September 30, 2019 December 31, 2018
Carrying
Amount
Maximum
Exposure
to Loss
Carrying
Amount Maximum
Exposure
to Loss
(In millions)
Fixed maturity securities $ 13,361
$ 12,592
$ 13,099
$ 13,099
Limited partnerships and LLCs 1,846
3,067
1,756
3,145
Total $ 15,207
$ 15,659
$ 14,855
$ 16,244

Brighthouse Financial, Inc.

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

4. Investments (continued)

~~Net Investment Income~~

~~The components of net investment income were as follows:~~

Three Months Ended
September 30,
Nine Months Ended
September 30,

2019
2018
2019
2018

(In millions)
Investment income:

Fixed maturity securities $ 665
$ 641
$ 1,997
$ 1,907
Equity securities 2
1
6
5
Mortgage loans 172
138
507
384
Policy loans 18
17
51
67
Real estate limited partnerships and limited liability companies 12
12
32
36
Other limited partnership interests 67
69
143
159
Cash, cash equivalents and short-term investments 30
8
67
21
Other 12
20
31
42
Subtotal 978

906

2,834

2,621
Less: Investment expenses 50
53
153
145
Net investment income $ 928

$ 853

$ 2,681

$ 2,476

Net Investment Gains (Losses)

Components of Net Investment Gains (Losses)

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019
2018

(In millions)
Fixed maturity securities $ 28
$ (34 ) $ 81
$ (138 )
Equity securities 3
(1 ) 14
(5 )
Mortgage loans (1 ) (5 ) (8 ) (12 )
Real estate limited partnerships and limited liability companies —
—
—
42
Other limited partnership interests (3 ) —
(8 ) —
Other —
(2 ) —
(8 )
Total net investment gains (losses) $ 27

$ (42 )
$ 79
$ (121 )

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

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

~~4. Investments (continued)~~


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Fixed maturity securities	$	1	$	28	$	(26)	$	81
Equity securities	4		3		(3)		14
Mortgage loans	3		(1)		(23)		(8)
Limited partnerships and LLCs	(1)		(3)		(4)		(8)
Other	(2)		0		8		0
Total net investment gains (losses)	$	5	$	27	$	(48)	$	79

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
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(In millions)
Proceeds $ 1,628
$ 3,091
$ 8,586
$ 8,428
Gross investment gains $ 45
$ 58
$ 218
$ 70
Gross investment losses (17 ) (92 ) (137 ) (208 )
Net investment gains (losses) $ 28
$ (34 ) $ 81
$ (138 )


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Proceeds	$	897	$	1,628	$	2,168	$	8,586
Gross investment gains	$	30	$	45	$	62	$	218
Gross investment losses	(29)		(17)		(72)		(137)
Net investment gains (losses)	$	1	$	28	$	(10)	$	81

5. Derivatives

Accounting for Derivatives

~~Freestanding Derivatives~~

~~Freestanding derivatives are carried on~~See Note 1 of the Notes to the Consolidated Financial Statements included in the 2019 Annual Report for a description of 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~~accounting policies for derivatives and Note 8 for information about the ~~estimated~~ fair value ~~amounts recognized~~hierarchy for ~~derivatives executed with the same counterparty under the same master netting agreement.~~derivatives.

~~If a derivative is not designated or did not qualify as an accounting hedge, changes in the estimated fair value~~

Derivative Strategies

Types of ~~the derivative are reported in net derivative gains (losses) except for economic hedges of limited partnerships~~Derivative Instruments and ~~LLCs which are presented in net investment income.~~Derivative Strategies

The Company ~~generally reports cash received or paid for a~~maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize its exposure to various market risks. Commonly used derivative instruments include, but are not necessarily limited to:

•Interest rate 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 the related strategies, see Note 7 of the Notes to the Consolidated Financial Statements included 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.

To qualify for hedge accounting, at the inception of the hedging relationship, 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).

2019 Annual Report.

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 primary underlying risk exposure, gross notional amount and estimated fair valueof derivatives held were as follows at:


		September 30, 2020						December 31, 2019
	Primary Underlying Risk Exposure	Gross Notional Amount		Estimated Fair Value				Gross Notional Amount		Estimated Fair Value
				Assets		Liabilities				Assets		Liabilities
		(In millions)
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate forwards	Interest rate	$	330	$	90	$	0	$	420	$	22	$	0
Foreign currency swaps	Foreign currency exchange rate	2,808		314		19		2,765		190		27
Total qualifying hedges		3,138		404		19		3,185		212		27
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate swaps	Interest rate	3,015		707		24		7,559		878		29
Interest rate caps	Interest rate	2,350		1		0		3,350		2		0

Interest rate options	Interest rate	22,570		1,481		178		29,750		782		187
Interest rate forwards	Interest rate	7,332		1,179		24		5,418		94		114
Foreign currency swaps	Foreign currency exchange rate	1,002		141		16		1,051		96		15
Foreign currency forwards	Foreign currency exchange rate	157		0		2		138		0		1
Credit default swaps — purchased	Credit	18		0		0		18		0		0
Credit default swaps — written	Credit	1,793		27		1		1,635		36		0

Equity index options	Equity market	37,493		815		995		51,509		850		1,728
Equity variance swaps	Equity market	1,098		13		22		2,136		69		69
Equity total return swaps	Equity market	12,997		63		222		7,723		2		367
Total non-designated or non-qualifying derivatives		89,825		4,427		1,484		110,287		2,809		2,510
Embedded derivatives:
Ceded guaranteed minimum income benefits	Other	N/A		321		0		N/A		217		0
Direct index-linked annuities	Other	N/A		0		2,256		N/A		0		2,253
Direct guaranteed minimum benefits	Other	N/A		0		3,853		N/A		0		1,656
Assumed index-linked annuities	Other	N/A		0		340		N/A		0		339
Total embedded derivatives		N/A		321		6,449		N/A		217		4,248
Total		$	92,963	$	5,152	$	7,952	$	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 September 30, 2020 and December 31, 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 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		Amount of Gains (Losses) Deferred in AOCI
	(In millions)
Three Months Ended September 30, 2020
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives	$	0	$	0	$	1	$	(1)
Foreign currency exchange rate derivatives	10		(3)		8		(184)
Total cash flow hedges	10		(3)		9		(185)
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	(435)		0		0		0
Foreign currency exchange rate derivatives	(50)		(3)		0		0
Credit derivatives	4		0		0		0
Equity derivatives	(752)		0		0		0
Embedded derivatives	(628)		0		0		0
Total non-qualifying hedges	(1,861)		(3)		0		0
Total	$	(1,851)	$	(6)	$	9	$	(185)
Three Months Ended September 30, 2019
Derivatives Designated as Hedging Instruments:



Cash flow hedges:
Interest rate derivatives	$	0	$	0	$	1	$	51
Foreign currency exchange rate derivatives	0		0		9		109
Total cash flow hedges	0		0		10		160
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	1,657		0		0		0
Foreign currency exchange rate derivatives	49		(3)		0		0
Credit derivatives	2		0		0		0
Equity derivatives	(18)		0		0		0
Embedded derivatives	(630)		0		0		0
Total non-qualifying hedges	1,060		(3)		0		0
Total	$	1,060	$	(3)	$	10	$	160

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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		Amount of Gains (Losses) Deferred in AOCI
	(In millions)
Nine Months Ended September 30, 2020
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives	$	1	$	0	$	2	$	92
Foreign currency exchange rate derivatives	13		(6)		29		143
Total cash flow hedges	14		(6)		31		235
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	4,321		0		0		0
Foreign currency exchange rate derivatives	57		(12)		0		0
Credit derivatives	1		0		0		0
Equity derivatives	(393)		0		0		0
Embedded derivatives	(1,590)		0		0		0
Total non-qualifying hedges	2,396		(12)		0		0
Total	$	2,410	$	(18)	$	31	$	235
Nine Months Ended September 30, 2019
Derivatives Designated as Hedging Instruments:



Cash flow hedges:
Interest rate derivatives	$	28	$	0	$	2	$	51
Foreign currency exchange rate derivatives	19		(23)		26		150
Total cash flow hedges	47		(23)		28		201
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	2,906		0		0		0
Foreign currency exchange rate derivatives	71		(6)		0		0
Credit derivatives	32		0		0		0
Equity derivatives	(1,808)		0		0		0
Embedded derivatives	(1,316)		0		0		0
Total non-qualifying hedges	(115)		(6)		0		0
Total	$	(68)	$	(29)	$	28	$	201

At September 30, 2020 and December 31, 2019, the balance in AOCI associated with cash flow hedges was $464 million and $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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Brighthouse Financial, Inc.

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

5. Derivatives (continued)

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


	September 30, 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)
	(Dollars in millions)
Aaa/Aa/A	$	8	$	879	2.5	$	11	$	615	2.5
Baa	18		914		5.5	25		1,020		5.1

Total	$	26	$	1,793	4.0	$	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, S&P and 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 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 Amount Recognized		Financial Instruments (1)		Collateral Received/Pledged (2)		Net Amount		Securities Collateral Received/Pledged (3)		Net Amount After Securities Collateral
	(In millions)
September 30, 2020
Derivative assets	$	4,861	$	(1,068)	$	(3,159)	$	634	$	(625)	$	9
Derivative liabilities	$	1,495	$	(1,068)	$	0	$	427	$	(426)	$	1
December 31, 2019
Derivative assets	$	3,062	$	(1,458)	$	(1,115)	$	489	$	(488)	$	1
Derivative liabilities	$	2,522	$	(1,458)	$	0	$	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.

Table of Contents

Brighthouse Financial, Inc.

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

5. Derivatives (continued)

(3)Securities collateral received from counterparties is not reported on the consolidated balance sheets and may not be sold or re-pledged unless the counterparty is in default. 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 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 aggregate estimated fair values of derivatives in a net liability position containing such credit-contingent provisions and the aggregate estimated fair value of assets posted as collateral for such instruments were as follows at:


	September 30, 2020		December 31, 2019
	(In millions)
Estimated fair value of derivatives in a net liability position (1)	$	427	$	1,064
Estimated Fair Value of Collateral Provided (2):
Fixed maturity securities	$	691	$	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 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.

Table of Contents

Brighthouse Financial, Inc.

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.


	September 30, 2020
	Fair Value Hierarchy						Total Estimated Fair Value
	Level 1		Level 2		Level 3
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	0	$	35,207	$	699	$	35,906
Foreign corporate	0		10,281		379		10,660
RMBS	0		8,449		0		8,449
U.S. government and agency	1,849		7,086		0		8,935
CMBS	0		6,418		7		6,425
State and political subdivision	0		4,429		0		4,429
ABS	0		2,640		74		2,714
Foreign government	0		1,820		0		1,820
Total fixed maturity securities	1,849		76,330		1,159		79,338
Equity securities	15		99		3		117
Short-term investments	3,019		1,210		10		4,239
Derivative assets: (1)
Interest rate	0		3,458		0		3,458
Foreign currency exchange rate	0		438		17		455
Credit	0		18		9		27
Equity market	0		878		13		891
Total derivative assets	0		4,792		39		4,831
Embedded derivatives within asset host contracts (2)	0		0		321		321
Separate account assets	153		103,028		3		103,184
Total assets	$	5,036	$	185,459	$	1,535	$	192,030
Liabilities
Derivative liabilities: (1)
Interest rate	$	0	$	226	$	0	$	226
Foreign currency exchange rate	0		37		0		37
Credit	0		0		1		1
Equity market	0		1,216		23		1,239
Total derivative liabilities	0		1,479		24		1,503
Embedded derivatives within liability host contracts (2)	0		0		6,449		6,449
Total liabilities	$	0	$	1,479	$	6,473	$	7,952

Table of Contents

Brighthouse Financial, Inc.

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

6. Fair Value (continued)


	December 31, 2019
	Fair Value Hierarchy						Total Estimated Fair Value
	Level 1		Level 2		Level 3
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	0	$	30,831	$	329	$	31,160
Foreign corporate	0		9,712		132		9,844
RMBS	0		9,074		44		9,118
U.S. government and agency	1,636		5,760		0		7,396
CMBS	0		5,755		0		5,755
State and political subdivision	0		3,984		73		4,057
ABS	0		1,882		73		1,955
Foreign government	0		1,751		0		1,751
Total fixed maturity securities	1,636		68,749		651		71,036
Equity securities	14		125		8		147
Short-term investments	1,271		682		5		1,958
Derivative assets: (1)
Interest rate	0		1,778		0		1,778
Foreign currency exchange rate	0		281		5		286
Credit	0		25		11		36
Equity market	0		850		71		921
Total derivative assets	0		2,934		87		3,021
Embedded derivatives within asset host contracts (2)	0		0		217		217
Separate account assets	180		106,924		3		107,107
Total assets	$	3,101	$	179,414	$	971	$	183,486
Liabilities
Derivative liabilities: (1)
Interest rate	$	0	$	330	$	0	$	330
Foreign currency exchange rate	0		43		0		43
Equity market	0		2,093		71		2,164
Total derivative liabilities	0		2,466		71		2,537
Embedded derivatives within liability host contracts (2)	0		0		4,248		4,248
Total liabilities	$	0	$	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.

(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.

Table of Contents

Brighthouse Financial, Inc.

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. Prices received are assessed to determine if they represent a reasonable estimate of fair value. 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.

A formal process is also 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, the last available price will be used.

Additional controls are 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 nine months ended September 30, 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 quotes, and comparable securities that are actively traded.

Table of Contents

Brighthouse Financial, Inc.

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 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~~Recurring Fair Value Measurements

The ~~Company has certain insurance~~assets and ~~reinsurance contracts~~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 ~~contain embedded derivatives which~~do not have a readily determinable fair value and are ~~required~~measured at net asset value (or equivalent) as a practical expedient to ~~be separated~~estimated fair value are excluded from ~~their host contracts~~the fair value hierarchy.


	September 30, 2020
	Fair Value Hierarchy						Total Estimated Fair Value
	Level 1		Level 2		Level 3
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	0	$	35,207	$	699	$	35,906
Foreign corporate	0		10,281		379		10,660
RMBS	0		8,449		0		8,449
U.S. government and agency	1,849		7,086		0		8,935
CMBS	0		6,418		7		6,425
State and political subdivision	0		4,429		0		4,429
ABS	0		2,640		74		2,714
Foreign government	0		1,820		0		1,820
Total fixed maturity securities	1,849		76,330		1,159		79,338
Equity securities	15		99		3		117
Short-term investments	3,019		1,210		10		4,239
Derivative assets: (1)
Interest rate	0		3,458		0		3,458
Foreign currency exchange rate	0		438		17		455
Credit	0		18		9		27
Equity market	0		878		13		891
Total derivative assets	0		4,792		39		4,831
Embedded derivatives within asset host contracts (2)	0		0		321		321
Separate account assets	153		103,028		3		103,184
Total assets	$	5,036	$	185,459	$	1,535	$	192,030
Liabilities
Derivative liabilities: (1)
Interest rate	$	0	$	226	$	0	$	226
Foreign currency exchange rate	0		37		0		37
Credit	0		0		1		1
Equity market	0		1,216		23		1,239
Total derivative liabilities	0		1,479		24		1,503
Embedded derivatives within liability host contracts (2)	0		0		6,449		6,449
Total liabilities	$	0	$	1,479	$	6,473	$	7,952

Table of Contents

Brighthouse Financial, Inc.

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

6. Fair Value (continued)


	December 31, 2019
	Fair Value Hierarchy						Total Estimated Fair Value
	Level 1		Level 2		Level 3
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	0	$	30,831	$	329	$	31,160
Foreign corporate	0		9,712		132		9,844
RMBS	0		9,074		44		9,118
U.S. government and agency	1,636		5,760		0		7,396
CMBS	0		5,755		0		5,755
State and political subdivision	0		3,984		73		4,057
ABS	0		1,882		73		1,955
Foreign government	0		1,751		0		1,751
Total fixed maturity securities	1,636		68,749		651		71,036
Equity securities	14		125		8		147
Short-term investments	1,271		682		5		1,958
Derivative assets: (1)
Interest rate	0		1,778		0		1,778
Foreign currency exchange rate	0		281		5		286
Credit	0		25		11		36
Equity market	0		850		71		921
Total derivative assets	0		2,934		87		3,021
Embedded derivatives within asset host contracts (2)	0		0		217		217
Separate account assets	180		106,924		3		107,107
Total assets	$	3,101	$	179,414	$	971	$	183,486
Liabilities
Derivative liabilities: (1)
Interest rate	$	0	$	330	$	0	$	330
Foreign currency exchange rate	0		43		0		43
Equity market	0		2,093		71		2,164
Total derivative liabilities	0		2,466		71		2,537
Embedded derivatives within liability host contracts (2)	0		0		4,248		4,248
Total liabilities	$	0	$	2,466	$	4,319	$	6,785

_______________

(1)Derivative assets are presented within other invested assets on the consolidated balance sheets and ~~reported as derivatives. These host contracts include: variable annuities with guaranteed minimum benefits, including GMWBs, GMABs and certain GMIBs; index-linked annuities that~~derivative liabilities are ~~directly written or assumed through reinsurance; and ceded reinsurance of variable annuity GMIBs.~~ 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.

Table of Contents

Brighthouse Financial, Inc.

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

6. Fair Value (continued)

Valuation Controls and Procedures

Determination of Fair Value

Fixed Maturity Securities

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 ~~embedded derivative~~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 ~~reported~~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 quotes, and comparable securities that are actively traded.

Table of Contents

Brighthouse Financial, Inc.

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 ~~net derivative gains (losses).~~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 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.

~~Derivative Strategies~~Equity Securities and Short-term Investments

The ~~Company maintains an overall risk management strategy~~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 ~~incorporates the use of derivative instruments to minimize its exposure to various market risks, including interest rate, foreign currency exchange rate, credit and equity market.~~are not active.

Derivatives

~~Interest Rate Derivatives~~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.

~~Interest rate swaps:~~ The ~~Company primarily uses interest rate swaps~~significant inputs to ~~hedge interest rate exposure in variable annuity products~~the pricing models for most OTC-bilateral and ~~minimum guarantees embedded in universal life products. Interest rate swaps~~OTC-cleared derivatives 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 capsinputs that 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 cash flow and nonqualifying hedging relationships.

~~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~~observable in the market or ~~otherwise unavailable (written credit protection),~~can be derived principally from, or ~~to reduce credit loss exposure~~corroborated by, observable market data. Certain OTC-bilateral and OTC-cleared derivatives may rely 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.

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

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

~~5. Derivatives (continued)~~

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.

~~Primary Risks Managed by Derivatives~~

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

September 30, 2019 December 31, 2018
Primary Underlying Risk Exposure
Gross
Notional
Amount
Estimated Fair Value
Gross
Notional
Amount
Estimated Fair Value
Assets Liabilities Assets Liabilities
(In millions)
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate forwards Interest rate $ 460
$ 51
$ —
$ —
$ —
$ —
Foreign currency swaps Foreign currency exchange rate 2,737
320
16
2,524
211
30
Total qualifying hedges 3,197
371
16
2,524
211
30
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate swaps Interest rate 8,731
1,049
32
10,747
528
558
Interest rate caps Interest rate 3,350
2
—
3,350
21
—
Interest rate futures Interest rate —
—
—
54
—
—
Interest rate options Interest rate 27,250
1,771
375
17,168
168
61
Interest rate forwards Interest rate 4,143
241
15
—
—
—
Foreign currency swaps Foreign currency exchange rate 1,078
146
13
1,409
101
18
Foreign currency forwards Foreign currency exchange rate 118
2
—
125
—
—
Credit default swaps — purchased Credit 12
—
—
98
3
—
Credit default swaps — written Credit 1,734
31
—
1,820
14
3
Equity futures Equity market —
—
—
169
—
—
Equity index options Equity market 46,099
766
1,503
45,815
1,372
1,207
Equity variance swaps Equity market 5,574
95
249
5,574
80
232
Equity total return swaps Equity market 5,037
41
33
3,920
280
3
Total non-designated or nonqualifying derivatives 103,126
4,144
2,220
90,249
2,567
2,082
Embedded derivatives:
Ceded guaranteed minimum income benefits Other N/A
303
—
N/A
228
—
Direct guaranteed minimum benefits Other N/A
—
2,391
N/A
—
1,642
Direct index-linked annuities Other N/A
—
1,566
N/A
—
488
Assumed index-linked annuities Other N/A
—
316
N/A
—
96
Total embedded derivatives N/A
303
4,273
N/A
228
2,226
Total $ 106,323
$ 4,818
$ 6,509
$ 92,773
$ 3,006
$ 4,338

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

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

~~5. Derivatives (continued)~~

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 September 30, 2019 and December 31, 2018. 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 swapsinputs that are ~~used~~significant to ~~create synthetic credit investments and that do not qualify for hedge accounting because they do not involve a hedging relationship.~~

~~Table of Contents~~

~~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):

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 September 30, 2019
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives $ —
$ —
$ 1
$ —
$ 51
Foreign currency exchange rate derivatives —
—
9
—
109
Total cash flow hedges —
—
10
—
160
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives 1,657
—
—
—
—
Foreign currency exchange rate derivatives 49
(3 ) —
—
—
Credit derivatives 2
—
—
—
—
Equity derivatives (18 ) —
—
—
—
Embedded derivatives (630 ) —
—
—
—
Total non-qualifying hedges 1,060
(3 ) —
—
—
Total $ 1,060
$ (3 ) $ 10
$ —
$ 160
Three Months Ended September 30, 2018
Derivatives Designated as Hedging Instruments:
Fair value hedges:
Interest rate derivatives $ (2 ) $ 2
$ —
$ —
$ —
Total fair value hedges (2 ) 2
—
—
—
Cash flow hedges:
Interest rate derivatives 46
—
1
—
(3 )
Foreign currency exchange rate derivatives —
—
8
—
(4 )
Total cash flow hedges 46
—
9
—
(7 )
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (266 ) —
—
—
—
Foreign currency exchange rate derivatives 6
(3 ) —
—
—
Credit derivatives 11
—
—
—
—
Equity derivatives (447 ) —
—
—
—
Embedded derivatives (38 ) —
—
(2 ) —
Total non-qualifying hedges (734 ) (3 ) —
(2 ) —
Total $ (690 ) $ (1 ) $ 9
$ (2 ) $ (7 )

~~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)
Nine Months Ended September 30, 2019
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives $ 28
$ —
$ 2
$ —
$ 51
Foreign currency exchange rate derivatives 19
(23 ) 26
—
150
Total cash flow hedges 47
(23 ) 28
—
201
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives 2,906
—
—
—
—
Foreign currency exchange rate derivatives 71
(6 ) —
—
—
Credit derivatives 32
—
—
—
—
Equity derivatives (1,808 ) —
—
—
—
Embedded derivatives (1,316 ) —
—
—
—
Total non-qualifying hedges (115 ) (6 ) —
—
—
Total $ (68 ) $ (29 ) $ 28
$ —
$ 201
Nine Months Ended September 30, 2018
Derivatives Designated as Hedging Instruments:
Fair value hedges:
Interest rate derivatives $ (12 ) $ 12
$ 1
$ —
$ —
Total fair value hedges (12 ) 12
1
—
—
Cash flow hedges:
Interest rate derivatives 62
—
4
—
(5 )
Foreign currency exchange rate derivatives (1 ) —
19
—
33
Total cash flow hedges 61
—
23
—
28
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (1,190 ) —
—
—
—
Foreign currency exchange rate derivatives 29
(4 ) —
—
—
Credit derivatives 7
—
—
—
—
Equity derivatives (904 ) —
—
—
—
Embedded derivatives 664
—
—
(4 ) —
Total non-qualifying hedges (1,394 ) (4 ) —
(4 ) —
Total $ (1,345 ) $ 8
$ 24
$ (4 ) $ 28

~~At September 30, 2019 and December 31, 2018, the balance in AOCI associated with cash flow hedges was $416 million and $264 million, respectively.~~

~~Credit Derivatives~~

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~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 at:~~

September 30, 2019 December 31, 2018
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)
(Dollars in millions)
Aaa/Aa/A $ 9
$ 615
2.4 $ 8
$ 689
2.0
Baa 22
1,119
5.3 3
1,131
5.0
Total $ 31
$ 1,734
4.3 $ 11
$ 1,820
3.9

~~__________________~~


~~(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 and Fitch Ratings. 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~~that are not observable in the ~~event of counterparty nonperformance~~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 ~~derivative instruments. Generally,~~assumptions deemed appropriate given 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~~circumstances and management believes they are consistent 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,what other market participants would use 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 Amount Recognized Financial Instruments (1) Collateral Received/Pledged (2) Net Amount Off-balance Sheet Securities Collateral (3) Net Amount After Securities Collateral
(In millions)
September 30, 2019
Derivative assets $ 4,575
$ (1,599 ) $ (1,851 ) $ 1,125
$ (1,089 ) $ 36
Derivative liabilities $ 2,232
$ (1,599 ) $ —
$ 633
$ (633 ) $ —
December 31, 2018
Derivative assets $ 2,833
$ (1,671 ) $ (1,062 ) $ 100
$ (86 ) $ 14
Derivative liabilities $ 2,104
$ (1,671 ) $ —
$ 433
$ (433 ) $ —

~~__________________~~


~~(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.~~

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~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 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 of derivatives in a net liability position containing such credit contingent provisions and the aggregate estimated fair value of assets posted as collateral forpricing such instruments.

September 30, 2019 December 31, 2018
(In millions)
Estimated fair value of derivatives in a net liability position (1) $ 633
$ 433
Estimated Fair Value of Collateral Provided (2):
Fixed maturity securities $ 1,250
$ 797

~~__________________~~


~~(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 provisions of derivative contracts in a net liability position were triggered, minimal additional assets would be required to be postedMost 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 ~~collateral or needed to settle the instruments immediately.~~

~~Table of Contents~~

~~Brighthouse Financial, Inc.~~

~~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 methodologies, assumptions ~~or valuation methodologies~~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 ~~amounts.~~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.

Recurring Fair Value Measurements


	September 30, 2020
	Fair Value Hierarchy						Total Estimated Fair Value
	Level 1		Level 2		Level 3
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	0	$	35,207	$	699	$	35,906
Foreign corporate	0		10,281		379		10,660
RMBS	0		8,449		0		8,449
U.S. government and agency	1,849		7,086		0		8,935
CMBS	0		6,418		7		6,425
State and political subdivision	0		4,429		0		4,429
ABS	0		2,640		74		2,714
Foreign government	0		1,820		0		1,820
Total fixed maturity securities	1,849		76,330		1,159		79,338
Equity securities	15		99		3		117
Short-term investments	3,019		1,210		10		4,239
Derivative assets: (1)
Interest rate	0		3,458		0		3,458
Foreign currency exchange rate	0		438		17		455
Credit	0		18		9		27
Equity market	0		878		13		891
Total derivative assets	0		4,792		39		4,831
Embedded derivatives within asset host contracts (2)	0		0		321		321
Separate account assets	153		103,028		3		103,184
Total assets	$	5,036	$	185,459	$	1,535	$	192,030
Liabilities
Derivative liabilities: (1)
Interest rate	$	0	$	226	$	0	$	226
Foreign currency exchange rate	0		37		0		37
Credit	0		0		1		1
Equity market	0		1,216		23		1,239
Total derivative liabilities	0		1,479		24		1,503
Embedded derivatives within liability host contracts (2)	0		0		6,449		6,449
Total liabilities	$	0	$	1,479	$	6,473	$	7,952

September 30, 2019
Fair Value Hierarchy
Level 1 Level 2 Level 3 Total Estimated
Fair Value
(In millions)
Assets
Fixed maturity securities:
U.S. corporate $ —
$ 30,466
$ 436
$ 30,902
U.S. government and agency 1,667
6,079
—
7,746
RMBS —
9,138
77
9,215
Foreign corporate —
9,260
390
9,650
CMBS —
5,545
34
5,579
State and political subdivision —
3,916
73
3,989
ABS —
1,853
64
1,917
Foreign government —
1,725
—
1,725
Total fixed maturity securities 1,667
67,982
1,074
70,723
Equity securities 11
133
4
148
Short-term investments 1,299
686
—
1,985
Derivative assets: (1)
Interest rate —
3,114
—
3,114
Foreign currency exchange rate —
455
13
468
Credit —
22
9
31
Equity market —
803
99
902
Total derivative assets —
4,394
121
4,515
Embedded derivatives within asset host contracts (2) —
—
303
303
Separate account assets 224
103,704
—
103,928
Total assets $ 3,201
$ 176,899
$ 1,502
$ 181,602
Liabilities
Derivative liabilities: (1)
Interest rate $ —
$ 422
$ —
$ 422
Foreign currency exchange rate —
28
1
29
Equity market —
1,534
251
1,785
Total derivative liabilities —
1,984
252
2,236
Embedded derivatives within liability host contracts (2) —
—
4,273
4,273
Total liabilities $ —
$ 1,984
$ 4,525
$ 6,509

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Brighthouse Financial, Inc.

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

6. Fair Value (continued)


	December 31, 2019
	Fair Value Hierarchy						Total Estimated Fair Value
	Level 1		Level 2		Level 3
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	0	$	30,831	$	329	$	31,160
Foreign corporate	0		9,712		132		9,844
RMBS	0		9,074		44		9,118
U.S. government and agency	1,636		5,760		0		7,396
CMBS	0		5,755		0		5,755
State and political subdivision	0		3,984		73		4,057
ABS	0		1,882		73		1,955
Foreign government	0		1,751		0		1,751
Total fixed maturity securities	1,636		68,749		651		71,036
Equity securities	14		125		8		147
Short-term investments	1,271		682		5		1,958
Derivative assets: (1)
Interest rate	0		1,778		0		1,778
Foreign currency exchange rate	0		281		5		286
Credit	0		25		11		36
Equity market	0		850		71		921
Total derivative assets	0		2,934		87		3,021
Embedded derivatives within asset host contracts (2)	0		0		217		217
Separate account assets	180		106,924		3		107,107
Total assets	$	3,101	$	179,414	$	971	$	183,486
Liabilities
Derivative liabilities: (1)
Interest rate	$	0	$	330	$	0	$	330
Foreign currency exchange rate	0		43		0		43
Equity market	0		2,093		71		2,164
Total derivative liabilities	0		2,466		71		2,537
Embedded derivatives within liability host contracts (2)	0		0		4,248		4,248
Total liabilities	$	0	$	2,466	$	4,319	$	6,785

_______________

December 31, 2018
Fair Value Hierarchy
Level 1 Level 2 Level 3 Total Estimated
Fair Value
(In millions)
Assets
Fixed maturity securities:
U.S. corporate $ —
$ 24,150
$ 323
$ 24,473
U.S. government and agency 2,722
6,373
—
9,095
RMBS —
8,541
6
8,547
Foreign corporate —
7,617
409
8,026
CMBS —
5,120
128
5,248
State and political subdivision —
3,523
74
3,597
ABS —
2,087
39
2,126
Foreign government —
1,496
—
1,496
Total fixed maturity securities 2,722
58,907
979
62,608
Equity securities 13
124
3
140
Derivative assets: (1)
Interest rate —
717
—
717
Foreign currency exchange rate —
301
11
312
Credit —
10
7
17
Equity market —
1,634
98
1,732
Total derivative assets —
2,662
116
2,778
Embedded derivatives within asset host contracts (2) —
—
228
228
Separate account assets 217
98,038
1
98,256
Total assets $ 2,952
$ 159,731
$ 1,327
$ 164,010
Liabilities
Derivative liabilities: (1)
Interest rate $ —
$ 619
$ —
$ 619
Foreign currency exchange rate —
48
—
48
Credit —
2
1
3
Equity market —
1,205
237
1,442
Total derivative liabilities —
1,874
238
2,112
Embedded derivatives within liability host contracts (2) —
—
2,226
2,226
Total liabilities $ —
$ 1,874
$ 2,464
$ 4,338
(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.

~~__________________~~(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.

~~(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.


~~(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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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

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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~~2020 (the “First Quarter Form 10-Q”) filed with the SEC on May ~~7, 2019;~~11, 2020; (iv) our Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2019~~2020 (the “Second Quarter Form 10-Q” and, together with the First Quarter Form 10-Q, the “Quarterly Reports”) filed with the SEC on August ~~6, 2019;~~7, 2020 and (v) 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 BHF 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~~our 2019 Annual Report, as amended or supplemented by our subsequent Quarterly Reports on Form 10-Q, 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.~~results in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

•“Non-GAAP and Other Financial Disclosures” defines key financial measures presented in the Results of Operations that are not calculated in accordance with ~~accounting principles generally accepted in the United States of America (“GAAP”)~~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~~our 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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Income (loss) available to shareholders before provision for income tax	$	(3,862)	$	795	$	(148)	$	302
Less: Provision for income tax expense (benefit)	(850)		119		(88)		(14)
Net income (loss) available to shareholders (1)	$	(3,012)	$	676	$	(60)	$	316

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	$	(921)	$	(273)	$	(663)	$	304
Less: Provision for income tax expense (benefit)	(232)		(104)		(196)		(13)
Adjusted earnings	$	(689)	$	(169)	$	(467)	$	317

__________________

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

For the three months ended September 30, 2020, we had a net loss available to shareholders of $3.0 billion and an adjusted loss of $689 million compared to net income available to shareholders of $676 million and an adjusted loss of $169 million for the three months ended September 30, 2019. Net loss available to shareholders for the three months ended September 30, 2020 primarily reflects an unfavorable impact from our annual actuarial review (“AAR”) and net unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to higher equity markets, lower interest rates and tightening credit spreads.

For the nine months ended September 30, 2020, we had a net loss available to shareholders of $60 million and an adjusted loss of $467 million compared to net income available to shareholders of $316 million and adjusted earnings of $317 million for the nine months ended September 30, 2019. Net loss available to shareholders for the nine months ended September 30, 2020 was driven primarily by a net unfavorable impact from our AAR, which was largely offset by a favorable impact of declining long-term interest rates on the estimated fair value of the universal life with secondary guarantees (“ULSG”) hedge program.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(In millions)
Net income (loss) available to shareholders before provision for income tax $ 795
$ (370 ) $ 302
$ (803 )
Less: Provision for income tax expense (benefit) 119
(99 ) (14 ) (226 )
Net income (loss) available to shareholders (1) $ 676
$ (271 ) $ 316
$ (577 )

Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends $ (273 ) $ 312
$ 304
$ 819
Less: Provision for income tax expense (benefit) (104 ) 42
(13 ) 113
Adjusted earnings $ (169 ) $ 270
$ 317
$ 706

~~______________~~


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

For the three months ended September 30, 2019, we had net income available to shareholders of $676 million and adjusted earnings were a loss of $169 million, compared to a net loss available to shareholders of $271 million and adjusted earnings of $270 million for the three months ended September 30, 2018. The net income available to shareholders for the three months ended September 30, 2019 was driven primarily by declining long-term interest rates which resulted in favorable comparative changes in the estimated fair value of the universal life with secondary guarantees (“ULSG”) hedging program and net favorable changes in guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”), partially offset by an unfavorable impact from our annual actuarial review (“AAR”) which is reflected in the adjusted earnings loss. For the nine months ended September 30, 2019, we had net income available to shareholders of $316 million and adjusted earnings of $317 million, compared to a net loss available to shareholders of $577 million and adjusted earnings of $706 million for the nine months ended September 30, 2018. The net income available to shareholders for the nine months ended September 30, 2019 was driven by favorable comparative changes in the estimated fair value of the ULSG hedging program due to declining long-term interest rates and net investment gains, partially offset by lower adjusted earnings, which included an unfavorable impact from the AAR and net unfavorable results in GMLB Riders as impacts from higher equity markets more than offset the impacts from declining long-term interest rates.

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.

Administrative System Conversion

As we continue to execute on our strategy to leverage emerging technology and outsource our policy administration functions, during the third quarter of 2020, we completed the conversion of a significant portion of our in-force annuity business to a single third-party service provider. Following the conversion, a number of our customers and distribution partners experienced delays and service interruptions. While these issues have been largely resolved, there can be no assurance that in connection with this or any future conversion we will not incur unanticipated expenses or experience other economic or reputational harm, or be subject to litigation or regulatory investigations and actions, any of which could have a material adverse effect on our business, financial condition, and results of operations. See “Risk Factors — Risks Related to Our Business — The failure of third parties to provide various services, or any failure of the practices and procedures that these third parties use to provide services to us, could have a material adverse effect on our business,” “Risk Factors — General Risks — We may experience difficulty in marketing and distributing products through our distribution channels” and “Risk Factors — Regulatory and Legal Risks — Litigation and regulatory investigations are common in our businesses and may result in significant financial losses and/or harm to our reputation” in our 2019 Annual Report.

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

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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~~our 2019 Annual Report, as amended or supplemented by ~~such information in the First Quarter Form 10-Q and the Second Quarter~~our subsequent Quarterly Reports on 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 continue to closely monitor developments related to the COVID-19 pandemic, which has negatively impacted us in certain respects, 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 “Risk Factors — The ongoing COVID-19 pandemic may materially adversely affect our business, results of operations and financial condition, including capitalization and liquidity” in our First Quarter Form 10-Q.

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, where they currently remain. Our sales and support teams remain fully operational, and the COVID-19 pandemic has not interrupted our ability to service our distribution partners and customers. 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 derivatives programs. We have observed varying degrees of impact in these areas, and we 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 previously disclosed in “— Regulatory Developments” in our First Quarter Form 10-Q. 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 have also impacted the incidents of claims and may have impacted the utilization of benefits, lapses or surrenders of policies and payments on insurance premiums, though such impacts have not been material through the end of the third quarter of 2020. Additionally, circumstances resulting from the COVID-19 pandemic have not materially impacted services we receive from third-party vendors, nor have such circumstances led to the identification of new loss contingencies or any increases in existing loss contingencies. However, there can be no assurance that any future impact from the COVID-19 pandemic, including, without limitation, with respect to revenues and expenses associated with our products, services we receive from third-party vendors, or loss contingencies, will not be material.

Certain sectors of our investment portfolio have been, and are expected to 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 “— Investments — Current Environment — Selected Sector Investments,” “— Investments — Mortgage Loans — Loan Modifications Related to the COVID-19 Pandemic” and Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements.

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, during the second quarter of 2020, Fitch 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

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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, as well as environmental and unclaimed property laws and regulations. See “Business — Regulation,” as well as “Risk Factors — Regulatory and Legal Risks” included in our ~~2018~~2019 Annual Report, as amended or supplemented ~~herein and in~~by our ~~Second Quarter Form 10-Q~~subsequent Quarterly Reports under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Regulatory ~~Developments”.~~Developments.”

~~Standard of Conduct Regulation~~

As a result of overlapping efforts by the Department of Labor (the “DOL”), the National Association of Insurance Commissioners (the “NAIC”), individual states, and the SEC to impose fiduciary-like requirements in connection with the sale of annuities, life insurance policies and securities, 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. While we manufacture 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. Earlier this year, the DOL indicated that it may issue a new proposed rule on fiduciary investment advice under ERISA in 2019. At this time, we cannot predict the content or form of any such rule or its impact on our business, results of operations and financial condition. See “Business — Regulation — Standard of Conduct Regulation — Department of Labor Fiduciary Rule” 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.

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;~~


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


~~(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;~~


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


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

•liabilities for future policy benefits;

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

•investment credit losses;

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

•measurement of income taxes and the valuation of deferred tax assets.

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~~our 2019 Annual Report.

~~Table of Contents~~

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);

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•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 (“Investment Hedge Adjustments”); 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 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 ~~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.

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 ~~fee~~feess (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 incomeplus Investment Hedge Adjustments and interest received on ceded fixed annuity reinsurance deposit funds reduced by Interest credited to policyholder account balancesand 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.~~

(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 3 to the summary yield table located in “— Investments — Current Environment — Investment Portfolio Results.”

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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

Annual Actuarial Review

~~Generally,~~We typically conduct our AAR in the third quarter of each ~~year~~year. As a result of the 2020 AAR, we ~~conduct an AAR. The most significant impact from the 2019 AAR reflected the change in~~lowered the long-term general account earned rate, ~~for GAAP, which lowered the base 10-year U.S. Treasury~~driven by a reduction in our mean reversion rate from ~~4.25%~~3.75% to ~~3.75%~~3.00%, which had the largest impact to our ULSG business. For our variable annuity business, in addition to the ~~Run-off segment.~~update in the long-term general account earned rate, we updated assumptions regarding policyholder behavior, mortality, separate account fund allocations and volatility, as well as maintenance expenses. In our life business, we updated assumptions related to policyholder behavior, mortality and expenses.

In 2019, the most significant impact from our AAR was decreasing the long-term general account earned rate, driven by a reduction in our mean reversion rate from 4.25% to 3.75%, which primarily impacted our ULSG business. For our variable annuity business, in addition to the update in the long-term general account earned rate, we updated assumptions regarding separate account fund allocations and volatility, as well as maintenance expenses. In our life business, we updated assumptions related to mortality and expenses.

As a result of the 2018 AAR, our variable annuity business reflected the alignment to the statutory variable annuity capital reform framework. These changes included lower lapse and utilization assumptions (consistent with updated Brighthouse policyholder experience and industry participants), as well as updates to the equity market scenario generator, as reflected in the framework. We also updated the tax rate to reflect the statutory tax rate change due to the 2017 tax reform. In our life business, we updated assumptions related to market returns, policyholder behavior and expenses.

The following table presents the impact of the AAR on pre-tax adjusted earnings and ~~net~~ income (loss) available to shareholders before provision for income tax ~~from the AAR~~ for the nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. The impact related to GMLBs is included in ~~net~~ income (loss), available to shareholders before provision for income tax, but is not included in pre-tax adjusted earnings. See “— Non-GAAP and Other Financial Disclosures.”

Nine Months Ended
September 30,
2019 2018
(In millions)
GMLBs $ 84
$ (226 )
Included in pre-tax adjusted earnings:
Other annuity business (38 ) 195
Life business 24
15
Run-off (545 ) (24 )
Total included in pre-tax adjusted earnings (559 ) 186
Total impact on net income (loss) available to shareholders before provision for income tax $ (475 ) $ (40 )


	Nine Months Ended September 30,
	2020		2019
	(In millions)
GMLBs	$	(1,431)	$	84
Included in pre-tax adjusted earnings:
Other annuity business	128		(38)
Life business	(11)		24
Run-off	(1,484)		(545)
Total included in pre-tax adjusted earnings	(1,367)		(559)
Total impact on income (loss) available to shareholders before provision for income tax	$	(2,798)	$	(475)

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Consolidated Results for the Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~

~~Business Overview.~~Annuity sales increased 28% compared to the first nine months of 2018 driven by higher sales of our suite of structured annuities consisting of products marketed under various names (collectively, “Shield Annuities” or “Shield”), fixed indexed annuities and fixed annuities.2019

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019
2018
(In millions)
Revenues
Premiums $ 214
$ 225
$ 673
$ 677
Universal life and investment-type product policy fees 867
972
2,630
2,936
Net investment income 928
853
2,681
2,476
Other revenues 94
105
282
308
Net investment gains (losses) 27
(42 ) 79
(121 )
Net derivative gains (losses) 1,057
(691 ) (97 ) (1,337 )
Total revenues 3,187
1,422
6,248
4,939
Expenses
Policyholder benefits and claims 1,319
822
2,936
2,373
Interest credited to policyholder account balances 272
273
795
809
Capitalization of DAC (93 ) (83 ) (274 ) (235 )
Amortization of DAC and VOBA 181
30
373
581
Interest expense on debt 49
43
144
113
Other expenses 655
705
1,954
2,096
Total expenses 2,383
1,790
5,928
5,737
Income (loss) before provision for income tax 804
(368 ) 320
(798 )
Provision for income tax expense (benefit) 119
(99 ) (14 ) (226 )
Net income (loss) 685
(269 ) 334
(572 )
Less: Net income (loss) attributable to noncontrolling interests 2
2
4
5
Net income (loss) attributable to Brighthouse Financial, Inc. 683
(271 ) 330
(577 )
Less: Preferred stock dividends 7
—
14
—
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders $ 676
$ (271 ) $ 316
$ (577 )


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Revenues
Premiums	$	184	$	214	$	575	$	673
Universal life and investment-type product policy fees	882		867		2,595		2,630
Net investment income	996		928		2,564		2,681
Other revenues	99		94		294		282
Net investment gains (losses)	5		27		(48)		79
Net derivative gains (losses)	(1,857)		1,057		2,392		(97)
Total revenues	309		3,187		8,372		6,248
Expenses
Policyholder benefits and claims	3,047		1,319		5,073		2,936
Interest credited to policyholder account balances	281		272		816		795
Capitalization of DAC	(90)		(93)		(279)		(274)
Amortization of DAC and VOBA	244		181		922		373
Interest expense on debt	47		49		139		144
Other expenses	623		655		1,814		1,954
Total expenses	4,152		2,383		8,485		5,928
Income (loss) before provision for income tax	(3,843)		804		(113)		320
Provision for income tax expense (benefit)	(850)		119		(88)		(14)
Net income (loss)	(2,993)		685		(25)		334
Less: Net income (loss) attributable to noncontrolling interests	2		2		4		4
Net income (loss) attributable to Brighthouse Financial, Inc.	(2,995)		683		(29)		330
Less: Preferred stock dividends	17		7		31		14
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders	$	(3,012)	$	676	$	(60)	$	316

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
GMLB Riders	$	(2,739)	$	419	$	(833)	$	(1,144)
Other derivative instruments	(174)		636		1,462		1,116
Net investment gains (losses)	5		27		(48)		79
Other adjustments	(33)		(14)		(66)		(53)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	(921)		(273)		(663)		304
Income (loss) available to shareholders before provision for income tax	(3,862)		795		(148)		302
Provision for income tax expense (benefit)	(850)		119		(88)		(14)
Net income (loss) available to shareholders	$	(3,012)	$	676	$	(60)	$	316

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(In millions)
GMLB Riders $ 419
$ (585 ) (1,144 ) $ (1,008 )
Other derivative instruments 636
(60 ) 1,116
(539 )
Net investment gains (losses) 27
(42 ) 79
(121 )
Other adjustments (14 ) 5
(53 ) 46
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends (273 ) 312
304
819
Net income (loss) available to shareholders before provision for income tax 795
(370 ) 302
(803 )
Provision for income tax expense (benefit) 119
(99 ) (14 ) (226 )
Net income (loss) available to shareholders $ 676
$ (271 ) $ 316
$ (577 )

Three Months Ended September 30, 2020 Compared with the Three Months Ended September 30, 2019~~Compared with theThree Months Ended September 30, 2018~~

~~Net income~~Loss available to shareholders before provision for income tax was ~~$795 million~~$3.9 billion ($~~676 million,~~3.0 billion, net of income tax) ~~an increase~~, a decrease of ~~$1.2~~$4.7 billion ($~~947 million,~~3.7 billion, net of income tax) from ~~a loss~~income before provision for income tax of ~~$370~~$795 million ($~~271~~676 million, net of income tax) in the prior period.

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

~~higher earnings~~•losses from GMLB Riders ~~discussed~~ in ~~greater detail~~the current period, compared to gains in the prior period, see “— GMLB Riders for the Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018”~~2019”;

~~current period gains~~•losses on other derivative instruments reflecting:

◦losses on interest rate ~~swaptions and swaps~~derivatives used to manage interest rate exposure in our ULSG ~~hedging program from declining~~business due to the benchmark long-term interest ~~rates; and~~

~~higher net investment gains reflecting~~rate increasing in the current period ~~net gains on sales of fixed maturity securities compared~~and decreasing in the prior period; and

◦an unfavorable impact from foreign currency swaps due to the U.S. dollar mostly weakening in the current period and strengthening in the prior ~~period losses.~~period; and

~~The increase in income before provision for income tax was partially offset by~~ •lower pre-tax adjusted earnings, discussed in greater detail below.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in ~~the current period led to~~ an effective tax rate of ~~15%,~~22% in the current period compared to ~~27%~~15% in the prior period. Our effective tax rate ~~primarily~~ differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

Nine Months Ended September 30, ~~2019~~2020 Compared with the Nine Months Ended September 30, ~~2018~~2019

~~Net income~~Loss available to shareholders before provision for income tax was ~~$302~~$148 million ($~~316~~60 million, net of income tax), ~~an increase~~a decrease of ~~$1.1 billion~~$450 million ($~~893~~376 million, net of income tax) from ~~a loss~~income before provision for income tax of ~~$803~~$302 million ($~~577~~316 million, net of income tax) in the prior period.

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

~~current period gains on interest rate swaps~~•lower pre-tax adjusted earnings, discussed in greater detail below; and ~~swaptions in our ULSG hedging program from declining long-term interest rates;~~

~~the change in~~•lower net investment gains (losses) reflecting:


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


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

~~partially offset by~~◦net losses on sales of fixed maturity securities compared to prior period net gains;


◦	~~prior period net gains on real estate joint ventures.~~

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

◦net losses due to an increase in mortgage loan reserves; and

◦higher impairments on fixed maturity securities in the current period.

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

~~lower adjusted earnings, discussed~~•long-term interest rates declining more and equity markets increasing less in ~~greater detail below;~~the current period than in the prior period resulted in:

~~higher~~◦current period gains on interest rate derivatives used to manage interest rate exposure in our ULSG business; and

◦a favorable change in the estimated fair value of the embedded derivatives associated with our fixed indexed annuity business;

partially offset by

◦an unfavorable impact from equity options; and

•lower losses from GMLB Riders ~~discussed~~ in ~~greater detail in~~the current period, see “— GMLB Riders for the Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018”; and~~2019.”

~~Table~~The provision for income tax, expressed as a percentage of ~~Contents~~

~~higher policyholder benefits and claims, included~~income (loss) before provision for income tax, resulted in ~~other adjustments, resulting from the adjustment for market performance related to participating products~~an effective tax rate of 78% in the ~~Run-off segment.~~

current period compared to 5% in the prior period. The increase in the effective tax rate in the current period is driven by lower pre-tax adjusted earnings, discussed in greater detail below. Certain one-time tax adjustments recognized in the ~~current~~prior period, primarily due to athe revaluation of certain ~~Separation-related~~ liabilities related to our separation from MetLife (“separation-related liabilities”), resulted in an unusually low effective tax rate ~~of 5%, compared to 28%~~ in the prior period. In addition to such one-time tax adjustments, our effective tax rate differs from the statutory tax rate primarily due to the ~~ongoing~~ impacts of the dividends received deductions and tax credits.

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

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


	Three Months Ended September 30, 2020
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Net income (loss) available to shareholders	$	(2,398)	$	78	$	(1,141)	$	449	$	(3,012)
Add: Provision for income tax expense (benefit)	92		18		(460)		(500)		(850)
Income (loss) available to shareholders before provision for income tax	(2,306)		96		(1,601)		(51)		(3,862)
Less: GMLB Riders	(2,739)		—		—		—		(2,739)
Less: Other derivative instruments	(54)		(4)		(115)		(1)		(174)
Less: Net investment gains (losses)	37		6		(39)		1		5
Less: Other adjustments	(29)		—		(4)		—		(33)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	479		94		(1,443)		(51)		(921)
Less: Provision for income tax expense (benefit)	92		18		(304)		(38)		(232)
Adjusted earnings	$	387	$	76	$	(1,139)	$	(13)	$	(689)

Annuities Life Run-off Corporate & Other Total
(In millions)
Net income (loss) available to shareholders $ 576
$ 92
$ 234
$ (226 ) $ 676
Add: Provision for income tax expense (benefit) 52
18
(116 ) 165
119
Net income (loss) available to shareholders before provision for income tax 628
110
118
(61 ) 795
Less: GMLB Riders 419
—
—
—
419
Less: Other derivative instruments (43 ) 1
678
—
636
Less: Net investment gains (losses) (2 ) 18
(4 ) 15
27
Less: Other adjustments (1 ) —
(13 ) —
(14 )
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends 255
91
(543 ) (76 ) (273 )
Less: Provision for income tax expense (benefit) 52
18
(117 ) (57 ) (104 )
Adjusted earnings $ 203
$ 73
$ (426 ) $ (19 ) $ (169 )

~~Three Months Ended September 30, 2018~~

Annuities Life Run-off Corporate & Other Total
(In millions)
Net income (loss) available to shareholders $ (196 ) $ 46
$ (51 ) $ (70 ) $ (271 )
Add: Provision for income tax expense (benefit) 62
18
(125 ) (54 ) (99 )
Net income (loss) available to shareholders before provision for income tax (134 ) 64
(176 ) (124 ) (370 )
Less: GMLB Riders (585 ) —
—
—
(585 )
Less: Other derivative instruments 12
5
(77 ) —
(60 )
Less: Net investment gains (losses) (48 ) (18 ) 28
(4 ) (42 )
Less: Other adjustments —
(1 ) 7
(1 ) 5
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends 487
78
(134 ) (119 ) 312
Less: Provision for income tax expense (benefit) 86
17
(29 ) (32 ) 42
Adjusted earnings $ 401
$ 61
$ (105 ) $ (87 ) $ 270

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	Three Months Ended September 30, 2019
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Net income (loss) available to shareholders	$	576	$	92	$	234	$	(226)	$	676
Add: Provision for income tax expense (benefit)	52		18		(116)		165		119
Income (loss) available to shareholders before provision for income tax	628		110		118		(61)		795
Less: GMLB Riders	419		—		—		—		419
Less: Other derivative instruments	(43)		1		678		—		636
Less: Net investment gains (losses)	(2)		18		(4)		15		27
Less: Other adjustments	(1)		—		(13)		—		(14)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	255		91		(543)		(76)		(273)
Less: Provision for income tax expense (benefit)	52		18		(117)		(57)		(104)
Adjusted earnings	$	203	$	73	$	(426)	$	(19)	$	(169)

~~Nine Months Ended September 30, 2019~~


	Nine Months Ended September 30, 2020
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Net income (loss) available to shareholders	$	67	$	79	$	80	$	(286)	$	(60)
Add: Provision for income tax expense (benefit)	199		32		(344)		25		(88)
Income (loss) available to shareholders before provision for income tax	266		111		(264)		(261)		(148)
Less: GMLB Riders	(833)		—		—		—		(833)
Less: Other derivative instruments	72		(64)		1,456		(2)		1,462
Less: Net investment gains (losses)	(3)		8		(18)		(35)		(48)
Less: Other adjustments	(43)		—		(23)		—		(66)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	1,073		167		(1,679)		(224)		(663)
Less: Provision for income tax expense (benefit)	199		32		(355)		(72)		(196)
Adjusted earnings	$	874	$	135	$	(1,324)	$	(152)	$	(467)


	Nine Months Ended September 30, 2019
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Net income (loss) available to shareholders	$	(434)	$	186	$	924	$	(360)	$	316
Add: Provision for income tax expense (benefit)	165		38		(305)		88		(14)
Income (loss) available to shareholders before provision for income tax	(269)		224		619		(272)		302
Less: GMLB Riders	(1,144)		—		—		—		(1,144)
Less: Other derivative instruments	(78)		22		1,173		(1)		1,116
Less: Net investment gains (losses)	15		8		85		(29)		79
Less: Other adjustments	(1)		—		(52)		—		(53)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	939		194		(587)		(242)		304
Less: Provision for income tax expense (benefit)	176		38		(127)		(100)		(13)
Adjusted earnings	$	763	$	156	$	(460)	$	(142)	$	317

Annuities Life Run-off Corporate & Other Total
(In millions)
Net income (loss) available to shareholders $ (434 ) $ 186
$ 924
$ (360 ) $ 316
Add: Provision for income tax expense (benefit) 165
38
(305 ) 88
(14 )
Net income (loss) available to shareholders before provision for income tax (269 ) 224
619
(272 ) 302
Less: GMLB Riders (1,144 ) —
—
—
(1,144 )
Less: Other derivative instruments (78 ) 22
1,173
(1 ) 1,116
Less: Net investment gains (losses) 15
8
85
(29 ) 79
Less: Other adjustments (1 ) —
(52 ) —
(53 )
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends 939
194
(587 ) (242 ) 304
Less: Provision for income tax expense (benefit) 176
38
(127 ) (100 ) (13 )
Adjusted earnings $ 763
$ 156
$ (460 ) $ (142 ) $ 317

~~Nine Months Ended September 30, 2018~~

Annuities Life Run-off Corporate & Other Total
(In millions)
Net income (loss) available to shareholders $ (245 ) $ 132
$ (309 ) $ (155 ) $ (577 )
Add: Provision for income tax expense (benefit) 146
53
(241 ) (184 ) (226 )
Net income (loss) available to shareholders before provision for income tax (99 ) 185
(550 ) (339 ) (803 )
Less: GMLB Riders (1,008 ) —
—
—
(1,008 )
Less: Other derivative instruments 26
(8 ) (556 ) (1 ) (539 )
Less: Net investment gains (losses) (144 ) (11 ) 40
(6 ) (121 )
Less: Other adjustments 2
(1 ) 45
—
46
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends 1,025
205
(79 ) (332 ) 819
Less: Provision for income tax expense (benefit) 177
41
(18 ) (87 ) 113
Adjusted earnings $ 848
$ 164
$ (61 ) $ (245 ) $ 706

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Consolidated Results for the Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019 — Adjusted Earnings

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


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018				2020		2019		2020		2019
	(In millions)													(In millions)
Fee income	$	893		$	1,014		$	2,713		$	3,040		Fee income	$	914	$	893	$	2,693	$	2,713
Net investment spread	433			363			1,227			1,037			Net investment spread	474		433		1,075		1,227
Insurance-related activities	(796		)	(349		)	(1,361		)	(899		)	Insurance-related activities	(1,589)		(796)		(2,345)		(1,361)
Amortization of DAC and VOBA	(183		)	(53		)	(433		)	(380		)	Amortization of DAC and VOBA	(158)		(183)		(414)		(433)
Other expenses, net of DAC capitalization	(611		)	(661		)	(1,824		)	(1,974		)	Other expenses, net of DAC capitalization	(543)		(611)		(1,637)		(1,824)
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	9			2			18			5			Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	19		9		35		18
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends	(273		)	312			304			819
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends													Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	(921)		(273)		(663)		304
Provision for income tax expense (benefit)	(104		)	42			(13		)	113			Provision for income tax expense (benefit)	(232)		(104)		(196)		(13)
Adjusted earnings	$	(169	)	$	270		$	317		$	706		Adjusted earnings	$	(689)	$	(169)	$	(467)	$	317

Three Months Ended September 30, ~~2019~~2020 Compared with the Three Months Ended September 30, ~~2018~~2019

Adjusted earnings were a loss of ~~$169~~$689 million, a decrease of ~~$439~~$520 million.

Key net unfavorable impacts were:

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


◦	~~an increase in liability balances resulting from changes in connection with the AAR in our Run-off and Annuities segments,~~

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

partially offset by


◦	~~a decrease in liability balances, primarily in our Run-off segment, from the net impact of recapture transactions in the prior period;~~

~~higher amortization of DAC and VOBA, primarily in our Annuities segment, driven by:~~


◦	~~an unfavorable impact in the current period in connection with the AAR; and~~


◦	~~less favorable equity market performance in the current period;~~

~~lower fee income due to:~~


◦	~~higher ceded cost of insurance fees on certain ULSG business driven by the aging in-force; and~~


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

~~The decrease in adjusted earnings was partially offset by higher net investment spread and lower other expenses from lower establishment costs~~◦a one-time adjustment in the current period related to ~~planned technology~~modeling improvements resulting from an actuarial system conversion, primarily in our Life segment;

Key net favorable impacts were:

•lower other expenses due to:

◦the exit of various transition service agreements with MetLife;

◦interest expense recognized in the prior period on a tax liability associated with our separation from MetLife; and

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

•higher net investment spread reflecting:

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

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

partially offset by

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

•lower net amortization of DAC and VOBA due to:

◦a favorable change in our variable annuity business from changes in actual to expected experience in our in-force blocks;

partially offset by

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◦a net unfavorable impact resulting from changes in connection with the AAR in our Annuities and Life segments; and

•higher net fee income due to:

◦higher unearned revenue amortization from changes in maintenance expense and policyholder behavior assumptions in connection with the AAR, primarily in our Life segment;

partially offset by

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in ~~the current period led to~~ an effective tax rate of ~~38%,~~26% in the current period compared to ~~13%~~38% in the prior period. Our effective tax rate ~~primarily~~ differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

Nine Months Ended September 30, ~~2019~~2020 Compared with the Nine Months Ended September 30, ~~2018~~2019

Adjusted earnings were ~~$317~~a loss of $467 million, a decrease of ~~$389~~$784 million.

Key net unfavorable impacts were:

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


◦	~~an increase in liability balances resulting from changes in connection with the AAR in our Run-off and Annuities segments,~~

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

partially offset by

◦a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion, primarily in our Life segment;

~~Table of Contents~~•lower net investment spread due to:

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

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


◦	~~a decrease~~ partially offset by ◦higher average invested assets resulting from positive net flows in ~~liability balances, primarily in our Run-off segment, from~~ the general account; •lower net ~~impact of recapture transactions in the prior period;~~

~~lower~~ fee income due to:

◦

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

partially offset by

◦higher unearned revenue amortization from changes in maintenance expense and policyholder behavior assumptions made in connection with the AAR, primarily in our Life segment.

Key net favorable impacts were:

•lower other expenses due to:

◦the exit of various transition service agreements with MetLife;

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

◦interest expense recognized in the prior period on a tax liability associated with our separation from MetLife;

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


◦	~~lower fee income in our ULSG business due to the~~ net ~~reimbursement of fees for recapture transactions in the prior period;~~

~~higher~~ amortization of DAC and VOBA ~~driven~~due to:

◦a favorable change in our variable annuity business from changes in actual to expected experience in our in-force blocks;

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partially offset by

◦a net unfavorable impact resulting from changes in connection with the AAR in our Annuities and Life segments.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an ~~unfavorable net impact~~effective tax rate of 31% in the current period compared to 4% in ~~connection with~~ the ~~AAR.~~

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

~~higher net investment spread reflecting:~~


◦	~~higher average invested assets from positive net flows; and~~


◦	~~the repositioning of the investment portfolio out of U.S. Treasuries into higher yielding assets;~~

~~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~~


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

prior period. Certain one-time tax adjustments recognized in the ~~current~~prior period, primarily due to athe revaluation of certain ~~Separation-related~~separation-related liabilities, resulted in an unusually low effective tax rate ~~of 4%, compared to 14%~~ in the prior period. In addition to such one-time tax adjustments, our effective tax rate differs from the statutory tax rate primarily due to the ~~ongoing~~ impacts of the dividends received deductions and tax credits.

Segments and Corporate & Other Results for the Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019 — Adjusted Earnings

Annuities

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019
2018 2019
2018
(In millions)
Fee income $ 675
$ 715
$ 1,977
$ 2,166
Net investment spread 268
204
789
565
Insurance-related activities (60 ) 17
(179 ) (157 )
Amortization of DAC and VOBA (211 ) (40 ) (421 ) (307 )
Other expenses, net of DAC capitalization (417 ) (409 ) (1,227 ) (1,242 )
Pre-tax adjusted earnings 255
487
939
1,025
Provision for income tax expense (benefit) 52
86
176
177
Adjusted earnings $ 203
$ 401
$ 763
$ 848

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Fee income	$	654	$	675	$	1,917	$	1,977
Net investment spread	257		268		720		789
Insurance-related activities	68		(60)		(140)		(179)
Amortization of DAC and VOBA	(127)		(211)		(322)		(421)
Other expenses, net of DAC capitalization	(373)		(417)		(1,102)		(1,227)
Pre-tax adjusted earnings	479		255		1,073		939
Provision for income tax expense (benefit)	92		52		199		176
Adjusted earnings	$	387	$	203	$	874	$	763

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 for the three months ended September 30, 2020 driven by positive equity markets partially offset by negative net flows and policy charges. Variable annuities separate account balances decreased for the ~~three months ended September 30, 2019 and increased for the~~ nine months ended September 30, ~~2019. The three month decrease was~~2020 driven by negative net flows and policy charges partially offset by positive equity market performance. ~~The nine month increase was driven by positive equity market performance, partially offset by negative net flows and policy charges.~~


	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019				Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
	(In millions)							(In millions)
Balance, beginning of period	$	99,013		$	91,923		Balance, beginning of period	$	92,211	$	99,498
Deposits	322			959			Deposits	443		1,210
Withdrawals, surrenders and contract benefits	(2,430		)	(7,212		)
Withdrawals, surrenders and benefits							Withdrawals, surrenders and benefits	(1,755)		(5,679)
Net flows	(2,108		)	(6,253		)	Net flows	(1,312)		(4,469)
Investment performance	594			13,150			Investment performance	5,337		2,636
Policy charges	(658		)	(1,855		)	Policy charges	(630)		(1,789)
Net transfers from (to) general account	(89		)	(213		)	Net transfers from (to) general account	(145)		(415)
Balance, end of period	$	96,752		$	96,752		Balance, end of period	$	95,461	$	95,461

Average balance	$	97,813		$	97,488		Average balance	$	95,718	$	92,927

Three Months Ended September 30, ~~2019~~2020 Compared with the Three Months Ended September 30, ~~2018~~2019

Adjusted earnings were ~~$203~~$387 million for the current period, ~~a decrease~~an increase of ~~$198~~$184 million.

Key net ~~unfavorable~~favorable impacts were:

~~higher amortization~~

Table of ~~DAC and VOBA driven by:~~Contents


◦	~~an unfavorable impact in the current period resulting primarily from changes in the long-term general account earned rate assumptions made in connection with the AAR; and~~


◦	~~less favorable equity market performance in the current period;~~

~~higher net~~•lower costs associated with insurance-related activities ~~driven by an increase~~due to:

◦a decrease in ~~net~~ guaranteed minimum death benefit (“GMDB”) ~~costs~~liabilities and a favorable adjustment to deferred sales inducements (“DSI”) resulting from changes in connection with the AAR; and

◦a decrease in GMDB liabilities resulting from favorable ~~prior~~equity market performance in the current period;

•lower amortization of DAC and VOBA due to:

◦a favorable impact in the current period resulting primarily from changes in ~~mortality~~policyholder behavior and ~~withdrawal~~long-term general account earned rate assumptions made in connection with the AAR; and

◦a favorable change in our variable annuity business from changes in actual to expected experience in our in-force blocks; and

•lower other expenses due to:

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

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

The decrease in adjusted earnings was partially offset by higher net investment spread from higher average invested assets due to positive net flows in the general account and the repositioning of the investment portfolio out of U.S. Treasuries into higher yielding assets.

The provision for income tax in the current period led to an effective tax rate of 20%, compared to 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 and tax credits.

~~Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018~~

~~Adjusted earnings were $763 million for the current period, a decrease of $85 million.~~fee income.

Key net unfavorable impacts were:

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

•lower net investment spread due to:

◦higher interest credited on average policyholder account balances resulting from positive net flows; and

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

partially offset by

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

◦higher returns on other limited partnerships for the comparative measurement period.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 19% in the current period compared to 20% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions.

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Adjusted earnings were $874 million for the current period, an increase of $111 million.

Key net favorable impacts were:

•lower other expenses due to:

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

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

•lower amortization of DAC and VOBA due to:

◦a favorable impact in the current period resulting primarily from changes in policyholder behavior and long-term general account earned rate assumptions made in connection with the AAR; and

◦a favorable change in our variable annuity business from changes in actual to expected experience in our in-force blocks net of the impact on estimated gross profits from lower separate account returns; and

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

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◦a decrease in GMDB liabilities and a favorable adjustment to DSI resulting from changes in connection with the AAR;

partially offset by

◦an increase in GMDB liabilities resulting from less favorable equity market performance in the current period, net of lower income annuity benefit payments.

Key net unfavorable impacts were:

•lower net investment spread due to:

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

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

partially offset by

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

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 19% in both the current and prior periods. Our effective tax rate differs from the statutory tax rate primarily 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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Fee income	$	90	$	60	$	271	$	185
Net investment spread	53		52		126		155
Insurance-related activities	48		(1)		(4)		5
Amortization of DAC and VOBA	(50)		31		(104)		(1)
Other expenses, net of DAC capitalization	(47)		(51)		(122)		(150)
Pre-tax adjusted earnings	94		91		167		194
Provision for income tax expense (benefit)	18		18		32		38
Adjusted earnings	$	76	$	73	$	135	$	156

Three Months Ended September 30, 2020 Compared with the Three Months Ended September 30, 2019

Adjusted earnings were $76 million for the current period, an increase of $3 million.

Key favorable impacts were:

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

◦a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion; and

◦lower paid claims, net of reinsurance; and

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

Key net unfavorable impacts were:

•higher net amortization of DAC and VOBA due to:

◦changes in maintenance expense and policyholder assumptions in connection with the AAR; and

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◦a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion;

partially offset by

◦the impact on gross profits from higher separate account returns.

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Adjusted earnings were $135 million for the current period, a decrease of $21 million.

Key net unfavorable impacts were:

•higher amortization of DAC and VOBA due to:

◦changes in maintenance expense and policyholder assumptions in connection with the AAR; and

◦a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion;

•lower net investment spread due to:

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

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

◦higher paid claims, net of reinsurance;

partially offset by

◦a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion.

Key favorable impacts were:

•higher fee income due to:

◦higher unearned revenue amortization from changes in maintenance expense and policyholder behavior assumptions made in connection with the AAR; and

◦lower ongoing net reinsurance costs as a result of reinsurance recaptured in prior periods; and

•lower other expenses due to the exit of various transition services agreements with MetLife.

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Run-off

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Fee income	$	170	$	157	$	505	$	544
Net investment spread	149		90		179		226
Insurance-related activities	(1,718)		(740)		(2,226)		(1,210)
Amortization of DAC and VOBA	—		—		—		—
Other expenses, net of DAC capitalization	(44)		(50)		(137)		(147)
Pre-tax adjusted earnings	(1,443)		(543)		(1,679)		(587)
Provision for income tax expense (benefit)	(304)		(117)		(355)		(127)
Adjusted earnings	$	(1,139)	$	(426)	$	(1,324)	$	(460)

Three Months Ended September 30, 2020 Compared with the Three Months Ended September 30, 2019

Adjusted earnings were a loss of $1.1 billion for the current period, a higher loss of $713 million.

Key unfavorable impacts were:

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

◦an increase in liability balances resulting primarily from changes in the long-term general account earned rate assumptions made in connection with the AAR; and

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


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

paid claims, net of reinsurance in the current period.

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◦	~~an increase in net GMDB costs resulting from favorable prior period changes in mortality and withdrawal assumptions made in connection with the AAR.~~

Key ~~net~~ favorable impacts were:

•higher net investment spread ~~driven by:~~


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


◦	~~higher investment income due to the repositioning of the investment portfolio out of U.S. Treasuries into higher yielding assets; and~~


◦	higher returns on ~~other limited partnership interests;~~

~~lower~~ other ~~expenses~~limited partnerships for the comparative measurement period; and

•higher fee income in our ULSG business due ~~to:~~to higher unearned revenue amortization resulting from changes in premium assumptions made in connection with the AAR.


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


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

~~partially offset by~~


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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in ~~the current period led to~~ an effective tax rate of ~~19%,~~21% in the current period compared to ~~17%~~22% in the prior period. Our effective tax rate ~~primarily~~ differs from the statutory tax rate primarily due to the impacts of the dividends received deductions.

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Adjusted earnings were a loss of $1.3 billion for the current period, a higher loss of $864 million.

Key net unfavorable impacts were:

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

◦an increase in liability balances resulting primarily from changes in the long-term general account earned rate assumptions made in connection with the AAR; and

◦higher paid claims, net of reinsurance in the current period;

•lower net investment spread due to lower returns on other limited partnerships for the comparative measurement period, net of decreases in average crediting rates in connection with the low interest rate environment; and

•lower net 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;

partially offset by

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

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 21% in the current period compared to 22% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deductions and tax credits.

~~Life~~Corporate & Other

The ~~following table presents the~~ components of adjusted earnings for ~~our Life segment:~~Corporate & Other were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018				2020		2019		2020		2019
	(In millions)													(In millions)
Fee income	$	60		$	79		$	185		$	259		Fee income	$	—	$	1	$	—	$	7
Net investment spread	52			56			155			154			Net investment spread	15		23		50		57
Insurance-related activities	(1		)	13			5			51			Insurance-related activities	13		5		25		23
Amortization of DAC and VOBA	31			(8		)	(1		)	(60		)	Amortization of DAC and VOBA	19		(3)		12		(11)
Other expenses, net of DAC capitalization	(51		)	(62		)	(150		)	(199		)	Other expenses, net of DAC capitalization	(79)		(93)		(276)		(300)
Pre-tax adjusted earnings	91			78			194			205
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends													Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	19		9		35		18
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends													Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	(51)		(76)		(224)		(242)
Provision for income tax expense (benefit)	18			17			38			41			Provision for income tax expense (benefit)	(38)		(57)		(72)		(100)
Adjusted earnings	$	73		$	61		$	156		$	164		Adjusted earnings	$	(13)	$	(19)	$	(152)	$	(142)

Three Months Ended September 30, ~~2019~~2020 Compared with the Three Months Ended September 30, ~~2018~~2019

Adjusted earnings were ~~$73~~a loss of $13 million, ~~for~~a lower loss of $6 million from the ~~current period, an increase of $12 million.~~prior period.

Key ~~net~~ favorable impacts were:

•lower amortization of DAC and VOBA ~~primarily from changes in expense and mortality assumptions made in connection with the AAR; and~~

due to a ~~decrease in the allocation of corporate expenses~~one-time adjustment in the current ~~period.~~period related to modeling improvements resulting from an actuarial system conversion; and

•lower other expenses driven by interest expense recognized in the prior period on a tax liability associated with our separation from MetLife.

The ~~increase in~~lower adjusted ~~earnings~~loss was partially offset ~~by:~~

~~lower unearned revenue amortization from changes in expense and mortality assumptions made in connection with~~by the ~~AAR; and~~

~~higher paid claims, net~~timing of ~~reinsurance.~~our preferred stock dividend payments.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in ~~the current period led to~~ an effective tax rate of ~~20%,~~119% in the current period compared to ~~22%~~75% 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~~

~~Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018~~

~~Adjusted earnings were $156 million for the current period, a decrease of $8 million.~~

~~Key net unfavorable impacts were:~~

~~lower fee income due to:~~


◦	~~lower unearned revenue amortization from changes in expense and mortality assumptions made in connection with the AAR; and~~


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

~~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 amortization of DAC and VOBA primarily from changes in expense and mortality assumptions made in connection with the AAR; and~~

~~a decrease in the allocation of corporate expenses in the current period.~~

The provision for income tax led to an effective tax rate of 20% 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
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(In millions)
Fee income $ 157
$ 214
$ 544
$ 616
Net investment spread 90
87
226
280
Insurance-related activities (740 ) (389 ) (1,210 ) (820 )
Amortization of DAC and VOBA —
—
—
—
Other expenses, net of DAC capitalization (50 ) (46 ) (147 ) (155 )
Pre-tax adjusted earnings (543 ) (134 ) (587 ) (79 )
Provision for income tax expense (benefit) (117 ) (29 ) (127 ) (18 )
Adjusted earnings $ (426 ) $ (105 ) $ (460 ) $ (61 )

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

~~Adjusted earnings were a loss of $426 million for the current period, a higher loss of $321 million.~~

~~Key net unfavorable impacts were:~~

~~higher costs associated with insurance-related activities, primarily in our ULSG business, due to:~~


◦	~~an increase in liability balances resulting from changes in the long-term general account earned rate assumptions made in connection with the AAR,~~

~~partially offset by~~


◦	~~a decrease in liability balances from the net impact of recapture transactions in the prior period;~~

~~lower fee income due to higher ceded cost of insurance fees on certain ULSG business driven by the aging in-force.~~

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

~~an increase in the net investment spread due to:~~


◦	~~higher average invested assets resulting from positive net flows; and~~

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◦	~~higher investment income due to the repositioning of the investment portfolio out of U.S. Treasuries into higher yielding assets.~~

The provision for income tax led to an effective tax rate of 22% 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.

~~Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018~~

~~Adjusted earnings were a loss of $460 million for the current period, a higher loss of $399 million.~~

~~Key net unfavorable impacts were:~~

~~higher costs associated with insurance-related activities, primarily in our ULSG business due to:~~


◦	~~an increase in liability balances resulting from changes in the long-term general account earned rate assumptions made in connection with the AAR; and~~


◦	~~unfavorable mortality due to higher claim severity and lower reinsurance recoveries in the current period,~~

~~partially offset by~~


◦	~~a decrease in liability balances from the net impact of recapture transactions in the prior period;~~

~~lower fee income in our ULSG business due to the net reimbursement of fees for recapture transactions in the prior period; and~~

~~lower net investment spread due to:~~


◦	~~lower returns on other limited partnership interests driven by lower equity market performance compared to prior period; and~~


◦	~~lower income on interest rate derivatives.~~

The provision for income tax in the current period led to an effective tax rate of 22%, compared to 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.

~~Corporate & Other~~

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(In millions)
Fee income $ 1
$ 6
$ 7
$ (1 )
Net investment spread 23
16
57
38
Insurance-related activities 5
10
23
27
Amortization of DAC and VOBA (3 ) (5 ) (11 ) (13 )
Other expenses, net of DAC capitalization (93 ) (144 ) (300 ) (378 )
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends 9
2
18
5
Pre-tax adjusted earnings, less net income attributable to noncontrolling interests and preferred stock dividends (76 ) (119 ) (242 ) (332 )
Provision for income tax expense (benefit) (57 ) (32 ) (100 ) (87 )
Adjusted earnings $ (19 ) $ (87 ) $ (142 ) $ (245 )

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

~~Adjusted earnings were a loss of $19 million, an improvement of $68 million from the prior period.~~

~~Key net favorable impacts were:~~

~~lower other expenses due to:~~

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

~~partially offset by~~


◦	~~interest expense recorded in the current period on a prior period tax liability associated with the Separation;~~

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

~~partially offset by~~

~~a benefit in the prior period related to Separation-related tax agreements with MetLife, which was recognized in other revenue.~~

~~Certain one-time tax adjustments recognized in the current period,~~ primarily due to ~~a revaluation of certain Separation-related liabilities, resulted in an unusually high effective tax rate of 75%, compared to 27% in~~ the ~~prior period, for which both rates represent a tax benefit. In addition to such one-time tax adjustments, our effective tax rate primarily differs from the statutory tax rate due to the ongoing~~ impacts of the dividends received deductions and tax credits. We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a standalone basis nor for comparison to prior periods, since taxes for Corporate & Other are derived from the difference between the overall consolidated effective tax rate and total taxes for the combined operating segments.

Nine Months Ended September 30, ~~2019~~2020 Compared with the Nine Months Ended September 30, ~~2018~~2019

Adjusted earnings were a loss of ~~$142~~$152 million, ~~an improvement~~a higher loss of ~~$103~~$10 million from the prior period.

The higher adjusted loss was primarily due to the timing of our preferred stock dividend payments.

Key ~~net~~ favorable impacts were:

•lower other expenses ~~due to:~~driven by:


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


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

~~partially offset by~~


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

~~higher net investment spread reflecting positive returns~~ on ~~short-term investments;~~a tax liability associated with our separation from MetLife; and

~~higher fee income~~

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•lower amortization of DAC and VOBA due to ~~reimbursement~~a one-time adjustment in the current period related to modeling improvements resulting from an actuarial system conversion.

The provision for income tax, expressed as a percentage of ~~pension liabilities from MetLife, which was reported~~pre-tax adjusted earnings, resulted in ~~other expenses~~an effective tax rate of 38% in the current period compared to 41% in the prior period.

~~Certain one-time tax adjustments recognized in the current period, primarily due to a revaluation of certain Separation-related liabilities, resulted in an unusually high~~ Our effective tax rate ~~of 41%, compared to 26% in the prior period, for which both rates represent a tax benefit. In addition to such one-time tax adjustments, our effective tax rate primarily~~ differs from the statutory tax rate primarily due to the ~~ongoing~~ impacts of the dividends received deductions and tax credits. We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a standalone basis nor for comparison to prior periods, since taxes for Corporate & Other are derived from the difference between the overall consolidated effective tax rate and total taxes for the combined operating segments.

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GMLB Riders for the Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Liabilities	$	(1,787)	$	(810)	$	(3,591)	$	(1,856)
Hedges	(1,078)		948		2,538		(51)
Ceded reinsurance	(3)		50		101		75
Fees (1)	223		228		621		628
GMLB DAC	(94)		3		(502)		60
Total GMLB Riders	$	(2,739)	$	419	$	(833)	$	(1,144)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(In millions)
Liabilities (1) $ (810 ) $ (220 ) $ (1,856 ) $ 92
Hedging program 948
(591 ) (51 ) (1,472 )
Ceded reinsurance 50
(17 ) 75
(61 )
Fees (2) 228
222
628
641
GMLB DAC 3
21
60
(208 )
Total GMLB Riders $ 419
$ (585 ) $ (1,144 ) $ (1,008 )
__________________

~~______________~~(1)Excludes living benefit fees, included as a component of adjusted earnings, of $15 million and $44 million for the three months and nine months ended September 30, 2020, respectively, and $16 million and $48 million for the three months and nine months ended September 30, 2019, respectively.


~~(1)~~	Includes changes in estimated fair value of the Shield Annuities embedded derivatives of ($15) million and ($918) million for the three months and nine months ended September 30, 2019, respectively, and ($462) million and ($531) million for the three months and nine months ended September 30, 2018, respectively.


~~(2)~~	Excludes living benefit fees, included as a component of adjusted earnings of $16 million and $48 million for the three months and nine months ended September 30, 2019, respectively, and $18 million and $53 million for the three months and nine months ended September 30, 2018, respectively.

Three Months Ended September 30, ~~2019~~2020 Compared with the Three Months Ended September 30, ~~2018~~

~~Comparative results from GMLB Riders were favorable by $1.0 billion, primarily driven by:~~

~~net favorable changes in the GMLB hedging program in excess of increases to the variable annuity liability reserves primarily due to lower interest rates in the current period; and~~

~~favorable changes in the estimated fair value of the Shield liability reserves.~~

~~Favorable changes in the GMLB hedging program resulted primarily from current period market factors which included lower interest rates, reduced market volatility and lower relative equity markets.~~

~~Favorable changes in Shield liability reserves were primarily due to a charge recognized in the prior period in connection with the AAR and lower relative equity markets in the current period.~~

~~Nine Months Ended September 30,~~ 2019 ~~Compared with the Nine Months Ended September 30, 2018~~

Comparative results from GMLB Riders were unfavorable by ~~$136 million, primarily driven by:~~$3.2 billion.

~~a net unfavorable change~~The AAR resulted in ~~the estimated fair value of variable annuity liability reserves; and~~

unfavorable changes ~~in Shield liability reserves,~~

~~partially offset by:~~

~~a net favorable change in the GMLB hedging program;~~

~~favorable changes in GMLB DAC; and~~

~~favorable changes in the ceded reinsurance.~~

~~Higher relative equity markets~~ in the current period ~~significantly impacted~~primarily due to higher reserves and higher DAC amortization recognized in the ~~following:~~current period.

Results were also driven by:

•unfavorable changes in our GMLB hedges;

•unfavorable changes to the estimated fair value of ~~freestanding derivatives in our GMLB hedging program;~~

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

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

•unfavorable changes in GMLB ~~DAC,~~DAC.

Higher relative equity markets in the current period resulted in the following significant impacts:

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

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

partially offset by

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

•favorable changes to GMLB DAC.

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Interest rates increasing in the current period, compared to decreasing in the prior period, resulted in the following impacts:

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

•unfavorable changes to GMLB DAC;

partially offset by

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

The narrowing of credit default swap spreads in the current period resulted in an unfavorable change in the adjustment for nonperformance risk, net of an offsetting favorable change in GMLB DAC.

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

Comparative results from GMLB Riders were favorable by $311 million, primarily driven by:

•favorable changes in our GMLB hedges; and

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

partially offset by

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

•unfavorable changes in GMLB DAC.

Equity markets increasing less in the current period than in the prior period resulted in the following significant impacts:

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

•favorable changes to the estimated fair value of Shield Annuity liabilities, net of unfavorable changes to the estimated fair value of the related hedges; and

•favorable changes to GMLB DAC;

partially offset by

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

~~Table of Contents~~reserves.

Lower interest rates in the current period ~~significantly impacted~~resulted in the ~~following:~~following significant impacts:

•favorable changes to the estimated fair value of ~~freestanding derivatives in~~ our GMLB ~~hedging program;~~hedges;

•favorable changes to ~~GMLB DAC; and~~

~~favorable changes in ceded reinsurance,~~

~~partially offset by~~

the estimated fair value of Shield Annuity liabilities, net of unfavorable changes to the estimated fair value of the related hedges; and

•favorable changes to GMLB DAC;

partially offset by

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

The widening of credit default swap spreads combined with a larger increase in the underlying variable annuity liability reserves in the current period resulted in a favorable change in the adjustment for nonperformance risk, net of an unfavorable change in GMLB DAC.

The AAR resulted in ~~favorable~~unfavorable changes in the current period primarily due to higher reserves and higher DAC amortization recognized in the ~~prior period, net of a corresponding decrease in GMLB DAC relative to the prior~~current period.

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.

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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;

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

•currency risk, relating to the variability in currency exchange rates for non-U.S. dollar denominated investments; 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~~ 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 Management, LLC (“MIM,” formerly known as MetLife Investment Advisors, LLC) 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 MIM and entered into a new investment management agreement (as amended, the “Investment Management Agreement”) with MIM, pursuant to which MIM, on a sub-advisory basis, managesmanage the investment of the assets comprising ~~a portion of 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~~Delaware (“BRCD”).

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investment management agreements, we brought our derivatives trading, which had previously been managed by MIM, 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 MIM 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.

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~~our 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.

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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” in our First Quarter Form 10-Q.

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 $3.0 billion, of which 91% were investment grade, with net unrealized gains (losses) of $236 million at September 30, 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 $1.9 billion, of which 97% were investment grade, with net unrealized gains (losses) of $213 million at September 30, 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.

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.


	Three Months Ended September 30,										Nine Months Ended September 30,											Three Months Ended September 30,								Nine Months Ended September 30,
	2019					2018					2019					2018						2020				2019				2020				2019
	Yield%		Amount			Yield%		Amount			Yield%		Amount			Yield%		Amount				Yield %		Amount		Yield %		Amount		Yield %		Amount		Yield %		Amount
	(Dollars in millions)																					(Dollars in millions)
Investment income (1)	4.62	%	$	951		4.67	%	$	883		4.56	%	$	2,757		4.62	%	$	2,576		Investment income (1)	4.56	%	$	1,036	4.62	%	$	951	4.04	%	$	2,676	4.56	%	$	2,757
Investment fees and expenses (2)	(0.10	)	(23		)	(0.17	)	(31		)	(0.12	)	(76		)	(0.16	)	(87		)	Investment fees and expenses (2)	(0.14)		(35)		(0.10)		(23)		(0.13)		(99)		(0.12)		(76)
Adjusted net investment income (3), (4)	4.52	%	$	928		4.50	%	$	852		4.44	%	$	2,681		4.46	%	$	2,489
Adjusted net investment income (3)																					Adjusted net investment income (3)	4.42	%	$	1,001	4.52	%	$	928	3.91	%	$	2,577	4.44	%	$	2,681

_______________

~~(1)~~

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)~~	Investment fee and expense yields are calculated as investment fees and expenses as a percent of average quarterly asset estimated fair values. Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.


~~(3)~~	~~Adjusted net investment income included in yield calculations includes Investment Hedge Adjustments.~~


~~(4)~~	~~Adjusted net investment income presented in the yield table varies from the most directly comparable GAAP measure due to certain reclassifications, as presented below.~~

(1)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.

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(In millions)
Net investment income $ 928
$ 853
$ 2,681
$ 2,476
Less: Investment hedge adjustments —
(2 ) —
(13 )
Less: Other incremental net investment income —
3
—
—
Adjusted net investment income — in the above yield table $ 928
$ 852
$ 2,681
$ 2,489

(2)Investment fee and expense yields are calculated as investment fees and expenses as a percent of average quarterly asset estimated fair values. Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.

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(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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Net investment income	$	996	$	928	$	2,564	$	2,681
Less: Investment hedge adjustments	(5)		—		(13)		—
Adjusted net investment income — in the above yield table	$	1,001	$	928	$	2,577	$	2,681

See “— Results of Operations — Consolidated Results for the Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019 — 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:


	September 30, 2020					December 31, 2019
	Estimated Fair Value			% of Total		Estimated Fair Value			% of Total
	(Dollars in millions)
Publicly-traded	$	65,812		83.0	%	$	58,099		81.8	%
Privately-placed	13,526			17.0		12,937			18.2
Total fixed maturity securities	$	79,338		100.0	%	$	71,036		100.0	%
Percentage of cash and invested assets	69.3		%			72.0		%

September 30, 2019 December 31, 2018
Estimated
Fair Value % of
Total Estimated
Fair Value % of
Total
(Dollars in millions)
Fixed maturity securities
Publicly-traded $ 58,097
82.1 % $ 51,939
83.0 %
Privately-placed 12,626
17.9
10,669
17.0
Total fixed maturity securities $ 70,723
100.0 % $ 62,608
100.0 %
Percentage of cash and invested assets 70.1 %
71.7 %

~~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.

~~Fixed Maturity Securities AFS~~

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

Fixed Maturity Securities Credit Quality — Ratings

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity AFS — Fixed Maturity Securities Credit Quality — Ratings” included in ~~the 2018~~our 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~~National Association of Insurance Commissioners (“NAIC”) for fixed maturity securities and the ~~revised~~ methodologies adopted by the NAIC for certain Structured Securities.

Table of Contents~~residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “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:

September 30, 2019 December 31, 2018
NAIC
Designation
NRSRO Rating Amortized
Cost Unrealized
Gain (Loss) Estimated Fair Value % of
Total Amortized
Cost Unrealized
Gain (Loss) Estimated Fair Value % of
Total
(Dollars in millions)
1 Aaa/Aa/A $ 40,592
$ 6,000
$ 46,592
65.9 % $ 40,218
$ 1,954
$ 42,172
67.4 %
2 Baa 19,599
1,552
21,151
29.9
17,656
(122 ) 17,534
28.0
Subtotal investment grade 60,191
7,552
67,743
95.8
57,874
1,832
59,706
95.4
3 Ba 2,065
52
2,117
3.0
2,160
(87 ) 2,073
3.3
4 B 784
11
795
1.1
787
(48 ) 739
1.2
5 Caa and lower 75
(7 ) 68
0.1
99
(9 ) 90
0.1
6 In or near default —
—
—
—
—
—
—
—
Subtotal below investment grade 2,924
56
2,980
4.2
3,046
(144 ) 2,902
4.6
Total fixed maturity securities $ 63,115
$ 7,608
$ 70,723
100.0 % $ 60,920
$ 1,688
$ 62,608
100.0 %

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		September 30, 2020										December 31, 2019
NAIC Designation	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)
1	Aaa/Aa/A	$	43,320	$	—	$	8,752	$	52,072	65.7	%	$	41,463	$	—	$	5,252	$	46,715	65.8	%
2	Baa	21,534		—		2,503		24,037		30.3		19,838		—		1,610		21,448		30.2
Subtotal investment grade		64,854		—		11,255		76,109		96.0		61,301		—		6,862		68,163		96.0
3	Ba	2,290		—		33		2,323		2.9		2,015		—		72		2,087		2.9
4	B	802		1		(2)		799		1.0		673		—		23		696		1.0
5	Caa and lower	115		3		(5)		107		0.1		90		—		—		90		0.1
6	In or near default	—		—		—		—		—		—		—		—		—		—
Subtotal below investment grade		3,207		4		26		3,229		4.0		2,778		—		95		2,873		4.0
Total fixed maturity securities		$	68,061	$	4	$	11,281	$	79,338	100.0	%	$	64,079	$	—	$	6,957	$	71,036	100.0	%

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
NAIC Designation	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
	(In millions)
September 30, 2020
U.S. corporate	$	17,758	$	15,782	$	1,673	$	630	$	63	$	—	$	35,906
Foreign corporate	3,325		6,659		530		140		6		—		10,660
RMBS	8,376		15		19		12		27		—		8,449
U.S. government and agency	8,836		99		—		—		—		—		8,935
CMBS	6,287		127		2		9		—		—		6,425
State and political subdivision	4,236		185		1		—		7		—		4,429
ABS	2,400		298		12		4		—		—		2,714
Foreign government	854		872		86		4		4		—		1,820
Total fixed maturity securities	$	52,072	$	24,037	$	2,323	$	799	$	107	$	—	$	79,338
December 31, 2019
U.S. corporate	$	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	7,303		93		—		—		—		—		7,396
CMBS	5,612		126		6		11		—		—		5,755
State and political subdivision	3,863		185		—		—		9		—		4,057
ABS	1,696		240		19		—		—		—		1,955
Foreign government	746		862		102		36		5		—		1,751
Total fixed maturity securities	$	46,715	$	21,448	$	2,087	$	696	$	90	$	—	$	71,036

Fixed Maturity Securities — by Sector & Credit Quality Rating
NAIC Designation 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
(Dollars in millions)
September 30, 2019
U.S. corporate $ 15,087
$ 13,669
$ 1,486
$ 637
$ 23
$ —
$ 30,902
U.S. government and agency 7,674
72
—
—
—
—
7,746
RMBS 9,093
65
32
4
21
—
9,215
Foreign corporate 3,059
6,000
481
99
11
—
9,650
CMBS 5,484
95
—
—
—
—
5,579
State and political subdivision 3,810
170
—
—
9
—
3,989
ABS 1,645
253
19
—
—
—
1,917
Foreign government 740
827
99
55
4
—
1,725
Total fixed maturity securities $ 46,592
$ 21,151
$ 2,117
$ 795
$ 68
$ —
$ 70,723
Percentage of total 65.9 % 29.9 % 3.0 % 1.1 % 0.1 % — % 100.0 %
December 31, 2018
U.S. corporate $ 11,277
$ 11,118
$ 1,417
$ 635
$ 26
$ —
$ 24,473
U.S. government and agency 8,921
174
—
—
—
—
9,095
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
State and political subdivision 3,437
156
1
—
3
—
3,597
ABS 1,851
244
30
1
—
—
2,126
Foreign government 681
656
134
25
—
—
1,496
Total fixed maturity securities $ 42,172
$ 17,534
$ 2,073
$ 739
$ 90
$ —
$ 62,608
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

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comprise 2% of total investments at both September 30, ~~2019~~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:


	September 30, 2020				December 31, 2019
	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
	(Dollars in millions)
Industrial	$	14,575	31.3	%	$	12,633	30.9	%
Consumer	10,981		23.6		9,719		23.7
Finance	10,614		22.8		9,448		23.0
Utility	7,069		15.2		6,247		15.2
Communications	3,327		7.1		2,957		7.2

Total	$	46,566	100.0	%	$	41,004	100.0	%

September 30, 2019 December 31, 2018
Estimated
Fair Value % of
Total Estimated
Fair Value % of
Total
(Dollars in millions)
Industrial $ 12,453
30.7 % $ 9,896
30.4 %
Consumer 9,737
24.0
8,290
25.5
Finance 9,315
23.0
7,209
22.2
Utility 6,159
15.2
4,770
14.7
Communications 2,888
7.1
2,334
7.2
Total $ 40,552
100.0 % $ 32,499
100.0 %

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Structured Securities

We held ~~$16.7~~$17.6 billion and ~~$15.9~~$16.8 billion of Structured Securities, at estimated fair value, at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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:


															September 30, 2020						December 31, 2019
	September 30, 2019						December 31, 2018								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:														Security type:
Collateralized mortgage obligations	$	5,027	54.6	%	$	439	$	4,885	57.2	%	$	174		Collateralized mortgage obligations	$	4,913	58.1	%	$	516	$	4,857	53.3	%	$	360
Pass-through securities	4,188		45.4		64		3,662		42.8		(55		)	Pass-through securities	3,536		41.9		127		4,261		46.7		66
Total RMBS	$	9,215	100.0	%	$	503	$	8,547	100.0	%	$	119		Total RMBS	$	8,449	100.0	%	$	643	$	9,118	100.0	%	$	426
By risk profile:
Risk profile:														Risk profile:
Agency	$	7,183	78.0	%	$	319	$	6,396	74.8	%	$	(23	)	Agency	$	6,659	78.8	%	$	507	$	7,216	79.2	%	$	256
Prime	207		2.2		12		296		3.5		10			Prime	128		1.5		2		141		1.5		9
Alt-A	910		9.9		103		938		11.0		79			Alt-A	822		9.7		65		883		9.7		96
Sub-prime	915		9.9		69		917		10.7		53			Sub-prime	840		10.0		69		878		9.6		65
Total RMBS	$	9,215	100.0	%	$	503	$	8,547	100.0	%	$	119		Total RMBS	$	8,449	100.0	%	$	643	$	9,118	100.0	%	$	426
Ratings profile:														Ratings profile:
Rated Aaa	$	7,289	79.1	%			$	6,529	76.4	%				Rated Aaa	$	6,843	81.0	%			$	7,329	80.4	%
Designated NAIC 1	$	9,093	98.7	%			$	8,395	98.2	%				Designated NAIC 1	$	8,376	99.1	%			$	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~~$816 million and $851 million at ~~both~~ September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, with unrealized gains (losses) of ~~$65~~$66 million and ~~$50~~$61 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

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CMBS

Our CMBS holdings are diversified by vintage ~~year. The following tables present our CMBS holdings by vintage~~ year, which were as follows at:


	September 30, 2020				December 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In millions)
2003 - 2010	$	94	$	113	$	109	$	123
2011	114		115		223		223
2012	146		148		138		141
2013	214		217		199		205
2014	342		362		332		346
2015	954		1,031		938		977
2016	462		500		480		497
2017	701		777		683		717
2018	1,660		1,897		1,580		1,700
2019	920		1,001		818		826
2020	258		264		—		—
Total	$	5,865	$	6,425	$	5,500	$	5,755

September 30, 2019 December 31, 2018
Amortized Cost
Estimated
Fair Value
Amortized Cost
Estimated
Fair Value
(Dollars in millions)
2003 - 2010 $ 110
$ 126
$ 177
$ 177
2011 234
234
297
293
2012 139
142
263
262
2013 199
207
290
290
2014 333
352
526
519
2015 942
996
1,076
1,059
2016 488
511
582
568
2017 643
688
696
686
2018 1,583
1,733
1,385
1,394
2019 570
590
—
—
Total $ 5,241
$ 5,579
$ 5,292
$ 5,248

The estimated fair value of CMBS rated Aaa using rating agency ratings ~~were $4.1~~was $4.8 billion, or ~~73.9%~~75.2% of total CMBS, and designated NAIC 1 ~~were $5.5~~was $6.3 billion, or ~~98.3%~~97.9% of total CMBS, at September 30, ~~2019.~~2020. CMBS ~~rated~~ Aaa ~~using~~ rating agency ratings ~~were $3.5~~was $4.3 billion, or ~~66.9%~~74.9% of total CMBS, and designated NAIC 1 ~~were $5.2~~was $5.6 billion, or ~~98.8%~~97.5% of total CMBS at December 31, ~~2018.~~2019.

ABS

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


	September 30, 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	$	1,647	60.7	%	$	(5)	$	1,058	54.2	%	$	(8)
Student loans	202		7.4		1		196		10.0		2
Consumer loans	239		8.8		5		171		8.7		2
Automobile loans	99		3.7		4		114		5.8		2
Credit card loans	58		2.1		7		60		3.1		3
Other loans	469		17.3		21		356		18.2		9
Total	$	2,714	100.0	%	$	33	$	1,955	100.0	%	$	10
Ratings profile:
Rated Aaa	$	1,443	53.2	%			$	879	45.0	%
Designated NAIC 1	$	2,400	88.4	%			$	1,696	86.8	%

September 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 $ 1,023
53.4 % $ (8 ) $ 1,010
47.5 % $ (18 )
Automobile loans 135
7.0
3
199
9.4
—
Consumer loans 175
9.1
3
193
9.1
1
Student loans 195
10.2
6
186
8.7
3
Credit card loans 62
3.2
4
136
6.4
2
Other loans 327
17.1
10
402
18.9
3
Total $ 1,917
100.0 % $ 18
$ 2,126
100.0 % $ (9 )
Ratings profile:
Rated Aaa $ 835
43.6 % $ 956
45.0 %
Designated NAIC 1 $ 1,645
85.8 % $ 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%

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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:


	September 30, 2020								December 31, 2019
	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)
Commercial	$	9,830	62.1	%	$	44	0.5	%	$	9,721	61.5	%	$	47	0.5	%
Agricultural	3,380		21.3	%	16		0.5	%	3,388		21.4	%	10		0.3	%
Residential	2,626		16.6	%	30		1.1	%	2,708		17.1	%	7		0.3	%
Total	$	15,836	100.0	%	$	90	0.6	%	$	15,817	100.0	%	$	64	0.4	%

September 30, 2019 December 31, 2018
Recorded
Investment % of
Total Valuation
Allowance % of
Recorded
Investment Recorded
Investment % of
Total Valuation
Allowance % of
Recorded
Investment
(Dollars in millions)
Commercial $ 9,473
61.4 % $ 47
0.3 % $ 8,529
62.0 % $ 42
0.5 %
Agricultural 3,291
21.4 % 10
0.6 % 2,946
21.4 % 9
0.3 %
Residential 2,659
17.2 % 7
0.5 % 2,276
16.6 % 6
0.3 %
Total $ 15,423
100.0 % $ 64
0.4 % $ 13,751
100.0 % $ 57
0.4 %

~~We diversify our~~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 both September 30, ~~2019~~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:

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


						September 30, 2020
California						24%
New York						12%
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 September 30, ~~2019~~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:

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


						September 30, 2020
California						37%
Florida						10%
New York						7%

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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:


										September 30, 2020				December 31, 2019
	September 30, 2019				December 31, 2018					Amount		% of Total		Amount		% of Total
	Amount		% of Total		Amount		% of Total			(Dollars in millions)
	(Dollars in millions)
Region
Geographic Region:									Geographic Region:
Pacific	$	2,592	27.4	%	$	2,550	29.9	%	Pacific	$	2,648	26.9	%	$	2,666	27.4	%
South Atlantic									South Atlantic	1,939		19.7		1,887		19.4
Middle Atlantic	1,840		19.4		1,867		21.9		Middle Atlantic	1,872		19.0		1,875		19.3
South Atlantic	1,704		18.0		1,316		15.5
West South Central	793		8.4		801		9.4		West South Central	802		8.2		809		8.3
Mountain	699		7.4		404		4.7		Mountain	697		7.1		668		6.9
East North Central	530		5.6		473		5.5		East North Central	608		6.2		555		5.7
International	486		5.1		389		4.5		International	494		5.0		494		5.1
New England	474		5.0		397		4.7		New England	463		4.7		412		4.2
West North Central	125		1.3		127		1.5		West North Central	123		1.3		125		1.3
East South Central	85		0.9		59		0.7		East South Central	84		0.9		85		0.9
Multi-Region and Other	145		1.5		146		1.7		Multi-Region and Other	100		1.0		145		1.5
Total recorded investment	9,473		100.0	%	8,529		100.0	%	Total recorded investment	9,830		100.0	%	9,721		100.0	%
Less: valuation allowances	47				42
Carrying value, net of valuation allowances	$	9,426			$	8,487
Property Type
Less: allowance for credit losses									Less: allowance for credit losses	44				47
Carrying value, net of allowance for credit losses									Carrying value, net of allowance for credit losses	$	9,786			$	9,674
Property Type:									Property Type:
Office	$	3,903	41.2	%	$	3,810	44.6	%	Office	$	3,803	38.7	%	$	3,839	39.5	%
Apartment									Apartment	2,200		22.4		2,181		22.4
Retail	2,168		22.9		2,064		24.2		Retail	2,103		21.4		2,115		21.8
Apartment	1,976		20.9		1,480		17.4
Hotel	914		9.6		744		8.7		Hotel	928		9.4		930		9.6
Industrial	482		5.1		400		4.7		Industrial	766		7.8		626		6.4
Other	30		0.3		31		0.4		Other	30		0.3		30		0.3
Total recorded investment	9,473		100.0	%	8,529		100.0	%	Total recorded investment	9,830		100.0	%	9,721		100.0	%
Less: valuation allowances	47				42
Carrying value, net of valuation allowances	$	9,426			$	8,487
Less: allowance for credit losses									Less: allowance for credit losses	44				47
Carrying value, net of allowance for credit losses									Carrying value, net of allowance for credit losses	$	9,786			$	9,674

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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~~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;

~~Table of Contents~~•

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;

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•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; and

~~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 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 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.

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~~our 2019 Annual Report.

There have been no material changes to our market risk exposures from the market risk exposures previously disclosed in ~~the 2018~~our 2019 Annual Report, with the exception of sensitivity to changes in interest ~~rates. Sensitivity to a 100 basis point rise~~rates previously disclosed in ~~interest rates increased by $2.5 billion or 43%, to $8.3 billion as of September 30, 2019 from $5.8 billion as of December 31, 2018, primarily as a result of lower interest rates increasing~~ the ~~estimated fair value of both interest rate derivative contracts and fixed maturity securities, in line with management expectations.~~First Quarter Form 10-Q.

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Item 4. Controls and Procedures

Management, with the participation of the Chief Executive Officer and 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 the Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of September 30, ~~2019.~~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 September 30, ~~2019~~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 11 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~~our 2019 Annual Report,. as amended or supplemented by our subsequent Quarterly Reports.

Item 1A. Risk Factors

We discuss in this report, in ~~the 2018~~our 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 ~~in this report.~~herein. There have been no material changes to our risk factors from the risk factors previously disclosed in ~~the 2018~~our 2019 Annual Report, as amended or supplemented by ~~such information in~~ our ~~subsequent Quarterly Reports on~~First Quarter Form 10-Q.

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 September 30, ~~2019~~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)
July 1 — July 31, 2020	—	$	—	—	$	231
August 1 — August 31, 2020	233,003	$	31.15	233,003	$	224
September 1 — September 30, 2020	1,636,846	$	28.69	1,635,080	$	177
Total	1,869,849			1,868,083

__________________

(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)On February 6, 2020, we authorized the repurchase of up to $500 million of our common stock, which is in addition to the $600 million aggregate stock repurchase authorizations announced in May 2019 and August 2018. On May 11, 2020, we announced that we had temporarily suspended repurchases of our common stock. On August 24, 2020, we resumed repurchases of our common stock, as was announced on August 21, 2020. 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 Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements.

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)
July 1 — July 31, 2019 1,159,220
$ 37.42
1,159,220
$ 264
August 1 — August 31, 2019 1,195,757
$ 35.30
1,195,757
$ 221
September 1 — September 30, 2019 1,047,072
$ 38.52
1,046,970
$ 181
Total 3,402,049

3,401,947

~~__________~~


~~(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, we authorized the repurchase of up to $200 million of our common stock and, on May 3, 2019, we authorized the repurchase of up to an additional $400 million of our common stock. 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” and Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements.

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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#		Amendment Number One to the Brighthouse Services, LLC ~~Blue Relocation Policy, revised~~Temporary Incentive Deferred Compensation Plan, dated July 1, ~~2019~~2020 , is incorporated by reference to Exhibit ~~10.3~~10 .2 to our Quarterly ~~Report~~R eport on Form 10-Q, filed on August ~~6, 2019 (File No. 001-37905)~~7, 2020 .
~~10.2~~31.1*		First Amended and Restated Investment Management Agreement, dated as of July 17, 2019, by and between Brighthouse Services, LLC and MetLife Investment Management, LLC is incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q, filed August 6, 2019 (File No. 001-37905).
~~10.3#~~	Offer Letter, dated as of July 24, 2019, between Brighthouse Services, LLC and Edward Spehar is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed July 24, 2019 (File No. 001-37905).
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of 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 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 September 30, ~~2019,~~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/ Edward A. Spehar
	Name:	Edward A. Spehar
	Title:	Executive Vice President and Chief Financial Officer
		(Duly Authorized ~~Signatory~~Officer and Principal Financial Officer)

Date: November ~~5, 2019~~

6, 2020



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
Depositary Shares, each representing a 1/1,000th interest in a share of 6.750% Non-Cumulative Preferred Stock, Series B			BHFAO			The Nasdaq Stock Market LLC
6.250% Junior Subordinated Debentures due 2058		BHFAL			The Nasdaq Stock Market LLC


		Page
Part I — Financial Information
Item 1.	Consolidated Financial Statements (at September 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019 and for the Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019 (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	12
	Note 4 — Investments	13
	Note 5 — Derivatives	2224
	Note 6 — Fair Value	30
	Note 7 — Long-term Debt	39
	Note 8 — Equity	39
	Note 9 — Other Revenues and Other Expenses	42
	Note 10 — Earnings Per Common Share	43
	Note 11 — Contingencies, Commitments and Guarantees	4344
	~~Note 12 — Related Party Transactions~~	45
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4647
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8791
Item 4.	Controls and Procedures	8891

Part II — Other Information
Item 1.	Legal Proceedings	8992
Item 1A.	Risk Factors	8992
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8992

Item 6.	Exhibits	9093

~~Signatures~~Signature		9194


	September 30, 2019			December 31, 2018				September 30, 2020		December 31, 2019
Assets							Assets
Investments:							Investments:
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $63,115 and $60,920, respectively)	$	70,723		$	62,608
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $68,061 and $64,079, respectively; allowance for credit losses of $4 and $0, respectively)							Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $68,061 and $64,079, respectively; allowance for credit losses of $4 and $0, respectively)	$	79,338	$	71,036
Equity securities, at estimated fair value	148			140			Equity securities, at estimated fair value	117		147
Mortgage loans (net of valuation allowances of $64 and $57, respectively)	15,359			13,694
Mortgage loans (net of allowance for credit losses of $90 and $64, respectively)							Mortgage loans (net of allowance for credit losses of $90 and $64, respectively)	15,746		15,753
Policy loans	1,332			1,421			Policy loans	1,289		1,292
Real estate limited partnerships and limited liability companies	458			451
Other limited partnership interests	1,895			1,840
Limited partnerships and limited liability companies							Limited partnerships and limited liability companies	2,562		2,380
Short-term investments, principally at estimated fair value	1,985			—			Short-term investments, principally at estimated fair value	4,239		1,958
Other invested assets, principally at estimated fair value	4,734			3,027
Other invested assets, principally at estimated fair value (net of allowance for credit losses of $13 and $0, respectively)							Other invested assets, principally at estimated fair value (net of allowance for credit losses of $13 and $0, respectively)	5,038		3,216
Total investments	96,634			83,181			Total investments	108,329		95,782
Cash and cash equivalents	4,289			4,145			Cash and cash equivalents	6,189		2,877
Accrued investment income	732			724			Accrued investment income	781		684
Premiums, reinsurance and other receivables	14,385			13,697			Premiums, reinsurance and other receivables	16,087		14,760
Deferred policy acquisition costs and value of business acquired	5,317			5,717			Deferred policy acquisition costs and value of business acquired	4,664		5,448
Current income tax recoverable	14			1			Current income tax recoverable	0		17
Other assets	577			573			Other assets	447		584
Separate account assets	103,928			98,256			Separate account assets	103,184		107,107
Total assets	$	225,876		$	206,294		Total assets	$	239,681	$	227,259
Liabilities and Equity							Liabilities and Equity
Liabilities							Liabilities
Future policy benefits	$	39,846		$	36,209		Future policy benefits	$	44,537	$	39,686
Policyholder account balances	44,919			40,054			Policyholder account balances	52,798		45,771
Other policy-related balances	3,079			3,000			Other policy-related balances	3,088		3,111
Payables for collateral under securities loaned and other transactions	5,291			5,057			Payables for collateral under securities loaned and other transactions	6,989		4,391
Long-term debt	4,365			3,963			Long-term debt	3,979		4,365
Current income tax payable	—			15			Current income tax payable	72		0
Deferred income tax liability	1,749			972			Deferred income tax liability	1,816		1,355
Other liabilities	4,939			4,285			Other liabilities	4,887		5,236
Separate account liabilities	103,928			98,256			Separate account liabilities	103,184		107,107
Total liabilities	208,116			191,811			Total liabilities	221,350		211,022
Contingencies, Commitments and Guarantees (Note 11)							Contingencies, Commitments and Guarantees (Note 11)
Equity							Equity
Brighthouse Financial, Inc.’s stockholders’ equity:							Brighthouse Financial, Inc.’s stockholders’ equity:
Preferred stock, par value $0.01 per share; $425 aggregate liquidation preference at September 30, 2019	—			—
Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 120,614,815 and 120,448,018 shares issued, respectively; 109,264,305 and 117,532,336 shares outstanding, respectively	1			1
Preferred stock, par value $0.01 per share; $828 and $425, respectively, aggregate liquidation preference							Preferred stock, par value $0.01 per share; $828 and $425, respectively, aggregate liquidation preference	0		0
Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 120,970,368 and 120,647,871 shares issued, respectively; 91,158,927 and 106,027,301 shares outstanding, respectively							Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 120,970,368 and 120,647,871 shares issued, respectively; 91,158,927 and 106,027,301 shares outstanding, respectively	1		1
Additional paid-in capital	12,897			12,473			Additional paid-in capital	13,314		12,908
Retained earnings (deficit)	1,662			1,346			Retained earnings (deficit)	511		585
Treasury stock, at cost; 11,350,510 and 2,915,682 shares, respectively	(432		)	(118		)
Treasury stock, at cost; 29,811,441 and 14,620,570 shares, respectively							Treasury stock, at cost; 29,811,441 and 14,620,570 shares, respectively	(941)		(562)
Accumulated other comprehensive income (loss)	3,567			716			Accumulated other comprehensive income (loss)	5,381		3,240
Total Brighthouse Financial, Inc.’s stockholders’ equity	17,695			14,418			Total Brighthouse Financial, Inc.’s stockholders’ equity	18,266		16,172
Noncontrolling interests	65			65			Noncontrolling interests	65		65
Total equity	17,760			14,483			Total equity	18,331		16,237
Total liabilities and equity	$	225,876		$	206,294		Total liabilities and equity	$	239,681	$	227,259


Earnings per common share											Earnings per common share
Basic	$	6.09	$	(2.26	)	$	2.77	$	(4.82	)	Basic	$	(32.49)	$	6.09	$	(0.61)	$	2.77
Diluted	$	6.06	$	(2.26	)	$	2.75	$	(4.82	)	Diluted	$	(32.49)	$	6.06	$	(0.61)	$	2.75



	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
Treasury stock acquired in connection with share repurchases										(188		)			(188		)				(188		)
Share-based compensation					8										8						8
Dividends on preferred stock							(7		)						(7		)				(7		)
Change in noncontrolling interests															—			(2		)	(2		)
Net income (loss)							(353		)						(353		)	2			(351		)
Other comprehensive income (loss), net of income tax													1,986		1,986						1,986
Balance at June 30, 2019	—		1		12,893		986			(306		)	2,702		16,276			65			16,341
Treasury stock acquired in connection with share repurchases										(126		)			(126		)				(126		)
Share-based compensation					4										4						4
Dividends on preferred stock							(7		)						(7		)				(7		)
Change in noncontrolling interests															—			(2		)	(2		)
Net income (loss)							683								683			2			685
Other comprehensive income (loss), net of income tax													865		865						865
Balance at September 30, 2019	$	—	$	1	$	12,897	$	1,662		$	(432	)	$	3,567	$	17,695		$	65		$	17,760



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



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


Standard	Description	Effective Date	Impact on Financial Statements
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)	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 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	The Company 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 cumulative effect of adoption. The adjustment included establishing or updating the allowance for credit losses on fixed maturity securities, mortgage loans, and other invested assets.



	Operating Results
Three Months Ended September 30, 2019	Annuities		Life		Run-off			Corporate & Other			Total
	(In millions)
Pre-tax adjusted earnings	$	255	$	91	$	(543	)	$	(67	)	$	(264	)
Provision for income tax expense (benefit)	52		18		(117		)	(57		)	(104		)
Post-tax adjusted earnings	203		73		(426		)	(10		)	(160		)
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	—		—		—			9			9
Adjusted earnings	$	203	$	73	$	(426	)	$	(19	)	(169		)
Adjustments for:
Net investment gains (losses)											27
Net derivative gains (losses)											1,057
Other adjustments to net income											(16		)
Provision for income tax (expense) benefit											(223		)
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders											$	676

Interest revenue	$	461	$	117	$	327		$	23
Interest expense	$	—	$	—	$	—		$	49



	Operating Results
Nine Months Ended September 30, 2018	Annuities		Life		Run-off			Corporate & Other			Total
	(In millions)
Pre-tax adjusted earnings	$	1,025	$	205	$	(79	)	$	(327	)	$	824
Provision for income tax expense (benefit)	177		41		(18		)	(87		)	113
Post-tax adjusted earnings	848		164		(61		)	(240		)	711
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	—		—		—			5			5
Adjusted earnings	$	848	$	164	$	(61	)	$	(245	)	706
Adjustments for:
Net investment gains (losses)											(121		)
Net derivative gains (losses)											(1,337		)
Other adjustments to net income											(164		)
Provision for income tax (expense) benefit											339
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders											$	(577	)

Interest revenue	$	1,138	$	334	$	979		$	38
Interest expense	$	—	$	—	$	—		$	113


	September 30, 2020						December 31, 2019
	In the Event of Death			At Annuitization			In the Event of Death			At Annuitization
	(Dollars in millions)
Annuity Contracts (1), (2)
Variable Annuity Guarantees
Total account value (3)	$	100,471		$	56,552		$	104,271		$	59,859
Separate account value	$	95,346		$	55,266		$	99,385		$	58,694
Net amount at risk	$	8,054	(4)	$	7,956	(5)	$	6,671	(4)	$	4,750	(5)
Average attained age of contract holders	70 years			70 years			68 years			68 years


	September 30, 2020		December 31, 2019
	Secondary Guarantees
	(Dollars in millions)
Universal Life Contracts
Total account value (3)	$	5,816	$	5,957
Net amount at risk (6)	$	69,664	$	71,124
Average attained age of policyholders	67 years		66 years

Variable Life Contracts
Total account value (3)	$	3,677	$	3,526
Net amount at risk (6)	$	20,309	$	21,325
Average attained age of policyholders	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.~~


~~(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.


~~(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.


~~(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.



	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	$	1,957	$	6,764	$	12,584	$	25,958	$	15,852	$	63,115
Estimated fair value	$	1,963	$	6,959	$	13,422	$	31,668	$	16,711	$	70,723


~~(1)~~	Structured securities include residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”).



	September 30, 2019								December 31, 2018
	Less than 12 Months				Equal to or Greater than 12 Months				Less than 12 Months				Equal to or Greater than 12 Months
	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)
Fixed maturity securities:
U.S. corporate	$	1,621	$	43	$	414	$	34	$	10,584	$	470	$	2,328	$	199
U.S. government and agency	106		1		—		—		412		8		1,543		104
RMBS	536		3		453		5		1,627		26		2,611		101
Foreign corporate	832		28		642		90		3,982		203		774		113
CMBS	102		1		190		2		2,317		53		803		34
State and political subdivision	15		—		8		—		346		7		158		8
ABS	449		3		504		7		1,422		21		70		1
Foreign government	52		5		—		—		521		26		132		6
Total fixed maturity securities	$	3,713	$	84	$	2,211	$	138	$	21,211	$	814	$	8,419	$	566
Total number of securities in an unrealized loss position	693				320				3,027				1,028



	September 30, 2019					December 31, 2018
	Carrying Value			% of Total		Carrying Value			% of Total
	(Dollars in millions)
Mortgage loans:
Commercial	$	9,473		61.7	%	$	8,529		62.3	%
Agricultural	3,291			21.4		2,946			21.5
Residential	2,659			17.3		2,276			16.6
Subtotal (1)	15,423			100.4		13,751			100.4
Valuation allowances (2)	(64		)	(0.4	)	(57		)	(0.4	)
Total mortgage loans, net	$	15,359		100.0	%	$	13,694		100.0	%


~~(1)~~	Purchases of mortgage loans from third parties were $159 million and $722 million for the three months and nine months ended September 30, 2019, respectively, and $816 million and $1.4 billion for the three months and nine months ended September 30, 2018, respectively, and were primarily comprised of residential mortgage loans.


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



	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)
September 30, 2019
Loan-to-value ratios:
Less than 65%	$	8,355	$	128	$	141	$	8,624	91.0	%	$	9,111	91.2	%
65% to 75%	684		18		—		702		7.4		729		7.3
76% to 80%	138		—		9		147		1.6		146		1.5
Total	$	9,177	$	146	$	150	$	9,473	100.0	%	$	9,986	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	%



	September 30, 2019				December 31, 2018
	Recorded Investment		% of Total		Recorded Investment		% of Total
	(Dollars in millions)
Loan-to-value ratios:
Less than 65%	$	3,046	92.6	%	$	2,623	89.0	%
65% to 75%	243		7.3		322		10.9
76% to 80%	2		0.1		1		0.1
Total	$	3,291	100.0	%	$	2,946	100.0	%


	Nine Months Ended September 30, 2020
	(In millions)
Purchase price	$	77
Allowance at acquisition date	$	2
Discount or premium attributable to other factors	$	2
Par value	$	81


	Nine Months Ended September 30, 2020
	(In millions)
Balance at December 31, 2019	$	3,283
Unrealized investment gains (losses) during the period	4,539
Unrealized investment gains (losses) relating to:
Future policy benefits	(1,684)
DAC, VOBA and DSI	(141)
Deferred income tax benefit (expense)	(570)
Balance at September 30, 2020	$	5,427
Change in net unrealized investment gains (losses)	$	2,144



	Nine Months Ended September 30, 2019
	(In millions)
Balance, December 31, 2018	$	763
Unrealized investment gains (losses) during the period	6,068
Unrealized investment gains (losses) relating to:
Future policy benefits	(2,164		)
DAC, VOBA and DSI	(296		)
Deferred income tax benefit (expense)	(758		)
Balance, September 30, 2019	$	3,613
Change in net unrealized investment gains (losses)	$	2,850


~~(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.~~


	September 30, 2020						December 31, 2019
	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	$	1,229	$	1,801	$	593	$	3,623	$	1,279	$	1,094	$	701	$	3,074


Foreign corporate	2		0		0		2		0		0		0		0

Total	$	1,231	$	1,801	$	593	$	3,625	$	1,279	$	1,094	$	701	$	3,074



	September 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	$	1,561	$	1,283	$	400	$	3,244	$	1,474	$	1,823	$	349	$	3,646


~~(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.~~


~~(1)~~	The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which $75 million and $55 million of the assets on deposit balance represents restricted cash at September 30, 2019 and December 31, 2018, 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 Annual Report) and derivative transactions (see Note 5).