Brighthouse Financial (BHF) 10-Q 2021 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

or

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

For the transition period from ___ to ___

Commission File Number: 001-37905

Brighthouse Financial, Inc.

(Exact name of registrant as specified in its charter)

Delaware	81-3846992
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
11225 North Community House Road, Charlotte, North Carolina	28277
(Address of principal executive offices)	(Zip Code)

(980) 365-7100

(Registrant’s telephone number, including area code)

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	BHF	The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/1,000th interest in a share 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
Depositary Shares, each representing a 1/1,000th interest in a share of 5.375% Non-Cumulative Preferred Stock, Series C	BHFAN	The Nasdaq Stock Market LLC
6.250% Junior Subordinated Debentures due 2058	BHFAL	The Nasdaq Stock Market LLC

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

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

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

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

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

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

As of August 4, 2021, 83,110,216 shares of the registrant’s common stock were outstanding.

Table of Contents

		Page
Part I — Financial Information
Item 1.	Consolidated Financial Statements (at June 30, 2021 (Unaudited) and December 31, 2020 and for the Three Months and Six Months Ended June 30, 2021 and 2020 (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	7
	Note 3 — Insurance	11
	Note 4 — Investments	12
	Note 5 — Derivatives	24
	Note 6 — Fair Value	30
	Note 7 — Equity	39
	Note 8 — Other Revenues and Other Expenses	42
	Note 9 — Earnings Per Common Share	43
	Note 10 — Contingencies, Commitments and Guarantees	44
	Note 11 — Subsequent Events	46
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	91
Item 4.	Controls and Procedures	91
Part II — Other Information
Item 1.	Legal Proceedings	93
Item 1A.	Risk Factors	93
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 6.	Exhibits	94
Signature		95

Part I — Financial Information

Item 1. Financial Statements

Brighthouse Financial, Inc.

Interim Condensed Consolidated Balance Sheets

June 30, 2021 (Unaudited) and December 31, 2020

(In millions, except share and per share data)

	June 30, 2021		December 31, 2020
Assets
Investments:
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $75,454 and $70,529, respectively; allowance for credit losses of $9 and $2, respectively)	$	84,785	$	82,495
Equity securities, at estimated fair value	91		138
Mortgage loans (net of allowance for credit losses of $97 and $94, respectively)	16,732		15,808
Policy loans	1,255		1,291
Limited partnerships and limited liability companies	3,546		2,810
Short-term investments, principally at estimated fair value	1,293		3,242
Other invested assets, principally at estimated fair value (net of allowance for credit losses of $13 and $13, respectively)	2,863		3,747
Total investments	110,565		109,531
Cash and cash equivalents	4,882		4,108
Accrued investment income	827		676
Premiums, reinsurance and other receivables (net of allowance for credit losses of $10 and $10, respectively)	16,127		16,158
Deferred policy acquisition costs and value of business acquired	5,122		4,911
Other assets	494		516
Separate account assets	115,839		111,969
Total assets	$	253,856	$	247,869
Liabilities and Equity
Liabilities
Future policy benefits	$	43,427	$	44,448
Policyholder account balances	60,300		54,508
Other policy-related balances	3,356		3,411
Payables for collateral under securities loaned and other transactions	5,143		5,252
Long-term debt	3,436		3,436
Current income tax payable	150		126
Deferred income tax liability	1,109		1,620
Other liabilities	4,916		5,011
Separate account liabilities	115,839		111,969
Total liabilities	237,676		229,781
Contingencies, Commitments and Guarantees (Note 10)	0		0
Equity
Brighthouse Financial, Inc.’s stockholders’ equity:
Preferred stock, par value $0.01 per share; $1,403 aggregate liquidation preference	0		0
Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 121,475,669 and 121,002,523 shares issued, respectively; 84,223,669 and 88,211,618 shares outstanding, respectively	1		1
Additional paid-in capital	13,842		13,878
Retained earnings (deficit)	(1,088)		(534)
Treasury stock, at cost; 37,252,000 and 32,790,905 shares, respectively	(1,236)		(1,038)
Accumulated other comprehensive income (loss)	4,596		5,716
Total Brighthouse Financial, Inc.’s stockholders’ equity	16,115		18,023
Noncontrolling interests	65		65
Total equity	16,180		18,088
Total liabilities and equity	$	253,856	$	247,869

See accompanying notes to the interim condensed consolidated financial statements.

2

Brighthouse Financial, Inc.

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

For the Three Months and Six Months Ended June 30, 2021 and 2020 (Unaudited)

(In millions, except per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues
Premiums	$	162	$	193	$	346	$	391
Universal life and investment-type product policy fees	919		827		1,849		1,713
Net investment income	1,212		652		2,399		1,568
Other revenues	101		93		228		195
Net investment gains (losses)	(34)		(34)		(20)		(53)
Net derivative gains (losses)	(684)		(2,653)		(2,188)		4,249
Total revenues	1,676		(922)		2,614		8,063
Expenses
Policyholder benefits and claims	752		839		1,508		2,026
Interest credited to policyholder account balances	287		276		584		535
Amortization of deferred policy acquisition costs and value of business acquired	8		(92)		99		678
Other expenses	608		577		1,170		1,094
Total expenses	1,655		1,600		3,361		4,333
Income (loss) before provision for income tax	21		(2,522)		(747)		3,730
Provision for income tax expense (benefit)	(10)		(531)		(195)		762
Net income (loss)	31		(1,991)		(552)		2,968
Less: Net income (loss) attributable to noncontrolling interests	0		0		2		2
Net income (loss) attributable to Brighthouse Financial, Inc.	31		(1,991)		(554)		2,966
Less: Preferred stock dividends	21		7		46		14
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders	$	10	$	(1,998)	$	(600)	$	2,952
Comprehensive income (loss)	$	1,238	$	327	$	(1,672)	$	4,693
Less: Comprehensive income (loss) attributable to noncontrolling interests	0		0		2		2
Comprehensive income (loss) attributable to Brighthouse Financial, Inc.	$	1,238	$	327	$	(1,674)	$	4,691

Earnings per common share
Basic	$	0.12	$	(21.10)	$	(6.93)	$	29.60
Diluted	$	0.11	$	(21.10)	$	(6.93)	$	29.56

See accompanying notes to the interim condensed consolidated financial statements.

3

Brighthouse Financial, Inc.

Interim Condensed Consolidated Statements of Equity

For the Three Months and Six Months Ended June 30, 2021 and 2020 (Unaudited)

(In millions)

	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		Treasury Stock at Cost		Accumulated Other Comprehensive Income (Loss)		Brighthouse Financial, Inc.’s Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2020	$	0	$	1	$	13,878	$	(534)	$	(1,038)	$	5,716	$	18,023	$	65	$	18,088
Treasury stock acquired in connection with share repurchases									(68)				(68)				(68)
Share-based compensation			0		5				(6)				(1)				(1)
Dividends on preferred stock					(25)								(25)				(25)
Change in noncontrolling interests													0		(2)		(2)
Net income (loss)							(585)						(585)		2		(583)
Other comprehensive income (loss), net of income tax											(2,327)		(2,327)				(2,327)
Balance at March 31, 2021	0		1		13,858		(1,119)		(1,112)		3,389		15,017		65		15,082
Treasury stock acquired in connection with share repurchases									(124)				(124)				(124)
Share-based compensation			0		5				0				5				5
Dividends on preferred stock					(21)								(21)				(21)
Change in noncontrolling interests													0		0		0
Net income (loss)							31						31		0		31
Other comprehensive income (loss), net of income tax											1,207		1,207				1,207
Balance at June 30, 2021	$	0	$	1	$	13,842	$	(1,088)	$	(1,236)	$	4,596	$	16,115	$	65	$	16,180

	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, 2019	$	0	$	1	$	12,908	$	585	$	(562)	$	3,240	$	16,172	$	65	$	16,237
Cumulative effect of change in accounting principle, net of income tax							(14)				3		(11)				(11)
Balance at January 1, 2020	0		1		12,908		571		(562)		3,243		16,161		65		16,226
Treasury stock acquired in connection with share repurchases									(142)				(142)				(142)
Share-based compensation					3				(2)				1				1
Dividends on preferred stock							(7)						(7)				(7)
Change in noncontrolling interests													0		(2)		(2)
Net income (loss)							4,957						4,957		2		4,959
Other comprehensive income (loss), net of income tax											(596)		(596)				(596)
Balance at March 31, 2020	0		1		12,911		5,521		(706)		2,647		20,374		65		20,439
Preferred stock issuance	0				390								390				390
Treasury stock acquired in connection with share repurchases									(180)				(180)				(180)
Share-based compensation			0		6				(1)				5				5
Dividends on preferred stock							(7)						(7)				(7)
Change in noncontrolling interests													0		0		0
Net income (loss)							(1,991)						(1,991)		0		(1,991)
Other comprehensive income (loss), net of income tax											2,318		2,318				2,318
Balance at June 30, 2020	$	0	$	1	$	13,307	$	3,523	$	(887)	$	4,965	$	20,909	$	65	$	20,974

See accompanying notes to the interim condensed consolidated financial statements.

4

Brighthouse Financial, Inc.

Interim Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

(In millions)

	Six Months Ended June 30,
	2021		2020
Net cash provided by (used in) operating activities	$	69	$	467
Cash flows from investing activities
Sales, maturities and repayments of:
Fixed maturity securities	5,238		3,729
Equity securities	101		27
Mortgage loans	1,384		827
Limited partnerships and limited liability companies	117		86
Purchases of:
Fixed maturity securities	(9,833)		(5,894)
Equity securities	(6)		0
Mortgage loans	(2,247)		(923)
Limited partnerships and limited liability companies	(379)		(298)
Cash received in connection with freestanding derivatives	2,140		4,958
Cash paid in connection with freestanding derivatives	(2,893)		(2,138)
Net change in policy loans	36		91
Net change in short-term investments	1,949		(2,565)
Net change in other invested assets	(19)		(25)
Net cash provided by (used in) investing activities	(4,412)		(2,125)
Cash flows from financing activities
Policyholder account balances:
Deposits	6,886		4,835
Withdrawals	(1,295)		(1,153)
Net change in payables for collateral under securities loaned and other transactions	(109)		3,485
Long-term debt issued	0		614
Long-term debt repaid	(1)		(1,001)
Preferred stock issued, net of issuance costs	0		390
Dividends on preferred stock	(46)		(14)
Treasury stock acquired in connection with share repurchases	(192)		(322)
Financing element on certain derivative instruments and other derivative related transactions, net	(118)		(698)
Other, net	(8)		(30)
Net cash provided by (used in) financing activities	5,117		6,106
Change in cash, cash equivalents and restricted cash	774		4,448
Cash, cash equivalents and restricted cash, beginning of period	4,108		2,877
Cash, cash equivalents and restricted cash, end of period	$	4,882	$	7,325
Supplemental disclosures of cash flow information
Net cash paid (received) for:
Interest	$	81	$	88
Income tax	$	(4)	$	3

See accompanying notes to the interim condensed consolidated financial statements.

5

Brighthouse Financial, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

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

Business

“Brighthouse Financial” and the “Company” refer to Brighthouse Financial, Inc. and its subsidiaries. Brighthouse Financial, Inc. (“BHF”) is a holding company formed in 2016 to own the legal entities that historically operated a substantial portion of MetLife, Inc.’s former retail segment until becoming a separate, publicly-traded company in August 2017. Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners. The Company is organized into 3 segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other.

Basis of Presentation

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

Consolidation

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

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

Reclassifications

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

The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2020 consolidated balance sheet data was derived from audited consolidated financial statements included in Brighthouse Financial, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”), which include all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2020 Annual Report.

Adoption of New Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASU”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. There were no ASUs adopted as of June 30, 2021.

6

Brighthouse Financial, Inc.

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

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

Future Adoption of New Accounting Pronouncements

In August 2018, the FASB issued new guidance on long-duration contracts (ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts). This new guidance is effective for fiscal years beginning after January 1, 2023. The amendments to Topic 944 will result in significant changes to the accounting for long-duration insurance contracts. These changes (i) require all guarantees that qualify as market risk benefits to be measured at fair value, (ii) require more frequent updating of assumptions and modify existing discount rate requirements for certain insurance liabilities, (iii) modify the methods of amortization for deferred policy acquisition costs (“DAC”), and (iv) require new qualitative and quantitative disclosures around insurance contract asset and liability balances and the judgments, assumptions and methods used to measure those balances. The market risk benefit guidance is required to be applied on a retrospective basis, while the changes to guidance for insurance liabilities and DAC may be applied to existing carrying amounts on the effective date or on a retrospective basis.

The Company continues to evaluate the new guidance and therefore is unable to estimate the impact on its financial statements. The most significant impact from the ASU is the requirement that all variable annuity guarantees will be considered market risk benefits and measured at fair value, whereas currently a significant amount of variable annuity guarantees are classified as insurance liabilities.

2. Segment Information

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

Annuities

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

Life

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

Run-off

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

Corporate & Other

Corporate & Other contains the excess capital not allocated to the segments and interest expense related to the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes long-term care and workers’ compensation business reinsured through 100% quota share reinsurance agreements, activities related to funding agreements associated with the Company’s institutional spread margin business, as well as direct-to-consumer life insurance that is no longer actively sold.

Financial Measures and Segment Accounting Policies

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

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

7

Brighthouse Financial, Inc.

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

2. Segment Information (continued)

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

•Net investment gains (losses);

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

•Certain variable annuity guaranteed minimum income benefits (“GMIB”) fees (“GMIB Fees”).

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

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

The segment accounting policies are the same as those used to prepare the Company’s interim condensed consolidated financial statements, except for the adjustments to calculate adjusted earnings described above. In addition, segment accounting policies include the methods of capital allocation described below.

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

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

	Three Months Ended June 30, 2021
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Pre-tax adjusted earnings	$	417	$	85	$	140	$	(82)	$	560
Provision for income tax expense (benefit)	79		17		18		(10)		104
Post-tax adjusted earnings	338		68		122		(72)		456
Less: Net income (loss) attributable to noncontrolling interests	0		0		0		0		0
Less: Preferred stock dividends	0		0		0		21		21
Adjusted earnings	$	338	$	68	$	122	$	(93)	435
Adjustments for:
Net investment gains (losses)									(34)
Net derivative gains (losses)									(684)
Other adjustments to net income (loss)									179
Provision for income tax (expense) benefit									114
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders									$	10
Interest revenue	$	533	$	168	$	499	$	17
Interest expense	$	0	$	0	$	0	$	40

8

Brighthouse Financial, Inc.

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

2. Segment Information (continued)

	Three Months Ended June 30, 2020
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Pre-tax adjusted earnings	$	205	$	60	$	(146)	$	(98)	$	21
Provision for income tax expense (benefit)	34		12		(31)		(12)		3
Post-tax adjusted earnings	171		48		(115)		(86)		18
Less: Net income (loss) attributable to noncontrolling interests	0		0		0		0		0
Less: Preferred stock dividends	0		0		0		7		7
Adjusted earnings	$	171	$	48	$	(115)	$	(93)	11
Adjustments for:
Net investment gains (losses)									(34)
Net derivative gains (losses)									(2,653)
Other adjustments to net income (loss)									144
Provision for income tax (expense) benefit									534
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders									$	(1,998)
Interest revenue	$	405	$	69	$	166	$	16
Interest expense	$	0	$	0	$	0	$	45

	Six Months Ended June 30, 2021
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Pre-tax adjusted earnings	$	831	$	137	$	225	$	(143)	$	1,050
Provision for income tax expense (benefit)	157		27		27		(29)		182
Post-tax adjusted earnings	674		110		198		(114)		868
Less: Net income (loss) attributable to noncontrolling interests	0		0		0		2		2
Less: Preferred stock dividends	0		0		0		46		46
Adjusted earnings	$	674	$	110	$	198	$	(162)	820
Adjustments for:
Net investment gains (losses)									(20)
Net derivative gains (losses)									(2,188)
Other adjustments to net income (loss)									411
Provision for income tax (expense) benefit									377
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders									$	(600)
Interest revenue	$	1,083	$	334	$	961	$	31
Interest expense	$	0	$	0	$	0	$	81

9

Brighthouse Financial, Inc.

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

2. Segment Information (continued)

	Six Months Ended June 30, 2020
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Pre-tax adjusted earnings	$	594	$	73	$	(236)	$	(157)	$	274
Provision for income tax expense (benefit)	107		14		(51)		(34)		36
Post-tax adjusted earnings	487		59		(185)		(123)		238
Less: Net income (loss) attributable to noncontrolling interests	0		0		0		2		2
Less: Preferred stock dividends	0		0		0		14		14
Adjusted earnings	$	487	$	59	$	(185)	$	(139)	222
Adjustments for:
Net investment gains (losses)									(53)
Net derivative gains (losses)									4,249
Other adjustments to net income (loss)									(740)
Provision for income tax (expense) benefit									(726)
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders									$	2,952
Interest revenue	$	865	$	185	$	490	$	36
Interest expense	$	0	$	0	$	0	$	92

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Annuities	$	1,257	$	1,052	$	2,555	$	2,203
Life	383		285		793		639
Run-off	662		332		1,290		825
Corporate & Other	36		37		71		79
Adjustments	(662)		(2,628)		(2,095)		4,317
Total	$	1,676	$	(922)	$	2,614	$	8,063

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

	June 30, 2021		December 31, 2020
	(In millions)
Annuities	$	177,135	$	172,233
Life	24,126		23,809
Run-off	37,039		38,366
Corporate & Other	15,556		13,461
Total	$	253,856	$	247,869

10

Brighthouse Financial, Inc.

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

3. Insurance

Guarantees

As discussed in Notes 1 and 3 of the Notes to the Consolidated Financial Statements included in the 2020 Annual Report, the Company issues variable annuity contracts with guaranteed minimum benefits. Guaranteed minimum death benefits, the life contingent portion of guaranteed minimum withdrawal benefits (“GMWB”) and certain portions of GMIBs are accounted for as insurance liabilities in future policyholder benefits, while other guarantees are accounted for in whole or in part as embedded derivatives in policyholder account balances and are further discussed in Note 5.

The Company also has secondary guarantees on universal and variable life insurance contracts accounted for as insurance liabilities.

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

	June 30, 2021						December 31, 2020
	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)	$	111,655		$	61,567		$	108,424		$	60,674
Separate account value	$	106,608		$	60,358		$	103,315		$	59,419
Net amount at risk	$	6,031	(4)	$	4,949	(5)	$	6,438	(4)	$	6,692	(5)
Average attained age of contract holders	71 years			70 years			70 years			70 years

	June 30, 2021		December 31, 2020
	Secondary Guarantees
	(Dollars in millions)
Universal Life Contracts
Total account value (3)	$	5,634	$	5,772
Net amount at risk (6)	$	68,043	$	69,083
Average attained age of policyholders	67 years		67 years
Variable Life Contracts
Total account value (3)	$	4,708	$	3,926
Net amount at risk (6)	$	19,440	$	19,909
Average attained age of policyholders	51 years		51 years

_______________

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

(2)Includes direct business, but excludes offsets from hedging or reinsurance, if any. Therefore, the net amount at risk presented reflects the economic exposures of living and death benefit guarantees associated with variable annuities, but not necessarily their impact on the Company. See Note 5 of the Notes to the Consolidated Financial Statements included in the 2020 Annual Report for a discussion of guaranteed minimum benefits which have been reinsured.

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

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

11

Brighthouse Financial, Inc.

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

3. Insurance (continued)

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

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

4. Investments

See Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2020 Annual Report for a description of the Company’s accounting policies for investments and the fair value hierarchy for investments and the related valuation methodologies.

Fixed Maturity Securities Available-for-sale

Fixed Maturity Securities by Sector

Fixed maturity securities by sector were as follows at:

	June 30, 2021										December 31, 2020
	Amortized Cost		Allowance for Credit Losses		Gross Unrealized				Estimated Fair Value		Amortized Cost		Allowance for Credit Losses		Gross Unrealized				Estimated Fair Value
					Gains		Losses								Gains		Losses
	(In millions)
U.S. corporate	$	33,775	$	1	$	4,311	$	168	$	37,917	$	32,608	$	2	$	5,370	$	70	$	37,906
Foreign corporate	10,755		6		1,151		71		11,829		10,060		0		1,501		50		11,511
U.S. government and agency	7,323		0		2,013		78		9,258		6,007		0		2,637		6		8,638
RMBS	8,195		0		541		13		8,723		7,653		0		644		3		8,294
CMBS	6,545		0		466		13		6,998		6,207		0		592		9		6,790
State and political subdivision	3,956		0		884		5		4,835		3,673		0		967		0		4,640
ABS	3,304		0		56		4		3,356		2,834		0		60		10		2,884
Foreign government	1,601		2		276		6		1,869		1,487		0		346		1		1,832
Total fixed maturity securities	$	75,454	$	9	$	9,698	$	358	$	84,785	$	70,529	$	2	$	12,117	$	149	$	82,495

The Company held non-income producing fixed maturity securities with an estimated fair value of $5 million at both June 30, 2021 and December 31, 2020.

Maturities of Fixed Maturity Securities

The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at June 30, 2021:

	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	$	1,203	$	9,016	$	16,101	$	31,090	$	18,044	$	75,454
Estimated fair value	$	1,222	$	9,531	$	17,440	$	37,515	$	19,077	$	84,785

_______________

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

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

12

Brighthouse Financial, Inc.

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

4. Investments (continued)

Continuous Gross Unrealized Losses for Fixed Maturity Securities by Sector

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

	June 30, 2021								December 31, 2020
	Less than 12 Months				12 Months or Greater				Less than 12 Months				12 Months or Greater
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
	(Dollars in millions)
U.S. corporate	$	3,917	$	156	$	300	$	12	$	1,737	$	57	$	185	$	13
Foreign corporate	1,048		33		273		38		254		8		387		42
U.S. government and agency	1,710		78		0		0		236		6		0		0
RMBS	1,277		12		41		1		180		2		22		1
CMBS	606		11		59		2		332		7		44		2
State and political subdivision	268		5		0		0		48		0		0		0
ABS	759		3		185		1		506		3		629		7
Foreign government	147		6		0		0		54		1		0		0
Total fixed maturity securities	$	9,732	$	304	$	858	$	54	$	3,347	$	84	$	1,267	$	65
Total number of securities in an unrealized loss position	1,327				260				667				244

Allowance for Credit Losses for Fixed Maturity Securities

Evaluation and Measurement Methodologies

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

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

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

13

Brighthouse Financial, Inc.

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

4. Investments (continued)

Accrued interest receivables are presented separate from the amortized cost basis of fixed maturity securities. An allowance for credit losses is not estimated on an accrued interest receivable, rather receivable balances 90-days past due are deemed uncollectible and are written off with a corresponding reduction to net investment income. The accrued interest receivable on fixed maturity securities totaled $527 million and $514 million at June 30, 2021 and December 31, 2020, respectively, and is included in accrued investment income.

Fixed maturity securities are also evaluated to determine if they qualify as purchased financial assets with credit deterioration (“PCD”). To determine if the credit deterioration experienced since origination is more than insignificant, both (i) the extent of the credit deterioration and (ii) any rating agency downgrades are evaluated. For securities categorized as PCD assets, the present value of cash flows expected to be collected from the security are compared to the par value of the security. If the present value of cash flows expected to be collected is less than the par value, credit losses are embedded in the purchase price of the PCD asset. In this situation, both an allowance for credit losses and amortized cost gross-up is recorded, limited by the amount that the estimated fair value is less than the grossed-up amortized cost basis. Any difference between the purchase price and the present value of cash flows is amortized or accreted into net investment income over the life of the PCD asset. Any subsequent PCD asset allowance for credit losses is evaluated in a manner similar to the process described above for fixed maturity securities.

Current Period Evaluation

Based on the Company’s current evaluation of its fixed maturity securities in an unrealized loss position and the current intent or requirement to sell, the Company recorded an allowance for credit losses of $9 million, relating to 5 securities at June 30, 2021. Management concluded that for all other fixed maturity securities in an unrealized loss position, the unrealized loss was not due to issuer-specific credit-related factors and as a result was recognized in OCI. Where unrealized losses have not been recognized into income, it is primarily because the securities’ bond issuer(s) are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in estimated fair value is largely due to changes in interest rates and non-issuer specific credit spreads. These issuers continued to make timely principal and interest payments and the estimated fair value is expected to recover as the securities approach maturity.

Rollforward of the Allowance for Credit Losses for Fixed Maturity Securities by Sector

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

	U.S. Corporate		Foreign Corporate		Foreign Government		Total
	(In millions)
Six Months Ended June 30, 2021
Balance, beginning of period	$	2	$	0	$	0	$	2
Allowance on securities where credit losses were not previously recorded	0		6		2		8
Change in allowance on securities with an allowance recorded in a previous period	(1)		0		0		(1)
Write-offs charged against allowance (1)	0		0		0		0
Balance, end of period	$	1	$	6	$	2	$	9
Six Months Ended June 30, 2020
Balance, beginning of period	$	3	$	1	$	0	$	4
Allowance on securities where credit losses were not previously recorded	3		2		0		5
Change in allowance on securities with an allowance recorded in a previous period	(1)		0		0		(1)
Write-offs charged against allowance (1)	(3)		(1)		0		(4)
Balance, end of period	$	2	$	2	$	0	$	4

_______________

(1)The Company did 0t record any write-offs during the six months ended June 30, 2021. The Company recorded total write-offs of $13 million during the six months ended June 30, 2020.

14

Brighthouse Financial, Inc.

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

4. Investments (continued)

Mortgage Loans

Mortgage Loans by Portfolio Segment

Mortgage loans are summarized as follows at:

	June 30, 2021				December 31, 2020
	Carrying Value		% of Total		Carrying Value		% of Total
	(Dollars in millions)
Commercial	$	10,252	61.3	%	$	9,714	61.4	%
Agricultural	3,791		22.7		3,538		22.4
Residential	2,786		16.6		2,650		16.8
Total mortgage loans (1)	16,829		100.6		15,902		100.6
Allowance for credit losses	(97)		(0.6)		(94)		(0.6)
Total mortgage loans, net	$	16,732	100.0	%	$	15,808	100.0	%

_______________

(1)Purchases of mortgage loans from third parties were $621 million and $799 million for the three months and six months ended June 30, 2021, respectively, and $331 million and $488 million for the three months and six months ended June 30, 2020, respectively, and were primarily comprised of residential mortgage loans.

Allowance for Credit Losses for Mortgage Loans

Evaluation and Measurement Methodologies

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

Accrued interest receivables are presented separate from the amortized cost basis of mortgage loans. An allowance for credit losses is generally not estimated on an accrued interest receivable, rather when a loan is placed in nonaccrual status the associated accrued interest receivable balance is written off with a corresponding reduction to net investment income. For mortgage loans that are granted payment deferrals due to the impact of the ongoing worldwide pandemic sparked by the novel coronavirus (“COVID-19 pandemic”), interest continues to be accrued during the deferral period if the loan was less than 30 days past due at December 31, 2019 and performing at the onset of the pandemic. Accrued interest on COVID-19 pandemic impacted loans was not significant at both June 30, 2021 and December 31, 2020. The accrued interest receivable on mortgage loans is included in accrued investment income and totaled $88 million and $89 million at June 30, 2021 and December 31, 2020, respectively.

The allowance for credit losses is estimated using relevant available information, from internal and external sources, relating to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience provides the basis for estimating expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics and environmental conditions. A reasonable and supportable forecast period of two-years is used with an input reversion period of one-year.

Mortgage loans are evaluated in each of the three portfolio segments to determine the allowance for credit losses. The loan-level loss rates are determined using individual loan terms and characteristics, risk pools/internal ratings, national economic forecasts, prepayment speeds, and estimated default and loss severity. The resulting loss rates are applied to the mortgage loan’s amortized cost to generate an allowance for credit losses. In certain situations, the allowance for credit losses is measured as the difference between the loan’s amortized cost and liquidation value of the collateral. These situations include collateral dependent loans, expected troubled debt restructurings (“TDR”), foreclosure probable loans, and loans with dissimilar risk characteristics.

15

Brighthouse Financial, Inc.

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

4. Investments (continued)

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

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

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

	Commercial		Agricultural		Residential		Total
	(In millions)
Six Months Ended June 30, 2021
Balance, beginning of period	$	44	$	15	$	35	$	94
Current period provision	3		(2)		2		3
Balance, end of period	$	47	$	13	$	37	$	97
Six Months Ended June 30, 2020
Balance, beginning of period	$	27	$	17	$	22	$	66
Current period provision	10		(1)		17		26
Balance, end of period	$	37	$	16	$	39	$	92

PCD Mortgage Loans

Purchases of PCD mortgage loans are summarized as follows:

	Six Months Ended June 30,
	2021		2020
	(In millions)
Purchase price	$	229	$	77
Allowance at acquisition date	1		2
Discount or premium attributable to other factors	(16)		2
Par value	$	214	$	81

16

Brighthouse Financial, Inc.

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

4. Investments (continued)

Credit Quality of Mortgage Loans by Portfolio Segment

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

	2021		2020		2019		2018		2017		Prior		Total
	(In millions)
June 30, 2021
Commercial mortgage loans
Loan-to-value ratios:
Less than 65%	$	692	$	333	$	1,423	$	972	$	514	$	3,565	$	7,499
65% to 75%	219		199		552		512		294		576		2,352
76% to 80%	0		0		0		0		44		88		132
Greater than 80%	0		0		0		30		0		239		269
Total commercial mortgage loans	911		532		1,975		1,514		852		4,468		10,252
Agricultural mortgage loans
Loan-to-value ratios:
Less than 65%	433		543		538		717		354		934		3,519
65% to 75%	61		79		78		11		25		18		272
Total agricultural mortgage loans	494		622		616		728		379		952		3,791
Residential mortgage loans
Performing	66		208		351		332		177		1,594		2,728
Nonperforming	0		2		2		2		1		51		58
Total residential mortgage loans	66		210		353		334		178		1,645		2,786
Total	$	1,471	$	1,364	$	2,944	$	2,576	$	1,409	$	7,065	$	16,829

	2020		2019		2018		2017		2016		Prior		Total
	(In millions)
December 31, 2020
Commercial mortgage loans
Loan-to-value ratios:
Less than 65%	$	317	$	1,527	$	1,004	$	515	$	1,109	$	2,808	$	7,280
65% to 75%	200		450		482		322		59		521		2,034
76% to 80%	0		0		0		44		79		8		131
Greater than 80%	0		0		29		0		6		234		269
Total commercial mortgage loans	517		1,977		1,515		881		1,253		3,571		9,714
Agricultural mortgage loans
Loan-to-value ratios:
Less than 65%	569		526		749		391		417		663		3,315
65% to 75%	81		81		10		33		0		18		223
Total agricultural mortgage loans	650		607		759		424		417		681		3,538
Residential mortgage loans
Performing	214		381		413		131		70		1,375		2,584
Nonperforming	2		6		4		0		1		53		66
Total residential mortgage loans	216		387		417		131		71		1,428		2,650
Total	$	1,383	$	2,971	$	2,691	$	1,436	$	1,741	$	5,680	$	15,902

17

Brighthouse Financial, Inc.

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

4. Investments (continued)

The loan-to-value ratio is a measure commonly used to assess the quality of commercial and agricultural mortgage loans. The loan-to-value ratio compares the amount of the loan to the estimated fair value of the underlying property collateralizing the loan and is commonly expressed as a percentage. A loan-to-value ratio less than 100% indicates an excess of collateral value over the loan amount. Loan-to-value ratios greater than 100% indicate that the loan amount exceeds the collateral value. Performing status is a measure commonly used to assess the quality of residential mortgage loans. A loan is considered performing when the borrower makes consistent and timely payments.

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

	June 30, 2021				December 31, 2020
	Amortized Cost		% of Total		Amortized Cost		% of Total
	(Dollars in millions)
Debt-service coverage ratios:
Greater than 1.20x	$	9,545	93.1	%	$	9,450	97.3	%
1.00x - 1.20x	359		3.5		204		2.1
Less than 1.00x	348		3.4		60		0.6
Total	$	10,252	100.0	%	$	9,714	100.0	%

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

Past Due Mortgage Loans by Portfolio Segment

The Company has a high-quality, well-performing mortgage loan portfolio, with over 99% of all mortgage loans classified as performing at both June 30, 2021 and December 31, 2020. Delinquency is defined consistent with industry practice, when mortgage loans are past due as follows: commercial and residential mortgage loans — 60 days; and agricultural mortgage loans — 90 days. To the extent a payment deferral is agreed to with a borrower, in response to the COVID-19 pandemic, the past due status of the impacted loans during the forbearance period is locked-in as of March 1, 2020, which reflects the date on which the COVID-19 pandemic began to affect the borrower’s ability to make payments. At June 30, 2021 and December 31, 2020, $33 million and $38 million, respectively, of the COVID-19 pandemic modified loans were classified as delinquent.

The aging of the amortized cost of past due mortgage loans by portfolio segment was as follows at:

	June 30, 2021								December 31, 2020
	Commercial		Agricultural		Residential		Total		Commercial		Agricultural		Residential		Total
	(In millions)
Current	$	10,252	$	3,774	$	2,683	$	16,709	$	9,714	$	3,538	$	2,575	$	15,827
30-59 days past due	0		0		45		45		0		0		9		9
60-89 days past due	0		0		14		14		0		0		24		24
90-179 days past due	0		15		28		43		0		0		27		27
180+ days past due	0		2		16		18		0		0		15		15
Total	$	10,252	$	3,791	$	2,786	$	16,829	$	9,714	$	3,538	$	2,650	$	15,902

18

Brighthouse Financial, Inc.

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

4. Investments (continued)

Mortgage Loans in Nonaccrual Status by Portfolio Segment

Mortgage loans are placed in a nonaccrual status if there are concerns regarding collectability of future payments or the loan is past due, unless the past due loan is well collateralized. To the extent a payment deferral is agreed to with a borrower, in response to the COVID-19 pandemic, the impacted loans generally will not be reported as in a nonaccrual status during the period of deferral. A COVID-19 pandemic modified loan is only reported as a nonaccrual asset in the event a borrower declares bankruptcy, the borrower experiences significant credit deterioration such that the Company does not expect to collect all principal and interest due, or the loan was 90 days past due at the onset of the pandemic. At June 30, 2021 and December 31, 2020, $33 million and $38 million, respectively, of the COVID-19 pandemic modified loans were in nonaccrual status.

The amortized cost of mortgage loans in a nonaccrual status by portfolio segment were as follows at:

	Commercial		Agricultural		Residential (1)		Total
	(In millions)
June 30, 2021	$	0	$	14	$	58	$	72
December 31, 2020	$	0	$	0	$	66	$	66

_______________

(1)The Company had $9 million and $7 million of residential mortgage loans in nonaccrual status for which there was no related allowance for credit losses at June 30, 2021 and December 31, 2020, respectively.

Current period investment income on mortgage loans in nonaccrual status was less than $1 million for both the six months ended June 30, 2021 and 2020.

Modified Mortgage Loans by Portfolio Segment

Under certain circumstances, modifications are granted to nonperforming mortgage loans. Each modification is evaluated to determine if a TDR has occurred. A modification is a TDR when the borrower is in financial difficulty and the creditor makes concessions. Generally, the types of concessions may include reducing the amount of debt owed, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest. The Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring during both the six months ended June 30, 2021 and 2020.

Short-term modifications made on a good faith basis to borrowers who were not more than 30 days past due at December 31, 2019 and in response to the COVID-19 pandemic are not considered TDRs.

Other Invested Assets

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

Leveraged Leases

The carrying value of leveraged leases was $49 million and $50 million at June 30, 2021 and December 31, 2020, respectively. The allowance for credit losses was $13 million at both June 30, 2021 and December 31, 2020. Rental receivables are generally due in periodic installments. The payment periods for leveraged leases generally range from one to 12 years. For rental receivables, the primary credit quality indicator is whether the rental receivable is performing or nonperforming, which is assessed monthly. Nonperforming rental receivables are generally defined as those that are 90 days or more past due. At both June 30, 2021 and December 31, 2020, all leveraged leases were performing.

Net Unrealized Investment Gains (Losses)

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

19

Brighthouse Financial, Inc.

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

4. Investments (continued)

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

	June 30, 2021		December 31, 2020
	(In millions)
Fixed maturity securities	$	9,340	$	11,968
Derivatives	208		173
Other	(17)		(16)
Subtotal	9,531		12,125
Amounts allocated from:
Future policy benefits	(3,204)		(4,313)
DAC, VOBA and DSI	(444)		(520)
Subtotal	(3,648)		(4,833)
Deferred income tax benefit (expense)	(1,235)		(1,531)
Net unrealized investment gains (losses)	$	4,648	$	5,761

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

	Six Months Ended June 30, 2021
	(In millions)
Balance at December 31, 2020	$	5,761
Unrealized investment gains (losses) during the period	(2,594)
Unrealized investment gains (losses) relating to:
Future policy benefits	1,109
DAC, VOBA and DSI	76
Deferred income tax benefit (expense)	296
Balance at June 30, 2021	$	4,648
Change in net unrealized investment gains (losses)	$	(1,113)

Concentrations of Credit Risk

There were no investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, at both June 30, 2021 and December 31, 2020.

Securities Lending

Elements of the securities lending program are presented below at:

	June 30, 2021		December 31, 2020
	(In millions)
Securities on loan: (1)
Amortized cost	$	3,071	$	2,373
Estimated fair value	$	3,969	$	3,603
Cash collateral received from counterparties (2)	$	4,025	$	3,674
Securities collateral received from counterparties (3)	$	7	$	0
Reinvestment portfolio — estimated fair value	$	4,193	$	3,830

_______________

(1)Included within fixed maturity securities.

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

20

Brighthouse Financial, Inc.

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

4. Investments (continued)

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

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

	June 30, 2021						December 31, 2020
	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	$	1,255	$	2,336	$	433	$	4,024	$	937	$	2,300	$	437	$	3,674
U.S. corporate	1		0		0		1		0		0		0		0
Total	$	1,256	$	2,336	$	433	$	4,025	$	937	$	2,300	$	437	$	3,674

_______________

(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.

If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than what otherwise would have been realized in normal market conditions, or both. The estimated fair value of the securities on loan related to the cash collateral on open at June 30, 2021 was $1.2 billion, primarily comprised of U.S. government and agency securities which, if put back to the Company, could be immediately sold to satisfy the cash requirement.

The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including agency RMBS, ABS, U.S. government and agency securities, non-agency RMBS and U.S. and foreign corporate securities) with 61% invested in agency RMBS, cash and cash equivalents and U.S. government and agency securities at June 30, 2021. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.

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

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

	June 30, 2021		December 31, 2020
	(In millions)
Invested assets on deposit (regulatory deposits) (1)	$	9,899	$	10,135
Invested assets held in trust (reinsurance agreements) (2)	5,725		5,717
Invested assets pledged as collateral (3)	5,448		5,595
Total invested assets on deposit, held in trust and pledged as collateral	$	21,072	$	21,447

_______________

(1)The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which $112 million and $60 million of the assets on deposit represents restricted cash and cash equivalents at June 30, 2021 and December 31, 2020, respectively.

(2)The Company has assets, primarily fixed maturity securities, held in trust relating to certain reinsurance transactions, of which $120 million and $101 million of the assets held in trust balance represents restricted cash and cash equivalents at June 30, 2021 and December 31, 2020, 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 Financial Statements included in the 2020 Annual Report) and derivative transactions (see Note 5).

See “— Securities Lending” for information regarding securities on loan. In addition, the Company’s investment in FHLB common stock, which is considered restricted until redeemed by the issuer, was $63 million and $39 million at redemption value at June 30, 2021 and December 31, 2020, respectively.

21

Brighthouse Financial, Inc.

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

4. Investments (continued)

Variable Interest Entities

A variable interest entity (“VIE”) is a legal entity that does not have sufficient equity at risk to finance its activities or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains and losses of the entity.

The Company enters into various arrangements with VIEs in the normal course of business and has invested in legal entities that are VIEs. VIEs are consolidated when it is determined that the Company is the primary beneficiary. A primary beneficiary is the variable interest holder in a VIE with both (i) the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In addition, the evaluation of whether a legal entity is a VIE and if the Company is a primary beneficiary includes a review of the capital structure of the VIE, the related contractual relationships and terms, the nature of the operations and purpose of the VIE, the nature of the VIE interests issued and the Company’s involvement with the entity.

There were no material VIEs for which the Company has concluded that it is the primary beneficiary at either June 30, 2021 or December 31, 2020.

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

	June 30, 2021				December 31, 2020
	Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
	(In millions)
Fixed maturity securities	$	14,562	$	13,641	$	13,665	$	12,581
Limited partnerships and LLCs	2,997		4,336		2,319		3,578
Total	$	17,559	$	17,977	$	15,984	$	16,159

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

Fixed Maturity Securities

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

Limited Partnerships and LLCs

The Company holds investments in certain limited partnerships and LLCs which are VIEs. These ventures include limited partnerships, LLCs, private equity funds, hedge funds, and to a lesser extent tax credit and renewable energy partnerships. The Company is not considered the primary beneficiary, or consolidator, when its involvement takes the form of a limited partner interest and is restricted to a role of a passive investor, as a limited partner’s interest does not provide the Company with any substantive kick-out or participating rights, nor does it provide the Company with the power to direct the activities of the fund. The Company’s maximum exposure to loss on these investments is limited to: (i) the amount invested in debt or equity of the VIE and (ii) commitments to the VIE, as described in Note 10.

22

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Investment income:
Fixed maturity securities	$	703	$	676	$	1,393	$	1,345
Equity securities	1		1		2		3
Mortgage loans	167		166		331		332
Policy loans	16		13		33		25
Limited partnerships and LLCs (1)	350		(189)		688		(107)
Cash, cash equivalents and short-term investments	1		14		3		37
Other	9		11		19		25
Total investment income	1,247		692		2,469		1,660
Less: Investment expenses	35		40		70		92
Net investment income	$	1,212	$	652	$	2,399	$	1,568

_______________

(1)Includes net investment income pertaining to other limited partnership interests of $339 million and $670 million for the three months and six months ended June 30, 2021, respectively, and ($192) million and ($119) million for the three months and six months ended June 30, 2020, respectively.

Net Investment Gains (Losses)

Components of Net Investment Gains (Losses)

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Fixed maturity securities	$	(33)	$	(21)	$	(23)	$	(27)
Equity securities	3		7		3		(7)
Mortgage loans	(5)		(22)		(1)		(26)
Limited partnerships and LLCs	1		(2)		1		(3)
Other	0		4		0		10
Total net investment gains (losses)	$	(34)	$	(34)	$	(20)	$	(53)

23

Brighthouse Financial, Inc.

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

4. Investments (continued)

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 follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Proceeds	$	977	$	622	$	2,239	$	1,271
Gross investment gains	$	8	$	15	$	41	$	32
Gross investment losses	(40)		(37)		(57)		(43)
Net investment gains (losses)	$	(32)	$	(22)	$	(16)	$	(11)

5. Derivatives

Accounting for Derivatives

See Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2020 Annual Report for a description of the Company’s accounting policies for derivatives and the fair value hierarchy for derivatives.

Derivative Strategies

Types of Derivative Instruments and Derivative Strategies

The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize its exposure to various market risks. 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 and swaptions.

For detailed information on these contracts and the related strategies, see Note 7 of the Notes to the Consolidated Financial Statements included in the 2020 Annual Report.

24

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 value of derivatives held were as follows at:

		June 30, 2021						December 31, 2020
	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	$	240	$	28	$	0	$	290	$	66	$	0
Foreign currency swaps	Foreign currency exchange rate	2,905		153		59		2,812		134		112
Total qualifying hedges		3,145		181		59		3,102		200		112
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate swaps	Interest rate	2,845		366		19		2,295		463		0
Interest rate caps	Interest rate	3,100		8		0		2,350		2		0
Interest rate options	Interest rate	28,590		302		178		25,980		712		122
Interest rate forwards	Interest rate	10,498		244		244		8,086		851		78
Foreign currency swaps	Foreign currency exchange rate	973		81		25		1,000		86		32
Foreign currency forwards	Foreign currency exchange rate	460		2		0		201		0		0
Credit default swaps — purchased	Credit	18		0		1		18		0		0
Credit default swaps — written	Credit	1,774		41		1		1,755		41		0
Credit default options	Credit	300		0		0		100		0		0
Equity index options	Equity market	29,176		1,188		944		31,576		1,071		838
Equity variance swaps	Equity market	359		9		7		1,098		13		20
Equity total return swaps	Equity market	25,760		259		403		15,056		143		822
Total non-designated or non-qualifying derivatives		103,853		2,500		1,822		89,515		3,382		1,912
Embedded derivatives:
Ceded guaranteed minimum income benefits	Other	N/A		219		0		N/A		283		0
Direct index-linked annuities	Other	N/A		0		5,466		N/A		0		3,855
Direct guaranteed minimum benefits	Other	N/A		0		2,041		N/A		0		2,920
Assumed index-linked annuities	Other	N/A		0		427		N/A		0		382
Total embedded derivatives		N/A		219		7,934		N/A		283		7,157
Total		$	106,998	$	2,900	$	9,815	$	92,617	$	3,865	$	9,181

Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both June 30, 2021 and December 31, 2020. 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.

25

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 June 30, 2021
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives	$	0	$	0	$	1	$	19
Foreign currency exchange rate derivatives	3		0		8		95
Total cash flow hedges	3		0		9		114
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	722		0		0		0
Foreign currency exchange rate derivatives	18		(2)		0		0
Credit derivatives	8		0		0		0
Equity derivatives	(306)		0		0		0
Embedded derivatives	(1,127)		0		0		0
Total non-qualifying hedges	(685)		(2)		0		0
Total	$	(682)	$	(2)	$	9	$	114
Three Months Ended June 30, 2020
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives	$	0	$	0	$	0	$	(4)
Foreign currency exchange rate derivatives	3		(3)		10		(136)
Total cash flow hedges	3		(3)		10		(140)
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	(165)		0		0		0
Foreign currency exchange rate derivatives	(27)		(2)		0		0
Credit derivatives	29		0		0		0
Equity derivatives	(1,605)		0		0		0
Embedded derivatives	(883)		0		0		0
Total non-qualifying hedges	(2,651)		(2)		0		0
Total	$	(2,648)	$	(5)	$	10	$	(140)

26

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)
Six Months Ended June 30, 2021
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives	$	1	$	—	$	2	$	(33)
Foreign currency exchange rate derivatives	8		(3)		16		79
Total cash flow hedges	9		(3)		18		46
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	(1,190)		0		0		0
Foreign currency exchange rate derivatives	11		1		0		0
Credit derivatives	11		0		0		0
Equity derivatives	(448)		0		0		0
Embedded derivatives	(579)		0		0		0
Total non-qualifying hedges	(2,195)		1		0		0
Total	$	(2,186)	$	(2)	$	18	$	46
Six Months Ended June 30, 2020
Derivatives Designated as Hedging Instruments:
Cash flow hedges:
Interest rate derivatives	$	1	$	0	$	1	$	93
Foreign currency exchange rate derivatives	3		(3)		21		327
Total cash flow hedges	4		(3)		22		420
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives	4,756		0		0		0
Foreign currency exchange rate derivatives	107		(9)		0		0
Credit derivatives	(3)		0		0		0
Equity derivatives	359		0		0		0
Embedded derivatives	(962)		0		0		0
Total non-qualifying hedges	4,257		(9)		0		0
Total	$	4,261	$	(12)	$	22	$	420

At June 30, 2021 and December 31, 2020, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions was two years and three years, respectively.

At June 30, 2021 and December 31, 2020, the balance in AOCI associated with cash flow hedges was $208 million and $173 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.

27

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:

	June 30, 2021					December 31, 2020
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	$	14	$	683	2.4	$	15	$	683	2.9
Baa	27		1,081		5.2	26		1,072		5.2
Ba	0		6		4.5	0		0		—
Caa and Lower	(1)		4		4.5	0		0		—
Total	$	40	$	1,774	4.1	$	41	$	1,755	4.3

_______________

(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)
June 30, 2021
Derivative assets	$	2,685	$	(1,326)	$	(1,004)	$	355	$	(305)	$	50
Derivative liabilities	$	1,872	$	(1,326)	$	0	$	546	$	(475)	$	71
December 31, 2020
Derivative assets	$	3,588	$	(1,342)	$	(1,340)	$	906	$	(840)	$	66
Derivative liabilities	$	2,010	$	(1,342)	$	0	$	668	$	(630)	$	38

_______________

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

28

Brighthouse Financial, Inc.

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

5. Derivatives (continued)

(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.

(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:

	June 30, 2021		December 31, 2020
	(In millions)
Estimated fair value of derivatives in a net liability position (1)	$	546	$	668
Estimated Fair Value of Collateral Provided: (2)
Fixed maturity securities	$	887	$	1,205

_______________

(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.

29

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.

	June 30, 2021
	Fair Value Hierarchy						Total Estimated Fair Value
	Level 1		Level 2		Level 3
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	0	$	37,389	$	528	$	37,917
Foreign corporate	0		11,468		361		11,829
U.S. government and agency	3,360		5,898		0		9,258
RMBS	0		8,689		34		8,723
CMBS	0		6,996		2		6,998
State and political subdivision	0		4,835		0		4,835
ABS	0		3,175		181		3,356
Foreign government	0		1,857		12		1,869
Total fixed maturity securities	3,360		80,307		1,118		84,785
Equity securities	26		62		3		91
Short-term investments	923		370		0		1,293
Derivative assets: (1)
Interest rate	0		948		0		948
Foreign currency exchange rate	0		230		6		236
Credit	0		27		14		41
Equity market	0		1,447		9		1,456
Total derivative assets	0		2,652		29		2,681
Embedded derivatives within asset host contracts (2)	0		0		219		219
Separate account assets	42		115,797		0		115,839
Total assets	$	4,351	$	199,188	$	1,369	$	204,908
Liabilities
Derivative liabilities: (1)
Interest rate	$	0	$	441	$	0	$	441
Foreign currency exchange rate	0		84		0		84
Credit	0		0		2		2
Equity market	0		1,347		7		1,354
Total derivative liabilities	0		1,872		9		1,881
Embedded derivatives within liability host contracts (2)	0		0		7,934		7,934
Total liabilities	$	0	$	1,872	$	7,943	$	9,815

30

Brighthouse Financial, Inc.

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

6. Fair Value (continued)

	December 31, 2020
	Fair Value Hierarchy						Total Estimated Fair Value
	Level 1		Level 2		Level 3
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	0	$	37,415	$	491	$	37,906
Foreign corporate	0		11,314		197		11,511
U.S. government and agency	2,217		6,421		0		8,638
RMBS	0		8,272		22		8,294
CMBS	0		6,785		5		6,790
State and political subdivision	0		4,640		0		4,640
ABS	0		2,844		40		2,884
Foreign government	0		1,832		0		1,832
Total fixed maturity securities	2,217		79,523		755		82,495
Equity securities	36		99		3		138
Short-term investments	2,782		460		0		3,242
Derivative assets: (1)
Interest rate	0		2,094		0		2,094
Foreign currency exchange rate	0		219		1		220
Credit	0		27		14		41
Equity market	0		1,213		14		1,227
Total derivative assets	0		3,553		29		3,582
Embedded derivatives within asset host contracts (2)	0		0		283		283
Separate account assets	86		111,880		3		111,969
Total assets	$	5,121	$	195,515	$	1,073	$	201,709
Liabilities
Derivative liabilities: (1)
Interest rate	$	0	$	200	$	0	$	200
Foreign currency exchange rate	0		137		7		144
Equity market	0		1,660		20		1,680
Total derivative liabilities	0		1,997		27		2,024
Embedded derivatives within liability host contracts (2)	0		0		7,157		7,157
Total liabilities	$	0	$	1,997	$	7,184	$	9,181

_______________

(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.

31

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 six months ended June 30, 2021.

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.

32

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, fair values are determined using a market approach and are valued based on a variety of observable inputs as described below.

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

Derivatives

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

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

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

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

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

Embedded Derivatives

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

33

Brighthouse Financial, Inc.

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

6. Fair Value (continued)

The Company issues certain variable annuity products with guaranteed minimum benefits. Guaranteed minimum accumulation benefits (“GMAB”), the non-life contingent portion of GMWBs and certain portions of GMIBs are accounted for as embedded derivatives and measured at estimated fair value separately from the host variable annuity contract. These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets, with changes in estimated fair value reported in net derivative gains (losses).

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

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

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

Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.

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

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

Transfers Into or Out of Level 3:

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

34

Brighthouse Financial, Inc.

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

6. Fair Value (continued)

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

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

					June 30, 2021			December 31, 2020			Impact of Increase in Input on Estimated Fair Value
	Valuation Techniques		Significant Unobservable Inputs		Range			Range
Embedded derivatives
Direct, assumed and ceded guaranteed minimum benefits	•	Option pricing techniques	•	Mortality rates	0.03%	-	12.13%	0.03%	-	12.13%	Decrease (1)
			•	Lapse rates	0.25%	-	15.00%	0.25%	-	15.00%	Decrease (2)
			•	Utilization rates	0.00%	-	25.00%	0.00%	-	25.00%	Increase (3)
			•	Withdrawal rates	0.25%	-	10.00%	0.25%	-	10.00%	(4)
			•	Long-term equity volatilities	16.66%	-	22.21%	16.66%	-	22.21%	Increase (5)
			•	Nonperformance risk spread	(0.26)%	-	1.37%	0.47%	-	1.97%	Decrease (6)

_______________

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

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

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

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

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

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

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

35

Brighthouse Financial, Inc.

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

6. Fair Value (continued)

based on third-party pricing models, an increase (decrease) in credit spreads would generally result in a higher (lower) fair value.

The changes in assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3) were summarized as follows:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Fixed Maturity Securities
	Corporate (1)		Structured Securities		State and Political Subdivision		Foreign Government		Equity Securities		Short-term Investments		Net Derivatives (2)		Net Embedded Derivatives (3)		Separate Account Assets (4)
	(In millions)
Three Months Ended June 30, 2021
Balance, beginning of period	$	670	$	126	$	0	$	0	$	3	$	0	$	8	$	(6,468)	$	2
Total realized/unrealized gains (losses) included in net income (loss) (5) (6)	0		0		0		0		0		0		8		(1,127)		—
Total realized/unrealized gains (losses) included in AOCI	21		1		0		0		0		0		10		0		0
Purchases (7)	231		163		0		12		0		0		0		0		0
Sales (7)	(12)		(9)		0		0		0		0		(6)		0		0
Issuances (7)	0		0		0		0		0		0		0		0		0
Settlements (7)	0		0		0		0		0		0		0		(120)		0
Transfers into Level 3 (8)	65		0		0		0		0		0		0		0		0
Transfers out of Level 3 (8)	(86)		(64)		0		0		0		0		0		0		(2)
Balance, end of period	$	889	$	217	$	0	$	12	$	3	$	0	$	20	$	(7,715)	$	0
Three Months Ended June 30, 2020
Balance, beginning of period	$	851	$	218	$	73	$	7	$	4	$	2	$	50	$	(4,263)	$	4
Total realized/unrealized gains (losses) included in net income (loss) (5) (6)	(2)		0		0		0		0		0		(3)		(883)		0
Total realized/unrealized gains (losses) included in AOCI	59		3		0		0		0		0		(10)		0		0
Purchases (7)	187		85		0		0		0		0		0		0		0
Sales (7)	(46)		(1)		0		0		0		(2)		(17)		0		0
Issuances (7)	0		0		0		0		0		0		0		0		0
Settlements (7)	0		0		0		0		0		0		0		(180)		0
Transfers into Level 3 (8)	86		26		0		0		0		0		0		0		0
Transfers out of Level 3 (8)	(241)		(158)		(73)		(7)		0		0		0		0		(1)
Balance, end of period	$	894	$	173	$	0	$	0	$	4	$	0	$	20	$	(5,326)	$	3
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2021 (9)	$	0	$	0	$	0	$	0	$	0	$	0	$	3	$	(1,104)	$	0
Changes in unrealized gains (losses) included in other comprehensive income for the instruments still held at June 30, 2021 (9)	$	21	$	1	$	0	$	0	$	0	$	0	$	10	$	0	$	0
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2020 (9)	$	0	$	0	$	0	$	0	$	0	$	0	$	3	$	(928)	$	0
Changes in unrealized gains (losses) included in other comprehensive income for the instruments still held at June 30, 2020 (9)	$	58	$	3	$	0	$	0	$	0	$	0	$	(10)	$	0	$	0

36

Brighthouse Financial, Inc.

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

6. Fair Value (continued)

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Fixed Maturity Securities
	Corporate (1)		Structured Securities		State and Political Subdivision		Foreign Government		Equity Securities		Short-term Investments		Net Derivatives (2)		Net Embedded Derivatives (3)		Separate Account Assets (4)
	(In millions)
Six Months Ended June 30, 2021
Balance, beginning of period	$	688	$	67	$	0	$	0	$	3	$	0	$	2	$	(6,874)	$	3
Total realized/unrealized gains (losses) included in net income (loss) (5) (6)	(1)		0		0		0		0		0		16		(579)		0
Total realized/unrealized gains (losses) included in AOCI	0		1		0		0		0		0		9		0		0
Purchases (7)	327		181		0		12		0		0		(1)		0		0
Sales (7)	(10)		(14)		0		0		0		0		(6)		0		0
Issuances (7)	0		0		0		0		0		0		0		0		0
Settlements (7)	0		0		0		0		0		0		0		(262)		0
Transfers into Level 3 (8)	66		0		0		0		0		0		0		0		0
Transfers out of Level 3 (8)	(181)		(18)		0		0		0		0		0		0		(3)
Balance, end of period	$	889	$	217	$	0	$	12	$	3	$	0	$	20	$	(7,715)	$	0
Six Months Ended June 30, 2020
Balance, beginning of period	$	461	$	117	$	73	$	0	$	8	$	5	$	16	$	(4,031)	$	3
Total realized/unrealized gains (losses) included in net income (loss) (5) (6)	(4)		0		0		0		0		0		(2)		(962)		0
Total realized/unrealized gains (losses) included in AOCI	15		0		0		0		0		0		20		0		0
Purchases (7)	433		104		0		0		0		0		0		0		0
Sales (7)	(51)		(5)		0		0		0		(5)		(14)		0		0
Issuances (7)	0		0		0		0		0		0		0		0		0
Settlements (7)	0		0		0		0		0		0		0		(333)		0
Transfers into Level 3 (8)	153		30		0		0		0		0		0		0		0
Transfers out of Level 3 (8)	(113)		(73)		(73)		0		(4)		0		0		0		0
Balance, end of period	$	894	$	173	$	0	$	0	$	4	$	0	$	20	$	(5,326)	$	3
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2021 (9)	$	(1)	$	0	$	0	$	0	$	0	$	0	$	2	$	(560)	$	0
Changes in unrealized gains (losses) included in other comprehensive income for the instruments still held at June 30, 2021 (9)	$	0	$	1	$	0	$	0	$	0	$	0	$	9	$	0	$	0
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2020 (9)	$	(1)	$	0	$	0	$	0	$	0	$	0	$	(17)	$	(1,019)	$	0
Changes in unrealized gains (losses) included in other comprehensive income for the instruments still held at June 30, 2020 (9)	$	16	$	0	$	0	$	0	$	0	$	0	$	20	$	0	$	0

_______________

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

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

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

37

Brighthouse Financial, Inc.

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

6. Fair Value (continued)

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

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

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

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

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

(9)Changes in unrealized gains (losses) included in net income (loss) for fixed maturities are reported in either net investment income or net investment gains (losses). Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).

Fair Value of Financial Instruments Carried at Other Than Fair Value

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

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

	June 30, 2021
			Fair Value Hierarchy
	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)
Assets
Mortgage loans	$	16,732	$	0	$	0	$	17,690	$	17,690
Policy loans	$	1,255	$	0	$	498	$	1,160	$	1,658
Other invested assets	$	75	$	0	$	63	$	12	$	75
Premiums, reinsurance and other receivables	$	3,351	$	0	$	121	$	4,036	$	4,157
Liabilities
Policyholder account balances	$	20,491	$	0	$	0	$	22,197	$	22,197
Long-term debt	$	3,436	$	0	$	3,903	$	0	$	3,903
Other liabilities	$	1,212	$	0	$	498	$	714	$	1,212
Separate account liabilities	$	1,416	$	0	$	1,416	$	0	$	1,416

38

Brighthouse Financial, Inc.

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

6. Fair Value (continued)

	December 31, 2020
			Fair Value Hierarchy
	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)
Assets
Mortgage loans	$	15,808	$	0	$	0	$	16,926	$	16,926
Policy loans	$	1,291	$	0	$	512	$	1,530	$	2,042
Other invested assets	$	51	$	0	$	39	$	12	$	51
Premiums, reinsurance and other receivables	$	3,277	$	0	$	90	$	3,975	$	4,065
Liabilities
Policyholder account balances	$	17,497	$	0	$	0	$	19,100	$	19,100
Long-term debt	$	3,436	$	0	$	3,858	$	0	$	3,858
Other liabilities	$	807	$	0	$	163	$	644	$	807
Separate account liabilities	$	1,334	$	0	$	1,334	$	0	$	1,334

7. Equity

Preferred Stock

Preferred stock shares authorized, issued and outstanding were as follows at both June 30, 2021 and December 31, 2020:

	Shares Authorized	Shares Issued	Shares Outstanding
6.600% Non-Cumulative Preferred Stock, Series A	17,000	17,000	17,000
6.750% Non-Cumulative Preferred Stock, Series B	16,100	16,100	16,100
5.375% Non-Cumulative Preferred Stock, Series C	23,000	23,000	23,000
Not designated	99,943,900	0	0
Total	100,000,000	56,100	56,100

The declaration, record and payment dates, as well as per share and aggregate dividend amounts for BHF’s preferred stock by series for the six months ended June 30, 2021 and 2020 were as follows:

			Series A				Series B				Series C
Declaration Date	Record Date	Payment Date	Per Share		Aggregate		Per Share		Aggregate		Per Share		Aggregate
			(In millions, except per share data)
May 17, 2021	June 10, 2021	June 25, 2021	$	412.50	$	7	$	421.88	$	7	$	335.94	$	7
February 16, 2021	March 10, 2021	March 25, 2021	412.50		7		421.88		7		466.58		11
			$	825.00	$	14	$	843.76	$	14	$	802.52	$	18
May 15, 2020	June 10, 2020	June 25, 2020	$	412.50	$	7	$	0	$	0	$	0	$	0
February 14, 2020	March 10, 2020	March 25, 2020	412.50		7		0		0		0		0
			$	825.00	$	14	$	0	$	0	$	0	$	0

39

Brighthouse Financial, Inc.

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

Common Stock Repurchase Program

On February 10, 2021, BHF authorized the repurchase of up to $200 million of its common stock, which is in addition to the $1.1 billion aggregate stock repurchase authorizations announced in February 2020, May 2019 and August 2018. Repurchases under this authorization may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements. See Note 11 for information relating to the authorization of share repurchases subsequent to June 30, 2021.

During the six months ended June 30, 2021 and 2020, BHF repurchased 4,312,267 and 13,250,927 shares, respectively, of its common stock through open market purchases pursuant to 10b5-1 plans for $192 million and $322 million, respectively. At June 30, 2021, BHF had $87 million remaining under its common stock repurchase program.

Accumulated Other Comprehensive Income (Loss)

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

	Three Months Ended June 30, 2021
	Unrealized Investment Gains (Losses), Net of Related Offsets (1)		Unrealized Gains (Losses) on Derivatives		Foreign Currency Translation Adjustments		Defined Benefit Plans Adjustment		Total
	(In millions)
Balance at March 31, 2021	$	3,387	$	55	$	(14)	$	(39)	$	3,389
OCI before reclassifications	1,385		114		1		0		1,500
Deferred income tax benefit (expense)	(291)		(24)		0		1		(314)
AOCI before reclassifications, net of income tax	4,481		145		(13)		(38)		4,575
Amounts reclassified from AOCI	32		(4)		0		(1)		27
Deferred income tax benefit (expense)	(7)		1		0		0		(6)
Amounts reclassified from AOCI, net of income tax	25		(3)		0		(1)		21
Balance at June 30, 2021	$	4,506	$	142	$	(13)	$	(39)	$	4,596

	Three Months Ended June 30, 2020
	Unrealized Investment Gains (Losses), Net of Related Offsets (1)		Unrealized Gains (Losses) on Derivatives		Foreign Currency Translation Adjustments		Defined Benefit Plans Adjustment		Total
	(In millions)
Balance at March 31, 2020	$	2,083	$	612	$	(19)	$	(29)	$	2,647
OCI before reclassifications	3,059		(140)		5		1		2,925
Deferred income tax benefit (expense)	(643)		30		(10)		0		(623)
AOCI before reclassifications, net of income tax	4,499		502		(24)		(28)		4,949
Amounts reclassified from AOCI	23		(3)		0		0		20
Deferred income tax benefit (expense)	(5)		1		0		0		(4)
Amounts reclassified from AOCI, net of income tax	18		(2)		0		0		16
Balance at June 30, 2020	$	4,517	$	500	$	(24)	$	(28)	$	4,965

40

Brighthouse Financial, Inc.

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

7. Equity (continued)

	Six Months Ended June 30, 2021
	Unrealized Investment Gains (Losses), Net of Related Offsets (1)		Unrealized Gains (Losses) on Derivatives		Foreign Currency Translation Adjustments		Defined Benefit Plans Adjustment		Total
	(In millions)
Balance at December 31, 2020	$	5,646	$	115	$	(8)	$	(37)	$	5,716
OCI before reclassifications	(1,463)		46		(6)		(2)		(1,425)
Deferred income tax benefit (expense)	308		(10)		1		1		300
AOCI before reclassifications, net of income tax	4,491		151		(13)		(38)		4,591
Amounts reclassified from AOCI	19		(11)		0		(1)		7
Deferred income tax benefit (expense)	(4)		2		0		0		(2)
Amounts reclassified from AOCI, net of income tax	15		(9)		0		(1)		5
Balance at June 30, 2021	$	4,506	$	142	$	(13)	$	(39)	$	4,596

	Six Months Ended June 30, 2020
	Unrealized Investment Gains (Losses), Net of Related Offsets (1)		Unrealized Gains (Losses) on Derivatives		Foreign Currency Translation Adjustments		Defined Benefit Plans Adjustment		Total
	(In millions)
Balance at December 31, 2019	$	3,111	$	172	$	(15)	$	(28)	$	3,240
OCI before reclassifications (2)	1,768		420		0		0		2,188
Deferred income tax benefit (expense)	(371)		(88)		(9)		0		(468)
AOCI before reclassifications, net of income tax	4,508		504		(24)		(28)		4,960
Amounts reclassified from AOCI	12		(5)		0		0		7
Deferred income tax benefit (expense)	(3)		1		0		0		(2)
Amounts reclassified from AOCI, net of income tax	9		(4)		0		0		5
Balance at June 30, 2020	$	4,517	$	500	$	(24)	$	(28)	$	4,965

__________________

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

(2)Includes $3 million related to the adoption of the allowance for credit losses guidance.

41

Brighthouse Financial, Inc.

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

7. Equity (continued)

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

AOCI Components	Amounts Reclassified from AOCI								Consolidated Statements of Operations and Comprehensive Income (Loss) Locations
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Net unrealized investment gains (losses):
Net unrealized investment gains (losses)	$	(31)	$	(20)	$	(15)	$	(7)	Net investment gains (losses)
Net unrealized investment gains (losses)	(1)		(3)		(4)		(5)		Net derivative gains (losses)
Net unrealized investment gains (losses), before income tax	(32)		(23)		(19)		(12)
Income tax (expense) benefit	7		5		4		3
Net unrealized investment gains (losses), net of income tax	(25)		(18)		(15)		(9)
Unrealized gains (losses) on derivatives - cash flow hedges:
Interest rate swaps	0		0		1		1		Net derivative gains (losses)
Interest rate swaps	1		0		2		1		Net investment income
Foreign currency swaps	3		3		8		3		Net derivative gains (losses)
Gains (losses) on cash flow hedges, before income tax	4		3		11		5
Income tax (expense) benefit	(1)		(1)		(2)		(1)
Gains (losses) on cash flow hedges, net of income tax	3		2		9		4
Defined benefit plans adjustment:
Amortization of net actuarial gains (losses)	1		0		1		0
Amortization of defined benefit plans, before income tax	1		0		1		0
Income tax (expense) benefit	0		0		0		0
Amortization of defined benefit plans, net of income tax	1		0		1		0
Total reclassifications, net of income tax	$	(21)	$	(16)	$	(5)	$	(5)

8. Other Revenues and Other Expenses

Other Revenues

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

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

Other revenues consisted primarily of 12b-1 fees of $91 million and $179 million for the three months and six months ended June 30, 2021, respectively, and $76 million and $157 million for the three months and six months ended June 30, 2020, respectively, of which substantially all were reported in the Annuities segment.

42

Brighthouse Financial, Inc.

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

8. Other Revenues and Other Expenses (continued)

Other Expenses

Information on other expenses was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Compensation	$	96	$	93	$	188	$	162
Contracted services and other labor costs	70		78		130		146
Transition services agreements	29		15		61		53
Establishment costs	29		35		46		53
Premium and other taxes, licenses and fees	12		14		27		26
Separate account fees	127		108		252		225
Volume related costs, excluding compensation, net of DAC capitalization	180		162		343		290
Interest expense on debt	40		45		81		92
Other	25		27		42		47
Total other expenses	$	608	$	577	$	1,170	$	1,094

9. Earnings Per Common Share

The calculation of earnings per common share was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions, except share and per share data)
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders	$	10	$	(1,998)	$	(600)	$	2,952
Weighted average common shares outstanding — basic	85,549,350		94,698,169		86,555,806		99,728,754
Dilutive effect of share-based awards	515,800		0		0		140,178
Weighted average common shares outstanding — diluted	86,065,150		94,698,169		86,555,806		99,868,932
Earnings per common share:
Basic	$	0.12	$	(21.10)	$	(6.93)	$	29.60
Diluted	$	0.11	$	(21.10)	$	(6.93)	$	29.56

For both the six months ended June 30, 2021 and the three months ended June 30, 2020, basic loss per common share equaled diluted loss per common share. The diluted shares were not utilized in the per share calculation for this period as the inclusion of such shares would have an antidilutive effect.

For both the three months ended June 30, 2021 and the six months ended June 30, 2020, weighted average shares used for calculating diluted earnings per common share excludes 187,371 of out-of-the-money stock options, as the inclusion of these shares would be antidilutive to the earnings per common share calculation due to the average share price for the three months ended June 30, 2021 and the six months ended June 30, 2020.

43

Brighthouse Financial, Inc.

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

10. Contingencies, Commitments and Guarantees

Contingencies

Litigation

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

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

The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be estimated at June 30, 2021.

Matters as to Which an Estimate Can Be Made

For some loss contingency matters, the Company is able to estimate a reasonably possible range of loss. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. In addition to amounts accrued for probable and reasonably estimable losses, as of June 30, 2021, the Company estimates the aggregate range of reasonably possible losses to be up to approximately $10 million.

Matters as to Which an Estimate Cannot Be Made

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

Sales Practices Claims

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

44

Brighthouse Financial, Inc.

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

10. Contingencies, Commitments and Guarantees (continued)

Cost of Insurance Class Actions 

Richard A. Newton v. Brighthouse Life Insurance Company (U.S. District Court, Northern District of Georgia, Atlanta Division, filed May 8, 2020). Plaintiff has filed a purported class action lawsuit against Brighthouse Life Insurance Company. Plaintiff was the owner of a universal life insurance policy issued by Travelers Insurance Company, a predecessor to Brighthouse Life Insurance Company. Plaintiff seeks to certify a class of all persons who own or owned life insurance policies issued where the terms of the life insurance policy provide or provided, among other things, a guarantee that the cost of insurance rates would not be increased by more than a specified percentage in any contract year. Plaintiff alleges, among other things, causes of action for breach of contract, fraud, suppression and concealment, and violation of the Georgia Racketeer Influenced and Corrupt Organizations Act. Plaintiff seeks to recover damages, including punitive damages, interest and treble damages, attorneys’ fees, and injunctive and declaratory relief. Brighthouse Life Insurance Company filed a motion to dismiss in June 2020, which was granted in part and denied in part. Plaintiff was granted leave to amend the complaint. The Company intends to vigorously defend this matter.

Lawrence Martin v. Brighthouse Life Insurance Company and Brighthouse Life Insurance Company of NY (U.S. District Court, Southern District of New York, filed April 6, 2021). Plaintiff has filed a purported class action lawsuit against Brighthouse Life Insurance Company and Brighthouse Life Insurance Company of NY. Plaintiff is the owner of a universal life insurance policy issued by Travelers Insurance Company, a predecessor to Brighthouse Life Insurance Company. Plaintiff seeks to certify a class of similarly situated owners of universal life insurance policies issued or administered by defendants and alleges that cost of insurance charges should have decreased over time due to improving mortality but did not. Plaintiff alleges, among other things, causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment. Plaintiff seeks to recover compensatory damages, attorney’s fees, interest, and equitable relief including a constructive trust. Brighthouse Life Insurance Company and Brighthouse Life Insurance Company of NY filed a motion to dismiss in June 2021. The Company intends to vigorously defend this matter.

Summary

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

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

Other Contingencies

As with litigation and regulatory loss contingencies, the Company considers establishing liabilities for certain non-litigation loss contingencies when assertions are made involving disputes or other matters with counterparties to contractual arrangements entered into by the Company, including with third-party vendors. The Company establishes liabilities for such non-litigation loss contingencies when it is probable that a loss will be incurred and the amount of the loss can be reasonably estimated. In matters where it is not probable, but is reasonably possible that a loss will be incurred and the amount of loss can be reasonably estimated, such losses or range of losses are disclosed, and no accrual is made. In the absence of sufficient information to support an assessment of the reasonably possible loss or range of loss, no accrual is made and no loss or range of loss is disclosed.

Disputes have arisen with counterparties in connection with reinsurance arrangements where the Company’s subsidiaries are acting as either the reinsured or the reinsurer. These disputes involve assertions by third parties primarily related to rates, fees or reinsured benefit calculations, and in certain of such disputes the counterparty has made a request to arbitrate the dispute.

45

Brighthouse Financial, Inc.

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

10. Contingencies, Commitments and Guarantees (continued)

As of June 30, 2021, the Company estimates the amount of reasonably possible losses in excess of the amounts accrued for certain non-litigation loss contingencies to be up to approximately $125 million, which are primarily associated with reinsurance-related matters. For certain other reinsurance-related matters, the Company is not currently able to estimate the reasonably possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of such loss.

On a quarterly and annual basis, the Company reviews relevant information with respect to non-litigation contingencies and, when applicable, updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.

Commitments

Mortgage Loan Commitments

The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $646 million and $210 million at June 30, 2021 and December 31, 2020, respectively.

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

The Company commits to fund partnership investments and to lend funds under bank credit facilities and private corporate bond investments. The amounts of these unfunded commitments were $2.2 billion and $1.7 billion at June 30, 2021 and December 31, 2020, respectively.

Guarantees

In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties such that it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $1 million to $112 million, with a cumulative maximum of $118 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments.

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

The Company’s recorded liabilities were $1 million at both June 30, 2021 and December 31, 2020 for indemnities, guarantees and commitments.

11. Subsequent Events

Common Stock Repurchase Authorization

On August 2, 2021, the Company authorized the repurchase of up to an additional $1.0 billion of common stock. No common stock repurchases have been made under the August 2, 2021 authorization as of August 6, 2021. Future repurchases may be made through open market purchases, including pursuant to 10b5-1 plans or pursuant to accelerated stock repurchase plans, or through privately negotiated transactions, from time to time at management’s discretion in accordance with applicable legal requirements.

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

11. Subsequent Events (continued)

Dividend Transaction

On July 26, 2021, Brighthouse Reinsurance Company of Delaware received approval from the Delaware Department of Insurance for the payment of a $600 million extraordinary dividend to Brighthouse Life Insurance Company. Such dividend has not been paid as of August 6, 2021.

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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

	Page
Introduction	49
Executive Summary	49
Industry Trends	50
Summary of Critical Accounting Estimates	52
Non-GAAP and Other Financial Disclosures	52
Results of Operations	55
Investments	67
Derivatives	77
Off-Balance Sheet Arrangements	78
Policyholder Liabilities	79
Liquidity and Capital Resources	82
Note Regarding Forward-Looking Statements	90

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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 Delaware corporation, 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 financial condition and results of operations 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 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, 2020, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 24, 2021 (the “2020 Annual Report”); (iii) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 (the “First Quarter Form 10-Q”) filed with the SEC on May 10, 2021; and (iv) our current reports on Form 8-K filed in 2021.

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 our 2020 Annual Report that we believe may materially affect our future financial condition, results of operations or cash 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 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 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 following 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 products that are no longer actively sold and 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 “Business — Segments and Corporate & Other” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview” included in our 2020 Annual Report, as well as Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information regarding our segments and Corporate & Other.

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Net income (loss) available to shareholders and adjusted earnings, a non-GAAP financial measure, were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Income (loss) available to shareholders before provision for income tax	$	—	$	(2,529)	$	(795)	$	3,714
Less: Provision for income tax expense (benefit)	(10)		(531)		(195)		762
Net income (loss) available to shareholders (1)	$	10	$	(1,998)	$	(600)	$	2,952
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	$	539	$	14	$	1,002	$	258
Less: Provision for income tax expense (benefit)	104		3		182		36
Adjusted earnings	$	435	$	11	$	820	$	222

__________________

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

For the three months ended June 30, 2021, we had net income available to shareholders of $10 million and adjusted earnings of $435 million compared to a net loss available to shareholders of $2.0 billion and adjusted earnings of $11 million for the three months ended June 30, 2020. Net income available to shareholders for the three months ended June 30, 2021 primarily reflects a favorable impact from pre-tax adjusted earnings. Additionally, decreasing long-term interest rates resulted in favorable changes in the estimated fair value of freestanding interest rate derivatives we use to hedge our universal life with secondary guarantees (“ULSG”) business. These favorable impacts were partially offset by net unfavorable changes in the estimated fair value of our guaranteed minimum living benefits (“GMLB”) riders (“GMLB Riders”) due to market factors. Favorable equity markets and lower interest rates resulted in net unfavorable changes in variable annuity embedded derivative liabilities and the freestanding derivatives that hedge our variable annuity business. Favorable equity markets also unfavorably impacted the estimated fair value of the embedded derivative liabilities associated with Shield Level Annuities (“Shield”), which are referred to herein as “Shield liabilities.” In addition, the impact of widening credit spreads resulted in a favorable adjustment for non-performance risk related to variable annuity embedded derivative liabilities.

For the six months ended June 30, 2021, we had a net loss available to shareholders of $600 million and adjusted earnings of $820 million compared to net income available to shareholders of $3.0 billion and adjusted earnings of $222 million for the six months ended June 30, 2020. Net loss available to shareholders for the six months ended June 30, 2021 primarily reflects net unfavorable changes in the estimated fair value of our GMLB Riders due to market factors. Favorable equity markets and higher interest rates resulted in unfavorable changes to the freestanding derivatives that hedge our variable annuity business, net of favorable impacts to the underlying embedded derivative liabilities. Favorable equity markets also unfavorably impacted the estimated fair value of Shield liabilities. GMLB Riders were also unfavorably impacted by the adjustment for non-performance risk resulting from narrowing credit spreads. Increasing long-term interest rates resulted in unfavorable changes in the estimated fair value of freestanding interest rate derivatives we use to hedge our ULSG business. These unfavorable impacts were partially offset by favorable pre-tax adjusted earnings.

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

Industry Trends

Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we discuss a number of trends and uncertainties that we believe may materially affect our future financial condition, results of operations or cash flows. Where these trends or uncertainties are specific to a particular aspect of our business, we often include such a discussion under the relevant caption of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, as part of our broader analysis of that area of our business. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties” included in our 2020 Annual Report for a comprehensive discussion of some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and results of

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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. At this time, it continues to not be 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 efficacy of any therapeutic treatments and vaccines for COVID-19, including their efficacy with respect to variants of COVID-19 that have emerged or could emerge in the future. 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, financial condition, results of operations and prospects, including the impact on our investment portfolio and our ratings, or the need for us in the future to revisit or revise aspects of our business model or targets previously provided to the markets. See “Business — Regulation,” “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — COVID-19 Pandemic” included in our 2020 Annual Report, as well as “— 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.

Regulatory Developments

Our insurance subsidiaries and Brighthouse Reinsurance Company of Delaware (“BRCD”) 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, 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 2020 Annual Report, as amended or supplemented herein.

Surplus and Capital; Risk-Based Capital

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

The NAIC has established regulations that provide minimum capitalization requirements based on risk-based capital (“RBC”) formulas for insurance companies. Insurers are required to maintain their capital and surplus at or above minimum levels. Regulators have discretionary authority, in connection with the continued licensing of an insurer, to limit or prohibit the insurer’s sales to policyholders if, in their judgment, the regulators determine that such insurer has not maintained the minimum surplus or capital or that the further transaction of business will be hazardous to policyholders. Each of our insurance subsidiaries is subject to RBC requirements and other minimum statutory capital and surplus requirements imposed under the laws of its respective jurisdiction of domicile. RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer and is calculated on an annual basis. The major categories of risk involved are asset risk, insurance risk, interest rate risk, market risk and business risk, including equity, interest rate and expense recovery risks associated with variable annuities that contain guaranteed minimum death and living benefits. The RBC framework is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital (“TAC”) does not meet or exceed certain RBC levels. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “Risk Factors — Regulatory and Legal Risks — A decrease in the RBC ratio (as a result of a reduction in statutory surplus or increase in RBC requirements) of our insurance subsidiaries could result in increased scrutiny by insurance regulators and rating agencies and could have a material adverse effect on

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our financial condition and results of operations” and Note 10 of the Notes to the Consolidated Financial Statements in our 2020 Annual Report.

In June 2021, the NAIC adopted changes to the RBC factors for bonds and real estate and created a new set of RBC charges for longevity risk. These changes will become effective on December 31, 2021. The modified bond and real estate factors, in the aggregate, are expected to have a minimal impact on our RBC ratios.

In December 2020, the NAIC adopted a group capital calculation tool that uses an RBC aggregation methodology for all entities within an insurance holding company system. The NAIC has stated that the calculation will be a tool to assist regulators in assessing group risks and capital adequacy and does not constitute a minimum capital requirement or standard, however, there is no guarantee that will be the case in the future. It is unclear how the group capital calculation will interact with existing capital requirements for insurance companies in the United States.

In August 2018, the NAIC adopted the framework for variable annuity reserve and capital reform (“VA Reform”). The revisions, which have resulted in substantial changes in reserves, statutory surplus and capital requirements, are designed to mitigate the incentive for insurers to engage in captive reinsurance transactions by making improvements to Actuarial Guideline 43 and the Life Risk Based Capital C3 Phase II capital requirements. VA Reform is intended to (i) mitigate the asset-liability accounting mismatch between hedge instruments and statutory instruments and statutory liabilities, (ii) remove the non-economic volatility in statutory capital charges and the resulting solvency ratios and (iii) facilitate greater harmonization across insurers and their products for greater comparability. VA Reform became effective as of January 1, 2020, with early adoption permitted as of December 31, 2019. Brighthouse elected to early adopt the changes effective December 31, 2019. Further changes to this framework, including changes resulting from work currently underway by the NAIC to find a suitable replacement for the Economic Scenario Generators developed by the American Academy of Actuaries, could negatively impact our statutory surplus and required capital.

See “Risk Factors — Regulatory and Legal Risks — Our insurance business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth” included in our 2020 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:

•liabilities for future policy benefits;

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

•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 Financial Statements included in our 2020 Annual Report.

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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 the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by the investor community by highlighting the results of operations and the underlying profitability drivers of our business. 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);

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

•Certain variable annuity guaranteed minimum income benefits (“GMIB”) fees (“GMIB Fees”).

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 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.

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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:

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

__________________

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

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

Adjusted Net Investment Income

We present adjusted net investment income, which is not calculated in accordance with GAAP. We present adjusted net investment income to measure our performance for management purposes, and we believe it enhances the understanding of our investment portfolio results. Adjusted net investment income represents net investment income, including Investment Hedge Adjustments. For a reconciliation of adjusted net investment income to net investment income, the most directly comparable GAAP measure, see footnote 3 to the summary yield table located in “— Investments — Current Environment — Investment Portfolio Results.”

Other Financial Disclosures

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

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Results of Operations

Consolidated Results for the Three Months and Six Months Ended June 30, 2021 and 2020

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Revenues
Premiums	$	162	$	193	$	346	$	391
Universal life and investment-type product policy fees	919		827		1,849		1,713
Net investment income	1,212		652		2,399		1,568
Other revenues	101		93		228		195
Net investment gains (losses)	(34)		(34)		(20)		(53)
Net derivative gains (losses)	(684)		(2,653)		(2,188)		4,249
Total revenues	1,676		(922)		2,614		8,063
Expenses
Policyholder benefits and claims	752		839		1,508		2,026
Interest credited to policyholder account balances	287		276		584		535
Capitalization of DAC	(120)		(91)		(234)		(189)
Amortization of DAC and VOBA	8		(92)		99		678
Interest expense on debt	40		45		81		92
Other expenses	688		623		1,323		1,191
Total expenses	1,655		1,600		3,361		4,333
Income (loss) before provision for income tax	21		(2,522)		(747)		3,730
Provision for income tax expense (benefit)	(10)		(531)		(195)		762
Net income (loss)	31		(1,991)		(552)		2,968
Less: Net income (loss) attributable to noncontrolling interests	—		—		2		2
Net income (loss) attributable to Brighthouse Financial, Inc.	31		(1,991)		(554)		2,966
Less: Preferred stock dividends	21		7		46		14
Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders	$	10	$	(1,998)	$	(600)	$	2,952

The components of net income (loss) available to shareholders were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
GMLB Riders	$	(933)	$	(2,466)	$	(1,286)	$	1,906
Other derivative instruments	443		(82)		(513)		1,636
Net investment gains (losses)	(34)		(34)		(20)		(53)
Other adjustments	(15)		39		22		(33)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	539		14		1,002		258
Income (loss) available to shareholders before provision for income tax	—		(2,529)		(795)		3,714
Provision for income tax expense (benefit)	(10)		(531)		(195)		762
Net income (loss) available to shareholders	$	10	$	(1,998)	$	(600)	$	2,952

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Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020

Income available to shareholders before provision for income tax was $0 ($10 million, net of income tax), an increase of $2.5 billion ($2.0 billion, net of income tax) from a loss available to shareholders before provision for income tax of $2.5 billion ($2.0 billion, net of income tax) in the prior period.

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

•lower losses from GMLB Riders, see “— GMLB Riders for the Three Months and Six Months Ended June 30, 2021 and 2020”;

•current period gains on interest rate derivatives used to manage interest rate exposure in our ULSG business due to the decrease in the long-term benchmark interest rate; and

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

The increase in income before provision for income tax was partially offset by lower policyholder benefits and claims, included in other adjustments, resulting from the adjustment for market performance related to participating products in our Run-off segment.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 48% in the current period compared to 21% in the prior period. The increase in the effective tax rate is driven by higher pre-tax adjusted earnings, as discussed in greater detail below. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction and tax credits.

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Loss available to shareholders before provision for income tax was $795 million ($600 million, net of income tax), a decrease of $4.5 billion ($3.6 billion, net of income tax) from income available to shareholders before provision for income tax of $3.7 billion ($3.0 billion, net of income tax) in the prior period.

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

•losses from GMLB Riders in the current period compared to gains in the prior period, see “— GMLB Riders for the Three Months and Six Months Ended June 30, 2021 and 2020”; and

•current period losses on interest rate derivatives used to manage interest rate exposure in our ULSG business due to the decrease in the long-term benchmark interest rate.

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

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

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

•lower net investment losses reflecting:

◦lower current period net losses on changes in mortgage loans and fixed maturity security reserves; and

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

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 26% in the current period compared to 21% in the prior period. The increase in the effective tax rate is driven by higher pre-tax adjusted earnings, as discussed in greater detail below. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction and tax credits.

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

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

	Three Months Ended June 30, 2021
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Net income (loss) available to shareholders	$	(601)	$	61	$	742	$	(192)	$	10
Add: Provision for income tax expense (benefit)	79		17		(175)		69		(10)
Income (loss) available to shareholders before provision for income tax	(522)		78		567		(123)		—
Less: GMLB Riders	(933)		—		—		—		(933)
Less: Other derivative instruments	12		4		427		—		443
Less: Net investment gains (losses)	(21)		(10)		17		(20)		(34)
Less: Other adjustments	3		(1)		(17)		—		(15)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	417		85		140		(103)		539
Less: Provision for income tax expense (benefit)	79		17		18		(10)		104
Adjusted earnings	$	338	$	68	$	122	$	(93)	$	435

	Three Months Ended June 30, 2020
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Net income (loss) available to shareholders	$	(2,332)	$	43	$	196	$	95	$	(1,998)
Add: Provision for income tax expense (benefit)	34		12		(371)		(206)		(531)
Income (loss) available to shareholders before provision for income tax	(2,298)		55		(175)		(111)		(2,529)
Less: GMLB Riders	(2,466)		—		—		—		(2,466)
Less: Other derivative instruments	(23)		(1)		(60)		2		(82)
Less: Net investment gains (losses)	(29)		(3)		6		(8)		(34)
Less: Other adjustments	15		(1)		25		—		39
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	205		60		(146)		(105)		14
Less: Provision for income tax expense (benefit)	34		12		(31)		(12)		3
Adjusted earnings	$	171	$	48	$	(115)	$	(93)	$	11

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	Six Months Ended June 30, 2021
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Net income (loss) available to shareholders	$	(585)	$	106	$	61	$	(182)	$	(600)
Add: Provision for income tax expense (benefit)	157		27		(314)		(65)		(195)
Income (loss) available to shareholders before provision for income tax	(428)		133		(253)		(247)		(795)
Less: GMLB Riders	(1,286)		—		—		—		(1,286)
Less: Other derivative instruments	42		2		(557)		—		(513)
Less: Net investment gains (losses)	(24)		(5)		65		(56)		(20)
Less: Other adjustments	9		(1)		14		—		22
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	831		137		225		(191)		1,002
Less: Provision for income tax expense (benefit)	157		27		27		(29)		182
Adjusted earnings	$	674	$	110	$	198	$	(162)	$	820

	Six Months Ended June 30, 2020
	Annuities		Life		Run-off		Corporate & Other		Total
	(In millions)
Net income (loss) available to shareholders	$	2,465	$	1	$	1,221	$	(735)	$	2,952
Add: Provision for income tax expense (benefit)	107		14		116		525		762
Income (loss) available to shareholders before provision for income tax	2,572		15		1,337		(210)		3,714
Less: GMLB Riders	1,906		—		—		—		1,906
Less: Other derivative instruments	126		(60)		1,571		(1)		1,636
Less: Net investment gains (losses)	(40)		2		21		(36)		(53)
Less: Other adjustments	(14)		—		(19)		—		(33)
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	594		73		(236)		(173)		258
Less: Provision for income tax expense (benefit)	107		14		(51)		(34)		36
Adjusted earnings	$	487	$	59	$	(185)	$	(139)	$	222

Consolidated Results for the Three Months and Six Months Ended June 30, 2021 and 2020 — Adjusted Earnings

The components of adjusted earnings were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Fee income	$	959	$	857	$	1,954	$	1,779
Net investment spread	749		160		1,460		601
Insurance-related activities	(404)		(262)		(883)		(756)
Amortization of DAC and VOBA	(136)		(157)		(311)		(256)
Other expenses, net of DAC capitalization	(608)		(577)		(1,170)		(1,094)
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	21		7		48		16
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	539		14		1,002		258
Provision for income tax expense (benefit)	104		3		182		36
Adjusted earnings	$	435	$	11	$	820	$	222

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Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020

Adjusted earnings were $435 million, an increase of $424 million.

Key net favorable impacts were:

•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; and

◦higher interest credited to policyholders due to higher imputed interest on insurance liabilities related to modeling improvements resulting from an actuarial system conversion in our Life segment in the fourth quarter of 2020;

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

•lower net amortization of DAC and VOBA due to the impact on gross profits from less favorable equity markets in our Annuities segment and lower separate account returns in our Life segment.

Key net unfavorable impacts were:

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

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

partially offset by

◦lower income annuity benefit payments and a decrease in guaranteed minimum death benefit (“GMDB”) liabilities resulting from less favorable equity market performance;

•higher other expenses due to:

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

◦a one-time credit in the prior period from the exit of various transition services agreements with MetLife; and

◦underwriting fees associated with funding agreements issued in connection with our institutional spread margin business;

partially offset by

◦lower legal reserves; and

◦lower establishment costs; and

•the timing of our preferred stock dividend payments.

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 21% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction and tax credits.

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Adjusted earnings were $820 million, an increase of $598 million.

Key net favorable impacts were:

•higher net investment spread due to:

◦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;

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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; and

◦higher interest credited to policyholders due to higher imputed interest on insurance liabilities related to modeling improvements resulting from an actuarial system conversion in our Life segment in the fourth quarter of 2020; and

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

Key net unfavorable impacts were:

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

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

partially offset by

◦a decrease in GMDB liabilities resulting from favorable equity market performance and lower income annuity benefit payments;

•higher other expenses due to:

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

◦higher deferred compensation expenses;

partially offset by

◦lower establishment costs related to planned technology expenses; and

◦lower expenses resulting from the exit of various transition services agreements with MetLife;

•higher net amortization of DAC and VOBA in our Annuities segment; and

•the timing of our preferred stock dividend payments.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 17% in the current period compared to 14% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction and tax credits.

Segments and Corporate & Other Results for the Three Months and Six Months Ended June 30, 2021 and 2020 — Adjusted Earnings

Annuities

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Fee income	$	706	$	607	$	1,418	$	1,263
Net investment spread	310		201		633		463
Insurance-related activities	(59)		(82)		(154)		(208)
Amortization of DAC and VOBA	(123)		(157)		(250)		(195)
Other expenses, net of DAC capitalization	(417)		(364)		(816)		(729)
Pre-tax adjusted earnings	417		205		831		594
Provision for income tax expense (benefit)	79		34		157		107
Adjusted earnings	$	338	$	171	$	674	$	487

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A significant portion of our adjusted earnings is driven by separate account balances related to our variable annuity business. Most directly, these balances determine asset-based fee income, but they also impact DAC amortization and asset-based commissions. The changes in our variable annuities separate account balances are presented in the table below. Variable annuities separate account balances increased for the three months and the six months ended June 30, 2021 driven by favorable equity market performance, partially offset by negative net flows and policy charges.

	Three Months Ended June 30, 2021 (1)		Six Months Ended June 30, 2021 (1)
	(In millions)
Balance, beginning of period	$	103,539	$	103,450
Deposits	552		1,056
Withdrawals, surrenders and benefits	(2,588)		(5,053)
Net flows	(2,036)		(3,997)
Investment performance	5,944		8,738
Policy charges	(650)		(1,252)
Net transfers from (to) general account	(41)		(183)
Balance, end of period	$	106,756	$	106,756
Average balance	$	106,101	$	105,215

_______________

(1)Includes income annuities for which separate account balances at June 30, 2021 were $149 million.

Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020

Adjusted earnings were $338 million for the current period, an increase of $167 million.

Key net favorable impacts were:

•higher net investment spread due to:

◦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;

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

•lower amortization of DAC and VOBA driven by the net decrease in future gross profits from less favorable equity markets; and

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

◦a decrease in GMDB death claims; and

◦a decrease in GMDB liabilities resulting from favorable equity market performance.

Key net unfavorable impacts were:

•higher other expenses due to:

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

partially offset by

◦a one-time credit in the prior period from the exit of various transition services agreements with MetLife.

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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 17% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction.

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Adjusted earnings were $674 million for the current period, an increase of $187 million.

Key net favorable impacts were:

•higher net investment spread due to:

◦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;

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

•lower costs associated with insurance-related activities due to a decrease in GMDB liabilities and deferred sales inducements (“DSI”) resulting from favorable equity market performance.

Key unfavorable impacts were:

•higher other expenses due to:

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

◦higher deferred compensation expenses; and

•higher amortization of DAC and VOBA driven by the net decrease in future gross profits from favorable equity market performance.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 19% in the current period compared to 18% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

Life

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Fee income	$	90	$	84	$	207	$	181
Net investment spread	94		14		179		73
Insurance-related activities	(41)		14		(102)		(52)
Amortization of DAC and VOBA	(10)		4		(55)		(54)
Other expenses, net of DAC capitalization	(48)		(56)		(92)		(75)
Pre-tax adjusted earnings	85		60		137		73
Provision for income tax expense (benefit)	17		12		27		14
Adjusted earnings	$	68	$	48	$	110	$	59

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Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020

Adjusted earnings were $68 million for the current period, an increase of $20 million.

Key net favorable impacts were:

•higher net investment spread due to:

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

partially offset by

◦higher interest credited to policyholders due to higher imputed interest on insurance liabilities related to modeling improvements resulting from an actuarial system conversion in the fourth quarter of 2020.

Key unfavorable impacts were:

•higher costs associated with insurance-related activities due to higher paid claims, net of reinsurance; and

•higher net amortization of DAC and VOBA due to the impact on gross profits from lower separate account returns.

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

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Adjusted earnings were $110 million for the current period, an increase of $51 million.

Key net favorable impacts were:

•higher net investment spread due to:

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

partially offset by

◦higher interest credited to policyholders due to higher imputed interest on insurance liabilities related to modeling improvements resulting from an actuarial system conversion in the fourth quarter of 2020; and

•higher fee income due to an adjustment in the current period related to modeling improvements resulting from an actuarial system conversion;

Key unfavorable impacts were:

•higher costs associated with insurance-related activities due to higher paid claims, net of reinsurance; and

•higher other expenses due to higher deferred compensation expenses.

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

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Run-off

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Fee income	$	163	$	166	$	329	$	335
Net investment spread	332		(70)		623		30
Insurance-related activities	(309)		(201)		(637)		(508)
Amortization of DAC and VOBA	—		—		—		—
Other expenses, net of DAC capitalization	(46)		(41)		(90)		(93)
Pre-tax adjusted earnings	140		(146)		225		(236)
Provision for income tax expense (benefit)	18		(31)		27		(51)
Adjusted earnings	$	122	$	(115)	$	198	$	(185)

Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020

Adjusted earnings were $122 million for the current period, an increase of $237 million.

The increase in adjusted earnings was driven by higher net investment spread due to higher returns on other limited partnerships for the comparative measurement period, partially offset by higher costs associated with insurance-related activities driven by an increase in paid claims, net of reinsurance.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 13% in the current period compared to 21% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Adjusted earnings were $198 million for the current period, an increase of $383 million.

The increase in adjusted earnings was driven by higher net investment spread due to higher returns on other limited partnerships for the comparative measurement period, partially offset by higher costs associated with insurance-related activities driven by lower underwriting margin.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 12% in the current period compared to 22% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

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Corporate & Other

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Fee income	$	—	$	—	$	—	$	—
Net investment spread	13		15		25		35
Insurance-related activities	5		7		10		12
Amortization of DAC and VOBA	(3)		(4)		(6)		(7)
Other expenses, net of DAC capitalization	(97)		(116)		(172)		(197)
Less: Net income (loss) attributable to noncontrolling interests and preferred stock dividends	21		7		48		16
Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests and preferred stock dividends	(103)		(105)		(191)		(173)
Provision for income tax expense (benefit)	(10)		(12)		(29)		(34)
Adjusted earnings	$	(93)	$	(93)	$	(162)	$	(139)

Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020

Adjusted earnings were a loss of $93 million for the current period.

There was no change in adjusted earnings. Lower expenses from a decline in establishment costs, lower legal reserves and lower media spend, were partially offset by underwriting fees associated with funding agreements issued in connection with our institutional spread margin business and the timing of our preferred stock dividend payments.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 12% in the current period compared to 11% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction and tax credits. We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a standalone basis nor for comparison to prior periods, since taxes for Corporate & Other are derived from the difference between the overall consolidated effective tax rate and total taxes for the combined operating segments.

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Adjusted earnings were a loss of $162 million, a higher loss of $23 million from the prior period.

Key net unfavorable impacts were:

•the timing of our preferred stock dividend payments; and

•lower net investment spread due to:

◦lower returns from short-term investments; 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 returns on other limited partnerships for the comparative measurement period; and

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

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The increase in adjusted earnings was partially offset by lower expenses due to lower establishment costs and lower legal reserves.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 20% 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 deduction and tax credits. We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a standalone basis nor for comparison to prior periods, since taxes for Corporate & Other are derived from the difference between the overall consolidated effective tax rate and total taxes for the combined operating segments.

GMLB Riders for the Three Months and Six Months Ended June 30, 2021 and 2020

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Liabilities	$	(1,239)	$	(1,186)	$	(686)	$	(1,805)
Hedges	(43)		(1,720)		(1,140)		3,617
Ceded reinsurance	21		8		(63)		105
Fees (1)	204		198		401		396
GMLB DAC	124		234		202		(407)
Total GMLB Riders	$	(933)	$	(2,466)	$	(1,286)	$	1,906

__________________

(1)Excludes living benefit fees, included as a component of adjusted earnings, of $15 million for both the three months ended June 30, 2021 and 2020 and $29 million for both the six months ended June 30, 2021 and 2020.

Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020

Comparative results from GMLB Riders were favorable by $1.5 billion, primarily driven by:

•favorable changes in our GMLB hedges; and

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

partially offset by

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

•unfavorable changes in GMLB DAC.

Less favorable equity markets resulted in the following impacts:

•favorable changes in our GMLB hedges;

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

•favorable changes to GMLB DAC;

partially offset by

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

Higher interest rates resulted in the following impacts:

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

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

partially offset by

•favorable changes in our GMLB hedges; and

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•favorable changes to GMLB DAC.

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

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

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

•unfavorable changes in our GMLB hedges;

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

•unfavorable changes in ceded reinsurance;

partially offset by

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

•favorable changes in GMLB DAC.

Higher relative equity markets resulted in the following impacts:

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

•unfavorable changes in our GMLB hedges; and

•unfavorable changes in ceded reinsurance;

partially offset by

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

•favorable changes to GMLB DAC.

Higher interest rates resulted in the following impacts:

•unfavorable changes in our GMLB hedges;

•unfavorable changes to GMLB DAC;

•unfavorable changes in ceded reinsurance; and

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

partially offset by

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

The narrowing of our credit default swap spreads combined with a decrease in the underlying variable annuity liability reserves resulted in an unfavorable change in the adjustment for nonperformance risk, net of a favorable change in GMLB DAC.

Investments

Investment Risks

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

We are exposed to the following primary sources of investment risks, 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, 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

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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. 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 risks related to using external investment managers.

See also “Risk Factors — Economic Environment and Capital markets-Related Risks — We are exposed to significant financial and capital markets risks which may adversely affect our financial condition, results of operations and liquidity, and may cause our net investment income and our profitability measures to vary from period-to-period” and “Risk Factors — Investments-Related Risks” in our 2020 Annual Report.

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. 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 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

Other than our derivatives trading, which we manage in-house, we have engaged a select group of experienced external asset management firms to manage the investment of the assets comprising our general account portfolio and certain separate account assets of our insurance subsidiaries, as well as assets of BHF and our reinsurance subsidiary BRCD.

Current Environment

Our business and results of operations are materially affected by conditions in capital markets and the economy, generally. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends and Uncertainties — Financial and Economic Environment” included in our 2020 Annual Report.

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

Selected Sector Investments

Recent elevated levels of market volatility have affected the performance of various asset classes. Contributing factors include concerns about energy and oil prices impacting the energy sector, as well as the impact of the COVID-19 pandemic. See “Risk Factors — Risks Related to Our Business — The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations, including our capitalization and liquidity” included in our 2020 Annual Report.

There has been an increased market focus on energy sector investments as a result of volatile energy and oil prices. We maintain a diversified energy sector fixed maturity securities portfolio across sub-sectors and issuers. Our exposure to

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energy sector fixed maturity securities was $3.2 billion, of which 90% were investment grade, with net unrealized gains (losses) of $333 million at June 30, 2021.

There has also been an increased market focus on retail sector investments as a result of the COVID-19 pandemic and uncertainty regarding its duration and severity. Our exposure to retail sector corporate fixed maturity securities was $1.9 billion, of which 96% were investment grade, with net unrealized gains (losses) of $211 million at June 30, 2021.

In addition to the fixed maturity securities discussed 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 — Fixed Maturity Available-for-sale — 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 June 30,								Six Months Ended June 30,
	2021				2020				2021				2020
	Yield %		Amount		Yield %		Amount		Yield %		Amount		Yield %		Amount
	(Dollars in millions)
Investment income (1)	5.21	%	$	1,251	3.11	%	$	688	5.23	%	$	2,476	3.76	%	$	1,640
Investment fees and expenses (2)	(0.13)		(34)		(0.13)		(32)		(0.13)		(67)		(0.13)		(64)
Adjusted net investment income (3)	5.08	%	$	1,217	2.98	%	$	656	5.10	%	$	2,409	3.63	%	$	1,576

_______________

(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.

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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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In millions)
Net investment income	$	1,212	$	652	$	2,399	$	1,568
Less: Investment hedge adjustments	(5)		(4)		(10)		(8)
Adjusted net investment income — in the above yield table	$	1,217	$	656	$	2,409	$	1,576

See “— Results of Operations — Consolidated Results for the Three Months and Six Months Ended June 30, 2021 and 2020 for an analysis of the period over period changes in net investment income.

Fixed Maturity Securities Available-for-sale

Fixed maturity securities held by type (public or private) were as follows at:

	June 30, 2021					December 31, 2020
	Estimated Fair Value			% of Total		Estimated Fair Value			% of Total
	(Dollars in millions)
Publicly-traded	$	70,636		83.3	%	$	68,328		82.8	%
Privately-placed	14,149			16.7		14,167			17.2
Total fixed maturity securities	$	84,785		100.0	%	$	82,495		100.0	%
Percentage of cash and invested assets	73.4		%			72.6		%

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.

See Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements for further information about fixed maturity securities by sector, contractual maturities, 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 Securities AFS — Fixed Maturity Securities Credit Quality — Ratings” included in our 2020 Annual Report for a discussion of the credit quality ratings assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the NAIC for fixed maturity securities and the methodologies adopted by the NAIC for certain Structured Securities.

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

		June 30, 2021										December 31, 2020
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	$	47,178	$	—	$	6,580	$	53,758	63.4	%	$	44,189	$	—	$	8,492	$	52,681	63.8	%
2	Baa	24,637		2		2,639		27,274		32.2		23,022		—		3,338		26,360		32.0
Subtotal investment grade		71,815		2		9,219		81,032		95.6		67,211		—		11,830		79,041		95.8
3	Ba	2,504		—		106		2,610		3.1		2,408		—		118		2,526		3.1
4	B	1,001		2		14		1,013		1.2		814		—		20		834		1.0
5	Caa and lower	130		5		—		125		0.1		91		2		—		89		0.1
6	In or near default	4		—		1		5		—		5		—		—		5		—
Subtotal below investment grade		3,639