Brighthouse Financial, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations Page Introduction 61 Executive Summary 62 Risk Management Strategies 62 Industry Trends and Uncertainties 65 Summary of Critical Accounting Estimates 66 Non-GAAP and Other Financial Disclosures 70 Results of Operations 72 Investments 84 Derivatives 92 Policyholder Liabilities 94 Liquidity and Capital Resources 97 60 Table of Contents The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this report, particularly in “Note Regarding Forward-Looking Statements and Summary of Risk Factors” and “Risk Factors.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with “Quantitative and Qualitative Disclosures About Market Risk” and our consolidated financial statements included elsewhere herein. Introduction This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations, financial condition and cash flows of Brighthouse Financial for the periods indicated. In addition to Brighthouse Financial, Inc., the companies and businesses included in the results of operations, financial condition and cash flows are: • Brighthouse Life Insurance Company (together with its subsidiaries and affiliates, “BLIC”), our largest insurance subsidiary, domiciled in Delaware and licensed to write business in all U.S. states (except New York), the District of Columbia, the Bahamas, Guam, Puerto Rico, the British Virgin Islands and the U.S. Virgin Islands; • NELICO, domiciled in Massachusetts and licensed to write business in all U.S. states and the District of Columbia; • 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; and • Brighthouse Holdings, LLC (“BH Holdings”), a direct holding company subsidiary of Brighthouse Financial, Inc. domiciled in Delaware. Prior to discussing our results of operations, we present information that we believe is useful to understanding the discussion of our financial results. This information precedes our results of operations discussion and is most beneficial when read in the sequence presented. A summary of key informational sections is as follows: • “Executive Summary” provides summarized information regarding our business, segments and financial results. • “Risk Management Strategies” describes the Company’s risk management strategy to protect against capital markets risks specific to our variable annuity and 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. • “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, 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. 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 61 Table of Contents 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 We are one of the largest providers of annuity and life insurance products in the U.S. through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners. We are organized into three segments: (i) Annuities, (ii) Life and (iii) Run-off, which consists of products that are no longer actively sold and are separately managed. In addition, we report certain of our results of operations in Corporate & Other. See “Business — Segments and Corporate & Other” and Note 2 of the Notes to the Consolidated Financial Statements for further information regarding our segments and Corporate & Other. Net income (loss) available to shareholders and adjusted earnings, a non-GAAP financial measure, were as follows: Years Ended December 31, 2022 2021 (In millions) Income (loss) available to shareholders before provision for income tax $ (281) $ (302) Less: Provision for income tax expense (benefit) (182) (105) Net income (loss) available to shareholders (1) $ (99) $ (197) Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends $ 675 $ 1,961 Less: Provision for income tax expense (benefit) 18 368 Adjusted earnings $ 657 $ 1,593 __________________ (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, 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. See Note 1 of the Notes to the Consolidated Financial Statements for information regarding the adoption of new accounting pronouncements in 2022. Risk Management Strategies We employ risk management strategies to protect against capital markets risk. These strategies are specific to our variable annuity and ULSG businesses, and they also include a macro hedge strategy to manage our exposure to interest rate risk. Interest Rate Hedging We are exposed to interest rate risk in most of our products, with the more significant longer dated exposure residing in our in-force variable annuity guarantees and ULSG business. Historically, we individually managed the interest rate risk in these two blocks with hedge targets based on statutory metrics designed principally to protect the capital of our largest insurance subsidiary, BLIC. Since the adoption of VA Reform, the capital metric of combined RBC ratio aligns with our management metrics and more holistically captures interest rate risk. We manage the interest rate risk in our variable annuity and ULSG businesses together, although individual hedge targets still exist for variable annuities and ULSG. Accordingly, the related portfolio of interest rate derivatives are managed in the aggregate with rebalancing and trade executions determined by the net exposure. 62 Table of Contents 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. This program may also include hybrid options that have other risk exposure in addition to interest rate exposure. The gross notional amount and estimated fair value of the derivatives held in our macro interest rate hedging program were as follows at: December 31, 2022 December 31, 2021 Instrument Type Gross Notional Amount (1) Estimated Fair Value Gross Notional Amount (1) Estimated Fair Value Assets Liabilities Assets Liabilities (In millions) Interest rate swaps $ 2,330 $ 38 $ 46 $ 1,780 $ 229 $ 17 Interest rate options 28,688 22 232 8,050 83 — Interest rate forwards 16,848 35 2,387 9,808 627 109 Hybrid options — — — 900 8 — Total $ 47,866 $ 95 $ 2,665 $ 20,538 $ 947 $ 126 _______________ (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. Allocations are primarily for purposes of calculating certain product specific metrics needed to run the business which in some cases are still individually measured and to facilitate the quarterly settlement of reinsurance activity associated with BRCD. We intend to maintain an adequate amount of liquid investments in the investment portfolios supporting these businesses to cover any contingent collateral posting requirements from this hedging strategy. Variable Annuity Exposure Risk Management With the adoption of VA Reform, our management of and our hedging strategy associated with our variable annuity business aligns with the regulatory framework. 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 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. 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. 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. Shield Annuities are included with variable annuities in our statutory reserve requirements, as well as in our CTE estimates. See “Glossary” for the definition of CTE. 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. 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. Under this strategy, we plan to operate with a first loss position of no more than $500 million. The first loss position is relative to our Variable Annuity Target Funding Level such that the impact on reserves and thus total adjusted capital could be greater than the first loss position. However, under such a scenario there would be an offset in required statutory capital. 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 63 Table of Contents 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.” The gross notional amount and estimated fair value of the derivatives held in our variable annuity hedging program, as well as the interest rate hedges allocated from our macro interest rate hedging program, were as follows at: December 31, 2022 December 31, 2021 Instrument Type Gross Notional Amount (1) Estimated Fair Value Gross Notional Amount (1) Estimated Fair Value Assets Liabilities Assets Liabilities (In millions) Equity index options $ 13,862 $ 525 $ 350 $ 20,695 $ 889 $ 876 Equity total return swaps 32,909 520 747 32,719 493 588 Equity variance swaps — — — 281 9 1 Interest rate swaps 2,330 38 46 1,780 229 17 Interest rate options 27,088 21 126 7,450 28 — Interest rate forwards 10,565 35 1,255 4,440 218 13 Hybrid options — — — 900 8 — Total $ 86,754 $ 1,139 $ 2,524 $ 68,265 $ 1,874 $ 1,495 _______________ (1) The gross notional amounts presented do not necessarily represent the relative economic coverage provided by option instruments because certain positions were closed out by entering into offsetting positions that are not netted in the above table. ULSG Market Risk Exposure Management The ULSG block includes the business retained by our insurance subsidiaries and the portion of it that is ceded to BRCD for providing redundant, non-economic reserve financing support. The primary market risk associated with our ULSG block is the uncertainty around the future levels of U.S. 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 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 ULSG Target. 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 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. “ULSG Assets” are defined as (i) total general account assets supporting statutory reserves and capital in the ULSG portfolios of our insurance subsidiaries and BRCD and (ii) interest rate derivative instruments allocated from the macro interest rate hedging program to mitigate ULSG interest rate exposures. The net statutory reserves for the ULSG business in our insurance subsidiaries and BRCD (which is in part supported by reserve financings) were $23.4 billion and $22.8 billion for the years ended December 31, 2022 and 2021, respectively. Our ULSG Target is sensitive to the actual and future expected level of long-term U.S. interest rates. If interest rates fall, our ULSG Target increases. 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. 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. We closely monitor the sensitivity of our ULSG Assets and ULSG Target to changes in interest rates. We seek to maintain ULSG Assets above the ULSG Target across a wide range of interest rate scenarios. At December 31, 2022, BRCD assets exceeded the ULSG CFT requirement. 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 400% to 450% in normal market conditions. 64 Table of Contents Industry Trends and Uncertainties Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we discuss a number of trends and uncertainties that we believe may materially affect our future financial condition, results of operations or cash flows. Where these trends or uncertainties are specific to a particular aspect of our business, we often include such a discussion under the relevant caption of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, as part of our broader analysis of that area of our business. 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. 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 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 Our business and results of operations are materially affected by conditions in the capital markets and the economy generally. Stressed conditions, volatility and disruptions in the capital markets or financial asset classes can have an adverse effect on us. Equity market performance can affect our profitability for variable annuities and other separate account products as a result of the effects it has on product demand, revenues, expenses, reserves and our risk management effectiveness. The level of long-term interest rates and the shape of the yield curve can have a negative effect on the profitability for variable annuities and the demand for, and the profitability of, spread-based products such as fixed annuities, index-linked annuities and universal life insurance. Low interest rates and risk premium, including credit spread, affect new money rates on invested assets and the cost of product guarantees. Insurance premium growth and demand for our products is impacted by the general health of U.S. economic activity. A sustained or material increase in inflation could also affect our business in several ways. During inflationary periods, the value of fixed income investments falls which could increase realized and unrealized losses. Interest rates have increased and may continue to increase due to central bank policy responses to combat inflation, which may positively impact our business in certain respects, but could also increase the risk of a recession or an equity market downturn and could negatively impact various portions of our business, including our investment portfolio. Inflation also increases our expenses (including, among others, for labor and third-party services), potentially putting pressure on profitability if such costs cannot be passed through to policyholders in our product prices. Prolonged and elevated inflation could adversely affect the financial markets and the economy generally and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic activity and inhibit revenue growth. 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” and “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.” 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. 65 Table of Contents 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. 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. 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. Demographics We believe that demographic trends in the U.S. population, the increase in under-insured individuals, the potential risk to governmental social safety net programs and the shifting of responsibility for retirement planning and financial security from employers and other institutions to individuals, highlight the need of individuals to plan for their long-term financial security and will create opportunities to generate significant demand for our products. By focusing our product development and marketing efforts to meeting the needs of certain targeted customer segments identified as part of our strategy, we will be able to focus on offering a smaller number of products that we believe are appropriately priced given current economic conditions. We believe this strategy will benefit our expense ratio thereby increasing our profitability. Competitive Environment 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. We believe we are adequately positioned to compete in this environment. Regulatory Developments Our insurance subsidiaries and BRCD are regulated primarily at the state level, with some products and services also subject to federal regulation. In addition, BHF and its insurance subsidiaries are subject to regulation under the insurance holding company laws of various U.S. jurisdictions. Furthermore, some of our operations, products and services are subject to ERISA, consumer protection laws, securities, broker-dealer and investment advisor regulations, as well as environmental and unclaimed property laws and regulations. See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks.” Summary of Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Consolidated Financial Statements. The most critical estimates include those used in determining: • liabilities for future policy benefits; • amortization of DAC; • estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation; and • measurement of income taxes and the valuation of deferred tax assets. In applying our accounting policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates. The above critical accounting estimates are described below and in Note 1 of the Notes to the Consolidated Financial Statements. 66 Table of Contents Liability for Future Policy Benefits Future policy benefits for traditional long-duration insurance contracts (term, whole life insurance and income annuities) are payable over an extended period of time and the related liabilities are equal to the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums. Assumptions used to measure the liability are based on the Company’s experience and include a margin for adverse deviation. The most significant assumptions used in the establishment of liabilities for future policy benefits are mortality, benefit election and utilization, withdrawals, policy lapse and investment returns. These assumptions, intended to estimate the experience for the period the policy benefits are payable, are established at the time the policy is issued and are not updated unless a premium deficiency exists. Utilizing these assumptions, liabilities are established for each line of business. If experience is less favorable than assumed and a premium deficiency exists, DAC may be reduced, or additional insurance liabilities established, resulting in a reduction in earnings. Future policy benefit liabilities for GMDBs and certain GMIBs relating to variable annuity contracts are based on estimates of the expected value of benefits in excess of the projected account balance, recognizing the excess ratably over the accumulation period based on total expected assessments. The most significant assumptions for variable annuity guarantees included in future policyholder benefits are projected general account and separate account investment returns, as well as policyholder behavior, including mortality, benefit election and utilization, and withdrawals. Future policy benefit liabilities for ULSG are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero using a range of scenarios and recognizing those benefits ratably over the contract period based on total expected assessments. 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 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. 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. We regularly review our assumptions supporting our estimates of all actuarial liabilities for future policy benefits. For universal life insurance and variable annuity product guarantees, assumptions are updated periodically, whereas for traditional long-duration insurance contracts, assumptions are established at inception and not updated unless a premium deficiency exists. We also review our liability projections to determine if profits are projected in earlier years followed by losses projected in later years, which could require us to establish an additional liability. We aggregate insurance contracts by product and segment in assessing whether a premium deficiency or profits followed by losses exists. Differences between actual experience and the assumptions used in pricing our policies and guarantees, as well as adjustments to the related liabilities, result in changes to earnings. See Note 1 of the Notes to the Consolidated Financial Statements for additional information on our accounting policy relating to variable annuity guarantees and the liability for future policy benefits. Deferred Policy Acquisition Costs DAC represents deferred costs that relate directly to the successful acquisition or renewal of insurance contracts. The recovery of DAC is dependent upon the future profitability of the related business. DAC related to deferred annuities and universal life insurance contracts is amortized based on expected future gross profits, which is determined by using assumptions consistent with measuring the related liabilities. DAC balances and amortization for variable annuity and universal life insurance contracts can be significantly impacted by changes in expected future gross profits related to projected separate account rates of return. Our practice of determining changes in projected separate account returns assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations and is only changed when sustained interim deviations are expected. We monitor these events and only change the assumption when our long-term expectation changes. 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 67 Table of Contents 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. We also generally review other long-term assumptions underlying the projections of expected future gross profits on an annual basis. These assumptions primarily relate to general account investment returns, mortality, in-force or persistency, benefit elections and utilization, and withdrawals. Assumptions used in the calculation of expected future gross profits which have significantly changed are updated annually. If the update of assumptions causes expected future gross profits to increase, DAC amortization will generally decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross profits to decrease. Our DAC balances are also impacted by replacing expected future gross profits with actual gross profits in each reporting period, including changes in annuity embedded derivatives and the related nonperformance risk. When the change in expected future gross profits principally relates to the difference between actual and estimates in the current period, an increase in profits will generally result in an increase in amortization and a decrease in profits will generally result in a decrease in amortization. See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information relating to DAC accounting policy and amortization. Derivatives We use freestanding derivative instruments to hedge various capital markets risks in our products, including: (i) certain guarantees, some of which are reported as embedded derivatives; (ii) current or future changes in the fair value of our assets and liabilities; and (iii) current or future changes in cash flows. All derivatives, whether freestanding or embedded, are required to be carried on the balance sheet at fair value with changes reflected in either net income (loss) available to shareholders or in OCI, depending on the type of hedge. Below is a summary of critical accounting estimates by type of derivative. Freestanding Derivatives The determination of the estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. See Note 7 of the Notes to the Consolidated Financial Statements for additional information on significant inputs into the OTC derivative pricing models and credit risk adjustment. Embedded Derivatives in Variable Annuity Guarantees We issue variable annuity products with guaranteed minimum benefits, some of which are embedded derivatives measured at estimated fair value separately from the host variable annuity product, with changes in estimated fair value reported in net derivative gains (losses). The estimated fair values of these embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees attributable to the guarantee. The projections of future benefits and future fees require capital markets and actuarial assumptions, including expectations concerning policyholder behavior. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital markets scenarios using observable risk-free rates and implied equity volatilities. Market conditions, including, but not limited to, changes in interest rates, equity indices, market volatility and variations in actuarial assumptions, including policyholder behavior, mortality and risk margins related to non-capital markets inputs, as well as changes in our nonperformance risk may result in significant fluctuations in the estimated fair value of the guarantees that could have a material impact on net income. Changes to actuarial assumptions, principally related to contract holder behavior such as annuitization utilization and withdrawals associated with GMIB riders, can result in a change of expected future cash outflows of a guarantee between the accrual-based model for insurance liabilities and the fair value-based model for embedded derivatives. 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 68 Table of Contents 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. Assumptions for embedded derivatives are reviewed at least annually, and if they change significantly, the estimated fair value is adjusted by a cumulative charge or credit to net income. See Notes 7 and 8 of the Notes to the Consolidated Financial Statements for additional information on our embedded derivatives and the determination of their fair values. Embedded Derivatives in Index-Linked Annuities The Company issues and assumes through reinsurance index-linked annuities that contain equity crediting rates accounted for as an embedded derivative. The crediting rates are measured at estimated fair value which is determined using a combination of an option pricing methodology and an option-budget approach. The estimated fair value includes capital markets and actuarial policyholder behavior and biometric assumptions, including expectations for renewals at the end of the term period. Market conditions, including interest rates and implied volatilities, and variations in actuarial assumptions and risk margins, as well as changes in our nonperformance risk adjustment may result in significant fluctuations in the estimated fair value that could have a material impact on net income. Nonperformance Risk Adjustment The valuation of our embedded derivatives includes an adjustment for the risk that we fail to satisfy our obligations, which we refer to as our nonperformance risk. The nonperformance risk adjustment is captured as a spread over the risk-free rate in determining the discount rate to discount the cash flows of the liability. The spread over the risk-free rate is based on our creditworthiness taking into consideration publicly available information relating to spreads in the secondary market for BHF’s debt. These observable spreads are then adjusted, as necessary, to reflect the financial strength ratings of the issuing insurance subsidiaries as compared to the credit rating of BHF. The following table illustrates the impact that a range of reasonably likely variances in BHF’s credit spread would have on our consolidated balance sheet, excluding the effect of income tax, related to the embedded derivative valuation on certain variable annuity products measured at estimated fair value. Even when credit spreads do not change, the impact of the nonperformance risk adjustment on fair value will change when the cash flows within the fair value measurement change. The table only reflects the impact of changes in credit spreads on the consolidated balance sheet and not these other potential changes. In determining the ranges, we have considered current market conditions, as well as the market level of spreads that can reasonably be anticipated over the near-term. Balance Sheet Carrying Value at December 31, 2022 Policyholder Account Balances DAC and VOBA (In millions) 100% increase in our credit spread $ 1,064 $ 46 As reported $ 1,455 $ 219 50% decrease in our credit spread $ 1,733 $ 343 Income Taxes We provide for federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. Our accounting for income taxes represents our best estimate of various events and transactions. Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various taxing jurisdictions. In establishing a liability for unrecognized tax benefits, assumptions may be made in determining whether, and to what extent, a tax position may be sustained. 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 69 Table of Contents 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. Significant judgment is required in projecting future taxable income to determine whether valuation allowances should be established, as well as the amount of such allowances. See Note 1 of the Notes to the Consolidated Financial Statements for additional information relating to our determination of such valuation allowances. We may be required to change our provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change, or when new information indicates the need for adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the financial statements in the year these changes occur. See Notes 1 and 13 of the Notes to the Consolidated Financial Statements for additional information on our income taxes. Non-GAAP and Other Financial Disclosures Our definitions of non-GAAP and other financial measures may differ from those used by other companies. Non-GAAP Financial Disclosures Adjusted Earnings In this report, we present adjusted earnings as a measure of our performance that is not calculated in accordance with GAAP. Adjusted earnings is used by management to evaluate performance and facilitate comparisons to industry results. We believe the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of our performance by the investor community by highlighting the results of operations and the underlying profitability drivers of our business. Adjusted earnings should not be viewed as a substitute for net income (loss) available to Brighthouse Financial, Inc.’s common shareholders, which is the most directly comparable financial measure calculated in accordance with GAAP. See “— Results of Operations” for a reconciliation of adjusted earnings to net income (loss) available to Brighthouse Financial, Inc.’s common shareholders. Adjusted earnings, which may be positive or negative, focuses on our primary businesses by excluding the impact of market volatility, which could distort trends. The following are significant items excluded from total revenues in calculating adjusted earnings: • Net investment gains (losses); • Net derivative gains (losses) except earned income and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment (“Investment Hedge Adjustments”); and • Certain variable annuity GMIB fees (“GMIB Fees”). The following are significant items excluded from total expenses in calculating adjusted earnings: • Amounts associated with benefits related to GMIBs (“GMIB Costs”); • Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets (“Market Value Adjustments”); and • Amortization of DAC and value of business acquired (“VOBA”) related to (i) net investment gains (losses), (ii) net derivative gains (losses) and (iii) GMIB Fees and GMIB Costs. The tax impact of the adjustments discussed above is calculated net of the statutory tax rate, which could differ from our effective tax rate. 70 Table of Contents We present adjusted earnings in a manner consistent with management’s view of the primary business activities that drive the profitability of our core businesses. The following table illustrates how each component of adjusted earnings is calculated from the GAAP statement of operations line items: Component of Adjusted Earnings How Derived from GAAP (1) (i) Fee income (i) Universal life and investment-type product policy fees (excluding (a) unearned revenue adjustments related to net investment gains (losses) and net derivative gains (losses) and (b) GMIB Fees) plus Other revenues and amortization of deferred 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 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). (v) Other expenses, net of DAC capitalization (v) Other expenses reduced by capitalization of DAC. (vi) Provision for income tax expense (benefit) (vi) Tax impact of the above items. _______________ (1) Italicized items indicate GAAP statement of operations line items. Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Accordingly, we report adjusted earnings by segment in Note 2 of the Notes to the Consolidated Financial Statements. Adjusted Net Investment Income 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 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 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. 71 Table of Contents Results of Operations Index to Results of Operations Page Annual Actuarial Review 73 Consolidated Results for the Years Ended December 31, 2022 and 2021 74 Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings 76 Consolidated Results for the Years Ended December 31, 2022 and 2021 - Adjusted Earnings 77 Segments and Corporate & Other Results for the Years Ended December 31, 2022 and 2021 - Adjusted Earnings 78 GMLB Riders for the Years Ended December 31, 2022 and 2021 83 72 Table of Contents Annual Actuarial Review We typically conduct our AAR in the third quarter of each year. As a result of the 2022 AAR, we increased the long-term general account earned rate, driven by an increase in our mean reversion rate from 3.00% to 3.50%, which had the largest impact on our ULSG business. For our variable annuity business, in addition to the update 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 described above. The impact of the AAR on income (loss) available to shareholders before provision for income tax was as follows: Years Ended December 31, 2022 2021 (In millions) GMLBs $ (94) $ (42) Included in pre-tax adjusted earnings: Other annuity business (57) 4 Life business (25) 15 Run-off 162 (113) Total included in pre-tax adjusted earnings 80 (94) Total impact on income (loss) available to shareholders before provision for income tax $ (14) $ (136) 73 Table of Contents Consolidated Results for the Years Ended December 31, 2022 and 2021 Unless otherwise noted, all amounts in the following discussions of our results of operations are stated before income tax except for adjusted earnings, which are presented net of income tax. Years Ended December 31, 2022 2021 (In millions) Revenues Premiums $ 662 $ 707 Universal life and investment-type product policy fees 3,141 3,636 Net investment income 4,138 4,881 Other revenues 476 446 Net investment gains (losses) (248) (59) Net derivative gains (losses) 304 (2,469) Total revenues 8,473 7,142 Expenses Policyholder benefits and claims 4,165 3,443 Interest credited to policyholder account balances 1,439 1,312 Capitalization of DAC (425) (493) Amortization of DAC and VOBA 956 144 Interest expense on debt 153 163 Other expenses 2,357 2,781 Total expenses 8,645 7,350 Income (loss) before provision for income tax (172) (208) Provision for income tax expense (benefit) (182) (105) Net income (loss) 10 (103) Less: Net income (loss) attributable to noncontrolling interests 5 5 Net income (loss) attributable to Brighthouse Financial, Inc. 5 (108) Less: Preferred stock dividends 104 89 Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ (99) $ (197) The components of net income (loss) available to shareholders were as follows: Years Ended December 31, 2022 2021 (In millions) GMLB Riders $ 1,028 $ (2,166) Other derivative instruments (1,814) (57) Net investment gains (losses) (248) (59) Other adjustments 78 19 Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends 675 1,961 Income (loss) available to shareholders before provision for income tax (281) (302) Provision for income tax expense (benefit) (182) (105) Net income (loss) available to shareholders $ (99) $ (197) GMLB Riders. The guaranteed minimum living benefits reflect (i) changes in the carrying value of GMLB liabilities, including GMIBs, GMWBs and GMABs, as well as Shield Annuities; (ii) changes in the estimated fair value of the related hedges, as well as any ceded reinsurance of the liabilities; (iii) the fees earned from the GMLB liabilities; and (iv) the effects of DAC amortization related to the preceding components. Other Derivative Instruments. We have other derivative instruments, in addition to the hedges and embedded derivatives included in the GMLB Riders, for which changes in estimated fair value are recognized in net derivative gains (losses). 74 Table of Contents Freestanding Derivatives. We have freestanding derivatives that economically hedge certain invested assets and insurance liabilities. The majority of this hedging activity, excluding the GMLB Riders, is focused in the following areas: • as part of the Company’s macro interest rate hedging program, the use of interest rate swaps, swaptions and interest rate forwards in connection with ULSG; • use of interest rate swaps when we have duration mismatches where suitable assets with maturities similar to those of our long-dated liabilities are not readily available in the market and use of interest rate forwards hedging reinvestment risk from maturing assets with higher yields than currently available in the market that support long-dated liabilities; • use of foreign currency swaps when we hold fixed maturity securities denominated in foreign currencies that are matching insurance liabilities denominated in U.S. dollars; and • use of equity index options to hedge index-linked annuity products against adverse changes in equity markets. The market impacts on the hedges are accounted for in net income (loss) while the offsetting economic impact on the items they are hedging are either not recognized or recognized through OCI in equity. Embedded Derivatives. Certain ceded reinsurance agreements in our Life and Run-off segments are written on a coinsurance with funds withheld basis. The funds withheld component is accounted for as an embedded derivative with changes in the estimated fair value recognized in net income (loss) in the period in which they occur. In addition, the changes in liability values of our fixed index-linked annuity products that result from changes in the underlying equity index are accounted for as embedded derivatives. Pre-tax Adjusted Earnings. See “— Non-GAAP and Other Financial Disclosures — Non-GAAP Financial Disclosures — Adjusted Earnings.” Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 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: • 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; and • 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 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. 75 Table of Contents Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings The reconciliation of net income (loss) available to shareholders to adjusted earnings was as follows: Year Ended December 31, 2022 Annuities Life Run-off Corporate & Other Total (In millions) Net income (loss) available to shareholders $ 1,761 $ (8) $ (2,652) $ 800 $ (99) Add: Provision for income tax expense (benefit) 208 1 470 (861) (182) Income (loss) available to shareholders before provision for income tax 1,969 (7) (2,182) (61) (281) Less: GMLB Riders 1,028 — — — 1,028 Less: Other derivative instruments (36) 2 (1,823) 43 (1,814) Less: Net investment gains (losses) (149) (32) (78) 11 (248) Less: Other adjustments (8) — 86 — 78 Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends 1,134 23 (367) (115) 675 Less: Provision for income tax expense (benefit) 208 1 (78) (113) 18 Adjusted earnings $ 926 $ 22 $ (289) $ (2) $ 657 Year Ended December 31, 2021 Annuities Life Run-off Corporate & Other Total (In millions) Net income (loss) available to shareholders $ (641) $ 292 $ 688 $ (536) $ (197) Add: Provision for income tax expense (benefit) 347 75 (538) 11 (105) Income (loss) available to shareholders before provision for income tax (294) 367 150 (525) (302) Less: GMLB Riders (2,166) — — — (2,166) Less: Other derivative instruments 140 7 (221) 17 (57) Less: Net investment gains (losses) (72) — 114 (101) (59) Less: Other adjustments 8 (2) 13 — 19 Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends 1,796 362 244 (441) 1,961 Less: Provision for income tax expense (benefit) 347 75 53 (107) 368 Adjusted earnings $ 1,449 $ 287 $ 191 $ (334) $ 1,593 76 Table of Contents Consolidated Results for the Years Ended December 31, 2022 and 2021 - Adjusted Earnings The components of adjusted earnings were as follows: Years Ended December 31, 2022 2021 (In millions) Fee income $ 3,375 $ 3,836 Net investment spread 2,054 2,858 Insurance-related activities (2,093) (1,970) Amortization of DAC and VOBA (467) (218) Other expenses, net of DAC capitalization (2,085) (2,451) Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends 109 94 Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends 675 1,961 Provision for income tax expense (benefit) 18 368 Adjusted earnings $ 657 $ 1,593 Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 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; and ◦ 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; and ◦ an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion in our Life segment; partially offset by ◦ higher unearned revenue amortization resulting from changes made in connection with the AAR in our Life segment; • higher net 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; and ◦ an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion in our Annuities segment; partially offset by ◦ an adjustment in the current period related to actuarial model refinements in Corporate & Other; and 77 Table of Contents • 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; and ◦ higher liabilities in our ULSG business resulting from the impact of new reinsurance agreements entered into in the current period; partially offset by ◦ a net decrease in liability balances resulting from changes made in connection with the AAR in our Run-off and Annuities segments; ◦ an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion in our Run-off segment; and ◦ 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; and ◦ lower deferred compensation and operational expenses; partially offset by ◦ the settlement of a reinsurance-related matter in the current period. The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 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, tax credits and current period non-recurring items. Segments and Corporate & Other Results for the Years Ended December 31, 2022 and 2021 — Adjusted Earnings Annuities The components of adjusted earnings for our Annuities segment were as follows: Years Ended December 31, 2022 2021 (In millions) Fee income $ 2,487 $ 2,857 Net investment spread 1,207 1,188 Insurance-related activities (792) (410) Amortization of DAC and VOBA (351) (185) Other expenses, net of DAC capitalization (1,417) (1,654) Pre-tax adjusted earnings 1,134 1,796 Provision for income tax expense (benefit) 208 347 Adjusted earnings $ 926 $ 1,449 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- 78 Table of Contents based commissions. The changes in our variable annuities separate account balances are presented in the table below. Variable annuities separate account balances decreased for the year ended December 31, 2022, driven by unfavorable investment performance, negative net flows and policy charges. Year Ended December 31, 2022 (1) (In millions) Balance, beginning of period $ 105,197 Premiums and deposits 1,240 Withdrawals, surrenders and contract benefits (7,619) Net flows (6,379) Investment performance (18,583) Policy charges (2,285) Net transfers from (to) general account (152) Balance, end of period $ 77,798 Average balance $ 86,467 _______________ (1) Includes income annuities for which separate account balances at December 31, 2022 were $145 million. Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 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 GMDB liabilities resulting from unfavorable equity market performance; ◦ higher volume and severity of GMDB claims; and ◦ 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; and • 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; and ◦ 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; and ◦ 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. 79 Table of Contents Life The components of adjusted earnings for our Life segment were as follows: Years Ended December 31, 2022 2021 (In millions) Fee income $ 248 $ 335 Net investment spread 141 360 Insurance-related activities (121) (131) Amortization of DAC and VOBA (127) (22) Other expenses, net of DAC capitalization (118) (180) Pre-tax adjusted earnings 23 362 Provision for income tax expense (benefit) 1 75 Adjusted earnings $ 22 $ 287 Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 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; and ◦ the impact on gross profits from lower separate account returns; partially offset by ◦ an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion; and • lower net fee income due to: ◦ higher ceded cost of insurance fees consistent with unfavorable equity market returns, which is mostly offset in other expenses; ◦ an adjustment in the prior period related to modeling improvements resulting from an actuarial system conversion; and ◦ higher ceded cost of insurance fees resulting from the impact of new reinsurance agreements entered into in the current period; partially offset by ◦ 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; and ◦ lower deferred compensation and operational expenses. The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 4% in the current period compared to 21% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction. 80 Table of Contents Run-off The components of adjusted earnings for our Run-off segment were as follows: Years Ended December 31, 2022 2021 (In millions) Fee income $ 640 $ 644 Net investment spread 521 1,236 Insurance-related activities (1,235) (1,445) Amortization of DAC and VOBA — — Other expenses, net of DAC capitalization (293) (191) Pre-tax adjusted earnings (367) 244 Provision for income tax expense (benefit) (78) 53 Adjusted earnings $ (289) $ 191 Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 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; and • 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; and ◦ 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; and ◦ 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. 81 Table of Contents Corporate & Other The components of adjusted earnings for Corporate & Other were as follows: Years Ended December 31, 2022 2021 (In millions) Fee income $ — $ — Net investment spread 185 74 Insurance-related activities 55 16 Amortization of DAC and VOBA 11 (11) Other expenses, net of DAC capitalization (257) (426) Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends 109 94 Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends (115) (441) Provision for income tax expense (benefit) (113) (107) Adjusted earnings $ (2) $ (334) Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 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: ◦ 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; and ◦ 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; and ◦ lower paid claims, net of reinsurance; and • 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. 82 Table of Contents GMLB Riders for the Years Ended December 31, 2022 and 2021 The overall impact on income (loss) available to shareholders before provision for income tax from the performance of GMLB Riders, which includes (i) changes in carrying value of the GAAP liabilities, (ii) the mark-to-market of hedges and reinsurance, (iii) fees and (iv) associated DAC offsets, was as follows: Years Ended December 31, 2022 2021 (In millions) Liabilities $ 2,292 $ (1,832) Hedges (1,551) (1,130) Ceded reinsurance (66) (96) Fees (1) 834 828 GMLB DAC (481) 64 Total GMLB Riders $ 1,028 $ (2,166) _______________ (1) Excludes living benefit fees, included as a component of adjusted earnings, of $51 million and $60 million for the years ended December 31, 2022 and 2021, respectively. GMLB Liabilities. Liabilities reported as part of GMLB Riders (“GMLB Liabilities”) include (i) guarantee rider benefits accounted for as embedded derivatives, (ii) guarantee rider benefits accounted for as insurance and (iii) Shield Annuities embedded derivatives. Liabilities related to guarantee rider benefits represent our obligation to protect policyholders against the possibility that a downturn in the markets will reduce the specified benefits that can be claimed under the base annuity contract. Any periods of significant or sustained downturns in equity markets, increased equity volatility, or reduced interest rates could result in an increase in the valuation of these liabilities. An increase in these liabilities would result in a decrease to our net income (loss) available to shareholders, which could be significant. Shield Annuities provide the contract holder the ability to participate in the appreciation of certain financial markets up to a stated level, while offering protection from a portion of declines in the applicable indices or benchmark. We believe that Shield Annuities provide us with risk offset to liabilities related to guarantee rider benefits. GMLB Hedges and Reinsurance. We enter into freestanding derivatives to hedge the market risks inherent in the GMLB Liabilities. Generally, the same market factors that impact the estimated fair value of the guarantee rider embedded derivatives impact the value of the hedges, though in the opposite direction. However, the changes in value of the GMLB Liabilities and related hedges may not be symmetrical and the divergence could be significant due to certain factors, such as the guarantee riders accounted for as insurance are not recognized at estimated fair value and there are unhedged risks within the GMLB Liabilities. We may also use reinsurance to manage our exposure related to the GMLB Liabilities. GMLB Fees. We earn fees from the guarantee rider benefits, which are calculated based on the policyholder’s Benefit Base. Fees calculated based on the Benefit Base are more stable in market downturns, compared to fees based on the account value because the Benefit Base excludes the impact of a decline in the market value of the policyholder’s account value. We use the fees directly earned from the guarantee riders to fund the reserves, future claims and costs associated with the hedges of market risks inherent in these liabilities. 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 product policy fees. GMLB DAC. 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. While the DAC offset is generally the most significant driver of GMLB DAC, it can be impacted by other adjustments including amortization related to guarantee benefit riders accounted for as insurance. See “— Risk Management Strategies — Variable Annuity Exposure Risk Management” for discussion of our management of and our hedging strategy associated with our variable annuity business. Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 Comparative results from GMLB Riders were favorable by $3.2 billion, primarily driven by: • favorable changes to the estimated fair value of Shield liabilities; 83 Table of Contents partially offset by • unfavorable changes to the estimated fair value of variable annuity liability reserves; • unfavorable changes to GMLB DAC; and • 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; and • favorable changes in ceded reinsurance; partially offset by • unfavorable changes to the estimated fair value of variable annuity liability reserves; and • unfavorable changes to GMLB DAC. Higher interest rates resulted in the following impacts: • unfavorable changes to the estimated fair value of our GMLB hedges; • unfavorable changes to the estimated fair value of Shield liabilities; • unfavorable changes to GMLB DAC; and • unfavorable changes in ceded reinsurance; partially offset by • favorable changes to the estimated fair value of variable annuity liability reserves. There was a favorable change in the adjustment for nonperformance risk in the current period. Investments 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. 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 Other than our derivatives trading, which we manage in-house, we have engaged a select group of experienced external asset management firms to manage the investment of the assets comprising our general account portfolio and certain separate account assets of our insurance subsidiaries, as well as assets of BHF and our reinsurance subsidiary, BRCD. Current Environment Our business and results of operations are materially affected by conditions in capital markets and the economy, generally. As a U.S. insurance company, we are affected by the monetary policy of the Federal Reserve 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. We are also affected by the monetary policy of central banks around the world due to the diversification of our investment portfolio. 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 84 Table of Contents 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. 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.” Selected Sector Investments Recent elevated levels of market volatility have affected the performance of various asset classes. 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 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. At this time, we do not expect that our general account investments in these sectors and asset classes will have a material adverse effect on our results of operations or financial condition. Investment Portfolio Results The following summary yield table presents the yield and adjusted net investment income for our investment portfolio for the periods indicated. As described below, this table reflects certain differences from the presentation of net investment income presented in the GAAP statement of operations. This summary yield table presentation is consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results. Years Ended December 31, 2022 2021 2020 Yield % Amount Yield % Amount Yield % Amount (Dollars in millions) Investment income (1) 3.96 % $ 4,363 5.13 % $ 5,046 4.21 % $ 3,755 Investment fees and expenses (2) (0.14) (154) (0.13) (144) (0.14) (136) Adjusted net investment income (3) 3.82 % $ 4,209 5.00 % $ 4,902 4.07 % $ 3,619 _______________ (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 85 Table of Contents arrive at adjusted net investment income. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties. (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. (3) Adjusted net investment income presented in the yield table varies from the most directly comparable GAAP measure due to certain reclassifications, as presented below. Years Ended December 31, 2022 2021 2020 (In millions) Net investment income $ 4,138 $ 4,881 $ 3,601 Less: Investment hedge adjustments (71) (21) (18) Adjusted net investment income — in the above yield table $ 4,209 $ 4,902 $ 3,619 See “— Results of Operations — Consolidated Results for the Years Ended December 31, 2022 and 2021” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Consolidated Results for the Years Ended December 31, 2021 and 2020” in our 2021 Annual Report for an analysis of the year over year changes in net investment income. Fixed Maturity Securities Available-for-sale Fixed maturity securities held by type (public or private) were as follows at: December 31, 2022 December 31, 2021 Estimated Fair Value % of Total Estimated Fair Value % of Total (Dollars in millions) Publicly-traded $ 62,199 82.3 % $ 72,925 83.3 % Privately-placed 13,378 17.7 14,657 16.7 Total fixed maturity securities $ 75,577 100.0 % $ 87,582 100.0 % Percentage of cash and invested assets 67.1 % 71.4 % See Note 8 of the Notes to the Consolidated Financial Statements for further information on our valuation controls and procedures including our formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. See Notes 1 and 6 of the Notes to the Consolidated Financial Statements for further information about fixed maturity securities by sector, contractual maturities, continuous gross unrealized losses and the allowance for credit losses. Fixed Maturity Securities Credit Quality — Ratings Rating agency ratings are based on availability of applicable ratings from rating agencies on the NAIC credit rating provider list, including Moody’s, S&P, Fitch, Dominion Bond Rating Service and Kroll Bond Rating Agency. If no rating is available from a rating agency, then an internally developed rating is used. The NAIC has methodologies to assess credit quality for certain Structured Securities comprised of non-agency RMBS, CMBS and ABS. The NAIC’s objective with these methodologies is to increase the accuracy in assessing expected losses, and to use the improved assessment to determine a more appropriate capital requirement for such Structured Securities. The methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from Structured Securities. In 2021, these methodologies were updated to only apply to those Structured Securities issued prior to 2013. We apply the NAIC methodologies to Structured Securities held by our insurance subsidiaries and BRCD. The NAIC’s present methodology is to evaluate Structured Securities held by insurers on an annual basis. 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. 86 Table of Contents 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 NAIC Designation NRSRO Rating Amortized Cost Allowance for Credit Losses Unrealized Gain (Loss) Estimated Fair Value % of Total Amortized Cost Allowance for Credit Losses Unrealized Gain (Loss) Estimated Fair Value % of Total (Dollars in millions) 1 Aaa/Aa/A $ 53,935 $ 2 $ (4,870) $ 49,063 64.9 % $ 49,729 $ — $ 6,133 $ 55,862 63.8 % 2 Baa 27,269 — (3,546) 23,723 31.4 25,493 — 2,142 27,635 31.6 Subtotal investment grade 81,204 2 (8,416) 72,786 96.3 % 75,222 — 8,275 83,497 95.4 % 3 Ba 2,343 — (232) 2,111 2.8 2,634 — 65 2,699 3.1 4 B 677 1 (88) 588 0.8 1,244 3 12 1,253 1.4 5 Caa and lower 120 4 (24) 92 0.1 142 8 (4) 130 0.1 6 In or near default — — — — — 4 — (1) 3 — Subtotal below investment grade 3,140 5 (344) 2,791 3.7 % 4,024 11 72 4,085 4.6 % Total fixed maturity securities $ 84,344 $ 7 $ (8,760) $ 75,577 100.0 % $ 79,246 $ 11 $ 8,347 $ 87,582 100.0 % The following tables present total fixed maturity securities, based on estimated fair value, by sector classification and by NRSRO rating and the applicable NAIC designations from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the NAIC methodologies as described above: Fixed Maturity Securities — by Sector & Credit Quality Rating NAIC Designation 1 2 3 4 5 6 Total Estimated Fair Value NRSRO Rating Aaa/Aa/A Baa Ba B Caa and Lower In or Near Default (In millions) December 31, 2022 U.S. corporate $ 14,697 $ 15,683 $ 1,671 $ 499 $ 57 $ — $ 32,607 Foreign corporate 3,758 6,377 373 68 — — 10,576 U.S. government and agency 7,887 129 — — — — 8,016 RMBS 7,490 14 12 2 10 — 7,528 CMBS 6,240 351 9 7 4 — 6,611 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 Total fixed maturity securities $ 49,063 $ 23,723 $ 2,111 $ 588 $ 92 $ — $ 75,577 December 31, 2021 U.S. corporate $ 17,828 $ 18,074 $ 2,008 $ 1,103 $ 68 $ — $ 39,081 Foreign corporate 3,518 7,478 554 125 31 — 11,706 U.S. government and agency 9,160 147 — — — — 9,307 RMBS 9,179 46 15 5 11 3 9,259 CMBS 6,882 391 1 5 3 — 7,282 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 Total fixed maturity securities $ 55,862 $ 27,635 $ 2,699 $ 1,253 $ 130 $ 3 $ 87,582 87 Table of Contents U.S. and Foreign Corporate Fixed Maturity Securities We maintain a diversified portfolio of corporate fixed maturity securities across industries and issuers. Our portfolio does not have any exposure to any single issuer in excess of 1% of total investments and the top ten holdings in aggregate comprise of 1% and 2% of total investments at December 31, 2022 and 2021, respectively. Our U.S. and foreign corporate fixed maturity securities holdings by industry were as follows at: December 31, 2022 December 31, 2021 Estimated Fair Value % of Total Estimated Fair Value % of Total (Dollars in millions) Industrial $ 13,290 30.7 % $ 16,131 31.8 % Finance 11,988 27.8 12,430 24.4 Consumer 9,459 21.9 11,650 22.9 Utility 5,767 13.4 7,146 14.1 Communications 2,679 6.2 3,430 6.8 Total $ 43,183 100.0 % $ 50,787 100.0 % Structured Securities We held $19.5 billion and $20.8 billion of Structured Securities, at estimated fair value, at December 31, 2022 and 2021, respectively, as presented in the RMBS, CMBS and ABS sections below. RMBS Our RMBS holdings are diversified by security type, risk profile and ratings profile, which were as follows at: December 31, 2022 December 31, 2021 Estimated Fair Value % of Total Net Unrealized Gains (Losses) Estimated Fair Value % of Total Net Unrealized Gains (Losses) (Dollars in millions) Security type: Pass-through securities $ 3,846 51.1 % $ (590) $ 4,688 50.6 % $ 29 Collateralized mortgage obligations 3,682 48.9 (311) 4,571 49.4 352 Total RMBS $ 7,528 100.0 % $ (901) $ 9,259 100.0 % $ 381 Risk profile: Agency $ 6,137 81.5 % $ (842) $ 7,563 81.7 % $ 264 Prime 149 2.0 (20) 192 2.1 4 Alt-A 788 10.5 (37) 801 8.6 60 Sub-prime 454 6.0 (2) 703 7.6 53 Total RMBS $ 7,528 100.0 % $ (901) $ 9,259 100.0 % $ 381 Ratings profile: Rated Aaa $ 6,643 88.2 % $ 7,905 85.4 % Designated NAIC 1 $ 7,490 99.5 % $ 9,179 99.1 % Historically, our exposure to sub-prime RMBS holdings has been managed by focusing primarily on senior tranche securities, stress-testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio. Our sub-prime RMBS portfolio consists predominantly of securities that were purchased after 2012 at significant discounts to par value and discounts to the expected principal recovery value of these securities. The vast majority of these securities are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2). 88 Table of Contents CMBS Our CMBS holdings are diversified by vintage year, which were as follows at: December 31, 2022 December 31, 2021 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value (In millions) 2003 - 2011 $ 90 $ 82 $ 95 $ 106 2012 41 38 141 140 2013 204 197 209 213 2014 322 294 322 334 2015 966 879 953 997 2016 463 421 465 485 2017 732 667 707 751 2018 1,668 1,538 1,675 1,827 2019 1,021 879 1,044 1,079 2020 534 426 555 544 2021 821 748 810 806 2022 462 442 — — Total $ 7,324 $ 6,611 $ 6,976 $ 7,282 The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.6 billion, or 70.0% of total CMBS, and designated NAIC 1 was $6.2 billion, or 94.4% of total CMBS, at December 31, 2022. The estimated fair value of CMBS Aaa rating agency ratings was $5.0 billion, or 69.1% of total CMBS, and designated NAIC 1 was $6.9 billion, or 94.5% of total CMBS, at December 31, 2021. ABS Our ABS holdings are diversified by both collateral type and issuer. Our ABS holdings by collateral type and ratings profile were as follows at: December 31, 2022 December 31, 2021 Estimated Fair Value % of Total Net Unrealized Gains (Losses) Estimated Fair Value % of Total Net Unrealized Gains (Losses) (Dollars in millions) Collateral type: Collateralized obligations $ 3,239 60.5 % $ (124) $ 2,659 62.1 % $ (1) 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 Credit card loans 158 3.0 (10) 132 3.1 4 Other loans 933 17.4 (80) 612 14.3 8 Total $ 5,359 100.0 % $ (293) $ 4,280 100.0 % $ 19 Ratings profile: Rated Aaa $ 2,300 42.9 % $ 1,837 42.9 % Designated NAIC 1 $ 4,648 86.7 % $ 3,686 86.1 % Allowance for Credit Losses for Fixed Maturity Securities See Note 6 of the Notes to the Consolidated Financial Statements for information about the evaluation of fixed maturity securities for an allowance for credit losses or write-offs due to uncollectibility. Securities Lending We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, which is obtained at the inception of a loan and maintained at a level greater than or equal to 100% 89 Table of Contents for the duration of the loan. The estimated fair value of the securities loaned is monitored on a daily basis with additional collateral obtained as necessary throughout the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. We are liable to return to our counterparties the cash collateral under our control. Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected in the financial statements. These transactions are treated as financing arrangements and the associated cash collateral liability is recorded at the amount of the cash received. See “— Liquidity and Capital Resources — The Company — Primary Uses of Liquidity and Capital — Securities Lending” and Note 6 of the Notes to the Consolidated Financial Statements for information regarding our securities lending program. Mortgage Loans Our mortgage loans are principally collateralized by commercial, agricultural and residential properties. Information regarding mortgage loans by portfolio segment is summarized as follows at: December 31, 2022 December 31, 2021 Recorded Investment % of Total Valuation Allowance % of Recorded Investment Recorded Investment % of Total Valuation Allowance % of Recorded Investment (Dollars in millions) Commercial $ 13,574 58.9 % $ 49 0.4 % $ 12,187 61.0 % $ 67 0.5 % Agricultural 4,365 18.9 15 0.3 % 4,163 20.9 12 0.3 % Residential 5,116 22.2 55 1.1 % 3,623 18.1 44 1.2 % Total $ 23,055 100.0 % $ 119 0.5 % $ 19,973 100.0 % $ 123 0.6 % Our mortgage loan portfolio is diversified by both geographic region and property type to reduce the risk of concentration. The percentage of our commercial and agricultural mortgage loan portfolios collateralized by properties located in the U.S. were 98% and 97% at December 31, 2022 and 2021, respectively. The remainder was collateralized by properties located outside of the U.S. 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 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. Our residential mortgage loan portfolio is managed in a similar manner to reduce risk of concentration. All residential mortgage loans were collateralized by properties located in the U.S. at both December 31, 2022 and 2021. At December 31, 2022, the carrying value as a percentage of total residential mortgage loans for the top three states in the U.S. was 39% for California, 11% for Florida and 7% for New York. 90 Table of Contents Commercial Mortgage Loans by Geographic Region and Property Type. Commercial mortgage loans are the largest component of the mortgage loan invested asset class. The diversification across geographic regions and property types of commercial mortgage loans was as follows at: December 31, 2022 December 31, 2021 Amount % of Total Amount % of Total (Dollars in millions) Geographic region: 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 West South Central 1,642 12.1 1,425 11.7 Mountain 1,140 8.4 1,062 8.7 East North Central 794 5.8 717 5.9 New England 741 5.4 789 6.5 International 390 2.9 495 4.1 West North Central 361 2.7 318 2.6 East South Central 306 2.2 217 1.8 Multi-region and Other 65 0.5 65 0.5 Total recorded investment 13,574 100.0 % 12,187 100.0 % Less: allowance for credit losses 49 67 Carrying value, net of allowance for credit losses $ 13,525 $ 12,120 Property type: Apartment $ 5,366 39.5 % $ 3,895 32.0 % Office 3,375 24.9 3,566 29.3 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 Total recorded investment 13,574 100.0 % 12,187 100.0 % Less: allowance for credit losses 49 67 Carrying value, net of allowance for credit losses $ 13,525 $ 12,120 Mortgage Loan Credit Quality — Monitoring Process. Our mortgage loan investments are monitored on an ongoing basis, including a review of loans that are current, past due, restructured and under foreclosure. Quarterly, we conduct a formal review of the portfolio with our investment managers. See Note 6 of the Notes to the Consolidated Financial Statements for information on mortgage loans by credit quality indicator, past due status, nonaccrual status and modified mortgage loans. Our commercial mortgage loans are reviewed on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, loan-to-value ratios, debt-service coverage ratios and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher loan-to-value ratios and lower debt-service coverage ratios. The monitoring process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher loan-to-value ratios, including reviews on a geographic and sector basis. Our residential mortgage loans are reviewed on an ongoing basis. See Note 6 of the Notes to the Consolidated Financial Statements for information on our evaluation of residential mortgage loans and related measurement of allowance for credit losses. Loan-to-value ratios and debt-service coverage ratios are common measures in the assessment of the quality of commercial mortgage loans. Loan-to-value ratios are a common measure in the assessment of the quality of agricultural mortgage loans. Loan-to-value ratios compare the amount of the loan to the estimated fair value of the underlying collateral. A loan-to-value ratio greater than 100% indicates that the loan amount is greater than the collateral value. A loan-to-value ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss. The debt-service coverage ratio compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the debt-service 91 Table of Contents 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. In addition, the loan-to-value ratio is routinely updated for all but the lowest risk loans as part of our ongoing review of our commercial mortgage loan portfolio. For our agricultural mortgage loans, our average loan-to-value ratio was 48% and 46% at December 31, 2022 and 2021, respectively. The values utilized in calculating the agricultural mortgage loan loan-to-value ratio are developed in connection with the ongoing review of the agricultural loan portfolio and are routinely updated. Mortgage Loan Allowance for Credit Losses. 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 The carrying values of our limited partnerships and limited liability companies (“LLC”) were as follows at: December 31, 2022 December 31, 2021 (In millions) Other limited partnerships $ 3,941 $ 3,786 Real estate limited partnerships and LLCs (1) 834 485 Total $ 4,775 $ 4,271 _______________ (1) The estimated fair value of real estate limited partnerships and LLCs was $987 million and $595 million at December 31, 2022 and 2021, respectively. Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds. We estimate that the underlying investment of the private equity funds will typically be liquidated over the next 10 to 20 years. Other Invested Assets The carrying value of our other invested assets by type was as follows at: December 31, 2022 December 31, 2021 Carrying Value % of Total Carrying Value % of Total (Dollars in millions) 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 Tax credit and renewable energy partnerships 55 1.9 59 1.8 Leveraged leases, net of non-recourse debt 48 1.7 49 1.5 Other 14 0.5 12 0.3 Total $ 2,852 100.0 % $ 3,316 100.0 % Derivatives Derivative Risks We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. We use a variety of strategies to manage these risks, including the use of derivatives. See Note 7 of the Notes to the Consolidated Financial Statements: • A comprehensive description of the nature of our derivatives, including the strategies for which derivatives are used in managing various risks. • 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 92 Table of Contents 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. 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.” Fair Value Hierarchy See Note 8 of the Notes to the Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy, as well as a rollforward of the fair value measurements for derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs as discussed below. The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives. Although Level 3 inputs are unobservable, management believes they are consistent with what other market participants would use when pricing such instruments and are considered appropriate given the circumstances. The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect net income. Derivatives categorized as Level 3 at December 31, 2022 include: credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations; and foreign currency swaps with certain unobservable inputs. Credit Risk 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. 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.” Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. This policy applies to the recognition of derivatives on the balance sheet and does not affect our legal right of offset. Credit Derivatives The gross notional amount and estimated fair value of credit default swaps were as follows at: December 31, 2022 December 31, 2021 Gross Notional Amount Estimated Fair Value Gross Notional Amount Estimated Fair Value (In millions) Written $ 1,757 $ 16 $ 1,724 $ 38 Purchased — — — — Total $ 1,757 $ 16 $ 1,724 $ 38 The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies. Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by purchasing Treasury bonds (or other high-quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate 93 Table of Contents the desired bond exposures and meet our ALM needs. This can expose the Company to changes in credit spreads as the written credit default swap tenor is shorter than the maturity of Treasury bonds. Embedded Derivatives See Note 8 of the Notes to the Consolidated Financial Statements for (i) information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy and (ii) a rollforward of the fair value measurements for net embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs. See Note 7 of the Notes to the Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits accounted for as embedded derivatives. See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect embedded derivatives. Policyholder Liabilities We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity and life insurance benefit payments. Amounts for actuarial liabilities are computed and reported in the financial statements in conformity with GAAP. See “— Summary of Critical Accounting Estimates” for more details on policyholder liabilities. Due to the nature of the underlying risks and the uncertainty associated with the determination of actuarial liabilities, we cannot precisely determine the amounts that will ultimately be paid with respect to these actuarial liabilities, and the ultimate amounts may vary from the estimated amounts, particularly when payments may not occur until well into the future. We periodically review the assumptions supporting our estimates of actuarial liabilities for future policy benefits. We revise estimates, to the extent permitted or required under GAAP, if we determine that future expected experience differs from assumptions used in the development of actuarial liabilities. We charge or credit changes in our liabilities to expenses in the period the liabilities are established or re-estimated. If the liabilities originally established for future benefit payments prove inadequate, we must increase them. Such an increase could adversely affect our earnings and have a material adverse effect on our business, financial condition and results of operations. We have experienced, and will likely in the future experience, catastrophe losses and possibly acts of terrorism, as well as turbulent financial markets that may have an adverse impact on our business, financial condition and results of operations. Moreover, the impact of climate change could cause changes in the frequency or severity of outbreaks of certain diseases. Due to their nature, we cannot predict the incidence, timing, severity or amount of losses from catastrophes, acts of terrorism or climate change, but we make broad use of catastrophic and non-catastrophic reinsurance to manage risk from these perils. Future Policy Benefits 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. A discussion of future policy benefits by segment, as well as Corporate & Other follows. Annuities Future policy benefits for the annuities business are comprised mainly of liabilities for life contingent income annuities and liabilities for the variable annuity guaranteed minimum benefits accounted for as insurance. Life Future policy benefits for the life business are comprised mainly of liabilities for term, whole, universal and variable life insurance contracts. In order to manage risk, we have often reinsured a portion of the mortality risk on life insurance policies. 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. Run-off 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 94 Table of Contents 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. Corporate & Other Future policy benefits primarily include liabilities for long-term care and workers’ compensation business reinsured through 100% quota share reinsurance agreements. Policyholder Account Balances Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender. See “— 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. Annuities Policyholder account balances for annuities are held for fixed deferred annuities, the fixed account portion of variable annuities and non-life contingent income annuities. Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums. A sustained low interest rate environment could negatively impact earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances. We have various interest rate derivative positions, as part of the Company’s macro interest rate hedging program, to partially mitigate the risks associated with such a scenario. Additionally, policyholder account balances are held for variable annuity guaranteed minimum living benefits that are accounted for as embedded derivatives. The following table presents the breakdown of account value subject to minimum guaranteed crediting rates for Annuities at: December 31, 2022 December 31, 2021 Account Value (1) Account Value at Guarantee (1) Account Value (1) Account Value at Guarantee (1) (In millions) Greater than 0% but less than 2% $ 7,302 $ 864 $ 3,783 $ 802 Equal to 2% but less than 4% $ 11,598 $ 10,870 $ 12,485 $ 11,831 Equal to or greater than 4% $ 525 $ 525 $ 431 $ 431 _______________ (1) These amounts are not adjusted for policy loans. As a result of acquisitions, we establish additional liabilities known as excess interest reserves for policies with credited rates in excess of market rates as of the applicable acquisition dates. Excess interest reserves for Annuities were $225 million and $241 million at December 31, 2022 and 2021, respectively. Life Life policyholder account balances are held for retained asset accounts, universal life policies and the fixed account of universal variable life insurance policies. Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums. A sustained low interest rate environment could negatively impact earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances. We have various derivative positions to partially mitigate the risks associated with such a scenario. 95 Table of Contents The following table presents the breakdown of account value subject to minimum guaranteed crediting rates for Life at: December 31, 2022 December 31, 2021 Account Value (1) Account Value at Guarantee (1) Account Value (1) Account Value at Guarantee (1) (In millions) Greater than 0% but less than 2% $ 221 $ 50 $ 184 $ 58 Equal to 2% but less than 4% $ 1,065 $ 490 $ 1,080 $ 497 Equal to or greater than 4% $ 1,657 $ 1,657 $ 1,705 $ 1,705 _______________ (1) These amounts are not adjusted for policy loans. As a result of acquisitions, we establish additional liabilities known as excess interest reserves for policies with credited rates in excess of market rates as of the applicable acquisition dates. Excess interest reserves for Life were $43 million and $40 million at December 31, 2022 and 2021, respectively. Run-off Policyholder account balances in Run-off are comprised of ULSG, certain company-owned life insurance policies and certain funding agreements. Interest crediting rates vary by type of contract and can be fixed or variable. We are exposed to interest rate risks, when guaranteeing payment of interest and return on principal at the contractual maturity date. We mitigate our risks by applying various ALM strategies. The following table presents the breakdown of account value subject to minimum guaranteed crediting rates for Run-off at: December 31, 2022 December 31, 2021 Account Value (1) Account Value at Guarantee (1) Account Value (1) Account Value at Guarantee (1) (In millions) Universal Life Secondary Guarantee Greater than 0% but less than 2% $ — $ — $ — $ — Equal to 2% but less than 4% $ 4,801 $ 1,389 $ 5,053 $ 1,471 Equal to or greater than 4% $ 527 $ 527 $ 552 $ 552 _______________ (1) These amounts are not adjusted for policy loans. As a result of acquisitions, we establish additional liabilities known as excess interest reserves for policies with credited rates in excess of market rates as of the applicable acquisition dates. Excess interest reserves for Run-off were $108 million and $106 million at December 31, 2022 and 2021, respectively. Variable Annuity Guarantees We issue certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (i.e., the Benefit Base) less withdrawals. In some cases, the Benefit Base may be increased by additional deposits, bonus amounts, accruals or optional market value step-ups. Certain of our variable annuity guarantee features are accounted for as insurance liabilities and recorded in future policy benefits while others are accounted for at fair value as embedded derivatives and recorded in policyholder account balances. Generally, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific insurable event, or (ii) annuitization. Alternatively, a guarantee is accounted for as an embedded derivative if a guarantee is paid without requiring (i) the occurrence of specific insurable event, or (ii) the policyholder to annuitize, resulting in the policyholder receiving the guarantee on a net basis. In certain cases, a guarantee may have elements of both an insurance liability and an embedded derivative and in such cases the guarantee is split and accounted for under both models. Further, changes in assumptions, principally involving behavior, can result in a change of expected future cash 96 Table of Contents outflows of a guarantee between portions accounted for as insurance liabilities and portions accounted for as embedded derivatives. Guarantees accounted for as insurance liabilities in future policy benefits include GMDBs, the life contingent portion of GMWBs and the portion of GMIBs that require annuitization, as well as the life contingent portion of the expected annuitization when the policyholder is required to annuitize upon depletion of their account value. These insurance liabilities are accrued over the accumulation phase of the contract in proportion to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate account returns. The scenarios are based on best estimate assumptions consistent with those used to amortize DAC. When current estimates of future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities will increase, resulting in a current period charge to net income. The opposite result occurs when the current estimates of future benefits are lower than those previously projected or when current estimates of future assessments exceed those previously projected. At each reporting period, we update the actual amount of business remaining in-force, which impacts expected future assessments and the projection of estimated future benefits resulting in a current period charge or increase to earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional details of guarantees accounted for as insurance liabilities. Guarantees accounted for as embedded derivatives in policyholder account balances include the non-life contingent portion of GMWBs, GMABs, and for GMIBs the non-life contingent portion of the expected annuitization when the policyholder is forced into an annuitization upon depletion of their account value, as well as the Guaranteed Principal Option. The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. At policy inception, we attribute to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees. In valuing the embedded derivative, the percentage of fees included in the fair value measurement is locked-in at inception. The projections of future benefits and future fees require capital markets and actuarial assumptions including expectations concerning policyholder behavior. A risk neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital markets scenarios to determine an economic liability. The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin. See Note 8 of the Notes to the Consolidated Financial Statements for more information on the determination of estimated fair value. Liquidity and Capital Resources Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility or disruptions in global capital markets, particular markets or financial asset classes can impact us adversely, in part because we have a large investment portfolio and our insurance liabilities and derivatives are sensitive to changing market factors. Changing conditions in the global capital markets and the economy may affect our financing costs and market interest rates for our debt or equity securities. For further information regarding market factors that could affect our ability to meet liquidity and capital needs, 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 Based upon our capitalization, expectations regarding maintaining our business mix, ratings and funding sources available to us, we believe we have sufficient liquidity to meet business requirements in current market conditions and certain stress scenarios. Our Board of Directors and senior management are directly involved in the governance of the capital management process, including proposed changes to the annual capital plan and capital targets. We continuously monitor and adjust our liquidity and capital plans in light of market conditions, as well as changing needs and opportunities. We maintain a substantial short-term liquidity position, which was $3.6 billion and $3.8 billion at December 31, 2022 and 2021, respectively. Short-term liquidity is comprised of cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, derivatives and assets held on deposit or in trust. 97 Table of Contents An integral part of our liquidity management includes managing our level of liquid assets, which was $40.8 billion and $54.9 billion at December 31, 2022 and 2021, respectively. Liquid assets are comprised of cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, funding agreements, derivatives and assets held on deposit or in trust. The Company Liquidity Liquidity refers to our ability to generate adequate cash flows from our normal operations to meet the cash requirements of our operating, investing and financing activities. We determine our liquidity needs based on a rolling 12-month forecast by portfolio of invested assets, which we monitor daily. We adjust the general account asset and derivatives mix and general account asset maturities based on this rolling 12-month forecast. To support this forecast, we conduct cash flow and stress testing, which reflect the impact of various scenarios, including (i) the potential increase in our requirement to pledge additional collateral or return collateral to our counterparties, (ii) a reduction in new business sales, and (iii) the risk of early contract holder and policyholder withdrawals, as well as lapses and surrenders of existing policies and contracts. We include provisions limiting withdrawal rights in many of our products, which deter the customer from making withdrawals prior to the maturity date of the product. If significant cash is required beyond our anticipated liquidity needs, we have various alternatives available depending on market conditions and the amount and timing of the liquidity need. These available alternative sources of liquidity include cash flows from operations, sales of liquid assets and funding sources including secured funding agreements, unsecured credit facilities and secured committed facilities. Under certain adverse market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase. 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.” Capital We manage our capital position to maintain our financial strength and credit ratings. Our capital position is supported by our ability to generate cash flows within our insurance companies, our ability to effectively manage the risks of our businesses and our expected ability to borrow funds and raise additional capital to meet operating and growth needs under a variety of market and economic conditions. 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. 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 or extinguishment of existing indebtedness. There can be no assurance that we will be able to complete any such financing transactions on terms and conditions favorable to us or at all. In support of our target combined 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. Repurchases under the August 2, 2021 authorization, of which $293 million was remaining at December 31, 2022, may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements. Common stock repurchases are dependent upon several factors, including our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of our common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors. We currently have no plans to declare and pay dividends on our common stock. Any future declaration and payment of dividends or other distributions or returns of capital will be at the discretion of our Board of Directors and will depend on and be subject to our financial condition, results of operations, cash needs, regulatory and other constraints, capital requirements (including capital requirements of our insurance subsidiaries), contractual restrictions and any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we 98 Table of Contents will pay any dividends or make other distributions or returns of capital on our common stock, or as to the amount of any such dividends, distributions or returns of capital. Rating Agencies Financial strength ratings represent the opinion of rating agencies regarding the ability of an insurance company to pay obligations under insurance policies and contracts in accordance with their terms. Credit ratings indicate the rating agency’s opinion regarding a debt issuer’s ability to meet the terms of debt obligations in a timely manner. They are important factors in our overall funding profile and ability to access certain types of liquidity and capital. The level and composition of our regulatory capital at the subsidiary level and our equity capital are among the many factors considered in determining our financial strength ratings and credit ratings. 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 any security, contract or policy. Each rating should be evaluated independently of any other rating. Our financial strength ratings and long-term issuer credit ratings as of the date of this filing were as follows: A.M. Best (1) Fitch (2) Moody’s (3) S&P (4) Current outlook Stable Stable Stable Stable Financial Strength Ratings: Brighthouse Life Insurance Company A A A3 A+ New England Life Insurance Company A A A3 A+ Brighthouse Life Insurance Company of NY A NR NR A+ Long-term Issuer Credit Ratings: Brighthouse Financial, Inc. bbb+ BBB+ Baa3 BBB+ Brighthouse Holdings, LLC bbb+ BBB+ Baa3 BBB+ _______________ (1) A.M. Best’s financial strength ratings for insurance companies range from “A++ (Superior)” to “S (Suspended).” A.M. Best’s long-term issuer credit ratings range from “aaa (exceptional)” to “s (suspended).” (2) Fitch’s financial strength ratings for insurance companies range from “AAA (highest rating)” to “C (distressed).” Fitch’s long-term issuer credit ratings range from “AAA (highest rating)” to “D (default).” (3) Moody’s financial strength ratings for insurance companies and long-term issuer credit ratings range from “Aaa (highest quality)” to “C (lowest rated).” (4) S&P’s financial strength ratings for insurance companies and long-term issuer credit ratings range from “AAA (extremely strong)” to “SD (selective default)” or “D (default).” NR = Not rated Rating agencies may continue to review and adjust our ratings. 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. 99 Table of Contents Sources and Uses of Liquidity and Capital Our primary sources and uses of liquidity and capital were as follows at: Years Ended December 31, 2022 2021 2020 (In millions) Sources: Operating activities, net $ — $ 746 $ 888 Changes in policyholder account balances, net 11,573 11,824 6,825 Changes in payables for collateral under securities loaned and other transactions, net — 1,017 861 Long-term debt issued — 400 615 Preferred stock issued, net of issuance costs — 339 948 Total sources 11,573 14,326 10,137 Uses: Operating activities, net 1,151 — — Investing activities, net 8,276 12,238 5,843 Changes in payables for collateral under securities loaned and other transactions, net 1,709 — — Long-term debt repaid 3 680 1,552 Dividends on preferred stock 104 89 44 Treasury stock acquired in connection with share repurchases 488 499 473 Financing element on certain derivative instruments and other derivative related transactions, net 185 368 948 Other, net 16 86 46 Total uses 11,932 13,960 8,906 Net increase (decrease) in cash and cash equivalents $ (359) $ 366 $ 1,231 Cash Flows from Operating Activities The principal cash inflows from our insurance activities come from insurance premiums, annuity considerations and net investment income. The principal cash outflows are the result of various annuity and life insurance products, operating expenses and income tax, as well as interest expense. The primary liquidity concern with respect to these cash flows is the risk of early contract holder and policyholder withdrawal. Cash Flows from Investing Activities The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments and settlements of freestanding derivatives. We typically can have a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our ALM discipline to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. Cash Flows from Financing Activities The principal cash inflows from our financing activities come from issuances of debt and equity securities, deposits of funds associated with policyholder account balances and lending of securities. The principal cash outflows come from repayments of debt, common stock repurchases, preferred stock dividends, withdrawals associated with policyholder account balances and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal. 100 Table of Contents Primary Sources of Liquidity and Capital In addition to the summary description of liquidity and capital sources discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary sources of liquidity and capital: Funding Sources Liquidity is provided by a variety of funding sources, including secured and unsecured funding agreements, unsecured credit facilities and secured committed facilities. Capital is provided by a variety of funding sources, including issuances of debt and equity securities, as well as borrowings under our credit facilities. We maintain a shelf registration statement with the SEC that permits the issuance of public debt, equity and hybrid securities. As a “Well-Known Seasoned Issuer” under SEC rules, our shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity. The diversity of our funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary funding sources include: Preferred Stock See Note 10 of the Notes to the Consolidated Financial Statements for information on preferred stock issuances. Funding Agreements From time to time, Brighthouse Life Insurance Company issues funding agreements and uses the proceeds from such issuances for spread lending purposes in connection with our institutional spread margin business or to provide additional liquidity. The institutional spread margin business is comprised of funding agreements issued in connection with the programs described in more detail below. See “Obligations Under Funding Agreements” in Note 3 of the Notes to the Consolidated Financial Statements. Funding Agreement-Backed Commercial Paper Program In July 2021, Brighthouse Life Insurance Company established a funding agreement-backed commercial paper program (the “FABCP Program”) for spread lending purposes, pursuant to which a special purpose limited liability company (the “SPLLC”) may issue commercial paper and deposit the proceeds with Brighthouse Life Insurance Company under a funding agreement issued by Brighthouse Life Insurance Company to the SPLLC. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABCP Program is $3.0 billion. Activity related to this funding agreement is reported in Corporate & Other. Funding Agreement-Backed Notes Program In April 2021, Brighthouse Life Insurance Company established a funding agreement-backed notes program (the “FABN Program”), pursuant to which Brighthouse Life Insurance Company may issue funding agreements to a special purpose statutory trust for spread lending purposes. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program was increased from $5.0 billion to $7.0 billion in August 2022. Activity related to these funding agreements is reported in Corporate & Other. Federal Home Loan Bank Funding Agreements Brighthouse Life Insurance Company is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, where it maintains a secured funding agreement program, under which funding agreements may be issued either (i) for spread lending purposes or (ii) to provide additional liquidity. Activity related to these funding agreements is reported in Corporate & Other. Farmer Mac Funding Agreements Brighthouse Life Insurance Company has a secured funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”) 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. 101 Table of Contents Information regarding funding agreements issued for spread lending purposes is as follows: Aggregate Principal Amount Outstanding Issuances Repayments December 31, Years Ended December 31, 2022 2021 2022 2021 2020 2022 2021 2020 (In millions) FABCP Program $ 2,097 $ 1,848 $ 12,682 $ 2,939 $ — $ 12,433 $ 1,091 $ — FABN Program 3,450 2,900 550 2,900 — — — — FHLB Funding Agreements (1) 3,900 900 6,275 1,352 — 3,275 452 — Farmer Mac Funding Agreements 700 125 600 125 — 25 — — Total $ 10,147 $ 5,773 $ 20,107 $ 7,316 $ — $ 15,733 $ 1,543 $ — _______________ (1) Additionally, in April 2020, Brighthouse Life Insurance Company issued funding agreements for an aggregate collateralized borrowing of $1.0 billion to provide a readily available source of contingent liquidity and repaid such borrowing during the fourth quarter of 2020. Debt Issuances See Note 9 of the Notes to the Consolidated Financial Statements for information on debt issuances. Credit and Committed Facilities See Notes 9 and 10 of the Notes to the Consolidated Financial Statements for information regarding our credit and committed facilities. We have no reason to believe that our lending counterparties would be unable to fulfill their respective contractual obligations under these facilities. As commitments under our credit and committed facilities may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements. Our Revolving Credit Facility contains financial covenants, including requirements to maintain a specified minimum adjusted consolidated net worth, to maintain a ratio of total indebtedness to total capitalization not in excess of a specified percentage and that place limitations on the dollar amount of indebtedness that may be incurred by our subsidiaries, which could restrict our operations and use of funds. At December 31, 2022, we were in compliance with these financial covenants. Primary Uses of Liquidity and Capital In addition to the summarized description of liquidity and capital uses discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary uses of liquidity and capital: Common Stock Repurchases See Note 10 of the Notes to the Consolidated Financial Statements for information relating to authorizations to repurchase BHF common stock, amounts of common stock repurchased pursuant to such authorizations and the amount remaining under such authorizations at December 31, 2022. In 2023, through February 17, 2023, BHF repurchased an additional 595,076 shares of its common stock through open market purchases, pursuant to a 10b5-1 plan, for $32 million. Preferred Stock Dividends 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 102 Table of Contents 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 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. Any such repurchases or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, as well as applicable regulatory, legal and accounting factors. Whether or not we repurchase any debt and the size and timing of any such repurchases will be determined at our discretion. Insurance Liabilities Liabilities arising from our insurance activities primarily relate to benefit payments under various annuity and life insurance products, as well as payments for policy surrenders, withdrawals and loans. 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. These estimated cash payments are based on assumptions related to mortality, morbidity, policy lapses, withdrawals, surrender charges, annuitization, future interest credited and other assumptions comparable with our experience and expectations of future payment patterns, as well as other contingent events as appropriate for the respective product type. These amounts are undiscounted and, therefore, exceed the liabilities included on the consolidated balance sheet. Actual cash payments on insurance liabilities may differ significantly from future estimated cash payments due to differences between actual experience and the assumptions used in the establishment of the liabilities and the estimation of the future cash payments. All future estimated cash payments are presented gross of any reinsurance recoverable. At December 31, 2022, obligations under our institutional spread margin business totaled $10.2 billion and the related future estimated cash payments, including interest, totaled $10.6 billion, of which $5.1 billion is due in the next twelve months. Pledged Collateral We enter into derivatives to manage various risks relating to our ongoing business operations. We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At 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 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 $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. Securities Lending We have a securities lending program that aims to enhance the total return on our investment portfolio, whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities are returned to us. Generally, our securities lending contracts expire within twelve months of issuance. We were liable for cash collateral under our control of $3.7 billion and $4.6 billion at December 31, 2022 and 2021, respectively. We receive non-cash collateral for securities lending from counterparties, which cannot be sold or re-pledged, and which is not recorded on our consolidated balance sheets. 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. See Note 6 of the Notes to the Consolidated Financial Statements for further discussion of our securities lending program. 103 Table of Contents Contingencies, Commitments and Guarantees We establish liabilities for litigation, regulatory and other loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. See “Contingencies” in Note 15 of the Notes to the Consolidated Financial Statements. We enter into commitments for the purpose of enhancing the total return on our investment portfolio consisting of commitments to fund partnership investments, bank credit facilities and private corporate bond investments, as well as commitments to lend funds under mortgage loan commitments. We anticipate these commitments could be invested any time over the next five years. See Note 6 of the Notes to the Consolidated Financial Statements. See “Commitments” in Note 15 of the Notes to the Consolidated Financial Statements. In the normal course of our business, we have provided certain indemnities, guarantees and commitments to third parties such that we may be required to make payments now or in the future. See “Guarantees” in Note 15 of the Notes to the Consolidated Financial Statements. The Parent Company Liquidity and Capital In evaluating liquidity, it is important to distinguish the cash flow needs of the parent company from the cash flow needs of the combined group of companies. BHF is largely dependent on cash flows from its insurance subsidiaries to meet its obligations. Constraints on BHF’s liquidity may occur as a result of operational demands or as a result of compliance with regulatory requirements. 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 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, 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. Assets pledged or otherwise committed include assets held in trust. Statutory Capital and Dividends The NAIC and state insurance departments have established regulations that provide minimum capitalization requirements based on RBC formulas for insurance companies. RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose TAC does not meet or exceed the amounts required to attain 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 the amounts required to attain each of those RBC levels. The amount of dividends that our insurance subsidiaries can ultimately pay to BHF through their various parent entities provides an additional margin for risk protection and investment in our businesses. Such dividends are constrained by the amount of surplus our insurance subsidiaries hold to maintain their ratings, which is generally higher than minimum RBC requirements. We proactively take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial resources from internal or external sources of capital. Certain of these activities may require regulatory approval. Furthermore, the payment of dividends and other distributions by our insurance subsidiaries is governed by insurance laws and regulations. See Note 10 of the Notes to the Consolidated Financial Statements. 104 Table of Contents Normalized Statutory Earnings 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 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 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. Our variable annuity block has been managed by funding the balance sheet with assets equal to or greater than a CTE98 level. We have also managed market-related risks of increases in these asset requirements by hedging the market sensitivity of the CTE98 level to changes in the capital markets. By including hedge gains and losses related to our variable annuity risk management strategy in our calculation of normalized statutory earnings (loss), we are able to fully reflect the change in value of the hedges, as well as the change in the value of the underlying CTE98 total asset requirement level. We believe this allows us to determine whether our hedging program is providing the desired level of protection. 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: Year Ended December 31, 2022 (In billions) Statutory net gain (loss) from operations, pre-tax $ 1.0 Add: net realized capital gains (losses) 0.4 Add: change in total asset requirement at CTE98, net of the change in variable annuity reserves 0.7 Add: unrealized gains (losses) on variable annuity & Shield hedging programs and other equity risk management strategies (1.6) Add: impact of actuarial items and other insurance adjustments 0.4 Add: other adjustments, net 0.1 Normalized statutory earnings (loss) $ 1.0 Primary Sources and Uses of Liquidity and Capital The principal sources of funds available to BHF include distributions from BH Holdings, dividends and returns of capital from its insurance subsidiaries and BRCD, capital markets issuances, as well as its own cash and cash equivalents and short-term investments. These sources of funds may also be supplemented by alternate sources of liquidity either directly or indirectly through our insurance subsidiaries. For example, we have established internal liquidity facilities to provide liquidity within and across our regulated and non-regulated entities to support our businesses. The primary uses of liquidity of BHF include debt service obligations (including interest expense and debt repayments), preferred stock dividends, capital contributions to subsidiaries, common stock repurchases and payment of general operating expenses. Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enable BHF to make payments on debt, pay preferred stock dividends, contribute capital to its subsidiaries, repurchase its common stock, pay all general operating expenses and meet its cash needs. 105 Table of Contents In addition to the liquidity and capital sources discussed in “— The Company — Primary Sources of Liquidity and Capital” and “— The Company — Primary Uses of Liquidity and Capital,” the following additional information is provided regarding BHF’s primary sources and uses of liquidity and capital: Distributions from and Capital Contributions to BH Holdings See Note 2 of Schedule II — Condensed Financial Information (Parent Company Only) for information relating to distributions from and capital contributions to BH Holdings. Short-term Intercompany Loans and Intercompany Liquidity Facilities See Note 3 of Schedule II — Condensed Financial Information (Parent Company Only) for information relating to short-term intercompany loans and our intercompany liquidity facilities including obligations outstanding, issuances and repayments.