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, 2019
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=12886910&doc=13
Brighthouse Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
81-3846992
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
11225 North Community House Road, Charlotte, North Carolina
 
28277
(Address of principal executive offices)
 
(Zip Code)
(980) 365-7100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ  No ¨   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes þ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ
  
Accelerated filer  ¨
Non-accelerated filer    ¨
  
Smaller reporting company  ¨
Emerging growth company  ¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No þ
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
BHF
The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/1,000th interest in a share of 6.600% Non-Cumulative Preferred Stock, Series A
BHFAP
The Nasdaq Stock Market LLC
6.250% Junior Subordinated Debentures due 2058
BHFAL
The Nasdaq Stock Market LLC
As of May 3, 2019, 115,809,697 shares of the registrant’s common stock were outstanding.
 
 



Table of Contents
 
Page
 
   Item 1.
Consolidated Financial Statements (at March 31, 2019 (Unaudited) and December 31, 2018 and for the Three Months Ended March 31, 2019 and 2018 (Unaudited)):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Item 2.
  Item 3.
  Item 4.
 
 
 
  Item 1.
  Item 1A.
  Item 2.
  Item 5.
  Item 6.
 
 


Table of Contents


Part I — Financial Information
Item 1. Financial Statements
Brighthouse Financial, Inc.
Interim Condensed Consolidated Balance Sheets
March 31, 2019 (Unaudited) and December 31, 2018
(In millions, except share and per share data)
 
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $61,101 and $60,920, respectively)
 
$
64,847

 
$
62,608

Equity securities, at estimated fair value
 
150

 
140

Mortgage loans (net of valuation allowances of $60 and $57, respectively)
 
14,504

 
13,694

Policy loans
 
1,385

 
1,421

Real estate limited partnerships and limited liability companies
 
453

 
451

Other limited partnership interests
 
1,800

 
1,840

Short-term investments, principally at estimated fair value
 
799

 

Other invested assets, principally at estimated fair value
 
2,302

 
3,027

Total investments
 
86,240

 
83,181

Cash and cash equivalents
 
3,864

 
4,145

Accrued investment income
 
791

 
724

Premiums, reinsurance and other receivables
 
14,026

 
13,697

Deferred policy acquisition costs and value of business acquired
 
5,680

 
5,717

Current income tax recoverable
 

 
1

Other assets
 
618

 
573

Separate account assets
 
105,211

 
98,256

Total assets
 
$
216,430

 
$
206,294

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Future policy benefits
 
$
37,157

 
$
36,209

Policyholder account balances
 
41,177

 
40,054

Other policy-related balances
 
3,005

 
3,000

Payables for collateral under securities loaned and other transactions
 
3,990

 
5,057

Long-term debt
 
4,364

 
3,963

Current income tax payable
 
19

 
15

Deferred income tax liability
 
1,005

 
972

Other liabilities
 
5,438

 
4,285

Separate account liabilities
 
105,211

 
98,256

Total liabilities
 
201,366

 
191,811

Contingencies, Commitments and Guarantees (Note 11)
 

 

Equity
 
 
 
 
Brighthouse Financial, Inc.’s stockholders’ equity:
 
 
 
 
Preferred stock, par value $0.01 per share; $425 aggregate liquidation preference at March 31, 2019
 

 

Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 120,552,514 and 120,448,018 shares issued, respectively; 116,182,687 and 117,532,336 shares outstanding, respectively
 
1

 
1

Additional paid-in capital
 
12,889

 
12,473

Retained earnings (deficit)
 
609

 
1,346

Treasury stock, at cost; 4,369,827 and 2,915,682 shares, respectively
 
(170
)
 
(118
)
Accumulated other comprehensive income (loss)
 
1,670

 
716

Total Brighthouse Financial, Inc.’s stockholders’ equity
 
14,999

 
14,418

Noncontrolling interests
 
65

 
65

Total equity
 
15,064

 
14,483

Total liabilities and equity
 
$
216,430

 
$
206,294

See accompanying notes to the interim condensed consolidated financial statements.

2

Table of Contents


Brighthouse Financial, Inc.
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2019 and 2018 (Unaudited)
(In millions, except per share data)
 
Three Months Ended
 March 31,
 
2019
 
2018
Revenues
 
 
 
Premiums
$
227

 
$
229

Universal life and investment-type product policy fees
875

 
1,002

Net investment income
811

 
817

Other revenues
92

 
105

Net investment gains (losses)
(11
)
 
(4
)
Net derivative gains (losses)
(1,303
)
 
(334
)
Total revenues
691

 
1,815

Expenses
 
 
 
Policyholder benefits and claims
772

 
738

Interest credited to policyholder account balances
258

 
267

Amortization of deferred policy acquisition costs and value of business acquired
22

 
305

Other expenses
592

 
618

Total expenses
1,644

 
1,928

Income (loss) before provision for income tax
(953
)
 
(113
)
Provision for income tax expense (benefit)
(218
)
 
(48
)
Net income (loss)
(735
)
 
(65
)
Less: Net income (loss) attributable to noncontrolling interests
2

 
2

Net income (loss) available to Brighthouse Financial, Inc.’s common shareholders
$
(737
)
 
$
(67
)
Comprehensive income (loss)
$
219

 
$
(925
)
Less: Comprehensive income (loss) attributable to noncontrolling interests
2

 
2

Comprehensive income (loss) attributable to Brighthouse Financial, Inc.
$
217

 
$
(927
)
Earnings per common share:
 
 
 
Basic
$
(6.31
)
 
$
(0.56
)
Diluted
$
(6.31
)
 
$
(0.56
)
See accompanying notes to the interim condensed consolidated financial statements.

3

Table of Contents


Brighthouse Financial, Inc.
Interim Condensed Consolidated Statements of Equity
For the Three Months Ended March 31, 2019 and 2018 (Unaudited)
(In millions)
 
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Treasury Stock at Cost
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Brighthouse Financial, Inc.’s Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2018
 
$

 
$
1

 
$
12,473

 
$
1,346

 
$
(118
)
 
$
716

 
$
14,418

 
$
65

 
$
14,483

Preferred stock issuance
 

 
 
 
412

 
 
 
 
 
 
 
412

 
 
 
412

Treasury stock acquired in connection with share repurchases
 
 
 

 

 

 
(52
)
 

 
(52
)
 

 
(52
)
Share-based compensation
 
 
 

 
4

 

 

 

 
4

 

 
4

Change in noncontrolling interests
 
 
 

 

 

 

 

 

 
(2
)
 
(2
)
Net income (loss)
 
 
 

 

 
(737
)
 

 

 
(737
)
 
2

 
(735
)
Other comprehensive income (loss), net of income tax
 
 
 


 


 


 


 
954

 
954

 


 
954

Balance at March 31, 2019
 
$

 
$
1

 
$
12,889

 
$
609

 
$
(170
)
 
$
1,670

 
$
14,999

 
$
65

 
$
15,064

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Treasury Stock at Cost
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Brighthouse Financial, Inc.’s Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2017
 
$

 
$
1

 
$
12,432

 
$
406

 
$

 
$
1,676

 
$
14,515

 
$
65

 
$
14,580

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

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

 
1

 
12,432

 
481

 

 
1,597

 
14,511

 
65

 
14,576

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


$
414

 
$


$
737

 
$
13,584

 
$
65

 
$
13,649

See accompanying notes to the interim condensed consolidated financial statements.

4

Table of Contents


Brighthouse Financial, Inc.
Interim Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2019 and 2018 (Unaudited)
(In millions)
 
Three Months Ended
 March 31,
 
2019
 
2018
Net cash provided by (used in) operating activities
$
376

 
$
291

Cash flows from investing activities
 
 
 
Sales, maturities and repayments of:
 
 
 
Fixed maturity securities
4,100

 
4,057

Equity securities
6

 
6

Mortgage loans
263

 
169

Real estate limited partnerships and limited liability companies
1

 
74

Other limited partnership interests
76

 
42

Purchases of:
 
 
 
Fixed maturity securities
(3,830
)
 
(3,804
)
Equity securities

 
(1
)
Mortgage loans
(1,076
)
 
(739
)
Real estate limited partnerships and limited liability companies
(4
)
 
(15
)
Other limited partnership interests
(106
)
 
(38
)
Cash received in connection with freestanding derivatives
316

 
712

Cash paid in connection with freestanding derivatives
(310
)
 
(1,414
)
Net change in policy loans
36

 
7

Net change in short-term investments
(799
)
 
19

Net change in other invested assets
55

 
22

Net cash provided by (used in) investing activities
(1,272
)
 
(903
)
Cash flows from financing activities
 
 
 
Policyholder account balances:
 
 
 
Deposits
1,858

 
1,516

Withdrawals
(911
)
 
(772
)
Net change in payables for collateral under securities loaned and other transactions
(1,067
)
 
75

Long-term debt issued
1,000

 

Long-term debt repaid
(600
)
 
(3
)
Preferred stock issued, net of issuance costs
412

 

Treasury stock acquired in connection with share repurchases
(52
)
 

Financing element on certain derivative instruments and other derivative related transactions, net
(11
)
 
(157
)
Other, net
(14
)
 
(16
)
Net cash provided by (used in) financing activities
615

 
643

Change in cash, cash equivalents and restricted cash
(281
)
 
31

Cash, cash equivalents and restricted cash, beginning of period
4,145

 
1,857

Cash, cash equivalents and restricted cash, end of period
$
3,864

 
$
1,888

Supplemental disclosures of cash flow information
 
 
 
Net cash paid (received) for:
 
 
 
Interest
$
12

 
$
8

Income tax
$
(1
)
 
$

See accompanying notes to the interim condensed consolidated financial statements.

5

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

1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“Brighthouse Financial” and the “Company” refer to Brighthouse Financial, Inc. and its subsidiaries (formerly, MetLife U.S. Retail Separation Business). Brighthouse Financial, Inc. (“BHF”) is a holding company formed to own the legal entities that historically operated a substantial portion of MetLife, Inc.’s (together with its subsidiaries and affiliates, “MetLife”) former Retail segment. BHF 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 former 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 BHF was distributed to holders of MetLife, Inc.’s common stock and MetLife, Inc. retained the remaining 19.2%. 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.
Brighthouse Financial is one of the largest providers of annuity and life insurance products in the United States through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners. The Company is organized into three segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other.
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the interim condensed consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
Consolidation
The accompanying interim condensed consolidated financial statements include the accounts of Brighthouse Financial, as well as partnerships and limited liability companies (“LLCs”) 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 year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the 2019 presentation as may be discussed throughout the Notes to the Interim Condensed Consolidated Financial Statements.
The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2018 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, 2018 (the “2018 Annual Report”), which include all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated and combined financial statements of the Company included in the 2018 Annual Report.

6

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

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. There were no ASUs adopted during the first quarter of 2019 which had a material impact on the Company’s financial statements.
ASUs issued but not yet adopted as of March 31, 2019 are summarized in the table below.
Standard
Description
Effective Date
Impact on Financial Statements
ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
The amendments to Topic 350 require the capitalization of certain implementation costs incurred in a cloud computing arrangement that is a service contract. The requirements align with the existing requirements to capitalize implementation costs incurred to develop or obtain internal-use software.
January 1, 2020 using the prospective method or retrospective method (with early adoption permitted)
The Company is currently evaluating the impact of this guidance on its 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 deferred acquisition costs, 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.
January 1, 2021 using a modified retrospective method for the new market risk benefit guidance and prospective methods for the increased frequency of updating assumptions, the new discount rate requirements and deferred policy acquisition costs (“DAC”) amortization changes. Early adoption is permitted.
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 will 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 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.

7

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


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, 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.
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.
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 BHF’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.
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 guaranteed minimum income benefits (“GMIBs”) 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 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 DAC and value of business acquired (“VOBA”) related to: (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments.
The tax impact of the adjustments mentioned above is calculated net of the statutory tax rate, which could differ from the Company’s effective tax rate.

8

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

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, 2019 and 2018 and at March 31, 2019 and December 31, 2018. The segment accounting policies are the same as those used to prepare the Company’s condensed consolidated financial statements, except for the adjustments to calculate adjusted earnings described above. In addition, segment accounting policies include the methods of capital allocation described below.
Segment investment and capitalization targets are based on statutory oriented risk principles and metrics. Segment invested assets backing liabilities are based on net statutory liabilities plus excess capital. For the variable annuity business, the excess capital held is based on the target statutory total asset requirement consistent with the Company’s variable annuity risk management strategy. For insurance businesses other than variable annuities, excess capital held is based on a percentage of required statutory risk-based capital. Assets in excess of those allocated to the segments, if any, are held in Corporate & Other. Segment net investment income reflects the performance of each segment’s respective invested assets.
 
 
Operating Results
Three Months Ended March 31, 2019
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
361

 
$
31

 
$
(46
)
 
$
(72
)
 
$
274

Provision for income tax expense (benefit)
 
66

 
6

 
(10
)
 
(22
)
 
40

Post-tax adjusted earnings
 
295

 
25

 
(36
)
 
(50
)
 
234

Less: Net income (loss) attributable to noncontrolling interests
 

 

 

 
2

 
2

Adjusted earnings
 
$
295

 
$
25

 
$
(36
)
 
$
(52
)
 
232

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(11
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(1,303
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
87

Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
258

Net income (loss) available to Brighthouse Financial, Inc.s common shareholders
 
 
 
 
 
 
 
 
 
$
(737
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
421

 
$
97

 
$
276

 
$
17

 
 
Interest expense
 
$

 
$

 
$

 
$
47

 
 

9

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

 
 
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

 
 
The following table presents total revenues with respect to the Company’s segments, as well as Corporate & Other:
 
 
Three Months Ended
 March 31,
 
 
2019
 
2018
 
 
(In millions)
Annuities
 
$
1,117

 
$
1,147

Life
 
303

 
369

Run-off
 
476

 
548

Corporate & Other
 
43

 
34

Adjustments
 
(1,248
)
 
(283
)
Total
 
$
691

 
$
1,815

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

 
March 31, 2019

December 31, 2018

 
(In millions)
Annuities
 
$
149,900

 
$
141,489

Life
 
20,546

 
20,449

Run-off
 
33,218

 
32,393

Corporate & Other
 
12,766

 
11,963

Total
 
$
216,430


$
206,294


10

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

3. Insurance
Guarantees
As discussed in Notes 1 and 3 of the Notes to the Consolidated and Combined Financial Statements included in the 2018 Annual Report, the Company issues variable annuity contracts with guaranteed minimum benefits. Guaranteed minimum accumulation benefits (“GMABs”), the non-life contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”) and certain portions of GMIBs that do not require the policyholder to annuitize are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 5.
The Company also has universal and variable life insurance contracts with secondary guarantees.
Information regarding the Company’s guarantee exposure was as follows at:
 
March 31, 2019
 
December 31, 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)
$
103,148

 
$
59,507

 
$
96,865

 
$
55,967

 
Separate account value
$
98,148

 
$
58,291

 
$
91,837

 
$
54,731

 
Net amount at risk
$
7,643

(4)
$
3,301

(5)
$
11,073

(4)
$
4,128

(5)
Average attained age of contract holders
68 years

 
68 years

 
68 years

 
68 years

 
 
March 31, 2019
 
December 31, 2018
 
Secondary Guarantees
 
(Dollars in millions)
Universal Life Contracts
 
 
 
Total account value (3)
$
6,056

 
$
6,099

Net amount at risk (6)
$
72,642

 
$
73,131

Average attained age of policyholders
65 years

 
65 years

 
 
 
 
Variable Life Contracts
 
 
 
Total account value (3)
$
3,343

 
$
3,230

Net amount at risk (6)
$
22,522

 
$
23,004

Average attained age of policyholders
50 years

 
50 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 2018 Annual Report for a discussion of guaranteed minimum benefits which have been reinsured.
(3)
Includes the contract holder’s investments in the general account and separate account, if applicable.
(4)
Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.

11

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

(5)
Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contract holders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contract holders have achieved.
(6)
Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.
4. Investments
See Note 1 of the Notes to the Consolidated and Combined Financial Statements included in the 2018 Annual Report for a description of the Company’s accounting policies for investments and 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, 2019
 
December 31, 2018
 
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
$
24,716

 
$
1,373

 
$
233

 
$

 
$
25,856

 
$
24,312

 
$
830

 
$
669

 
$

 
$
24,473

U.S. government and agency
6,640

 
1,477

 
29

 

 
8,088

 
7,944

 
1,263

 
112

 

 
9,095

RMBS
8,648

 
297

 
65

 
(3
)
 
8,883

 
8,428

 
246

 
129

 
(2
)
 
8,547

Foreign corporate
8,908

 
322

 
157

 


 
9,073

 
8,183

 
159

 
316

 

 
8,026

CMBS
5,330

 
130

 
33

 

 
5,427

 
5,292

 
43

 
88

 
(1
)
 
5,248

State and political subdivision
3,289


525


3





3,811


3,200


412


15




3,597

ABS
2,075

 
15

 
12

 

 
2,078

 
2,135

 
13

 
22

 

 
2,126

Foreign government
1,495

 
146

 
10

 

 
1,631

 
1,426

 
102

 
32

 

 
1,496

Total fixed maturity securities
$
61,101


$
4,285


$
542


$
(3
)

$
64,847


$
60,920


$
3,068


$
1,383


$
(3
)

$
62,608

__________________
(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.
(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 $28 million and less than $1 million with unrealized gains (losses) of ($5) million and less than $1 million at March 31, 2019 and December 31, 2018, respectively.

12

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

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, 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
$
1,577

 
$
7,692

 
$
12,155

 
$
23,624

 
$
16,053

 
$
61,101

Estimated fair value
$
1,584

 
$
7,818

 
$
12,411

 
$
26,646

 
$
16,388

 
$
64,847

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.
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, 2019
 
December 31, 2018
 
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
$
2,664

 
$
85

 
$
3,774

 
$
148

 
$
10,584

 
$
470

 
$
2,328

 
$
199

U.S. government and agency
243

 
1

 
852

 
28

 
412

 
8

 
1,543

 
104

RMBS
796

 
5

 
2,665

 
57

 
1,627

 
26

 
2,611

 
101

Foreign corporate
1,610

 
67

 
1,164

 
90

 
3,982

 
203

 
774

 
113

CMBS
323

 
16

 
1,043

 
17

 
2,317

 
53

 
803

 
34

State and political subdivision
31

 
1

 
129

 
2

 
346

 
7

 
158

 
8

ABS
874

 
10

 
161

 
2

 
1,422

 
21

 
70

 
1

Foreign government
275

 
9

 
30

 
1

 
521

 
26

 
132

 
6

Total fixed maturity securities
$
6,816


$
194


$
9,818


$
345


$
21,211


$
814


$
8,419


$
566

Total number of securities in an unrealized loss position
1,188

 
 
 
1,252

 
 
 
3,027

 
 
 
1,028

 
 

13

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

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 other comprehensive income (“OCI”).
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, 2019.
Gross unrealized losses on fixed maturity securities decreased $841 million during the three months ended March 31, 2019 to $539 million. The decrease in gross unrealized losses for the three months ended March 31, 2019 was primarily attributable to decreasing longer-term interest rates and narrowing credit spreads.
At March 31, 2019, $17 million of the total $539 million of gross unrealized losses were from eight fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater.

14

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

Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
 
March 31, 2019
 
December 31, 2018
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
Commercial
$
8,748

 
60.3
 %
 
$
8,529

 
62.3
 %
Agricultural
3,155

 
21.8

 
2,946

 
21.5

Residential
2,661

 
18.3

 
2,276

 
16.6

Subtotal (1)
14,564

 
100.4

 
13,751

 
100.4

Valuation allowances (2)
(60
)
 
(0.4
)
 
(57
)
 
(0.4
)
Total mortgage loans, net
$
14,504

 
100.0
 %
 
$
13,694

 
100.0
 %
__________________
(1)
Purchases of mortgage loans from third parties were $477 million and $86 million for the three months ended March 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.

15

Table of Contents
Brighthouse Financial, Inc.
Notes to the Interim Condensed Consolidated 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, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
7,676

 
$
89

 
$
34

 
$
7,799

 
89.2
%
 
$
7,987

 
89.2
%
65% to 75%
800

 

 

 
800

 
9.1

 
819

 
9.1

76% to 80%
140

 

 
9

 
149

 
1.7

 
146

 
1.7

Total
$
8,616


$
89


$
43


$
8,748

 
100.0
%
 
$
8,952

 
100.0
%
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
7,470

 
$
89

 
$
34

 
$
7,593

 
89.0
%
 
$
7,668

 
89.0
%
65% to 75%
762

 

 
24

 
786

 
9.2

 
798

 
9.3

76% to 80%
141

 

 
9

 
150

 
1.8

 
145

 
1.7

Total
$
8,373


$
89


$
67


$
8,529

 
100.0
%
 
$
8,611

 
100.0
%
Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at: 
 
March 31, 2019
 
December 31, 2018
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment 
 
% of
Total
 
(Dollars in millions)
Loan-to-value ratios:
 
 
 
 
 
 
 
Less than 65%
$
2,827

 
89.6
%
 
$
2,623

 
89.0
%
65% to 75%
327

 
10.3

 
322

 
10.9

76% to 80%
1

 
0.1

 
1

 
0.1

Total
$
3,155

 
100.0
%
 
$
2,946

 
100.0
%
The estimated fair value of agricultural mortgage loans was $3.2 billion and $2.9 billion at March 31, 2019 and December 31, 2018, respectively.
Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
 
March 31, 2019
 
December 31, 2018
 
Recorded Investment
 
% of
Total
 
Recorded Investment
 
% of
Total
 
(Dollars in millions)
Performance indicators:
 
 
 
 
 
 
 
Performing
$
2,622

 
98.5
%
 
$
2,240

 
98.4
%
Nonperforming
39

 
1.5

 
36

 
1.6

Total
$
2,661

 
100.0
%
 
$
2,276

 
100.0
%

16

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

The estimated fair value of residential mortgage loans was $2.7 billion and $2.3 billion at March 31, 2019 and December 31, 2018, respectively.
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, 2019 and December 31, 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 no commercial mortgage loans past due and no commercial mortgage loans in nonaccrual status at either March 31, 2019 or December 31, 2018. Agricultural mortgage loans past due totaled $7 million and less than $1 million at March 31, 2019 and December 31, 2018, respectively. The Company had no agricultural mortgage loans in nonaccrual status at either March 31, 2019 or December 31, 2018. Residential mortgage loans past due and in nonaccrual status totaled $39 million and $36 million at March 31, 2019 and December 31, 2018, respectively. During the three months ended March 31, 2019, the Company did not have mortgage loans modified in a troubled debt restructuring. The Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring during the three months ended March 31, 2018.
Other Invested Assets
Freestanding derivatives with positive estimated fair values comprise over 90% of other invested assets. See Note 5 for information about freestanding derivatives with positive estimated fair values. Other invested assets also includes tax credit and renewable energy partnerships, leveraged leases and Federal Home Loan Bank stock.
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 $1.1 billion and $3.1 billion at March 31, 2019 and December 31, 2018, respectively.
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity securities and the effect on DAC, VOBA, deferred sales inducements (“DSI”) and future policy benefits, that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in AOCI.
The components of net unrealized investment gains (losses), included in AOCI, were as follows:
 
March 31, 2019
 
December 31, 2018
 
(In millions)
Fixed maturity securities
$
3,749

 
$
1,691

Derivatives
204

 
264

Other
(12
)
 
(13
)
Subtotal
3,941

 
1,942

Amounts allocated from:
 
 
 
Future policy benefits
(1,564
)
 
(886
)
DAC, VOBA and DSI
(200
)
 
(90
)
Subtotal
(1,764
)
 
(976
)
Deferred income tax benefit (expense)
(457
)
 
(203
)
Net unrealized investment gains (losses)
$
1,720

 
$
763


17

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

The changes in net unrealized investment gains (losses) were as follows:
 
Three Months Ended
 March 31, 2019
 
(In millions)
Balance, December 31, 2018
$
763

Unrealized investment gains (losses) during the period
1,999

Unrealized investment gains (losses) relating to:
 
Future policy benefits
(678
)
DAC, VOBA and DSI
(110
)
Deferred income tax benefit (expense)
(254
)
Balance, March 31, 2019
$
1,720

Change in net unrealized investment gains (losses)
$
957

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, 2019 and December 31, 2018.
Securities Lending
Elements of the securities lending program are presented below at:
 
March 31, 2019
 
December 31, 2018
 
(In millions)
Securities on loan: (1)
 
 
 
Amortized cost
$
2,568

 
$
3,056

Estimated fair value
$
3,360

 
$
3,628

Cash collateral received from counterparties (2)
$
3,407

 
$
3,646

Security collateral received from counterparties (3)
$
36

 
$
55

Reinvestment portfolio — estimated fair value
$
3,426

 
$
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:
 
March 31, 2019
 
December 31, 2018
 
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
$
1,567

 
$
940

 
$
900

 
$
3,407

 
$
1,474

 
$
1,823

 
$
349

 
$
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.

18

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

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, 2019 was $1.5 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 53% invested in agency RMBS, cash and cash equivalents, U.S. government and agency securities, and short-term investments at March 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.
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, 2019
 
December 31, 2018
 
(In millions)
Invested assets on deposit (regulatory deposits) (1)
$
8,592

 
$
8,176

Invested assets held in trust (reinsurance agreements) (2)
3,788

 
3,455

Invested assets pledged as collateral (3)
3,501

 
3,341

Total invested assets on deposit, held in trust and pledged as collateral
$
15,881


$
14,972

__________________
(1)
The Company has assets, primarily fixed maturity securities, on deposit with governmental authorities relating to certain policyholder liabilities, of which $101 million and $55 million of the assets on deposit balance represents restricted cash at March 31, 2019 and December 31, 2018, respectively.
(2)
The Company has assets, primarily fixed maturity securities, held in trust relating to certain reinsurance transactions. $58 million and $87 million of the assets held in trust balance represents restricted cash at March 31, 2019 and December 31, 2018, 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 2018 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 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 no material VIEs for which the Company has concluded that it is the primary beneficiary at March 31, 2019 or December 31, 2018.
The Company’s investments in unconsolidated VIEs are described below.

19

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

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 real estate 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 11.
 
March 31, 2019
 
December 31, 2018
 
Carrying
Amount
 
Maximum
Exposure
to Loss
 
Carrying
Amount
 
Maximum
Exposure
to Loss
 
(In millions)
Fixed maturity securities
$
13,317

 
$
13,003

 
$
13,099

 
$
13,099

Limited partnerships and LLCs
1,722

 
2,887

 
1,756

 
3,145

Total
$
15,039

 
$
15,890

 
$
14,855

 
$
16,244

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

Three Months Ended
 March 31,

2019

2018

(In millions)
Investment income:



Fixed maturity securities
$
653

 
$
628

Equity securities
3

 
2

Mortgage loans
159

 
120

Policy loans
16

 
16

Real estate limited partnerships and limited liability companies
8

 
14