With the adoption of VA Reform, the capital metric of combined RBC ratio now aligns with our management metrics and more holistically captures interest rate risk. We began to more actively manage the interest rate risk in our variable annuity and ULSG businesses together, although individual hedge targets still exist for variable annuities and ULSG. Accordingly, the related portfolio of interest rate derivatives will be managed in the aggregate with rebalancing and trade executions determined by the net exposure. By managing the interest rate exposure on a net basis, we expect to more efficiently manage the derivative portfolio, better protect capital and reduce costs. We refer to this aggregated approach to managing interest rate risk as our macro interest rate hedging program.
current period net mark-to-market gains on equity securities compared to prior period net losses,
higher average invested assets resulting from positive net flows in the general account; and
higher investment income due to the repositioning of the investment portfolio out of U.S. Treasuries into higher-yielding assets in the prior period,
The following table presents the components of adjusted earnings for our Life segment:
a decrease in the allocation of corporate expenses in the current period.
higher costs associated with insurance-related activities, primarily in our ULSG business due to:
The provision for income tax in the current period led to an effective tax rate of 22%, compared to 24% in the prior period. Our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits.
Certain one-time tax adjustments recognized in the current period, primarily due to a revaluation of certain Separation-related liabilities, resulted in an unusually high effective tax rate of 37%, compared to 28% in the prior period, for which both rates represent a tax benefit. In addition to such one-time tax adjustments, our effective tax rate primarily differs from the statutory tax rate due to the impacts of the dividends received deductions and tax credits. We believe the effective tax rate for Corporate & Other is not generally meaningful, neither on a stand-alone 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.
Excludes living benefit fees, included as a component of adjusted earnings, of $64 million and $69 million for the years ended December 31, 2019 and 2018, respectively.
Investment fee and expense yields are calculated as investment fees and expenses as a percent of average quarterly asset estimated fair values. Asset estimated fair values exclude collateral received in connection with our securities lending program, freestanding derivative assets and collateral received from derivative counterparties.
within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by purchasing Treasury bonds (or other high-quality assets) and associating them with written credit default swaps on the desired corporate credit name, we, can replicate the desired bond exposures and meet our ALM needs. This can expose the Company to changes in credit spreads as the written credit default swap tenor is shorter than the maturity of Treasury bonds.
On March 25, 2019, BHF issued depositary shares, each representing a 1/1,000th ownership interest in a share of BHF’s perpetual 6.600% Series A non-cumulative preferred stock (the “Series A Preferred Stock”) and in the aggregate representing 17,000 shares of Series A Preferred Stock, with a stated amount of $25,000 per share, for aggregate net cash proceeds of $412 million. See Note 10 of the Notes to the Consolidated Financial Statements.
Includes unamortized debt issuance costs and debt discount totaling $42 million and $46 million at December 31, 2019 and 2018, respectively, for senior notes and junior subordinated debentures on a combined basis.
In addition to the summarized description of liquidity and capital uses discussed in “- Sources and Uses of Liquidity and Capital,” and “- Contractual Obligations,” the following additional information is provided regarding our primary uses of liquidity and capital:
During the years ended December 31, 2019 and 2018, we repurchased 11,658,208 shares and 2,628,167 shares, respectively, of our common stock through open market purchases, pursuant to 10b5-1 plans, for $442 million and $105 million, respectively. In 2020, through February 21, 2020, BHF repurchased an additional 947,605 shares of its common stock through open market purchases, pursuant to 10b5-1 plans, for $39 million.
Actual cash payments on insurance liabilities and policyholder account balances may differ significantly from the liabilities as presented on the consolidated balance sheet and the estimated cash payments as presented due to differences between actual experience and the assumptions used in the establishment of these liabilities and the estimation of these cash payments. All estimated cash payments are presented gross of any reinsurance recoverable.
At December 31, 2019 and 2018, BHF and certain of its non-insurance subsidiaries had short-term liquidity of $723 million and $520 million, respectively. Short-term liquidity is comprised of cash and cash equivalents and short-term investments.
The difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized as an OTTI in earnings.
Life insurance sales consist of 100 percent of annualized new premium for term life, first-year paid premium for whole life, universal life, and variable universal life, and total paid premium for indexed universal life. We exclude company-sponsored internal exchanges, corporate-owned life insurance, bank-owned life insurance, and private placement variable universal life.
The guaranteed percentage that the Benefit Base increases by each year.
The Company incurs and defers certain costs in connection with acquiring new and renewal insurance business. These deferred costs, amounting to $4.9 billion as of December 31, 2019, are amortized over the expected life of the policy contract in proportion to actual and expected future gross profits, premiums or margins. For universal and variable life insurance policies and deferred annuity contracts, expected future gross profits utilized in the amortization calculation are derived using assumptions such as investment returns in excess of the amounts credited to policyholders, mortality, persistency, benefit elections and withdrawals, interest crediting rates, and expenses. The assumptions used in the calculation of expected future gross profits are reviewed at least annually.
The accompanying consolidated financial statements include the accounts of Brighthouse Financial, as well as partnerships and limited liability companies (“LLCs”) in which the Company has control. Intercompany accounts and transactions have been eliminated.
The Company has issued fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain special purpose entities that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. During each of the years ended December 31, 2019, 2018 and 2017, the Company issued no funding agreements and repaid $6 million. At December 31, 2019 and 2018, liabilities for funding agreements outstanding, which are included in policyholder account balances, were $134 million and $136 million, respectively.
Includes net investment income pertaining to other limited partnership interests of $181 million, $211 million and $184 million for the years ended December 31, 2019, 2018 and 2017, respectively.
The following tables summarize the change of all assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):
Investment performance related to separate account assets is fully offset by corresponding amounts credited to contract holders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure, these changes are presented within net investment gains (losses).
Includes unamortized debt issuance costs and debt discount totaling $42 million and $46 million for the senior notes due 2027 and 2047 and junior subordinated debentures due 2058 on a combined basis at December 31, 2019 and 2018, respectively.
Unsecured senior notes and borrowings outstanding under term loan facilities rank highest in priority, followed by subordinated debt consisting of junior subordinated debentures.
Brighthouse Services sponsors qualified and non-qualified defined contribution plans. For the years ended December 31, 2019, 2018 and 2017, the total employer contributions for the qualified defined contribution plan were $15 million, $14 million and $8 million, respectively, and the total expense recognition for the non-qualified defined contribution plans were $6 million, $3 million and $2 million, respectively, all of which are reported in other expenses.