31, 2021, we had a net loss available to shareholders of $197 million and adjusted earnings of $1.6 billion, compared to a net loss available to shareholders of $1.1 billion and an adjusted loss of $278 million for the year ended December 31, 2020.

The net loss available to shareholders for the year ended December 31, 2021 is primarily due to net unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) partially offset by favorable pre-tax adjusted earnings.

GMLB Riders results reflect impacts from higher equity markets and interest rates, as well as narrowing credit spreads resulting in an unfavorable adjustment for nonperformance risk.

For the year ended December 31, 2022, we had a net loss available to shareholders of $99 million and adjusted earnings of $657 million, compared to a net loss available to shareholders of $197 million and adjusted earnings of $1.6 billion for the year ended December 31, 2021.

Net loss available to shareholders for the year ended December 31, 2022 was primarily due to increasing long-term interest rates, which resulted in an unfavorable change in the estimated fair value of the freestanding interest rate derivatives we use to hedge our ULSG business and net investment losses reflecting net losses on sales of fixed maturity securities.

These unfavorable impacts were partially offset by net favorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to market factors and favorable pre-tax adjusted earnings.

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

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By managing the interest rate exposure on a net basis, we expect to more efficiently manage the derivative portfolio, protect capital and reduce costs.

We refer to this aggregated approach to managing interest rate risk as our macro interest rate

hedging program.

We refer to this aggregated approach to managing interest rate risk as our macro interest rate hedging program.

This program may also include hybrid options that have other risk exposure in addition to interest rate exposure.

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_______________

(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.

(1) The gross notional amounts presented do not necessarily represent the relative economic coverage provided by derivative instruments because certain positions were closed out by entering into offsetting positions that are not netted in the above table.

The aggregate interest rate derivatives are then allocated to the variable annuity guarantee and ULSG businesses based on the hedge targets of the respective programs as of the balance sheet date.

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Given this alignment and the fact that we have a large non-variable annuity business, we manage capital metrics on a combined RBC ratio.

In support of our target combined 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 CTE98 level in normal market conditions.

In support of our target combined RBC ratio of 400% to 450% in normal market conditions, we expect to maintain a capital and exposure risk management program that targets total assets supporting our variable annuity contracts at or above the CTE98 level in normal market conditions.

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

We have enhanced our risk management focus on the core drivers of our combined RBC ratio and have refined our hedge program to better manage our RBC in stressed market scenarios.

With our risk management focus on the core drivers of our combined RBC ratio, we can also better manage our RBC in stressed market scenarios.

See “Glossary” for the definition of CTE98.

Our exposure risk management program seeks to mitigate the potential adverse effects of changes in capital markets, specifically equity markets and interest rates, on our Variable Annuity Target Funding Level, as well as on our statutory distributable earnings.

We utilize a combination of short-term and longer-term derivative instruments to establish a layered maturity of protection, which we believe will reduce rollover risk during periods of market disruption or higher volatility.

When setting our hedge target, we consider the fact that our obligations under Shield Annuity contracts decrease in falling equity markets when variable annuity guarantee obligations increase, and increase in rising equity markets when variable annuity guarantee obligations decrease.

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See “Glossary” for the definition of CTE.

We continually review our hedging strategy in the context of our overall capitalization targets as well as monitor the capital markets for opportunities to adjust our derivative positions to manage our variable annuity exposure, as appropriate.

We revised our hedging strategy in 2019 to reduce the use of options and move to more swap-based instruments to protect statutory capital against smaller market moves.

This strategy is designed to preserve distributable earnings across more market scenarios.

While we have generally experienced lower time decay expense as a result of adopting this strategy, we also expect to incur larger hedge mark-to-market losses in rising equity markets as compared to our previous strategy.

We intend to maintain an adequate amount of liquid investments in our variable annuity investment portfolio to support any contingent collateral posting requirements from this hedging strategy.

Under this strategy, we plan to operate with a first loss position of no more than $500 million.

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However, under such a scenario there would be an offset in required statutory capital.

We believe the increased capital protection in down markets increases our financial flexibility and supports deploying capital for growing long-term, sustainable shareholder value.

However, because our hedging strategy places a low priority on offsetting changes to GAAP liabilities, GAAP net income volatility will likely result when markets are volatile and over time potentially impact stockholders’ equity.

We believe the level of our capital protection in down markets provides us financial flexibility and supports deploying capital for growing long-term, sustainable shareholder value.

However, because our hedging strategy places a lower priority on offsetting changes to GAAP liabilities, GAAP net income volatility will likely result when markets are volatile and over

time potentially impact stockholders’ equity.

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” and “— Summary of Critical Accounting Estimates.”

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interest rates and bond yields.

To help ensure we have sufficient assets to meet future ULSG policyholder obligations, we have employed an actuarial approach based upon NY Regulation 126 Cash Flow Testing (“ULSG CFT”) to set our ULSG asset requirement target for BRCD, which reinsures the majority of the ULSG business written by our insurance subsidiaries.

For the business retained by our insurance subsidiaries, we set our ULSG asset requirement target to equal the actuarially determined statutory reserves, which, taken together with our ULSG asset requirement target of BRCD, comprises our total ULSG asset requirement target (“ULSG Target”).

To help ensure we have sufficient assets to meet future ULSG policyholder obligations, we have employed an actuarial approach based upon ULSG CFT to set our ULSG asset requirement target for BRCD, which reinsures the majority of the ULSG business written by our insurance subsidiaries.

Under the ULSG CFT approach, we assume that interest rates remain flat or lower than current levels and our actuarial assumptions include a provision for adverse deviation.

These underlying assumptions used in ULSG CFT are more conservative than those required under GAAP, which assumes a long-term upward mean reversion of interest rates and best estimate actuarial assumptions without additional provisions for adverse deviation.

These underlying assumptions used in ULSG CFT include scenarios that are more conservative than those required under GAAP, which assumes a long-term upward mean reversion of interest rates and best estimate actuarial assumptions without additional provisions for adverse deviation.

We seek to mitigate interest rate exposures associated with these liabilities by holding ULSG Assets to closely match our ULSG Target under different interest rate environments.

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Likewise, if interest rates rise, our ULSG Target declines.

The interest rate derivatives allocated to ULSG Assets prioritizes the ULSG Target (comprised of ULSG CFT and statutory considerations), with less emphasis on

mitigating GAAP net income volatility.

The interest rate derivatives allocated to ULSG Assets prioritizes the ULSG Target (comprised of ULSG CFT and statutory considerations), with less emphasis on mitigating GAAP net income volatility.

This could increase the period to period volatility of net income and equity due to differences in the sensitivity of the ULSG Target and GAAP liabilities to the changes in interest rates.

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In addition, our macro interest rate hedging program is designed to help us maintain ULSG Assets above the ULSG Target when interest rates decline.

Maintaining ULSG Assets that closely match our ULSG Target supports our target combined RBC ratio of between 400% and 450% in normal market conditions.

Maintaining ULSG Assets that closely match our ULSG Target supports our target combined RBC ratio of 400% to 450% in normal market conditions.

Industry Trends and Uncertainties

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In addition, the following factors represent 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.

COVID-19 Pandemic

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

At this time, it continues to not be possible to estimate the severity or duration of the pandemic, including (i) the severity, duration and frequency of any additional “waves” or emerging variants of COVID-19 and (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 aspects of our business model.

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.”

In response to the COVID-19 pandemic, management promptly implemented our business continuity plans, and we shifted all our employees to a remote-work environment, where they currently remain.

Our sales and support teams remain fully operational, and the COVID-19 pandemic has not interrupted our ability to service our distribution partners and customers.

Additionally, we continue to closely monitor all aspects of our business, including but not limited to, levels of sales and claims activity, policy lapses or surrenders, payments of premiums, sources and uses of liquidity, the valuation of our investments and the performance of our derivatives programs.

We have observed varying degrees of impact in these areas, and we have taken prudent and proportionate measures to address such impacts;

however, at this time we continue to be unable to predict if the COVID-19 pandemic will have a material adverse impact on our business, financial condition or results of operations.

We continue to closely monitor this evolving situation as we remain focused on ensuring the health and safety of our employees, on supporting our partners and customers as usual and on mitigating potential adverse impacts to our business.

Economic uncertainty resulting from the COVID-19 pandemic continues to impact sales of certain of our products, and we are providing relief to customers affected by adverse circumstances due to the COVID-19 pandemic, as disclosed in “Business — Regulation — Insurance Regulation.” While the relief granted to customers to date has not had a material impact on our financial condition or results of operations, it continues to not be possible to estimate the potential impact of any future relief.

Circumstances resulting from the COVID-19 pandemic have also impacted the incidence of claims, the utilization of benefits, lapses or surrenders of policies and payments on insurance premiums, though such impacts have not been material through the end of 2021.

Additionally, while circumstances resulting from the COVID-19 pandemic have not materially impacted services we receive from third-party vendors or led to the identification of new loss contingencies or any increases in existing loss contingencies, there can be no assurance that any future impact from the COVID-19 pandemic, including, without limitation, with respect to revenues and expenses associated with our products, services we receive from third-party vendors, or loss contingencies, will not be material.

Certain sectors of our investment portfolio may have been, and may in the future be, adversely affected as a result of the impact of the COVID-19 pandemic on capital markets and the global economy, as well as uncertainty regarding its duration and outcome.

See “— Investments — Current Environment — Selected Sector Investments,” “— Investments — Mortgage

Loans — Loan Modifications Related to the COVID-19 Pandemic” and Note 6 of the Notes to the Consolidated Financial Statements.

Credit rating agencies may continue to review and adjust their ratings for the companies that they rate, including us.

The credit rating agencies also evaluate the insurance industry as a whole and may change our credit rating based on their overall view of our industry.

See “Risk Factors — Risks Related to Our Business — A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and materially adversely affect our financial condition and results of operations” and “— Liquidity and Capital Resources — The Company — Rating Agencies.”

Changes in Accounting Standards

Our financial statements are subject to the application of GAAP, which is periodically revised by the FASB.

The FASB issued an accounting standards update (“ASU”), effective January 1, 2023, that will result in significant changes to the accounting for long-duration insurance contracts, including a requirement that all variable annuity guarantees be considered market risk benefits and measured at fair value.

The Company is evaluating the new guidance and therefore is unable to estimate the impact on its financial statements.

The ASU will change the pattern and market sensitivity of our results of operations, including our net income, and, at prevailing interest rate levels at the end of 2021, the Company expects the ASU, upon adoption, would likely result in a material decrease in stockholders’ equity.

The FASB issued an accounting standards update (“ASU”), effective January 1, 2023, that results in significant changes to the accounting for long-duration insurance contracts, including a requirement that all variable annuity guarantees be considered market risk benefits and measured at fair value.

LDTI is expected to change the pattern and market sensitivity of the Company’s earnings.

See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of the estimated impacts.

See also “Risk Factors — Risks Related to Our Business — Changes in accounting standards issued by the Financial Accounting Standards Board may adversely affect our financial statements.”

Financial and Economic Environment

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

Interest rates may 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.

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.

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See “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.”

The above factors affect our expectations regarding future margins, which in turn, affect the amortization of certain of our intangible assets such as DAC.

Significantly lower expected margins may cause us to accelerate the amortization of DAC, thereby reducing net income in the affected reporting period.

economy generally persist or are perceived to persist, they may materially adversely affect our business and results of operations” and “Risk Factors — Risks Related to our Investment Portfolio — Our investment portfolio is subject to significant financial risks both in the U.S.

The above factors affect our expectations regarding future margins.

We review our long-term assumptions about capital markets returns and interest rates, along with other assumptions such as contract holder behavior, as part of our annual actuarial review.

As additional company specific or industry information on contract holder behavior becomes available, related assumptions may change and may potentially have a material impact on liability valuations and net income.

COVID-19 Pandemic

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

At this time, it continues to not be possible to estimate the severity, duration and frequency of any additional “waves” or emerging variants of COVID-19.

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 to revisit or revise any targets we may provide to the markets or any aspects of our business model.

We continue to closely monitor all aspects of our business, including but not limited to, levels of sales and claims activity, policy lapses or surrenders, and payments of premiums.

We have observed varying degrees of impact in these areas, and we have taken prudent and proportionate measures to address such impacts, though such impacts have not been material through December 31, 2022.

We believe that demographic trends in the U.S.

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The life insurance industry remains highly fragmented and competitive.

See “Business — Competition”.

In particular, we believe that financial strength and financial flexibility are highly relevant differentiators from the perspective of customers and distributors.

See “Business — Competition.” In particular, we believe that financial strength and financial flexibility are highly relevant differentiators from the perspective of customers and distributors.

We believe we are adequately positioned to compete in this environment.

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The Company also maintains a profit followed by losses reserve on universal life insurance with secondary guarantees, determined by projecting future earnings and establishing a liability to offset losses that are expected to occur in later years.

The most significant assumptions used in estimating our ULSG

liabilities are the general account rate of return, premium persistency, mortality and lapses, which are reviewed and updated at least annually.

The most significant assumptions used in estimating our ULSG liabilities are the general account rate of return, premium persistency, mortality and lapses, which are reviewed and updated at least annually.

The measurement of our ULSG liabilities can be significantly impacted by changes in our expected general account rate of return, which is driven by our assumption for long-term treasury yields.

Our practice of projecting treasury yields uses a mean reversion approach that assumes that long-term interest rates are less influenced by short-term fluctuations and are only changed when sustained interim deviations are expected.

Our current projections assume reversion to a ten-year treasury rate of 3.00% over a period of ten years.

As part of our 2021 AAR, we increased our projected long-term general account earned rate, while maintaining our mean reversion rate at 3.00%, which resulted in a decrease in our ULSG liabilities of $12 million.

As part of our 2022 AAR, we increased our projected long-term general account earned rate, as well as our mean reversion rate over a period of ten years from 3.00% to 3.50%, which resulted in a decrease in our ULSG liabilities of $107 million.

We also updated other assumptions related to ULSG, see “— Results of Operations — Annual Actuarial Review” for more information.

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The effect of an increase (decrease) by 100 basis points in the assumed future rate of return is reasonably likely to result in a decrease (increase) in the DAC amortization with an offset to our unearned revenue liability which nets to approximately $260 million.

We use a mean reversion approach to separate account returns where the mean reversion period is five years with a long-term separate account return after the five-year reversion period is over.

We use a mean reversion approach to separate

account returns where the mean reversion period is five years with a long-term separate account return after the five-year reversion period is over.

The current long-term rate of return assumption for variable annuity and variable universal life insurance contracts is in the 6.00-7.00% range.

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See Note 1 of the Notes to the Consolidated Financial Statements for additional information relating to the determination of the accounting model.

Risk margins are established to capture the non-capital markets risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions.

The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.

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Once established, unrecognized tax benefits are adjusted when there is more information available or when events occur requiring a change.

Valuation allowances are established against deferred tax assets, particularly those arising from carryforwards, when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized.

not be realized.

The realization of deferred tax assets related to carryforwards depends upon the existence of sufficient taxable income within the carryforward periods under the tax law in the applicable tax jurisdiction.

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Component of Adjusted Earnings How Derived from GAAP (1)

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

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

(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 gains 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).

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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.”

Adjusted net investment income represents GAAP net investment income plus Investment Hedge Adjustments.

For a reconciliation of adjusted net investment income to net investment income, the most directly comparable GAAP measure, see table note (3) to the summary yield table located in “— Investments — Current Environment — Investment Portfolio Results.”

Other Financial Disclosure s

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

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

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

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

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

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

Results of Operations

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

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

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 to 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 to the long-term general account earned rate, we updated assumptions regarding policyholder behavior, including mortality, premium persistency, lapses, withdrawals and 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.

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

These updates had the largest impact on our ULSG business.

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.

In 2020, the most significant impact from our AAR was decreasing the long-term general account earned rate, driven by a reduction in our mean reversion rate from 3.75% to 3.00%, which had the largest impact on our ULSG business.

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

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

The following table presents the impact of the AAR on pre-tax adjusted earnings and income (loss) available to shareholders before provision for income tax for the years ended December 31, 2021 and 2020.

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

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

The impact of the AAR on income (loss) available to shareholders before provision for income tax was as follows:

Years Ended December 31,

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Income (loss) before provision for income tax

(208) (1,419)

Provision for income tax expense (benefit)

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

(108) (1,061)

Preferred stock dividends

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

(302) (1,468)

Provision for income tax expense (benefit)

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Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021

Loss available to shareholders before provision for income tax was $302 million ($197 million, net of income tax), a lower loss of $1.2 billion ($908 million, net of income tax) from a loss available to shareholders before provision for income tax of $1.5 billion ($1.1 billion, net of income tax) in the prior period.

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

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

• lower losses from GMLB Riders, see “— GMLB Riders for the Years Ended December 31, 2021 and 2020.”

Loss available to shareholders before provision for income tax was $281 million ($99 million, net of income tax), a lower loss of $21 million ($98 million, net of income tax) from a loss available to shareholders before provision for income tax of $302 million ($197 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 Years Ended December 31, 2022 and 2021.”

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

• losses on interest rate derivatives used to manage interest rate exposure in our ULSG business due to the long-term benchmark interest rate increasing in the current period and decreasing in the prior period, partially offset by favorable returns on equity options from equity markets increasing more in the current period than in the prior period;

• net investment losses reflecting current period net losses on sales of fixed maturity securities compared to prior period net gains.

• 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;

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

• net investment losses reflecting higher current period net losses on sales of fixed maturity securities.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 106% in the current period compared to 50% in the prior period.

The increase in the effective tax rate was driven by higher 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.

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, tax credits and current period non-recurring items.

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

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Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021

Adjusted earnings were $1.6 billion in the current period, an increase of $1.9 billion.

Key net favorable impacts were:

• higher net investment spread due to:

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

Adjusted earnings were $657 million in the current period, a decrease of $936 million.

Key net unfavorable impacts were:

• lower net investment spread due to:

◦ lower returns on other limited partnerships compared to the prior period;

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;

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

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

partially offset by

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

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

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

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

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

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

• higher net amortization of DAC and VOBA due to:

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

◦ 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

◦ higher paid claims, net of reinsurance;

• lower amortization of DAC and VOBA due to:

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

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

• higher net fee income resulting from:

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

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

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

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

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

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

partially offset by

◦ a decline in the net cost of insurance fees driven by the aging in-force business in our Run-off segment;

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

Key net unfavorable impacts were:

• higher other expenses due to:

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

◦ higher premium paid in excess of debt principal in connection with the repurchase of senior notes in the current period;

◦ higher corporate spending related to distribution and operations;

◦ 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.

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 premium paid in excess of debt principal related to the repurchase of senior notes in the prior period;

◦ lower transition services agreement expenses;

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

◦ lower interest expenses in the current period related to prior year tax matters;

◦ lower establishment costs;

◦ lower deferred compensation and operational expenses;

partially offset by

◦ lower interest expense and legal reserves;

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

◦ 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 2% in the current period compared to 18% in the prior period.

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

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

Segments and Corporate & Other Results for the Years Ended December 31, 2022 and 2021 — Adjusted Earnings

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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.

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 increased for the year ended December 31, 2021, driven by favorable investment performance, partially offset by negative net flows and policy charges.

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

Year Ended December 31, 2022 (1)

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Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021

Adjusted earnings were $1.4 billion in the current period, an increase of $282 million.

Key net favorable impacts were:

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

• lower amortization of DAC and VOBA due to:

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

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

• higher net investment spread due to:

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

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

◦ higher returns on real estate limited partnerships and LLCs;

partially offset by

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

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

Key net unfavorable impacts were:

Adjusted earnings were $926 million in the current period, a decrease of $523 million.

Key unfavorable impacts were:

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

◦ a net increase in guaranteed minimum death benefit (“GMDB”) liabilities resulting from changes in policyholder behavior assumptions made in connection with the AAR and favorable equity market performance;

partially offset by

◦ a decrease in income annuity benefit payments;

• higher other expenses due to:

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

◦ higher distribution expenses.

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

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

◦ higher volume and severity of GMDB claims;

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

• 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:

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

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 deferred compensation expenses;

◦ 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 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.

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Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021

Adjusted earnings were $287 million in the current period, an increase of $139 million.

Key net favorable impacts were:

• higher net investment spread due to:

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

Adjusted earnings were $22 million in the current period, a decrease of $265 million.

Key net unfavorable impacts were:

• lower net investment spread due to lower returns on other limited partnerships compared to the prior period;

• higher amortization of DAC and VOBA due to:

◦ an unfavorable impact primarily resulting 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

• lower amortization of DAC and VOBA due to:

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

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

Key net unfavorable impacts were:

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

• lower net fee income due to:

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

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

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

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

partially offset by

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

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

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 and operational expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 4% in the current period compared to 21% in the prior period.

12 unchanged sentences

Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021

Adjusted earnings were $191 million in the current period, an increase of $1.5 billion.

Key favorable impacts were:

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

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

The increase in adjusted earnings was partially offset by a decline in the net cost of insurance fees driven by the aging in-force business.

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.

Adjusted earnings were a loss of $289 million in the current period, a decrease of $480 million.

Key net unfavorable impacts were:

• lower net investment spread due to lower returns on other limited partnerships compared to the prior period;

• higher other expenses due to:

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

partially offset by

◦ lower transition services agreement expenses.

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 primarily resulting 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 resulting 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 22% in the prior period.

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

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Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021

Adjusted earnings were a loss of $334 million in the current period, a higher loss of $40 million.

Key unfavorable impacts were:

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

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

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

Key net favorable impacts were:

Adjusted earnings were a loss of $2 million in the current period, a lower loss of $332 million.

Key favorable impacts were:

• lower other expenses due to:

◦ lower establishment costs, interest expense and legal reserves;

partially offset by

◦ higher premium paid in excess of debt principal in connection with the repurchase of senior notes in the current period;

• higher net investment spread due to:

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

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

partially offset by

◦ lower returns on short-term investments.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 31% in the current period compared to 26% in the prior period.

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

◦ higher premium paid in excess of debt principal related to the repurchase of senior notes in the prior period;

◦ lower interest expenses in the current period related to prior year tax matters;

◦ lower establishment costs;

• 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 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 a higher effective tax rate in the current period compared to 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.

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For guarantee rider embedded derivatives, the future fees are included in the estimated fair value of the embedded derivative liabilities, with changes recorded in net derivative gains (losses).

For guarantee rider benefits accounted for as insurance, while the related fees do affect the valuation of these liabilities, they are not included in the resulting liability values, but are recorded separately in universal life and investment-type policy fees.

Changes in the estimated fair value of GMLB Liabilities that are accounted for as embedded derivatives result in a corresponding recognition of DAC amortization that generally has an inverse effect on net income (loss), which we refer to as the DAC offset.

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Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021

Comparative results from GMLB Riders were favorable by $255 million.

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

Results were also driven by:

• unfavorable changes in our GMLB hedges;

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

• unfavorable changes in ceded reinsurance;

Comparative results from GMLB Riders were favorable by $3.2 billion, primarily driven by:

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

partially offset by

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

• favorable changes in GMLB DAC.

Higher interest rates resulted in the following impacts:

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

• unfavorable changes to GMLB DAC;

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

Lower equity markets resulted in the following impacts:

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

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

• favorable changes in ceded reinsurance;

partially offset by

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

• 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;

• unfavorable changes in ceded reinsurance;

1 unchanged sentence

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

Higher equity markets resulted in the following impacts:

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

partially offset by

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

• favorable changes to GMLB DAC.

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

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”:

• 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 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;

• financial and operational risks related to using external investment managers.

See “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.”

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.

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

Investment Risk Management Strategy

We manage the risks related to our investment portfolio through asset-type allocation as well as industry and issuer diversification.

We also use risk limits to promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit and equity risk exposure.

We manage real estate risk through geographic, property type and product type diversification and asset allocation.

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.

We also utilize product design, such as the use of market value adjustment features and surrender charges to manage interest rate risk.

These ALM 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 for the full liability duration, thereby creating some asset/liability mismatch.

We also use certain derivatives in the management of credit, interest rate, equity market and foreign currency exchange rate risks.

Investment Management Agreements

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

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

insurance company, we are affected by the monetary policy of the Federal Reserve in the U.S.

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

1 unchanged sentence

See “— Industry Trends and Uncertainties — Financial and Economic Environment.”

In 2022, the Federal Reserve increased the target range for the federal funds rate seven times, from between 0% and 0.25% to between 4.25% and 4.50% as of December 31, 2022.

On February 1, 2023, the Federal Reserve further increased the target range for the federal funds rate from between 4.25% and 4.50% to between 4.50% and 4.75%.

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.

In the current period, as a result of rising interest rates, the unrealized losses on our fixed maturity securities exceeded the unrealized gains.

If interest rates continue to rise, our unrealized gains would decrease, and our unrealized losses would increase, perhaps substantially.

See “Risk Factors — Risks Related to Our Investment Portfolio — Our investment portfolio is subject to significant financial risks both in the U.S.

Selected Sector Investments

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

Contributing factors include concerns about energy and oil prices impacting the energy sector and the COVID-19 pandemic.

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

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

Our exposure to energy sector fixed maturity securities was $3.3 billion, with net unrealized gains (losses) of $291 million, of which 90% were investment grade, at December 31, 2021.

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.

See “Risk Factors — Risks Related to Our Investment Portfolio — Our investment portfolio is subject to significant financial risks both in the U.S.

and global financial markets, including credit risk, interest rate risk, inflation risk, market valuation risk, liquidity risk, real estate risk, derivatives risk, and other factors outside our control, the occurrence of any of which could have a material adverse effect on our financial condition and results of operations,” and “Risk Factors — Risks Related to Our Investment Portfolio — 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.”

There has been an increased market focus on retail sector investments as a result of evolving consumer habits.

Our exposure to retail sector corporate fixed maturity securities was $1.5 billion, with net unrealized gains (losses) of ($216) million, of which 95% were investment grade, at December 31, 2022.

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

See “— Investments — Mortgage Loans” and Note 6 of the Notes to the 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 AFS — Structured Securities” for information on Structured Securities, including security type, risk profile and ratings profile.

In addition to the fixed maturity securities discussed above, we have retail sector exposure through mortgage loans and certain Structured Securities.

See “Risk Factors — Risks Related to Our Investment Portfolio — Our investment portfolio is subject to significant financial risks both in the U.S.

and global financial markets, including credit risk, interest rate risk, inflation risk, market valuation risk, liquidity risk, real estate risk, derivatives risk, and other factors outside our control, the occurrence of any of which could have a material adverse effect on our financial condition and results of operations,” “— Investments — Mortgage Loans” and Note 6 of the Notes to the 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.

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_______________

(1) Investment income yields are calculated as investment income as a percent 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.

(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 discussed in table note (3) below to

arrive at adjusted net investment income.

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

(2) Investment fee and expense yields are calculated as 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.

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If our insurance subsidiaries and BRCD acquire Structured Securities that have not been previously evaluated by the NAIC but are expected to be evaluated by the NAIC in the upcoming annual review, an internally developed designation is used until a final designation becomes available.

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:

The following table presents total fixed maturity securities by nationally statistical rating organizations (“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:

December 31, 2022 December 31, 2021

27 unchanged sentences

CMBS 6,240 351 9 7 4 — 6,611

State and political subdivision 4,646 181 1 — 7 — 4,835

ABS 4,648 672 17 12 10 — 5,359

State and political subdivision 3,682 105 1 — 11 — 3,799

Foreign government 661 392 28 — — — 1,081

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CMBS 6,882 391 1 5 3 — 7,282

State and political subdivision 4,450 188 2 — — — 4,640

ABS 3,686 550 19 15 10 — 4,280

State and political subdivision 4,646 181 1 — 7 — 4,835

Foreign government 963 768 101 — — — 1,832

2 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 2% of total investments at December 31, 2021 and 2020.

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

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

51 unchanged sentences

2021 821 748 810 806

2022 462 442 — —

Total $ 7,324 $ 6,611 $ 6,976 $ 7,282

13 unchanged sentences

Collateralized obligations $ 3,239 60.5 % $ (124) $ 2,659 62.1 % $ (1)

Student loans 384 9.0 6 247 8.6 5

Consumer loans 420 7.8 (36) 342 8.0 —

Student loans 393 7.3 (34) 384 9.0 6

Automobile loans 216 4.0 (9) 151 3.5 2

9 unchanged sentences

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.

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.

24 unchanged sentences

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

was 21% for California, 10% for New York and 10% for Texas.

was 18% for California, 11% 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.

11 unchanged sentences

Geographic region:

Pacific $ 2,601 21.3 % $ 2,670 27.5 %

South Atlantic $ 3,026 22.3 % $ 2,383 19.6 %

Pacific 2,765 20.4 2,601 21.3

Middle Atlantic 2,344 17.3 2,115 17.3

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Mountain 1,140 8.4 1,062 8.7

New England 789 6.5 453 4.7

East North Central 794 5.8 717 5.9

New England 741 5.4 789 6.5

International 390 2.9 495 4.1

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Office 3,375 24.9 3,566 29.3

Retail 1,863 15.3 2,068 21.3

Industrial 2,051 15.1 1,847 15.1

Retail 1,934 14.3 1,863 15.3

Hotel 848 6.2 1,016 8.3

Other — — 30 0.3

Total recorded investment 13,574 100.0 % 12,187 100.0 %

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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% and 57% at December 31, 2021 and 2020, respectively, and our average debt-service coverage ratio was 2.2x and 2.3x at December 31, 2021 and 2020, respectively.

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 57% and 58% at December 31, 2022 and 2021, respectively, and our average debt-service coverage ratio was 2.2x at both December 31, 2022 and 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.

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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 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.

At December 31, 2020, the recorded investment on mortgage loans where borrowers were offered debt service forbearance and were not making payments was $299 million, comprised of $197 million commercial mortgage loans, $23 million of agricultural mortgage loans and $79 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 6 of the Notes to the Consolidated Financial Statements.

Mortgage Loan Allowance for Credit Losses.

See Notes 6 and 8 of the Notes to the 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 years ended December 31, 2021 and 2020.

See Note 6 of the Notes to the 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 years ended December 31, 2022 and 2021.

Limited Partnerships and Limited Liability Companies

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Freestanding derivatives with positive estimated fair values $ 2,284 80.1 % $ 3,126 94.3 %

Company-owned life insurance 250 8.8 — —

FHLB stock 201 7.0 70 2.1

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• 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 December 31, 2022 and 2021.

• The statement of operations effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships for the years ended December 31, 2021, 2020 and 2019.

See “— Risk Management Strategies” and “Business — Segments and Corporate & Other — Annuities” for more information about our use of derivatives by major hedging programs, as well as “— Results of Operations — Annual Actuarial Review.”

• The statement of operations effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships for

the years ended December 31, 2022, 2021 and 2020.

See “Business — Segments and Corporate & Other — Annuities” and “— Risk Management Strategies” for more information about our use of derivatives by major hedging programs, as well as “— Results of Operations — Annual Actuarial Review” and “Risk Factors — Risks Related to our Investment Portfolio — Our investment portfolio is subject to significant financial risks both in the U.S.

Fair Value Hierarchy

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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.

and foreign currency swaps with certain unobservable inputs.

See Note 7 of the Notes to the 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.

See “Risk Factors — Risks Related to our Investment Portfolio — Our investment portfolio is subject to significant financial risks both in the U.S.

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

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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.

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.

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.

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Future Policy Benefits

We establish liabilities for amounts payable under insurance policies.

We establish liabilities for future amounts payable under insurance policies.

See “— Summary of Critical Accounting Estimates — Liability for Future Policy Benefits” and Notes 1 and 3 of the Notes to the Consolidated Financial Statements.

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The reinsurance programs are routinely evaluated, and this may result in increases or decreases to existing coverage.

We have entered into various derivative positions, primarily interest rate swaps, to mitigate the risk that

investment of premiums received and reinvestment of maturing assets over the life of the policy will be at rates below those assumed in the original pricing of these contracts.

We have entered into various derivative positions, primarily interest rate swaps, to mitigate the risk that investment of premiums received and reinvestment of maturing assets over the life of the policy will be at rates below those assumed in the original pricing of these contracts.

Future policy benefits primarily include liabilities for structured settlements and pension risk transfer contracts.

There is no interest rate crediting flexibility on the liabilities for immediate annuities.

As a result, a sustained low interest rate environment could negatively impact earnings;

As a result, a sustained low interest rate

environment could negatively impact earnings;

however, we mitigate our risks by applying various ALM strategies, including the use of derivative positions, primarily interest rate swaps, to mitigate the risks associated with such a scenario.

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

A discussion of policyholder account balances by segment, as well as Corporate & Other, follows.

Also, see “— Variable Annuity Guarantees,” “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates” and Notes 1 and 3 of the Notes to the Consolidated Financial Statements for additional information.

Policyholder account balances also include amounts associated with funding agreements issued in connection with our institutional spread margin business or for additional liquidity.

See “— Liquidity and Capital Resources — The Company — Primary Sources of Liquidity and Capital — Funding Sources — Funding Agreements.”

See “— Variable Annuity Guarantees,” “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates” and Notes 1 and 3 of the Notes to the Consolidated Financial Statements for additional information.

Policyholder account balances also include amounts associated with funding agreements issued for additional liquidity or 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.” A discussion of policyholder account balances by segment follows.

Policyholder account balances for annuities are held for fixed deferred annuities, the fixed account portion of variable annuities and non-life contingent income annuities.

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

For further information regarding market factors that could affect our ability to meet liquidity and capital needs, including those related to the COVID-19 pandemic, see “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,” “— Industry Trends and Uncertainties — COVID-19 Pandemic” and “— Investments — Current Environment.”

For further information regarding market factors that could affect our ability to meet liquidity and capital needs, see “— Industry Trends and Uncertainties — Financial and Economic Environment,” as well as “Risk Factors — Economic Environment and Capital Markets-Related Risks” and “Risk Factors — Risks Related to Our Investment Portfolio.”

Liquidity and Capital Management

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

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

Best, Fitch, Moody’s and S&P.

As such, we may opportunistically look to pursue additional financing over time, which may include borrowings under credit facilities, the issuance of debt, equity or hybrid securities, the incurrence of term loans, or the refinancing of existing indebtedness.

We monitor our debt-to-capital ratio using an average of our key leverage ratios as calculated by A.M.

Best, Fitch, Moody’s and S&P, and we aim to maintain a ratio commensurate with our financial strength and credit ratings.

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.

We have enhanced our risk management focus on the core drivers of our combined RBC ratio and have refined our hedge program to better manage our RBC in stressed market scenarios.

In support of our target combined RBC ratio of 400% to 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 CTE98 level in normal market conditions.

With our risk management focus on the core drivers of our combined RBC ratio, we can better manage our RBC in stressed market scenarios.

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

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Each agency has its own capital adequacy evaluation methodology, and assessments are generally based on a combination of factors.

Financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell security, contract or policy.

Financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell any security, contract or policy.

Each rating should be evaluated independently of any other rating.

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Rating agencies may continue to review and adjust our ratings.

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

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

life insurance industry to negative.

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

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

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Total sources 11,573 14,326 10,137

Operating activities, net 1,151 — —

Investing activities, net 8,276 12,238 5,843

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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.

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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.

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See Notes 10 and 16 of the Notes to the Consolidated Financial Statements for information relating to dividends declared and paid on our preferred stock.

“Dividend Stopper” Provisions in BHF’s Preferred Stock and Junior Subordinated Debentures

Terms applicable to our junior subordinated debentures may restrict our ability to pay interest on those debentures in certain circumstances.

Suspension of payments of interest on our junior subordinated debentures, whether required under the relevant indenture or optional, could cause “dividend stopper” provisions applicable under those and other instruments to restrict our ability to pay dividends, if any, on our common stock and repurchase our common stock in various situations, including situations where we may be experiencing financial stress, and may restrict our ability to pay dividends or interest on our preferred stock and junior subordinated debentures as well.

Similarly, the terms of our outstanding preferred stock contain restrictions on our ability to repurchase our common stock or pay dividends thereon

if we have not fulfilled our dividend obligations under such preferred stock or other preferred securities.

In addition, the terms of the agreements governing any preferred stock, debt or other financial instruments that we may issue in the future, may limit or prohibit the payment of dividends on our common stock or preferred stock, or the payment of interest on our junior subordinated debentures.

Debt Repayments, Repurchases, Redemptions and Exchanges

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

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

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

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

During the years ended December 31, 2021, 2020 and 2019, general account surrenders and withdrawals totaled $4.6 billion, $2.1 billion and $2.3 billion, respectively.

At December 31, 2022, our insurance liabilities, excluding obligations under our institutional spread margin business, totaled $109.6 billion and the related future estimated cash payments totaled $166.3 billion, of which $9.2 billion is due in the next twelve months.

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

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

At December 31, 2021 and 2020, we were obligated to return cash collateral pledged to us by counterparties of $1.7 billion and $1.6 billion, respectively.

At December 31, 2022, we pledged $7 million of cash collateral to counterparties.

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

At December 31, 2022 and 2021, we were obligated to return cash collateral pledged to us by counterparties of $829 million and $1.7 billion, respectively.

The timing of the return of the derivatives collateral is uncertain.

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

We also pledge collateral from time to time in connection with our 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 $593 million and $898 million at December 31, 2021 and 2020, respectively.

The amount of this non-cash collateral at estimated fair value was $1.0 billion and $593 million at December 31, 2022 and 2021, respectively.

See Note 7 of the Notes to the Consolidated Financial Statements for additional information regarding pledged collateral.

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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.

There was no non-cash collateral at December 31, 2022.

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

The Company did not hold any non-cash collateral at December 31, 2020.

See Note 6 of the Notes to the Consolidated Financial Statements for further discussion of our securities lending program.

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Constraints on BHF’s liquidity may occur as a result of operational demands or as a result of compliance with regulatory requirements.

See “Risk Factors — Economic Environment and Capital Markets-Related Risks — Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs and our access to capital,” “Risk Factors — Regulatory and Legal Risks — Our insurance business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth” and “Risk Factors — Risks Related to Our Business — As a holding company, BHF depends on the ability of its subsidiaries to pay dividends.”

See “Risk Factors — Risks Related to Our Business — As a holding company, BHF depends on the ability of its subsidiaries to pay dividends,” “Risk Factors — Economic Environment and Capital Markets-Related Risks — Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs and our access to capital” and “Risk Factors — Regulatory and Legal Risks — Our insurance business is highly regulated, and changes in regulation and in supervisory and enforcement policies or interpretations thereof may materially impact our capitalization or cash flows, reduce our profitability and limit our growth.”

Short-term Liquidity and Liquid Assets

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

At December 31, 2022 and 2021, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.0 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 December 31, 2021 and 2020, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.6 billion and $1.7 billion, respectively, of which $1.5 billion and $1.6 billion, respectively, was held by BHF.

At December 31, 2022 and 2021, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.0 billion and $1.6 billion, respectively, of which $987 million and $1.5 billion, respectively, was held by BHF.

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

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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 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.

State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose TAC does not meet or exceed the amounts required to attain certain 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.

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Normalized statutory earnings (loss) is used by management to measure our insurance companies’ ability to pay future distributions and is reflective of whether our hedging program functions as intended.

Normalized statutory earnings (loss) is calculated as statutory pre-tax net gain (loss) from operations adjusted for the favorable or unfavorable impacts of (i) net realized capital gains (losses), (ii) the change in total asset requirement at CTE95, net of the change in our variable annuity reserves, and (iii) unrealized gains (losses) associated with our variable annuities risk management strategy.

Normalized statutory earnings (loss) is calculated as statutory pre-tax net gain (loss) from operations adjusted for the favorable or unfavorable impacts of (i) net realized capital gains (losses), (ii) the change in total asset requirement at CTE98, net of the change in our variable annuity reserves, and (iii) unrealized gains (losses) associated with our variable annuities and Shield hedging programs and other equity risk management strategies.

See “Glossary” for the definition of CTE98.

In the first quarter of 2022, we will revise the calculation of normalized statutory earnings to better align with VA Reform and therefore our combined RBC ratio, where the relevant CTE measure is CTE98 rather than CTE95.

In the first quarter of 2022, we revised the calculation of normalized statutory earnings to better align with VA Reform and therefore our combined RBC ratio, where the relevant CTE measure is CTE98 rather than CTE95.

Normalized statutory earnings (loss) may be further adjusted for certain unanticipated items that impact our results in order to help management and investors better understand, evaluate and forecast those results.

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We believe this allows us to determine whether our hedging program is providing the desired level of protection.

Beginning in the first quarter of 2022, in support of our target combined RBC ratio, our hedge program will target CTE98, rather than CTE95.

See “— Risk Management Strategies — Variable Annuity Exposure Risk Management” for additional details regarding our hedge program.

The following table presents the components of combined normalized statutory earnings for Brighthouse Life Insurance Company and New England Life Insurance Company:

Years Ended December 31,

Year Ended December 31, 2022

(In billions)

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net realized capital gains (losses) 0.4

change in total asset requirement at CTE95, net of the change in VA reserves (0.6) (0.6)

unrealized gains (losses) on VA hedging program 0.3 1.4

change in total asset requirement at CTE98, net of the change in variable annuity reserves 0.7

unrealized gains (losses) on variable annuity & Shield hedging programs and other equity risk management strategies (1.6)

impact of actuarial items and other insurance adjustments 0.4

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

What changed 10-K

Item 7. Management’s Discussion and Analysis