What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-23 · 376 added, 501 removed, 970 unchanged (47% of the section changed)

23 unchanged sentences

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

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

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

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

4 unchanged sentences

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

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

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

• “Industry Trends and Uncertainties” discusses updates and changes to a number of trends and uncertainties that we believe may materially affect our future financial condition, results of operations or cash flows.

1 unchanged sentence

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

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

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

This section also refers to certain other terms used to describe our insurance business and financial and operating metrics but is not intended to be exhaustive.

• “Results of Operations” begins with a discussion of our AAR, including a summary of the changes made to the key assumptions in 2023 and 2022, as well as the resulting impact on net income (loss) available to shareholders in each period.

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

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

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

Our Results of Operations discussion and analysis presents a review for the years ended December 31, 2023 and 2022 and year-over-year comparisons between these years.

Our Results of Operations discussion and analysis for the year ended December 31, 2022, including a review of the 2022 AAR and year-over-year comparisons between the years ended December 31, 2022 and 2021 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Annual Report”), which was filed with the SEC on February 23, 2023, and such discussions are incorporated herein by reference.

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

See Note 1 of the Notes to the Consolidated Financial Statements for further information.

Executive Summary

16 unchanged sentences

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

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

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

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

For the year ended December 31, 2023, we had net loss available to shareholders of $1.2 billion and adjusted earnings of $969 million compared to net income available to shareholders of $3.8 billion and adjusted earnings of $1.2 billion for the year ended December 31, 2022.

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

These unfavorable impacts were partially offset by favorable pre-tax adjusted earnings.

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

See Note 1 of the Notes to the Consolidated Financial Statements for information regarding the adoption of new accounting pronouncements in 2022.

Risk Management Strategies

We employ risk management strategies to protect against capital markets risk.

These strategies are specific to our variable annuity and ULSG businesses, and they also include a macro hedge strategy to manage our exposure to interest rate risk.

We employ risk management strategies to protect against capital markets risks specific to our variable annuity and ULSG businesses, which includes the utilization of a combined RBC ratio.

Combined RBC ratio reflects the aggregate RBC ratio of our insurance subsidiaries, defined as aggregate TAC of our insurance subsidiaries divided by the total of their respective company action level RBCs.

Combined RBC ratio is an internal metric used by the Company to manage the risk associated with its insurance products through our capital and exposure risk management program;

it is not a metric required or used by regulators.

Interest Rate Hedging

We are exposed to interest rate risk in most of our products, with the more significant longer-dated exposure residing in our in-force variable annuity guarantees and ULSG business.

Historically, we individually managed the interest rate risk in these two blocks with hedge targets based on statutory metrics designed principally to protect the capital of our largest insurance subsidiary, BLIC.

Since the adoption of VA Reform, the capital metric of combined RBC ratio aligns with our management metrics and more holistically captures interest rate risk.

We manage the interest rate risk in our variable annuity and ULSG businesses together, although individual hedge targets still exist for variable annuities and ULSG.

Accordingly, the related portfolio of interest rate derivatives are managed in the aggregate with rebalancing and trade executions determined by the net exposure.

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

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

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

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

We individually manage the interest rate risk in these two blocks with hedge targets based on statutory metrics designed principally to protect the capital of our largest insurance subsidiary, BLIC.

Our interest rate hedge programs may also include hybrid options that have other risk exposure in addition to interest rate exposure.

The gross notional amount and estimated fair value of the derivatives hedging our in-force variable annuity guarantees and ULSG business viewed in aggregate in our interest rate hedging program were as follows at:

December 31, 2023 December 31, 2022

9 unchanged sentences

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

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

Allocations are primarily for purposes of calculating certain product specific metrics needed to run the business which in some cases are still individually measured and to facilitate the quarterly settlement of reinsurance activity associated with BRCD.

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

This aggregate view includes all interest rate derivatives used to manage the variable annuity and ULSG product exposures based on the hedge targets of the respective programs as of the balance sheet date.

We intend to maintain an adequate amount of liquid investments in the investment portfolios supporting these businesses to cover any contingent collateral posting requirements from this hedging strategy.

1 unchanged sentence

With the adoption of VA Reform, our management of, and our hedging strategy associated with, our variable annuity business aligns with the regulatory framework.

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

Given this alignment and our large non-variable annuity business, among other things, we utilize a combined RBC ratio to manage the risk associated with our insurance products through our capital and exposure risk management program.

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

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

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

We refer to our target level of assets as our “Variable Annuity Target Funding Level.” With our risk management focus on the core drivers of our combined RBC ratio, we can also better manage our RBC in stressed market scenarios.

See “Glossary” for the definition of CTE.

1 unchanged sentence

Shield Annuities are included with variable annuities in our statutory reserve requirements, as well as in our CTE estimates.

See “Glossary” for the definition of CTE.

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

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

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

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

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

The first loss position is relative to our Variable Annuity Target Funding Level such that the impact on reserves and thus total adjusted capital could be greater than the first loss position.

The first loss position is relative to our Variable Annuity Target Funding Level such that the impact on reserves, and thus TAC, could be greater than the first loss position.

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

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

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

time potentially impact stockholders’ equity.

See “Risk Factors — Risks Related to Our Business — Our variable annuity exposure risk management strategy may not be effective, may result in significant volatility in our profitability measures and may negatively affect our statutory capital” and “— Summary of Critical Accounting Estimates.”

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

In addition, while recent amendments to the Valuation Manual, which became effective on December 31, 2023, changed the requirements for reflecting hedge instruments in reserves and capital, the key pillars of our hedging strategy (including our targeted combined RBC ratio in normal markets, our Variable Annuity Target Funding Level, and our first loss position) were not impacted by this new statutory requirement.

See “Business — Regulation — Insurance Regulation — Statutory Accounting, Reserves and Risk-Based Capital” for more information regarding the new statutory requirement and the related impacts.

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

However, because our hedging strategy places a lower priority on offsetting changes to GAAP liabilities, changes to markets over time, including market volatility, could result in GAAP net income volatility, which could potentially impact stockholders’ equity.

See “Risk Factors — Risks Related to Our Business — Our variable annuity exposure risk management strategy may not be effective, may result in significant volatility in our profitability measures or may negatively affect our statutory capital” and “— Summary of Critical Accounting Estimates.”

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

December 31, 2023 December 31, 2022

4 unchanged sentences

Equity total return swaps 53,742 2,236 2,137 32,909 520 747

Equity variance swaps — — — 281 9 1

Interest rate swaps 30,864 92 103 2,330 38 46

6 unchanged sentences

ULSG Market Risk Exposure Management

The ULSG block includes the business retained by our insurance subsidiaries and the portion of it that is ceded to BRCD for providing redundant, non-economic reserve financing support.

The ULSG block includes the business retained by our insurance subsidiaries and the portion of it that is ceded to BRCD for providing redundant, non-economic reinsurance financing support.

The primary market risk associated with our ULSG block is the uncertainty around the future levels of U.S.

5 unchanged sentences

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

“ULSG Assets” are defined as (i) total general account assets supporting statutory reserves and capital in the ULSG portfolios of our insurance subsidiaries and BRCD and (ii) interest rate derivative instruments allocated from the macro interest rate hedging program to mitigate ULSG interest rate exposures.

The net statutory reserves for the ULSG business in our insurance subsidiaries and BRCD (which is in part supported by reserve financings) were $23.4 billion and $22.8 billion for the years ended December 31, 2022 and 2021, respectively.

The net statutory reserves for the ULSG business in our insurance subsidiaries and BRCD (which is in part supported by reinsurance financings) were $24.1 billion and $23.4 billion for the years ended December 31, 2023 and 2022, respectively.

Our ULSG Target is sensitive to the actual and future expected level of long-term U.S.

2 unchanged sentences

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

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

The interest rate derivatives allocated to ULSG Assets prioritizes the ULSG Target (comprised of ULSG CFT and statutory considerations).

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

2 unchanged sentences

At December 31, 2023, BRCD assets exceeded the ULSG CFT requirement.

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

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

5 unchanged sentences

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

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

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

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

The FASB issued new guidance, effective January 1, 2023, that resulted in significant changes to the accounting for long-duration insurance contracts, including a requirement that all variable annuity guarantees be considered MRBs and measured at fair value.

See Notes 1 and 2 of the Notes to the Consolidated Financial Statements for a discussion of the impacts.

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

3 unchanged sentences

Equity market performance can affect our profitability for variable annuities and other separate account products as a result of the effects it has on product demand, revenues, expenses, reserves and our risk management effectiveness.

The level of long-term interest rates and the shape of the yield curve can have a negative effect on the profitability for variable annuities and the demand for, and the profitability of, spread-based products such as fixed annuities, index-linked annuities and universal life insurance.

The level of long-term interest rates and the shape of the yield curve can have a negative effect on the profitability for variable annuities, as well as the demand for, and the profitability of, spread-based products such as fixed annuities, index-linked annuities and universal life insurance.

Low interest rates and risk premium, including credit spread, affect new money rates on invested assets and the cost of product guarantees.

6 unchanged sentences

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

See “Risk Factors — Economic Environment and Capital Markets-Related Risks — If difficult conditions in the capital markets and the U.S.

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

See “Risk Factors — Economic Environment and

Capital Markets-Related Risks — If difficult conditions in the capital markets and the U.S.

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

3 unchanged sentences

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

COVID-19 Pandemic

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

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

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

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

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

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

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

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 recent geopolitical conflicts, including in Europe and the Middle East.

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” and “— Risk Management Strategies” 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.

We believe that demographic trends in the U.S.

7 unchanged sentences

Regulatory Developments

Our insurance subsidiaries and BRCD are regulated primarily at the state level, with some products and services also subject to federal regulation.

Our insurance subsidiaries and BRCD are primarily regulated at the state level, with some products and services also subject to federal regulation.

In addition, BHF and its insurance subsidiaries are subject to regulation under the insurance holding company laws of various U.S.

5 unchanged sentences

The most critical estimates include those used in determining:

• liabilities for future policy benefits;

• amortization of DAC;

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

• estimated fair values of MRBs;

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

4 unchanged sentences

Actual results could differ from these estimates.

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

The above critical accounting estimates are described below and in Note 1 of the Notes to the Consolidated Financial Statements, which reflect updates related to the adoption of LDTI.

Liability for Future Policy Benefits

Future policy benefits for traditional long-duration insurance contracts (term, whole life insurance and income annuities) are payable over an extended period of time and the related liabilities are equal to the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums.

Assumptions used to measure the liability are based on the Company’s experience and include a margin for adverse deviation.

The most significant assumptions used in the establishment of liabilities for future policy benefits are mortality, benefit election and utilization, withdrawals, policy lapse and investment returns.

These assumptions, intended to estimate the experience for the period the policy benefits are payable, are established at the time the policy is issued and are not updated unless a premium deficiency exists.

Utilizing these assumptions, liabilities are established for each line of business.

If experience is less favorable than assumed and a premium deficiency exists, DAC may be reduced, or additional insurance liabilities established, resulting in a reduction in earnings.

Future policy benefit liabilities for GMDBs and certain GMIBs relating to variable annuity contracts are based on estimates of the expected value of benefits in excess of the projected account balance, recognizing the excess ratably over the accumulation period based on total expected assessments.

The most significant assumptions for variable annuity guarantees included in future policyholder benefits are projected general account and separate account investment returns, as well as policyholder behavior, including mortality, benefit election and utilization, and withdrawals.

Future policy benefit liabilities for ULSG are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero using a range of scenarios and recognizing those benefits ratably over the contract period based on total expected assessments.

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

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

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

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

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

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 such assumptions 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 Consolidated Financial Statements for additional information on the effects of changes in assumptions on the measurement of our LFPBs.

The Company establishes liabilities 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, which is 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 2023 AAR, we increased our projected long-term general account earned rate, as well as our mean reversion rate over a period of ten years from 3.50% to 3.75%, which resulted in a decrease in our ULSG liabilities of $259 million.

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

We regularly review our assumptions supporting our estimates of all actuarial liabilities for future policy benefits.

For universal life insurance and variable annuity product guarantees, assumptions are updated periodically, whereas for traditional long-duration insurance contracts, assumptions are established at inception and not updated unless a premium deficiency exists.

We also review our liability projections to determine if profits are projected in earlier years followed by losses projected in later years, which could require us to establish an additional liability.

We aggregate insurance contracts by product and segment in assessing whether a premium deficiency or profits followed by losses exists.

Differences between actual experience and the assumptions used in pricing our policies and guarantees, as well as adjustments to the related liabilities, result in changes to earnings.

See Note 1 of the Notes to the Consolidated Financial Statements for additional information on our accounting policy relating to variable annuity guarantees and the liability for future policy benefits.

Deferred Policy Acquisition Costs

DAC represents deferred costs that relate directly to the successful acquisition or renewal of insurance contracts.

The recovery of DAC is dependent upon the future profitability of the related business.

DAC related to deferred annuities and universal life insurance contracts is amortized based on expected future gross profits, which is determined by using assumptions consistent with measuring the related liabilities.

DAC balances and amortization for variable annuity and universal life insurance contracts can be significantly impacted by changes in expected future gross profits related to projected separate account rates of return.

Our practice of determining changes in projected separate account returns assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations and is only changed when sustained interim deviations are expected.

We monitor these events and only change the assumption when our long-term expectation changes.

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

We use a mean reversion approach to separate

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

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

We also generally review other long-term assumptions underlying the projections of expected future gross profits on an annual basis.

These assumptions primarily relate to general account investment returns, mortality, in-force or persistency, benefit elections and utilization, and withdrawals.

Assumptions used in the calculation of expected future gross profits which have significantly changed are updated annually.

If the update of assumptions causes expected future gross profits to increase, DAC amortization will generally decrease, resulting in a current period increase to earnings.

The opposite result occurs when the assumption update causes expected future gross profits to decrease.

Our DAC balances are also impacted by replacing expected future gross profits with actual gross profits in each reporting period, including changes in annuity embedded derivatives and the related nonperformance risk.

When the change in expected future gross profits principally relates to the difference between actual and estimates in the current period, an increase in profits will generally result in an increase in amortization and a decrease in profits will generally result in a decrease in amortization.

See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information relating to DAC accounting policy and amortization.

See Note 4 of the Notes to the 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 11 of the Notes to the 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 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 2023, the Company updated assumptions regarding policyholder behavior, mortality, separate account fund allocations and volatility.

See Note 5 of the Notes to the 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 guarantees, some of which are reported as embedded derivatives;

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

and (iii) current or future changes in cash flows.

(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.

4 unchanged sentences

See Note 10 of the Notes to the Consolidated Financial Statements for additional information on significant inputs into the OTC derivative pricing models and credit risk adjustment.

Embedded Derivatives in Variable Annuity Guarantees

We issue variable annuity products with guaranteed minimum benefits, some of which are embedded derivatives measured at estimated fair value separately from the host variable annuity product, with changes in estimated fair value reported in net derivative gains (losses).

The estimated fair values of these embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees attributable to the guarantee.

The projections of future benefits and future fees require capital markets and actuarial assumptions, including expectations concerning policyholder behavior.

A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital markets scenarios using observable risk-free rates and implied equity volatilities.

Market conditions, including, but not limited to, changes in interest rates, equity indices, market volatility and variations in actuarial assumptions, including policyholder behavior, mortality and risk margins related to non-capital markets inputs, as well as changes in our nonperformance risk may result in significant fluctuations in the estimated fair value of the guarantees that could have a material impact on net income.

Changes to actuarial assumptions, principally related to contract holder behavior such as annuitization utilization and withdrawals associated with GMIB riders, can result in a change of expected future cash outflows of a guarantee between the accrual-based model for insurance liabilities and the fair value-based model for embedded derivatives.

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

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

Assumptions for embedded derivatives are reviewed at least annually, and if they change significantly, the estimated fair value is adjusted by a cumulative charge or credit to net income.

See Notes 7 and 8 of the Notes to the Consolidated Financial Statements for additional information on our embedded derivatives and the determination of their fair values.

Embedded Derivatives in Index-Linked Annuities

The Company issues and assumes through reinsurance index-linked annuities that contain equity crediting rates accounted for as an embedded derivative.

The crediting rates are measured at estimated fair value which is determined using a combination of an option pricing methodology and an option-budget approach.

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

The Company issues, and assumes through reinsurance, index-linked annuities, including Shield, 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.

Nonperformance Risk Adjustment

The valuation of our embedded derivatives includes an adjustment for the risk that we fail to satisfy our obligations, which we refer to as our nonperformance risk.

The nonperformance risk adjustment is captured as a spread over the risk-free rate in determining the discount rate to discount the cash flows of the liability.

The spread over the risk-free rate is based on our creditworthiness taking into consideration publicly available information relating to spreads in the secondary market for BHF’s debt.

These observable spreads are then adjusted, as necessary, to reflect the financial strength ratings of the issuing insurance subsidiaries as compared to the credit rating of BHF.

The following table illustrates the impact that a range of reasonably likely variances in BHF’s credit spread would have on our consolidated balance sheet, excluding the effect of income tax, related to the embedded derivative valuation on certain variable annuity products measured at estimated fair value.

Even when credit spreads do not change, the impact of the nonperformance risk adjustment on fair value will change when the cash flows within the fair value measurement change.

The table only reflects the impact of changes in credit spreads on the consolidated balance sheet and not these other potential changes.

In determining the ranges, we have considered current market conditions, as well as the market level of spreads that can reasonably be anticipated over the near-term.

Balance Sheet Carrying Value at December 31, 2022

Policyholder Account Balances DAC and VOBA

(In millions)

100% increase in our credit spread $ 1,064 $ 46

As reported $ 1,455 $ 219

50% decrease in our credit spread $ 1,733 $ 343

See Note 11 of the Notes to the Consolidated Financial Statements for more information on the determination of estimated fair value of crediting rate embedded derivatives.

We provide for federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities.

5 unchanged sentences

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

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

not be realized.

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

4 unchanged sentences

Any such changes could significantly affect the amounts reported in the financial statements in the year these changes occur.

See Notes 1 and 13 of the Notes to the Consolidated Financial Statements for additional information on our income taxes.

See Notes 1 and 16 of the Notes to the Consolidated Financial Statements as well as “Business — Regulation — Federal Tax Reform” for additional information on our income taxes.

Non-GAAP and Other Financial Disclosures

10 unchanged sentences

• Net investment gains (losses);

• Net derivative gains (losses) except earned income and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment (“Investment Hedge Adjustments”);

• Certain variable annuity GMIB fees (“GMIB Fees”).

• Net derivative gains (losses), excluding earned income and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment (“Investment Hedge Adjustments”).

The following are significant items excluded from total expenses in calculating adjusted earnings:

• Amounts associated with benefits related to GMIBs (“GMIB Costs”);

• Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets (“Market Value Adjustments”);

• Amortization of DAC and value of business acquired (“VOBA”) related to (i) net investment gains (losses), (ii) net derivative gains (losses) and (iii) GMIB Fees and GMIB Costs.

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

• Change in MRBs;

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

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.

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

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

Component of Adjusted Earnings How Derived from GAAP (1)

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

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

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

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

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

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

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

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

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

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

(v) Other expenses

(v) Other expenses.

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

_______________

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

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

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

4 unchanged sentences

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

Other Financial Disclosure s

Other Financial Disclosures

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

10 unchanged sentences

Segments and Corporate & Other Results for the Years Ended December 31, 2023 and 2022 - Adjusted Earnings

GMLB Riders for the Years Ended December 31, 2022 and 2021

Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Years Ended December 31, 2023 and 2022

Annual Actuarial Review

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

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

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

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

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

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

These updates had the largest impact on our ULSG business.

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

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

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:

Years Ended December 31,

(In millions)

GMLBs $ (94) $ (42)

Market risk benefits

$ (251) $ (210)

Included in pre-tax adjusted earnings:

13 unchanged sentences

Net derivative gains (losses)

(3,907) (592)

Total revenues 4,117 6,873

Policyholder benefits and claims

Policyholder benefits and claims (including liability remeasurement gains (losses) of ($234) and $137, respectively)

Interest credited to policyholder account balances

Capitalization of DAC

Amortization of DAC and VOBA

Change in market risk benefits (1,507) (4,104)

Interest expense on debt

2 unchanged sentences

Income (loss) before provision for income tax

(1,474) 4,732

Provision for income tax expense (benefit)

2 unchanged sentences

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

(1,112) 3,879

Preferred stock dividends

4 unchanged sentences

(In millions)

$ 1,028 $ (2,166)

Other derivative instruments

Change in market risk benefits $ 1,507 $ 4,104

Net investment gains (losses)

Other adjustments

Net derivative gains (losses), excluding investment hedge adjustments (4,012) (663)

Market value adjustments (12) 87

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

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

(1,581) 4,623

Provision for income tax expense (benefit)

Net income (loss) available to shareholders $ (1,214) $ 3,775

The guaranteed minimum living benefits reflect (i) changes in the carrying value of GMLB liabilities, including GMIBs, GMWBs and GMABs, as well as Shield Annuities;

(ii) changes in the estimated fair value of the related hedges, as well as any ceded reinsurance of the liabilities;

(iii) the fees earned from the GMLB liabilities;

and (iv) the effects of DAC amortization related to the preceding components.

Other Derivative Instruments.

We have other derivative instruments, in addition to the hedges and embedded derivatives included in the GMLB Riders, for which changes in estimated fair value are recognized in net derivative gains (losses).

Change in Market Risk Benefits.

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), Excluding Investment Hedge Adjustments.

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

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

Freestanding Derivatives.

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

The majority of this hedging activity, excluding the GMLB Riders, is focused in the following areas:

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

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

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;

• 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;

• 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.

The market impacts on the hedges are accounted for in net income (loss) while the offsetting economic impact on the items they are hedging are either not recognized or recognized through OCI in equity.

Embedded Derivatives.

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

The changes in liability values of our fixed index-linked annuity and 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.

In addition, the changes in liability values of our fixed index-linked annuity products that result from changes in the underlying equity index are accounted for as embedded derivatives.

Market Value Adjustments.

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

Pre-tax Adjusted Earnings.

1 unchanged sentence

Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022

Loss available to shareholders before provision for income tax was $281 million ($99 million, net of income tax), a lower loss of $21 million ($98 million, net of income tax) from a loss available to shareholders before provision for income tax of $302 million ($197 million, net of income tax) in the prior period.

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

• gains from GMLB Riders, see “— GMLB Riders for the Years Ended December 31, 2022 and 2021.”

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

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

Loss available to shareholders before provision for income tax was $1.6 billion ($1.2 billion, net of income tax), a decrease of $6.2 billion ($5.0 billion, net of income tax) from income available to shareholders before provision for income tax of $4.6 billion ($3.8 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 Years Ended December 31, 2023 and 2022,” and

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

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

The 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 increased less in the current period resulting in a loss of $197 million and increased more in the prior period resulting in a loss of $1.9 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 25% in the current period compared to 18% in the prior period.

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

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

7 unchanged sentences

Income (loss) available to shareholders before provision for income tax (990) (99) (350) (142) (1,581)

GMLB Riders 1,028 — — — 1,028

Other derivative instruments (36) 2 (1,823) 43 (1,814)

Net investment gains (losses) (169) (28) (33) (16) (246)

Other adjustments (8) — 86 — 78

Net derivative gains (losses), excluding investment hedge adjustments of $ 105

(3,765) (2) (205) (40) (4,012)

Change in market risk benefits 1,507 — — — 1,507

Market value adjustments — — (12) — (12)

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

8 unchanged sentences

Income (loss) available to shareholders before provision for income tax 6,387 63 (1,705) (122) 4,623

GMLB Riders (2,166) — — — (2,166)

Other derivative instruments 140 7 (221) 17 (57)

Net investment gains (losses) (149) (33) (78) 12 (248)

Other adjustments 8 (2) 13 — 19

Net derivative gains (losses), excluding investment hedge adjustments of $ 71

1,115 2 (1,823) 43 (663)

Change in market risk benefits 4,104 — — — 4,104

Market value adjustments — — 87 — 87

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

10 unchanged sentences

Amortization of DAC and VOBA (620) (629)

Other expenses, net of DAC capitalization (2,085) (2,451)

Other expenses (1,977) (2,085)

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

5 unchanged sentences

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:

◦ an increase in liability balances resulting from actuarial model refinements in the prior period;

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

partially offset by

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

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

◦ lower liabilities 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;

• lower net fee income due to:

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

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

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

partially offset by

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

• higher net amortization of DAC and VOBA due to:

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

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

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

partially offset by

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

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

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

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

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

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

partially offset by

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

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

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

◦ 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:

• 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

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

◦ lower income from our securities lending program;

• lower other expenses due to:

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

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

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

◦ 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;

◦ lower transition services agreement expenses;

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

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

◦ lower establishment costs;

◦ lower deferred compensation and operational expenses;

partially offset by

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

◦ higher deferred compensation and operational expenses;

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

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

◦ higher legal reserves.

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 11% in the prior period.

8 unchanged sentences

Amortization of DAC and VOBA (516) (515)

Other expenses, net of DAC capitalization (1,417) (1,654)

Other expenses (1,391) (1,417)

Pre-tax adjusted earnings 1,437 1,317

1 unchanged sentence

Adjusted earnings $ 1,169 $ 1,070

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

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

based commissions.

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

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

Year Ended December 31, 2022 (1)

(In millions)

Balance, beginning of period $ 105,197

Premiums and deposits 1,240

Withdrawals, surrenders and contract benefits (7,619)

Net flows (6,379)

Investment performance (18,583)

Policy charges (2,285)

Net transfers from (to) general account (152)

Balance, end of period $ 77,798

Average balance $ 86,467

_______________

(1) Includes income annuities for which separate account balances at December 31, 2022 were $145 million.

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 6 of the Notes to the Consolidated Financial Statements.

Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022

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

Key unfavorable impacts were:

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

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

◦ higher volume and severity of GMDB claims;

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

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

• higher amortization of DAC and VOBA due to:

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

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

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

Key favorable impacts were:

Adjusted earnings were $1.2 billion in the current period, an increase of $99 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 returns from short-term investments;

partially offset by

◦ 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 returns on investments in real estate limited partnerships and LLCs;

◦ lower income from our securities lending program;

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

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

◦ an increase in income annuity underwriting margins;

• lower other expenses due to:

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

◦ lower deferred compensation expenses;

◦ lower transition services agreement expenses;

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

partially offset by

◦ higher operational and deferred compensation expenses.

Key unfavorable impact was 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.

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 the prior period.

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

6 unchanged sentences

Amortization of DAC and VOBA (104) (114)

Other expenses, net of DAC capitalization (118) (180)

Other expenses (203) (130)

Pre-tax adjusted earnings (69) 94

2 unchanged sentences

Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022

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

Adjusted earnings were a loss of $53 million in the current period, a decrease of $131 million.

Key net unfavorable impacts were:

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

• higher amortization of DAC and VOBA due to:

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

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

partially offset by

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

• lower net fee income due to:

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

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

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

• 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

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

Key favorable impacts were:

• lower other expenses due to:

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

◦ lower transition services agreement expenses;

◦ lower deferred compensation and operational expenses.

◦ lower paid claims, net of reinsurance;

• 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;

• lower net investment spread due to 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 23% in the current period compared to 17% in the prior period.

7 unchanged sentences

Amortization of DAC and VOBA — —

Other expenses, net of DAC capitalization (293) (191)

Other expenses (167) (293)

Pre-tax adjusted earnings (100) 109

4 unchanged sentences

Key net unfavorable impacts were:

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

• higher other expenses due to:

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

partially offset by

◦ lower transition services agreement expenses.

Key net favorable impacts were:

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

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

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

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

◦ an increase in liability balances resulting from actuarial model refinements in the prior period;

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

partially offset by

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

◦ higher paid claims, net of reinsurance.

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

◦ lower paid claims, net of reinsurance;

• 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 average invested assets;

◦ lower income from our securities lending program.

Key favorable impact was lower other expenses due to the settlement of a reinsurance-related matter in the prior period.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 23% in the current period compared to 20% in the prior period.

8 unchanged sentences

Amortization of DAC and VOBA — —

Other expenses, net of DAC capitalization (257) (426)

Other expenses (216) (245)

Net income (loss) attributable to noncontrolling interests and preferred stock dividends 107 109

3 unchanged sentences

Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022

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

Key favorable impacts were:

• lower other expenses due to:

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

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

◦ lower establishment costs;

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

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

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

◦ lower paid claims, net of reinsurance;

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

Key unfavorable impact was:

• higher preferred stock dividends in the current period.

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

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

Adjusted earnings were a loss of $70 million in the current period, a higher loss of $19 million.

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.

GMLB Riders for the Years Ended December 31, 2022 and 2021

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

Key net favorable pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends 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;

partially offset by

◦ lower income from our securities lending program;

• lower other expenses due to:

◦ higher systems conversion costs in the prior period;

partially offset by

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

◦ higher legal reserves.

Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Years Ended December 31, 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:

Years Ended December 31,

(In millions)

Liabilities $ 2,292 $ (1,832)

Hedges (1,551) (1,130)

Market risk benefits mark-to-market $ 903 $ 3,382

Annuity guaranteed benefit rider fees, net of claims 635 773

Ceded reinsurance (31) (51)

Fees (1) 834 828

GMLB DAC (481) 64

Total GMLB Riders $ 1,028 $ (2,166)

Total changes attributable to annuity guaranteed benefits

Variable annuity hedges 369 (1,551)

Shield embedded derivatives (4,129) 2,679

$ (2,253) $ 5,232

(1) Excludes living benefit fees, included as a component of adjusted earnings, of $51 million and $60 million for the years ended December 31, 2022 and 2021, respectively.

GMLB Liabilities.

Liabilities reported as part of GMLB Riders (“GMLB Liabilities”) include (i) guarantee rider benefits accounted for as embedded derivatives, (ii) guarantee rider benefits accounted for as insurance and (iii) Shield Annuities embedded derivatives.

Liabilities related to guarantee rider benefits represent our obligation to protect policyholders against the possibility that a downturn in the markets will reduce the specified benefits that can be claimed under the base annuity contract.

Market Risk Benefits Mark-to-Market.

Annuity guaranteed rider benefits are accounted for as MRBs.

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.

An increase in these liabilities would result in a decrease to our net income (loss) available to shareholders, which could be significant.

Shield Annuities provide the contract holder the ability to participate in the appreciation of certain financial markets up to a stated level, while offering protection from a portion of declines in the applicable indices or benchmark.

We believe that Shield Annuities provide us with risk offset to liabilities related to guarantee rider benefits.

GMLB Hedges and Reinsurance.

We enter into freestanding derivatives to hedge the market risks inherent in the GMLB Liabilities.

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

However, the changes in value of the GMLB Liabilities and related hedges may not be symmetrical and the divergence could be significant due to certain factors, such as the guarantee riders accounted for as insurance are not recognized at estimated fair value and there are unhedged risks within the GMLB Liabilities.

We may also use reinsurance to manage our exposure related to the GMLB Liabilities.

We earn fees from the guarantee rider benefits, which are calculated based on the policyholder’s Benefit Base.

Fees calculated based on the Benefit Base are more stable in market downturns, compared to fees based on the account value because the Benefit Base excludes the impact of a decline in the market value of the policyholder’s account value.

Annuity Guaranteed Benefit Rider Fees, Net of Claims.

We earn fees from the guaranteed rider benefits, which are calculated using the policyholder’s Benefit Base.

Fees calculated using the Benefit Base are more stable in market downturns, compared to fees based on the account value because the Benefit Base excludes the impact of a decline in the market value of the policyholder’s account value.

We use the fees directly earned from the guarantee riders to fund the reserves, future claims and costs associated with the hedges of market risks inherent in these liabilities.

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

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

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

While the DAC offset is generally the most significant driver of GMLB DAC, it can be impacted by other adjustments including amortization related to guarantee benefit riders accounted for as insurance.

See “— Risk Management Strategies — Variable Annuity Exposure Risk Management” for discussion of our management of and our hedging strategy associated with our variable annuity business.

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

Variable Annuity Hedges and Reinsurance.

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

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

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

Shield Embedded Derivatives .

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 “— Risk Management Strategies — Variable Annuity Exposure Risk Management” for discussion of our management of our hedging strategy associated with our variable annuity business, which remains unchanged following the adoption of LDTI.

Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022

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

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

partially offset by

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

• unfavorable changes to GMLB DAC;

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

Lower equity markets resulted in the following impacts:

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

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

• favorable changes in ceded reinsurance;

partially offset by

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

• unfavorable changes to GMLB DAC.

Higher interest rates resulted in the following impacts:

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

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

• unfavorable changes to GMLB DAC;

• unfavorable changes in ceded reinsurance;

partially offset by

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

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

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

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

• favorable changes in variable annuity hedges due to increasing equity markets, partially offset by 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 year ended December 31, 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;

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

Investment Risk Management Strategy

3 unchanged sentences

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

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

We also utilize product design to manage interest rate risk (e.g., market value adjustment features and surrender charges).

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

9 unchanged sentences

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

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

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

The Federal Reserve

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

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

We are also affected by the monetary policy of central banks around the world due to the diversification of our investment portfolio.

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

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

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 5.25% and 5.50% as of December 31, 2023.

These target range increases have contributed to the net unrealized loss position in our investment portfolio, and any additional target increases could similarly contribute to further increases in net unrealized losses.

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

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

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

4 unchanged sentences

and global financial markets, including credit risk, interest rate risk, inflation risk, market valuation risk, liquidity risk, real estate risk, derivatives risk, and other factors outside our control, the occurrence of any of which could have a material adverse effect on our financial condition and results of operations,” and “Risk Factors — Risks Related to Our Investment Portfolio — Ongoing military actions, the continued threat of terrorism, climate change as well as other catastrophic events may adversely affect the value of our investment portfolio and the level of claim losses we incur.”

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

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

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

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

We have direct commercial real estate exposure through mortgage loans and certain structured securities, which include RMBS, CMBS and ABS.

In addition, we have direct and indirect exposure through certain financial industry corporate fixed maturity securities.

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

and global financial markets, including credit risk, interest rate risk, inflation risk, market valuation risk, liquidity risk, real estate risk, derivatives risk, and other factors outside our control, the occurrence of any of which could have a material adverse effect on our financial condition and results of operations,” “— Investments — Mortgage Loans” and Note 6 of the Notes to the Consolidated Financial Statements for information on mortgage loans, including credit quality by portfolio segment and commercial mortgage loans by property type.

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

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,” as well as “— Investments — Mortgage Loans” and Note 9 of the Notes to the Consolidated Financial Statements for information on mortgage loans, including credit quality by portfolio segment and commercial mortgage loans by property type.

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

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

2 unchanged sentences

The following summary yield table presents the yield and adjusted net investment income for our investment portfolio for the periods indicated.

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

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

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

8 unchanged sentences

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

Investment income excludes recognized gains and losses and reflects the adjustments discussed in table note (3) below to

arrive at adjusted net investment income.

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

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

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

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

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

31 unchanged sentences

Rated Aaa (1)

$ 554 7.5 % $ 6,643 88.2 %

Designated NAIC 1 $ 7,390 99.5 % $ 7,490 99.5 %

_______________

(1) During the year ended December 31, 2023, 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.

33 unchanged sentences

Collateralized obligations $ 3,819 59.6 % $ (9) $ 3,239 60.5 % $ (124)

Consumer loans 420 7.8 (36) 342 8.0 —

Student loans 393 7.3 (34) 384 9.0 6

Automobile loans 487 7.6 (2) 216 4.0 (9)

Student loans

397 6.2 (22) 393 7.3 (34)

Consumer loans 346 5.4 (19) 420 7.8 (36)

Credit card loans 262 4.1 (6) 158 3.0 (10)

8 unchanged sentences

We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks.

We obtain collateral, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, which is obtained at the inception of a loan and maintained at a level greater than or equal to 100%

for the duration of the loan.

The estimated fair value of the securities loaned is monitored on a daily basis with additional collateral obtained as necessary throughout the duration of the loan.

8 unchanged sentences

December 31, 2023 December 31, 2022

Investment % of

Total Valuation

Allowance % of

Investment Recorded

Investment % of

Total Valuation

Allowance % of

Amortized Cost % of

Total Allowance for Credit Losses % of Amortized Cost Amortized Cost % of

Total Allowance for Credit Losses % of Amortized Cost

(Dollars in millions)

5 unchanged sentences

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

were 98% and 97% at December 31, 2022 and 2021, respectively.

was 98% at both December 31, 2023 and 2022.

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

15 unchanged sentences

South Atlantic $ 2,747 20.8 % $ 3,026 22.3 %

Pacific 2,765 20.4 2,601 21.3

2,562 19.4 2,765 20.4

Middle Atlantic 2,153 16.3 2,344 17.3

2 unchanged sentences

East North Central

New England 741 5.4 789 6.5

737 5.6 794 5.8

735 5.6 741 5.4

International 409 3.1 390 2.9

2 unchanged sentences

Multi-region and Other (1)

502 3.8 65 0.5

Total recorded investment 13,193 100.0 % 13,574 100.0 %

10 unchanged sentences

Carrying value, net of allowance for credit losses $ 13,124 $ 13,525

_______________

(1) During the year, certain commercial mortgage loans were reclassified into the Multi-region and Other geographic region.

Mortgage Loan Credit Quality — Monitoring Process.

15 unchanged sentences

The debt-service coverage ratio compares a property’s net operating income to amounts needed to service the principal and interest due under the loan.

Generally, the lower the debt-service

coverage ratio, the higher the risk of experiencing a credit loss.

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

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 65% and 57% at December 31, 2023 and 2022, respectively, and our average debt-service coverage ratio was 2.3x and 2.2x at December 31, 2023 and 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.

5 unchanged sentences

Limited Partnerships and Limited Liability Companies

The carrying values of our limited partnerships and limited liability companies (“LLC”) were as follows at:

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

December 31, 2023 December 31, 2022

14 unchanged sentences

Company-owned life insurance 340 7.7 250 8.8

FHLB stock 201 7.0 70 2.1

Federal Home Loan Bank stock

245 5.5 201 7.0

Tax credit and renewable energy partnerships 52 1.2 55 1.9

3 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 Consolidated Financial Statements:

See Note 10 of the Notes to the Consolidated Financial Statements for:

• a comprehensive description of the nature of our derivatives, including the strategies for which derivatives are used in managing various risks;

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

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

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

• the effects of derivatives in cash flow, fair value, or non-qualifying hedge relationships on the statements of operations for the years ended December 31, 2023, 2022 and 2021.

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

7 unchanged sentences

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.

10 unchanged sentences

Written $ 1,405 $ 27 $ 1,757 $ 16

Purchased — — — —

Total $ 1,405 $ 27 $ 1,757 $ 16

4 unchanged sentences

In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure.

For example, by purchasing Treasury bonds (or other high-quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate

the desired bond exposures and meet our ALM needs.

For example, by purchasing Treasury bonds (or other high-quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate the desired bond exposures and meet our ALM needs.

This can expose the Company to changes in credit spreads as the written credit default swap tenor is shorter than the maturity of Treasury bonds.

1 unchanged sentence

See Note 11 of the Notes to the Consolidated Financial Statements for (i) information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy and (ii) a rollforward of the fair value measurements for net embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.

See Note 7 of the Notes to the Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits accounted for as embedded derivatives.

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

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

Policyholder Liabilities

1 unchanged sentence

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

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

See “— Summary of Critical Accounting Estimates” and Notes 1, 4 and 5 of the Notes to the Consolidated Financial Statements for more details on policyholder liabilities.

Due to the nature of the underlying risks and the uncertainty associated with the determination of actuarial liabilities, we cannot precisely determine the amounts that will ultimately be paid with respect to these actuarial liabilities, and the ultimate amounts may vary from the estimated amounts, particularly when payments may not occur until well into the future.

9 unchanged sentences

We establish liabilities for future amounts payable under insurance policies.

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

A discussion of future policy benefits by segment, as well as Corporate & Other follows.

Future policy benefits for the annuities business are comprised mainly of liabilities for life contingent income annuities and liabilities for the variable annuity guaranteed minimum benefits accounted for as insurance.

Future policy benefits for the annuities business are comprised mainly of liabilities for life contingent income annuities.

Future policy benefits for the life business are comprised mainly of liabilities for term, whole, universal and variable life insurance contracts.

4 unchanged sentences

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

As a result, a sustained low interest rate

environment could negatively impact earnings;

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

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

Corporate & Other

Future policy benefits primarily include liabilities for long-term care and workers’ compensation business reinsured through 100% quota share reinsurance agreements.

Future policy benefits primarily include liabilities for long-term care business reinsured through 100% quota share reinsurance agreements.

Policyholder Account Balances

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

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

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

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

See “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates.”

Policyholder account balances also include embedded derivatives on index-linked annuities and amounts associated with funding agreements issued for additional liquidity or in connection with our institutional spread margin business.

See “— Liquidity and Capital Resources — The Company — Primary Sources of Liquidity and Capital — Funding Sources — Funding Agreements.” A discussion of policyholder account balances by segment follows.

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

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

Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums.

A sustained low interest rate environment could negatively impact earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances.

We have various interest rate derivative positions, as part of the Company’s macro interest rate hedging program, to partially mitigate the risks associated with such a scenario.

Additionally, policyholder account balances are held for variable annuity guaranteed minimum living benefits that are accounted for as embedded derivatives.

The following table presents the breakdown of account value subject to minimum guaranteed crediting rates for Annuities at:

December 31, 2022 December 31, 2021

Value (1) Account Value at Guarantee (1) Account

Value (1) Account Value at Guarantee (1)

(In millions)

Greater than 0% but less than 2% $ 7,302 $ 864 $ 3,783 $ 802

Equal to 2% but less than 4% $ 11,598 $ 10,870 $ 12,485 $ 11,831

Equal to or greater than 4% $ 525 $ 525 $ 431 $ 431

_______________

(1) These amounts are not adjusted for policy loans.

We have various interest rate derivative positions, as part of the Company’s interest rate hedging program, to partially mitigate the risks associated with such a scenario.

A breakdown of account value subject to minimum guaranteed crediting rates can be found in Note 4 of the Notes to the Consolidated Financial Statements.

As a result of acquisitions, we establish additional liabilities known as excess interest reserves for policies with credited rates in excess of market rates as of the applicable acquisition dates.

Excess interest reserves for Annuities were $225 million and $241 million at December 31, 2022 and 2021, respectively.

Life policyholder account balances are held for retained asset accounts, universal life policies and the fixed account of universal variable life insurance policies.

Life policyholder account balance liabilities are held for retained asset accounts, universal life policies and the fixed account of universal variable life insurance policies.

Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums.

1 unchanged sentence

We have various derivative positions to partially mitigate the risks associated with such a scenario.

The following table presents the breakdown of account value subject to minimum guaranteed crediting rates for Life at:

December 31, 2022 December 31, 2021

Value (1) Account Value at Guarantee (1) Account

Value (1) Account Value at Guarantee (1)

(In millions)

Greater than 0% but less than 2% $ 221 $ 50 $ 184 $ 58

Equal to 2% but less than 4% $ 1,065 $ 490 $ 1,080 $ 497

Equal to or greater than 4% $ 1,657 $ 1,657 $ 1,705 $ 1,705

_______________

(1) These amounts are not adjusted for policy loans.

A breakdown of account value subject to minimum guaranteed crediting rates can be found in Note 4 of the Notes to Consolidated Financial Statements.

As a result of acquisitions, we establish additional liabilities known as excess interest reserves for policies with credited rates in excess of market rates as of the applicable acquisition dates.

Excess interest reserves for Life were $43 million and $40 million at December 31, 2022 and 2021, respectively.

Policyholder account balances in Run-off are comprised of ULSG, certain company-owned life insurance policies and certain funding agreements.

Policyholder account balance liabilities in Run-off are comprised of ULSG, certain company-owned life insurance policies and certain funding agreements.

Interest crediting rates vary by type of contract and can be fixed or variable.

1 unchanged sentence

We mitigate our risks by applying various ALM strategies.

The following table presents the breakdown of account value subject to minimum guaranteed crediting rates for Run-off at:

December 31, 2022 December 31, 2021

Value (1) Account Value at Guarantee (1) Account

Value (1) Account Value at Guarantee (1)

(In millions)

Universal Life Secondary Guarantee

Greater than 0% but less than 2% $ — $ — $ — $ —

Equal to 2% but less than 4% $ 4,801 $ 1,389 $ 5,053 $ 1,471

Equal to or greater than 4% $ 527 $ 527 $ 552 $ 552

_______________

(1) These amounts are not adjusted for policy loans.

A breakdown of account value subject to minimum guaranteed crediting rates can be found in Note 4 of the Notes to the Consolidated Financial Statements.

As a result of acquisitions, we establish additional liabilities known as excess interest reserves for policies with credited rates in excess of market rates as of the applicable acquisition dates.

Excess interest reserves for Run-off were $108 million and $106 million at December 31, 2022 and 2021, respectively.

Variable Annuity Guarantees

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

Market Risk Benefits

We issue certain variable annuity products with GMxBs that provide the policyholder a minimum return based on their initial deposit (i.e., the Benefit Base) less withdrawals.

In some cases, the Benefit Base may be increased by additional deposits, bonus amounts, accruals or optional market value step-ups.

Certain of our variable annuity guarantee features are accounted for as insurance liabilities and recorded in future policy benefits while others are accounted for at fair value as embedded derivatives and recorded in policyholder account balances.

Generally, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific insurable event, or (ii) annuitization.

Alternatively, a guarantee is accounted for as an embedded derivative if a guarantee is paid without requiring (i) the occurrence of specific insurable event, or (ii) the policyholder to annuitize, resulting in the policyholder receiving the guarantee on a net basis.

In certain cases, a guarantee may have elements of both an insurance liability and an embedded derivative and in such cases the guarantee is split and accounted for under both models.

Further, changes in assumptions, principally involving behavior, can result in a change of expected future cash

outflows of a guarantee between portions accounted for as insurance liabilities and portions accounted for as embedded derivatives.

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

These insurance liabilities are accrued over the accumulation phase of the contract in proportion to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate account returns.

The scenarios are based on best estimate assumptions consistent with those used to amortize DAC.

When current estimates of future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities will increase, resulting in a current period charge to net income.

The opposite result occurs when the current estimates of future benefits are lower than those previously projected or when current estimates of future assessments exceed those previously projected.

At each reporting period, we update the actual amount of business remaining in-force, which impacts expected future assessments and the projection of estimated future benefits resulting in a current period charge or increase to earnings.

See Note 3 of the Notes to the Consolidated Financial Statements for additional details of guarantees accounted for as insurance liabilities.

Guarantees accounted for as embedded derivatives in policyholder account balances include the non-life contingent portion of GMWBs, GMABs, and for GMIBs the non-life contingent portion of the expected annuitization when the policyholder is forced into an annuitization upon depletion of their account value, as well as the Guaranteed Principal Option.

The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees.

At policy inception, we attribute to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits.

Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.

In valuing the embedded derivative, the percentage of fees included in the fair value measurement is locked-in at inception.

The projections of future benefits and future fees require capital markets and actuarial assumptions including expectations concerning policyholder behavior.

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

The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin.

See Note 8 of the Notes to the Consolidated Financial Statements for more information on the determination of estimated fair value.

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 “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates.”

Liquidity and Capital Resources

17 unchanged sentences

To support this forecast, we conduct cash flow and stress testing, which reflect the impact of various scenarios, including (i) the potential increase in our requirement to pledge additional collateral or return collateral to our counterparties, (ii) a reduction in new business sales, and (iii) the risk of early contract holder and policyholder withdrawals, as well as lapses and surrenders of existing policies and contracts.

We include provisions limiting withdrawal rights in many of our products, which deter the customer from making withdrawals prior to the maturity date of the product.

We include provisions limiting withdrawal rights in many of our products, which deter the customer from

making withdrawals prior to the maturity date of the product.

If significant cash is required beyond our anticipated liquidity needs, we have various alternatives available depending on market conditions and the amount and timing of the liquidity need.

3 unchanged sentences

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

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

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

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

3 unchanged sentences

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

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

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

Repurchases under the August 2, 2021 authorization, of which $293 million was remaining at December 31, 2022, may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements.

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

On November 16, 2023, we authorized the repurchase of up to $750 million of our common stock, which was in addition to our prior $1.2 billion total repurchases authorized in 2021.

Repurchases under the authorizations, of which a combined $793 million was remaining at December 31, 2023, may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements.

Common stock repurchases are dependent upon several factors, including our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of our common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors.

1 unchanged sentence

Any future declaration and payment of dividends or other distributions or returns of capital will be at the discretion of our Board of Directors and will depend on and be subject to our financial condition, results of operations, cash needs, regulatory and other constraints, capital requirements (including capital requirements of our insurance subsidiaries), contractual restrictions and any other factors that our Board of Directors deems relevant in making such a determination.

Therefore, there can be no assurance that we

will pay any dividends or make other distributions or returns of capital on our common stock, or as to the amount of any such dividends, distributions or returns of capital.

Therefore, there can be no assurance that we will pay any dividends or make other distributions or returns of capital on our common stock, or as to the amount of any such dividends, distributions or returns of capital.

Rating Agencies

2 unchanged sentences

They are important factors in our overall funding profile and ability to access certain types of liquidity and capital.

The level and composition of our regulatory capital at the subsidiary level and our equity capital are among the many factors considered in determining our financial strength ratings and credit ratings.

The level and composition of our regulatory capital at the subsidiary level, our combined RBC ratio and our equity capital are among the many factors considered in determining our financial strength ratings and credit ratings.

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

31 unchanged sentences

Preferred stock issued, net of issuance costs — — 339

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

Total sources 4,332 11,650 14,326

35 unchanged sentences

Funding Agreements

From time to time, Brighthouse Life Insurance Company issues funding agreements and uses the proceeds from such issuances for spread lending purposes in connection with our institutional spread margin business or to provide additional liquidity.

Brighthouse Life Insurance Company issues funding agreements and uses the proceeds from such issuances for spread lending purposes in connection with our institutional spread margin business or to provide additional liquidity.

The institutional spread margin business is comprised of funding agreements issued in connection with the programs described in more detail below.

See “Obligations Under Funding Agreements” in Note 3 of the Notes to the Consolidated Financial Statements.

Activity related to these programs are reported in Corporate & Other.

See “Obligations Under Funding Agreements” in Note 4 of the Notes to the Consolidated Financial Statements for additional information on funding agreements.

Funding Agreement-Backed Repurchase Agreement Program

In January 2024, Brighthouse Life Insurance Company established a secured funding agreement-backed repurchase agreement program (the “FABR Program”), pursuant to which Brighthouse Life Insurance Company may enter into repurchase agreements with bank counterparties and the proceeds of the repurchase agreements are then used by a special-purpose entity to purchase funding agreements from Brighthouse Life Insurance Company.

Funding Agreement-Backed Commercial Paper Program

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

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

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

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.

Funding Agreement-Backed Notes Program

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

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

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

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

Federal Home Loan Bank Funding Agreements

Brighthouse Life Insurance Company is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, where it maintains a secured funding agreement program, under which funding agreements may be issued either (i) for spread lending purposes or (ii) to provide additional liquidity.

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

Farmer Mac Funding Agreements

Brighthouse Life Insurance Company has a secured funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”) pursuant to which the parties may enter into funding agreements either (i) for spread lending purposes or (ii) to provide additional liquidity.

In September 2022, Brighthouse Life Insurance Company amended this program to (i) extend the term from December 31, 2023 to December 1, 2026 and (ii) increase the maximum aggregate principal amount permitted to be outstanding from $500 million to $750 million.

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

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

Information regarding funding agreements issued for spread lending purposes is as follows:

3 unchanged sentences

(In millions)

FABR Program (1)

$ — $ — $ — $ — $ — $ — $ — $ —

FABCP Program 3,442 2,097 8,046 12,682 2,939 6,701 12,433 1,091

4 unchanged sentences

_______________

(1) Additionally, in April 2020, Brighthouse Life Insurance Company issued funding agreements for an aggregate collateralized borrowing of $1.0 billion to provide a readily available source of contingent liquidity and repaid such borrowing during the fourth quarter of 2020.

(1) On February 16, 2024, there was $500 million of FABR funding agreements outstanding.

Debt Issuances

12 unchanged sentences

Preferred Stock Dividends

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

See Note 13 of the Notes to the Consolidated Financial Statements for information relating to dividends declared and paid on our preferred stock.

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

1 unchanged sentence

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

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

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

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.

15 unchanged sentences

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

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

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

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

At December 31, 2023 and 2022, we pledged cash collateral to counterparties of $16 million and $7 million, respectively.

At December 31, 2023 and 2022, we were obligated to return cash collateral pledged to us by counterparties of $393 million and $829 million, respectively.

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

1 unchanged sentence

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

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

The amount of this non-cash collateral at estimated fair value was $2.4 billion and $1.0 billion at December 31, 2023 and 2022, respectively.

See Note 10 of the Notes to the Consolidated Financial Statements for additional information regarding pledged collateral.

5 unchanged sentences

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

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

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

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

See Note 9 of the Notes to the Consolidated Financial Statements for further discussion of our securities lending program.

13 unchanged sentences

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

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

Short-term Liquidity and Liquid Assets

2 unchanged sentences

Assets pledged or otherwise committed include assets held in trust.

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

At December 31, 2023 and 2022, BHF and certain of its non-insurance subsidiaries had liquid assets of $1.3 billion and $1.0 billion, respectively, of which $1.2 billion 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.

2 unchanged sentences

The NAIC and state insurance departments have established regulations that provide minimum capitalization requirements based on RBC formulas for insurance companies.

RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items.

The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis.

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

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

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

See “Business — Regulation — Insurance Regulation” and Note 13 of the Notes to the Consolidated Financial Statements for information regarding our statutory accounting and reserves, as well as the calculation of RBC and the regulatory RBC requirements.

At December 31, 2023, our insurance subsidiaries had a combined statutory TAC of approximately $6.3 billion, resulting in a combined RBC ratio of approximately 428%.

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

2 unchanged sentences

Certain of these activities may require regulatory approval.

Furthermore, the payment of dividends and other distributions by our insurance subsidiaries is governed by insurance laws and regulations.

See Note 10 of the Notes to the Consolidated Financial Statements.

Furthermore, the payment of dividends and other distributions by our insurance subsidiaries is governed by the insurance laws and regulations of the states where they are domiciled.

Any payment of dividends by Brighthouse Life Insurance Company in 2024 would be subject to Delaware DOI approval.

See also Note 13 of the Notes to the Consolidated Financial Statements for additional information regarding the applicable dividend restrictions and certain of our subsidiaries’ ordinary dividend capacity, as well as the circumstances under which regulatory approval would be required.

Normalized Statutory Earnings

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

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

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

Normalized statutory earnings (loss) is calculated as statutory pre-tax net gain (loss) from operations adjusted for the favorable or unfavorable impacts of (i) net realized capital gains (losses), (ii) the change in total asset requirement at CTE98, net of the change in our variable annuity reserves, which are calculated at CTE70, and (iii) unrealized gains (losses) associated with our variable annuities and Shield hedging programs and other equity risk management strategies.

See “Glossary” for the definition of CTE.

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

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

4 unchanged sentences

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

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

Year Ended December 31, 2022

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

Years Ended December 31,

(In billions)

Statutory net gain (loss) from operations, pre-tax (1)

$ (2.0) $ 1.0

net realized capital gains (losses) (1.1) 0.4

4 unchanged sentences

Normalized statutory earnings (loss) $ (0.2) $ 1.0

_______________

(1) As a result of implementing a new statutory requirement as of December 31, 2023 under which all future hedges must be reflected in reserves and required capital, CTE70 increased $870 million and the total asset requirement at CTE98

decreased $1.1 billion for the year ended December 31, 2023.

The $1.1 billion impact to CTE98 is reflected in ‘impact of actuarial and other insurance adjustments’ to normalize the effect of implementing this new statutory requirement.

Primary Sources and Uses of Liquidity and Capital

10 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-K

Item 7. Management’s Discussion and Analysis