Brighthouse Financial(BHF) - 2022 Q3 - Quarterly Report

Consolidated Financial Statements Interim Condensed Consolidated Balance Sheets Total assets decreased to $221,641 million, driven by reductions in separate account assets and fixed maturity securities, leading to a significant decline in total equity | Metric | Sep 30, 2022 ($M) | Dec 31, 2021 ($M) | |:---|---:|---:| | Total Assets | 221,641 | 259,840 | | Total Liabilities | 215,762 | 243,633 | | Total Equity | 5,879 | 16,207 | | Separate Account Assets | 81,836 | 114,464 | | Fixed Maturity Securities | 75,271 | 87,582 | | Retained Earnings (Deficit) | 304 | (642) | | AOCI | (6,637) | 4,172 | Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a net loss of $675 million for Q3 2022, a sharp decline from the prior year's net income, driven by derivative and investment losses | Metric (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Total Revenues | 1,482 | 2,512 | 8,019 | 5,126 | | Total Expenses | 2,350 | 2,022 | 6,867 | 5,383 | | Net Income (Loss) | (675) | 385 | 950 | (167) | | Net Income (Loss) Available to Common Shareholders | (702) | 361 | 868 | (239) | | Basic EPS | (9.82) | 4.37 | 11.68 | (2.80) | | Diluted EPS | (9.82) | 4.34 | 11.61 | (2.80) | Interim Condensed Consolidated Statements of Equity Total equity decreased significantly to $5,879 million, primarily driven by substantial other comprehensive losses impacting accumulated other comprehensive income | Equity Component (in millions) | Dec 31, 2021 | Jun 30, 2022 | Sep 30, 2022 | |:---|---:|---:|---:| | Total Equity | 16,207 | 10,256 | 5,879 | | Retained Earnings (Deficit) | (642) | 981 | 304 | | Treasury Stock | (1,543) | (1,813) | (1,949) | | Accumulated Other Comprehensive Income (Loss) | 4,172 | (3,091) | (6,637) | | Other comprehensive income (loss), net of income tax (9 months ended Sep 30, 2022) | N/A | N/A | (7,263) | | Other comprehensive income (loss), net of income tax (3 months ended Sep 30, 2022) | N/A | N/A | (3,546) | Interim Condensed Consolidated Statements of Cash Flows The company experienced a net cash outflow from operating activities of $939 million, a significant shift from a net inflow in the prior year | Cash Flow Activity (in millions) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:| | Net cash provided by (used in) operating activities | (939) | 644 | | Net cash provided by (used in) investing activities | (7,596) | (9,665) | | Net cash provided by (used in) financing activities | 8,854 | 9,021 | | Change in cash, cash equivalents and restricted cash | 319 | — | | Cash, cash equivalents and restricted cash, end of period | 4,793 | 4,108 | Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies Brighthouse Financial provides annuity and life insurance products in the U.S. and is preparing for the adoption of new long-duration contract accounting guidance (LDTI) - Brighthouse Financial is one of the largest providers of annuity and life insurance products in the U.S., organized into three segments: Annuities, Life, and Run-off, plus Corporate & Other[17] - The company's interim condensed consolidated financial statements are unaudited and reflect all necessary adjustments to present fairly the financial position, results of operations, and cash flows for the interim periods presented in conformity with GAAP[19] - The adoption of LDTI (effective January 1, 2023) will significantly change the measurement, presentation, and disclosure requirements for long-duration insurance contracts, particularly by classifying variable annuity guarantees as market risk benefits measured at fair value through net income[21][23] - LDTI is estimated to reduce total stockholders' equity by $6-8 billion as of December 31, 2021, primarily due to MRB changes, though the impact is expected to have significantly improved by September 30, 2022, based on prevailing interest rates[23] Note 2 — Segment Information The company evaluates performance through its Annuities, Life, Run-off, and Corporate & Other segments using adjusted earnings, a non-GAAP measure - The company is organized into three segments: Annuities, Life, and Run-off, with certain results reported in Corporate & Other[24] - Adjusted earnings is a non-GAAP financial measure used by management to evaluate performance and facilitate comparisons, focusing on primary businesses by excluding the impact of market volatility[26] | Segment (in millions) | 3 Months Ended Sep 30, 2022 (Adjusted Earnings) | 3 Months Ended Sep 30, 2021 (Adjusted Earnings) | 9 Months Ended Sep 30, 2022 (Adjusted Earnings) | 9 Months Ended Sep 30, 2021 (Adjusted Earnings) | |:---|---:|---:|---:|---:| | Annuities | 125 | 385 | 640 | 1,059 | | Life | (7) | 110 | 42 | 220 | | Run-off | (21) | 38 | (169) | 236 | | Corporate & Other | — | (83) | (98) | (245) | | Total Adjusted Earnings | 97 | 450 | 415 | 1,270 | | Segment (in millions) | 3 Months Ended Sep 30, 2022 (Total Revenues) | 3 Months Ended Sep 30, 2021 (Total Revenues) | 9 Months Ended Sep 30, 2022 (Total Revenues) | 9 Months Ended Sep 30, 2021 (Total Revenues) | |:---|---:|---:|---:|---:| | Annuities | 1,183 | 1,351 | 3,662 | 3,906 | | Life | 255 | 345 | 871 | 1,138 | | Run-off | 339 | 670 | 1,415 | 1,960 | | Corporate & Other | 128 | 51 | 276 | 122 | | Total | 1,482 | 2,512 | 8,019 | 5,126 | | Segment (in millions) | Sep 30, 2022 (Total Assets) | Dec 31, 2021 (Total Assets) | |:---|---:|---:| | Annuities | 147,599 | 178,700 | | Life | 21,109 | 24,514 | | Run-off | 28,626 | 37,055 | | Corporate & Other | 24,307 | 19,571 | | Total | 221,641 | 259,840 | Note 3 — Insurance The company issues variable annuity and universal life contracts with guaranteed minimum benefits and secondary guarantees, exposing it to significant net amounts at risk - The Company issues variable annuity contracts with guaranteed minimum benefits and secondary guarantees on universal and variable life insurance contracts[35] | Annuity Contracts (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Total account value | 79,834 | 109,968 | | Separate account value | 74,918 | 105,023 | | Net amount at risk (Death) | 18,461 | 6,361 | | Net amount at risk (Annuitization) | 6,761 | 5,240 | | Average attained age of contract holders | 72 years | 71 years | | Life Contracts (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Universal Life Total account value | 5,317 | 5,518 | | Universal Life Net amount at risk | 65,935 | 67,248 | | Universal Life Average attained age | 69 years | 68 years | | Variable Life Total account value | 3,677 | 4,785 | | Variable Life Net amount at risk | 18,366 | 18,857 | | Variable Life Average attained age | 53 years | 52 years | Note 4 — Investments The company's investment portfolio saw a decrease in fixed maturity securities and net investment income, alongside a significant increase in gross unrealized losses | Fixed Maturity Securities (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Amortized Cost | 85,307 | 79,246 | | Estimated Fair Value | 75,271 | 87,582 | | Gross Unrealized Gains | 694 | 8,806 | | Gross Unrealized Losses | 10,725 | 459 | | Allowance for Credit Losses | 5 | 11 | | Mortgage Loans (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Total Mortgage Loans, net | 22,089 | 19,850 | | Commercial | 13,286 | 12,187 | | Agricultural | 4,216 | 4,163 | | Residential | 4,686 | 3,623 | | Allowance for Credit Losses | 99 | 123 | | Net Investment Income (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Total Investment Income | 948 | 1,320 | 3,251 | 3,789 | | Less: Investment Expenses | 71 | 39 | 162 | 109 | | Net Investment Income | 877 | 1,281 | 3,089 | 3,680 | | Net Investment Gains (Losses) (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Fixed maturity securities | (38) | — | (140) | (23) | | Equity securities | (2) | (2) | (14) | 1 | | Mortgage loans | 2 | (5) | (1) | (6) | | Limited partnerships and LLCs | (4) | — | (21) | 1 | | Other | (3) | (9) | (3) | (9) | | Total Net Investment Gains (Losses) | (45) | (16) | (179) | (36) | Note 5 — Derivatives The company uses an extensive derivatives portfolio to manage market risks, with a substantial portion not designated for hedge accounting - The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize its exposure to various market risks, including interest rate, foreign currency exchange rate, equity market, and credit risks[86] - The Company manages its credit risk by entering into derivative transactions with creditworthy counterparties governed by master netting agreements, trading through regulated exchanges, obtaining collateral, and setting limits on single party credit exposures[95] | Derivative Type (in millions) | Sep 30, 2022 Gross Notional Amount | Sep 30, 2022 Estimated Fair Value Assets | Sep 30, 2022 Estimated Fair Value Liabilities | Dec 31, 2021 Gross Notional Amount | Dec 31, 2021 Estimated Fair Value Assets | Dec 31, 2021 Estimated Fair Value Liabilities | |:---|---:|---:|---:|---:|---:|---:| | Total Qualifying Hedges | 4,140 | 885 | 25 | 3,462 | 259 | 22 | | Total Non-Qualifying Hedges | 101,438 | 2,855 | 4,687 | 87,469 | 2,867 | 1,622 | | Total Embedded Derivatives | N/A | 129 | 4,062 | N/A | 186 | 8,496 | | Grand Total | 105,578 | 3,869 | 8,774 | 90,931 | 3,312 | 10,140 | | Net Derivative Gains (Losses) (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Derivatives Designated as Hedging Instruments | 8 | — | 13 | 9 | | Derivatives Not Designated or Not Qualifying | (395) | 57 | 1,887 | (2,138) | | Total | (387) | 57 | 1,900 | (2,129) | Note 6 — Fair Value The company measures various assets and liabilities at fair value, with a significant portion of liabilities classified as Level 3 due to unobservable inputs - The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives[261] - Embedded derivatives, particularly direct, assumed, and ceded guaranteed minimum benefits, are significant Level 3 liabilities, with their valuation relying on unobservable inputs like mortality, lapse, and utilization rates, as well as long-term equity volatilities and nonperformance risk spread[118] | Fair Value Hierarchy (in millions) | Sep 30, 2022 Level 1 | Sep 30, 2022 Level 2 | Sep 30, 2022 Level 3 | Sep 30, 2022 Total | Dec 31, 2021 Level 1 | Dec 31, 2021 Level 2 | Dec 31, 2021 Level 3 | Dec 31, 2021 Total | |:---|---:|---:|---:|---:|---:|---:|---:|---:| | Total Assets | 4,697 | 155,357 | 2,152 | 162,206 | 4,807 | 200,609 | 1,884 | 207,300 | | Total Liabilities | — | 4,708 | 4,066 | 8,774 | — | 1,642 | 8,498 | 10,140 | Note 7 — Long-term Debt The company refinanced its credit facility, entering into a new $1.0 billion senior unsecured revolving credit facility with no borrowings outstanding - BHF entered into a new $1.0 billion senior unsecured revolving credit facility on April 15, 2022, maturing April 15, 2027, replacing a former facility[130] - As of September 30, 2022, there were no borrowings or letters of credit outstanding under the 2022 Revolving Credit Facility[130] Note 8 — Equity The company managed its equity through preferred stock dividends and common stock repurchases, while Accumulated Other Comprehensive Income saw a significant decline - During the nine months ended September 30, 2022, BHF repurchased 8,194,191 shares of common stock for $395 million[133] As of September 30, 2022, $386 million remained under the common stock repurchase program[133] | Preferred Stock Series | Shares Authorized | Shares Issued | Shares Outstanding | |:---|---:|---:|---:| | 6.600% Series A | 17,000 | 17,000 | 17,000 | | 6.750% Series B | 16,100 | 16,100 | 16,100 | | 5.375% Series C | 23,000 | 23,000 | 23,000 | | 4.625% Series D | 14,000 | 14,000 | 14,000 | | Not designated | 99,929,900 | — | — | | Total | 100,000,000 | 70,100 | 70,100 | | Preferred Stock Dividends (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Total | 25 | 22 | 78 | 68 | | AOCI Component (in millions) | Dec 31, 2021 | Sep 30, 2022 | |:---|---:|---:| | Unrealized Investment Gains (Losses), Net of Related Offsets | 3,982 | (7,203) | | Unrealized Gains (Losses) on Derivatives | 238 | 658 | | Foreign Currency Translation Adjustments | (7) | (51) | | Defined Benefit Plans Adjustment | (41) | (41) | | Total AOCI | 4,172 | (6,637) | Note 9 — Other Revenues and Other Expenses Other revenues and expenses both decreased, driven by lower 12b-1 fees and reductions in volume-related and transition services costs | Other Revenues (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | 12b-1 fees | 70 | 91 | 226 | 270 | | Other Expenses (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Compensation | 89 | 96 | 254 | 284 | | Contracted services and other labor costs | 73 | 67 | 197 | 197 | | Transition services agreements | 15 | 32 | 44 | 93 | | Establishment costs | 21 | 25 | 47 | 71 | | Premium and other taxes, licenses and fees | 13 | 12 | 41 | 39 | | Separate account fees | 98 | 129 | 314 | 381 | | Volume related costs, excluding DAC capitalization | 130 | 160 | 374 | 503 | | Interest expense on debt | 38 | 41 | 114 | 122 | | Other | 18 | 17 | 211 | 59 | | Total Other Expenses | 495 | 579 | 1,596 | 1,749 | Note 10 — Earnings Per Common Share The company reported a diluted loss per share of ($9.82) for Q3 2022, a stark contrast to the prior year's earnings per share | EPS Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Basic EPS | (9.82) | 4.37 | 11.68 | (2.80) | | Diluted EPS | (9.82) | 4.34 | 11.61 | (2.80) | | Weighted average common shares outstanding — basic | 71,517,500 | 82,701,032 | 74,294,329 | 85,256,761 | | Weighted average common shares outstanding — diluted | 71,517,500 | 83,244,987 | 74,777,175 | 85,256,761 | Note 11 — Contingencies, Commitments and Guarantees The company faces various litigation and regulatory matters, with estimated reasonably possible losses up to $125 million for certain contingencies - The company is a defendant in various litigation matters, including sales practices claims and cost of insurance class actions, with an estimated aggregate range of reasonably possible losses up to approximately $10 million for matters where an estimate can be made[148][150][152] - Other loss contingencies, primarily associated with reinsurance-related matters, have an estimated range of reasonably possible losses in excess of accrued amounts from zero up to approximately $125 million as of September 30, 2022[154] - The company provides various indemnities and guarantees, with some having a contractual limitation ranging from less than $1 million to $112 million (cumulative maximum of $118 million), while others are not subject to specified limitations[156] | Commitment Type (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Mortgage Loan Commitments | 439 | 719 | | Unfunded Partnership Investments, Bank Credit Facilities and Private Corporate Bond Investments | 2,200 | 2,300 | Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction This section provides an overview of the company's results of operations, financial condition, and cash flows to aid in understanding its financial performance - The Management's Discussion and Analysis of Financial Condition and Results of Operations aims to help readers understand Brighthouse Financial's results, financial condition, and cash flows[161] Executive Summary The company reported a net loss of $702 million for Q3 2022, a significant decrease from the prior year, reflecting market factors affecting derivatives and guarantees - Brighthouse Financial is one of the largest providers of annuity and life insurance products in the U.S., organized into Annuities, Life, and Run-off segments, and Corporate & Other[162] - The net loss for the three months ended September 30, 2022, primarily reflects net unfavorable changes in the estimated fair value of GMLB riders due to increasing long-term interest rates and unfavorable changes in freestanding interest rate derivatives, partially offset by favorable changes in Shield Level Annuities' embedded derivative liabilities[166] - Net income for the nine months ended September 30, 2022, primarily reflects net favorable changes in the estimated fair value of GMLB riders due to market factors and favorable pre-tax adjusted earnings, partially offset by unfavorable changes in freestanding interest rate derivatives due to increasing long-term interest rates[167] | Metric (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Net income (loss) available to shareholders | (702) | 361 | 868 | (239) | | Adjusted earnings | 97 | 450 | 415 | 1,270 | Industry Trends and Uncertainties The company's business is significantly affected by capital market conditions, including rising interest rates, and recent regulatory developments - The company's business is materially affected by capital market and economic conditions, with equity market performance impacting variable annuities and interest rates affecting spread-based products[170][171] - The Federal Reserve increased the federal funds rate five times during the first nine months of 2022, contributing to a decrease in net unrealized gains in the investment portfolio[232] - The Inflation Reduction Act, signed in August 2022, establishes a 15% corporate alternative minimum tax (CAMT) and a 1% excise tax on stock repurchases, effective after December 31, 2022, with potential for materially higher federal income taxes[174][175] - New York's amended Insurance Regulation 47 (effective Jan 1, 2023/2024) will impact annuity products and competition, while Regulation 187 (reaffirmed constitutional in Oct 2022) imposes a 'best interest' standard for life insurance and annuity sales[176][177] Summary of Critical Accounting Estimates The preparation of financial statements requires management to make subjective and complex judgments, particularly regarding liabilities, DAC, derivatives, and taxes - Critical accounting estimates include liabilities for future policy benefits, amortization of deferred policy acquisition costs (DAC), estimated fair values of freestanding and embedded derivatives, and measurement of income taxes and valuation of deferred tax assets[178] Non-GAAP and Other Financial Disclosures The company uses adjusted earnings, a non-GAAP measure, to evaluate performance by excluding market volatility and highlighting underlying profitability drivers - Adjusted earnings is a non-GAAP measure used by management to evaluate performance, excluding market volatility to highlight underlying profitability drivers[182] - Significant items excluded from total revenues in calculating adjusted earnings include net investment gains (losses), most net derivative gains (losses), and certain variable annuity guaranteed minimum income benefits (GMIB) fees[182] - Significant items excluded from total expenses include GMIB costs, market value adjustments, and related amortization of DAC and VOBA[182] - Adjusted net investment income is presented to measure investment portfolio performance, representing net investment income including Investment Hedge Adjustments[184] Results of Operations The company's consolidated net loss was $702 million for Q3 2022, a significant decrease driven by unfavorable interest rate derivatives and lower adjusted earnings | AAR Impact (in millions) | 2022 | 2021 | |:---|---:|---:| | GMLBs | (94) | (42) | | Included in pre-tax adjusted earnings: | | | | Other annuity business | (57) | 4 | | Life business | (6) | 4 | | Run-off | 162 | (113) | | Total included in pre-tax adjusted earnings | 99 | (105) | | Consolidated Results (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Net income (loss) available to common shareholders | (702) | 361 | 868 | (239) | | Adjusted earnings | 97 | 450 | 415 | 1,270 | - The decrease in income before tax for the three months ended September 30, 2022, was driven by unfavorable long-term benchmark interest rates on interest rate derivatives, lower pre-tax adjusted earnings, and losses from GMLB Riders[193] - The increase in income before tax for the nine months ended September 30, 2022, was driven by gains from GMLB Riders, partially offset by lower pre-tax adjusted earnings, unfavorable long-term benchmark interest rates on interest rate derivatives, and net investment losses[194] Annual Actuarial Review The 2022 annual actuarial review resulted in a $94 million unfavorable impact on GMLBs and a $99 million favorable impact on pre-tax adjusted earnings - The 2022 AAR increased the long-term general account earned rate (mean reversion rate from 3.00% to 3.50%) and updated assumptions for variable annuity and life businesses, including fund allocations, market volatility, maintenance expenses, and policyholder behavior[187] | AAR Impact (in millions) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:| | GMLBs | (94) | (42) | | Total included in pre-tax adjusted earnings | 99 | (105) | Consolidated Results for the Three Months and Nine Months Ended September 30, 2022 and 2021 Adjusted earnings decreased significantly due to lower net investment spread, higher DAC and VOBA amortization, and lower net fee income | Adjusted Earnings Components (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Fee income | 843 | 937 | 2,602 | 2,891 | | Net investment spread | 291 | 690 | 1,551 | 2,150 | | Insurance-related activities | (529) | (593) | (1,654) | (1,476) | | Amortization of DAC and VOBA | 33 | 146 | (325) | (165) | | Other expenses, net of DAC capitalization | (495) | (579) | (1,596) | (1,749) | | Pre-tax adjusted earnings, less noncontrolling interests and preferred stock dividends | 116 | 577 | 496 | 1,579 | | Provision for income tax expense (benefit) | 19 | 127 | 81 | 309 | | Adjusted earnings | 97 | 450 | 415 | 1,270 | - Key unfavorable impacts on adjusted earnings for the three months ended September 30, 2022, included lower net investment spread, higher net amortization of DAC and VOBA, and lower net fee income[202][203] - Key unfavorable impacts on adjusted earnings for the nine months ended September 30, 2022, included lower net investment spread, lower net fee income, higher net costs associated with insurance-related activities, and higher net amortization of DAC and VOBA[204][205] Segments and Corporate & Other Results for the Three Months and Nine Months Ended September 30, 2022 and 2021 — Adjusted Earnings All operating segments saw decreased adjusted earnings, primarily driven by lower net investment spread and higher insurance-related costs Annuities Annuities adjusted earnings decreased significantly due to higher insurance-related costs and lower asset-based fees from reduced separate account balances | Annuities Adjusted Earnings (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Fee income | 606 | 735 | 1,930 | 2,153 | | Net investment spread | 225 | 224 | 865 | 857 | | Insurance-related activities | (370) | (177) | (697) | (331) | | Amortization of DAC and VOBA | 32 | 114 | (262) | (136) | | Other expenses, net of DAC capitalization | (345) | (415) | (1,057) | (1,231) | | Pre-tax adjusted earnings | 148 | 481 | 779 | 1,312 | | Adjusted earnings | 125 | 385 | 640 | 1,059 | | Variable Annuities Separate Account Balances (in millions) | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | |:---|---:|---:| | Balance, beginning of period | 81,633 | 105,197 | | Net flows | (1,559) | (4,700) | | Investment performance | (4,410) | (23,515) | | Policy charges | (587) | (1,753) | | Balance, end of period | 75,055 | 75,055 | | Average balance | 82,597 | 89,272 | - Key unfavorable impacts for the three months included higher insurance-related activities (increased GMDB liabilities, higher severity of claims) and lower asset-based fees due to lower average separate account balances[208][209] - Key unfavorable impacts for the nine months included higher insurance-related activities (increased GMDB liabilities, higher volume and severity of claims) and lower asset-based fees due to lower average separate account balances[210] Life The Life segment reported an adjusted earnings loss, driven by lower net investment spread and higher amortization of DAC and VOBA | Life Adjusted Earnings (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Fee income | 68 | 40 | 178 | 247 | | Net investment spread | (3) | 106 | 130 | 285 | | Insurance-related activities | (19) | (5) | (115) | (107) | | Amortization of DAC and VOBA | (18) | 34 | (77) | (21) | | Other expenses, net of DAC capitalization | (37) | (34) | (65) | (126) | | Pre-tax adjusted earnings | (9) | 141 | 51 | 278 | | Adjusted earnings | (7) | 110 | 42 | 220 | - Key unfavorable impacts for the three months included lower net investment spread, higher amortization of DAC and VOBA, and higher costs associated with insurance-related activities[212] - Key unfavorable impacts for the nine months included lower net investment spread, lower net fee income, and higher amortization of DAC and VOBA[213][215] Run-off The Run-off segment reported an adjusted earnings loss, primarily due to lower net investment spread from limited partnership returns | Run-off Adjusted Earnings (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Fee income | 169 | 162 | 494 | 491 | | Net investment spread | 9 | 338 | 431 | 961 | | Insurance-related activities | (167) | (413) | (891) | (1,050) | | Amortization of DAC and VOBA | — | — | — | — | | Other expenses, net of DAC capitalization | (38) | (45) | (248) | (135) | | Pre-tax adjusted earnings | (27) | 42 | (214) | 267 | | Adjusted earnings | (21) | 38 | (169) | 236 | - Key unfavorable impact for the three months was lower net investment spread due to lower returns on other limited partnerships[217] - Key unfavorable impacts for the nine months were lower net investment spread and higher other expenses (due to a reinsurance-related settlement)[219] Corporate & Other Corporate & Other adjusted earnings improved due to higher net investment spread and lower insurance-related costs and other expenses | Corporate & Other Adjusted Earnings (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Net investment spread | 60 | 22 | 125 | 47 | | Insurance-related activities | 27 | 2 | 49 | 12 | | Amortization of DAC and VOBA | 19 | (2) | 14 | (8) | | Other expenses, net of DAC capitalization | (75) | (85) | (226) | (257) | | Pre-tax adjusted earnings, less noncontrolling interests and preferred stock dividends | 4 | (87) | (120) | (278) | | Adjusted earnings | — | (83) | (98) | (245) | - Key favorable impacts for the three months included higher net investment spread, lower insurance-related costs, lower amortization of DAC and VOBA, and lower other expenses[221] - Key favorable impacts for the nine months included higher net investment spread, lower insurance-related costs, lower other expenses, and lower amortization of DAC and VOBA[222] Higher preferred stock dividends were an unfavorable offset[222] GMLB Riders for the Three Months and Nine Months Ended September 30, 2022 and 2021 Guaranteed Minimum Living Benefit Riders had a significant unfavorable impact in Q3 2022, driven by changes in hedges and liability reserves | GMLB Riders Impact (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Liabilities | 177 | (274) | 3,464 | (960) | | Hedges | (772) | (76) | (1,277) | (1,216) | | Ceded reinsurance | (3) | (11) | (55) | (74) | | Fees | 223 | 219 | 631 | 620 | | GMLB DAC | (215) | (56) | (631) | 146 | | Total GMLB Riders | (590) | (198) | 2,132 | (1,484) | - For the three months, comparative results from GMLB Riders were unfavorable by $392 million, primarily due to unfavorable changes to GMLB hedges, GMLB DAC, and variable annuity liability reserves, partially offset by favorable changes to Shield liabilities[224] - For the nine months, comparative results from GMLB Riders were favorable by $3.6 billion, primarily driven by favorable changes to Shield liabilities, partially offset by unfavorable changes to variable annuity liability reserves, GMLB DAC, and GMLB hedges[225] - Lower equity markets and higher interest rates significantly impacted GMLB Riders, leading to both favorable and unfavorable changes across liabilities, hedges, and DAC[226] Investments The company's investment portfolio aims to optimize risk-adjusted returns, managing risks amid a rising interest rate environment that has decreased unrealized gains - The primary investment objective is to optimize risk-adjusted net investment income and total return while appropriately matching assets and liabilities, managing risks such as credit, interest rate, inflation, market valuation, liquidity, real estate, and currency[229] - The Federal Reserve's multiple interest rate increases in 2022 have contributed to a decrease in net unrealized gains in the investment portfolio[232] | Investment Portfolio Yields | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Investment income yield | 3.35% | 5.29% | 3.96% | 5.25% | | Investment fees and expenses yield | (0.15)% | (0.13)% | (0.14)% | (0.13)% | | Adjusted net investment income yield | 3.20% | 5.16% | 3.82% | 5.12% | | Fixed Maturity Securities (Estimated Fair Value in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Publicly-traded | 62,543 | 72,925 | | Privately-placed | 12,728 | 14,657 | | Total fixed maturity securities | 75,271 | 87,582 | | Percentage of cash and invested assets | 66.4% | 71.4% | | Mortgage Loans (Amortized Cost in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Commercial | 13,286 | 12,187 | | Agricultural | 4,216 | 4,163 | | Residential | 4,686 | 3,623 | | Total | 22,188 | 19,973 | | Allowance for Credit Losses | 99 | 123 | | Average loan-to-value ratio (Commercial) | 57% | 58% | | Average debt-service coverage ratio (Commercial) | 2.2x | 2.2x | Investment Risks The company is exposed to various investment risks, which are managed through diversification, risk limits, and Asset Liability Management strategies - Primary investment risks include credit risk, interest rate risk, inflation risk, market valuation risk, liquidity risk, real estate risk, and currency risk[229] - Risks are managed through asset-type allocation, industry and issuer diversification, risk limits, and ALM strategies, including product design features and derivatives[229] Investment Management Agreements The company engages external asset managers for its general and separate account portfolios, while managing derivatives trading 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, while derivatives trading is managed in-house[230] Current Environment Capital market conditions, particularly the Federal Reserve's interest rate hikes, have materially affected the company by decreasing net unrealized investment gains - The Federal Reserve increased the federal funds rate five times during the first nine months of 2022, contributing to a decrease in net unrealized gains in the investment portfolio[232] - The company sold positions with direct exposure to Russia during the nine months ended September 30, 2022, recording an $8 million net investment realized loss, and had no direct exposure to Russia or Ukraine at period-end[233] - The energy sector fixed maturity securities exposure was $2.6 billion (89% investment grade), and retail sector corporate fixed maturity securities exposure was $1.5 billion (94% investment grade) at September 30, 2022[233] Investment Portfolio Results The adjusted net investment income yield decreased significantly, reflecting lower investment income yields | Investment Portfolio Yields | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Investment income yield | 3.35% | 5.29% | 3.96% | 5.25% | | Investment fees and expenses yield | (0.15)% | (0.13)% | (0.14)% | (0.13)% | | Adjusted net investment income yield | 3.20% | 5.16% | 3.82% | 5.12% | | Adjusted Net Investment Income (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|---:|---:|---:|---:| | Net investment income | 877 | 1,281 | 3,089 | 3,680 | | Less: Investment hedge adjustments | (23) | (6) | (38) | (16) | | Adjusted net investment income | 900 | 1,287 | 3,127 | 3,696 | Fixed Maturity Securities Available-for-sale The fixed maturity securities portfolio decreased to $75.3 billion, with credit quality remaining high at 96.3% investment grade | Fixed Maturity Securities (Estimated Fair Value in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Publicly-traded | 62,543 | 72,925 | | Privately-placed | 12,728 | 14,657 | | Total fixed maturity securities | 75,271 | 87,582 | | Percentage of cash and invested assets | 66.4% | 71.4% | | NAIC Designation | Sep 30, 2022 Estimated Fair Value (in millions) | Sep 30, 2022 % of Total | |:---|---:|---:| | 1 (Aaa/Aa/A) | 49,367 | 65.6% | | 2 (Baa) | 23,078 | 30.7% | | Subtotal investment grade | 72,445 | 96.3% | | Subtotal below investment grade | 2,826 | 3.7% | | Total fixed maturity securities | 75,271 | 100.0% | Fixed Maturity Securities Credit Quality — Ratings The fixed maturity securities portfolio maintained high credit quality, with 96.3% designated as investment grade and no single issuer exceeding 1% of total investments - The U.S. and foreign corporate fixed maturity securities portfolio is diversified across industries and issuers, with no single issuer exceeding 1% of total investments[244] | NAIC Designation | Sep 30, 2022 Estimated Fair Value (in millions) | Sep 30, 2022 % of Total | |:---|---:|---:| | 1 (Aaa/Aa/A) | 49,367 | 65.6% | | 2 (Baa) | 23,078 | 30.7% | | Subtotal investment grade | 72,445 | 96.3% | | Subtotal below investment grade | 2,826 | 3.7% | | Total fixed maturity securities | 75,271 | 100.0% | | Corporate Fixed Maturity Securities by Industry (Estimated Fair Value in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Industrial | 12,875 | 16,131 | | Finance | 11,791 | 12,430 | | Consumer | 9,380 | 11,650 | | Utility | 5,585 | 7,146 | | Communications | 2,647 | 3,430 | | Total | 42,278 | 50,787 | Structured Securities The company held $19.7 billion in diversified Structured Securities, with a high percentage designated as NAIC 1 - The company held $19.7 billion and $20.8 billion of Structured Securities (RMBS, CMBS, ABS) at estimated fair value at September 30, 2022, and December 31, 2021, respectively[246] | RMBS Holdings (Estimated Fair Value in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Total RMBS | 7,859 | 9,259 | | Agency (Risk Profile) | 6,294 | 7,563 | | Designated NAIC 1 (Ratings Profile) | 7,827 | 9,179 | | CMBS Holdings (Estimated Fair Value in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Total CMBS | 6,616 | 7,282 | | Designated NAIC 1 (Ratings Profile) | 6,300 (approx.) | 6,900 (approx.) | | ABS Holdings (Estimated Fair Value in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Total ABS | 5,203 | 4,280 | | Designated NAIC 1 (Ratings Profile) | 4,543 | 3,686 | Allowance for Credit Losses for Fixed Maturity Securities The company recorded a minimal allowance for credit losses, concluding that most unrealized losses were not credit-related - The company recorded an allowance for credit losses of $5 million for fixed maturity securities relating to thirteen securities at September 30, 2022[48] - For other fixed maturity securities in an unrealized loss position, the unrealized loss was not due to issuer-specific credit-related factors and was recognized in OCI, as these securities are high credit quality, and the company does not intend to sell them prior to anticipated recovery[48] Securities Lending The company's securities lending program had $4.7 billion of securities on loan, collateralized at 102% of fair value - The company participates in a securities lending program to enhance total return on its investment portfolio, loaning securities to third parties and obtaining cash collateral generally equal to 102% of the estimated fair value of the securities loaned[251] | Securities Lending (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Securities on loan (Amortized cost) | 5,049 | 3,573 | | Securities on loan (Estimated fair value) | 4,719 | 4,539 | | Cash collateral received from counterparties | 4,844 | 4,611 | Mortgage Loans The mortgage loan portfolio increased to $22.2 billion, with a low average commercial loan-to-value ratio of 57% - The average loan-to-value ratio for commercial mortgage loans was 57% at September 30, 2022, and the average debt-service coverage ratio was 2.2x[255] - Loan modifications due to the COVID-19 pandemic were generally not considered troubled debt restructurings (TDRs) due to federal legislation relief[255] | Mortgage Loans (Amortized Cost in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Commercial | 13,286 | 12,187 | | Agricultural | 4,216 | 4,163 | | Residential | 4,686 | 3,623 | | Total | 22,188 | 19,973 | | Allowance for Credit Losses | 99 | 123 | | Commercial Mortgage Loans by Property Type (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Apartment | 5,069 | 3,895 | | Office | 3,391 | 3,566 | | Retail | 1,966 | 1,863 | | Industrial | 1,959 | 1,847 | | Hotel | 901 | 1,016 | | Total recorded investment | 13,286 | 12,187 | Limited Partnerships and Limited Liability Companies The carrying value of limited partnerships and LLCs increased to $4.6 billion, driven by other limited partnerships - Cash distributions from these investments are generated from investment gains, operating income, and liquidation of underlying investments, with private equity funds typically liquidated over 10 to 20 years[257] | Limited Partnerships and LLCs (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Other limited partnerships | 3,921 | 3,786 | | Real estate limited partnerships and LLCs | 686 | 485 | | Total | 4,607 | 4,271 | Other Invested Assets Other invested assets increased to $4.0 billion, with freestanding derivatives constituting the largest component | Other Invested Assets (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Freestanding derivatives with positive estimated fair values | 3,740 | 3,126 | | FHLB Stock | 176 | 70 | | Tax credit and renewable energy partnerships | 56 | 59 | | Leveraged leases, net of non-recourse debt | 49 | 49 | | Other | 12 | 12 | | Total | 4,033 | 3,316 | Derivatives The company uses derivatives to manage market risks, with a significant portion not designated for hedge accounting and classified as Level 3 - The company uses derivatives to manage interest rate, foreign currency exchange rate, credit, and equity market risks, with a substantial portion not designated or not qualifying as hedging instruments[260] - Level 3 derivatives, which involve significant unobservable inputs and management judgment, include credit default swaps, equity variance swaps, foreign currency swaps, and equity index options[261] - Counterparty credit risk is managed through master netting agreements, trading through regulated exchanges, obtaining collateral, and setting limits on single party credit exposures[262] | Credit Default Swaps (in millions) | Sep 30, 2022 Gross Notional Amount | Sep 30, 2022 Estimated Fair Value | Dec 31, 2021 Gross Notional Amount | Dec 31, 2021 Estimated Fair Value | |:---|---:|---:|---:|---:| | Written | 1,869 | (4) | 1,724 | 38 | | Purchased | — | — | — | — | | Total | 1,869 | (4) | 1,724 | 38 | Derivative Risks The company is exposed to various market risks, which are managed using derivative strategies not designated for hedge accounting - The company is exposed to interest rate, foreign currency exchange rate, credit, and equity market risks, which are managed using derivative instruments[260] - A substantial portion of the company's derivatives are not designated or do not qualify as part of a hedging relationship, serving as macro hedges or economically hedging insurance liabilities and embedded derivatives[87] Fair Value Hierarchy The valuation of Level 3 derivatives involves significant unobservable inputs and requires a higher degree of management judgment - Level 3 derivatives, including credit default swaps, equity variance swaps, foreign currency swaps, and equity index options, involve significant unobservable inputs and require a higher degree of management judgment[261] - The use of different inputs or methodologies could materially affect the estimated fair value of Level 3 derivatives and net income[261] Credit Risk The company manages counterparty credit risk on derivatives through master netting agreements, collateral, and exposure limits - The company manages counterparty credit risk on derivative instruments by transacting with creditworthy counterparties, utilizing master netting agreements, trading through regulated exchanges, obtaining collateral, and setting limits on single party credit exposures[262] | Net Derivative Assets/Liabilities (in millions) | Sep 30, 2022 Net Amount After Securities Collateral | Dec 31, 2021 Net Amount After Securities Collateral | |:---|---:|---:| | Derivative assets | 85 | 66 | | Derivative liabilities | 2 | — | Credit Derivatives The company writes credit default swaps with a gross notional amount of $1.9 billion to synthetically replicate corporate bonds for ALM needs - Written credit default swaps are used to synthetically replicate corporate bonds, which is an important tool for managing overall corporate credit risk and meeting ALM needs for long-dated insurance liabilities[264] | Credit Default Swaps (in millions) | Sep 30, 2022 Gross Notional Amount | Sep 30, 2022 Estimated Fair Value | Dec 31, 2021 Gross Notional Amount | Dec 31, 2021 Estimated Fair Value | |:---|---:|---:|---:|---:| | Written | 1,869 | (4) | 1,724 | 38 | | Purchased | — | — | — | — | | Total | 1,869 | (4) | 1,724 | 38 | Embedded Derivatives Embedded derivatives, primarily from variable annuity guarantees, are measured at fair value with changes reported in net derivative gains (losses) - Embedded derivatives, primarily certain direct and ceded variable annuity guarantees and equity crediting rates within index-linked annuity contracts, are measured at estimated fair value with changes reported in net derivative gains (losses)[113] - The valuation of these embedded derivatives includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital markets inputs[114] Policyholder Liabilities The company establishes actuarially determined liabilities for future policy benefits and policyholder account balances, with significant exposure from variable annuity guarantees - The company establishes actuarially determined liabilities for future policy benefits and policyholder account balances to meet policy obligations[266] | Variable Annuity Guarantees (in millions) | Sep 30, 2022 Account Value | Sep 30, 2022 Death Benefit NAR | Sep 30, 2022 Living Benefit NAR | |:---|---:|---:|---:| | GMIB | 30,295 | 6,398 | 6,042 | | GMIB Max with EDB | 7,811 | 6,136 | 574 | | GMIB Max without EDB | 4,414 | 231 | 145 | | GMWB | 18,656 | 2,083 | 1,248 | | GMAB | 492 | 26 | 26 | | GMDB only (other than EDB) | 15,274 | 2,044 | — | | EDB only | 2,892 | 1,543 | — | | Total | 79,834 | 18,461 | 8,035 | | Variable Annuity Reserves (in millions) | Sep 30, 2022 Future Policy Benefits | Sep 30, 2022 Policyholder Account Balances | Sep 30, 2022 Total Reserves | |:---|---:|---:|---:| | GMIB | 3,706 | 1,618 | 5,324 | | GMIB Max | 1,202 | 124 | 1,326 | | GMWB | 450 | (14) | 436 | | GMAB | — | (8) | (8) | | GMDB | 1,885 | — | 1,885 | | Total | 7,243 | 1,720 | 8,963 | | Derivatives Hedging Variable Annuity Guarantees (in millions) | Sep 30, 2022 Gross Notional Amount | Sep 30, 2022 Estimated Fair Value Assets | Sep 30, 2022 Estimated Fair Value Liabilities | |:---|---:|---:|---:| | Total | 79,508 | 2,279 | 3,356 | Future Policy Benefits The company establishes liabilities for amounts payable under insurance policies, including certain variable annuity guarantee features - The company establishes liabilities for amounts payable under insurance policies, with certain variable annuity guarantee features accounted for as insurance liabilities in future policy benefits[267][273] - These liabilities, valued at $7.2 billion at September 30, 2022, are less sensitive to periodic changes in equity and fixed income market returns and interest rates due to the use of long-term assumptions[273] Policyholder Account Balances Policyholder account balances generally equal the account value and include amounts for funding agreements and embedded derivatives - Policyholder account balances generally equal the account value, including accrued interest credited, and include amounts associated with funding agreements for the institutional spread margin business[268] - Other variable annuity guarantee features are accounted for as embedded derivatives and reported in policyholder account balances at estimated fair value[273] Variable Annuity Guarantees The company issues variable annuity products with guaranteed minimum benefits, resulting in significant net amount at risk and reserves hedged with derivatives Net Amount at Risk The net amount at risk for variable annuity guarantees represents the potential economic exposure if all contract holders were to utilize their benefits - The NAR for GMIB, GMWB, GMAB, and GMDB represents the potential economic exposure if all contract holders were to annuitize or utilize benefits on the balance sheet date[270] | Variable Annuity Guarantees (in millions) | Sep 30, 2022 Account Value | Sep 30, 2022 Death Benefit NAR | Sep 30, 2022 Living Benefit NAR | |:---|---:|---:|---:| | Total | 79,834 | 18,461 | 8,035 | Reserves Variable annuity guarantee features are accounted for as insurance liabilities or embedded derivatives, with total reserves of $9.0 billion - Certain variable annuity guarantee features are accounted for as insurance liabilities in future policy benefits ($7.2 billion at September 30, 2022), while others are embedded derivatives in policyholder account balances ($1.7 billion)[273] - Carrying values of these guarantees can change significantly due to shifts in equity market performance, volatility, interest rates, and assumptions around mortality, separate account returns, and policyholder behavior[274] | Variable Annuity Reserves (in millions) | Sep 30, 2022 Future Policy Benefits | Sep 30, 2022 Policyholder Account Balances | Sep 30, 2022 Total Reserves | |:---|---:|---:|---:| | Total | 7,243 | 1,720 | 8,963 | Derivatives Hedging Variable Annuity Guarantees The company uses a large derivatives portfolio with a notional amount of $79.5 billion to hedge its variable annuity guarantees - Period-to-period changes in the estimated fair value of these hedges affect net income, as well as stockholders' equity, and these effects can be material in any given period[278] | Derivatives Hedging Variable Annuity Guarantees (in millions) | Sep 30, 2022 Gross Notional Amount | Sep 30, 2022 Estimated Fair Value Assets | Sep 30, 2022 Estimated Fair Value Liabilities | |:---|---:|---:|---:| | Equity index options | 13,634 | 591 | 350 | | Equity total return swaps | 33,069 | 1,515 | 1,519 | | Equity variance swaps | 281 | 9 | 1 | | Interest rate swaps | 3,085 | 93 | 54 | | Interest rate options | 18,838 | 38 | 95 | | Interest rate forwards | 10,601 | 33 | 1,337 | | Hybrid options | — | — | — | | Total | 79,508 | 2,279 | 3,356 | Liquidity and Capital Resources The company maintains sufficient liquidity and capital, targeting a debt-to-capital ratio of approximately 25% and an RBC ratio between 400% and 450% - The company believes it has sufficient liquidity to meet business requirements in current market conditions and certain stress scenarios, supported by its capitalization, business mix, ratings, and funding sources[280] - The company targets a debt-to-capital ratio of approximately 25% and a combined risk-based capital (RBC) ratio between 400% and 450% in normal market conditions[281][282] | Liquidity Metrics (in millions) | Sep 30, 2022 | Dec 31, 2021 | |:---|---:|---:| | Short-term liquidity | 3,400 | 3,800 | | Liquid assets | 41,500 | 54,900 | | Sources and Uses of Liquidity and Capital (9 Months Ended Sep 30, in millions) | 2022 | 2021 | |:---|:---|:---| | Sources: | | | | Operating activities, net | — | 644 | | Changes in policyholder account balances, net | 9,218 | 9,237 | | Changes in payables for collateral under securities loaned and other transactions, net | 263 | 387 | | Total sources | 9,481 | 10,268 | | Uses: | | | | Operating activities, net | 939 | — | | Investing activities, net | 7,596 | 9,665 | | Long-term debt repaid | 2 | 1 | | Dividends on preferred stock | 78 | 68 | | Treasury stock acquired in connection with share repurchases | 395 | 341 | | Financing element on certain derivative instruments and other derivative related transactions, net | 137 | 183 | | Other, net | 15 | 10 | | Total uses | 9,162 | 10,268 | | Net increase (decrease) in cash and cash equivalents | 319 | — | Liquidity and Capital Management The company actively monitors its liquidity and capital plans, maintaining substantial short-term liquidity and liquid assets - The company maintains a substantial short-term liquidity position of $3.4 billion and liquid assets of $41.5 billion at September 30, 2022[280] - Liquidity needs are determined based on a rolling 12-month forecast, supported by cash flow and stress testing, with alternative funding sources available if needed[281] The Company The company manages its liquidity and capital to meet cash requirements and maintain financial strength, targeting specific debt-to-capital and RBC ratios Liquidity The company's liquidity strategy involves generating adequate cash flows from operations, monitored daily via a rolling 12-month forecast and stress testing - Liquidity refers to the company's ability to generate adequate cash flows from normal operations to meet cash requirements of operating, investing, and financing activities[281] - Liquidity needs are determined by a rolling 12-month forecast and supported by cash flow and stress testing, with alternative sources including liquid asset sales and funding facilities[281] Capital The company manages its capital position to maintain financial strength, targeting a debt-to-capital ratio of approximately 25% and an RBC ratio of 400-450% - The company manages its capital position to maintain financial strength and credit ratings, targeting a debt-to-capital ratio of approximately 25%[281] - The company targets a combined risk-based capital (RBC) ratio between 400% and 450% in normal market conditions[282] - Common stock repurchases are dependent on capital position, liquidity, ratings, market conditions, and regulatory approvals, with $386 million remaining under the program at September 30, 2022[282][133] - The company currently has no plans to declare and pay dividends on its common stock, with future declarations at the discretion of the Board of Directors[282] Sources and Uses of Liquidity and Capital For the nine months ended September 30, 2022, total liquidity sources were $9.5 billion and total uses were $9.2 billion | Sources and Uses of Liquidity and Capital (9 Months Ended Sep 30, in millions) | 2022 | 2021 | |:---|:---|:---| | Sources: | | | | Operating activities, net | — | 644 | | Changes in policyholder account balances, net | 9,218 | 9,237 | | Changes in payables for collateral under securities loaned and other transactions, net | 263 | 387 | | Total sources | 9,481 | 10,268 | | Uses: | | | | Operating activities, net | 939 | — | | Investing activities, net | 7,596 | 9,665 | | Long-term debt repaid | 2 | 1 | | Dividends on preferred stock | 78 | 68 | | Treasury stock acquired in connection with share repurchases | 395 | 341 | | Financing element on certain derivative instruments and other derivative related transactions, net | 137 | 183 | | Other, net | 15 | 10 | | Total uses | 9,162 | 10,268 | | Net increase (decrease) in cash and cash equivalents | 319 | — | Cash Flows from Operating Activities Principal cash inflows are from premiums and investment income, while outflows are for policy benefits and expenses, with early withdrawal being a key risk - Principal cash inflows from insurance activities are insurance premiums, annuity considerations, and net investment income[284] - Principal cash outflows are policy benefits, operating expenses, and income tax, with early contract holder and policyholder withdrawal being the primary liquidity concern[284] Cash Flows from Investing Activities The company typically experiences a net cash outflow from investing activities as insurance inflows are reinvested to fund liabilities - Principal cash inflows from investment activities come from repayments, maturities, and sales of investments, as well as settlements of freestanding derivatives[286] - Principal cash outflows relate to purchases of investments and settlements of freestanding derivatives, with net cash outflow typical as insurance inflows are reinvested[286] - The primary liquidity concerns for investing activities are the risk of default by debtors and market disruption[286] Cash Flows from Financing Activities Financing cash flows are driven by debt and equity issuances, policyholder deposits, and securities lending, with market disruption being a key risk - Principal cash inflows from financing activities come from issuances of debt and equity securities, deposits of policyholder account balances, and lending of securities[287] - Principal cash outflows come from debt repayments, common stock repurchases, preferred stock dividends, policyholder withdrawals, and the return of securities on loan[287] - Market disruption and the risk of early policyholder withdrawal are the primary liquidity concerns for financing activities[287] Primary Sources of Liquidity and Capital The company's primary liquidity sources include various funding agreements, debt issuances, and credit facilities - Liquidity is provided by secured and unsecured funding agreements, unsecured credit facilities, and secured committed facilities[288] Capital is provided by debt and equity securities issuances and credit facility borrowings[288] - The FABN Program's maximum aggregate principal amount was increased from $5.0 billion to $7.0 billion in August 2022[291] - The Farmer Mac Funding Agreements program was amended in September 2022 to extend its term to December 1, 2026, and increase the maximum aggregate principal amount from $500 million to $750 million[293] | Funding Agreements (in millions) | Sep 30, 2022 Aggregate Principal A