~~0001685040 us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2018-01-01 2018-06-30~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2019~~March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number: 001-37905

Brighthouse Financial, Inc.

(Exact name of registrant as specified in its charter)



Delaware			81-3846992
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

11225 North Community House Road,	Charlotte,	North Carolina	28277
(Address of principal executive offices)			(Zip Code)

(980) 365-7100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	BHF	The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/1,000th interest in a share	BHFAP	The Nasdaq Stock Market LLC
of 6.600% Non-Cumulative Preferred Stock, Series A	BHFAP	The Nasdaq Stock Market LLC
6.250% Junior Subordinated Debentures due 2058	BHFAL	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company		☐
		Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of ~~August 2, 2019~~May 7, 2020, ~~111,410,202~~93,844,031 shares of the registrant’s common stock were outstanding.

Table of Contents



		Page
Part I — Financial Information
Item 1.	Consolidated Financial Statements (at ~~June 30, 2019~~March 31, 2020 (Unaudited) and December 31, ~~2018~~2019 and for the Three Months Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~ (Unaudited)):
	Interim Condensed Consolidated Balance Sheets	2
	Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	3
	Interim Condensed Consolidated Statements of Equity	4
	Interim Condensed Consolidated Statements of Cash Flows	5
	Notes to the Interim Condensed Consolidated Financial Statements (Unaudited):
	Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies	6
	Note 2 — Segment Information	8
	Note 3 — Insurance	1211
	Note 4 — Investments	1312
	Note 5 — Derivatives	2223
	Note 6 — Fair Value	3028
	Note 7 — ~~Long-term Debt~~Equity	36
	Note 8 — Other Revenues and Other Expenses	38
	Note 9 — Earnings Per Common Share	39
	Note 810 — ~~Equity~~Contingencies, Commitments and Guarantees	39
	Note 911 — ~~Other Revenues and Other Expenses~~Subsequent Events	42
	~~Note 10 — Earnings Per Common Share~~	43
	~~Note 11 — Contingencies, Commitments and Guarantees~~	43
	~~Note 12 — Related Party Transactions~~	4541
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4642
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8781
Item 4.	Controls and Procedures	8881

Part II — Other Information
Item 1.	Legal Proceedings	8982
Item 1A.	Risk Factors	8982
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	89
~~Item 5.~~	~~Other Information~~	8983
Item 6.	Exhibits	9084

~~Signatures~~Signature		9185

Table of Contents

Part I — Financial Information

Item 1. Financial Statements

Brighthouse Financial, Inc.

Interim Condensed Consolidated Balance Sheets

~~June 30, 2019~~March 31, 2020 (Unaudited) and December 31, ~~2018~~2019

(In millions, except share and per share data)


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Assets
Investments:
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $61,362 and $60,920, respectively)	$	67,211		$	62,608
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $65,237 and $64,079, respectively; allowance for credit losses of $10 and $0, respectively)							$	71,302		$	71,036
Equity securities, at estimated fair value	153			140			122			147
Mortgage loans (net of valuation allowances of $64 and $57, respectively)	15,078			13,694
Mortgage loans (net of allowance for credit losses of $69 and $64, respectively)							15,547			15,753
Policy loans	1,342			1,421			1,250			1,292
Real estate limited partnerships and limited liability companies	462			451
Other limited partnership interests	1,834			1,840
Limited partnerships and limited liability companies							2,505			2,380
Short-term investments, principally at estimated fair value	793			—			4,348			1,958
Other invested assets, principally at estimated fair value	3,064			3,027
Other invested assets, principally at estimated fair value (net of allowance for credit losses of $13 and $0, respectively)							9,658			3,216
Total investments	89,937			83,181			104,732			95,782
Cash and cash equivalents	3,981			4,145			8,930			2,877
Accrued investment income	747			724			868			684
Premiums, reinsurance and other receivables	14,231			13,697			14,994			14,760
Deferred policy acquisition costs and value of business acquired	5,492			5,717			4,862			5,448
Current income tax recoverable	—			1			9			17
Other assets	610			573			550			584
Separate account assets	106,214			98,256			89,008			107,107
Total assets	$	221,212		$	206,294		$	223,953		$	227,259
Liabilities and Equity
Liabilities
Future policy benefits	$	38,280		$	36,209		$	40,653		$	39,686
Policyholder account balances	42,941			40,054			47,288			45,771
Other policy-related balances	3,041			3,000			3,169			3,111
Payables for collateral under securities loaned and other transactions	4,094			5,057			10,988			4,391
Long-term debt	4,365			3,963			4,365			4,365
Current income tax payable	14			15
Deferred income tax liability	1,364			972			2,482			1,355
Other liabilities	4,558			4,285			5,561			5,236
Separate account liabilities	106,214			98,256			89,008			107,107
Total liabilities	204,871			191,811			203,514			211,022
Contingencies, Commitments and Guarantees (Note 11)
Contingencies, Commitments and Guarantees (Note 10)
Equity
Brighthouse Financial, Inc.’s stockholders’ equity:
Preferred stock, par value $0.01 per share; $425 aggregate liquidation preference at June 30, 2019	—			—
Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 120,593,413 and 120,448,018 shares issued, respectively; 112,644,952 and 117,532,336 shares outstanding, respectively	1			1
Preferred stock, par value $0.01 per share; $425 aggregate liquidation preference							—			—
Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 120,867,313 and 120,647,871 shares issued, respectively; 100,502,488 and 106,027,301 shares outstanding, respectively							1			1
Additional paid-in capital	12,893			12,473			12,911			12,908
Retained earnings (deficit)	986			1,346			5,521			585
Treasury stock, at cost; 7,948,461 and 2,915,682 shares, respectively	(306		)	(118		)
Treasury stock, at cost; 20,364,825 and 14,620,570 shares, respectively							(706		)	(562		)
Accumulated other comprehensive income (loss)	2,702			716			2,647			3,240
Total Brighthouse Financial, Inc.’s stockholders’ equity	16,276			14,418			20,374			16,172
Noncontrolling interests	65			65			65			65
Total equity	16,341			14,483			20,439			16,237
Total liabilities and equity	$	221,212		$	206,294		$	223,953		$	227,259

See accompanying notes to the interim condensed consolidated financial statements.

Table of Contents

Brighthouse Financial, Inc.

Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Three Months Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~ (Unaudited)

(In millions, except per share data)


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
	2019		2018			2019			2018			2020			2019
Revenues
Premiums	$	232	$	223		$	459		$	452		$	198		$	227
Universal life and investment-type product policy fees	888		962			1,763			1,964			886			875
Net investment income	942		806			1,753			1,623			916			811
Other revenues	96		98			188			203			102			92
Net investment gains (losses)	63		(75		)	52			(79		)	(19		)	(11		)
Net derivative gains (losses)	149		(312		)	(1,154		)	(646		)	6,902			(1,303		)
Total revenues	2,370		1,702			3,061			3,517			8,985			691
Expenses
Policyholder benefits and claims	845		813			1,617			1,551			1,187			772
Interest credited to policyholder account balances	265		269			523			536			259			258
Amortization of deferred policy acquisition costs and value of business acquired	170		246			192			551			770			22
Other expenses	621		691			1,213			1,309			517			592
Total expenses	1,901		2,019			3,545			3,947			2,733			1,644
Income (loss) before provision for income tax	469		(317		)	(484		)	(430		)	6,252			(953		)
Provision for income tax expense (benefit)	85		(79		)	(133		)	(127		)	1,293			(218		)
Net income (loss)	384		(238		)	(351		)	(303		)	4,959			(735		)
Less: Net income (loss) attributable to noncontrolling interests	—		1			2			3			2			2
Net income (loss) attributable to Brighthouse Financial, Inc.	384		(239		)	(353		)	(306		)	4,957			(737		)
Less: Preferred stock dividends	7		—			7			—			7			—
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders	$	377	$	(239	)	$	(360	)	$	(306	)	$	4,950		$	(737	)
Comprehensive income (loss)	$	1,416	$	(160	)	$	1,635		$	(1,085	)	$	4,366		$	219
Less: Comprehensive income (loss) attributable to noncontrolling interests	—		1			2			3			2			2
Comprehensive income (loss) attributable to Brighthouse Financial, Inc.	$	1,416	$	(161	)	$	1,633		$	(1,088	)	$	4,364		$	217


Earnings per common share:
Earnings per common share
Basic	$	3.28	$	(2.01	)	$	(3.10	)	$	(2.56	)	$	47.26	$	(6.31	)
Diluted	$	3.27	$	(2.01	)	$	(3.10	)	$	(2.56	)	$	47.11	$	(6.31	)

See accompanying notes to the interim condensed consolidated financial statements.

Table of Contents

Brighthouse Financial, Inc.

Interim Condensed Consolidated Statements of Equity

For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)

(In millions)


	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Treasury Stock at Cost			Accumulated Other Comprehensive Income (Loss)		Brighthouse Financial, Inc.’s Stockholders’ Equity			Noncontrolling Interests			Total Equity			Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Treasury Stock at Cost			Accumulated Other Comprehensive Income (Loss)			Brighthouse Financial, Inc.’s Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance at December 31, 2018	$	—	$	1	$	12,473	$	1,346		$	(118	)	$	716	$	14,418		$	65		$	14,483
Preferred stock issuance	—				412										412						412
Balance at December 31, 2019																								$	—	$	1	$	12,908	$	585		$	(562	)	$	3,240		$	16,172		$	65		$	16,237
Cumulative effect of change in accounting principle, net of income tax (Note 1)																														(14		)				3			(11		)				(11		)
Balance at January 1, 2020																								—		1		12,908		571			(562		)	3,243			16,161			65			16,226
Treasury stock acquired in connection with share repurchases										(52		)			(52		)				(52		)										(142		)				(142		)				(142		)
Share-based compensation					4										4						4							3					(2		)				1						1
Dividends on preferred stock																														(7		)							(7		)				(7		)
Change in noncontrolling interests															—			(2		)	(2		)																—			(2		)	(2		)
Net income (loss)							(737		)						(737		)	2			(735		)							4,957									4,957			2			4,959
Other comprehensive income (loss), net of income tax													954		954						954															(596		)	(596		)				(596		)
Balance at March 31, 2019	—		1		12,889		609			(170		)	1,670		14,999			65			15,064
Treasury stock acquired in connection with share repurchases										(136		)			(136		)				(136		)
Share-based compensation					4										4						4
Dividends on preferred stock							(7		)						(7		)				(7		)
Net income (loss)							384								384			—			384
Other comprehensive income (loss), net of income tax													1,032		1,032						1,032
Balance at June 30, 2019	$	—	$	1	$	12,893	$	986		$	(306	)	$	2,702	$	16,276		$	65		$	16,341
Balance at March 31, 2020																								$	—	$	1	$	12,911	$	5,521		$	(706	)	$	2,647		$	20,374		$	65		$	20,439


	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Treasury Stock at Cost		Accumulated Other Comprehensive Income (Loss)			Brighthouse Financial, Inc.’s Stockholders’ Equity			Noncontrolling Interests			Total Equity			Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Treasury Stock at Cost			Accumulated Other Comprehensive Income (Loss)		Brighthouse Financial, Inc.’s Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance at December 31, 2017	$	—	$	1	$	12,432	$	406		$	—	$	1,676		$	14,515		$	65		$	14,580
Cumulative effect of change in accounting principle and other, net of income tax							75					(79		)	(4		)				(4		)
Balance at January 1, 2018	—		1		12,432		481			—		1,597			14,511			65			14,576
Change in noncontrolling interests															—			(2		)	(2		)
Net income (loss)							(67		)						(67		)	2			(65		)
Other comprehensive income (loss), net of income tax												(860		)	(860		)				(860		)
Balance at March 31, 2018	—		1		12,432		414			—		737			13,584			65			13,649
Balance at December 31, 2018																								$	—	$	1	$	12,473	$	1,346		$	(118	)	$	716	$	14,418		$	65		$	14,483
Preferred stock issuance																								—				412										412						412
Treasury stock acquired in connection with share repurchases																																	(52		)			(52		)				(52		)
Share-based compensation					12										12						12							4										4						4
Change in noncontrolling interests															—			(1		)	(1		)															—			(2		)	(2		)
Net income (loss)							(239		)						(239		)	1			(238		)							(737		)						(737		)	2			(735		)
Other comprehensive income (loss), net of income tax												78			78						78															954		954						954
Balance at June 30, 2018	$	—	$	1	$	12,444	$	175		$	—	$	815		$	13,435		$	65		$	13,500
Balance at March 31, 2019																								$	—	$	1	$	12,889	$	609		$	(170	)	$	1,670	$	14,999		$	65		$	15,064

See accompanying notes to the interim condensed consolidated financial statements.

Table of Contents

Brighthouse Financial, Inc.

Interim Condensed Consolidated Statements of Cash Flows

For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)

(In millions)


	Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
Net cash provided by (used in) operating activities	$	809		$	1,017		$	96		$	376
Cash flows from investing activities
Sales, maturities and repayments of:
Fixed maturity securities	9,102			7,601			1,674			4,100
Equity securities	16			12			14			6
Mortgage loans	542			299			481			263
Real estate limited partnerships and limited liability companies	1			82
Other limited partnership interests	143			75
Limited partnerships and limited liability companies							69			77
Purchases of:
Fixed maturity securities	(9,263		)	(7,394		)	(2,541		)	(3,830		)
Equity securities	(3		)	(1		)
Mortgage loans	(1,973		)	(1,916		)	(279		)	(1,076		)
Real estate limited partnerships and limited liability companies	(9		)	(27		)
Other limited partnership interests	(200		)	(99		)
Limited partnerships and limited liability companies							(178		)	(110		)
Cash received in connection with freestanding derivatives	725			722			3,412			316
Cash paid in connection with freestanding derivatives	(1,341		)	(1,570		)	(1,807		)	(310		)
Net change in policy loans	79			65			41			36
Net change in short-term investments	(789		)	135			(2,387		)	(799		)
Net change in other invested assets	38			(7		)	17			55
Net cash provided by (used in) investing activities	(2,932		)	(2,023		)	(1,484		)	(1,272		)
Cash flows from financing activities
Policyholder account balances:
Deposits	3,794			3,018			1,974			1,858
Withdrawals	(1,504		)	(1,567		)	(478		)	(911		)
Net change in payables for collateral under securities loaned and other transactions	(963		)	96			6,597			(1,067		)
Long-term debt issued	1,000			—			—			1,000
Long-term debt repaid	(601		)	(6		)	—			(600		)
Preferred stock issued, net of issuance costs	412			—			—			412
Dividends on preferred stock	(7		)	—			(7		)	—
Treasury stock acquired in connection with share repurchases	(188		)	—			(142		)	(52		)
Financing element on certain derivative instruments and other derivative related transactions, net	44			(226		)	(486		)	(11		)
Other, net	(28		)	(31		)	(17		)	(14		)
Net cash provided by (used in) financing activities	1,959			1,284			7,441			615
Change in cash, cash equivalents and restricted cash	(164		)	278			6,053			(281		)
Cash, cash equivalents and restricted cash, beginning of period	4,145			1,857			2,877			4,145
Cash, cash equivalents and restricted cash, end of period	$	3,981		$	2,135		$	8,930		$	3,864
Supplemental disclosures of cash flow information
Net cash paid (received) for:
Interest	$	92		$	80		$	15		$	12
Income tax	$	5		$	3		$	—		$	(1	)

See accompanying notes to the interim condensed consolidated financial statements.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies

Business

“Brighthouse Financial” and the “Company” refer to Brighthouse Financial, Inc. and its ~~subsidiaries (formerly, MetLife U.S. Retail Separation Business).~~subsidiaries. Brighthouse Financial, Inc. (“BHF”) is a holding company formed in 2016 to own the legal entities that historically operated a substantial portion of MetLife, Inc.’s ~~(together with its subsidiaries and affiliates, “MetLife”)~~ former ~~Retail segment. BHF was incorporated~~retail segment until becoming a separate, publicly-traded company in ~~Delaware on~~ August 1, 2016 in preparation for MetLife, Inc.’s separation of a substantial portion of its former Retail segment, as well as certain portions of its former Corporate Benefit Funding segment (the “Separation”), which was completed on August 4, 2017.

In connection with the Separation, 80.8% of MetLife, Inc.’s interest in BHF was distributed to holders of MetLife, Inc.’s common stock and MetLife, Inc. retained the remaining 19.2%. On June 14, 2018, MetLife, Inc. divested its remaining shares of BHF common stock (the “MetLife Divestiture”). As a result, MetLife, Inc. and its subsidiaries and affiliates are no longer considered related parties subsequent to the MetLife Divestiture.

Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners. The Company is organized into ~~three~~3 segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other.

Basis of Presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the interim condensed consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.

Consolidation

The accompanying interim condensed consolidated financial statements include the accounts of Brighthouse Financial, as well as partnerships and limited liability companies (“LLCs”) in which the Company has control. Intercompany accounts and transactions have been eliminated.

The Company uses the equity method of accounting for investments in limited partnerships and LLCs when it has more than a minor ownership interest or more than a minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. When the Company has virtually no influence over the investee’s operations, the investment is carried at fair value.

Reclassifications

Certain amounts in the prior year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the ~~2019~~current period presentation as may be discussed ~~throughout~~when applicable in the Notes to the Interim Condensed Consolidated Financial Statements.

The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, ~~2018~~2019 consolidated balance sheet data was derived from audited consolidated financial statements included in Brighthouse Financial, Inc.’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Annual Report”), which include all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated ~~and combined~~ financial statements of the Company included in the ~~2018~~2019 Annual Report.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Adoption of New Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements. ~~There were no~~ ASUs ~~adopted during 2019 which had a material impact on the Company’s financial statements.~~

~~ASUs issued but not yet~~ adopted as of ~~June 30, 2019~~March 31, 2020 are summarized ~~in the table below.~~as follows:



Standard	Description	Effective Date	Impact on Financial Statements
ASU ~~2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)~~2016-13, Financial Instruments-Credit Losses (Topic 326): ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)	The amendments to Topic ~~350 require~~326 replace the ~~capitalization~~incurred loss impairment methodology for certain financial instruments with one that reflects expected credit losses based on historical loss information, current conditions, and reasonable and supportable forecasts. The new guidance also requires that an other-than-temporary impairment on a debt security will be recognized as an allowance going forward, such that improvements in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net investment income, but rather a reversal of ~~certain implementation costs incurred in a cloud computing arrangement that is a service contract. The requirements align with~~ the ~~existing requirements to capitalize implementation costs incurred to develop or obtain internal-use software.~~previous impairment and recognized through realized investment gains and losses.	January 1, 2020 using the ~~prospective method or~~modified retrospective method ~~(with early adoption permitted)~~	The Company ~~is currently evaluating~~recorded an after tax net decrease to retained earnings of $14 million and a net increase to accumulated other comprehensive income (loss) (“AOCI”) of $3 million for the ~~impact~~cumulative effect of ~~this guidance~~adoption. The adjustment included establishing or updating the allowance for credit losses on ~~its financial statements.~~fixed maturity securities, mortgage loans, and other invested assets.

ASUs issued but not yet adopted as of March 31, 2020 are summarized as follows:



Standard	Description	Effective Date	Impact on Financial Statements
ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts	The amendments to Topic 944 will result in significant changes to the accounting for long-duration insurance contracts. These changes (1) require all guarantees that qualify as market risk benefits to be measured at fair value, (2) require more frequent updating of assumptions and modify existing discount rate requirements for certain insurance liabilities, (3) modify the methods of amortization for deferred policy acquisition costs (“DAC”), and (4) require new qualitative and quantitative disclosures around insurance contract asset and liability balances and the judgments, assumptions and methods used to measure those balances. The market risk benefit guidance is required to be applied on a retrospective basis, while the changes to guidance for insurance liabilities and DAC may be applied to existing carrying amounts on the effective date or on a retrospective basis.	~~The amendments are currently effective on~~ January 1, 2021. On July 17, 2019 the FASB tentatively decided to extend the effective date of the ASU by one year. The FASB intends to release an exposure draft, which if adopted, will change the effective date for the Company to January 1, 2022.2022	The Company is in the early stages of evaluating the new guidance and therefore is unable to estimate the impact to its financial statements. The most significant impact ~~will~~is expected to be the measurement of liabilities for variable annuity guarantees.
~~ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~	The amendments to Topic 326 replace the incurred loss impairment methodology for certain financial instruments with one that reflects expected credit losses based on historical loss information, current conditions, and reasonable and supportable forecasts. The new guidance also requires that an other-than- temporary impairment (“OTTI”) on a debt security will be recognized as an allowance going forward, such that improvements in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net investment income, but rather a reversal of the previous impairment and recognized through realized investment gains and losses.	~~January 1, 2020 using the modified retrospective method (with early adoption permitted beginning January 1, 2019)~~	The Company is currently evaluating the impact of this guidance on its financial statements, with the most significant impact expected to be earlier recognition of credit losses on mortgage loan investments.

CARES Act

In response to the worldwide pandemic sparked by the novel coronavirus (the “COVID-19 pandemic”), on March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act contains numerous provisions intended to provide swift aid, including through tax relief, to businesses and individuals affected by the COVID-19 pandemic. The Company does not believe that the CARES Act will have a material impact to its consolidated financial statements at this time. The Company will continue to closely monitor developments related to the COVID-19 pandemic and the CARES Act.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

2. Segment Information

The Company is organized into ~~three~~3 segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other.

Annuities

The Annuities segment consists of a variety of variable, fixed, index-linked and income annuities designed to address contract holders’ needs for protected wealth accumulation on a tax-deferred basis, wealth transfer and income security.

Life

The Life segment consists of insurance products and services, including term, universal, whole and variable life products designed to address policyholders’ needs for financial security and protected wealth transfer, which may be provided on a tax-advantaged basis.

Run-off

The Run-off segment consists of products no longer actively sold and which are separately managed, including structured settlements, pension risk transfer contracts, certain company-owned life insurance policies, funding agreements and universal life with secondary guarantees.

Corporate & Other

Corporate & Other contains the excess capital not allocated to the segments and interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes ~~the elimination of intersegment amounts,~~ long-term care and ~~workers~~workers’ compensation business reinsured through 100% quota share reinsurance agreements and term life insurance sold direct to consumers, which is no longer being offered for new sales.

Financial Measures and Segment Accounting Policies

Adjusted earnings is a financial measure used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. Consistent with GAAP guidance for segment reporting, adjusted earnings is also used to measure segment performance. The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by the investor community. Adjusted earnings should not be viewed as a substitute for net income (loss) available to BHF’s common shareholders and excludes net income (loss) attributable to noncontrolling interests and preferred stock dividends.

Adjusted earnings, which may be positive or negative, focuses on the Company’s primary businesses principally by excluding the impact of market volatility, which could distort trends.

The following are significant items excluded from total revenues, net of income tax, in calculating adjusted earnings:

Net investment gains (losses);

Net derivative gains (losses) except earned income ~~on derivatives~~ 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; and

Certain variable annuity guaranteed minimum income benefits (“GMIBs”) fees (“GMIB Fees”) ~~and amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses)~~.

The following are significant items excluded from total expenses, net of income tax, in calculating adjusted earnings:

Amounts associated with benefits ~~and hedging costs~~ related to GMIBs (“GMIB Costs”);

Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”); and

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

The tax impact of the adjustments mentioned above is calculated net of the statutory tax rate, which could differ from the Company’s effective tax rate.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

2. Segment Information (continued)

Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the three months and six months ended June 30, 2019 and 2018 and at June 30, 2019 and December 31, 2018. The segment accounting policies are the same as those used to prepare the Company’s interim condensed consolidated financial statements, except for the adjustments to calculate adjusted earnings described above. In addition, segment accounting policies include the methods of capital allocation described below.

Segment investment and capitalization targets are based on statutory oriented risk principles and metrics. Segment invested assets backing liabilities are based on net statutory liabilities plus excess capital. For the variable annuity business, the excess capital held is based on the target statutory total asset requirement consistent with the Company’s variable annuity risk management strategy. For insurance businesses other than variable annuities, excess capital held is based on a percentage of required statutory risk-based capital. Assets in excess of those allocated to the segments, if any, are held in Corporate & Other. Segment net investment income reflects the performance of each segment’s respective invested assets.

Operating results by segment, as well as Corporate & Other, were as follows:


	Operating Results												Three Months Ended March 31, 2020
Three Months Ended June 30, 2019	Annuities		Life		Run-off		Corporate & Other			Total
													Annuities		Life		Run-off			Corporate & Other			Total
	(In millions)												(In millions)
Pre-tax adjusted earnings	$	323	$	72	$	2	$	(85	)	$	312		$	389	$	13	$	(90	)	$	(59	)	$	253
Provision for income tax expense (benefit)	58		14		—		(21		)	51			73		2		(20		)	(22		)	33
Post-tax adjusted earnings	265		58		2		(64		)	261			316		11		(70		)	(37		)	220
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	—		—		—		7			7
Less: Net income (loss) attributable to noncontrolling interests													—		—		—			2			2
Less: Preferred stock dividends													—		—		—			7			7
Adjusted earnings	$	265	$	58	$	2	$	(71	)	254			$	316	$	11	$	(70	)	$	(46	)	211
Adjustments for:
Net investment gains (losses)										63													(19		)
Net derivative gains (losses)										149													6,902
Other adjustments to net income										(55		)
Other adjustments to net income (loss)																							(884		)
Provision for income tax (expense) benefit										(34		)											(1,260		)
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders										$	377												$	4,950

Interest revenue	$	470	$	116	$	339	$	17					$	460	$	116	$	324		$	20
Interest expense	$	—	$	—	$	—	$	48					$	—	$	—	$	—		$	47

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

2. Segment Information (continued)

Operating Results
Three Months Ended June 30, 2018 Annuities Life Run-off Corporate & Other Total
(In millions)
Pre-tax adjusted earnings $ 266
$ 46
$ (8 ) $ (124 ) $ 180
Provision for income tax expense (benefit) 45
9
(2 ) (26 ) 26
Post-tax adjusted earnings 221
37
(6 ) (98 ) 154
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends —
—
—
1
1
Adjusted earnings $ 221
$ 37
$ (6 ) $ (99 ) 153
Adjustments for:
Net investment gains (losses) (75 )
Net derivative gains (losses) (312 )
Other adjustments to net income (110 )
Provision for income tax (expense) benefit 105
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ (239 )

Interest revenue $ 376
$ 111
$ 314
$ 11

Interest expense $ —
$ —
$ —
$ 37


	Operating Results													Three Months Ended March 31, 2019
Six Months Ended June 30, 2019	Annuities		Life		Run-off			Corporate & Other			Total
														Annuities		Life		Run-off			Corporate & Other			Total
	(In millions)													(In millions)
Pre-tax adjusted earnings	$	684	$	103	$	(44	)	$	(157	)	$	586		$	361	$	31	$	(46	)	$	(72	)	$	274
Provision for income tax expense (benefit)	124		20		(10		)	(43		)	91			66		6		(10		)	(22		)	40
Post-tax adjusted earnings	560		83		(34		)	(114		)	495			295		25		(36		)	(50		)	234
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	—		—		—			9			9
Less: Net income (loss) attributable to noncontrolling interests														—		—		—			2			2
Less: Preferred stock dividends														—		—		—			—			—
Adjusted earnings	$	560	$	83	$	(34	)	$	(123	)	486			$	295	$	25	$	(36	)	$	(52	)	232
Adjustments for:
Net investment gains (losses)											52													(11		)
Net derivative gains (losses)											(1,154		)											(1,303		)
Other adjustments to net income											32
Other adjustments to net income (loss)																								87
Provision for income tax (expense) benefit											224													258
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders											$	(360	)											$	(737	)

Interest revenue	$	891	$	213	$	615		$	34					$	421	$	97	$	276		$	17
Interest expense	$	—	$	—	$	—		$	95					$	—	$	—	$	—		$	47

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~2. Segment Information (continued)~~

Operating Results
Six Months Ended June 30, 2018 Annuities Life Run-off Corporate & Other Total
(In millions)
Pre-tax adjusted earnings $ 538
$ 127
$ 55
$ (210 ) $ 510
Provision for income tax expense (benefit) 91
24
11
(55 ) 71
Post-tax adjusted earnings 447
103
44
(155 ) 439
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends —
—
—
3
3
Adjusted earnings $ 447
$ 103
$ 44
$ (158 ) 436
Adjustments for:
Net investment gains (losses) (79 )
Net derivative gains (losses) (646 )
Other adjustments to net income (215 )
Provision for income tax (expense) benefit 198
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ (306 )

Interest revenue $ 739
$ 219
$ 657
$ 22

Interest expense $ —
$ —
$ —
$ 74

~~The following table presents total~~Total revenues ~~with respect to the Company’s segments, as well as Corporate & Other:~~

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In millions)
Annuities $ 1,194
$ 1,146
$ 2,311
$ 2,293
Life 330
339
633
708
Run-off 527
510
1,003
1,058
Corporate & Other 42
31
85
65
Adjustments 277
(324 ) (971 ) (607 )
Total $ 2,370
$ 1,702
$ 3,061
$ 3,517

~~The following table presents total assets with respect to the Company’s segments,~~by segment, as well as Corporate & Other, were as follows:



	Three Months Ended March 31,
	2020		2019
	(In millions)
Annuities	$	1,151	$	1,117
Life	354		303
Run-off	493		476
Corporate & Other	42		43
Adjustments	6,945		(1,248		)
Total	$	8,985	$	691

Total assets by segment, as well as Corporate & Other, were as follows at:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(In millions)				(In millions)
Annuities	$	152,948	$	141,489	$	146,897	$	156,965
Life	20,854		20,449		20,923		21,876
Run-off	34,245		32,393		36,510		35,112
Corporate & Other	13,165		11,963		19,623		13,306
Total	$	221,212	$	206,294	$	223,953	$	227,259

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

3. Insurance

Guarantees

As discussed in Notes 1 and 3 of the Notes to the Consolidated ~~and Combined~~ Financial Statements included in the ~~2018~~2019 Annual Report, the Company issues variable annuity contracts with guaranteed minimum benefits. Guaranteed minimum accumulation benefits (“GMABs”), the ~~non-life contingent~~non-life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”) and the portion of certain ~~portions of~~ GMIBs that do not require ~~the policyholder to annuitize~~annuitization are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 5.

The Company also has universal and variable life insurance contracts with secondary guarantees.

Information regarding the Company’s guarantee exposure was as follows at:


	June 30, 2019						December 31, 2018						March 31, 2020						December 31, 2019
	In the Event of Death			At Annuitization			In the Event of Death			At Annuitization			In the Event of Death			At Annuitization			In the Event of Death			At Annuitization
	(Dollars in millions)												(Dollars in millions)
Annuity Contracts (1), (2)
Variable Annuity Guarantees
Total account value (3)	$	103,866		$	59,924		$	96,865		$	55,967		$	87,549		$	50,267		$	104,271		$	59,859
Separate account value	$	98,907		$	58,727		$	91,837		$	54,731		$	82,557		$	49,065		$	99,385		$	58,694
Net amount at risk	$	7,044	(4)	$	3,584	(5)	$	11,073	(4)	$	4,128	(5)	$	12,998	(4)	$	10,402	(5)	$	6,671	(4)	$	4,750	(5)
Average attained age of contract holders	68 years			68 years			68 years			68 years			68 years			68 years			68 years			68 years


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	Secondary Guarantees				Secondary Guarantees
	(Dollars in millions)				(Dollars in millions)
Universal Life Contracts
Total account value (3)	$	6,028	$	6,099	$	5,917	$	5,957
Net amount at risk (6)	$	72,121	$	73,131	$	70,588	$	71,124
Average attained age of policyholders	66 years		65 years		66 years		66 years

Variable Life Contracts
Total account value (3)	$	3,325	$	3,230	$	3,247	$	3,526
Net amount at risk (6)	$	22,139	$	23,004	$	21,146	$	21,325
Average attained age of policyholders	50 years		50 years		51 years		50 years

~~__________________~~_______________


(1)	The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.

(2)

Includes direct business, but excludes offsets from hedging or reinsurance, if any. Therefore, the net amount at risk presented reflects the economic exposures of living and death benefit guarantees associated with variable annuities, but not necessarily their impact on the Company. See Note 5 of the Notes to the Consolidated ~~and Combined~~ Financial Statements included in the ~~2018~~2019 Annual Report for a discussion of guaranteed minimum benefits which have been reinsured.


(3)	Includes the contract holder’s investments in the general account and separate account, if applicable.


(4)	Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

3. Insurance (continued)

(5)

Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contract holders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contract holders have achieved.


(6)	Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.

4. Investments

See Note 1 of the Notes to the Consolidated ~~and Combined~~ Financial Statements included in the ~~2018~~2019 Annual Report for a description of the Company’s accounting policies for investments and Note 6 for information about the fair value hierarchy for investments and the related valuation methodologies. In connection with the adoption of new guidance related to the credit losses (see Note 1), effective January 1, 2020, the Company updated its accounting policies on certain investments. Any accounting policy updates required by the new guidance are described in this footnote.

Fixed Maturity Securities Available-for-sale ~~(“AFS”)~~

Fixed Maturity Securities ~~AFS~~ by Sector

Fixed maturity securities by sector were as follows at:



	March 31, 2020										December 31, 2019
	Amortized Cost		Allowance for Credit Losses		Gross Unrealized				Estimated Fair Value		Amortized Cost		Allowance for Credit Losses		Gross Unrealized				Estimated Fair Value
	Amortized Cost		Allowance for Credit Losses		Gains		Losses		Estimated Fair Value		Amortized Cost		Allowance for Credit Losses		Gains		Losses		Estimated Fair Value
	(In millions)
U.S. corporate	$	29,146	$	8	$	2,343	$	811	$	30,670	$	28,375	$	—	$	2,852	$	67	$	31,160
Foreign corporate	9,335		1		352		442		9,244		9,177		—		741		74		9,844
RMBS	8,408		—		544		52		8,900		8,692		—		438		12		9,118
U.S. government and agency	5,669		—		3,257		—		8,926		5,529		—		1,869		2		7,396
CMBS	5,601		—		225		81		5,745		5,500		—		264		9		5,755
State and political subdivision	3,401		—		748		6		4,143		3,358		—		701		2		4,057
ABS	2,170		—		13		156		2,027		1,945		—		21		11		1,955
Foreign government	1,507		1		182		41		1,647		1,503		—		250		2		1,751
Total fixed maturity securities	$	65,237	$	10	$	7,664	$	1,589	$	71,302	$	64,079	$	—	$	7,136	$	179	$	71,036

The ~~following table presents the~~Company held non-income producing fixed maturity securities ~~AFS~~with an estimated fair value of $1 million at March 31, 2020. The Company did not hold any non-income producing fixed maturity securities at December 31, 2019.

Maturities of Fixed Maturity Securities

The amortized cost and estimated fair value of fixed maturity securities, by ~~sector at:~~contractual maturity date, were as follows at March 31, 2020:

June 30, 2019 December 31, 2018
Amortized
Cost Gross Unrealized Estimated
Fair
Value Amortized
Cost Gross Unrealized Estimated
Fair
Value
Gains Temporary
Losses OTTI
Losses (1) Gains Temporary
Losses OTTI
Losses (1)
(In millions)
Fixed maturity securities: (2)
U.S. corporate $ 26,149
$ 2,221
$ 88
$ —
$ 28,282
$ 24,312
$ 830
$ 669
$ —
$ 24,473
U.S. government and agency 5,506
1,763
—
—
7,269
7,944
1,263
112
—
9,095
RMBS 9,003
425
21
(4 ) 9,411
8,428
246
129
(2 ) 8,547
Foreign corporate 9,154
536
105
—
9,585
8,183
159
316
—
8,026
CMBS 5,062
254
4
—
5,312
5,292
43
88
(1 ) 5,248
State and political subdivision 3,198

648

—

—

3,846

3,200

412

15

—

3,597
ABS 1,832
24
9
—
1,847
2,135
13
22
—
2,126
Foreign government 1,458
204
3
—
1,659
1,426
102
32
—
1,496
Total fixed maturity securities $ 61,362

$ 6,075

$ 230

$ (4 )
$ 67,211

$ 60,920

$ 3,068

$ 1,383

$ (3 )
$ 62,608



	Due in One Year or Less		Due After One Year Through Five Years		Due After Five Years Through Ten Years		Due After Ten Years		Structured Securities (1)		Total Fixed Maturity Securities
	(In millions)
Amortized cost	$	1,960	$	7,149	$	12,984	$	26,965	$	16,179	$	65,237
Estimated fair value	$	1,950	$	7,100	$	13,122	$	32,458	$	16,672	$	71,302

~~__________________~~_______________


(1)	Noncredit OTTI losses included in accumulated other comprehensive income (loss) (“AOCI”) in an unrealized gain position are due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities.

~~(2)~~

~~Redeemable preferred stock is reported within U.S. corporate and foreign corporate fixed maturity securities. Included within fixed maturity~~Structured securities ~~are structured securities including~~include residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”).

The Company held non-income producing fixed maturity securities with an estimated fair value of $32 million and less than $1 million with unrealized gains (losses) of ($2) million and less than $1 million at June 30, 2019 and December 31, 2018, respectively.

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

~~Maturities of Fixed Maturity Securities~~

~~The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at June 30, 2019:~~

Due in One
Year or Less

Due After One
Year Through
Five Years

Due After Five
Years Through Ten Years

Due After Ten
Years

Structured
Securities

Total Fixed
Maturity
Securities
(In millions)
Amortized cost $ 1,670
$ 7,069
$ 12,313
$ 24,413
$ 15,897
$ 61,362
Estimated fair value $ 1,681
$ 7,264
$ 12,967
$ 28,729
$ 16,570
$ 67,211

Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities not due at a single maturity date have been presented in the year of final contractual maturity. Structured Securities are shown separately, as they are not due at a single maturity.

Continuous Gross Unrealized Losses for Fixed Maturity Securities ~~AFS~~ by Sector

The ~~following table presents the~~ estimated fair value and gross unrealized losses of fixed maturity securities ~~AFS~~ in an unrealized loss position, ~~aggregated~~ by sector and by length of time that the securities have been in a continuous unrealized loss position, were as follows at:


	June 30, 2019								December 31, 2018								March 31, 2020								December 31, 2019
	Less than 12 Months				Equal to or Greater than 12 Months				Less than 12 Months				Equal to or Greater than 12 Months				Less than 12 Months				12 Months or Greater				Less than 12 Months				12 Months or Greater
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
	(Dollars in millions)																(Dollars in millions)
Fixed maturity securities:
U.S. corporate	$	1,342	$	41	$	1,235	$	47	$	10,584	$	470	$	2,328	$	199	$	8,683	$	756	$	277	$	55	$	2,017	$	44	$	326	$	23
Foreign corporate																	3,756		318		550		124		576		12		561		62
RMBS																	992		50		19		2		857		8		386		4
U.S. government and agency	139		—		58		—		412		8		1,543		104		73		—		—		—		40		2		—		—
RMBS	145		3		1,421		14		1,627		26		2,611		101
Foreign corporate	740		27		805		78		3,982		203		774		113
CMBS	78		—		263		4		2,317		53		803		34		1,560		78		143		3		559		7		171		2
State and political subdivision	5		—		36		—		346		7		158		8		136		6		—		—		143		2		8		—
ABS	564		4		357		5		1,422		21		70		1		1,197		92		522		64		362		2		676		9
Foreign government	70		3		—		—		521		26		132		6		493		40		4		1		65		2		—		—
Total fixed maturity securities	$	3,083	$	78	$	4,175	$	148	$	21,211	$	814	$	8,419	$	566	$	16,890	$	1,340	$	1,515	$	249	$	4,619	$	79	$	2,128	$	100
Total number of securities in an unrealized loss position	660				521				3,027				1,028				2,896				275				720				302

Allowance for Credit Losses for Fixed Maturity Securities

Evaluation and Measurement Methodologies

For fixed maturity securities in an unrealized loss position, management first assesses whether the Company intends to sell, or whether it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to estimated fair value through net investment gains (losses). For fixed maturity securities that do not meet the aforementioned criteria, management evaluates whether the decline in estimated fair value has resulted from credit losses or other factors. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the allowance for credit loss evaluation process include, but are not limited to: (i) the extent to which estimated fair value is less than amortized cost; (ii) any changes to the rating of the security by a rating agency; (iii) adverse conditions specifically related to the security, industry or geographic area; and (iv) payment structure of the fixed maturity security and the likelihood of the issuer being able to make payments in the future or the issuer’s failure to make scheduled interest and principal payments. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss is deemed to exist and an allowance for credit losses is recorded, limited by the amount that the estimated fair value is less than the amortized cost basis, with a corresponding charge to net investment gains (losses). Any unrealized losses that have not been recorded through an allowance for credit losses are recognized in other comprehensive income (loss) (“OCI”).

Once a security specific allowance for credit losses is established, the present value of cash flows expected to be collected from the security continues to be reassessed. Any changes in the security specific allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense in net investment gains (losses).

Fixed maturity securities are also evaluated to determine whether any amounts have become uncollectible. When all, or a portion, of a security is deemed uncollectible, the uncollectible portion is written-off with an adjustment to amortized cost and a corresponding reduction to the allowance for credit losses.

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

~~Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities~~

~~Evaluation and Measurement Methodologies~~

~~Management considers a wide range of factors about~~Accrued interest receivables are presented separate from the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the estimated fair value has been below amortized cost; (ii) the potential for impairments when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments where the issuer, series of issuers or industry has suffered a catastrophic loss or has exhausted natural resources; (vi) whether the Company has the intent to sell or will more likely than not be required to sell a particular security before the decline in estimated fair value below amortized cost ~~recovers; (vii)~~basis of fixed maturity securities. An allowance for credit losses is not estimated on an accrued interest receivable, rather receivable balances 90-days past due are deemed uncollectible and are written off with ~~respect~~a corresponding reduction to Structured Securities, changes in forecasted cash flows after considering the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying assets backing a particular security, and the payment priority within the tranche structure of the security; (viii) the potential for impairments due to weakening of foreign currenciesnet investment income. The accrued interest receivable on ~~non-functional currency denominated~~ fixed maturity securities ~~that~~totaled $528 million at March 31, 2020 and is included in accrued investment income.

Fixed maturity securities are ~~near maturity;~~also evaluated to determine if they qualify as purchased financial assets with credit deterioration (“PCD”). To determine if the credit deterioration experienced since origination is more than insignificant, both (i) the extent of the credit deterioration and ~~(ix) other subjective factors, including concentrations and information obtained from regulators and~~(ii) any rating ~~agencies.~~

agency downgrades are evaluated. For securities in an unrealized loss position, an OTTI is recognized in earnings when it is anticipated that the amortized cost will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the OTTI recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security andcategorized as PCD assets, the present value of ~~projected future~~cash flows expected to be collected from the security are compared to the par value of the security. If the present value of cash flows expected to be collected is ~~recognized as~~less than the par value, credit losses are embedded in the purchase price of the PCD asset. In this situation, both an ~~OTTI in earnings (“~~allowance for credit ~~loss”). If~~losses and amortized cost gross-up is recorded, limited by the amount that the estimated fair value is less than the grossed-up amortized cost basis. Any difference between the purchase price and the present value of ~~projected future~~ cash flows ~~expected~~is amortized or accreted into net investment income over the life of the PCD asset. Any subsequent PCD asset allowance for credit losses is evaluated in a manner similar to ~~be collected, this portion of OTTI related to other-than-credit factors (“noncredit loss”) is recorded in other comprehensive income (“OCI”).~~the process described above for fixed maturity securities.

Current Period Evaluation

Based on the Company’s current evaluation of its ~~AFS~~fixed maturity securities in an unrealized loss position ~~in accordance with its impairment policy,~~ and the ~~Company’s~~ current ~~intentions and assessments (as applicable to the type of security) about holding, selling and any requirements~~intent or requirement to sell, ~~these securities,~~ the Company recorded an allowance for credit losses of $10 million, relating to 21 securities at March 31, 2020. Management concluded that ~~these securities were not other-than-temporarily impaired at June 30, 2019.~~

~~Gross unrealized losses on~~for all other fixed maturity securities ~~decreased $1.2 billion during the six months ended June 30, 2019 to $226 million. The decrease~~ in ~~gross unrealized losses for the six months ended June 30, 2019 was primarily attributable to decreasing longer-term interest rates and narrowing credit spreads.~~

~~At June 30, 2019, $8 million of the total $226 million of gross unrealized losses were from~~ ~~seven~~ ~~fixed maturity securities with~~ an unrealized loss position, the unrealized loss was not due to issuer-specific credit-related factors and as a result was recognized in OCI. Where unrealized losses have not been recognized into income, it is primarily because the securities’ bond issuer(s) are of ~~20% or more~~high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in estimated fair value is largely due to changes in interest rates and non-issuer specific credit spreads. These issuers continued to make timely principal and interest payments and the estimated fair value is expected to recover as the securities approach maturity.

Rollforward of ~~amortized cost~~the Allowance for ~~six~~Credit Losses for Fixed Maturity Securities by Sector

The changes in the allowance for credit losses by sector were as follows:



	U.S. Corporate			Foreign Corporate			Foreign Government		Total
	(In millions)
Balance at January 1, 2020	$	3		$	1		$	—	$	4
Allowance on securities where credit losses were not previously recorded	8			—			1		9
Allowance on securities that had an allowance recorded in a previous period	—			1			—		1
Write-offs charged against allowance (1)	(3		)	(1		)	—		(4		)
Balance at March 31, 2020	$	8		$	1		$	1	$	10

_______________


(1)	The Company recorded total write-offs of $12 million during the three months ended March 31, 2020.

PCD Fixed Maturity Securities

The Company did not purchase any PCD fixed maturity securities during the three months ~~or greater.~~ended March 31, 2020.

1514

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

Mortgage Loans

Mortgage Loans by Portfolio Segment

Mortgage loans are summarized as follows at:


	June 30, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	Carrying Value			% of Total		Carrying Value			% of Total		Carrying Value			% of Total		Carrying Value			% of Total
	(Dollars in millions)										(Dollars in millions)
Mortgage loans:
Commercial	$	9,267		61.5	%	$	8,529		62.3	%	$	9,512		61.2	%	$	9,721		61.7	%
Agricultural	3,248			21.5		2,946			21.5		3,403			21.9		3,388			21.5
Residential	2,627			17.4		2,276			16.6		2,701			17.3		2,708			17.2
Subtotal (1)	15,142			100.4		13,751			100.4
Valuation allowances (2)	(64		)	(0.4	)	(57		)	(0.4	)
Total mortgage loans (1)											15,616			100.4		15,817			100.4
Allowance for credit losses											(69		)	(0.4	)	(64		)	(0.4	)
Total mortgage loans, net	$	15,078		100.0	%	$	13,694		100.0	%	$	15,547		100.0	%	$	15,753		100.0	%

~~__________________~~_______________


(1)	Purchases of mortgage loans from third parties were~~$86 millionand$563 millionfor the three months and six months ended June 30, 2019, respectively, and $518~~ $157 million and ~~$604~~$477 million for the three months ended March 31, 2020 and ~~six months ended June 30, 2018,~~2019, respectively, and were primarily comprised of residential mortgage loans.


~~(2)~~	~~The valuation allowances were primarily from collective evaluation (non-specific loan related).~~

~~Information~~Allowance for Credit Losses for Mortgage Loans

Evaluation and Measurement Methodologies

The allowance for credit losses is a valuation account that is deducted from the mortgage loan’s amortized cost basis to present the net amount expected to be collected on ~~commercial, agricultural and residential~~the mortgage loan. The loan balance, or a portion of the loan balance, is written-off against the allowance when management believes this amount is uncollectible.

Accrued interest receivables are presented separate from the amortized cost basis of mortgage loans. An allowance for credit losses is not estimated on an accrued interest receivable, rather when a loan is placed in nonaccrual status the associated accrued interest receivable balance is written off with a corresponding reduction to net investment income. The accrued interest receivable on mortgage loans totaled $77 million at March 31, 2020 and is ~~presented~~included in accrued investment income.

The allowance for credit losses is estimated using relevant available information, from internal and external sources, relating to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience provides the ~~tables below.~~

~~Valuation Allowance Methodology~~basis for estimating expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics and environmental conditions. A reasonable and supportable forecast period of two-years is used with an input reversion period of one-year.

Mortgage loans are ~~considered to be impaired when it is probable that, based upon current information and events,~~evaluated in each of the ~~Company will be unable to collect all amounts due under the loan agreement. Specific valuation allowances are established using the same methodology for all~~ three portfolio segments to determine the allowance for credit losses. The loan-level loss rates are determined using individual loan terms and characteristics, risk pools/internal ratings, national economic forecasts, prepayment speeds, and estimated default and loss severity. The resulting loss rates are applied to the mortgage loan’s amortized cost to generate an allowance for credit losses. In certain situations, the allowance for credit losses is measured as the ~~excess carrying value of a loan over either (i) the present value of expected future cash flows discounted at~~difference between the loan’s ~~original effective interest rate, (ii) the estimated fair~~amortized cost and liquidation value of the ~~loan’s underlying~~collateral. These situations include collateral dependent loans, expected troubled debt restructurings (“TDRs”), foreclosure probable loans, and loans with dissimilar risk characteristics.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

Mortgage loans are also evaluated to determine if they qualify as PCD assets. To determine if the credit deterioration experienced since origination is more than insignificant, the extent of credit deterioration is evaluated. All re-performing/modified loan (“RPL”) pools purchased after December 31, 2019 are determined to have been acquired with evidence of more than insignificant credit deterioration since origination and are classified as PCD assets. RPLs are pools of residential mortgage loans acquired at discounts which have both credit and non-credit components. For PCD mortgage loans, the allowance for credit losses is determined using a similar methodology described above, except the loss-rate is determined at the pool level instead of the individual loan level. The initial allowance for credit losses, determined on a collective basis, is then allocated to the individual loans. The initial amortized cost of the loan is grossed-up to reflect the sum of the loan’s purchase price and allowance for credit losses. The difference between the grossed-up amortized cost basis and the par value of the loan is a noncredit discount, which is accreted into net investment income over the remaining life of the loan. Any subsequent PCD mortgage loan allowance for credit losses is evaluated in a manner similar to the process described above for each of the three portfolio segments.

Rollforward of the Allowance for Credit Losses for Mortgage Loans by Portfolio Segment

The changes in the ~~process of foreclosure or otherwise collateral dependent, or (iii) the loan’s observable market price. A common evaluation framework is used~~allowance for ~~establishing non-specific valuation allowances for all loan portfolio segments; however, a separate non-specific valuation allowance is calculated and maintained for each loan~~credit losses by portfolio segment ~~that is based on inputs unique to each loan portfolio segment. Non-specific valuation allowances are established for pools of~~were as follows:



	Commercial			Agricultural		Residential		Total
	(In millions)
Balance at December 31, 2019	$	47		$	10	$	7	$	64
Cumulative effect of change in accounting principle	(20		)	7		15		2
Balance at January 1, 2020	27			17		22		66
Current period provision	—			1		2		3
Balance at March 31, 2020	$	27		$	18	$	24	$	69

PCD Mortgage Loans

The Company did not purchase any PCD mortgage loans ~~with similar risk characteristics where a property-specific or market-specific risk has not been identified, but for which~~during the Company expects to incur a credit loss. These evaluations are based upon several loan portfolio segment-specific factors, including the Company’s experience for loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics. These evaluations are revised as conditions change and new information becomes available.three months ended March 31, 2020.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

Credit Quality of ~~Commercial~~ Mortgage Loans by Portfolio Segment

The amortized cost of mortgage loans by year of origination and credit quality ~~of commercial mortgage loans~~indicator was as follows at:

Recorded Investment
Debt Service Coverage Ratios
% of
Total

Estimated
Fair
Value

% of
Total
> 1.20x 1.00x - 1.20x < 1.00x Total
(Dollars in millions)
June 30, 2019
Loan-to-value ratios:
Less than 65% $ 8,197
$ 121
$ 113
$ 8,431
91.0 % $ 8,818
91.1 %
65% to 75% 688
—
—
688
7.4
712
7.4
76% to 80% 139
—
9
148
1.6
148
1.5
Total $ 9,024

$ 121

$ 122

$ 9,267
100.0 % $ 9,678
100.0 %
December 31, 2018
Loan-to-value ratios:
Less than 65% $ 7,470
$ 89
$ 34
$ 7,593
89.0 % $ 7,668
89.0 %
65% to 75% 762
—
24
786
9.2
798
9.3
76% to 80% 141
—
9
150
1.8
145
1.7
Total $ 8,373

$ 89

$ 67

$ 8,529
100.0 % $ 8,611
100.0 %

~~Credit Quality of Agricultural Mortgage Loans~~

~~The credit quality of agricultural mortgage loans was as follows at:~~


	June 30, 2019				December 31, 2018				2020		2019		2018		2017		2016		Prior		Total
	Recorded Investment		% of Total		Recorded Investment		% of Total		(In millions)
	(Dollars in millions)
March 31, 2020
Commercial mortgage loans
Loan-to-value ratios:
Less than 65%	$	2,896	89.1	%	$	2,623	89.0	%	$	—	$	1,829	$	1,409	$	717	$	1,126	$	3,448	$	8,529
65% to 75%	350		10.8		322		10.9		—		161		200		195		100		143		799
76% to 80%	2		0.1		1		0.1		—		—		—		13		30		141		184
Total commercial mortgage loans									—		1,990		1,609		925		1,256		3,732		9,512
Agricultural mortgage loans
Loan-to-value ratios:
Less than 65%									66		563		815		440		459		841		3,184
65% to 75%									2		86		16		61		36		7		208
Greater than 80%									—		—		11		—		—		—		11
Total agricultural mortgage loans									68		649		842		501		495		848		3,403
Residential mortgage loans
Performing									50		476		637		144		45		1,309		2,661
Nonperforming									—		—		1		—		1		38		40
Total residential mortgage loans									50		476		638		144		46		1,347		2,701
Total	$	3,248	100.0	%	$	2,946	100.0	%	$	118	$	3,115	$	3,089	$	1,570	$	1,797	$	5,927	$	15,616

The loan-to-value ratio is a measure commonly used to assess the quality of commercial and agricultural mortgage loans. The loan-to-value ratio compares the amount of the loan to the estimated fair value of ~~agricultural mortgage loans was $3.3 billion~~the underlying property collateralizing the loan and ~~$2.9 billion at June 30, 2019 and December 31, 2018, respectively.~~

~~Credit Quality~~is commonly expressed as a percentage. A loan-to-value ratio less than 100% indicates an excess of ~~Residential Mortgage Loans~~

~~The credit~~collateral value over the loan amount. Loan-to-value ratios greater than 100% indicate that the loan amount exceeds the collateral value. Performing status is a measure commonly used to assess the quality of residential mortgage loans. A loan is considered performing when the borrower makes consistent and timely payments.

The amortized cost of commercial mortgage loans by debt-service coverage ratio was as follows at:

June 30, 2019 December 31, 2018
Recorded Investment
% of
Total
Recorded Investment
% of
Total
(Dollars in millions)
Performance indicators:
Performing $ 2,590
98.6 % $ 2,240
98.4 %
Nonperforming 37
1.4
36
1.6
Total $ 2,627
100.0 % $ 2,276
100.0 %



	March 31, 2020				December 31, 2019
	Amortized Cost		% of Total		Amortized Cost		% of Total
	(Dollars in millions)
Debt-Service Coverage Ratios:
Greater than 1.20x	$	9,141	96.1	%	$	9,257	95.2	%
1.00x - 1.20x	298		3.1		298		3.1
Less than 1.00x	73		0.8		166		1.7
Total	$	9,512	100.0	%	$	9,721	100.0	%

The debt-service coverage ratio compares a property’s net operating income to its debt-service payments. Debt-service coverage ratios less than 1.00 times indicate that property operations do not generate enough income to cover the loan’s current debt payments. A debt-service coverage ratio greater than 1.00 times indicates an excess of net operating income over the debt-service payments.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

~~The estimated fair value of residential mortgage loans was$2.7 billionand$2.3 billion at June 30, 2019 and December 31, 2018, respectively.~~

Past Due ~~Nonaccrual and Modified~~ Mortgage Loans by Portfolio Segment

The Company has a ~~high quality, well performing~~high-quality, well-performing mortgage loan portfolio, with over 99% of all mortgage loans classified as performing at both ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018. The Company defines delinquency~~2019. Delinquency is defined consistent with industry practice, when mortgage loans are past due as follows: commercial and residential mortgage loans — 60 days and agricultural mortgage loans — 90 days. To the extent a payment deferral is agreed to with a borrower, in response to the COVID-19 pandemic, the impacted loans will not be considered past due during the period of deferral.

The ~~Company had no commercial~~aging of the amortized cost of past due mortgage loans by portfolio segment was as follows at:



	March 31, 2020
	Commercial		Agricultural		Residential		Total
	(In millions)
Current	$	9,512	$	3,374	$	2,659	$	15,545
30-59 days past due	—		5		2		7
60-89 days past due	—		3		13		16
90-179 days past due	—		—		13		13
180+ days past due	—		21		14		35
Total	$	9,512	$	3,403	$	2,701	$	15,616

Mortgage Loans in Nonaccrual Status by Portfolio Segment

Mortgage loans are placed in a nonaccrual status if there are concerns regarding collectability of future payments or the loan is past due, orunless the past due loan is well collateralized and in the process of foreclosure. To the extent a payment deferral is agreed to with a borrower in response to the COVID-19 pandemic, the impacted loans will not be reported as in a nonaccrual status ~~at either June 30, 2019 or December 31, 2018. Agricultural mortgage~~during the period of deferral.

Mortgage loans ~~past due totaled $6 million and less than $1 million at June 30, 2019 and December 31, 2018, respectively. The Company had no~~in a nonaccrual status by portfolio segment were as follows at:



	Commercial (2)		Agricultural (2)		Residential (2)		Total (2)
	(In millions)
Amortized cost at December 31, 2019	$	—	$	21	$	37	$	58
Amortized cost at March 31, 2020 (1)	$	—	$	1	$	40	$	41

_______________


(1)	All mortgage loans in nonaccrual status had a related allowance for credit losses.


(2)	The Company had $20 million of agricultural mortgage loans that were 90 days or more past due but were not in a nonaccrual status for the three months ended March 31, 2020.

Current period investment income on mortgage loans in nonaccrual status ~~at either June 30, 2019 or December 31, 2018. Residential mortgage loans past due and in nonaccrual status totaled $37~~was less than $1 million ~~and $36 million at June 30, 2019 and December 31, 2018, respectively. During~~for the three months ended March 31, 2020.

Modified Mortgage Loans by Portfolio Segment

Under certain circumstances, modifications are granted to non-performing mortgage loans. Each modification is evaluated to determine if a TDR has occurred. A modification is a TDR when the borrower is in financial difficulty and ~~six months endedJune 30, 2019and 2018,~~ the creditor makes concessions. Generally, the types of concessions may include reducing the amount of debt owed, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest. The Company did not have a significant ~~number~~amount of mortgage loans modified in a troubled debt ~~restructuring.~~restructuring during the three months ended March 31, 2020.

Short-term modifications made on a good faith basis to borrowers who were current prior to any relief and in response to the COVID-19 pandemic are not considered TDRs. Such short-term modifications include payment deferrals, fee waivers, extension of repayment terms, or other delays in payment that are insignificant.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

Other Invested Assets

~~Freestanding~~Over 90% of other invested assets is comprised of freestanding derivatives with positive estimated fair ~~values comprise over 90% of other invested assets.~~values. See Note 5 for information about freestanding derivatives with positive estimated fair values. Other invested assets also includes tax credit and renewable energy partnerships, leveraged leases and Federal Home Loan Bank stock.

~~Cash Equivalents~~Leveraged Leases

The carrying value of ~~cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less~~leveraged leases at ~~the time of purchase, was $1.0 billion and $3.1 billion at June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019 was $51 million and $64 million, respectively, net of allowance for credit losses of $13 million and $0, respectively. Rental receivables are generally due in periodic installments. The payment periods for leveraged leases generally range from one to 15 years. For rental receivables, the primary credit quality indicator is whether the rental receivable is performing or nonperforming, which is assessed monthly. Nonperforming rental receivables are generally defined as those that are 90 days or more past due. At both March 31, 2020 and December 31, 2019, all leveraged leases were performing.

Net Unrealized Investment Gains (Losses)

Unrealized investment gains (losses) on fixed maturity securities and the effect on DAC, VOBA, deferred sales inducements (“DSI”) and future policy benefits, that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in AOCI.

The components of net unrealized investment gains (losses), included in AOCI, were as ~~follows:~~follows at:


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(In millions)						(In millions)
Fixed maturity securities	$	5,849		$	1,691		$	6,075		$	6,957
Derivatives	257			264			803			245
Other	(13		)	(13		)	(20		)	(13		)
Subtotal	6,093			1,942			6,858			7,189
Amounts allocated from:
Future policy benefits	(2,318		)	(886		)	(3,192		)	(2,692		)
DAC, VOBA and DSI	(300		)	(90		)	(254		)	(341		)
Subtotal	(2,618		)	(976		)	(3,446		)	(3,033		)
Deferred income tax benefit (expense)	(730		)	(203		)	(717		)	(873		)
Net unrealized investment gains (losses)	$	2,745		$	763		$	2,695		$	3,283

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~4. Investments (continued)~~

The changes in net unrealized investment gains (losses) were as follows:


	Six Months Ended June 30, 2019			Three Months Ended March 31, 2020
	(In millions)			(In millions)
Balance, December 31, 2018	$	763
Balance at December 31, 2019				$	3,283
Unrealized investment gains (losses) during the period	4,151			(331		)
Unrealized investment gains (losses) relating to:
Future policy benefits	(1,432		)	(500		)
DAC, VOBA and DSI	(210		)	87
Deferred income tax benefit (expense)	(527		)	156
Balance, June 30, 2019	$	2,745
Balance at March 31, 2020				$	2,695
Change in net unrealized investment gains (losses)	$	1,982		$	(588	)

Concentrations of Credit Risk

There were no investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, at both ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

Securities Lending

Elements of the securities lending program are presented below at:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(In millions)				(In millions)
Securities on loan: (1)
Amortized cost	$	2,038	$	3,056	$	1,961	$	2,031
Estimated fair value	$	2,973	$	3,628	$	3,468	$	2,996
Cash collateral received from counterparties (2)	$	3,023	$	3,646	$	3,584	$	3,074
Security collateral received from counterparties (3)	$	18	$	55
Reinvestment portfolio — estimated fair value	$	3,072	$	3,658	$	3,642	$	3,174

~~__________________~~_______________


(1)	Included within fixed maturity securities.


(2)	Included within payables for collateral under securities loaned and other transactions.


~~(3)~~	~~Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements.~~

The cash collateral liability by loaned security type and remaining tenor of the agreements were as follows at:

June 30, 2019 December 31, 2018
Remaining Tenor of Securities Lending Agreements Remaining Tenor of Securities Lending Agreements
Open (1) 1 Month or Less 1 to 6 Months Total Open (1) 1 Month or Less 1 to 6 Months Total
(In millions)
U.S. government and agency $ 1,446
$ 686
$ 891
$ 3,023
$ 1,474
$ 1,823
$ 349
$ 3,646



	March 31, 2020								December 31, 2019
	Remaining Tenor of Securities Lending Agreements								Remaining Tenor of Securities Lending Agreements
	Open (1)		1 Month or Less		1 to 6 Months		Total		Open (1)		1 Month or Less		1 to 6 Months		Total
	(In millions)
U.S. government and agency	$	1,197	$	1,511	$	876	$	3,584	$	1,279	$	1,094	$	701	$	3,074

~~__________________~~_______________


(1)	The related loaned security could be returned to the Company on the next business day which would require the Company to immediately return the cash collateral.

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~4. Investments (continued)~~

If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both. The estimated fair value of the securities on loan related to the cash collateral on open at ~~June 30, 2019~~March 31, 2020 was ~~$1.4~~$1.2 billion, all of which were U.S. government and agency securities which, if put back to the Company, could be immediately sold to satisfy the cash requirement.

The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including agency RMBS, U.S. and foreign corporate securities, ABS, non-agency RMBS and U.S. government and agency securities) with ~~55%~~62% invested in agency RMBS, cash and cash equivalents and U.S. government and agency securities at ~~June 30, 2019.~~March 31, 2020. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

Invested Assets on Deposit, Held in Trust and Pledged as Collateral

Invested assets on deposit, held in trust and pledged as collateral ~~are presented below~~ at estimated fair value were as follows at:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(In millions)				(In millions)
Invested assets on deposit (regulatory deposits) (1)	$	8,991	$	8,176	$	9,390	$	9,349
Invested assets held in trust (reinsurance agreements) (2)	4,087		3,455		5,052		4,561
Invested assets pledged as collateral (3)	3,336		3,341		3,279		3,641
Total invested assets on deposit, held in trust and pledged as collateral	$	16,414	$	14,972	$	17,721	$	17,551

~~__________________~~_______________


(1)	The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which ~~$171~~$70 million and ~~$55~~$69 million of the assets on deposit ~~balance~~ represents restricted cash and cash equivalents at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.


(2)	The Company has assets, primarily fixed maturity securities, held in trust relating to certain reinsurance ~~transactions. $52~~transactions, of which $77 million and ~~$87~~$124 million of the assets held in trust balance represents restricted cash and cash equivalents at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.


(3)	The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 3 of the Notes to the Consolidated ~~and Combined~~ Financial Statements included in the ~~2018~~2019 Annual Report) and derivative transactions (see Note 5).

See “— Securities Lending” for information regarding securities on loan.

Variable Interest Entities

The Company has invested in legal entities that are variable interest entities (“VIEs”). VIEs are consolidated when the investor is the primary beneficiary. A primary beneficiary is the variable interest holder in a VIE with both the power to (i) direct the activities of the VIE that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

There were no material VIEs for which the Company has concluded that it is the primary beneficiary at ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

The carrying amount and maximum exposure to loss related to the VIEs for which the Company has concluded that it holds a variable interest, but is not the primary beneficiary, were as follows at:



	March 31, 2020				December 31, 2019
	Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
	(In millions)
Fixed maturity securities	$	12,696	$	12,254	$	13,094	$	12,454
Limited partnerships and LLCs	2,021		3,251		1,907		3,080
Total	$	14,717	$	15,505	$	15,001	$	15,534

The Company’s investments in unconsolidated VIEs are described below.

2021

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

Fixed Maturity Securities

The Company invests in U.S. corporate bonds, foreign corporate bonds, and Structured Securities issued by VIEs. The Company is not obligated to provide any financial or other support to these VIEs, other than the original investment. The Company’s involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer, or investment manager, which are generally viewed as having the power to direct the activities that most significantly impact the economic performance of the VIE, nor does the Company function in any of these roles. The Company does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity; as a result, the Company has determined it is not the primary beneficiary, or consolidator, of the VIE. The Company’s maximum exposure to loss on these fixed maturity securities is limited to the amortized cost of these investments. See “— Fixed Maturity Securities ~~AFS”~~Available-for-sale” for information on these securities.

Limited Partnerships and LLCs

The Company holds investments in certain limited partnerships and LLCs which are VIEs. These ventures include ~~real estate~~ limited ~~partnerships/~~partnerships, LLCs, private equity funds, hedge funds, and to a lesser extent tax credit and renewable energy partnerships. The Company is not considered the primary beneficiary, or consolidator, when its involvement takes the form of a limited partner interest and is restricted to a role of a passive investor, as a limited partner’s interest does not provide the Company with any substantive kick-out or participating rights, nor does it provide the Company with the power to direct the activities of the fund. The Company’s maximum exposure to loss on these investments is limited to: (i) the amount invested in debt or equity of the VIE and (ii) commitments to the VIE, as described in Note ~~11.~~

~~The carrying amount and maximum exposure to loss related to the VIEs in which the Company concluded that it holds a variable interest, but is not the primary beneficiary, were as follows at:~~

June 30, 2019 December 31, 2018
Carrying
Amount
Maximum
Exposure
to Loss
Carrying
Amount Maximum
Exposure
to Loss
(In millions)
Fixed maturity securities $ 13,477
$ 12,865
$ 13,099
$ 13,099
Limited partnerships and LLCs 1,774
3,003
1,756
3,145
Total $ 15,251
$ 15,868
$ 14,855
$ 16,244

10.

Net Investment Income

The components of net investment income were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	(In millions)								(In millions)
Investment income:
Fixed maturity securities	$	679	$	638	$	1,332	$	1,266	$	669	$	653
Equity securities	1		2		4		4		2		3
Mortgage loans	176		128		335		246		166		159
Policy loans	17		34		33		50		12		16
Real estate limited partnerships and limited liability companies	12		10		20		24
Other limited partnership interests	76		25		76		90
Limited partnerships and LLCs (1)									82		8
Cash, cash equivalents and short-term investments	23		7		37		13		23		14
Other	6		11		19		22		14		13
Subtotal	990		855		1,856		1,715
Total investment income									968		866
Less: Investment expenses	48		49		103		92		52		55
Net investment income	$	942	$	806	$	1,753	$	1,623	$	916	$	811

_______________


(1)	Includes net investment income pertaining to other limited partnership interests of $73 million and $0 for the three months ended March 31, 2020 and 2019, respectively.

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

4. Investments (continued)

Net Investment Gains (Losses)

Components of Net Investment Gains (Losses)

The components of net investment gains (losses) were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(In millions)												(In millions)
Fixed maturity securities	$	68		$	(65	)	$	53		$	(104	)	$	(6	)	$	(15	)
Equity securities	1			(3		)	11			(4		)	(14		)	10
Mortgage loans	(3		)	(3		)	(7		)	(7		)	(4		)	(4		)
Real estate limited partnerships and limited liability companies	1			—			—			42
Other limited partnership interests	(3		)	—			(5		)	—
Limited partnerships and LLCs													(1		)	(3		)
Other	(1		)	(4		)	—			(6		)	6			1
Total net investment gains (losses)	$	63		$	(75	)	$	52		$	(79	)	$	(19	)	$	(11	)

Sales or Disposals of Fixed Maturity Securities

Investment gains and losses on sales of securities are determined on a specific identification basis. Proceeds from sales or disposals of fixed maturity securities and the components of fixed maturity securities net investment gains (losses) were as ~~shown in the table below.~~follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(In millions)												(In millions)
Proceeds	$	3,679		$	2,476		$	6,958		$	5,337		$	649		$	3,279
Gross investment gains	$	106		$	9		$	173		$	12		$	17		$	67
Gross investment losses	(38		)	(74		)	(120		)	(116		)	(6		)	(82		)
Net investment gains (losses)	$	68		$	(65	)	$	53		$	(104	)	$	11		$	(15	)

5. Derivatives

Accounting for Derivatives

~~Freestanding Derivatives~~

Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.

~~If a derivative is not designated or did not qualify as an accounting hedge, changes in the estimated fair value~~See Note 1 of the ~~derivative are reported in net derivative gains (losses) except for economic hedges of limited partnerships and LLCs which are presented in net investment income.~~

The Company generally reports cash received or paid for a derivative in the investing activity section of the statement of cash flows except for cash flows of certain derivative options with deferred premiums, which are reported in the financing activity section of the statement of cash flows.

~~Hedge Accounting~~

The Company primarily designates derivatives as a hedge of a forecasted transaction or a variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). When a derivative is designated as a cash flow hedge and is determined to be highly effective, changes in fair value are recorded in OCI and subsequently reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

Notes to the ~~Interim Condensed~~ Consolidated Financial Statements ~~(Unaudited) (continued)~~

~~5. Derivatives (continued)~~

~~To qualify~~included in the 2019 Annual Report for ~~hedge accounting, at the inception~~a description of the ~~hedging relationship,~~Company’s accounting policies for derivatives andNote 8for information about the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge. In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship.

~~The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated~~ fair value or cash flows of a hedged item; (ii) the derivative or hedged item expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.

When hedge accounting is discontinued the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses). The changes in estimated fair value of derivatives previously recorded in OCI related to discontinued cash flow hedges are released into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item. When the hedged item matures or is sold, or the forecasted transaction is not probable of occurring, the Company immediately reclassifies any remaining balances in OCI to net derivative gains (losses).hierarchy for derivatives.

~~Embedded Derivatives~~

The Company has certain insurance and reinsurance contracts that contain embedded derivatives which are required to be separated from their host contracts and reported as derivatives. These host contracts include: variable annuities with guaranteed minimum benefits, including GMWBs, GMABs and certain GMIBs; index-linked annuities that are directly written or assumed through reinsurance; and ceded reinsurance of variable annuity GMIBs. Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances on the consolidated balance sheets. Changes in the estimated fair value of the embedded derivative are reported in net derivative gains (losses).

Derivative Strategies

Types of Derivative Instruments and Derivative Strategies

The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize its exposure to various market ~~risks, including interest~~risks. Commonly used derivative instruments include, but are not necessarily limited to:

Interest rate ~~foreign~~derivatives: swaps, caps, swaptions and forwards;

Foreign currency exchange rate derivatives: forwards and swaps;

Equity derivatives: options, total return swaps and variance swaps; and

Credit derivatives: single and index reference credit default swaps.

For detailed information on these contracts and ~~equity market.~~

Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contractedthe related strategies, see Note 7 of the Notes to the Consolidated Financial Statements included in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”).

~~Interest Rate Derivatives~~

Interest rate swaps: The Company primarily uses interest rate swaps to hedge interest rate exposure in variable annuity products and minimum guarantees embedded in universal life products. Interest rate swaps are used in nonqualifying hedging relationships.

Interest rate caps: The Company uses interest rate caps to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities. Interest rate caps are used in nonqualifying hedging relationships.

Interest rate futures: The Company uses exchange-traded interest rate futures contracts to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. Exchange-traded interest rate futures are used in nonqualifying hedging relationships.

Swaptions: The Company uses swaptions to hedge interest rate risk associated with the Company’s variable annuity and universal life products. Swaptions are used in nonqualifying hedging relationships. Swaptions are included in interest rate options.

~~Interest rate forwards: The Company uses interest rate forwards to hedge minimum guarantees embedded in universal life products. Interest rate forwards are used in nonqualifying hedging relationships.~~2019 Annual Report.

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~5. Derivatives (continued)~~

~~Foreign Currency Exchange Rate Derivatives~~

Foreign currency swaps: The Company uses foreign currency swaps to convert foreign currency denominated cash flows to U.S. dollars to reduce cash flow fluctuations due to changes in currency exchange rates. Foreign currency swaps are used in cash flow and nonqualifying hedging relationships.

~~Foreign currency forwards: The Company uses foreign currency forwards to hedge currency exposure on its invested assets. Foreign currency forwards are used in nonqualifying hedging relationships.~~

~~Credit Derivatives~~

Credit default swaps: The Company uses credit default swaps to create synthetic credit investments to replicate credit exposure that is more economically attractive than what is available in the market or otherwise unavailable (written credit protection), or to reduce credit loss exposure on certain assets that the Company owns (purchased credit protection). Credit default swaps are used in nonqualifying hedging relationships.

~~Equity Derivatives~~

Equity futures: The Company uses exchange-traded equity futures to hedge minimum guarantees embedded in certain variable annuity products against adverse changes in equity markets. Exchange-traded equity futures are used in nonqualifying hedging relationships.

Equity index options: The Company uses equity index options primarily to hedge minimum guarantees embedded in certain variable annuity products against adverse changes in equity markets. Additionally, the Company uses equity index options to hedge index-linked annuity products against adverse changes in equity markets. Equity index options are used in nonqualifying hedging relationships.

Equity total return swaps: The Company uses equity total return swaps to hedge minimum guarantees embedded in certain variable annuity products against adverse changes equity markets. Equity total return swaps are used in nonqualifying hedging relationships.

Equity variance swaps: The Company uses equity variance swaps to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. Equity variance swaps are used in nonqualifying hedging relationships.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

5. Derivatives (continued)

Primary Risks Managed by Derivatives

The ~~following table presents the~~ primary underlying risk exposure, gross notional amount and estimated fair value of ~~the Company’s~~ derivatives held were as follows at:


		June 30, 2019						December 31, 2018							March 31, 2020							December 31, 2019
	Primary Underlying Risk Exposure	Gross Notional Amount		Estimated Fair Value				Gross Notional Amount		Estimated Fair Value				Primary Underlying Risk Exposure	Gross Notional Amount		Estimated Fair Value					Gross Notional Amount		Estimated Fair Value
				Assets		Liabilities				Assets		Liabilities					Assets		Liabilities					Assets		Liabilities
		(In millions)													(In millions)
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:													Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate forwards														Interest rate	$	390	$	114	$	—		$	420	$	22	$	—
Foreign currency swaps	Foreign currency exchange rate	$	2,698	$	233	$	38	$	2,524	$	211	$	30	Foreign currency exchange rate	2,825		632		2			2,765		190		27
Total qualifying hedges		2,698		233		38		2,524		211		30			3,215		746		2			3,185		212		27
Derivatives Not Designated or Not Qualifying as Hedging Instruments:	Derivatives Not Designated or Not Qualifying as Hedging Instruments:													Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate swaps	Interest rate	7,960		873		37		10,747		528		558		Interest rate	3,060		739		7			7,559		878		29
Interest rate caps	Interest rate	3,350		4		—		3,350		21		—		Interest rate	3,350		1		—			3,350		2		—
Interest rate futures	Interest rate	—		—		—		54		—		—
Interest rate options	Interest rate	25,445		753		111		17,168		168		61		Interest rate	27,650		3,657		833			29,750		782		187
Interest rate forwards	Interest rate	2,237		16		—		—		—		—		Interest rate	6,656		1,439		—			5,418		94		114
Foreign currency swaps	Foreign currency exchange rate	1,108		114		16		1,409		101		18		Foreign currency exchange rate	1,038		218		13			1,051		96		15
Foreign currency forwards	Foreign currency exchange rate	138		—		—		125		—		—		Foreign currency exchange rate	142		—		1			138		—		1
Credit default swaps — purchased	Credit	12		—		—		98		3		—		Credit	18		—		—			18		—		—
Credit default swaps — written	Credit	1,905		33		—		1,820		14		3		Credit	1,898		7		13			1,635		36		—
Equity futures	Equity market	—		—		—		169		—		—
Equity index options	Equity market	43,450		731		1,627		45,815		1,372		1,207		Equity market	51,247		1,243		1,655			51,509		850		1,728
Equity variance swaps	Equity market	5,574		95		247		5,574		80		232		Equity market	1,098		11		30			2,136		69		69
Equity total return swaps	Equity market	5,061		4		92		3,920		280		3		Equity market	8,516		1,423		89			7,723		2		367
Total non-designated or nonqualifying derivatives		96,240		2,623		2,130		90,249		2,567		2,082
Total non-designated or non-qualifying derivatives															104,673		8,738		2,641			110,287		2,809		2,510
Embedded derivatives:
Ceded guaranteed minimum income benefits	Other	N/A		253		—		N/A		228		—		Other	N/A		316		—			N/A		217		—
Direct index-linked annuities														Other	N/A		—		(116		)	N/A		—		2,253
Direct guaranteed minimum benefits	Other	N/A		—		1,670		N/A		—		1,642		Other	N/A		—		4,415			N/A		—		1,656
Direct index-linked annuities	Other	N/A		—		1,516		N/A		—		488
Assumed index-linked annuities	Other	N/A		—		188		N/A		—		96		Other	N/A		—		280			N/A		—		339
Total embedded derivatives		N/A		253		3,374		N/A		228		2,226			N/A		316		4,579			N/A		217		4,248
Total		$	98,938	$	3,109	$	5,542	$	92,773	$	3,006	$	4,338		$	107,888	$	9,800	$	7,222		$	113,472	$	3,238	$	6,785

Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and generally do not qualify for hedge accounting because they do not meet the criteria required under portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities and generally do not qualify for hedge accounting because they do not meet the criteria of being “highly effective” as outlined in ASC 815; (iii) derivatives that economically hedge embedded derivatives that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivatives are already recorded in net income; and (iv) written credit default swaps that are used to create synthetic credit investments and that do not qualify for hedge accounting because they do not involve a hedging relationship.

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

5. Derivatives (continued)

The ~~following tables present the~~ amount and location of gains (losses), including earned income, recognized for derivatives and gains (losses) pertaining to hedged items presented in net derivative gains (losses): were as follows:

Net Derivative Gains (Losses) Recognized for Derivatives Net Derivative Gains (Losses) Recognized for Hedged Items Net Investment Income Policyholder Benefits and Claims Amount of Gains (Losses) deferred in AOCI
(In millions)
Three Months Ended June 30, 2019
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives $ 6
$ —
$ —
$ —
$ —
Foreign currency exchange rate derivatives 16
(23 ) 9
—
75
Total cash flow hedges 22
(23 ) 9
—
75
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives 917
—
—
—
—
Foreign currency exchange rate derivatives 30
(3 ) —
—
—
Credit derivatives 12
—
—
—
—
Equity derivatives (344 ) —
—
—
—
Embedded derivatives (462 ) —
—
—
—
Total non-qualifying hedges 153
(3 ) —
—
—
Total $ 175
$ (26 ) $ 9
$ —
$ 75
Three Months Ended June 30, 2018
Derivatives Designated as Hedging Instruments:
Fair value hedges:
Interest rate derivatives $ (2 ) $ 3
$ —
$ —
$ —
Total fair value hedges (2 ) 3
—
—
—
Cash flow hedges:
Interest rate derivatives 9
—
2
—
—
Foreign currency exchange rate derivatives (1 ) —
7
—
111
Total cash flow hedges 8
—
9
—
111
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (151 ) —
—
—
—
Foreign currency exchange rate derivatives 60
(3 ) —
—
—
Credit derivatives —
—
—
—
—
Equity derivatives (423 ) —
—
—
—
Embedded derivatives 196
—
—
(1 ) —
Total non-qualifying hedges (318 ) (3 ) —
(1 ) —
Total $ (312 ) $ —
$ 9
$ (1 ) $ 111

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~5. Derivatives (continued)~~

Net Derivative Gains (Losses) Recognized for Derivatives Net Derivative Gains (Losses) Recognized for Hedged Items Net Investment Income Policyholder Benefits and Claims Amount of Gains (Losses) deferred in AOCI
(In millions)
Six Months Ended June 30, 2019
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives $ 28
$ —
$ 1
$ —
$ —
Foreign currency exchange rate derivatives 19
(23 ) 17
—
41
Total cash flow hedges 47
(23 ) 18
—
41
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives 1,249
—
—
—
—
Foreign currency exchange rate derivatives 22
(3 ) —
—
—
Credit derivatives 30
—
—
—
—
Equity derivatives (1,790 ) —
—
—
—
Embedded derivatives (686 ) —
—
—
—
Total non-qualifying hedges (1,175 ) (3 ) —
—
—
Total $ (1,128 ) $ (26 ) $ 18
$ —
$ 41
Six Months Ended June 30, 2018
Derivatives Designated as Hedging Instruments:
Fair value hedges:
Interest rate derivatives $ (10 ) $ 10
$ —
$ —
$ —
Total fair value hedges (10 ) 10
—
—
—
Cash flow hedges:
Interest rate derivatives 16
—
4
—
(2 )
Foreign currency exchange rate derivatives (1 ) —
11
—
37
Total cash flow hedges 15
—
15
—
35
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (924 ) —
—
—
—
Foreign currency exchange rate derivatives 23
(1 ) —
—
—
Credit derivatives (4 ) —
—
—
—
Equity derivatives (457 ) —
—
—
—
Embedded derivatives 702
—
—
(2 ) —
Total non-qualifying hedges (660 ) (1 ) —
(2 ) —
Total $ (655 ) $ 9
$ 15
$ (2 ) $ 35



	Net Derivative Gains (Losses) Recognized for Derivatives			Net Derivative Gains (Losses) Recognized for Hedged Items			Net Investment Income		Policyholder Benefits and Claims		Amount of Gains (Losses) deferred in AOCI
	(In millions)
Three Months Ended March 31, 2020
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives	$	1		$	—		$	1	$	—	$	97
Foreign currency exchange rate derivatives	—			—			11		—		463
Total cash flow hedges	1			—			12		—		560
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	4,921			—			—		—		—
Foreign currency exchange rate derivatives	134			(7		)	—		—		—
Credit derivatives	(32		)	—			—		—		—
Equity derivatives	1,964			—			—		—		—
Embedded derivatives	(79		)	—			—		—		—
Total non-qualifying hedges	6,908			(7		)	—		—		—
Total	$	6,909		$	(7	)	$	12	$	—	$	560
Three Months Ended March 31, 2019
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives	$	22		$	—		$	1	$	—	$	—
Foreign currency exchange rate derivatives	3			—			8		—		(34		)
Total cash flow hedges	25			—			9		—		(34		)
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	332			—			—		—		—
Foreign currency exchange rate derivatives	(8		)	—			—		—		—
Credit derivatives	18			—			—		—		—
Equity derivatives	(1,446		)	—			—		—		—
Embedded derivatives	(224		)	—			—		—		—
Total non-qualifying hedges	(1,328		)	—			—		—		—
Total	$	(1,303	)	$	—		$	9	$	—	$	(34	)

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the balance in AOCI associated with cash flow hedges was ~~$257~~$803 million and ~~$264~~$245 million, respectively.

Credit Derivatives

In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation.

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

5. Derivatives (continued)

The ~~following table presents the~~ estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps were as follows at:


	June 30, 2019					December 31, 2018					March 31, 2020						December 31, 2019
Rating Agency Designation of Referenced Credit Obligations (1)	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps		Weighted Average Years to Maturity (2)	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps		Weighted Average Years to Maturity (2)	Estimated Fair Value of Credit Default Swaps			Maximum Amount of Future Payments under Credit Default Swaps		Weighted Average Years to Maturity (2)	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps		Weighted Average Years to Maturity (2)
	(Dollars in millions)										(Dollars in millions)
Aaa/Aa/A	$	11	$	828	2.0	$	8	$	689	2.0	$	3		$	680	2.5	$	11	$	615	2.5
Baa	22		1,077		4.9	3		1,131		5.0	(9		)	1,218		5.4	25		1,020		5.1
Total	$	33	$	1,905	3.7	$	11	$	1,820	3.9	$	(6	)	$	1,898	4.4	$	36	$	1,635	4.1

~~__________________~~_______________


(1)	The Company has written credit protection on both single name and index references. The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s, ~~Investors Service, Standard & Poor’s Global Ratings~~S&P and ~~Fitch Ratings.~~Fitch. If no rating is available from a rating agency, then an internally developed rating is used.


(2)	The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts.

Counterparty Credit Risk

The Company may be exposed to credit-related losses in the event of counterparty nonperformance on derivative instruments. Generally, the credit exposure is the fair value at the reporting date less any collateral received from the counterparty.

The Company manages its credit risk by: (i) entering into derivative transactions with creditworthy counterparties governed by master netting agreements; (ii) trading through regulated exchanges and central clearing counterparties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single party credit exposures which are subject to periodic management review.

See Note 6 for a description of the impact of credit risk on the valuation of derivatives.

The estimated fair values of ~~the Company’s~~ net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:


			Gross Amounts Not Offset on the Consolidated Balance Sheets															Gross Amounts Not Offset on the Consolidated Balance Sheets
	Gross Amount Recognized		Financial Instruments (1)			Collateral Received/Pledged (2)			Net Amount		Off-balance Sheet Securities Collateral (3)			Net Amount After Securities Collateral		Gross Amount Recognized		Financial Instruments (1)			Collateral Received/Pledged (2)			Net Amount		Securities Collateral Received/Pledged (3)			Net Amount After Securities Collateral
	(In millions)															(In millions)
June 30, 2019
March 31, 2020
Derivative assets	$	2,894	$	(1,314	)	$	(997	)	$	583	$	(574	)	$	9	$	9,532	$	(2,101	)	$	(6,878	)	$	553	$	(542	)	$	11
Derivative liabilities	$	2,155	$	(1,314	)	$	—		$	841	$	(841	)	$	—	$	2,639	$	(2,101	)	$	(5	)	$	533	$	(531	)	$	2
December 31, 2018
December 31, 2019
Derivative assets	$	2,833	$	(1,671	)	$	(1,062	)	$	100	$	(86	)	$	14	$	3,062	$	(1,458	)	$	(1,115	)	$	489	$	(488	)	$	1
Derivative liabilities	$	2,104	$	(1,671	)	$	—		$	433	$	(433	)	$	—	$	2,522	$	(1,458	)	$	—		$	1,064	$	(1,061	)	$	3

~~__________________~~_______________


(1)	Represents amounts subject to an enforceable master netting agreement or similar agreement.


(2)	The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreement.

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

5. Derivatives (continued)


(3)	Securities collateral received by the Company is not recorded on the balance sheet. Amounts do not include excess of collateral pledged or received.

The Company’s collateral arrangements generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the amount owed by that counterparty reaches a minimum transfer amount. Certain of these arrangements also include ~~credit contingent~~credit-contingent provisions which permit the party with positive fair value to terminate the derivative at the current fair value or demand immediate full collateralization from the party in a net liability position, in the event that the financial strength or credit rating of the party in a net liability position falls below a certain level.

The ~~following table presents the~~ aggregate estimated fair ~~value~~values of derivatives in a net liability position containing such ~~credit contingent~~credit-contingent provisions and the aggregate estimated fair value of assets posted as collateral for such ~~instruments.~~instruments were as follows at:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(In millions)				(In millions)
Estimated fair value of derivatives in a net liability position (1)	$	841	$	433	$	538	$	1,064
Estimated Fair Value of Collateral Provided (2):
Fixed maturity securities	$	1,126	$	797	$	1,079	$	1,473

~~__________________~~_______________


(1)	After taking into consideration the existence of netting agreements.

(2)

Substantially all of the Company’s collateral arrangements provide for daily posting of collateral for the full value of the derivative contract. As a result, if the ~~credit contingent~~credit-contingent provisions of derivative contracts in a net liability position were triggered, minimal additional assets would be required to be posted as collateral or needed to settle the instruments immediately.

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value

Considerable judgment is often required in interpreting market data to develop estimates of fair value, and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

Recurring Fair Value Measurements

The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy, are presented in the tables below. Investments that do not have a readily determinable fair value and are measured at net asset value (or equivalent) as a practical expedient to estimated fair value are excluded from the fair value hierarchy.


	June 30, 2019								March 31, 2020
	Fair Value Hierarchy								Fair Value Hierarchy
	Level 1		Level 2		Level 3		Total Estimated Fair Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)								(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	—	$	27,907	$	375	$	28,282	$	—	$	30,028	$	642	$	30,670
Foreign corporate									—		9,035		209		9,244
RMBS									—		8,817		83		8,900
U.S. government and agency	1,566		5,703		—		7,269		1,895		7,031		—		8,926
RMBS	—		9,357		54		9,411
Foreign corporate	—		9,195		390		9,585
CMBS	—		5,298		14		5,312		—		5,726		19		5,745
State and political subdivision	—		3,772		74		3,846		—		4,070		73		4,143
ABS	—		1,807		40		1,847		—		1,911		116		2,027
Foreign government	—		1,659		—		1,659		—		1,640		7		1,647
Total fixed maturity securities	1,566		64,698		947		67,211		1,895		68,258		1,149		71,302
Equity securities	16		133		4		153		11		107		4		122
Short-term investments	521		266		6		793		2,581		1,765		2		4,348
Derivative assets: (1)
Interest rate	—		1,646		—		1,646		—		5,950		—		5,950
Foreign currency exchange rate	—		336		11		347		—		810		40		850
Credit	—		23		10		33		—		—		7		7
Equity market	—		731		99		830		—		2,633		44		2,677
Total derivative assets	—		2,736		120		2,856		—		9,393		91		9,484
Embedded derivatives within asset host contracts (2)	—		—		253		253		—		—		316		316
Separate account assets	322		105,892		—		106,214		198		88,806		4		89,008
Total assets	$	2,425	$	173,725	$	1,330	$	177,480	$	4,685	$	168,329	$	1,566	$	174,580
Liabilities
Derivative liabilities: (1)
Interest rate	$	—	$	148	$	—	$	148	$	—	$	840	$	—	$	840
Foreign currency exchange rate	—		50		4		54		—		16		—		16
Credit									—		9		4		13
Equity market	—		1,716		250		1,966		—		1,737		37		1,774
Total derivative liabilities	—		1,914		254		2,168		—		2,602		41		2,643
Embedded derivatives within liability host contracts (2)	—		—		3,374		3,374		—		—		4,579		4,579
Total liabilities	$	—	$	1,914	$	3,628	$	5,542	$	—	$	2,602	$	4,620	$	7,222

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value (continued)


	December 31, 2018								December 31, 2019
	Fair Value Hierarchy								Fair Value Hierarchy
	Level 1		Level 2		Level 3		Total Estimated Fair Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)								(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	—	$	24,150	$	323	$	24,473	$	—	$	30,831	$	329	$	31,160
Foreign corporate									—		9,712		132		9,844
RMBS									—		9,074		44		9,118
U.S. government and agency	2,722		6,373		—		9,095		1,636		5,760		—		7,396
RMBS	—		8,541		6		8,547
Foreign corporate	—		7,617		409		8,026
CMBS	—		5,120		128		5,248		—		5,755		—		5,755
State and political subdivision	—		3,523		74		3,597		—		3,984		73		4,057
ABS	—		2,087		39		2,126		—		1,882		73		1,955
Foreign government	—		1,496		—		1,496		—		1,751		—		1,751
Total fixed maturity securities	2,722		58,907		979		62,608		1,636		68,749		651		71,036
Equity securities	13		124		3		140		14		125		8		147
Short-term investments									1,271		682		5		1,958
Derivative assets: (1)
Interest rate	—		717		—		717		—		1,778		—		1,778
Foreign currency exchange rate	—		301		11		312		—		281		5		286
Credit	—		10		7		17		—		25		11		36
Equity market	—		1,634		98		1,732		—		850		71		921
Total derivative assets	—		2,662		116		2,778		—		2,934		87		3,021
Embedded derivatives within asset host contracts (2)	—		—		228		228		—		—		217		217
Separate account assets	217		98,038		1		98,256		180		106,924		3		107,107
Total assets	$	2,952	$	159,731	$	1,327	$	164,010	$	3,101	$	179,414	$	971	$	183,486
Liabilities
Derivative liabilities: (1)
Interest rate	$	—	$	619	$	—	$	619	$	—	$	330	$	—	$	330
Foreign currency exchange rate	—		48		—		48		—		43		—		43
Credit	—		2		1		3
Equity market	—		1,205		237		1,442		—		2,093		71		2,164
Total derivative liabilities	—		1,874		238		2,112		—		2,466		71		2,537
Embedded derivatives within liability host contracts (2)	—		—		2,226		2,226		—		—		4,248		4,248
Total liabilities	$	—	$	1,874	$	2,464	$	4,338	$	—	$	2,466	$	4,319	$	6,785

~~__________________~~_______________

(1)

Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the consolidated balance ~~sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables.~~sheets.


(2)	Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables and other invested assets on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances on the consolidated balance sheets.

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value (continued)

Valuation Controls and Procedures

The Company monitors and provides oversight of valuation controls and policies for securities, mortgage loans and derivatives, which are primarily executed by its valuation service providers. The valuation methodologies used to determine fair values prioritize the use of observable market prices and market-based parameters and determines that judgmental valuation adjustments, when applied, are based upon established policies and are applied consistently over time. The valuation methodologies for securities, mortgage loans and derivatives are reviewed on an ongoing basis and revised when necessary. In addition, the Chief Accounting Officer periodically reports to the Audit Committee of Brighthouse Financial’s Board of Directors regarding compliance with fair value accounting standards.

The fair value of financial assets and financial liabilities is based on quoted market prices, where available. ~~The Company assesses whether prices~~Prices received are assessed to determine if they represent a reasonable estimate of fair ~~value through~~value. Several controls ~~designed to ensure valuations represent an exit price. Valuation service providers perform several controls,~~are performed, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing whether these inputs can be corroborated by observable market data. Independent non-binding broker quotes, also referred to herein as “consensus pricing,” are used for a non-significant portion of the portfolio. Prices received from independent brokers are assessed to determine if they represent a reasonable estimate of fair value by considering such pricing relative to the current market dynamics and current pricing for similar financial instruments.

~~Valuation service providers~~A formal process is also ~~apply a formal process~~applied to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations are obtained. If obtaining an independent non-binding broker quotation is unsuccessful, ~~valuation service providers will use~~ the last available ~~price.~~price will be used.

~~The Company reviews outputs of the valuation service providers’~~Additional controls ~~and performs additional controls, including certain monthly controls, which include but~~ are ~~not limited to, performing~~performed, such as, balance sheet analytics to assess reasonableness of period to period pricing changes, including any price adjustments. Price adjustments are applied if prices or quotes received from independent pricing services or brokers are not considered reflective of market activity or representative of estimated fair value. The Company did not have significant price adjustments during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

Determination of Fair Value

Fixed Maturity Securities

The fair values for actively traded marketable bonds, primarily U.S. government and agency securities, are determined using the quoted market prices and are classified as Level 1 assets. For fixed maturity securities classified as Level 2 assets, fair values are determined using either a market or income approach and are valued based on a variety of observable inputs as described below.

U.S. corporate and foreign corporate securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, benchmark yields, spreads off benchmark yields, new issuances, issuer rating, trades of identical or comparable securities, or duration. Privately-placed securities are valued using the additional key inputs: market yield curve, call provisions, observable prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer, and delta spread adjustments to reflect specific credit-related issues.

U.S. government and agency, state and political subdivision and foreign government securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, benchmark U.S. Treasury yield or other yields, spread off the U.S. Treasury yield curve for the identical security, issuer ratings and issuer spreads, ~~broker dealer~~broker-dealer quotes, and comparable securities that are actively traded.

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value (continued)

Structured Securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, ratings, geographic region, weighted average coupon and weighted average maturity, average delinquency rates and ~~debt service~~debt-service coverage ratios. Other issuance-specific information is also used, including, but not limited to; collateral type, structure of the security, vintage of the loans, payment terms of the underlying asset, payment priority within tranche, and deal performance.

Equity Securities and Short-term Investments

The fair value for actively traded equity securities and short-term investments are determined using quoted market prices and are classified as Level 1 assets. For financial instruments classified as Level 2 assets or liabilities, fair values are determined using a market approach and are valued based on a variety of observable inputs as described below.

Equity securities and short-term investments: Fair value is determined using third-party commercial pricing services, with the primary input being quoted prices in markets that are not active.

Derivatives

Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”).

The fair values for exchange-traded derivatives are determined using the quoted market prices and are classified as Level 1 assets. For OTC-bilateral derivatives and OTC-cleared derivatives classified as Level 2 assets or liabilities, fair values are determined using the income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models which are based on market standard valuation methodologies and a variety of observable inputs.

The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Certain OTC-bilateral and OTC-cleared derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and management believes they are consistent with what other market participants would use when pricing such instruments.

Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.

The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.

Embedded Derivatives

Embedded derivatives principally include certain direct and ceded variable annuity guarantees and equity crediting rates within index-linked annuity contracts. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value (continued)

The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs contain embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~6. Fair Value (continued)~~

The Company determines the fair value of these embedded derivatives by estimating the present value of projected future benefits minus the present value of projected future fees using actuarial and capital market assumptions including expectations of policyholder behavior. The calculation is based on in-force business and is performed using standard actuarial valuation software which projects future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates. The percentage of fees included in the initial fair value measurement is not updated in subsequent periods.

Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for ~~publicly traded~~publicly-traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience.

The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for BHF’s debt. These observable spreads are then adjusted to reflect the priority of these liabilities and ~~claims paying~~claims-paying ability of the issuing insurance subsidiaries as compared to BHF’s overall financial strength.

Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. 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.

The Company issues and assumes through reinsurance index-linked annuities which allow the policyholder to participate in returns from equity indices. The crediting rates associated with these features are embedded derivatives which are measured at estimated fair value separately from the host fixed annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.

The estimated fair value of crediting rates associated with index-linked annuities is determined using a combination of an option pricing model and an option-budget approach. The valuation of these embedded derivatives also includes the establishment of a risk margin, as well as changes in nonperformance risk.

Transfers Into or Out of Level 3:

Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.

3432

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value (continued)

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

~~The following table presents certain~~Certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were as follows at:


					June 30, 2019		December 31, 2018		Impact of Increase in Input on Estimated Fair Value					March 31, 2020			December 31, 2019			Impact of Increase in Input on Estimated Fair Value
	Valuation Techniques		Significant Unobservable Inputs		Range		Range		Impact of Increase in Input on Estimated Fair Value	Valuation Techniques		Significant Unobservable Inputs		Range			Range			Impact of Increase in Input on Estimated Fair Value
Embedded derivatives	Embedded derivatives									Embedded derivatives
Direct, assumed and ceded guaranteed minimum benefits	•	Option pricing techniques	•	Mortality rates	0.02%	11.31%	0.02%	11.31%	Decrease (1)	•	Option pricing techniques	•	Mortality rates	0.02%	-	11.31%	0.02%	-	11.31%	Decrease (1)
			•	Lapse rates	0.25%	16.00%	0.25%	16.00%	Decrease (2)			•	Lapse rates	0.25%	-	16.00%	0.25%	-	16.00%	Decrease (2)
			•	Utilization rates	0.00%	25.00%	0.00%	25.00%	Increase (3)			•	Utilization rates	0.00%	-	25.00%	0.00%	-	25.00%	Increase (3)
			•	Withdrawal rates	0.25%	10.00%	0.25%	10.00%	(4)			•	Withdrawal rates	0.25%	-	10.00%	0.25%	-	10.00%	(4)
			•	Long-term equity volatilities	16.50%	22.00%	16.50%	22.00%	Increase (5)			•	Long-term equity volatilities	16.24%	-	21.65%	16.24%	-	21.65%	Increase (5)
			•	Nonperformance risk spread	0.94%	2.43%	1.91%	2.66%	Decrease (6)			•	Nonperformance risk spread	3.19%	-	3.43%	0.54%	-	1.99%	Decrease (6)

~~___________________~~_______________


(1)	Mortality rates vary by age and by demographic characteristics such as gender. ~~Range~~The range shown reflects the mortality rate for policyholders between 35 and 90 years old, which represents the majority of the business with living benefits. Mortality rate assumptions are set based on company experience and include an assumption for mortality improvement.

(2)

~~Range~~The range shown reflects base lapse rates for major product categories for duration 1-20, which represents majority of business with living benefit riders. Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in-the-money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies.

(3)

The utilization rate assumption estimates the percentage of contract holders with a GMIB or lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible in a given year. The range shown represents the floor and cap of the GMIB dynamic election rates across varying levels of in-the-money. For lifetime withdrawal guarantee riders, the assumption is that everyone will begin withdrawals once account value reaches zero which is equivalent to a 100% utilization rate. Utilization rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder.

(4)

The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.


(5)	Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.


(6)	Nonperformance risk spread varies by duration. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.

The Company does not develop unobservable inputs used in measuring fair value for all other assets and liabilities classified within Level 3; therefore, these are not included in the table above. The other Level 3 assets and liabilities primarily included fixed maturity securities and derivatives. For fixed maturity securities valued based on non-binding broker quotes, an increase (decrease) in credit spreads would result in a higher (lower) fair value. For derivatives valued based on third-party pricing models, an increase (decrease) in credit spreads would generally result in a higher (lower) fair value.

3533

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value (continued)

The ~~following tables summarize the change of all~~changes in assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3): were summarized as follows:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fixed Maturity Securities
Corporate (1) Structured Securities State and
Political
Subdivision Foreign
Government Equity
Securities Short-term
Investments Net
Derivatives (2) Net Embedded
Derivatives (3) Separate
Account Assets (4)
(In millions)
Three Months Ended
June 30, 2019
Balance, beginning of period $ 697
$ 228
$ 74
$ —
$ 4
$ —
$ (136 ) $ (2,436 ) $ —
Total realized/unrealized gains (losses) included in net income (loss) (5) (6) —
—
—
—
—
—
(1 ) (462 ) —
Total realized/unrealized gains (losses)
included in AOCI
1
1
—
—
—
—
4
—
—
Purchases (7) 64
15
—
—
—
6
—
—
—
Sales (7) (49 ) (9 ) —
—
—
—
—
—
—
Issuances (7) —
—
—
—
—
—
—
—
—
Settlements (7) —
—
—
—
—
—
—
(223 ) —
Transfers into Level 3 (8) 124
61
—
—
—
—
—
—
—
Transfers out of Level 3 (8) (72 ) (188 ) —
—
—
—
(1 ) —
—
Balance, end of period $ 765
$ 108
$ 74
$ —
$ 4
$ 6
$ (134 ) $ (3,121 ) $ —
Three Months Ended
June 30, 2018
Balance, beginning of period $ 1,906
$ 1,206
$ —
$ —
$ 123
$ —
$ (273 ) $ (1,293 ) $ 7
Total realized/unrealized gains (losses) included in net income (loss) (5) (6) 6
5
—
—
—
—
(13 ) 195
—
Total realized/unrealized gains (losses)
included in AOCI
(72 ) —
2
—
—
—
—
—
—
Purchases (7) 81
203
2
—
—
—
2
—
—
Sales (7) (25 ) (54 ) —
—
(3 ) —
—
—
(3 )
Issuances (7) —
—
—
—
—
—
—
—
—
Settlements (7) —
—
—
—
—
—
—
(143 ) (1 )
Transfers into Level 3 (8) 3
—
4
—
—
—
—
—
1
Transfers out of Level 3 (8) (27 ) (92 ) —
—
—
—
—
—
—
Balance, end of period $ 1,872
$ 1,268
$ 8
$ —
$ 120
$ —
$ (284 ) $ (1,241 ) $ 4
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2019 (9) $ —
$ —
$ —
$ —
$ —
$ —
$ (1 ) $ (538 ) $ —
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2018 (9) $ 6
$ 5
$ —
$ —
$ —
$ —
$ (13 ) $ 198
$ —

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~6. Fair Value (continued)~~


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)																										Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Fixed Maturity Securities																										Fixed Maturity Securities
	Corporate (1)			Structured Securities			State and Political Subdivision		Foreign Government			Equity Securities			Short-term Investments			Net Derivatives (2)			Net Embedded Derivatives (3)			Separate Account Assets (4)			Corporate (1)			Structured Securities			State and Political Subdivision		Foreign Government		Equity Securities			Short-term Investments			Net Derivatives (2)			Net Embedded Derivatives (3)			Separate Account Assets (4)
	(In millions)																										(In millions)
Six Months Ended June 30, 2019
Three Months Ended March 31, 2020
Balance, beginning of period	$	732		$	173		$	74	$	—		$	3		$	—		$	(122	)	$	(1,998	)	$	1		$	461		$	117		$	73	$	—	$	8		$	5		$	16		$	(4,031	)	$	3
Total realized/unrealized gains (losses) included in net income (loss) (5) (6)	—			—			—		—			—			—			(10		)	(686		)	—			(2		)	—			—		—		—			—			1			(79		)	—
Total realized/unrealized gains (losses) included in AOCI	10			2			—		—			—			—			1			—			—			(47		)	(8		)	—		—		—			—			31			—			(1		)
Purchases (7)	67			15			—		—			—			6			—			—			—			249			65			—		7		—			—			—			—			1
Sales (7)	(55		)	(27		)	—		—			—			—			—			—			(1		)	(11		)	(6		)	—		—		—			(3		)	2			—			—
Issuances (7)	—			—			—		—			—			—			—			—			—			—			—			—		—		—			—			—			—			—
Settlements (7)	—			—			—		—			—			—			—			(437		)	—			—			—			—		—		—			—			—			(153		)	—
Transfers into Level 3 (8)	141			87			—		—			1			—			—			—			—			232			68			—		—		—			—			—			—			1
Transfers out of Level 3 (8)	(130		)	(142		)	—		—			—			—			(3		)	—			—			(31		)	(18		)	—		—		(4		)	—			—			—			—
Balance, end of period	$	765		$	108		$	74	$	—		$	4		$	6		$	(134	)	$	(3,121	)	$	—		$	851		$	218		$	73	$	7	$	4		$	2		$	50		$	(4,263	)	$	4
Six Months Ended June 30, 2018
Three Months Ended March 31, 2019
Balance, beginning of period	$	1,997		$	1,230		$	—	$	5		$	124		$	14		$	(279	)	$	(1,660	)	$	5		$	732		$	173		$	74	$	—	$	3		$	—		$	(122	)	$	(1,998	)	$	1
Total realized/unrealized gains (losses) included in net income (loss) (5) (6)	9			11			—		—			(1		)	—			(8		)	700			—			—			(1		)	—		—		—			—			(9		)	(224		)	—
Total realized/unrealized gains (losses) included in AOCI	(80		)	(9		)	3		—			—			—			—			—			—			8			2			—		—		—			—			(3		)	—			—
Purchases (7)	136			213			2		—			—			—			3			—			1			16			29			—		—		—			—			—			—			—
Sales (7)	(165		)	(120		)	—		(2		)	(3		)	(14		)	—			—			(1		)	(2		)	(13		)	—		—		—			—			—			—			(1		)
Issuances (7)	—			—			—		—			—			—			—			—			—			—			—			—		—		—			—			—			—			—
Settlements (7)	—			—			—		—			—			—			—			(281		)	(1		)	—			—			—		—		—			—			—			(214		)	—
Transfers into Level 3 (8)	34			—			3		—			—			—			—			—			—			35			45			—		—		1			—			—			—			—
Transfers out of Level 3 (8)	(59		)	(57		)	—		(3		)	—			—			—			—			—			(92		)	(7		)	—		—		—			—			(2		)	—			—
Balance, end of period	$	1,872		$	1,268		$	8	$	—		$	120		$	—		$	(284	)	$	(1,241	)	$	4		$	697		$	228		$	74	$	—	$	4		$	—		$	(136	)	$	(2,436	)	$	—
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2019 (9)	$	—		$	—		$	—	$	—		$	—		$	—		$	(9	)	$	(826	)	$	—
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2018 (9)	$	7		$	11		$	—	$	—		$	—		$	—		$	(8	)	$	904		$	—
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2020 (9)																											$	(1	)	$	—		$	—	$	—	$	—		$	—		$	1		$	(91	)	$	—
Changes in unrealized gains (losses) included in OCI for the instruments still held at March 31, 2020 (9)																											$	(46	)	$	(8	)	$	—	$	—	$	—		$	—		$	30		$	—		$	—
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2019 (9)																											$	—		$	(1	)	$	—	$	—	$	—		$	—		$	(8	)	$	(288	)	$	—

_______________


(1)	Comprised of U.S. and foreign corporate securities.


(2)	Freestanding derivative assets and liabilities are presented net for purposes of the rollforward.


(3)	Embedded derivative assets and liabilities are presented net for purposes of the rollforward.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value (continued)


(4)	Investment performance related to separate account assets is fully offset by corresponding amounts credited to contract holders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure, these changes are presented within net investment gains (losses).

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~6. Fair Value (continued)~~

(5)

Amortization of premium/accretion of discount is included within net investment income. ~~Impairments~~Changes in the allowance for credit losses and direct write-offs are charged to net income (loss) on securities are included in net investment gains (losses). Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).


(6)	Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward.


(7)	Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements.


(8)	Gains and losses, in net income (loss) and OCI, are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.

(9)

Changes in unrealized gains (losses) included in net income (loss) ~~relate to assets and liabilities still held at the end of the respective periods.~~for fixed maturities are reported in either net investment income or net investment gains (losses). Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).

Fair Value of Financial Instruments Carried at Other Than Fair Value

The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, payables for collateral under securities loaned and other transactions and those short-term investments that are not securities and therefore are not included in the three level hierarchy table disclosed in the “— Recurring Fair Value Measurements” section. The estimated fair value of the excluded financial instruments, which are primarily classified in Level 2, approximates carrying value as they are short-term in nature such that the Company believes there is minimal risk of material changes in interest rates or credit quality. All remaining balance sheet amounts excluded from the tables below are not considered financial instruments subject to this disclosure.

The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:


	June 30, 2019										March 31, 2020
			Fair Value Hierarchy										Fair Value Hierarchy
	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value		Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)										(In millions)
Assets
Mortgage loans	$	15,078	$	—	$	—	$	15,658	$	15,658	$	15,547	$	—	$	—	$	15,869	$	15,869
Policy loans	$	1,342	$	—	$	580	$	999	$	1,579	$	1,250	$	—	$	471	$	1,224	$	1,695
Other invested assets	$	63	$	—	$	50	$	13	$	63	$	51	$	—	$	39	$	12	$	51
Premiums, reinsurance and other receivables	$	1,826	$	—	$	109	$	1,996	$	2,105	$	2,347	$	—	$	38	$	2,650	$	2,688
Liabilities
Policyholder account balances	$	15,456	$	—	$	—	$	15,059	$	15,059	$	15,776	$	—	$	—	$	15,120	$	15,120
Long-term debt	$	4,365	$	—	$	3,126	$	1,000	$	4,126	$	4,365	$	—	$	2,975	$	1,000	$	3,975
Other liabilities	$	478	$	—	$	257	$	221	$	478	$	1,237	$	—	$	580	$	657	$	1,237
Separate account liabilities	$	1,155	$	—	$	1,155	$	—	$	1,155	$	951	$	—	$	951	$	—	$	951

3835

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

6. Fair Value (continued)


	December 31, 2018										December 31, 2019
			Fair Value Hierarchy										Fair Value Hierarchy
	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value		Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)										(In millions)
Assets
Mortgage loans	$	13,694	$	—	$	—	$	13,860	$	13,860	$	15,753	$	—	$	—	$	16,383	$	16,383
Policy loans	$	1,421	$	—	$	656	$	959	$	1,615	$	1,292	$	—	$	516	$	1,062	$	1,578
Other invested assets	$	77	$	—	$	64	$	13	$	77	$	51	$	—	$	39	$	12	$	51
Premiums, reinsurance and other receivables	$	1,609	$	—	$	32	$	1,664	$	1,696	$	2,224	$	—	$	41	$	2,593	$	2,634
Liabilities
Policyholder account balances	$	15,332	$	—	$	—	$	13,861	$	13,861	$	15,614	$	—	$	—	$	15,710	$	15,710
Long-term debt	$	3,963	$	—	$	2,758	$	600	$	3,358	$	4,365	$	—	$	3,334	$	1,000	$	4,334
Other liabilities	$	330	$	—	$	118	$	212	$	330	$	846	$	—	$	191	$	655	$	846
Separate account liabilities	$	1,029	$	—	$	1,029	$	—	$	1,029	$	1,189	$	—	$	1,189	$	—	$	1,189

7. ~~Long-term Debt~~

~~Revolving Credit Facility~~

On May 7, 2019, BHF entered into an amended and restated revolving credit agreement with respect to a $1.0 billion senior unsecured revolving credit facility (the “2019 Revolving Credit Facility”) scheduled to mature in May 2024, all of which may be used for revolving loans and/or letters of credit. The 2019 Revolving Credit Facility replaced BHF’s former $2.0 billion senior unsecured revolving credit facility, which was scheduled to mature in December 2021. Debt issuance costs incurred related to the 2019 Revolving Credit Facility were not significant.

~~Term Loan Facility~~

On February 1, 2019, BHF entered into a term loan agreement with respect to a $1.0 billion unsecured term loan facility (as amended, the “2019 Term Loan Facility”) scheduled to mature in February 2024. On February 1, 2019, BHF borrowed $1.0 billion under the 2019 Term Loan Facility, terminated its former term loan facility due December 2, 2019 (the “2017 Term Loan Facility”) without penalty and repaid $600 million of borrowings outstanding under the 2017 Term Loan Facility, with the remainder of the proceeds to be used for general corporate purposes. Debt issuance costs incurred related to the 2019 Term Loan Facility were not significant.

8. Equity

Preferred Stock

On March 25, 2019, BHF issued depositary shares, each representing a 1/1,000th ownership interest in a share of BHF’s perpetual 6.600% Series A non-cumulative preferred stock (the “Series A Preferred Stock”) and in the aggregate representing 17,000 shares of Series A Preferred Stock, with a stated amount of $25,000 per share, for aggregate net cash proceeds of $412 million. Dividends, if declared, will accrue and be payable quarterly, in arrears, at an annual rate of 6.600% on the stated amount per share. In connection with the issuance of the depositary shares and the underlying Series A Preferred Stock, BHF incurred $13 million of issuance costs, which have been recorded as a reduction of additional paid-in capital.

~~On May 15, 2019,~~February 14, 2020, BHF declared a dividend of $412.50 per share, for a total of $7 million, on ~~the~~its perpetual 6.600% Series A ~~Preferred Stock. The dividend~~non-cumulative preferred stock, which was paid on ~~June~~March 25, ~~2019~~2020 to stockholders of record as of ~~June~~March 10, ~~2019.~~2020.

Common Stock Repurchase Program

On ~~May 3, 2019,~~February 6, 2020, BHF authorized the repurchase of up to an additional ~~$400~~$500 million of its common stock. Repurchases ~~made~~ under ~~such~~this authorization 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 ~~federal securities laws.~~

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~8. Equity (continued)~~

legal requirements. See Note 11.

During the three months ~~and six months~~ ended ~~June 30,~~March 31, 2020 and 2019, BHF repurchased ~~3,575,842 shares~~5,674,387 and ~~4,993,424~~1,417,582 shares, respectively, of its common stock through open market purchases pursuant to 10b5-1 plans for ~~$136~~$142 million and ~~$188~~$52 million, respectively. At ~~June 30, 2019,~~March 31, 2020, BHF had ~~$307~~$411 million remaining under its common stock repurchase program.

Accumulated Other Comprehensive Income (Loss)

Information regarding changes in the balances of each component of AOCI was as follows:

Three Months Ended
June 30, 2019
Unrealized
Investment Gains
(Losses), Net of
Related Offsets (1) Unrealized
Gains (Losses)
on Derivatives Foreign
Currency
Translation
Adjustments Defined Benefit Plans Adjustment Total
(In millions)
Balance, March 31, 2019 $ 1,580
$ 140
$ (27 ) $ (23 ) $ 1,670
OCI before reclassifications 1,293
75
7
—
1,375
Deferred income tax benefit (expense) (271 ) (16 ) —
—
(287 )
AOCI before reclassifications, net of income tax 2,602
199
(20 ) (23 ) 2,758
Amounts reclassified from AOCI (48 ) (22 ) —
—
(70 )
Deferred income tax benefit (expense) 10
4
—
—
14
Amounts reclassified from AOCI, net of income tax (38 ) (18 ) —
—
(56 )
Balance, June 30, 2019 $ 2,564
$ 181
$ (20 ) $ (23 ) $ 2,702

Three Months Ended
June 30, 2018
Unrealized
Investment Gains
(Losses), Net of
Related Offsets (1) Unrealized
Gains (Losses)
on Derivatives Foreign
Currency
Translation
Adjustments Defined Benefit Plans Adjustment Total
(In millions)
Balance, March 31, 2018 $ 695
$ 87
$ (22 ) $ (23 ) $ 737
OCI before reclassifications (65 ) 111
4
—
50
Deferred income tax benefit (expense) 30
(23 ) (1 ) (1 ) 5
AOCI before reclassifications, net of income tax 660
175
(19 ) (24 ) 792
Amounts reclassified from AOCI 42
(10 ) —
—
32
Deferred income tax benefit (expense) (12 ) 3
—
—
(9 )
Amounts reclassified from AOCI, net of income tax 30
(7 ) —
—
23
Balance, June 30, 2018 $ 690
$ 168
$ (19 ) $ (24 ) $ 815


	Six Months Ended June 30, 2019															Three Months Ended March 31, 2020
	Unrealized Investment Gains (Losses), Net of Related Offsets (1)			Unrealized Gains (Losses) on Derivatives			Foreign Currency Translation Adjustments			Defined Benefit Plans Adjustment			Total			Unrealized Investment Gains (Losses), Net of Related Offsets (1)			Unrealized Gains (Losses) on Derivatives			Foreign Currency Translation Adjustments			Defined Benefit Plans Adjustment			Total
	(In millions)															(In millions)
Balance, December 31, 2018	$	576		$	187		$	(27	)	$	(20	)	$	716
Balance at December 31, 2019																$	3,111		$	172		$	(15	)	$	(28	)	$	3,240
OCI before reclassifications(2)	2,545			41			7			(3		)	2,590			(1,291		)	560			(5		)	(1		)	(737		)
Deferred income tax benefit (expense)	(534		)	(9		)	—			—			(543		)	272			(118		)	1			—			155
AOCI before reclassifications, net of income tax	2,587			219			(20		)	(23		)	2,763			2,092			614			(19		)	(29		)	2,658
Amounts reclassified from AOCI	(29		)	(48		)	—			—			(77		)	(11		)	(2		)	—			—			(13		)
Deferred income tax benefit (expense)	6			10			—			—			16			2			—			—			—			2
Amounts reclassified from AOCI, net of income tax	(23		)	(38		)	—			—			(61		)	(9		)	(2		)	—			—			(11		)
Balance, June 30, 2019	$	2,564		$	181		$	(20	)	$	(23	)	$	2,702
Balance at March 31, 2020																$	2,083		$	612		$	(19	)	$	(29	)	$	2,647

4036

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

8.7. Equity (continued)


	Six Months Ended June 30, 2018															Three Months Ended March 31, 2019
	Unrealized Investment Gains (Losses), Net of Related Offsets (1)			Unrealized Gains (Losses) on Derivatives			Foreign Currency Translation Adjustments			Defined Benefit Plans Adjustment			Total			Unrealized Investment Gains (Losses), Net of Related Offsets (1)			Unrealized Gains (Losses) on Derivatives			Foreign Currency Translation Adjustments			Defined Benefit Plans Adjustment			Total
	(In millions)															(In millions)
Balance, December 31, 2017	$	1,572		$	154		$	(24	)	$	(26	)	$	1,676
Cumulative effect of change in accounting principle, net of income tax	(79		)	—			—			—			(79		)
Balance, January 1, 2018	1,493			154			(24		)	(26		)	1,597
Balance at December 31, 2018																$	576		$	187		$	(27	)	$	(20	)	$	716
OCI before reclassifications	(1,138		)	35			6			3			(1,094		)	1,252			(34		)	—			(3		)	1,215
Deferred income tax benefit (expense)	259			(7		)	(1		)	(1		)	250			(263		)	7			—			—			(256		)
AOCI before reclassifications, net of income tax	614			182			(19		)	(24		)	753			1,565			160			(27		)	(23		)	1,675
Amounts reclassified from AOCI	100			(18		)	—			—			82			19			(26		)	—			—			(7		)
Deferred income tax benefit (expense)	(24		)	4			—			—			(20		)	(4		)	6			—			—			2
Amounts reclassified from AOCI, net of income tax	76			(14		)	—			—			62			15			(20		)	—			—			(5		)
Balance, June 30, 2018	$	690		$	168		$	(19	)	$	(24	)	$	815
Balance at March 31, 2019																$	1,580		$	140		$	(27	)	$	(23	)	$	1,670

__________________


(1)	See Note 4 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI.


(2)	Includes $3 million related to the adoption of ASU 2016-13, see Note 1.

Information regarding amounts reclassified out of each component of AOCI was as follows:


AOCI Components	Amounts Reclassified from AOCI												Consolidated Statements of Operations and Comprehensive Income (Loss) Locations	Amounts Reclassified from AOCI						Consolidated Statements of Operations and Comprehensive Income (Loss) Locations
	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
	2019			2018			2019			2018				2020			2019
	(In millions)													(In millions)
Net unrealized investment gains (losses):
Net unrealized investment gains (losses)	$	70		$	(42	)	$	55		$	(101	)	Net investment gains (losses)	$	13		$	(15	)	Net investment gains (losses)
Net unrealized investment gains (losses)	—			—			—			1			Net investment income	(2		)	(4		)	Net derivative gains (losses)
Net unrealized investment gains (losses)	(22		)	—			(26		)	—			Net derivative gains (losses)
Net unrealized investment gains (losses), before income tax	48			(42		)	29			(100		)		11			(19		)
Income tax (expense) benefit	(10		)	12			(6		)	24				(2		)	4
Net unrealized investment gains (losses), net of income tax	38			(30		)	23			(76		)		9			(15		)
Unrealized gains (losses) on derivatives - cash flow hedges:
Interest rate swaps	6			10			28			16			Net derivative gains (losses)	1			22			Net derivative gains (losses)
Interest rate swaps	—			2			1			2			Net investment income	1			1			Net investment income
Interest rate forwards	—			(1		)	—			—			Net derivative gains (losses)
Interest rate forwards	—			—			—			1			Net investment income
Foreign currency swaps	16			(1		)	19			(1		)	Net derivative gains (losses)	—			3			Net derivative gains (losses)
Gains (losses) on cash flow hedges, before income tax	22			10			48			18				2			26
Income tax (expense) benefit	(4		)	(3		)	(10		)	(4		)		—			(6		)
Gains (losses) on cash flow hedges, net of income tax	18			7			38			14				2			20
Total reclassifications, net of income tax	$	56		$	(23	)	$	61		$	(62	)		$	11		$	5

4137

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Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

9.8. Other Revenues and Other Expenses

Other Revenues

The Company has entered into contracts with mutual funds, fund managers, and their affiliates (collectively, the “Funds”) whereby the Company is paid monthly or quarterly fees (“12b-1 fees”) for providing certain services to customers and distributors of the Funds. The 12b-1 fees are generally equal to a fixed percentage of the average daily balance of the customer’s investment in a fund. The percentage is specified in the contract between the Company and the Funds. Payments are generally collected when due and are neither refundable nor able to offset future fees.

To earn these fees, the Company performs services such as responding to phone inquiries, maintaining records, providing information to distributors and shareholders about fund performance and providing training to account managers and sales agents. The passage of time reflects the satisfaction of the Company’s performance obligations to the Funds and is used to recognize revenue associated with 12b-1 fees.

Other revenues consisted primarily of 12b-1 fees of ~~$85~~$81 million and ~~$167~~$82 million for the three months ended March 31, 2020 and ~~six months ended June 30,~~ 2019, ~~respectively, and $91 million and $184 million for the three months and six months ended June 30, 2018,~~ respectively, of which substantially all were reported in the Annuities segment.

Other Expenses

Information on other expenses was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	(In millions)								(In millions)
Compensation	$	80	$	83	$	162	$	153	$	69	$	81
Contracted services and other labor costs	65		77		112		126		68		47
Transition services agreements	65		71		132		145		38		66
Establishment costs	38		56		72		103		18		34
Premium and other taxes, licenses and fees	13		26		20		43		12		7
Separate account fees	122		132		242		268		117		119
Volume related costs, excluding compensation, net of DAC capitalization	153		166		317		325		128		165
Interest expense on debt	48		37		95		74		47		47
Other	37		43		61		72		20		26
Total other expenses	$	621	$	691	$	1,213	$	1,309	$	517	$	592

4238

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

~~10.~~9. Earnings Per Common Share

The ~~following table sets forth the~~ calculation of earnings per common ~~share:~~share was as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In millions, except share and per share data)
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ 377
$ (239 ) $ (360 ) $ (306 )

Weighted average common shares outstanding — basic 114,931,224
119,773,106
115,863,127
119,773,106
Dilutive effect of share-based awards 605,430
—
—
—
Weighted average common shares outstanding — diluted 115,536,654
119,773,106
115,863,127
119,773,106

Earnings per common share:
Basic $ 3.28
$ (2.01 ) $ (3.10 ) $ (2.56 )
Diluted $ 3.27
$ (2.01 ) $ (3.10 ) $ (2.56 )

Basic loss per common share equaled diluted loss per common share for the six months ended June 30, 2019 and the three months and six months ended June 30, 2018. The diluted shares were not utilized in the per share calculation for these periods, as the inclusion of such shares would have an antidilutive effect.



	Three Months Ended March 31,
	2020		2019
	(In millions, except share and per share data)
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders	$	4,950	$	(737	)

Weighted average common shares outstanding — basic	104,759,339		116,805,384
Dilutive effect of share-based awards	334,176		—
Weighted average common shares outstanding — diluted	105,093,515		116,805,384

Earnings per common share:
Basic	$	47.26	$	(6.31	)
Diluted	$	47.11	$	(6.31	)

For the three months ended ~~June 30, 2019,~~March 31, 2020, weighted average shares used for calculating diluted earnings per ~~diluted~~ common share excludes 196,492 out-of-the-money stock options as the inclusion of ~~such~~these shares would be antidilutive to the earnings per common share calculation due to the average share price for the three months ended ~~June 30, 2019.~~March 31, 2020.

For the three months ended March 31, 2019, basic loss per common share equaled diluted loss per common share. The diluted shares were not utilized in the per share calculation for this period as the inclusion of such shares would have an antidilutive effect.

~~11.~~10. Contingencies, Commitments and Guarantees

Contingencies

Litigation

The Company is a defendant in a number of litigation matters. In some of the matters, large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.

Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.

The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be estimated at ~~June 30, 2019.~~March 31, 2020.

4339

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

~~11.~~10. Contingencies, Commitments and Guarantees (continued)

Matters as to Which an Estimate Can Be Made

For some loss contingency matters, the Company is able to estimate a reasonably possible range of loss. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. As of ~~June 30, 2019,~~March 31, 2020, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $10 million.

Matters as to Which an Estimate Cannot Be Made

For other matters, the Company is not currently able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation contingencies and updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.

Sales Practices Claims

Over the past several years, the Company has faced claims and regulatory inquiries and investigations, alleging improper marketing or sales of individual life insurance policies, annuities or other products. The Company continues to defend vigorously against the claims in these matters. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices matters.

Group Annuity Class Action

~~Summary~~Leroy and Geraldine Atkins v. Brighthouse Life Insurance Company, Brighthouse Financial, Inc., et al. (U.S. District Court, District of Nevada, filed November 18, 2019). Plaintiffs have filed a purported class action lawsuit against Brighthouse Life Insurance Company, Brighthouse Financial, Inc., MetLife, Inc. and Metropolitan Life Insurance Company relating to the pension closeout business. Plaintiffs allege that annuity benefits were due but have not been paid. Plaintiffs also allege they were not able to obtain information as to the group annuity contract and the benefit other than what was on a benefit election form. Plaintiffs seek to represent a class of all annuitants and their designated beneficiaries who were due annuity payments pursuant to group annuity contracts purchased from defendants by sponsors of employer provided defined benefit plans. Plaintiffs allege the defendants failed to timely contact, notify and pay overdue annuity benefits and interest to retirees. The complaint alleges breach of contract, breach of the implied covenant of good faith and fair dealing (contract and tort), unjust enrichment, conversion and breach of fiduciary duty. In March 2020, Brighthouse Life Insurance Company and Brighthouse Financial, Inc. filed a joint motion to dismiss. In April 2020, the parties filed a stipulation of dismissal without prejudice.

Summary

Various litigation, claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, investor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations.

It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to previously, large and/or indeterminate amounts, including punitive and treble damages, are sought. Although, in light of these considerations, it is possible that an adverse outcome in certain cases could have a material effect upon the Company’s financial position, based on information currently known by the Company’s management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.

Table of Contents

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)

10. Contingencies, Commitments and Guarantees (continued)

Other Contingencies

The Company applies the same standard of recognition for non-litigation loss contingencies when assertions are made involving contract disputes with third-party vendors or with counterparties to contractual arrangements entered into by the Company. In such cases, the Company establishes liabilities when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For some asserted claims, the Company is not currently able to estimate any reasonably possible loss or range of loss associated with such matters, and will be unable to do so until developments have provided sufficient information to support any such assessments. On a quarterly and annual basis, the Company reviews relevant information with respect to non-litigation contingencies and, when applicable, updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.

Commitments

Mortgage Loan Commitments

The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were ~~$297~~$325 million and ~~$492~~$206 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Commitments to Fund Partnership Investments, Bank Credit Facilities ~~Bridge Loans~~ and Private Corporate Bond Investments

The Company commits to fund partnership investments and to lend funds under bank credit facilities and private corporate bond investments. The amounts of these unfunded commitments were ~~$1.9~~$1.7 billion and $1.8 billion at ~~both June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019, respectively.

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (continued)~~

~~11. Contingencies, Commitments and Guarantees (continued)~~

Guarantees

In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties such that it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $1 million to ~~$124~~$122 million, with a cumulative maximum of ~~$130~~$128 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments.

In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future.

The Company’s recorded liabilities were $1 million ~~and $2 million~~ at ~~June 30, 2019~~both March 31, 2020 and December 31, ~~2018, respectively,~~2019 for indemnities, guarantees and commitments.

~~12. Related Party Transactions~~11. Subsequent Events

~~The following table summarizes income and expense from affiliated transactions with MetLife prior~~Common Stock Repurchase Program

On May 11, 2020, the Company announced that it has temporarily suspended repurchases of its common stock while it continues to evaluate the ~~MetLife Divestiture (see~~ ~~Note 1) for~~impacts of the ~~periods indicated:~~COVID-19 pandemic.

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In millions)
Income (1) $ —
$ (101 ) $ —
$ (182 )
Expense (2) $ —
$ 55
$ —
$ 133

~~__________________~~


~~(1)~~	~~Primarily includes the net impact of reinsurance ceded to MetLife.~~


~~(2)~~	~~Primarily includes costs incurred with MetLife related to shared services, offset by reinsurance ceded to MetLife.~~

4541

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations

4642

Table of Contents

Introduction

For purposes of this discussion, unless otherwise mentioned or unless the context indicates otherwise, “Brighthouse,” “Brighthouse Financial,” the “Company,” “we,” “our” and “us” refer to Brighthouse Financial, Inc. a corporation incorporated in Delaware in 2016, and its subsidiaries. We use the term “BHF” to refer solely to Brighthouse Financial, Inc., and not to any of its subsidiaries. Until August 4, 2017, BHF was a wholly-owned subsidiary of MetLife, Inc. (together with its subsidiaries and affiliates, “MetLife”). Following this summary is a discussion addressing the consolidated results of operations and financial condition of the Company for the periods indicated. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with (i) the ~~unaudited interim condensed consolidated financial statements~~Interim Condensed Consolidated Financial Statements and related notes included elsewhere herein; (ii) our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 26, ~~2019~~2020 (the ~~“2018~~“2019 Annual Report”); ~~(iii) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (the “First Quarter Form 10-Q”) filed with the SEC on May 7, 2019;~~ and ~~(iv)~~(iii) our current reports on Form 8-K filed in ~~2019.~~

The term “Separation” refers to the separation of MetLife’s former Brighthouse Financial segment from MetLife’s other businesses and the creation of a separate, publicly traded company, BHF, as well as the distribution on August 4, 2017 of 96,776,670, or 80.8%, of the 119,773,106 shares of BHF common stock outstanding immediately prior to the distribution date by MetLife, Inc. to holders of MetLife, Inc. common stock as of the record date for the distribution. The term “MetLife Divestiture” refers to the disposition by MetLife, Inc. on June 14, 2018 of all its remaining shares of BHF common stock. Effective with the MetLife Divestiture, MetLife, Inc. and its subsidiaries and affiliates are no longer considered related parties to Brighthouse Financial, Inc. and its subsidiaries and affiliates.2020.

Presentation

Prior to discussing our Results of Operations, we present background information and definitions that we believe are useful to understanding the discussion of our financial results. This information precedes the Results of Operations and is most beneficial when read in the sequence presented. A summary of key informational sections is as follows:

“Executive Summary” provides information regarding our business, segments and results as discussed in the Results of Operations.

“Industry Trends” discusses updates and changes to a number of trends and uncertainties included in the ~~2018~~2019 Annual Report that we believe may materially affect our future financial condition, results of operations or cash ~~flows.~~flows, including from the worldwide pandemic sparked by the novel coronavirus (the “COVID-19 pandemic”).

“Summary of Critical Accounting Estimates” explains the most critical estimates and judgments applied in determining our GAAP results.

“Non-GAAP and Other Financial Disclosures” defines key financial measures presented in the Results of Operations that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”) but are used by management in evaluating company and segment performance. As described in this section, adjusted earnings is presented by key business activities which are derived from, but different than, the line items presented in the GAAP statement of operations. 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.

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

Executive Summary

We are one of the largest providers of annuity and life insurance products in the United States through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners.

For operating purposes, we have established three segments: (i) Annuities, (ii) Life and (iii) Run-off, which consists of operations relating to products we are not actively selling and which are separately managed. In addition, we report certain of our results of operations in Corporate & Other.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations, financial condition and cash flows of Brighthouse for the periods indicated. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview,” and “Business — Segments and Corporate & Other” included in the ~~2018~~2019 Annual Report along with Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on our segments and Corporate & Other.

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~~The table below presents a summary of our net~~Net income (loss) available to shareholders and adjusted earnings, a non-GAAP financial ~~measure.~~ measure, were as follows:



	Three Months Ended March 31,
	2020		2019			Change
	(In millions)
Income (loss) available to shareholders before provision for income tax	$	6,243	$	(955	)	$	7,198
Less: Provision for income tax expense (benefit)	1,293		(218		)	1,511
Net income (loss) available to shareholders	$	4,950	$	(737	)	$	5,687

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	$	244	$	272		$	(28	)
Less: Provision for income tax expense (benefit)	33		40			(7		)
Adjusted earnings	$	211	$	232		$	(21	)

For the three months ended March 31, 2020, we had net income available to shareholders of $5.0 billion and adjusted earnings of $211 million, compared to a net loss available to shareholders of $737 million and adjusted earnings of $232 million, for the three months ended March 31, 2019. Net income for the three months ended March 31, 2020 primarily reflects net favorable changes in the estimated fair value of our derivatives due to market factors. Lower long-term interest rates and lower equity markets resulted in favorable changes to the freestanding derivatives that hedge our variable annuity business, which more than exceeded the unfavorable impact to the embedded derivative liabilities. In addition, the widening of credit spreads resulted in a favorable adjustment for non-performance risk related to the variable annuity embedded derivative liabilities. Lower equity markets favorably impacted the estimated fair value of Shield Level Annuity (“Shield” and “Shield Annuities”),a suite of structured annuities consisting of products marketed under various names, embedded derivative liabilities (“Shield Annuity liabilities”). Lower long-term interest rates also resulted in favorable changes in the estimated fair value of the freestanding interest-rate derivatives that hedge our universal life with secondary guarantees (“ULSG”) business.

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

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In millions)
Net income (loss) available to shareholders before provision for income tax $ 462
$ (318 ) $ (493 ) $ (433 )
Less: Provision for income tax expense (benefit) 85
(79 ) (133 ) (127 )
Net income (loss) available to shareholders (1) $ 377
$ (239 ) $ (360 ) $ (306 )

Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends $ 305
$ 179
$ 577
$ 507
Less: Provision for income tax expense (benefit) 51
26
91
71
Adjusted earnings $ 254
$ 153
$ 486
$ 436

~~______________~~


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

For the three months ended June 30, 2019, we had net income available to shareholders of $377 million and adjusted earnings of $254 million, compared to a net loss available to shareholders of $239 million and adjusted earnings of $153 million for the three months ended June 30, 2018. The net income available to shareholders for the three months ended June 30, 2019 was driven primarily by the favorable changes in the fair value of the universal life with secondary guarantees (“ULSG”) hedge program from the significant decline in interest rates as well as favorable comparative results in guaranteed minimum living benefits (“GMLB”) Riders and higher adjusted earnings. For the six months ended June 30, 2019, we had a net loss available to shareholders of $360 million and adjusted earnings of $486 million, compared to a net loss available to shareholders of $306 million and adjusted earnings of $436 million for the six months ended June 30, 2018. The net loss available to shareholders for the six months ended June 30, 2019 was driven by net unfavorable comparative results in GMLB Riders from higher relative equity markets and declining interest rates, offset by favorable changes in the fair value of the ULSG hedge program from declining interest rates as well as higher adjusted earnings.

See Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding the adoption of new accounting pronouncements in ~~2019.~~2020.

Industry Trends

Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we discuss a number of trends and uncertainties that we believe may materially affect our future financial condition, results of operations or cash flows. Where these trends or uncertainties are specific to a particular aspect of our business, we often include such a discussion under the relevant caption of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, as part of our broader analysis of that area of our business. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” included in the ~~2018~~2019 Annual Report ~~as amended or supplemented by such information in the First Quarter Form 10-Q,~~ for a comprehensive discussion of some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and results of operations in the future. In addition, significant changes or updates in certain of these trends and uncertainties are discussed below.

COVID-19 Pandemic

We are closely monitoring developments related to the COVID-19 pandemic, which has already negatively impacted us, including as discussed below. At this time, it is not possible to estimate the severity or duration of the pandemic, including the severity, duration and frequency of any additional “waves” of the pandemic or the timetable for the development and implementation, and the efficacy, of any therapeutic treatment or vaccine for COVID-19. It is likewise 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, results of operations, financial condition and prospects, including the impact on our investment portfolio and our ratings, or the need for us in the future to revisit or revise targets previously provided to the markets and/or aspects of our business model. See also “Risk Factors — The ongoing COVID-19 pandemic may materially adversely affect our business, results of operations and financial condition, including capitalization and liquidity.”

In March, in response to this extraordinary event, management promptly implemented our business continuity plans, and quickly and successfully shifted all our employees to a work-from-home environment. Our sales and support teams remain fully operational, and we have continued to serve our distribution partners and customers without interruption. Additionally, we are closely monitoring all aspects of our business, including but not limited to, levels of sales and claims activity, policy lapses or surrenders, payments of premiums, sources and uses of liquidity, the valuation of our investments and the performance of our

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derivatives programs. We have observed varying degrees of impact in these areas, and have taken prudent and proportionate measures to address such impacts; however, at this time it is impossible to predict if the COVID-19 pandemic will have a material adverse impact on our business, results of operations or financial condition. 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.

Increased economic uncertainty and increased unemployment resulting from the economic impacts of the COVID-19 pandemic have also impacted sales of certain of our products and have prompted us to take actions to provide relief to customers affected by adverse circumstances due to the COVID-19 pandemic, as further described in “— Regulatory Developments.” While the relief granted to customers to date has not had a material impact on our financial condition or results of operations, it is not possible to estimate the potential impact of any future relief. Circumstances resulting from the COVID-19 pandemic may affect the incidence of claims, utilization of benefits, lapses or surrenders of policies and payments on insurance premiums, any of which could impact future revenues and expenses associated with our products.

Credit rating agencies may continue to review and adjust their ratings for the companies that they rate, including us. The credit rating agencies also evaluate the insurance industry as a whole and may change our credit rating based on their overall view of our industry. For example, Fitch recently revised the rating outlook for BHF and certain of its subsidiaries to negative from stable due to the disruption to economic activity and the financial markets from the COVID-19 pandemic. This action by Fitch followed its revision of the rating outlook on the U.S. life insurance industry to negative. Downgrades in our ratings or changes to our rating outlooks could have a material adverse effect on our results of operations and financial condition, including capitalization and liquidity. There can be no assurance that Fitch will not take further adverse action with respect to our ratings or that other rating agencies will not take similar actions in the future. Each rating should be evaluated independently of any other rating.

Regulatory Developments

Our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal regulation. In addition, BHF and its ~~insurance~~ subsidiaries are subject to regulation under the insurance holding company laws of various U.S. jurisdictions. Furthermore, some of our operations, products and services are subject to the Employee Retirement Income Security Act of 1974, ~~(“ERISA”),~~ consumer protection laws, securities, broker-dealer and investment advisor regulations, ~~and~~as well as environmental and unclaimed property laws and regulations. See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in ~~the 2018~~our 2019 Annual Report, as amended or supplemented herein.

State Insurance Regulatory Actions Related to the COVID-19 Pandemic

As U.S. states have declared states of emergency, many state insurance regulators have mandated or recommended that insurers implement policies to provide relief to consumers who have been adversely impacted by the COVID-19 pandemic. As a result, we have taken actions to provide relief to our life insurance policyholders, annuitants and other contract holders who have claimed hardship as a result of the COVID-19 pandemic. Such relief may include extending the grace period for payment of insurance premiums, offering additional time to exercise contractual rights or options or extending maturity dates on annuities.

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~~NAIC~~

The National Association of Insurance Commissioners (“NAIC”) is an organization, whose mission is to assist state insurance regulatory authorities in serving the public interest and achieving the insurance regulatory goals of its members, the state insurance regulatory officials. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate their regulatory oversight. The NAIC provides standardized insurance industry accounting and reporting guidance through its Accounting Practices and Procedures Manual (the “Manual”), which states have largely adopted by regulation. However, statutory accounting principles continue to be established by individual state laws, regulations and permitted practices, which may differ from the Manual. Changes to the Manual or modifications by the various states may impact our statutory capital and surplus.

The NAIC adopted a revised framework for statutory accounting, reserve and capital requirements for variable annuities in August 2018. The framework is designed to mitigate the motivation for insurers to engage in captive reinsurance transactions by making improvements to Actuarial Guideline 43 (“AG 43”) and the Life Risk Based Capital C3 Phase II (“RBC C3 Phase II”) capital requirements. The changes to AG 43 and RBC C3 Phase II are intended to (i) mitigate the asset-liability accounting mismatch between hedge instruments and statutory instruments and statutory liabilities, (ii) remove the non-economic volatility in statutory capital charges and the resulting solvency ratios and (iii) facilitate greater harmonization across insurers and their products for greater comparability. On August 6, 2019, the NAIC adopted changes to AG 43 and submitted the RBC C3 Phase II changes for NAIC Executive Committee and Plenary consent (which will be adopted after 10 days, unless otherwise objected to in accordance with the NAIC bylaws). The changes will become effective as of January 1, 2020, with early adoption permitted as of December 31, 2019.

The adopted changes will apply to all of our existing variable annuity business and may materially change the sensitivity of reserve and capital requirements to capital markets, including interest rate, equity markets and volatility, our estimates of which historically did not reflect the impact of variable annuity capital reform or changes in tax rates, as well as prescribed assumptions for policyholder behavior. We have not yet determined what impacts this reform will have on current risk mitigation and hedging programs. See “Risk Factors — Risk Related to Our Business — Our analyses of scenarios and sensitivities utilized in connection with our variable annuity risk management strategies involve significant estimates based on assumptions that may result in material differences from actual outcomes compared to the sensitivities calculated under such scenarios” and “Risk Factors — Regulatory and Legal Risks — Our insurance business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth” in our 2018 Annual Report.

In addition, following the reduction in the statutory tax rate pursuant to the Tax Cuts and Jobs Act (the “Tax Act”), the NAIC reviewed the methodology by which taxes are incorporated into the RBC calculation. On August 7, 2018 the NAIC Executive Committee and Plenary, a body comprised of all U.S. state insurance commissioners and the NAIC Executive Committee, adopted changes to the RBC calculation effective December 31, 2018 to reflect the lower statutory tax rate, which resulted in a reduction to our insurance subsidiaries’ RBC ratios. As of the date of the most recent annual statutory financial statements filed with insurance regulators, the total adjusted capital (“TAC”) of each of our insurance subsidiaries was in excess of RBC levels required by regulators.

The NAIC has adopted a new approach for the calculation of life insurance reserves, known as principle-based reserving (“PBR”). PBR became operative on January 1, 2017 in those states where it has been adopted, to be followed by a three-year phase-in period for business issued on or after this date. With respect to the states in which our insurance subsidiaries are domiciled, the Delaware Department of Insurance implemented PBR on January 1, 2017, and New York enacted legislation adopting PBR in December 2018. At the same time, the New York Department of Financial Services adopted a temporary regulation to implement PBR while it develops a final regulation. PBR legislation was signed into law in Massachusetts in January 2019. See “Risk Factors — Regulatory and Legal Risks — Our insurance business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth” in our 2018 Annual Report.

The NAIC is considering revisions to RBC factors for bonds and real estate, as well as developing RBC charges for longevity risk. We cannot predict the impact of any potential proposals that may result from these studies.

~~We can give no assurances that any of our expectations will be met regarding the capital and reserve impacts or compliance costs, if any, that may result from the above initiatives.~~

~~Standard of Conduct Regulation~~

As a result of overlapping efforts by the Department of Labor, the NAIC, individual states, and the SEC to impose fiduciary-like requirements in connection with the sale of annuities, life insurance policies and securities, which are each discussed in

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more detail below, there have been a number of proposed or adopted changes to the laws and regulations that govern the conduct of our business and the firms that distribute our products. As a manufacturer of annuity and life insurance products, we do not directly distribute our products to consumers. However, regulations establishing standards of conduct in connection with the distribution and sale of these products could affect our business by imposing greater compliance, oversight, disclosure and notification requirements on our distributors and/or us, which may in either case increase our costs or limit distribution of our products. We cannot predict what other proposals may be made, what legislation or regulations may be introduced or enacted, or what impact any future legislation or regulations may have on our business, results of operations and financial condition. See “Risk Factors — Regulatory and Legal Risks — Our insurance business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth — Standard of Conduct Regulation” in our 2018 Annual Report.

~~New SEC Rules Addressing Standards of Conduct for Broker-Dealers~~

On June 5, 2019, the SEC adopted a comprehensive set of rules and interpretations for broker-dealers and investment advisers, including new Regulation Best Interest. Among other things, the package of new regulations (i) requires broker-dealers to act in the best interest of their retail clients without placing their own interests ahead of those of their clients when providing securities recommendations or advice; (ii) clarifies the nature of the fiduciary obligations owed by registered investment advisers to their clients; (iii) imposes new disclosure requirements on broker-dealers and investment advisers aimed at ensuring investors understand the nature of their relationship with their investment professionals and, in the case of broker-dealers, disclosing all material facts about conflicts of interest; and (iv) restricts broker-dealers and their financial professionals from using certain compensation practices and the terms “adviser” or “advisor.” The intent of Regulation Best Interest is to impose an enhanced standard of care on broker-dealers which is more similar to that of an investment adviser. Among other things, this would require broker-dealers to mitigate conflicts of interest arising from financial incentives in selling securities products.

Regulation Best Interest may change the way broker-dealers sell securities such as variable annuities to their customers. Moreover, it may impact broker-dealer sales of other annuity products that are not securities because it could be difficult for broker-dealers to differentiate their sales practices. Per the timeline established by the SEC, broker-dealers will be required to comply with the requirements of Regulation Best Interest beginning June 30, 2020. Given the complexity of this package of regulations and the fact that it was just recently adopted, its likely impact on the distribution of our products is uncertain. It is also unclear whether Regulation Best Interest will have any preemptive effect on similar existing or forthcoming state-level standard of conduct regulations.

Summary of Critical Accounting Estimates

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

The most critical estimates include those used in determining:


(i)	liabilities for future policy benefits;


(ii)	~~accounting for reinsurance;~~amortization of deferred policy acquisition costs (“DAC”);


(iii)	~~capitalization and amortization of deferred policy acquisition costs (“DAC”) and amortization of value of business acquired (“VOBA”);~~investment credit losses;


(iv)	~~estimated fair values of investments in the absence of quoted market values;~~


~~(v)~~	~~investment impairments;~~


~~(vi)~~	estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation; and


~~(vii)~~(v)	measurement of income taxes and the valuation of deferred tax ~~assets; and~~assets.


~~(viii)~~	~~liabilities for litigation and regulatory matters.~~

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In applying our accounting policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates.

The above critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and Note 1 of the Notes to the Consolidated ~~and Combined~~ Financial Statements included in the ~~2018~~2019 Annual Report.

Non-GAAP and Other Financial Disclosures

Our definitions of the non-GAAP and other financial measures may differ from those used by other companies.

Non-GAAP Financial Disclosures

Adjusted Earnings

In this report, we present adjusted earnings, which excludes net income (loss) attributable to noncontrolling interests and preferred stock dividends, as a measure of our performance that is not calculated in accordance with GAAP. We believe that this non-GAAP financial measure highlights our results of operations and the underlying profitability drivers of our business, as well as enhances the understanding of our performance by the investor community. However, adjusted earnings should not be viewed as a substitute for net income (loss) available to Brighthouse Financial, Inc.’s common shareholders, which is the most directly comparable financial measure calculated in accordance with GAAP. See “— Results of Operations” for a reconciliation of adjusted earnings to net income (loss) available to Brighthouse Financial, Inc.’s common shareholders.

Adjusted earnings, which may be positive or negative, is used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. This financial measure focuses on our primary businesses principally by excluding the impact of market volatility, which could distort trends.

The following are significant items excluded from total revenues, net of income tax, in calculating adjusted earnings:

Net investment gains (losses);

The following are significant items excluded from total expenses, net of income tax, in calculating adjusted earnings:

Amounts associated with benefits ~~and hedging costs~~ related to GMIBs (“GMIB Costs”);

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

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

We present adjusted earnings in a manner consistent with management’s view of the primary business activities that drive the profitability of our core businesses. The following table illustrates how each component of adjusted earnings is calculated from the GAAP statement of operations line items:

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Component of Adjusted Earnings		How Derived from GAAP (1)
(i)	Fee income	(i)	Universal life and investment-type 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 ~~(excluding~~(excluding other revenues associated with related party reinsurance) and amortization of deferred gain on reinsurance.
(ii)	Net investment spread	(ii)	Net investment income plus Investment Hedge Adjustments and interest received on ceded fixed annuity reinsurance deposit funds reduced by Interest credited to policyholder account balances and interest on future policy benefits.
(iii)	Insurance-related activities	(iii)	Premiums less Policyholder benefits and claims (excluding (a) GMIB Costs, (b) Market Value Adjustments, (c) interest on future policy benefits and (d) amortization of deferred gain on reinsurance) plus the pass through of performance of ceded separate account assets.
(iv)	Amortization of DAC and VOBA	(iv)	Amortization of DAC and VOBA (excluding amounts related to (a) net investment gains (losses), (b) net derivative gains (losses), (c) GMIB Fees and GMIB Costs and (d) Market Value Adjustments).
(v)	Other expenses, net of DAC capitalization	(v)	Other expenses reduced by capitalization of DAC.
(vi)	Provision for income tax expense (benefit)	(vi)	Tax impact of the above items.

______________


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

Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Accordingly, we report adjusted earnings by segment in Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements.

Adjusted Net Investment Income

We present adjusted net investment income, which is not calculated in accordance with GAAP. We present adjusted net investment income to measure our performance for management purposes, and we believe it enhances the understanding of our investment portfolio results. Adjusted net investment income represents net investment income including Investment Hedge Adjustments. For a reconciliation of adjusted net investment income to net investment income, the most directly comparable GAAP measure, see footnote 34 to the summary yield table located in “— Investments — Current Environment — Investment Portfolio Results.”

Other Financial Disclosures

~~The following additional information is relevant to an understanding of our performance results:~~

We sometimes refer to sales activity for various products. Statistical sales information for life sales are calculated using the LIMRA (Life Insurance Marketing and Research Association) definition of sales for core direct sales, excluding company-sponsored internal exchanges, corporate-owned life insurance, bank-owned life insurance, and private placement variable universal life insurance. Annuity sales consist of 10% of direct statutory premiums, excluding company-sponsored internal exchanges. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity.

Similar to adjusted net investment income, we present net investment income yields as a performance measure we believe enhances the understanding of our investment portfolio results. Net investment income yields are calculated on adjusted net investment income as a percent of average quarterly asset carrying values. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.

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Results of Operations

Consolidated Results for the Three Months ~~andSix Months~~ Ended ~~June 30,~~March 31, 2020 and 2019~~and2018~~

~~Business Overview.~~ ~~Annuity sales increased 35% compared to the first six months of 2018 driven by higher salesof our suite of structured annuities consisting of products marketed under various names (collectively, “Shield Annuities”), fixed indexed annuities and fixed annuities.~~

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(In millions)
Revenues
Premiums	$	232		$	223		$	459		$	452		$	198		$	227
Universal life and investment-type product policy fees	888			962			1,763			1,964			886			875
Net investment income	942			806			1,753			1,623			916			811
Other revenues	96			98			188			203			102			92
Net investment gains (losses)	63			(75		)	52			(79		)	(19		)	(11		)
Net derivative gains (losses)	149			(312		)	(1,154		)	(646		)	6,902			(1,303		)
Total revenues	2,370			1,702			3,061			3,517			8,985			691
Expenses
Policyholder benefits and claims	845			813			1,617			1,551			1,187			772
Interest credited to policyholder account balances	265			269			523			536			259			258
Capitalization of DAC	(95		)	(76		)	(181		)	(152		)	(98		)	(86		)
Amortization of DAC and VOBA	170			246			192			551			770			22
Interest expense on debt	48			33			95			70			47			47
Other expenses	668			734			1,299			1,391			568			631
Total expenses	1,901			2,019			3,545			3,947			2,733			1,644
Income (loss) before provision for income tax	469			(317		)	(484		)	(430		)	6,252			(953		)
Provision for income tax expense (benefit)	85			(79		)	(133		)	(127		)	1,293			(218		)
Net income (loss)	384			(238		)	(351		)	(303		)	4,959			(735		)
Less: Net income (loss) attributable to noncontrolling interests	—			1			2			3			2			2
Net income (loss) attributable to Brighthouse Financial, Inc.	384			(239		)	(353		)	(306		)	4,957			(737		)
Less: Preferred stock dividends	7			—			7			—			7			—
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders	$	377		$	(239	)	$	(360	)	$	(306	)	$	4,950		$	(737	)

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The ~~table below shows the~~ components of net income (loss) available to ~~shareholders.~~shareholders were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(In millions)												(In millions)
GMLB Riders	$	(233	)	$	(429	)	(1,563		)	$	(423	)	$	4,374		$	(1,330	)
Other derivative instruments	344			(2		)	480			(479		)	1,717			136
Net investment gains (losses)	63			(75		)	52			(79		)	(19		)	(11		)
Other adjustments	(17		)	9			(39		)	41			(73		)	(22		)
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends	305			179			577			507
Net income (loss) available to shareholders before provision for income tax	462			(318		)	(493		)	(433		)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends													244			272
Income (loss) available to shareholders before provision for income tax													6,243			(955		)
Provision for income tax expense (benefit)	85			(79		)	(133		)	(127		)	1,293			(218		)
Net income (loss) available to shareholders	$	377		$	(239	)	$	(360	)	$	(306	)	$	4,950		$	(737	)

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared with the Three Months Ended ~~June 30, 2018~~March 31, 2019

~~Net income~~Income available to shareholders before provision for income tax was ~~$462 million~~$6.2 billion ($~~377 million,~~5.0 billion, net of income tax), an increase of ~~$780 million~~$7.2 billion ($~~616 million,~~5.7 billion, net of income tax) from a loss before provision for income tax of ~~$318~~$955 million ($~~239~~737 million, net of income tax) in the prior period.

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

gains from guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) in the current period, ~~gains on interest rate swaps and swaptions~~compared to losses in ~~our ULSG hedge program from declining long-term interest rates;~~

~~lower losses from GMLB Riders, discussed in greater detail in~~the prior period, see “— GMLB Riders for the Three Months Ended March 31, 2020 and ~~Six Months Ended June 30, 2019~~2019”; and ~~2018;”~~

~~higher net investment gains reflecting~~ current period ~~net~~ gains on ~~sales of fixed maturity securities compared~~interest rate derivatives used to ~~prior period losses; and~~

~~higher adjusted earnings, discussed~~manage interest rate exposure in ~~greater detail below.~~our ULSG business due to declining long-term interest rates.

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

higher policyholder benefits and claims, included in other adjustments, resulting from the adjustment for market performance related to participating products in the Run-off ~~segment.~~segment; and

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

The provision for income tax in the current period led to an effective tax rate of ~~18%~~21%, compared to ~~25%~~23% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

~~Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018~~

Net loss available to shareholders before provision for income tax was $493 million ($360 million, net of income tax), an increased loss of $60 million ($54 million, net of income tax) from a loss before provision for income tax of $433 million ($306 million, net of income tax) in the prior period.

~~The increased loss in income before provision for income tax was driven by the following key unfavorable items:~~

~~higher losses from GMLB Riders, discussed in greater detail in “— GMLB Riders for the Three Months and Six Months Ended June 30, 2019 and 2018;” and~~

~~higher policyholder benefits and claims, included in other adjustments, resulting from the adjustment for market performance related to participating products in the Run-off segment.~~

~~The increased loss in income before provision for income tax was partially offset by the following key favorable items:~~

~~current period gains on interest rate swaps and swaptions in our ULSG hedge program from declining long-term interest rates;~~

~~higher net investment gains reflecting:~~


◦	~~current period net gains on sales of fixed maturity securities compared to prior period losses; and~~

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◦	~~current period net mark-to-market gains on equity securities compared to prior period net losses,~~

~~partially offset by~~


◦	~~prior period net gains on real estate limited partnerships; and~~

~~higher adjusted earnings, discussed in greater detail below.~~

The provision for income tax in the current period led to an effective tax rate of 27%, compared to 29% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings

~~Three Months Ended June 30, 2019~~The reconciliation of net income (loss) available to shareholders to adjusted earnings was as follows:

Annuities Life Run-off Corporate & Other Total
(In millions)
Net income (loss) available to shareholders $ 41
$ 78
$ 432
$ (174 ) $ 377
Add: Provision for income tax expense (benefit) 58
14
(41 ) 54
85
Net income (loss) available to shareholders before provision for income tax 99
92
391
(120 ) 462
Less: GMLB Riders (233 ) —
—
—
(233 )
Less: Other derivative instruments (3 ) 11
337
(1 ) 344
Less: Net investment gains (losses) 13
9
68
(27 ) 63
Less: Other adjustments (1 ) —
(16 ) —
(17 )
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends 323
72
2
(92 ) 305
Less: Provision for income tax expense (benefit) 58
14
—
(21 ) 51
Adjusted earnings $ 265
$ 58
$ 2
$ (71 ) $ 254

~~Three Months Ended June 30, 2018~~



	Three Months Ended March 31, 2020
	Annuities			Life		Run-off			Corporate & Other			Total
	(In millions)
Net income (loss) available to shareholders	$	4,721		$	34	$	1,025		$	(830	)	$	4,950
Add: Provision for income tax expense (benefit)	73			2		487			731			1,293
Income (loss) available to shareholders before provision for income tax	4,794			36		1,512			(99		)	6,243
Less: GMLB Riders	4,374			—		—			—			4,374
Less: Other derivative instruments	72			17		1,631			(3		)	1,717
Less: Net investment gains (losses)	(11		)	5		15			(28		)	(19		)
Less: Other adjustments	(30		)	1		(44		)	—			(73		)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	389			13		(90		)	(68		)	244
Less: Provision for income tax expense (benefit)	73			2		(20		)	(22		)	33
Adjusted earnings	$	316		$	11	$	(70	)	$	(46	)	$	211


																Three Months Ended March 31, 2019
	Annuities			Life			Run-off			Corporate & Other			Total			Annuities			Life			Run-off			Corporate & Other			Total
	(In millions)															(In millions)
Net income (loss) available to shareholders	$	(292	)	$	(4	)	$	4		$	53		$	(239	)	$	(1,051	)	$	16		$	258		$	40		$	(737	)
Add: Provision for income tax expense (benefit)	33			12			(19		)	(105		)	(79		)	55			6			(148		)	(131		)	(218		)
Net income (loss) available to shareholders before provision for income tax	(259		)	8			(15		)	(52		)	(318		)
Income (loss) available to shareholders before provision for income tax																(996		)	22			110			(91		)	(955		)
Less: GMLB Riders	(429		)	—			—			—			(429		)	(1,330		)	—			—			—			(1,330		)
Less: Other derivative instruments	36			1			(59		)	20			(2		)	(32		)	10			158			—			136
Less: Net investment gains (losses)	(132		)	(39		)	44			52			(75		)	4			(19		)	21			(17		)	(11		)
Less: Other adjustments	—			—			8			1			9			1			—			(23		)	—			(22		)
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends	266			46			(8		)	(125		)	179
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends																361			31			(46		)	(74		)	272
Less: Provision for income tax expense (benefit)	45			9			(2		)	(26		)	26			66			6			(10		)	(22		)	40
Adjusted earnings	$	221		$	37		$	(6	)	$	(99	)	$	153		$	295		$	25		$	(36	)	$	(52	)	$	232

~~Table of Contents~~

~~Six Months Ended June 30, 2019~~

Annuities Life Run-off Corporate & Other Total
(In millions)
Net income (loss) available to shareholders $ (1,010 ) $ 94
$ 690
$ (134 ) $ (360 )
Add: Provision for income tax expense (benefit) 113
20
(189 ) (77 ) (133 )
Net income (loss) available to shareholders before provision for income tax (897 ) 114
501
(211 ) (493 )
Less: GMLB Riders (1,563 ) —
—
—
(1,563 )
Less: Other derivative instruments (35 ) 21
495
(1 ) 480
Less: Net investment gains (losses) 17
(10 ) 89
(44 ) 52
Less: Other adjustments —
—
(39 ) —
(39 )
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends 684
103
(44 ) (166 ) 577
Less: Provision for income tax expense (benefit) 124
20
(10 ) (43 ) 91
Adjusted earnings $ 560
$ 83
$ (34 ) $ (123 ) $ 486

~~Six Months Ended June 30, 2018~~

Annuities Life Run-off Corporate & Other Total
(In millions)
Net income (loss) available to shareholders $ (49 ) $ 86
$ (258 ) $ (85 ) $ (306 )
Add: Provision for income tax expense (benefit) 84
35
(116 ) (130 ) (127 )
Net income (loss) available to shareholders before provision for income tax 35
121
(374 ) (215 ) (433 )
Less: GMLB Riders (423 ) —
—
—
(423 )
Less: Other derivative instruments 14
(13 ) (479 ) (1 ) (479 )
Less: Net investment gains (losses) (96 ) 7
12
(2 ) (79 )
Less: Other adjustments 2
—
38
1
41
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends 538
127
55
(213 ) 507
Less: Provision for income tax expense (benefit) 91
24
11
(55 ) 71
Adjusted earnings $ 447
$ 103
$ 44
$ (158 ) $ 436

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Consolidated Results for the Three Months Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~ — Adjusted Earnings

The ~~following table presents the~~ components of adjusted ~~earnings:~~earnings were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(In millions)												(In millions)
Fee income	$	919		$	990		$	1,820		$	2,026		$	922		$	901
Net investment spread	459			330			794			674			441			335
Insurance-related activities	(292		)	(295		)	(565		)	(550		)	(494		)	(273		)
Amortization of DAC and VOBA	(153		)	(150		)	(250		)	(327		)	(99		)	(97		)
Other expenses, net of DAC capitalization	(621		)	(695		)	(1,213		)	(1,313		)	(517		)	(592		)
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	7			1			9			3			9			2
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends	305			179			577			507
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends													244			272
Provision for income tax expense (benefit)	51			26			91			71			33			40
Adjusted earnings	$	254		$	153		$	486		$	436		$	211		$	232

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared with the Three Months Ended ~~June 30, 2018~~March 31, 2019

Adjusted earnings were ~~$254~~$211 million, ~~an increase~~a decrease of ~~$101~~$21 million.

Key net unfavorable impacts were:

higher costs associated with insurance-related activities due to:


◦	an increase in guaranteed minimum death benefits (“GMDB”) liability balances resulting from unfavorable equity market performance; and


◦	unfavorable underwriting margin in our Life and Run-off segments.

Key favorable impacts were:

higher net investment spread reflecting:


◦	higher ~~alternative~~net investment income infrom higher returns on other limited partnerships for the ~~current~~comparative measurement period; and


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

partially offset by


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

lower other expenses due to:


◦	lower deferred compensation expense driven by the decline in equity markets; and


◦	lower establishment costs in the current period related to planned technology ~~expense;~~expenses;

higher fee income due to:


◦	higher unearned revenue amortization in the ~~exit of various transition service agreements with MetLife;~~current period in our Life segment from lower separate account growth; and


◦	a net reinsurance benefit in the current period as a result of a decline in the underlying market conditions in our Annuity segment;

partially offset by


◦	lower ~~asset-based variable annuity expenses resulting from~~retained fees in our Run-off segment driven by the aging in-force and lower average ~~separate account balances, which are passed through to third-parties and largely offset in fee income.~~balances.

The increase in adjusted earnings was partially offset by lower fee income primarily due to lower asset-based fees resulting from lower average separate account balances, a portion of which are offset in other expenses.

The provision for income tax in the current period led to an effective tax rate of ~~17%~~14%, compared to 15% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

~~Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018~~

~~Adjusted earnings were $486 million, an increase of $50 million.~~

~~Key net favorable impacts were:~~

~~higher net investment spread reflecting:~~


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

~~partially offset by~~


◦	~~lower alternative investment income in the current period.~~

~~lower other expenses due to:~~


◦	~~lower establishment costs in the current period related to planned technology expenses;~~


◦	~~the exit of various transition service agreements with MetLife; and~~

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◦	~~lower asset-based variable annuity expenses resulting from lower average separate account balances, which are passed through to third-parties and largely offset in fee income;~~

~~lower amortization of DAC and VOBA due to positive equity market performance in the current period.~~

~~The increase in adjusted earnings was partially offset by the following:~~

~~lower fee income due to:~~


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


◦	~~the reimbursement of fees for recaptured universal life business in the prior period; and~~

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


◦	~~unfavorable mortality in our life business;~~

~~partially offset by~~


◦	~~a decrease in guaranteed minimum death benefits (“GMDB”) liability balances resulting from positive equity market performance.~~

The provision for income tax in the current period led to an effective tax rate of 16%, compared to 14% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

Segments and Corporate & Other Results for the Three Months Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~ — Adjusted Earnings

Annuities

The ~~following table presents the~~ components of adjusted earnings for our Annuities ~~segment:~~segment were as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2019
2018 2019
2018
(In millions)
Fee income $ 664
$ 720
$ 1,302
$ 1,451
Net investment spread 280
186
521
361
Insurance-related activities (77 ) (89 ) (119 ) (174 )
Amortization of DAC and VOBA (128 ) (124 ) (210 ) (267 )
Other expenses, net of DAC capitalization (416 ) (427 ) (810 ) (833 )
Pre-tax adjusted earnings 323
266
684
538
Provision for income tax expense (benefit) 58
45
124
91
Adjusted earnings $ 265
$ 221
$ 560
$ 447

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	Three Months Ended March 31,
	2020			2019
	(In millions)
Fee income	$	656		$	638
Net investment spread	262			241
Insurance-related activities	(126		)	(42		)
Amortization of DAC and VOBA	(38		)	(82		)
Other expenses, net of DAC capitalization	(365		)	(394		)
Pre-tax adjusted earnings	389			361
Provision for income tax expense (benefit)	73			66
Adjusted earnings	$	316		$	295

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. ~~Below is a rollforward of~~The changes in our variable annuities separate account ~~balances.~~balances are presented in the table below. Variable annuities separate account balances ~~increased~~decreased for the three months ~~and six months~~ ended ~~June 30, 2019~~March 31, 2020. The decrease was primarily driven by ~~positive~~lower equity market performance ~~partially offset by~~and negative net ~~flows and policy charges.~~flows.


	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019			March 31, 2020
	(In millions)						(In millions)
Balance, beginning of period	$	98,244		$	91,923		$	99,498
Deposits	338			637			412
Withdrawals, surrenders and contract benefits	(2,499		)	(4,782		)
Withdrawals, surrenders and benefits							(2,364		)
Net flows	(2,161		)	(4,145		)	(1,952		)
Investment performance	3,630			12,556			(14,131		)
Policy charges	(627		)	(1,197		)	(569		)
Net transfers from (to) general account	(73		)	(124		)	(198		)
Balance, end of period	$	99,013		$	99,013		$	82,648

Average balance	$	98,142		$	97,320		$	94,302

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared with the Three Months Ended ~~June 30, 2018~~March 31, 2019

Adjusted earnings were ~~$265~~$316 million for the current period, an increase of ~~$44~~$21 million.

Key ~~net~~ favorable impacts were:

~~higher~~lower amortization of DAC and VOBA driven by the net ~~investment spread driven by:~~


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


◦	~~higher alternative investment income in the current period; and~~


◦	~~repositioning of the investment portfolio into higher yielding assets;~~

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


◦	~~a decrease in GMDB liability balances resulting from positive equity market performance,~~

~~partially offset by~~


◦	~~higher paid claims net of reinsurance; and~~

~~lower other expenses due to:~~


◦	~~lower asset-based variable annuity expenses resulting from lower average separate account balances, which are passed through to third-parties and largely offset in fee income; and~~


◦	~~the exit of various transition services agreements with MetLife in the current period,~~

~~partially offset by~~


◦	~~an increase in the allocation of corporate expenses.~~

~~The increase in adjusted earnings was partially offset by lower fee income due to lower asset-based fees resulting from lower average separate account balances, a portion~~reduction of ~~which are offset in other expenses.~~

~~The provision for income tax in the current period led to an effective tax rate of 18%, compared to 17% in the prior period. Our effective tax rate primarily differs~~future gross profits from the ~~statutory tax rate due to~~decline in equity markets;

lower deferred compensation expense driven by the ~~impacts of the dividends received deductions and tax credits.~~

~~Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018~~

~~Adjusted earnings were $560 million for the current period, an increase of $113 million.~~

~~Key net favorable impacts were:~~decline in equity markets;

higher net investment spread driven by:


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


◦	higher net investment income from higher returns on other limited partnerships for the comparative measurement period;

partially offset by

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◦	~~repositioning of~~lower investment yields on the fixed income portfolio, as proceeds from maturing investments and growth in the investment portfolio ~~into higher yielding assets;~~were invested at lower yields than the portfolio average; and


◦	~~higher alternative investment income in the current period.~~

~~lower amortization~~higher fee income driven by a net reinsurance benefit in the current period as a result of ~~DAC and VOBA driven by:~~a decline in the underlying market conditions.


◦	~~positive equity market performance in the current period; and~~


◦	~~the net impacts of actuarial model refinements in both the current and prior periods;~~

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


◦	~~a decrease in GMDB liability balances resulting from positive equity market performance,~~

~~partially offset by~~


◦	~~higher paid claims net of reinsurance; and~~

~~lower other expenses due to:~~


◦	~~lower asset-based variable annuity expenses resulting from lower average separate account balances, which are passed through to third-parties and largely offset in fee income; and~~


◦	~~the exit of various transition services agreements with MetLife in the current period,~~

~~partially offset by~~


◦	~~an increase in the allocation of corporate expenses.~~

The increase in adjusted earnings was partially offset by ~~lower fee income~~higher costs associated with insurance-related activities due to ~~lower asset-based fees~~an increase in GMDB liabilities resulting from unfavorable equity market performance in the current period, net of lower ~~average separate account balances, a portion of which are offset in other expenses.~~income annuity benefit payments.

The provision for income tax in the current period led to an effective tax rate of ~~18%~~19%, compared to ~~17%~~18% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions.

Life

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



	Three Months Ended March 31,
	2020			2019
	(In millions)
Fee income	$	97		$	61
Net investment spread	59			42
Insurance-related activities	(66		)	(6		)
Amortization of DAC and VOBA	(58		)	(11		)
Other expenses, net of DAC capitalization	(19		)	(55		)
Pre-tax adjusted earnings	13			31
Provision for income tax expense (benefit)	2			6
Adjusted earnings	$	11		$	25

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

Adjusted earnings were $11 million for the current period, a decrease of $14 million.

Key net unfavorable impacts were:

higher costs associated with insurance-related activities due to lower underwriting margin driven by higher paid claims, net of reinsurance, in the current period; and

higher amortization of DAC and VOBA reflecting the impact on gross profits from lower separate account returns.

Key net favorable impacts were:

higher fee income due to higher unearned revenue amortization in the current period from lower separate account growth;

lower deferred compensation expense driven by the decline in equity markets; and

higher net investment spread from higher returns on other limited partnerships for the comparative measurement period.

The provision for income tax led to an effective tax rate of 15%, compared to 19% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions.

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Run-off

The components of adjusted earnings for our Run-off segment were as follows:



	Three Months Ended March 31,
	2020			2019
	(In millions)
Fee income	$	169		$	199
Net investment spread	100			35
Insurance-related activities	(307		)	(234		)
Amortization of DAC and VOBA	—			—
Other expenses, net of DAC capitalization	(52		)	(46		)
Pre-tax adjusted earnings	(90		)	(46		)
Provision for income tax expense (benefit)	(20		)	(10		)
Adjusted earnings	$	(70	)	$	(36	)

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

Adjusted earnings were a loss of $70 million for the current period, a higher loss of $34 million.

Key net unfavorable impacts were:

higher costs associated with insurance-related activities due to:


◦	an increase in liability balances from the impact of recapture transactions in our ULSG business in the current period;


◦	a one-time adjustment to paid claims in our company-owned life insurance business resulting from the transition to a new vendor; and


◦	lower underwriting margin driven by higher paid claims, net of reinsurance, in the current period;

lower fee income in our ULSG business due to:


◦	a decline in the net cost of insurance fees driven by the aging in-force business; and


◦	a decrease in policyholder fees consistent with lower average account balances.

The decrease in adjusted earnings was partially offset by higher net investment spread from higher returns on other limited partnerships for the comparative measurement period.

The provision for income tax led to an effective tax rate of 22% in both the current and prior periods. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions.

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Corporate & Other

The components of adjusted earnings for Corporate & Other were as follows:



	Three Months Ended March 31,
	2020			2019
	(In millions)
Fee income	$	—		$	3
Net investment spread	20			17
Insurance-related activities	5			9
Amortization of DAC and VOBA	(3		)	(4		)
Other expenses, net of DAC capitalization	(81		)	(97		)
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	9			2
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	(68		)	(74		)
Provision for income tax expense (benefit)	(22		)	(22		)
Adjusted earnings	$	(46	)	$	(52	)

Three Months Ended March 31, 2020 Compared with the Three Months Ended March 31, 2019

Adjusted earnings were a loss of $46 million, an improvement of $6 million from the prior period.

The increase in adjusted earnings was primarily due to lower other expenses driven by lower establishment costs in the current period related to planned technology expenses, partially offset by the commencement of preferred stock dividend payments in the current period.

The provision for income tax in the current period led to an effective tax rate of 32%, compared to 30% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

~~Life~~

~~The following table presents the components of adjusted earnings for our Life segment:~~

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In millions)
Fee income $ 64
$ 77
$ 125
$ 180
Net investment spread 61
52
103
98
Insurance-related activities 12
14
6
38
Amortization of DAC and VOBA (21 ) (23 ) (32 ) (52 )
Other expenses, net of DAC capitalization (44 ) (74 ) (99 ) (137 )
Pre-tax adjusted earnings 72
46
103
127
Provision for income tax expense (benefit) 14
9
20
24
Adjusted earnings $ 58
$ 37
$ 83
$ 103

~~Three Months Ended June 30, 2019 Compared with the Three Months Ended June 30, 2018~~

~~Adjusted earnings were $58 million for the current period, an increase of $21 million.~~

~~Key net favorable impacts were:~~


��	~~lower other expenses due to a decrease in the allocation of corporate expenses in the current period; and~~

~~higher net investment spread reflecting repositioning of the investment portfolio into higher yielding assets.~~

~~The increase in adjusted earnings was partially offset by lower fee income due to lower net costs of insurance fees driven by the decline in our aging in-force business.~~

The provision for income tax led to an effective tax rate of 19% in the current period, compared to 20% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

~~Table of Contents~~

~~Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018~~

~~Adjusted earnings were $83 million for the current period, a decrease of $20 million.~~

~~Key net unfavorable impacts were:~~

~~lower fee income due to:~~


◦	~~the reimbursement of fees for recaptured universal life business in the prior period;~~


◦	~~lower amortization of unearned revenue in the current period from positive separate account fund performance;~~


◦	~~lower net cost of insurance fees driven by the decline in our aging in-force business; and~~

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

~~The decrease in adjusted earnings was partially offset by:~~

~~lower other expenses due to a decrease in the allocation of corporate expenses in the current period; and~~

~~lower amortization of DAC and VOBA primarily due to positive equity market performance in the current period.~~

The provision for income tax led to an effective tax rate of 19% in both the current and prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

~~Run-off~~

~~The following table presents the components of adjusted earnings for our Run-off segment:~~

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In millions)
Fee income $ 188
$ 197
$ 387
$ 402
Net investment spread 101
81
136
193
Insurance-related activities (236 ) (225 ) (470 ) (431 )
Amortization of DAC and VOBA —
—
—
—
Other expenses, net of DAC capitalization (51 ) (61 ) (97 ) (109 )
Pre-tax adjusted earnings 2
(8 ) (44 ) 55
Provision for income tax expense (benefit) —
(2 ) (10 ) 11
Adjusted earnings $ 2
$ (6 ) $ (34 ) $ 44

~~Three Months Ended June 30, 2019 Compared with the Three Months Ended June 30, 2018~~

~~Adjusted earnings were $2 million for the current period, an increase of $8 million.~~

~~Key net favorable impacts were:~~

~~higher net investment spread reflecting higher alternative investment income in the current period; and~~

~~lower other expenses due to a decrease in allocated expenses resulting from business run-off.~~

~~The increase in adjusted earnings was partially offset by higher costs associated with insurance-related activities due to:~~

~~unfavorable underwriting in our ULSG business resulting from higher claim severity and~~

~~an increase in reserves in the current period from higher reinsurance rates on certain assumed ULSG business;~~

~~partially offset by~~

~~lower benefit costs driven by the aging of our structured settlement business.~~

There was a minimal income tax expense and effective tax rate in the current period, compared an effective rate of 25% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

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~~Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018~~

~~Adjusted earnings were a loss of $34 million for the current period, a decrease of $78 million.~~

~~Key net unfavorable impacts were:~~

~~lower net investment spread reflecting lower alternative investment income in the current period;~~

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


◦	~~unfavorable mortality in our ULSG business resulting from higher claim severity and lower reinsurance recoveries in the current period and~~


◦	~~an increase in reserves in the current period from higher reinsurance rates on certain assumed ULSG business;~~

~~lower fee income due to:~~


◦	~~the reimbursement of fees for recaptured ULSG business in the prior period;~~

~~partially offset by~~


◦	~~the ongoing impacts of various reinsurance recaptures, which occurred in the prior period.~~

~~The decrease in adjusted earnings was partially off by lower other expenses due to a decrease in expenses resulting from business run-off.~~

The provision for income tax in the current period led to an effective tax rate of 23%, compared to 20% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

~~Corporate & Other~~

~~The following table presents the components of adjusted earnings for Corporate & Other:~~

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In millions)
Fee income $ 3
$ (4 ) $ 6
$ (7 )
Net investment spread 17
11
34
22
Insurance-related activities 9
5
18
17
Amortization of DAC and VOBA (4 ) (3 ) (8 ) (8 )
Other expenses, net of DAC capitalization (110 ) (133 ) (207 ) (234 )
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends 7
1
9
3
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends (92 ) (125 ) (166 ) (213 )
Provision for income tax expense (benefit) (21 ) (26 ) (43 ) (55 )
Adjusted earnings $ (71 ) $ (99 ) $ (123 ) $ (158 )

~~Three Months Ended June 30, 2019 Compared with the Three Months Ended June 30, 2018~~

~~Adjusted earnings were a loss of $71 million, an improvement of $28 million from the prior period.~~

~~Key net favorable impacts were:~~

~~lower other expenses due to~~


◦	~~lower establishment costs in the current period related to planned technology expenses; and~~


◦	~~lower branding expenses associated with the Separation;~~

~~higher fee income due to reimbursement of pension liabilities from MetLife, which was reported in other expenses in the prior period; and~~

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~~higher net investment spread reflecting positive returns on short-term investments.~~

The provision for income tax in the current period led to an effective tax rate of 23%, compared to 21% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of tax credits.

~~Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018~~

~~Adjusted earnings were a loss of $123 million, an improvement of $35 million from the prior period.~~

~~Key net favorable impacts were:~~

~~lower other expenses due to:~~


◦	~~lower establishment costs in the current period related to planned technology expenses; and~~


◦	~~lower branding expenses associated with the Separation;~~

~~partially offset by~~


◦	~~higher interest on debt which was issued in the first quarter of 2019 and the third quarter of 2018;~~

~~higher fee income due to reimbursement of pension liabilities from MetLife, which was reported in other expenses in the prior period; and~~

~~higher net investment spread reflecting positive returns on short-term investments.~~

The provision for income tax in the current period led to an effective tax rate of 26% in both the current and prior periods. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of tax credits.

GMLB Riders for the Three Months Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~

The ~~following table presents the~~ overall impact to 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:~~offsets, was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(In millions)												(In millions)
Liabilities ~~(1)~~	$	(702	)	$	(21	)	$	(1,051	)	$	312		$	(619	)	$	(348	)
Hedging program	245			(510		)	(999		)	(881		)
Hedges													5,337			(1,245		)
Ceded reinsurance	34			(16		)	24			(44		)	97			(9		)
Fees ~~(2)~~(1)	207			214			406			419			201			198
GMLB DAC	(17		)	(96		)	57			(229		)	(642		)	74
Total GMLB Riders	$	(233	)	$	(429	)	$	(1,563	)	$	(423	)	$	4,374		$	(1,330	)

~~______________~~_______________


(1)	Includes changes in fair value of the Shield Annuities embedded derivatives of ($204) million and ($903) million for the three months and six months ended June 30, 2019, respectively, and ($127) million and ($69) million for the three months and six months ended June 30, 2018, respectively.


~~(2)~~	Excludes living benefit fees, included as a component of adjusted earnings, of ~~$16~~$14 million and ~~$32~~$16 million for the three months ended March 31, 2020 and ~~six months ended June 30,~~ 2019, ~~respectively, and $18 million and $36 million for the three months and six months ended June 30, 2018,~~ respectively.

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared with the Three Months Ended ~~June 30, 2018~~March 31, 2019

Comparative results from GMLB Riders were favorable by ~~$196 million.~~

~~This favorable increase was~~$5.7 billion, primarily driven by:

a net favorable change in ~~GMLB DAC related to capital market factors;~~

~~net favorable changes in~~ the GMLB ~~Hedging Program in excess of increases to the liability reserves;~~hedges; and

~~favorable changes in ceded reinsurance.~~


•	favorable changes in ShieldAnnuity liabilityreserves;

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partially offset by

unfavorable change to the estimated fair value of the variable annuity liability reserve; and

unfavorable changes in GMLB DAC.

Lower relative equity markets in the current period significantly impacted the following:

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

favorable changes to the estimated fair value of the Shield Annuity liability reserves, net of unfavorable changes to the estimated fair value of the related hedges;

partially offset by

unfavorable changes to the estimated fair value of the variable annuity liability reserve.

Lower interest rates in the current period significantly impacted the following:

favorable ~~change~~changes to the estimated fair value of ~~the freestanding derivatives in~~ our GMLB ~~Hedging Program~~hedges; and

favorable changes ~~in reinsurance~~to GMLB DAC;

partially offset by

unfavorable changes to the estimated fair value of the variable annuity liability ~~reserves.~~reserve.

~~Higher relative equity markets~~The widening of our credit default swap spreads combined with an increase in the ~~current period significantly impacted the following:~~

~~unfavorable changes to the fair value of the freestanding derivatives in our GMLB Hedging Program and~~

~~unfavorable changes to the fair value of the Shield liability reserves;~~

~~partially offset by~~

~~favorable changes to the fair value of the~~underlying variable annuity liability ~~reserves.~~

~~Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018~~

~~Comparative results from GMLB Riders were unfavorable by $1.1 billion.~~

~~This decrease was primarily driven by:~~

~~the~~reserves resulted in a favorable change in non-performance risk net of an unfavorable change in the ~~fair value of the embedded derivative liability reserves and~~

~~higher losses in the GMLB Hedging Program~~

~~partially offset by~~

~~a net favorable change in~~ GMLB DAC ~~related to capital market factors and~~

~~favorable changes in the ceded reinsurance.~~

The unfavorable change in the embedded derivative liabilities was driven primarily by lower interest rates in the current period compared to higher interest rates in the prior period and the impact of capital market changes to the adjustment for non-performance risk and risk margins. While higher relative equity markets favorably impacted the fair value of the variable annuity liability reserves, this impact was largely offset by the unfavorable impact that the higher equity markets had on the fair value of the Shield Annuities reserves.

Higher losses in the GMLB Hedging Program resulted as unfavorable changes from higher relative equity markets exceeded the favorable changes due to lower interest rates in the current period compared to the prior period.offset.

Investments

Investment Risks

Our primary investment objective is to optimize risk-adjusted net investment income and risk-adjusted total return while appropriately matching assets and liabilities. In addition, the investment process is designed to ensure that the portfolio has an appropriate level of liquidity, quality and diversification.

We are exposed to the following primary sources of investment ~~risks:~~risks, which may be heightened or exacerbated by the factors discussed in “— Industry Trends — COVID-19 Pandemic”:

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

interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates. Changes in market interest rates will impact the net unrealized gain or loss position of our fixed income investment portfolio and the rates of return we receive on both new funds invested and reinvestment of existing funds;

market valuation risk, relating to the variability in the estimated fair value of investments associated with changes in market factors such as credit spreads and equity market levels. A widening of credit spreads will adversely impact the net unrealized gain (loss) position of the fixed income investment portfolio and will increase losses associated with credit-based non-qualifying derivatives where we assume credit ~~exposure, and, if credit spreads widen significantly or for an extended period of time, will likely result in higher other-than-temporary impairment (“OTTI”).~~exposure. Credit spread tightening will reduce net investment income associated with new purchases of fixed maturity securities and will favorably impact the net unrealized gain (loss) position of the fixed income investment portfolio;

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

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

currency risk, relating to the variability in currency exchange rates for ~~foreign~~non-U.S. dollar denominated investments; and

financial and operational ~~integration risks while we transition to a multiple manager investment platform, and following such transition, we will continue to be subject to the~~ risks related to using external investment managers.

We manage these risks through asset-type allocation and industry and issuer diversification. Risk limits are also used to promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit and equity risk exposure. Real estate risk is managed through geographic and property type and product type diversification. ~~We manage interest~~Interest rate risk is managed as part of our Asset Liability Management (“ALM”) strategies. Product design, such as the use of market value adjustment features and surrender charges, is also utilized to manage interest rate risk. These strategies include maintaining an investment portfolio ~~with diversified maturities~~

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that targets a weighted average duration that reflects the duration of our estimated liability cash flow profile. For certain of our liability portfolios, it is not possible to invest assets to the full liability duration, thereby creating some asset/liability mismatch. We also use certain derivatives in the management of currency, credit, interest rate, and equity market risks.

Investment Management Agreements

~~Following the Separation, MetLife Investment Advisors (“MLIA”) managed~~Other than our ~~investment portfolio pursuant~~derivatives trading, which we manage in-house, we have engaged a select group of experienced external asset management firms to several investment management agreements. On February 5, 2019, we terminated several existing investment management agreements with MLIA and entered into a new investment management agreement (the “Investment Management Agreement”) with MLIA, pursuant to which MLIA will, on a sub-advisory basis, manage the investment of the assets comprising ~~the~~our general account portfolio and certain separate account assets of our insurance subsidiaries, as well as assets of BHF and our ~~non-insurance subsidiaries. As part~~reinsurance subsidiary, Brighthouse Reinsurance Company of the termination of the prior investment management agreements, we brought our derivatives trading, which had previously been managed by MLIA, in-house. The Investment Management Agreement marks one of the initial steps in the transition of our investment portfolio to a multi-manager platform, which is expected to continue in stages throughout 2019. The Investment Management Agreement allows us flexibility to partially terminate investment management services for specified investments upon prior notice to MLIA and we have accordingly terminated certain services under the Investment Management Agreement as we have engaged a select group of experienced external asset management firms to provide such services.Delaware (“BRCD”).

Current Environment

Our business and results of operations are materially affected by conditions in capital markets and the economy, generally. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — Financial and Economic Environment” included in the ~~2018~~2019 Annual Report.

As a U.S. insurance company, we are affected by the monetary policy of the Federal Reserve Board in the United States. The Federal Reserve may increase or decrease the federal funds rate in the future, which may have an impact on the pricing levels of risk-bearing investments and may adversely impact the level of product sales. We are also affected by the monetary policy of central banks around the world due to the diversification of our investment portfolio.

Selected Sector Investments

Recent elevated levels of market volatility have affected the performance of various asset classes. Contributing factors include concerns about lower energy and oil prices impacting the energy sector and the COVID-19 pandemic. See “Risk Factors — The ongoing COVID-19 pandemic may materially adversely affect our business, results of operations and financial condition, including capitalization and liquidity.”

There has been an increased market focus on energy sector investments as a result of lower energy and oil prices. We maintain a diversified energy sector fixed maturity securities portfolio across sub-sectors and issuers. Our exposure to energy sector fixed maturity securities was $2.5 billion, of which 91% were investment grade, with net unrealized gains (losses) of ($289) million at March 31, 2020.

There has also been an increased market focus on retail sector investments as a result of the COVID-19 pandemic and uncertainty regarding its outcome. Our exposure to retail sector corporate fixed maturity securities was $1.7 billion, of which 98% were investment grade, with net unrealized gains (losses) of $34 million at March 31, 2020.

In addition to the fixed maturity securities disclosed above, we have exposure to mortgage loans and certain residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”) that may be impacted by the COVID-19 pandemic. Our investment managers are actively working with borrowers who are experiencing short-term financial or operational problems as a result of the COVID-19 pandemic to provide temporary relief. See “— Investments — Mortgage Loans” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on mortgage loans, including credit quality by portfolio segment and commercial mortgage loans by property type. Additionally, see “— Investments — Structured Securities” for information on Structured Securities, including security type, risk profile and ratings profile.

We monitor direct and indirect investment exposure across sectors and asset classes and adjust our level of investment exposure, as appropriate. At this time, we do not expect that our general account investments in these sectors and asset classes will have a material adverse effect on our results of operations or financial condition.

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Investment Portfolio Results

The following summary yield table presents the yield and adjusted net investment income for our investment portfolio for the periods indicated. As described below, this table reflects certain differences from the presentation of net investment income presented in the GAAP statement of operations. This summary yield table presentation is consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results.

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	Three Months Ended June 30,										Six Months Ended June 30,										Three Months Ended March 31,
	2019					2018					2019					2018					2020					2019
	Yield% (1)		Amount			Yield% (1)		Amount			Yield% (1)		Amount			Yield% (1)		Amount			Yield%		Amount			Yield%		Amount
	(Dollars in millions)																				(Dollars in millions)
Investment income(1)	4.79	%	$	967		4.53	%	$	841		4.52	%	$	1,806		4.59	%	$	1,693		4.44	%	$	952		4.24	%	$	839
Investment fees and expenses(2)	(0.12	)	(25		)	(0.16	)	(29		)	(0.13	)	(53		)	(0.15	)	(56		)	(0.14	)	(32		)	(0.14	)	(28		)
Adjusted net investment income (2), (3)	4.67	%	$	942		4.37	%	$	812		4.39	%	$	1,753		4.44	%	$	1,637
Adjusted net investment income (3)																					4.30	%	$	920		4.10	%	$	811

_______________

(1)

~~Yields~~Investment income yields are calculated as investment income as a percent of average quarterly asset carrying values. Investment income excludes recognized gains and losses and reflects the adjustments presented in footnote 3 below to arrive at adjusted net investment income. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.

(2)

~~Adjusted net~~Investment fee and expense yields are calculated as investment ~~income included~~fees and expenses as a percent of average quarterly asset estimated fair values. Asset estimated fair values exclude collateral received in ~~yield calculations includes Investment Hedge Adjustments.~~connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.


(3)	Adjusted net investment income presented in the yield table varies from the most directly comparable GAAP measure due to certain reclassifications, as presented below.


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
	2019		2018			2019		2018			2020			2019
	(In millions)										(In millions)
Net investment income	$	942	$	806		$	1,753	$	1,623		$	916		$	811
Less: Investment hedge adjustments	—		(3		)	—		(11		)	(4		)	—
Less: Other incremental net investment income	—		(3		)	—		(3		)
Adjusted net investment income — in the above yield table	$	942	$	812		$	1,753	$	1,637		$	920		$	811

See “— Results of Operations — Consolidated Results for the Three Months Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~ — Adjusted Earnings” for an analysis of the period over period changes in net investment income.

Fixed Maturity Securities ~~AFS~~Available-for-sale (“AFS”)

~~The following table presents fixed~~Fixed maturity securities ~~available-for-sale (“AFS”)~~held by type (public or private) ~~held~~were as follows at:


	June 30, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	Estimated Fair Value			% of Total		Estimated Fair Value			% of Total		Estimated Fair Value			% of Total		Estimated Fair Value			% of Total
	(Dollars in millions)										(Dollars in millions)
Fixed maturity securities
Publicly-traded	$	55,132		82.0	%	$	51,939		83.0	%	$	58,876		82.6	%	$	58,099		81.8	%
Privately-placed	12,079			18.0		10,669			17.0		12,426			17.4		12,937			18.2
Total fixed maturity securities	$	67,211		100.0	%	$	62,608		100.0	%	$	71,302		100.0	%	$	71,036		100.0	%
Percentage of cash and invested assets	71.6		%			71.7		%			62.7		%			72.0		%

Valuation of Securities.See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on our valuation controls and procedures including our formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value.

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Fixed Maturity Securities AFS

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

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Fixed Maturity Securities Credit Quality — Ratings

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity AFS — Fixed Maturity Securities Credit Quality — Ratings” included in the ~~2018~~2019 Annual Report for a discussion of the credit quality ratings assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the NAIC for fixed maturity securities and the ~~revised~~ methodologies adopted by the NAIC for certain~~residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”).~~ Structured Securities.

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


			June 30, 2019									December 31, 2018											March 31, 2020											December 31, 2019
NAIC Designation		NRSRO Rating	Amortized Cost		Unrealized Gain (Loss)			Estimated Fair Value		% of Total		Amortized Cost		Unrealized Gain (Loss)			Estimated Fair Value		% of Total			NRSRO Rating	Amortized Cost		Allowance for Credit Losses		Unrealized Gain (Loss)			Estimated Fair Value		% of Total		Amortized Cost		Allowance for Credit Losses		Unrealized Gain (Loss)		Estimated Fair Value		% of Total
			(Dollars in millions)																				(Dollars in millions)
1		Aaa/Aa/A	$	39,729	$	4,648		$	44,377	66.0	%	$	40,218	$	1,954		$	42,172	67.4	%		Aaa/Aa/A	$	42,051	$	—	$	6,281		$	48,332	67.8	%	$	41,463	$	—	$	5,252	$	46,715	65.8	%
2		Baa	18,625		1,164			19,789		29.5		17,656		(122		)	17,534		28.0			Baa	20,072		—		94			20,166		28.3		19,838		—		1,610		21,448		30.2
Subtotal investment grade	Subtotal investment grade		58,354		5,812			64,166		95.5		57,874		1,832			59,706		95.4		Subtotal investment grade		62,123		—		6,375			68,498		96.1		61,301		—		6,862		68,163		96.0
3		Ba	2,044		36			2,080		3.1		2,160		(87		)	2,073		3.3			Ba	2,314		—		(239		)	2,075		2.9		2,015		—		72		2,087		2.9
4		B	855		4			859		1.3		787		(48		)	739		1.2			B	709		—		(59		)	650		0.9		673		—		23		696		1.0
5		Caa and lower	75		(1		)	74		0.1		99		(9		)	90		0.1			Caa and lower	90		10		(2		)	78		0.1		90		—		—		90		0.1
6		In or near default	34		(2		)	32		—		—		—			—		—			In or near default	1		—		—			1		—		—		—		—		—		—
Subtotal below investment grade	Subtotal below investment grade		3,008		37			3,045		4.5		3,046		(144		)	2,902		4.6		Subtotal below investment grade		3,114		10		(300		)	2,804		3.9		2,778		—		95		2,873		4
Total fixed maturity securities	Total fixed maturity securities		$	61,362	$	5,849		$	67,211	100.0	%	$	60,920	$	1,688		$	62,608	100.0	%	Total fixed maturity securities		$	65,237	$	10	$	6,075		$	71,302	100	%	$	64,079	$	—	$	6,957	$	71,036	100	%

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The following tables present total fixed maturity securities, based on estimated fair value, by sector classification and by NRSRO rating and the applicable NAIC designations from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the NAIC methodologies as described above:


	Fixed Maturity Securities — by Sector & Credit Quality Rating																					Fixed Maturity Securities — by Sector & Credit Quality Rating
NAIC Designation	1			2			3			4			5			6			Total Estimated Fair Value			1		2		3		4		5		6		Total Estimated Fair Value
NRSRO Rating	Aaa/Aa/A			Baa			Ba			B			Caa and Lower			In or Near Default			Total Estimated Fair Value			Aaa/Aa/A		Baa		Ba		B		Caa and Lower		In or Near Default		Total Estimated Fair Value
	(Dollars in millions)																					(In millions)
June 30, 2019
March 31, 2020
U.S. corporate	$	13,788		$	12,297		$	1,437		$	695		$	33		$	32		$	28,282		$	15,572	$	13,070	$	1,459	$	528	$	40	$	1	$	30,670
Foreign corporate																						2,970		5,696		499		70		9		—		9,244
RMBS																						8,843		22		13		3		19		—		8,900
U.S. government and agency	7,198			71			—			—			—			—			7,269			8,833		93		—		—		—		—		8,926
RMBS	9,323			29			35			3			21			—			9,411
Foreign corporate	2,912			6,081			479			102			11			—			9,585
CMBS	5,203			109			—			—			—			—			5,312			5,613		119		3		10		—		—		5,745
State and political subdivision	3,672			161			—			4			9			—			3,846			3,951		184		2		—		6		—		4,143
ABS	1,570			253			24			—			—			—			1,847			1,792		213		12		10		—		—		2,027
Foreign government	711			788			105			55			—			—			1,659			758		769		87		29		4		—		1,647
Total fixed maturity securities	$	44,377		$	19,789		$	2,080		$	859		$	74		$	32		$	67,211		$	48,332	$	20,166	$	2,075	$	650	$	78	$	1	$	71,302
Percentage of total	66.0		%	29.5		%	3.1		%	1.3		%	0.1		%	—		%	100.0		%
December 31, 2018
December 31, 2019
U.S. corporate	$	11,277		$	11,118		$	1,417		$	635		$	26		$	—		$	24,473		$	15,313	$	13,770	$	1,479	$	556	$	42	$	—	$	31,160
Foreign corporate																						3,162		6,113		466		90		13		—		9,844
RMBS																						9,020		59		15		3		21		—		9,118
U.S. government and agency	8,921			174			—			—			—			—			9,095			7,303		93		—		—		—		—		7,396
RMBS	8,395			40			58			6			48			—			8,547
Foreign corporate	2,427			5,089			427			70			13			—			8,026
CMBS	5,183			57			6			2			—			—			5,248			5,612		126		6		11		—		—		5,755
State and political subdivision	3,437			156			1			—			3			—			3,597			3,863		185		—		—		9		—		4,057
ABS	1,851			244			30			1			—			—			2,126			1,696		240		19		—		—		—		1,955
Foreign government	681			656			134			25			—			—			1,496			746		862		102		36		5		—		1,751
Total fixed maturity securities	$	42,172		$	17,534		$	2,073		$	739		$	90		$	—		$	62,608		$	46,715	$	21,448	$	2,087	$	696	$	90	$	—	$	71,036
Percentage of total	67.4		%	28.0		%	3.3		%	1.2		%	0.1		%	—		%	100.0		%

U.S. and Foreign Corporate Fixed Maturity Securities

We maintain a diversified portfolio of corporate fixed maturity securities across industries and issuers. ~~This~~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 2% of total investments at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018. The tables below present our~~2019. Our U.S. and foreign corporate fixed maturity securities holdings by industry were as follows at:


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total		Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
	(Dollars in millions)								(Dollars in millions)
Industrial	$	11,603	30.6	%	$	9,896	30.4	%	$	11,960	30.0	%	$	12,633	30.9	%
Consumer	9,450		25.0		8,290		25.5		9,732		24.4		9,719		23.7
Finance	8,499		22.5		7,209		22.2		9,234		23.1		9,448		23.0
Utility	5,580		14.7		4,770		14.7		6,019		15.1		6,247		15.2
Communications	2,735		7.2		2,334		7.2		2,969		7.4		2,957		7.2
Total	$	37,867	100.0	%	$	32,499	100.0	%	$	39,914	100.0	%	$	41,004	100.0	%

Structured Securities

We held $16.7 billion and $16.8 billion of Structured Securities, at estimated fair value, at March 31, 2020 and December 31, 2019, respectively, as presented in the RMBS, CMBS and ABS sections below.

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~~Structured Securities~~

We held $16.6 billion and $15.9 billion of Structured Securities, at estimated fair value, at June 30, 2019 and December 31, 2018, respectively, as presented in the RMBS, CMBS and ABS sections below.

RMBS

~~The following table presents our~~Our RMBS holdings are diversified by security type, risk profile and ratings profile, which were as follows at:


	June 30, 2019						December 31, 2018							March 31, 2020							December 31, 2019
	Estimated Fair Value		% of Total		Net Unrealized Gains (Losses)		Estimated Fair Value		% of Total		Net Unrealized Gains (Losses)			Estimated Fair Value		% of Total		Net Unrealized Gains (Losses)			Estimated Fair Value		% of Total		Net Unrealized Gains (Losses)
	(Dollars in millions)													(Dollars in millions)
By security type:
Security type:
Collateralized mortgage obligations	$	4,951	52.6	%	$	365	$	4,885	57.2	%	$	174		$	4,789	53.8	%	$	336		$	4,857	53.3	%	$	360
Pass-through securities	4,460		47.4		43		3,662		42.8		(55		)	4,111		46.2		156			4,261		46.7		66
Total RMBS	$	9,411	100.0	%	$	408	$	8,547	100.0	%	$	119		$	8,900	100.0	%	$	492		$	9,118	100.0	%	$	426
By risk profile:
Risk profile:
Agency	$	7,398	78.6	%	$	228	$	6,396	74.8	%	$	(23	)	$	7,212	81.0	%	$	496		$	7,216	79.2	%	$	256
Prime	213		2.3		12		296		3.5		10			128		1.5		(2		)	141		1.5		9
Alt-A	884		9.4		101		938		11.0		79			757		8.5		(11		)	883		9.7		96
Sub-prime	916		9.7		67		917		10.7		53			803		9.0		9			878		9.6		65
Total RMBS	$	9,411	100.0	%	$	408	$	8,547	100.0	%	$	119		$	8,900	100.0	%	$	492		$	9,118	100.0	%	$	426
Ratings profile:
Rated Aaa	$	7,468	79.4	%			$	6,529	76.4	%				$	7,316	82.2	%				$	7,329	80.4	%
Designated NAIC 1	$	9,323	99.1	%			$	8,395	98.2	%				$	8,843	99.4	%				$	9,020	98.9	%

Historically, ~~we have managed~~ our exposure to sub-prime RMBS holdings has been managed by focusing primarily on senior tranche securities, ~~stress testing~~stress-testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio. Our sub-prime RMBS portfolio consists predominantly of securities that were purchased after 2012 at significant discounts to par value and discounts to the expected principal recovery value of these securities. The vast majority of these securities are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2). The estimated fair value of our sub-prime RMBS holdings purchased since 2012 was ~~$883~~$779 million and $851 million at ~~both June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, with unrealized gains (losses) of ~~$63~~$7 million and ~~$50~~$61 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

CMBS

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



	March 31, 2020				December 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In millions)
2003 - 2010	$	101	$	116	$	109	$	123
2011	200		200		223		223
2012	139		135		138		141
2013	199		192		199		205
2014	332		325		332		346
2015	946		945		938		977
2016	471		475		480		497
2017	680		696		683		717
2018	1,620		1,745		1,580		1,700
2019	847		855		818		826
2020	66		61		—		—
Total	$	5,601	$	5,745	$	5,500	$	5,755

The estimated fair value of CMBS rated Aaa using rating agency ratings was $4.4 billion, or 76.2% of total CMBS, and designated NAIC 1 was $5.6 billion, or 97.7% of total CMBS, at March 31, 2020. CMBS Aaa rating agency ratings was $4.3 billion, or 74.9% of total CMBS, and designated NAIC 1 was $5.6 billion, or 97.5% of total CMBS at December 31, 2019.

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~~CMBS~~ABS

Our ~~CMBS~~ABS holdings are diversified by ~~vintage year. The following tables present our CMBS~~both collateral type and issuer. Our ABS holdings by ~~vintage year~~collateral type and ratings profile were as follows at:

June 30, 2019 December 31, 2018
Amortized Cost
Estimated
Fair Value
Amortized Cost
Estimated
Fair Value
(Dollars in millions)
2003 - 2010 $ 131
$ 145
$ 177
$ 177
2011 237
236
297
293
2012 150
154
263
262
2013 255
264
290
290
2014 348
360
526
519
2015 953
990
1,076
1,059
2016 495
511
582
568
2017 639
673
696
686
2018 1,570
1,685
1,385
1,394
2019 284
294
—
—
Total $ 5,062
$ 5,312
$ 5,292
$ 5,248

CMBS rated Aaa using rating agency ratings were $3.8 billion, or 72.2% of total CMBS, and designated NAIC 1 were $5.2 billion, or 97.9% of total CMBS, at June 30, 2019. CMBS rated Aaa using rating agency ratings were $3.5 billion, or 66.9% of total CMBS, and designated NAIC 1 were $5.2 billion, or 98.8% of total CMBS at December 31, 2018.



	March 31, 2020							December 31, 2019
	Estimated Fair Value		% of Total		Net Unrealized Gains (Losses)			Estimated Fair Value		% of Total		Net Unrealized Gains (Losses)
	(Dollars in millions)
Collateral type:
Collateralized obligations	$	1,155	57.0	%	$	(120	)	$	1,058	54.2	%	$	(8	)
Student loans	179		8.8		(6		)	196		10.0		2
Consumer loans	157		7.7		(10		)	171		8.7		2
Automobile loans	100		4.9		—			114		5.8		2
Credit card loans	52		2.6		4			60		3.1		3
Other loans	384		19.0		(11		)	356		18.2		9
Total	$	2,027	100.0	%	$	(143	)	$	1,955	100.0	%	$	10
Ratings profile:
Rated Aaa	$	1,017	50.2	%				$	879	45.0	%
Designated NAIC 1	$	1,792	88.4	%				$	1,696	86.8	%

~~ABS~~

~~Our ABS are diversified both by collateral type and by issuer. The following table presents our ABS holdings at:~~

June 30, 2019 December 31, 2018
Estimated
Fair Value % of
Total Net Unrealized
Gains (Losses) Estimated
Fair Value % of
Total Net Unrealized
Gains (Losses)
(Dollars in millions)
By collateral type:
Collateralized obligations $ 1,018
55.1 % $ (7 ) $ 1,010
47.5 % $ (18 )
Automobile loans 145
7.9
3
199
9.4
—
Consumer loans 161
8.7
3
193
9.1
1
Student loans 197
10.7
5
186
8.7
3
Credit card loans 36
1.9
3
136
6.4
2
Other loans 290
15.7
8
402
18.9
3
Total $ 1,847
100.0 % $ 15
$ 2,126
100.0 % $ (9 )
Ratings profile:
Rated Aaa $ 729
39.5 % $ 956
45.0 %
Designated NAIC 1 $ 1,570
85.0 % $ 1,851
87.1 %

~~Evaluation of~~Allowance for Credit Losses for Fixed Maturity Securities ~~AFS for OTTI and Evaluating Temporarily Impaired Fixed Maturity Securities AFS~~

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information about the evaluation of fixed maturity securities ~~AFS and equity securities~~ for ~~OTTI and evaluation of temporarily impaired AFS securities.~~an allowance for credit losses or write-offs due to uncollectability.

Securities Lending

We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, which is obtained at the inception of a loan and maintained at a level greater than or equal to 100% for the duration of the loan. ~~We monitor the~~The estimated fair value of the securities loaned is monitored on a daily basis with additional collateral obtained

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as necessary throughout the duration of the loan. Securities loaned under such transactions may be sold or ~~repledged~~re-pledged by the transferee. We are liable to return to our counterparties the cash collateral under our control. Security collateral received from counterparties may not be sold or ~~repledged,~~re-pledged, unless the counterparty is in default, and is not reflected in the financial statements. These transactions are treated as financing arrangements and the associated cash collateral liability is recorded at the amount of the cash received.

See“— “— Liquidity and Capital Resources — The Company — Primary Uses of Liquidity and Capital — Securities Lending” and Note4 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding our securities lending program.

Mortgage Loans

Our mortgage loans are principally collateralized by commercial, agricultural and residential properties. ~~Mortgage~~Information regarding mortgage loans ~~and the related valuation allowances are~~by portfolio segment was summarized as follows at:


	June 30, 2019								December 31, 2018								March 31, 2020								December 31, 2019
	Recorded Investment		% of Total		Valuation Allowance		% of Recorded Investment		Recorded Investment		% of Total		Valuation Allowance		% of Recorded Investment		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)																(Dollars in millions)
Commercial	$	9,267	61.2	%	$	46	0.5	%	$	8,529	62.0	%	$	42	0.5	%	$	9,512	60.9	%	$	27	0.2	%	$	9,721	61.5	%	$	47	0.5	%
Agricultural	3,248		21.5	%	10		0.3	%	2,946		21.4	%	9		0.3	%	3,403		21.8	%	18		0.1	%	3,388		21.4	%	10		0.3	%
Residential	2,627		17.3	%	8		0.3	%	2,276		16.6	%	6		0.3	%	2,701		17.3	%	24		0.2	%	2,708		17.1	%	7		0.3	%
Total	$	15,142	100.0	%	$	64	0.4	%	$	13,751	100.0	%	$	57	0.4	%	$	15,616	100.0	%	$	69	0.4	%	$	15,817	100.0	%	$	64	0.4	%

~~We diversify our~~

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Our mortgage loan portfolio is diversified by both geographic region and property type to reduce the risk of concentration. The percentage of our commercial and agricultural mortgage loan portfolios collateralized by properties located in the U.S. were ~~96% and~~ 97% at ~~June 30, 2019~~both March 31, 2020 and December 31, ~~2018, respectively,~~2019, and the remainder was collateralized by properties located outside of the U.S. The carrying value as a percentage of total commercial and agricultural mortgage loans for the top three states in the U.S. iswas as follows at:

June 30, 2019 December 31, 2018
State
California 24 % 26 %
New York 13 % 14 %
Texas 7 % 8 %



		March 31, 2020
California		23%
New York		13%
Florida		8%

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

~~We manage our~~Our residential mortgage loan portfolio is managed in a similar manner to reduce risk of concentration. All residential mortgage loans were collateralized by properties located in the U.S. at both ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. The carrying value as a percentage of total residential mortgage loans for the top three states in the U.S. iswas as follows at:

June 30, 2019 December 31, 2018
State
California 37 % 36 %
Florida 10 % 9 %
New York 7 % 6 %



		March 31, 2020
California		37%
Florida		9%
New York		6%

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Commercial Mortgage Loans by Geographic Region and Property Type. Commercial mortgage loans are the largest component of the mortgage loan invested asset class. The ~~tables below present the~~ diversification across geographic regions and property types of commercial mortgage loans was as follows at:


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
	(Dollars in millions)								(Dollars in millions)
Region
Geographic Region:
Pacific	$	2,613	28.2	%	$	2,550	29.9	%	$	2,532	26.6	%	$	2,666	27.4	%
Middle Atlantic	1,860		20.1		1,867		21.9		1,876		19.7		1,875		19.3
South Atlantic	1,545		16.7		1,316		15.5		1,874		19.7		1,887		19.4
West South Central	783		8.5		801		9.4		803		8.4		809		8.3
Mountain	696		7.5		404		4.7		668		7.0		668		6.9
East North Central	521		5.6		473		5.5		554		5.8		555		5.7
International	463		5.0		389		4.5		485		5.1		494		5.1
New England	455		4.9		397		4.7		412		4.3		412		4.2
West North Central	126		1.3		127		1.5		124		1.3		125		1.3
East South Central	59		0.6		59		0.7		84		1.0		85		0.9
Multi-Region and Other	146		1.6		146		1.7		100		1.1		145		1.5
Total recorded investment	9,267		100.0	%	8,529		100.0	%	9,512		100.0	%	9,721		100.0	%
Less: valuation allowances	46				42
Carrying value, net of valuation allowances	$	9,221			$	8,487
Property Type
Less: allowance for credit losses									27				47
Carrying value, net of allowance for credit losses									$	9,485			$	9,674
Property Type:
Office	$	3,911	42.2	%	$	3,810	44.6	%	$	3,648	38.3	%	$	3,839	39.5	%
Apartment									2,175		22.9		2,181		22.4
Retail	2,173		23.4		2,064		24.2		2,112		22.2		2,115		21.8
Apartment	1,904		20.5		1,480		17.4
Hotel	825		9.0		744		8.7		923		9.7		930		9.6
Industrial	423		4.6		400		4.7		624		6.6		626		6.4
Other	31		0.3		31		0.4		30		0.3		30		0.3
Total recorded investment	9,267		100.0	%	8,529		100.0	%	9,512		100.0	%	9,721		100.0	%
Less: valuation allowances	46				42
Carrying value, net of valuation allowances	$	9,221			$	8,487
Less: allowance for credit losses									27				47
Carrying value, net of allowance for credit losses									$	9,485			$	9,674

Mortgage Loan Credit Quality — Monitoring Process. Our ~~investment manager monitors our~~ mortgage loan investments are monitored on an ongoing basis, including a review of loans that are current, past due, restructured and under foreclosure. Quarterly, we conduct a formal review of the portfolio with our investment ~~manager.~~managers. See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for information on mortgage loans by credit quality indicator, past due status, nonaccrual status and ~~nonaccrual mortgage loans, as well as impaired~~modified mortgage loans.

Our ~~investment manager reviews our~~ commercial mortgage loans are reviewed on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, loan-to-value ratios, ~~debt service~~debt-service coverage ratios and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher loan-to-value ratios and lower ~~debt service~~debt-service coverage ratios. The monitoring process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher loan-to-value ratios, including reviews on a geographic and sector basis. ~~We review our~~Our residential mortgage loans are reviewed on an ongoing basis. See Note 64 of the Notes to the Interim Condensed Consolidated ~~and Combined~~ Financial Statements ~~included in the 2018 Annual Report~~ for information on our evaluation of residential mortgage loans and related valuation allowance methodology.

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Loan-to-value ratios and ~~debt service~~debt-service coverage ratios are common measures in the assessment of the quality of commercial mortgage loans. Loan-to-value ratios are a common measure in the assessment of the quality of agricultural mortgage loans. ~~Loan-to-value~~Loan-

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to-value ratios compare the amount of the loan to the estimated fair value of the underlying collateral. A loan-to-value ratio greater than 100% indicates that the loan amount is greater than the collateral value. A loan-to-value ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss. The debt-service coverage ratio compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the debt-service coverage ratio, the higher the risk of experiencing a credit loss. For our commercial mortgage loans, our average loan-to-value ratio was ~~52%~~53% at both ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, and our average ~~debt service~~debt-service coverage ratio was 2.3x and 2.2x at ~~both June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019, respectively. The ~~debt service~~debt-service coverage ratio, as well as the values utilized in calculating the ratio, is updated annually on a rolling basis, with a portion of the portfolio updated each quarter. In addition, the loan-to-value ratio is routinely updated for all but the lowest risk loans as part of our ongoing review of our commercial mortgage loan portfolio. For our agricultural mortgage loans, our average loan-to-value ratio was 48% and 47% ~~and 46%~~ at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The values utilized in calculating the agricultural mortgage loan loan-to-value ratio are developed in connection with the ongoing review of the agricultural loan portfolio and are routinely updated.

Mortgage Loan ~~Valuation Allowances~~Allowance for Credit Losses. See Notes 4 and 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how ~~valuation allowances are~~the allowance for credit losses is established and monitored and activity in and balances of the ~~valuation~~ allowance ~~and the estimated fair value of impaired mortgage loans and related impairments included within net investment gains (losses) at and~~for credit losses for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

~~Real Estate~~ Limited Partnerships and Limited Liability Companies

~~Real estate~~The carrying value of our limited partnerships and limited liability companies are comprised primarily of limited partner interests in real estate funds, and to a lesser extent interests in projects with varying strategies ranging from the development of properties to the operation of income-producing properties.(“LLCs”) was as follows at:

~~The estimated fair value of the associated investment portfolios was $571 million and $572 million at June 30, 2019 and December 31, 2018, respectively.~~



	March 31, 2020		December 31, 2019
	(In millions)
Other limited partnerships interests	$	2,065	$	1,941
Real estate limited partnerships and LLCs (1)	440		439
Total	$	2,505	$	2,380

~~Other Limited Partnership Interests~~_______________


(1)	The estimated fair value of real estate limited partnerships and LLCs was $495 million and $529 million at March 31, 2020 and December 31, 2019, respectively.

Other limited partnership interests are comprised primarily of private equity funds. The carrying value of other limited partnership interests was $1.8 billion at both June 30, 2019 and December 31, 2018, which included $53 million and $98 million of hedge funds at June 30, 2019 and December 31, 2018, respectively. Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds. We estimate that the underlying ~~investments~~investment of the private equity funds will typically be liquidated over the next 10 to 20 years.

Other Invested Assets

The ~~following table presents the~~ carrying value of our other invested assets by type was as follows at:

June 30, 2019 December 31, 2018

Carrying
Value

% of
Total

Carrying
Value

% of
Total

(Dollars in millions)
Freestanding derivatives with positive estimated fair values $ 2,856
93.3 % $ 2,778
91.8 %
Tax credit and renewable energy partnerships 93
3.0
95
3.1
Leveraged leases, net of non-recourse debt 64
2.1
65
2.1
FHLB Stock 50
1.6
64
2.1
Other 1
—
25
0.9
Total $ 3,064
100.0 % $ 3,027
100.0 %



	March 31, 2020				December 31, 2019
	Carrying Value		% of Total		Carrying Value		% of Total
	Carrying Value		% of Total		Carrying Value		% of Total
	(Dollars in millions)
Freestanding derivatives with positive estimated fair values	$	9,484	98.2	%	$	3,021	93.9	%
Tax credit and renewable energy partnerships	66		0.7		82		2.6
Leveraged leases, net of non-recourse debt	51		0.5		64		2.0
FHLB stock	39		0.4		39		1.2
Other	18		0.2		10		0.3
Total	$	9,658	100.0	%	$	3,216	100.0	%

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Derivatives

Derivative Risks

We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. We use a variety of strategies to manage these risks, including the use of derivatives. See Note 5 of the Notes to the Interim Condensed Consolidated Financial ~~Statements for:~~

~~Types of derivatives, including the strategies for which derivatives are used in managing various risks.~~

~~Table of Contents~~

Statements:

Information about the gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge designation, excluding embedded derivatives held at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

The statement of operations effects of derivatives in cash flow, fair value or ~~nonqualifying~~non-qualifying hedge relationships for the three months and ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

See~~“Business~~ “Business — Segments and Corporate & Other — Annuities,” ~~“Business — Risk Management Strategies — ULSG Market Risk Exposure Management” and~~ “Management’s Discussion and Analysis of Financial Condition and Results of Operations — ~~Results of Operations~~Risk Management Strategies — ULSG Market Risk Exposure Management” and “— Annual Actuarial Review” included in the ~~2018~~2019 Annual Report for more information about our use of derivatives by major ~~hedge~~hedging programs.

Fair Value Hierarchy

SeeNote 6 of the Notes to the Interim Condensed Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy, as well as a rollforward of the fair value measurements for derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs as discussed below.

The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives. Although Level 3 inputs are unobservable, management believes they are consistent with what other market participants would use when pricing such instruments and are considered appropriate given the circumstances. The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect net income.

Derivatives categorized as Level 3 at ~~June 30, 2019~~March 31, 2020 include: credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations; equity variance swaps with unobservable volatility inputs; foreign currency swaps with certain unobservable ~~inputs;~~inputs and equity index options with unobservable correlation ~~inputs and guaranteed minimum benefits accounted for as embedded derivatives with unobservable~~ inputs.

Credit Risk

SeeNote 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.

Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. This policy applies to the recognition of derivatives in the balance sheets and does not affect our legal right of offset.

Credit Derivatives

The ~~following tables present the~~ gross notional amount and estimated fair value of credit default swaps were as follows at:


	June 30, 2019				December 31, 2018				March 31, 2020					December 31, 2019
Credit Default Swaps	Gross Notional Amount		Estimated Fair Value		Gross Notional Amount		Estimated Fair Value
									Gross Notional Amount		Estimated Fair Value			Gross Notional Amount		Estimated Fair Value
	(In millions)								(In millions)
Written	$	1,905	$	33	$	1,820	$	11	$	1,898	$	(6	)	$	1,635	$	36
Purchased	12		—		98		3		18		—			18		—
Total	$	1,917	$	33	$	1,918	$	14	$	1,916	$	(6	)	$	1,653	$	36

The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. ~~We use credit default swaps to create synthetic credit investments to replicate credit exposure that is more economically attractive than what is available in the market or otherwise unavailable.~~ In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies. Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company. ByIn order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances,

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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. 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.

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Off-Balance Sheet Arrangements

Collateral for Securities Lending and Derivatives

We have a securities lending program for the purpose of enhancing the total return on our investment portfolio. Periodically we receive non-cash collateral for securities lending from counterparties, which cannot be sold or ~~repledged,~~re-pledged, and which is not recorded on our consolidated balance sheets. The ~~amount of this~~Company did not hold non-cash collateral ~~was $18 million and $55 million~~ at ~~estimated fair value at June 30, 2019~~both March 31, 2020 and December 31, ~~2018, respectively.~~2019. See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements, as well as “— Investments — Securities Lending” for discussion of our securities lending program, the classification of revenues and expenses, and the nature of the secured financing arrangement and associated liability.

We enter into derivatives to manage various risks relating to our ongoing business operations. We have non-cash collateral from counterparties for derivatives, which can be sold or ~~repledged~~re-pledged subject to certain constraints, and which has not been recorded on our consolidated balance sheets. The amount of this non-cash collateral was $0$797 million and ~~$145~~$593 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding the earned income and the gross notional amount, estimated fair value of assets and liabilities and primary underlying risk exposure of our derivatives.

Guarantees

See~~“Guarantees”~~ “Guarantees” in Note 1110 of the Notes to the Interim Condensed Consolidated Financial Statements.

Other

Additionally, we enter into commitments for the purpose of enhancing the total return on our investment portfolio: mortgage loan commitments and commitments to fund partnership investments, bank credit facilities and private corporate bond investments. See “Commitments” in Note 1110 of the Notes to the Interim Condensed Consolidated Financial Statements. For further information on commitments to fund partnership investments, mortgage loans, bank credit facilities and private corporate bond investments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Contractual Obligations” included in the ~~2018~~2019 Annual Report.

Policyholder Liabilities

We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments. Amounts for actuarial liabilities are computed and reported in the financial statements in conformity with GAAP. For more details on ~~Policyholder Liabilities,~~policyholder liabilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in the ~~2018~~2019 Annual Report. Except as otherwise discussed below, there have been no material changes to our actuarial liabilities.

Future Policy Benefits

We establish liabilities for amounts payable under insurance policies. See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements. A discussion of future policy benefits by segment, as well as Corporate & Other, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in the ~~2018~~2019 Annual Report.

Policyholder Account Balances

Policyholder account balances (“PABs”) 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 Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements. A discussion of PABs by segment, as well as Corporate & Other, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities” included in the ~~2018~~2019 Annual Report.

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Variable Annuity Guarantees

We issue certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (i.e., the Benefit Base) less withdrawals. In some cases, the Benefit Base may be increased by additional deposits, bonus amounts, accruals or optional market value step-ups. See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements. See also “Quantitative and Qualitative Disclosures About Market Risk — Market Risk - Fair Value Exposures — Interest Rates” and “Business — Segments and Corporate & Other — Annuities — Overview — Current Products — Variable Annuities” included in the ~~2018~~2019 Annual Report for additional information.

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

Net Amount at Risk

The net amount at risk (“NAR”) for the net GMDB is the amount of death benefit in excess of the account value (if any) atas of the balance sheet date. It represents the amount of the claim we would incur if death claims were made on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.

The NAR for theguaranteed minimum withdrawal benefits (“GMWB”) andguaranteed minimum accumulation benefits (“GMAB”) is the amount of guaranteed benefits in excess of the account values (if any) atas of the balance sheet date. The NAR assumes utilization of benefits by all contract holders atas of the balance sheet date. For the GMWB benefits, only a small portion of the Benefit Base is available for withdrawal on an annual basis. For the GMAB, the NAR would not be available until the GMAB maturity date.

The NAR for the GMWB with lifetime payments (“GMWB4L”) is the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream based on current annuity rates, equal to the lifetime amount provided under the guaranteed benefit. For contracts where the GMWB4L provides for a guaranteed cumulative dollar amount of payments, the NAR is based on the purchase of a lifetime with period certain income stream where the period certain ensures payment of this cumulative dollar amount. The NAR represents our potential economic exposure to such guarantees in the event all contract holders were to begin lifetime withdrawals on the balance sheet date regardless of age. Only a small portion of the Benefit Base is available for withdrawal on an annual basis.

The NAR for the GMIB is the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents our potential economic exposure to such guarantees in the event all contract holders were to annuitize on the balance sheet date, even though the guaranteed amount under the contracts may not be annuitized until after the waiting period of the contract.

A detailed description of NAR by type of guaranteed minimum benefit can be found in “Business — Segments and Corporate & Other — Annuities — Overview — Net Amount at Risk” included in the ~~2018~~2019 Annual Report.

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The account values and NAR of contract ~~owners~~holders by type of guaranteed minimum benefit for variable annuity contracts ~~are summarized below~~were as follows at:


	June 30, 2019 (1)								December 31, 2018 (1)								March 31, 2020 (1)								December 31, 2019 (1)
	Account Value		Death Benefit NAR (1)		Living Benefit NAR (1)		% of Account Value In-the-Money (2)		Account Value		Death Benefit NAR (1)		Living Benefit NAR (1)		% of Account Value In-the-Money (2)		Account Value		Death Benefit NAR (1)		Living Benefit NAR (1)		% of Account Value In-the-Money (2)		Account Value		Death Benefit NAR (1)		Living Benefit NAR (1)		% of Account Value In-the-Money (2)
	(Dollars in millions)																(Dollars in millions)
GMIB	$	41,258	$	2,475	$	3,575	33.5	%	$	38,682	$	4,064	$	4,115	42.6	%	$	33,908	$	5,141	$	10,189	77.2	%	$	41,302	$	2,302	$	4,722	42.0	%
GMIB Max w/ Enhanced DB	11,861		2,779		8		0.8	%	10,961		3,775		11		1.3	%	10,417		3,967		176		22.0	%	11,807		2,673		23		2.3	%
GMIB Max w/o Enhanced DB	6,805		3		1		0.3	%	6,324		87		2		0.42	%	5,942		61		36		9.6	%	6,750		2		5		0.8	%
GMWB4L (FlexChoice^SM)	3,520		5		3		3.1	%	2,819		100		15		12.5	%	3,887		194		309		58.9	%	4,130		3		25		13.4	%
GMAB	652		2		2		2.8	%	600		17		16		27.3	%	571		19		19		34.9	%	672		1		1		0.6	%
GMWB	2,819		45		13		6	%	2,672		143		85		31.3	%	2,224		173		117		38.8	%	2,783		39		8		1.4	%
GMWB4L	15,249		79		308		15.7	%	14,596		558		505		27.8	%	12,138		790		2,007		68.6	%	14,904		71		509		23.7	%
EDB Only	3,697		665		—		N/A		3,434		955		—		N/A		3,222		1,129		—		N/A		3,740		609		—		N/A
GMDB Only (Other than EDB)	18,005		991		—		N/A		16,777		1,374		—		N/A		15,240		1,524		—		N/A		18,183		971		—		N/A
Total	$	103,866	$	7,044	$	3,910			$	96,865	$	11,073	$	4,749			$	87,549	$	12,998	$	12,853			$	104,271	$	6,671	$	5,293

______________


(1)	The “Death Benefit NAR” and “Living Benefit NAR” are not additive at the contract level.


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

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Reserves

Under GAAP, certain of our variable annuity guarantee features are accounted for as insurance liabilities and recorded on the balance sheet in future policy benefits with changes reported in policyholder benefits and claims. These liabilities are accounted for using ~~long term~~long-term assumptions of equity and bond market returns and the level of interest rates. Therefore, these liabilities, valued at ~~$4.8~~$5.1 billion at ~~June 30, 2019,~~March 31, 2020, are less sensitive than derivative instruments to periodic changes to equity and fixed income market returns and the level of interest rates. Guarantees accounted for in this manner include GMDBs, as well as the life contingent portion of GMIBs and certain GMWBs. All other variable annuity guarantee features are accounted for as embedded derivatives and recorded on the balance sheet in PABs with changes reported in net derivative gains (losses). These liabilities, valued at ~~$1.7~~$4.4 billion at ~~June 30, 2019,~~March 31, 2020, are accounted for at estimated fair value. Guarantees accounted for in this manner include GMABs, GMWBs and the non-life contingent portions of GMIBs. In some cases, a guarantee will have multiple features or options that require separate accounting such that the guarantee is not fully accounted for under only one of the accounting models (known as “split accounting”). Additionally, the index protection and accumulation features of Shield Annuities are accounted for as embedded derivatives, recorded on the balance sheet in PABs with changes reported in net derivative gains (losses) and valued at ~~$1.5 billion~~($116) million at ~~June 30, 2019.~~March 31, 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” included in the ~~2018~~2019 Annual Report.

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The ~~table below presents the~~ GAAP variable annuity reserve balances by guarantee type and accounting model were as follows at:


	Reserves																Reserves
	June 30, 2019								December 31, 2018								March 31, 2020						December 31, 2019
	Future Policy Benefits		Policyholder Account Balances			Total Reserves			Future Policy Benefits		Policyholder Account Balances			Total Reserves			Future Policy Benefits		Policyholder Account Balances		Total Reserves		Future Policy Benefits		Policyholder Account Balances			Total Reserves
	(In millions)																(In millions)
GMDB	$	1,324	$	—		$	1,324		$	1,305	$	—		$	1,305		$	1,442	$	—	$	1,442	$	1,362	$	—		$	1,362
GMIB	2,631		1,793			4,424			2,565		1,603			4,168			2,931		3,342		6,273		2,677		1,844			4,521
GMIB Max	531		(88		)	443			507		14			521			515		303		818		560		(84		)	476
GMAB	—		(15		)	(15		)	—		(8		)	(8		)	—		17		17		—		(17		)	(17		)
GMWB	—		11			11			—		16			16			—		76		76		—		6			6
GMWB4L	272		(32		)	240			261		17			278			256		571		827		258		(93		)	165
GMWB4L (FlexChoice^SM)	—		—			—			—		—			—			—		106		106		—		—			—
Total	$	4,758	$	1,669		$	6,427		$	4,638	$	1,642		$	6,280		$	5,144	$	4,415	$	9,559	$	4,857	$	1,656		$	6,513

Derivatives Hedging Variable Annuity Guarantees

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



	March 31, 2020						December 31, 2019
Instrument Type	Gross Notional Amount (1)		Estimated Fair Value				Gross Notional Amount (1)		Estimated Fair Value
Instrument Type	Gross Notional Amount (1)		Assets		Liabilities		Gross Notional Amount (1)		Assets		Liabilities
	(In millions)
Interest rate swaps	$	2,845	$	618	$	—	$	7,344	$	798	$	29
Interest rate options	27,650		3,657		834		29,750		782		187
Interest rate forwards	6,656		1,439		—		5,418		94		114
Total	$	37,151	$	5,714	$	834	$	42,512	$	1,674	$	330

_______________


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

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

June 30, 2019 December 31, 2018
Primary Underlying Risk Exposure Instrument Type Gross Notional Amount Estimated Fair Value Gross Notional Amount Estimated Fair Value
Assets Liabilities Assets Liabilities
(In millions)
Interest Rate Interest rate swaps $ 7,741
$ 805
$ 30
$ 7,928
$ 470
$ 29
Interest rate futures —
—
—
54
—
—
Interest rate options 21,000
551
81
10,500
94
—
Equity Market Equity futures —
—
—
170
—
—
Equity index options 41,550
700
1,623
43,985
1,365
1,202
Equity variance swaps 5,574
95
247
5,574
80
232
Equity total return swaps 5,061
4
92
3,920
280
3
Total $ 80,926
$ 2,155
$ 2,073
$ 72,131
$ 2,289
$ 1,466



	March 31, 2020						December 31, 2019
Instrument Type	Gross Notional Amount (1)		Estimated Fair Value				Gross Notional Amount (1)		Estimated Fair Value
Instrument Type	Gross Notional Amount (1)		Assets		Liabilities		Gross Notional Amount (1)		Assets		Liabilities
	(In millions)
Equity index options	$	41,980	$	1,192	$	1,583	$	46,968	$	814	$	1,713
Equity total return swaps	8,516		1,423		89		7,723		2		367
Equity variance swaps	1,098		11		30		2,136		69		69
Interest rate swaps	2,845		618		—		7,344		798		29
Interest rate options	25,850		3,104		834		27,950		712		176
Interest rate forwards	2,722		436		—		—		—		—
Total	$	83,011	$	6,784	$	2,536	$	92,121	$	2,395	$	2,354

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_______________


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

Period to period changes in the estimated fair value of these hedges affect our net income, as well as stockholders’ equity and these effects can be material in any given period. See “Risk Factors — Risks Related to Our Business — Our variable annuity exposure risk management strategy may not be effective, may result in ~~net income~~significant volatility in our profitability measures and may negatively affect our statutory ~~capital” and~~capital,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting ~~Estimates,” both~~Estimates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Strategies” all included in the ~~2018~~2019 Annual Report.

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Liquidity and Capital Resources

Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility or disruptions in global capital markets, particular markets or financial asset classes can impact us adversely, in part because we have a large investment portfolio and our insurance liabilities and derivatives are sensitive to changing market factors. Changing conditions in the global capital markets and the economy may affect our financing costs and market interest rates for our debt or equity securities. For further information regarding market factors that could affect our ability to meet liquidity and capital needs, including those related to the COVID-19 pandemic, see “— Industry ~~Trends” and~~Trends — COVID-19 Pandemic,” “— Investments — Current Environment” and “Part II. Other Information — Item 1A. Risk Factors” herein, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment” in our ~~2018~~2019 Annual Report.

Liquidity and Capital Management

Based upon our capitalization, expectations regarding maintaining our business mix, ratings, and funding sources available to us, we believe we have sufficient liquidity to meet business requirements under current market conditions and certain stress scenarios. Our Board of Directors and senior management are directly involved in the governance of the capital management process, including proposed changes to the annual capital plan and capital targets. We are targeting a debt-to-capital ratio commensurate with our parent company credit ratings and our insurance subsidiaries’ financial strength ratings. We continuously monitor and adjust our liquidity and capital plans in light of market conditions, as well as changing needs and opportunities.

We maintain a substantial short-term liquidity position, which was ~~$3.0~~$4.5 billion and ~~$2.2~~$2.8 billion at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Short-term liquidity is comprised of cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, derivatives and assets held on deposit or in trust.

An integral part of our liquidity management includes managing our level of liquid assets, which was ~~$40.8~~$44.9 billion and ~~$36.5~~$42.6 billion at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Liquid assets are comprised of cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, derivatives and assets held on deposit or in trust.

The Company

Liquidity

Liquidity refers to our ability to generate adequate cash flows from our normal operations to meet the cash requirements of our operating, investing and financing activities. We determine our liquidity needs based on a rolling 12-month forecast by portfolio of invested assets which we monitor daily. We adjust the general account asset and derivatives mix and general account asset maturities based on this rolling 12-month forecast. To support this forecast, we conduct cash flow and stress testing, which reflect the impact of various scenarios, including (i) the potential increase in our requirement to pledge additional collateral or return collateral to our counterparties, (ii) a reduction in new business sales, and (iii) the risk of early contract holder and policyholder withdrawals, as well as lapses and surrenders of existing policies and contracts. We include provisions limiting withdrawal rights in many of our products, which deter the customer from making withdrawals prior to the maturity date of the product. If significant cash is required beyond our anticipated liquidity needs, we have various alternatives available depending on market conditions and the amount and timing of the liquidity need. These available alternative sources of liquidity include cash flows from operations, sales of liquid assets and funding sources including secured funding agreements, unsecured credit facilities and secured committed facilities.

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Under certain adverse market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase.

Capital

We manage our capital position to maintain our financial strength and credit ratings. Our capital position is supported by our ability to generate cash flows within our insurance companies, our ability to effectively manage the risks of our businesses and our expected ability to borrow funds and raise additional capital to meet operating and growth needs in the event of adverse market and economic conditions.

We target to maintain a debt-to-capital ratio of approximately 25%, which we monitor using an average of our key leverage ratios as calculated by A.M. Best, Fitch, ~~Ratings,~~ Moody’s ~~Investors Service~~ and~~Standard & Poor’s Global Rating~~. S&P. As such, we may opportunistically look to pursue additional financing over time, which may include the incurrence of additional term loans,

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borrowings under credit facilities, the issuance of debt, equity or hybrid securities or the refinancing of existing indebtedness. There can be no assurance that we will be able to complete any such financing transactions on terms and conditions favorable to us or at all.

~~Additionally,~~In support of our target combined risk based capital (“RBC”) ratio between 400% and 450%, we ~~intend~~expect to continue to maintain a ~~funding of~~capital and exposure risk management program that targets total assets ~~in excess of the amount required to satisfy contract holder obligations across market environments in~~supporting our variable annuity contracts at or above the average of the worst two percent of a set of capital markets scenarios over the life of the contracts (“CTE98”) level in normal market conditions. We refer to ~~support~~our target level of assets as our “Variable Annuity Target Funding Level.” While total assets supporting our variable annuity ~~contracts during normal market~~capital may exceed the CTE98 level, under stressed conditions ~~and~~we intend to allow such assets ~~in excess~~supporting our variable annuities to range between a target floor level of the amount required to satisfy contract holder obligations across market environments in the average of the worst five percent of a set of capital markets scenarios over the life of the contracts (“CTE95”) in stressed market conditions. At June 30, 2019, we held assets in excess ofCTE95 and CTE98.

~~In August 2018,~~On February 6, 2020, we authorized the repurchase of up to ~~$200~~$500 million of our common stock, which is in addition to the $600 million aggregate stock repurchase authorizations announced in May 2019 and onAugust 2018. On May ~~3, 2019,~~11, 2020, we ~~authorized~~announced the ~~repurchase~~temporary suspension of ~~up to an additional $400 million~~repurchases of our common ~~stock.~~stock while we continue to evaluate the impacts of the COVID-19 pandemic. Repurchases made under ~~such authorizations~~the February 6, 2020 authorization 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 ~~federal securities laws.~~legal requirements. Common stock repurchases are dependent upon several factors, including our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of our common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors.

We ~~do not~~ currently ~~anticipate declaring or paying cash~~have no plans to declare and pay dividends on our common stock. Any future declaration and payment of dividends or other distributions or returns of capital will be at the discretion of our Board of Directors and will depend on and be subject to our financial condition, results of operations, cash needs, regulatory and other constraints, capital requirements (including capital requirements of our 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.

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Sources and Uses of Liquidity and Capital

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

Six Months Ended
June 30,
2019 2018
(In millions)
Sources:
Operating activities, net $ 809
$ 1,017
Changes in policyholder account balances, net 2,290
1,451
Changes in payables for collateral under securities loaned and other transactions, net —
96
Long-term debt issued 1,000
—
Preferred stock issued, net of issuance costs 412
—
Financing element on certain derivative instruments and other derivative related transactions, net 44
—
Total sources 4,555
2,564
Uses:
Investing activities, net 2,932
2,023
Changes in payables for collateral under securities loaned and other transactions, net 963
—
Long-term debt repaid 601
6
Dividends on preferred stock 7
—
Treasury stock acquired in connection with share repurchases 188
—
Financing element on certain derivative instruments and other derivative related transactions, net —
226
Other, net 28
31
Total uses 4,719
2,286
Net increase (decrease) in cash and cash equivalents $ (164 ) $ 278

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	Three Months Ended March 31,
	2020		2019
	(In millions)
Sources:
Operating activities, net	$	96	$	376
Changes in policyholder account balances, net	1,496		947
Changes in payables for collateral under securities loaned and other transactions, net	6,597		—
Long-term debt issued	—		1,000
Preferred stock issued, net of issuance costs	—		412
Total sources	8,189		2,735
Uses:
Investing activities, net	1,484		1,272
Changes in payables for collateral under securities loaned and other transactions, net	—		1,067
Long-term debt repaid	—		600
Dividends on preferred stock	7		—
Treasury stock acquired in connection with share repurchases	142		52
Financing element on certain derivative instruments and other derivative related transactions, net	486		11
Other, net	17		14
Total uses	2,136		3,016
Net increase (decrease) in cash and cash equivalents	$	6,053	$	(281	)

Cash Flows from Operating Activities

The principal cash inflows from our insurance activities come from insurance premiums, annuity considerations and net investment income. The principal cash outflows are the result of various annuity and life insurance products, operating expenses and income tax, as well as interest expense. The primary liquidity concern with respect to these cash flows is the risk of early contract holder and policyholder withdrawal.

Cash Flows from Investing Activities

The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments and settlements of freestanding derivatives. We typically can have a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our ALM discipline to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption.

Cash Flows from Financing Activities

The principal cash inflows from our financing activities come from issuances of debt and equity securities, deposits of funds associated with policyholder account balances and lending of securities. The principal cash outflows come from repayments of debt, common stock repurchases, preferred stock dividends, withdrawals associated with policyholder account balances and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal.

Primary Sources of Liquidity and Capital

In addition to the summary description of liquidity and capital sources discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary sources of liquidity and capital:

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Funding Sources

Liquidity is provided by a variety of funding sources, including secured funding agreements, unsecured credit facilities and secured committed facilities. Capital is provided by a variety of funding sources, including issuances of debt and equity securities, as well as borrowings under our credit facilities. We maintain a shelf registration statement with the SEC that permits the issuance of public debt, equity and hybrid securities. As a “Well-Known Seasoned Issuer” under SEC rules, our shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity. The diversity of our funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary funding sources include:

Preferred Stock

On March 25, 2019, BHF issued depositary shares, each representing a 1/1,000th ownership interest in a share of BHF’s perpetual 6.600% Series A non-cumulative preferred stock (the “Series A Preferred Stock”) and in the aggregate representing 17,000 shares of Series A Preferred Stock, with a stated amount of $25,000 per share, for aggregate net cash proceeds of $412 million. See Note 810 of the Notes to the ~~Interim Condensed~~ Consolidated Financial ~~Statements.~~Statements included in the 2019 Annual Report.

Federal Home Loan Bank Funding Agreements, Reported in Policyholder Account Balances

Brighthouse Life Insurance Company is a member of theFederal Home Loan Bank (“ (“FHLB”) of Atlanta, ~~and maintains a~~where we maintain an active funding agreement program, along with inactive funding agreement programs with certain other FHLBs. At both ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, Brighthouse Life Insurance Company had obligations outstanding under funding agreements ~~with certain FHLBs~~ of $595 million. During the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ there were no issuances or repayments under ~~such~~ funding agreements. ~~Activity related to these~~On April 2, 2020, Brighthouse Life Insurance Company issued funding agreements ~~is reported~~for an aggregate collateralized borrowing of $1.0 billion to provide a readily available source of contingent liquidity. The April 2020 funding agreements mature in the ~~Run-off segment.~~fourth quarter of 2020. For additional information regarding the funding agreement program, see Note 3 of the Notes to the Consolidated Financial Statements included in the 2019 Annual Report.

Farmer Mac Funding Agreements, Reported in Policyholder Account Balances

~~On February 1, 2019,~~ Brighthouse Life Insurance Company ~~entered into~~has a 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 in an aggregate amount of up to $500 million. At ~~June 30, 2019,~~March 31, 2020, there were no borrowings under this funding agreement program. ~~Activities related to these funding agreements are reported in the Run-off segment.~~

Credit Facilities

~~On May 7, 2019, BHF entered into an amended and restated revolving credit agreement with respect to~~We maintain a $1.0 billion senior unsecured revolving credit facility (the ~~“2019 Revolving~~“Revolving Credit Facility”) scheduled to mature in May 2024, all of which may be used for revolving loans and/or letters of ~~credit. The 2019 Revolving Credit Facility replaced BHF’s former~~

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~~$2.0 billion senior unsecured revolving~~ credit, ~~facility, which was scheduled to mature in December 2021. At June 30, 2019, there were no borrowings under the 2019 Revolving Credit Facility.~~

~~On February 1, 2019, BHF entered into a term loan agreement with respect to~~and a $1.0 billion unsecured term loan facility ~~(as amended, the “2019 Term~~(the “Term Loan Facility”) scheduled to mature in February 2024. On February 1, 2019, BHF borrowed $1.0 billion under the 2019 Term Loan Facility, terminated its former term loan facility due December 2, 2019 (the “2017 Term Loan Facility”) without penalty and repaid $600 millionAt March 31, 2020, there were no borrowings or letters of ~~borrowings~~credit outstanding under the ~~2017~~Revolving Credit Facility and there was $1.0 billion outstanding under the Term Loan ~~Facility, with the remainder of the proceeds to be used for general corporate purposes.~~Facility.

Committed Facilities

Repurchase Facility

~~In April 2018,~~ Brighthouse Life Insurance Company ~~entered into~~maintains a secured committed repurchase facility (the “Repurchase Facility”) with a financial institution, pursuant to which Brighthouse Life Insurance Company may enter into repurchase transactions in an aggregate amount of up to $2.0 billion. The Repurchase Facility has a term ending on July 31, 2021. Under the Repurchase Facility, Brighthouse Life Insurance Company may sell certain eligible securities at a purchase price based on the market value of the securities less an applicable margin based on the types of securities sold, with a concurrent agreement to repurchase such securities at a predetermined future date (ranging from two weeks to three months) and at a price which represents the original purchase price plus interest. At ~~June 30, 2019,~~March 31, 2020, there were no borrowings under the Repurchase Facility.

Reinsurance Financing Arrangement

Our reinsurance subsidiary,~~Brighthouse Reinsurance Company of Delaware (“BRCD”),~~ BRCD, was formed to manage our capital and risk exposures and to support our term andULSGbusinesses through the use of affiliated reinsurance arrangements and related reserve financing. ~~As of June 30, 2019,~~ BRCD ~~had~~maintains a $10.0 billion financing arrangement with a pool of highly rated third-party ~~reinsurers. This financing arrangement consists~~reinsurers consisting of credit-linked notes that each mature in 2037. At ~~June 30, 2019,~~March 31, 2020, there were no borrowings ~~under this facility,~~ and there was $10.0 billion of funding available under this financing arrangement.

BRCD is capitalized with cash and invested assets, including funds withheld (“Minimum Initial Target Assets”) at a level we believe to be sufficient to satisfy its future cash obligations assuming a permanent level yield curve, consistent with NAIC cash flow testing scenarios. BRCD utilizes the above referenced financing arrangement to cover the difference

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between full required statutory assets (i.e., ~~XXX/AXXX~~NAIC Valuation of Life Insurance Policies Model Regulation (Regulation XXX) and NAIC Actuarial Guideline 38 (Guideline AXXX) reserves plus target risk margin appropriate to meet capital needs) and Minimum Initial Target Assets. An admitted deferred tax asset ~~if any, would~~could also serve to reduce the amount of funding required under the above referenced financing arrangement.

Outstanding Long-term Debt

~~The following table summarizes our~~Our outstanding long-term debt was as follows at:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(In millions)				(In millions)
Senior notes (1)	$	2,969	$	2,968	$	2,970	$	2,970
Term loan	1,000		600		1,000		1,000
Junior subordinated debentures (1)	362		361		363		363
Other long-term debt (2)	34		34		32		32
Total long-term debt	$	4,365	$	3,963	$	4,365	$	4,365

_______________


(1)	Includes unamortized debt issuance costs and debt discount totaling ~~$44 million and $46~~$42 million at ~~June 30, 2019~~both March 31, 2020 and December 31, ~~2018, respectively,~~2019 for senior notes and junior subordinated debentures on a combined basis.


(2)	Represents non-recourse debt for which creditors have no access, subject to customary exceptions, to the general assets of the Company other than recourse to certain investment companies.

Debt and Facility Covenants

The Company’s debt instruments and credit and committed facilities contain certain administrative, reporting and legal covenants. Additionally, the Company’s credit facilities contain financial covenants, including requirements to maintain a specified minimum adjusted consolidated net worth, to maintain a ratio of total indebtedness to total capitalization not in

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excess of a specified percentage and that place limitations on the dollar amount of indebtedness that may be incurred by the Company, which could restrict our operations and use of funds. At ~~June 30, 2019,~~March 31, 2020, the Company was in compliance with these financial covenants.

Primary Uses of Liquidity and Capital

In addition to the summarized description of liquidity and capital uses discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary uses of liquidity and capital:

Common Stock Repurchases

During the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, we repurchased ~~4,993,424~~5,674,387 shares and 1,417,582 shares, respectively, of our common stock through open market purchases pursuant to 10b5-1 plans for ~~$188 million.~~$142 million and $52 million, respectively. On May 11, 2020, the Company announced that it has temporarily suspended repurchases of its common stock while it continues to evaluate the impacts of the COVID-19 pandemic.

Preferred Stock Dividends

On ~~May 15, 2019,~~February 14, 2020, BHF declared a dividend of $412.50 per share, for a total of $7 million, on ~~the~~our perpetual 6.600% Series A ~~Preferred Stock. The dividend~~non-cumulative preferred stock, which was paid on ~~June~~March 25, ~~2019~~2020 to stockholders of record as of ~~June~~March 10, ~~2019.~~2020.

~~Under the terms~~

Table of the Series A Preferred Stock, our ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our common stock or shares of any other class or series of our capital stock (if any) that ranks junior to the Series A Preferred Stock will be subject to certain restrictions in the event that we do not declare and pay (or set aside) dividends on the Series A Preferred Stock for the latest completed dividend period, and our ability to declare full dividends on preferred stock that ranks equally with the Series A Preferred Stock (if any) will be subject to certain limitations in the event we declare partial dividends on the Series A Preferred Stock. See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements.Contents

Debt Repurchases

We may from time to time seek to retire or purchase our outstanding indebtedness through cash purchases and/or exchanges for other securities, purchases in the open market, privately negotiated transactions or otherwise. Any such repurchases or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, and applicable regulatory, legal and accounting factors. Whether or not we repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.

Insurance Liabilities

Liabilities arising from our insurance activities primarily relate to benefit payments under various annuity and life insurance products, as well as payments for policy surrenders, withdrawals and loans. Surrender or lapse behavior differs somewhat by product but tends to occur in the ordinary course of business. During the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, general account surrenders and withdrawals totaled ~~$1.3 billion,~~$545 million and $740 million, respectively, of which ~~$1.1 billion was attributable to products within the Annuities segment. During the six months ended June 30, 2018, general account surrenders~~$517 million and ~~withdrawals totaled $1.3 billion, of which $923~~$615 million, respectively, was attributable to products within the Annuities segment.

Pledged Collateral

We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, counterparties were obligated to return cash collateral pledged by us of $0$5 million and ~~$64 million,~~$0, respectively. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we were obligated to return cash collateral pledged to us by counterparties of ~~$1.1~~$7.4 billion and ~~$1.4~~$1.3 billion, respectively. See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information about pledged collateral. We also pledge collateral from time to time in connection with funding agreements.

Securities Lending

We have a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities are returned to us. Under our securities lending program, we were liable for cash collateral under our control of ~~$3.0~~$3.6 billion and ~~$3.6~~$3.1 billion at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Of these amounts, ~~$1.4~~$1.2 billion and ~~$1.5~~$1.3 billion at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, were on open, meaning that the related loaned security could be returned to us on the next business day requiring the immediate return of cash collateral we hold. The estimated fair value of the securities on loan related to the cash collateral on open at ~~June 30, 2019~~March 31, 2020 was ~~$1.4~~$1.2 billion, all of which were U.S. government and agency securities which, if put back to us, could be immediately sold to satisfy the cash requirement. See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

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Litigation

Putative or certified class action litigation and other litigation, and claims and assessments against us, in addition to those discussed elsewhere herein and those otherwise provided for in the financial statements, have arisen in the course of our business, including, but not limited to, in connection with our activities as an insurer, employer, investor, investment advisor, and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning our compliance with applicable insurance and other laws and regulations. See Note 1110 of the Notes to the Interim Condensed Consolidated Financial Statements.

The Parent Company

Liquidity and Capital

In evaluating liquidity, it is important to distinguish the cash flow needs of the parent company from the cash flow needs of the combined group of companies. BHF is largely dependent on cash flows from its insurance subsidiaries to meet its obligations. Constraints on BHF’s liquidity may occur as a result of operational demands and/or as a result of compliance with regulatory requirements.

Short-term Liquidity and Liquid Assets

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, BHF and certain of its non-insurance subsidiaries had short-term liquidity of ~~$823~~$905 million and ~~$520~~$723 million, respectively. Short-term liquidity is comprised of cash and cash equivalents and short-term investments.

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, BHF and certain of its non-insurance subsidiaries had liquid assets of ~~$904~~$955 million and ~~$752~~$767 million, respectively, of which ~~$875~~$902 million and ~~$693~~$715 million, respectively, was held by BHF. Liquid assets are comprised of cash and cash equivalents, short-term investments and publicly-traded securities.

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Statutory Capital and Dividends

The NAIC and state insurance departments have established regulations that provide minimum capitalization requirements based on~~risk-based capital (“RBC”)~~ 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~~the total adjusted capital (“TAC”) does not meet or exceed certain RBC levels. As of the date of the most recent annual statutory financial statements filed with insurance regulators, the TAC of each of our insurance subsidiaries subject to these requirements was in excess of each of those RBC levels.

The amount of dividends that our insurance subsidiaries can ultimately pay to BHF through their various parent entities provides an additional margin for risk protection and investment in our businesses. Such dividends are constrained by the amount of surplus our insurance subsidiaries hold to maintain their ratings, which is generally higher than minimum RBC requirements. We proactively take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial resources from internal or external sources of capital. Certain of these activities may require regulatory approval. Furthermore, the payment of dividends and other distributions by our insurance subsidiaries is governed by insurance laws and regulations. See ~~“— Primary Sources~~Notes 10 and ~~Uses~~18 of ~~Liquidity and Capital — Dividends and Returns of Capital from Insurance Subsidiaries.”~~the Notes to the Consolidated Financial Statements in the 2019 Annual Report.

Primary Sources and Uses of Liquidity and Capital

The principal sources of funds available to BHF include distributions fromBrighthouse Holdings, LLC (“BH Holdings”), dividends and returns of capital from its insurance subsidiaries, capital markets issuances, as well as its own cash and cash equivalents and short-term investments. These sources of funds may also be supplemented by alternate sources of liquidity either directly or indirectly through our insurance subsidiaries. For example, we have established internal liquidity facilities to provide liquidity within and across our regulated and non-regulated entities to support our businesses.

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The primary uses of liquidity of BHF include debt service ~~including~~obligations (including interest expense and debt ~~repayments,~~repayments), preferred stock dividends, capital contributions to subsidiaries, common stock repurchases and payment of general operating expenses. Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enable BHF to make payments on debt, pay preferred stock dividends, contribute capital to its subsidiaries, repurchase its common stock, pay all general operating expenses and meet its cash needs.

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

Distributions from and Capital Contributions to BH Holdings

During the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ BHF received cash distributions of ~~$195~~$488 million and ~~$52~~$195 million, respectively, from BH Holdings and made cash capital contributions of $0 and $412 million, ~~and $0,~~ respectively, to BH Holdings.

~~Dividends and Returns of Capital from Insurance Subsidiaries~~

~~Our business is~~ The $488 million distribution was primarily ~~conducted through our insurance subsidiaries. The insurance subsidiaries are subject~~related to ~~regulatory restrictions on the payment of dividends and other distributions imposed~~a $300 million ordinary cash dividend paid by ~~the regulators of their respective state domiciles.~~

~~Any requested payment of dividends by~~ Brighthouse ~~Life Insurance Company and New England~~ Life Insurance Company to BH Holdings orin the first quarter of 2020. On April 24, 2020, BHF received a $500 million cash distribution from BH Holdings, which related to a $500 million ordinary cash dividend paid by Brighthouse Life Insurance Company ~~of NY (“BHNY”)~~to ~~Brighthouse Life Insurance Company, in excess of the 2019 limit~~BH Holdings also on the permitted payment of dividends without approval would be considered an extraordinary dividend and would require prior approval from the Delaware Department of Insurance or the Massachusetts Division of Insurance, and the New York State Department of Financial Services, respectively.April 24, 2020.

The table below sets forth the dividends permitted to be paid in 2019 by our insurance subsidiaries without insurance regulatory approval and the respective dividends paid during the six months ended June 30, 2019.

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Paid Permitted without Approval (1)
(In millions)
Brighthouse Life Insurance Company $ —
$ 798
New England Life Insurance Company $ —
$ 131
Brighthouse Life Insurance Company of NY (2) $ —
$ 27

~~_______________~~


~~(1)~~	Reflects dividend amounts that may be paid during 2019 without prior regulatory approval. However, because dividend tests may be based on dividends previously paid over rolling 12-month periods, if paid before a specified date during 2019, some or all of such dividends may require regulatory approval.


~~(2)~~	~~Dividends are not anticipated to be paid by BHNY in 2019.~~

Short-term Intercompany Loans

As of ~~June 30, 2019,~~March 31, 2020, BHF, as borrower, had a short-term intercompany loan agreement with certain of its non-insurance subsidiaries, as lenders, for the purposes of facilitating the management of the available cash of the borrower and the lenders on a short-term and consolidated basis. Such intercompany loan agreement allows management to optimize the efficient use of and maximize the yield on cash between BHF and its subsidiary lenders. Each loan entered into under this intercompany loan agreement has a term not more than 364 days and bears interest on the unpaid principal amount at a variable rate, payable monthly. During the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ BHF borrowed ~~$493~~$165 million and ~~$0,~~$188 million, respectively, from certain of its non-insurance subsidiaries under short-term intercompany loan agreements and repaid ~~$645~~$315 million and ~~$87~~$384 million, respectively, to certain of its non-insurance company subsidiaries under short-term intercompany loan agreements. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, BHF had total obligations outstanding of ~~$151~~$193 million and ~~$303~~$343 million, respectively, under such agreements.

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Intercompany Liquidity Facilities

As of ~~June 30, 2019,~~March 31, 2020, we maintained intercompany liquidity facilities with certain of our insurance and non-insurance company subsidiaries to provide short-term liquidity within and across the combined group of companies. Under these facilities, which are comprised of a series of revolving loan agreements among BHF and its participating subsidiaries, each company may lend to or borrow from each other, subject to certain maximum limits for a term not more than 364 days. During the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~there were no borrowings or repayments by BHF ~~borrowed $0 and $40 million, respectively,~~ under intercompany liquidity facilities and, at ~~June 30, 2019~~both March 31, 2020 and December 31, ~~2018, there were~~2019, BHF had no obligations outstanding under such facilities.

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Note Regarding Forward-Looking Statements

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other oral or written statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements using words such as “anticipate,” “estimate,” “expect,” “project,” “may,” “will,” “could,” “intend,” “goal,” “target,” “guidance,” “forecast,” “preliminary,” “objective,” “continue,” “aim,” “plan,” “believe” and other words and terms of similar meaning, or that are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include, without limitation, statements relating to future actions, prospective services or products, financial projections, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, as well as trends in operating and financial ~~results, as well as statements regarding the expected benefits of the Separation.~~results.

Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of Brighthouse. These statements are based on current expectations and the current economic environment and involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others:

•the impact of the ongoing COVID-19 pandemic;

•differences between actual experience and actuarial assumptions and the effectiveness of our actuarial models;

higher risk management costs and exposure to increased market ~~and counterparty~~ risk due to guarantees within certain of our products;

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

the reserves we are required to hold against our variable annuities as a result of actuarial guidelines;

~~a sustained period of low equity market prices and interest rates that are lower than those we assumed when we issued our variable annuity products;~~

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

our degree of leverage due to indebtedness;

the ~~effect~~impact of adverse capital and credit market conditions, ~~may have on~~including with respect to our ability to meet liquidity needs and ~~our~~ access to capital;

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

the ~~effectiveness of our risk management policies and procedures;~~

~~the~~ availability of reinsurance and the ability of ~~our~~the counterparties to our reinsurance or indemnification arrangements to perform their obligations thereunder;

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

heightened competition, including with respect to service, product features, scale, price, actual or perceived financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition;

any failure of third parties to provide services we need, any failure of the practices and procedures of such third parties and any inability to obtain information or assistance we need from third parties;

the ability of our insurance subsidiaries to pay dividends to us, and our ability to pay dividends to our ~~shareholders;~~shareholders and repurchase our common stock;

the effectiveness of our policies and procedures in managing risk;

our ability to market and distribute our products through distribution channels;

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any failure of third parties to provide services we need, any failure of the practices and procedures of these third parties and any inability to obtain information or assistance we need from third parties, including MetLife;

whether all or any portion of the tax consequences of ~~the Separation~~our separation from MetLife are not as expected, leading to material additional taxes or material adverse consequences to tax attributes that impact us;

the uncertainty of the outcome of any disputes with MetLife over tax-related or other matters and agreements ~~including the potential of outcomes adverse to us that could cause us to owe MetLife material tax reimbursements or payments,~~ or disagreements regarding MetLife’s or our obligations under our other agreements;

~~the impact on our business structure, profitability, cost of capital and flexibility due to restrictions we have agreed to that preserve the tax-free treatment of certain parts of the Separation;~~

the potential material negative tax impact of potential future tax legislation that could ~~decrease the value of our tax attributes and cause other cash expenses, such as reserves, to increase materially and~~ make some of our products less attractive to consumers;

~~whether the Separation will qualify for non-recognition treatment for federal income tax purposes and potential indemnification to MetLife if the Separation does not so qualify;~~

the impact of the Separation on our business and profitability due to MetLife’s strong brand and reputation, the increased costs related to replacing arrangements with MetLife with those of third parties and incremental costs as a public company;

~~whether the operational, strategic and other benefits of the Separation can be achieved, and our ability to implement our business strategy;~~

~~our ability to attract and retain key personnel;~~ and

other factors described in ~~our 2018 Annual Report, our subsequent Quarterly Reports on Form 10-Q,~~this report and from time to time in documents that we file with the SEC.

For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements included and the risks, uncertainties and other factors identified in our ~~2018~~2019 Annual Report, ~~our subsequent Quarterly Reports on Form 10-Q,~~ particularly in the sections entitled “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk,” as well as in our other subsequent ~~SEC filings.~~filings with the SEC. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.

Corporate Information

We routinely use our Investor Relations website to provide presentations, press releases and other information that may be deemed material to investors. Accordingly, we encourage investors and others interested in the Company to review the information that we share at http://investor.brighthousefinancial.com. In addition, our Investor Relations website allows interested persons to sign up to automatically receive e-mail alerts when we post financial information. Information contained on or connected to any website referenced in this report or any of our other filings with the SEC is not incorporated by reference in this report or in any other report or document we file with the SEC, and any website references are intended to be inactive textual references only unless expressly noted.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We regularly analyze our market risk exposure to interest rate, equity market price, credit spreads and foreign currency exchange rate risks. As a result of that analysis, we have determined that the estimated fair values of certain assets and liabilities are significantly exposed to changes in interest rates, and to a lesser extent, to changes in equity market prices and foreign currency exchange rates. We have exposure to market risk through our insurance and annuity operations and general account investment activities. For purposes of this discussion, “market risk” is defined as changes in estimated fair value resulting from changes in interest rates, equity market prices, credit spreads and foreign currency exchange rates. We may have additional financial impacts other than changes in estimated fair value, which are beyond the scope of this discussion. A description of our market risk exposures may be found under “Quantitative and Qualitative Disclosures About Market Risk” in the ~~2018~~2019 Annual Report.

There have been no material changes to our market risk exposures from the market risk exposures previously disclosed in the ~~2018~~2019 Annual ~~Report.~~Report, with the exception of sensitivity to changes in interest rates. Sensitivity to a 100 basis point rise in interest rates increased by $1.7 billion or 22%, to $9.4 billion as of March 31, 2020 from $7.7 billion as of December 31, 2019, primarily as a result of lower interest rates increasing the estimated fair value of interest rate derivative contracts, in line with management expectations.

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Item 4. Controls and Procedures

Management, with the participation of the Chief Executive Officer and ~~Interim~~the Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and ~~Interim~~the Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of ~~June 30, 2019.~~March 31, 2020.

MetLife provides certain services to the Company on a transitional basis through services agreements. The Company continues to change business processes, implement systems and establish new third-party arrangements. We consider these in aggregate to be material changes in our internal control over financial reporting.

Other than as noted above, there were no changes to the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~June 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~these internal ~~control~~controls over financial reporting.

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Part II — Other Information

Item 1. Legal Proceedings

See Note 1110 of the Notes to the Interim Condensed Consolidated Financial Statements. Except as disclosed in the Notes to the Interim Condensed Consolidated Financial Statements, ~~included in this report. There~~there have been no new material legal proceedings and no material developments in legal proceedings previously disclosed in the ~~2018~~2019 Annual ~~Report~~.Report.

Item 1A. Risk Factors

We discuss in this report, in the ~~2018~~2019 Annual Report and in our other filings with the SEC, various risks that may materially affect our business. In addition, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Note Regarding Forward-Looking Statements” included herein. The extent to which the COVID-19 pandemic adversely affects our business and financial results may also have the effect of heightening or exacerbating many of the other risks described in the “Risk Factors” section of our 2019 Annual Report.

The ongoing COVID-19 pandemic may materially adversely affect our business, results of operations and financial condition, including capitalization and liquidity

We are closely monitoring developments related to the COVID-19 pandemic, which has already negatively impacted us, including as discussed below and as further discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — COVID-19 Pandemic.” At this ~~report. There~~time, it is not possible to estimate the severity or duration of the pandemic, including the severity, duration and frequency of any additional “waves” of the pandemic or the timetable for the development and implementation, and the efficacy, of any therapeutic treatment or vaccine for COVID-19. It is likewise 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, results of operations, financial condition and prospects, including the impact on our investment portfolio and our ratings, or the need for us in the future to revisit or revise targets previously provided to the markets and/or aspects of our business model.

A key part of our operating strategy is that we leverage third parties to deliver certain services important to our business. As a result, we rely upon the successful implementation and execution of the business continuity plans of such entities in the current environment. While our third-party provider contracts require business continuity and we closely monitor the performance of such third parties, including those that are operating in a remote work environment, successful implementation and execution of their business continuity strategies are largely outside of our control. If any of our third-party providers or partners (including third-party reinsurers) experience operational or financial failures related to the COVID-19 pandemic, or are unable to perform any of their contractual obligations due to a force majeure or otherwise, there could be a material adverse effect on our business, results of operations or financial condition.

Our investment portfolio (and, specifically, the valuations of certain investment assets we hold) has been, and we expect will continue to be, adversely affected as a result of the impact of the COVID-19 pandemic on capital markets and the global economy, as well as uncertainty regarding its duration and outcome. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment.” Moreover, a sustained period of low interest rates, reduced liquidity and a continued slowdown in U.S. or global economic conditions have ~~been no material~~adversely affected, and we expect will continue to adversely affect, the values and cash flows of some of our investments. We expect our investments in secured loans and asset-backed securities will be negatively affected by delays or failures of borrowers to make payments of principal and interest when due or delays or moratoriums on enforcement actions with respect to delinquent or defaulted loans imposed by governmental authorities. Further, extreme market volatility may leave us unable to react to market events in a manner consistent with our historical investment practices in dealing with more orderly markets. Market dislocations, decreases in observable market activity or unavailability of information, in each case, arising from the COVID-19 pandemic, may restrict our access to key inputs used to derive certain estimates and assumptions made in connection with financial reporting or otherwise, including estimates and changes in long term macro-economic assumptions relating to accounting for current expected credit losses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Investment Risks” for further discussion of expected credit losses. Restricted access to such inputs may make our financial statement balances and estimates and assumptions used to run our business subject to greater variability and subjectivity. In addition, market conditions related to the COVID-19 pandemic may increase certain liabilities beyond what our hedges cover.

Credit rating agencies may continue to review and adjust their ratings for the companies that they rate, including us. The credit rating agencies also evaluate the insurance industry as a whole and may change our credit rating based on their overall view of our industry. For example, Fitch recently revised the rating outlook for BHF and certain of its subsidiaries to negative from stable due to the disruption to economic activity and the financial markets from the COVID-19 pandemic. This action by Fitch followed its revision of the rating outlook on the U.S. life insurance industry to negative. Downgrades in our ratings or changes to our ~~risk factors~~rating outlooks could have a material adverse effect on our results of operations and financial condition, including capitalization and liquidity. There can be no assurance that Fitch will not take further adverse action with respect to our ratings

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or that other rating agencies will not take similar actions in the future. Each rating should be evaluated independently of any other rating.

Increased economic uncertainty and increased unemployment resulting from the economic impacts of the of the COVID-19 pandemic have also impacted sales of certain of our products and have prompted us to take actions to provide relief to customers adversely affected by the COVID-19 pandemic, as further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Developments.” Circumstances resulting from the COVID-19 pandemic may affect the incidence of claims, utilization of benefits, lapses or surrenders of policies and payments on insurance premiums, any of which could impact the revenues and expenses associated with our products.

Any risk ~~factors previously disclosed~~management or contingency plans or preventative measures we take may not adequately predict or address the impact of the COVID-19 pandemic on our business. Currently, our employees are working remotely. An extended period of remote work arrangements could strain our business continuity plans, increase operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.

Both the U.S. federal government and many state legislatures and insurance regulators have passed new legislation and regulations in response to the ~~2018 Annual Report, as amended or supplemented by such information~~COVID-19 pandemic that affect the conduct of our business. Changes in our ~~subsequent Quarterly Reports on Form 10-Q.~~circumstances due to the COVID-19 pandemic could subject us to additional legal and regulatory restrictions under existing laws and regulations, such as the Coronavirus Aid, Relief, and Economic Security Act. Future legal and regulatory responses could also materially affect the conduct of our business going forward as well as our results of operations and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Purchases of BHF common stock made by or on behalf of BHF or its affiliates during the three months ended ~~June 30, 2019~~March 31, 2020 are set forth below:

Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(In millions)
April 1 — April 30, 2019 354,806
$ 38.88
352,259
$ 29
May 1 — May 31, 2019 1,435,198
$ 38.26
1,435,198
$ 374
June 1 — June 30, 2019 1,788,630
$ 37.50
1,788,385
$ 307
Total 3,578,634
3,575,842



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					(In millions)
January 1 — January 31, 2020	587,987	$	39.68	587,987	$	30
February 1 — February 29, 2020	495,618	$	43.34	495,618	$	508
March 1 — March 31, 2020	4,660,650	$	21.40	4,590,782	$	411
Total	5,744,255			5,674,387

__________


(1)	Where applicable, total number of shares purchased includes shares of common stock withheld with respect to option exercise costs and tax withholding obligations associated with the exercise or vesting of share-based compensation awards under our publicly announced benefit plans or programs.

(2)

~~In August 2018,~~On February 6, 2020, we authorized the repurchase of up to ~~$200~~$500 million of our common stock. This stock repurchase authorization is in addition to the $600 million aggregate stock repurchase authorizations announced in May 2019 and ~~on May 3, 2019, we authorized the repurchase of up to an additional $400 million of our common stock.~~August 2018. For more information on common stock repurchases, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Primary Uses of Liquidity and Capital — Common Stock Repurchases” as well as Notes 7 and ~~Note 8~~11 of the Notes to the Interim Condensed Consolidated Financial Statements.

~~Item 5. Other Information~~

On August 5, 2019, Brighthouse Services, LLC (“Brighthouse Services”), an indirect wholly-owned subsidiary of BHF and the Company’s internal services and payroll company, agreed to pay Conor Murphy, the Company’s Executive Vice President, Chief Operating Officer and Interim Chief Financial Officer, $361,000 for miscellaneous relocation costs and related expenses (of which $161,000 was reimbursement for the payment of income taxes) under the Brighthouse Services, LLC Blue Relocation Policy (the “Relocation Policy”), which is included as Exhibit 10.3 hereto. The amounts paid to Mr. Murphy under the Relocation Policy are subject to repayment by Mr. Murphy if he voluntarily ceases employment with Brighthouse Services, voluntarily transfers to a new location or is terminated for certain conduct within two years of his execution of a repayment agreement, and in certain other circumstances as set forth in the Relocation Policy.

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Item 6. Exhibits

(Note Regarding Reliance on Statements in Our Contracts: In reviewing the agreements included as exhibits herein, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Brighthouse Financial, Inc. and its subsidiaries or affiliates, or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and (i) should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; (iii) may apply standards of materiality in a way that is different from what may be viewed as material to investors; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Brighthouse Financial, Inc. and its subsidiaries and affiliates may be found elsewhere herein and Brighthouse Financial, Inc.’s other public filings, which are available without charge through the U.S. Securities and Exchange Commission website at www.sec.gov.)



Exhibit No.		Description
~~10.1~~10.1#		Amended and Restated ~~Revolving Credit Agreement, dated~~Brighthouse Services, LLC Short-Term Incentive Plan, as ~~of May 7, 2019, among Brighthouse Financial, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto~~amended February 21, 2020 is incorporated by reference to Exhibit 10.8 to our ~~Quarterly~~Annual Report on Form ~~10-Q,~~10-K, filed ~~May 7,~~February 26, 2020.
10.2#*		Form of Non-Management Director Restricted Stock Unit Agreement (Brighthouse Financial, Inc. 2017 Non-Management Director Stock Compensation Plan, the “Director Plan”), as amended November 14, 2019 ~~(File No. 001-37905)~~(replaces and updates Exhibit 10.26 to our Annual Report on Form 10-K, filed on February 26, 2020).
10.210.3#		~~First Amendment to Term Loan~~Form of Non-Management Director Award Agreement ~~dated as of May 31, 2019, by and among Brighthouse Financial, Inc., the banks party thereto and JPMorgan Chase Bank, N.A.~~Supplement (Director Plan), as ~~Administrative Agent.~~
~~10.3*#~~		~~Brighthouse Services, LLC Blue Relocation Policy, revised July 1, 2019.~~
10.4*		~~First Amended~~amended November 14, 2019 (replaces and ~~Restated Investment Management Agreement, dated as of July 17, 2019, by and between Brighthouse Services, LLC and MetLife Investment Management, LLC.~~
~~10.5#~~		~~Offer Letter, dated as of July 24, 2019, between Brighthouse Services, LLC and Edward Spehar is incorporated by reference to~~updates Exhibit ~~10.1~~10.27 to our ~~Current~~Annual Report on Form ~~8-K,~~10-K, filed ~~July 24, 2019 (File No. 001-37905)~~on February 26, 2020).
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of ~~Interim~~ Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of ~~Interim~~ Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
104*		The cover page of Brighthouse Financial, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2019,~~March 31, 2020, formatted in Inline XBRL (included within the Exhibit 101 attachments).

* Filed herewith.

** Furnished herewith.

# Denotes management contracts or compensation plans or arrangements.

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~~Signatures~~SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



BRIGHTHOUSE FINANCIAL, INC.

By:		/s/ ~~Conor E. Murphy~~Edward A. Spehar
	Name:	~~Conor E. Murphy~~Edward A. Spehar
	Title:	Executive Vice President ~~Chief Operating Officer~~ and ~~Interim~~ Chief Financial Officer
		(Duly Authorized ~~Signatory~~Officer and Principal Financial Officer)

Date: ~~August 6, 2019~~May 11, 2020

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	Operating Results
Three Months Ended June 30, 2018	Annuities		Life		Run-off			Corporate & Other			Total
	(In millions)
Pre-tax adjusted earnings	$	266	$	46	$	(8	)	$	(124	)	$	180
Provision for income tax expense (benefit)	45		9		(2		)	(26		)	26
Post-tax adjusted earnings	221		37		(6		)	(98		)	154
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	—		—		—			1			1
Adjusted earnings	$	221	$	37	$	(6	)	$	(99	)	153
Adjustments for:
Net investment gains (losses)											(75		)
Net derivative gains (losses)											(312		)
Other adjustments to net income											(110		)
Provision for income tax (expense) benefit											105
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders											$	(239	)

Interest revenue	$	376	$	111	$	314		$	11
Interest expense	$	—	$	—	$	—		$	37



	Operating Results
Six Months Ended June 30, 2018	Annuities		Life		Run-off		Corporate & Other			Total
	(In millions)
Pre-tax adjusted earnings	$	538	$	127	$	55	$	(210	)	$	510
Provision for income tax expense (benefit)	91		24		11		(55		)	71
Post-tax adjusted earnings	447		103		44		(155		)	439
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	—		—		—		3			3
Adjusted earnings	$	447	$	103	$	44	$	(158	)	436
Adjustments for:
Net investment gains (losses)										(79		)
Net derivative gains (losses)										(646		)
Other adjustments to net income										(215		)
Provision for income tax (expense) benefit										198
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders										$	(306	)

Interest revenue	$	739	$	219	$	657	$	22
Interest expense	$	—	$	—	$	—	$	74



	Recorded Investment
	Debt Service Coverage Ratios								% of Total		Estimated Fair Value		% of Total
	> 1.20x		1.00x - 1.20x		< 1.00x		Total		% of Total		Estimated Fair Value		% of Total
	(Dollars in millions)
June 30, 2019
Loan-to-value ratios:
Less than 65%	$	8,197	$	121	$	113	$	8,431	91.0	%	$	8,818	91.1	%
65% to 75%	688		—		—		688		7.4		712		7.4
76% to 80%	139		—		9		148		1.6		148		1.5
Total	$	9,024	$	121	$	122	$	9,267	100.0	%	$	9,678	100.0	%
December 31, 2018
Loan-to-value ratios:
Less than 65%	$	7,470	$	89	$	34	$	7,593	89.0	%	$	7,668	89.0	%
65% to 75%	762		—		24		786		9.2		798		9.3
76% to 80%	141		—		9		150		1.8		145		1.7
Total	$	8,373	$	89	$	67	$	8,529	100.0	%	$	8,611	100.0	%



	Three Months Ended June 30, 2019
	Unrealized Investment Gains (Losses), Net of Related Offsets (1)			Unrealized Gains (Losses) on Derivatives			Foreign Currency Translation Adjustments			Defined Benefit Plans Adjustment			Total
	(In millions)
Balance, March 31, 2019	$	1,580		$	140		$	(27	)	$	(23	)	$	1,670
OCI before reclassifications	1,293			75			7			—			1,375
Deferred income tax benefit (expense)	(271		)	(16		)	—			—			(287		)
AOCI before reclassifications, net of income tax	2,602			199			(20		)	(23		)	2,758
Amounts reclassified from AOCI	(48		)	(22		)	—			—			(70		)
Deferred income tax benefit (expense)	10			4			—			—			14
Amounts reclassified from AOCI, net of income tax	(38		)	(18		)	—			—			(56		)
Balance, June 30, 2019	$	2,564		$	181		$	(20	)	$	(23	)	$	2,702



	Three Months Ended June 30, 2018
	Unrealized Investment Gains (Losses), Net of Related Offsets (1)			Unrealized Gains (Losses) on Derivatives			Foreign Currency Translation Adjustments			Defined Benefit Plans Adjustment			Total
	(In millions)
Balance, March 31, 2018	$	695		$	87		$	(22	)	$	(23	)	$	737
OCI before reclassifications	(65		)	111			4			—			50
Deferred income tax benefit (expense)	30			(23		)	(1		)	(1		)	5
AOCI before reclassifications, net of income tax	660			175			(19		)	(24		)	792
Amounts reclassified from AOCI	42			(10		)	—			—			32
Deferred income tax benefit (expense)	(12		)	3			—			—			(9		)
Amounts reclassified from AOCI, net of income tax	30			(7		)	—			—			23
Balance, June 30, 2018	$	690		$	168		$	(19	)	$	(24	)	$	815



	June 30, 2019		December 31, 2018
State
California	24	%	26	%
New York	13	%	14	%
Texas	7	%	8	%



	Paid		Permitted without Approval (1)
	(In millions)
Brighthouse Life Insurance Company	$	—	$	798
New England Life Insurance Company	$	—	$	131
Brighthouse Life Insurance Company of NY (2)	$	—	$	27