Jackson Financial Inc. (JXN) has emerged as a standout player in the annuity market, showcasing its ability to adapt to changing industry dynamics and deliver consistent growth. With a rich history spanning over two decades, the company has established itself as a trusted partner for financial professionals and their clients seeking tailored retirement solutions.
Company Background
Founded in 1961 as a subsidiary of Prudential plc, Jackson was spun off as an independent public company in 2021, marking a pivotal moment in its evolution. Since then, the company has demonstrated its commitment to strategic execution, product innovation, and client-centric service, positioning itself as a formidable force in the financial services landscape.
Product Portfolio
Jackson's diverse portfolio of annuity products, including variable annuities, registered index-linked annuities (RILAs), fixed annuities, and fixed index annuities, has enabled the company to cater to the evolving needs of its clientele. This product diversity, coupled with a focus on risk management and capital preservation, has been instrumental in driving the company's success.
Market Presence
Prior to becoming an independent public company, Jackson National Life Insurance Company, the company's primary life insurance subsidiary, was licensed to sell group and individual annuity products, as well as individual life insurance products, in all 50 states and the District of Columbia. This broad geographical reach has allowed Jackson to establish a strong presence across the United States.
Recent Challenges
The company faced challenges in 2022 and 2023 due to the COVID-19 pandemic, which disrupted its business and contributed to additional operating costs. However, Jackson demonstrated its resilience by successfully implementing remote and hybrid work environments, allowing it to continue serving its clients effectively during this challenging period.
Financials
In 2024, Jackson reported net income of 901 million, a testament to its strong financial performance. The company's adjusted operating earnings, a non-GAAP metric that provides a more comprehensive view of its underlying business, reached 1.4 billion, showcasing the resilience and consistency of its operations.
For the third quarter of 2024, Jackson reported impressive financial results. Revenue for the quarter stood at $225 million, while net income reached $345 million. The company's operating cash flow (OCF) and free cash flow (FCF) both came in at $1.525 billion. These figures represent strong year-over-year growth across all metrics, driven primarily by increased sales of RILA and fixed annuity products, as well as higher investment income.
The Retail Annuities segment, Jackson's largest business, reported pretax adjusted operating earnings of $458 million for the three months ended September 30, 2024, an increase of $104 million compared to the prior year period. This growth was primarily driven by a $90 million increase in fee income due to higher average separate account values, and an $88 million increase in spread income due to higher investment income, partially offset by higher operating expenses.
The Institutional Products segment reported pretax adjusted operating earnings of $17 million for the same period, a decrease of $4 million compared to the prior year period. This decline was primarily due to a $4 million decrease in spread income from lower investment income.
The Closed Life and Annuity Blocks segment reported pretax adjusted operating earnings of $7 million, an increase of $1 million compared to the prior year period. This was primarily due to a $12 million decrease in death, other policy benefits, and change in policy reserves, partially offset by an $8 million decrease in premiums.
The Corporate and Other segment reported pretax adjusted operating earnings of $71 million, a decrease of $45 million compared to the prior year period. This was primarily driven by a $33 million increase in operating costs and other expenses, as well as a $14 million decrease in net investment income.
Overall, Jackson Financial reported net income attributable to common shareholders of $480 million for the three months ended September 30, 2024, compared to $2.76 billion in the prior year period. This decrease was primarily due to unfavorable movements in market risk benefits, partially offset by higher fee income and spread income. The company's Adjusted Operating Earnings, a non-GAAP measure, was $350 million for the quarter, compared to $315 million in the prior year period.
Product Innovation
A key driver of Jackson's growth has been its focus on product innovation. The company's introduction of RILAs, which offer customers the opportunity to participate in market upside while mitigating downside risk, has been particularly well-received. In 2024, RILA sales grew by an impressive 39% year-over-year, underscoring the strong demand for this innovative product offering.
Distribution Strategy
Furthermore, Jackson's commitment to distribution expansion has been a strategic priority. The company has forged partnerships with financial institutions and independent broker-dealers, allowing it to reach a broader client base and diversify its sales channels. This focus on distribution has contributed to the company's ability to maintain a healthy new business pipeline, with total retail annuity sales reaching 18 billion in 2024, a 39% increase from the previous year.
Operational Excellence and Risk Management
Underpinning Jackson's success is its dedication to operational excellence and risk management. The company's dynamic hedging program, designed to mitigate the impact of market volatility on its variable annuity business, has been a key differentiator. This approach has led to more stable capital generation, providing the company with the financial flexibility to invest in growth initiatives and return capital to shareholders.
Liquidity
In 2024, Jackson demonstrated its commitment to shareholder value by returning 631 million to common shareholders through share repurchases and dividends, representing a 48% increase from 2023 on a per diluted share basis. The company's strong capital position, with an estimated risk-based capital (RBC) ratio of 572% at the end of 2024, has enabled it to maintain financial stability and provide sustainable returns to its investors.
As of the most recent quarter, Jackson reported a substantial cash position of $3.06 billion. The company also maintains a $1 billion revolving credit facility, of which $500 million is available for letters of credit, further bolstering its liquidity position.
Future Outlook
Looking ahead, Jackson remains well-positioned to navigate the evolving annuity landscape. The company's focus on product innovation, distribution expansion, and operational excellence positions it to capitalize on the growing demand for retirement solutions that offer both growth potential and downside protection.
For 2025, Jackson has increased its total capital return target to $700 to $800 million, representing an increase of more than 10% at the low end and more than 25% at the high end compared to 2024. The company expects to maintain an RBC ratio above 425% and hold a buffer of $250 million at the holding company. Under normal market conditions, Jackson anticipates free capital generation in excess of $1 billion in 2025.
Despite the challenges posed by macroeconomic and industry-specific factors, Jackson has demonstrated its ability to adapt and thrive. The company's resilience, combined with its commitment to serving the needs of financial professionals and their clients, makes it an intriguing investment opportunity for those seeking exposure to the dynamic annuity market.
Industry Trends
The annuity industry has seen steady growth in recent years, with a compound annual growth rate (CAGR) of 5-7% driven by increasing demand for retirement income solutions from aging baby boomers. This trend bodes well for Jackson, given its strong position in the market and diverse product offerings.
Conclusion
In conclusion, Jackson Financial Inc. (JXN) has established itself as a leader in the annuity industry, leveraging its product diversity, distribution capabilities, and disciplined risk management approach to drive consistent growth and shareholder value. The company's strong financial performance, innovative product offerings, and robust distribution network position it well to capitalize on the growing demand for retirement solutions. As Jackson continues to navigate the evolving retirement planning landscape, investors can look forward to its ongoing contributions to the financial well-being of millions of Americans seeking secure and sustainable retirement solutions.