What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-08 · 365 added, 618 removed, 791 unchanged (55% of the section changed)

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Securities and Exchange Commission (“SEC”) on February 23, 2023 (the “2022 Annual Report”);

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

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

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

and (iii) our current reports on Form 8-K filed in 2023.

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.

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

• “Industry Trends and Uncertainties” discusses updates and changes to a number of trends and uncertainties included in our 2021 Annual Report that we believe may materially affect our future financial condition, results of operations or cash flows, including from the COVID-19 pandemic.

• “Industry Trends and Uncertainties” discusses updates and changes to a number of trends and uncertainties included in our 2022 Annual Report 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 accounting principles generally accepted in the United States of America (“GAAP”).

• “Non-GAAP and Other Financial Disclosures” defines key financial measures presented in our results of operations discussion that are not calculated in accordance with GAAP but are used by management in evaluating company and segment performance.

As described in this section, adjusted earnings is presented by key business activities which are derived from, but different than, the line items presented in the GAAP statement of operations.

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 statements 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.

Our Results of Operations discussion and analysis presents a review for the three months ended March 31, 2023 and 2022 and period-over-period comparisons between these periods.

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

Executive Summary

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In addition, we report certain of our results of operations in Corporate & Other.

See “Business — Segments and Corporate & Other” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary” included in our 2022 Annual Report, as well as Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements for further information regarding our segments and Corporate & Other.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

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

$ 116 $ 577 $ 496 $ 1,579

Provision for income tax expense (benefit) 35 105

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

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

Net loss available to shareholders for the three months ended September 30, 2022 primarily reflects net unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to increasing long-term interest rates resulting in an unfavorable change in the estimated fair value of freestanding interest rate derivatives we use to hedge our variable annuity and universal life with secondary guarantees (“ULSG”) business.

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

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

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

These favorable impacts were partially offset by increasing long-term interest rates resulting in an unfavorable change in the estimated fair value of freestanding interest rate derivatives we use to hedge our ULSG business.

For the three months ended March 31, 2023, we had a net loss available to shareholders of $525 million and adjusted earnings of $195 million compared to net income available to shareholders of $1.6 billion and adjusted earnings of $380 million for the three months ended March 31, 2022.

Net loss available to shareholders for the three months ended March 31, 2023 primarily reflects net unfavorable changes in the estimated fair value of our variable annuity guaranteed benefit riders due to market factors, net investment losses on sales of fixed maturity securities and net investment losses on mortgage loans.

These unfavorable impacts were partially offset by favorable pre-tax adjusted earnings and decreasing long-term interest rates resulting in a favorable change in the estimated fair value of freestanding interest rate derivatives we use to hedge our universal life with secondary guarantees (“ULSG”) business.

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

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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.

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.

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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.

Inflation also

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

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

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

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

Events involving limited liquidity, defaults, nonperformance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about events of these kinds or other similar risks, could adversely affect market-wide liquidity, which could increase the risk of a recession or an equity market downturn and negatively impact various portions of our business, including our investment portfolio.

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.

We continue to closely monitor political and economic conditions that might contribute to market volatility and their impact on our business operations, investment portfolio and derivatives, such as global inflation, uncertainty and instability in certain asset classes (including commercial real estate), supply chain disruptions and the Russia-Ukraine conflict.

See “— Investments — Current Environment” herein, as well as “Risk Factors — Economic Environment and Capital Markets-Related Risks,” “Risk Factors — Risks Related to our Investment Portfolio,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Investments” included in our 2022 Annual Report for a detailed discussion of financial and economic impacts on our business, including the potential impacts of interest rate risk and inflation risk on our investments and overall business.

COVID-19 Pandemic

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

At this time, it continues to not be possible to estimate (i) the severity or duration of the pandemic, including the severity, duration and frequency of any additional “waves” or emerging variants of COVID-19 or (ii) the efficacy or utilization of any therapeutic treatments and vaccines for COVID-19 or variants thereof.

It likewise remains not possible to predict or estimate the longer-term effects of the pandemic, or any actions taken to contain or address the pandemic, on the economy at large and on our business, financial condition, results of operations and prospects, including the impact on our investment portfolio and our ratings, or the need for us in the future to revisit or revise any targets we may provide to the markets or any aspects of our business model.

See “Business — Regulation,” “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — COVID-19 Pandemic” included in our 2021 Annual Report, as well as “— Investments — Current Environment — Selected Sector Investments,” “— Investments — Mortgage Loans — Loan Modifications Related to the COVID-19 Pandemic” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

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.

See “Business — Regulation,” “Risk Factors — Risks Related to Our Business — Public health crises, extreme mortality events or similar occurrences may adversely impact our business, financial condition, or results of operations, as well as the economy in general” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — COVID-19 Pandemic” included in our 2022 Annual Report.

Regulatory Developments

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See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in our 2022 Annual Report, as amended or supplemented by our subsequent Quarterly Reports under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — Regulatory Developments.”

Federal Tax Reform

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

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

exceeds $1 billion.

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

corporations.

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

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

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

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

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

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

New York Regulation 47

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

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

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

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

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

New York Regulation 187

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

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

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

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

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

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

Summary of Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Interim Condensed Consolidated Financial Statements.

In connection with the adoption of new guidance on long-duration contracts (ASU 2018-12, Financial Services-Insurance (Topic 944):

Targeted Improvements to the Accounting for Long-Duration Contracts (“LDTI”)), the Company updated its impacted critical accounting estimates as described below.

The most critical estimates include those used in determining:

• liabilities for future policy benefits;

• amortization of deferred policy acquisition costs (“DAC”);

• liability for future policy benefits (“LFPB”);

• estimated fair values of market risk benefits (“MRB”);

• estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation;

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Actual results could differ from these estimates.

The above critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and Note 1 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report.

The above critical accounting estimates are described below and in Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” in the 2022 Annual Report for a description of income taxes and the valuation of deferred tax assets, which remains unchanged following the adoption of LDTI.

Liability for Future Policy Benefits

The Company establishes an LFPB for non-participating term and whole life insurance and income annuities.

LFPBs are accrued over time as revenue is recognized based on a net premium ratio.

The net premium ratio is the portion of gross premiums required to provide for all future benefits.

LFPBs are established using the Company’s current assumptions of future cash flows, discounted at a rate that approximates a single A corporate bond curve.

The Company generally aggregates insurance contracts into groupings by issue year, product and segment for determining the net premium ratio and related LFPBs.

The Company reviews cash flow assumptions regularly, and, if they change significantly, LFPBs are adjusted by determining a revised net premium ratio.

The revised net premium ratio is calculated as of contract inception using both actual historical experience and updated future cash flow assumptions.

The recalculated net premium ratio is applied to derive a remeasurement gain or loss recognized in current period net income.

The net premium ratio is also updated for the difference between actual and expected experience.

The measurement of our LFPBs can be significantly impacted by changes in assumptions for mortality, policy lapses and market interest rates.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information on the effects of changes in assumptions on the measurement of our LFPBs.

The Company establishes a liability in addition to the account balance for secondary guarantees on universal life insurance.

These liabilities are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the contract period based on total expected assessments.

The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.

The Company also maintains a liability for profits followed by losses on ULSG determined by projecting future earnings and establishing a liability to offset losses that are expected to occur in later years.

The Company reviews cash flow assumptions regularly, and, if they change significantly, the liability for secondary guarantees is adjusted by a cumulative charge or credit to net income.

The measurement of our ULSG liabilities can be significantly impacted by changes in assumptions for the general account rate of return, which is driven by our assumption for long-term treasury yields, and changes in assumptions for premium, premium persistency, mortality and lapses.

The Company’s 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 annual actuarial review, 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%.

We also updated other assumptions related to ULSG, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Annual Actuarial Review” included in our 2022 Annual Report.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information on the effects of inputs and assumptions on the measurement of ULSG liabilities.

Market Risk Benefits

MRBs principally include guaranteed minimum benefits on variable annuity contracts, including reinsured benefits related to these guarantees.

The estimated fair value of variable annuity guarantees accounted for as MRBs is determined based on the present value of projected future benefits, less the present value of projected future fees attributable to the guarantees.

At policy inception, the Company determines an attributed fee ratio by solving for a percentage of projected future rider fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits.

To the extent the rider fees are insufficient, the Company may also include fees related to mortality and expense charges in the attributed fee ratio, provided the total fees included in the calculation do not exceed total contract fees and assessments collected from the contract holder.

The attributed fee ratio is not updated in subsequent periods.

The Company updates the estimated fair value of variable annuity guarantees in subsequent periods by projecting future benefits using capital markets inputs and actuarial assumptions, including expectations of policyholder behavior.

A risk neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital markets scenarios.

The reported estimated fair value is then determined by taking the present value of these cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect the Company’s nonperformance risk and adding a risk margin (as discussed below).

For more information on the determination of estimated fair value of MRBs, see Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements.

The valuation of MRBs includes an adjustment for the risk that the Company fails to satisfy its obligations, which is referred to as nonperformance risk.

The nonperformance risk adjustment is captured as an additional spread applied to the risk-free rate in determining the 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 Brighthouse Financial’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 Brighthouse Financial.

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

The establishment of risk margins requires the use of significant actuarial judgment, including assumptions of the amount needed to cover the guarantees.

Actuarial assumptions are reviewed at least annually, and if they change significantly, the estimated fair value is adjusted through net income.

Capital market inputs used in the measurement of variable annuity guarantees are updated quarterly through net income, except for the change attributable to the Company’s nonperformance risk, which is reported in other comprehensive income (loss) (“OCI”).

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 nonperformance risk, may result in significant fluctuations in the estimated fair value of the guarantees.

In 2022, the Company updated fund allocations, market volatility and maintenance expenses, as well as assumptions regarding policyholder behavior, including mortality, lapses and withdrawals.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information on the effects of changes in inputs and assumptions on the measurement of our liabilities for variable annuity guarantees.

We use freestanding derivative instruments to hedge various capital markets risks in our products, including:

(i) certain variable annuity guarantees, which are reported as MRBs;

(ii) index-linked interest credited features, which are reported as embedded derivatives;

(iii) current or future changes in the fair value of our assets and liabilities;

and (iv) 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 8 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information on significant inputs into the over-the-counter derivative pricing models and credit risk adjustment.

Embedded Derivatives in Index-Linked Annuities

The Company issues, and assumes through reinsurance, index-linked annuities, including Shield ® Level Annuities (“Shield” and “Shield Annuities”), that contain crediting rates classified as embedded derivatives.

The crediting rates are measured at estimated fair value separately from the fixed annuity host contracts, which is determined using a combination of an option pricing methodology and an option-budget approach.

The estimated fair value includes capital market inputs and actuarial policyholder behavior assumptions, including expectations for renewals at the end of the term period.

Actuarial assumptions are reviewed at least annually, and, if they change significantly, the estimated fair value is adjusted through net income.

Capital market inputs used in the measurement of crediting rate embedded derivatives are updated quarterly through net income.

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.

See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements for more information on the determination of estimated fair value of crediting rate embedded derivatives.

Non-GAAP and Other Financial Disclosures

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• 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”);

• Certain variable annuity guaranteed minimum income benefits (“GMIB”) fees (“GMIB Fees”).

• Net derivative gains (losses), excluding 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”).

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”);

• 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.

• Change in MRBs;

• Change in fair value of the crediting rate on experience-rated contracts (“Market Value Adjustments”).

The tax impact of the adjustments discussed above is calculated net of the statutory tax rate, which could differ from our effective tax rate.

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:

The following table illustrates how each component of adjusted earnings is calculated from the GAAP statements of operations line items:

Component of Adjusted Earnings How Derived from GAAP (1)

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

(ii) Net investment spread (ii) Net investment income plus Investment Hedge Adjustments and interest received on ceded fixed annuity reinsurance deposit funds reduced by Interest credited to policyholder account balances and interest on future policy benefits.

(iii) Insurance-related activities (iii) Premiums less Policyholder benefits and claims (excluding (a) GMIB Costs, (b) Market Value Adjustments, (c) interest on future policy benefits and (d) amortization of deferred gain on reinsurance) plus the pass through of performance of ceded separate account assets.

(iv) Amortization of DAC and VOBA (iv) Amortization of DAC and VOBA (excluding amounts related to (a) net investment gains (losses), (b) net derivative gains (losses) and (c) GMIB Fees and GMIB Costs).

(v) Other expenses, net of DAC capitalization (v) Other expenses reduced by capitalization of DAC.

(i) Fee income (i) Universal life and investment-type product policy fees plus Other revenues .

(ii) Net investment spread (ii) Net investment income plus Investment Hedge Adjustments reduced by Interest credited to policyholder account balances (excluding Market Value Adjustments) and interest on future policy benefits.

(iii) Insurance-related activities (iii) Premiums less Policyholder benefits and claims , excluding interest on future policy benefits.

(iv) Amortization of DAC and VOBA (iv) Amortization of deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”) .

(v) Other expenses

(v) Other expenses.

(vi) Provision for income tax expense (benefit) (vi) Tax impact of the above items.

__________________

(1) Italicized items indicate GAAP statement of operations line items.

(1) Italicized items indicate GAAP statements of operations line items.

Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance.

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Adjusted Net Investment Income

We present adjusted net investment income, which is not calculated in accordance with GAAP.

We present adjusted net investment income to measure our performance for management purposes, and we believe it enhances the understanding of our investment portfolio results.

Adjusted net investment income represents net investment income, including Investment Hedge Adjustments.

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

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

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

Other Financial Disclosures

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

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

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

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

Results of Operations

Annual Actuarial Review

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

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

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

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

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

This update had the largest impact on our ULSG business.

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

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

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

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

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

Nine Months Ended

September 30,

(In millions)

GMLBs $ (94) $ (42)

Included in pre-tax adjusted earnings:

Other annuity business (57) 4

Life business (6) 4

Run-off 162 (113)

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

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

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

Consolidated Results for the Three Months Ended March 31, 2023 and 2022

Unless otherwise noted, all amounts in the following discussions of our results of operations are stated before income tax except for adjusted earnings, which are presented net of income tax.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

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Total revenues 1,284 2,013

Policyholder benefits and claims 1,246 1,112 3,260 2,620

Policyholder benefits and claims (including liability remeasurement gains (losses) of $0 and $0, respectively)

Interest credited to policyholder account balances 422 248

Capitalization of DAC (104) (126) (328) (360)

Amortization of DAC and VOBA 156 157

Change in market risk benefits 194 (1,579)

Interest expense on debt 38 38

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

(677) 383 946 (171)

Preferred stock dividends 26 27

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

GMLB Riders $ (590) $ (198) $ 2,132 $ (1,484)

Other derivative instruments (400) 109 (1,451) (404)

Change in market risk benefits $ (194) $ 1,579

Net investment gains (losses) (96) (68)

Net derivative gains (losses) (575) (54)

Other adjustments (46) 32

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

116 577 496 1,579

Income (loss) available to shareholders before provision for income tax (681) 1,974

2 unchanged sentences

$ (525) $ 1,558

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

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

Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022

Loss available to shareholders before provision for income tax was $681 million ($525 million, net of income tax), a decrease of $2.7 billion ($2.1 billion, net of income tax) from income available to shareholders before provision for income tax of $2.0 billion ($1.6 billion, net of income tax) in the prior period.

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

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

• losses from variable annuity guaranteed benefit riders, see “— Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months Ended March 31, 2023 and 2022”;

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

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

The decrease in income before provision for income tax was partially offset by the favorable impact of long-term interest rates on interest rate derivatives used to manage interest rate exposure in our ULSG business, as the long-term interest rate decreased in the current period resulting in a gain of $141 million and increased in the prior period resulting in a loss of $540 million.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 24% in the current period compared to 21% 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 and tax credits.

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

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

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

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

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

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

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

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

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 18% in the current period compared to 35% in the prior period.

The decrease in the effective tax rate was driven by lower pre-tax adjusted earnings, as discussed in greater detail below.

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

1 unchanged sentence

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

Three Months Ended September 30, 2022

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders $ (512) $ — $ (605) $ 415 $ (702)

Provision for income tax expense (benefit) 23 (2) 113 (327) (193)

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

(489) (2) (492) 88 (895)

GMLB Riders (590) — — — (590)

Other derivative instruments (24) 10 (459) 73 (400)

Net investment gains (losses) (26) (3) (27) 11 (45)

Other adjustments 3 — 21 — 24

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

148 (9) (27) 4 116

Provision for income tax expense (benefit) 23 (2) (6) 4 19

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

Three Months Ended September 30, 2021

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders $ 242 $ 117 $ 72 $ (70) $ 361

Provision for income tax expense (benefit) 96 31 17 (39) 105

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

338 148 89 (109) 466

GMLB Riders (198) — — — (198)

Other derivative instruments 80 4 20 5 109

Net investment gains (losses) (17) 4 24 (27) (16)

Other adjustments (8) (1) 3 — (6)

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

481 141 42 (87) 577

Provision for income tax expense (benefit) 96 31 4 (4) 127

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Annuities Life Run-off Corporate & Other Total

4 unchanged sentences

(630) (3) (5) (43) (681)

GMLB Riders 2,132 — — — 2,132

Other derivative instruments 30 12 (1,628) 135 (1,451)

Net investment gains (losses) (72) (3) (7) (14) (96)

Net derivative gains (losses) (743) 2 154 12 (575)

Change in market risk benefits (194) — — — (194)

Other adjustments (8) (2) (18) (18) (46)

3 unchanged sentences

Adjusted earnings $ 314 $ 1 $ (106) $ (14) $ 195

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Annuities Life Run-off Corporate & Other Total

4 unchanged sentences

2,406 67 (456) (43) 1,974

GMLB Riders (1,484) — — — (1,484)

Other derivative instruments 122 6 (537) 5 (404)

Net investment gains (losses) (40) (17) 10 (21) (68)

Net derivative gains (losses) 433 1 (532) 44 (54)

Change in market risk benefits 1,579 — — — 1,579

Other adjustments (4) — 35 1 32

3 unchanged sentences

Adjusted earnings $ 354 $ 66 $ 24 $ (64) $ 380

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

Consolidated Results for the Three Months Ended March 31, 2023 and 2022 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

3 unchanged sentences

Amortization of DAC and VOBA (156) (157)

Other expenses, net of DAC capitalization (495) (579) (1,596) (1,749)

Other expenses (478) (509)

Net income (loss) attributable to noncontrolling interests and preferred stock dividends

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

116 577 496 1,579

Provision for income tax expense (benefit) 35 105

Adjusted earnings $ 195 $ 380

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

Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022

Adjusted earnings were $195 million in the current period, a decrease of $185 million.

1 unchanged sentence

• lower net investment spread due to:

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

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

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

◦ lower returns on real estate limited partnerships and limited liability companies (“LLCs”);

partially offset by

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

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

• higher net amortization of DAC and VOBA due to:

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

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

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

partially offset by

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

• lower net fee income due to:

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

partially offset by

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

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

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

◦ higher returns from short-term investments;

• lower fee income due to lower asset-based fees resulting from lower average separate account balances, a portion of which is offset in other expenses.

Key net favorable impacts were:

2 unchanged sentences

◦ lower transition services agreement expenses;

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

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

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

partially offset by

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

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

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

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

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

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

Key net unfavorable impacts were:

• lower net investment spread due to:

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

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

partially offset by

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

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

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

• lower net fee income due to:

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

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

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

partially offset by

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

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

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

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

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

partially offset by

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

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

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

• higher net amortization of DAC and VOBA due to:

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

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

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

◦ lower establishment costs, which were completed in 2022;

partially offset by

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

◦ lower transition services agreement expenses;

◦ lower deferred compensation and operational expenses;

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

◦ an increase in the income annuity underwriting margin;

partially offset by

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

◦ higher paid claims, net of reinsurance, in our Run-off segment.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 14% in the current period compared to 20% in the prior period.

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

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

Segments and Corporate & Other Results for the Three Months Ended March 31, 2023 and 2022 — Adjusted Earnings

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

3 unchanged sentences

Amortization of DAC and VOBA (129) (127)

Other expenses, net of DAC capitalization (345) (415) (1,057) (1,231)

Other expenses (340) (372)

Pre-tax adjusted earnings 387 438

2 unchanged sentences

A significant portion of our adjusted earnings is driven by separate account balances related to our variable annuity business.

Most directly, these balances determine asset-based fee income, but they also impact DAC amortization and asset-based commissions.

The changes in our variable annuities separate account balances are presented in the table below.

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

Three Months Ended September 30, 2022 (1)

Nine Months Ended September 30, 2022 (1)

(In millions)

Balance, beginning of period $ 81,633 $ 105,197

Premiums and deposits 232 1,046

Withdrawals, surrenders and contract benefits (1,791) (5,746)

Net flows (1,559) (4,700)

Investment performance (4,410) (23,515)

Policy charges (587) (1,753)

Net transfers from (to) general account (22) (174)

Balance, end of period $ 75,055 $ 75,055

Average balance $ 82,597 $ 89,272

_______________

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

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

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

Key unfavorable impacts were:

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

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

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

◦ higher severity of GMDB claims;

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

• higher amortization of DAC and VOBA due to:

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

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

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

Key favorable impacts were:

• lower other expenses due to:

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

◦ lower transition services agreement expenses;

◦ lower deferred compensation expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 16% in the current period compared to 20% in the prior period.

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

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

Most directly, these balances determine asset-based fee income and asset-based commissions.

The changes in our variable annuities separate account balances are presented in Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022

Adjusted earnings were $314 million in the current period, a decrease of $40 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;

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

◦ higher volume and severity of GMDB claims;

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

• higher amortization of DAC and VOBA due to:

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

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

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

• lower net investment spread due to:

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

◦ lower returns on real estate limited partnerships and LLCs;

partially offset by

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

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

◦ higher returns from short-term investments.

Key favorable impacts were:

• lower costs associated with insurance-related activities due to an increase in income annuity underwriting margins;

• lower other expenses due to:

1 unchanged sentence

◦ lower transition services agreement expenses.

◦ lower deferred compensation expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 18% in the current period compared to 19% in the prior period.

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

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

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

3 unchanged sentences

Amortization of DAC and VOBA (27) (30)

Other expenses, net of DAC capitalization (37) (34) (65) (126)

Other expenses (50) (29)

Pre-tax adjusted earnings — 83

1 unchanged sentence

Adjusted earnings $ 1 $ 66

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

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

Key unfavorable impacts were:

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

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

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

Key favorable impacts were:

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

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

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

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

Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022

Adjusted earnings were $1 million in the current period, a decrease of $65 million.

Key net unfavorable impacts were:

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

• lower net fee income due to:

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

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

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

partially offset by

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

• higher amortization of DAC and VOBA due to:

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

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

partially offset by

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

Key favorable impacts were:

• lower other expenses due to:

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

◦ lower transition services agreement expenses;

◦ lower deferred compensation and operational expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 18% in the current period compared to 21% in the prior period.

Key unfavorable impacts were:

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

• higher other expenses due to:

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

◦ higher deferred compensation and operational expenses.

Key favorable impact was:

• higher fee income due to lower ceded cost of insurance fees consistent with favorable equity market returns, which is offset in other expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in a lower 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 impact of the dividends received deduction.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

3 unchanged sentences

Amortization of DAC and VOBA — —

Other expenses, net of DAC capitalization (38) (45) (248) (135)

Other expenses (40) (44)

Pre-tax adjusted earnings (134) 31

1 unchanged sentence

Adjusted earnings $ (106) $ 24

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

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

Key unfavorable impact was:

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

Key net favorable impacts were:

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

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

partially offset by

◦ higher paid claims, net of reinsurance;

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

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

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

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

Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022

Adjusted earnings were a loss of $106 million in the current period, a decrease of $130 million.

Key unfavorable impacts were:

• lower net investment spread due to:

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

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

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

Key net favorable impacts were:

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

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

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

partially offset by

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

◦ higher paid claims, net of reinsurance.

Key net unfavorable impacts were:

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

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

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 23% in the prior period.

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

3 unchanged sentences

Amortization of DAC and VOBA — —

Other expenses, net of DAC capitalization (75) (85) (226) (257)

Other expenses (48) (64)

Net income (loss) attributable to noncontrolling interests and preferred stock dividends

2 unchanged sentences

Adjusted earnings $ (14) $ (64)

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

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

Key favorable impacts were:

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

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

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

• lower other expenses due to lower establishment costs.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 13% in the current period compared to 6% in the prior period.

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

We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a standalone basis nor for comparison to prior periods, since taxes for Corporate & Other are derived from the difference between the overall consolidated effective tax rate and total taxes for the combined operating segments.

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

Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022

Adjusted earnings were a loss of $14 million in the current period, a lower loss of $50 million.

Key favorable impacts were:

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

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

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

◦ lower paid claims, net of reinsurance;

• lower other expenses due to lower establishment costs;

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

Key unfavorable impact was:

• higher preferred stock dividends in the current period.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 58% in the current period compared to 16% in the prior period.

• higher net investment spread due to:

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

◦ higher returns from short-term investments;

• lower other expenses due to lower establishment costs, which were completed in 2022.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in a lower 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.

GMLB Riders for the Three Months and Nine Months Ended September 30, 2022 and 2021

The overall impact on income (loss) available to shareholders before provision for income tax from the performance of GMLB Riders, which includes (i) changes in carrying value of the GAAP liabilities, (ii) the mark-to-market of hedges and reinsurance, (iii) fees and (iv) associated DAC offsets, was as follows:

Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months Ended March 31, 2023 and 2022

The overall impact on income (loss) available to shareholders before provision for income tax from the performance of variable annuity guaranteed benefits and Shield annuity liabilities, which includes (i) changes in the fair value of liabilities and reinsurance, (ii) fees net of claims and (iii) the mark-to-market of hedges, was as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

Liabilities $ 177 $ (274) $ 3,464 $ (960)

Hedges (772) (76) (1,277) (1,216)

Market risk benefits mark-to-market $ (304) $ 1,428

Annuity guaranteed benefit rider fees, net of claims 118 178

Ceded reinsurance (2) (27)

Fees (1) 223 219 631 620

GMLB DAC (215) (56) (631) 146

Total GMLB Riders $ (590) $ (198) $ 2,132 $ (1,484)

__________________

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

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

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

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

• unfavorable changes to GMLB DAC;

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

partially offset by

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

Lower equity markets resulted in the following impacts:

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

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

partially offset by

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

• unfavorable changes to GMLB DAC.

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;

partially offset by

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

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

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

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

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

partially offset by

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

• unfavorable changes to GMLB DAC;

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

Lower equity markets resulted in the following impacts:

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

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

• favorable changes in ceded reinsurance;

partially offset by

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

• unfavorable changes to GMLB DAC.

Higher interest rates resulted in the following impacts:

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

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

• unfavorable changes to GMLB DAC;

• unfavorable changes in ceded reinsurance;

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.

Investment Risks

Our primary investment objective is to optimize risk-adjusted net investment income and risk-adjusted total return while appropriately matching assets and liabilities.

In addition, the investment process is designed to ensure that the portfolio has an appropriate level of liquidity, quality and diversification.

We are exposed to the following primary sources of investment risks, which may be heightened or exacerbated by the factors discussed in “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity” in our 2021 Annual Report and “— Industry Trends and Uncertainties — COVID-19 Pandemic”:

• credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest, which will likely result in a higher allowance for credit losses and write-offs for uncollectible balances for certain investments;

• interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates.

Changes in market interest rates will impact the net unrealized gain or loss position of our fixed income investment portfolio and the rates of return we receive on both new funds invested and reinvestment of existing funds;

• inflation risk, relating to a sustained or material increase in inflation, which could increase realized and unrealized losses or increase expenses;

• market valuation risk, relating to the variability in the estimated fair value of investments associated with changes in market factors such as credit spreads and equity market levels.

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

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

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

• real estate risk, relating to commercial, agricultural and residential real estate, and stemming from factors, which include, but are not limited to, market conditions, including the demand and supply of leasable commercial space, creditworthiness of borrowers and their tenants and joint venture partners, capital markets volatility and inherent interest rate movements;

• currency risk, relating to the variability in currency exchange rates for non-U.S.

dollar denominated investments;

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

See also “Risk Factors — Economic Environment and Capital Markets-Related Risks — We are exposed to significant financial and capital markets risks which may adversely affect our financial condition, results of operations and liquidity, and may cause our net investment income and our profitability measures to vary from period to period” and “Risk Factors — Investments-Related Risks” in our 2021 Annual Report.

We manage these risks through asset-type allocation and industry and issuer diversification.

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

Real estate risk is managed through geographic and property type and product type diversification.

Total changes attributable to annuity guaranteed benefits liabilities (188) 1,579

Variable annuity hedges 365 (316)

Shield embedded derivatives (1,073) 701

Total annuity guaranteed benefits and Shield annuity liabilities $ (896) $ 1,964

Market Risk Benefits Mark-to-Market.

Annuity guaranteed rider benefits are accounted for as MRBs.

Liabilities related to guarantee rider benefits represent the current estimated fair value of the 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.

Annuity Guaranteed Benefit Rider Fees, Net of Claims.

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.

The future fees are included in the estimated fair value of MRB liabilities, with changes recorded in MRBs.

Variable Annuity Hedges and Reinsurance.

We enter into freestanding derivatives to hedge certain aspects of the annuity guaranteed benefits accounted for as MRBs and index-linked crediting rates accounted for as embedded derivatives.

Generally, the same market factors that impact the estimated fair value of the guarantee rider impact the value of the hedges, though in the opposite direction.

However, the changes in value of MRBs and related hedges may not be symmetrical and the divergence could be significant due to certain factors, including unhedged risks within MRBs.

We may also use reinsurance to manage our exposure related to MRBs.

Shield Embedded Derivatives.

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 a risk offset to liabilities related to guarantee rider benefits.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies — Variable Annuity Exposure Risk Management” in our 2022 Annual Report for discussion of our management of our hedging strategy associated with our variable annuity business, which remains unchanged following the adoption of LDTI.

Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022

Annuity guaranteed benefits and Shield annuity liabilities performance was unfavorable for the three months ended March 31, 2023, primarily driven by:

• increases in annuity guaranteed benefits liabilities due to decreasing interest rates, partially offset by increasing equity markets;

• favorable changes in variable annuity hedges due to decreasing long-term interest rates, partially offset by the negative impact from increasing equity markets;

• unfavorable changes in Shield embedded derivatives due to increasing equity markets.

Annuity guaranteed benefits and Shield annuity liabilities performance was favorable for the three months ended March 31, 2022, primarily driven by:

• decreases in annuity guaranteed benefits liabilities due to increasing interest rates, partially offset by decreasing equity markets;

• unfavorable changes in variable annuity hedges due to increasing long-term interest rates, partially offset by the positive impact from decreasing equity markets;

• favorable changes in Shield embedded derivatives due to decreasing equity markets, partially offset by increasing interest rates.

Investment Risk Management Strategy

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

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

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

Interest rate risk is managed as part of our Asset Liability Management (“ALM”) strategies.

Product design, such as the use of market value adjustment features and surrender charges, is also utilized to manage interest rate risk.

These strategies include maintaining an investment portfolio that targets a weighted average duration that reflects the duration of our estimated liability cash flow profile.

For certain of our liability portfolios, it is not possible to invest assets to the full liability duration, thereby creating some asset/liability mismatch.

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

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

These ALM strategies include maintaining an investment portfolio that targets a weighted average duration that reflects the duration of our estimated liability cash flow profile.

For certain of our liability portfolios, it is not possible to invest assets for the full liability duration, thereby creating some asset/liability mismatch.

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

Investment Management Agreements

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

The Federal Reserve may increase or decrease the federal funds rate in the future, which, in addition to impacting product sales, may have an impact on the valuation of risk-bearing investments.

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

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

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

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

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

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

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

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

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,” as amended herein, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — Financial and Economic Environment” included in our 2021 Annual Report.

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

In 2023, the Federal Reserve increased the target range for the federal funds rate three times — from between 4.25% and 4.50% to between 4.50% and 4.75% on February 1, 2023;

to between 4.75% and 5.00% on March 22, 2023;

and to between

5.00% and 5.25% on May 3, 2023.

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

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

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

Selected Sector Investments

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

Contributing factors include concerns about energy and oil prices, inflation, geopolitical events, ongoing military actions and the COVID-19 pandemic.

See “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity,” “Risk Factors — Economic Environment and Capital Markets-Related Risks — If difficult conditions in the capital markets and the U.S.

economy generally persist or are perceived to persist, they may materially adversely affect our business and results of operations,” and “Risk Factors — Investments-Related Risks — Ongoing military actions, the continued threat of terrorism, climate change as well as other catastrophic events may adversely affect the value of our investment portfolio and the level of claim losses we incur” included in our 2021 Annual Report.

During the nine months ended September 30, 2022, we sold positions with direct exposure to Russia with an amortized cost of $99 million and recorded a net investment realized loss of $8 million.

At September 30, 2022, we did not have any direct exposure to Russia or Ukraine.

There has been an increased market focus on energy sector investments as a result of energy and oil price volatility due to, among other factors, ongoing geopolitical events.

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

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

Of the $2.6 billion exposure to energy sector fixed maturity securities, 89% were investment grade at September 30, 2022.

There has also been an increased market focus on retail sector investments as a result of the COVID-19 pandemic and uncertainty regarding its duration and severity.

Our exposure to retail sector corporate fixed maturity securities was $1.5 billion, with net unrealized gains (losses) of ($258) million.

Of the $1.5 billion exposure to retail sector corporate fixed maturity securities, 94% were investment grade at September 30, 2022.

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

See “— Investments — Mortgage Loans” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on mortgage loans, including credit quality by portfolio segment and commercial mortgage loans by property type.

Additionally, see “— Investments — Fixed Maturity Securities Available-for-sale — Structured Securities” for information on Structured Securities, including security type, risk profile and ratings profile.

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” included in our 2022 Annual Report.

There has been an increased market focus on commercial real estate, including office properties, as a result of companies shifting to hybrid work arrangements and the resulting impact on the demand for office space.

We have direct commercial real estate exposure through mortgage loans and certain structured securities.

Structured securities include residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”).

In addition, we have direct and indirect exposure through certain financial industry corporate fixed maturity 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” included in our 2022 Annual Report, as well as “— Investments — Mortgage Loans” and Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information on mortgage loans, including credit quality by portfolio segment and commercial mortgage loans by property type.

and Foreign Corporate Fixed Maturity Securities” for our exposure to the finance industry.

We monitor direct and indirect investment exposure across sectors and asset classes and adjust our level of investment exposure, as appropriate.

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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.

As described below, this table reflects certain differences from the presentation of net investment income presented in the GAAP statements of operations.

This summary yield table presentation is consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

Yield % Amount Yield % Amount

(Dollars in millions)

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(1) Investment income yields are calculated as investment income as a percentage of average quarterly asset carrying values.

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

Investment income excludes recognized gains and losses and reflects the adjustments discussed in table note (3) below to arrive at adjusted net investment income.

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

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

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

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In millions)

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Adjusted net investment income — in the above yield table $ 1,097 $ 1,157

See “— Results of Operations — Consolidated Results for the Three Months and Nine Months Ended September 30, 2022 and 2021” for an analysis of the period over period changes in net investment income.

See “— Results of Operations — Consolidated Results for the Three Months Ended March 31, 2023 and 2022” for an analysis of the period-over-period changes in net investment income.

Fixed Maturity Securities Available-for-sale

Fixed maturity securities held by type (public or private) were as follows at:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Fair Value % of

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See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on our valuation controls and procedures including our formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for further information about fixed maturity securities by sector, contractual maturities, continuous gross unrealized losses and the allowance for credit losses.

See Notes 1 and 6 of the Notes to the Interim Condensed Consolidated Financial Statements for further information about fixed maturity securities by sector, contractual maturities, continuous gross unrealized losses and the allowance for credit losses.

Fixed Maturity Securities Credit Quality — Ratings

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity Securities Available-for-sale — Fixed Maturity Securities Credit Quality — Ratings” included in our 2021 Annual Report for a discussion of the credit quality ratings assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the National Association of Insurance Commissioners (“NAIC”) for fixed maturity securities and the methodologies adopted by the NAIC for certain Structured Securities.

Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the National Association of Insurance Commissioners (“NAIC”) for fixed maturity securities and the methodologies adopted by the NAIC for certain Structured Securities.

The following table presents total fixed maturity securities by NRSRO rating and the applicable NAIC designation from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the NAIC methodologies, as well as the percentage, based on estimated fair value that each NAIC designation is comprised of at:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Designation NRSRO Rating Amortized

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(In millions)

September 30, 2022

March 31, 2023

corporate $ 15,345 $ 16,051 $ 1,655 $ 495 $ 53 $ 13 $ 33,612

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CMBS 6,305 350 14 2 3 — 6,674

State and political subdivision 3,715 105 1 — 10 — 3,831

ABS 4,898 659 17 12 10 — 5,596

State and political subdivision 3,845 93 1 — 10 — 3,949

Foreign government 675 391 28 — — — 1,094

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CMBS 6,240 351 9 7 4 — 6,611

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

ABS 4,648 672 17 12 10 — 5,359

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

Foreign government 661 392 28 — — — 1,081

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

Our portfolio does not have any exposure to any single issuer in excess of 1% of total investments and the top ten holdings in aggregate comprise 1% of total investments at both March 31, 2023 and December 31, 2022.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Fair Value % of

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Structured Securities

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

We held $19.9 billion and $19.5 billion of Structured Securities, at estimated fair value, at March 31, 2023 and December 31, 2022, respectively, as presented in the RMBS, CMBS and ABS sections below.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Fair Value % of

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

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2022 483 468 462 442

2023 12 11 — —

Total $ 7,343 $ 6,674 $ 7,324 $ 6,611

The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.6 billion, or 69.1% of total CMBS, and designated NAIC 1 was $6.3 billion, or 94.6% of total CMBS, at September 30, 2022.

The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.7 billion, or 70.9% of total CMBS, and designated NAIC 1 was $6.3 billion, or 94.5% of total CMBS, at March 31, 2023.

The estimated fair value of CMBS Aaa 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.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Fair Value % of

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Collateralized obligations $ 3,351 59.9 % $ (107) $ 3,239 60.5 % $ (124)

Student loans 394 7.6 (30) 384 9.0 6

Consumer loans 401 7.2 (28) 420 7.8 (36)

Student loans 403 7.2 (27) 393 7.3 (34)

Automobile loans 300 5.3 (7) 216 4.0 (9)

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Amortized Cost % of

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

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

located in the U.S.

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

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

were 98% at both March 31, 2023 and December 31, 2022.

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

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

was 19% for California, 11% for Texas and 10% for New York.

At March 31, 2023, 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, 13% for Texas and 9% for Florida.

Additionally, we manage risk when originating commercial and agricultural mortgage loans by generally lending up to 75% of the estimated fair value of the underlying real estate collateral.

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All residential mortgage loans were collateralized by properties located in the U.S.

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

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

at both March 31, 2023 and December 31, 2022.

At March 31, 2023, 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.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Total Amount % of

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Geographic region:

Pacific $ 2,780 20.9 % $ 2,601 21.3 %

South Atlantic $ 2,851 21.1 % $ 3,026 22.3 %

Pacific 2,775 20.5 2,765 20.4

Middle Atlantic 2,185 16.1 2,344 17.3

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Mountain 1,145 8.5 1,140 8.4

New England 741 5.6 789 6.5

East North Central 790 5.8 794 5.8

New England 755 5.6 741 5.4

International 398 2.9 390 2.9

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Office 3,357 24.8 3,375 24.9

Retail 1,966 14.8 1,863 15.3

Industrial 2,035 15.1 2,051 15.1

Retail 1,855 13.7 1,934 14.3

Hotel 857 6.3 848 6.2

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

The monitoring process for agricultural

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

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

Our residential mortgage loans are reviewed on an ongoing basis.

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Generally, the lower the debt-service coverage ratio, the higher the risk of experiencing a credit loss.

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

For our commercial mortgage loans, our average loan-to-value ratio was 57% at both March 31, 2023 and December 31, 2022, and our average debt-service coverage ratio was 2.2x at both March 31, 2023 and December 31, 2022.

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 47% and 46% at September 30, 2022 and December 31, 2021, respectively.

For our agricultural mortgage loans, our average loan-to-value ratio was 48% at both March 31, 2023 and December 31, 2022.

The values utilized in calculating the agricultural mortgage loan loan-to-value ratio are developed in connection with the ongoing review of the agricultural loan portfolio and are routinely updated.

Loan Modifications Related to the COVID-19 Pandemic.

Our investment managers’ underwriting and credit management practices are proactively refined to meet the changing economic environment.

Since March 1, 2020, we have completed loan modifications and have provided waivers to certain covenants, including the furniture, fixture and expense reserves, tenant rent payment deferrals or lease modifications, rate reductions, maturity date extensions, and other actions with a number of our borrowers impacted by the COVID-19 pandemic.

A subset of these modifications included short-term principal and interest forbearance.

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

At December 31, 2021, the recorded investment on mortgage loans where borrowers were offered debt-service forbearance and were not making payments was $55 million, comprised of $31 million of agricultural mortgage loans and $24 million of residential mortgage loans.

These types of modifications are generally not considered troubled debt restructurings (“TDR”) due to certain relief granted by U.S.

federal legislation in March 2020.

For more information on TDRs, see Note 4 to the Interim Condensed Consolidated Financial Statements.

Mortgage Loan Allowance for Credit Losses .

See Notes 4 and 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how the allowance for credit losses is established and monitored, as well as activity in and balances of the allowance for credit losses for the nine months ended September 30, 2022 and 2021.

See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how the allowance for credit losses is established and monitored, as well as activity in and balances of the allowance for credit losses for the three months ended March 31, 2023 and 2022.

Limited Partnerships and Limited Liability Companies

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions)

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__________________

(1) The estimated fair value of real estate limited partnerships and LLCs was $834 million and $595 million at September 30, 2022 and December 31, 2021, respectively.

(1) The estimated fair value of real estate limited partnerships and LLCs was $974 million and $987 million at March 31, 2023 and December 31, 2022, respectively.

Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Total Carrying

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$ 2,642 81.8 % $ 2,284 80.1 %

FHLB Stock 176 4.4 70 2.1

Company-owned life insurance 253 7.9 250 8.8

Federal Home Loan Bank stock

220 6.8 201 7.0

Tax credit and renewable energy partnerships 54 1.7 55 1.9

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We use a variety of strategies to manage these risks, including the use of derivatives.

See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements:

• Information about the gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge designation, excluding embedded derivatives held at September 30, 2022 and December 31, 2021.

• The statement of operations effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships for the three months and nine months ended September 30, 2022 and 2021.

See “Business — Segments and Corporate & Other — Annuities,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies — ULSG Market Risk Exposure Management” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Annual Actuarial Review” included in our 2021 Annual Report for more information about our use of derivatives by major hedging programs.

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

• information about the gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge designation, excluding embedded derivatives held at March 31, 2023 and December 31, 2022;

• the effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships on the statements of operations for the three months ended March 31, 2023 and 2022.

In addition, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Annual Actuarial Review” and “Risk Factors — Risks Related to our Investment Portfolio — Our investment portfolio is subject to significant financial risks both in the U.S.

Fair Value Hierarchy

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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 September 30, 2022 include:

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

equity variance swaps with unobservable volatility inputs;

foreign currency swaps with certain unobservable inputs and equity index options with unobservable correlation inputs.

Derivatives categorized as Level 3 at March 31, 2023 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.

See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.

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

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

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:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Gross Notional

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See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements for (i) information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy and (ii) a rollforward of the fair value measurements for net embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.

See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits (“GMxB”) accounted for as embedded derivatives.

See “— Summary of Critical Accounting Estimates — Derivatives” for additional information on the estimates and assumptions that affect embedded derivatives.

Policyholder Liabilities

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Amounts for actuarial liabilities are computed and reported in the financial statements in conformity with GAAP.

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

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

See “— Summary of Critical Accounting Estimates” for more details on policyholder liabilities.

Future Policy Benefits

We establish liabilities for amounts payable under insurance policies.

See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements.

A discussion of future policy benefits by segment, as well as Corporate & Other, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in our 2021 Annual Report.

We establish liabilities for future amounts payable under insurance policies.

See Notes 2 and 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

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.

Policyholder account balance liabilities are established for products with an explicit account value and generally equal to the balance accrued to the contract holder, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

A discussion of policyholder account balances by segment, as well as Corporate & Other, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in our 2021 Annual Report.

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

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

Variable Annuity Guarantees

We issue certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (the “Benefit Base”) less withdrawals.

Market Risk Benefits

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.

See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements.

See also “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates” and “Business — Segments and Corporate & Other — Annuities — Products — Variable Annuities” included in our 2021 Annual Report for additional information.

Liabilities for variable annuity guaranteed benefits are classified as MRBs and measured at fair value.

Certain index-linked annuity products may also have guaranteed minimum benefits classified as MRBs.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements and “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates.”

Select information that management considers relevant to understanding our variable annuity risk management strategy has been included below.

Net Amount at Risk

The net amount at risk (“NAR”) for the GMIB is the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit.

The net amount at risk (“NAR”) for the guaranteed minimum income benefits (“GMIB”) is the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit.

This amount represents our potential economic exposure to such guarantees in the event all contract holders were to annuitize on the balance sheet date, even though the guaranteed amount under the contract may not be annuitized until after the waiting period of the contract.

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The NAR for the GMAB is not available until the GMAB maturity date.

The NAR for the GMDB is the amount of death benefit in excess of the account value (if any) as of the balance sheet date.

The NAR for the guaranteed minimum death benefits (“GMDB”) is the amount of death benefit in excess of the account value (if any) as of the balance sheet date.

It represents the amount of the claim we would incur if death claims were made on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.

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

September 30, 2022 (1)

March 31, 2023

December 31, 2022

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(2) In-the-money is defined as any contract with a living benefit NAR in excess of zero.

(3) EDB is defined as enhanced death benefits.

Under GAAP, certain of our variable annuity guarantee features are accounted for as insurance liabilities and reported in future policy benefits on the consolidated balance sheets with changes reported in policyholder benefits and claims on the consolidated statements of operations.

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

Therefore, these liabilities, valued at $7.2 billion at September 30, 2022, are less sensitive than derivative instruments to periodic changes to equity and fixed income market returns and the level of interest rates.

Guarantees accounted for as insurance liabilities in future policy benefits include GMDBs, the life contingent portion of GMWBs and the portion of GMIBs that require annuitization, as well as the life contingent portion of the expected annuitization when the policyholder is required to annuitize upon depletion of their account value.

All other variable annuity guarantee features are accounted for as embedded derivatives and reported in policyholder account balances on the consolidated balance sheets with changes reported in net derivative gains (losses) on the consolidated statements of operations.

These liabilities, valued at $1.7 billion at September 30, 2022, are accounted for at estimated fair value.

In some cases, a guarantee will have multiple features or options that require separate accounting such that the guarantee is not fully accounted for under only one of the accounting models (known as “split accounting”).

Additionally, the index protection and accumulation features of Shield Level Annuities are accounted for as embedded derivatives and reported in policyholder account balances on the consolidated balance sheets with changes reported in net derivative gains (losses) on the consolidated statements of operations.

These liabilities, valued at $2.0 billion at September 30, 2022, are accounted for at estimated fair value.

(3) Enhanced Death Benefit (“EDB”).

Under GAAP, variable annuity guarantees are classified as MRBs and measured at estimated fair value.

Liabilities for these guarantees are reported in market risk benefit liabilities on the consolidated balance sheets, with changes reported in change in market risk benefits on the consolidated statements of operations, except for changes related to nonperformance risk which is reported in other comprehensive income on the consolidated statements of comprehensive income (loss).

Additionally, the index protection and accumulation features of Shield Annuities are accounted for as embedded derivatives and reported in policyholder account balances on the consolidated balance sheets, with changes reported in net derivative gains (losses) on the consolidated statements of operations.

These liabilities, valued at $4.7 billion at March 31, 2023, are measured at estimated fair value.

Our variable annuity reserves by type of GMxB were as follows at:

September 30, 2022 December 31, 2021

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

March 31, 2023 December 31, 2022

(In millions)

GMIB $ 9,828 $ 9,457

GMIB Max 1,202 124 1,326 967 (36) 931

GMWB 450 (14) 436 327 97 424

GMAB — (8) (8) — — —

GMDB 1,885 — 1,885 1,535 — 1,535

Total $ 10,725 $ 10,386

The carrying values of these guarantees can change significantly during periods of sizable and sustained shifts in equity market performance, equity market volatility, or interest rates.

Carrying values are also affected by our assumptions around mortality, separate account returns and policyholder behavior, including lapse, annuitization and withdrawal rates.

The estimated fair value of these guarantees can change significantly due to changes in equity market performance, equity market volatility or interest rates.

Fair values are also affected by our assumptions around mortality, separate account returns and policyholder behavior, including lapse, annuitization and withdrawal rates.

See “Risk Factors — Risks Related to Our Business — Guarantees within certain of our annuity products may decrease our earnings, decrease our capitalization, increase the volatility of our results, result in higher risk management costs and expose us to increased market risk” included in our 2022 Annual Report.

Furthermore, changes in policyholder behavior assumptions can result in additional changes in accounting estimates.

Derivatives Hedging Variable Annuity Guarantees

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

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Interest rate forwards 16,681 73 1,696 16,848 35 2,387

Hybrid options (2) — — — 900 8 —

Total $ 63,503 $ 236 $ 1,923 $ 47,866 $ 95 $ 2,665

__________________

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

(2) Hybrid options have equity exposure in addition to interest rate exposure.

(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 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:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

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Equity total return swaps 43,941 998 858 32,909 520 747

Equity variance swaps 281 9 1 281 9 1

Interest rate swaps 14,435 103 94 2,330 38 46

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Interest rate forwards 10,388 69 615 10,565 35 1,255

Hybrid options — — — 900 8 —

Total $ 111,936 $ 1,550 $ 2,029 $ 86,754 $ 1,139 $ 2,524

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

For further information regarding market factors that could affect our ability to meet liquidity and capital needs, including those related to the COVID-19 pandemic, see “— Industry Trends and Uncertainties — COVID-19 Pandemic” and “— Investments — Current Environment,” herein, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment” included in our 2021 Annual Report.

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” included in our 2022 Annual Report.

Liquidity and Capital Management

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We continuously monitor and adjust our liquidity and capital plans in light of market conditions, as well as changing needs and opportunities.

We maintain a substantial short-term liquidity position, which was $3.4 billion and $3.8 billion at September 30, 2022 and December 31, 2021, respectively.

We maintain a substantial short-term liquidity position, which was $3.5 billion and $3.6 billion at March 31, 2023 and December 31, 2022, respectively.

Short-term liquidity is comprised of cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise committed.

Assets pledged or otherwise committed include amounts received in connection with securities lending, derivatives and assets held on deposit or in trust.

An integral part of our liquidity management includes managing our level of liquid assets, which was $41.5 billion and $54.9 billion at September 30, 2022 and December 31, 2021, respectively.

An integral part of our liquidity management includes managing our level of liquid assets, which was $43.7 billion and $40.8 billion at March 31, 2023 and December 31, 2022, respectively.

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

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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” in our 2022 Annual Report.

We manage our capital position to maintain our financial strength and credit ratings.

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

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

Best, Fitch, Moody’s and S&P.

As such, we may opportunistically look to pursue additional financing over time, which may include borrowings under credit facilities, the issuance of debt,

equity or hybrid securities, the incurrence of term loans, or the refinancing of existing indebtedness.

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

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

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 risk-based capital (“RBC”) ratio between 400% and 450% in normal market conditions, we expect to continue to maintain a capital and exposure risk management program that targets total assets supporting our variable annuity contracts at or above the average of the worst two percent of a set of capital markets scenarios over the life of the contracts level in normal market conditions.

In support of our target combined risk-based capital (“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 average of the worst two percent of a set of capital markets scenarios over the life of the contracts level in normal market conditions.

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

We have a share repurchase program under which repurchases may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements.

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

Nine Months Ended

September 30,

Three Months Ended

(In millions)

Operating activities, net $ — $ 644

Changes in policyholder account balances, net $ 1,566 $ 2,649

Changes in payables for collateral under securities loaned and other transactions, net 263 387

Financing element on certain derivative instruments and other derivative related transactions, net 91 —

Total sources 1,657 2,649

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Investing activities, net 1,325 2,519

Changes in payables for collateral under securities loaned and other transactions, net 159 60

Long-term debt repaid — 1

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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.

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.

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In April 2021, Brighthouse Life Insurance Company established a funding agreement-backed notes program (the “FABN Program”), pursuant to which Brighthouse Life Insurance Company may issue funding agreements to a special purpose statutory trust for spread lending purposes.

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

The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program is $7.0 billion.

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

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Farmer Mac Funding Agreements

Brighthouse Life Insurance Company has a secured funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”) 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.

Brighthouse Life Insurance Company has a secured funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”) with a term ending on December 1, 2026, pursuant to which the parties may enter into funding agreements in an aggregate amount of up to $750 million either (i) for spread lending purposes or (ii) to provide additional liquidity.

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

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Outstanding Issuances Repayments

Nine Months Ended September 30,

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

Three Months Ended March 31,

March 31, 2023 December 31, 2022 2023 2022 2023 2022

(In millions)

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See Notes 9 and 10 of the Notes to the Consolidated Financial Statements included in our 2022 Annual Report for information regarding our credit and committed facilities.

See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding our entry into a new revolving credit facility.

We have no reason to believe that our lending counterparties would be unable to fulfill their respective contractual obligations under these facilities.

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Our Revolving Credit Facility contains financial covenants, including requirements to maintain a specified minimum adjusted consolidated net worth, to maintain a ratio of total indebtedness to total capitalization not in excess of a specified percentage and that place limitations on the dollar amount of indebtedness that may be incurred by our subsidiaries, which could restrict our operations and use of funds.

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

At March 31, 2023, we were in compliance with these financial covenants.

Primary Uses of Liquidity and Capital

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Common Stock Repurchases

See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements for information relating to authorizations to repurchase BHF common stock, amounts of common stock repurchased pursuant to such authorizations and the amount remaining under such authorizations at September 30, 2022.

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

See Note 9 of the Notes to the Interim Condensed Consolidated Financial Statements for information relating to authorizations to repurchase BHF common stock, amounts of common stock repurchased pursuant to such authorizations and the amount remaining under such authorizations at March 31, 2023.

Subsequent to March 31, 2023 and through May 5, 2023, BHF repurchased an additional 562,813 shares of its common stock through open market purchases, pursuant to a 10b5-1 plan, for $24 million.

Preferred Stock Dividends

See Note 9 of the Notes to the Interim Condensed Consolidated Financial Statements for information relating to dividends declared and paid on our preferred stock.

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

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

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

Similarly, the terms of our outstanding preferred stock contain restrictions on our ability to repurchase our common stock or pay dividends thereon if we have not fulfilled our dividend obligations under such preferred stock or other preferred securities.

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

Debt Repayments, Repurchases, Redemptions and Exchanges

See Note 9 of the Notes to the Consolidated Financial Statements included in our 2022 Annual Report for information on debt repayments and repurchases, as well as debt maturities and the terms of our outstanding long-term debt.

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

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.

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

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

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

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

At September 30, 2022, we pledged $7 million of cash collateral to counterparties.

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

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

At March 31, 2023, we did not pledge any cash collateral to counterparties.

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

At March 31, 2023 and December 31, 2022, we were obligated to return cash collateral pledged to us by counterparties of $709 million and $829 million, respectively.

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

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

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

We 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 $2.7 billion and $593 million at September 30, 2022 and December 31, 2021, respectively.

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

The amount of this non-cash collateral at estimated fair value was $1.7 billion and $1.0 billion at March 31, 2023 and December 31, 2022, respectively.

Securities Lending

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

Under our securities lending program, we were liable for cash collateral under our control of $4.8 billion and $4.6 billion at September 30, 2022 and December 31, 2021, respectively.

Generally, our securities lending contracts expire within twelve months of issuance.

We were liable for cash collateral under our control of $3.7 billion at both March 31, 2023 and December 31, 2022.

We receive non-cash collateral for securities lending from counterparties, which cannot be sold or re-pledged, and which is not recorded on our consolidated balance sheets.

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

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

There was no non-cash collateral at both March 31, 2023 and December 31, 2022.

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

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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 Notes 6 and 12 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information regarding commitments.

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Short-term Liquidity and Liquid Assets

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

At March 31, 2023 and December 31, 2022, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $1.1 billion and $1.0 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 September 30, 2022 and December 31, 2021, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.1 billion and $1.6 billion, respectively, of which $1.1 billion and $1.5 billion was held by BHF.

At March 31, 2023 and December 31, 2022, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.1 billion and $1.0 billion, respectively, of which $996 million and $987 million, respectively, was held by BHF.

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

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The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally.

State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital (“TAC”) does not meet or exceed certain RBC levels.

As of the date of the most recent annual statutory financial statements filed with insurance regulators, the TAC of each of our insurance subsidiaries subject to these requirements was in excess of each of those RBC levels.

insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital (“TAC”) does not meet or exceed the amounts required to attain certain RBC levels.

The amount of dividends that our insurance subsidiaries can ultimately pay to BHF through their various parent entities provides an additional margin for risk protection and investment in our businesses.

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Distributions from and Capital Contributions to BH Holdings

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

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

During both the three months ended March 31, 2023 and 2022, BHF did not receive any cash distributions from BH Holdings and did not make any cash capital contributions to BH Holdings.

Short-term Intercompany Loans

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Each loan entered into under this intercompany loan agreement has a term not more than 364 days and bears interest on the unpaid principal amount at a variable rate, payable monthly.

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

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

During the three months ended March 31, 2023 and 2022, BHF borrowed $217 million and $252 million, respectively, from certain of its non-insurance subsidiaries and repaid $172 million and $228 million of such borrowings during the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023 and December 31, 2022, BHF had total obligations outstanding of $558 million and $513 million, respectively, under such agreements.

Intercompany Liquidity Facilities

BHF has established intercompany liquidity facilities with certain of its insurance and non-insurance subsidiaries to provide short-term liquidity within and across the combined group of companies.

Under these facilities, which are comprised of a series of revolving loan agreements among BHF and its participating subsidiaries, each company may lend to or borrow from each other, subject to certain maximum limits for a term not more than 364 days.

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

During both the three months ended March 31, 2023 and 2022, there were no borrowings or repayments by

BHF under these facilities and, at both March 31, 2023 and December 31, 2022, BHF had no obligations outstanding under such facilities.

Note Regarding Forward-Looking Statements

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• the effectiveness of our variable annuity exposure risk management strategy and the impact of such strategy on volatility in our profitability measures and negative effects on our statutory capital;

• material differences from actual outcomes compared to the sensitivities calculated under certain scenarios and sensitivities that we may utilize in connection with our variable annuity risk management strategies;

• material differences between actual outcomes and the sensitivities calculated under certain scenarios that we may utilize in connection with our variable annuity risk management strategies;

• the impact of interest rates on our future ULSG policyholder obligations and net income volatility;

• the impact of the ongoing COVID-19 pandemic;

• the potential material adverse effect of changes in accounting standards, practices or policies applicable to us, including changes in the accounting for long-duration contracts;

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• the risks associated with climate change;

• the adverse impact on liabilities for policyholder claims as a result of extreme mortality events;

• the adverse impact of public health crises, extreme mortality events or similar occurrences on our business and the economy in general;

• the impact of adverse capital and credit market conditions, including with respect to our ability to meet liquidity needs and access capital;

• the impact of economic conditions in the capital markets and the U.S.

and global economy, as well as geo-political events, military actions or catastrophic events, on our investment portfolio, including on realized and unrealized losses and impairments, net investment spread and net investment income;

• the impact of events that adversely affect issuers, guarantors or collateral relating to our investments or our derivatives counterparties, on impairments, valuation allowances, reserves, net investment income and changes in unrealized gain or loss positions;

• the impact of changes in regulation and in supervisory and enforcement policies on our insurance business or other operations;

• the potential material negative tax impact of potential future tax legislation that could make some of our products less attractive to consumers;

• the effectiveness of our policies and procedures in managing risk;

and global economy, as well as geopolitical events, military actions or catastrophic events, on our profitability measures as well as our investment portfolio, including on realized and unrealized losses and impairments, net investment spread and net investment income;

• the financial risks that our investment portfolio is subject to, 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 impact of changes in regulation and in supervisory and enforcement policies or interpretations thereof on our insurance business or other operations;

• the potential material negative tax impact of potential future tax legislation that could make some of our products less attractive to consumers or increase our tax liability;

• the effectiveness of our policies, procedures and processes in managing risk;

• the loss or disclosure of confidential information, damage to our reputation and impairment of our ability to conduct business effectively as a result of any failure in cyber- or other information security systems;

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(together with its subsidiaries and affiliates, “MetLife”) are not as expected, leading to material additional taxes or material adverse consequences to tax attributes that impact us;

• the uncertainty of the outcome of any disputes with MetLife over tax-related or other matters and agreements or disagreements regarding MetLife’s or our obligations under our other agreements;

• other factors described in this report and from time to time in documents that we file with the SEC.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis