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Brighthouse Life Insurance Co – ‘10-K’ for 12/31/19

On:  Wednesday, 3/4/20, at 5:48pm ET   ·   As of:  3/5/20   ·   For:  12/31/19   ·   Accession #:  733076-20-4   ·   File #:  33-03094

Previous ‘10-K’:  ‘10-K’ on 3/5/19 for 12/31/18   ·   Next:  ‘10-K’ on 3/3/21 for 12/31/20   ·   Latest:  ‘10-K’ on 2/29/24 for 12/31/23

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  As Of               Filer                 Filing    For·On·As Docs:Size

 3/05/20  Brighthouse Life Insurance Co     10-K       12/31/19  148:30M

Annual Report   —   Form 10-K   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                       HTML   3.89M 
 2: EX-23.1     Consent of Experts or Counsel                       HTML     41K 
 3: EX-31.1     Certification -- §302 - SOA'02                      HTML     46K 
 4: EX-31.2     Certification -- §302 - SOA'02                      HTML     46K 
 5: EX-32.1     Certification -- §906 - SOA'02                      HTML     42K 
 6: EX-32.2     Certification -- §906 - SOA'02                      HTML     42K 
117: R1          Document and Entity Information                     HTML     95K  
62: R2          Consolidated Balance Sheets                         HTML    151K 
13: R3          Consolidated Balance Sheets (Parenthetical)         HTML     56K 
98: R4          Consolidated Statements of Operations               HTML     98K 
118: R5          Consolidated Statements Of Comprehensive Income     HTML     74K  
63: R6          Consolidated Statements of Equity                   HTML     92K 
14: R7          Consolidated Statements of Cash Flows               HTML    179K 
101: R8          Business, Basis of Presentation and Summary of      HTML    137K  
                Significant Accounting Policies                                  
115: R9          Segment Information                                 HTML    284K  
59: R10         Organizational Changes                              HTML     45K 
42: R11         Insurance                                           HTML    231K 
89: R12         Deferred Policy Acquisition Costs, Value of         HTML    129K 
                Business Acquired and Other Policy-Related                       
                Intangibles                                                      
143: R13         Reinsurance                                         HTML    249K  
60: R14         Investments                                         HTML    582K 
43: R15         Derivatives                                         HTML    424K 
91: R16         Fair Value                                          HTML    547K 
144: R17         Long-term Debt                                      HTML     85K  
58: R18         Equity                                              HTML    227K 
44: R19         Other Revenues and Other Expenses                   HTML     73K 
96: R20         Income Tax                                          HTML    173K 
116: R21         Contingencies, Commitments and Guarantees           HTML     67K  
61: R22         Related Party Transactions                          HTML     60K 
12: R23         Subsequent Events                                   HTML     44K 
99: R24         Consolidated Summary of Investments - Other Than    HTML     95K 
                Investments in Related Parties                                   
119: R25         Condensed Financial Information (Parent Company)    HTML    266K  
64: R26         Consolidated Supplementary Insurance Information    HTML    165K 
15: R27         Consolidated Reinsurance                            HTML    117K 
100: R28         Business, Basis of Presentation and Summary of      HTML    231K  
                Significant Accounting Policies (Policies)                       
114: R29         Segment Information (Tables)                        HTML    275K  
147: R30         Insurance (Tables)                                  HTML    216K  
94: R31         Deferred Policy Acquisition Costs, Value of         HTML    207K 
                Business Acquired and Other Policy-Related                       
                Intangibles (Tables)                                             
41: R32         Reinsurance (Tables)                                HTML    210K 
57: R33         Investments (Tables)                                HTML    539K 
146: R34         Derivatives (Tables)                                HTML    588K  
93: R35         Fair Value (Tables)                                 HTML    523K 
40: R36         Long-term Debt (Tables)                             HTML     62K 
56: R37         Equity (Tables)                                     HTML    213K 
148: R38         Other Expenses (Tables)                             HTML     65K  
92: R39         Income Tax (Tables)                                 HTML    176K 
122: R40         Business, Basis of Presentation and Summary of      HTML     55K  
                Significant Accounting Policies (Narrative)                      
                (Details)                                                        
105: R41         Segment Information (Operating Results) (Details)   HTML    102K  
26: R42         Segment Information (Assets and Liabilities)        HTML     61K 
                (Details)                                                        
77: R43         Segment Information (Reconciliation of Operating    HTML     55K 
                Revenues to Total Revenues) (Details)                            
121: R44         Segment Information (Premiums, Universal Life and   HTML     50K  
                Investment-Type Product Policy Fees and Other                    
                Revenues by Major Product Group) (Details)                       
104: R45         Segment Information (Narrative) (Details)           HTML     41K  
25: R46         Organizational Changes (Details)                    HTML     53K 
76: R47         Insurance (Insurance Liabilities) (Details)         HTML     51K 
124: R48         Insurance Insurance (Future Policy Benefits -       HTML     65K  
                Narrative) (Details)                                             
102: R49         Insurance (Guarantees) (Details)                    HTML     90K  
79: R50         Insurance (Guarantees Related to Annuity            HTML     57K 
                Contracts) (Details)                                             
133: R51         Insurance (Guarantees Related to Universal and      HTML     54K  
                Variable Life Contracts) (Details)                               
53: R52         Insurance (Fund Groupings) (Details)                HTML     53K 
37: R53         Insurance (Obligations Under Funding Agreements -   HTML     60K 
                Narrative) (Details)                                             
80: R54         Deferred Policy Acquisition Costs, Value of         HTML     76K 
                Business Acquired and Other Policy-Related                       
                Intangibles (DAC and VOBA) (Details)                             
134: R55         Deferred Policy Acquisition Costs, Value of         HTML     53K  
                Business Acquired and Other Policy-Related                       
                Intangibles (DAC and VOBA by Segment) (Details)                  
54: R56         Deferred Policy Acquisition Costs, Value of         HTML     61K 
                Business Acquired and Other Policy-Related                       
                Intangibles (Deferred Sales Inducements) (Details)               
38: R57         Deferred Policy Acquisition Costs, Value of         HTML     71K 
                Business Acquired and Other Policy-Related                       
                Intangibles (Estimated Future Amortization)                      
                (Details)                                                        
81: R58         Reinsurance (Effects of Reinsurance on Earnings)    HTML    101K 
                (Details)                                                        
132: R59         Reinsurance (Effects of Reinsurance on Balance      HTML     69K  
                Sheet) (Details)                                                 
69: R60         Reinsurance (Effects of Affiliated Reinsurance on   HTML    101K 
                Statements of Operations) (Details)                              
18: R61         Reinsurance (Effects of Affiliated Reinsurance on   HTML     66K 
                Balance Sheets) (Details)                                        
110: R62         Reinsurance (Narrative) (Details)                   HTML     94K  
127: R63         Reinsurance (Related Party Narrative) (Details)     HTML    139K  
70: R64         Investments (Fixed Maturity Securities AFS by       HTML     81K 
                Sector) (Details)                                                
19: R65         Investments (Maturities of Fixed Maturity           HTML     76K 
                Securities) (Details)                                            
111: R66         Investments (Continuous Gross Unrealized Losses     HTML     84K  
                for Fixed Maturity Securities AFS by Sector)                     
                (Details)                                                        
128: R67         Investments (Mortgage Loans by Portfolio Segment)   HTML     62K  
                (Details)                                                        
66: R68         Investments (Credit Quality of Mortgage Loans)      HTML     98K 
                (Details)                                                        
23: R69         Investments (Net Unrealized Investment Gains        HTML     62K 
                (Losses)) (Details)                                              
34: R70         Investments (Changes in Net Unrealized Investment   HTML     56K 
                Gains (Losses)) (Details)                                        
48: R71         Investments (Securities Lending) (Details)          HTML     55K 
140: R72         Investments (Securities Lending Remaining Tenor)    HTML     51K  
                (Details)                                                        
85: R73         Investments (Invested Assets on Deposit, Held In    HTML     48K 
                Trust and Pledged as Collateral) (Details)                       
33: R74         Investments (Variable Interest Entities) (Details)  HTML     50K 
47: R75         Investments (Net Investment Income) (Details)       HTML     64K 
139: R76         Investments (Components of Net Investment Gains     HTML     59K  
                (Losses)) (Details)                                              
84: R77         Investments (Sales or Disposals of Fixed Maturity   HTML     50K 
                Securities) (Details)                                            
29: R78         Investments (Fixed Maturity Securities AFS -        HTML     47K 
                Narrative) (Details)                                             
51: R79         Investments (Continuous Gross Unrealized Losses     HTML     57K 
                for Fixed Maturity Securities AFS by Sector -                    
                Narrative) (Details)                                             
35: R80         Investments (Mortgage Loans - Narrative) (Details)  HTML     67K 
50: R81         Investments (Other Invested Assets - Narrative)     HTML     43K 
                (Details)                                                        
141: R82         Investments (Securities Lending - Narrative)        HTML     51K  
                (Details)                                                        
87: R83         Investments (Invested Assets on Deposit, Held in    HTML     47K 
                Trust and Pledged as Collateral-Narrative)                       
                (Details)                                                        
32: R84         Investments (Purchased Credit Impaired Investments  HTML     51K 
                - Narrative) (Details)                                           
45: R85         Investments (Collectively Significant Equity        HTML     61K 
                Method Investments - Narrative) (Details)                        
138: R86         Investments (Variable Interest Entities -           HTML     41K  
                Narrative) (Details)                                             
82: R87         Investments (Net Investment Income - Narrative)     HTML     45K 
                (Details)                                                        
30: R88         Investments (Related Party Investment Transactions  HTML     64K 
                - Narrative) (Details)                                           
52: R89         Derivatives (Primary Risks Managed by Derivatives)  HTML    116K 
                (Details)                                                        
68: R90         Derivatives Derivatives (Derivatives Pertaining to  HTML    123K 
                Hedged Items) (Details)                                          
16: R91         Derivatives (Credit Derivatives) (Details)          HTML     53K 
109: R92         Derivatives (Estimated Fair Value of Derivatives    HTML     82K  
                Assets and Liabilities after Master Netting                      
                Agreements and Cash Collateral) (Details)                        
125: R93         Derivatives (Credit Risk on Freestanding            HTML     48K  
                Derivatives) (Details)                                           
71: R94         Derivatives (Narrative) (Details)                   HTML     43K 
21: R95         Fair Value (Recurring Fair Value Measurements)      HTML    172K 
                (Details)                                                        
112: R96         Fair Value (Quantitative Information) (Details)     HTML     65K  
130: R97         Fair Value (Unobservable Input Reconciliation)      HTML    150K  
                (Details)                                                        
65: R98         Fair Value (Financial Instruments Carried at Other  HTML     84K 
                Than Fair Value) (Details)                                       
22: R99         Long-term Debt (Details)                            HTML     57K 
129: R100        Long-term Debt (Narrative) (Details)                HTML    132K  
113: R101        Equity (Statutory Net Income) (Details)             HTML     46K  
20: R102        Equity Equity (Statutory Capital and Surplus)       HTML     47K 
                (Details)                                                        
72: R103        Equity Equity (Dividend Restrictions) (Details)     HTML     52K 
126: R104        Equity (Components of Accumulated Other             HTML     99K  
                Comprehensive Income (Loss)) (Details)                           
108: R105        Equity (Reclassifications Out of Accumulated Other  HTML     78K  
                Comprehensive Income (Loss)) (Details)                           
17: R106        Equity (Capital Transactions - Narrative)           HTML     48K 
                (Details)                                                        
67: R107        Equity (Statutory Equity & Income - Narrative)      HTML     47K 
                (Details)                                                        
131: R108        Equity Equity (Captive Equity and Income -          HTML     50K  
                Narrative) (Details)                                             
107: R109        Equity (Dividend Restrictions - Narrative)          HTML     49K  
                (Details)                                                        
83: R110        Other Revenues and Other Expenses (Other            HTML     43K 
                Revenues-Narrative) (Details)                                    
137: R111        Other Revenues and Other Expenses (Other Expenses)  HTML     62K  
                (Details)                                                        
46: R112        Income Tax (Provision for Income Tax from           HTML     66K 
                Continuing Operations) (Details)                                 
31: R113        Income Tax (Reconciliation of Income Tax Provision  HTML     77K 
                between US Statutory Rate and As Reported for                    
                Continuing Operations) (Details)                                 
86: R114        Income Tax (Net Deferred Income Tax Assets and      HTML     80K 
                Liabilities) (Details)                                           
142: R115        Income Tax (Net Operating Loss Carryforwards)       HTML     46K  
                (Details)                                                        
49: R116        Income Tax (Tax Credit Carryforwards) (Details)     HTML     63K 
36: R117        Income Tax (Reconciliation of Unrecognized Tax      HTML     58K 
                Benefits) (Details)                                              
88: R118        Income Tax (Narrative) (Details)                    HTML     66K 
136: R119        Contingencies, Commitments and Guarantees           HTML     45K  
                (Contingencies - Narrative) (Details)                            
75: R120        Contingencies, Commitments and Guarantees           HTML     46K 
                (Commitments - Narrative) (Details)                              
24: R121        Contingencies, Commitments and Guarantees           HTML     50K 
                (Guarantees - Narrative) (Details)                               
103: R122        Related Party Transaction (Related Party            HTML     66K  
                Transaction - Narrative) (Details)                               
120: R123        Subsequent Events (Details)                         HTML     49K  
78: R124        Consolidated Summary of Investments - Other Than    HTML     95K 
                Investments in Related Parties (Details)                         
27: R125        Condensed Financial Information (Parent Company)    HTML    164K 
                (Condensed Balance Sheets) (Details)                             
106: R126        Condensed Financial Information (Parent Company)    HTML     59K  
                Condensed Financial Information (Parent Company)                 
                (Condensed Balance Sheets - Phantom) (Details)                   
123: R127        Condensed Financial Information (Parent Company)    HTML    102K  
                (Condensed Statements of Operations) (Details)                   
74: R128        Condensed Financial Information (Parent Company)    HTML    153K 
                (Condensed Statements of Cash Flows) (Details)                   
28: R129        Condensed Financial Information (Parent Company)    HTML     54K 
                (Investment in Subsidiaries Footnote) (Details)                  
39: R130        Consolidated Supplementary Insurance Information    HTML     69K 
                (Balance Sheet Items) (Details)                                  
55: R131        Consolidated Supplementary Insurance Information    HTML     70K 
                (Income Statement Items) (Details)                               
135: R132        Consolidated Reinsurance (Details)                  HTML     82K  
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‘10-K’   —   Annual Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Table of Contents
"Business
"Overview
"Segments and Corporate & Other
"Reinsurance Activity
"Sales Distribution
"Regulation
"Insurance Regulation
"Cybersecurity Regulation
"Securities and Investment Advisor Regulation
"Department of Labor and ERISA Considerations
"Standard of Conduct Regulation
"Regulation of Over-the-Counter Derivatives
"Unclaimed Property
"Company Ratings
"Risk Factors
"Risks Related to Our Business
"Economic Environment and Capital Markets-Related Risks
"Investments-Related Risks
"Regulatory and Legal Risks
"Operational Risks
"General Risks
"Risks Related to Our Separation from, and Continuing Relationship with, MetLife
"Unresolved Staff Comments
"Legal Proceedings
"Mine Safety Disclosures
"Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
"Selected Financial Data
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Introduction
"Summary of Critical Accounting Estimates
"Non-GAAP Disclosures
"Results of Operations
"Effects of Inflation
"Off-Balance Sheet Arrangements
"Policyholder Liabilities
"Liquidity and Capital Resources
"Quantitative and Qualitative Disclosures About Market Risk
"Financial Statements and Supplementary Data
"Report of Independent Registered Public Accounting Firm
"Consolidated Balance Sheets
"Consolidated Statements of Operations
"Consolidated Statements of Comprehensive Income (Loss)
"Consolidated Statements of Equity
"Consolidated Statements of Cash Flows
"Note 1 -- Business, Basis of Presentation and Summary of Significant Accounting Policies
"Note 2 -- Segment Information
"Note 3 -- Organizational Changes
"Note 4 -- Insurance
"Note 5 -- Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
"Note 6 -- Reinsurance
"Note 7 -- Investments
"Note 8 -- Derivatives
"104
"Note 9 -- Fair Value
"110
"Note 10 -- Long-term Debt
"119
"Note 11 -- Equity
"120
"Note 12 -- Other Revenues and Other Expenses
"125
"Note 13 -- Income Tax
"126
"Note 14 -- Contingencies, Commitments and Guarantees
"129
"Note 15 -- Related Party Transactions
"131
"Note 16 -- Subsequent Events
"132
"Schedule I -- Consolidated Summary of Investments -- Other Than Investments in Related Parties
"133
"Schedule II -- Condensed Financial Information (Parent Company Only)
"134
"Schedule III -- Consolidated Supplementary Insurance Information
"138
"Schedule IV -- Consolidated Reinsurance
"140
"Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
"141
"Controls and Procedures
"Other Information
"Directors, Executive Officers and Corporate Governance
"142
"Executive Compensation
"Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
"Certain Relationships, Related Transactions and Director Independence
"Principal Accountant Fees and Services
"Exhibits and Financial Statement Schedules
"144
"Exhibit Index
"145
"Signatures
"147

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM  i 10-K
(Mark One)
 i 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended  i December 31, 2019
or
 
 i 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to _____
Commission file number  i 033-03094
 
bhflogorgb970pxa31.jpg
 i Brighthouse Life Insurance Company
(Exact name of registrant as specified in its charter)
 i Delaware
 
 i 06-0566090
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 i 11225 North Community House Road,
 i Charlotte,
 i North Carolina
 
 i 28277
(Address of principal executive offices)
 
(Zip Code)
( i 980) i  365-7100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Title of each class
Trading symbol(s)
Name of each exchange on which registered
 
 
 

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨  i No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨  i No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  i Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  i Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 i Non-accelerated filer
þ
 
Smaller reporting company
 i 
 
 
Emerging growth company
 i 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  i  No þ
As of March 4, 2020,  i 3,000 shares of the registrant’s common stock were outstanding, all of which were owned indirectly by Brighthouse Financial, Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Annual Report on Form 10-K with the reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
 



Table of Contents



As used in this Annual Report on Form 10-K, unless otherwise mentioned or unless the context indicates otherwise, “BLIC,” the “Company,” “we,” “us” and “our” refer to Brighthouse Life Insurance Company (formerly, MetLife Insurance Company USA (“MetLife USA”) or MetLife Insurance Company of Connecticut (“MICC”)), a Delaware corporation originally incorporated in Connecticut in 1863, and its subsidiaries. Brighthouse Life Insurance Company is an indirect wholly-owned subsidiary of Brighthouse Financial, Inc. (together with its subsidiaries and affiliates, “Brighthouse”). We use the term “BHF” to refer solely to Brighthouse Financial, Inc., and not to any of its subsidiaries. The term “Separation” refers to the separation of MetLife, Inc.’s (together with its subsidiaries and affiliates, “MetLife”) former Brighthouse Financial segment from MetLife’s other businesses and the creation of a separate, publicly-traded company, BHF, as well as the distribution on August 4, 2017 of 96,776,670 shares, or 80.8%, of the 119,773,106 shares of BHF common stock outstanding immediately prior to the distribution date by MetLife, Inc. to holders of MetLife, Inc. common stock as of the record date for the distribution. In June 2018, MetLife divested all its remaining shares of BHF common stock.
Note Regarding Forward-Looking Statements
This report and other oral or written statements that we make from time to time may contain information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements using words such as “anticipate,” “estimate,” “expect,” “project,” “may,” “will,” “could,” “intend,” “goal,” “target,” “guidance,” “forecast,” “preliminary,” “objective,” “continue,” “aim,” “plan,” “believe” and other words and terms of similar meaning, or that are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include, without limitation, statements relating to future actions, prospective services or products, financial projections, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, as well as trends in operating and financial results.
Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of BLIC. These statements are based on current expectations and the current economic environment and involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others:
differences between actual experience and actuarial assumptions and the effectiveness of our actuarial models;
higher risk management costs and exposure to increased market risk due to guarantees within certain of our products;
the effectiveness of our variable annuity exposure risk management strategy and the impact of such strategy volatility in our profitability measures and negative effects on our statutory capital;
the reserves we are required to hold against our variable annuities as a result of actuarial guidelines;
the potential material adverse effect of changes in accounting standards, practices and/or policies applicable to us, including changes in the accounting for long-duration contracts;
the impact of adverse capital and credit market conditions, including with respect to our ability to meet liquidity needs and access capital;
the impact of changes in regulation and in supervisory and enforcement policies on our insurance business or other operations;
the availability of reinsurance and the ability of the counterparties to our reinsurance or indemnification arrangements to perform their obligations thereunder;
the adverse impact to liabilities for policyholder claims as a result of extreme mortality events;

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heightened competition, including with respect to service, product features, scale, price, actual or perceived financial strength, claims-paying ratings, financial strength ratings, e-business capabilities and name recognition;
any failure of third parties to provide services we need, any failure of the practices and procedures of such third parties and any inability to obtain information or assistance we need from third parties;
the effectiveness of our policies and procedures in managing risk;
our ability to market and distribute our products through distribution channels;
whether all or any portion of the tax consequences of the Separation are not as expected, leading to material additional taxes or material adverse consequences to tax attributes that impact us;
the uncertainty of the outcome of any disputes with MetLife over tax-related or other matters and agreements or disagreements regarding MetLife’s or our obligations under our other agreements;
the potential material negative tax impact of potential future tax legislation that could make some of our products less attractive to consumers; and
other factors described in this report and from time to time in documents that we file with the U.S. Securities and Exchange Commission (“SEC”).
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements included and the risks, uncertainties and other factors identified in this Annual Report on Form 10-K, particularly in the sections entitled “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk,” as well as in our other subsequent filings with the SEC. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.
Note Regarding Reliance on Statements in Our Contracts
See Exhibit Index — Note Regarding Reliance on Statements in Our Contracts for information regarding agreements included as exhibits to this Annual Report on Form 10-K.

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PART I
Item 1. Business
Index to Business

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Overview
Brighthouse Life Insurance Company is a Delaware corporation originally incorporated in Connecticut in 1863. Brighthouse Life Insurance Company is licensed to issue insurance products in all U.S. states (except New York), the District of Columbia, the Bahamas, Guam, Puerto Rico, the British Virgin Islands and the U.S. Virgin Islands.
The Company offers a range of individual annuities and individual life insurance products. The Company is organized into three reporting segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other. See “— Segments and Corporate & Other,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” and Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other.
In 2016, MetLife, Inc. (together with its subsidiaries and affiliates, “MetLife”) announced its plan to pursue the separation of a substantial portion of its former U.S. retail business (the “Separation”). In connection with the Separation, 80.8% of MetLife, Inc.’s interest in BHF was distributed to holders of MetLife, Inc.’s common stock. On June 14, 2018, MetLife, Inc. divested its remaining shares of BHF common stock (the “MetLife Divestiture”). As a result, MetLife, Inc. and its subsidiaries and affiliates are no longer considered related parties subsequent to the MetLife Divestiture. See Note 1 of the Notes to the Consolidated Financial Statements.
Segments and Corporate & Other
The Company is organized into three segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other.
Annuities
The Annuities segment consists of a variety of variable, fixed, index-linked and income annuities designed to address contract holders’ needs for protected wealth accumulation on a tax-deferred basis, wealth transfer and income security.
Annuities are used by consumers for pre-retirement wealth accumulation and post-retirement income management. The “fixed” and “variable” classifications describe generally whether we or the contract holders bear the investment risk of the assets supporting the contract and determine the manner in which we earn profits from these products, as investment spreads for fixed products or as asset-based fees charged to variable products. Index-linked annuities allow the contract holder to participate in returns from equity indices and, in the case of Shield Level Annuities (“Shield” and “Shield Annuities”), a suite of single premium deferred annuity contracts that provides for accumulation of retirement savings or other long-term investment purposes, provide a specified level of market downside protection. Income annuities provide a guaranteed monthly income for a specified period of years and/or for the life of the annuitant.
Life
The Life segment consists of insurance products and services, including term, universal, whole and variable life products designed to address policyholders’ needs for financial security and protected wealth transfer, which may be provided on a tax-advantaged basis. In addition to contributing to our revenues and earnings, mortality protection-based products offered by our Life segment diversify the longevity and other risks in our Annuities segment.
Run-off
The Run-off segment consists of products no longer actively sold and which are separately managed, including structured settlements, pension risk transfer contracts, certain company-owned life insurance policies, funding agreements and universal life with secondary guarantees (“ULSG”).
Corporate & Other
Corporate & Other contains the excess capital not allocated to the segments and interest expense related to the majority of our outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes long-term care and workers compensation business reinsured through 100% quota share reinsurance agreements and term life insurance sold direct to consumers, which is no longer being offered for new sales.
Additional Segment Information
Revenues derived from any individual customer did not exceed 10% of premiums, universal life and investment-type product policy fees and other revenues for the years ended December 31, 2019, 2018 and 2017. Substantially all of our premiums, universal life and investment-type product policy fees and other revenues originated in the U.S. Financial information, including revenues, expenses, adjusted earnings, and total assets by segment, as well as premiums, universal life and investment-type product policy fees and other revenues by major product groups, is provided in Note 2 of the Notes to the Consolidated Financial

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Statements. Adjusted earnings is a performance measure that is not based on accounting principles generally accepted in the United States of America (“GAAP”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Disclosures” for a definition of such measure.
Reinsurance Activity
In connection with our risk management efforts and in order to provide opportunities for growth and capital management, we enter into reinsurance arrangements pursuant to which we cede certain insurance risks to unaffiliated reinsurers (“Unaffiliated Third-Party Reinsurance”). We also enter into reserve financing and other transactions involving the assumption and cession of insurance risks with affiliated reinsurers and ceding companies (“Affiliated Reinsurance”). We discuss below our use of Unaffiliated Third-Party Reinsurance, as well as our use of Affiliated Reinsurance. We also discuss the cession of a block of legacy insurance liabilities to a third party and related indemnification and assignment arrangements.
Unaffiliated Third-Party Reinsurance
We cede risks to third parties in order to limit losses, minimize exposure to significant risks and provide capacity for future growth. We enter into various agreements with reinsurers that cover groups of risks, as well as individual risks. Our ceded reinsurance to third parties is primarily structured on a treaty basis as coinsurance, yearly renewable term, excess or catastrophe excess of retention insurance. These reinsurance arrangements are an important part of our risk management strategy because they permit us to spread risk and minimize the effect of losses. The extent of each risk retained by us depends on our evaluation of the specific risk, subject, in certain circumstances, to maximum retention limits based on the characteristics and relative cost of reinsurance. We also cede first dollar mortality risk under certain contracts. In addition to reinsuring mortality risk, we cede other risks, as well as specific coverages.
Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse us for the ceded amount in the event that we pay a claim. Cessions under reinsurance agreements do not discharge our obligations as the primary insurer. In the event the reinsurers do not meet their obligations under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible.
We have historically reinsured the mortality risk on our life insurance policies primarily on an excess of retention basis or on a quota share basis. When we cede risks to a reinsurer on an excess of retention basis we retain the liability up to a contractually specified amount and the reinsurer is responsible for indemnifying us for amounts in excess of the liability we retain, subject sometimes to a cap. When we cede risks on a quota share basis we share a portion of the risk within a contractually specified layer of reinsurance coverage. We reinsure on a facultative basis for risks with specified characteristics. On a case-by-case basis, we may retain up to $20 million per life and reinsure 100% of the risk in excess of $20 million. We also reinsure portions of the risk associated with certain whole life policies to a former affiliate and we assume certain term life policies and universal life policies with secondary death benefit guarantees issued by a former affiliate. We routinely evaluate our reinsurance program and may increase or decrease our retention at any time.
Our reinsurance is diversified with a group of primarily highly rated reinsurers. We analyze recent trends in arbitration and litigation outcomes in disputes, if any, with our reinsurers. We monitor ratings and evaluate the financial strength of our reinsurers by analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer is evaluated as part of the overall monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. We generally secure large reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit.
We reinsure, through 100% quota share reinsurance agreements, certain run-off long-term care and workers’ compensation business that we have originally written. For products in our Run-off segment other than ULSG, we have periodically engaged in reinsurance activities on an opportunistic basis.
In addition, a block of long-term care insurance business with reserves of $6.7 billion at December 31, 2019 is reinsured to Genworth Life Insurance Company and Genworth Life Insurance Company of New York (“Genworth reinsurers”) who further retroceded this business to Union Fidelity Life Insurance Company (“UFLIC”), an indirect subsidiary of General Electric Company (“GE”). We acquired this block of long-term care insurance business in 2005 when our former parent acquired The Travelers Insurance Company (“Travelers”) from Citigroup, Inc. (“Citigroup”). Prior to the acquisition, Travelers agreed to reinsure a 90% quota share of its long-term care business to certain affiliates of GE, which following a spin off became part of Genworth, and subsequently agreed to reinsure the remaining 10% quota share of such long-term care insurance business. The Genworth reinsurers established trust accounts for our benefit to secure their obligations under such arrangements requiring that they maintain qualifying collateral with an aggregate fair market value equal to at least 102% of the statutory reserves attributable to the long-term care business. Additionally, Citigroup agreed to indemnify us for losses and certain other payment obligations

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we might incur with respect to this block of reinsured long-term care insurance business. The most currently available financial strength rating is C++ for both of these Genworth reinsurers.
See “Risk Factors — Risks Related to Our Business — If the counterparties to our reinsurance or indemnification arrangements or to the derivatives we use to hedge our business risks default or fail to perform, we may be exposed to risks we had sought to mitigate, which could materially adversely affect our financial condition and results of operations.” Further, as disclosed in Genworth’s filings with the SEC, UFLIC has established trust accounts for the Genworth reinsurers’ benefit to secure UFLIC’s obligations under its arrangements with them concerning this block of long-term care insurance business, and GE has also agreed, under a capital maintenance agreement, to maintain sufficient capital in UFLIC to maintain UFLIC’s risk-based capital (“RBC’) above a specified minimum level.
Affiliated Reinsurance
Affiliated reinsurance companies are affiliated insurance companies licensed under specific provisions of insurance law of their respective jurisdictions, such as the Special Purpose Financial Captive law adopted by several states including Delaware.
Brighthouse Reinsurance Company of Delaware (“BRCD”), our reinsurance subsidiary, was formed to manage our capital and risk exposures and to support our various operations, through the use of affiliated reinsurance arrangements and related reserve financing. BRCD provides certain benefits to Brighthouse, including (i) enhancing the ability to hedge the interest rate risk of the reinsurance liabilities, (ii) allowing increased allocation flexibility in managing an investment portfolio, and (iii) improving operating flexibility and administrative cost efficiency, but there can be no assurance that such benefits will continue to materialize. See “Risk Factors — Risks Related to Our Business — We may not be able to take credit for reinsurance, our statutory life insurance reserve financings may be subject to cost increases and new financings may be subject to limited market capacity” and “Regulation — Insurance Regulation.” We also assume 100% of the living and death benefit guarantees issued in connection with certain variable annuities issued by our affiliate, New England Life Insurance Company (“NELICO”).
Catastrophe Coverage
We have exposure to catastrophes which could contribute to significant fluctuations in our results of operations. We use excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks.
Sales Distribution
We distribute our annuity and life insurance products through a diverse network of independent distribution partners. Our partners include over 400 national and regional brokerage firms, banks, independent financial planners, independent marketing organizations and other financial institutions and financial planners, in connection with the sale of our annuity products, and general agencies, financial advisors, brokerage general agencies and financial intermediaries, in connection with the distribution of our life insurance products. We believe this strategy permits us to maximize penetration of our target markets and distribution partners without incurring the fixed costs of maintaining a proprietary distribution channel and will facilitate our ability to quickly comply with evolving regulatory requirements applicable to the sale of our products.

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Regulation
Index to Regulation


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Overview
We and our insurance subsidiary, Brighthouse Life Insurance Company of NY (“BHNY”), and our reinsurance subsidiary, BRCD (collectively, our “operating subsidiaries), are regulated primarily at the state level, with some products and services also subject to federal regulation. Furthermore, some of our operations, products and services are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), consumer protection laws, securities, broker-dealer and investment advisor regulations, and environmental and unclaimed property laws and regulations. See “Risk Factors — Regulatory and Legal Risks.”
Insurance Regulation
State insurance regulation generally aims at supervising and regulating insurers, with the goal of protecting policyholders and ensuring that insurance companies remain solvent. Insurance regulators have increasingly sought information about the potential impact of activities in holding company systems as a whole and have adopted laws and regulations enhancing “group-wide” supervision. See “— Holding Company Regulation” for information regarding an enterprise risk report.
We are and each of our operating subsidiaries is licensed and regulated in each U.S. jurisdiction where it conducts insurance business. Brighthouse Life Insurance Company is licensed to issue insurance products in all U.S. states (except New York), the District of Columbia, the Bahamas, Guam, Puerto Rico, the British Virgin Islands and the U.S. Virgin Islands. BHNY is only licensed to issue insurance products in New York. The primary regulator of an insurance company, however, is the insurance regulator in its state of domicile. Brighthouse Life Insurance Company is domiciled in Delaware and regulated by the Delaware Department of Insurance, and BHNY is domiciled in New York, and regulated by the New York State Department of Financial Services (“NYDFS”). In addition, BRCD, which provides reinsurance to us, is domiciled in Delaware and regulated by the Delaware Department of Insurance.
The extent of such regulation varies, but most jurisdictions have laws and regulations governing the financial aspects and business conduct of insurers. State laws in the U.S. grant insurance regulatory authorities broad administrative powers with respect to, among other things:
licensing companies and agents to transact business;
calculating the value of assets to determine compliance with statutory requirements;
mandating certain insurance benefits;
regulating certain premium rates;
reviewing and approving certain policy forms and rates;
regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements, and identifying and paying to the states benefits and other property that are not claimed by the owners;
regulating advertising and marketing of insurance products;
protecting privacy;
establishing statutory capital (including RBC) reserve requirements and solvency standards;
specifying the conditions under which a ceding company can take credit for reinsurance in its statutory financial statements (i.e., reduce its reserves by the amount of reserves ceded to a reinsurer);
fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance policies and annuity contracts;
adopting and enforcing suitability standards with respect to the sale of annuities and other insurance products;
approving changes in control of insurance companies;
restricting the payment of dividends and other transactions between affiliates; and
regulating the types, amounts and valuation of investments.
We are required to file reports, generally including detailed annual financial statements, with insurance regulatory authorities in each of the jurisdictions in which we do business, and our operations and accounts are subject to periodic examination by such authorities. We must also file, and in many jurisdictions and for some lines of insurance obtain regulatory approval for, rules, rates and forms relating to the insurance written in the jurisdictions in which we operate.

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State and federal insurance and securities regulatory authorities and other state law enforcement agencies and attorneys general from time to time may make inquiries regarding our compliance with insurance, securities and other laws and regulations regarding the conduct of our insurance and securities businesses. We cooperate with such inquiries and take corrective action when warranted. See Note 14 of the Notes to the Consolidated Financial Statements.
Surplus and Capital; Risk-Based Capital
The National Association of Insurance Commissioners (“NAIC”) is an organization whose mission is to assist state insurance regulatory authorities in serving the public interest and achieving the insurance regulatory goals of its members, the state insurance regulatory officials. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate their regulatory oversight. The NAIC provides standardized insurance industry accounting and reporting guidance through its Accounting Practices and Procedures Manual (the “Manual”), which states have largely adopted by regulation. However, statutory accounting principles continue to be established by individual state laws, regulations and permitted practices, which may differ from the Manual. Changes to the Manual or modifications by the various states may impact our statutory capital and surplus.
The NAIC has established regulations that provide minimum capitalization requirements based on RBC formulas for insurance companies. Insurers are required to maintain their capital and surplus at or above minimum levels. Regulators have discretionary authority, in connection with the continued licensing of an insurer, to limit or prohibit the insurer’s sales to policyholders if, in their judgment, the regulators determine that such insurer has not maintained the minimum surplus or capital or that the further transaction of business will be hazardous to policyholders. We and BHNY are subject to RBC requirements and other minimum statutory capital and surplus requirements imposed under the laws of Delaware and New York, respectively. RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer and is calculated on an annual basis. The major categories of risk involved are asset risk, insurance risk, interest rate risk, market risk and business risk, including equity, interest rate and expense recovery risks associated with variable annuities that contain guaranteed minimum death and living benefits. The RBC framework is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital (“TAC”) does not meet or exceed certain RBC levels. See “Risk Factors — Regulatory and Legal Risks — A decrease in our RBC ratio or the RBC ratio of BHNY (as a result of a reduction in statutory surplus and/or increase in RBC requirements) could result in increased scrutiny by insurance regulators and rating agencies and have a material adverse effect on our results of operations and financial condition” and Note 11 of the Notes to the Consolidated Financial Statements.
In August 2018, the NAIC adopted the framework for variable annuity reserve and capital reform (“VA Reform”). The revisions are designed to mitigate the incentive for insurers to engage in captive reinsurance transactions by making improvements to Actuarial Guideline 43 (“AG 43”) and the Life Risk Based Capital C3 Phase II (“RBC C3 Phase II”) capital requirements. VA Reform is intended to (i) mitigate the asset-liability accounting mismatch between hedge instruments and statutory instruments and statutory liabilities, (ii) remove the non-economic volatility in statutory capital charges and the resulting solvency ratios and (iii) facilitate greater harmonization across insurers and their products for greater comparability. VA Reform became effective as of January 1, 2020, with early adoption permitted as of December 31, 2019. Brighthouse elected to early adopt the changes effective December 31, 2019.
In addition, following the reduction in the statutory tax rate pursuant to the Tax Cuts and Jobs Act (the “Tax Act”), the NAIC reviewed the methodology by which taxes are incorporated into the RBC calculation. On August 7, 2018 the NAIC adopted changes to the RBC calculation effective December 31, 2018 to reflect the lower statutory tax rate, which resulted in a reduction to Brighthouse Life Insurance Company’s and BHNY’s RBC ratios. As of the date of the most recent annual statutory financial statements filed with insurance regulators, TAC of Brighthouse Life Insurance Company and BHNY was in excess of RBC levels required by regulators.
The NAIC is considering revisions to RBC factors for bonds and real estate, as well as developing RBC charges for longevity risk. We cannot predict the impact of any potential proposals that may result from these efforts.
See “Risk Factors — Regulatory and Legal Risks — Our business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth.”

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Holding Company Regulation
Insurance holding company laws and regulations vary from jurisdiction to jurisdiction, but generally require a controlled insurance company (i.e., insurers that are subsidiaries of insurance holding companies) to register with state regulatory authorities and to file with those authorities certain reports, including information concerning its capital structure, ownership, financial condition, certain intercompany transactions and general business operations. In 2010 and 2014, the NAIC adopted revisions to the NAIC Insurance Holding Company System Model Act (“Model Holding Company Act”) and the Insurance Holding Company System Model Regulation (“Model Holding Company Regulation”). Certain of the states, including Delaware, have adopted insurance holding company laws and regulations that are substantially similar to the Model Holding Company Act and the Model Holding Company Regulation. Other states, including New York, have adopted modified versions, although their supporting regulation is substantially similar to the model regulation.
Insurance holding company regulations generally provide that no person, corporation or other entity may acquire control of an insurance company, or a controlling interest in any parent company of an insurance company, without the prior approval of such insurance company’s domiciliary state insurance regulator. Under the laws of both Delaware and New York, any person acquiring, directly or indirectly, 10% or more of the voting securities of an insurance company (or any holding company of the insurance company) is presumed to have acquired “control” of the company. This statutory presumption of control may be rebutted by a showing that control does not exist in fact. The state insurance regulators, however, may find that “control” exists in circumstances in which a person owns or controls less than 10% of an insurance company’s voting securities.
The laws and regulations regarding acquisition of control transactions may discourage potential acquisition proposals and may delay, deter or prevent a change of control involving us, including through unsolicited transactions.
The insurance holding company laws and regulations include a requirement that the ultimate controlling person of a U.S. insurer file an annual enterprise risk report with the lead state of the insurance holding company system identifying risks likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. To date, all of the states where Brighthouse has domestic insurers have enacted this enterprise risk reporting requirement.
State insurance statutes also typically place restrictions and limitations on the amount of dividends or other distributions payable by insurance subsidiaries to their parent companies, as well as on transactions between an insurer and its affiliates. Dividends in excess of prescribed limits and transactions above a specified size between an insurer and its affiliates require the prior approval of the insurance regulator in the insurer’s state of domicile.
The Delaware Commissioner and the New York Superintendent have broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.
For a discussion of dividend restrictions pursuant to the Delaware Insurance Code, see Note 11 of the Notes to the Consolidated Financial Statements.
Under the New York insurance law, BHNY is permitted, without prior insurance regulatory clearance, to pay stockholder dividends to its parent in any calendar year based on one of two standards. Under one standard, BHNY is permitted, without prior insurance regulatory clearance, to pay dividends out of earned surplus (defined as positive “unassigned funds (surplus)”), excluding 85% of the change in net unrealized capital gains or losses (less capital gains tax), for the immediately preceding calendar year), in an amount up to the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not to exceed 30% of surplus to policyholders as of the end of the immediately preceding calendar year. In addition, under this standard, BHNY may not, without prior insurance regulatory clearance, pay any dividends in any calendar year immediately following a calendar year for which its net gain from operations, excluding realized capital gains, was negative. Under the second standard, if dividends are paid out of other than earned surplus, BHNY may, without prior insurance regulatory clearance, pay an amount up to the lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). In addition, BHNY will be permitted to pay a dividend to its parent in excess of the amounts allowed under both standards only if it files notice of its intention to declare such a dividend and the amount thereof with the New York Superintendent of Financial Services (the “Superintendent”) and the Superintendent either approves the distribution of the dividend or does not disapprove the dividend within 30 days of its filing. To the extent BHNY pays a stockholder dividend, such dividend will be paid to Brighthouse Life Insurance Company, its direct parent and sole stockholder.
Under BRCD’s plan of operations, no dividend or distribution may be made by BRCD without the prior approval of the Delaware Commissioner.

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See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” See also Note 11 of the Notes to the Consolidated Financial Statements for further information regarding such limitations and dividends paid.
Own Risk and Solvency Assessment Model Act
In September 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA”), which has been enacted by Delaware and New York. ORSA requires that insurers maintain a risk management framework and conduct an internal own risk and solvency assessment of the insurer’s material risks in normal and stressed environments. The assessment must be documented in a confidential annual summary report, a copy of which must be made available to regulators as required or upon request.
Captive Reinsurer Regulation
During 2014, the NAIC approved a new regulatory framework applicable to the use of captive insurers in connection with the NAIC Valuation of Life Insurance Policies Model Regulation (“Regulation XXX”) and NAIC Actuarial Guideline 38 (“Guideline AXXX”) transactions. Among other things, the framework called for more disclosure of an insurer’s use of captives in its statutory financial statements and narrows the types of assets permitted to back statutory reserves that are required to support the insurer’s future obligations. In 2014, the NAIC implemented the framework through an actuarial guideline (“AG 48”), which requires the ceding insurer’s actuary to opine on the insurer’s reserves to issue a qualified opinion if the framework is not followed. The requirements of AG 48 became effective as of January 1, 2015 in all U.S. states, and apply to policies issued and new reinsurance transactions entered into on or after January 1, 2015. In 2016, the NAIC adopted a new model regulation containing similar substantive requirements to AG 48.
Federal Initiatives
Although the insurance business in the United States is primarily regulated by the states, federal initiatives often have an impact on our business in a variety of ways. Federal financial services regulation, securities regulation, derivatives regulation, pension regulation, privacy, tort reform legislation and taxation may significantly and adversely affect the insurance business. In addition, various forms of direct and indirect federal regulation of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter for insurance companies.
Guaranty Associations and Similar Arrangements
Most of the jurisdictions in which we are admitted to transact business require life insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers, or those that may become impaired, insolvent or fail, for example, following the occurrence of one or more catastrophic events. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets.
In December 2017, the NAIC approved revisions to its Life and Health Insurance Guaranty Association Model Act governing assessments for long-term care insurance. The revisions broaden the assessment base for long-term care insurance insolvencies to include both life and health insurers, provide for the inclusion of HMOs in the assessment base, and include no change to the premium tax offset. Many states have adopted legislation to codify these changes into law, and more states are expected to consider legislation in their 2020 legislative sessions.
In the past five years, the aggregate assessments levied against us have not been material. We have established liabilities for guaranty fund assessments that we consider adequate. See Note 14 of the Notes to the Consolidated Financial Statements for additional information on the guaranty association assessments.
Insurance Regulatory Examinations and Other Activities
As part of their regulatory oversight process, state insurance departments conduct periodic detailed examinations of the books, records, accounts, and business practices of insurers domiciled in their states. State insurance departments also have the authority to conduct examinations of non-domiciliary insurers that are licensed in their states, and such states routinely conduct examinations of our insurance companies. The Delaware Department of Insurance is the lead state currently conducting a routine multi-state examination of Brighthouse and its subsidiaries for the years 2015 to 2018. The NYDFS is currently conducting a routine examination of BHNY for the years 2014 to 2018.

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Regulatory authorities in a small number of states, the Financial Industry Regulatory Authority, Inc. (“FINRA”) and, occasionally, the SEC, have conducted investigations or inquiries relating to sales and/or administration of individual life insurance policies, annuities or other products by us or our affiliates. These investigations have focused on the conduct of particular financial services representatives, the sale of unregistered or unsuitable products, the misuse of client assets, and sales and replacements of annuities and certain riders on such annuities. Over the past several years, these and a number of investigations of us and our affiliates by other regulatory authorities were resolved for monetary payments and certain other relief, including restitution payments. We may continue to receive, and may resolve, further investigations and actions on these matters in a similar manner. In addition, claims payment practices by insurance companies have received increased scrutiny from regulators.
Policy and Contract Reserve Adequacy Analysis
Annually, we and our operating subsidiaries are required to conduct an analysis of the adequacy of all statutory reserves. In each case, a qualified actuary must submit an opinion which states that the statutory reserves make adequate provision, according to accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the operating subsidiary. The adequacy of the statutory reserves is considered in light of the assets held by the insurer with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the consideration anticipated to be received and retained under the related policies and contracts. An insurance company may increase reserves in order to submit an opinion without qualification. Since the inception of this requirement, we and our operating subsidiaries, which are required by our respective states of domicile to provide these opinions, have provided such opinions without qualifications.
Regulation of Investments
We are subject to state laws and regulations that require diversification of investment portfolios and limit the amount of investments that we may have in certain asset categories, such as below investment grade fixed income securities, real estate equity, other equity investments, and derivatives. Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as non-admitted assets for purposes of measuring surplus and, in some instances, would require divestiture of such non-qualifying investments. We believe that our investments complied, in all material respects, with such regulations at December 31, 2019.
NYDFS Insurance Regulation 210
On March 19, 2018, NYDFS Insurance Regulation 210: Life Insurance and Annuity Non-Guaranteed Elements took effect. The regulation establishes standards for the determination and readjustment of non-guaranteed elements (“NGEs”) that may vary at the insurer’s discretion for life insurance policies and annuity contracts delivered or issued for delivery in New York. In addition, the regulation establishes guidelines for related disclosure to NYDFS and policy owners prior to any adverse change in NGEs. The regulation applies to all individual life insurance policies, individual annuity contracts and certain group life insurance and group annuity certificates that contain NGEs. NGEs include premiums, expense charges, cost of insurance rates and interest credits.
Cybersecurity Regulation
In the course of our business, we and our distributors collect and maintain customer data, including personally identifiable non-public financial and health information. We also collect and handle the personal information of our employees and certain third parties who distribute our products. As a result, we and the third parties who distribute our products are subject to U.S. federal and state privacy laws and regulations, including the Health Insurance Portability and Accountability Act as well as additional regulation, including the state laws described below. These laws require that we institute and maintain certain policies and procedures to safeguard this information from improper use or disclosure and that we provide notice of our practices related to the collection and disclosure of such information. Other laws and regulations require us to notify affected individuals and regulators of security breaches.
For example, in 2017, the NYDFS adopted a broad cybersecurity regulation that requires financial services institutions to, among other things, implement and maintain a cybersecurity program and a cybersecurity policy that will be monitored and tested periodically, develop controls and technology standards for data protection, meet minimum standards in response to any cybersecurity breach and annually certify their compliance with the regulation. In addition, in 2017 the NAIC adopted the Insurance Data Security Model Law, which established standards for data security and for the investigation and notification of insurance commissioners of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information. A number of states have enacted the Insurance Data Security Model Law or similar laws, and we expect more states to follow.

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In 2018, California enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 1, 2020. The CCPA contains a number of new requirements regarding the personal information of California consumers, including new individual rights and mandatory disclosures regarding consumers’ personal information. The statute also establishes a private right of action in some cases if consumers’ personal information is subject to a data breach as a result of a business’ failure to implement and maintain reasonable security practices. Additional states are considering consumer information privacy legislation, including during the 2020 legislative session.
Securities and Investment Advisor Regulation
Some of our activities in offering and selling variable insurance products, as well as certain fixed interest rate or index-linked contracts, are subject to extensive regulation under the federal securities laws administered by the SEC and/or state securities law. Federal and state securities laws and regulations treat variable insurance products and certain fixed interest rate or index-linked contracts as securities that must be registered with the SEC under the Securities Act of 1933, as amended (the “Securities Act”), and distributed through broker-dealers registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These registered broker-dealers are also FINRA members; therefore sales of these registered products also are subject to the requirements of FINRA rules.
We utilize Brighthouse Securities, LLC, an affiliate, to distribute our variable and registered fixed products. Brighthouse Securities, LLC is a FINRA member and a broker-dealer registered with the SEC and applicable state regulators.
We issue variable insurance products through separate accounts that are registered with the SEC as investment companies under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Each registered separate account is generally divided into sub-accounts, each of which invests in an underlying mutual fund which is itself a registered investment company under the Investment Company Act. Our affiliate, Brighthouse Investment Advisers, LLC is registered as an investment advisor with the SEC under the Investment Advisers Act of 1940, and its primary business is to serve as investment advisor to the registered mutual funds that underlie our variable annuity contracts and variable life insurance policies. Certain variable contract separate accounts sponsored by us and our affiliates are exempt from registration under the Securities Act and the Investment Company Act but may be subject to other provisions of the federal securities laws.
Federal, state and other securities regulatory authorities, including the SEC and FINRA, may from time to time make inquiries and conduct examinations regarding our compliance with securities and other laws and regulations. We will cooperate with such inquiries and examinations and take corrective action when warranted. See “— Insurance Regulation — Insurance Regulatory Examinations and Other Activities.”
Federal and state securities laws and regulations are primarily intended to ensure the integrity of the financial markets, to protect investors in the securities markets, and to protect investment advisory or brokerage clients, and generally grant regulatory agencies broad rulemaking and enforcement powers, including the power to limit or restrict the conduct of business for failure to comply with such laws and regulations.
Department of Labor and ERISA Considerations
We manufacture individual retirement annuities (“IRAs”) that are subject to the Internal Revenue Code of 1986, as amended (the “Tax Code”), for third parties to sell to individuals. Also, a portion of our in-force life insurance products and annuity products are held by tax-qualified pension and retirement plans that are subject to ERISA or the Tax Code. While we currently believe manufacturers do not have as much exposure to ERISA and the Tax Code as distributors, certain activities are subject to the restrictions imposed by ERISA and the Tax Code, including the requirement under ERISA that fiduciaries of a plan subject to Title I of ERISA (an “ERISA Plan”) must perform their duties solely in the interests of the ERISA Plan participants and beneficiaries, and those fiduciaries may not cause a covered plan to engage in certain prohibited transactions. The applicable provisions of ERISA and the Tax Code are subject to enforcement by the Department of Labor (“DOL”), the Internal Revenue Service (“IRS”) and the Pension Benefit Guaranty Corporation (“PBGC”).
In addition, the prohibited transaction rules of ERISA and the Tax Code generally restrict the provision of investment advice to ERISA qualified plans, plan participants and IRA owners if the investment recommendation results in fees paid to an individual advisor, the firm that employs the advisor or their affiliates that vary according to the investment recommendation chosen. Similarly, without an exemption, fiduciary advisors are prohibited from receiving compensation from third parties in connection with their advice. DOL regulations expanding the definition of “investment advice” were introduced in 2016 but were subsequently vacated in 2018. See “— Standard of Conduct Regulation — Department of Labor Fiduciary Advice Rule” below.

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The DOL has issued a number of regulations that increase the level of disclosure that must be provided to plan sponsors and participants. The participant disclosure regulations and the regulations which require service providers to disclose fee and other information to plan sponsors took effect in 2012.
In John Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank (1993), the U.S. Supreme Court held that certain assets in excess of amounts necessary to satisfy guaranteed obligations under a participating group annuity general account contract are “plan assets.” Therefore, these assets are subject to certain fiduciary obligations under ERISA, which requires fiduciaries to perform their duties solely in the interest of ERISA plan participants and beneficiaries. DOL regulations issued thereafter provide that, if an insurer satisfies certain requirements, assets supporting a policy backed by the insurer’s general account and issued before 1999 will not constitute “plan assets” We have taken and continue to take steps designed to ensure compliance with these regulations. An insurer issuing a new policy that is backed by its general account and is issued to or for an employee benefit plan after December 31, 1998 is generally subject to fiduciary obligations under ERISA, unless the policy is a guaranteed benefit policy.
Standard of Conduct Regulation
As a result of overlapping efforts by the DOL, the NAIC, individual states and the SEC to impose fiduciary-like requirements in connection with the sale of annuities, life insurance policies and securities, which are each discussed in more detail below, there have been a number of proposed or adopted changes to the laws and regulations that govern the conduct of our business and the firms that distribute our products. As a manufacturer of annuity and life insurance products, we do not directly distribute our products to consumers. However, regulations establishing standards of conduct in connection with the distribution and sale of these products could affect our business by imposing greater compliance, oversight, disclosure and notification requirements on our distributors and/or us, which may in either case increase our costs or limit distribution of our products. We cannot predict what other proposals may be made, what legislation or regulations may be introduced or enacted, or what impact any future legislation or regulations may have on our business, results of operations and financial condition.
Department of Labor Fiduciary Advice Rule
The DOL issued regulations in 2016 (the “Fiduciary Rule”) that were subsequently vacated by the Fifth Circuit Court of Appeals in 2018. While the Fiduciary Rule was in effect, it substantially expanded the definition of “investment advice,” thereby broadening the circumstances under which distributors and manufacturers of insurance and annuity products could be considered fiduciaries under ERISA or the Tax Code, and subject to an impartial conduct or “best interests” standard in providing such advice. Under the rule, certain communications with plans, plan participants and IRA owners, including the marketing of products, and marketing of investment management or advisory services, were deemed fiduciary investment advice, thus causing increased exposure to fiduciary liability if the distributor did not recommend what was in the client’s best interests. In 2019, the DOL indicated that it intends to issue a new proposed rule on fiduciary investment advice under ERISA. At this time, we cannot predict the timing, content or form of any such rule or its impact on our business, results of operations and financial condition.
State Law Standard of Conduct Rules and Regulations
The NAIC, as well as certain state insurance regulators, are also considering implementing rules that would apply a best interest conduct standard to recommendations made in connection with certain annuities and, in the case of New York, life insurance policies. In particular, on July 18, 2018, the NYDFS issued Regulation 187 (“Regulation 187”), which adopted a best interest standard for the sale of annuities and life insurance products in New York. The regulation generally requires a consumer’s best interest, and not the financial interests of a producer or insurer, in making a producer’s recommendation as to which life insurance or annuity product a consumer should purchase. In addition, Regulation 187 imposes a best interest standard on consumer in-force transactions. We have assessed the impact to our annuity and life insurance businesses and have adopted certain changes to promote compliance with the provisions by their respective effective dates.
The NAIC adopted a new Suitability in Annuity Transactions Regulation (the “NAIC SAT”) that includes a best interest standard on February 13, 2020 in an effort to promote harmonization across various regulators, including the recently adopted SEC Regulation Best Interest. The NAIC SAT model standard requires producers to act in the best interest of the consumer when recommending annuities. We expect that several states will consider adopting the new NAIC SAT model.
Additionally, regulators in Nevada, New Jersey, and Massachusetts have issued proposals to impose a fiduciary duty on some investment professionals, and other states may be considering similar regulations. We continue to assess the impact of these new and proposed standards on our business, and we expect that we and our third-party distributors will need to implement additional compliance measures that could ultimately impact sales of our products.

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SEC Rules Addressing Standards of Conduct for Broker-Dealers
On June 5, 2019, the SEC adopted a comprehensive set of rules and interpretations for broker-dealers and investment advisers, including new Regulation Best Interest. Among other things, this regulatory package (i) requires broker-dealers and their financial professionals to act in the best interest of retail customers when making recommendations to such customers without placing their own interests ahead of the customers’ interests, including by satisfying obligations relating to disclosure, care, mitigation of conflicts of interest, and compliance policies and procedures; (ii) clarifies the nature of the fiduciary obligations owed by registered investment advisers to their clients; (iii) imposes new requirements on broker-dealers and investment advisers to deliver Form CRS relationship summaries designed to assist customers in understanding key facts regarding their relationships with their investment professionals and differences between the broker-dealer and investment adviser business models; and (iv) restricts broker-dealers and their financial professionals from using certain compensation practices and the terms “adviser” or “advisor.” The intent of Regulation Best Interest is to impose an enhanced standard of care on broker-dealers and their financial professionals which is more similar to that of an investment adviser. Among other things, this would require broker-dealers to mitigate conflicts of interest arising from transaction-based financial arrangements for their employees.
Regulation Best Interest may change the way broker-dealers sell securities such as variable annuities to their retail customers as well as their associated costs. Moreover, it may impact broker-dealer sales of other annuity products that are not securities because it could be difficult for broker-dealers to differentiate their sales practices by product. Per the timeline established by the SEC, broker-dealers will be required to comply with the requirements of Regulation Best Interest beginning June 30, 2020. Given the complexity of this package of regulations and the fact that it was just recently adopted, its likely impact on the distribution of our products is uncertain. In addition, individual states and their securities regulators may adopt their own enhanced conduct standards for broker-dealers that may further impact their practices, and it is uncertain to what extent they would be preempted by Regulation Best Interest.
Regulation of Over-the-Counter Derivatives
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) includes a framework of regulation of the over-the-counter (“OTC”) derivatives markets which requires clearing of certain types of derivatives and imposes additional costs, including new reporting and margin requirements. We use derivatives to mitigate a wide range of risks in connection with our businesses, including the impact of increased benefit exposures from certain of our annuity products that offer guaranteed benefits. Our costs of risk mitigation have increased under Dodd-Frank. For example, Dodd-Frank imposes requirements for (i) the mandatory clearing of certain derivatives transactions (derivatives that must be cleared and settled through central clearing counterparties), and (ii) mandatory exchange of margin for “OTC-bilateral” transactions (OTC derivatives that are bilateral contracts between two counterparties) entered into after the applicable phase-in period. The initial margin requirements for OTC-bilateral transactions will be applicable to us in September 2020. The increased margin requirements, combined with increased capital charges for our counterparties and central clearinghouses with respect to non-cash collateral, will likely require increased holdings of cash and highly liquid securities with lower yields causing a reduction in income and less favorable pricing for cleared and OTC-bilateral derivatives transactions. Centralized clearing of certain derivatives exposes us to the risk of a default by a clearing member or clearinghouse with respect to our cleared derivative transactions. We could be subject to higher costs of entering into derivative transactions (including customized derivatives) and the reduced availability of customized derivatives that might result from the implementation of Dodd-Frank and comparable international derivatives regulations.
Federal banking regulators adopted rules that apply to certain qualified financial contracts, including many derivatives contracts, securities lending agreements and repurchase agreements, with certain banking institutions and certain of their affiliates. These rules, which became effective on January 1, 2019, generally require the banking institutions and their applicable affiliates to include contractual provisions in their qualified financial contracts that limit or delay certain rights of their counterparties arising in connection with the banking institution or an applicable affiliate becoming subject to a bankruptcy, insolvency, resolution or similar proceeding. Certain of our derivatives, securities lending agreements and repurchase agreements are subject to these rules, and as a result, we are subject to greater risk and more limited recovery in the event of a default by such banking institutions or their applicable affiliates.
Unclaimed Property
We are subject to the laws and regulations of states and other jurisdictions concerning identification, reporting and escheatment of unclaimed or abandoned funds, and are subject to audit and examination for compliance with these requirements, which may result in fines or penalties. Litigation may be brought by, or on behalf, of one or more entities, seeking to recover unclaimed or abandoned funds and interest. The claimant or claimants also may allege entitlement to other damages or penalties, including for alleged false claims.

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Company Ratings
Financial strength ratings represent the opinion of rating agencies regarding the ability of an insurance company to pay obligations under insurance policies and contracts in accordance with their terms. The level and composition of our and our insurance subsidiary’s regulatory capital are among the many factors considered in determining our financial strength ratings. Each agency has its own capital adequacy evaluation methodology, and assessments are generally based on a combination of factors. Rating agencies may increase the frequency and scope of their credit reviews, may request additional information from the companies that they rate and may adjust upward the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Rating Agencies” and “Risk Factors — Risks Related to Our Business — A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and materially adversely affect our financial condition and results of operations.”

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Item 1A. Risk Factors
Index to Risk Factors
Overview
You should carefully consider the factors described below, in addition to the other information set forth in this Annual Report on Form 10-K. These risk factors are important to understanding the contents of this Annual Report on Form 10-K and our other filings with the SEC. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.
The materialization of any risks and uncertainties set forth below or identified in “Note Regarding Forward-Looking Statements” contained in this Annual Report on Form 10-K and our other filings with the SEC or those that are presently unforeseen or that we currently believe to be immaterial could result in significant adverse effects on our financial condition, results of operations and cash flows. See “Note Regarding Forward-Looking Statements.”
Risks Related to Our Business
Differences between actual experience and actuarial assumptions and the effectiveness of our actuarial models may adversely affect our financial results, capitalization and financial condition
Our earnings significantly depend upon the extent to which our actual claims experience and benefit payments on our products are consistent with the assumptions we use in setting prices for our products and establishing liabilities for future policy benefits and claims. Such amounts are established based on actuarial estimates of how much we will need to pay for future benefits and claims. To the extent that actual claims and benefits experience is less favorable than the underlying assumptions we used in establishing such liabilities, we could be required to increase our liabilities. We make assumptions regarding policyholder behavior at the time of pricing and in selecting and utilizing the guaranteed options inherent within our products based in part upon expected persistency of the products, which change the probability that a policy or contract will remain in-force from one period to the next. Persistency could be adversely affected by a number of factors, including adverse economic conditions as well as by developments affecting policyholder perception of us, including perceptions arising from adverse publicity or any potential negative rating agency actions. The pricing of certain of our variable annuity products that contain certain living benefit guarantees is also based on assumptions about utilization rates, or the percentage of contracts that will utilize the benefit during the contract duration, including the timing of the first withdrawal. Results may vary based on differences between actual and expected benefit utilization. A material increase in the valuation of the liability could result to the extent emerging and actual experience deviates from these policyholder option utilization assumptions, and in certain circumstances this deviation may impair our solvency. We conduct an annual actuarial assumption review (the “AAR”) of the key inputs into our actuarial models that rely on management judgment and update those where we have credible evidence from actual experience, industry data or other relevant sources to ensure our price-setting criteria and reserve valuation practices continue to be appropriate.

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We use actuarial models to assist us in establishing reserves for liabilities arising from our insurance policies and annuity contracts. We periodically review the effectiveness of these models, their underlying logic and, from time to time, implement refinements to our models based on these reviews. We implement refinements after rigorous testing and validation and, even after such validation and testing, our models remain subject to inherent limitations. Accordingly, no assurances can be given as to whether or when we will implement refinements to our actuarial models, and, if implemented, the extent of such refinements. Furthermore, if implemented, any such refinements could cause us to increase the reserves we hold for our insurance policy and annuity contract liabilities. Such refinement would also cause us to accelerate the amortization of deferred policy acquisition costs (“DAC”) associated with the affected reserves.
Due to the nature of the underlying risks and the uncertainty associated with the determination of liabilities for future policy benefits and claims, we cannot determine precisely the amounts which we will ultimately pay to settle our liabilities. Such amounts may vary materially from the estimated amounts, particularly when those payments may not occur until well into the future. We evaluate our liabilities periodically based on accounting requirements (which change from time to time), the assumptions and models used to establish the liabilities, as well as our actual experience. If the liabilities originally established for future benefit payments and claims prove inadequate, we will be required to increase them.
An increase in our reserves or acceleration of DAC amortization for any of the above reasons, individually or in the aggregate, could have a material adverse effect on our financial condition and results of operations, profitability measures as well as materially impact our capitalization and our distributable earnings. These impacts could then in turn impact our RBC ratios and our financial strength ratings, which are necessary to support our product sales, and in certain circumstances ultimately impact our solvency.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Liability for Future Policy Benefits” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Deferred Policy Acquisition Costs.”
Guarantees within certain of our annuity products may decrease our earnings, decrease our capitalization, increase the volatility of our results, result in higher risk management costs and expose us to increased market risk
Certain of the variable annuity products we offer include guaranteed benefits designed to protect contract holders against significant changes in equity markets and interest rates, including guaranteed minimum death benefits (“GMDBs”), guaranteed minimum withdrawal benefits (“GMWBs”) and guaranteed minimum accumulation benefits (“GMABs”). While we continue to have guaranteed minimum income benefits (“GMIBs”) in-force with respect to which we are obligated to perform, we no longer offer GMIBs. We hold liabilities based on the value of the benefits we expect to be payable under such guarantees in excess of the contract holders’ projected account balances. As a result, any periods of significant and sustained negative or low separate account returns, increased equity volatility, or reduced interest rates could result in an increase in the valuation of our liabilities associated with variable annuity guarantees.
Additionally, we make assumptions regarding policyholder behavior at the time of pricing and in selecting and utilizing the guaranteed options inherent within our products (e.g., utilization of option to annuitize within a GMIB product). An increase in the valuation of the liability could result to the extent emerging and actual experience deviates from these policyholder persistency and option utilization assumptions. We review key actuarial assumptions used to record our variable annuity liabilities on an annual basis, including the assumptions regarding policyholder behavior. Changes to assumptions based on our AAR in future years could result in an increase in the liabilities we record for these guarantees.
Furthermore, our Shield Annuities are index-linked annuities with guarantees for a defined amount of equity loss protection and upside participation. If the separate account assets consisting of fixed income securities, which support the guaranteed index-linked return feature of Shield Annuities, are insufficient to reflect a period of sustained growth in the equity index on which the product is based, we may be required to support such separate accounts with assets from our general account. To the extent policyholder persistency is different than we anticipate in a sustained period of equity index growth, it could have an impact on our liquidity.
An increase in our variable annuity guarantee liabilities for any of the above reasons, individually or in the aggregate, could have a material adverse effect on our financial condition and results of operations, profitability measures as well as impact our capitalization and our distributable earnings. These impacts could then in turn impact our RBC ratios and our financial strength ratings, which are necessary to support our product sales, and in certain circumstances ultimately impact our solvency.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Annual Actuarial Review.”

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Our variable annuity exposure risk management strategy may not be effective, may result in significant volatility in our profitability measures and may negatively affect our statutory capital
The principal focus of our exposure risk management program is to maintain assets supporting our variable annuity contract guarantees at the amount of variable annuity assets we hold in excess of our variable annuity target funding level (the “Variable Annuity Target Funding Level”).
Our exposure risk management strategy seeks to mitigate the potential adverse effects of changes in capital markets, specifically equity markets and interest rates, on our Variable Annuity Target Funding Level. The strategy primarily relies on a hedging strategy using derivatives instruments and to a lesser extent reinsurance. We utilize a combination of short-term and longer-term derivative instruments to have a laddered maturity of protection and reduce roll over risk during periods of market disruption or higher volatility.
However, our hedging strategy may not be fully effective. In connection with our exposure risk management program we may determine to seek the approval of applicable regulatory authorities to permit us to increase our hedge limits consistent with those contemplated by the program. No assurance can be given that any of our requested approvals will be obtained and whether, if obtained, any such approvals will not be subject to qualifications, limitations or conditions. If our capital is depleted in the event of persistent market downturns, we may need to replenish it by holding additional capital, which we may have allocated for other uses, or purchase additional hedging protection through the use of more expensive derivatives with strike levels at the current market level. Under our hedging strategy, period to period changes in the valuation of our hedges relative to the guarantee liabilities may result in significant volatility to certain of our profitability measures, which in certain circumstances could be more significant than has been the case historically.
In addition, hedging instruments we enter into may not effectively offset the costs of the guarantees within certain of our annuity products or may otherwise be insufficient in relation to our obligations. For example, in the event that derivative counterparties or central clearinghouses are unable or unwilling to pay, we remain liable for the guaranteed benefits. Furthermore, we are subject to the risk that changes in policyholder behavior or mortality, combined with adverse market events, could produce economic losses not addressed by the risk management techniques employed.
Finally, the cost of our hedging program may be greater than anticipated because adverse market conditions can limit the availability and increase the costs of the derivatives we intend to employ, and such costs may not be recovered in the pricing of the underlying products we offer. The above factors, individually or collectively, may have a material adverse effect on our results of operations, financial condition, capitalization and liquidity.
The above factors, individually or in the aggregate, may have a material adverse effect on our financial condition and results of operations, our profitability measures as well as impact our capitalization, our distributable earnings and our liquidity. These impacts could then in turn impact our RBC ratios and our financial strength ratings, which are necessary to support our product sales, and in certain circumstances ultimately impact our solvency.
We may not have sufficient assets to meet our future ULSG policyholder obligations and changes in interest rates may result in net income volatility
The primary market risk associated with our ULSG block is the uncertainty around the future levels of U.S. interest rates. To help ensure we have sufficient assets to meet future ULSG policyholder obligations, we have employed an actuarial approach based upon NY Regulation 126 Cash Flow Testing (“ULSG CFT”) as the basis for setting our ULSG asset requirement target for BRCD, which reinsures the majority of the ULSG business written by our operating insurance companies. For the business that remains in the operating insurance companies, we set our ULSG asset requirement target to equal the actuarially determined statutory reserves, which, taken together with our ULSG asset requirement target of BRCD, comprises our total ULSG asset requirement target (“ULSG Target”). Under the ULSG CFT approach, we assume that interest rates remain flat or lower than current levels and our actuarial assumptions include a provision for adverse deviation. These underlying assumptions used in ULSG CFT are more conservative than those required under GAAP, which assumes a long-term upward mean reversion of interest rates and best estimate actuarial assumptions without additional provisions for adverse deviation.
We seek to mitigate exposure to interest rate risk associated with these liabilities by holding invested assets and interest rate derivatives to closely match our ULSG Target in different interest rate environments.
Our ULSG Target is sensitive to the actual and future expected level of long-term U.S. interest rates. If interest rates fall, our ULSG Target increases, and if interest rates rise, our ULSG Target declines. As part of our macro interest rate hedging program, we primarily use interest rate swaps, swaptions and interest rate forwards to better protect statutory capitalization from potential losses due to an increase in reserves to achieve our ULSG Target in lower interest rate environments. This risk mitigation strategy may negatively impact our GAAP equity and net income in circumstances in which interest rates are rising. Under rising

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interest rates, our ULSG Target will likely decline, whereas our reported ULSG GAAP liabilities are predominately insensitive to market conditions.
Our interest rate derivative instruments may not effectively offset the costs of our ULSG policyholder obligations or may otherwise be insufficient in relation to our objectives. In addition, the assumptions we make in connection with our risk mitigation strategy may fail to reflect or correspond to actual long-term exposure to our ULSG policyholder obligations. If our liquid investments are depleted, we will need to replenish our liquid portfolio by selling higher-yielding less liquid assets, which we may have allocated for other uses. The above factors, individually or in the aggregate, could have a material adverse effect on our financial condition and results of operations, our profitability measures as well as impact our capitalization, our distributable earnings and our liquidity. These impacts could then in turn impact our RBC ratios and our financial strength ratings, which are necessary to support our product sales, and in certain circumstances ultimately impact our solvency.
Changes in accounting standards issued by the Financial Accounting Standards Board may adversely affect our financial statements
Our financial statements are subject to the application of GAAP, which is periodically revised by the Financial Accounting Standards Board (“FASB”). Accordingly, from time to time we are required to adopt new or revised accounting standards or interpretations issued by the FASB. The impact of accounting pronouncements that have been issued but not yet implemented is disclosed in our reports filed with the SEC. See Note 1 of the Notes to the Consolidated Financial Statements.
The FASB issued an accounting standards update (“ASU”) on August 15, 2018 that will result in significant changes to the accounting for long-duration insurance contracts, including that all of our variable annuity guarantees will be considered market risk benefits and measured at fair value, whereas today a significant amount of our variable annuity guarantees are carried as insurance. The ASU will be effective as of January 1, 2022. The Company is evaluating the new guidance and is currently not able to estimate the impact to its financial statements. At current market interest rate levels, the ASU could ultimately result in a material decrease in the Company’s stockholder’s equity. In addition, the ASU could also result in increased market sensitivity of our financial statements and results of operations. See “— A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and materially adversely affect our financial condition and results of operations.”
A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and materially adversely affect our financial condition and results of operations
Financial strength ratings are published by various nationally recognized statistical rating organizations (“NRSROs”) and similar entities not formally recognized as NRSROs. They indicate the NRSROs’ opinions regarding an insurance company’s ability to meet contract holder and policyholder obligations and are important to maintaining public confidence in our products and our competitive position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Rating Agencies,” for additional information regarding our financial strength ratings, including current rating agency ratings and outlooks.
Downgrades in our financial strength ratings or changes to our ratings outlooks could have a material adverse effect on our financial condition and results of operations in many ways, including:
reducing new sales of insurance products and annuity products;
adversely affecting our relationships with independent sales intermediaries;
increasing the number or amount of policy surrenders and withdrawals by contract holders and policyholders;
requiring us to reduce prices for many of our products and services to remain competitive;
providing termination rights for the benefit of our derivative instrument counterparties;
providing termination rights to cedents under assumed reinsurance contracts;
adversely affecting our ability to obtain reinsurance at reasonable prices, if at all; and
subjecting us to potentially increased regulatory scrutiny.
Downgrades in our financial strength ratings or changes to our rating outlook could have a material adverse effect on our financial condition and results of operations in many ways, including limiting our access to distributors, restricting our ability to generate new sales because our products depend on strong financial strength ratings to compete effectively, limiting our access to capital markets, and potentially increasing the cost of debt, which could adversely affect our liquidity.

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An inability to access credit facilities could result in a reduction in our liquidity and lead to downgrades in Brighthouse’s credit ratings and our financial strength ratings
As of December 31, 2019, Brighthouse had approximately $4.4 billion of total long-term consolidated indebtedness outstanding. BHF also has a $1.0 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”). The right to borrow funds under the Revolving Credit Facility is subject to the fulfillment of certain conditions, including compliance with all covenants. Failure to comply with the covenants in the Revolving Credit Facility or fulfill the conditions to borrowings, or the failure of lenders to fund their lending commitments (whether due to insolvency, illiquidity or other reasons) in the amounts provided for under the terms of the Revolving Credit Facility, would restrict the ability to access the Revolving Credit Facility when needed and, consequently, could have a material adverse effect on our liquidity, results of operations and financial condition.
Reinsurance may not be available, affordable or adequate to protect us against losses
As part of our overall risk management strategy, we may purchase reinsurance from third-party reinsurers for certain risks we underwrite. While reinsurance agreements generally bind the reinsurer for the life of the business reinsured at generally fixed pricing, market conditions beyond our control determine the availability and cost of the reinsurance protection for new business. The premium rates and other fees that we charge are based, in part, on the assumption that reinsurance will be available at a certain cost. Some of our reinsurance contracts contain provisions that limit the reinsurer’s ability to increase rates on in-force business; however, some do not. We have faced a number of rate increase actions on in-force business in recent years and may face additional increases in the future. There can be no assurance that the outcome of any future rate increase actions would not have a material effect on our financial condition and results of operations. If a reinsurer raises the rates that it charges on a block of in-force business, in some instances, we will not be able to pass the increased costs onto our customers and our profitability will be negatively impacted. Additionally, such a rate increase could result in our recapturing of the business, which may result in a need to maintain additional reserves, reduce reinsurance receivables and expose us to greater risks. Accordingly, we may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which could adversely affect our ability to write future business or result in the assumption of more risk with respect to those policies we issue. See “Business — Reinsurance Activity.”
If the counterparties to our reinsurance or indemnification arrangements or to the derivatives we use to hedge our business risks default or fail to perform, we may be exposed to risks we had sought to mitigate, which could materially adversely affect our financial condition and results of operations
We use reinsurance, indemnification and derivatives to mitigate our risks in various circumstances. In general, reinsurance, indemnification and derivatives do not relieve us of our direct liability to our policyholders, even when the reinsurer is liable to us. Accordingly, we bear credit risk with respect to our reinsurers, indemnitors, counterparties and central clearinghouses. A reinsurer’s, indemnitor’s, counterparty’s or central clearinghouse’s insolvency, inability or unwillingness to make payments under the terms of reinsurance agreements, indemnity agreements or derivatives agreements with us or inability or unwillingness to return collateral could have a material adverse effect on our financial condition and results of operations.
We cede a large block of long-term care insurance business to certain affiliates of Genworth, which results in a significant concentration of reinsurance risk. The Genworth reinsurers’ obligations to us are secured by trust accounts and Citigroup agreed to indemnify us for losses and certain other payment obligations we might incur with respect to this business. See “Business — Reinsurance Activity — Unaffiliated Third-Party Reinsurance.” Notwithstanding these arrangements, if the Genworth reinsurers become insolvent and the amounts in the trust accounts are insufficient to pay their obligations to us, it could have a material adverse effect on our financial condition.
In addition, we use derivatives to hedge various business risks. We enter into a variety of derivatives, including options, forwards, interest rate, credit default and currency swaps with a number of counterparties on a bilateral basis for uncleared OTC derivatives and with clearing brokers and central clearinghouses for OTC-cleared derivatives (OTC derivatives that are cleared and settled through central clearing counterparties). If our counterparties, clearing brokers or central clearinghouses fail or refuse to honor their obligations under these derivatives, our hedges of the related risk will be ineffective. Such failure could have a material adverse effect on our financial condition and results of operations.
We may not be able to take credit for reinsurance, our statutory life insurance reserve financings may be subject to cost increases and new financings may be subject to limited market capacity
We currently utilize reinsurance and capital markets solutions to mitigate the capital impact of the statutory reserve requirements for several of our products, including, but not limited to, our level premium term life products subject to Regulation XXX and ULSG subject to Guideline AXXX. Our primary solution involves BRCD, our affiliated reinsurance subsidiary. See “Business — Reinsurance Activity — Affiliated Reinsurance.” BRCD obtained statutory reserve financing through a funding

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structure involving a single financing arrangement supported by a pool of highly rated third-party reinsurers. The financing facility matures in 2037, and therefore, we may need to refinance this facility in the future.
The NAIC adopted AG 48, which regulates the terms of captive insurer arrangements that are entered into or amended in certain ways after December 31, 2014. See “Business — Regulation — Insurance Regulation — Captive Reinsurer Regulation.” There can be no assurance that in light of AG 48, future rules and regulations, or changes in interpretations by state insurance departments that we will be able to continue to efficiently implement these arrangements, nor can we assure you that future capacity for these arrangements will be available in the marketplace. To the extent we cannot continue to efficiently implement these arrangements, our statutory capitalization, results of operations and financial condition, as well as our competitiveness, could be adversely affected.
Extreme mortality events may adversely impact liabilities for policyholder claims
Our life insurance operations are exposed to the risk of catastrophic mortality, such as a pandemic or other event that causes a large number of deaths. For example, significant influenza pandemics have occurred several times in the last century. The likelihood, timing, and severity of a future pandemic that may impact our policyholders cannot be predicted. A significant pandemic could have a major impact on the global economy or the economies of particular countries or regions, including travel, trade, tourism, the health system, food supply, consumption, overall economic output, as well as on the financial markets. In addition, a pandemic that affected our employees or the employees of our distributors or of other companies with which we do business could disrupt our business operations. The effectiveness of external parties, including governmental and non-governmental organizations, in combating the spread and severity of such a pandemic could have a material impact on the losses we experience. These events could cause a material adverse effect on our results of operations in any period and, depending on their severity, could also materially and adversely affect our financial condition.
Consistent with industry practice and accounting standards, we establish liabilities for claims arising from a catastrophe only after assessing the probable losses arising from the event. We cannot be certain that the liabilities we have established will be adequate to cover actual claim liabilities. A catastrophic event or multiple catastrophic events could have a material adverse effect on our results of operations and financial condition. Conversely, improvements in medical care and other developments which positively affect life expectancy can cause our assumptions with respect to longevity, which we use when we price our products, to become incorrect and, accordingly, can adversely affect our results of operations and financial condition.
Factors affecting our competitiveness may adversely affect our market share and profitability
We believe competition among insurance companies is based on a number of factors, including service, product features, scale, price, actual or perceived financial strength, claims-paying ratings, financial strength ratings, e-business capabilities and name recognition. We face intense competition from a large number of other insurance companies, as well as non-insurance financial services companies, such as banks, broker-dealers and asset managers. Some of these companies offer a broader array of products, have more competitive pricing or, with respect to other insurance companies, have higher claims-paying ability and financial strength ratings. Some may also have greater financial resources with which to compete. In some circumstances, national banks that sell annuity products of life insurers may also have a pre-existing customer base for financial services products. These competitive pressures may adversely affect the persistency of our products, as well as our ability to sell our products in the future. In addition, new and disruptive technologies may present competitive risks. If, as a result of competitive factors or otherwise, we are unable to generate a sufficient return on insurance policies and annuity products we sell in the future, we may stop selling such policies and products, which could have a material adverse effect on our financial condition and results of operations.
We have limited control over many of our costs. For example, we have limited control over the cost of Unaffiliated Third-Party Reinsurance, the cost of meeting changing regulatory requirements, and our cost to access capital or financing. There can be no assurance that we will be able to achieve or maintain a cost advantage over our competitors. If our cost structure increases and we are not able to achieve or maintain a cost advantage over our competitors, it could have a material adverse effect on our ability to execute our strategy, as well as on our results of operations and financial condition. If we hold substantially more capital than is needed to support financial strength ratings that are commensurate with our business strategy, over time, our competitive position could be adversely affected.
In addition, since numerous aspects of our business are subject to regulation, legislative and other changes affecting the regulatory environment for our business may have, over time, the effect of supporting or burdening some aspects of the financial services industry. This can affect our competitive position within the annuities and life insurance industry, and within the broader financial services industry. See “— Regulatory and Legal Risks” and “Business — Regulation.”

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The failure of third parties to provide various services, or any failure of the practices and procedures that these third parties use to provide services to us, could have a material adverse effect on our business
A key part of our operating strategy is to leverage third parties to deliver certain services important to our business. For example, Brighthouse has arrangements with DXC Technology Company, formerly Computer Sciences Corporation (“DXC”) for the administration of both in-force policies and new life and annuities business and Brighthouse has also engaged a select group of experienced external asset management firms to manage the investment of the assets comprising Brighthouse’s general account portfolio and certain other assets. Brighthouse intends to focus on further sourcing opportunities with third-party vendors, including after Brighthouse migrates off of certain services, such as certain finance, treasury, compliance, administrative, call center and technology support services MetLife currently provides us with for a transition period pursuant to a transition services agreement Brighthouse entered into in connection with the Separation (the “Transition Services Agreement”).
It may be difficult, disruptive and more expensive for Brighthouse to replace some of its third-party providers in a timely manner if in the future they were unwilling or unable to provide us with the services we require (as a result of their financial or business conditions or otherwise), and our business and operations could be materially adversely affected. There can also be no assurance that the services provided to us by third parties (or their suppliers, vendors or subcontractors) will be sufficient to meet our operational and business needs, that such third parties will continue to be able to perform their functions in a manner satisfactory to us, that the practices and procedures of such third parties will continue to enable them to adequately administer any policies they handle on our behalf, or that any remedies available under these third-party arrangements will be sufficient to us in the event of a dispute or nonperformance. In addition, if a third-party provider raises the rates that it charges Brighthouse for its services, in some instances, we will not be able to pass the increased costs onto our customers and our profitability will be negatively impacted.
Furthermore, if a third-party provider (or such third-party’s supplier, vendor or subcontractor) fails to provide the administrative, operational, financial, actuarial or other services we require, fails to meet contractual requirements, such as compliance with applicable laws and regulations, suffers a cyberattack or other security breach or fails to provide material information on a timely basis, our business could suffer economic and reputational harm that could have a material adverse effect on our business and results of operations. See “— Operational Risks — Any failure in cyber- or other information security systems, as well as the occurrence of events unanticipated in Brighthouse’s or our third-party service providers’ disaster recovery systems and business continuity planning could result in a loss or disclosure of confidential information, damage to our reputation and impairment of our ability to conduct business effectively.”
Similarly, if any third-party provider, including MetLife, DXC or an investment manager (or such third-party’s supplier, vendor or subcontractor) experiences any deficiency in internal controls, determines that its practices and procedures used in administering any of our policies or managing any of our investments require review or otherwise fails to administer any policies or manage any investments it handles for us in accordance with appropriate standards, we could incur expenses and experience other adverse effects as a result. In these situations, we may be unable to resolve any issues on our own without assistance from the third-party provider, and we may have limited ability to influence the speed and effectiveness of that resolution.
Some of our products, including certain group annuity contracts, are administered by MetLife under the Transition Services Agreement, and we depend on MetLife for performing and reviewing administrative practices and procedures and reserves. We also depend on MetLife to maintain systems on our behalf, and the information and data within those platforms. From time to time, MetLife has brought to our attention practices, procedures and reserves with respect to certain products that require further review. While we do not believe, based on the information made available to us to date by MetLife, that any of the matters MetLife has brought to our attention will require material modifications to reserves or have a material effect on our financial condition or results of operations, we are reliant upon MetLife to provide further information and assistance with respect to those products. There can also be no assurance that such matters will not require material modifications to reserves or have a material effect on our financial condition or results of operations in the future, or that MetLife will provide further information and assistance.
If material issues were to arise with respect to any of our products administered by third parties, whether involving MetLife, DXC or another third-party provider (or such third party’s supplier, vendor or subcontractor), any resulting expenses or other economic or reputational harm could have a material adverse effect on our business and results of operations, particularly if they involved our core annuity and life insurance businesses. In addition, we could be subject to litigation or regulatory investigations and actions resulting from any such issues, which could have a material adverse effect on our financial condition and results of operations.

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Changes in our deferred income tax assets or liabilities, including changes in our ability to realize our deferred income tax assets, could adversely affect our results of operations or financial condition
Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Deferred income tax assets are assessed periodically by management to determine whether they are realizable. Factors in management’s determination include the performance of the business including the ability to generate future taxable income. If, based on available information, it is more likely than not that the deferred income tax asset will not be realized, then a valuation allowance must be established with a corresponding charge to our profitability measures. Such charges could have a material adverse effect on our results of operations or financial position. Changes in the statutory tax rate could also affect the value of our deferred income tax assets and may require a write-off of some of those assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates.”
Economic Environment and Capital Markets-Related Risks
If difficult conditions in the capital markets and the U.S. economy generally persist or are perceived to persist, they may materially adversely affect our business and results of operations
Our business and results of operations are materially affected by conditions in the capital markets and the U.S. economy generally, as well as by the global economy to the extent it affects the U.S. economy. In addition, while our operations are entirely in the U.S., we have foreign investments in our general and separate accounts and, accordingly, conditions in the global capital markets can affect the value of our general account and separate account assets, as well as our financial results. Actual or perceived stressed conditions, volatility and disruptions in financial asset classes or various capital markets can have an adverse effect on us, both because we have a large investment portfolio and our benefit and claim liabilities are sensitive to changing market factors, including interest rates, credit spreads, equity and commodity prices, derivative prices and availability, real estate markets, foreign currency exchange rates and the volatility and the returns of capital markets. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our products could be adversely affected as customers are unwilling or unable to purchase them. In addition, we may experience an elevated incidence of claims, adverse utilization of benefits relative to our best estimate expectations and lapses or surrenders of policies. Furthermore, our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. Such adverse changes in the economy could negatively affect our earnings and capitalization and have a material adverse effect on our results of operations and financial condition. Accordingly, both market and economic factors may affect our business results.
Significant market volatility in reaction to geopolitical risks, changing monetary policy, trade disputes and uncertain fiscal policy may exacerbate some of the risks we face. Increased market volatility may affect the performance of the various asset classes in which we invest, as well as separate account values.
Extreme declines or shocks in equity markets, such as sustained stagnation in equity markets and low interest rates, could cause us to incur significant capital and/or operating losses due to, among other reasons, the impact on us of guarantees related to our annuity products, including increases in liabilities, increased capital requirements, and/or collateral requirements. Furthermore, periods of sustained stagnation in equity and bond markets, which are characterized by multiple years of low annualized total returns impacting the growth in separate accounts and/or low level of U.S. interest rates, may materially increase our liabilities for claims and future benefits due to inherent market return guarantees in these liabilities. Similarly, sustained periods of low interest rates and risk asset returns could reduce income from our investment portfolio, increase our liabilities for claims and future benefits, and increase the cost of risk transfer measures such as hedging, causing our profit margins to erode as a result of reduced income from our investment portfolio and increase in insurance liabilities. See also “Risks Related to Our Business — Guarantees within certain of our annuity products may decrease our earnings, decrease our capitalization, increase the volatility of our results, result in higher risk management costs and expose us to increased market risk.”
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs and our access to capital
The capital and credit markets may be subject to periods of extreme volatility. Disruptions in capital markets could adversely affect our liquidity and credit capacity or limit our access to capital which may in the future be needed to operate our business and meet policyholder obligations.
We need liquidity to pay our operating expenses, pay interest on our indebtedness, provide our subsidiaries with cash or collateral, maintain our securities lending activities and replace certain maturing liabilities. Without sufficient liquidity, we could be forced to curtail our operations and limit the investments necessary to grow our business.
Our principal sources of liquidity are insurance premiums and fees paid in connection with annuity products, and cash flow from our investment portfolio to the extent consisting of cash and readily marketable securities.

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In the event capital market or other conditions have an adverse impact on our capital and liquidity, or our stress-testing indicates that such conditions could have an adverse impact beyond expectations and our current resources do not satisfy our needs or regulatory requirements, we may have to seek additional financing to enhance our capital and liquidity position. The availability of additional financing will depend on a variety of factors such as the then current market conditions, regulatory capital requirements, availability of credit to us and the financial services industry generally, our financial strength ratings and financial leverage, and the perception of our customers and lenders regarding our long- or short-term financial prospects if we incur large operating or investment losses or if the level of our business activity decreases due to a market downturn. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. Our internal sources of liquidity may prove to be insufficient and, in such case, we may not be able to successfully obtain additional financing on favorable terms, or at all.
In addition, our liquidity requirements may change if, among other things, we are required to return significant amounts of cash collateral on short notice under securities lending agreements or other collateral requirements. See “— Investments-Related Risks — Should the need arise, we may have difficulty selling certain holdings in our investment portfolio or in our securities lending program in a timely manner and realizing full value given that not all assets are liquid,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements — Collateral for Securities Lending and Derivatives” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sources and Uses of Liquidity and Capital.”
Our results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by disruptions in the financial markets, as such disruptions may limit our ability to replace, in a timely manner, maturing liabilities, satisfy regulatory capital requirements, and access the capital that may be necessary to grow our business. See “— Regulatory and Legal Risks — Our business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth.”
We are exposed to significant financial and capital markets risks which may adversely affect our results of operations, financial condition and liquidity, and may cause our net investment income and profitability measures to vary from period to period
We are exposed to significant financial risks both in the U.S. and global capital and credit markets, including changes and volatility in interest rates, credit spreads, equity prices, real estate, foreign currency, commodity prices, performance of the obligors included in our investment portfolio (including governments), derivatives (including performance of our derivatives counterparties) and other factors outside our control. We may be exposed to substantial risk of loss due to market downturn or market volatility.
Credit spread risk
Our exposure to credit spreads primarily relates to market price volatility and investment risk associated with the fluctuation in credit spreads. Widening credit spreads may cause unrealized losses in our investment portfolio and increase losses associated with written credit protection derivatives used in replication transactions. Increases in credit spreads of issuers due to credit deterioration may result in higher level of impairments. Tightening credit spreads may reduce our investment income and cause an increase in the reported value of certain liabilities that are valued using a discount rate that reflects our own credit spread. An increase in credit spreads relative to U.S. Treasury benchmarks can also adversely affect the cost of our borrowing if we need to access credit markets.
Interest rate risk
Some of our current or anticipated future products, principally traditional life, universal life and fixed, index-linked and income annuities, as well as funding agreements and structured settlements, expose us to the risk that changes in interest rates will reduce our investment margin or “net investment spread,” or the difference between the amounts that we are required to pay under the contracts in our general account and the rate of return we earn on general account investments intended to support the obligations under such contracts. Our net investment spread is a key component of our profitability measures.
In a low interest rate environment, we may be forced to reinvest proceeds from investments that have matured or have been prepaid or sold at lower yields, which will reduce our net investment spread. Moreover, borrowers may prepay or redeem the fixed income securities and commercial, agricultural or residential mortgage loans in our investment portfolio with greater frequency in order to borrow at lower market rates, thereby exacerbating this risk. Although reducing interest crediting rates can help offset decreases in net investment spreads on some products, our ability to reduce these rates is limited to the portion of our in-force product portfolio that has adjustable interest crediting rates and could be limited by the actions of our competitors or contractually guaranteed minimum rates and may not match the timing or magnitude of changes in asset yields. As a result, our net investment spread would decrease or potentially become negative, which could have a material adverse effect on our

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results of operations and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Liability for Future Policy Benefits.”
Our estimation of future net investment spreads is an important component in the amortization of DAC. Significantly lower than anticipated net investment spreads can reduce our profitability measures and may cause us to accelerate amortization, which would result in a reduction of net income in the affected reporting period and potentially negatively affect our credit instrument covenants or the rating agencies’ assessment of our financial condition.
During periods of declining interest rates, our return on investments that do not support particular policy obligations may decrease. During periods of sustained lower interest rates, our reserves for policy liabilities may not be sufficient to meet future policy obligations and may need to be strengthened. Accordingly, declining and sustained lower interest rates may materially adversely affect our results of operations and financial condition, our ability to take dividends from our operating subsidiaries and significantly reduce our profitability.
Increases in interest rates could also negatively affect our profitability. In periods of rapidly increasing interest rates, we may not be able to replace, in a timely manner, the investments in our general account with higher-yielding investments needed to fund the higher crediting rates necessary to keep interest rate sensitive products competitive. Therefore, we may have to accept a lower credit spread and lower profitability or face a decline in sales and greater loss of existing contracts and related assets. In addition, as interest rates rise, policy loans, surrenders and withdrawals may increase as policyholders seek investments with higher perceived returns. This process may result in cash outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by the increase in interest rates, which may result in realized investment losses. Unanticipated withdrawals, terminations and substantial policy amendments may cause us to accelerate the amortization of DAC; such events may reduce our profitability measures and potentially negatively affect our credit instrument covenants and the rating agencies’ assessments of our financial condition. An increase in interest rates could also have a material adverse effect on the value of our investments, for example, by decreasing the estimated fair values of the fixed income securities and mortgage loans that comprise a significant portion of our investment portfolio. See “— Investments-Related Risks — Gross unrealized losses on fixed maturity securities and defaults, downgrades or other events may result in future impairments to the carrying value of such securities, resulting in a reduction in our profitability measures.” Finally, an increase in interest rates could result in decreased fee revenue associated with a decline in the value of variable annuity account balances invested in fixed income funds.
In addition, because the macro interest rate hedging program is primarily a risk mitigation strategy intended to reduce our risk to statutory capitalization and long-term economic exposures from sustained low levels of interest rates, this strategy will likely result in higher net income volatility due to the insensitivity of related GAAP liabilities to the change in interest rate levels. This strategy may adversely affect our results of operations and financial condition. See “— Risks Related to Our Business — We may not have sufficient assets to meet our future ULSG policyholder obligations and changes in interest rates may result in net income volatility.”
Changes to LIBOR
There is currently uncertainty regarding the continued use and reliability of the London Inter-Bank Offered Rate (“LIBOR”), and any financial instruments or agreements currently using LIBOR as a benchmark interest rate may be adversely affected. As a result of concerns about the accuracy of the calculation of LIBOR, actions by regulators, law enforcement agencies or the ICE Benchmark Administration, the current administrator of LIBOR may result in changes to the manner in which LIBOR is determined. Additionally, on July 27, 2017, the UK Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR rates after 2021, which is expected to result in these widely used reference rates no longer being available. The Federal Reserve began publishing a secured overnight funding rate (“SOFR”), which is intended to replace U.S. dollar LIBOR. Plans for alternative reference rates for other currencies have also been announced. At this time, it is not possible to predict how such changes or other reforms may adversely affect the trading market for LIBOR-based securities and derivatives, including those held in our investment portfolio. Such changes or reforms may result in adjustments or replacements to LIBOR, which could have an adverse impact on the market for LIBOR-based securities and the value of our investment portfolio. Furthermore, we previously entered into agreements that currently reference LIBOR and may be adversely affected by any changes or reforms to LIBOR or discontinuation of LIBOR, including if such agreements are not amended prior to any such changes, reform or discontinuation.

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Equity risk
Our primary exposure to equity relates to the potential for lower earnings associated with certain of our businesses where fee income is earned based upon the estimated market value of the separate account assets and other assets related to our variable annuity business. Because fees generated by such products are primarily related to the value of the separate account assets and other assets under management, a decline in the equity markets could reduce our revenues as a result of the reduction in the value of the investment assets supporting those products and services. We seek to mitigate the impact of such exposure to weak or stagnant equity markets through the use of derivatives, reinsurance and capital management. However, such derivatives and reinsurance may become less available and, if they remain available, their price could materially increase in a period characterized by volatile equity markets. The risk of stagnation in equity market returns cannot be addressed by hedging.
In addition, a portion of our investments are in leveraged buy-out funds and other private equity funds. The amount and timing of net investment income from such funds tends to be uneven as a result of the performance of the underlying investments. As a result, the amount of net investment income from these investments can vary substantially from period to period. Significant volatility could adversely impact returns and net investment income on these alternative investments. In addition, the estimated fair value of such investments may be affected by downturns or volatility in equity or other markets.
See “— Risks Related to Our Business — Guarantees within certain of our annuity products may decrease our earnings, decrease our capitalization, increase the volatility of our results, result in higher risk management costs and expose us to increased market risk” and “— Investments-Related Risks — Our valuation of securities and investments and the determination of the amount of allowances and impairments taken on our investments are subjective and, if changed, could materially adversely affect our results of operations or financial condition.”
Real estate risk
A portion of our investment portfolio consists of mortgage loans on commercial, agricultural and residential real estate. Our exposure to this risk stems from various factors, including the supply and demand of leasable commercial space, creditworthiness of tenants and partners, capital markets volatility, interest rate fluctuations, agricultural prices and farm incomes. Although we manage credit risk and market valuation risk for our commercial, agricultural and residential real estate assets through geographic, property type and product type diversification and asset allocation, general economic conditions in the commercial, agricultural and residential real estate sectors will continue to influence the performance of these investments. These factors, which are beyond our control, could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows.
Obligor-related risk
Fixed income securities and mortgage loans represent a significant portion of our investment portfolio. We are subject to the risk that the issuers, or guarantors, of the fixed income securities and mortgage loans in our investment portfolio may default on principal and interest payments they owe us. We are also subject to the risk that the underlying collateral within asset-backed securities (“ABS”), including mortgage-backed securities, may default on principal and interest payments causing an adverse change in cash flows. The occurrence of a major economic downturn, acts of corporate malfeasance, widening mortgage or credit spreads, or other events that adversely affect the issuers, guarantors or underlying collateral of these securities and mortgage loans could cause the estimated fair value of our portfolio of fixed income securities and mortgage loans and our earnings to decline and the default rate of the fixed income securities and mortgage loans in our investment portfolio to increase.
Derivatives risk
Our derivatives counterparties’ defaults could have a material adverse effect on our financial condition and results of operations. Substantially all of our derivatives (whether entered into bilaterally with specific counterparties or cleared through a clearinghouse) require us to pledge and/or receive collateral or make payments related to any decline in the net estimated fair value of such derivatives. In addition, ratings downgrades or financial difficulties of derivative counterparties may require us to utilize additional capital with respect to the affected businesses. Furthermore, the valuation of our derivatives could change based on changes to our valuation methodology or the discovery of errors.
Summary
Economic or counterparty risks and other factors described above, and significant volatility in the markets, individually or collectively, could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows through realized investment losses, derivative losses, change in insurance liabilities, impairments, increased valuation

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allowances, increases in reserves for future policyholder benefits, reduced net investment income and changes in unrealized gain or loss positions.
Market price volatility can also make it difficult to value certain assets in our investment portfolio if trading in such assets becomes less frequent, for example, as was the case during the 2008 financial crisis. In such case, valuations may include assumptions or estimates that may have significant period to period changes, which could have a material adverse effect on our results of operations or financial condition and may require additional reserves. Significant volatility in the markets could cause changes in the credit spreads and defaults and a lack of pricing transparency which, individually or collectively, could have a material adverse effect on our results of operations, financial condition or liquidity.
Investments-Related Risks
Should the need arise, we may have difficulty selling certain holdings in our investment portfolio or in our securities lending program in a timely manner and realizing full value given that not all assets are liquid
There may be a limited market for certain investments we hold in our investment portfolio, making them relatively illiquid. These include privately-placed fixed maturity securities, derivative instruments such as options, mortgage loans, policy loans, leveraged leases, other limited partnership interests, and real estate equity, such as real estate limited partnerships, limited liability companies and funds. In the past, even some of our very high-quality investments experienced reduced liquidity during periods of market volatility or disruption. If we were forced to sell certain of our investments during periods of market volatility or disruption, market prices may be lower than our carrying value in such investments. This could result in realized losses which could have a material adverse effect on our results of operations and financial condition, as well as our financial ratios, which could affect compliance with our credit instruments and rating agency capital adequacy measures. Moreover, our ability to sell assets may be limited if other market participants are seeking to sell fungible or similar assets at the same time.
Similarly, we loan blocks of our securities to third parties (primarily brokerage firms and commercial banks) through our securities lending program, including fixed maturity securities and short-term investments.
If we are required to return significant amounts of cash collateral in connection with our securities lending or otherwise need significant amounts of cash on short notice and we are forced to sell securities, we may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than we otherwise would have been able to realize under normal market conditions, or both. In the event of a forced sale, accounting guidance requires the recognition of a loss for securities in an unrealized loss position and may require the impairment of other securities based on our ability to hold those securities, which would negatively impact our financial condition, as well as our financial ratios, which could affect compliance with our credit instruments and rating agency capital adequacy measures. In addition, under stressful capital market and economic conditions, liquidity broadly deteriorates, which may further restrict our ability to sell securities. Furthermore, if we decrease the amount of our securities lending activities over time, the amount of net investment income generated by these activities will also likely decline.
Our requirements to pledge collateral or make payments related to declines in estimated fair value of derivatives transactions or specified assets in connection with OTC-cleared, OTC-bilateral transactions and exchange traded derivatives may adversely affect our liquidity, expose us to central clearinghouse and counterparty credit risk, and increase our costs of hedging
Many of our derivatives transactions require us to pledge collateral related to any decline in the net estimated fair value of such derivatives transactions executed through a specific broker at a clearinghouse or entered into with a specific counterparty on a bilateral basis. The amount of collateral we may be required to pledge and the payments we may be required to make under our derivatives transactions may increase under certain circumstances as a result of the requirement to pledge initial margin for OTC-bilateral transactions entered into after the phase-in period, which we expect to be applicable to us in September 2020 as a result of the adoption by the Office of the Comptroller of the Currency, the Federal Reserve Board, Federal Deposit Insurance Corporation, Farm Credit Administration and Federal Housing Finance Agency and the U.S. Commodity Futures Trading Commission of final margin requirements for non-centrally cleared derivatives. See “Business — Regulation — Regulation of Over-the-Counter Derivatives.”

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Gross unrealized losses on fixed maturity securities and defaults, downgrades or other events may result in future impairments to the carrying value of such securities, resulting in a reduction in our profitability measures
Fixed maturity securities classified as available-for-sale (“AFS”) securities are reported at their estimated fair value. Unrealized gains or losses on AFS securities are recognized as a component of other comprehensive income (loss) (“OCI”) and are, therefore, excluded from our profitability measures. In recent periods, as a result of low interest rates, the unrealized gains on our fixed maturity securities have exceeded the unrealized losses. However, if interest rates rise, our unrealized gains would decrease, and our unrealized losses would increase, perhaps substantially. The accumulated change in estimated fair value of these AFS securities is recognized in our profitability measures when the gain or loss is realized upon the sale of the security or in the event that the decline in estimated fair value is determined to be other-than-temporary and impairment charges to earnings are taken.
The occurrence of a major economic downturn, acts of corporate malfeasance, widening credit risk spreads, or other events that adversely affect the issuers or guarantors of securities or the underlying collateral of residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and ABS (collectively, “Structured Securities”) could cause the estimated fair value of our fixed maturity securities portfolio and corresponding earnings to decline and cause the default rate of the fixed maturity securities in our investment portfolio to increase. A ratings downgrade affecting issuers or guarantors of particular securities, or similar trends that could worsen the credit quality of issuers, such as the corporate issuers of securities in our investment portfolio, could also have a similar effect. Economic uncertainty can adversely affect credit quality of issuers or guarantors. Similarly, a ratings downgrade affecting a security we hold could indicate the credit quality of that security has deteriorated and could increase the capital we must hold to support that security to maintain our RBC levels. Levels of write-downs or impairments are impacted by intent to sell, or our assessment of the likelihood that we will be required to sell, fixed maturity securities, which have declined in value. Realized losses or impairments on these securities may have a material adverse effect on our results of operations and financial condition in, or at the end of, any quarterly or annual period.
Our valuation of securities and investments and the determination of the amount of allowances and impairments taken on our investments are subjective and, if changed, could materially adversely affect our results of operations or financial condition
Fixed maturity and equity securities, as well as short-term investments that are reported at estimated fair value, represent the majority of our total cash and investments. See Note 1 to the Notes to the Consolidated Financial Statements for more information on how we calculate fair value. During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain of our securities if trading becomes less frequent and/or market data becomes less observable. In addition, in times of financial market disruption, certain asset classes that were in active markets with significant observable data may become illiquid. In those cases, the valuation process includes inputs that are less observable and require more subjectivity and management judgment. Valuations may result in estimated fair values which vary significantly from the amount at which the investments may ultimately be sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within our consolidated financial statements and the period-to-period changes in estimated fair value could vary significantly. Decreases in the estimated fair value of securities we hold may have a material adverse effect on our financial condition.
The determination of the amount of allowances and impairments varies by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. However, historical trends may not be indicative of future impairments or allowances and any such future impairments or allowances could have a materially adverse effect on our earnings and financial position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Investment Impairments.”
Defaults on our mortgage loans and volatility in performance may adversely affect our profitability
Our mortgage loans face default risk and are principally collateralized by commercial, agricultural and residential properties. An increase in the default rate of our mortgage loan investments or fluctuations in their performance could have a material adverse effect on our results of operations and financial condition.
Further, any geographic or property type concentration of our mortgage loans may have adverse effects on our investment portfolio and consequently on our results of operations or financial condition. Events or developments that have a negative effect on any particular geographic region or sector may have a greater adverse effect on our investment portfolio to the extent that the portfolio is concentrated. See Notes 7 and 9 of the Notes to the Consolidated Financial Statements.

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The defaults or deteriorating credit of other financial institutions could adversely affect us
We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, central clearinghouses, commercial banks, investment banks, hedge funds and investment funds and other financial institutions. Many of these transactions expose us to credit risk in the event of the default of our counterparty. In addition, with respect to secured transactions, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to us. We also have exposure to these financial institutions in the form of unsecured debt instruments, non-redeemable and redeemable preferred securities, derivatives, joint ventures and equity investments. Any losses or impairments to the carrying value of these investments or other changes may materially and adversely affect our results of operations and financial condition.
The continued threat of terrorism, ongoing military actions as well as other catastrophic events may adversely affect the value of our investment portfolio and the level of claim losses we incur
The continued threat of terrorism, both within the United States and abroad, ongoing military and other actions and heightened security measures in response to these types of threats, as well as other natural or man-made catastrophic events, may cause significant volatility in global financial markets and result in loss of life, property damage, additional disruptions to commerce and reduced economic activity. The value of assets in our investment portfolio may be adversely affected by declines in the credit and equity markets and reduced economic activity caused by the continued threat of catastrophic events. Companies in which we maintain investments may suffer losses as a result of financial, commercial or economic disruptions and such disruptions might affect the ability of those companies to pay interest or principal on their securities or mortgage loans. Catastrophic events could also disrupt our operations centers in the U.S. and result in higher than anticipated claims under insurance policies that we have issued. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities.”
Regulatory and Legal Risks
Our business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth
We are subject to a wide variety of insurance and other laws and regulations. We are subject to regulation by our primary Delaware state regulators as well as other regulation in states in which we operate. See “Business — Regulation,” as supplemented by discussions of regulatory developments in our subsequently filed Quarterly Reports on Form 10-Q under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Developments.”
We cannot predict what proposals may be made, what legislation or regulations may be introduced or enacted, or what impact any future legislation or regulations may have on our business, results of operations and financial condition. Furthermore, regulatory uncertainty could create confusion among our distribution partners and customers, which could negatively impact product sales. See “Business — Regulation — Standard of Conduct Regulation” for a more detailed discussion of particular regulatory efforts by various regulators.
Changes to the laws and regulations that govern the conduct of our variable and registered fixed insurance products business and the firms that distribute these products could adversely affect our operations and profitability. Such changes could increase our regulatory and compliance burden, resulting in increased costs, or limit the type, amount or structure of compensation arrangements into which we may enter with certain of our associates, which could negatively impact our ability to compete with other companies in recruiting and retaining key personnel. Additionally, our ability to react to rapidly changing economic conditions and the dynamic, competitive market for variable and registered fixed products will depend on the continued efficacy of provisions we have incorporated into our product design allowing frequent and contemporaneous revisions of key pricing elements, as well as our ability to work collaboratively with securities regulators. Changes in regulatory approval processes, rules and other dynamics in the regulatory process could adversely impact our ability to react to such changing conditions.
Revisions to the NAIC’s RBC calculation could result in a reduction in our RBC ratio or the RBC ratio of BHNY below certain prescribed levels, and in case of such a reduction Brighthouse Life Insurance Company or BHNY may be required to hold additional capital. See also “— A decrease in our RBC ratio or the RBC ratio of BHNY (as a result of a reduction in statutory surplus and/or increase in RBC requirements) could result in increased scrutiny by insurance regulators and rating agencies and have a material adverse effect on our results of operations and financial condition.”
We also cannot predict with certainty the impact of rules, should they take effect, substantially expanding the definition of “investment advice” and imposing an impartial or “best interests” standard in providing such advice, thereby broadening the circumstances under which Brighthouse or its representatives could be deemed a fiduciary under ERISA or the Tax Code, or amendments to certain prohibited transaction exemptions, will have on our products and services to certain employee benefit

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plans that are subject to ERISA or the Tax Code. Furthermore, we cannot predict the impact that “best interest” standards recently adopted or proposed by various regulators may have on our business, results of operations, or financial condition. Compliance with new or changed rules or legislation in this area may increase our regulatory burden and that of our distribution partners, require changes to our compensation practices and product offerings, and increase litigation risk, which could adversely affect our results of operations and financial condition.
Changes in laws and regulations that affect our customers and distribution partners or their operations also may affect our business relationships with them and their ability to purchase or distribute our products. Such actions may negatively affect our business and results of operations.
If our associates fail to adhere to regulatory requirements or our policies and procedures, we may be subject to penalties, restrictions or other sanctions by applicable regulators, and we may suffer reputational harm. See “Business — Regulation.”
A decrease in our RBC ratio or the RBC ratio of BHNY (as a result of a reduction in statutory surplus and/or increase in RBC requirements) could result in increased scrutiny by insurance regulators and rating agencies and have a material adverse effect on our results of operations and financial condition
The NAIC has established model regulations that provide minimum capitalization requirements based on RBC formulas for insurance companies. Brighthouse Life Insurance Company and BHNY are subject to RBC standards and/or other minimum statutory capital and surplus requirements imposed under the laws of their respective jurisdictions of domicile. See “Business — Regulation — Insurance Regulation — Surplus and Capital; Risk-Based Capital.”
In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors, including the amount of statutory income or losses generated by Brighthouse Life Insurance Company and BHNY (which itself is sensitive to equity market and credit market conditions), the amount of additional capital we must hold to support business growth, changes in equity market levels, the value and credit ratings of certain fixed-income and equity securities in our investment portfolio, the value of certain derivative instruments that do not receive hedge accounting and changes in interest rates, as well as changes to the RBC formulas and the interpretation of the NAIC’s instructions with respect to RBC calculation methodologies. Our financial strength ratings are significantly influenced by statutory surplus amounts and RBC ratios. In addition, rating agencies may implement changes to their own internal models, which differ from the RBC capital model, that have the effect of increasing or decreasing the amount of statutory capital we should hold relative to the rating agencies’ expectations. Under stressed or stagnant capital market conditions and with the aging of existing insurance liabilities, without offsets from new business, the amount of additional statutory reserves that we are required to hold may materially increase. This increase in reserves would decrease the statutory surplus available for use in calculating Brighthouse Life Insurance Company’s and BHNY’s RBC ratios. To the extent that our RBC ratio or the RBC ratio of BHNY is deemed to be insufficient, we may seek to take actions either to increase our capitalization or to reduce the capitalization requirements. If we were unable to accomplish such actions, the rating agencies may view this as a reason for a ratings downgrade.
The failure of Brighthouse Life Insurance Company’s and BHNY’s to meet their respective RBC requirements or minimum capital and surplus requirements could subject us to further examination or corrective action imposed by insurance regulators, including limitations on our ability to write additional business, supervision by regulators or seizure or liquidation. Any corrective action imposed could have a material adverse effect on our business, results of operations and financial condition. A decline in RBC ratios, whether or not it results in a failure to meet applicable RBC requirements, may limit the ability of BHNY to make dividends or distributions to us, may limit our ability to make dividends or distributions to our parent company, could result in a loss of customers or new business, and could be a factor in causing ratings agencies to downgrade our financial strength ratings, any of which could have a material adverse effect on our business, results of operations and financial condition.
We are subject to federal and state securities laws and regulations and rules of self-regulatory organizations which, among other things, require that we distribute certain of our products through a registered broker-dealer; failure to comply with these laws or changes to these laws may have a material adverse effect on our operations and our profitability
Federal and state securities laws and regulations apply to insurance products that are also “securities,” including variable annuity contracts and variable life insurance policies, to the separate accounts that issue them, and to certain fixed interest rate or index-linked contracts. Such laws and regulations require these products to be distributed through a broker-dealer that is registered with the SEC and certain state securities regulators and is also a member of FINRA. Accordingly, by offering and selling these registered products, and in managing certain proprietary mutual funds associated with those products, we are subject to, and bear the costs of compliance with, extensive regulation under federal and state securities laws, as well as FINRA rules.

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Federal and state securities laws and regulations are primarily intended to protect investors in the securities markets, protect investment advisory and brokerage clients, and ensure the integrity of the financial markets. These laws and regulations generally grant regulatory and self-regulatory agencies broad rulemaking and enforcement powers impacting new and existing products. These powers include the power to adopt new rules to regulate the issuance, sale and distribution of our products and powers to limit or restrict the conduct of business for failure to comply with securities laws and regulations. See “Business — Regulation — Securities and Investment Advisor Regulation.”
The global financial crisis of 2008 led to significant changes in economic and financial markets that have, in turn, led to a dynamic competitive landscape for issuers of variable and registered insurance products. Our ability to react to rapidly changing market and economic conditions will depend on the continued efficacy of provisions we have incorporated into our product design allowing frequent and contemporaneous revisions of key pricing elements and our ability to work collaboratively with federal securities regulators. Changes in regulatory approval processes, rules and other dynamics in the regulatory process could adversely impact our ability to react to such changing conditions.
Changes in tax laws or interpretations of such laws could reduce our earnings and materially impact our operations by increasing our corporate taxes and making some of our products less attractive to consumers
Changes in tax laws could have a material adverse effect on our profitability and financial condition and could result in our incurring materially higher statutory taxes. Higher tax rates may adversely affect our business, financial condition, results of operations and liquidity. Conversely, if tax rates decline it could adversely affect the desirability of our products.
In 2017, President Trump signed the Tax Act into law, resulting in sweeping changes to the Tax Code. The Tax Act reduced the corporate tax rate to 21%, limited deductibility of interest expense, increased capitalization amounts for DAC, eliminated the corporate alternative minimum tax, provided for determining reserve deductions as 92.81% of statutory reserves, and reduced the dividend received deduction. Most of the changes in the Tax Act were effective as of January 1, 2018.
Our actual results may differ from our current estimate due to, among other things, further guidance that may be issued by U.S. tax authorities or regulatory bodies and/or changes in interpretations and assumptions we have preliminarily made.
Litigation and regulatory investigations are common in our businesses and may result in significant financial losses and/or harm to our reputation
We face a significant risk of litigation actions and regulatory investigations in the ordinary course of operating our businesses, including the risk of class action lawsuits. Our pending legal actions and regulatory investigations include proceedings specific to us, as well as other proceedings that raise issues that are generally applicable to business practices in the industries in which we operate. In addition, the Master Separation Agreement that sets forth our agreements with MetLife relating to the ownership of certain assets and the allocation of certain liabilities in connection with the Separation (the “Master Separation Agreement”) allocated responsibility among MetLife and Brighthouse with respect to certain claims (including litigation or regulatory actions or investigations where Brighthouse is not a party). As a result, we may face indemnification obligations or be required to share in certain of MetLife’s liabilities with respect to such claims.
In connection with our insurance operations, plaintiffs’ lawyers may bring or are bringing class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, claims payments and procedures, product design, disclosure, administration, investments, denial or delay of benefits and breaches of fiduciary or other duties to customers. Plaintiffs in class action and other lawsuits against us may seek very large and/or indeterminate amounts, including punitive and treble damages. Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may be difficult to ascertain. Material pending litigation and regulatory matters affecting us and risks to our business presented by these proceedings, if any, are discussed in Note 14 of the Notes to the Consolidated Financial Statements.
A substantial legal liability or a significant federal, state or other regulatory action against us, as well as regulatory inquiries or investigations, could harm our reputation, result in material fines or penalties, result in significant legal costs and otherwise have a material adverse effect on our business, financial condition and results of operations. Even if we ultimately prevail in the litigation, regulatory action or investigation, our ability to attract new customers and distributors, retain our current customers and distributors, and recruit and retain personnel could be materially and adversely impacted. Regulatory inquiries and litigation may also cause volatility in the price of BHF securities and the securities of companies in our industry.

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Current claims, litigation, unasserted claims probable of assertion, investigations and other proceedings against us could have a material adverse effect on our business, financial condition or results of operations. It is also possible that related or unrelated claims, litigation, unasserted claims probable of assertion, investigations and proceedings may be commenced in the future, and we could become subject to further investigations and have lawsuits filed or enforcement actions initiated against us. Increased regulatory scrutiny and any resulting investigations or proceedings in any of the jurisdictions where we operate could result in new legal actions and precedents or changes in laws, rules or regulations that could adversely affect our business, financial condition and results of operations.
Operational Risks
Any gaps in our policies and procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business
We have developed policies and procedures to reflect the ongoing review of our risks and expect to continue to do so in the future. Nonetheless, our policies and procedures may not be fully effective, leaving us exposed to unidentified or unanticipated risks. In addition, we rely on third-party providers to administer and service many of our products, and our policies and procedures may not enable us to identify and assess every risk with respect to those products, especially to the extent we rely on those providers for detailed information regarding the holders of our products and other relevant information.
Many of our methods for managing risk and exposures rely on assumptions that are based on observed historical financial and non-financial trends or projections of potential future exposure, and our assumptions and projections may be inaccurate. Business decisions based on incorrect or misused model output and reports could have a material adverse impact on our results of operations. If models are misused or fail to serve their intended purposes, they could produce incorrect or inappropriate results. Furthermore, models used by our business may not operate properly and could contain errors related to model inputs, data, assumptions, calculations, or output which could give rise to adjustments to models that may adversely impact our results of operations. As a result, these methods may not fully predict future exposures, which can be significantly greater than our historical measures indicate.
Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence or other matters that are publicly available or otherwise accessible to us. This information may not always be accurate, complete, up-to-date or properly evaluated. Furthermore, there can be no assurance that we can effectively review and monitor all risks or that all of our employees will follow our policies and procedures, nor can there be any assurance that our policies and procedures, or the policies and procedures of third parties that administer or service our products, will enable us to accurately identify all risks and limit our exposures based on our assessments. In addition, we may have to implement more extensive and perhaps different policies and procedures under pending regulations. See “— Risks Related to Our Business — Our variable annuity exposure risk management strategy may not be effective, may result in significant volatility in our profitability measures and may negatively affect our statutory capital.”
Any failure in cyber- or other information security systems, as well as the occurrence of events unanticipated in Brighthouse’s or our third-party service providers’ disaster recovery systems and business continuity planning could result in a loss or disclosure of confidential information, damage to our reputation and impairment of our ability to conduct business effectively
Our business is highly dependent upon the effective operation of computer systems. For some of these systems, we rely on third parties, such as our outside vendors and distributors, including MetLife. We rely on these systems throughout our business for a variety of functions, including processing new business, claims, and post-issue transactions, providing information to customers and distributors, performing actuarial analyses, managing our investments and maintaining financial records. Such computer systems have been, and will likely continue to be, subject to a variety of forms of cyberattacks with the objective of gaining unauthorized access to Brighthouse systems and data or disrupting Brighthouse operations. These include, but are not limited to, phishing attacks, account takeover attempts, malware, ransomware, denial of service attacks, and other computer-related penetrations. Administrative and technical controls and other preventive actions taken to reduce the risk of cyber-incidents and protect our information technology may be insufficient to prevent physical and electronic break-ins, cyberattacks or other security breaches to such computer systems. In some cases, such physical and electronic break-ins, cyberattacks or other security breaches may not be immediately detected. This may impede or interrupt our business operations and could adversely affect our business, financial condition and results of operations.
A disaster such as a natural catastrophe, epidemic, industrial accident, blackout, computer virus, terrorist attack, cyberattack or war, unanticipated problems with our or our vendors’ disaster recovery systems (and the disaster recovery systems of such vendors’ suppliers, vendors or subcontractors), could cause our computer systems to be inaccessible to our employees, distributors, vendors or customers or may destroy valuable data. In addition, in the event that a significant number of our or our vendors’ managers were unavailable following a disaster, our ability to effectively conduct business could be severely

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compromised. These interruptions also may interfere with our suppliers’ ability to provide goods and services and our employees’ ability to perform their job responsibilities.
A failure of our or relevant third-party (or such third-party’s supplier’s, vendor’s or subcontractor’s computer systems) computer systems could cause significant interruptions in our operations, result in a failure to maintain the security, confidentiality or privacy of sensitive data, harm our reputation, subject us to regulatory sanctions and legal claims, lead to a loss of customers and revenues, and otherwise adversely affect our business and financial results. Our cyber liability insurance may not be sufficient to protect us against all losses. See also “— General Risks — Any failure to protect the confidentiality of client and employee information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations.”
Brighthouse’s associates and those of our third-party service providers may take excessive risks which could negatively affect our financial condition and business
As an insurance enterprise, we are in the business of accepting certain risks. The associates who conduct our business include executive officers and other members of management, sales intermediaries, investment professionals, product managers, and other associates, as well as associates of our third-party service providers, including certain associates of MetLife who provide services to Brighthouse in connection with the Transition Services Agreement or other agreements, including agreements to provide certain third-party administration services. Each of these associates makes decisions and choices that may expose us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining what assets to purchase for investment and when to sell them, which business opportunities to pursue, and other decisions. Associates may take excessive risks regardless of the structure of our compensation programs and practices. Similarly, our controls and procedures designed to monitor associates’ business decisions and prevent them from taking excessive risks, and to prevent employee misconduct, may not be effective. If our associates and those of our third-party service providers take excessive risks, the impact of those risks could harm our reputation and have a material adverse effect on our financial condition and business operations.
General Risks
Brighthouse may experience difficulty in marketing and distributing products through our distribution channels
We distribute our products exclusively through a variety of third-party distribution channels. Our agreements with the third-party distributors may be terminated by either party with or without cause. We may periodically renegotiate the terms of these agreements, and there can be no assurance that such terms will remain acceptable to us or such third parties. If we are unable to maintain our relationships our sales of individual insurance, annuities and investment products could decline, and our results of operations and financial condition could be materially adversely affected. Our distributors may elect to suspend, alter, reduce or terminate their distribution relationships with us for various reasons, including changes in our distribution strategy, adverse developments in our business, adverse rating agency actions, or concerns about market-related risks. We are also at risk that key distribution partners may merge, consolidate, change their business models in ways that affect how our products are sold, or terminate their distribution contracts with us, or that new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts. Also, if we are unsuccessful in attracting and retaining key internal associates who conduct our business, including wholesalers, our sales could decline.
An interruption or significant change in certain key relationships could materially affect our ability to market our products and could have a material adverse effect on our results of operations and financial condition. In addition, we rely on a core number of our distributors to produce the majority of our sales. If any one such distributor were to terminate its relationship with us or reduce the amount of sales which it produces for us our results of operations could be adversely affected. An increase in bank and broker-dealer consolidation activity could increase competition for access to distributors, result in greater distribution expenses and impair our ability to market products through these channels. Consolidation of distributors and/or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing selling agreements to terms less favorable to us.
Because our products are distributed through unaffiliated firms, we may not be able to monitor or control the manner of their distribution despite our training and compliance programs. If our products are distributed by such firms in an inappropriate manner, or to customers for whom they are unsuitable, we may suffer reputational and other harm to our business.

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In addition, our distributors may also sell our competitors’ products. If our competitors offer products that are more attractive than ours or pay higher commission rates to the sales representatives than we do, these representatives may concentrate their efforts in selling our competitors’ products instead of ours. In connection with the sale of MetLife Premier Client Group to Massachusetts Mutual Life Insurance Company (“MassMutual”), we entered into an agreement in 2016 that permits us to serve as the exclusive manufacturer for certain proprietary products which are offered through MassMutual’s career agent channel. We partnered with MassMutual to develop the initial product distributed under this arrangement, the Index Horizons fixed index annuity, and agreed on the terms of the related reinsurance. While the agreement has a term of 10 years, it is possible that MassMutual may terminate our exclusivity or the agreement itself in specified circumstances, such as our inability or failure to provide product designs that reasonably meet MassMutual requirements.
Any failure to protect the confidentiality of client and employee information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations
Federal and state legislatures and various government agencies have established laws and regulations protecting the privacy and security of personal information. See “Business — Regulation — Cybersecurity Regulation.” Our third-party service-providers and our employees have access to, and routinely process, personal information through a variety of media, including information technology systems. It is possible that an employee or third-party service provider (or their suppliers, vendors or subcontractors) could, intentionally or unintentionally, disclose or misappropriate confidential personal information, and there can be no assurance that our information security policies and systems in place can prevent unauthorized use or disclosure of confidential information, including nonpublic personal information. Additionally, our data has been the subject of cyberattacks and could be subject to additional attacks. If we or any of our third-party service providers (or their suppliers, vendors or subcontractors) fail to maintain adequate internal controls or if our associates fail to comply with our policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of employee or client information could occur. Any data breach or unlawful disclosure of confidential personal information could materially damage our reputation or lead to civil or criminal penalties, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. See “— Operational Risks — Any failure in cyber- or other information security systems, as well as the occurrence of events unanticipated in Brighthouse’s or our third-party service providers’ disaster recovery systems and business continuity planning could result in a loss or disclosure of confidential information, damage to our reputation and impairment of our ability to conduct business effectively.”
In addition, there has been increased scrutiny as well as enacted and proposed additional regulation, including from state regulators, regarding the use of customer data. We may analyze customer data or input such data into third-party analytics in order to better manage our business. Any inquiry in connection with our analytics business practices, as well as any misuse or alleged misuse of those analytics insights, could cause reputational harm or result in regulatory enforcement actions or litigation, and any related limitations imposed on us could have a material impact on our business, financial condition and results of operations.
Brighthouse could face difficulties, unforeseen liabilities, asset impairments or rating actions arising from business acquisitions or dispositions
We may engage in dispositions and acquisitions of businesses. Such activity exposes us to a number of risks arising from (i) potential difficulties achieving projected financial results including the costs and benefits of integration or deconsolidation; (ii) unforeseen liabilities or asset impairments; (iii) the scope and duration of rights to indemnification for losses; (iv) the use of capital which could be used for other purposes; (v) rating agency reactions; (vi) regulatory requirements that could impact our operations or capital requirements; (vii) changes in statutory accounting principles or GAAP, practices or policies; and (viii) certain other risks specifically arising from activities relating to a legal entity reorganization.
Our ability to achieve certain financial benefits we anticipate from any acquisitions of businesses will depend in part upon our ability to successfully integrate such businesses in an efficient and effective manner. There may be liabilities or asset impairments that we fail, or are unable, to discover in the course of performing acquisition-related due diligence investigations. Furthermore, even for obligations and liabilities that we do discover during the due diligence process, neither the valuation adjustment nor the contractual protections we negotiate may be sufficient to fully protect us from losses.

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We may from time to time dispose of business or blocks of in-force business through outright sales, reinsurance transactions or by alternate means. After a disposition, we may remain liable to the acquirer or to third parties for certain losses or costs arising from the divested business or on other bases. We may also not realize the anticipated profit on a disposition or incur a loss on the disposition. In anticipation of any disposition, we may need to restructure our operations, which could disrupt such operations and affect our ability to recruit key personnel needed to operate and grow such business pending the completion of such transaction. In addition, the actions of key employees of the business to be divested could adversely affect the success of such disposition as they may be more focused on obtaining employment, or the terms of their employment, than on maximizing the value of the business to be divested. Furthermore, transition services or tax arrangements related to any such separation could further disrupt our operations and may impose restrictions, liabilities, losses or indemnification obligations on us. Depending on its particulars, a separation could increase our exposure to certain risks, such as by decreasing the diversification of our sources of revenue. Moreover, we may be unable to timely dissolve all contractual relationships with the divested business in the course of the proposed transaction, which may materially adversely affect our ability to realize value from the disposition. Such restructuring could also adversely affect our internal controls and procedures and impair our relationships with key customers, distributors and suppliers. An interruption or significant change in certain key relationships could materially affect our ability to market our products and could have a material adverse effect on our business, operating results and financial condition.
Risks Related to Our Separation from, and Continuing Relationship with, MetLife
If the Separation were to fail to qualify for non-recognition treatment for federal income tax purposes, then we could be subject to significant tax liabilities
The Separation was conditioned on the continued validity as of the Separation date of the private letter ruling that MetLife has received from the IRS regarding certain significant issues under the Tax Code, and the receipt and continued validity as of the Separation date of an opinion from MetLife’s tax advisor that the Separation qualifies for non-recognition of gain or loss to MetLife and MetLife’s shareholders pursuant to Sections 355 and 361 of the Tax Code, except to the extent of cash received in lieu of fractional shares, each subject to the accuracy of and compliance with certain representations, assumptions and covenants therein.
Notwithstanding the receipt of the private letter ruling and the tax opinion, the IRS could determine that the Separation should be treated as a taxable transaction if it determines that any of the representations, assumptions or covenants on which the private letter ruling is based are untrue or have been violated. Furthermore, as part of the IRS’s policy, the IRS did not determine whether the Separation satisfies certain conditions that are necessary to qualify for non-recognition treatment. Rather, the private letter ruling is based on representations by MetLife and Brighthouse that these conditions have been satisfied.
The tax opinion is not binding on the IRS or the courts, and there can be no assurance that the IRS or a court will not take a contrary position. In addition, the tax opinion and the private letter ruling do not address all of the tax consequences of the Separation to us.
If the IRS ultimately determines that the Separation is taxable, we could incur significant federal income tax liabilities, and Brighthouse could have an indemnification obligation to MetLife. For a more detailed discussion, see “— Potential indemnification obligations if the Separation does not qualify for non-recognition treatment or if certain other steps that are part of the Separation do not qualify for their intended tax treatment could materially adversely affect our financial condition.”
The Separation was a complex transaction subject to numerous tax rules, including rules that could require us to reduce our tax attributes (such as the basis in our assets) in certain circumstances, and the application of these various rules to the Separation is not entirely clear. The ultimate tax consequences to us of the Separation may not be finally determined for many years and may differ from the tax consequences that we and MetLife expected at the time of the Separation. As a result, we could be required to pay material additional taxes and to materially reduce the tax assets (or materially increase the tax liabilities) on our consolidated balance sheet. These changes could impact our available capital, ratings or cost of capital. There can be no assurance that the tax separation agreement with MetLife, Inc. (the “Tax Separation Agreement”) will protect us from any such consequences, or that any issue that may arise will be subject to indemnification by MetLife under the Tax Separation Agreement. As a result, our financial condition and results of operations could be materially and adversely affected.
Potential indemnification obligations if the Separation does not qualify for non-recognition treatment or if certain other steps that are part of the Separation do not qualify for their intended tax treatment could materially adversely affect our financial condition
Generally, taxes resulting from the failure of the Separation to qualify for non-recognition treatment for federal income tax purposes would be imposed on MetLife or MetLife’s shareholders and, under the Tax Separation Agreement, MetLife is generally obligated to indemnify Brighthouse against such taxes if the failure to qualify for tax-free treatment results from any action or

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inaction that is within MetLife’s control or if the failure results from any direct or indirect transfer of MetLife’s stock. MetLife may have an adverse interpretation of or object to its indemnification obligations to Brighthouse under the Tax Separation Agreement, and there can be no assurance that MetLife will be able to satisfy its indemnification obligation to Brighthouse or that such indemnification will be sufficient to us in the event of a dispute or nonperformance by MetLife. The failure of MetLife to fully indemnify Brighthouse could have a material adverse effect on our financial condition and results of operations.
In addition, MetLife will generally bear tax-related losses due to the failure of certain steps that were part of the Separation to qualify for their intended tax treatment. However, the IRS could seek to hold Brighthouse responsible for such liabilities, and under the Tax Separation Agreement, Brighthouse could be required, under certain circumstances, to indemnify MetLife and its affiliates against certain tax-related liabilities caused by those failures, to the extent those liabilities result from an action Brighthouse or its affiliates, including us, take or from any breach of Brighthouse’s or its affiliates’, including us, representations, covenants or obligations under the Tax Separation Agreement. If the Separation does not qualify for non-recognition treatment or if certain other steps that are part of the Separation do not qualify for their intended tax treatment, we could be required to pay material additional taxes or an indemnification obligation to MetLife, which could materially and adversely affect our financial condition.
Disputes or disagreements with MetLife may affect our financial statements and business operations, and Brighthouse’s contractual remedies may not be sufficient
In connection with the Separation, Brighthouse entered into certain agreements that provide a framework for the ongoing relationship with MetLife, including the Transition Services Agreement, the Tax Separation Agreement and a tax receivables agreement that provides MetLife with the right to receive future payments from us as partial consideration for its contribution of assets to us (the “Tax Receivables Agreement”). Brighthouse’s agreements with MetLife may not reflect terms that would have resulted from negotiation between unaffiliated parties. Such provisions may include, among other things, indemnification rights and obligations, the allocation of tax liabilities, and other payment obligations between Brighthouse and MetLife, including the payment by Brighthouse to MetLife pursuant to the Tax Receivables Agreement of a portion of cash savings, if any, in federal income tax that we actually realize as a result of certain transactions involved in the Separation. Disagreements regarding the obligations of MetLife or Brighthouse, including us, under these agreements or any renegotiation of their terms could create disputes that may be resolved in a manner unfavorable to us. In addition, there can be no assurance that any remedies available under these agreements will be sufficient to Brighthouse, including us, in the event of a dispute or nonperformance by MetLife or that any such remedies will be sufficiently broad to cover any issues that arise under Brighthouse’s arrangements with MetLife. The failure of MetLife to perform its obligations under these agreements (or claims by MetLife that Brighthouse has failed to perform its obligations under the agreements) may have a material adverse effect on our financial statements and could consume substantial resources and attention thus creating a material adverse impact on our business performance.
Item 1B. Unresolved Staff Comments
None.
Item 3. Legal Proceedings
See Note 14 of the Notes to the Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not applicable.

38


PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
No established public trading market exists for Brighthouse Life Insurance Company’s common equity; all of Brighthouse Life Insurance Company’s common stock is held by Brighthouse Holdings, LLC (“BH Holdings”).
See Note 11 of the Notes to the Consolidated Financial Statements for a discussion of dividends paid, as well as restrictions on Brighthouse Life Insurance Company’s ability to pay dividends.
Item 6. Selected Financial Data
Omitted pursuant to General Instruction I(2)(a) of Form 10-K.

39


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations

40


Introduction
For purposes of this discussion, “BLIC,” the “Company,” “we,” “our” and “us” refer to Brighthouse Life Insurance Company (formerly, MetLife Insurance Company USA), a Delaware corporation originally incorporated in Connecticut in 1863, and its subsidiaries. Brighthouse Life Insurance Company is a wholly-owned subsidiary of BH Holdings which is a wholly-owned subsidiary of Brighthouse Financial, Inc. (together with its subsidiaries and affiliates, “Brighthouse”). Management’s narrative analysis of the results of operations is presented pursuant to General Instruction I(2)(a) of Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with “Note Regarding Forward-Looking Statements,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk” and the Company’s consolidated financial statements included elsewhere herein.
The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this report, particularly in “Note Regarding Forward-Looking Statements” and “Risk Factors.”
Overview
We offer a range of individual annuities and individual life insurance products. We are licensed and regulated in each U.S. jurisdiction where we conduct insurance business. Brighthouse Life Insurance Company is licensed to issue insurance products in all U.S. states (except New York), the District of Columbia, the Bahamas, Guam, Puerto Rico, the British Virgin Islands and the U.S. Virgin Islands. Our insurance subsidiary, BHNY, is only licensed to issue insurance products in New York.
For operating purposes, we have established three segments: (i) Annuities, (ii) Life and (iii) Run-off, which consists of operations relating to products we are not actively selling, and which are separately managed. In addition, we report certain of our results of operations in Corporate & Other.
See “Business — Segments and Corporate & Other” and Note 2 of the Notes to the Consolidated Financial Statements for further information on our segments and Corporate & Other.
Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Consolidated Financial Statements.
The most critical estimates include those used in determining: 
(i)
liabilities for future policy benefits;
(ii)
amortization of DAC;
(iii)
investment impairments;
(iv)
estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation; and
(v)
measurement of income taxes and the valuation of deferred tax assets.
In applying our accounting policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates.
The above critical accounting estimates are described below and in Note 1 of the Notes to the Consolidated Financial Statements.
Liability for Future Policy Benefits
Future policy benefits for traditional long-duration insurance contracts (term, whole life insurance and income annuities) are payable over an extended period of time and the related liabilities are equal to the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums. Assumptions used to measure the liability are based on the Company’s experience and include a margin for adverse deviation. The principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, benefit utilization and withdrawals, policy lapse, retirement, disability incidence, disability terminations, investment returns and expenses. These assumptions, intended to estimate the

41


experience for the period the policy benefits are payable, are established at the time the policy is issued and are not updated unless a premium deficiency exists. Utilizing these assumptions, liabilities are established for each line of business. If experience is less favorable than assumed and a premium deficiency exists, DAC may be reduced, and/or additional insurance liabilities established, resulting in a reduction in earnings.
Future policy benefit liabilities for GMDBs and certain GMIBs relating to variable annuity contracts are based on estimates of the expected value of benefits in excess of the projected account balance, recognizing the excess ratably over the accumulation period based on total expected assessments. Liabilities for universal and variable life insurance secondary guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero using a range of scenarios and recognizing those benefits ratably over the contract period based on total expected assessments. The Company also maintains a profit followed by losses reserve on universal life insurance with secondary guarantees. The assumptions of investment performance and volatility for variable products are consistent with historical experience of the underlying separate account funds.
We regularly review our assumptions supporting our estimates of actuarial liabilities for future policy benefits. For universal life and annuity product guarantees, assumptions are updated periodically, whereas for traditional long-duration insurance contracts, assumptions are established at inception and not updated unless a premium deficiency exists. We also review our liability projections to determine if profits are projected in earlier years followed by losses projected in later years, which could require us to establish an additional liability. We aggregate insurance contracts by product and segment in assessing whether a premium deficiency or profits followed by losses exists. Differences between actual experience and the assumptions used in pricing our policies and guarantees, as well as adjustments to the related liabilities, result in changes to earnings.
See Note 1 of the Notes to the Consolidated Financial Statements for additional information on our accounting policy relating to variable annuity guarantees and liability for future policy benefits.
Deferred Policy Acquisition Costs
DAC represents deferred costs that relate directly to the successful acquisition or renewal of insurance contracts. The recovery of DAC is dependent upon the future profitability of the related business.
DAC related to deferred annuities, universal and variable life insurance contracts is amortized based on expected future gross profits. DAC balances and amortization for variable contracts can be significantly impacted by changes in expected future gross profits related to projected separate account rates of return. Our practice of determining changes in projected separate account returns assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations but is only changed when sustained interim deviations are expected. We monitor these events and only change the assumption when our long-term expectation changes. The effect of an increase (decrease) by 100 basis points in the assumed future rate of return is reasonably likely to result in a decrease (increase) in the DAC amortization with an offset to our unearned revenue liability which nets to approximately $170 million. We use a mean reversion approach to separate account returns where the mean reversion period is five years with a long-term separate account return after the five-year reversion period is over. The current long-term rate of return assumption for variable annuity and variable universal life insurance contracts is in the 6-7% range.
We also generally review other long-term assumptions underlying the projections of expected future gross profits on an annual basis. These assumptions primarily relate to general account investment returns, interest crediting rates, mortality, in-force or persistency, benefit elections and withdrawals, and expenses to administer business. Assumptions used in the calculation of expected future gross profits which have significantly changed are updated annually. If the update of assumptions causes expected future gross profits to increase, DAC amortization will generally decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross profits to decrease.
Our DAC balances are also impacted by replacing expected future gross profits with actual gross profits in each reporting period, including changes in annuity embedded derivatives and the related nonperformance risk. When the change in expected future gross profits principally relates to the difference between actual and estimates in the current period, an increase in profits will generally result in an increase in amortization and a decrease in profits will generally result in a decrease in amortization.
See Notes 1 and 5 of the Notes to the Consolidated Financial Statements for additional information relating to DAC accounting policy and amortization.

42


Investment Impairments
One of the significant estimates related to AFS securities is our impairment evaluation. The assessment of whether an other-than-temporary impairment (“OTTI”) occurred is based on our case-by-case evaluation of the underlying reasons for the decline in estimated fair value on a security-by-security basis. Our review of each fixed maturity security for OTTI includes an analysis of gross unrealized losses by three categories of severity and/or age of gross unrealized loss. An extended and severe unrealized loss position may not have any impact on the ability of the issuer to service all scheduled interest and principal payments. Accordingly, such an unrealized loss position may not impact our evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on the present value of the expected future cash flows to be collected.
Additionally, we consider a wide range of factors about the security issuer and use our best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in our evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Factors we consider in the OTTI evaluation process are described in Note 7 of the Notes to the Consolidated Financial Statements.
The determination of the amount of allowances and impairments on the remaining invested asset classes is highly subjective and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available.
See Notes 1 and 7 of the Notes to the Consolidated Financial Statements for additional information relating to our determination of the amount of allowances and impairments.
Derivatives
We use freestanding derivative instruments to hedge various capital market risks in our products, including: (i) certain guarantees, some of which are reported as embedded derivatives; (ii) current or future changes in the fair value of our assets and liabilities; and (iii) current or future changes in cash flows. All derivatives, whether freestanding or embedded, are required to be carried on the balance sheet at fair value with changes reflected in either net income (loss) attributable to Brighthouse Life Insurance Company or in OCI, depending on the type of hedge. Below is a summary of critical accounting estimates by type of derivative.
Freestanding Derivatives
The determination of the estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. See Note 8 of the Notes to the Consolidated Financial Statements for additional information on significant inputs into the OTC derivative pricing models and credit risk adjustment.
Embedded Derivatives in Variable Annuity Guarantees
We issue variable annuity products with guaranteed minimum benefits, some of which are embedded derivatives measured at estimated fair value separately from the host variable annuity product, with changes in estimated fair value reported in net derivative gains (losses). The estimated fair values of these embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees attributable to the guarantee. The projections of future benefits and future fees require capital markets and actuarial assumptions, including expectations concerning policyholder behavior. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital market scenarios using observable risk-free rates and implied equity volatilities.
Market conditions, including, but not limited to, changes in interest rates, equity indices, market volatility and variations in actuarial assumptions, including policyholder behavior, mortality and risk margins related to non-capital market inputs, as well as changes in our nonperformance risk may result in significant fluctuations in the estimated fair value of the guarantees that could have a material impact on net income. Changes to actuarial assumptions, principally related to contract holder behavior such as annuitization utilization and withdrawals associated with GMIB riders, can result in a change of expected future cash outflows of a guarantee between the accrual-based model for insurance liabilities and the fair-value based model for embedded derivatives. See Note 1 of the Notes to the Consolidated Financial Statements for additional information relating to the determination of the accounting model. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.

43


Assumptions for embedded derivatives are reviewed at least annually, and if they change significantly, the estimated fair value is adjusted by a cumulative charge or credit to net income.
See Notes 8 and 9 of the Notes to the Consolidated Financial Statements for additional information on our embedded derivatives and the determination of their fair values.
Embedded Derivatives in Index-Linked Annuities
The Company issues and assumes through reinsurance index-linked annuities that contain equity crediting rates accounted for as an embedded derivative. The crediting rates are measured at estimated fair value which is determined using a combination of an option pricing methodology and an option-budget approach. The estimated fair value includes capital market and actuarial policyholder behavior and biometric assumptions, including expectations for renewals at the end of the term period. Market conditions, including interest rates and implied volatilities, and variations in actuarial assumptions and risk margins, as well as changes in our nonperformance risk adjustment may result in significant fluctuations in the estimated fair value that could have a material impact on net income.
Nonperformance Risk Adjustment
The valuation of our embedded derivatives includes an adjustment for the risk that we fail to satisfy our obligations, which we refer to as our nonperformance risk. The nonperformance risk adjustment is captured as a spread over the risk-free rate in determining the discount rate to discount the cash flows of the liability.
The spread over the risk-free rate is based on BHF’s creditworthiness taking into consideration publicly available information relating to spreads in the secondary market for BHF’s debt. These observable spreads are then adjusted, as necessary, to reflect our financial strength ratings as compared to the credit rating of BHF.
Income Taxes
We provide for federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. Our accounting for income taxes represents our best estimate of various events and transactions. Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various taxing jurisdictions.
In establishing a liability for unrecognized tax benefits, assumptions may be made in determining whether, and to what extent, a tax position may be sustained. Once established, unrecognized tax benefits are adjusted when there is more information available or when events occur requiring a change.
Valuation allowances are established against deferred tax assets, particularly those arising from carryforwards, when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. The realization of deferred tax assets related to carryforwards depends upon the existence of sufficient taxable income within the carryforward periods under the tax law in the applicable tax jurisdiction. Significant judgment is required in projecting future taxable income to determine whether valuation allowances should be established, as well as the amount of such allowances. See Note 1 of the Notes to the Consolidated Financial Statements for additional information relating to our determination of such valuation allowances.
We may be required to change our provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change, or when new information indicates the need for adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the financial statements in the year these changes occur.
See Notes 1 and 13 of the Notes to the Consolidated Financial Statements for additional information on our income taxes.
Non-GAAP Disclosures
Our definitions of the non-GAAP measures may differ from those used by other companies.

44


Non-GAAP Financial Disclosures
Adjusted Earnings
In this report, we present adjusted earnings, which excludes net income (loss) attributable to noncontrolling interests, as a measure of our performance that is not calculated in accordance with GAAP. We believe that this non-GAAP financial measure highlights our results of operations and the underlying profitability drivers of our business, as well as enhances the understanding of our performance by the investor community. However, adjusted earnings should not be viewed as a substitute for net income (loss) attributable to Brighthouse Life Insurance Company, which is the most directly comparable financial measure calculated in accordance with GAAP. See “— Results of Operations” for a reconciliation of adjusted earnings to net income (loss) attributable to Brighthouse Life Insurance Company.
Adjusted earnings, which may be positive or negative, is used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. This financial measure focuses on our primary businesses principally by excluding the impact of market volatility, which could distort trends.
The following are significant items excluded from total revenues, net of income tax, in calculating adjusted earnings:
Net investment gains (losses);
Net derivative gains (losses) except earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment (“Investment Hedge Adjustments”); and
Certain variable annuity GMIB fees (“GMIB Fees”) and amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses).
The following are significant items excluded from total expenses, net of income tax, in calculating adjusted earnings:
Amounts associated with benefits related to GMIBs (“GMIB Costs”);
Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”); and
Amortization of DAC and VOBA related to (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments.
The tax impact of the adjustments mentioned is calculated net of the statutory tax rate, which could differ from our effective tax rate.
We present adjusted earnings in a manner consistent with management’s view of the primary business activities that drive the profitability of our core businesses. The following table illustrates how each component of adjusted earnings is calculated from the GAAP statement of operations line items:

45


Component of Adjusted Earnings
How Derived from GAAP (1)
(i)
Fee income
(i)
Universal life and investment-type policy fees (excluding (a) unearned revenue adjustments related to net investment gains (losses) and net derivative gains (losses) and (b) GMIB Fees) plus Other revenues (excluding other revenues associated with related party reinsurance) and amortization of deferred gain on reinsurance.
(ii)
Net investment spread
(ii)
Net investment income plus Investment Hedge Adjustments and interest received on ceded fixed annuity reinsurance deposit funds reduced by Interest credited to policyholder account balances and interest on future policy benefits.
(iii)
Insurance-related activities
(iii)
Premiums less Policyholder benefits and claims (excluding (a) GMIB Costs, (b) Market Value Adjustments, (c) interest on future policy benefits and (d) amortization of deferred gain on reinsurance) plus the pass through of performance of ceded separate account assets.
(iv)
Amortization of DAC and VOBA
(iv)
Amortization of DAC and VOBA (excluding amounts related to (a) net investment gains (losses), (b) net derivative gains (losses), (c) GMIB Fees and GMIB Costs and (d) Market Value Adjustments).
(v)
Other expenses, net of DAC capitalization
(v)
Other expenses reduced by capitalization of DAC.
(vi)
Provision for income tax expense (benefit)
(vi)
Tax impact of the above items.
_______________
(1)
Italicized items indicate GAAP statement of operations line items.
Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Accordingly, we report adjusted earnings by segment in Note 2 of the Notes to the Consolidated Financial Statements.

46


Results of Operations
Annual Actuarial Review
Generally, in the third quarter of each year we conduct an AAR. The most significant impact from the 2019 AAR reflected the change in the long-term general account earned rate for GAAP, which lowered the base 10-year U.S. Treasury rate from 4.25% to 3.75%, which had the largest impact to our ULSG business. For our variable annuity business, in addition to the update in the long-term general account earned rate, we updated assumptions regarding separate account fund allocations and volatility, as well as maintenance expenses. In our life business, we updated assumptions related to mortality and expenses.
As a result of the 2018 AAR, our variable annuity business reflected the alignment to the statutory variable annuity capital reform framework. These changes included lower lapse and utilization assumptions (consistent with updated Brighthouse policyholder experience and industry participants), as well as updates to the equity market scenario generator as reflected in the framework. We also updated the tax rate to reflect the statutory tax rate change due to the Tax Act. In our life business, we updated assumptions related to market returns, policyholder behavior and expenses.
Consolidated Results for the Years Ended December 31, 2019 and 2018
Unless otherwise noted, all amounts in the following discussions of our results of operations are stated before income tax except for adjusted earnings, which are presented net of income tax.
 
Years Ended December 31,
 
2019

2018
 
(In millions)
Revenues
 
 
 
Premiums
$
847

 
$
869

Universal life and investment-type product policy fees
2,982

 
3,190

Net investment income
3,486

 
3,235

Other revenues
266

 
287

Net investment gains (losses)
92

 
(204
)
Net derivative gains (losses)
(2,046
)
 
745

Total revenues
5,627

 
8,122

Expenses
 
 
 
Policyholder benefits and claims
3,538

 
3,180

Interest credited to policyholder account balances
1,031

 
1,047

Capitalization of DAC
(365
)
 
(319
)
Amortization of DAC and VOBA
395

 
1,011

Interest expense on debt
60

 
6

Other expenses
2,114

 
2,076

Total expenses
6,773

 
7,001

Income (loss) before provision for income tax
(1,146
)
 
1,121

Provision for income tax expense (benefit)
(338
)
 
153

Net income (loss)
(808
)
 
968

Less: Net income (loss) attributable to noncontrolling interests
1

 
1

Net income (loss) attributable to Brighthouse Life Insurance Company
$
(809
)
 
$
967


47


The following table presents the components of net income (loss).
 
Years Ended December 31,
 
2019
 
2018
 
(In millions)
GMLB Riders
$
(2,533
)
 
$
383

Other derivative instruments
638

 
(202
)
Net investment gains (losses)
92

 
(204
)
Other adjustments
(1
)
 
41

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests
657

 
1,102

Net income (loss) before provision for income tax
(1,147
)
 
1,120

Provision for income tax expense (benefit)
(338
)
 
153

Net income (loss) attributable to Brighthouse Life Insurance Company
$
(809
)
 
$
967

GMLB Riders. The guaranteed minimum liability benefits (“GMLB”) riders (“GMLB Riders”) reflect (i) changes in the carrying value of GMLB liabilities, including GMIBs, GMWBs and GMABs, and Shield Annuities; (ii) changes in the estimated fair value of the related hedges, as well as any ceded reinsurance of the liabilities; (iii) the fees earned from the GMLB liabilities; and (iv) the effects of DAC amortization related to the preceding components.
Other Derivative Instruments. We have other derivative instruments, in addition to the hedges and embedded derivatives included in the GMLB Riders, for which changes in estimated fair value are recognized in net derivative gains (losses).
Freestanding Derivatives. We have freestanding derivatives that economically hedge certain invested assets and insurance liabilities. The majority of this hedging activity, excluding the GMLB Riders, is focused in the following areas:
as part of the Company’s macro interest rate hedging program, the use of interest rate swaps, swaptions, and interest rate forwards in connection with ULSG;
use of interest rate swaps when we have duration mismatches where suitable assets with maturities similar to those of our long-dated liabilities are not readily available in the market and use of interest rate forwards hedging reinvestment risk from maturing assets with higher yields than currently available in the market that support long-dated liabilities;
use of foreign currency swaps when we hold fixed maturity securities denominated in foreign currencies that are matching insurance liabilities denominated in U.S. dollars; and
use of equity index options to hedge index-linked annuity products against adverse changes in equity markets.
The market impacts on the hedges are accounted for in net income (loss) while the offsetting economic impact on the items they are hedging are either not recognized or recognized through OCI in equity.
Embedded Derivatives. Certain ceded reinsurance agreements are written on a coinsurance with funds withheld basis. The funds withheld component is accounted for as an embedded derivative with changes in the estimated fair value recognized in net income (loss) in the period in which they occur. In addition, the changes in liability values of our fixed index-linked annuity products that result from changes in the underlying equity index are accounted for as embedded derivatives.
Pre-tax Adjusted Earnings. As more fully described in “— Non-GAAP Disclosures,” we use adjusted earnings, which does not equate to net income (loss) available to shareholders, as determined in accordance with GAAP. We believe that the presentation of adjusted earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results. Adjusted earnings should not be viewed as a substitute for net income (loss).
Year Ended December 31, 2019 Compared with the Year Ended December 31, 2018
Net loss before provision for income tax was $1.1 billion ($809 million, net of income tax), a decrease of $2.3 billion ($1.8 billion, net of income tax) from net income before provision for income tax of $1.1 billion ($967 million, net of income tax) in the prior period.
The decrease in income before provision for income tax was driven by the following key unfavorable items:

48


losses from GMLB Riders in the current period, compared to gains in the prior period, see GMLB Riders for the Years Ended December 31, 2019 and 2018;”
lower pre-tax adjusted earnings, discussed in greater detail below; and
higher policyholder benefits and claims, included in other adjustments, resulting from the adjustment for market performance related to participating products in our run-off business.
The decrease in income before provision for income tax was partially offset by the following key favorable items:
current period gains on interest rate derivatives used to manage interest rate exposure in our ULSG business due to declining long-term interest rates; and
the change in net investment gains (losses) reflecting:
current period net gains on sales of fixed maturity securities compared to prior period losses;
current period net mark-to-market gains on equity securities compared to prior period net losses;
partially offset by
prior period net gains on limited partnership interests.
The provision for income tax in the current period led to an effective tax rate of 29%, compared to 14% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.
Reconciliation of Net Income (Loss) to Adjusted Earnings
The following table reconciles net income (loss) to adjusted earnings:
 
Years Ended December 31,
 
2019
 
2018
 
(In millions)
Net income (loss) attributable to Brighthouse Life Insurance Company
$
(809
)
 
$
967

Add: Provision for income tax expense (benefit)
(338
)
 
153

Net income (loss) before provision for income tax
(1,147
)
 
1,120

Less: GMLB Riders
(2,533
)
 
383

Less: Other derivative instruments
638

 
(202
)
Less: Net investment gains (losses)
92

 
(204
)
Less: Other adjustments
(1
)
 
41

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests
657

 
1,102

Less: Provision for income tax expense (benefit)
41

 
157

Adjusted earnings
$
616

 
$
945


49


Consolidated Results for the Years Ended December 31, 2019 and 2018 - Adjusted Earnings
The following table presents the components of adjusted earnings:
 
Years Ended December 31,
 
2019

2018
 
(In millions)
Fee income
$
2,992

 
$
3,213

Net investment spread
1,608

 
1,371

Insurance-related activities
(1,568
)
 
(1,125
)
Amortization of DAC and VOBA
(565
)
 
(593
)
Other expenses, net of DAC capitalization
(1,809
)
 
(1,763
)
Less: Net income (loss) attributable to noncontrolling interests
1

 
1

Pre-tax adjusted earnings, less net income (loss) attributable to noncontrolling interests
657

 
1,102

Provision for income tax expense (benefit)
41

 
157

Adjusted earnings
$
616

 
$
945

Year Ended December 31, 2019 Compared with the Year Ended December 31, 2018
Adjusted earnings were $616 million, a decrease of $329 million.
Key net unfavorable impacts were:
higher costs associated with insurance-related activities due to an increase in liability balances resulting from changes in connection with the AAR, net of the impact of recapture transactions in both the current and prior period;
lower fee income due to lower asset-based fees resulting from lower average separate account balances; and
higher other expenses due to:
an increase in the allocation of corporate expenses in the current period; and
interest expense on affiliated surplus notes;
partially offset by    
lower establishment costs in the current period related to planned technology expenses; and
the exit of various transition service agreements with MetLife.
Key favorable impacts were:
higher net investment spread reflecting:
higher average invested assets resulting from positive net flows in the general account; and
higher investment income due to the repositioning of the investment portfolio out of U.S. Treasuries into higher yielding assets in the prior period;
partially offset by    
lower net investment income from other limited partnerships for the comparative measurement period; and
lower amortization of DAC and VOBA, primarily in our life business, due to the impact on gross profits in the current period from higher separate account growth and lower policyholder benefits and claims, partially offset by an unfavorable impact in the current period in connection with the AAR.    
Certain one-time tax adjustments recognized in the current period, primarily due to a revaluation of certain Separation-related liabilities resulted in an unusually low effective tax rate of 6% compared to 14% in the prior period. In addition to such one-time tax adjustments, our effective tax rate differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.

50


GMLB Riders for the Years Ended December 31, 2019 and 2018
The following table presents the overall impact to income (loss) before provision for income tax from the performance of GMLB Riders, which includes (i) changes in carrying value of the GAAP liabilities, (ii) the mark-to-market of hedges and reinsurance, (iii) fees and (iv) associated DAC offsets.
 
Years Ended December 31,
 
2019
 
2018
 
(In millions)
Liabilities (1)
$
(1,870
)
 
$
(405
)
Hedges
(1,592
)
 
375

Ceded reinsurance
(12
)
 
(2
)
Fees (2)
815

 
836

GMLB DAC
126

 
(421
)
Total GMLB Riders
$
(2,533
)
 
$
383

_______________
(1)
Includes cumulative changes in estimated fair value of the Shield Annuities embedded derivatives of ($1.6) billion and $358 million for the years ended December 31, 2019 and 2018, respectively.
(2)
Excludes living benefit fees, included as a component of adjusted earnings, of $63 million and $68 million for the years ended December 31, 2019 and 2018, respectively.
GMLB Liabilities. Liabilities reported as part of GMLB Riders (“GMLB Liabilities”) include (i) guarantee rider benefits accounted for as embedded derivatives, (ii) guarantee rider benefits accounted for as insurance and (iii) Shield Annuities embedded derivatives. Liabilities related to guarantee rider benefits represent our obligation to protect policyholders against the possibility that a downturn in the markets will reduce the specified benefits that can be claimed under the base annuity contract. Any periods of significant and/or sustained downturns in equity markets, increased equity volatility, or reduced interest rates could result in an increase in the valuation of these liabilities. An increase in these liabilities would result in a decrease to our net income (loss), which could be significant. Shield Annuities currently offered provide the ability for the contract holder to participate in the appreciation of certain financial markets up to a stated level, while offering protection from a portion of declines in the applicable indices or benchmark. We believe that Shield Annuities provide us with risk offset to liabilities related to guarantee rider benefits.
GMLB Hedges and Reinsurance. We enter into freestanding derivatives to hedge the market risks inherent in the GMLB Liabilities. Generally, the same market factors that impact the estimated fair value of the guarantee rider embedded derivatives impact the value of the hedges, though in the opposite direction. However, the changes in value of the GMLB Liabilities and related hedges may not be symmetrical and the divergence could be significant due to certain factors, such as the guarantee riders accounted for as insurance are not recognized at estimated fair value and there are unhedged risks within the GMLB Liabilities. We may also use reinsurance to manage our exposure related to the GMLB Liabilities.
GMLB Fees. We earn fees from the guarantee rider benefits, which are calculated based on benefits that provide the policyholder a minimum return based on their initial deposit (the “ Benefit Base”). Fees calculated based on the Benefit Base are more stable in market downturns, compared to fees based on the account value because the Benefit Base excludes the impact of a decline in the market value of the policyholder’s account value. We use the fees directly earned from the guarantee riders to fund the reserves, future claims and costs associated with the hedges of market risks inherent in these liabilities. For guarantee rider embedded derivatives, the future fees are included in the estimated fair value of the embedded derivative liabilities, with changes recorded in net derivative gains (losses). For guarantee rider benefits accounted for as insurance, while the related fees do affect the valuation of these liabilities, they are not included in the resulting liability values, but are recorded separately in universal life and investment-type policy fees.
GMLB DAC. Changes in the estimated fair value of GMLB Liabilities that are accounted for as embedded derivatives result in a corresponding recognition of DAC amortization that generally has an inverse effect on net income (loss), which we refer to as the DAC offset. While the DAC offset is generally the most significant driver of GMLB DAC, it can be impacted by other adjustments including amortization related to guarantee benefit riders accounted for as insurance.
Year Ended December 31, 2019 Compared with the Year Ended December 31, 2018
Comparative results from GMLB Riders were unfavorable by $2.9 billion, primarily driven by:
a net unfavorable change in the GMLB hedges; and

51


unfavorable changes in Shield liability reserves,
partially offset by:
favorable changes in GMLB DAC.
Higher relative equity markets in the current period significantly impacted the following:
unfavorable changes to the estimated fair value of our GMLB hedges;
unfavorable changes to the estimated fair value of the Shield liability reserves, net of favorable changes to the estimated fair value of the related hedges; and
unfavorable changes in GMLB DAC;
partially offset by
favorable changes to the estimated fair value of the variable annuity liability reserve.
Lower interest rates in the current period significantly impacted the following:
favorable changes to the estimated fair value of our GMLB hedges; and
favorable changes to GMLB DAC;
partially offset by
unfavorable changes to the estimated fair value of variable annuity liability reserves.
The tightening of our credit default swap spreads combined with the decrease in the underlying base liabilities resulted in an unfavorable change in non-performance risk net of a favorable change in the GMLB DAC offset.
The AAR resulted in favorable changes in the current period primarily due to higher reserves recognized in the prior period, net of a corresponding decrease in GMLB DAC relative to the prior period.
Effects of Inflation
Management believes that inflation has not had a material effect on the Company’s results of operations, except insofar as inflation may affect interest rates.
An increase in inflation could affect our business in several ways. During inflationary periods, the value of fixed income investments falls which could increase realized and unrealized losses. Inflation also increases expenses for labor and other materials, potentially putting pressure on profitability if such costs cannot be passed through in our product prices. Prolonged and elevated inflation could adversely affect the financial markets and the economy generally and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic activity, inhibit revenue growth and reduce the number of attractive investment opportunities.
Off-Balance Sheet Arrangements
Collateral for Securities Lending and Derivatives
We have a securities lending program for the purpose of enhancing the total return on our investment portfolio. Periodically, we receive non-cash collateral for securities lending from counterparties, which cannot be sold or re-pledged, and which is not recorded on our consolidated balance sheets. The Company did not hold non-cash collateral at December 31, 2019. The amount of this collateral was $55 million at estimated fair value at December 31, 2018. See Note 7 of the Notes to the Consolidated Financial Statements for discussion of our securities lending program, the classification of revenues and expenses, and the nature of the secured financing arrangement and associated liability.
We enter into derivatives to manage various risks relating to our ongoing business operations. We have non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which has not been recorded on our consolidated balance sheets. The amount of this non-cash collateral was $593 million and $141 million at December 31, 2019 and 2018, respectively. See Note 8 of the Notes to the Consolidated Financial Statements for information regarding the earned income on and the gross notional amount, estimated fair value of assets and liabilities and primary underlying risk exposure of our derivatives.
Guarantees
See “Guarantees” in Note 14 of the Notes to the Consolidated Financial Statements.

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Other
Additionally, we enter into commitments for the purpose of enhancing the total return on our investment portfolio: mortgage loan commitments and commitments to fund partnership investments, bank credit facilities and private corporate bond investments. See Note 7 of the Notes to the Consolidated Financial Statements for information on the investment income, investment expense, gains and losses from such investments, as well as for information on our investments in fixed maturity securities and mortgage loans.
Other than the commitments disclosed in Note 14 of the Notes to the Consolidated Financial Statements, there are no other material obligations or liabilities arising from the commitments to fund mortgage loans, partnership investments, bank credit facilities and private corporate bond investments.
Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments. Amounts for actuarial liabilities are computed and reported in the financial statements in conformity with GAAP. For more details on policyholder liabilities, see “— Summary of Critical Accounting Estimates.”
Due to the nature of the underlying risks and the uncertainty associated with the determination of actuarial liabilities, we cannot precisely determine the amounts that will ultimately be paid with respect to these actuarial liabilities, and the ultimate amounts may vary from the estimated amounts, particularly when payments may not occur until well into the future.
We periodically review the assumptions supporting our estimates of actuarial liabilities for future policy benefits. We revise estimates, to the extent permitted or required under GAAP, if we determine that future expected experience differs from assumptions used in the development of actuarial liabilities. We charge or credit changes in our liabilities to expenses in the period the liabilities are established or re-estimated. If the liabilities originally established for future benefit payments prove inadequate, we must increase them. Such an increase could adversely affect our earnings and have a material adverse effect on our business, results of operations and financial condition.
We have experienced, and will likely in the future experience, catastrophe losses and possibly acts of terrorism, as well as turbulent financial markets that may have an adverse impact on our business, results of operations, and financial condition. Due to their nature, we cannot predict the incidence, timing, severity or amount of losses from catastrophes and acts of terrorism, but we make broad use of catastrophic and non-catastrophic reinsurance to manage risk from these perils.
Liquidity and Capital Resources
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility or disruptions in global capital markets, particular markets or financial asset classes can impact us adversely, in part because we have a large investment portfolio and our insurance liabilities and derivatives are sensitive to changing market factors.
Liquidity and Capital Management
Based upon our capitalization, expectations regarding maintaining our business mix, ratings and funding sources available to us, we believe we have sufficient liquidity to meet business requirements under current market conditions and certain stress scenarios. We continuously monitor and adjust our liquidity and capital plans in light of market conditions, as well as changing needs and opportunities.
We maintain a substantial short-term liquidity position, which was $2.0 billion and $1.5 billion at December 31, 2019 and 2018, respectively. Short-term liquidity is comprised of cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, derivatives and assets held on deposit or in trust.
An integral part of our liquidity management includes managing our level of liquid assets, which was $41.0 billion and $35.9 billion at December 31, 2019 and 2018, respectively. Liquid assets are comprised of cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, derivatives and assets held on deposit or in trust.

53


Rating Agencies
The following financial strength ratings represent each rating agency’s current opinion of our ability to pay obligations under insurance policies and contracts in accordance with their terms and are not evaluations directed toward the protection of investors in our securities. Financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell any security, contract or policy. Each rating should be evaluated independently of any other rating.
Our financial strength ratings as of the date of this filing are indicated in the following table. All financial strength ratings have a stable outlook.
 
A.M. Best
 
Fitch
 
Moody’s
 
S&P
 
“A++ (superior)” to “S (suspended)”
 
“AAA (exceptionally strong)” to “C (distressed)”
 
“Aaa (highest quality)” to “C (lowest rated)”
 
“AAA (extremely strong)” to “SD (Selective Default)” or “D (Default)”
Brighthouse Life Insurance Company
A
 
A
 
A3
 
A+
3rd of 16
 
6th of 19
 
7th of 21
 
5th of 22
Brighthouse Life Insurance Company of NY
A
 
NR
 
NR
 
A+
3rd of 16
 
 
 
 
 
5th of 22
______________
NR = Not rated
Additional information about financial strength ratings can be found on the respective websites of the rating agencies.
Rating agencies may continue to review and adjust our ratings. See “Risk Factors — Risks Related to Our Business — A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and materially adversely affect our financial condition and results of operations” for an in-depth description of the impact of a ratings downgrade.
Sources and Uses of Liquidity and Capital
Cash Flows from Operating Activities
The principal cash inflows from our insurance activities come from insurance premiums, annuity considerations and net investment income. The principal cash outflows are the result of various annuity and life insurance products, operating expenses and income tax, as well as interest expense. The primary liquidity concern with respect to these cash flows is the risk of early contract holder and policyholder withdrawal.
Cash Flows from Investing Activities
The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments and settlements of freestanding derivatives. We typically can have a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our Asset Liability Management (“ALM”) discipline to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption.
Cash Flows from Financing Activities
The principal cash inflows from our financing activities come from capital contributions from our parent, BH Holdings, issuances of debt, deposits of funds associated with policyholder account balances and lending of securities. The principal cash outflows come from repayments of debt, withdrawals associated with policyholder account balances and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal.
Primary Sources of Liquidity and Capital
In addition to the summary description of liquidity and capital sources discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary sources of liquidity and capital:

54


Federal Home Loan Bank Funding Agreements, Reported in Policyholder Account Balances
Brighthouse Life Insurance Company is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta and maintains a funding agreement program with certain FHLBs. At both December 31, 2019 and 2018, Brighthouse Life Insurance Company had obligations outstanding under funding agreements with certain FHLBs of $595 million. During the years ended December 31, 2019, 2018 and 2017, Brighthouse Life Insurance Company issued $0, $0 and $25 million, respectively, and repaid $0, $0 and $75 million, respectively, under such funding agreements. Activity related to these funding agreements is reported in the Run-off segment.
Farmer Mac Funding Agreements, Reported in Policyholder Account Balances
On February 1, 2019, Brighthouse Life Insurance Company entered into a funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”), pursuant to which the parties may enter into funding agreements in an aggregate amount of up to $500 million. At December 31, 2019, there were no borrowings under this funding agreement program. Activity related to these funding agreements is reported in the Run-off segment.
Long-term Debt Issued
On March 25, 2019, Brighthouse Life Insurance Company issued a $412 million surplus note due March 2059 to BH Holdings, which bears interest at a fixed rate of 8.07%, payable annually. Payments of interest and principal on this surplus note may be made only with the prior approval of the Delaware Department of Insurance.
On December 28, 2018, Brighthouse Life Insurance Company issued a $200 million surplus note due December 2058 to NELICO (the “December 2058 Surplus Note”) in exchange for $28 million of cash and $172 million of invested assets, primarily fixed maturity securities. The December 2058 Surplus Note bears interest at a fixed rate of 8.15%, payable annually. On December 21, 2018, with the prior approval of the Commonwealth of Massachusetts Division of Insurance, NELICO distributed the December 2058 Surplus Note to BH Holdings via a non-cash extraordinary dividend. Payments of interest and principal on the December 2058 Surplus Note may be made only with the prior approval of the Delaware Department of Insurance.
On September 28, 2018, Brighthouse Life Insurance Company issued a $200 million surplus note due September 2058 to BH Holdings (the “September 2058 Surplus Note”) in exchange for cash, which bears interest at a fixed rate of 7.80%, payable annually. Payments of interest and principal on the September 2058 Surplus Note may be made only with the prior approval of the Delaware Department of Insurance.
Repurchase Facility
In April 2018, Brighthouse Life Insurance Company entered into a secured committed repurchase facility (the “Repurchase Facility”) with a financial institution, pursuant to which Brighthouse Life Insurance Company may enter into repurchase transactions in an aggregate amount of up to $2.0 billion. The Repurchase Facility has a term ending on July 31, 2021. Under the Repurchase Facility, Brighthouse Life Insurance Company may sell certain eligible securities at a purchase price based on the market value of the securities less an applicable margin based on the types of securities sold, with a concurrent agreement to repurchase such securities at a predetermined future date (ranging from two weeks to three months) and at a price which represents the original purchase price plus interest. At December 31, 2019, there were no borrowings under the Repurchase Facility.
Reinsurance Financing Arrangement
Our reinsurance subsidiary, BRCD, was formed to manage our capital and risk exposures and to support our term and ULSG businesses through the use of affiliated reinsurance arrangements and related reserve financing. At December 31, 2019, BRCD had a $10.0 billion financing arrangement with a pool of highly rated third-party reinsurers. This financing arrangement consists of credit-linked notes that each mature in 2037. At December 31, 2019, there were no borrowings under this facility, and there was $10.0 billion of funding available under this financing arrangement.
Primary Uses of Liquidity and Capital
In addition to the summarized description of liquidity and capital uses discussed in “— Sources and Uses of Liquidity and Capital,” the following additional information is provided regarding our primary uses of liquidity and capital:
Insurance Liabilities
Liabilities arising from our insurance activities primarily relate to benefit payments under various annuity and life insurance products, as well as payments for policy surrenders, withdrawals and loans. Surrender or lapse behavior differs somewhat by

55


product, but tends to occur in the ordinary course of business. During the years ended December 31, 2019 and 2018, general account surrenders and withdrawals totaled $2.2 billion and $2.3 billion respectively.
Pledged Collateral
We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At December 31, 2019 and 2018, counterparties were obligated to return cash collateral pledged by us of $0 and $64 million, respectively. At December 31, 2019 and 2018, we were obligated to return cash collateral pledged to us by counterparties of $1.3 billion and $1.4 billion, respectively. See Note 8 of the Notes to the Consolidated Financial Statements for additional information about pledged collateral. We also pledge collateral from time to time in connection with funding agreements.
Securities Lending
We have a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities are returned to us. Under our securities lending program, we were liable for cash collateral under our control of $3.1 billion and $3.6 billion at December 31, 2019 and 2018, respectively. Of these amounts, $1.3 billion and $1.5 billion at December 31, 2019 and 2018, respectively, were on open, meaning that the related loaned security could be returned to us on the next business day requiring the immediate return of cash collateral we hold. The estimated fair value of the securities on loan related to the cash collateral on open at December 31, 2019 was $1.2 billion, all of which were U.S. government and agency securities which, if put back to us, could be immediately sold to satisfy the cash requirement. See Note 7 of the Notes to the Consolidated Financial Statements.

56


Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Risk Management
We have an integrated process for managing risk exposures, which is coordinated among our Risk Management, Finance and Investment Departments. The process is designed to assess and manage exposures on a consolidated company-wide basis. Brighthouse Financial, Inc. has established a Balance Sheet Committee (“BSC”). The BSC is responsible for periodically reviewing all material financial risks to us and, in the event risks exceed desired tolerances, informs the Finance and Risk Committee of the Brighthouse Financial, Inc. Board of Directors, considers possible courses of action and determines how best to resolve or mitigate such risks. In taking such actions, the BSC considers industry best practices and the current economic environment. The BSC also reviews and approves target investment portfolios in order to align them with our liability profile and establishes guidelines and limits for various risk-taking departments, such as the Investment Department. Our Finance Department and our Investment Department, together with Risk Management, are responsible for coordinating our ALM strategies throughout the enterprise. The membership of the BSC is comprised of the following members of Brighthouse’s senior management: Chief Executive Officer, Chief Risk Officer, Chief Financial Officer, Chief Operating Officer and Chief Investment Officer.
Our significant market risk management practices include, but are not limited to, the following:
Managing Interest Rate Risk
We manage interest rate risk as part of our asset and liability management strategies, which include (i) maintaining an investment portfolio that has a weighted average duration approximately equal to the duration of our estimated liability cash flow profile, and (ii) maintaining hedging programs, including a macro interest rate hedging program. For certain of our liability portfolios, it is not possible to invest assets to the full liability duration, thereby creating some asset/liability mismatch. Where a liability cash flow may exceed the maturity of available assets, as is the case with certain retirement products, we may support such liabilities with equity investments, derivatives or other mismatch mitigation strategies. Although we take measures to manage the economic risks of investing in a changing interest rate environment, we may not be able to mitigate completely the interest rate or other mismatch risk of our fixed income investments relative to our interest rate sensitive liabilities. The level of interest rates also affects our liabilities for benefits under our annuity contracts. As interest rates decline, we may need to increase our reserves for future benefits under our annuity contracts, which would adversely affect our results of operations and financial condition.
We also employ product design and pricing strategies to mitigate the potential effects of interest rate movements. These strategies include the use of surrender charges or restrictions on withdrawals in some products and the ability to reset crediting rates for certain products.
We analyze interest rate risk using various models, including multi-scenario cash flow projection models that forecast cash flows of the liabilities and their supporting investments, including derivatives. These projections involve evaluating the potential gain or loss on most of our in-force business under various increasing and decreasing interest rate environments. State insurance department regulations require that we perform some of these analyses annually as part of our review of the sufficiency of our regulatory reserves. We measure relative sensitivities of the value of our assets and liabilities to changes in key assumptions using internal models. These models reflect specific product characteristics and include assumptions based on current and anticipated experience regarding lapse, mortality and interest crediting rates. In addition, these models include asset cash flow projections reflecting interest payments, sinking fund payments, principal payments, bond calls, prepayments and defaults.
We also use common industry metrics, such as duration and convexity, to measure the relative sensitivity of asset and liability values to changes in interest rates. In computing the duration of liabilities, we consider all policyholder guarantees and how indeterminate policy elements such as interest credits or dividends are set. Each asset portfolio has a duration target based on the liability duration and the investment objectives of that portfolio.
Managing Equity Market and Foreign Currency Risks
We manage equity market risk in a coordinated process across our Investment and Finance Departments primarily by holding sufficient capital to permit us to absorb modest losses, which may be temporary, from changes in equity markets and interest rates without adversely affecting our financial strength ratings and through the use of derivatives, such as equity futures, equity index options contracts, equity variance swaps and equity total return swaps. We may also employ reinsurance strategies to manage these exposures. Key management objectives include limiting losses, minimizing exposures to significant risks and providing additional capital capacity for future growth. The Investment and Finance Departments are also responsible for managing the exposure to foreign currency denominated investments. We use foreign currency swaps and forwards to

57


mitigate the exposure, risk of loss and financial statement volatility associated with foreign currency denominated fixed income investments.
Market Risk - Fair Value Exposures
We regularly analyze our market risk exposure to interest rate, equity market price, credit spreads and foreign currency exchange rate risks. As a result of that analysis, we have determined that the estimated fair values of certain assets and liabilities are significantly exposed to changes in interest rates, and to a lesser extent, to changes in equity market prices and foreign currency exchange rates. We have exposure to market risk through our insurance and annuity operations and general account investment activities. For purposes of this discussion, “market risk” is defined as changes in estimated fair value resulting from changes in interest rates, equity market prices, credit spreads and foreign currency exchange rates. We may have additional financial impacts, other than changes in estimated fair value, which are beyond the scope of this discussion. See “Risk Factors” for additional disclosure regarding our market risk and related sensitivities.
Interest Rates
Our fair value exposure to changes in interest rates arises most significantly from our interest rate sensitive liabilities and our holdings of fixed maturity securities, mortgage loans and derivatives that are used to support our policyholder liabilities. Our interest rate sensitive liabilities include long-term debt, policyholder account balances related to certain investment type contracts, and embedded derivatives in variable annuity contracts with guaranteed minimum benefits. Our fixed maturity securities including U.S. and foreign government bonds, securities issued by government agencies, corporate bonds, mortgage-backed and other ABS, and our commercial, agricultural and residential mortgage loans, are exposed to changes in interest rates. We also use derivatives including swaps, caps, floors, forwards and options to mitigate the exposure related to interest rate risks from our product liabilities.
Equity Market
Along with investments in equity securities, we have fair value exposure to equity market risk through certain liabilities that involve long-term guarantees on equity performance such as embedded derivatives in variable annuity contracts with guaranteed minimum benefits, as well as certain policyholder account balances. In addition, we have exposure to equity markets through derivatives including options and swaps that we enter into to mitigate potential equity market exposure from our product liabilities.
Foreign Currency Exchange Rates
Our fair value exposure to fluctuations in foreign currency exchange rates against the U.S. dollar results from our holdings in non-U.S. dollar denominated fixed maturity securities, mortgage loans and certain liabilities. The principal currencies that create foreign currency exchange rate risk in our investment portfolios and liabilities are the Euro and the British pound. We economically hedge substantially all of our foreign currency exposure.
Risk Measurement: Sensitivity Analysis
In the following discussion and analysis, we measure market risk related to our market sensitive assets and liabilities based on changes in interest rates, equity market prices and foreign currency exchange rates using a sensitivity analysis. This analysis estimates the potential changes in estimated fair value based on a hypothetical 100 basis point change (increase or decrease) in interest rates, or a 10% change in equity market prices or foreign currency exchange rates. We believe that these changes in market rates and prices are reasonably possible in the near term. In performing the analysis summarized below, we used market rates as of December 31, 2019. We modeled the impact of changes in market rates and prices on the estimated fair values of our market sensitive assets and liabilities as follows:
the estimated fair value of our interest rate sensitive exposures resulting from a 100 basis point change (increase or decrease) in interest rates;
the estimated fair value of our equity positions due to a 10% change (increase or decrease) in equity market prices; and
the U.S. dollar equivalent of estimated fair values of our foreign currency exposures due to a 10% change (increase in the value of the U.S. dollar compared to the foreign currencies or decrease in the value of the U.S. dollar compared to the foreign currencies) in foreign currency exchange rates.

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The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. Our actual losses in any particular period may vary from the amounts indicated in the table below. Limitations related to this sensitivity analysis include: 
interest sensitive liabilities do not include $41.9 billion of insurance contracts, which are accounted for on a book value basis. Management believes that the changes in the economic value of those contracts under changing interest rates would offset a significant portion of the fair value changes of interest sensitive assets;
the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the impact of prepayment rates on mortgage loans;
foreign currency exchange rate risk is not isolated for certain embedded derivatives within host asset and liability contracts, as the risk on these instruments is reflected as equity;
for derivatives that qualify for hedge accounting, the impact on reported earnings may be materially different from the change in market values;
the analysis excludes limited partnership interests; and
the model assumes that the composition of assets and liabilities remains unchanged throughout the period.
Accordingly, we use such models as tools and not as substitutes for the experience and judgment of our management.
The table below illustrates the potential loss in estimated fair value of our interest sensitive financial instruments due to a 100 basis point increase in the yield curve by type of asset and liability as of: 
 
 
Notional Amount
 
Estimated Fair Value (1)
 
100 Basis Point Increase
in the Yield
Curve
 
(In millions)
Financial assets with interest rate risk
 
 
 
 
 
Fixed maturity securities
 
 
$
69,977

 
$
(6,173
)
Mortgage loans
 
 
$
16,291

 
(878
)
Policy loans
 
 
$
983

 
(45
)
Premiums, reinsurance and other receivables
 
 
$
2,468

 
(186
)
Embedded derivatives within asset host contracts (2)
 
 
$
217

 
(68
)
   Increase (decrease) in estimated fair value of assets
 
 
 
 
(7,350
)
 
 
 
 
 
 
Financial liabilities with interest rate risk (3)
 
 
 
 
 
Policyholder account balances
 
 
$
15,576

 
871

Long-term debt
 
 
$
942

 
49

Other liabilities
 
 
$
946

 
4

Embedded derivatives within liability host contracts (2)
 
 
$
4,582

 
1,057

   (Increase) decrease in estimated fair value of liabilities
 
 
 
 
1,981

 
 
 
 
 
 
Derivative instruments with interest rate risk
 
 
 
 
 
Interest rate contracts
$
46,497

 
$
1,448

 
(2,308
)
Foreign currency contracts
$
3,879

 
$
227

 
(10
)
Equity contracts
$
61,368

 
$
(1,243
)
 
(4
)
   Increase (decrease) in estimated fair value of derivative instruments
 
 
 
 
(2,322
)
Net change
 
 
 
 
$
(7,691
)
_______________ 
(1)
Separate account assets and liabilities, which are interest rate sensitive, are not included herein as any interest rate risk is borne by the contract holder.
(2)
Embedded derivatives are recognized in the consolidated balance sheet in the same caption as the host contract.

59


(3)
Excludes $41.9 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances. Management believes that the changes in the economic value of those contracts under changing interest rates would offset a significant portion of the fair value changes of interest sensitive assets.
Sensitivity Summary
Sensitivity to rising interest rates increased by $1.7 billion, or 29%, to $7.7 billion as of December 31, 2019 from $6.0 billion as of December 31, 2018, primarily as a result of lower interest rates increasing the estimated fair value of both interest rate derivative contracts and fixed maturity securities, in line with management expectations.
Sensitivity to a 10% rise in equity prices increased by $151 million, or 22%, to $832 million as of December 31, 2019 from $681 million at December 31, 2018. Beginning in 2019, we included our embedded derivatives in index-linked annuity liabilities in the sensitivity analysis, and revised the 2018 sensitivity to include such liabilities.
As previously mentioned, we economically hedge substantially all of our foreign currency exposure such that the Company’s sensitivity to changes in foreign currencies is minimal.

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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements, Notes and Schedules

61


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Brighthouse Life Insurance Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Brighthouse Life Insurance Company and subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income (loss), stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and the schedules listed in the Index to Consolidated Financial Statements, Notes and Schedules (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ DELOITTE & TOUCHE LLP
Charlotte, North Carolina
March 4, 2020

We have served as the Company’s auditor since 2005.





62


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Consolidated Balance Sheets
December 31, 2019 and 2018
(In millions, except share and per share data)
 
 
2019
 
2018
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $63,083 and $59,672, respectively)
 
$
 i 69,977

 
$
 i 61,348

Equity securities, at estimated fair value
 
 i 147

 
 i 140

Mortgage loans (net of valuation allowances of $64 and $56, respectively)
 
 i 15,664

 
 i 13,596

Policy loans
 
 i 875

 
 i 1,001

Limited partnerships and limited liability companies
 
 i 2,379

 
 i 2,290

Short-term investments, principally at estimated fair value
 
 i 1,482

 
 i 

Other invested assets, principally at estimated fair value
 
 i 3,224

 
 i 3,037

Total investments
 
 i 93,748

 
 i 81,412

Cash and cash equivalents
 
 i 2,493

 
 i 3,494

Accrued investment income
 
 i 663

 
 i 704

Premiums, reinsurance and other receivables
 
 i 14,287

 
 i 13,113

Deferred policy acquisition costs and value of business acquired
 
 i 4,809

 
 i 5,086

Current income tax recoverable
 
 i 21

 
 i 1

Other assets
 
 i 464

 
 i 509

Separate account assets
 
 i 99,668

 
 i 91,511

Total assets
 
$
 i 216,153

 
$
 i 195,830

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Future policy benefits
 
$
 i 39,081

 
$
 i 35,588

Policyholder account balances
 
 i 45,121

 
 i 39,330

Other policy-related balances
 
 i 2,801

 
 i 2,728

Payables for collateral under securities loaned and other transactions
 
 i 4,374

 
 i 5,047

Long-term debt
 
 i 844

 
 i 434

Current income tax payable
 
 i 

 
 i 2

Deferred income tax liability
 
 i 1,301

 
 i 944

Other liabilities
 
 i 4,484

 
 i 3,455

Separate account liabilities
 
 i 99,668

 
 i 91,511

Total liabilities
 
 i 197,674

 
 i 179,039

Contingencies, Commitments and Guarantees (Note 14)
 
 i 
 
 i 
Equity
 
 
 
 
Brighthouse Life Insurance Company’s stockholder’s equity:
 
 
 
 
Common stock, par value $25,000 per share; 4,000 shares authorized; 3,000 shares issued and outstanding
 
 i 75

 
 i 75

Additional paid-in capital
 
 i 19,073

 
 i 19,073

Retained earnings (deficit)
 
( i 3,899
)
 
( i 3,090
)
Accumulated other comprehensive income (loss)
 
 i 3,215

 
 i 718

Total Brighthouse Life Insurance Company's stockholder's equity
 
 i 18,464

 
 i 16,776

Noncontrolling interests
 
 i 15

 
 i 15

Total equity
 
 i 18,479

 
 i 16,791

Total liabilities and equity
 
$
 i 216,153

 
$
 i 195,830

See accompanying notes to the consolidated financial statements.

63


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Consolidated Statements of Operations
For the Years Ended December 31, 2019, 2018 and 2017
(In millions)
 
 
2019
 
2018
 
2017
Revenues
 
 
 
 
 
 
Premiums
 
$
 i 847

 
$
 i 869

 
$
 i 828

Universal life and investment-type product policy fees
 
 i 2,982

 
 i 3,190

 
 i 3,156

Net investment income
 
 i 3,486

 
 i 3,235

 
 i 2,973

Other revenues
 
 i 266

 
 i 287

 
 i 336

Net investment gains (losses)
 
 i 92

 
( i 204
)
 
( i 27
)
Net derivative gains (losses)
 
( i 2,046
)
 
 i 745

 
( i 1,468
)
Total revenues
 
 i 5,627

 
 i 8,122

 
 i 5,798

Expenses
 
 
 
 
 
 
Policyholder benefits and claims
 
 i 3,538

 
 i 3,180

 
 i 3,594

Interest credited to policyholder account balances
 
 i 1,031

 
 i 1,047

 
 i 1,076

Amortization of deferred policy acquisition costs and value of business acquired
 
 i 395

 
 i 1,011

 
 i 916

Other expenses
 
 i 1,809

 
 i 1,763

 
 i 1,833

Total expenses
 
 i 6,773

 
 i 7,001

 
 i 7,419

Income (loss) before provision for income tax
 
( i 1,146
)
 
 i 1,121

 
( i 1,621
)
Provision for income tax expense (benefit)
 
( i 338
)
 
 i 153

 
( i 738
)
Net income (loss)
 
( i 808
)
 
 i 968

 
( i 883
)
Less: Net income (loss) attributable to noncontrolling interests
 
 i 1

 
 i 1

 
 i 

Net income (loss) attributable to Brighthouse Life Insurance Company
 
$
( i 809
)
 
$
 i 967

 
$
( i 883
)
See accompanying notes to the consolidated financial statements.

64


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2019, 2018 and 2017
(In millions)
 
 
2019
 
2018
 
2017
Net income (loss)
 
$
( i 808
)
 
$
 i 968

 
$
( i 883
)
Other comprehensive income (loss):
 
 
 
 
 
 
Unrealized investment gains (losses), net of related offsets
 
 i 3,167

 
( i 1,355
)
 
 i 590

Unrealized gains (losses) on derivatives
 
( i 21
)
 
 i 22

 
( i 166
)
Foreign currency translation adjustments
 
 i 12

 
( i 4
)
 
 i 9

  Other comprehensive income (loss), before income tax
 
 i 3,158

 
( i 1,337
)
 
 i 433

Income tax (expense) benefit related to items of other comprehensive income (loss)
 
( i 661
)
 
 i 297

 
 i 156

  Other comprehensive income (loss), net of income tax
 
 i 2,497

 
( i 1,040
)
 
 i 589

  Comprehensive income (loss)
 
 i 1,689

 
( i 72
)
 
( i 294
)
Less: Comprehensive income (loss) attributable to noncontrolling interests, net of income tax
 
 i 1

 
 i 1

 
 i 

  Comprehensive income (loss) attributable to Brighthouse Life Insurance Company
 
$
 i 1,688

 
$
( i 73
)
 
$
( i 294
)
See accompanying notes to the consolidated financial statements.

65


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Consolidated Statements of Equity
For the Years Ended December 31, 2019, 2018 and 2017
(In millions)

 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings (Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Brighthouse Life Insurance Company’s Stockholder’s Equity
 
Noncontrolling Interests
 
Total
Equity
 
$
 i 75

 
$
 i 18,461

 
$
( i 2,919
)
 
$
 i 1,248

 
$
 i 16,865

 
$
 i 

 
$
 i 16,865

Sale of operating joint venture interest to former affiliate
 
 
 
 i 202

 
 
 
 
 
 i 202

 
 
 
 i 202

Return of capital
 
 
 
( i 2,737
)
 
 
 
 
 
( i 2,737
)
 
 
 
( i 2,737
)
Capital contributions
 
 
 
 i 3,147

 
 
 
 
 
 i 3,147

 
 
 
 i 3,147

Change in noncontrolling interests
 
 
 
 
 
 
 
 
 
 i 

 
 i 15

 
 i 15

Net income (loss)
 
 
 
 
 
( i 883
)
 
 
 
( i 883
)
 
 
 
( i 883
)
Effect of change in accounting principle
 
 
 
 
 
( i 330
)
 
 i 330

 
 i 

 
 
 
 i 

Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
 i 259

 
 i 259

 
 
 
 i 259

 
 i 75

 
 i 19,073

 
( i 4,132
)
 
 i 1,837

 
 i 16,853

 
 i 15

 
 i 16,868

Cumulative effect of change in accounting principle and other, net of income tax
 
 
 
 
 
 i 75

 
( i 79
)
 
( i 4
)
 
 
 
( i 4
)
Balance at January 1, 2018
 
 i 75

 
 i 19,073

 
( i 4,057
)
 
 i 1,758

 
 i 16,849

 
 i 15

 
 i 16,864

Change in noncontrolling interests
 
 
 
 
 
 
 
 
 
 i 

 
( i 1
)
 
( i 1
)
Net income (loss)
 
 
 
 
 
 i 967

 
 
 
 i 967

 
 i 1

 
 i 968

Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
( i 1,040
)
 
( i 1,040
)
 
 
 
( i 1,040
)
 
 i 75

 
 i 19,073

 
( i 3,090
)
 
 i 718

 
 i 16,776

 
 i 15

 
 i 16,791

Change in noncontrolling interests
 
 
 
 
 
 
 
 
 
 i 

 
( i 1
)
 
( i 1
)
Net income (loss)
 
 
 
 
 
( i 809
)
 
 
 
( i 809
)
 
 i 1

 
( i 808
)
Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
 i 2,497

 
 i 2,497

 
 
 
 i 2,497

 
$
 i 75

 
$
 i 19,073

 
$
( i 3,899
)
 
$
 i 3,215

 
$
 i 18,464

 
$
 i 15

 
$
 i 18,479


See accompanying notes to the consolidated financial statements.

66


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2019, 2018 and 2017
(In millions)


2019

2018

2017
Cash flows from operating activities









Net income (loss)

$
( i 808
)

$
 i 968


$
( i 883
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:









Amortization of premiums and accretion of discounts associated with investments, net

( i 275
)

( i 259
)

( i 271
)
(Gains) losses on investments, net

( i 92
)

 i 204


 i 27

(Gains) losses on derivatives, net
 
 i 2,592

 
( i 102
)
 
 i 3,084

(Income) loss from equity method investments, net of dividends and distributions

 i 70


( i 66
)

( i 50
)
Interest credited to policyholder account balances

 i 1,031


 i 1,047


 i 1,076

Universal life and investment-type product policy fees

( i 2,982
)

( i 3,190
)

( i 3,156
)
Change in accrued investment income

 i 85


( i 177
)

( i 80
)
Change in premiums, reinsurance and other receivables

( i 739
)

( i 224
)

 i 55

Change in deferred policy acquisition costs and value of business acquired, net

 i 25


 i 689


 i 660

Change in income tax

( i 326
)

 i 1,111


 i 

Change in other assets

 i 1,947


 i 2,077


 i 2,201

Change in future policy benefits and other policy-related balances

 i 1,696


 i 1,386


 i 1,522

Change in other liabilities

 i 63


 i 94


( i 314
)
Other, net

 i 51


 i 63


 i 75

Net cash provided by (used in) operating activities

 i 2,338


 i 3,621


 i 3,946

Cash flows from investing activities









Sales, maturities and repayments of:









Fixed maturity securities

 i 13,358


 i 15,621


 i 16,409

Equity securities

 i 57


 i 22


 i 97

Mortgage loans

 i 1,528


 i 793


 i 761

Limited partnerships and limited liability companies

 i 302


 i 274


 i 339

Purchases of:









Fixed maturity securities

( i 16,406
)

( i 16,427
)

( i 17,811
)
Equity securities

( i 22
)

( i 2
)

( i 2
)
Mortgage loans

( i 3,609
)

( i 3,890
)

( i 2,044
)
Limited partnerships and limited liability companies

( i 463
)

( i 358
)

( i 531
)
Cash received in connection with freestanding derivatives

 i 2,040


 i 1,802


 i 1,859

Cash paid in connection with freestanding derivatives

( i 2,638
)

( i 2,938
)

( i 3,829
)
Issuance of loan to affiliate
 
 i 

 
( i 2
)
 
 i 

Sale of operating joint venture interest to a former affiliate
 
 i 

 
 i 

 
 i 42

Net change in policy loans

 i 126


 i 105


( i 14
)
Net change in short-term investments

( i 1,470
)

 i 269


 i 1,057

Net change in other invested assets

 i 36


( i 17
)

( i 16
)
Net cash provided by (used in) investing activities

$
( i 7,161
)

$
( i 4,748
)

$
( i 3,683
)
See accompanying notes to the consolidated financial statements.

67


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31, 2019, 2018 and 2017
(In millions)
 
 
2019
 
2018
 
2017
Cash flows from financing activities
 
 
 
 
 
 
Policyholder account balances:
 
 
 
 
 
 
Deposits
 
$
 i 7,111

 
$
 i 5,899

 
$
 i 4,381

Withdrawals
 
( i 2,773
)
 
( i 3,400
)
 
( i 3,114
)
Net change in payables for collateral under securities loaned and other transactions
 
( i 673
)
 
 i 889

 
( i 3,139
)
Long-term debt issued
 
 i 412

 
 i 228

 
 i 

Long-term debt repaid
 
( i 2
)
 
( i 9
)
 
( i 13
)
Return of capital
 
 i 

 
 i 

 
( i 3,425
)
Capital contribution
 
 i 

 
 i 

 
 i 1,300

Capital contribution associated with the sale of operating joint venture interest to a former affiliate
 
 i 

 
 i 

 
 i 202

Financing element on certain derivative instruments and other derivative related transactions, net
 
( i 203
)
 
( i 303
)
 
( i 149
)
Other, net
 
( i 50
)
 
( i 46
)
 
 i 

Net cash provided by (used in) financing activities
 
 i 3,822

 
 i 3,258

 
( i 3,957
)
Change in cash, cash equivalents and restricted cash
 
( i 1,001
)
 
 i 2,131

 
( i 3,694
)
Cash, cash equivalents and restricted cash, beginning of year
 
 i 3,494

 
 i 1,363

 
 i 5,057

Cash, cash equivalents and restricted cash, end of year
 
$
 i 2,493

 
$
 i 3,494

 
$
 i 1,363

Supplemental disclosures of cash flow information
 
 
 
 
 
 
Net cash paid (received) for:
 
 
 
 
 
 
Interest
 
$
 i 30

 
$
 i 3

 
$
 i 81

Income tax
 
$
 i 3

 
$
( i 891
)
 
$
( i 684
)
Non-cash transactions:
 
 
 
 
 
 
Transfer of fixed maturity securities to former affiliate
 
$
 i 

 
$
 i 

 
$
 i 293

Reduction of policyholder account balances in connection with reinsurance transactions
 
$
 i 

 
$
 i 

 
$
 i 293

See accompanying notes to the consolidated financial statements.



68

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements

 i 
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“BLIC” and the “Company” refer to Brighthouse Life Insurance Company, a Delaware corporation originally incorporated in Connecticut in 1863, and its subsidiaries. Brighthouse Life Insurance Company is a wholly-owned subsidiary of Brighthouse Holdings, LLC (“BH Holdings”), which is a direct wholly-owned subsidiary of Brighthouse Financial, Inc. (“BHF” together with its subsidiaries and affiliates, “Brighthouse Financial”).
BLIC offers a range of individual annuities and individual life insurance products. The Company is organized into  i three segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other.
In 2016, MetLife, Inc. (together with its subsidiaries and affiliates, “MetLife”) announced its plan to pursue the separation of a substantial portion of its former U.S. retail business (the “Separation”). In connection with the Separation,  i 80.8% of MetLife, Inc.’s interest in BHF was distributed to holders of MetLife, Inc.’s common stock. On June 14, 2018, MetLife, Inc. divested its remaining shares of BHF common stock (the “MetLife Divestiture”). As a result, MetLife, Inc. and its subsidiaries and affiliates are no longer considered related parties subsequent to the MetLife Divestiture.
Basis of Presentation
 i 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
 i 
Consolidation
The accompanying consolidated financial statements include the accounts of Brighthouse Life Insurance Company and its subsidiaries, as well as partnerships and limited liability companies (“LLCs”) in which the Company has control. Intercompany accounts and transactions have been eliminated.
The Company uses the equity method of accounting for investments in limited partnerships and LLCs when it has more than a minor ownership interest or more than a minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. When the Company has virtually no influence over the investee’s operations, the investment is carried at fair value.
Reclassifications
Certain amounts in the prior years’ consolidated financial statements and related footnotes thereto have been reclassified to conform with the current year presentation as may be discussed when applicable in the Notes to the Consolidated Financial Statements.
Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity.
Summary of Significant Accounting Policies
Insurance
 i 
Future Policy Benefit Liabilities and Policyholder Account Balances
The Company establishes liabilities for future amounts payable under insurance policies. Insurance liabilities are generally equal to the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums. Assumptions used to measure the liability are based on the Company’s experience and include a margin for adverse deviation. The principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, benefit utilization and withdrawals, policy lapse, retirement, disability incidence, disability terminations, investment returns, and expenses as appropriate to the respective product type.

69

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

For traditional long-duration insurance contracts (term, whole life insurance and income annuities), assumptions are determined at issuance of the policy and are not updated unless a premium deficiency exists. A premium deficiency exists when the liability for future policy benefits plus the present value of expected future gross premiums are less than expected future benefits and expenses (based on current assumptions). When a premium deficiency exists, the Company will reduce any deferred acquisition costs and may also establish an additional liability to eliminate the deficiency. To assess whether a premium deficiency exists, the Company groups insurance contracts based on the manner acquired, serviced and measured for profitability. In applying the profitability criteria, groupings are limited by segment.
In certain cases, the liability for an insurance product may be sufficient in the aggregate, but the pattern of future earnings may result in profits followed by losses. In these situations, the Company may establish an additional liability to offset the losses that are expected to be recognized in later years.
Policyholder account balances relate to customer deposits on universal life insurance and deferred annuity contracts and are equal to the sum of deposits, plus interest credited, less charges and withdrawals.
Liabilities for secondary guarantees on universal and variable life insurance contracts are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the contract period based on total expected assessments. The Company also maintains a liability for profits followed by losses on universal life insurance with secondary guarantees. The assumptions used in estimating the secondary guarantee liabilities are consistent with those used for amortizing deferred policy acquisition costs (“DAC”) and are reviewed and updated at least annually. The assumptions of investment performance and volatility for variable products are consistent with historical experience of the appropriate underlying separate account funds. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
 i 
Recognition of Insurance Revenues and Deposits
Premiums related to traditional life insurance and annuity contracts are recognized as revenues when due from policyholders. When premiums for income annuities are due over a significantly shorter period than the period over which policyholder benefits are incurred, any excess profit is deferred and recognized into earnings in proportion to the amount of expected future benefit payments.
Deposits related to universal life insurance, deferred annuity contracts and investment contracts are credited to policyholder account balances. Revenues from such contracts consist of asset-based investment management fees, cost of insurance charges, risk charges, policy administration fees and surrender charges. These fees, which are included in universal life and investment-type product policy fees, are recognized when assessed to the contract holder, except for non-level insurance charges which are deferred and amortized over the life of the contracts.
Premiums, policy fees, policyholder benefits and expenses are presented net of reinsurance.
 i  i 
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the successful acquisition or renewal of insurance contracts are capitalized as DAC. These costs mainly consist of commissions and include the portion of employees’ compensation and benefits related to time spent selling, underwriting or processing the issuance of new insurance contracts. All other acquisition-related costs are expensed as incurred.
Value of business acquired (“VOBA”) is an intangible asset resulting from a business combination that represents the excess of book value over the estimated fair value of acquired insurance, annuity and investment-type contracts in-force as of the acquisition date. The estimated fair value of the acquired contracts is based on projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns, nonperformance risk adjustment and other factors.
The Company amortizes DAC and VOBA related to term life insurance, non-participating whole life and immediate annuities over the appropriate premium paying period in proportion to the actual and expected future gross premiums that were set at contract issue. The expected premiums are based upon the premium requirement of each policy and assumptions for mortality, persistency and investment returns at policy issuance, or policy acquisition (as it relates to VOBA), include provisions for adverse deviation, and are consistent with the assumptions used to calculate future policy benefit liabilities. These assumptions are not revised after policy issuance or acquisition unless the DAC or VOBA balance is deemed to be unrecoverable from future expected profits.
 / 

70

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

The Company amortizes DAC and VOBA on deferred annuities, universal life and variable life insurance contracts over the estimated lives of the contracts in proportion to actual and expected future gross profits. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The amount of future gross profits is dependent principally upon investment returns in excess of the amounts credited to policyholders, mortality, persistency, benefit elections and withdrawals, interest crediting rates, and expenses to administer the business. When significant negative gross profits are expected in future periods, the Company substitutes the amount of insurance in-force for expected future gross profits as the amortization basis for DAC.
Assumptions for DAC and VOBA are reviewed at least annually, and if they change significantly, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to net income. When expected future gross profits are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to net income. The opposite result occurs when the expected future gross profits are above the previously estimated expected future gross profits.
The Company updates expected future gross profits to reflect the actual gross profits for each period, including changes to its nonperformance risk related to embedded derivatives and the actual amount of business remaining in-force. When actual gross profits exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to net income. The opposite result occurs when the actual gross profits are below the previously expected future gross profits.
DAC and VOBA balances on deferred annuities, universal and variable life insurance contracts are also adjusted to reflect the effect of investment gains and losses and certain embedded derivatives (including changes in nonperformance risk). These adjustments can create fluctuations in net income from period to period. Changes in DAC and VOBA balances related to unrealized gains and losses are recorded to other comprehensive income (loss) (“OCI”).
DAC and VOBA balances and amortization for variable contracts can be significantly impacted by changes in expected future gross profits related to projected separate account rates of return. The Company’s practice of determining changes in separate account returns assumes that long-term appreciation in equity markets is only changed when sustained interim deviations are expected. The Company monitors these events and only changes the assumption when its long-term expectation changes.
Periodically, the Company modifies product benefits, features, rights or coverages that occur by the exchange of an existing contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If a modification is considered to have substantially changed the contract, the associated DAC or VOBA is written off immediately as net income and any new acquisition costs associated with the replacement contract are deferred. If the modification does not substantially change the contract, the DAC or VOBA amortization on the original contract will continue and any acquisition costs associated with the related modification are expensed.
 i 
The Company also has intangible assets representing deferred sales inducements (“DSI”) and the value of distribution agreements (“VODA”) which are included in other assets. The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. The amortization of DSI is included in policyholder benefits and claims. VODA represents the present value of expected future profits associated with the expected future business derived from the distribution agreements acquired as part of a business combination. The VODA associated with past business combinations is amortized over useful lives ranging from  i 10 to  i 40 years and such amortization is included in other expenses. Each year, or more frequently if circumstances indicate a possible impairment exists, the Company reviews DSI and VODA to determine whether the assets are impaired.
 / 
 i 
Reinsurance
The Company enters into reinsurance arrangements pursuant to which it cedes certain insurance risks to unaffiliated and former related party reinsurers. Cessions under reinsurance agreements do not discharge the Company’s obligations as the primary insurer. The accounting for reinsurance arrangements depends on whether the arrangement provides indemnification against loss or liability relating to insurance risk in accordance with GAAP.
For ceded reinsurance of existing in-force blocks of insurance contracts that transfer significant insurance risk, premiums, benefits and the amortization of DAC are reported net of reinsurance ceded. Amounts recoverable from reinsurers related to incurred claims and ceded reserves are included in premiums, reinsurance and other receivables and amounts payable to reinsurers included in other liabilities.

71

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate.
The funds withheld liability represents amounts withheld by the Company in accordance with the terms of the reinsurance agreements. Under certain reinsurance agreements, the Company withholds the funds rather than transferring the underlying investments and, as a result, records a funds withheld liability within other liabilities. The Company recognizes interest on funds withheld, included in other expenses, at rates defined by the terms of the agreement which may be contractually specified or directly related to the investment portfolio. Certain funds withheld arrangements may also contain embedded derivatives measured at fair value that are related to the investment return on the assets withheld.
The Company accounts for assumed reinsurance similar to directly written business, except for guaranteed minimum income benefits (“GMIBs”), where a portion of the directly written GMIBs are accounted for as insurance liabilities, but the associated reinsurance agreements contain embedded derivatives.
 i 
Variable Annuity Guarantees
The Company issues certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (the “Benefit Base”) less withdrawals. In some cases, the Benefit Base may be increased by additional deposits, bonus amounts, accruals or optional market value step-ups.
Certain of the Company’s variable annuity guarantee features are accounted for as insurance liabilities and recorded in future policy benefits while others are accounted for at fair value as embedded derivatives and recorded in policyholder account balances. Generally, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either the occurrence of a specific insurable event, or annuitization. Alternatively, a guarantee is accounted for as an embedded derivative if a guarantee is paid without requiring the occurrence of specific insurable event, or the policyholder to annuitize, that is, the policyholder can receive the guarantee on a net basis. In certain cases, a guarantee may have elements of both an insurance liability and an embedded derivative and in such cases the guarantee is split and accounted for under both models. Further, changes in assumptions, principally involving policyholder behavior, can result in a change of expected future cash outflows of a guarantee between portions accounted for as insurance liabilities and portions accounted for as embedded derivatives.
Guarantees accounted for as insurance liabilities in future policy benefits include guaranteed minimum death benefits (“GMDBs”), the life contingent portion of the guaranteed minimum withdrawal benefits (“GMWBs”) and the portion of the GMIBs that require annuitization, as well as the life contingent portion of the expected annuitization when the policyholder is forced into an annuitization upon depletion of their account value.
These insurance liabilities are accrued over the accumulation phase of the contract in proportion to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate account returns. The scenarios are based on best estimate assumptions consistent with those used to amortize DAC. When current estimates of future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities will increase, resulting in a current period charge to net income. The opposite result occurs when the current estimates of future benefits are lower than those previously projected or when current estimates of future assessments exceed those previously projected. At each reporting period, the actual amount of business remaining in-force is updated, which impacts expected future assessments and the projection of estimated future benefits resulting in a current period charge or increase to earnings.
Guarantees accounted for as embedded derivatives in policyholder account balances include the non-life contingent portion of GMWBs, guaranteed minimum accumulation benefits (“GMABs”), and for GMIBs the non-life contingent portion of the expected annuitization when the policyholder is forced into an annuitization upon depletion of their account value, as well as the guaranteed principal option.

72

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. At policy inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees are considered revenue and are reported in universal life and investment-type product policy fees. The percentage of fees included in the initial fair value measurement is not updated in subsequent periods.
The Company updates the estimated fair value of guarantees in subsequent periods by projecting future benefits using capital market and actuarial assumptions including expectations of policyholder behavior. A risk neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital market scenarios to determine an economic liability. The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect the Company’s nonperformance risk and adding a risk margin. For more information on the determination of estimated fair value of embedded derivatives, see Note 9.
Assumptions for all variable guarantees are reviewed at least annually, and if they change significantly, the estimated fair value is adjusted by a cumulative charge or credit to net income.
Index-linked Annuities
The Company issues and assumes through reinsurance index-linked annuities. The crediting rate associated with index-linked annuities is accounted for at fair value as an embedded derivative. The estimated fair value is determined using a combination of an option pricing model and an option-budget approach. Under this approach, the company estimates the cost of funding the crediting rate using option pricing and establishes that cost on the balance sheet as a reduction to the initial deposit amount. In subsequent periods, the embedded derivative is remeasured at fair value while the reduction in initial deposit is accreted back up to the initial deposit over the estimated life of the contract.
 i 
Investments
Net Investment Income and Net Investment Gains (Losses)
Income from investments is reported within net investment income, unless otherwise stated herein. Gains and losses on sales of investments, impairment losses and changes in valuation allowances are reported within net investment gains (losses), unless otherwise stated herein.
Fixed Maturity Securities Available-For-Sale
The Company’s fixed maturity securities are classified as available-for-sale (“AFS”) and are reported at their estimated fair value. Unrealized investment gains and losses on these securities are recorded as a separate component of OCI, net of policy-related amounts and deferred income taxes. Publicly-traded security transactions are recorded on a trade date basis, while privately-placed and bank loan security transactions are recorded on a settlement date basis. Investment gains and losses on sales are determined on a specific identification basis.
Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premiums and accretion of discounts and is based on the estimated economic life of the securities, which for residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”) considers the estimated timing and amount of prepayments of the underlying loans. The amortization of premium and accretion of discount of fixed maturity securities also takes into consideration call and maturity dates.
Amortization of premium and accretion of discount on Structured Securities considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed, and effective yields are recalculated when differences arise between the originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for Structured Securities are estimated using inputs obtained from third-party specialists and based on management’s knowledge of the current market. For credit-sensitive Structured Securities and certain prepayment-sensitive securities, the effective yield is recalculated on a prospective basis. For all other Structured Securities, the effective yield is recalculated on a retrospective basis.

73

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

The Company periodically evaluates fixed maturity securities for impairment. The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in estimated fair value, as well as an analysis of the gross unrealized losses by severity and/or age.
For fixed maturity securities in an unrealized loss position, an other-than-temporary impairment (“OTTI”) is recognized in earnings when it is anticipated that the amortized cost will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the OTTI recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized as an OTTI in earnings (“credit loss”). If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of OTTI related to other-than-credit factors (“noncredit loss”) is recorded in OCI.
Mortgage Loans
Mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and any deferred fees or expenses, and are net of valuation allowances. Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premiums and accretion of discounts.
Policy Loans
Policy loans are stated at unpaid principal balances. Interest income is recorded as earned using the contractual interest rate. Generally, accrued interest is capitalized on the policy’s anniversary date. Any unpaid principal and accrued interest is deducted from the cash surrender value or the death benefit prior to settlement of the insurance policy.
Limited Partnerships and LLCs
The Company uses the equity method of accounting for investments when it has more than a minor ownership interest or more than a minor influence over the investee’s operations; when the Company has virtually no influence over the investee’s operations the investment is carried at estimated fair value. The Company generally recognizes its share of the equity method investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period; while distributions on investments carried at estimated fair value are recognized as earned or received.
Short-term Investments
Short-term investments include securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase and are stated at estimated fair value or amortized cost, which approximates estimated fair value.
Other Invested Assets
Other invested assets consist principally of freestanding derivatives with positive estimated fair values which are described in “—Derivatives” below.
Securities Lending Program
Securities lending transactions whereby blocks of securities are loaned to third parties, primarily brokerage firms and commercial banks, are treated as financing arrangements and the associated liability is recorded at the amount of cash received. Income and expenses associated with securities lending transactions are reported as investment income and investment expense, respectively, within net investment income.
The Company obtains collateral at the inception of the loan, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned and maintains it at a level greater than or equal to 100% for the duration of the loan. The Company monitors the estimated fair value of the securities loaned on a daily basis and additional collateral is obtained as necessary throughout the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. The Company is liable to return to the counterparties the cash collateral received.

74

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

 i 
Derivatives
Freestanding Derivatives
Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
If a derivative is not designated or did not qualify as an accounting hedge, changes in the estimated fair value of the derivative are reported in net derivative gains (losses).
The Company generally reports cash received or paid for a derivative in the investing activity section of the statement of cash flows except for cash flows of certain derivative options with deferred premiums, which are reported in the financing activity section of the statement of cash flows.
Hedge Accounting
The Company primarily designates derivatives as a hedge of a forecasted transaction or a variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). When a derivative is designated as a cash flow hedge and is determined to be highly effective, changes in fair value are recorded in OCI and subsequently reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge. In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship.
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative or hedged item expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.
When hedge accounting is discontinued the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses). The changes in estimated fair value of derivatives previously recorded in OCI related to discontinued cash flow hedges are released into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item. When the hedged item matures or is sold, or the forecasted transaction is not probable of occurring, the Company immediately reclassifies any remaining balances in OCI to net derivative gains (losses).
Embedded Derivatives
The Company has certain insurance and reinsurance contracts that contain embedded derivatives which are required to be separated from their host contracts and reported as derivatives. These host contracts include: variable annuities with guaranteed minimum benefits, including GMWBs, GMABs and certain GMIBs; index-linked annuities that are directly written or assumed through reinsurance; and ceded reinsurance of variable annuity GMIBs. Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances on the consolidated balance sheets. Changes in the estimated fair value of the embedded derivative are reported in net derivative gains (losses).
See “— Variable Annuity Guarantees,” “— Index-Linked Annuities” and “— Reinsurance” for additional information on the accounting policies for embedded derivatives bifurcated from variable annuity and reinsurance host contracts.

75

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

 i 
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In most cases, the exit price and the transaction (or entry) price will be the same at initial recognition.
In determining the estimated fair value of the Company’s investments, fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such quoted prices are not available, fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical investments, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring management judgment are used to determine the estimated fair value of investments.
 i 
Separate Accounts
Separate accounts underlying the Company’s variable life and annuity contracts are reported at fair value. Assets in separate accounts supporting the contract liabilities are legally insulated from the Company’s general account liabilities. Investments in these separate accounts are directed by the contract holder and all investment performance, net of contract fees and assessments, is passed through to the contract holder. Investment performance and the corresponding amounts credited to contract holders of such separate accounts are offset within the same line on the statements of operations.
Separate accounts that do not pass all investment performance to the contract holder, including those underlying certain index-linked annuities, are combined on a line-by-line basis with the Company’s general account assets, liabilities, revenues and expenses. The accounting for investments in these separate accounts is consistent with the methodologies described herein for similar financial instruments held within the general account.
The Company receives asset-based distribution and service fees from mutual funds available to the variable life and annuity contract holders as investment options in its separate accounts. These fees are recognized in the period in which the related services are performed and are included in other revenues in the statement of operations.
 i 
Income Tax
Income taxes as presented herein attribute current and deferred income taxes of MetLife, Inc., for periods up until the Separation, to Brighthouse Financial in a manner that is systematic, rational and consistent with the asset and liability method prescribed by the Financial Accounting Standards Board (“FASB”) guidance Accounting Standards Codification 740 — Income Taxes (“ASC 740”). The Company’s income tax provision was prepared following the modified separate return method. The modified separate return method applies ASC 740 to the stand-alone financial statements of each member of the consolidated group as if the group member were a separate taxpayer and a stand-alone enterprise, after providing benefits for losses. The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.
The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances. When making such determination, the Company considers many factors, including the jurisdiction in which the deferred tax asset was generated, the length of time that carryforward can be utilized in the various taxing jurisdictions, future taxable income exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences, taxable income in prior carryback years, tax planning strategies and the nature, frequency, and amount of cumulative financial reporting income and losses in recent years.
The Company may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, the effect of changes in tax laws, tax regulations, or interpretations of such laws or regulations, is recognized in net income tax expense (benefit) in the period of change.

76

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

The Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded on the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made.
The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax expense.
 i 
Litigation Contingencies
The Company is a party to a number of legal actions and may be involved in a number of regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on the Company’s financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Legal costs are recognized as incurred. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected on the Company’s financial statements.
Other Accounting Policies
 i 
Cash and Cash Equivalents
The Company considers all highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents are stated at estimated fair value or amortized cost, which approximates estimated fair value.
 i 
Employee Benefit Plans
Brighthouse Services, LLC (“Brighthouse Services”), an affiliate, sponsors qualified and non-qualified defined contribution plans, and New England Life Insurance Company (“NELICO”), an affiliate, sponsors certain frozen defined benefit pension and postretirement plans. Within its consolidated statement of operations, the Company has included expenses associated with its participants in these plans.
 i 
Adoption of New Accounting Pronouncements
Changes to GAAP are established by the FASB in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements. There were no ASUs adopted during 2019 that had a material impact on the Company’s financial statements.

77

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

ASUs issued but not yet adopted as of December 31, 2019 are summarized in the table below.
Standard
Description
Effective Date
Impact on Financial Statements
ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts


The amendments to Topic 944 will result in significant changes to the accounting for long-duration insurance contracts. These changes (1) require all guarantees that qualify as market risk benefits to be measured at fair value, (2) require more frequent updating of assumptions and modify existing discount rate requirements for certain insurance liabilities, (3) modify the methods of amortization for DAC, and (4) require new qualitative and quantitative disclosures around insurance contract asset and liability balances and the judgments, assumptions and methods used to measure those balances. The market risk benefit guidance is required to be applied on a retrospective basis, while the changes to guidance for insurance liabilities and DAC may be applied to existing carrying amounts on the effective date or on a retrospective basis.

The Company is in the early stages of evaluating the new guidance and therefore is unable to estimate the impact to its financial statements. The most significant impact is expected to be the measurement of liabilities for variable annuity guarantees.


ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

The amendments to Topic 326 replace the incurred loss impairment methodology for certain financial instruments with one that reflects expected credit losses based on historical loss information, current conditions, and reasonable and supportable forecasts. The new guidance also requires that an OTTI on a debt security will be recognized as an allowance going forward, such that improvements in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net investment income, but rather a reversal of the previous impairment and recognized through realized investment gains and losses.
January 1, 2020 using the modified retrospective method (with early adoption permitted beginning January 1, 2019)

The adoption of this new guidance will not have a material impact on the Company’s financial statements.



 i 
2. Segment Information
The Company is organized into  i three segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other.
Annuities
The Annuities segment consists of a variety of variable, fixed, index-linked and income annuities designed to address contract holders’ needs for protected wealth accumulation on a tax-deferred basis, wealth transfer and income security.
Life
The Life segment consists of insurance products and services, including term, universal, whole and variable life products designed to address policyholders’ needs for financial security and protected wealth transfer, which may be provided on a tax-advantaged basis.
Run-off
The Run-off segment consists of products no longer actively sold and which are separately managed, including structured settlements, pension risk transfer contracts, certain company-owned life insurance policies, funding agreements and universal life with secondary guarantees (“ULSG”).
Corporate & Other
Corporate & Other contains the excess capital not allocated to the segments and interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes long-term care and workers’ compensation business reinsured through 100% quota share reinsurance agreements and term life insurance sold direct to consumers, which is no longer being offered for new sales.

78

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
2. Segment Information (continued)

Financial Measures and Segment Accounting Policies
Adjusted earnings is a financial measure used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. Consistent with GAAP guidance for segment reporting, adjusted earnings is also used to measure segment performance. The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings should not be viewed as a substitute for net income (loss) attributable to Brighthouse Life Insurance Company and excludes net income (loss) attributable to noncontrolling interests.
Adjusted earnings, which may be positive or negative, focuses on the Company’s primary businesses principally by excluding the impact of market volatility, which could distort trends.
The following are significant items excluded from total revenues, net of income tax, in calculating adjusted earnings:
Net investment gains (losses);
Net derivative gains (losses) except earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment; and
Certain variable annuity GMIB fees (“GMIB Fees”) and amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses).
The following are significant items excluded from total expenses, net of income tax, in calculating adjusted earnings:
Amounts associated with benefits related to GMIBs (“GMIB Costs”);
Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”); and
Amortization of DAC and VOBA related to: (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments.
The tax impact of the adjustments mentioned above is calculated net of the statutory tax rate, which could differ from the Company’s effective tax rate.
The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for the adjustments to calculate adjusted earnings described above. In addition, segment accounting policies include the methods of capital allocation described below.
Segment investment and capitalization targets are based on statutory oriented risk principles and metrics. Segment invested assets backing liabilities are based on net statutory liabilities plus excess capital. For the variable annuity business, the excess capital held is based on the target statutory total asset requirement consistent with the Company’s variable annuity risk management strategy. For insurance businesses other than variable annuities, excess capital held is based on a percentage of required statutory risk-based capital (“RBC”). Assets in excess of those allocated to the segments, if any, are held in Corporate & Other. Segment net investment income reflects the performance of each segment’s respective invested assets.

79

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
2. Segment Information (continued)

 i 
Set forth in the tables below are the operating results with respect to the Company’s segments, as well as Corporate & Other, for the years ended December 31, 2019, 2018 and 2017 and at December 31, 2019 and 2018.
 
 
Operating Results
 
Annuities
 
Life
 
Run-off
 
Corporate
& Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
 i 1,233

 
$
 i 239

 
$
( i 580
)
 
$
( i 234
)
 
$
 i 658

Provision for income tax expense (benefit)
 
 i 230

 
 i 49

 
( i 126
)
 
( i 112
)
 
 i 41

Post-tax adjusted earnings
 
 i 1,003

 
 i 190

 
( i 454
)
 
( i 122
)
 
 i 617

Less: Net income (loss) attributable to noncontrolling interests
 
 i 

 
 i 

 
 i 

 
 i 1

 
 i 1

Adjusted earnings
 
$
 i 1,003

 
$
 i 190

 
$
( i 454
)
 
$
( i 123
)
 
 i 616

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
 i 92

Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
( i 2,046
)
Other adjustments to net income (loss)
 
 
 
 
 
 
 
 
 
 i 150

Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
 i 379

Net income (loss) attributable to Brighthouse Life Insurance Company
 
 
 
 
 
 
 
 
 
$
( i 809
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
 i 1,798

 
$
 i 376

 
$
 i 1,265

 
$
 i 53

 
 
Interest expense
 
$
 i 

 
$
 i 

 
$
 i 

 
$
 i 60

 
 

Annuities

Life

Run-off
 
Corporate & Other

Total


(In millions)
Total assets

$
 i 152,740

 
$
 i 16,389

 
$
 i 35,132

 
$
 i 11,892


$
 i 216,153

Separate account assets

$
 i 95,524

 
$
 i 2,043

 
$
 i 2,101

 
$
 i 


$
 i 99,668

Separate account liabilities

$
 i 95,524

 
$
 i 2,043

 
$
 i 2,101

 
$
 i 


$
 i 99,668

 / 

80

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
2. Segment Information (continued)

 
 
Operating Results
 
Annuities
 
Life
 
Run-off
 
Corporate
& Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
 i 1,179

 
$
 i 211

 
$
( i 58
)
 
$
( i 229
)
 
$
 i 1,103

Provision for income tax expense (benefit)
 
 i 201

 
 i 43

 
( i 14
)
 
( i 73
)
 
 i 157

Post-tax adjusted earnings
 
 i 978

 
 i 168

 
( i 44
)
 
( i 156
)
 
 i 946

Less: Net income (loss) attributable to noncontrolling interests
 
 i 

 
 i 

 
 i 

 
 i 1

 
 i 1

Adjusted earnings
 
$
 i 978

 
$
 i 168

 
$
( i 44
)
 
$
( i 157
)
 
 i 945

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
( i 204
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
 i 745

Other adjustments to net income (loss)
 
 
 
 
 
 
 
 
 
( i 523
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
 i 4

Net income (loss) attributable to Brighthouse Life Insurance Company
 
 
 
 
 
 
 
 
 
$
 i 967

 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
 i 1,523

 
$
 i 373

 
$
 i 1,309

 
$
 i 44

 
 
Interest expense
 
$
 i 

 
$
 i 

 
$
 i 

 
$
 i 6

 
 

Annuities

Life

Run-off
 
Corporate & Other

Total
 
 
(In millions)
Total assets
 
$
 i 137,079

 
$
 i 14,928

 
$
 i 32,390

 
$
 i 11,433

 
$
 i 195,830

Separate account assets
 
$
 i 88,138

 
$
 i 1,732

 
$
 i 1,641

 
$
 i 

 
$
 i 91,511

Separate account liabilities
 
$
 i 88,138

 
$
 i 1,732

 
$
 i 1,641

 
$
 i 

 
$
 i 91,511

 
 
Operating Results
 
Annuities
 
Life
 
Run-off
 
Corporate
& Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
 i 1,230

 
$
( i 68
)
 
$
( i 466
)
 
$
( i 114
)
 
$
 i 582

Provision for income tax expense (benefit)
 
 i 323

 
( i 30
)
 
( i 172
)
 
 i 338

 
 i 459

Post-tax adjusted earnings
 
 i 907

 
( i 38
)
 
( i 294
)
 
( i 452
)
 
 i 123

Less: Net income (loss) attributable to noncontrolling interests
 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

Adjusted earnings
 
$
 i 907

 
$
( i 38
)
 
$
( i 294
)
 
$
( i 452
)
 
 i 123

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
( i 27
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
( i 1,468
)
Other adjustments to net income (loss)
 
 
 
 
 
 
 
 
 
( i 708
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
 i 1,197

Net income (loss) attributable to Brighthouse Life Insurance Company
 
 
 
 
 
 
 
 
 
$
( i 883
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
 i 1,263

 
$
 i 300

 
$
 i 1,399

 
$
 i 142

 
 
Interest expense
 
$
 i 

 
$
( i 4
)
 
$
 i 23

 
$
 i 39

 
 


81

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
2. Segment Information (continued)

 i 
The following table presents total revenues with respect to the Company’s segments, as well as Corporate & Other:
 
 
Years Ended December 31,
 
 
2019
 
2018
 
2017
 
 
(In millions)
Annuities
 
$
 i 4,062

 
$
 i 3,921

 
$
 i 3,721

Life
 
 i 1,115

 
 i 1,160

 
 i 1,036

Run-off
 
 i 2,009

 
 i 2,112

 
 i 2,148

Corporate & Other
 
 i 145

 
 i 147

 
 i 250

Adjustments
 
( i 1,704
)
 
 i 782

 
( i 1,357
)
Total
 
$
 i 5,627

 
$
 i 8,122

 
$
 i 5,798


 / 
 i 
The following table presents total premiums, universal life and investment-type product policy fees and other revenues by major product group:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Annuity products
$
 i 2,522

 
$
 i 2,662

 
$
 i 2,729

Life insurance products
 i 1,561

 
 i 1,677

 
 i 1,587

Other products
 i 12

 
 i 7

 
 i 4

Total
$
 i 4,095

 
$
 i 4,346

 
$
 i 4,320


 / 
Substantially all of the Company’s premiums, universal life and investment-type product policy fees and other revenues originated in the U.S.
Revenues derived from any individual customer did not exceed 10% of premiums, universal life and investment-type product policy fees and other revenues for the years ended December 31, 2019, 2018 and 2017.
 i 
3. Organizational Changes
Contribution Transactions
In April 2017, in connection with the Separation, MetLife, Inc. contributed MetLife Reinsurance Company of Delaware, MetLife Reinsurance Company of South Carolina, MetLife Reinsurance Company of Vermont II, all affiliated reinsurance companies, and Brighthouse Life Insurance Company of NY (“BHNY”) to Brighthouse Life Insurance Company (the “Contribution Transactions”). The affiliated reinsurance companies were then merged into Brighthouse Reinsurance Company of Delaware (“BRCD”), and certain reserve financing arrangements were restructured, resulting in a net return of capital to MetLife of $ i 2.7 billion. The return of capital included $ i 3.4 billion in cash, offset by a non-cash capital contribution of $ i 703 million primarily comprised of the $ i 643 million tax impact of a basis adjustment for BRCD in connection with the Contribution Transactions. The affiliated reinsurance companies reinsured risks, including level premium term life and ULSG assumed from the Company and other entities and operations of Brighthouse.
The Contribution Transactions were between entities under common control and have been accounted for in a manner similar to the pooling-of-interests method, which requires that the acquired entities be combined at their historical cost. The Company’s consolidated financial statements and related footnotes are presented as if the transaction occurred at the beginning of the earliest date presented and the prior periods have been retrospectively adjusted.

82

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)

 i 
4. Insurance
Insurance Liabilities
Insurance liabilities, including affiliated insurance liabilities on reinsurance assumed and ceded, are comprised of future policy benefits, policyholder account balances and other policy-related balances.  i Information regarding insurance liabilities by segment, as well as Corporate & Other, was as follows at:
 
 
2019
 
2018
 
(In millions)
Annuities
$
 i 43,731

 
$
 i 37,266

Life
 i 7,507

 
 i 7,336

Run-off
 i 28,064

 
 i 25,447

Corporate & Other
 i 7,701

 
 i 7,597

Total
$
 i 87,003

 
$
 i 77,646


See Note 6 for discussion of affiliated reinsurance liabilities included in the table above.
Assumptions for Future Policyholder Benefits and Policyholder Account Balances
For non-participating term and whole life insurance, assumptions for mortality and persistency are based upon the Company’s experience. Interest rate assumptions for the aggregate future policy benefit liabilities range from  i 3% to  i 8%. The liability for single premium immediate annuities is based on the present value of expected future payments using the Company’s experience for mortality assumptions, with interest rate assumptions used in establishing such liabilities ranging from  i 2% to  i 8%.
Participating whole life insurance uses an interest assumption based upon non-forfeiture interest rate of  i 4% and mortality rates guaranteed in calculating the cash surrender values described in such contracts, and also includes a liability for terminal dividends. Participating whole life insurance represented  i 3% of the Company’s life insurance in-force at both December 31, 2019 and 2018, and  i 38% of gross traditional life insurance premiums for each of the years ended December 31, 2019, 2018 and 2017.
The liability for future policyholder benefits for long-term disability (included in the Life segment) and long-term care insurance (included in the Run-off segment) includes assumptions based on the Company’s experience for future morbidity, withdrawals and interest. Interest rate assumptions used for long-term disability in establishing such liabilities range from  i 4% to  i 7%. Claim reserves for these products include best estimate assumptions for claim terminations, expenses and interest. Interest rate assumptions used for establishing long-term care claim liabilities range from  i 3% to  i 6%.
Policyholder account balances liabilities for deferred annuities and universal life insurance have interest credited rates ranging from  i 1% to  i 7%.
Guarantees
The Company issues variable annuity contracts with guaranteed minimum benefits. GMABs, the non-life contingent portion of GMWBs and the portion of certain GMIBs that do not require annuitization are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 8.
The assumptions for GMDBs and GMIBs included in future policyholder benefits include projected separate account rates of return, general account investment returns, interest crediting rates, mortality, in-force or persistency, benefit elections and withdrawals, and expenses to administer business. GMIBs also include an assumption for the percentage of the potential annuitizations that may be elected by the contract holder, while GMWBs include assumptions for withdrawals.
The Company also has universal and variable life insurance contracts with secondary guarantees.
See Note 1 for more information on GMDBs and GMIBs accounted for as insurance liabilities.

83

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
4. Insurance (continued)

 i 
Information regarding the liabilities for guarantees (excluding policyholder account balances and embedded derivatives) relating to variable annuity contracts and universal and variable life insurance contracts was as follows:
 
Variable Annuity Contracts
 
Universal and Variable
 
 
 
GMDBs
 
GMIBs
 
Secondary
Guarantees
 
Total
 
(In millions)
Direct
 
 
 
 
 
 
 
Balance at January 1, 2017
$
 i 1,106

 
$
 i 2,206

 
$
 i 3,540

 
$
 i 6,852

Incurred guaranteed benefits
 i 367

 
 i 344

 
 i 692

 
 i 1,403

Paid guaranteed benefits
( i 57
)
 
 i 

 
 i 

 
( i 57
)
 i 1,416

 
 i 2,550

 
 i 4,232

 
 i 8,198

Incurred guaranteed benefits
 i 183

 
 i 358

 
 i 483

 
 i 1,024

Paid guaranteed benefits
( i 56
)
 
 i 

 
 i 

 
( i 56
)
 i 1,543

 
 i 2,908

 
 i 4,715

 
 i 9,166

Incurred guaranteed benefits
 i 142

 
 i 168

 
 i 874

 
 i 1,184

Paid guaranteed benefits
( i 89
)
 
 i 

 
 i 

 
( i 89
)
$
 i 1,596

 
$
 i 3,076

 
$
 i 5,589

 
$
 i 10,261

Net Ceded/(Assumed)
 
 
 
 
 
 
 
Balance at January 1, 2017
$
( i 45
)
 
$
( i 19
)
 
$
 i 1,105

 
$
 i 1,041

Incurred guaranteed benefits
 i 94

 
( i 28
)
 
( i 159
)
 
( i 93
)
Paid guaranteed benefits
( i 55
)
 
 i 

 
 i 

 
( i 55
)
( i 6
)
 
( i 47
)
 
 i 946

 
 i 893

Incurred guaranteed benefits
 i 48

 
( i 3
)
 
 i 18

 
 i 63

Paid guaranteed benefits
( i 54
)
 
 i 

 
 i 

 
( i 54
)
( i 12
)
 
( i 50
)
 
 i 964

 
 i 902

Incurred guaranteed benefits
 i 84

 
( i 1
)
 
 i 119

 
 i 202

Paid guaranteed benefits
( i 87
)
 
 i 

 
 i 

 
( i 87
)
$
( i 15
)
 
$
( i 51
)
 
$
 i 1,083

 
$
 i 1,017

Net
 
 
 
 
 
 
 
Balance at January 1, 2017
$
 i 1,151

 
$
 i 2,225

 
$
 i 2,435

 
$
 i 5,811

Incurred guaranteed benefits
 i 273

 
 i 372

 
 i 851

 
 i 1,496

Paid guaranteed benefits
( i 2
)
 
 i 

 
 i 

 
( i 2
)
 i 1,422

 
 i 2,597

 
 i 3,286

 
 i 7,305

Incurred guaranteed benefits
 i 135

 
 i 361

 
 i 465

 
 i 961

Paid guaranteed benefits
( i 2
)
 
 i 

 
 i 

 
( i 2
)
 i 1,555

 
 i 2,958

 
 i 3,751

 
 i 8,264

Incurred guaranteed benefits
 i 58

 
 i 169

 
 i 755

 
 i 982

Paid guaranteed benefits
( i 2
)
 
 i 

 
 i 

 
( i 2
)
$
 i 1,611

 
$
 i 3,127

 
$
 i 4,506

 
$
 i 9,244


 / 

84

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
4. Insurance (continued)

 i 
Information regarding the Company’s guarantee exposure was as follows at:
 
 
2019
 
2018
 
In the Event of Death
 
At
Annuitization
 
In the Event of Death
 
At
Annuitization
 
(Dollars in millions)
Annuity Contracts (1), (2)
 
 
 
 
 
 
 
 
 
 
 
Variable Annuity Guarantees
 
 
 
 
 
 
 
 
 
 
 
Total account value (3)
$
 i 100,034

 
 
$
 i 57,069

 
 
$
 i 92,794

 
 
$
 i 53,330

 
Separate account value
$
 i 95,430

 
 
$
 i 56,027

 
 
$
 i 88,065

 
 
$
 i 52,225

 
Net amount at risk
$
 i 6,617

(4)
 
$
 i 4,495

(5)
 
$
 i 10,945

(4)
 
$
 i 3,903

(5)
Average attained age of contract holders
 i 69 years

 
 
 i 69 years

 
 
 i 69 years

 
 
 i 68 years

 
 
 
2019
 
2018
 
Secondary Guarantees
 
(Dollars in millions)
Universal Life Contracts
 
 
 
Total account value (3)
$
 i 5,957

 
$
 i 6,099

Net amount at risk (6)
$
 i 71,124

 
$
 i 73,131

Average attained age of policyholders
 i 66 years

 
 i 65 years

 
 
 
 
Variable Life Contracts
 
 
 
Total account value (3)
$
 i 1,133

 
$
 i 954

Net amount at risk (6)
$
 i 12,082

 
$
 i 13,040

Average attained age of policyholders
 i 45 years

 
 i 45 years

_______________
(1)
The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.
(2)
Includes direct business, but excludes offsets from hedging or reinsurance, if any. Therefore, the net amount at risk presented reflects the economic exposures of living and death benefit guarantees associated with variable annuities, but not necessarily their impact on the Company. See Note 6 for a discussion of guaranteed minimum benefits which have been reinsured.
(3)
Includes the contract holder’s investments in the general account and separate account, if applicable.
(4)
Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.
(5)
Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contract holders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contract holders have achieved.
 / 
(6)
Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.

85

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
4. Insurance (continued)

 i 
Account balances of contracts with guarantees were invested in separate account asset classes as follows at: 
 
 
2019
 
2018
 
(In millions)
Fund Groupings:
 
 
 
Balanced
$
 i 62,266

 
$
 i 58,258

Equity
 i 25,580

 
 i 22,292

Bond
 i 7,729

 
 i 7,592

Money Market
 i 16

 
 i 17

Total
$
 i 95,591

 
$
 i 88,159


 / 
Obligations Under Funding Agreements
The Company has issued fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain special purpose entities that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. During each of the years ended December 31, 2019, 2018 and 2017, the Company issued  i no funding agreements and repaid $ i 6 million. At December 31, 2019 and 2018, liabilities for funding agreements outstanding, which are included in policyholder account balances, were $ i 134 million and $ i 136 million, respectively.
Brighthouse Life Insurance Company is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta and holds common stock in certain regional banks in the FHLB system. Holdings of FHLB common stock carried at cost at December 31, 2019 and 2018 were $ i 39 million and $ i 64 million, respectively.
Brighthouse Life Insurance Company has also entered into funding agreements with FHLBs. The liabilities for these funding agreements are included in policyholder account balances. Liabilities for FHLB funding agreements at both December 31, 2019 and 2018 were $ i 595 million.
Funding agreements are issued to FHLBs in exchange for cash. The FHLBs have been granted liens on certain assets, some of which are in their custody, including RMBS, to collateralize the Company’s obligations under the funding agreements. The Company is permitted to withdraw any portion of the collateral in the custody of the FHLBs as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by the Company, the FHLBs recovery on the collateral is limited to the amount of the Company’s liabilities to the FHLBs.
In February 2019, Brighthouse Life Insurance Company entered into a funding agreement program with the Federal Agricultural Mortgage Corporation and its affiliate Farmer Mac Mortgage Securities Corporation (“Farmer Mac”), pursuant to which the parties may agree to enter into funding agreements in an aggregate amount of up to $ i 500 million. The funding agreement program has a term ending on December 1, 2023. Funding agreements are issued to Farmer Mac in exchange for cash. In connection with each funding agreement, Farmer Mac will be granted liens on certain assets, including agricultural loans, to collateralize Brighthouse Life Insurance Company’s obligations under the funding agreements. Upon any event of default by Brighthouse Life Insurance Company, Farmer Mac’s recovery on the collateral is limited to the amount of Brighthouse Life Insurance Company’s liabilities to Farmer Mac. At December 31, 2019, there were  i no borrowings under this funding agreement program.

86

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)

 i 
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
See Note 1 for a description of capitalized acquisition costs.
 i  i 
Information regarding DAC and VOBA was as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
DAC:
 
 
 
 
 
Balance at January 1,
$
 i 4,518

 
$
 i 5,015

 
$
 i 5,667

Capitalizations
 i 365

 
 i 319

 
 i 256

Amortization related to net investment gains (losses) and net derivative gains (losses)
 i 220

 
( i 370
)
 
 i 127

All other amortization
( i 586
)
 
( i 535
)
 
( i 958
)
Total amortization
( i 366
)
 
( i 905
)
 
( i 831
)
Unrealized investment gains (losses)
( i 190
)
 
 i 89

 
( i 77
)
Balance at December 31,
 i 4,327

 
 i 4,518

 
 i 5,015

VOBA:
 
 
 
 
 
Balance at January 1,
 i 568

 
 i 608

 
 i 672

Amortization related to net investment gains (losses) and net derivative gains (losses)
( i 1
)
 
( i 1
)
 
( i 9
)
All other amortization
( i 28
)
 
( i 105
)
 
( i 76
)
Total amortization
( i 29
)
 
( i 106
)
 
( i 85
)
Unrealized investment gains (losses)
( i 57
)
 
 i 66

 
 i 21

Balance at December 31,
 i 482

 
 i 568

 
 i 608

Total DAC and VOBA:
 
 
 
 
 
Balance at December 31,
$
 i 4,809

 
$
 i 5,086

 
$
 i 5,623


 / 
 / 
 i 
Information regarding total DAC and VOBA by segment, as well as Corporate & Other, was as follows at:
 
 
2019
 
2018
 
(In millions)
Annuities
$
 i 4,168

 
$
 i 4,357

Life
 i 539

 
 i 613

Run-off
 i 5

 
 i 5

Corporate & Other
 i 97

 
 i 111

Total
$
 i 4,809

 
$
 i 5,086


 / 

87

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)

 i  i 
Information regarding other intangibles was as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
DSI:
 
 
 
 
 
Balance at January 1,
$
 i 391

 
$
 i 411

 
$
 i 432

Capitalization
 i 2

 
 i 2

 
 i 2

Amortization
( i 36
)
 
( i 39
)
 
( i 12
)
Unrealized investment gains (losses)
 i 5

 
 i 17

 
( i 11
)
Balance at December 31,
$
 i 362

 
$
 i 391

 
$
 i 411

VODA:
 
 
 
 
 
Balance at January 1,
$
 i 91

 
$
 i 105

 
$
 i 120

Amortization
( i 13
)
 
( i 14
)
 
( i 15
)
Balance at December 31,
$
 i 78

 
$
 i 91

 
$
 i 105

Accumulated amortization
$
 i 182

 
$
 i 169

 
$
 i 155

 / 
 / 
 i 
The estimated future amortization expense to be reported in other expenses for the next five years is as follows:
 
VOBA
 
VODA
 
(In millions)
2020
$
 i 69

 
$
 i 12

2021
$
 i 61

 
$
 i 10

2022
$
 i 53

 
$
 i 9

2023
$
 i 46

 
$
 i 8

2024
$
 i 41

 
$
 i 7


 / 
 i 
6. Reinsurance
The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider of reinsurance for some insurance products issued by NELICO, former affiliated and unaffiliated companies. The Company participates in reinsurance activities in order to limit losses, minimize exposure to significant risks and provide additional capacity for future growth.
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed in Note 7.

88

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
6. Reinsurance (continued)

Annuities and Life
For annuities, the Company reinsures portions of the living and death benefit guarantees issued in connection with certain variable annuities to unaffiliated reinsurers. Under these reinsurance agreements, the Company pays a reinsurance premium generally based on fees associated with the guarantees collected from policyholders and receives reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations. The value of embedded derivatives on the ceded risk is determined using a methodology consistent with the guarantees directly written by the Company with the exception of the input for nonperformance risk that reflects the credit of the reinsurer. The Company also assumes  i 100% of the living and death benefit guarantees issued in connection with certain variable annuities issued by NELICO. The Company cedes certain fixed rate annuities to unaffiliated third party reinsurers, and assumes certain index-linked annuities from an unaffiliated third party insurer. These reinsurance arrangements are structured on a coinsurance basis and are reported as deposit accounting.
For its life products, the Company has historically reinsured the mortality risk primarily on an excess of retention basis or on a quota share basis. The Company currently reinsures  i 90% of the mortality risk in excess of $ i 2 million for most products. In addition to reinsuring mortality risk as described above, the Company reinsures other risks, as well as specific coverages. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specified characteristics. On a case-by-case basis, the Company may retain up to $ i 20 million per life and reinsure  i 100% of amounts in excess of the amount the Company retains. The Company also reinsures  i 90% of the risk associated with participating whole life policies to a former affiliate and assumes certain term life policies and universal life policies with secondary death benefit guarantees issued by a former affiliate. The Company evaluates its reinsurance programs routinely and may increase or decrease its retention at any time.
Corporate & Other
The Company reinsures, through  i 100% quota share reinsurance agreements certain run-off long-term care and workers’ compensation business written by the Company. At December 31, 2019, the Company had $ i 6.7 billion of reinsurance recoverables associated with its reinsured long-term care business. The reinsurer has established trust accounts for the Company’s benefit to secure their obligations under the reinsurance agreements. Additionally, the Company is indemnified for losses and certain other payment obligations it might incur with respect to such reinsured long-term care insurance business.
Catastrophe Coverage
The Company has exposure to catastrophes which could contribute to significant fluctuations in the Company’s results of operations. The Company uses excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks.
Reinsurance Recoverables
The Company reinsures its business through a diversified group of reinsurers. The Company analyzes recent trends in arbitration and litigation outcomes in disputes, if any, with its reinsurers. The Company monitors ratings and evaluates the financial strength of its reinsurers by analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer is evaluated as part of the overall monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. The Company generally secures large reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. These reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, which at both December 31, 2019 and 2018, were not significant.
The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. The Company had $ i 5.4 billion and $ i 5.0 billion of unsecured reinsurance recoverable balances with third-party reinsurers at December 31, 2019 and 2018, respectively.
At December 31, 2019, the Company had $ i 13.5 billion of net ceded reinsurance recoverables with third-parties. Of this total, $ i 11.7 billion, or  i 87%, were with the Company’s five largest ceded reinsurers, including $ i 4.0 billion of net ceded reinsurance recoverables which were unsecured. At December 31, 2018, the Company had $ i 12.3 billion of net ceded reinsurance recoverables with third-parties. Of this total, $ i 10.9 billion, or  i 89%, were with the Company’s five largest ceded reinsurers, including $ i 3.8 billion of net ceded reinsurance recoverables which were unsecured.

89

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
6. Reinsurance (continued)

The amounts on the consolidated statements of operations include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows:
 
Years Ended December 31,
 
2019

2018

2017
 
(In millions)
Premiums





Direct premiums
$
 i 1,597


$
 i 1,640


$
 i 1,731

Reinsurance assumed
 i 15


 i 12


 i 13

Reinsurance ceded
( i 765
)

( i 783
)

( i 916
)
Net premiums
$
 i 847


$
 i 869


$
 i 828

Universal life and investment-type product policy fees





Direct universal life and investment-type product policy fees
$
 i 3,432


$
 i 3,617


$
 i 3,653

Reinsurance assumed
 i 79


 i 101


 i 103

Reinsurance ceded
( i 529
)

( i 528
)

( i 600
)
Net universal life and investment-type product policy fees
$
 i 2,982

 
$
 i 3,190

 
$
 i 3,156

Other revenues





Direct other revenues
$
 i 244


$
 i 262


$
 i 260

Reinsurance assumed
 i 3


 i 2


 i 29

Reinsurance ceded
 i 19


 i 23


 i 47

Net other revenues
$
 i 266

 
$
 i 287

 
$
 i 336

Policyholder benefits and claims





Direct policyholder benefits and claims
$
 i 5,267


$
 i 4,724


$
 i 5,080

Reinsurance assumed
 i 70


 i 75


 i 89

Reinsurance ceded
( i 1,799
)

( i 1,619
)

( i 1,575
)
Net policyholder benefits and claims
$
 i 3,538

 
$
 i 3,180

 
$
 i 3,594

Other expenses
 
 
 
 
 
Direct other expenses
$
 i 1,839

 
$
 i 1,812

 
$
 i 1,835

Reinsurance assumed
( i 10
)
 
( i 4
)
 
 i 19

Reinsurance ceded
( i 20
)
 
( i 45
)
 
( i 21
)
Net other expenses
$
 i 1,809

 
$
 i 1,763

 
$
 i 1,833


 i 
The amounts on the consolidated balance sheets include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows at:
 
 
2019

2018
 
Direct

Assumed

Ceded

Total
Balance
Sheet

Direct

Assumed

Ceded

Total
Balance
Sheet
 
(In millions)
Assets















Premiums, reinsurance and other receivables
$
 i 420


$
 i 39


$
 i 13,828


$
 i 14,287


$
 i 384


$
 i 60


$
 i 12,669


$
 i 13,113

Liabilities
















Policyholder account balances
$
 i 42,062


$
 i 3,059


$
 i 


$
 i 45,121


$
 i 37,586


$
 i 1,744


$
 i 


$
 i 39,330

Other policy-related balances
$
 i 1,126

 
$
 i 1,675

 
$
 i 

 
$
 i 2,801

 
$
 i 1,051

 
$
 i 1,677

 
$
 i 

 
$
 i 2,728

Other liabilities
$
 i 3,410


$
 i 11


$
 i 1,063


$
 i 4,484


$
 i 2,804


$
( i 4
)

$
 i 655


$
 i 3,455


 / 

90

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
6. Reinsurance (continued)

Reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. The deposit assets on reinsurance were $ i 2.0 billion and $ i 1.4 billion at December 31, 2019 and 2018, respectively. The deposit liabilities on reinsurance were $ i 2.4 billion and $ i 1.4 billion at December 31, 2019 and 2018, respectively.
Related Party Reinsurance Transactions
The Company has reinsurance agreements with its affiliate NELICO and certain MetLife, Inc. subsidiaries, including Metropolitan Life Insurance Company (“MLIC”), Metropolitan Tower Life Insurance Company, MetLife Reinsurance Company of Vermont and American Life Insurance Company, all of which were related parties until the completion of the MetLife Divestiture.
 i 
Information regarding the significant effects of reinsurance with NELICO and former MetLife affiliates included on the consolidated statements of operations was as follows:

Years Ended December 31,

2019

2018

2017

(In millions)
Premiums





Reinsurance assumed
$
 i 5

 
$
 i 7

 
$
 i 13

Reinsurance ceded
 i 

 
( i 201
)
 
( i 537
)
Net premiums
$
 i 5

 
$
( i 194
)
 
$
( i 524
)
Universal life and investment-type product policy fees
 
 
 
 
 
Reinsurance assumed
$
 i 6

 
$
 i 51

 
$
 i 103

Reinsurance ceded
 i 

 
 i 1

 
( i 14
)
Net universal life and investment-type product policy fees
$
 i 6

 
$
 i 52

 
$
 i 89

Other revenues

 

 

Reinsurance assumed
$
 i 3

 
$
 i 2

 
$
 i 29

Reinsurance ceded
 i 

 
 i 18

 
 i 44

Net other revenues
$
 i 3

 
$
 i 20

 
$
 i 73

Policyholder benefits and claims

 

 

Reinsurance assumed
$
 i 34

 
$
 i 52

 
$
 i 87

Reinsurance ceded
 i 

 
( i 178
)
 
( i 420
)
Net policyholder benefits and claims
$
 i 34

 
$
( i 126
)
 
$
( i 333
)
Other expenses
 
 
 
 
 
Reinsurance assumed
$
( i 32
)
 
$
( i 13
)
 
$
 i 18

Reinsurance ceded
 i 

 
( i 5
)
 
 i 

Net other expenses
$
( i 32
)
 
$
( i 18
)
 
$
 i 18


 / 

91

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
6. Reinsurance (continued)

Information regarding the significant effects of reinsurance with NELICO and former MetLife affiliates included on the consolidated balance sheets was as follows at:
 
 
2019
 
2018
 
Assumed
 
Ceded
 
Assumed
 
Ceded
 
(In millions)
Assets
 
 
 
 
 
 
 
Premiums, reinsurance and other receivables
$
 i 26

 
$
 i 

 
$
 i 21

 
$
 i 

Liabilities
 
 
 
 
 
 
 
Policyholder account balances
$
 i 443

 
$
 i 

 
$
 i 386

 
$
 i 

Other policy-related balances
$
 i 11

 
$
 i 

 
$
 i 14

 
$
 i 

Other liabilities
$
( i 21
)
 
$
 i 

 
$
( i 38
)
 
$
 i 


The Company assumes risks from NELICO related to guaranteed minimum benefits written directly by the cedent. The assumed reinsurance agreements contain embedded derivatives and changes in their estimated fair value are also included within net derivative gains (losses). The embedded derivatives associated with the agreements are included within policyholder account balances and were $ i 443 million and $ i 386 million at December 31, 2019 and 2018, respectively. Net derivative gains (losses) associated with the embedded derivatives were ($ i 53) million, $ i 53 million and $ i 67 million for the years ended December 31, 2019, 2018 and 2017, respectively. In January 2017, the Company executed a novation and assignment agreement whereby it replaced MLIC as the reinsurer of certain variable annuities, including guaranteed minimum benefits, issued by NELICO. At the time of the novation and assignment, the transaction resulted in an increase in cash and cash equivalents of $ i 184 million, an increase in future policy benefits of $ i 34 million, an increase in policyholder account balances of $ i 219 million and a decrease in other liabilities of $ i 68 millionThe Company recognized no gain or loss as a result of this transaction.
The Company cedes risks to MLIC related to guaranteed minimum benefits written directly by the Company. The ceded reinsurance agreement contains embedded derivatives and changes in the estimated fair value are also included within net derivative gains (losses). Net derivative gains (losses) associated with the embedded derivatives were less than $ i 1 million and ($ i 126) million for the years ended December 31, 2018 and 2017, respectively.
In May 2017, the Company recaptured from MLIC risks related to multiple life products ceded under yearly renewable term and coinsurance agreements. This recapture resulted in an increase in cash and cash equivalents of $ i 214 million and a decrease in premiums, reinsurance and other receivables of $ i 189 million. The Company recognized a gain of $ i 17 million, net of income tax, as a result of this reinsurance termination.
The Company previously assumed risks from MLIC related to guaranteed minimum benefits written directly by MLIC. The assumed reinsurance agreement contained embedded derivatives and changes in their estimated fair value are included within net derivative gains (losses). Net derivative gains (losses) associated with the embedded derivatives were $ i 110 million for the year ended December 31, 2017. In January 2017, MLIC recaptured these risks which resulted in a decrease in investments and cash and cash equivalents of $ i 568 million, a decrease in future policy benefits of $ i 106 million, and a decrease in policyholder account balances of $ i 460 million. In June 2017, there was an adjustment to the recapture amounts of this transaction, which resulted in an increase in premiums, reinsurance and other receivables of $ i 140 million at June 30, 2017. The Company recognized a gain of $ i 89 million, net of income tax, as a result of this transaction.
In January 2017, the Company recaptured risks related to certain variable annuities, including guaranteed minimum benefits, issued by BHNY ceded to MLIC. This recapture resulted in a decrease in cash and cash equivalents of $ i 150 million, an increase in future policy benefits of $ i 45 million, an increase in policyholder account balances of $ i 168 million and a decrease in other liabilities of $ i 359 millionThe Company recognized no gain or loss as a result of this transaction.
Related party reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. There were  i no deposit assets on related party reinsurance at both December 31, 2019 and 2018. The deposit liabilities on related party reinsurance were $ i 164 million and $ i 174 million at December 31, 2019 and 2018, respectively.

92

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)

 i 
7. Investments
See Note 9 for information about the fair value hierarchy for investments and the related valuation methodologies.
Fixed Maturity Securities AFS
Fixed Maturity Securities AFS by Sector
 i 
The following table presents the fixed maturity securities AFS by sector at:
 
 
 

Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair
Value
 

Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair
Value
 
 
Gains
 
Temporary
Losses
 
OTTI
Losses (1)
 
Gains
 
Temporary
Losses
 
OTTI
Losses (1)
 
 
 
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
 i 27,841

 
$
 i 2,815

 
$
 i 65

 
$
 i 

 
$
 i 30,591

 
$
 i 23,902

 
$
 i 816

 
$
 i 659

 
$
 i 

 
$
 i 24,059

Foreign corporate
 i 9,017

 
 i 736

 
 i 67

 
 i 

 
 i 9,686

 
 i 8,044

 
 i 157

 
 i 306

 
 i 

 
 i 7,895

RMBS
 i 8,600

 
 i 440

 
 i 14

 
( i 4
)
 
 i 9,030

 
 i 8,309

 
 i 246

 
 i 122

 
( i 2
)
 
 i 8,435

U.S. government and agency
 i 5,396

 
 i 1,848

 
 i 

 
 i 

 
 i 7,244

 
 i 7,503

 
 i 1,251

 
 i 110

 
 i 

 
 i 8,644

CMBS
 i 5,460

 
 i 263

 
 i 9

 
 i 

 
 i 5,714

 
 i 5,177

 
 i 42

 
 i 87

 
( i 1
)
 
 i 5,133

State and political subdivision
 i 3,326

 
 i 687

 
 i 2

 
 i 

 
 i 4,011

 
 i 3,202

 
 i 399

 
 i 15

 
 i 

 
 i 3,586

ABS
 i 1,940

 
 i 21

 
 i 11

 
 i 

 
 i 1,950

 
 i 2,120

 
 i 13

 
 i 22

 
 i 

 
 i 2,111

Foreign government
 i 1,503

 
 i 250

 
 i 2

 
 i 

 
 i 1,751

 
 i 1,415

 
 i 101

 
 i 31

 
 i 

 
 i 1,485

Total fixed maturity securities
$
 i 63,083

 
$
 i 7,060

 
$
 i 170

 
$
( i 4
)
 
$
 i 69,977

 
$
 i 59,672

 
$
 i 3,025

 
$
 i 1,352

 
$
( i 3
)
 
$
 i 61,348


_______________
(1)
Noncredit OTTI losses included in accumulated other comprehensive income (loss) (“AOCI”) in an unrealized gain position are due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities.
 / 
The Company held  i no non-income producing fixed maturity securities at December 31, 2019. The Company held non-income producing fixed maturity securities with an estimated fair value of less than $ i 1 million at December 31, 2018.
Maturities of Fixed Maturity Securities
 i 
The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at December 31, 2019:
 
Due in One
Year or Less
 
Due After One
Year Through
Five Years
 
Due After Five
Years
Through Ten Years
 
Due After Ten
Years
 
Structured
Securities
 
Total Fixed
Maturity
Securities
 
(In millions)
Amortized cost
$
 i 1,682

 
$
 i 6,815

 
$
 i 12,485

 
$
 i 26,101

 
$
 i 16,000

 
$
 i 63,083

Estimated fair value
$
 i 1,691

 
$
 i 7,038

 
$
 i 13,343

 
$
 i 31,211

 
$
 i 16,694

 
$
 i 69,977

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

93

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

Continuous Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector
 i 
The following table presents the estimated fair value and gross unrealized losses of fixed maturity securities AFS in an unrealized loss position, aggregated by sector and by length of time that the securities have been in a continuous unrealized loss position at:
 
 
 
Less than 12 Months
 
Equal to or Greater than
12 Months
 
Less than 12 Months
 
Equal to or Greater than 12
Months
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
(Dollars in millions)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
 i 1,931

 
$
 i 43

 
$
 i 320

 
$
 i 22

 
$
 i 10,450

 
$
 i 465

 
$
 i 2,290

 
$
 i 194

Foreign corporate
 i 577

 
 i 12

 
 i 510

 
 i 55

 
 i 3,916

 
 i 199

 
 i 746

 
 i 107

RMBS
 i 802

 
 i 6

 
 i 346

 
 i 4

 
 i 1,550

 
 i 21

 
 i 2,567

 
 i 99

U.S. government and agency
 i 14

 
 i 

 
 i 

 
 i 

 
 i 359

 
 i 7

 
 i 1,355

 
 i 103

CMBS
 i 552

 
 i 7

 
 i 171

 
 i 2

 
 i 2,264

 
 i 52

 
 i 800

 
 i 34

State and political subdivision
 i 120

 
 i 2

 
 i 8

 
 i 

 
 i 346

 
 i 7

 
 i 158

 
 i 8

ABS
 i 358

 
 i 2

 
 i 676

 
 i 9

 
 i 1,407

 
 i 21

 
 i 70

 
 i 1

Foreign government
 i 65

 
 i 2

 
 i 

 
 i 

 
 i 520

 
 i 25

 
 i 132

 
 i 6

Total fixed maturity securities
$
 i 4,419

 
$
 i 74

 
$
 i 2,031

 
$
 i 92

 
$
 i 20,812

 
$
 i 797

 
$
 i 8,118

 
$
 i 552

Total number of securities in an unrealized loss position
 i 686

 
 
 
 i 297

 
 
 
 i 2,988

 
 
 
 i 1,022

 
 

 / 
Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities
Evaluation and Measurement Methodologies
Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the estimated fair value has been below amortized cost; (ii) the potential for impairments when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments where the issuer, series of issuers or industry has suffered a catastrophic loss or has exhausted natural resources; (vi) whether the Company has the intent to sell or will more likely than not be required to sell a particular security before the decline in estimated fair value below amortized cost recovers; (vii) with respect to Structured Securities, changes in forecasted cash flows after considering the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying assets backing a particular security, and the payment priority within the tranche structure of the security; (viii) the potential for impairments due to weakening of foreign currencies on non-functional currency denominated fixed maturity securities that are near maturity; and (ix) other subjective factors, including concentrations and information obtained from regulators and rating agencies.
For securities in an unrealized loss position, an OTTI is recognized in earnings when it is anticipated that the amortized cost will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the OTTI recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized as an OTTI in earnings (“credit loss”). If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of OTTI related to other-than-credit factors (“noncredit loss”) is recorded in OCI.

94

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

Current Period Evaluation
Based on the Company’s current evaluation of its AFS securities in an unrealized loss position in accordance with its impairment policy, and the Company’s current intentions and assessments (as applicable to the type of security) about holding, selling and any requirements to sell these securities, the Company concluded that these securities were not other-than-temporarily impaired at December 31, 2019.
Gross unrealized losses on fixed maturity securities decreased $ i 1.2 billion during the year ended December 31, 2019 to $ i 166 million. The decrease in gross unrealized losses for the year ended December 31, 2019, was primarily attributable to decreasing longer-term interest rates and narrowing credit spreads.
At December 31, 2019, $ i 9 million of the total $ i 166 million of gross unrealized losses were from  i 12 fixed maturity securities with an unrealized loss position of  i 20% or more of amortized cost for six months or greater.
Mortgage Loans
Mortgage Loans by Portfolio Segment
 i 
Mortgage loans are summarized as follows at:
 
 
2019
 
2018
 
Carrying
Value  
 
% of
Total
 
Carrying
Value
 
% of
Total
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
Commercial
$
 i 9,694

 
 i 61.9
 %
 
$
 i 8,502

 
 i 62.6
 %
Agricultural
 i 3,326

 
 i 21.2

 
 i 2,874

 
 i 21.1

Residential
 i 2,708

 
 i 17.3

 
 i 2,276

 
 i 16.7

Subtotal (1)
 i 15,728

 
 i 100.4

 
 i 13,652

 
 i 100.4

Valuation allowances (2)
( i 64
)
 
( i 0.4
)
 
( i 56
)
 
( i 0.4
)
Total mortgage loans, net
$
 i 15,664

 
 i 100.0
 %
 
$
 i 13,596

 
 i 100.0
 %
_______________
(1)
Purchases of mortgage loans from third parties were $ i 962 million and $ i 1.9 billion for the years ended December 31, 2019 and 2018, respectively, and were primarily comprised of residential mortgage loans.
 / 
(2)
The valuation allowances were primarily from collective evaluation (non-specific loan related).
Information on commercial, agricultural and residential mortgage loans is presented in the tables below.
Valuation Allowance Methodology
Mortgage loans are considered to be impaired when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the loan agreement. Specific valuation allowances are established using the same methodology for all three portfolio segments as the excess carrying value of a loan over either (i) the present value of expected future cash flows discounted at the loan’s original effective interest rate, (ii) the estimated fair value of the loan’s underlying collateral if the loan is in the process of foreclosure or otherwise collateral dependent, or (iii) the loan’s observable market price. A common evaluation framework is used for establishing non-specific valuation allowances for all loan portfolio segments; however, a separate non-specific valuation allowance is calculated and maintained for each loan portfolio segment that is based on inputs unique to each loan portfolio segment. Non-specific valuation allowances are established for pools of loans with similar risk characteristics where a property-specific or market-specific risk has not been identified, but for which the Company expects to incur a credit loss. These evaluations are based upon several loan portfolio segment-specific factors, including the Company’s experience for loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics. These evaluations are revised as conditions change and new information becomes available.

95

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

Credit Quality of Commercial Mortgage Loans
 i 
The credit quality of commercial mortgage loans was as follows at:
 
Recorded Investment
 
Estimated
Fair
Value
 
% of
Total
 
Debt Service Coverage Ratios
 
Total
 
% of
Total
 
 
> 1.20x
 
1.00x - 1.20x
 
< 1.00x
 
 
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
 i 8,300

 
$
 i 272

 
$
 i 158

 
$
 i 8,730

 
 i 90.1
%
 
$
 i 9,142

 
 i 90.2
%
65% to 75%
 i 746

 
 i 26

 
 i 8

 
 i 780

 
 i 8.0

 
 i 805

 
 i 8.0

76% to 80%
 i 184

 
 i 

 
 i 

 
 i 184

 
 i 1.9

 
 i 184

 
 i 1.8

Total
$
 i 9,230

 
$
 i 298

 
$
 i 166

 
$
 i 9,694

 
 i 100.0
%
 
$
 i 10,131

 
 i 100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
 i 7,444

 
$
 i 89

 
$
 i 34

 
$
 i 7,567

 
 i 89.0
%
 
$
 i 7,642

 
 i 89.0
%
65% to 75%
 i 762

 
 i 

 
 i 24

 
 i 786

 
 i 9.2

 
 i 797

 
 i 9.3

76% to 80%
 i 141

 
 i 

 
 i 8

 
 i 149

 
 i 1.8

 
 i 145

 
 i 1.7

Total
$
 i 8,347

 
$
 i 89

 
$
 i 66

 
$
 i 8,502

 
 i 100.0
%
 
$
 i 8,584

 
 i 100.0
%

 / 
Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at:
 
 
2019
 
2018
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
(Dollars in millions)
Loan-to-value ratios:
 
 
 
 
 
 
 
Less than 65%
$
 i 3,130

 
 i 94.1
%
 
$
 i 2,551

 
 i 88.8
%
65% to 75%
 i 196

 
 i 5.9

 
 i 322

 
 i 11.2

76% to 80%
 i 

 
 i 

 
 i 1

 
 i 

Total
$
 i 3,326

 
 i 100.0
%
 
$
 i 2,874

 
 i 100.0
%

The estimated fair value of agricultural mortgage loans was $ i 3.4 billion and $ i 2.9 billion at December 31, 2019 and 2018, respectively.

96

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
 
 
2019
 
2018
 
Recorded Investment
 
% of Total
 
Recorded Investment
 
% of Total
 
(Dollars in millions)
Performance indicators:
 
 
 
 
 
 
 
Performing
$
 i 2,671

 
 i 98.6
%
 
$
 i 2,240

 
 i 98.4
%
Nonperforming
 i 37

 
 i 1.4

 
 i 36

 
 i 1.6

Total
$
 i 2,708

 
 i 100.0
%
 
$
 i 2,276

 
 i 100.0
%

The estimated fair value of residential mortgage loans was $ i 2.8 billion and $ i 2.3 billion at December 31, 2019 and 2018, respectively.
Past Due, Nonaccrual and Modified Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with over  i 99% of all mortgage loans classified as performing at both December 31, 2019 and 2018. The Company defines delinquency consistent with industry practice, when mortgage loans are past due as follows: commercial and residential mortgage loans — 60 days and agricultural mortgage loans — 90 days. The Company had  i no commercial mortgage loans past due or in nonaccrual status at either December 31, 2019 or 2018. Agricultural mortgage loans past due and in nonaccrual status totaled $ i 21 million at December 31, 2019. The Company had less than $ i 1 million past due and  i no agricultural mortgage loans in nonaccrual status at December 31, 2018. Residential mortgage loans past due and in nonaccrual status totaled $ i 37 million and $ i 36 million at December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, the Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring.
Other Invested Assets
Freestanding derivatives with positive estimated fair values comprise over  i 90% of other invested assets. See Note 8 for information about freestanding derivatives with positive estimated fair values. Other invested assets also includes tax credit and renewable energy partnerships, leveraged leases and FHLB stock.
 i 
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity securities and the effect on DAC, VOBA, DSI and future policy benefits, that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in AOCI.

97

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

The components of net unrealized investment gains (losses), included in AOCI, were as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Fixed maturity securities
$
 i 6,894

 
$
 i 1,679

 
$
 i 4,724

Equity securities
 i 

 
 i 

 
 i 39

Derivatives
 i 232

 
 i 253

 
 i 231

Other
( i 15
)
 
( i 15
)
 
( i 8
)
Subtotal
 i 7,111

 
 i 1,917

 
 i 4,986

Amounts allocated from:
 
 
 
 
 
Future policy benefits
( i 2,691
)
 
( i 885
)
 
( i 2,370
)
DAC, VOBA and DSI
( i 332
)
 
( i 90
)
 
( i 262
)
Subtotal
( i 3,023
)
 
( i 975
)
 
( i 2,632
)
Deferred income tax benefit (expense)
( i 859
)
 
( i 198
)
 
( i 494
)
Net unrealized investment gains (losses)
$
 i 3,229

 
$
 i 744

 
$
 i 1,860


The changes in net unrealized investment gains (losses) were as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Balance, December 31,
$
 i 744

 
$
 i 1,860

 
$
 i 1,277

Unrealized investment gains (losses) change due to cumulative effect, net of income tax
 i 

 
( i 79
)
 
 i 

Balance at January 1,
 i 744

 
 i 1,781

 
 i 1,277

Unrealized investment gains (losses) during the year
 i 5,194

 
( i 2,990
)
 
 i 1,939

Unrealized investment gains (losses) relating to:
 
 
 
 
 
Future policy benefits
( i 1,806
)
 
 i 1,485

 
( i 1,448
)
DAC, VOBA and DSI
( i 242
)
 
 i 172

 
( i 67
)
Deferred income tax benefit (expense)
( i 661
)
 
 i 296

 
 i 159

Balance at December 31,
$
 i 3,229

 
$
 i 744

 
$
 i 1,860

Change in net unrealized investment gains (losses)
$
 i 2,485

 
$
( i 1,037
)
 
$
 i 583


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

98

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

Securities Lending
 i 
Elements of the securities lending program are presented below at:
 
 
2019
 
2018
 
(In millions)
Securities on loan: (1)
 
 
 
Amortized cost
$
 i 2,031

 
$
 i 3,056

Estimated fair value
$
 i 2,996

 
$
 i 3,628

Cash collateral received from counterparties (2)
$
 i 3,074

 
$
 i 3,646

Security collateral received from counterparties (3)
$
 i 

 
$
 i 55

Reinvestment portfolio — estimated fair value
$
 i 3,174

 
$
 i 3,658

_______________
(1)
Included within fixed maturity securities.
(2)
Included within payables for collateral under securities loaned and other transactions.
(3)
Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements.
The cash collateral liability by loaned security type and remaining tenor of the agreements were as follows at:
 
 
 
Remaining Tenor of Securities Lending Agreements
 
 
 
Remaining Tenor of Securities Lending Agreements
 
 
 
Open (1)
 
1 Month
or Less
 
1 to 6
Months
 
Total
 
Open (1)
 
1 Month
or Less
 
1 to 6
Months
 
Total
 
(In millions)
U.S. government and agency
$
 i 1,279

 
$
 i 1,094

 
$
 i 701

 
$
 i 3,074

 
$
 i 1,474

 
$
 i 1,823

 
$
 i 349

 
$
 i 3,646

_______________
 / 
(1)
The related loaned security could be returned to the Company on the next business day which would require the Company to immediately return the cash collateral.
If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both. The estimated fair value of the securities on loan related to the cash collateral on open at December 31, 2019 was $ i 1.2 billion, all of which were U.S. government and agency securities which, if put back to the Company, could be immediately sold to satisfy the cash requirement.
The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including agency RMBS, U.S. and foreign corporate securities, ABS, non-agency RMBS and U.S. government and agency securities) with  i 54% invested in agency RMBS, cash and cash equivalents and U.S. government and agency securities at December 31, 2019. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.

99

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

Invested Assets on Deposit, Held in Trust and Pledged as Collateral
 i 
Invested assets on deposit, held in trust and pledged as collateral are presented below at estimated fair value at:
 
 
2019
 
2018
 
(In millions)
Invested assets on deposit (regulatory deposits) (1)
$
 i 9,345

 
$
 i 8,172

Invested assets held in trust (reinsurance agreements) (2)
 i 4,561

 
 i 3,455

Invested assets pledged as collateral (3)
 i 3,640

 
 i 3,340

Total invested assets on deposit, held in trust and pledged as collateral
$
 i 17,546

 
$
 i 14,967

_______________
(1)
The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which $ i 69 million and $ i 55 million of the assets on deposit balance represents restricted cash at December 31, 2019 and 2018, respectively.
(2)
The Company has assets, primarily fixed maturity securities, held in trust relating to certain reinsurance transactions. $ i 124 million and $ i 87 million of the assets held in trust balance represents restricted cash at December 31, 2019 and 2018, respectively.
 / 
(3)
The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 4) and derivative transactions (see Note 8).
See “— Securities Lending” for information regarding securities on loan.
Purchased Credit Impaired Investments
Investments acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the Company will be unable to collect all contractually required payments are classified as purchased credit impaired (“PCI”) investments. For each investment, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the accretable yield and is recognized as net investment income on an effective yield basis. If, subsequently, based on current information and events, it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected can result in OTTI.
The Company’s PCI investments had an outstanding principal and interest balance of $ i 926 million and $ i 1.1 billion at December 31, 2019 and 2018, respectively, which represents the contractually required principal and accrued interest, whether or not currently due; and a carrying value (estimated fair value of the investments plus accrued interest) of $ i 761 million and $ i 860 million at December 31, 2019 and 2018, respectively. Accretion of accretable yield on PCI investments recognized in earnings were $ i 44 million and $ i 62 million for the years ended December 31, 2019 and 2018, respectively. Purchases of PCI investments were insignificant in both of the years ended December 31, 2019 and 2018.
Collectively Significant Equity Method Investments
The Company holds investments in limited partnerships and LLCs consisting of leveraged buy-out funds, hedge funds, private equity funds, joint ventures and other funds. The portion of these investments accounted for under the equity method had a carrying value of $ i 2.4 billion at December 31, 2019. The Company’s maximum exposure to loss related to these equity method investments is limited to the carrying value of these investments plus unfunded commitments of $ i 1.5 billion at December 31, 2019. The Company’s investments in limited partnerships and LLCs are generally of a passive nature in that the Company does not participate in the management of the entities.

100

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

As described in Note 1, the Company generally records its share of earnings in its equity method investments using a three-month lag methodology and within net investment income. Aggregate net investment income from these equity method investments exceeded  i 10% of the Company’s consolidated pre-tax income (loss) for each of the years ended 2019, 2018, and 2017. This aggregated summarized financial data does not represent the Company’s proportionate share of the assets, liabilities, or earnings of such entities.
The aggregated summarized financial data presented below reflects the latest available financial information and is as of and for the years ended December 31, 2019, 2018 and 2017. Aggregate total assets of these entities totaled $ i 403.6 billion and $ i 344.6 billion at December 31, 2019 and 2018, respectively. Aggregate total liabilities of these entities totaled $ i 52.7 billion and $ i 30.1 billion at December 31, 2019 and 2018, respectively. Aggregate net income (loss) of these entities totaled $ i 33.3 billion, $ i 33.3 billion and $ i 36.2 billion for the years ended December 31, 2019, 2018 and 2017, respectively. Aggregate net income (loss) from the underlying entities in which the Company invests is primarily comprised of investment income, including recurring investment income and realized and unrealized investment gains (losses).
Variable Interest Entities
The Company has invested in legal entities that are variable interest entities (“VIEs”). VIEs are consolidated when the investor is the primary beneficiary. A primary beneficiary is the variable interest holder in a VIE with both the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and the obligation to absorb losses, or the right to receive benefits that could potentially be significant to the VIE.
There were  i no material VIEs for which the Company has concluded that it is the primary beneficiary at December 31, 2019 or 2018.
The Company’s investments in unconsolidated VIEs are described below.
Fixed Maturity Securities
The Company invests in U.S. corporate bonds, foreign corporate bonds, and Structured Securities, issued by VIEs. The Company is not obligated to provide any financial or other support to these VIEs, other than the original investment. The Company’s involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer, or investment manager, which are generally viewed as having the power to direct the activities that most significantly impact the economic performance of the VIE, nor does the Company function in any of these roles. The Company does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity; as a result, the Company has determined it is not the primary beneficiary, or consolidator, of the VIE. The Company’s maximum exposure to loss on these fixed maturity securities is limited to the amortized cost of these investments. See “— Fixed Maturity Securities AFS” for information on these securities.
Limited Partnerships and LLCs
The Company holds investments in certain limited partnerships and LLCs which are VIEs. These ventures include limited partnerships, LLCs, private equity funds, hedge funds, and to a lesser extent tax credit and renewable energy partnerships. The Company is not considered the primary beneficiary, or consolidator, when its involvement takes the form of a limited partner interest and is restricted to a role of a passive investor, as a limited partner’s interest does not provide the Company with any substantive kick-out or participating rights, nor does it provide the Company with the power to direct the activities of the fund. The Company’s maximum exposure to loss on these investments is limited to: (i) the amount invested in debt or equity of the VIE and (ii) commitments to the VIE, as described in Note 14.

101

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

 i 
The carrying amount and maximum exposure to loss related to the VIEs in which the Company concluded that it holds a variable interest, but is not the primary beneficiary, were as follows at:
 
 
2019
 
2018
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
(In millions)
Fixed maturity securities
$
 i 12,959

 
$
 i 12,317

 
$
 i 12,848

 
$
 i 12,848

Limited partnerships and LLCs
 i 1,892

 
 i 3,065

 
 i 1,743

 
 i 3,130

Total
$
 i 14,851

 
$
 i 15,382

 
$
 i 14,591

 
$
 i 15,978


 / 
Net Investment Income
 i 
The components of net investment income were as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Investment income:
 
 
 
 
 
Fixed maturity securities
$
 i 2,627

 
$
 i 2,499

 
$
 i 2,347

Equity securities
 i 8

 
 i 7

 
 i 9

Mortgage loans
 i 676

 
 i 538

 
 i 450

Policy loans
 i 46

 
 i 62

 
 i 49

Limited partnerships and LLCs (1)
 i 220

 
 i 258

 
 i 235

Cash, cash equivalents and short-term investments
 i 72

 
 i 26

 
 i 30

Other
 i 38

 
 i 38

 
 i 28

Subtotal
 i 3,687

 
 i 3,428

 
 i 3,148

Less: Investment expenses
 i 201

 
 i 193

 
 i 175

Net investment income
$
 i 3,486

 
$
 i 3,235

 
$
 i 2,973


_______________
 / 
(1)
Includes net investment income pertaining to other limited partnership interests of $ i 181 million, $ i 211 million and $ i 182 million for the years ended December 31, 2019, 2018 and 2017, respectively.
See “— Related Party Investment Transactions” for discussion of related party net investment income and investment expenses.

102

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
7. Investments (continued)

Net Investment Gains (Losses)
Components of Net Investment Gains (Losses)
 i 
The components of net investment gains (losses) were as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Fixed maturity securities 
$
 i 87

 
$
( i 178
)
 
$
( i 26
)
Equity securities
 i 17

 
( i 16
)
 
 i 22

Mortgage loans
( i 10
)
 
( i 13
)
 
( i 9
)
Limited partnerships and LLCs
 i 7

 
 i 40

 
( i 7
)
Other
( i 9
)
 
( i 37
)
 
( i 7
)
Total net investment gains (losses)
$
 i 92

 
$
( i 204
)

$
( i 27
)

 / 
See “— Related Party Investment Transactions” for discussion of related party net investment gains (losses) related to transfers of invested assets.
Sales or Disposals of Fixed Maturity Securities
Investment gains and losses on sales of securities are determined on a specific identification basis.  i Proceeds from sales or disposals of fixed maturity securities and the components of fixed maturity securities net investment gains (losses) were as shown in the table below.
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Proceeds
$
 i 8,541

 
$
 i 11,159

 
$
 i 11,974

Gross investment gains
$
 i 232

 
$
 i 101

 
$
 i 58

Gross investment losses
( i 145
)
 
( i 279
)
 
( i 84
)
Net investment gains (losses)
$
 i 87

 
$
( i 178
)
 
$
( i 26
)

Related Party Investment Transactions
All of the transactions reported as related party activity occurred prior to the MetLife Divestiture. See Note 1 regarding the MetLife Divestiture.
The Company previously transferred invested assets, primarily consisting of fixed maturity securities, to former affiliates. The estimated fair value and amortized cost of invested assets transferred to former affiliates was $ i 292 million and $ i 294 million, respectively, for the year ended December 31, 2017. The net investment gains (losses) recognized on transfers of invested assets to former affiliates was ($ i 2) million for the year ended December 31, 2017.
In March 2017, the Company sold an operating joint venture with a book value of $ i 89 million to MLIC for $ i 286 million. The operating joint venture was accounted for under the equity method and included in other invested assets. This sale resulted in an increase in additional paid-in capital of $ i 202 million in the first quarter of 2017.
The Company receives investment administrative services from MetLife Investment Management, LLC (formerly known as MetLife Investment Advisors, LLC), which was considered a related party investment manager until the completion of the MetLife Divestiture. The related investment administrative service charges were $ i 49 million and $ i 93 million for the years ended December 31, 2018 and 2017, respectively.

103

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)

 i 
8. Derivatives
Accounting for Derivatives
See Note 1 for a description of the Company’s accounting policies for derivatives and Note 9 for information about the fair value hierarchy for derivatives.
Derivative Strategies
The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize its exposure to various market risks, including interest rate, foreign currency exchange rate, credit and equity market.
Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”).
Interest Rate Derivatives
Interest rate swaps: The Company uses interest rate swaps to manage the collective interest rate risks primarily in variable annuity products and universal life with secondary guarantees. Interest rate swaps are used in non-qualifying hedging relationships.
Interest rate caps: The Company uses interest rate caps to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities. Interest rate caps are used in non-qualifying hedging relationships.
Swaptions: The Company uses swaptions to manage the collective interest rate risks primarily in variable annuity products and universal life with secondary guarantees. Swaptions are used in non-qualifying hedging relationships. Swaptions are included in interest rate options.
Interest rate forwards: The Company uses interest rate forwards to manage the collective interest rate risks primarily in variable annuity products and universal life with secondary guarantees. Interest rate forwards are used in cash flow and non-qualifying hedging relationships.
Foreign Currency Exchange Rate Derivatives
Foreign currency swaps: The Company uses foreign currency swaps to convert foreign currency denominated cash flows to U.S. dollars to reduce cash flow fluctuations due to changes in currency exchange rates. Foreign currency swaps are used in cash flow and non-qualifying hedging relationships.
Foreign currency forwards: The Company uses foreign currency forwards to hedge currency exposure on its invested assets. Foreign currency forwards are used in non-qualifying hedging relationships.
Credit Derivatives
Credit default swaps: The Company uses credit default swaps to create synthetic credit investments to replicate credit exposure that is more economically attractive than what is available in the market or otherwise unavailable (written credit protection), or to reduce credit loss exposure on certain assets that the Company owns (purchased credit protection). Credit default swaps are used in non-qualifying hedging relationships.
Equity Derivatives
Equity index options: The Company uses equity index options primarily to hedge minimum guarantees embedded in certain variable annuity products against adverse changes in equity markets. Additionally, the Company uses equity index options to hedge index-linked annuity products against adverse changes in equity markets. Equity index options are used in non-qualifying hedging relationships.
Equity total return swaps: The Company uses equity total return swaps to hedge minimum guarantees embedded in certain variable annuity products against adverse changes equity markets. Equity total return swaps are used in non-qualifying hedging relationships.

104

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
8. Derivatives (continued)

Equity variance swaps: The Company uses equity variance swaps to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. Equity variance swaps are used in non-qualifying hedging relationships.
Primary Risks Managed by Derivatives
 i 
The following table presents the primary underlying risk exposure, gross notional amount, and estimated fair value of the Company’s derivatives held at:
 
 
 
 
 
 
2019
 
2018
 
 
 
 
 
Estimated Fair Value
 
 
 
Estimated Fair Value
 
Primary Underlying Risk Exposure
 
Gross
Notional
Amount
 
Assets
 
Liabilities
 
Gross
Notional
Amount
 
Assets
 
Liabilities
 
 
 
(In millions)
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate forwards
Interest rate
 
$
 i 420

 
$
 i 22

 
$
 i 

 
$
 i 

 
$
 i 

 
$
 i 

Foreign currency swaps
Foreign currency exchange rate
 
 i 2,701

 
 i 176

 
 i 27

 
 i 2,461

 
 i 200

 
 i 30

Total qualifying hedges
 
 i 3,121

 
 i 198

 
 i 27

 
 i 2,461

 
 i 200

 
 i 30

Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest rate
 
 i 7,559

 
 i 878

 
 i 29

 
 i 10,747

 
 i 528

 
 i 558

Interest rate caps
Interest rate
 
 i 3,350

 
 i 2

 
 i 

 
 i 3,350

 
 i 21

 
 i 

Interest rate futures
Interest rate
 
 i 

 
 i 

 
 i 

 
 i 53

 
 i 

 
 i 

Interest rate options
Interest rate
 
 i 29,750

 
 i 782

 
 i 187

 
 i 17,168

 
 i 168

 
 i 61

Interest rate forwards
Interest rate
 
 i 5,418

 
 i 94

 
 i 114

 
 i 

 
 i 

 
 i 

Foreign currency swaps
Foreign currency exchange rate
 
 i 1,040

 
 i 94

 
 i 15

 
 i 1,398

 
 i 99

 
 i 18

Foreign currency forwards
Foreign currency exchange rate
 
 i 138

 
 i 

 
 i 1

 
 i 125

 
 i 

 
 i 

Credit default swaps — purchased
Credit
 
 i 18

 
 i 

 
 i 

 
 i 98

 
 i 3

 
 i 

Credit default swaps — written
Credit
 
 i 1,613

 
 i 36

 
 i 

 
 i 1,798

 
 i 14

 
 i 3

Equity futures
Equity market
 
 i 

 
 i 

 
 i 

 
 i 169

 
 i 

 
 i 

Equity index options
Equity market
 
 i 51,509

 
 i 850

 
 i 1,728

 
 i 45,815

 
 i 1,372

 
 i 1,207

Equity variance swaps
Equity market
 
 i 2,136

 
 i 69

 
 i 69

 
 i 5,574

 
 i 80

 
 i 232

Equity total return swaps
Equity market
 
 i 7,723

 
 i 2

 
 i 367

 
 i 3,920

 
 i 280

 
 i 3

Total non-designated or non-qualifying derivatives
 
 i 110,254

 
 i 2,807

 
 i 2,510

 
 i 90,215

 
 i 2,565

 
 i 2,082

Embedded derivatives:
 
 


 

 

 


 

 

Ceded guaranteed minimum income benefits
Other
 
N/A

 
 i 217

 
 i 

 
N/A

 
 i 228

 
 i 

Direct index-linked annuities
Other
 
N/A

 
 i 

 
 i 2,253

 
N/A

 
 i 

 
 i 488

Direct guaranteed minimum benefits
Other
 
N/A

 
 i 

 
 i 1,548

 
N/A

 
 i 

 
 i 1,546

Assumed guaranteed minimum benefits
Other
 
N/A

 
 i 

 
 i 442

 
N/A

 
 i 

 
 i 386

Assumed index-linked annuities
Other
 
N/A

 
 i 

 
 i 339

 
N/A

 
 i 

 
 i 96

Total embedded derivatives
 
N/A

 
 i 217

 
 i 4,582

 
N/A

 
 i 228

 
 i 2,516

Total
 
$
 i 113,375

 
$
 i 3,222

 
$
 i 7,119

 
$
 i 92,676

 
$
 i 2,993

 
$
 i 4,628


 / 

105

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
8. Derivatives (continued)

Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both December 31, 2019 and 2018. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and generally do not qualify for hedge accounting because they do not meet the criteria required under portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities and generally do not qualify for hedge accounting because they do not meet the criteria of being “highly effective” as outlined in ASC 815; (iii) derivatives that economically hedge embedded derivatives that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivatives are already recorded in net income; and (iv) written credit default swaps that are used to create synthetic credit investments and that do not qualify for hedge accounting because they do not involve a hedging relationship.
 i  i 
The following tables present the amount and location of gains (losses), including earned income, recognized for derivatives and gains (losses) pertaining to hedged items presented in net derivative gains (losses):
 
 
Net
Derivative
Gains
(Losses)
Recognized for
Derivatives
 
Net
Derivative
Gains (Losses)
Recognized for
Hedged Items
 
Net
Investment
Income
 
Policyholder
Benefits and
Claims
 
Amount of Gains (Losses) deferred in AOCI
 
(In millions)
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
 i 31

 
$
 i 

 
$
 i 2

 
$
 i 

 
$
 i 25

Foreign currency exchange rate derivatives
 i 25

 
( i 29
)
 
 i 32

 
 i 

 
 i 12

Total cash flow hedges
 i 56

 
( i 29
)
 
 i 34

 
 i 

 
 i 37

Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 i 1,589

 
 i 

 
 i 

 
 i 

 
 i 

Foreign currency exchange rate derivatives
 i 22

 
( i 3
)
 
 i 

 
 i 

 
 i 

Credit derivatives
 i 44

 
 i 

 
 i 

 
 i 

 
 i 

Equity derivatives
( i 2,476
)
 
 i 

 
 i 

 
 i 

 
 i 

Embedded derivatives
( i 1,249
)
 
 i 

 
 i 

 
 i 

 
 i 

Total non-qualifying hedges
( i 2,070
)
 
( i 3
)
 
 i 

 
 i 

 
 i 

Total
$
( i 2,014
)
 
$
( i 32
)
 
$
 i 34

 
$
 i 

 
$
 i 37

 / 
 / 

106

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
8. Derivatives (continued)

 
 
Net
Derivative
Gains
(Losses)
Recognized for
Derivatives
 
Net
Derivative
Gains (Losses)
Recognized for
Hedged Items
 
Net
Investment
Income
 
Policyholder
Benefits and
Claims
 
Amount of Gains (Losses) deferred in AOCI
 
(In millions)
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
( i 12
)
 
$
 i 12

 
$
 i 1

 
$
 i 

 
$
 i 

Total fair value hedges
( i 12
)
 
 i 12

 
 i 1

 
 i 

 
 i 

Cash flow hedges:
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 i 129

 
( i 1
)
 
 i 5

 
 i 

 
( i 5
)
Foreign currency exchange rate derivatives
 i 

 
( i 1
)
 
 i 26

 
 i 

 
 i 161

Total cash flow hedges
 i 129

 
( i 2
)
 
 i 31

 
 i 

 
 i 156

Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Interest rate derivatives
( i 659
)
 
 i 

 
 i 

 
 i 

 
 i 

Foreign currency exchange rate derivatives
 i 81

 
( i 7
)
 
 i 

 
 i 

 
 i 

Credit derivatives
( i 7
)
 
 i 

 
 i 

 
 i 

 
 i 

Equity derivatives
 i 631

 
 i 

 
 i 

 
 i 

 
 i 

Embedded derivatives
 i 579

 
 i 

 
 i 

 
( i 8
)
 
 i 

Total non-qualifying hedges
 i 625

 
( i 7
)
 
 i 

 
( i 8
)
 
 i 

Total
$
 i 742

 
$
 i 3

 
$
 i 32

 
$
( i 8
)
 
$
 i 156


107

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
8. Derivatives (continued)

 
 
Net
Derivative
Gains
(Losses)
Recognized for
Derivatives
 
Net
Derivative
Gains (Losses)
Recognized for
Hedged Items
 
Net
Investment
Income
 
Policyholder
Benefits and
Claims
 
Amount of Gains (Losses) deferred in AOCI
 
(In millions)
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
 i 2

 
$
( i 2
)
 
$
 i 2

 
$
 i 

 
$
 i 

Total fair value hedges
 i 2

 
( i 2
)
 
 i 2

 
 i 

 
 i 

Cash flow hedges:
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 i 

 
 i 

 
 i 6

 
 i 

 
 i 1

Foreign currency exchange rate derivatives
 i 8

 
( i 9
)
 
 i 19

 
 i 

 
( i 153
)
Total cash flow hedges
 i 8

 
( i 9
)
 
 i 25

 
 i 

 
( i 152
)
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Interest rate derivatives
( i 58
)
 
 i 

 
 i 

 
 i 10

 
 i 

Foreign currency exchange rate derivatives
( i 83
)
 
( i 32
)
 
 i 

 
 i 

 
 i 

Credit derivatives
 i 34

 
 i 

 
 i 

 
 i 

 
 i 

Equity derivatives
( i 2,565
)
 
 i 

 
( i 1
)
 
( i 335
)
 
 i 

Embedded derivatives
 i 1,237

 
 i 

 
 i 

 
( i 16
)
 
 i 

Total non-qualifying hedges
( i 1,435
)
 
( i 32
)
 
( i 1
)
 
( i 341
)
 
 i 

Total
$
( i 1,425
)
 
$
( i 43
)
 
$
 i 26

 
$
( i 341
)
 
$
( i 152
)

At December 31, 2019 and 2018, the balance in AOCI associated with cash flow hedges was $ i 232 million and $ i 253 million, respectively.
Credit Derivatives
In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation.

108

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
8. Derivatives (continued)

 i 
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at:
 
 
 
 
2019
 
2018
Rating Agency Designation of Referenced
Credit Obligations (1)
 
Estimated Fair Value of Credit Default Swaps
 
Maximum Amount of Future Payments under Credit Default Swaps
 
Weighted Average Years to Maturity (2)
 
Estimated Fair Value of Credit Default Swaps
 
Maximum Amount of Future Payments under Credit Default Swaps
 
Weighted Average Years to Maturity (2)
 
 
(Dollars in millions)
Aaa/Aa/A
 
$
 i 11

 
$
 i 615

 
 i 2.5
 
$
 i 8

 
$
 i 689

 
 i 2.0
Baa
 
 i 25

 
 i 998

 
 i 5.1
 
 i 3

 
 i 1,109

 
 i 5.0
Total
 
$
 i 36

 
$
 i 1,613

 
 i 4.1
 
$
 i 11

 
$
 i 1,798

 
 i 3.9
_______________
(1)
The Company has written credit protection on both single name and index references. The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s, S&P and Fitch. If no rating is available from a rating agency, then an internally developed rating is used.
 / 
(2)
The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts.
Counterparty Credit Risk
The Company may be exposed to credit-related losses in the event of counterparty nonperformance on derivative instruments. Generally, the credit exposure is the fair value at the reporting date less any collateral received from the counterparty.
The Company manages its credit risk by: (i) entering into derivative transactions with creditworthy counterparties governed by master netting agreements; (ii) trading through regulated exchanges and central clearing counterparties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single party credit exposures which are subject to periodic management review.
See Note 9 for a description of the impact of credit risk on the valuation of derivatives.
 i 
The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at: 
 
 
 
 
Gross Amounts Not Offset on the Consolidated Balance Sheets
 
 
 
 
 
 
 
 
Gross Amount Recognized
 
Financial Instruments (1)
 
Collateral Received/Pledged (2)
 
Net Amount
 
Securities Collateral Received/Pledged (3)
 
Net Amount After Securities Collateral
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
 i 3,046

 
$
( i 1,458
)
 
$
( i 1,100
)
 
$
 i 488

 
$
( i 487
)
 
$
 i 1

Derivative liabilities
 
$
 i 2,522

 
$
( i 1,458
)
 
$
 i 

 
$
 i 1,064

 
$
( i 1,061
)
 
$
 i 3

 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
 i 2,820

 
$
( i 1,671
)
 
$
( i 1,053
)
 
$
 i 96

 
$
( i 83
)
 
$
 i 13

Derivative liabilities
 
$
 i 2,104

 
$
( i 1,671
)
 
$
 i 

 
$
 i 433

 
$
( i 433
)
 
$
 i 

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

109

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
8. Derivatives (continued)

(2)
The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreement.
(3)
Securities collateral received by the Company is not recorded on the balance sheet. Amounts do not include excess of collateral pledged or received.
The Company’s collateral arrangements generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the amount owed by that counterparty reaches a minimum transfer amount. Certain of these arrangements also include credit contingent provisions which permit the party with positive fair value to terminate the derivative at the current fair value or demand immediate full collateralization from the party in a net liability position, in the event that the financial strength or credit rating of the party in a net liability position falls below a certain level.
 i 
The following table presents the aggregate estimated fair value of derivatives in a net liability position containing such credit contingent provisions and the aggregate estimated fair value of assets posted as collateral for such instruments.
 
 
 
 
2019
 
2018
 
 
(In millions)
Estimated fair value of derivatives in a net liability position (1)
 
$
 i 1,064

 
$
 i 433

Estimated Fair Value of Collateral Provided (2)
 
 
 
 
Fixed maturity securities
 
$
 i 1,473

 
$
 i 797

_______________
(1)
After taking into consideration the existence of netting agreements.
 / 
(2)
Substantially all of the Company’s collateral arrangements provide for daily posting of collateral for the full value of the derivative contract. As a result, if the credit contingent provisions of derivative contracts in a net liability position were triggered, minimal additional assets would be required to be posted as collateral or needed to settle the instruments immediately.
 i 
9. Fair Value
When developing estimated fair values, the Company considers three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs, giving priority to observable inputs. The Company categorizes its assets and liabilities measured at estimated fair value into a three-level hierarchy, based on the significant input with the lowest level in its valuation. The input levels are as follows: 
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities.
Level 2
Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. These inputs can include quoted prices for similar assets or liabilities other than quoted prices in Level 1, quoted prices in markets that are not active, or other significant inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and are significant to the determination of estimated fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.


110

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

Recurring Fair Value Measurements
 i 
The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy are presented below. Investments that do not have a readily determinable fair value and are measured at net asset value (or equivalent) as a practical expedient to estimated fair value are excluded from the fair value hierarchy.
 
 
Fair Value Hierarchy
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total Estimated
Fair Value
 
(In millions)
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
U.S. corporate
$
 i 

 
$
 i 30,266

 
$
 i 325

 
$
 i 30,591

Foreign corporate
 i 

 
 i 9,554

 
 i 132

 
 i 9,686

RMBS
 i 

 
 i 8,986

 
 i 44

 
 i 9,030

U.S. government and agency
 i 1,542

 
 i 5,702

 
 i 

 
 i 7,244

CMBS
 i 

 
 i 5,714

 
 i 

 
 i 5,714

State and political subdivision
 i 

 
 i 3,938

 
 i 73

 
 i 4,011

ABS
 i 

 
 i 1,877

 
 i 73

 
 i 1,950

Foreign government
 i 

 
 i 1,751

 
 i 

 
 i 1,751

Total fixed maturity securities
 i 1,542

 
 i 67,788

 
 i 647

 
 i 69,977

Equity securities
 i 14

 
 i 125

 
 i 8

 
 i 147

Short-term investments
 i 1,004

 
 i 473

 
 i 5

 
 i 1,482

Derivative assets: (1)
 
 
 
 
 
 
 
Interest rate
 i 

 
 i 1,778

 
 i 

 
 i 1,778

Foreign currency exchange rate
 i 

 
 i 265

 
 i 5

 
 i 270

Credit
 i 

 
 i 25

 
 i 11

 
 i 36

Equity market
 i 

 
 i 850

 
 i 71

 
 i 921

Total derivative assets
 i 

 
 i 2,918

 
 i 87

 
 i 3,005

Embedded derivatives within asset host contracts (2)
 i 

 
 i 

 
 i 217

 
 i 217

Separate account assets
 i 180

 
 i 99,485

 
 i 3

 
 i 99,668

Total assets
$
 i 2,740

 
$
 i 170,789

 
$
 i 967

 
$
 i 174,496

Liabilities
 
 
 
 
 
 
 
Derivative liabilities: (1)
 
 
 
 
 
 
 
Interest rate
$
 i 

 
$
 i 330

 
$
 i 

 
$
 i 330

Foreign currency exchange rate
 i 

 
 i 43

 
 i 

 
 i 43

Equity market
 i 

 
 i 2,093

 
 i 71

 
 i 2,164

Total derivative liabilities
 i 

 
 i 2,466

 
 i 71

 
 i 2,537

Embedded derivatives within liability host contracts (2)
 i 

 
 i 

 
 i 4,582

 
 i 4,582

Total liabilities
$
 i 

 
$
 i 2,466

 
$
 i 4,653

 
$
 i 7,119

 / 

111

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

 
 
Fair Value Hierarchy
 

 
Level 1
 
Level 2
 
Level 3
 
Total Estimated
Fair Value
 
(In millions)
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
U.S. corporate
$
 i 

 
$
 i 23,740

 
$
 i 319

 
$
 i 24,059

Foreign corporate
 i 

 
 i 7,503

 
 i 392

 
 i 7,895

RMBS
 i 

 
 i 8,429

 
 i 6

 
 i 8,435

U.S. government and agency
 i 2,334

 
 i 6,310

 
 i 

 
 i 8,644

CMBS
 i 

 
 i 5,004

 
 i 129

 
 i 5,133

State and political subdivision
 i 

 
 i 3,512

 
 i 74

 
 i 3,586

ABS
 i 

 
 i 2,072

 
 i 39

 
 i 2,111

Foreign government
 i 

 
 i 1,485

 
 i 

 
 i 1,485

Total fixed maturity securities
 i 2,334

 
 i 58,055

 
 i 959

 
 i 61,348

Equity securities
 i 13

 
 i 124

 
 i 3

 
 i 140

Derivative assets: (1)
 
 
 
 
 
 
 
Interest rate
 i 

 
 i 717

 
 i 

 
 i 717

Foreign currency exchange rate
 i 

 
 i 288

 
 i 11

 
 i 299

Credit
 i 

 
 i 10

 
 i 7

 
 i 17

Equity market
 i 

 
 i 1,634

 
 i 98

 
 i 1,732

Total derivative assets
 i 

 
 i 2,649

 
 i 116

 
 i 2,765

Embedded derivatives within asset host contracts (2)
 i 

 
 i 

 
 i 228

 
 i 228

Separate account assets
 i 217

 
 i 91,293

 
 i 1

 
 i 91,511

Total assets
$
 i 2,564

 
$
 i 152,121

 
$
 i 1,307

 
$
 i 155,992

Liabilities
 
 
 
 
 
 
 
Derivative liabilities: (1)
 
 
 
 
 
 
 
Interest rate
$
 i 

 
$
 i 619

 
$
 i 

 
$
 i 619

Foreign currency exchange rate
 i 

 
 i 48

 
 i 

 
 i 48

Credit
 i 

 
 i 2

 
 i 1

 
 i 3

Equity market
 i 

 
 i 1,205

 
 i 237

 
 i 1,442

Total derivative liabilities
 i 

 
 i 1,874

 
 i 238

 
 i 2,112

Embedded derivatives within liability host contracts (2)
 i 

 
 i 

 
 i 2,516

 
 i 2,516

Total liabilities
$
 i 

 
$
 i 1,874

 
$
 i 2,754

 
$
 i 4,628

_______________
(1)
Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the consolidated balance sheets.
(2)
Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables and other invested assets on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances on the consolidated balance sheets.

112

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

Valuation Controls and Procedures
The Company monitors and provides oversight of valuation controls and policies for securities, mortgage loans and derivatives, which are primarily executed by its valuation service providers. The valuation methodologies used to determine fair values prioritize the use of observable market prices and market-based parameters and determines that judgmental valuation adjustments, when applied, are based upon established policies and are applied consistently over time. The valuation methodologies for securities, mortgage loans and derivatives are reviewed on an ongoing basis and revised when necessary. In addition, the Chief Accounting Officer periodically reports to the Audit Committee of Brighthouse Financial’s Board of Directors regarding compliance with fair value accounting standards.
The fair value of financial assets and financial liabilities is based on quoted market prices, where available. The Company assesses whether prices received represent a reasonable estimate of fair value through controls designed to ensure valuations represent an exit price. Valuation service providers perform several controls, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing whether these inputs can be corroborated by observable market data. Independent non-binding broker quotes, also referred to herein as “consensus pricing,” are used for a non-significant portion of the portfolio. Prices received from independent brokers are assessed to determine if they represent a reasonable estimate of fair value by considering such pricing relative to the current market dynamics and current pricing for similar financial instruments.
Valuation service providers also apply a formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations are obtained. If obtaining an independent non-binding broker quotation is unsuccessful, valuation service providers will use the last available price.
The Company reviews outputs of the valuation service providers’ controls and performs additional controls, including certain monthly controls, which include but are not limited to, performing balance sheet analytics to assess reasonableness of period to period pricing changes, including any price adjustments. Price adjustments are applied if prices or quotes received from independent pricing services or brokers are not considered reflective of market activity or representative of estimated fair value. The Company did not have significant price adjustments during the year ended December 31, 2019.
Determination of Fair Value
Fixed Maturity Securities
The fair values for actively traded marketable bonds, primarily U.S. government and agency securities, are determined using the quoted market prices and are classified as Level 1 assets. For fixed maturity securities classified as Level 2 assets, fair values are determined using either a market or income approach and are valued based on a variety of observable inputs as described below.
U.S. corporate and foreign corporate securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, benchmark yields, spreads off benchmark yields, new issuances, issuer rating, trades of identical or comparable securities, or duration. Privately-placed securities are valued using the additional key inputs: market yield curve, call provisions, observable prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer, and delta spread adjustments to reflect specific credit-related issues.
U.S. government and agency, state and political subdivision and foreign government securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, benchmark U.S. Treasury yield or other yields, spread off the U.S. Treasury yield curve for the identical security, issuer ratings and issuer spreads, broker-dealer quotes, and comparable securities that are actively traded.

113

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

Structured Securities: Fair value is determined using third-party commercial pricing services, with the primary inputs being quoted prices in markets that are not active, spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, ratings, geographic region, weighted average coupon and weighted average maturity, average delinquency rates and debt-service coverage ratios. Other issuance-specific information is also used, including, but not limited to; collateral type, structure of the security, vintage of the loans, payment terms of the underlying asset, payment priority within tranche, and deal performance.
Equity Securities and Short-term Investments
The fair value for actively traded equity securities and short-term investments are determined using quoted market prices and are classified as Level 1 assets. For financial instruments classified as Level 2 assets or liabilities, fair values are determined using a market approach and are valued based on a variety of observable inputs as described below.
Equity securities and short-term investments: Fair value is determined using third-party commercial pricing services, with the primary input being quoted prices in markets that are not active.
Derivatives
The fair values for exchange-traded derivatives are determined using the quoted market prices and are classified as Level 1 assets. For OTC-bilateral derivatives and OTC-cleared derivatives classified as Level 2 assets or liabilities, fair values are determined using the income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models which are based on market standard valuation methodologies and a variety of observable inputs.
The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Certain OTC-bilateral and OTC-cleared derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and management believes they are consistent with what other market participants would use when pricing such instruments.
Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.
Embedded Derivatives
Embedded derivatives principally include certain direct and ceded variable annuity guarantees and equity crediting rates within index-linked annuity contracts. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.

114

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs contain embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
The Company determines the fair value of these embedded derivatives by estimating the present value of projected future benefits minus the present value of projected future fees using actuarial and capital market assumptions including expectations of policyholder behavior. The calculation is based on in-force business and is performed using standard actuarial valuation software which projects future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates. The percentage of fees included in the initial fair value measurement is not updated in subsequent periods.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly- traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for BHF’s debt. These observable spreads are then adjusted to reflect the priority of these liabilities and claims paying ability of the issuing insurance subsidiaries as compared to BHF’s overall financial strength.
Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.
The Company issues and assumes through reinsurance index-linked annuities which allow the policyholder to participate in returns from equity indices. The crediting rates associated with these features are embedded derivatives which are measured at estimated fair value separately from the host fixed annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
The estimated fair value of crediting rates associated with index-linked annuities is determined using a combination of an option pricing model and an option-budget approach. The valuation of these embedded derivatives also includes the establishment of a risk margin, as well as changes in nonperformance risk.
Transfers Into or Out of Level 3:
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.

115

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
 i 
The following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at:
 
 
 
 
 
 
 
 
 
Impact of
Increase in Input
on Estimated
Fair Value
 
Valuation Techniques
 
Significant
Unobservable Inputs
 
Range
 
Range
 
Embedded derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct, assumed and ceded guaranteed minimum benefits
Option pricing techniques
 
Mortality rates
 
 i 0.02%
-
 i 11.31%
 
 i 0.02%
-
 i 11.31%
 
Decrease (1)
 
 
 
 
Lapse rates
 
 i 0.25%
-
 i 16.00%
 
 i 0.25%
-
 i 16.00%
 
Decrease (2)
 
 
 
 
Utilization rates
 
 i 0.00%
-
 i 25.00%
 
 i 0.00%
-
 i 25.00%
 
Increase (3)
 
 
 
 
Withdrawal rates
 
 i 0.25%
-
 i 10.00%
 
 i 0.25%
-
 i 10.00%
 
(4)
 
 
 
 
Long-term equity volatilities
 
 i 16.24%
-
 i 21.65%
 
 i 16.50%
-
 i 22.00%
 
Increase (5)
 
 
 
 
Nonperformance risk spread
 
 i 0.54%
-
 i 1.99%
 
 i 1.91%
-
 i 2.66%
 
Decrease (6)
_______________
(1)
Mortality rates vary by age and by demographic characteristics such as gender. The range shown reflects the mortality rate for policyholders between 35 and 90 years old, which represents the majority of the business with living benefits. Mortality rate assumptions are set based on company experience and include an assumption for mortality improvement.
(2)
The range shown reflects base lapse rates for major product categories for duration 1-20, which represents majority of business with living benefit riders. Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in-the-money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies.
(3)
The utilization rate assumption estimates the percentage of contract holders with a GMIB or lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible in a given year. The range shown represents the floor and cap of the GMIB dynamic election rates across varying levels of in-the-money. For lifetime withdrawal guarantee riders, the assumption is that everyone will begin withdrawals once account value reaches zero which is equivalent to a 100% utilization rate. Utilization rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder.
(4)
The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.
(5)
Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
 / 
(6)
Nonperformance risk spread varies by duration. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.
The Company does not develop unobservable inputs used in measuring fair value for all other assets and liabilities classified within Level 3; therefore, these are not included in the table above. The other Level 3 assets and liabilities primarily included fixed maturity securities and derivatives. For fixed maturity securities valued based on non-binding broker quotes, an increase (decrease) in credit spreads would result in a higher (lower) fair value. For derivatives valued based on third-party pricing models, an increase (decrease) in credit spreads would generally result in a higher (lower) fair value.

116

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

 i 
The following tables summarize the change of all assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Fixed Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Corporate (1)
 
Structured Securities
 
State and
Political
Subdivision
 
Foreign
Government
 
Equity
Securities
 
Short-term
Investments
 
Net
Derivatives (2)
 
Net Embedded
Derivatives (3)
 
Separate
Account
Assets (4)
 
(In millions)
 
$
 i 1,937

 
$
 i 1,222

 
$
 i 

 
$
 i 5

 
$
 i 124

 
$
 i 14

 
$
( i 279
)
 
$
( i 2,007
)
 
$
 i 5

Total realized/unrealized gains (losses) included in net income (loss) (5) (6)
 
 i 1

 
 i 2

 
 i 1

 
 i 

 
 i 

 
 i 

 
 i 152

 
 i 571

 
 i 

Total realized/unrealized gains (losses) included in AOCI
 
( i 32
)
 
( i 6
)
 
( i 1
)
 
 i 

 
 i 

 
 i 

 
 i 9

 
 i 

 
 i 

Purchases (7)
 
 i 71

 
 i 42

 
 i 

 
 i 

 
 i 1

 
 i 

 
 i 3

 
 i 

 
 i 1

Sales (7)
 
( i 197
)
 
( i 91
)
 
( i 1
)
 
( i 5
)
 
( i 3
)
 
( i 14
)
 
( i 7
)
 
 i 

 
( i 1
)
Issuances (7)
 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

Settlements (7)
 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
( i 852
)
 
( i 1
)
Transfers into Level 3 (8)
 
 i 414

 
 i 9

 
 i 75

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

Transfers out of Level 3 (8)
 
( i 1,483
)
 
( i 1,004
)
 
 i 

 
 i 

 
( i 119
)
 
 i 

 
 i 

 
 i 

 
( i 3
)
 
 i 711

 
 i 174

 
 i 74

 
 i 

 
 i 3

 
 i 

 
( i 122
)
 
( i 2,288
)
 
 i 1

Total realized/unrealized gains (losses) included in net income (loss) (5) (6)
 
 i 

 
 i 1

 
 i 1

 
 i 

 
 i 

 
 i 

 
( i 12
)
 
( i 1,249
)
 
 i 

Total realized/unrealized gains (losses) included in AOCI
 
 i 15

 
 i 2

 
( i 1
)
 
 i 

 
 i 

 
 i 

 
( i 1
)
 
 i 

 
 i 

Purchases (7)
 
 i 342

 
 i 68

 
 i 

 
 i 

 
 i 5

 
 i 5

 
 i 

 
 i 

 
 i 3

Sales (7)
 
( i 150
)
 
( i 25
)
 
( i 1
)
 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

Issuances (7)
 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

Settlements (7)
 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 155

 
( i 828
)
 
 i 

Transfers into Level 3 (8)
 
 i 24

 
 i 42

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

 
 i 

Transfers out of Level 3 (8)
 
( i 485
)
 
( i 145
)
 
 i 

 
 i 

 
 i 

 
 i 

 
( i 4
)
 
 i 

 
( i 1
)
 
$
 i 457

 
$
 i 117

 
$
 i 73

 
$
 i 

 
$
 i 8

 
$
 i 5

 
$
 i 16

 
$
( i 4,365
)
 
$
 i 3

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2017: (9)
 
$
 i 1

 
$
 i 23

 
$
 i 

 
$
 i 

 
$
 i 

 
$
 i 

 
$
( i 52
)
 
$
 i 1,300

 
$
 i 

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2018: (9)
 
$
( i 2
)
 
$
( i 1
)
 
$
 i 1

 
$
 i 

 
$
 i 1

 
$
 i 

 
$
 i 148

 
$
 i 268

 
$
 i 

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2019: (9)
 
$
 i 

 
$
 i 

 
$
 i 1

 
$
 i 

 
$
 i 

 
$
 i 

 
$
( i 10
)
 
$
( i 1,504
)
 
$
 i 

Gains (Losses) Data for the year ended December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total realized/unrealized gains (losses) included in net income (loss) (5) (6)
 
$
( i 3
)
 
$
 i 28

 
$
 i 

 
$
 i 

 
$
( i 3
)
 
$
 i 

 
$
 i 92

 
$
 i 1,233

 
$
 i 

Total realized/unrealized gains (losses) included in AOCI
 
$
 i 127

 
$
 i 52

 
$
 i 

 
$
 i 

 
$
 i 

 
$
 i 

 
$
 i 

 
$
 i 

 
$
 i 

_______________
 / 

117

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

(1)
Comprised of U.S. and foreign corporate securities.
(2)
Freestanding derivative assets and liabilities are presented net for purposes of the rollforward.
(3)
Embedded derivative assets and liabilities are presented net for purposes of the rollforward.
(4)
Investment performance related to separate account assets is fully offset by corresponding amounts credited to contract holders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure, these changes are presented within net investment gains (losses).
(5)
Amortization of premium/accretion of discount is included within net investment income. Impairments charged to net income (loss) on securities are included in net investment gains (losses). Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
(6)
Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward.
(7)
Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements.
(8)
Gains and losses, in net income (loss) and OCI, are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.
(9)
Changes in unrealized gains (losses) included in net income (loss) relate to assets and liabilities still held at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
Fair Value of Financial Instruments Carried at Other Than Fair Value
The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, payables for collateral under securities loaned and other transactions, and those short-term investments that are not securities and therefore are not included in the three level hierarchy table disclosed in the “— Recurring Fair Value Measurements” section. The estimated fair value of the excluded financial instruments, which are primarily classified in Level 2, approximates carrying value as they are short-term in nature such that the Company believes there is minimal risk of material changes in interest rates or credit quality. All remaining balance sheet amounts excluded from the tables below are not considered financial instruments subject to this disclosure.
 i 
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:
 
 
 
 
Fair Value Hierarchy
 
 
 
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
Mortgage loans
$
 i 15,664


$
 i 


$
 i 


$
 i 16,291


$
 i 16,291

Policy loans
$
 i 875

 
$
 i 

 
$
 i 479

 
$
 i 504

 
$
 i 983

Other invested assets
$
 i 51

 
$
 i 

 
$
 i 39

 
$
 i 12

 
$
 i 51

Premiums, reinsurance and other receivables
$
 i 2,053

 
$
 i 

 
$
 i 41

 
$
 i 2,427

 
$
 i 2,468

Liabilities
 
 
 
 
 
 
 
 
 
Policyholder account balances
$
 i 15,474

 
$
 i 

 
$
 i 

 
$
 i 15,576

 
$
 i 15,576

Long-term debt
$
 i 844

 
$
 i 

 
$
 i 39

 
$
 i 903

 
$
 i 942

Other liabilities
$
 i 943

 
$
 i 

 
$
 i 169

 
$
 i 777

 
$
 i 946

Separate account liabilities
$
 i 1,186

 
$
 i 

 
$
 i 1,186

 
$
 i 

 
$
 i 1,186

 / 

118

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
9. Fair Value (continued)

 
 

 
Fair Value Hierarchy
 

 
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value

(In millions)
Assets
 
 
 
 
 
 
 
 
 
Mortgage loans
$
 i 13,596

 
$
 i 

 
$
 i 

 
$
 i 13,761

 
$
 i 13,761

Policy loans
$
 i 1,001

 
$
 i 

 
$
 i 619

 
$
 i 452

 
$
 i 1,071

Other invested assets
$
 i 77

 
$
 i 

 
$
 i 64

 
$
 i 13

 
$
 i 77

Premiums, reinsurance and other receivables
$
 i 1,426

 
$
 i 

 
$
 i 31

 
$
 i 1,501

 
$
 i 1,532

Liabilities
 
 
 
 
 
 
 
 
 
Policyholder account balances
$
 i 15,183

 
$
 i 

 
$
 i 

 
$
 i 13,732

 
$
 i 13,732

Long-term debt
$
 i 434

 
$
 i 

 
$
 i 38

 
$
 i 380

 
$
 i 418

Other liabilities
$
 i 395

 
$
 i 

 
$
 i 54

 
$
 i 323

 
$
 i 377

Separate account liabilities
$
 i 1,025

 
$
 i 

 
$
 i 1,025

 
$
 i 

 
$
 i 1,025


 i 
10. Long-term Debt
 i 
Long-term debt outstanding was as follows:
 
 
 
 

 
December 31,
 
 
Interest Rate
 
Maturity
2019
 
2018
 
 
 
 
 
 
(In millions)
Surplus note — affiliated
 
 i 8.070%
 
2059
 
$
 i 412

 
$
 i 

Surplus note — affiliated
 
 i 8.150%
 
2058
 
 i 200

 
 i 200

Surplus note — affiliated
 
 i 7.800%
 
2058
 
 i 200

 
 i 200

Other long-term debt — unaffiliated (1)
 
 i 7.028%
 
2030
 
 i 32

 
 i 34

Total long-term debt
 
 
 
 
 
$
 i 844

 
$
 i 434

_______________  
(1)
Represents non-recourse debt of a subsidiary for which creditors have no access, subject to customary exceptions, to the general assets of the Company other than recourse to certain investment companies.
 / 
The aggregate maturities of long-term debt at December 31, 2019 were $ i 2 million in each of 2020, 2021, 2022, 2023 and 2024 and $ i 834 million thereafter.
Interest expense related to long-term debt of $ i 60 million, $ i 6 million and $ i 58 million for the years ended December 31, 2019, 2018 and 2017, respectively, is included in other expenses, of which $ i 58 million, $ i 4 million and $ i 35 million, respectively, was associated with affiliated debt.
Surplus Notes
On March 25, 2019, Brighthouse Life Insurance Company issued a $ i 412 million surplus note due March 2059 to BH Holdings, which bears interest at a fixed rate of  i 8.07%, payable annually. Payments of interest and principal on this surplus note may be made only with the prior approval of the Delaware Department of Insurance.
On December 21, 2018, Brighthouse Life Insurance Company issued a $ i 200 million surplus note due December 2058 to NELICO (the “December 2058 Surplus Note”) in exchange for $ i 28 million of cash and $ i 172 million of invested assets, primarily fixed maturity securities. The December 2058 Surplus Note bears interest at a fixed rate of  i 8.15%, payable annually. On December 21, 2018, with the prior approval of the Commonwealth of Massachusetts Division of Insurance, NELICO distributed the December 2058 Surplus Note to BH Holdings via a non-cash extraordinary dividend. Payments of interest and principal on the December 2058 Surplus Note may be made only with the prior approval of the Delaware Department of Insurance.

119

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
10. Long-term Debt (continued)

On September 28, 2018, Brighthouse Life Insurance Company issued a $ i 200 million surplus note due September 2058 to BH Holdings (the “September 2058 Surplus Note”) in exchange for cash, which bears interest at a fixed rate of  i 7.80%, payable annually. Payments of interest and principal on the September 2058 Surplus Note may be made only with the prior approval of the Delaware Department of Insurance.
On June 16, 2017, MetLife, Inc. forgave Brighthouse Life Insurance Company’s obligation to pay the principal amount of $ i 750 million,  i 8.595% surplus notes held by MetLife, Inc., which were originally issued in 2008. The forgiveness of the surplus notes was treated as a capital transaction and recorded as an increase to additional paid-in capital.
On April 28, 2017, two surplus note obligations due to MetLife, Inc. totaling $ i 1.1 billion, which were originally issued in 2012 and 2013, were due on September 30, 2032 and December 31, 2033 and bore interest at  i 5.13% and  i 6.00%, respectively, were satisfied in a non-cash exchange for $ i 1.1 billion of loans due from MetLife, Inc.
Committed Facilities
Reinsurance Financing Arrangement
On April 28, 2017, BRCD entered into a $ i 10.0 billion financing arrangement with a pool of highly rated third-party reinsurers. This financing arrangement consists of credit-linked notes that each mature in 2037. At December 31, 2019, there were  i no borrowings under this facility and there was $ i 10.0 billion of funding available under this arrangement. For the years ended December 31, 2019, 2018 and 2017, the Company recognized commitment fees of $ i 41 million, $ i 44 million and $ i 27 million, respectively, in other expenses associated with this committed facility.
Repurchase Facility
On April 16, 2018, Brighthouse Life Insurance Company entered into a secured committed repurchase facility (the “Repurchase Facility”) with a financial institution, pursuant to which Brighthouse Life Insurance Company may enter into repurchase transactions in an aggregate amount up to $ i 2.0 billion. The Repurchase Facility has a term beginning on July 31, 2018 and maturing on July 31, 2021. Under the Repurchase Facility, Brighthouse Life Insurance Company may sell certain eligible securities at a purchase price based on the market value of the securities less an applicable margin based on the types of securities sold, with a concurrent agreement to repurchase such securities at a predetermined future date (ranging from two weeks to three months) and at a price which represents the original purchase price plus interest. At December 31, 2019, there were  i no borrowings under the Repurchase Facility. For the years ended December 31, 2019 and 2018, fees associated with this committed facility were not significant.
 i 
11. Equity
Capital Transactions
During the years ended December 31, 2019, 2018 and 2017, the Company received cash capital contributions totaling $ i 0, $ i 0 and $ i 1.3 billion, respectively, from BH Holdings.
During the third quarter of 2017, the Company recognized a $ i 1.1 billion non-cash tax charge and corresponding capital contribution from MetLife, Inc. This tax obligation was in connection with the Separation and MetLife, Inc. is responsible for this obligation through a tax separation agreement with MetLife, Inc. (the “Tax Separation Agreement”). See Note 13.
During the second quarter of 2017, MetLife, Inc. forgave Brighthouse Life Insurance Company’s obligation to pay the principal amount of $ i 750 million of surplus notes held by MetLife, Inc. The forgiveness of these notes was a non-cash capital contribution. See Note 10.
In April 2017, in connection with the Contribution Transactions, the Company recognized a $ i 2.7 billion return of capital to MetLife, Inc. See Note 3.
During the first quarter of 2017, the Company sold an operating joint venture to a former affiliate and the resulting $ i 202 million gain was treated as a cash capital contribution. See Note 7.

120

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
11. Equity (continued)

Statutory Equity and Income
The states of domicile of Brighthouse Life Insurance Company and BHNY impose RBC requirements that were developed by the National Association of Insurance Commissioners (“NAIC”). Regulatory compliance is determined by a ratio of a company’s total adjusted capital (“TAC”), calculated in the manner prescribed by the NAIC to its authorized control level RBC (“ACL RBC”), calculated in the manner prescribed by the NAIC, based on the statutory-based filed financial statements. Companies below specific trigger levels or ratios are classified by their respective levels, each of which requires specified corrective action. The minimum level of TAC before corrective action commences is twice ACL RBC. The RBC ratios for Brighthouse Life Insurance Company and BHNY were each  i in excess of 400% for all periods presented.
Brighthouse Life Insurance Company and BHNY prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile.
Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting of reinsurance agreements and valuing investments and deferred tax assets on a different basis.
The tables below present amounts from Brighthouse Life Insurance Company and BHNY, which are derived from the statutory-basis financial statements as filed with the insurance regulators.
 i 
Statutory net income (loss) was as follows:
 
 
 
 
Years Ended December 31,
Company
 
State of Domicile
 
2019
 
2018
 
2017
 
 
 
 
(In millions)
Brighthouse Life Insurance Company
 
Delaware
 
$
 i 1,074

 
$
( i 1,104
)
 
$
( i 425
)
Brighthouse Life Insurance Company of NY
 
New York
 
$
( i 139
)
 
$
 i 19

 
$
 i 22

Statutory capital and surplus was as follows at:
 
 
December 31,
Company
 
2019
 
2018
 
 
(In millions)
Brighthouse Life Insurance Company
 
$
 i 8,746

 
$
 i 6,731

Brighthouse Life Insurance Company of NY
 
$
 i 579

 
$
 i 279


 / 
The Company has a reinsurance subsidiary, BRCD which reinsures risks including level premium term life and ULSG assumed from other Brighthouse Financial life insurance subsidiaries. BRCD, with the explicit permission of the Delaware Commissioner, has included, as admitted assets, the value of credit-linked notes, serving as collateral, which resulted in higher statutory capital and surplus of $ i 9.0 billion and $ i 8.7 billion for the years ended December 31, 2019 and 2018, respectively.
The statutory net income (loss) of BRCD was ($ i 316) million, ($ i 1.1) billion and ($ i 1.6) billion for the years ended December 31, 2019, 2018 and 2017, respectively, and the combined statutory capital and surplus, including the aforementioned prescribed practices, were $ i 572 million and $ i 557 million at December 31, 2019 and 2018, respectively.

121

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
11. Equity (continued)

Dividend Restrictions
 i 
The table below sets forth the dividends permitted to be paid by certain of the Company’s insurance companies without insurance regulatory approval and dividends paid:
 
 
2020
 
2019
 
2018
 
2017
Company
 
Permitted Without Approval (1)
 
Paid (2)
 
Paid (2)
 
Paid (2)
 
 
(In millions)
Brighthouse Life Insurance Company
 
$
 i 2,066

 
$
 i 

 
$
 i 

 
$
 i 

Brighthouse Life Insurance Company of NY
 
$
 i 

 
$
 i 28

 
$
 i 

 
$
 i 

_______________ 
(1)
Reflects dividend amounts that may be paid during 2020 without prior regulatory approval. However, because dividend tests may be based on dividends previously paid over rolling 12-month periods, if paid before a specified date during 2020, some or all of such dividends may require regulatory approval. See Note 16.
 / 
(2)
Reflects all amounts paid, including those requiring regulatory approval.
Under the Delaware Insurance Law, Brighthouse Life Insurance Company is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend as long as the amount of the dividend when aggregated with all other dividends in the preceding 12 months does not exceed the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year; or (ii) its net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not including pro rata distributions of Brighthouse Life Insurance Company’s own securities. Brighthouse Life Insurance Company will be permitted to pay a stockholder dividend in excess of the greater of such two amounts only if it files notice of the declaration of such a dividend and the amount thereof with the Delaware Commissioner and the Delaware Commissioner either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined as “unassigned funds (surplus)”) as of the immediately preceding calendar year requires insurance regulatory approval. Under the Delaware Insurance Law, the Delaware Commissioner has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.
Under BRCD’s plan of operations, no dividend or distribution may be made by BRCD without the prior approval of the Delaware Commissioner. On December 30, 2019, the Delaware Commissioner approved an extraordinary dividend of $ i 600 million payable to Brighthouse Life Insurance Company (see Note 16). During the years ended December 31, 2018 and 2017, BRCD paid extraordinary cash dividends of $ i 0 and $ i 535 million, respectively. During the years ended December 31, 2019, 2018 and 2017, BRCD paid cash dividends of $ i 1 million, $ i 2 million and $ i 0, respectively, to its preferred shareholders.

122

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
11. Equity (continued)

Accumulated Other Comprehensive Income (Loss)
 i 
Information regarding changes in the balances of each component of AOCI was as follows:
 
Unrealized
Investment Gains
(Losses), Net of
Related Offsets (1)
 
Unrealized Gains
(Losses) on Derivatives
 
Foreign
Currency
Translation
Adjustments
 
Total
 
(In millions)
$
 i 1,019

 
$
 i 258

 
$
( i 29
)
 
$
 i 1,248

OCI before reclassifications
 i 529

 
( i 152
)
 
 i 9

 
 i 386

Deferred income tax benefit (expense)
( i 206
)
 
 i 54

 
( i 3
)
 
( i 155
)
AOCI before reclassifications, net of income tax
 i 1,342

 
 i 160

 
( i 23
)
 
 i 1,479

Amounts reclassified from AOCI
 i 61

 
( i 14
)
 
 i 

 
 i 47

Deferred income tax benefit (expense) (2)
 i 306

 
 i 5

 
 i 

 
 i 311

Amounts reclassified from AOCI, net of income tax
 i 367

 
( i 9
)
 
 i 

 
 i 358

 i 1,709

 
 i 151

 
( i 23
)
 
 i 1,837

Cumulative effect of change in accounting principle and other, net of income tax
( i 79
)
 
 i 

 
 i 

 
( i 79
)
 i 1,630

 
 i 151

 
( i 23
)
 
 i 1,758

OCI before reclassifications
( i 1,534
)
 
 i 156

 
( i 4
)
 
( i 1,382
)
Deferred income tax benefit (expense)
 i 327

 
 i 54

 
 i 1

 
 i 382

AOCI before reclassifications, net of income tax
 i 423

 
 i 361

 
( i 26
)
 
 i 758

Amounts reclassified from AOCI
 i 179

 
( i 134
)
 
 i 

 
 i 45

Deferred income tax benefit (expense)
( i 38
)
 
( i 47
)
 
 i 

 
( i 85
)
Amounts reclassified from AOCI, net of income tax
 i 141

 
( i 181
)
 
 i 

 
( i 40
)
 i 564

 
 i 180

 
( i 26
)
 
 i 718

OCI before reclassifications
 i 3,224

 
 i 37

 
 i 12

 
 i 3,273

Deferred income tax benefit (expense)
( i 677
)
 
( i 8
)
 
 i 

 
( i 685
)
AOCI before reclassifications, net of income tax
 i 3,111

 
 i 209

 
( i 14
)
 
 i 3,306

Amounts reclassified from AOCI
( i 57
)
 
( i 58
)
 
 i 

 
( i 115
)
Deferred income tax benefit (expense)
 i 12

 
 i 12

 
 i 

 
 i 24

Amounts reclassified from AOCI, net of income tax
( i 45
)
 
( i 46
)
 
 i 

 
( i 91
)
$
 i 3,066

 
$
 i 163

 
$
( i 14
)
 
$
 i 3,215

_______________
(1)
See Note 7 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI.
 / 
(2)
Includes the $ i 330 million impact of the Tax Cuts and Job Act (the “Tax Act”) related to unrealized investments gains (losses), net of related offsets.

123

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
11. Equity (continued)

 i 
Information regarding amounts reclassified out of each component of AOCI was as follows:
AOCI Components
 
Amounts Reclassified from AOCI
 
Consolidated Statements of Operations Locations
 
 
Years Ended December 31,
 
 
 
 
2019
 
2018
 
2017
 
 
 
 
(In millions)
 
 
Net unrealized investment gains (losses):
 
 
 
 
 
 
 
 
Net unrealized investment gains(losses)
 
$
 i 94

 
$
( i 178
)
 
$
( i 15
)
 
Net investment gains (losses)
Net unrealized investment gains (losses)
 
 i 

 
 i 1

 
 i 1

 
Net investment income
Net unrealized investment gains (losses)
 
( i 37
)
 
( i 2
)
 
( i 47
)
 
Net derivative gains (losses)
Net unrealized investment gains (losses), before income tax
 
 i 57

 
( i 179
)
 
( i 61
)
 
 
Income tax (expense) benefit
 
( i 12
)
 
 i 38

 
( i 306
)
 
 
Net unrealized investment gains (losses), net of income tax
 
 i 45

 
( i 141
)
 
( i 367
)
 
 
Unrealized gains (losses) on derivatives - cash flow hedges:
 
 
 
 
 
 
 
 
Interest rate swaps
 
 i 31

 
 i 98

 
 i 

 
Net derivative gains (losses)
Interest rate swaps
 
 i 2

 
 i 3

 
 i 3

 
Net investment income
Interest rate forwards
 
 i 

 
 i 31

 
 i 

 
Net derivative gains (losses)
Interest rate forwards
 
 i 

 
 i 2

 
 i 3

 
Net investment income
Foreign currency swaps
 
 i 25

 
 i 

 
 i 8

 
Net derivative gains (losses)
Gains (losses) on cash flow hedges, before income tax
 
 i 58

 
 i 134

 
 i 14

 
 
Income tax (expense) benefit
 
( i 12
)
 
 i 47

 
( i 5
)
 
 
Gains (losses) on cash flow hedges, net of income tax
 
 i 46

 
 i 181

 
 i 9

 
 
Total reclassifications, net of income tax
 
$
 i 91

 
$
 i 40

 
$
( i 358
)
 
 

 / 

124

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)

 i 
12. Other Revenues and Other Expenses
Other Revenues
The Company has entered into contracts with mutual funds, fund managers, and their affiliates (collectively, the “Funds”) whereby the Company is paid monthly or quarterly fees (“12b-1 fees”) for providing certain services to customers and distributors of the Funds. The 12b-1 fees are generally equal to a fixed percentage of the average daily balance of the customer’s investment in a fund. The percentage is specified in the contract between the Company and the Funds. Payments are generally collected when due and are neither refundable nor able to offset future fees.
To earn these fees, the Company performs services such as responding to phone inquiries, maintaining records, providing information to distributors and shareholders about fund performance and providing training to account managers and sales agents. The passage of time reflects the satisfaction of the Company’s performance obligations to the Funds and is used to recognize revenue associated with 12b-1 fees.
Other revenues consisted primarily of 12b-1 fees of $ i 240 million, $ i 255 million and $ i 264 million for the years ended December 31, 2019, 2018 and 2017, respectively, of which substantially all were reported in the Annuities segment.
Other Expenses
 i 
Information on other expenses was as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Compensation
$
 i 304

 
$
 i 278

 
$
 i 263

Contracted services and other labor costs
 i 252

 
 i 194

 
 i 130

Transition services agreements
 i 237

 
 i 268

 
 i 295

Establishment costs
 i 76

 
 i 131

 
 i 116

Premium and other taxes, licenses and fees
 i 43

 
 i 64

 
 i 58

Separate account fees
 i 3

 
 i 2

 
 i 3

Volume related costs, excluding compensation, net of DAC capitalization
 i 591

 
 i 595

 
 i 687

Interest expense on debt
 i 60

 
 i 6

 
 i 56

Other
 i 243

 
 i 225

 
 i 225

Total other expenses
$
 i 1,809

 
$
 i 1,763

 
$
 i 1,833


 / 
Capitalization of DAC
See Note 5 for additional information on the capitalization of DAC.
Interest Expense on Debt
See Note 10 for attribution of interest expense by debt issuance.
Related Party Expenses
See Note 15 for a discussion of related party expenses included in the table above.

125

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)

 i 
13. Income Tax
 i 
The provision for income tax was as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Current:
 
 
 
 
 
Federal
$
( i 35
)
 
$
( i 178
)
 
$
 i 368

Foreign
 i 

 
 i 

 
 i 18

Subtotal
( i 35
)

( i 178
)
 
 i 386

Deferred:
 
 
 
 
 
Federal
( i 303
)
 
 i 331

 
( i 1,124
)
Foreign
 i 

 
 i 

 
 i 

Subtotal
( i 303
)
 
 i 331

 
( i 1,124
)
Provision for income tax expense (benefit)
$
( i 338
)
 
$
 i 153

 
$
( i 738
)

 / 
 i 
The reconciliation of the income tax provision at the statutory tax rate to the provision for income tax as reported was as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Tax provision at statutory rate
$
( i 241
)
 
$
 i 235

 
$
( i 567
)
Tax effect of:
 
 
 
 
 
Excess loss account - Separation from MetLife (1)
 i 

 
( i 2
)
 
 i 1,088

Rate revaluation due to tax reform (2)
 i 

 
 i 

 
( i 696
)
Dividend received deduction (3)
( i 38
)
 
( i 40
)
 
( i 116
)
Prior year tax
 i 

 
( i 1
)
 
( i 4
)
Tax credits
( i 29
)
 
( i 24
)
 
( i 29
)
Release of valuation allowance
 i 

 
( i 11
)
 
 i 

Goodwill impairment
 i 

 
 i 

 
( i 288
)
Sale of subsidiary
 i 

 
 i 

 
( i 136
)
Other, net
( i 30
)
 
( i 4
)
 
 i 10

Provision for income tax expense (benefit)
$
( i 338
)
 
$
 i 153

 
$
( i 738
)
Effective tax rate
 i 30
%
 
 i 14
%
 
 i 46
%
 
_______________
(1)
For the year ended December 31, 2017, the Company recognized a non-cash charge to provision for income tax expense and corresponding capital contribution from MetLife. This tax obligation was in connection with the Separation. MetLife, Inc. is responsible for this obligation through the Tax Separation Agreement.
(2)
For the year ended December 31, 2017, the Company recognized a $ i 696 million benefit in net income from remeasurement of net deferred tax liabilities in connection with the Tax Act.
 / 
(3)
For the year ended December 31, 2018, the Tax Act changed the dividend received deduction amount applicable to insurance companies to a 70% company share and a 50% dividend received deduction for eligible dividends. The dividend received deduction reduces the amount of dividend income subject to tax and is a significant component of the difference between the actual tax expense and expected amount determined using the statutory tax rate.

126

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
13. Income Tax (continued)

Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities.  i Net deferred income tax assets and liabilities consisted of the following at:
 
 
2019
 
2018
 
(In millions)
Deferred income tax assets:
 
 
 
Investments, including derivatives (1)
$
 i 213

 
$
 i 44

Net operating loss carryforwards
 i 1,082

 
 i 1,025

Tax credit carryforwards
 i 105

 
 i 58

Employee benefits
 i 4

 
 i 4

Intangibles
 i 97

 
 i 159

Other
 i 18

 
 i 

Total deferred income tax assets
 i 1,519

 
 i 1,290

Deferred income tax liabilities:
 
 
 
Policyholder liabilities and receivables (1)
 i 1,307

 
 i 1,386

Net unrealized investment gains
 i 858

 
 i 198

DAC
 i 655

 
 i 633

Other
 i 

 
 i 17

Total deferred income tax liabilities
 i 2,820

 
 i 2,234

Net deferred income tax asset (liability)
$
( i 1,301
)
 
$
( i 944
)

_______________
(1)
The Company reclassified certain components of the 2018 net deferred income tax asset (liability) upon completion of a Separation related deferred tax basis study in 2019. Total deferred income tax assets and total deferred income tax liabilities increased by $ i 44 million at December 31, 2018 as compared to the amounts previously presented. There was no change in total net deferred income tax asset (liability) resulting from these reclassifications at December 31, 2018.
 i 
The following table sets forth the net operating loss carryforwards for tax purposes at December 31, 2019.
 
 
Net Operating Loss Carryforwards
 
 
(In millions)
Expiration
 
2034-2038
$
 i 3,034

Indefinite
 i 2,119

 
$
 i 5,153

 / 

127

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
13. Income Tax (continued)

 i 
The following table sets forth the general business credits and foreign tax credits available for carryforward for tax purposes at December 31, 2019.
 
Tax Credit Carryforwards
 
General Business Credits
 
Foreign Tax Credits
 
(In millions)
Expiration
 
 
 
2020-2024
$
 i 

 
$
 i 18

2025-2029
 i 

 
 i 70

2030-2034
 i 

 
 i 

2035-2039
 i 17

 
 i 

Indefinite
 i 

 
 i 

 
$
 i 17

 
$
 i 88


 / 
The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate in the future.
 i 
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Balance at January 1,
$
 i 34

 
$
 i 22

 
$
 i 38

Additions for tax positions of prior years
 i 

 
 i 12

 
 i 

Reductions for tax positions of prior years
 i 

 
 i 

 
( i 4
)
Additions for tax positions of current year
 i 

 
 i 

 
 i 3

Reductions for tax positions of current year
 i 

 
 i 

 
( i 2
)
Settlements with tax authorities
 i 

 
 i 

 
( i 13
)
Balance at December 31,
$
 i 34

 
$
 i 34

 
$
 i 22

Unrecognized tax benefits that, if recognized would impact the effective rate
$
 i 34

 
$
 i 34

 
$
 i 22


 / 
The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses, while penalties are included in income tax expense. Interest related to unrecognized tax benefits was not significant. The Company had no penalties for each of the years ended December 31, 2019, 2018 and 2017.
The Company is under continuous examination by the Internal Revenue Service and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to federal, state or local income tax examinations for years prior to 2007. Management believes it has established adequate tax liabilities, and final resolution of the audit for the years 2007 and forward is not expected to have a material impact on the Company’s consolidated financial statements.
Tax Sharing Agreements
For the periods prior to the Separation, the Company filed a consolidated federal life and non-life income tax return in accordance with the provisions of the Tax Code. Current taxes (and the benefits of tax attributes such as losses) are allocated to the Company, and its includable subsidiaries, under the consolidated tax return regulations and a tax sharing agreement with MetLife. This tax sharing agreement states that federal taxes will be computed on a modified separate return basis with benefits for losses.

128

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
13. Income Tax (continued)

For periods after the Separation, the Company and any directly owned life insurance and reinsurance subsidiaries (including BHNY and BRCD) entered in a tax sharing agreement to join a life consolidated federal income tax return. The nonlife subsidiaries of the Company will file their own federal income tax returns. The tax sharing agreements state that federal taxes are computed on a modified separate return basis with benefit for losses.
Income Tax Transactions with Former Parent
The Company entered into a Tax Separation Agreement. Among other things, the Tax Separation Agreement governs the allocation between MetLife and the Company of the responsibility for the taxes of the MetLife group. The Tax Separation Agreement also allocates rights, obligations and responsibilities in connection with certain administrative matters relating to the preparation of tax returns and control of tax audits and other proceedings relating to taxes. In October 2017, MetLife paid $ i 723 million to the Company under the Tax Separation Agreement. At December 31, 2017, the current income tax recoverable included $ i 857 million related to this agreement. In November 2018, MetLife paid $ i 894 million to the Company under the Tax Separation Agreement. In November 2019, the Company paid MetLife $ i 2 million under the Tax Separation Agreement. At December 31, 2019, the current income tax recoverable included a $ i 115 million payable to MetLife related to this agreement.
 i 
14. Contingencies, Commitments and Guarantees
Contingencies
Litigation
The Company is a defendant in a number of litigation matters. In some of the matters, large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.
The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be estimated at December 31, 2019.
Matters as to Which an Estimate Can Be Made
For some loss contingency matters, the Company is able to estimate a reasonably possible range of loss. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. As of December 31, 2019, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $ i 0 to $ i 10 million.
Matters as to Which an Estimate Cannot Be Made
For other matters, the Company is not currently able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation contingencies and updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.

129

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
14. Contingencies, Commitments and Guarantees (continued)

Sales Practices Claims
Over the past several years, the Company has faced claims and regulatory inquiries and investigations, alleging improper marketing or sales of individual life insurance policies, annuities or other products. The Company continues to defend vigorously against the claims in these matters. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices matters.
Group Annuity Class Action 
Leroy and Geraldine Atkins v. Brighthouse Life Insurance Company, Brighthouse Financial, Inc., et al. (U.S. District Court, District of Nevada, filed November 18, 2019). Plaintiffs have filed a purported class action lawsuit against Brighthouse Life Insurance Company, Brighthouse Financial, Inc., MetLife, Inc. and Metropolitan Life Insurance Company relating to the pension closeout business. Plaintiffs allege that annuity benefits were due but have not been paid. Plaintiffs also allege they were not able to obtain information as to the group annuity contract and the benefit other than what was on a benefit election form. Plaintiffs seek to represent a class of all annuitants and their designated beneficiaries who were due annuity payments pursuant to group annuity contracts purchased from defendants by sponsors of employer provided defined benefit plans. Plaintiffs allege the defendants failed to timely contact, notify and pay overdue annuity benefits and interest to retirees. The complaint alleges breach of contract, breach of the implied covenant of good faith and fair dealing (contract and tort), unjust enrichment, conversion and breach of fiduciary duty. The Company intends to vigorously defend the matter. 
Summary
Various litigation, claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, investor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to previously, large and/or indeterminate amounts, including punitive and treble damages, are sought. Although, in light of these considerations, it is possible that an adverse outcome in certain cases could have a material effect upon the Company’s financial position, based on information currently known by the Company’s management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Commitments
Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $ i 206 million and $ i 492 million at December 31, 2019 and 2018, respectively.
Commitments to Fund Partnership Investments, and Private Corporate Bond Investments
The Company commits to fund partnership investments and to lend funds under private corporate bond investments. The amounts of these unfunded commitments were $ i 1.8 billion and $ i 1.9 billion at December 31, 2019 and 2018, respectively.

130

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
14. Contingencies, Commitments and Guarantees (continued)

Guarantees
In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties such that it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from $ i 6 million to $ i 122 million, with a cumulative maximum of $ i 127 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future.
The Company’s recorded liabilities were $ i 1 million and $ i 2 million at December 31, 2019 and 2018, respectively, for indemnities, guarantees and commitments.
 i 
15. Related Party Transactions
The Company has various existing arrangements with its Brighthouse affiliates and had previous arrangements with MetLife for services necessary to conduct its activities. Certain of the MetLife services have continued, however, MetLife was no longer considered a related party upon the completion of the MetLife Divestiture on June 14, 2018. See Note 1 for information regarding the MetLife Divestiture and Note 11 for amounts related to transition services from MetLife.
The Company has related party reinsurance, and investment, debt and equity transactions (see Notes 6, 7 , 10 and 11). Other material arrangements between the Company and its related parties not disclosed elsewhere are as follows:
Shared Services and Overhead Allocations
Brighthouse Services currently provides, and previously MetLife provided, certain services to the Company, each using an allocation methodology under certain agreements for such services. These services include, but are not limited to, treasury, financial planning and analysis, legal, human resources, tax planning, internal audit, financial reporting and information technology. When specific identification to a particular legal entity and/or product is not practicable, an allocation methodology based on various performance measures or activity-based costing, such as sales, new policies/contracts issued, reserves, and in-force policy counts is used. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual incidence of cost incurred by the Company and/or affiliate. Management believes that the methods used to allocate expenses under these arrangements are reasonable. Costs incurred under these arrangements with Brighthouse Services as well as with MetLife prior to the MetLife Divestiture, were $ i 1.1 billion, $ i 1.1 billion and $ i 1.0 billion for the years ended December 31, 2019, 2018 and 2017, respectively, and were recorded in other expenses. Revenues received from an affiliate related to these agreements, recorded in universal life and investment-type product policy fees, were $ i 220 million, $ i 234 million and $ i 241 million for the years ended December 31, 2019, 2018 and 2017, respectively.
The Company had net receivables (payables) from/to affiliates, related to the items discussed above, of ($ i 43) million and ($ i 50) million at December 31, 2019 and 2018, respectively.

131

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Consolidated Financial Statements (continued)
15. Related Party Transactions (continued)

Brighthouse affiliates incur costs related to the establishment of services and infrastructure to replace those previously provided by MetLife. The Company is charged a fee to reflect the value of the available infrastructure and services provided by these costs. While management believes the method used to allocate expenses under this arrangement is reasonable, the allocated expenses may not be indicative of those of a stand-alone entity. If expenses were allocated to the Company under this arrangement as incurred by Brighthouse affiliates, the Company would have incurred additional expenses of $ i 21 million and $ i 68 million under this arrangement for the years ended December 31, 2019 and 2018, respectively.
Broker-Dealer Transactions
The related party expense for the Company was commissions paid on the sale of variable products and passed through to the broker-dealer affiliate. The related party revenue for the Company was fee income passed through the broker-dealer affiliate from trusts and mutual funds whose shares serve as investment options of policyholders of the Company. Fee income received related to these transactions and recorded in other revenues was $ i 205 million, $ i 216 million and $ i 224 million for the years ended December 31, 2019, 2018 and 2017, respectively. Commission expenses incurred related to these transactions and recorded in other expenses was $ i 815 million, $ i 771 million and $ i 642 million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company also had related party fee income receivables of $ i 18 million and $ i 17 million at December 31, 2019 and 2018, respectively.
 i 
16. Subsequent Events
Dividend Transactions
On February 20, 2020, BRCD, with the explicit permission of the Delaware Commissioner received on December 30, 2019, paid a $ i 600 million extraordinary dividend to Brighthouse Life Insurance Company.
On February 19, 2020, Brighthouse Life Insurance Company declared a $ i 300 million ordinary cash dividend payable to BH Holdings. Such dividend has not been paid as of March 4, 2020.

132


 i 
Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Schedule I
Consolidated Summary of Investments 
Other Than Investments in Related Parties
(In millions)
Types of Investments
 
Cost or
Amortized Cost (1)
 
Estimated Fair
Value
 
Amount at
Which Shown on
Balance Sheet
Fixed maturity securities:
 
 
 
 
 
 
Bonds:
 
 
 
 
 
 
U.S. government and agency
 
$
 i 5,396

 
$
 i 7,244

 
$
 i 7,244

State and political subdivision
 
 i 3,326

 
 i 4,011

 
 i 4,011

Public utilities
 
 i 3,270

 
 i 3,703

 
 i 3,703

Foreign government
 
 i 1,503

 
 i 1,751

 
 i 1,751

All other corporate bonds
 
 i 33,243

 
 i 36,215

 
 i 36,215

Total bonds
 
 i 46,738

 
 i 52,924

 
 i 52,924

Mortgage-backed and asset-backed securities
 
 i 16,000

 
 i 16,694

 
 i 16,694

Redeemable preferred stock
 
 i 345

 
 i 359

 
 i 359

Total fixed maturity securities
 
 i 63,083

 
 i 69,977

 
 i 69,977

Equity securities:
 
 
 
 
 
 
Non-redeemable preferred stock
 
 i 127

 
 i 129

 
 i 129

Common stock:
 
 
 
 
 
 
Industrial, miscellaneous and all other
 
 i 10

 
 i 15

 
 i 15

Public utilities
 
 i 

 
 i 3

 
 i 3

Total equity securities
 
 i 137

 
 i 147

 
 i 147

Mortgage loans
 
 i 15,664

 
 
 
 i 15,664

Policy loans
 
 i 875

 
 
 
 i 875

Limited partnerships and LLCs
 
 i 2,379

 
 
 
 i 2,379

Short-term investments
 
 i 1,482

 
 
 
 i 1,482

Other invested assets
 
 i 3,224

 
 
 
 i 3,224

Total investments
 
$
 i 86,844

 


 
$
 i 93,748

_______________
 / 
(1)
Cost or amortized cost for fixed maturity securities represents original cost reduced by impairments from other-than-temporary declines in estimated fair value that are charged to earnings and adjusted for amortization of premiums or accretion of discounts; for mortgage loans, cost represents original cost reduced by repayments and valuation allowances and adjusted for amortization of premiums or accretion of discounts; for equity securities, cost represents original cost; for limited partnerships and LLCs, cost represents original cost adjusted for equity in earnings and distributions.

133



 i 
Brighthouse Life Insurance Company
Schedule II
Condensed Financial Information
(Parent Company Only)
(In millions, except share and per share data)
 
 
2019
 
2018
Condensed Balance Sheets
 
 
 
 
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $53,793 and $51,281, respectively)
 
$
 i 59,754

 
$
 i 52,926

Equity securities available-for-sale, at estimated fair value
 
 i 124

 
 i 121

Mortgage loans (net of valuation allowances of $61 and $55, respectively)
 
 i 15,038

 
 i 13,147

Policy loans
 
 i 875

 
 i 1,001

Limited partnerships and limited liability companies
 
 i 2,379

 
 i 2,290

Short-term investments, principally at estimated fair value
 
 i 1,431

 
 i 

Investment in subsidiaries
 
 i 5,980

 
 i 5,098

Other invested assets, at estimated fair value
 
 i 2,970

 
 i 2,848

Total investments
 
 i 88,551

 
 i 77,431

Cash and cash equivalents
 
 i 2,273

 
 i 3,185

Accrued investment income
 
 i 585

 
 i 636

Premium, reinsurance and other receivable
 
 i 13,727

 
 i 13,046

Receivable from subsidiaries
 
 i 9,505

 
 i 8,001

Deferred policy acquisition costs and value of business acquired
 
 i 4,340

 
 i 4,572

Deferred income tax receivable
 
 i 1,147

 
 i 1,086

Other assets, principally at estimated fair value
 
 i 424

 
 i 461

Separate account assets
 
 i 94,992

 
 i 87,243

Total assets
 
$
 i 215,544

 
$
 i 195,661

Liabilities and Stockholder’s Equity
 
 
 
 
Liabilities
 
 
 
 
Future policy benefits
 
$
 i 38,306

 
$
 i 34,900

Policyholder account balances
 
 i 43,119

 
 i 37,935

Other policy-related balances
 
 i 3,383

 
 i 3,325

Payables for collateral under securities loaned and other transactions
 
 i 4,289

 
 i 5,024

Long-term debt
 
 i 812

 
 i 400

Current income tax payable
 
 i 30

 
 i 2

Other liabilities
 
 i 12,149

 
 i 10,056

Separate account liabilities
 
 i 94,992

 
 i 87,243

Total liabilities
 
 i 197,080

 
 i 178,885

Stockholder’s Equity
 
 
 
 
Common stock, par value $25,000 per share; 4,000 shares authorized; 3,000 shares issued and outstanding
 
 i 75

 
 i 75

Additional paid-in capital
 
 i 19,073

 
 i 19,073

Retained earnings (deficit)
 
( i 3,899
)
 
( i 3,090
)
Accumulated other comprehensive income (loss)
 
 i 3,215

 
 i 718

Total stockholder’s equity
 
 i 18,464

 
 i 16,776

Total liabilities and stockholder’s equity
 
$
 i 215,544

 
$
 i 195,661

See accompanying notes to the condensed financial information.
 / 

134



Brighthouse Life Insurance Company
Schedule II
Condensed Financial Information (continued)
(Parent Company Only)
For the Years Ended December 31, 2019, 2018 and 2017
(In millions)
 
 
2019
 
2018
 
2017
Condensed Statements of Operations
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Premiums
 
$
 i 452

 
$
 i 437

 
$
 i 283

Universal life and investment-type product policy fees
 
 i 2,559

 
 i 2,738

 
 i 2,774

Equity in earnings of subsidiaries
 
 i 808

 
( i 277
)
 
 i 1,221

Net investment income
 
 i 3,086

 
 i 2,885

 
 i 2,613

Other revenues
 
 i 341

 
 i 398

 
 i 402

Net investment gains (losses)
 
 i 88

 
( i 165
)
 
( i 7
)
Net derivative gains (losses)
 
( i 2,928
)
 
 i 1,335

 
( i 1,425
)
Total revenues
 
 i 4,406

 
 i 7,351

 
 i 5,861

Expenses
 
 
 
 
 
 
Policyholder benefits and claims
 
 i 2,623

 
 i 2,388

 
 i 2,862

Interest credited to policyholder account balances
 
 i 869

 
 i 881

 
 i 909

Amortization of deferred policy acquisition costs and value of business acquired
 
 i 337

 
 i 952

 
 i 310

Other expenses
 
 i 1,920

 
 i 1,925

 
 i 1,848

Total expenses
 
 i 5,749

 
 i 6,146

 
 i 5,929

Income (loss) before provision for income tax
 
( i 1,343
)
 
 i 1,205

 
( i 68
)
Provision for income tax expense (benefit)
 
( i 534
)
 
 i 238

 
 i 815

Net income (loss) attributable to Brighthouse Life Insurance Company
 
$
( i 809
)
 
$
 i 967

 
$
( i 883
)
Comprehensive income (loss)
 
$
 i 1,688

 
$
( i 73
)
 
$
( i 294
)
See accompanying notes to the condensed financial information.

135



Brighthouse Life Insurance Company
Schedule II
Condensed Financial Information (continued)
(Parent Company Only)
For the Years Ended December 31, 2019, 2018 and 2017

(In millions)
 
 
2019
 
2018
 
2017
Condensed Statements of Cash Flows
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
$
 i 2,160

 
$
 i 2,774

 
$
 i 3,460

Cash flows from investing activities
 
 
 
 
 
 
Sales, maturities and repayments of:
 
 
 
 
 
 
Fixed maturity securities
 
 i 12,009

 
 i 14,909

 
 i 14,667

Equity securities
 
 i 57

 
 i 19

 
 i 119

Mortgage loans
 
 i 1,434

 
 i 840

 
 i 704

Limited partnerships and limited liability companies
 
 i 302

 
 i 254

 
 i 333

Purchases of:
 
 
 
 
 
 
Fixed maturity securities
 
( i 14,179
)
 
( i 14,697
)
 
( i 16,287
)
Equity securities
 
( i 22
)
 
( i 2
)
 
( i 2
)
Mortgage loans
 
( i 3,337
)
 
( i 3,896
)
 
( i 2,017
)
Limited partnerships and limited liability companies
 
( i 463
)
 
( i 358
)
 
( i 531
)
Cash received in connection with freestanding derivatives
 
 i 1,933

 
 i 1,795

 
 i 1,858

Cash paid in connection with freestanding derivatives
 
( i 2,597
)
 
( i 2,879
)
 
( i 3,829
)
Sale of operating joint venture interest to a former affiliate
 
 i 

 
 i 

 
 i 67

Returns of capital and dividends from subsidiaries
 
 i 54

 
 i 25

 
 i 551

Capital contributions to subsidiaries
 
( i 75
)
 
 i 

 
( i 83
)
Net change in policy loans
 
 i 126

 
 i 105

 
( i 14
)
Net change in short-term investments
 
( i 1,418
)
 
 i 269

 
 i 711

Net change in other invested assets
 
 i 23

 
 i 44

 
( i 41
)
Net cash provided by (used in) investing activities
 
( i 6,153
)
 
( i 3,572
)
 
( i 3,794
)
Cash flows from financing activities
 
 
 
 
 


Policyholder account balances:
 
 
 
 
 
 
Deposits
 
 i 6,117

 
 i 5,064

 
 i 3,845

Withdrawals
 
( i 2,503
)
 
( i 3,124
)
 
( i 2,360
)
Net change in payables for collateral under securities loaned and other transactions
 
( i 735
)
 
 i 871

 
( i 3,136
)
Long-term debt issued
 
 i 412

 
 i 228

 
 i 

Capital contributions
 
 i 

 
 i 

 
 i 1,300

Capital contribution associated with the sale of operating joint venture interest to a former affiliate
 
 i 

 
 i 

 
 i 202

Financing element on certain derivative instruments and other derivative related transactions, net
 
( i 203
)
 
( i 303
)
 
( i 149
)
Other, net
 
( i 7
)
 
( i 2
)
 
 i 

Net cash provided by (used in) financing activities
 
 i 3,081

 
 i 2,734

 
( i 298
)
Change in cash, cash equivalents and restricted cash
 
( i 912
)
 
 i 1,936

 
( i 632
)
Cash, cash equivalents and restricted cash, beginning of year
 
 i 3,185

 
 i 1,249

 
 i 1,881

Cash, cash equivalents and restricted cash, end of year
 
$
 i 2,273

 
$
 i 3,185

 
$
 i 1,249

 
 
 
 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
 
 
 
Net cash paid (received) for:
 
 
 
 
 
 
Interest
 
$
 i 28

 
$
 i 

 
$
 i 12

Income tax
 
$
 i 

 
$
( i 168
)
 
$
( i 421
)
Non-cash transactions:
 
 
 
 
 
 
Transfer of fixed maturity securities from affiliate
 
$
 i 

 
$
 i 417

 
$
 i 

Transfer of fixed maturity securities to former affiliate
 
$
 i 

 
$
 i 

 
$
 i 293

Reduction of policyholder account balances in connection with reinsurance transactions
 
$
 i 

 
$
 i 

 
$
 i 293

See accompanying notes to the condensed financial information.


136



Brighthouse Life Insurance Company
Schedule II
Notes to the Condensed Financial Information
(Parent Company Only)
1. Basis of Presentation
The condensed financial information of Brighthouse Life Insurance Company (the “Parent Company”) should be read in conjunction with the consolidated financial statements of Brighthouse Life Insurance Company and its subsidiaries and the notes thereto (the “Consolidated Financial Statements”). These condensed unconsolidated financial statements reflect the results of operations, financial position and cash flows for the Parent Company. Investments in subsidiaries are accounted for using the equity method of accounting.
The preparation of these condensed unconsolidated financial statements in conformity with GAAP requires management to adopt accounting policies and make certain estimates and assumptions. The most important of these estimates and assumptions relate to the fair value measurements, identifiable intangible assets and the provision for potential losses that may arise from litigation and regulatory proceedings and tax audits, which may affect the amounts reported in the condensed unconsolidated financial statements and accompanying notes. Actual results could differ from these estimates.
2. Investment in Subsidiaries
During the year ended December 31, 2019, Brighthouse Life Insurance Company paid a cash capital contribution of $ i 75 million to BHNY and received a cash dividend of $ i 28 million from BHNY. On December 30, 2019, the Delaware Commissioner approved an extraordinary dividend of $ i 600 million payable from BRCD to Brighthouse Life Insurance Company. Such dividend is included in receivable from subsidiaries at December 31, 2019. See Note 16 of the Notes to the Consolidated Financial Statements.
During the year ended December 31, 2017, Brighthouse Life Insurance Company paid cash capital contributions to subsidiaries of $ i 83 million, of which $ i 75 million was paid to BHNY, and received cash dividends from subsidiaries of $ i 544 million, of which $ i 535 million was received from BRCD.

137


 i 
Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Schedule III
Consolidated Supplementary Insurance Information
(In millions)
Segment
 
DAC
and
VOBA
 
Future Policy
Benefits and Other
Policy-Related Balances
 
Policyholder
Account
Balances
 
Unearned
Premiums (1), (2)
 
Unearned
Revenue (1)
2019
 
 
 
 
 
 
 
 
 
 
Annuities
 
$
 i 4,168

 
$
 i 8,921

 
$
 i 34,810

 
$
 i 

 
$
 i 86

Life
 
 i 539

 
 i 5,070

 
 i 2,437

 
 i 12

 
 i 45

Run-off
 
 i 5

 
 i 20,191

 
 i 7,873

 
 i 

 
 i 151

Corporate & Other
 
 i 97

 
 i 7,700

 
 i 1

 
 i 6

 
 i 

Total
 
$
 i 4,809

 
$
 i 41,882

 
$
 i 45,121

 
$
 i 18

 
$
 i 282

2018
 
 
 
 
 
 
 
 
 
 
Annuities
 
$
 i 4,357

 
$
 i 8,666

 
$
 i 28,600

 
$
 i 

 
$
 i 88

Life
 
 i 613

 
 i 4,802

 
 i 2,534

 
 i 13

 
 i 18

Run-off
 
 i 5

 
 i 17,252

 
 i 8,195

 
 i 

 
 i 107

Corporate & Other
 
 i 111

 
 i 7,596

 
 i 1

 
 i 6

 
 i 

Total
 
$
 i 5,086

 
$
 i 38,316

 
$
 i 39,330

 
$
 i 19

 
$
 i 213

_______________
(1)
Amounts are included within the future policy benefits and other policy-related balances column.
(2)
Includes premiums received in advance.
 / 

138


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Schedule III
Consolidated Supplementary Insurance Information — (continued)
December 31, 2019, 2018 and 2017
(In millions)
Segment
 
Premiums and Universal Life
and Investment-Type
Product Policy Fees
 
Net Investment Income (1)
 
Policyholder Benefits and Claims and Interest Credited to Policyholder   Account Balances  
 
Amortization of DAC and VOBA
 
Other
Expenses
2019
 
 
 
 
 
 
 
 
 
 
Annuities
 
$
 i 2,291

 
$
 i 1,786

 
$
 i 1,429

 
$
 i 328

 
$
 i 1,125

Life
 
 i 728

 
 i 374

 
 i 646

 
 i 53

 
 i 177

Run-off
 
 i 720

 
 i 1,273

 
 i 2,436

 
 i 

 
 i 200

Corporate & Other
 
 i 90

 
 i 53

 
 i 58

 
 i 14

 
 i 307

Total
 
$
 i 3,829

 
$
 i 3,486

 
$
 i 4,569

 
$
 i 395

 
$
 i 1,809

2018
 
 
 
 
 
 
 
 
 
 
Annuities
 
$
 i 2,410

 
$
 i 1,509

 
$
 i 1,603

 
$
 i 901

 
$
 i 1,052

Life
 
 i 774

 
 i 371

 
 i 637

 
 i 93

 
 i 214

Run-off
 
 i 777

 
 i 1,311

 
 i 1,923

 
 i 

 
 i 202

Corporate & Other
 
 i 98

 
 i 44

 
 i 64

 
 i 17

 
 i 295

Total
 
$
 i 4,059

 
$
 i 3,235

 
$
 i 4,227

 
$
 i 1,011

 
$
 i 1,763

2017
 
 
 
 
 
 
 
 
 
 
Annuities
 
$
 i 2,448

 
$
 i 1,238

 
$
 i 2,140

 
$
 i 141

 
$
 i 1,035

Life
 
 i 713

 
 i 285

 
 i 681

 
 i 186

 
 i 237

Run-off
 
 i 715

 
 i 1,358

 
 i 1,788

 
 i 570

 
 i 278

Corporate & Other
 
 i 108

 
 i 92

 
 i 61

 
 i 19

 
 i 283

Total
 
$
 i 3,984

 
$
 i 2,973

 
$
 i 4,670

 
$
 i 916

 
$
 i 1,833

_______________
(1)
See Note 2 of the Notes to the Consolidated Financial Statements for the basis of allocation of net investment income.


139


 i 
Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Schedule IV
Consolidated Reinsurance
December 31, 2019, 2018 and 2017
(Dollars in millions)
 
 
Gross Amount
 
Ceded
 
Assumed
 
Net Amount
 
% Amount Assumed to Net
2019
 
 
 
 
 
 
 
 
 
 
Life insurance in-force
 
$
 i 534,106

 
$
 i 167,676

 
$
 i 8,884

 
$
 i 375,314

 
 i 2.4
%
Insurance premium
 
 
 
 
 
 
 
 
 
 
Life insurance (1)
 
$
 i 1,375

 
$
 i 548

 
$
 i 15

 
$
 i 842

 
 i 1.8
%
Accident & health insurance
 
 i 222

 
 i 217

 
 i 

 
 i 5

 
 i 0.0
%
Total insurance premium
 
$
 i 1,597

 
$
 i 765

 
$
 i 15

 
$
 i 847

 
 i 1.8
%
2018
 
 
 
 
 
 
 
 
 
 
Life insurance in-force
 
$
 i 561,218

 
$
 i 180,362

 
$
 i 9,248

 
$
 i 390,104

 
 i 2.4
%
Insurance premium
 
 
 
 
 
 
 
 
 
 
Life insurance (1)
 
$
 i 1,415

 
$
 i 559

 
$
 i 12

 
$
 i 868

 
 i 1.4
%
Accident & health insurance
 
 i 225

 
 i 224

 
 i 

 
 i 1

 
 i 0.0
%
Total insurance premium
 
$
 i 1,640

 
$
 i 783

 
$
 i 12

 
$
 i 869

 
 i 1.4
%
2017
 
 
 
 
 
 
 
 
 
 
Life insurance in-force
 
$
 i 589,488

 
$
 i 194,032

 
$
 i 9,006

 
$
 i 404,462

 
 i 2.2
%
Insurance premium
 
 
 
 
 
 
 
 
 
 
Life insurance (1)
 
$
 i 1,500

 
$
 i 689

 
$
 i 13

 
$
 i 824

 
 i 1.6
%
Accident & health insurance
 
 i 231

 
 i 227

 
 i 

 
 i 4

 
 i 0.0
%
Total insurance premium
 
$
 i 1,731

 
$
 i 916

 
$
 i 13

 
$
 i 828

 
 i 1.6
%
_______________
(1)
Includes annuities with life contingencies.
For the year ended December 31, 2019, reinsurance ceded and assumed included related party transactions for life insurance in-force of $ i 0 and $ i 1.7 billion, respectively, and life insurance premiums of $ i 0 and $ i 5 million, respectively. For the year ended December 31, 2018, reinsurance ceded and assumed included related party transactions for life insurance in-force of $ i 0 and $ i 1.8 billion, respectively, and life insurance premiums of $ i 201 million and $ i 7 million, respectively. For the year ended December 31, 2017, reinsurance ceded and assumed included related party transactions for life insurance in-force of $ i 17.1 billion and $ i 9.0 billion, respectively, and life insurance premiums of $ i 537 million and $ i 13 million, respectively.
 / 

140


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 31, 2019.
Changes in Internal Control Over Financial Reporting
MetLife provides certain services to the Company on a transitional basis through services agreements. The Company continues to change business processes, implement systems and establish new third-party arrangements, as a subsidiary of Brighthouse Financial, Inc. We consider these in aggregate to be material changes in our internal control over financial reporting.
Other than as noted above, there were no changes to the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of Brighthouse Life Insurance Company is responsible for establishing and maintaining adequate internal control over financial reporting. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with GAAP.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has completed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making the assessment, management used the criteria set forth in “Internal Control — Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission. 
Based upon the assessment performed under that framework, management has maintained and concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019.
Item 9B. Other Information
None.

141


PART III
Item 10. Directors, Executive Officers and Corporate Governance
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
Item 11. Executive Compensation
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
Item 13. Certain Relationships, Related Transactions and Director Independence
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
Item 14. Principal Accountant Fees and Services
Deloitte & Touche LLP (“Deloitte”), the independent auditor of Brighthouse Financial, Inc. (“BHF”), has served as the independent auditor of the Company since 2000, and as auditor of current and former affiliates of the Company for more than 75 years. Its long-term knowledge of the Brighthouse group of companies, combined with its insurance industry expertise and global presence, has enabled it to carry out its audits of the Company’s financial statements with effectiveness and efficiency. Deloitte is a registered public accounting firm with the Public Company Accounting Oversight Board (United States) (“PCAOB”) as required by the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Rules of the PCAOB.
Independent Auditor’s Fees for 2019 and 2018
The table below presents fees for professional services rendered by Deloitte for the audit of the Company’s annual financial statements, audit-related services, tax services and all other services for the years ended December 31, 2019 and 2018. All fees shown were related to services that were approved by the Audit Committee of Brighthouse Financial, Inc. (the “BHF Audit Committee”).
 
2019
 
2018
 
(In millions)
Audit fees (1)
$
6

 
$
7

Audit-related fees (2)
$

 
$

Tax fees (3)
$

 
$

All other fees (4)
$

 
$

_______________
(1)
Fees for services to perform an audit or review in accordance with auditing standards of the PCAOB and services that generally only the Company’s independent auditor can reasonably provide, such as comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC.
(2)
Fees for assurance and related services that are traditionally performed by the Company’s independent auditor, such as audit and related services for due diligence related to mergers, acquisitions and divestitures, accounting consultations and audits in connection with proposed or consummated acquisitions and divestitures, control reviews, attest services not required by statute or regulation, and consultation concerning financial accounting and reporting standards.
(3)
Fees for tax compliance, consultation and planning services. Tax compliance generally involves preparation of original and amended tax returns, claims for refunds and tax payment planning services. Tax consultation and tax planning encompass a diverse range of advisory services, including assistance in connection with tax audits and filing appeals, tax advice related to mergers, acquisitions and divestitures, and requests for rulings or technical advice from taxing authorities.
(4)
Fees for other types of permitted services, including risk and other consulting services, financial advisory services and valuation services.

142


Approval of Fees
The BHF Audit Committee approves Deloitte’s audit and non-audit services to BHF and its subsidiaries, including the Company, in advance as required under Sarbanes-Oxley and SEC rules. Before the commencement of each fiscal year, the BHF Audit Committee appoints the independent auditor to perform audit services that BHF expects to be performed for the fiscal year and appoints the auditor to perform audit-related, tax and other permitted non-audit services. The BHF Audit Committee or a designated member of the BHF Audit Committee to whom authority has been delegated may, from time to time, pre-approve additional audit and non-audit services to be performed by BHF’s independent auditor. Any pre-approval of services between BHF Audit Committee meetings must be reported to the full BHF Audit Committee at its next scheduled meeting.
The BHF Audit Committee is responsible for approving fees for the audit and for any audit-related, tax or other permitted non-audit services. If the audit, audit-related, tax and other permitted non-audit fees for a particular period or service exceed the amounts previously approved, the BHF Audit Committee determines whether or not to approve the additional fees.
The BHF Audit Committee ensures the regular rotation of the audit engagement team partners as required by law.

143


PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this report:
1.
Financial Statements: See “Index to Consolidated Financial Statements, Notes and Schedules.”
2.
Financial Statement Schedules: See “Index to Consolidated Financial Statements, Notes and Schedules.”
3.
Exhibits: The exhibits are listed in the Exhibit Index below.

144


Exhibit Index
(Note Regarding Reliance on Statements in Our Contracts: In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Brighthouse Life Insurance Company , its subsidiaries or affiliates, or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and (i) should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; (iii) may apply standards of materiality in a way that is different from what may be viewed as material to investors; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Brighthouse Life Insurance Company, its subsidiaries and affiliates may be found elsewhere in this Annual Report on Form 10-K and Brighthouse Life Insurance Company’s other public filings, which are available without charge through the U.S. Securities and Exchange Commission website at www.sec.gov.)

145


Exhibit No.
 
Description
 
 
 
3.1
 
 
 
 
3.2
 
 
 
 
3.3
 
3.4
 
 
 
 
4.1
 
 
 
 
4.2
 
 
 
 
10.1
 
 
 
 
23.1*
 
 
 
 
31.1*
 
 
 
 
31.2*
 
 
 
 
32.1**
 
 
 
 
32.2**
 
 
 
 
101.INS*
 
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
101.SCH*
 
Inline XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL*
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.LAB*
 
Inline XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE*
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
101.DEF*
 
Inline XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
104*
 
The cover page of Brighthouse Life Insurance Company’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments).
* Filed herewith
** Furnished herewith

146


Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BRIGHTHOUSE LIFE INSURANCE COMPANY
 
 
 
 
By
 
 
 
Name:
 
 
Title:
Vice President and Chief Accounting Officer
(Authorized Signatory and Principal Accounting Officer)
 
 
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
 
Title
 
Date
 
 
 
 
 
 
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
 

 
 
 
 
 
 
 
 
 
Vice President and Chief Financial Officer
(Principal Financial Officer)
 

 
 
 
 
 
 
 
 
 
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
 

 
 
 
 
 
 
 
 
 
Director
 

 
 
 
 
 
 
 
 
 
Director
 

 
 
 
 
 
 
 
 
 
Director
 

 
 
 
 
 
 
 
 
Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act: None.
No annual report to security holders covering the registrant’s last fiscal year or proxy material with respect to any meeting of security holders has been sent, or will be sent, to security holders.


147

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-K’ Filing    Date    Other Filings
12/31/33
9/30/32
12/1/23
1/1/22
7/31/21
6/30/2010-Q
Filed as of:3/5/20
Filed on:3/4/20
2/20/20
2/19/20424B3
2/13/20
1/1/20
For Period end:12/31/19
12/30/19
11/18/19EFFECT
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