Related Party Transactions

9 Months Ended

Sep. 30, 2018

11. Related Party Transactions

The Company has various existing arrangements with its Brighthouse affiliates and MetLife for services necessary to conduct its activities. Subsequent to the Separation, certain of the MetLife services continued, as provided for under a master service agreement and various transition services agreements entered into in connection with the Separation. MetLife was no longer considered a related party upon the completion of the MetLife Divestiture on June 14, 2018. All of the MetLife transactions reported as related party activity occurred prior to the MetLife Divestiture. See Note 1 for information regarding the MetLife Divestiture.

Non-Broker-Dealer Transactions

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



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018		2017
	(In millions)
Income	$	95	$	(11	)	$	155	$	(121	)
Expense	$	390	$	259		$	739	$	668

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



	September 30, 2018		December 31, 2017
	(In millions)
Assets	$	93	$	2,839
Liabilities	$	—	$	2,675

The material arrangements between the Company and its related parties 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 related parties. 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 its affiliate New England Life Insurance Company (“NELICO”) and certain MetLife subsidiaries, including MLIC, Metropolitan Tower Life Insurance Company and MetLife Reinsurance Company of Vermont, all of which were related parties until the completion of the MetLife Divestiture.

Information regarding the significant effects of reinsurance with NELICO and former MetLife affiliates included on the interim condensed consolidated statements of operations and comprehensive income (loss) was as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018			2017
	(In millions)
Premiums
Reinsurance assumed	$	1	$	1		$	8		$	10
Reinsurance ceded	—		(106		)	(201		)	(423		)
Net premiums	$	1	$	(105	)	$	(193	)	$	(413	)
Universal life and investment-type product policy fees
Reinsurance assumed	$	2	$	32		$	49		$	82
Reinsurance ceded	—		1			1			(17		)
Net universal life and investment-type product policy fees	$	2	$	33		$	50		$	65
Other revenues
Reinsurance assumed	$	—	$	—		$	1		$	28
Reinsurance ceded	—		—			18			39
Net other revenues	$	—	$	—		$	19		$	67
Policyholder benefits and claims
Reinsurance assumed	$	8	$	32		$	38		$	67
Reinsurance ceded	—		(89		)	(177		)	(317		)
Net policyholder benefits and claims	$	8	$	(57	)	$	(139	)	$	(250	)

Information regarding the significant effects of reinsurance with NELICO and former MetLife affiliates included on the interim condensed consolidated balance sheets was as follows at:



	September 30, 2018					December 31, 2017
	Assumed			Ceded		Assumed			Ceded
	(In millions)
Assets
Premiums, reinsurance and other receivables	$	19		$	—	$	34		$	3,254
Liabilities
Policyholder account balances	$	289		$	—	$	436		$	—
Other policy-related balances	$	10		$	—	$	1,683		$	—
Other liabilities	$	(38	)	$	—	$	(8	)	$	401

The Company assumes risks from NELICO related to guaranteed minimum benefits written directly by the cedent. The assumed reinsurance agreements contain embedded derivatives and changes in the estimated fair value are also included within net derivative gains (losses). The embedded derivatives associated with these agreements are included within policyholder account balances and were $289 million and $436 million at September 30, 2018 and December 31, 2017, respectively. Net derivative gains (losses) associated with the embedded derivatives were $33 million and $150 million for the three months and nine months ended September 30, 2018, respectively, and $21 million and $49 million for the three months and nine months ended September 30, 2017, respectively. In January 2017, the Company executed a novation and assignment agreement whereby it replaced MLIC as the reinsurer of certain variable annuities, including guaranteed minimum benefits, issued by NELICO. At the time of the novation and assignment, the transaction resulted in an increase in cash and cash equivalents of $184 million, an increase in future policy benefits of $34 million, an increase in policyholder account balances of $219 million and a decrease in other liabilities of $68 million. The Company recognized no gain or loss as a result of this transaction.

The Company cedes risks to MLIC related to guaranteed minimum benefits written directly by the Company. The ceded reinsurance agreements contain embedded derivatives and changes in the estimated fair value are also included within net derivative gains (losses). The embedded derivatives associated with the cessions are included within premiums, reinsurance and other receivables and were $0 and $2 million at September 30, 2018 and December 31, 2017, respectively. Net derivative gains (losses) associated with the embedded derivatives were $0 and less than ($1) million for the three months and nine months ended September 30, 2018, respectively, and ($1) million and ($126) million for the three months and nine months ended September 30, 2017, respectively.

In May 2017, the Company recaptured from MLIC risks related to multiple life products ceded under yearly renewable term and coinsurance agreements. This recapture resulted in an increase in cash and cash equivalents of $214 million and a decrease in premiums, reinsurance and other receivables of $189 million. The Company recognized a gain of $17 million, net of income tax, as a result of this reinsurance termination.

In January 2017, MLIC recaptured risks related to guaranteed minimum benefit guarantees on certain variable annuities being reinsured by the Company. This recapture resulted in a decrease in investments and cash and cash equivalents of $568 million, a decrease in future policy benefits of $106 million, and a decrease in policyholder account balances of $460 million. In June 2017, there was an adjustment to the recapture amounts of this transaction, which resulted in an increase in premiums, reinsurance and other receivables of $140 million at June 30, 2017. The Company recognized a gain of $89 million, net of income tax, as a result of this transaction.

In January 2017, the Company recaptured risks related to certain variable annuities, including guaranteed minimum benefits, issued by BHNY ceded to MLIC. This recapture resulted in a decrease in cash and cash equivalents of $150 million, an increase in future policy benefits of $45 million, an increase in policyholder account balances of $168 million and a decrease in other liabilities of $359 million. The Company recognized no gain or loss as a result of this transaction.

Financing Arrangements

Prior to the Separation, the Company had collateral financing arrangements with MetLife that were used to support reinsurance obligations arising under previously affiliated reinsurance agreements. The Company recognized interest expense for such arrangements of $0 and $55 million for the three months and nine months ended September 30, 2017, respectively. These arrangements were terminated in April 2017.

Investment Transactions

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

Shared Services and Overhead Allocations

Brighthouse affiliates and MetLife provide the Company certain services, which include, but are not limited to, treasury, financial planning and analysis, legal, human resources, tax planning, internal audit, financial reporting and information technology. The Company is charged for the MetLife services through a transition services agreement and allocated to the legal entities and products within the Company. When specific identification to a particular legal entity and/or product is not practicable, an allocation methodology based on various performance measures or activity-based costing, such as sales, new policies/contracts issued, reserves, and in-force policy counts is used. 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. Costs incurred under these arrangements with the Brighthouse affiliates, as well as with MetLife prior to the MetLife Divestiture that were considered related party expenses, were $386 million and $887 million for the three months and nine months ended September 30, 2018, respectively, and $290 million and $722 million for the three months and nine months ended September 30, 2017, respectively, and were recorded in other expenses.

Brighthouse affiliates incur costs related to the establishment of services and infrastructure to replace those previously provided by MetLife. The Company is charged a fee to reflect the value of the available infrastructure and services provided by these costs. While management believes that the method used to allocate expenses under this arrangement is reasonable, the allocated expenses may not be indicative of those of a stand-alone entity. If expenses were allocated to the Company under this arrangement as incurred by Brighthouse affiliates, the Company would have incurred additional expenses of $27 million and $56 million for the three months and nine months ended September 30, 2018, respectively. The Company would have incurred no additional expenses under this arrangement in 2017.

Broker-Dealer Transactions

Beginning in March 2017, Brighthouse Securities, LLC, a registered broker-dealer affiliate, began distributing certain of the Company’s existing and future variable insurance products, and the MetLife broker-dealers discontinued such distributions. Prior to March 2017, the Company recognized related party revenues and expenses arising from transactions with MetLife broker-dealers that previously sold the Company’s variable annuity and life products. The related party expense for the Company was commissions collected on the sale of variable products by the Company and passed through to the broker-dealer. The related party revenue for the Company was fee income from trusts and mutual funds whose shares serve as investment options of policyholders of the Company.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(In millions)
Fee income	$	55	$	56	$	166	$	167
Commission expense	$	214	$	157	$	540	$	477

The following table summarizes assets from transactions with related party broker-dealers at:



	September 30, 2018		December 31, 2017
	(In millions)
Fee income receivables	$	18	$	19