Brighthouse Financial, Inc. First Quarter 2021 Earnings Call Presentation Note regarding forward-looking statements This presentation and other oral or written statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements using words s ...

Brighthouse Financial, Inc. (NASDAQ:BHF) Q1 2021 Results Conference Call May 11, 2021 8:00 AM ET Company Participants David Rosenbaum - Head of Investor Relations Eric Steigerwalt - Chief Executive Officer Edward Spehar - Chief Financial Officer Conor Murphy - Chief Operating Officer Myles Lambert - Head of Marketing Conference Call Participants Ryan Krueger - Keefe, Bruyette, & Woods Elyse Greenspan - Wells Fargo Securities Thomas Gallagher - Evercore ISI Hung-Fai Lee - Dowling & Partners Securities Tracy ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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 ABHFAP 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 BBHFAO The Nasdaq ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________ FORM 10-K 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 Pre ...

Brighthouse Financial, Inc. (NASDAQ:BHF) Q4 2020 Earnings Conference Call February 11, 2021 8:00 AM ET Company Participants David Rosenbaum - Investor Relations Eric Steigerwalt - President & CEO Ed Spehar - EVP & CFO Myles Lambert - Chief Distribution and Marketing Officer Conor Murphy - Chief Operating Officer John Rosenthal - Chief Investment Officer Conference Call Participants Humphrey Lee - Dowling & Partners Ryan Krueger - KBW Tom Gallagher - Evercore Elyse Greenspan - Wells Fargo Tracy Bengui ...

Brighthouse Financial, Inc. Fourth Quarter and Full Year 2020 Earnings Call Presentation Note regarding forward-looking statements This presentation and other oral or written statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statement ...

UNITED STATES 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 ABHFAP 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 BBHFAO The Nasdaq Stock Market LLC 6.250% Junior Subordinated Debentures du ...

Financial Data and Key Metrics Changes - The company reported third quarter adjusted earnings of $388 million, a significant increase from $39 million in the second quarter of 2020 and $260 million in the third quarter of 2019 [31] - The estimated combined risk-based capital (RBC) ratio increased to a range of 525% to 545% [19][26] - Total adjusted capital (TAC) rose to $8.4 billion as of September 30, up from $7.7 billion at June 30 [25] Business Line Data and Key Metrics Changes - Annuity sales reached approximately $2.3 billion, up 29% year-over-year and 27% sequentially [14] - Life insurance sales generated approximately $13 million in the third quarter of 2020 [14] - Annuities adjusted earnings, excluding notable items, were $285 million, reflecting higher net investment income and fees [35] Market Data and Key Metrics Changes - Total annuity net inflows were $174 million, driven by strong sales and fewer policy surrenders [15] - The company noted a 47% year-over-year increase in fixed products sales within the industry [50] Company Strategy and Development Direction - The company remains focused on its strategy to unlock capital, repurchase stock, rationalize expenses, and sell new business [39] - Investments in technology infrastructure continue, with establishment costs of approximately $19 million before tax in the third quarter [17] - The company aims to reduce corporate expenses by $150 million on a run rate basis by the end of the year [16] Management's Comments on Operating Environment and Future Outlook - Management emphasized the importance of financial security during the ongoing COVID-19 pandemic and expressed confidence in the company's strong balance sheet and liquidity [10][18] - The company plans to take a $450 million dividend from Brighthouse Life Insurance Company and a $60 million dividend from New England Life Insurance Company in the fourth quarter [29] Other Important Information - The company has repurchased approximately $980 million of its common stock since August 2018, representing a reduction of over 25% of shares outstanding [11] - The normalized statutory loss for the quarter was approximately $200 million, driven by an increase in the 20-year swap rate [19][25] Q&A Session Summary Question: Market interest in VA risk transfer - Management acknowledged the potential for future transactions if they add value and are executable, while maintaining their current strategy [39] Question: Drivers of adjusted statutory earnings - Management noted that the normalized statutory loss was driven by basis risk between their derivatives portfolio and liabilities, with a significant increase in the 20-year swap rate [42] Question: Dividend capacity for 2021 - Management confirmed plans to take the remaining dividend from BLIC and indicated that unassigned funds improved to approximately $1.5 billion, providing capacity for future dividends [46] Question: Trends in annuity sales - Management reported strong sales results, particularly in fixed annuities, and noted a positive trend in sales despite the challenging environment [50] Question: COVID-19 claims sensitivity - Management indicated that the impact of COVID-19 on the insured population has been less pronounced than expected, with year-to-date claims significantly lower than initial guidance [68] Question: Future capital release and stress scenarios - Management stated that the investment stress scenario impact on RBC has been better than expected, with minimal impairments and downgrades [71]

Part I — Financial Information [Item 1. Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents Brighthouse Financial, Inc.'s unaudited interim condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, along with detailed notes on business, accounting policies, segment information, investments, derivatives, fair value, debt, equity, revenues, expenses, EPS, and contingencies [Interim Condensed Consolidated Balance Sheets](index=4&type=section&id=Interim%20Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows total assets increased to **$235.367 billion** at June 30, 2020, from **$227.259 billion** at December 31, 2019, with total equity rising to **$20.909 billion** | Metric | June 30, 2020 (Millions) | December 31, 2019 (Millions) | |:---|:---|:---| | Total Assets | $235,367 | $227,259 | | Total Liabilities | $214,393 | $211,022 | | Total Brighthouse Financial, Inc.'s Stockholders' Equity | $20,909 | $16,172 | - Investments increased to **$107.172 billion** at June 30, 2020, from **$95.782 billion** at December 31, 2019, primarily due to an increase in fixed maturity securities available-for-sale and short-term investments[9](index=9&type=chunk) - Cash and cash equivalents significantly increased to **$7.325 billion** at June 30, 2020, from **$2.877 billion** at December 31, 2019[9](index=9&type=chunk) [Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) For the three months ended June 30, 2020, the company reported a net loss of **$1.991 billion**, primarily due to substantial net derivative losses, while the six-month period saw a net income of **$2.968 billion** driven by net derivative gains | Metric (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Total Revenues | $(922) | $2,370 | $8,063 | $3,061 | | Total Expenses | $1,600 | $1,901 | $4,333 | $3,545 | | Net Income (Loss) attributable to Brighthouse Financial, Inc. | $(1,991) | $384 | $2,966 | $(353) | | Net Income (Loss) available to Common Shareholders | $(1,998) | $377 | $2,952 | $(360) | | Basic EPS | $(21.10) | $3.28 | $29.60 | $(3.10) | | Diluted EPS | $(21.10) | $3.27 | $29.56 | $(3.10) | - Net derivative gains (losses) were a major driver of profitability fluctuations, with a **$(2.653) billion loss** for the three months ended June 30, 2020, compared to a **$149 million gain** in the prior-year period, and a **$4.249 billion gain** for the six months ended June 30, 2020, versus a **$(1.154) billion loss** in the prior-year period[12](index=12&type=chunk) [Interim Condensed Consolidated Statements of Equity](index=6&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Equity) Total equity increased from **$16.237 billion** at December 31, 2019, to **$20.974 billion** at June 30, 2020, primarily due to net income and other comprehensive income | Metric (Millions) | Balance at Dec 31, 2019 | Balance at Jan 1, 2020 (after accounting change) | Balance at June 30, 2020 | |:---|:---|:---|:---| | Total Equity | $16,237 | $16,226 | $20,974 | | Retained Earnings (Deficit) | $585 | $571 | $3,523 | | Accumulated Other Comprehensive Income (Loss) | $3,240 | $3,243 | $4,965 | - The company issued preferred stock for **$390 million** and repurchased treasury stock for **$(322) million** during the six months ended June 30, 2020[14](index=14&type=chunk)[15](index=15&type=chunk) [Interim Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2020, the company saw a **$4.448 billion** net increase in cash, cash equivalents, and restricted cash, driven by strong financing activities despite net cash used in investing activities | Cash Flow Activity (Millions) | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---| | Net cash provided by (used in) operating activities | $467 | $809 | | Net cash provided by (used in) investing activities | $(2,125) | $(2,932) | | Net cash provided by (used in) financing activities | $6,106 | $1,959 | | Change in cash, cash equivalents and restricted cash | $4,448 | $(164) | | Cash, cash equivalents and restricted cash, end of period | $7,325 | $3,981 | - Financing activities saw a significant increase in deposits from policyholder account balances (**$4.835 billion** in 2020 vs. **$3.794 billion** in 2019) and a large net change in payables for collateral under securities loaned and other transactions (**$3.485 billion** in 2020 vs. **$(963) million** in 2019)[17](index=17&type=chunk) [Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed notes on Brighthouse Financial's business, accounting policies, segment performance, investments, derivatives, fair value, debt, equity, revenues, expenses, EPS, and contingencies, including updates on ASU 2016-13 and ASU 2018-12 [Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies](index=8&type=section&id=Note%201%20%E2%80%94%20Business,%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) Brighthouse Financial, Inc. is a holding company offering annuity and life insurance products through Annuities, Life, and Run-off segments, with financial statements prepared under GAAP and recent adoption of ASU 2016-13 - Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States, operating through Annuities, Life, and Run-off segments, plus Corporate & Other[19](index=19&type=chunk) | Accounting Standard | Effective Date | Impact on Financial Statements | |:---|:---|:---| | ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) | January 1, 2020 | After-tax net decrease to retained earnings of $14 million; net increase to AOCI of $3 million. Established/updated allowance for credit losses on fixed maturity securities, mortgage loans, and other invested assets. | | ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts | Currently January 1, 2022 (proposed to Jan 1, 2023) | Evaluation ongoing; unable to estimate impact. Most significant impact expected on measurement of liabilities for variable annuity guarantees. | - The CARES Act is not believed to have a material impact on the consolidated financial statements at this time, but the company continues to monitor developments related to the COVID-19 pandemic[27](index=27&type=chunk) [Note 2 — Segment Information](index=10&type=section&id=Note%202%20%E2%80%94%20Segment%20Information) Brighthouse Financial operates through Annuities, Life, and Run-off segments, with total adjusted earnings decreasing to **$11 million** for the three months and **$222 million** for the six months ended June 30, 2020 - The company's segments are Annuities (variable, fixed, index-linked, and income annuities), Life (term, universal, whole, and variable life products), and Run-off (products no longer actively sold, including structured settlements and pension risk transfer contracts); Corporate & Other includes excess capital, debt interest expense, and certain legal/tax items[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) | Segment (Millions) | 3 Months Ended June 30, 2020 (Adjusted Earnings) | 3 Months Ended June 30, 2019 (Adjusted Earnings) | 6 Months Ended June 30, 2020 (Adjusted Earnings) | 6 Months Ended June 30, 2019 (Adjusted Earnings) | |:---|:---|:---|:---|:---| | Annuities | $171 | $265 | $487 | $560 | | Life | $48 | $58 | $59 | $83 | | Run-off | $(115) | $2 | $(185) | $(34) | | Corporate & Other | $(93) | $(71) | $(139) | $(123) | | Total Adjusted Earnings | $11 | $254 | $222 | $486 | | Segment (Millions) | 3 Months Ended June 30, 2020 (Total Revenues) | 3 Months Ended June 30, 2019 (Total Revenues) | 6 Months Ended June 30, 2020 (Total Revenues) | 6 Months Ended June 30, 2019 (Total Revenues) | |:---|:---|:---|:---|:---| | Annuities | $1,052 | $1,194 | $2,203 | $2,311 | | Life | $285 | $330 | $639 | $633 | | Run-off | $332 | $527 | $825 | $1,003 | | Corporate & Other | $37 | $42 | $79 | $85 | | Adjustments | $(2,628) | $277 | $4,317 | $(971) | | Total | $(922) | $2,370 | $8,063 | $3,061 | | Segment (Millions) | June 30, 2020 (Total Assets) | December 31, 2019 (Total Assets) | |:---|:---|:---| | Annuities | $158,152 | $156,965 | | Life | $22,299 | $21,876 | | Run-off | $38,044 | $35,112 | | Corporate & Other | $16,872 | $13,306 | | Total | $235,367 | $227,259 | [Note 3 — Insurance](index=14&type=section&id=Note%203%20%E2%80%94%20Insurance) This note details the company's insurance guarantees, including variable annuity contracts with guaranteed minimum benefits and universal/variable life insurance contracts with secondary guarantees, totaling **$97.133 billion** in account value at June 30, 2020 | Guarantee Type (Millions) | June 30, 2020 (Account Value) | June 30, 2020 (Death Benefit NAR) | June 30, 2020 (At Annuitization NAR) | December 31, 2019 (Account Value) | December 31, 2019 (Death Benefit NAR) | December 31, 2019 (At Annuitization NAR) | |:---|:---|:---|:---|:---|:---|:---| | Annuity Contracts (Variable Annuity Guarantees) | $97,133 | $8,812 | $55,048 | $104,271 | $6,671 | $59,859 | | Universal Life Contracts (Secondary Guarantees) | $5,866 | $70,092 | N/A | $5,957 | $71,124 | N/A | | Variable Life Contracts | $3,330 | $20,701 | N/A | $3,526 | $21,325 | N/A | - The average attained age of variable annuity contract holders was **69 years** at June 30, 2020, and **68 years** at December 31, 2019[44](index=44&type=chunk) [Note 4 — Investments](index=15&type=section&id=Note%204%20%E2%80%94%20Investments) The company's total investments increased to **$107.172 billion** at June 30, 2020, with an allowance for credit losses of **$5 million** for fixed maturity securities and **$92 million** for mortgage loans, while net investment income decreased for both periods | Investment Type (Millions) | June 30, 2020 (Estimated Fair Value) | December 31, 2019 (Estimated Fair Value) | |:---|:---|:---| | Fixed maturity securities available-for-sale | $76,796 | $71,036 | | Equity securities | $129 | $147 | | Mortgage loans (net) | $15,791 | $15,753 | | Policy loans | $1,201 | $1,292 | | Limited partnerships and LLCs | $2,354 | $2,380 | | Short-term investments | $4,537 | $1,958 | | Other invested assets (net) | $6,364 | $3,216 | | Total Investments | $107,172 | $95,782 | | Fixed Maturity Securities (Millions) | June 30, 2020 (Estimated Fair Value) | December 31, 2019 (Estimated Fair Value) | |:---|:---|:---| | U.S. corporate | $34,265 | $31,160 | | Foreign corporate | $10,291 | $9,844 | | RMBS | $8,584 | $9,118 | | U.S. government and agency | $8,925 | $7,396 | | CMBS | $6,255 | $5,755 | | State and political subdivision | $4,232 | $4,057 | | ABS | $2,463 | $1,955 | | Foreign government | $1,781 | $1,751 | | Total | $76,796 | $71,036 | | Mortgage Loans (Millions) | June 30, 2020 (Carrying Value) | December 31, 2019 (Carrying Value) | |:---|:---|:---| | Commercial | $9,715 | $9,721 | | Agricultural | $3,361 | $3,388 | | Residential | $2,807 | $2,708 | | Total mortgage loans | $15,883 | $15,817 | | Allowance for credit losses | $(92) | $(64) | | Total mortgage loans, net | $15,791 | $15,753 | | Net Investment Income (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Total investment income | $692 | $990 | $1,660 | $1,856 | | Less: Investment expenses | $40 | $48 | $92 | $103 | | Net investment income | $652 | $942 | $1,568 | $1,753 | | Net Investment Gains (Losses) (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Fixed maturity securities | $(21) | $68 | $(27) | $53 | | Equity securities | $7 | $1 | $(7) | $11 | | Mortgage loans | $(22) | $(3) | $(26) | $(7) | | Total net investment gains (losses) | $(34) | $63 | $(53) | $52 | [Note 5 — Derivatives](index=26&type=section&id=Note%205%20%E2%80%94%20Derivatives) This note details the company's derivative strategies for managing market risks, reporting significant net derivative losses for the three months ended June 30, 2020, but net gains for the six months, with credit risk managed through netting agreements and collateral - The company uses interest rate, foreign currency exchange rate, equity, and credit derivatives to manage various market risks, with a substantial portion not designated for hedge accounting[88](index=88&type=chunk)[89](index=89&type=chunk) | Derivative Type (Millions) | June 30, 2020 (Gross Notional Amount) | June 30, 2020 (Estimated Fair Value Assets) | June 30, 2020 (Estimated Fair Value Liabilities) | December 31, 2019 (Gross Notional Amount) | December 31, 2019 (Estimated Fair Value Assets) | December 31, 2019 (Estimated Fair Value Liabilities) | |:---|:---|:---|:---|:---|:---|:---| | Total Designated as Hedging Instruments | $3,171 | $593 | $1 | $3,185 | $212 | $27 | | Total Not Designated or Not Qualifying as Hedging Instruments | $97,842 | $5,557 | $2,250 | $110,287 | $2,809 | $2,510 | | Total Embedded Derivatives | N/A | $323 | $5,649 | N/A | $217 | $4,248 | | Grand Total | $101,013 | $6,473 | $7,900 | $113,472 | $3,238 | $6,785 | | Net Derivative Gains (Losses) (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Total cash flow hedges | $3 | $22 | $4 | $47 | | Total non-qualifying hedges | $(2,651) | $153 | $4,257 | $(1,175) | | Total | $(2,648) | $175 | $4,261 | $(1,128) | - The estimated fair value of derivatives in a net liability position with credit-contingent provisions was **$515 million** at June 30, 2020, down from **$1.064 billion** at December 31, 2019[102](index=102&type=chunk) [Note 6 — Fair Value](index=32&type=section&id=Note%206%20%E2%80%94%20Fair%20Value) At June 30, 2020, total assets measured at fair value were **$187.534 billion** and total liabilities were **$7.9 billion**, with **$5.679 billion** in Level 3 liabilities primarily from embedded derivatives, reflecting robust valuation controls | Fair Value Hierarchy (Millions) | June 30, 2020 (Level 1) | June 30, 2020 (Level 2) | June 30, 2020 (Level 3) | June 30, 2020 (Total) | |:---|:---|:---|:---|:---| | Total Assets | $5,036 | $181,051 | $1,447 | $187,534 | | Total Liabilities | $0 | $2,221 | $5,679 | $7,900 | | Fair Value Hierarchy (Millions) | December 31, 2019 (Level 1) | December 31, 2019 (Level 2) | December 31, 2019 (Level 3) | December 31, 2019 (Total) | |:---|:---|:---|:---|:---| | Total Assets | $3,101 | $179,414 | $971 | $183,486 | | Total Liabilities | $0 | $2,466 | $4,319 | $6,785 | - Embedded derivatives, primarily certain direct and ceded variable annuity guarantees and equity crediting rates within index-linked annuity contracts, constitute a significant portion of Level 3 liabilities, valued at **$5.649 billion** at June 30, 2020[106](index=106&type=chunk)[117](index=117&type=chunk) - Transfers into Level 3 occur when significant inputs cannot be corroborated with market observable data, while transfers out occur when market observability improves[119](index=119&type=chunk) [Note 7 — Long-term Debt](index=41&type=section&id=Note%207%20%E2%80%94%20Long-term%20Debt) During Q2 2020, Brighthouse Financial, Inc. issued **$615 million** in senior notes and repaid its **$1.0 billion** unsecured term loan, while also increasing its reinsurance financing arrangement to **$12.0 billion** - BHF issued **$615 million** aggregate principal amount of 5.625% Senior Notes due May 2030 for net cash proceeds of **$614 million**[129](index=129&type=chunk) - The company repaid and terminated its **$1.0 billion** unsecured term loan facility in the second quarter of 2020[129](index=129&type=chunk) - The reinsurance financing arrangement was increased from **$10.0 billion** to **$12.0 billion** and extended to 2039, with **$10.6 billion** of funding available at June 30, 2020[129](index=129&type=chunk) [Note 8 — Equity](index=41&type=section&id=Note%208%20%E2%80%94%20Equity) This note details changes in equity, including the issuance of Series B Preferred Stock for **$390 million** in May 2020 and common stock repurchases, with Accumulated Other Comprehensive Income (Loss) significantly increasing due to unrealized investment and derivative gains - In May 2020, BHF issued Series B Depositary Shares, representing 16,100 shares of 6.750% non-cumulative preferred stock, Series B, for aggregate net cash proceeds of **$390 million**[131](index=131&type=chunk) - The Board authorized an additional **$500 million** for common stock repurchases on February 6, 2020, but temporarily suspended repurchases on May 11, 2020; during the six months ended June 30, 2020, **13,250,927 shares** were repurchased for **$322 million**[133](index=133&type=chunk) | AOCI Component (Millions) | Balance at Dec 31, 2019 | Balance at June 30, 2020 | |:---|:---|:---|\n| Unrealized Investment Gains (Losses), Net of Related Offsets | $3,111 | $4,517 | | Unrealized Gains (Losses) on Derivatives | $172 | $500 | | Foreign Currency Translation Adjustments | $(15) | $(24) | | Defined Benefit Plans Adjustment | $(28) | $(28) | | Total AOCI | $3,240 | $4,965 | [Note 9 — Other Revenues and Other Expenses](index=44&type=section&id=Note%209%20%E2%80%94%20Other%20Revenues%20and%20Other%20Expenses) Other revenues, primarily 12b-1 fees, decreased for both the three and six months ended June 30, 2020, as did total other expenses, driven by lower transition services agreements and volume-related costs | Other Revenues (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | 12b-1 fees | $76 | $85 | $157 | $167 | | Total Other Revenues | $93 | $96 | $195 | $188 | | Other Expenses (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Compensation | $93 | $80 | $162 | $162 | | Contracted services and other labor costs | $78 | $65 | $146 | $112 | | Transition services agreements | $15 | $65 | $53 | $132 | | Establishment costs | $35 | $38 | $53 | $72 | | Separate account fees | $108 | $122 | $225 | $242 | | Volume related costs, excluding compensation, net of DAC capitalization | $162 | $153 | $290 | $317 | | Interest expense on debt | $45 | $48 | $92 | $95 | | Total other expenses | $577 | $621 | $1,094 | $1,213 | [Note 10 — Earnings Per Common Share](index=45&type=section&id=Note%2010%20%E2%80%94%20Earnings%20Per%20Common%20Share) For the three months ended June 30, 2020, the company reported a basic and diluted loss per common share of **$(21.10)**, while the six-month period saw a basic EPS of **$29.60** and diluted EPS of **$29.56** | EPS Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Net income (loss) available to common shareholders (Millions) | $(1,998) | $377 | $2,952 | $(360) | | Weighted average common shares outstanding — basic | 94,698,169 | 114,931,224 | 99,728,754 | 115,863,127 | | Weighted average common shares outstanding — diluted | 94,698,169 | 115,536,654 | 99,868,932 | 115,863,127 | | Basic EPS | $(21.10) | $3.28 | $29.60 | $(3.10) | | Diluted EPS | $(21.10) | $3.27 | $29.56 | $(3.10) | - Dilutive share-based awards were excluded from diluted EPS calculation for the three months ended June 30, 2020, and six months ended June 30, 2019, as their inclusion would be antidilutive due to net losses[144](index=144&type=chunk) [Note 11 — Contingencies, Commitments and Guarantees](index=46&type=section&id=Note%2011%20%E2%80%94%20Contingencies,%20Commitments%20and%20Guarantees) The company estimates reasonably possible losses for litigation at **$0 to $10 million** and for non-litigation contingencies between **$25 million** and **$75 million**, with commitments including **$229 million** in mortgage loans and **$1.8 billion** in unfunded partnership/credit facilities - For litigation matters where a loss is reasonably possible but not probable, the aggregate range of reasonably possible losses in excess of amounts accrued is estimated to be **$0 to $10 million** at June 30, 2020[145](index=145&type=chunk) - For non-litigation loss contingencies, the estimated aggregate range of reasonably possible losses in excess of accrued amounts is between **$25 million** and **$75 million**[151](index=151&type=chunk) | Commitment Type (Millions) | June 30, 2020 | December 31, 2019 | |:---|:---|:---|\n| Mortgage loan commitments | $229 | $206 | | Commitments to fund partnership investments, bank credit facilities and private corporate bond investments | $1,800 | $1,800 | - The company provides various indemnities and guarantees, with some having a contractual limitation up to **$112 million** (cumulative maximum of **$118 million**) and others being unlimited; management believes material payments under these are unlikely[153](index=153&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Brighthouse Financial's financial condition, operations, and cash flows, covering an executive summary, industry trends, critical accounting estimates, non-GAAP measures, and detailed analysis of consolidated and segment results, investments, derivatives, off-balance sheet arrangements, policyholder liabilities, and liquidity [Introduction](index=50&type=section&id=Introduction) This introduction outlines the scope and structure of the Management's Discussion and Analysis (MD&A) for Brighthouse Financial, Inc., emphasizing its role in conjunction with interim condensed consolidated financial statements and other SEC filings - The MD&A covers Brighthouse Financial, Inc. and its subsidiaries, with 'BHF' referring solely to the holding company[157](index=157&type=chunk) - The MD&A is structured to provide background information, definitions, and discussions on business segments, industry trends (including COVID-19), critical accounting estimates, and non-GAAP financial measures[158](index=158&type=chunk) [Executive Summary](index=50&type=section&id=Executive%20Summary) Brighthouse Financial, a leading annuity and life insurance provider, reported a **$1.998 billion** net loss for Q2 2020 due to derivative fair value changes, but a **$2.952 billion** net income for the six months, driven by favorable derivative results - Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States, operating through Annuities, Life, and Run-off segments[159](index=159&type=chunk)[160](index=160&type=chunk) | Metric (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Net income (loss) available to shareholders | $(1,998) | $377 | $2,952 | $(360) | | Adjusted earnings | $11 | $254 | $222 | $486 | - The net loss for the three months ended June 30, 2020, was primarily due to net unfavorable changes in the estimated fair value of derivatives, particularly Shield Level Annuities liabilities and freestanding derivatives hedging variable annuity business, and narrowing credit spreads[163](index=163&type=chunk) - The net income for the six months ended June 30, 2020, was driven by net favorable comparative results in guaranteed minimum living benefits (GMLB) riders due to declining long-term interest rates impacting derivative fair values and favorable non-performance risk adjustments from widening credit spreads[163](index=163&type=chunk) [Industry Trends](index=51&type=section&id=Industry%20Trends) This section highlights key industry trends and uncertainties, focusing on the COVID-19 pandemic's impact on operations, sales, and investments, alongside regulatory developments like the Department of Labor's new Fiduciary Advice Rule [COVID-19 Pandemic](index=51&type=section&id=COVID-19%20Pandemic) The COVID-19 pandemic has increased economic uncertainty, reduced product sales, and led to loan modifications, with Fitch revising the company's rating outlook to negative, though immediate financial impacts have not been material - The COVID-19 pandemic has led to increased economic uncertainty and unemployment, impacting product sales and prompting customer relief actions, though these have not had a material financial impact to date[167](index=167&type=chunk) - Certain sectors of the investment portfolio are adversely affected by the pandemic, and credit rating agencies, such as Fitch, have revised the company's rating outlook to negative[167](index=167&type=chunk) - The company successfully transitioned all employees to a work-from-home environment and continues to monitor business aspects like sales, claims, lapses, liquidity, and investment valuations[167](index=167&type=chunk) [Regulatory Developments](index=52&type=section&id=Regulatory%20Developments) The company's life insurance operations are primarily state-regulated, with federal oversight, and the Department of Labor's new Fiduciary Advice Rule could impact annuity sales through independent partners and increase litigation risk - The company's life insurance companies are primarily regulated at the state level, with some federal regulation for products and services[168](index=168&type=chunk) - The DOL's new Fiduciary Advice Rule expands the definition of 'investment advice' for ERISA Plans and IRAs, potentially classifying 'roll over' advice as fiduciary investment advice[172](index=172&type=chunk) - The company anticipates limited direct exposure to the Fiduciary Advice Rule but acknowledges potential adverse effects on annuity sales through independent distribution partners, changes to compensation practices, and increased litigation risk[173](index=173&type=chunk) [Department of Labor and ERISA Considerations](index=53&type=section&id=Department%20of%20Labor%20and%20ERISA%20Considerations) This section outlines the company's compliance with ERISA and Tax Code regulations for individual retirement annuities and tax-qualified pension/retirement plans, including fiduciary obligations and requirements for guaranteed benefit policies - The company manufactures individual retirement annuities (IRAs) and has in-force life insurance/annuity products subject to ERISA or the Tax Code[171](index=171&type=chunk) - The company takes steps to ensure compliance with DOL regulations regarding disclosure to plan sponsors and participants, and to ensure policies issued to ERISA plans qualify as guaranteed benefit policies[171](index=171&type=chunk) [Department of Labor Fiduciary Advice Rule](index=53&type=section&id=Department%20of%20Labor%20Fiduciary%20Advice%20Rule) The DOL's Fiduciary Advice Rule broadens the definition of fiduciary 'investment advice' for ERISA Plans and IRAs, including 'roll over' advice, potentially impacting annuity sales through independent partners despite a proposed exemption for fiduciaries - The Fiduciary Advice Rule broadens the definition of fiduciary 'investment advice' to ERISA Plans and IRAs, including recommendations to 'roll over' assets[172](index=172&type=chunk) - A proposed exemption would allow fiduciaries to receive compensation for investment advice, including roll overs, provided they acknowledge fiduciary status, act in beneficiaries' interest, and meet 'prudent person' standards[172](index=172&type=chunk) - The company anticipates limited direct exposure but foresees potential adverse effects on annuity sales through independent distribution partners, changes to compensation practices, and increased litigation risk[173](index=173&type=chunk) [Summary of Critical Accounting Estimates](index=54&type=section&id=Summary%20of%20Critical%20Accounting%20Estimates) Critical accounting estimates involve subjective judgments for future policy benefits, DAC amortization, investment credit losses, fair value of derivatives, and income taxes, all requiring complex management estimates - Critical accounting estimates involve subjective and complex judgments, including those for future policy benefits, DAC amortization, investment credit losses, fair value of derivatives, and income taxes[174](index=174&type=chunk)[175](index=175&type=chunk) [Non-GAAP and Other Financial Disclosures](index=54&type=section&id=Non-GAAP%20and%20Other%20Financial%20Disclosures) This section defines non-GAAP financial measures like 'adjusted earnings' and 'adjusted net investment income,' used to evaluate performance and facilitate industry comparisons by excluding market volatility and certain other impacts - Adjusted earnings is a non-GAAP financial measure that excludes net income (loss) attributable to noncontrolling interests and preferred stock dividends, focusing on primary businesses by excluding market volatility[178](index=178&type=chunk) - Key exclusions from adjusted earnings include net investment gains (losses), most net derivative gains (losses), certain variable annuity guaranteed minimum income benefits (GMIBs) fees and costs, and related amortization of DAC and VOBA[178](index=178&type=chunk)[179](index=179&type=chunk) - Adjusted net investment income is a non-GAAP measure that includes Investment Hedge Adjustments, aiming to enhance understanding of investment portfolio results[182](index=182&type=chunk) [Non-GAAP Financial Disclosures](index=54&type=section&id=Non-GAAP%20Financial%20Disclosures) This sub-section defines 'Adjusted Earnings' and 'Adjusted Net Investment Income' as non-GAAP measures, excluding market volatility and certain items to focus on core business profitability and provide a clearer view of investment performance - Adjusted earnings is a non-GAAP financial measure that excludes net income (loss) attributable to noncontrolling interests and preferred stock dividends, focusing on primary businesses by excluding market volatility[178](index=178&type=chunk) - Significant items excluded from adjusted earnings include net investment gains (losses), most net derivative gains (losses), certain variable annuity guaranteed minimum income benefits (GMIBs) fees and costs, and related amortization of DAC and VOBA[178](index=178&type=chunk)[179](index=179&type=chunk) - Adjusted net investment income is a non-GAAP measure that includes Investment Hedge Adjustments to provide a clearer view of investment portfolio results[182](index=182&type=chunk) [Other Financial Disclosures](index=56&type=section&id=Other%20Financial%20Disclosures) This sub-section introduces net investment income yields as a performance measure, calculated on adjusted net investment income as a percentage of average quarterly asset carrying values, excluding certain items like unrealized gains/losses and collateral - Net investment income yields are calculated on adjusted net investment income as a percentage of average quarterly asset carrying values[183](index=183&type=chunk) - Asset carrying values for yield calculation exclude unrealized gains (losses), collateral from securities lending, freestanding derivative assets, and collateral from derivative counterparties[183](index=183&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) This section analyzes the company's consolidated and segment-level financial performance, showing a **$1.998 billion** net loss for the three months ended June 30, 2020, but a **$2.952 billion** net income for the six months, with adjusted earnings decreasing for both periods [Consolidated Results for the Three Months and Six Months Ended June 30, 2020 and 2019](index=57&type=section&id=Consolidated%20Results%20for%20the%20Three%20Months%20and%20Six%20Months%20Ended%20June%2030,%202020%20and%202019) For the three months ended June 30, 2020, the company reported a **$1.998 billion** net loss, a **$2.4 billion** decrease from the prior year, while the six-month period saw a **$2.952 billion** net income, a **$3.3 billion** increase, driven by GMLB Riders and derivative gains | Metric (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Net income (loss) available to Brighthouse Financial, Inc.'s common shareholders | $(1,998) | $377 | $2,952 | $(360) | | Pre-tax adjusted earnings, less noncontrolling interests and preferred stock dividends | $14 | $305 | $258 | $577 | | Adjusted earnings | $11 | $254 | $222 | $486 | - The three-month net loss was primarily driven by higher losses from GMLB Riders and other derivative instruments, including interest rate derivatives and foreign currency swaps, and lower pre-tax adjusted earnings[189](index=189&type=chunk) - The six-month net income was primarily driven by gains from GMLB Riders and interest rate derivatives used in the ULSG business[189](index=189&type=chunk) [Consolidated Results for the Three Months and Six Months Ended June 30, 2020 and 2019 — Adjusted Earnings](index=61&type=section&id=Consolidated%20Results%20for%20the%20Three%20Months%20and%20Six%20Months%20Ended%20June%2030,%202020%20and%202019%20%E2%80%94%20Adjusted%20Earnings) Consolidated adjusted earnings decreased by **$243 million** to **$11 million** for the three months and by **$264 million** to **$222 million** for the six months ended June 30, 2020, primarily due to lower net investment spread and fee income, partially offset by lower other expenses | Adjusted Earnings Component (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Fee income | $857 | $919 | $1,779 | $1,820 | | Net investment spread | $160 | $459 | $601 | $794 | | Insurance-related activities | $(262) | $(292) | $(756) | $(565) | | Amortization of DAC and VOBA | $(157) | $(153) | $(256) | $(250) | | Other expenses, net of DAC capitalization | $(577) | $(621) | $(1,094) | $(1,213) | | Pre-tax adjusted earnings, less noncontrolling interests and preferred stock dividends | $14 | $305 | $258 | $577 | | Adjusted earnings | $11 | $254 | $222 | $486 | - Key unfavorable impacts on adjusted earnings for both periods included lower net investment spread due to reduced returns on limited partnerships and lower investment yields on the fixed income portfolio[198](index=198&type=chunk) - Favorable impacts included lower other expenses, primarily from the exit of transition service agreements with MetLife and reduced asset-based variable annuity expenses[198](index=198&type=chunk)[199](index=199&type=chunk) [Segments and Corporate & Other Results for the Three Months and Six Months Ended June 30, 2020 and 2019 — Adjusted Earnings](index=62&type=section&id=Segments%20and%20Corporate%20%26%20Other%20Results%20for%20the%20Three%20Months%20and%20Six%20Months%20Ended%20June%2030,%202020%20and%202019%20%E2%80%94%20Adjusted%20Earnings) This section details adjusted earnings performance across Annuities, Life, Run-off, and Corporate & Other segments, with all segments experiencing decreased adjusted earnings or increased losses due to lower net investment spread, fee income, and higher costs [Annuities](index=62&type=section&id=Annuities) Annuities segment adjusted earnings decreased by **$94 million** to **$171 million** for the three months and by **$73 million** to **$487 million** for the six months ended June 30, 2020, primarily due to lower net investment spread and asset-based fees, partially offset by lower expenses | Annuities Segment (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Adjusted earnings | $171 | $265 | $487 | $560 | | Fee income | $607 | $664 | $1,263 | $1,302 | | Net investment spread | $201 | $280 | $463 | $521 | | Other expenses, net of DAC capitalization | $(364) | $(416) | $(729) | $(810) | | Variable Annuities Separate Account Balances (Millions) | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2020 | |:---|:---|:---| | Balance, beginning of period | $82,648 | $99,498 | | Net flows | $(1,206) | $(3,158) | | Investment performance | $11,430 | $(2,701) | | Balance, end of period | $92,211 | $92,211 | | Average balance | $88,740 | $91,499 | - Lower net investment spread was attributed to lower returns on limited partnerships and lower investment yields on the fixed income portfolio, partially offset by higher average invested assets[204](index=204&type=chunk)[205](index=205&type=chunk) [Life](index=64&type=section&id=Life) Life segment adjusted earnings decreased by **$10 million** to **$48 million** for the three months and by **$24 million** to **$59 million** for the six months ended June 30, 2020, mainly due to lower net investment spread and higher insurance-related activities costs | Life Segment (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Adjusted earnings | $48 | $58 | $59 | $83 | | Fee income | $84 | $64 | $181 | $125 | | Net investment spread | $14 | $61 | $73 | $103 | | Insurance-related activities | $14 | $12 | $(52) | $6 | | Amortization of DAC and VOBA | $4 | $(21) | $(54) | $(32) | - Lower net investment spread was due to lower returns on other limited partnerships and lower investment yields on the fixed income portfolio[207](index=207&type=chunk)[209](index=209&type=chunk) - Higher costs associated with insurance-related activities for the six-month period were due to higher paid claims, net of reinsurance[209](index=209&type=chunk) [Run-of](index=65&type=section&id=Run-of) Run-off segment adjusted earnings resulted in a loss of **$115 million** for the three months and a higher loss of **$185 million** for the six months ended June 30, 2020, primarily due to lower net investment spread and reduced fee income | Run-off Segment (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Adjusted earnings | $(115) | $2 | $(185) | $(34) | | Fee income | $166 | $188 | $335 | $387 | | Net investment spread | $(70) | $101 | $30 | $136 | | Insurance-related activities | $(201) | $(236) | $(508) | $(470) | - Lower net investment spread was due to lower returns on other limited partnerships[211](index=211&type=chunk)[214](index=214&type=chunk) - Lower fee income in the ULSG business was driven by a decline in net cost of insurance fees from aging in-force business and decreased policyholder fees consistent with lower average account balances[211](index=211&type=chunk)[212](index=212&type=chunk)[214](index=214&type=chunk) [Corporate & Other](index=66&type=section&id=Corporate%20%26%20Other) Corporate & Other adjusted earnings resulted in a loss of **$93 million** for the three months and **$139 million** for the six months ended June 30, 2020, driven by increased media spend and preferred stock dividend payments | Corporate & Other (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Adjusted earnings | $(93) | $(71) | $(139) | $(123) | | Other expenses, net of DAC capitalization | $(116) | $(110) | $(197) | $(207) | | Preferred stock dividends | $7 | $7 | $16 | $9 | - The increase in adjusted loss for the three-month period was primarily due to higher other expenses driven by increased media spend[216](index=216&type=chunk) - The increase in adjusted loss for the six-month period was driven by the commencement of preferred stock dividend payments in the second quarter of 2019, partially offset by lower establishment costs related to planned technology expenses[217](index=217&type=chunk) [GMLB Riders for the Three Months and Six Months Ended June 30, 2020 and 2019 — Adjusted Earnings](index=67&type=section&id=GMLB%20Riders%20for%20the%20Three%20Months%20and%20Six%20Months%20Ended%20June%2030,%202020%20and%202019) The overall impact from Guaranteed Minimum Living Benefit (GMLB) Riders on income before tax was unfavorable by **$2.2 billion** for the three months ended June 30, 2020, but favorable by **$3.5 billion** for the six months, largely influenced by market conditions | GMLB Riders Impact (Millions) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Liabilities | $(1,186) | $(702) | $(1,805) | $(1,051) | | Hedges | $(1,720) | $245 | $3,617 | $(999) | | Ceded reinsurance | $8 | $34 | $105 | $24 | | Fees | $198 | $207 | $396 | $406 | | GMLB DAC | $234 | $(17) | $(407) | $57 | | Total GMLB Riders | $(2,466) | $(233) | $1,906 | $(1,563) | - For the three months, unfavorable changes in GMLB hedges and Shield Annuity liabilities, net of related hedges, were partially offset by favorable changes in variable annuity liability reserves and GMLB DAC[218](index=218&type=chunk) - For the six months, favorable changes in GMLB hedges and Shield Annuity liabilities, net of related hedges, were driven by declining equity markets and lower interest rates, partially offset by unfavorable changes in variable annuity liability reserves and GMLB DAC[221](index=221&type=chunk) [Investments](index=68&type=section&id=Investments) This section details the company's investment portfolio, risks, and management strategies, noting that adjusted net investment income and yields decreased for both the three and six months ended June 30, 2020, with COVID-19 exacerbating existing risks [Investment Risks](index=68&type=section&id=Investment%20Risks) The company faces primary investment risks including credit, interest rate, market valuation, liquidity, real estate, and currency risks, all managed through diversification, risk limits, and Asset Liability Management (ALM) strategies, including derivatives - Primary investment risks include credit risk, interest rate risk, market valuation risk, liquidity risk, real estate risk, and currency risk, all potentially heightened by the COVID-19 pandemic[223](index=223&type=chunk) - Risks are managed through asset-type allocation, industry and issuer diversification, risk limits, and Asset Liability Management (ALM) strategies, including maintaining an investment portfolio duration that reflects liability cash flow profiles[223](index=223&type=chunk) [Investment Management Agreements](index=69&type=section&id=Investment%20Management%20Agreements) The company employs external asset management firms for its general account and certain separate account assets, as well as assets of BHF and its reinsurance subsidiary, BRCD, while derivatives trading is managed in-house - External asset management firms manage the investment of general account and certain separate account assets, as well as assets of BHF and BRCD[224](index=224&type=chunk) - Derivatives trading is managed in-house[224](index=224&type=chunk) [Current Environment](index=69&type=section&id=Current%20Environment) The company's business is significantly affected by capital markets and economic conditions, with recent market volatility from lower energy prices and the COVID-19 pandemic impacting investment pricing and product sales, leading to decreased adjusted net investment income and yields - Market volatility, driven by factors like lower energy prices and the COVID-19 pandemic, affects the performance of various asset classes[227](index=227&type=chunk) - The company's exposure to energy sector fixed maturity securities was **$2.9 billion** (90% investment grade) and retail sector corporate fixed maturity securities was **$1.9 billion** (96% investment grade) at June 30, 2020[227](index=227&type=chunk) | Investment Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Investment income yield | 3.11% | 4.79% | 3.76% | 4.52% | | Adjusted net investment income (Millions) | $656 | $942 | $1,576 | $1,753 | [Selected Sector Investments](index=70&type=section&id=Selected%20Sector%20Investments) Recent market volatility, particularly from lower energy prices and the COVID-19 pandemic, has impacted various asset classes, though the company's diversified, mostly investment-grade energy and retail sector fixed maturity securities portfolios are not expected to have a material adverse effect - The company's energy sector fixed maturity securities exposure was **$2.9 billion**, with **90%** being investment grade, at June 30, 2020[227](index=227&type=chunk) - Retail sector corporate fixed maturity securities exposure was **$1.9 billion**, with **96%** being investment grade, at June 30, 2020[227](index=227&type=chunk) - Investment managers are working with borrowers impacted by COVID-19 to provide temporary relief, and the company does not expect a material adverse effect on its general account investments in these sectors[227](index=227&type=chunk) [Investment Portfolio Results](index=70&type=section&id=Investment%20Portfolio%20Results) The company's investment portfolio experienced a decrease in investment income yields and adjusted net investment income for both the three and six months ended June 30, 2020, reflecting lower returns and yields consistent with broader market conditions | Investment Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | |:---|:---|:---|:---|:---| | Investment income yield | 3.11% | 4.79% | 3.76% | 4.52% | | Investment fees and expenses yield | (0.13)% | (0.12)% | (0.13)% | (0.13)% | | Adjusted net investment income yield | 2.98% | 4.67% | 3.63% | 4.39% | | Adjusted net investment income (Millions) | $656 | $942 | $1,576 | $1,753 | - Adjusted net investment income decreased by **$286 million** for the three months and **$177 million** for the six months ended June 30, 2020, compared to the prior year[230](index=230&type=chunk)[231](index=231&type=chunk) [Fixed Maturity Securities Available-for-sale ("AFS")](index=71&type=section&id=Fixed%20Maturity%20Securities%20Available-for-sale%20(%22AFS%22)) The company's fixed maturity securities AFS portfolio increased to **$76.796 billion** at June 30, 2020, maintaining high credit quality with **95.6%** investment grade, and an allowance for credit losses of **$5 million** was recorded | Fixed Maturity Securities (Millions) | June 30, 2020 (Estimated Fair Value) | December 31, 2019 (Estimated Fair Value) | |:---|:---|:---| | Publicly-traded | $63,506 | $58,099 | | Privately-placed | $13,290 | $12,937 | | Total fixed maturity securities | $76,796 | $71,036 | | Percentage of cash and invested assets | 67.1% | 72.0% | | NAIC Designation | June 30, 2020 (% of Total) | December 31, 2019 (% of Total) | |:---|:---|:---| | NAIC 1 (Aaa/Aa/A) | 66.1% | 65.8% | | NAIC 2 (Baa) | 29.5% | 30.2% | | Subtotal investment grade | 95.6% | 96.0% | | Subtotal below investment grade | 4.4% | 4.0% | | Total | 100% | 100% | - The company held **$17.3 billion** in Structured Securities (RMBS, CMBS, ABS) at June 30, 2020, diversified by security type, risk profile, and ratings[239](index=239&type=chunk) [Fixed Maturity Securities Credit Quality — Ratings](index=71&type=section&id=Fixed%20Maturity%20Securities%20Credit%20Quality%20%E2%80%94%20Ratings) The company's fixed maturity securities portfolio maintains high credit quality, with **95.6%** designated as investment grade (NAIC 1 and 2) at June 30, 2020, consistent with the prior year | NAIC Designation | June 30, 2020 (Estimated Fair Value, Millions) | June 30, 2020 (% of Total) | December 31, 2019 (Estimated Fair Value, Millions) | December 31, 2019 (% of Total) | |:---|:---|:---|:---|:---| | 1 (Aaa/Aa/A) | $50,783 | 66.1% | $46,715 | 65.8% | | 2 (Baa) | $22,617 | 29.5% | $21,448 | 30.2% | | Subtotal investment grade | $73,400 | 95.6% | $68,163 | 96.0% | | Subtotal below investment grade | $3,396 | 4.4% | $2,873 | 4.0% | | Total fixed maturity securities | $76,796 | 100% | $71,036 | 100% | [U.S. and Foreign Corporate Fixed Maturity Securities](index=73&type=section&id=U.S.%20and%20Foreign%20Corporate%20Fixed%20Maturity%20Securities) The company's diversified portfolio of U.S. and foreign corporate fixed maturity securities increased to **$44.556 billion** at June 30, 2020, with no single issuer exceeding 1% of total investments and largest exposures in Industrial, Consumer, and Finance sectors - The corporate fixed maturity securities portfolio is diversified across industries and issuers, with no single issuer exceeding **1%** of total investments[237](index=237&type=chunk) | Industry | June 30, 2020 (Estimated Fair Value, Millions) | June 30, 2020 (% of Total) | December 31, 2019 (Estimated Fair Value, Millions) | December 31, 2019 (% of Total) | |:---|:---|:---|:---|:---| | Industrial | $13,735 | 30.8% | $12,633 | 30.9% | | Consumer | $10,642 | 23.9% | $9,719 | 23.7% | | Finance | $10,283 | 23.1% | $9,448 | 23.0% | | Utility | $6,693 | 15.0% | $6,247 | 15.2% | | Communications | $3,203 | 7.2% | $2,957 | 7.2% | | Total | $44,556 | 100.0% | $41,004 | 100.0% | [Structured Securities](index=73&type=section&id=Structured%20Securities) The company held **$17.3 billion** in Structured Securities (RMBS, CMBS, and ABS) at June 30, 2020, diversified by security type, risk profile, vintage year, and collateral type, with a significant portion rated Aaa - Total Structured Securities (RMBS, CMBS, ABS) were **$17.3 billion** at June 30, 2020, and **$16.8 billion** at December 31, 2019[239](index=239&type=chunk) | RMBS Risk Profile | June 30, 2020 (Estimated Fair Value, Millions) | June 30, 2020 (% of Total) | |:---|:---|:---| | Agency | $6,759 | 78.7% | | Prime | $124 | 1.4% | | Alt-A | $846 | 9.9% | | Sub-prime | $855 | 10.0% | | Total RMBS | $8,584 | 100.0% | | CMBS Vintage Year | June 30, 2020 (Estimated Fair Value, Millions) | |:---|:---| | 2003 - 2010 | $112 | | 2011 | $170 | | 2012 | $146 | | 2013 | $213 | | 2014 | $352 | | 2015 | $1,013 | | 2016 | $505 | | 2017 | $752 | | 2018 | $1,870 | | 2019 | $981 | | 2020 | $141 | | Total CMBS | $6,255 | | ABS Collateral Type | June 30, 2020 (Estimated Fair Value, Millions) | June 30, 2020 (% of Total) | |:---|:---|:---| | Collateralized obligations | $1,492 | 60.6% | | Student loans | $188 | 7.6% | | Consumer loans | $188 | 7.6% | | Automobile loans | $99 | 4.0% | | Credit card loans | $58 | 2.4% | | Other loans | $438 | 17.8% | | Total ABS | $2,463 | 100.0% | [Allowance for Credit Losses for Fixed Maturity Securities](index=74&type=section&id=Allowance%20for%20Credit%20Losses%20for%20Fixed%20Maturity%20Securities) The company recorded an allowance for credit losses of **$5 million** for 18 fixed maturity securities at June 30, 2020, based on evaluation of uncollectability factors, while other unrealized losses were recognized in OCI due to non-credit factors - The company recorded an allowance for credit losses of **$5 million** for fixed maturity securities, relating to 18 securities, at June 30, 2020[54](index=54&type=chunk) - For other fixed maturity securities in an unrealized loss position, the loss was not due to issuer-specific credit factors and was recognized in OCI, as management does not intend to sell and expects recovery[54](index=54&type=chunk) [Securities Lending](index=75&type=section&id=Securities%20Lending) The company's securities lending program involved **$3.596 billion** in securities on loan at June 30, 2020, with **$3.674 billion** in cash collateral received, treated as financing arrangements - The company loans securities to third parties, primarily brokerage firms and commercial banks, obtaining cash collateral generally equal to **102%** of the securities' estimated fair value[244](index=244&type=chunk) | Securities Lending (Millions) | June 30, 2020 | December 31, 2019 | |:---|:---|:---| | Securities on loan (Amortized cost) | $2,065 | $2,031 | | Securities on loan (Estimated fair value) | $3,596 | $2,996 | | Cash collateral received from counterparties | $3,674 | $3,074 | | Securities collateral received from counterparties | $12 | $0 | | Reinvestment portfolio — estimated fair value | $3,794 | $3,174 | [Mortgage Loans](index=75&type=section&id=Mortgage%20Loans) The company's mortgage loan portfolio totaled **$15.883 billion** at June 30, 2020, with a **$92 million** allowance for credit losses, strong credit quality, and **$1.1 billion** in loans with debt service forbearance due to COVID-19 | Mortgage Loan Type (Millions) | June 30, 2020 (Amortized Cost) | June 30, 2020 (Allowance for Credit Losses) | December 31, 2019 (Amortized Cost) | December 31, 2019 (Allowance for Credit Losses) | |:---|:---|:---|:---|:---| | Commercial | $9,715 | $37 | $9,721 | $47 | | Agricultural | $3,361 | $16 | $3,388 | $10 | | Residential | $2,807 | $39 | $2,708 | $7 | | Total | $15,883 | $92 | $15,817 | $64 | - The mortgage loan portfolio is diversified, with **97%** of commercial and agricultural loans collateralized by U.S. properties; top states for commercial/agricultural loans are California (**24%**), New York (**12%**), and Florida (**8%**)[245](index=245&type=chunk)[246](index=246&type=chunk) - Average loan-to-value ratios were **55%** for commercial and **48%** for agricultural mortgage loans at June 30, 2020, indicating strong collateral coverage[250](index=250&type=chunk) - At June 30, 2020, **$1.1 billion** in recorded investment for mortgage loans had debt service forbearance due to COVID-19, primarily commercial mortgage loans (**$763 million**)[250](index=250&type=chunk) [Commercial Mortgage Loans by Geographic Region and Property Type](index=76&type=section&id=Commercial%20Mortgage%20Loans%20by%20Geographic%20Region%20and%20Property%20Type) Commercial mortgage loans, totaling **$9.715 billion**, are diversified across geographic regions and property types, with the Pacific region accounting for **27.3%** and Office properties representing **38.6%** at June 30, 2020 | Geographic Region | June 30, 2020 (Amount, Millions) | June 30, 2020 (% of Total) | |:---|:---|:---| | Pacific | $2,655 | 27.3% | | South Atlantic | $1,929 | 19.8% | | Middle Atlantic | $1,874 | 19.3% | | West South Central | $802 | 8.2% | | Mountain | $698 | 7.2% | | East North Central | $553 | 5.7% | | International | $486 | 5.0% | | New England | $411 | 4.2% | | West North Central | $123 | 1.3% | | East South Central | $84 | 1.0% | | Multi-Region and Other | $100 | 1.0% | | Total recorded investment | $9,715 | 100.0% | | Property Type | June 30, 2020 (Amount, Millions) | June 30, 2020 (% of Total) | |:---|:---|:---| | Office | $3,746 | 38.6% | | Apartment | $2,198 | 22.6% | | Retail | $2,107 | 21.7% | | Hotel | $922 | 9.5% | | Industrial | $712 | 7.3% | | Other | $30 | 0.3% | | Total recorded investment | $9,715 | 100.0% | [Mortgage Loan Credit Quality — Monitoring Process](index=76&type=section&id=Mortgage%20Loan%20Credit%20Quality%20%E2%80%94%20Monitoring%20Process) The company continuously monitors its mortgage loan portfolio, with over **99%** performing at June 30, 2020, and strong credit quality indicators including average commercial LTV of **55%** and DSCR of **2.2x**, and agricultural LTV of **48%** - Over **99%** of all mortgage loans were classified as performing at June 30, 2020[65](index=65&type=chunk) - The average loan-to-value ratio for commercial mortgage loans was **55%** and the average debt-service coverage ratio was **2.2x** at June 30, 2020[250](index=250&type=chunk) - The average loan-to-value ratio for agricultural mortgage loans was **48%** at June 30, 2020[250](index=250&type=chunk) [Loan Modifications Related to the COVID-19 Pandemic](index=77&type=section&id=Loan%20Modifications%20Related%20to%20the%20COVID-19%20Pandemic) In response to COVID-19, the company provided loan modifications and waivers, including short-term principal and interest forbearance, with **$1.1 billion** in recorded investment for mortgage loans having debt service forbearance at June 30, 2020 - The company completed loan modifications and provided waivers to borrowers impacted by the COVID-19 pandemic, including short-term principal and interest forbearance[250](index=250&type=chunk) - These modifications are generally not considered troubled debt restructurings (TDRs) due to relief granted by the CARES Act[250](index=250&type=chunk) - At June 30, 2020, the recorded investment on mortgage loans with debt service forbearance was **$1.1 billion**, comprising commercial, agricultural, and residential mortgage loans[250](index=250&type=chunk) [Mortgage Loan Allowance for Credit Losses](index=77&type=section&id=Mortgage%20Loan%20Allowance%20for%20Credit%20Losses) The total allowance for credit losses for mortgage loans increased to **$92 million** at June 30, 2020, from **$64 million** at December 31, 2019, estimated using historical loss experience, current conditions, and reasonable forecasts | Mortgage Loan Type (Millions) | Balance at Dec 31, 2019 | Cumulative effect of change in accounting principle | Balance at Jan 1, 2020 | Current period provision | Balance at June 30, 2020 | |:---|:---|:---|:---|:---|:---| | Commercial | $47 | $(20) | $27 | $10 | $37 | | Agricultural | $10 | $7 | $17 | $(1) | $16 | | Residential | $7 | $15 | $22 | $17 | $39 | | Total | $64 | $2 | $66 | $26 | $92 | - The allowance for credit losses for mortgage loans increased by **$28 million** during the six months ended June 30, 2020, primarily due to a current period provision of **$26 million**[60](index=60&type=chunk) [Limited Partnerships and Limited Liability Companies](index=77&type=section&id=Limited%20Partnerships%20and%20Limited%20Liability%20Companies) The carrying value of the company's limited partnerships and LLCs was **$2.354 billion** at June 30, 2020, generating cash distributions from investment gains, operating income, and asset liquidation, with private equity funds typically liquidated over 10 to 20 years | Investment Type (Millions) | June 30, 2020 (Carrying Value) | December 31, 2019 (Carrying Value) | |:---|:---|:---| | Other limited partnerships interests | $1,914 | $1,941 | | Real estate limited partnerships and LLCs | $440 | $439 | | Total | $2,354 | $2,380 | - Cash distributions from these investments are generated from investment gains, operating income, and liquidation of underlying assets, with private equity funds typically liquidated over 10 to 20 years[251](index=251&type=chunk) [Other Invested Assets](index=78&type=section&id=Other%20Invested%20Assets) Other invested assets, primarily freestanding derivatives with positive estimated fair values, significantly increased to **$6.15 billion** at June 30, 2020, from **$3.021 billion** at December 31, 2019 | Other Invested Assets (Millions) | June 30, 2020 (Carrying Value) | June 30, 2020 (% of Total) | December 31, 2019 (Carrying Value) | December 31, 2019 (% of Total) | |:---|:---|:---|:---|:---| | Freestanding derivatives with positive estimated fair values | $6,150 | 96.6% | $3,021 | 93.9% | | FHLB stock | $81 | 1.3% | $39 | 1.2% | | Tax credit renewable energy partnership | $64 | 1.0% | $82 | 2.6% | | Leveraged leases, net of non-recourse debt | $50 | 0.8% | $64 | 2.0% | | Other | $19 | 0.3% | $10 | 0.3% | | Total | $6,364 | 100.0% | $3,216 | 100.0% | - Freestanding derivatives with positive estimated fair values represent over **90%** of other invested assets, showing a significant increase from **$3.021 billion** to **$6.15 billion**[254](index=254&type=chunk) [Derivatives](index=78&type=section&id=Derivatives) This section discusses the company's use of derivatives to manage market risks, with a significant portion not designated for hedge accounting, and details counterparty credit risk management and the increase in gross notional amount of written credit default swaps to **$1.788 billion** [Derivative Risks](index=78&type=section&id=Derivative%20Risks) The company uses derivatives to manage interest rate, foreign currency exchange rate, credit, and equity market risks, with a substantial portion not designated for hedge accounting, including macro hedges, economic hedges of insurance liabilities, and synthetic credit investments - The company uses interest rate, foreign currency exchange rate, credit, and equity market risks[255](index=255&type=chunk) - A substantial portion of derivatives are not designated or do not qualify for hedge accounting, including macro hedges, economic hedges of insurance liabilities, and synthetic credit investments[89](index=89&type=chunk) [Fair Value Hierarchy](index=78&type=section&id=Fair%20Value%20Hierarchy) Derivatives are measured at estimated fair value and categorized into Level 1, 2, or 3, with Level 3 derivatives involving significant unobservable inputs and management judgment, which can materially affect their estimated fair value and net income - Level 3 derivatives involve significant unobservable inputs and management judgment, including credit default swaps, equity variance swaps, foreign currency swaps, and equity index options[256](index=256&type=chunk) - The use of different inputs or methodologies for Level 3 derivatives can materially affect their estimated fair value and net income[256](index=256&type=chunk) [Credit Risk](index=78&type=section&id=Credit%20Risk) The company manages credit risk from counterparty nonperformance on derivative instruments by transacting with creditworthy counterparties, using master netting agreements, trading through regulated exchanges, obtaining collateral, and setting credit exposure limits - The company manages credit risk by transacting with creditworthy counterparties, using master netting agreements, trading through regulated exchanges, obtaining collateral, and setting limits on single party credit exposures[98](index=98&type=chunk) | Net Derivative Position (Millions) | June 30, 2020 (Net Amount) | December 31, 2019 (Net Amount) | |:---|:---|:---| | Derivative assets (after netting and cash collateral) | $718 | $489 | | Derivative liabilities (after netting and cash collateral) | $515 | $1,064 | | Derivative assets (after securities collateral) | $13 | $1 | | Derivative liabilities (after securities collateral) | $1 | $3 | [Credit Derivatives](index=79&type=section&id=Credit%20Derivatives) The company writes credit default swaps to synthetically create credit investments, with the gross notional amount increasing to **$1.788 billion** at June 30, 2020, exposing the company to changes in credit spreads for ALM needs | Credit Default Swaps (Millions) | June 30, 2020 (Gross Notional Amount) | June 30, 2020 (Estimated Fair Value) | December 31, 2019 (Gross Notional Amount) | December 31, 2019 (Estimated Fair Value) | |:---|:---|:---|:---|:---| | Written | $1,788 | $17 | $1,635 | $36 | | Purchased | $18 | $0 | $18 | $0 | | Total | $1,806 | $17 | $1,653 | $36 | - The maximum amount at risk for written credit default swaps is equal to their gross notional amount[258](index=258&type=chunk) - Credit default swaps are used in replication transactions to synthetically create corporate bond exposures, helping to meet ALM needs for long-dated insurance liabilities[258](index=258&type=chunk) [Off-Balance Sheet Arrangements](index=79&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has off-balance sheet arrangements primarily related to collateral for securities lending (**$12 million**) and derivatives (**$938 million**), as well as various indemnities, guarantees, and commitments, including **$1.8 billion** in unfunded partnership/credit facility commitments [Collateral for Securities Lending and Derivatives](index=

Brighthouse Financial, Inc. (NASDAQ:BHF) Q2 2020 Results Conference Call August 7, 2020 8:00 AM ET Company Participants David Rosenbaum - Head of Investor Relations Eric Steigerwalt - President and Chief Executive Officer Ed Spehar - Executive Vice President and Chief Financial Officer John Rosenthal - Executive Vice President and Chief Investment Officer Myles Lambert - Executive Vice President and Chief Distribution and Marketing Officer Conor Murphy - Executive Vice President and Chief Operating Officer ...