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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 268 added, 211 removed, 1063 unchanged (31% of the section changed)

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This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with (i) the Interim Condensed Consolidated Financial Statements and related notes included elsewhere herein;

(ii) our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the U.S.

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

(ii) our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”) filed with the U.S.

Securities and Exchange Commission (“SEC”) on February 23, 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.

(iv) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the “Second Quarter Form 10-Q” and, together with the First Quarter Form 10-Q, the “Quarterly Reports”) filed with the SEC on August 9, 2023;

and (v) 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 and six months ended June 30, 2023 and 2022 and period-over-period, as well as year-over-year, comparisons between these periods.

Our Results of Operations discussion and analysis presents a review for the three months and nine months ended September 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

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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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 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.

For the three months ended September 30, 2023, we had net income available to shareholders of $453 million and adjusted earnings of $326 million compared to net income available to shareholders of $388 million and adjusted earnings of $115 million for the three months ended September 30, 2022.

Net income available to shareholders for the three months ended September 30, 2023 primarily reflects net favorable changes in the estimated fair value of our variable annuity guaranteed benefit riders due to market factors and favorable pre-tax adjusted earnings.

These favorable impacts were partially offset by 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 and net investment losses on sales of fixed maturity securities.

For the nine months ended September 30, 2023, we had net loss available to shareholders of $272 million and adjusted earnings of $792 million compared to net income available to shareholders of $3.7 billion and adjusted earnings of $639 million for the nine months ended September 30, 2022.

Net loss available to shareholders for the nine months ended September 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 ULSG business resulting from increasing long-term interest rates, and 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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Where these trends or uncertainties are specific to a particular aspect of our business, we often include such a discussion under the relevant caption of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, as part of our broader analysis of that area of our business.

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” included in our 2022 Annual Report for a comprehensive discussion of some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and results of operations in the future.

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

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” included in our 2022 Annual Report, as amended or supplemented by our subsequent Quarterly Reports and herein, for a comprehensive discussion of some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and results of operations in the future.

Financial and Economic Environment

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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.

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The most critical estimates include those used in determining:

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

• liability for future policy benefits;

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

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Results of Operations

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

Annual Actuarial Review

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

As part of the 2023 AAR, for our ULSG business, we increased the long-term general account earned rate, driven by an increase in the mean reversion rate from 3.50% to 3.75%.

Also, with respect to our ULSG business, we updated assumptions regarding policyholder behavior, including mortality, premium persistency, lapses, withdrawals and maintenance expenses.

For our variable annuity business, we updated our annuitization, mortality, lapses and withdrawals, as well as separate account assumptions, including fund fees, allocations and volatility.

For term participating and non-participating whole life insurance, we updated assumptions regarding mortality and lapses.

As part of the 2022 AAR, for our ULSG business, we increased the long-term general account earned rate, driven by an increase in the mean reversion rate from 3.00% to 3.50%.

Also, with respect to our ULSG business, we updated assumptions regarding policyholder behavior, including mortality, premium persistency, lapses, withdrawals and maintenance expenses.

For our variable annuity business, we updated our fund allocations, mortality, lapses and withdrawals.

For term and non-participating whole life insurance, we updated assumptions regarding mortality and lapses.

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

Nine Months Ended

September 30,

(In millions)

Market risk benefits

$ (251) $ (210)

Included in pre-tax adjusted earnings:

Other annuity business 15 (69)

Life business (90) (20)

Run-off 119 162

Total included in pre-tax adjusted earnings 44 73

Total impact on income (loss) available to shareholders before provision for income tax $ (207) $ (137)

Consolidated Results for the Three Months and Nine Months Ended September 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

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Policyholder benefits and claims (including liability remeasurement gains (losses) of ($234), $35, ($234) and $35, respectively)

590 534 1,966 1,926

Interest credited to policyholder account balances 426 405 1,300 937

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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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.

The change in MRBs reflects changes in the projected value of 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).

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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.

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

Income available to shareholders before provision for income tax was $562 million ($453 million, net of income tax), an increase of $77 million ($65 million, net of income tax) from income available to shareholders before provision for income tax of $485 million ($388 million, net of income tax) in the prior period.

The increase in income before provision for income tax was driven by higher pre-tax adjusted earnings, as discussed in greater detail below.

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

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

• the 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 more in the current period resulting in a loss of $500 million and increased less in the prior period resulting in a loss of $483 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 18% in the current period compared to 19% 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

Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

Loss available to shareholders before provision for income tax was $381 million ($272 million, net of income tax), a decrease of $5.0 billion ($3.9 billion, net of income tax) from income available to shareholders before provision for income tax of $4.6 billion ($3.7 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 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 $57 million and increased in the prior period resulting in a loss of $1.2 billion.

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

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

• the 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 $443 million and increased more in the prior period resulting in a loss of $1.7 billion;

• 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 36% in the current period compared to 20% in the prior period.

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

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Annuities Life Run-off Corporate & Other Total

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Adjusted earnings $ 319 $ (73) $ 95 $ (15) $ 326

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Annuities Life Run-off Corporate & Other Total

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Adjusted earnings $ 202 $ (34) $ (16) $ (37) $ 115

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Annuities Life Run-off Corporate & Other Total

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Adjusted earnings $ 924 $ (57) $ (27) $ (48) $ 792

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Annuities Life Run-off Corporate & Other Total

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Adjusted earnings $ 876 $ 61 $ (149) $ (149) $ 639

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

Consolidated Results for the Three Months and Nine Months Ended September 30, 2023 and 2022 — Adjusted Earnings

The components of adjusted earnings were as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Adjusted earnings $ 326 $ 115 $ 792 $ 639

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

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

Adjusted earnings were $326 million in the current period, an increase of $211 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.

Key net unfavorable impacts were:

• lower net investment spread due to:

◦ 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 (“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 net investment spread due to:

◦ higher returns on other limited partnerships;

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

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◦ higher returns from short-term investments;

◦ lower interest credited to policyholders due to changes made in the prior period in connection with the AAR along with current period actuarial modeling improvements, net of higher interest credited consistent with higher account balances;

partially offset by

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

• lower other expenses due to:

◦ higher systems conversion costs 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.

Key unfavorable impacts were:

• 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;

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

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

◦ a net increase in liability balances resulting from year-over-year changes made in connection with the AAR in our Life, Run-off, and Annuities segments;

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.

◦ lower 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 17% in the current period compared to 15% 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.

Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

Adjusted earnings were $792 million in the current period, an increase of $153 million.

Key net favorable impacts were:

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

◦ higher systems conversion costs in the prior period;

◦ lower transition services agreement expenses;

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;

◦ higher deferred compensation and operational expenses;

• 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 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;

partially offset by

◦ lower returns on real estate limited partnerships and LLCs;

◦ lower returns on other limited partnerships;

◦ higher interest credited to policyholders due to higher account balances, net of changes made in the prior period in connection with the AAR, and current period actuarial modeling improvements;

• 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;

◦ lower liabilities in our Run-off segment from the impact of new reinsurance agreements entered into in the prior period;

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

◦ an increase in income annuity underwriting margin;

partially offset by

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

◦ a net increase in liability balances resulting from year-over-year changes made in connection with the AAR in our Life, Run-off, and Annuities segments.

Key net unfavorable impacts were:

• 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;

◦ 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.

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 16% 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 Six Months Ended June 30, 2023 and 2022 — Adjusted Earnings

Segments and Corporate & Other Results for the Three Months and Nine Months Ended September 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

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Adjusted earnings $ 319 $ 202 $ 924 $ 876

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 and asset-based commissions.

A significant portion of our adjusted earnings is driven by separate account balances related to our variable annuity business, as these balances determine asset-based fee income and 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 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 net unfavorable impacts were:

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

• 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:

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

Adjusted earnings were $319 million in the current period, an increase of $117 million.

Key net favorable impacts were:

• higher net investment spread due to:

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

◦ lower interest credited to policyholders due to changes made in the prior period in connection with the AAR and current period actuarial modeling improvements, net of higher interest credited consistent with higher account balances;

◦ higher returns from short-term investments;

◦ higher returns on other limited partnerships;

partially offset by

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

◦ lower returns on real estate limited partnerships and LLCs;

• lower costs associated with insurance-related activities due a net decrease in liability balances resulting from changes made in the current period in connection with the AAR;

• 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.

Key unfavorable impact was lower asset-based fees resulting from lower average separate account balances, a portion of 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 19% in the current period compared to 18% in the prior period.

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

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.

Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

Adjusted earnings were $924 million in the current period, an increase of $48 million.

Key net favorable impacts were:

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

• higher net investment spread due to:

◦ 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;

partially offset by

◦ lower returns on real estate limited partnerships and LLCs;

◦ higher interest credited to policyholders due to higher account balances, net of changes made in the prior period in connection with the AAR, and current period actuarial modeling improvements;

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

◦ an increase in income annuity underwriting margins;

◦ a net decrease in liability balances resulting from changes made in the current period in connection with the AAR;

• lower other expenses due to:

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◦ higher deferred compensation and operational expenses.

Key unfavorable impact was lower asset-based fees resulting from lower average separate account balances, a portion of 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 19% in both the current period and prior period.

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

8 unchanged sentences

Adjusted earnings $ (73) $ (34) $ (57) $ 61

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.

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

Adjusted earnings were a loss of $73 million in the current period, a decrease of $39 million.

Key unfavorable impacts were:

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

◦ a net increase in liability balances resulting from year-over-year changes made in connection with the AAR;

◦ higher paid claims, net of reinsurance.

Key favorable impact was higher net investment spread due to higher returns on other limited partnerships.

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 23% 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:

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

Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

Adjusted earnings were a loss of $57 million in the current period, a decrease of $118 million.

Key net unfavorable impacts were:

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

◦ a net increase in liability balances resulting from year-over-year changes made in connection with the AAR;

partially offset by

◦ lower paid claims, net of reinsurance;

• higher other expenses due to:

1 unchanged sentence

◦ 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.

• lower net investment spread due to:

◦ lower returns on other limited partnerships;

◦ lower income from our securities lending program.

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 24% in the current period compared to 19% in the prior period.

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

8 unchanged sentences

Adjusted earnings $ 95 $ (16) $ (27) $ (149)

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.

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

Adjusted earnings were $95 million in the current period, an increase of $111 million.

Key net favorable impacts were:

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

• higher net investment spread due to higher returns on other limited partnerships;

• 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;

◦ lower paid claims, net of reinsurance;

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.

◦ a net increase in liability balances resulting from year-over-year changes made in connection with the AAR.

Key unfavorable impact was lower 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 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.

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

Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

Adjusted earnings were a loss of $27 million in the current period, a lower loss of $122 million.

2 unchanged sentences

• 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;

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

◦ lower paid claims, net of reinsurance;

partially offset by

◦ higher paid claims, net of reinsurance.

◦ a net increase in liability balances resulting from year-over-year changes made in connection with the AAR.

Key unfavorable impacts were:

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

• 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.

◦ lower returns on other limited partnerships.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 23% in the current period compared to 21% in the prior period.

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

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

10 unchanged sentences

Adjusted earnings $ (15) $ (37) $ (48) $ (149)

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

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

Adjusted earnings were a loss of $15 million in the current period, a lower loss of $22 million.

Key favorable impacts were:

• lower other expenses due to higher systems conversion costs 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.

Key favorable impact was 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.

1 unchanged sentence

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

Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

Adjusted earnings were a loss of $48 million in the current period, a lower loss of $101 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 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.

1 unchanged sentence

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:

Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months and Nine Months Ended September 30, 2023 and 2022

The overall impact on income (loss) available to shareholders before provision for income tax from the performance of 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

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

Ceded reinsurance (15) (13) (38) (45)

Total changes attributable to annuity guaranteed benefits liabilities 1,300 62 1,106 1,641

Total changes attributable to annuity guaranteed benefits

1,064 984 2,170 2,625

Variable annuity hedges (1,186) (772) (894) (1,277)

Shield embedded derivatives 773 549 (1,993) 4,002

Total annuity guaranteed benefits and Shield annuity liabilities $ (466) $ 2,626 $ (1,368) $ 4,589

$ 651 $ 761 $ (717) $ 5,350

Market Risk Benefits Mark-to-Market.

Annuity guaranteed rider benefits are accounted for as MRBs.

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.

MRBs 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.

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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.

Shield embedded derivatives represent the estimated fair value of these features.

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 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 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;

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

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

• decreases in annuity guaranteed benefits liabilities due to increasing interest rates, partially offset by decreasing equity markets and changes made in connection with the AAR;

• unfavorable changes in variable annuity hedges due to increasing long-term interest rates and decreasing equity markets;

• favorable changes in Shield embedded derivatives due to decreasing equity markets and increasing interest rates.

Annuity guaranteed benefits and Shield annuity liabilities performance was favorable for the three months ended September 30, 2022, primarily driven by:

• decreases in annuity guaranteed benefits liabilities due to increasing interest rates, partially offset by decreasing equity markets and changes made in connection with the AAR;

• unfavorable changes in variable annuity hedges due to increasing long-term interest rates;

• 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;

Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

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

• decreases in annuity guaranteed benefits liabilities due to increasing interest rates and equity markets, partially offset by changes made in connection with the AAR;

• unfavorable changes in variable annuity hedges due to increasing long-term interest rates;

• 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;

Annuity guaranteed benefits and Shield annuity liabilities performance was favorable for the nine months ended September 30, 2022, primarily driven by:

• decreases in annuity guaranteed benefits liabilities due to increasing interest rates, partially offset by decreasing equity markets and changes made in connection with the AAR;

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

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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.

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.

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.

13 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

Adjusted net investment income — in the above yield table $ 1,227 $ 900 $ 3,543 $ 3,127

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.

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Fair Value % of

11 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Designation NRSRO Rating Amortized

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(In millions)

June 30, 2023

September 30, 2023

corporate $ 15,287 $ 15,691 $ 1,353 $ 507 $ 60 $ 12 $ 32,910

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 June 30, 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 September 30, 2023 and December 31, 2022.

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

June 30, 2023 December 31, 2022

September 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 June 30, 2023 and December 31, 2022, respectively, as presented in the RMBS, CMBS and ABS sections below.

We held $19.5 billion of Structured Securities, at estimated fair value, at both September 30, 2023 and December 31, 2022, as presented in the RMBS, CMBS and ABS sections below.

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Fair Value % of

15 unchanged sentences

Rated Aaa (1)

$ 547 7.8 % $ 6,643 88.2 %

Designated NAIC 1 $ 7,019 99.5 % $ 7,490 99.5 %

_______________

(1) In the current period, Fitch Ratings downgraded the U.S.

credit rating from Aaa to Aa1, which resulted in a decrease in Aaa assets in our RMBS holdings.

Historically, our exposure to sub-prime RMBS holdings has been managed by focusing primarily on senior tranche securities, stress-testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio.

2 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

14 unchanged sentences

Total $ 7,112 $ 6,308 $ 7,324 $ 6,611

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 rated Aaa using rating agency ratings was $4.3 billion, or 68.0% of total CMBS, and designated NAIC 1 was $5.9 billion, or 94.0% of total CMBS, at September 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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Fair Value % of

30 unchanged sentences

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

June 30, 2023 December 31, 2022

September 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 June 30, 2023 and December 31, 2022.

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

The remainder was collateralized by properties located outside of 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.

At September 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, 10% for Texas and 8% for New York.

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

1 unchanged sentence

All residential mortgage loans were collateralized by properties located 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.

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

At September 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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Total Amount % of

12 unchanged sentences

Multi-region and Other (1)

502 3.8 65 0.5

Total recorded investment 13,307 100.0 % 13,574 100.0 %

10 unchanged sentences

Carrying value, net of allowance for credit losses $ 13,240 $ 13,525

__________________

(1) In the current quarter, certain commercial mortgage loans have been reclassified into the Multi-region and Other geographic region.

Mortgage Loan Credit Quality — Monitoring Process.

16 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 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.

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

For our agricultural mortgage loans, our average loan-to-value ratio was 48% at both September 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 six months ended June 30, 2023 and 2022.

Limited Partnerships and Limited Liability Companies

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(In millions)

3 unchanged sentences

__________________

(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.

(1) The estimated fair value of real estate limited partnerships and LLCs was $933 million and $987 million at September 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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Total Carrying

10 unchanged sentences

Derivative Risks

We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market.

We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market risks.

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

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 June 30, 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 six months ended June 30, 2023 and 2022.

• the effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships on the statements of operations for the nine months ended September 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 June 30, 2023 include:

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

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

8 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Gross Notional

27 unchanged sentences

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.

We issue certain variable annuity products with guaranteed minimum benefits (“GMxB”) 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.

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.

Variable annuity guaranteed benefits are classified as MRBs and measured at fair value.

Certain index-linked annuity products may also have GMxBs classified as MRBs.

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

10 unchanged sentences

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

June 30, 2023

September 30, 2023

December 31, 2022

13 unchanged sentences

(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 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 $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:

June 30, 2023 December 31, 2022

Under GAAP, variable annuity guarantees are classified as MRBs, measured at estimated fair value, and are reported in market risk benefit assets and 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, measured at estimated fair value, and are 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 were valued at $5.6 billion at September 30, 2023.

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

September 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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

10 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

21 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 $3.4 billion and $3.6 billion at June 30, 2023 and December 31, 2022, respectively.

We maintain a substantial short-term liquidity position, which was $3.2 billion and $3.6 billion at September 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 $43.8 billion and $40.8 billion at June 30, 2023 and December 31, 2022, respectively.

An integral part of our liquidity management includes managing our level of liquid assets, which was $42.0 billion and $40.8 billion at September 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.

24 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

(In millions)

1 unchanged sentence

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

Financing element on certain derivative instruments and other derivative related transactions, net 43 —

Total sources 3,562 9,544

55 unchanged sentences

Outstanding Issuances Repayments

Six Months Ended June 30,

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

Nine Months Ended September 30,

September 30, 2023 December 31, 2022 2023 2022 2023 2022

(In millions)

11 unchanged sentences

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

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

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

Primary Uses of Liquidity and Capital

1 unchanged sentence

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 June 30, 2023.

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.

See Note 10 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, 2023.

Subsequent to September 30, 2023 and through November 3, 2023, BHF repurchased an additional 522,548 shares of its common stock through open market purchases pursuant to a 10b5-1 plan for $25 million.

Preferred Stock Dividends

17 unchanged sentences

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

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.

At September 30, 2023, we did not pledge any cash collateral to counterparties.

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

At September 30, 2023 and December 31, 2022, we were obligated to return cash collateral pledged to us by counterparties of $770 million and $829 million, respectively.

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

2 unchanged sentences

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 $1.8 billion and $1.0 billion at June 30, 2023 and December 31, 2022, respectively.

The amount of this non-cash collateral at estimated fair value was $1.6 billion and $1.0 billion at September 30, 2023 and December 31, 2022, respectively.

Securities Lending

2 unchanged sentences

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

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 were liable for cash collateral under our control of $3.2 billion and $3.7 billion at September 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 June 30, 2023 and December 31, 2022.

There was no non-cash collateral at both September 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.

13 unchanged sentences

Short-term Liquidity and Liquid Assets

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.

At September 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 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.

At September 30, 2023 and December 31, 2022, BHF and certain of its non-insurance subsidiaries had liquid assets of $928 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.

22 unchanged sentences

Distributions from and 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.

During the nine months ended September 30, 2023, BHF did not receive any distributions from BH Holdings.

During the nine months ended September 30, 2022, BHF received non-cash distributions of $350 million from BH Holdings.

During the nine months ended September 30, 2023 and 2022, BHF did not make any capital contributions to BH Holdings.

Short-term Intercompany Loans

2 unchanged sentences

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

During the six months ended June 30, 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.

During the nine months ended September 30, 2023 and 2022, BHF borrowed $569 million and $661 million, respectively, from certain of its non-insurance subsidiaries and repaid $369 million and $945 million of such borrowings during the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023 and December 31, 2022, BHF had total obligations outstanding of $713 million and $513 million, respectively, under such agreements.

Intercompany Liquidity Facilities

1 unchanged sentence

Under these facilities, which are comprised of a series of revolving loan agreements among BHF and its participating subsidiaries, each company may lend to or borrow from each other, subject to certain maximum limits for a term of up to 364 days, depending on the agreement.

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.

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

Note Regarding Forward-Looking Statements

43 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis