Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___                    
Commission File Number: 001-37905
 
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12242563&doc=12
Brighthouse Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
81-3846992
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
11225 North Community House Road, Charlotte, North Carolina
 
28277
(Address of principal executive offices)
 
(Zip Code)
(980) 365-7100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ  No ¨   
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes þ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ¨
  
Accelerated filer  ¨
Non-accelerated filer    þ  (Do not check if a smaller reporting company)
  
Smaller reporting company  ¨
Emerging growth company  ¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No þ
At May 9, 2018, 119,773,106 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
 
 



Table of Contents
 
Page
 
   Item 1.
Consolidated and Combined Financial Statements (at March 31, 2018 (Unaudited) and December 31, 2017 and for the Three Months Ended March 31, 2018 and 2017 (Unaudited)):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Item 2.
  Item 3.
  Item 4.
 
 
 
  Item 1.
  Item 1A.
  Item 2.
  Item 4.
  Item 6.
 
 


Table of Contents


Part I — Financial Information
Item 1. Financial Statements
Brighthouse Financial, Inc.
Interim Condensed Consolidated Balance Sheets
March 31, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)
 
 
March 31, 2018
 
December 31, 2017
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $60,029 and $60,173, respectively)
 
$
63,178

 
$
64,991

Equity securities, at estimated fair value (cost: $142 and $142, respectively)
 
160

 
161

Mortgage loans (net of valuation allowances of $49 and $47, respectively; includes $105 and $115, respectively, at estimated fair value, relating to variable interest entities)
 
11,308

 
10,742

Policy loans
 
1,517

 
1,523

Real estate joint ventures
 
441

 
433

Other limited partnership interests
 
1,700

 
1,669

Short-term investments, principally at estimated fair value
 
293

 
312

Other invested assets, principally at estimated fair value
 
2,452

 
2,507

Total investments
 
81,049

 
82,338

Cash and cash equivalents, principally at estimated fair value
 
1,888

 
1,857

Accrued investment income (includes $1 and $1, respectively, relating to variable interest entities)
 
640

 
601

Premiums, reinsurance and other receivables
 
13,527

 
13,525

Deferred policy acquisition costs and value of business acquired
 
6,083

 
6,286

Current income tax recoverable
 
832

 
740

Other assets
 
593

 
588

Separate account assets
 
114,385

 
118,257

Total assets
 
$
218,997

 
$
224,192

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Future policy benefits
 
$
36,223

 
$
36,616

Policyholder account balances
 
37,940

 
37,783

Other policy-related balances
 
2,991

 
2,985

Payables for collateral under securities loaned and other transactions
 
4,244

 
4,169

Long-term debt (includes $8 and $11, respectively, at estimated fair value, relating to variable interest entities)
 
3,609

 
3,612

Deferred income tax liability
 
752

 
927

Other liabilities
 
5,180

 
5,263

Separate account liabilities
 
114,385

 
118,257

Total liabilities
 
205,324

 
209,612

Contingencies, Commitments and Guarantees (Note 10)
 

 

Equity
 
 
 
 
Brighthouse Financial, Inc.’s stockholders’ equity:
 
 
 
 
Common stock par value $0.01 per share; 1,000,000,000 shares authorized; 119,773,106 shares issued and outstanding
 
1

 
1

Additional paid-in capital
 
12,432

 
12,432

Retained earnings
 
374

 
406

Accumulated other comprehensive income (loss)
 
801

 
1,676

Total Brighthouse Financial, Inc.’s stockholders’ equity
 
13,608

 
14,515

Noncontrolling interests
 
65

 
65

Total equity
 
13,673

 
14,580

Total liabilities and equity
 
$
218,997

 
$
224,192

See accompanying notes to the interim condensed consolidated and combined financial statements.

2

Table of Contents


Brighthouse Financial, Inc.
Interim Condensed Consolidated and Combined Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)
(In millions, except share and per share data)
 
Three Months
Ended
March 31,
 
2018
 
2017
Revenues
 
 
 
Premiums
$
229

 
$
176

Universal life and investment-type product policy fees
1,002

 
953

Net investment income
817

 
782

Other revenues
105

 
74

Net investment gains (losses):
 
 
 
Other net investment gains (losses)
(4
)
 
(55
)
Total net investment gains (losses)
(4
)
 
(55
)
Net derivative gains (losses)
(334
)
 
(965
)
Total revenues
1,815

 
965

Expenses
 
 
 
Policyholder benefits and claims
738

 
864

Interest credited to policyholder account balances
267

 
275

Amortization of deferred policy acquisition costs and value of business acquired
305

 
(148
)
Other expenses
618

 
564

Total expenses
1,928

 
1,555

Income (loss) before provision for income tax
(113
)
 
(590
)
Provision for income tax expense (benefit)
(48
)
 
(241
)
Net income (loss)
(65
)
 
(349
)
Less: Net income (loss) attributable to noncontrolling interests
2

 

Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders
$
(67
)
 
$
(349
)
Comprehensive income (loss)
$
(925
)
 
$
(108
)
Less: Comprehensive income (loss) attributable to noncontrolling interests
2

 

Comprehensive income (loss) attributable to Brighthouse Financial, Inc.
$
(927
)
 
$
(108
)
Earnings per common share:
 
 
 
Basic
$
(0.56
)

$
(2.91
)
See accompanying notes to the interim condensed consolidated and combined financial statements.

3

Table of Contents


Brighthouse Financial, Inc.
Interim Condensed Consolidated and Combined Statements of Equity
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)
(In millions)
 
 
Shareholder’s Net Investment
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Brighthouse Financial, Inc’s Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2017
 
$

 
$
1

 
$
12,432

 
$
406

 
$
1,676

 
$
14,515

 
$
65

 
$
14,580

Cumulative effect of change in accounting principle, net of income tax (Note 1)
 


 

 

 
35

 
(15
)
 
20

 

 
20

Balance at January 1, 2018
 

 
1

 
12,432

 
441

 
1,661

 
14,535

 
65

 
14,600

Change in noncontrolling interests
 

 

 

 

 

 

 
(2
)
 
(2
)
Net income (loss)
 

 

 

 
(67
)
 

 
(67
)
 
2

 
(65
)
Other comprehensive income (loss), net of income tax
 


 


 


 


 
(860
)
 
(860
)
 


 
(860
)
Balance at March 31, 2018
 
$

 
$
1

 
$
12,432

 
$
374

 
$
801

 
$
13,608

 
$
65

 
$
13,673

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholder’s Net Investment
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Brighthouse Financial, Inc’s Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2016
 
$
13,597

 
$

 
$

 
$

 
$
1,265

 
$
14,862

 
$

 
$
14,862

Change in net investment
 
362

 
 
 

 
 
 
 
 
362

 

 
362

Net income (loss)
 
(349
)
 

 

 

 

 
(349
)
 

 
(349
)
Other comprehensive income (loss), net of income tax
 


 


 


 


 
241

 
241

 


 
241

Balance at March 31, 2017
 
$
13,610

 
$

 
$

 
$

 
$
1,506

 
$
15,116

 
$

 
$
15,116

See accompanying notes to the interim condensed consolidated and combined financial statements.

4

Table of Contents


Brighthouse Financial, Inc.
Interim Condensed Consolidated and Combined Statements of Cash Flows
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)
(In millions)
 
Three Months
Ended
March 31,
 
2018
 
2017
Net cash provided by (used in) operating activities
$
291

 
$
360

Cash flows from investing activities
 
 
 
Sales, maturities and repayments of:
 
 
 
Fixed maturity securities
4,057

 
3,224

Equity securities
6

 
25

Mortgage loans
169

 
144

Real estate and real estate joint ventures
74

 
11

Other limited partnership interests
42

 
110

Purchases of:
 
 
 
Fixed maturity securities
(3,804
)
 
(2,574
)
Equity securities
(1
)
 
(3
)
Mortgage loans
(739
)
 
(622
)
Real estate and real estate joint ventures
(15
)
 
(35
)
Other limited partnership interests
(38
)
 
(57
)
Cash received in connection with freestanding derivatives
712

 
1,310

Cash paid in connection with freestanding derivatives
(1,414
)
 
(1,850
)
Net change in policy loans
7

 
5

Net change in short-term investments
19

 
271

Net change in other invested assets
22

 
19

Net cash provided by (used in) investing activities
(903
)
 
(22
)
Cash flows from financing activities
 
 
 
Policyholder account balances:
 
 
 
Deposits
1,516

 
1,179

Withdrawals
(772
)
 
(1,019
)
Net change in payables for collateral under securities loaned and other transactions
75

 
(139
)
Long-term debt repaid
(3
)
 
(3
)
Cash received from MetLife, Inc. in connection with shareholder's net investment

 
24

Cash paid to MetLife, Inc. in connection with shareholder's net investment

 
(20
)
Financing element on certain derivative instruments and other derivative related transactions, net
(157
)
 
224

Other, net
(16
)
 

Net cash provided by (used in) financing activities
643

 
246

Change in cash, cash equivalents and restricted cash
31

 
584

Cash, cash equivalents and restricted cash, beginning of period
1,857

 
5,228

Cash, cash equivalents and restricted cash, end of period
$
1,888

 
$
5,812

Supplemental disclosures of cash flow information
 
 
 
Net cash paid (received) for:
 
 
 
Interest
$
8

 
$
34

Income tax
$

 
$
7

Non-cash transactions:
 
 
 
Transfer of fixed maturity securities to former affiliates
$

 
$
293

Reduction of policyholder account balances in connection with reinsurance transactions
$

 
$
293

See accompanying notes to the interim condensed consolidated and combined financial statements.

5

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“Brighthouse” and the “Company” refer to Brighthouse Financial, Inc. and its subsidiaries. Brighthouse Financial, Inc. is a holding company formed to own the legal entities that historically operated a substantial portion of the former Retail segment of MetLife, Inc. (together with its subsidiaries and affiliates, “MetLife”). Brighthouse Financial, Inc. was incorporated in Delaware on August 1, 2016 in preparation for MetLife, Inc.’s separation of a substantial portion of its former Retail segment, as well as certain portions of its Corporate Benefit Funding segment (the “Separation”), which was completed on August 4, 2017.
In connection with the Separation, 80.8% of MetLife, Inc.’s interest in Brighthouse Financial, Inc. was distributed to holders of MetLife, Inc.’s common stock and MetLife, Inc. retained the remaining 19.2%. As a result, MetLife, Inc. and its subsidiaries are considered related parties.
The Company offers a range of individual annuities and individual life insurance products. The Company reports results through three segments: Annuities, Life and Run-off. In addition, the Company reports certain of its results in Corporate & Other.
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the interim condensed consolidated and combined financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
Consolidation
The financial statements presented in this quarterly report for periods on or after the Separation are presented on a consolidated basis and include the financial position, results of operations and cash flows of the Company. The accompanying interim condensed consolidated financial statements include the accounts of Brighthouse Financial, Inc. and its subsidiaries, as well as partnerships and joint ventures in which the Company has control, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany accounts and transactions have been eliminated.
The Company uses the equity method of accounting for equity securities when it has significant influence or at least 20% interest and for real estate joint ventures and other limited partnership interests (“investee”) 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.
Combination
The financial statements for the periods prior to the Separation are presented on a combined basis and reflect the historical combined results of operations and cash flows for the periods presented. The combined statement of operations reflects certain corporate expenses allocated to the Company by MetLife for certain corporate functions and for shared services provided by MetLife. These expenses have been allocated to the Company based on direct usage or benefit where specifically identifiable, with the remainder allocated based upon other reasonable allocation measures. The Company considers the expense methodology and results to be reasonable for all periods presented. See Note 11 for further information on expenses allocated by MetLife.
The Company previously recorded affiliated transactions with certain MetLife subsidiaries which were not included in the combined financial statements of the Company.
The income tax amounts in these combined financial statements have been calculated based on a modified separate return methodology, with benefits for losses, and presented as if each company was a separate taxpayer in its respective jurisdiction.

6

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

The historical financial results in the combined financial statements presented may not be indicative of the results that would have been achieved by the Company had it operated as a separate, stand-alone entity during the periods presented. The combined financial statements presented do not reflect any changes that may occur in the Company’s financing and operations in connection with or as a result of the Separation. Management believes that the combined financial statements include all adjustments necessary for a fair presentation of the business.
Reclassifications
Certain amounts in the prior year periods’ interim condensed consolidated and combined financial statements and related footnotes thereto have been reclassified to conform to the 2018 presentation as discussed throughout the Notes to the Interim Condensed Consolidated and Combined Financial Statements.
The accompanying interim condensed consolidated and combined financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2017 consolidated balance sheet data was derived from audited consolidated financial statements included in Brighthouse Financial, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report”), which include all disclosures required by GAAP. Therefore, these interim condensed consolidated and combined financial statements should be read in conjunction with the consolidated and combined financial statements of the Company included in the 2017 Annual Report.
Adoption of New Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“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 financial statements. The following table provides a description of new ASUs issued by the FASB and the expected impact of the adoption on the Company’s financial statements.
ASUs adopted as of March 31, 2018 are summarized in the table below.
Standard
Description
Effective Date
Impact on Financial Statements
ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
The new guidance changes the current accounting guidance related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option (“FVO”) that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Additionally, there will no longer be a requirement to assess equity securities for impairment since such securities will be measured at fair value through net income.
January 1, 2018 using the modified retrospective method
The Company 1) reclassified net unrealized gains related to equity securities previously classified as available-for-sale from accumulated other comprehensive income (“AOCI”) to retained earnings and 2) increased the carrying value of equity investments previously accounted for under the cost method to estimated fair value. The cumulative effect of the adoption is a net increase to retained earnings of $38 million and a net decrease of $15 million to AOCI, after taxes.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
For those contracts that are impacted, the guidance will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services.
January 1, 2018 using the modified retrospective method
The adoption did not have an impact on the Company’s financial statements other than expanded disclosures in Note 8.

7

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

ASUs issued but not yet adopted as of March 31, 2018 are summarized in the table below.
Standard
Description
Effective Date
Impact on Financial Statements
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
The amendments to Topic 815 (i) refine and expand the criteria for achieving hedge accounting on certain hedging strategies, (ii) require the earnings effect of the hedging instrument be presented in the same line item in which the earnings effect of the hedged item is reported, and (iii) eliminate the requirement to separately measure and report hedge ineffectiveness.
January 1, 2019 using modified retrospective method (with early adoption permitted)
The Company does not expect a material impact on its financial statements from adoption of the new guidance.
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 other-than- temporary impairment (“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 Company is currently evaluating the impact of this guidance on its financial statements, with the most significant impact expected to be earlier recognition of credit losses on mortgage loan investments.
ASU 2016-02, Leases - Topic 842
The new guidance will require a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Leases would be classified as finance or operating leases and both types of leases will be recognized on the balance sheet. Lessor accounting will remain largely unchanged from current guidance except for certain targeted changes. The amendments also require new qualitative and quantitative disclosures.
January 1, 2019 using the modified retrospective method (with early adoption permitted)
The Company is currently evaluating the impact of this guidance on its financial statements, with the most significant impact expected to be a gross-up of certain lease assets and liabilities on the balance sheet.
2. Segment Information
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.
Life
The Life segment consists of insurance products and services, including term, whole, universal 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.
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 the elimination of intersegment amounts, 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.

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Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (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 the investor community. Adjusted earnings should not be viewed as a substitute for net income (loss) available to Brighthouse Financial, Inc.’s common shareholders, 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, as well as businesses that have been or will be sold or exited by the Company, referred to as divested businesses.
The following are the 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
Amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity guaranteed minimum income benefits (“GMIBs”) fees (“GMIB Fees”).
The following are the significant items excluded from total expenses, net of income tax, in calculating adjusted earnings:
Amounts associated with benefits and hedging costs 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 deferred policy acquisition cost (“DAC”) and value of business acquired (“VOBA”) related to: (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments.
The tax impact of the adjustments mentioned above are calculated net of the U.S. statutory tax rate, which could differ from the Company’s effective tax rate.
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the three months ended March 31, 2018 and 2017 and at March 31, 2018 and December 31, 2017. The segment accounting policies are the same as those used to prepare the Company’s condensed consolidated and combined 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.
Beginning in the first quarter of 2018, the Company changed the methodology for how capital is allocated to segments and, in some cases, products (the “Portfolio Realignment”). Segment investment and capitalization targets are now 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 discussed in the 2017 Annual Report. For insurance businesses other than variable annuities, excess capital held is based on a percentage of required statutory risk based capital. Assets in excess of those allocated to the segments, if any, are held in Corporate & Other. Segment net investment income reflects the performance of each segment’s respective invested assets.
Previously, invested assets held in the segments were based on net GAAP liabilities. Excess capital was retained in Corporate & Other and allocated to segments based on an internally developed statistics based capital model intended to capture the material risks to which the Company was exposed (referred to as “allocated equity”). Surplus assets in excess of the combined allocations to the segments were held in Corporate & Other with net investment income being credited back to the segments at a predetermined rate. Any excess or shortfall in net investment income from surplus assets was recognized in Corporate & Other.

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Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
2. Segment Information (continued)

The Portfolio Realignment had no effect on the Company’s consolidated net income (loss) or adjusted earnings, but it did impact segment results for the three months ended March 31, 2018. It was not practicable to determine the impact of the Portfolio Realignment to adjusted earnings in prior periods; however, the Company estimates that pre-tax adjusted earnings in the Life segment for the three months ended March 31, 2018 increased between $30 million and $35 million as a result of the change, with most of the offsetting impact in the Run-off segment. Impacts to the Annuities and Corporate & Other segments would not have been significantly different under the previous allocation method.
In addition, the total assets recognized in the segments changed as a result of the Portfolio Realignment. Total assets (on a book value basis) in the Annuities and Life segments increased approximately $2 billion and approximately $5 billion, respectively, under the new allocation method. The Run-off and Corporate & Other segments experienced decreases in total assets of approximately $3 billion and approximately $4 billion, respectively, as a result of the Portfolio Realignment.
 
 
Operating Results
Three Months Ended March 31, 2018
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
272

 
$
81

 
$
63

 
$
(86
)
 
$
330

Provision for income tax expense (benefit)
 
46

 
15

 
13

 
(29
)
 
45

Post-tax adjusted earnings
 
226

 
66

 
50

 
(57
)
 
285

Less: Net income (loss) attributable to noncontrolling interests
 

 

 

 
2

 
2

Adjusted earnings
 
$
226

 
$
66

 
$
50

 
$
(59
)
 
283

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(4
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(334
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
(105
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
93

Net income (loss) available to Brighthouse Financial, Inc.'s common shareholders
 
 
 
 
 
 
 
 
 
$
(67
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
363

 
$
108

 
$
343

 
$
11

 
 
Interest expense
 
$

 
$

 
$

 
$
37

 
 
 
 
Operating Results
Three Months Ended March 31, 2017
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
310

 
$
(15
)
 
$
74

 
$
23

 
$
392

Provision for income tax expense (benefit)
 
82

 
(8
)
 
25

 
13

 
112

Post-tax adjusted earnings
 
228

 
(7
)
 
49

 
10

 
280

Less: Net income (loss) attributable to noncontrolling interests
 

 

 

 

 

Adjusted earnings
 
$
228

 
$
(7
)
 
$
49

 
$
10

 
280

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(55
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(965
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
38

Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
353

Net income (loss) available to Brighthouse Financial, Inc.'s common shareholders
 
 
 
 
 
 
 
 
 
$
(349
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
327

 
$
107

 
$
358

 
$
66

 
 
Interest expense
 
$

 
$

 
$
15

 
$
30

 
 

10

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
2. Segment Information (continued)

The following table presents total revenues with respect to the Company’s segments, as well as Corporate & Other:
 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
 
 
(In millions)
Annuities
 
$
1,147

 
$
1,074

Life
 
369

 
290

Run-off
 
548

 
539

Corporate & Other
 
34

 
89

Adjustments
 
(283
)
 
(1,027
)
Total
 
$
1,815

 
$
965

The following table presents total assets with respect to the Company’s segments, as well as Corporate & Other, at:

March 31, 2018

December 31, 2017

(In millions)
Annuities
$
154,020

 
$
154,667

Life
21,295

 
18,049

Run-off
34,028

 
36,824

Corporate & Other
9,654

 
14,652

Total
$
218,997


$
224,192

3. Insurance
Guarantees
As discussed in Notes 1 and 3 of the Notes to the Consolidated and Combined Financial Statements included in the 2017 Annual Report, the Company issues variable annuity products with guaranteed minimum benefits. Guaranteed minimum accumulation benefits (“GMABs”), the non-life contingent portion of guaranteed minimum withdrawal benefits (“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 5.
The Company also issues universal and variable life contracts where the Company contractually guarantees to the contract holder a secondary guarantee.
Information regarding the Company’s guarantee exposure was as follows at:
 
March 31, 2018
 
December 31, 2017
 
 
In the
Event of Death
 
At
Annuitization
 
In the
Event of Death
 
At
Annuitization
 
 
(Dollars in millions)
 
Annuity Contracts (1), (2)
 
 
 
 
 
 
 
 
Variable Annuity Guarantees
 
 
 
 
 
 
 
 
Total account value (3)
$
111,311

 
$
64,672

 
$
115,147

 
$
67,110

 
Separate account value
$
106,011

 
$
63,369

 
$
109,792

 
$
65,782

 
Net amount at risk
$
6,256

(4)
$
2,852

(5)
$
5,261

(4)
$
2,642

(5)
Average attained age of contract holders
68 years

 
68 years

 
68 years

 
68 years

 

11

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
3. Insurance (continued)

 
March 31, 2018
 
December 31, 2017
 
Secondary Guarantees
 
(Dollars in millions)
Universal Life Contracts
 
 
 
Total account value (3)
$
6,187

 
$
6,244

Net amount at risk (6)
$
74,755

 
$
75,304

Average attained age of policyholders
64 years

 
64 years

 
 
 
 
Variable Life Contracts
 
 
 
Total account value (3)
$
3,387

 
$
3,379

Net amount at risk (6)
$
24,327

 
$
24,546

Average attained age of policyholders
49 years

 
49 years

__________________
(1)
The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.
(2)
Includes direct business, but excludes offsets from hedging or reinsurance, if any. Therefore, the net amount at risk presented reflects the economic exposures of living and death benefit guarantees associated with variable annuities, but not necessarily their impact on the Company. See Note 5 of the Notes to the Consolidated and Combined Financial Statements included in the 2017 Annual Report for a discussion of guaranteed minimum benefits which have been reinsured.
(3)
Includes the contract holder’s investments in the general account and separate account, if applicable.
(4)
Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.
(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.

12

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)

4. Investments
See Note 6 for information about the fair value hierarchy for investments and the related valuation methodologies.
Fixed Maturity Securities Available-for-sale (“AFS”)
Fixed Maturity Securities AFS by Sector
The following table presents the fixed maturity securities AFS by sector at:
 
March 31, 2018
 
December 31, 2017
 
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: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
22,187

 
$
1,346

 
$
281

 
$

 
$
23,252

 
$
21,190

 
$
1,859

 
$
92

 
$

 
$
22,957

U.S. government and agency
12,719

 
1,461

 
222

 

 
13,958

 
14,548

 
1,862

 
118

 

 
16,292

RMBS
7,817

 
252

 
156

 
(2
)
 
7,915

 
7,749

 
285

 
60

 
(3
)
 
7,977

Foreign corporate
6,717

 
295

 
96

 

 
6,916

 
6,703

 
386

 
66

 

 
7,023

State and political subdivision
3,629


476


17




4,088


3,635


553


6


1


4,181

CMBS
3,879

 
19

 
59

 
(1
)
 
3,840

 
3,386

 
53

 
17

 
(1
)
 
3,423

ABS
1,886

 
19

 
3

 

 
1,902

 
1,810

 
21

 
2

 

 
1,829

Foreign government
1,195

 
124

 
12

 

 
1,307

 
1,152

 
161

 
4

 

 
1,309

Total fixed maturity securities
$
60,029


$
3,992


$
846


$
(3
)

$
63,178


$
60,173


$
5,180


$
365


$
(3
)

$
64,991

__________________
(1)
Noncredit OTTI losses included in AOCI in an unrealized gain position are due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities. See also “— Net Unrealized Investment Gains (Losses).”
(2)
Redeemable preferred stock is reported within U.S. corporate and foreign corporate fixed maturity securities. Included within fixed maturity securities are structured securities including residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”).
The Company held non-income producing fixed maturity securities with an estimated fair value of $4 million and $4 million with unrealized gains (losses) of less than ($1) million and ($2) million at March 31, 2018 and December 31, 2017, respectively.
Maturities of Fixed Maturity Securities
The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at March 31, 2018:
 
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
$
1,778

 
$
9,007

 
$
11,976

 
$
23,686

 
$
13,582

 
$
60,029

Estimated fair value
$
1,781

 
$
9,251

 
$
12,039

 
$
26,450

 
$
13,657

 
$
63,178

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.

13

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

Continuous Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector
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:
 
March 31, 2018
 
December 31, 2017
 
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
$
6,976

 
$
173

 
$
1,318

 
$
108

 
$
1,783

 
$
21

 
$
1,451

 
$
71

U.S. government and agency
4,169

 
95

 
1,351

 
127

 
4,962

 
38

 
1,573

 
80

RMBS
3,280

 
83

 
1,201

 
71

 
2,367

 
14

 
1,332

 
43

Foreign corporate
1,769

 
38

 
511

 
58

 
637

 
8

 
603

 
58

State and political subdivision
463

 
10

 
102

 
7

 
170

 
3

 
106

 
4

CMBS
2,420

 
40

 
362

 
18

 
619

 
6

 
335

 
10

ABS
395

 
2

 
40

 
1

 
170

 

 
74

 
2

Foreign government
329

 
9

 
67

 
3

 
155

 
2

 
69

 
2

Total fixed maturity securities
$
19,801


$
450


$
4,952


$
393


$
10,863


$
92


$
5,543


$
270

Total number of securities in an unrealized loss position
2,125

 
 
 
602

 
 
 
911

 
 
 
638

 
 
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.
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 March 31, 2018.
Gross unrealized losses on fixed maturity securities increased $481 million during the three months ended March 31, 2018 to $843 million. The increase in gross unrealized losses for the three months ended March 31, 2018 was primarily attributable to increasing longer-term interest rates.

14

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

At March 31, 2018, $5 million of the total $843 million of gross unrealized losses were from nine fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater.
Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
 
March 31, 2018
 
December 31, 2017
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
Commercial
$
7,629

 
67.5
 %
 
$
7,260

 
67.5
 %
Agricultural
2,435

 
21.5

 
2,276

 
21.2

Residential
1,188

 
10.5

 
1,138

 
10.6

Subtotal (1)
11,252

 
99.5

 
10,674

 
99.3

Valuation allowances (2)
(49
)
 
(0.4
)
 
(47
)
 
(0.4
)
Subtotal mortgage loans, net
11,203

 
99.1

 
10,627

 
98.9

Commercial mortgage loans held by CSEs — FVO
105

 
0.9

 
115

 
1.1

Total mortgage loans, net
$
11,308

 
100.0
 %
 
$
10,742

 
100.0
 %
__________________
(1)
Purchases of mortgage loans from third parties were $86 million and $420 million at March 31, 2018 and December 31, 2017, respectively, and were primarily comprised of residential mortgage loans.
(2)
The valuation allowances were primarily from collective evaluation (non-specific loan related).
See “— Variable Interest Entities” for discussion of consolidated securitization entities (“CSEs”).
Information on commercial, agricultural and residential mortgage loans is presented in the tables below. Information on residential — FVO and commercial mortgage loans held by CSEs — FVO is presented in Note 6. The Company elects the FVO for certain mortgage loans and related long-term debt that are managed on a total return basis.
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.

15

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

Credit Quality of Commercial Mortgage Loans
The credit quality of commercial mortgage loans was as follows at:
 
Recorded Investment
 
 
 
 
 
Debt Service Coverage Ratios
 
 
 
% of
Total
 
Estimated
Fair
Value
 
% of
Total
 
> 1.20x
 
1.00x - 1.20x
 
< 1.00x
 
Total
 
 
(Dollars in millions)
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
6,658

 
$
238

 
$
33

 
$
6,929

 
90.8
%
 
$
6,995

 
91.0
%
65% to 75%
578

 

 
38

 
616

 
8.1

 
611

 
7.9

76% to 80%
19

 
32

 
33

 
84

 
1.1

 
81

 
1.1

Total
$
7,255


$
270


$
104


$
7,629

 
100.0
%
 
$
7,687

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
6,194

 
$
293

 
$
33

 
$
6,520

 
89.8
%
 
$
6,681

 
90.0
%
65% to 75%
642

 

 
14

 
656

 
9.0

 
658

 
8.9

76% to 80%
42

 

 
9

 
51

 
0.7

 
50

 
0.7

Greater than 80%

 
9

 
24

 
33

 
0.5

 
30

 
0.4

Total
$
6,878


$
302


$
80


$
7,260

 
100.0
%
 
$
7,419

 
100.0
%
Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at: 
 
March 31, 2018
 
December 31, 2017
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment 
 
% of
Total
 
(Dollars in millions)
Loan-to-value ratios:
 
 
 
 
 
 
 
Less than 65%
$
2,286

 
93.9
%
 
$
2,113

 
92.8
%
65% to 75%
149

 
6.1

 
163

 
7.2

Total
$
2,435

 
100.0
%
 
$
2,276

 
100.0
%
The estimated fair value of agricultural mortgage loans was $2.4 billion and $2.3 billion at March 31, 2018 and December 31, 2017, respectively.

16

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
 
March 31, 2018
 
December 31, 2017
 
Recorded Investment
 
% of
Total
 
Recorded Investment
 
% of
Total
 
(Dollars in millions)
Performance indicators:
 
 
 
 
 
 
 
Performing
$
1,162

 
97.8
%
 
$
1,106

 
97.2
%
Nonperforming
26

 
2.2

 
32

 
2.8

Total
$
1,188

 
100.0
%
 
$
1,138

 
100.0
%
The estimated fair value of residential mortgage loans was $1.2 billion at both March 31, 2018 and December 31, 2017.
Past Due, Nonaccrual and Modified Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with over 99% of all mortgage loans classified as performing at both March 31, 2018 and December 31, 2017. 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 no commercial or agricultural mortgage loans past due and no commercial or agricultural mortgage loans in nonaccrual status at either March 31, 2018 or December 31, 2017. The recorded investment of residential mortgage loans past due and in nonaccrual status was $26 million and $32 million at March 31, 2018 and December 31, 2017, respectively. During the three months ended March 31, 2018 and 2017, the Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring.
Cash Equivalents
The carrying value of cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $1.4 billion at both March 31, 2018 and December 31, 2017.
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity and equity securities and the effect on DAC, VOBA, deferred sales inducements (“DSI”) and future policy benefits, that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in AOCI.
The components of net unrealized investment gains (losses), included in AOCI, were as follows:
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Fixed maturity securities
$
3,138

 
$
4,806

Fixed maturity securities with noncredit OTTI losses included in AOCI
2

 
2

Total fixed maturity securities
3,140

 
4,808

Equity securities

 
39

Derivatives
155

 
239

Other
(10
)
 
(8
)
Subtotal
3,285

 
5,078

Amounts allocated from:
 
 
 
Future policy benefits
(1,981
)
 
(2,626
)
DAC and VOBA related to noncredit OTTI losses recognized in AOCI
(8
)
 
(2
)
DAC, VOBA and DSI
(225
)
 
(265
)
Subtotal
(2,214
)
 
(2,893
)
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
2

 

Deferred income tax benefit (expense)
(227
)
 
(459
)
Net unrealized investment gains (losses)
$
846

 
$
1,726


17

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

The changes in net unrealized investment gains (losses) were as follows:
 
Three Months
 Ended
 March 31, 2018
 
(In millions)
Balance, December 31, 2017
$
1,726

Unrealized investment gains (losses) change due to cumulative effect, net of income tax (1)
(15
)
Balance, January 1, 2018
1,711

Fixed maturity securities on which noncredit OTTI losses have been recognized

Unrealized investment gains (losses) during the period
(1,778
)
Unrealized investment gains (losses) relating to:
 
Future policy benefits
645

DAC and VOBA related to noncredit OTTI losses recognized in AOCI
(6
)
DAC, VOBA and DSI
40

Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
2

Deferred income tax benefit (expense)
232

Balance, March 31, 2018
$
846

Change in net unrealized investment gains (losses)
$
(865
)
__________________
(1)
See Note 1 for more information related to the cumulative effect of change in accounting principle.


18

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

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 March 31, 2018 and December 31, 2017.
Securities Lending
Elements of the securities lending program are presented below at:
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Securities on loan: (1)
 
 
 
Amortized cost
$
3,333

 
$
3,085

Estimated fair value
$
3,766

 
$
3,748

Cash collateral received from counterparties (2)
$
3,777

 
$
3,791

Security collateral received from counterparties (3)
$
42

 
$
29

Reinvestment portfolio — estimated fair value
$
3,787

 
$
3,823

__________________
(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 and combined financial statements.
The cash collateral liability by loaned security type and remaining tenor of the agreements were as follows at:
 
March 31, 2018
 
December 31, 2017
 
Remaining Tenor of Securities Lending Agreements
 
 
 
Remaining Tenor of Securities Lending Agreements
 
 
 
Open (1)
 
1 Month or Less
 
1 to 6 Months
 
Total
 
Open (1)
 
1 Month or Less
 
1 to 6 Months
 
Total
 
(In millions)
U.S. government and agency
$
1,253

 
$
1,414

 
$
1,110

 
$
3,777

 
$
1,626

 
$
964

 
$
1,201

 
$
3,791

__________________
(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 March 31, 2018 was $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. government and agency securities, ABS, U.S. and foreign corporate securities, and non-agency RMBS) with 59% invested in agency RMBS, U.S. government and agency securities, cash equivalents, short-term investments or held in cash at March 31, 2018. 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.

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Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

Invested Assets on Deposit, Held in Trust and Pledged as Collateral
Invested assets on deposit, held in trust and pledged as collateral are presented below at estimated fair value at:
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Invested assets on deposit (regulatory deposits) (1)
$
8,090

 
$
8,263

Invested assets held in trust (reinsurance agreements) (2)
2,755

 
2,634

Invested assets pledged as collateral (3)
4,004

 
3,199

Total invested assets on deposit, held in trust and pledged as collateral
$
14,849


$
14,096

__________________
(1)
The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which $106 million and $34 million of the assets on deposit balance represents restricted cash at March 31, 2018 and December 31, 2017, respectively.
(2)
The Company has assets, primarily fixed maturity securities, held in trust relating to certain reinsurance transactions. $20 million and $42 million of the assets held in trust balance represents restricted cash at March 31, 2018 and December 31, 2017, respectively.
(3)
The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 3 of the Notes to the Consolidated and Combined Financial Statements included in the 2017 Annual Report) and derivative transactions (see Note 5).
See “— Securities Lending” for information regarding securities on loan.
Variable Interest Entities
The Company has invested in legal entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity.
The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity.
Consolidated VIEs
Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company, as the Company’s obligation to the VIEs is limited to the amount of its committed investment.

20

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

The following table presents the total assets and total liabilities relating to VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated at:
 
March 31, 2018
 
December 31, 2017
 
Total
Assets
 
Total
Liabilities
 
Total
Assets
 
Total
Liabilities
 
(In millions)
CSEs (assets (primarily loans) and liabilities (primarily debt)) (1)
$
106

 
$
8

 
$
116

 
$
11

__________________
(1)
The Company consolidates entities that are structured as CMBS. The assets of these entities can only be used to settle their respective liabilities, and under no circumstances is the Company liable for any principal or interest shortfalls should any arise. The Company’s exposure was limited to that of its remaining investment in these entities of $80 million and $86 million at estimated fair value at March 31, 2018 and December 31, 2017, respectively.
Unconsolidated VIEs
The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at:
 
March 31, 2018
 
December 31, 2017
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
(In millions)
Fixed maturity securities AFS:
 
 
 
 
 
 
 
Structured Securities (2)
$
11,614

 
$
11,614

 
$
11,461

 
$
11,461

U.S. and foreign corporate
426

 
426

 
504

 
504

Other limited partnership interests
1,543

 
2,732

 
1,511

 
2,463

Other investments (3)
94

 
101

 
82

 
89

Total
$
13,677


$
14,873


$
13,558


$
14,517

__________________
(1)
The maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests and real estate joint ventures is equal to the carrying amounts plus any unfunded commitments. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee.
(2)
For these variable interests, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset-backed securities issued by trusts that do not have substantial equity.
(3)
Other investments is comprised of real estate joint ventures and other invested assets.
As described in Note 10, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs during both the three months ended March 31, 2018 and 2017.

21

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated and Combined Financial Statements (Unaudited) (continued)
4. Investments (continued)

Net Investment Income
The components of net investment income were as follows:

Three Months
Ended
March 31,

2018

2017

(In millions)
Investment income: