What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-09 · 316 added, 198 removed, 958 unchanged (35% of the section changed)

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

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

(iii) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “First Quarter Form 10-Q”) filed with the SEC on May 9, 2023;

and (iv) 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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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.

Our Results of Operations discussion and analysis presents a review for the three months and six months ended June 30, 2023 and 2022 and period-over-period, as well as year-over-year, 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.

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

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

$ 334 $ 155 $ 564 $ 640

Provision for income tax expense (benefit) 63 11 98 116

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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 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.

For the three months ended June 30, 2023, we had a net loss available to shareholders of $200 million and adjusted earnings of $271 million compared to net income available to shareholders of $1.7 billion and adjusted earnings of $144 million for the three months ended June 30, 2022.

Net loss available to shareholders for the three months ended June 30, 2023 primarily reflects net unfavorable changes in the estimated fair value of our variable annuity guaranteed benefit riders due to market factors, an unfavorable change in the estimated fair value of freestanding interest rate derivatives we use to hedge our universal life with secondary guarantees (“ULSG”) business resulting from increasing long-term interest rates, 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.

For the six months ended June 30, 2023, we had a net loss available to shareholders of $725 million and adjusted earnings of $466 million compared to net income available to shareholders of $3.3 billion and adjusted earnings of $524 million for the six months ended June 30, 2022.

Net loss available to shareholders for the six months ended June 30, 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 a favorable change in the estimated fair value of freestanding interest rate derivatives we use to hedge our ULSG business resulting from decreasing long-term interest rates.

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

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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.

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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 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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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:

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Actual results could differ from these estimates.

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.

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

Targeted Improvements to the Accounting for Long-Duration Contracts (“LDTI”)), effective January 1, 2023, the Company updated its impacted critical accounting estimates.

The impacted critical accounting estimates are described in our First Quarter Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and in Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements.

Non-GAAP and Other Financial Disclosures

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• 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.

The provision for income tax related to adjusted earnings is calculated using the statutory tax rate of 21%, net of impacts related to the dividends received deduction, tax credits and current period non-recurring items.

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.

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(v) Other expenses.

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

(vi) Provision for income tax expense (benefit) (vi) Tax impact of the above items, calculated using the statutory tax rate of 21%, net of impacts related to the dividends received deduction, tax credits and current period non-recurring items.

__________________

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Results of Operations

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

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

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

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

(175) 1,745 (674) 3,330

Preferred stock dividends 25 26 51 53

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

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Net investment gains (losses) (64) (66) (160) (134)

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

Other adjustments (46) 32

Net derivative gains (losses), excluding investment hedge adjustments (1,834) 1,968 (2,447) 1,908

Market value adjustments 2 32 (6) 70

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

334 155 564 640

Income (loss) available to shareholders before provision for income tax (262) 2,151 (943) 4,125

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$ (200) $ 1,719 $ (725) $ 3,277

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

Change in Market Risk Benefits.

The change in market risk benefits reflects changes in the projected value of variable annuity guaranteed benefits discounted at current risk-free rates, plus a nonperformance risk spread that is locked-in at policy issuance.

Net Derivative Gains (Losses).

We have derivative instruments for which changes in estimated fair value are recognized in net derivative gains (losses).

Freestanding Derivatives.

We have freestanding derivatives that economically hedge certain invested assets and insurance liabilities.

The majority of this hedging activity is focused in the following areas:

• use of a proprietary mix of derivative instruments to hedge variable annuity guaranteed benefit riders against adverse changes in capital markets;

• as part of the Company’s macro interest rate hedging program, the use of interest rate swaps, swaptions and interest rate forwards in connection with our ULSG business;

• use of interest rate swaps when we have duration mismatches where suitable assets with maturities similar to those of our long-dated liabilities are not readily available in the market and use of interest rate forwards hedging reinvestment risk from maturing assets with higher yields than currently available in the market that support long-dated liabilities;

• use of foreign currency swaps when we hold fixed maturity securities denominated in foreign currencies that are matching insurance liabilities denominated in U.S.

• use of equity index options to hedge index-linked annuity products against adverse changes in equity markets.

Embedded Derivatives.

The changes in liability values of our fixed index-linked annuity and Shield ® Level Annuity (“Shield”) products that result from changes in the underlying equity index are accounted for as embedded derivatives.

In addition, certain ceded reinsurance agreements in our Life and Run-off segments are written on a coinsurance with funds withheld basis.

The funds withheld component is accounted for as an embedded derivative with changes in the estimated fair value recognized in net income (loss) in the period in which they occur.

Market value adjustments .

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

Pre-tax Adjusted Earnings.

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

Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Loss available to shareholders before provision for income tax was $262 million ($200 million, net of income tax), a decrease of $2.4 billion ($1.9 billion, net of income tax) from income available to shareholders before provision for income tax of $2.2 billion ($1.7 billion, net of income tax) in the prior period.

The decrease in income before provision for income tax was driven by the unfavorable impact of losses from variable annuity guaranteed benefit riders, see “— Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months and Six Months Ended June 30, 2023 and 2022.”

The decrease in income before provision for income taxes was partially offset by the following favorable items:

• 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 increased less in the current period resulting in a loss of $84 million and increased more in the prior period resulting in a loss of $659 million;

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

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 26% in the current period compared to 20% in the prior period.

The increase in the effective tax rate was driven by the decrease in income before provision for income tax as discussed above.

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

Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Loss available to shareholders before provision for income tax was $943 million ($725 million, net of income tax), a decrease of $5.1 billion ($4.0 billion, net of income tax) from income available to shareholders before provision for income tax of $4.1 billion ($3.3 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:

• 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”;

• losses from variable annuity guaranteed benefit riders, see “— Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months and Six Months Ended June 30, 2023 and 2022”;

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

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 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 $57 million and increased in the prior period resulting in a loss of $1.2 billion.

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 20% 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.

The increase in the effective tax rate was driven by the decrease in income before provision for income tax as discussed above.

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.

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

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Annuities Life Run-off Corporate & Other Total

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Net investment gains (losses) (56) (4) (7) 3 (64)

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

Net derivative gains (losses), excluding investment hedge adjustments of $ 23

(1,755) 3 (89) 7 (1,834)

Change in market risk benefits 1,300 — — — 1,300

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

Market value adjustments — — 2 — 2

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

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Adjusted earnings $ 291 $ 15 $ (16) $ (19) $ 271

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Annuities Life Run-off Corporate & Other Total

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Net investment gains (losses) (39) (8) (46) 27 (66)

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

Net derivative gains (losses), excluding investment hedge adjustments of $ 9

2,584 1 (634) 17 1,968

Change in market risk benefits 62 — — — 62

Other adjustments (4) — 35 1 32

Market value adjustments — — 32 — 32

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

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Adjusted earnings $ 320 $ 29 $ (157) $ (48) $ 144

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

Six Months Ended June 30, 2023

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders $ (918) $ 12 $ 513 $ (332) $ (725)

Provision for income tax expense (benefit) 134 2 (633) 279 (218)

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

(784) 14 (120) (53) (943)

Net investment gains (losses) (128) (7) (14) (11) (160)

Net derivative gains (losses), excluding investment hedge adjustments of $ 61

(2,506) 3 55 1 (2,447)

Change in market risk benefits 1,106 — — — 1,106

Market value adjustments — — (6) — (6)

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

744 18 (155) (43) 564

Provision for income tax expense (benefit) 139 2 (33) (10) 98

Adjusted earnings $ 605 $ 16 $ (122) $ (33) $ 466

Six Months Ended June 30, 2022

Annuities Life Run-off Corporate & Other Total

(In millions)

Net income (loss) available to shareholders $ 5,178 $ 72 $ (1,984) $ 11 $ 3,277

Provision for income tax expense (benefit) 229 24 680 (85) 848

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

5,407 96 (1,304) (74) 4,125

Net investment gains (losses) (79) (25) (36) 6 (134)

Net derivative gains (losses), excluding investment hedge adjustments of $ 15

3,013 2 (1,169) 62 1,908

Change in market risk benefits 1,641 — — — 1,641

Market value adjustments — — 70 — 70

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

832 119 (169) (142) 640

Provision for income tax expense (benefit) 158 24 (36) (30) 116

Adjusted earnings $ 674 $ 95 $ (133) $ (112) $ 524

Consolidated Results for the Three Months and Six Months Ended June 30, 2023 and 2022 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

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

334 155 564 640

Provision for income tax expense (benefit) 63 11 98 116

Adjusted earnings $ 271 $ 144 $ 466 $ 524

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

Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Adjusted earnings were $271 million in the current period, an increase of $127 million.

Key net favorable impacts were:

• lower other expenses due to:

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

partially offset by

◦ higher deferred compensation expenses;

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

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

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

partially offset by

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

◦ a decrease in income annuity underwriting margins.

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 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 and tax credits.

Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Adjusted earnings were $466 million in the current period, a decrease of $58 million.

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

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

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

partially offset by

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

◦ 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 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.

• 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;

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

partially offset by

◦ lower ceded cost of insurance fees consistent with favorable equity market returns in our Life segment, which is mostly offset in other expenses.

Key net favorable impacts were:

• lower other expenses due to:

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

◦ 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 establishment costs, which were completed in 2022;

partially offset by

◦ lower deferred compensation and operational expenses;

◦ higher deferred compensation expenses;

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

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

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

◦ an increase in the income annuity underwriting margin;

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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 Ended March 31, 2023 and 2022 — Adjusted Earnings

Segments and Corporate & Other Results for the Three Months and Six Months Ended June 30, 2023 and 2022 — Adjusted Earnings

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

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

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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

Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Adjusted earnings were $291 million in the current period, a decrease of $29 million.

Key unfavorable impacts were:

Key net unfavorable impacts were:

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

• 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;

• higher other expenses due to:

◦ higher deferred compensation and operational expenses;

◦ higher transition services agreement expenses;

partially offset by

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

• higher costs associated with insurance-related activities due to a decrease in income annuity underwriting margins.

Key net favorable impact was:

• higher net investment spread due to:

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

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◦ higher returns from short-term investments;

Key favorable impacts were:

partially offset by

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

◦ lower returns on real estate limited partnerships and LLCs.

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

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

Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Adjusted earnings were $605 million in the current period, a decrease of $69 million.

Key unfavorable impact was:

• 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:

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

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◦ lower transition services agreement expenses;

partially offset by

◦ higher 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 19% in both the current period and prior period.

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

7 unchanged sentences

Adjusted earnings $ 15 $ 29 $ 16 $ 95

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

Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Adjusted earnings were $15 million in the current period, a decrease of $14 million.

Key unfavorable impact was:

• 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 an effective tax rate of 17% in the current period compared to 19% in the prior period.

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

Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Adjusted earnings were $16 million in the current period, a decrease of $79 million.

Key unfavorable impacts were:

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• 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.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 11% in the current period compared to 20% in the prior period.

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

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

7 unchanged sentences

Adjusted earnings $ (16) $ (157) $ (122) $ (133)

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 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.

Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Adjusted earnings were a loss of $16 million in the current period, a lower loss of $141 million.

Key net favorable impacts were:

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

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

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

partially offset by

◦ higher paid claims, net of reinsurance.

Key unfavorable impact was:

• lower net investment spread due to:

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

◦ lower average invested long-term assets.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 24% in the current period compared to 22% in the prior period.

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

Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Adjusted earnings were a loss of $122 million in the current period, a lower loss of $11 million.

Key net favorable impacts were:

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

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

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

partially offset by

◦ higher paid claims, net of reinsurance.

Key unfavorable impacts were:

• lower net investment spread due to:

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

◦ lower average invested long-term assets;

• lower net fee income due to a decline in the net cost of insurance fees driven by the aging in-force business.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 21% 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.

Corporate & Other

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

6 unchanged sentences

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

(20) (75) (43) (142)

Provision for income tax expense (benefit) (1) (27) (10) (30)

Adjusted earnings $ (19) $ (48) $ (33) $ (112)

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

Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Adjusted earnings were a loss of $19 million in the current period, a lower loss of $29 million.

Key favorable impacts were:

• lower other expenses due to higher systems conversion costs in the prior period;

• higher net investment spread due to:

1 unchanged sentence

◦ 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 and tax credits.

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

Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Adjusted earnings were a loss of $33 million in the current period, a lower loss of $79 million.

Key favorable impacts were:

• 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 higher systems conversion costs in the prior period.

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.

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

Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months and Six Months Ended June 30, 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

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

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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.

Liabilities related to guaranteed 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.

1 unchanged sentence

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.

We earn fees from the guaranteed rider benefits, which are calculated using the policyholder’s minimum return based on their initial deposit (the “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.

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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.

Generally, the same market factors that impact the estimated fair value of the annuity guaranteed benefits 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.

2 unchanged sentences

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.

We believe that Shield Annuities provide us with a risk offset to liabilities related to guaranteed 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;

Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Annuity guaranteed benefits and Shield annuity liabilities performance was unfavorable for the three months ended June 30, 2023, primarily driven by:

• decreases in annuity guaranteed benefits liabilities due to increasing interest rates and equity markets;

• unfavorable changes in variable annuity hedges due to increasing long-term interest rates, partially offset by 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:

Annuity guaranteed benefits and Shield annuity liabilities performance was favorable for the three months ended June 30, 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;

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

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

Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Annuity guaranteed benefits and Shield annuity liabilities performance was unfavorable for the six months ended June 30, 2023, primarily driven by:

• decreases in annuity guaranteed benefits liabilities due to increasing equity markets;

• favorable changes in variable annuity hedges due to 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 six months ended June 30, 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 decreasing equity markets;

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

Investment Risk Management Strategy

15 unchanged sentences

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;

In 2023, the Federal Reserve increased the target range for the federal funds rate four 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.

to between 5.00% and 5.25% on May 3, 2023;

and to between 5.25% and 5.50% on July 26, 2023.

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.

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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.

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.

13 unchanged sentences

Three Months Ended

Yield % Amount Yield % Amount

June 30, Six Months Ended

2023 2022 2023 2022

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

(Dollars in millions)

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(In millions)

2 unchanged sentences

Adjusted net investment income — in the above yield table $ 1,219 $ 1,070 $ 2,316 $ 2,227

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.

See “— Results of Operations — Consolidated Results for the Three Months and Six Months Ended June 30, 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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Fair Value % of

9 unchanged sentences

Fixed Maturity Securities Credit Quality — Ratings

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.

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 2022 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.

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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Designation NRSRO Rating Amortized

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(In millions)

March 31, 2023

June 30, 2023

corporate $ 15,695 $ 15,931 $ 1,556 $ 476 $ 42 $ 14 $ 33,714

19 unchanged sentences

We maintain a diversified portfolio of corporate fixed maturity securities across industries and issuers.

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

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 June 30, 2023 and December 31, 2022.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Fair Value % of

9 unchanged sentences

Structured Securities

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.

We held $19.9 billion and $19.5 billion of Structured Securities, at estimated fair value, at June 30, 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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Fair Value % of

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

14 unchanged sentences

Total $ 7,202 $ 6,458 $ 7,324 $ 6,611

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 rated Aaa using rating agency ratings was $4.6 billion, or 70.9% of total CMBS, and designated NAIC 1 was $6.1 billion, or 94.1% of total CMBS, at June 30, 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.

1 unchanged sentence

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Fair Value % of

30 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Amortized Cost % of

8 unchanged sentences

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.

were 98% at both June 30, 2023 and December 31, 2022.

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

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.

At June 30, 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, 12% for Texas and 9% for Florida.

2 unchanged sentences

All residential mortgage loans were collateralized by properties located 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.

at both June 30, 2023 and December 31, 2022.

At June 30, 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.

2 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Total Amount % of

6 unchanged sentences

Mountain 1,144 8.5 1,140 8.4

East North Central 790 5.8 794 5.8

New England 755 5.6 741 5.4

East North Central 737 5.5 794 5.8

International 400 3.0 390 2.9

32 unchanged sentences

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

For our commercial mortgage loans, our average loan-to-value ratio was 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.

For our commercial mortgage loans, our average loan-to-value ratio was 61% and 57% at June 30, 2023 and December 31, 2022, respectively and our average debt-service coverage ratio was 2.3x and 2.2x at June 30, 2023 and December 31, 2022, respectively.

The debt-service coverage ratio, as well as the values utilized in calculating the ratio, is updated annually on a rolling basis, with a portion of the portfolio updated each quarter.

In addition, the loan-to-value ratio is routinely updated for all but the lowest risk loans as part of our ongoing review of our commercial mortgage loan portfolio.

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

For our agricultural mortgage loans, our average loan-to-value ratio was 48% at both June 30, 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.

Mortgage Loan Allowance for Credit Losses .

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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(In millions)

3 unchanged sentences

__________________

(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.

(1) The estimated fair value of real estate limited partnerships and LLCs was $963 million and $987 million at June 30, 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.

2 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Total Carrying

13 unchanged sentences

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.

• the effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships on the statements of operations for the six months ended June 30, 2023 and 2022.

See “Business — Segments and Corporate & Other — Annuities,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies” included in our 2022 Annual Report for more information about our use of derivatives by major hedging programs.

6 unchanged sentences

The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect net income.

Derivatives categorized as Level 3 at 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.

Derivatives categorized as Level 3 at June 30, 2023 include:

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

equity hybrid options with unobservable volatility inputs;

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.

5 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Gross Notional

31 unchanged sentences

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.”

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements and “Quantitative and Qualitative Disclosures About Market Risk.”

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

9 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

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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).

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 are 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.

These liabilities, valued at $6.4 billion at June 30, 2023, are measured at estimated fair value.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(In millions)

6 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

4 unchanged sentences

Interest rate forwards 16,848 47 1,893 16,848 35 2,387

Hybrid options (2) 630 4 — — — —

Total $ 63,423 $ 129 $ 2,167 $ 47,866 $ 95 $ 2,665

1 unchanged sentence

(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.

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

The gross notional amount and estimated fair value of the derivatives held in our variable annuity hedging program, as well as the interest rate hedges allocated from our macro interest rate hedging program, were as follows at:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

6 unchanged sentences

Interest rate forwards 10,441 34 787 10,565 35 1,255

Hybrid options 630 4 — — — —

Total $ 111,641 $ 1,922 $ 2,565 $ 86,754 $ 1,139 $ 2,524

12 unchanged sentences

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

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

We maintain a substantial short-term liquidity position, which was $3.4 billion and $3.6 billion at June 30, 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 $43.7 billion and $40.8 billion at March 31, 2023 and December 31, 2022, respectively.

An integral part of our liquidity management includes managing our level of liquid assets, which was $43.8 billion and $40.8 billion at June 30, 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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Our primary sources and uses of liquidity and capital were as follows at:

Three Months Ended

Six Months Ended

(In millions)

Changes in policyholder account balances, net $ 2,584 $ 5,688

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

Changes in payables for collateral under securities loaned and other transactions, net — 406

Total sources 2,584 6,094

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In July 2021, Brighthouse Life Insurance Company established a funding agreement-backed commercial paper program (the “FABCP Program”) for spread lending purposes, pursuant to which a special purpose limited liability company (the “SPLLC”) may issue commercial paper and deposit the proceeds with Brighthouse Life Insurance Company under a funding agreement issued by Brighthouse Life Insurance Company to the SPLLC.

The maximum aggregate principal amount permitted to be outstanding at any one time under the FABCP Program is $3.0 billion.

The maximum aggregate principal amount permitted to be outstanding at any one time under the FABCP Program was increased from $3.0 billion to $5.0 billion in June 2023.

Activity related to this funding agreement is reported in Corporate & Other.

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Outstanding Issuances Repayments

Three Months Ended March 31,

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

Six Months Ended June 30,

June 30, 2023 December 31, 2022 2023 2022 2023 2022

(In millions)

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Credit and Committed Facilities

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 13 of the Notes to the Interim Condensed Consolidated Financial Statements and 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.

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

At June 30, 2023, we were in compliance with these financial covenants.

Primary Uses of Liquidity and Capital

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Common Stock Repurchases

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.

Subsequent to June 30, 2023 and through August 4, 2023, BHF repurchased an additional 479,846 shares of its common stock through open market purchases pursuant to a 10b5-1 plan for $24 million.

Preferred Stock Dividends

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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.

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

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

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.

At June 30, 2023 and December 31, 2022, we pledged $4 million and $7 million, respectively, of cash collateral to counterparties.

At June 30, 2023 and December 31, 2022, we were obligated to return cash collateral pledged to us by counterparties of $743 million and $829 million, respectively.

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

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We receive non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which is not recorded on our consolidated balance sheets.

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

The amount of this non-cash collateral at estimated fair value was $1.8 billion and $1.0 billion at June 30, 2023 and December 31, 2022, respectively.

Securities Lending

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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 were liable for cash collateral under our control of $3.4 billion and $3.7 billion at June 30, 2023 and December 31, 2022, respectively.

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

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

There was no non-cash collateral at both June 30, 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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Short-term Liquidity and Liquid Assets

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.

At June 30, 2023 and December 31, 2022, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $891 million 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 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.

At June 30, 2023 and December 31, 2022, BHF and certain of its non-insurance subsidiaries had liquid assets of $929 million and $1.0 billion, respectively, of which $883 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.

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.

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 the amounts required to attain certain RBC levels.

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

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The primary uses of liquidity of BHF include debt-service obligations (including interest expense and debt repayments), preferred stock dividends, capital contributions to subsidiaries, common stock repurchases and payment of general operating expenses.

Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enable BHF to make payments on debt, pay preferred stock dividends, contribute capital to its subsidiaries, repurchase its common stock, pay all general operating expenses and meet its cash needs.

liquidity and capital to enable BHF to make payments on debt, pay preferred stock dividends, contribute capital to its subsidiaries, repurchase its common stock, pay all general operating expenses and meet its cash needs.

In addition to the liquidity and capital sources discussed in “— The Company — Primary Sources of Liquidity and Capital” and “— The Company — Primary Uses of Liquidity and Capital,” the following additional information is provided regarding BHF’s primary sources and uses of liquidity and capital:

Distributions from and Capital Contributions to BH Holdings

During 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.

During the six months ended June 30, 2023 and 2022, BHF received cash distributions of $0 and $350 million, respectively, from BH Holdings.

During the six months ended June 30, 2023 and 2022, BHF 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 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.

During the six months ended June 30, 2023 and 2022, BHF borrowed $397 million and $457 million, respectively, from certain of its non-insurance subsidiaries and repaid $279 million and $753 million of such borrowings during the six months ended June 30, 2023 and 2022, respectively.

At June 30, 2023 and December 31, 2022, BHF had total obligations outstanding of $631 million and $513 million, respectively, under such agreements.

Intercompany Liquidity Facilities

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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 of up to 364 days, depending on the agreement.

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.

During both the six months ended June 30, 2023 and 2022, there were no borrowings or repayments by BHF under these facilities and, at both June 30, 2023 and December 31, 2022, BHF had no obligations outstanding under such facilities.

Note Regarding Forward-Looking Statements

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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