Related Party Transactions

3 Months Ended

Mar. 31, 2017

10. Related Party Transactions

The Company has various existing relationships with MetLife for services necessary to conduct its activities.

Non-Broker-Dealer Transactions

The following table summarizes income and expense from transactions with MetLife (excluding broker-dealer transactions) for the periods indicated:



	Three Months Ended March 31,
	2017			2016		2017			2016
	Income					Expense
	(In thousands)
MetLife	$	(174,298	)	$	54,528	$	(10,705	)	$	(12,483	)

The following table summarizes assets and liabilities from transactions with MetLife (excluding broker-dealer transactions) at:



	March 31, 2017				December 31, 2016
	Assets		Liabilities		Assets		Liabilities
	(In thousands)
MetLife	$	481,416	$	378,193	$	322,394	$	99,641

The material arrangements between the Company and MetLife are as follows:

Reinsurance Agreements

The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider of reinsurance for some insurance products issued by affiliated companies. The Company participates in reinsurance activities in order to limit losses, minimize exposure to significant risks and provide additional capacity for future growth.

The Company has reinsurance agreements with certain of MetLife, Inc.’s subsidiaries, including Metropolitan Life Insurance Company (“MLIC”), Brighthouse Insurance and MetLife Reinsurance Company of Vermont, all of which are related parties.

Information regarding the significant effects of affiliated reinsurance included on the interim condensed statements of operations and comprehensive income (loss) was as follows:



		Three Months Ended March 31,
		2017			2016
	(In thousands)
Premiums
Reinsurance ceded		$	(9,844	)	$	(9,866	)
Universal life and investment-type product policy fees
Reinsurance ceded		$	(907	)	$	(913	)
Other revenues
Reinsurance ceded		$	(15,644	)	$	(6,653	)
Policyholder benefits and claims
Reinsurance ceded		$	(20,774	)	$	(17,072	)
Interest credited to policyholder account balances
Reinsurance ceded		$	(80	)	$	(62	)
Amortization of deferred policy acquisition costs and value of business acquired
Reinsurance ceded		$	(178	)	$	(782	)
Other expenses
Reinsurance ceded		$	2,641		$	(281	)

Information regarding the significant effects of ceded affiliated reinsurance included on the interim condensed balance sheets was as follows at:



	March 31, 2017			December 31, 2016
	(In thousands)
Assets
Premiums, reinsurance and other receivables	$	485,516			$	321,868
Deferred policy acquisition costs and value of business acquired	(4,662		)		(4,309		)
Total assets	$	480,854			$	317,559
Liabilities
Other liabilities	$	378,165			$	99,641
Total liabilities	$	378,165			$	99,641

The Company ceded risks to an affiliate related to guaranteed minimum benefit guarantees written directly by the Company. These ceded reinsurance agreements contain embedded derivatives and changes in their estimated fair value are included within net derivative gains (losses). The embedded derivatives associated with the cessions are included within premiums, reinsurance and other receivables and were $354.5 million and $211.2 million at March 31, 2017 and December 31, 2016, respectively. Net derivative gains (losses) associated with the embedded derivatives were ($25.3) million and $21.9 million for the three months ended March 31, 2017 and 2016, respectively.

The Company ceded 100% of certain variable annuities including guaranteed minimum benefit guarantees on a modified coinsurance basis to MLIC. In January 2017, the Company executed a novation and reassigned this reinsurance agreement with Brighthouse Insurance, as reinsurer. These transactions were treated as a termination of the existing reinsurance agreement with recognition of a loss and a new reinsurance agreement with no recognition of a gain or loss. These transactions resulted in an increase in other liabilities of $129.8 million. The Company recognized a loss of $84.4 million, net of income tax, as a result of these transactions. Certain contractual features of this agreement qualify as embedded derivatives, which are separately accounted for at estimated fair value on the Company’s balance sheets. The embedded derivatives associated with the cession with MLIC are included within premiums, reinsurance and other receivables and were $0 and $168.1 million at March 31, 2017 and December 31, 2016, respectively. Net derivative gains (losses) associated with the embedded derivatives were ($125.1) million and $46.9 million for the three months ended March 31, 2017 and 2016, respectively.

Capital Support Arrangement

MetLife provides various capital support commitments and guarantees to the Brighthouse Financial, Inc. combined entities. Under this arrangement, MetLife has agreed to cause the Company to meet specified capital and surplus levels or has guaranteed certain contractual obligations. In connection with the Separation, this support agreement will be terminated.

Investment Transactions

In the ordinary course of business, the Company transfers invested assets, primarily consisting of fixed maturity securities, to and from MetLife affiliates. See Note 4 for further discussion of the related party investment transactions.

Shared Services and Overhead Allocations

MetLife provides the Company certain services, which include, but are not limited to, executive oversight, treasury, finance, legal, human resources, tax planning, internal audit, financial reporting, information technology, distribution services and investor relations. The Company is charged for these services based on direct and indirect costs. When specific identification is not practicable, an allocation methodology is used, primarily based on sales, in-force liabilities, or headcount. For certain agreements, charges are based on various performance measures or activity-based costing, such as sales, new policies/contracts issued, reserves, and in-force policy counts. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual incidence of cost incurred by the Company and/or affiliate. Management believes that the methods used to allocate expenses under these arrangements are reasonable. Expenses incurred with MetLife related to these arrangements, recorded in other operating expenses, were $7.7 million and $5.5 million for the three months ended March 31, 2017 and 2016, respectively.

Broker-Dealer Transactions

The Company accrues related party revenues and expenses arising from transactions with MetLife’s broker-dealers whereby the MetLife broker-dealers sell the Company’s variable annuity and life products. The affiliated revenue for the Company is fee income from trusts and mutual funds whose shares serve as investment options of policyholders of the Company. The affiliated expense for the Company is commissions collected on the sale of variable products by the Company and passed through to the broker-dealer.

The following table summarizes income and expense from transactions with related broker-dealers for the periods indicated:



	Three Months Ended March 31,
	2017		2016		2017		2016
	Fee Income				Commission Expense
	(In thousands)
MetLife broker-dealers	$	2,854	$	2,448	$	5,929	$	7,320

The following table summarizes assets and liabilities from transactions with affiliated broker-dealers at:



	March 31, 2017				December 31, 2016
	Fee Income Receivables		Secured Demand Notes		Fee Income Receivables		Secured Demand Notes
	(In thousands)
MetLife broker-dealers	$	190	$	—	$	934	$	—