Brighthouse Financial Inc

Results of Operations

Annual Actuarial Review

We typically conduct our annual actuarial review (“AAR”) in the third quarter of each year. As part of the 2024 AAR, for our ULSG business, we increased the long-term general account earned rate, driven by an increase in the mean reversion rate, from 3.75% to 4.00%. Also, with respect to our ULSG business, we updated assumptions regarding policyholder behavior, including mortality, premium persistency, lapses and withdrawals. For our variable annuity business, we updated our annuitization, mortality, lapses and withdrawals, as well as separate account assumptions, including fund fees and allocations. For term participating and non-participating whole life insurance, we updated assumptions regarding mortality and lapses.

As part of the 2023 AAR, for our ULSG business, we increased the long-term general account earned rate, driven by an increase in the mean reversion rate, from 3.50% to 3.75%. Also, with respect to our ULSG business, we updated assumptions regarding policyholder behavior, including mortality, premium persistency, lapses, withdrawals and maintenance expenses. For our variable annuity business, we updated our annuitization, mortality, lapses and withdrawals, as well as separate account assumptions, including fund fees, allocations and volatility. For term participating and non-participating whole life insurance, we updated assumptions regarding mortality and lapses.

The impact on income (loss) available to shareholders before provision for income tax was as follows:

Consolidated Results for the Three Months and Nine Months Ended September 30, 2024 and 2023

Unless otherwise noted, all amounts in the following discussions of our results of operations are stated before income tax except for adjusted earnings, which are presented net of income tax.

The components of net income (loss) available to shareholders were as follows:

Income available to shareholders before provision for income tax was $160 million ($150 million, net of income tax), a decrease of $402 million ($303 million, net of income tax) from income available to shareholders before provision for income tax of $562 million ($453 million, net of income tax) in the prior period.

The decrease in income before provision for income tax was driven by the following unfavorable items:

•losses from variable annuity guaranteed benefit riders, see “— Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months and Nine Months Ended September 30, 2024 and 2023”; and

•the net impact of embedded derivatives and equity options we use to hedge our non-variable annuity business, as equity markets increased in the current period, resulting in a loss of $26 million, and decreased in the prior period, resulting in a gain of $71 million.

The decrease in income before provision for income taxes was partially offset by the following favorable items:

•the impact of long-term interest rates on interest rate derivatives used to manage interest rate exposure in our ULSG business, as the long-term interest rate decreased in the current period, resulting in a gain of $113 million, and increased in the prior period, resulting in a loss of $500 million; and

•higher pre-tax adjusted earnings, as discussed in greater detail below.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 5% in the current period compared to 18% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction and tax credits.

Loss available to shareholders before provision for income tax was $493 million ($360 million, net of income tax), a higher loss of $112 million ($88 million, net of income tax) from loss available to shareholders before provision for income tax of $381 million ($272 million, net of income tax) in the prior period.

The higher loss before provision for income tax was driven by the following unfavorable items:

•higher losses from variable annuity guaranteed benefit riders, see “— Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months and Nine Months Ended September 30, 2024 and 2023”; and

•the net impact of embedded derivatives and equity options we use to hedge our non-variable annuity business, as equity markets increased more in the current period, resulting in a loss of $26 million, and increased less in the prior period, resulting in a gain of $74 million.

The higher loss before provision for income tax was partially offset by the following favorable items:

•higher pre-tax adjusted earnings, as discussed in greater detail below; and

•the impact of long-term interest rates on interest rate derivatives used to manage interest rate exposure in our ULSG business, as the long-term interest rate increased less in the current period, resulting in a loss of $196 million, and increased more in the prior period, resulting in a loss of $443 million.

The provision for income tax, expressed as a percentage of income (loss) before provision for income tax, resulted in an effective tax rate of 32% in the current period compared to 36% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction, tax credits and current period non-recurring items.

Reconciliation of Net Income (Loss) Available to Shareholders to Adjusted Earnings (Loss)

The reconciliation of net income (loss) available to shareholders to adjusted earnings (loss) was as follows:

Consolidated Results for the Three Months and Nine Months Ended September 30, 2024 and 2023 — Adjusted Earnings

The components of adjusted earnings were as follows:

Adjusted earnings were $767 million in the current period, an increase of $441 million.

◦a net decrease in liability balances resulting from year-over-year changes made in connection with the AAR in our Run-off and Annuities segments and other refinements; and

◦an increase in income annuity underwriting margins;

◦higher paid claims, net of reinsurance; and

•higher net fee income due to:

◦higher reinsurance fees on our fixed annuity business resulting from higher account balances;

◦a decline in the net cost of insurance fees driven by the aging in-force business in our Run-off segment.

◦higher interest credited to policyholders due to higher account balances and prior period actuarial modeling improvements, net of changes made in the current period in connection with the AAR in our Annuities segment;

◦higher investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at higher yields than the portfolio average; and

◦higher deferred compensation expenses; and

◦higher asset-based variable annuity expenses resulting from higher average separate account balances, a portion of which is offset in fee income;

◦lower operational expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in an effective tax rate of 18% in the current period compared to 17% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction and tax credits.

Adjusted earnings were $1.0 billion in the current period, an increase of $223 million.

◦a net decrease in liability balances resulting from year-over-year changes made in connection with the AAR in our Run-off and Annuities segments and other refinements; and

◦lower paid claims, net of reinsurance;

◦an increase in liability balances in our Run-off segment resulting from a reinsurance premium rate increase associated with the conclusion of a reinsurance arbitration; and

◦a decrease in income annuity underwriting margins; and

◦higher average invested assets resulting from positive net flows in the general account;

◦higher investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at higher yields than the portfolio average; and

◦higher returns on other limited partnerships;

◦higher interest credited to policyholders due to higher account balances and prior period actuarial modeling improvements, net of changes made in the current period in connection with the AAR in our Annuities segment.

•lower net fee income due to:

◦higher ceded cost of insurance fees related to the conclusion of the aforementioned reinsurance arbitration in our Life and Run-off segments, as well as the aging in-force business in our Run-off segment;

◦higher variable and deferred compensation expenses; and

◦higher asset-based variable annuity expenses resulting from higher average separate account balances, a portion of which is offset in fee income;

◦lower operational expenses; and

◦lower transition services agreement expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings, resulted in an effective tax rate of 18% in the current period compared to 17% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction, tax credits and current period non-recurring items.

Segments and Corporate & Other Results for the Three Months and Nine Months Ended September 30, 2024 and 2023 — Adjusted Earnings

Annuities

The components of adjusted earnings for our Annuities segment were as follows:

A significant portion of our adjusted earnings is driven by separate account balances related to our variable annuity business, as these balances determine asset-based fee income and commissions. The changes in our variable annuities separate account balances are presented in Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements.

Adjusted earnings were $327 million in the current period, an increase of $8 million.

•higher fee income due to:

◦an increase in income annuity underwriting margins;

◦a net increase in liability balances resulting from year-over-year changes made in connection with the AAR.

◦higher interest credited to policyholders due to higher account balances and prior period actuarial modeling improvements, net of changes made in the current period in connection with the AAR;

◦higher investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at higher yields than the portfolio average; and

◦higher asset-based variable annuity expenses resulting from higher average separate account balances, a portion of which is offset in fee income; and

◦higher deferred compensation expenses;

◦lower operational expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in an effective tax rate of 19% in both the current period and the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction.

Adjusted earnings were $972 million in the current period, an increase of $48 million.

•higher fee income due to:

◦higher investment yields on our fixed income portfolio, as proceeds from maturing investments and the growth in the investment portfolio were invested at higher yields than the portfolio average;

◦higher interest credited to policyholders due to higher account balances and prior period actuarial modeling improvements, net of changes made in the current period in connection with the AAR.

•higher costs associated with insurance-related activities due to:

◦a decrease in income annuity underwriting margins; and

◦a net increase in liability balances resulting from year-over-year changes made in connection with the AAR; and

◦higher asset-based variable annuity expenses resulting from higher average separate account balances, a portion of which is offset in fee income; and

◦higher variable and deferred compensation expenses;

◦lower operational expenses; and

◦lower transition services agreement expenses.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in an effective tax rate of 19% in both the current period and the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

Life

The components of adjusted earnings for our Life segment were as follows:

Adjusted loss was $25 million in the current period, a lower loss of $48 million.

The key favorable impact was lower costs associated with insurance-related activities due to lower paid claims, net of reinsurance.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in an effective tax rate of 22% in both the current period and the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

Adjusted loss was $19 million in the current period, a lower loss of $38 million.

The key favorable impact was lower costs associated with insurance-related activities due to lower paid claims, net of reinsurance.

The key unfavorable impact was lower fee income due to higher ceded cost of insurance fees related to the conclusion of the aforementioned reinsurance arbitration.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in an effective tax rate of 27% in the current period compared to 24% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

Run-off

The components of adjusted earnings for our Run-off segment were as follows:

Adjusted earnings were $463 million in the current period, an increase of $368 million.

The key net favorable impact was:

◦a net decrease in liability balances resulting from year-over-year changes made in connection with the AAR and other refinements;

◦higher paid claims, net of reinsurance.

◦lower returns on real estate joint ventures; and

◦lower average invested long-term assets;

◦lower interest credited to policyholders due to lower account balances; and

•lower fee income due to a decline in the net cost of insurance fees driven by the aging in-force business.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in an effective tax rate of 21% in both the current period and the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

Adjusted earnings were $92 million in the current period, an increase of $119 million.

◦a net decrease in liability balances resulting from year-over-year changes made in connection with the AAR and other refinements;

◦an increase in liability balances resulting from a reinsurance premium rate increase associated with the conclusion of the aforementioned reinsurance arbitration; and

◦higher paid claims, net of reinsurance; and

◦higher returns on other limited partnerships; and

◦lower interest credited to policyholders due to lower account balances;

◦lower average invested long-term assets.

The key unfavorable impact was lower fee income due to higher ceded cost of insurance fees related to the conclusion of the aforementioned reinsurance arbitration and the aging in-force business.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in an effective tax rate of 20% in the current period compared to 23% in the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the dividends received deduction.

Corporate & Other

The components of adjusted earnings for Corporate & Other were as follows:

Adjusted earnings were $2 million in the current period, an increase of $17 million.

The key favorable impact was higher net investment spread due to higher investment yields and average invested long-term assets from funding agreements issued in connection with our institutional spread margin business.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in a lower effective tax rate in the current period compared to the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction and tax credits. We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a standalone basis nor for comparison to prior periods, since taxes for Corporate & Other are derived from the difference between the overall consolidated effective tax rate and total taxes for the combined operating segments.

Adjusted loss was $30 million in the current period, a lower loss of $18 million.

The key favorable impact was higher net investment spread due to higher investment yields and average invested long-term assets from funding agreements issued in connection with our institutional spread margin business.

The provision for income tax, expressed as a percentage of pre-tax adjusted earnings (loss), resulted in a higher effective tax rate in the current period compared to the prior period. Our effective tax rate differs from the statutory tax rate primarily due to the impacts of the dividends received deduction, tax credits and current period non-recurring items. We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a standalone basis nor for comparison to prior periods, since taxes for Corporate & Other are derived from the difference between the overall consolidated effective tax rate and total taxes for the combined operating segments.

Annuity Guaranteed Benefits and Shield Annuity Liabilities for the Three Months and Nine Months Ended September 30, 2024 and 2023

The overall impact on income (loss) available to shareholders before provision for income tax from the performance of annuity guaranteed benefits and Shield® Level Annuity (“Shield” and “Shield annuity”) liabilities, which includes (i) changes in the fair value of liabilities and related reinsurance, (ii) fees net of claims and (iii) the mark-to-market of hedges, was as follows:

Three Months Ended September 30, 2024

Annuity guaranteed benefits and Shield annuity liabilities performance was unfavorable for the three months ended September 30, 2024, primarily driven by:

•unfavorable increases in annuity guaranteed benefits liabilities due to decreasing interest rates, partially offset by increasing equity markets and changes made in connection with the AAR;

•favorable changes in variable annuity hedges due to decreasing long-term interest rates and increasing equity markets; and

•unfavorable changes in Shield embedded derivatives due to increasing equity markets and decreasing interest rates, partially offset by changes made in connection with the AAR.

Three Months Ended September 30, 2023

Annuity guaranteed benefits and Shield annuity liabilities performance was favorable for the three months ended September 30, 2023, primarily driven by:

•favorable decreases in annuity guaranteed benefits liabilities due to increasing interest rates, partially offset by decreasing equity markets and changes made in connection with the AAR;

•unfavorable changes in variable annuity hedges due to increasing long-term interest rates and decreasing equity markets; and

•favorable changes in Shield embedded derivatives due to decreasing equity markets and increasing interest rates.

Nine Months Ended September 30, 2024

Annuity guaranteed benefits and Shield annuity liabilities performance was unfavorable for the nine months ended September 30, 2024, primarily driven by:

•favorable decreases in annuity guaranteed benefits liabilities due to increasing equity markets and interest rates, as well as changes made in connection with the AAR;

•favorable changes in variable annuity hedges due to increasing equity markets; and

•unfavorable changes in Shield embedded derivatives due to increasing equity markets, partially offset by changes made in connection with the AAR.

Nine Months Ended September 30, 2023

Annuity guaranteed benefits and Shield annuity liabilities performance was unfavorable for the nine months ended September 30, 2023, primarily driven by:

•favorable decreases in annuity guaranteed benefits liabilities due to increasing interest rates and equity markets, partially offset by changes made in connection with the AAR;

•unfavorable changes in variable annuity hedges due to increasing long-term interest rates; and

•unfavorable changes in Shield embedded derivatives due to increasing equity markets.