Company Quick10K Filing
Quick10K
Brighthouse Life Insurance
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-02-05 Enter Agreement, Leave Agreement, Exhibits
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BHL 2018-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 bhinsurance-20180930xex311.htm
EX-31.2 bhinsurance-20180930xex312.htm
EX-32.1 bhinsurance-20180930xex321.htm
EX-32.2 bhinsurance-20180930xex322.htm

Brighthouse Life Insurance Earnings 2018-09-30

BHL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 bhinsurance-20180930x10q.htm 10-Q 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 September 30, 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: 033-03094
 
 
bhflogorgb970pxa12.jpg
Brighthouse Life Insurance Company
(Exact name of registrant as specified in its charter)
Delaware
 
06-0566090
(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 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  ¨
  
Accelerated filer  ¨
Non-accelerated filer    þ  
  
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 November 7, 2018, 3,000 shares of the registrant’s common stock, $25,000 par value per share, were outstanding, all of which were owned indirectly by Brighthouse Financial, Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the reduced disclosure format.
 
 



Table of Contents
 
Page
 
Item 1.
Consolidated Financial Statements (at September 30, 2018 (Unaudited) and December 31, 2017 and for the Three Months and Nine Months Ended September 30, 2018 and 2017 (Unaudited)):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 6.
 
 
 
 



Part I — Financial Information
Item 1. Financial Statements
Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Interim Condensed Consolidated Balance Sheets
September 30, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)
 
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $59,072 and $58,599, respectively)
 
$
60,627

 
$
63,333

Equity securities, at estimated fair value (cost: $139 and $142, respectively)
 
150

 
161

Mortgage loans (net of valuation allowances of $55 and $46, respectively; includes $93 and $115, respectively, at estimated fair value, relating to variable interest entities)
 
12,934

 
10,640

Policy loans
 
1,026

 
1,106

Real estate joint ventures
 
444

 
433

Other limited partnership interests
 
1,763

 
1,667

Short-term investments, principally at estimated fair value
 
116

 
269

Other invested assets, principally at estimated fair value
 
2,113

 
2,519

Total investments
 
79,173

 
80,128

Cash and cash equivalents, principally at estimated fair value
 
1,633

 
1,363

Accrued investment income (includes $0 and $1, respectively, relating to variable interest entities)
 
649

 
575

Premiums, reinsurance and other receivables
 
12,815

 
12,918

Deferred policy acquisition costs and value of business acquired
 
5,385

 
5,623

Current income tax recoverable
 
880

 
735

Other assets
 
535

 
547

Separate account assets
 
103,898

 
110,156

Total assets
 
$
204,968

 
$
212,045

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Future policy benefits
 
$
35,123

 
$
35,715

Policyholder account balances
 
38,650

 
37,069

Other policy-related balances
 
2,632

 
2,720

Payables for collateral under securities loaned and other transactions
 
4,033

 
4,158

Long-term debt (includes $3 and $11, respectively, at estimated fair value, relating to variable interest entities)
 
237

 
46

Deferred income tax liability
 
540

 
894

Other liabilities
 
4,654

 
4,419

Separate account liabilities
 
103,898

 
110,156

Total liabilities
 
189,767

 
195,177

Contingencies, Commitments and Guarantees (Note 10)
 

 

Equity
 
 
 
 
Brighthouse Life Insurance Company’s stockholder’s equity:
 
 
 
 
Common stock, par value $25,000 per share; 4,000 shares authorized; 3,000 shares issued and outstanding
 
75

 
75

Additional paid-in capital
 
19,073

 
19,073

Retained earnings (deficit)
 
(4,522
)
 
(4,132
)
Accumulated other comprehensive income (loss)
 
560

 
1,837

Total Brighthouse Life Insurance Company’s stockholder’s equity
 
15,186

 
16,853

Noncontrolling interests
 
15

 
15

Total equity
 
15,201

 
16,868

Total liabilities and equity
 
$
204,968

 
$
212,045

See accompanying notes to the interim condensed consolidated financial statements.

2


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months and Nine Months Ended September 30, 2018 and 2017 (Unaudited)
(In millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Premiums
$
218

 
$
228

 
$
653

 
$
607

Universal life and investment-type product policy fees
826

 
811

 
2,447

 
2,381

Net investment income
828

 
732

 
2,400

 
2,231

Other revenues
73

 
64

 
222

 
263

Net investment gains (losses)
(42
)
 
21

 
(120
)
 
(34
)
Net derivative gains (losses)
(665
)
 
(162
)
 
(1,230
)
 
(1,064
)
Total revenues
1,238

 
1,694

 
4,372

 
4,384

Expenses
 
 
 
 
 
 
 
Policyholder benefits and claims
805

 
1,051

 
2,312

 
2,721

Interest credited to policyholder account balances
265

 
269

 
785

 
811

Amortization of deferred policy acquisition costs and value of business acquired
66

 
50

 
582

 
697

Other expenses
509

 
446

 
1,353

 
1,342

Total expenses
1,645

 
1,816

 
5,032

 
5,571

Income (loss) before provision for income tax
(407
)
 
(122
)
 
(660
)
 
(1,187
)
Provision for income tax expense (benefit)
(108
)
 
567

 
(195
)
 
131

Net income (loss)
$
(299
)
 
$
(689
)
 
$
(465
)
 
$
(1,318
)
Comprehensive income (loss)
$
(554
)
 
$
(1,285
)
 
$
(1,663
)
 
$
(1,301
)
See accompanying notes to the interim condensed consolidated financial statements.

3


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Interim Condensed Consolidated Statements of Equity
For the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
(In millions)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Brighthouse Life Insurance Company’s Stockholder’s Equity
 
Noncontrolling Interests
 
Total
Equity
Balance at December 31, 2017
$
75

 
$
19,073

 
$
(4,132
)
 
$
1,837

 
$
16,853

 
$
15

 
$
16,868

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

 


 
75

 
(79
)
 
(4
)
 

 
(4
)
Balance at January 1, 2018
75

 
19,073

 
(4,057
)
 
1,758

 
16,849

 
15

 
16,864

Change in noncontrolling interests
 
 

 
 
 
 
 

 


 

Net income (loss)
 
 
 
 
(465
)
 
 
 
(465
)
 

 
(465
)
Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
(1,198
)
 
(1,198
)
 
 
 
(1,198
)
Balance at September 30, 2018
$
75

 
$
19,073

 
$
(4,522
)
 
$
560

 
$
15,186

 
$
15

 
$
15,201

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Brighthouse Life Insurance Company’s Stockholder’s Equity
 
Noncontrolling Interests
 
Total
Equity
Balance at December 31, 2016
$
75

 
$
18,461

 
$
(2,919
)
 
$
1,248

 
$
16,865

 
$

 
$
16,865

Sale of operating joint venture interest to a former affiliate

 
202

 


 
 
 
202

 
 
 
202

Return of capital
 
 
(2,737
)
 
 
 
 
 
(2,737
)
 
 
 
(2,737
)
Capital contributions
 
 
2,933

 
 
 
 
 
2,933

 
 
 
2,933

Change in noncontrolling interests
 
 
 
 
 
 
 
 

 
15

 
15

Net income (loss)
 
 
 
 
(1,318
)
 
 
 
(1,318
)
 


 
(1,318
)
Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
17

 
17

 
 
 
17

Balance at September 30, 2017
$
75

 
$
18,859

 
$
(4,237
)
 
$
1,265

 
$
15,962

 
$
15

 
$
15,977

See accompanying notes to the interim condensed consolidated financial statements.


4


Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Interim Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
(In millions)
 
Nine Months Ended 
 September 30,
 
2018
 
2017
Net cash provided by (used in) operating activities
$
1,960

 
$
2,435

Cash flows from investing activities
 
 
 
Sales, maturities and repayments of:
 
 
 
Fixed maturity securities
11,533

 
12,446

Equity securities
15

 
58

Mortgage loans
443

 
562

Real estate and real estate joint ventures
87

 
47

Other limited partnership interests
137

 
194

Purchases of:
 
 
 
Fixed maturity securities
(11,802
)
 
(11,969
)
Equity securities
(1
)
 
(1
)
Mortgage loans
(2,771
)
 
(1,535
)
Real estate and real estate joint ventures
(31
)
 
(224
)
Other limited partnership interests
(194
)
 
(174
)
Cash received in connection with freestanding derivatives
1,140

 
1,805

Cash paid in connection with freestanding derivatives
(2,284
)
 
(3,380
)
Issuance of loan to affiliate
(2
)
 

Sale of operating joint venture interest to a former affiliate

 
42

Net change in policy loans
80

 
(9
)
Net change in short-term investments
154

 
217

Net change in other invested assets
35

 
31

Net cash provided by (used in) investing activities
(3,461
)
 
(1,890
)
Cash flows from financing activities
 
 
 
Policyholder account balances:
 
 
 
Deposits
4,259

 
3,012

Withdrawals
(2,129
)
 
(2,315
)
Net change in payables for collateral under securities loaned and other transactions
(125
)
 
(2,741
)
Long-term debt issued
200

 

Long-term debt repaid
(9
)
 
(10
)
Capital contribution

 
1,100

Returns of capital

 
(3,425
)
Capital contribution associated with the sale of joint venture interest to a former affiliate

 
202

Financing element on certain derivative instruments and other derivative related transactions, net
(386
)
 
(37
)
Other, net
(39
)
 

Net cash provided by (used in) financing activities
1,771

 
(4,214
)
Change in cash, cash equivalents and restricted cash
270

 
(3,669
)
Cash, cash equivalents and restricted cash, beginning of period
1,363

 
5,057

Cash, cash equivalents and restricted cash, end of period
$
1,633

 
$
1,388

Supplemental disclosures of cash flow information
 
 
 
Net cash paid (received) for:
 
 
 
Interest
$
2

 
$
81

Income tax
$
3

 
$
35

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 financial statements.


5

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

1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“BLIC” and the “Company” refer to Brighthouse Life Insurance Company, a Delaware corporation originally incorporated in Connecticut in 1863, and its subsidiaries. Brighthouse Life Insurance Company is a wholly-owned subsidiary of Brighthouse Holdings, LLC, which is a direct wholly-owned subsidiary of Brighthouse Financial, Inc. (together with its subsidiaries and affiliates, “Brighthouse”).
In 2016, MetLife, Inc. (together with its subsidiaries and affiliates, “MetLife”) announced its plan to pursue the separation of a substantial portion of its former U.S. retail business (the “Separation”). In connection with the Separation, effective April 2017, following receipt of applicable regulatory approvals, MetLife, Inc. contributed certain affiliated reinsurance companies and Brighthouse Life Insurance Company of NY (“BHNY”) to Brighthouse Life Insurance Company. The affiliated reinsurance companies were then merged into Brighthouse Reinsurance Company of Delaware, a licensed reinsurance subsidiary of Brighthouse Life Insurance Company. On July 28, 2017, MetLife, Inc. contributed Brighthouse Holdings, LLC to Brighthouse Financial, Inc., resulting in Brighthouse Life Insurance Company becoming an indirect wholly-owned subsidiary of Brighthouse Financial, Inc. On August 4, 2017, MetLife, Inc. completed the Separation through a distribution of the common stock of Brighthouse Financial Inc., representing 80.8% of MetLife, Inc.’s interest in Brighthouse Financial, Inc., to holders of MetLife, Inc. common stock and MetLife, Inc. retained the remaining 19.2%. On June 14, 2018, MetLife, Inc. divested its remaining shares of Brighthouse Financial, Inc. 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.
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 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 Life Insurance Company 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.
Reclassifications
Certain amounts in the prior year periods’ interim condensed consolidated 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 Financial Statements. Additionally, effective January 1, 2018 the Company recorded an increase to other liabilities of $46 million, a decrease to deferred tax liabilities of $22 million, a decrease to accumulated other comprehensive income (“AOCI”) of $64 million, and an increase to retained earnings (deficit) of $40 million, to reflect an adjustment, net of tax, to prior year accretion of certain investments in redeemable preferred stock.
Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity.

6

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of 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)

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, 2017 consolidated balance sheet data was derived from audited consolidated financial statements included in Brighthouse Life Insurance Company’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 financial statements should be read in conjunction with the consolidated 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 September 30, 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 (“AFS”) from AOCI to retained earnings (deficit) 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 (deficit) 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 9.


7

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of 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)

ASUs issued but not yet adopted as of September 30, 2018 are summarized in the table below.
Standard
Description
Effective Date
Impact on Financial Statements
ASU 2018-12, Financial Services -Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
The amendments to Topic 944 will result in significant changes to the accounting for long-duration insurance contracts. These changes (1) require all guarantees that qualify as market risk benefits to be measured at fair value, (2) require more frequent updating of assumptions and modify existing discount rate requirements for certain insurance liabilities, (3) modify the methods of amortization for 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.

Upon adoption of the ASU, all guarantees associated with variable annuities will be measured at fair value, with changes in fair value reported in net income (excluding the change in fair value attributable to nonperformance risk, which would be reported in other comprehensive income). These changes will result in an impact to equity upon adoption and more volatility in net income going forward.

Additionally, certain life insurance and payout annuity contract liabilities will be affected by more frequent updating of cash flow assumptions and changes to the rate used to discount those cash flows. Most products will be impacted by the changes to deferred acquisition cost amortization.
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.
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.

8

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

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.
Financial Measures and Segment Accounting Policies
Adjusted earnings is a financial measure used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. Consistent with GAAP guidance for segment reporting, adjusted earnings is also used to measure segment performance. The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings should not be viewed as a substitute for net income (loss).
Adjusted earnings, which may be positive or negative, focuses on the Company’s primary businesses principally by excluding (i) the impact of market volatility, which could distort trends, and (ii) businesses that have been or will be sold or exited by the Company, referred to as divested businesses.
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
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 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 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 and nine months ended September 30, 2018 and 2017 and at September 30, 2018 and December 31, 2017. 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.

9

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

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.
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 nine months ended September 30, 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 nine months ended September 30, 2018 increased between $60 million and $75 million as a result of the change, with most of the offsetting impact in the Run-off segment. Impacts to the Annuities segment and Corporate & Other 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 $3 billion, respectively, under the new allocation method. The Run-off segment and Corporate & Other experienced decreases in total assets of approximately $3 billion and approximately $2 billion, respectively, as a result of the Portfolio Realignment.

10

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

 
 
Operating Results
Three Months Ended September 30, 2018
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
469

 
$
52

 
$
(135
)
 
$
(120
)
 
$
266

Provision for income tax expense (benefit)
 
81

 
10

 
(29
)
 
(30
)
 
32

Adjusted earnings
 
$
388

 
$
42

 
$
(106
)
 
$
(90
)
 
234

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(42
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(665
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
34

Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
140

Net income (loss)
 
 
 
 
 
 
 
 
 
$
(299
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
395

 
$
96

 
$
322

 
$
12

 
 
Interest expense
 
$

 
$

 
$

 
$

 
 
 
 
Operating Results
Three Months Ended September 30, 2017
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
441

 
$
(16
)
 
$
144

 
$
(58
)
 
$
511

Provision for income tax expense (benefit)
 
128

 
(11
)
 
41

 
1,057

 
1,215

Adjusted earnings
 
$
313

 
$
(5
)
 
$
103

 
$
(1,115
)
 
(704
)
Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
21

Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(162
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
(492
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
648

Net income (loss)
 
 
 
 
 
 
 
 
 
$
(689
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
306

 
$
76

 
$
349

 
$
20

 
 
Interest expense
 
$

 
$
(4
)
 
$
4

 
$

 
 
 
 
Operating Results
Nine Months Ended September 30, 2018
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
979

 
$
142

 
$
(79
)
 
$
(175
)
 
$
867

Provision for income tax expense (benefit)
 
168

 
28

 
(18
)
 
(53
)
 
125

Adjusted earnings
 
$
811

 
$
114

 
$
(61
)
 
$
(122
)
 
742

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(120
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(1,230
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
(177
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
320

Net income (loss)
 
 
 
 
 
 
 
 
 
$
(465
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
1,128

 
$
276

 
$
979

 
$
29

 
 
Interest expense
 
$

 
$

 
$

 
$
2

 
 

11

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

 
 
Operating Results
Nine Months Ended September 30, 2017
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
970

 
$
(58
)
 
$
(340
)
 
$
(43
)
 
$
529

Provision for income tax expense (benefit)
 
260

 
(27
)
 
(130
)
 
1,054

 
1,157

Adjusted earnings
 
$
710

 
$
(31
)
 
$
(210
)
 
$
(1,097
)
 
(628
)
Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(34
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(1,064
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
(618
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
1,026

Net income (loss)
 
 
 
 
 
 
 
 
 
$
(1,318
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
938

 
$
230

 
$
1,061

 
$
122

 
 
Interest expense
 
$

 
$
(4
)
 
$
23

 
$
37

 
 
The following table presents total revenues with respect to the Company’s segments, as well as Corporate & Other:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(In millions)
Annuities
 
$
995

 
$
901

 
$
2,957

 
$
2,789

Life
 
307

 
288

 
885

 
774

Run-off
 
536

 
549

 
1,594

 
1,634

Corporate & Other
 
41

 
48

 
108

 
203

Adjustments
 
(641
)
 
(92
)
 
(1,172
)
 
(1,016
)
Total
 
$
1,238

 
$
1,694

 
$
4,372

 
$
4,384

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

September 30, 2018

December 31, 2017

(In millions)
Annuities
$
147,374

 
$
149,920

Life
14,805

 
13,044

Run-off
31,684

 
36,719

Corporate & Other
11,105

 
12,362

Total
$
204,968


$
212,045

3. Insurance
Guarantees
As discussed in Notes 1 and 4 of the Notes to the Consolidated 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.

12

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

Information regarding the Company’s guarantee exposure was as follows at:
 
September 30, 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)
$
104,893

 
$
60,134

 
$
105,061

 
$
59,691

 
Separate account value
$
100,072

 
$
59,026

 
$
100,043

 
$
58,511

 
Net amount at risk
$
6,417

(4)
$
2,394

(5)
$
5,200

(4)
$
2,330

(5)
Average attained age of contract holders
69 years

 
68 years

 
68 years

 
68 years

 
 
September 30, 2018
 
December 31, 2017
 
Secondary Guarantees
 
(Dollars in millions)
Universal Life Contracts
 
 
 
Total account value (3)
$
6,133

 
$
6,244

Net amount at risk (6)
$
73,680

 
$
75,304

Average attained age of policyholders
65 years

 
64 years

 
 
 
 
Variable Life Contracts
 
 
 
Total account value (3)
$
1,068

 
$
1,021

Net amount at risk (6)
$
13,156

 
$
13,848

Average attained age of policyholders
44 years

 
44 years

__________________
(1)
The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.
(2)
Includes direct business, but excludes offsets from hedging or reinsurance, if any. Therefore, the net amount at risk presented reflects the economic exposures of living and death benefit guarantees associated with variable annuities, but not necessarily their impact on the Company. See Note 6 of the Notes to the Consolidated 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.

13

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Interim Condensed Consolidated 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 AFS
Fixed Maturity Securities AFS by Sector
The following table presents the fixed maturity securities AFS by sector at:
 
September 30, 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
$
22,957

 
$
899

 
$
452

 
$

 
$
23,404

 
$
20,647

 
$
1,822

 
$
89

 
$

 
$
22,380

U.S. government and agency
9,647

 
1,067

 
209

 

 
10,505

 
14,185

 
1,844

 
116

 

 
15,913

RMBS
8,199

 
225

 
221

 
(4
)
 
8,207

 
7,588

 
283

 
57

 
(3
)
 
7,817

Foreign corporate
7,103

 
151

 
209

 

 
7,045

 
6,457

 
376

 
62

 

 
6,771

State and political subdivision
3,683


354


47




3,990


3,573


532


6


1


4,098

CMBS
4,235

 
8

 
99

 
(1
)
 
4,145

 
3,259

 
48

 
17

 
(1
)
 
3,291

ABS
1,976

 
10

 
8

 

 
1,978

 
1,779

 
19

 
2

 

 
1,796

Foreign government
1,272

 
103

 
22

 

 
1,353

 
1,111

 
159

 
3

 

 
1,267

Total fixed maturity securities
$
59,072


$
2,817


$
1,267


$
(5
)

$
60,627


$
58,599


$
5,083


$
352


$
(3
)

$
63,333

__________________
(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 less than $1 million and $3 million with unrealized gains (losses) of less than ($1) million and ($2) million at September 30, 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 September 30, 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
$
1,729

 
$
8,201

 
$
11,036

 
$
23,696

 
$
14,410

 
$
59,072

Estimated fair value
$
1,737

 
$
8,254

 
$
10,927

 
$
25,379

 
$
14,330

 
$
60,627

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.

14

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of Brighthouse Financial, Inc.)
Notes to the Interim Condensed Consolidated 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:
 
September 30, 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
$
9,367

 
$
306

 
$
1,706

 
$
146

 
$
1,762

 
$
21

 
$
1,413

 
$
68

U.S. government and agency
2,367

 
50

 
1,713

 
159

 
4,764

 
36

 
1,573

 
80

RMBS
3,778

 
101

 
1,541

 
116

 
2,308

 
13

 
1,292

 
41

Foreign corporate
3,348

 
128

 
529

 
81

 
636

 
8

 
559

 
54

State and political subdivision
1,074

 
34

 
152

 
13

 
171

 
3

 
106

 
4

CMBS
3,007

 
66

 
537

 
32

 
603

 
6

 
335

 
10

ABS
994

 
7

 
27

 
1

 
165

 

 
75

 
2

Foreign government
448

 
17

 
92

 
5

 
152

 
2

 
50

 
1

Total fixed maturity securities
$
24,383


$
709


$
6,297


$
553


$
10,561


$
89


$
5,403


$
260

Total number of securities in an unrealized loss position
2,939

 
 
 
787

 
 
 
903

 
 
 
619

 
 
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 September 30, 2018.
Gross unrealized losses on fixed maturity securities increased $913 million during the nine months ended September 30, 2018 to $1.3 billion. The increase in gross unrealized losses for the nine months ended September 30, 2018 was primarily attributable to increasing longer-term interest rates and widening credit spreads.

15

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

At September 30, 2018, $4 million of the total $1.3 billion of gross unrealized losses were from ten 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:
 
September 30, 2018
 
December 31, 2017
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
Commercial
$
8,378

 
64.8
 %
 
$
7,233

 
67.9
 %
Agricultural
2,694

 
20.8

 
2,200

 
20.7

Residential
1,824

 
14.1

 
1,138

 
10.7

Subtotal (1)
12,896

 
99.7

 
10,571

 
99.3

Valuation allowances (2)
(55
)
 
(0.4
)
 
(46
)
 
(0.4
)
Subtotal mortgage loans, net
12,841

 
99.3

 
10,525

 
98.9

Commercial mortgage loans held by CSEs  FVO
93

 
0.7

 
115

 
1.1

Total mortgage loans, net
$
12,934

 
100.0
 %
 
$
10,640

 
100.0
 %
__________________
(1)
Purchases of mortgage loans from third parties were $816 million and $1.4 billion for the three months and nine months ended September 30, 2018, respectively, and $32 million and $339 million for the three months and nine months ended September 30, 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 commercial mortgage loans held by CSEs — FVO is presented in Note 6. The Company elects the FVO for certain commercial 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.

16

Brighthouse Life Insurance Company
(An Indirect Wholly-Owned Subsidiary of 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)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
7,412

 
$
38

 
$
15

 
$
7,465

 
89.1
%
 
$
7,414

 
89.2
%
65% to 75%
737

 
12

 
68

 
817

 
9.8

 
809

 
9.7

76% to 80%
87

 

 
9

 
96

 
1.1

 
92

 
1.1

Total
$
8,236


$
50


$
92


$
8,378

 
100.0
%
 
$
8,315

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
6,167

 
$
293

 
$
33

 
$
6,493

 
89.7
%
 
$
6,654

 
90.0
%
65% to 75%
642

 

 
14

 
656

 
9.1

 
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
$
6,851


$
302


$
80


$
7,233

 
100.0
%
 
$
7,392

 
100.0
%
Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at: 
 
September 30, 2018
 
December 31, 2017
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment 
 
% of
Total
 
(Dollars in millions)
Loan-to-value ratios:
 
 
 
 
 
 
 
Less than 65%
$
2,416

 
89.7
%
 
$
2,039

 
92.7
%
65% to 75%
278

 
10.3

 
161

 
7.3

Total
$
2,694

 
100.0
%
 
$
2,200

 
100.0
%
The estimated fair value of agricultural mortgage loans was $2.7 billion and $2.2 billion at September 30, 2018 and December 31, 2017, respectively.

17

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

Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
 
September 30, 2018
 
December 31, 2017
 
Recorded Investment
 
% of
Total
 
Recorded Investment
 
% of
Total
 
(Dollars in millions)
Performance indicators:
 
 
 
 
 
 
 
Performing
$
1,792

 
98.2
%
 
$
1,106

 
97.2
%
Nonperforming
32

 
1.8

 
32

 
2.8

Total
$
1,824

 
100.0
%
 
$
1,138

 
100.0
%
The estimated fair value of residential mortgage loans was $1.8 billion and $1.2 billion at September 30, 2018 and December 31, 2017, 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 September 30, 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 September 30, 2018