Business Overview and History
Jackson Financial Inc. (JXN) is a leading provider of innovative annuity and life insurance products, dedicated to helping Americans achieve financial freedom for life. With a rich history spanning decades, the company has navigated the dynamic retirement services industry, continuously adapting its product suite and distribution strategies to meet the evolving needs of its clients.
Jackson Financial Inc. was previously a subsidiary of Prudential plc, serving as the holding company for Prudential's U.S. operations. In September 2021, the company demerged from Prudential and became an independent, publicly-traded entity. Jackson's primary operating subsidiary, Jackson National Life Insurance Company, is a licensed seller of group and individual annuity products, including immediate, registered index-linked, deferred fixed, fixed index, and variable annuities, as well as various life insurance offerings.
In addition to Jackson National Life Insurance Company, Jackson Financial's other operating subsidiaries include PPM America, Inc., a registered investment advisor that manages the life insurance companies' general account investment funds. The company has also established Brooke Life Insurance Company and Brooke Life Reinsurance Company in recent years to support Jackson's operations.
Jackson Financial also participates in the institutional products market through the issuance of guaranteed investment contracts, funding agreements, and medium-term note funding agreements. This diversification of offerings allows the company to cater to a broader range of financial needs and market segments.
Prior to the demerger in 2021, Jackson faced challenges related to its status as a majority-owned subsidiary of Prudential. This included navigating the complexities of operating under Prudential's oversight and ensuring alignment between Jackson's strategy and that of its parent company. The demerger allowed Jackson to operate independently and forge its own path as a standalone public company, better positioning it to serve the needs of its customers and shareholders.
Over the years, Jackson has demonstrated a keen ability to adapt to market conditions and consumer preferences. After discontinuing new sales of life insurance products in 2012, the company has strategically focused on opportunistically acquiring mature blocks of life insurance policies, which it believes is a more efficient means of diversifying its in-force business than selling new life insurance products. This shift in strategy has allowed Jackson to capitalize on its core strengths in annuity product development and distribution.
Financial Performance and Resilience
Jackson's financial performance has been marked by consistent profitability and a strong balance sheet. For the year ended December 31, 2023, the company reported net income of $934 million, with total revenue of $3.24 billion and operating cash flow of $5.31 billion. Free cash flow for 2023 was also $5.31 billion. The company's risk-based capital (RBC) ratio, a key measure of financial strength, stood at a robust 550-570% as of the third quarter of 2024, well above the minimum regulatory requirement of 425%.
Financials
The company's balanced approach to capital management has allowed it to maintain a healthy financial profile while investing in strategic growth initiatives. Over the past three years since its separation from Prudential, Jackson has returned nearly $1.7 billion to shareholders through a combination of common stock dividends and share repurchases, underscoring its commitment to enhancing shareholder value.
For the third quarter of 2024, Jackson reported revenue of $2.12 billion, representing a 17.7% decrease compared to the same quarter in 2023. Net income swung from a profit of $2.79 billion in Q3 2023 to a loss of $466 million in Q3 2024. The decreases were primarily due to unfavorable movements in market risk benefits and lower net investment income. Operating cash flow and free cash flow for Q3 2024 were both negative $2.90 billion.
The Retail Annuities segment, Jackson's largest, reported total operating revenues of $1.34 billion for Q3 2024, up from $1.16 billion in the prior year period. Pretax adjusted operating earnings for this segment increased to $458 million, compared to $354 million a year ago, driven by higher fee income and spread income.
The Institutional Products segment saw a slight decline in performance, with total operating revenues of $101 million in Q3 2024, compared to $109 million in the prior year period. Pretax adjusted operating earnings decreased to $17 million from $21 million a year ago.
The Closed Life and Annuity Blocks segment reported total operating revenues of $295 million in Q3 2024, down from $311 million in the prior year period. However, pretax adjusted operating earnings increased slightly to $7 million, up from $6 million a year ago.
Liquidity
Jackson's strong liquidity position is reflected in its robust RBC ratio and consistent cash flow generation. The company's prudent capital management strategy ensures it maintains adequate liquidity to meet its obligations and pursue growth opportunities. As of Q3 2024, Jackson reported cash and cash equivalents of $3.06 billion. The company's debt-to-equity ratio stood at 0.41, indicating a relatively low level of leverage. Both the current ratio and quick ratio were 2.51, suggesting strong short-term liquidity.
Jackson has access to a $1 billion revolving credit facility, of which $500 million is available for letters of credit. This facility expires in February 2028, providing additional financial flexibility.
Diversified Product Suite and Distribution Channels
Jackson's product portfolio is designed to meet the evolving needs of retirees and pre-retirees. The company's flagship offerings include variable annuities, registered index-linked annuities (RILAs), fixed index annuities, and fixed annuities, each catering to different risk profiles and income requirements.
The company's RILA product, in particular, has gained significant traction in recent years, with sales reaching a record $1.6 billion in the third quarter of 2024, up 99% from the same period in the prior year. This growth has been driven by the product's ability to provide clients with the opportunity to participate in equity market upside while limiting downside risk, a proposition that has resonated strongly with investors planning for retirement.
To deliver its products to clients, Jackson has built a diversified distribution network, partnering with wirehouses, insurance brokers, independent broker-dealers, banks, and financial institutions. This multi-channel approach has enabled the company to reach a wider audience and adapt to changing customer preferences.
Regulatory Landscape and Risk Management
As a participant in the highly regulated insurance and financial services industry, Jackson closely monitors the evolving regulatory environment. The company has demonstrated its ability to navigate challenges, such as the Department of Labor's Fiduciary Advice Rule, which could have implications for the annuity industry. Jackson has proactively taken steps to align its practices with regulatory requirements, aiming to mitigate the potential impact on its operations and distribution channels.
Risk management is a core tenet of Jackson's business strategy. The company has implemented a comprehensive approach to identifying, assessing, and mitigating various risks, including market, credit, and operational risks. This disciplined risk management framework has been further strengthened by the establishment of Brooke Re, the company's captive reinsurance subsidiary, which has helped to stabilize Jackson's capital position and enhance its ability to manage market volatility.
Outlook and Growth Opportunities
Looking ahead, Jackson is well-positioned to capitalize on the growing demand for retirement planning solutions. The aging U.S. population, coupled with the shift in responsibility for financial security from employers to individuals, presents a compelling opportunity for the company to leverage its product innovation, risk management expertise, and distribution capabilities.
The company's diverse product suite, anchored by its industry-leading RILA offerings, positions it to meet the evolving needs of retirees and pre-retirees seeking growth potential, downside protection, and guaranteed lifetime income. Furthermore, Jackson's strategic focus on expanding its fixed and fixed index annuity sales through its broad retail distribution network demonstrates its agility in responding to market demands.
Jackson is on track to meet its annual financial targets for the fourth year in a row, with after-tax capital generation exceeding $850 million through the first nine months of 2024. The company expects to surpass $1 billion in capital generation for the full year, outperforming its previously provided guidance. For 2024, Jackson is targeting $550 million to $650 million in capital return and expects to finish the year in the upper half of this range. The company's Board has approved a common stock dividend of $0.70 per share for Q4 2024, and Jackson has an outstanding share repurchase authorization of approximately $684 million, providing flexibility and visibility into its 2025 capital return opportunities.
As the annuity industry continues to evolve, Jackson Financial Inc. remains committed to delivering innovative solutions, maintaining a robust financial profile, and upholding its reputation for prudent risk management. With a strong track record of navigating industry challenges and a clear vision for the future, the company is poised to capitalize on the growing retirement planning needs of Americans, while generating sustainable value for its shareholders.