Executive Summary / Key Takeaways

• Jackson Financial is executing a strategy focused on diversified annuity sales, particularly in RILA and targeted fixed products, alongside its core variable annuity business, driving robust operating earnings growth.
• The establishment of Brooke Re has significantly enhanced capital stability and predictability, enabling more efficient economic hedging and supporting consistent statutory capital generation.
• Management is committed to returning capital to shareholders, targeting $700-$800 million in common shareholder returns for 2025, underpinned by expected free capital generation exceeding $1 billion under normal market conditions.
• Investments in a digital ecosystem and distribution partnerships are enhancing sales momentum and advisor engagement, contributing to market share capture in key segments like RILA and fee-based advisory.
• While market volatility and regulatory changes present ongoing risks, Jackson's disciplined risk management, conservative investment portfolio, and strong liquidity position provide a solid financial base.

Jackson Financial: Building on a Foundation of Retirement Security

Jackson Financial Inc. is a financial services company dedicated to helping Americans secure their financial futures, primarily through a diverse suite of retirement income and savings products. Its core business revolves around generating fee income from variable annuities, spread income from fixed and indexed products (earning on investments versus interest credited), and margins on other insurance offerings. This model is supported by its primary operating subsidiary, Jackson National Life Insurance Company, which boasts a broad license across the U.S. and a history shaped by strategic acquisitions, particularly in building its Closed Life and Annuity Blocks segment since 2004. While the company discontinued new traditional life sales in 2012 to focus on opportunistic block acquisitions, its strategic emphasis has increasingly centered on diversifying its annuity sales mix and enhancing its operational efficiency.

The broader industry landscape is characterized by favorable demographics, with an aging U.S. population driving significant demand for retirement solutions that offer investment protection and guaranteed lifetime income. This trend is further amplified by the shifting responsibility for retirement planning from employers to individuals and the growing adoption of annuity solutions by financial advisors within comprehensive financial plans. Industry data from LIMRA points to strong overall U.S. annuity market growth, with expectations for new sales records and continued momentum in both traditional variable annuities and Registered Index-Linked Annuities (RILA).

In this dynamic environment, Jackson positions itself through differentiated products, a well-known brand, disciplined risk management, and an established distribution network. The competitive landscape is active, with notable rivals including Lincoln National Corporation (LNC), CNO Financial Group (CNO), and Equitable Holdings (EQH). Jackson competes directly with these firms across various annuity and life insurance product lines. While Jackson offers a wider range of investment options within its variable annuities, potentially providing greater flexibility compared to some competitors like LNC, it has faced challenges related to internal control weaknesses in the past, which can impact compliance costs. Against CNO, Jackson competes in fixed and payout annuities, offering more product options, though CNO's focus on middle-market segments and supplemental health provides a different angle of market penetration. Equitable Holdings competes in retirement and asset management, where Jackson's strength lies more specifically in institutional products.

Jackson's strategic response to this competitive backdrop involves continuous product innovation, expansion of its distribution channels, and significant investment in technology. The company has successfully diversified its sales mix, with RILA growing to represent over 30% of total retail annuity sales, reducing reliance on traditional variable annuities with living benefits (now 30% of Q1 2025 sales, down from 64% at separation). Recent product launches like the Principal Guard GMAB feature for its Elite Access variable annuity and a RILA product in New York, alongside expanded distribution partnerships like the one with J.P. Morgan Wealth Management (JPM), underscore this strategic drive.

A key differentiator for Jackson is its investment in a robust digital ecosystem. This technology platform enhances connectivity through data exchanges and integrations within the annuity industry, making it easier for financial professionals to do business with Jackson. The RILA digital ecosystem, for instance, provides advisors with tools to illustrate product fit and analyze scenarios, contributing to sales lead generation and new advisor relationships. This focus on digital excellence is reflected in quantifiable metrics, such as a nearly 75% increase in visits to the RILA digital ecosystem in Q2 2024 compared to the prior year, and approximately one third of Q2 2024 RILA sales originating from producers using the platform. This technological edge contributes to Jackson's competitive moat by improving service delivery, enhancing distribution effectiveness, and streamlining processes like paperless annuity replacements, ultimately aiming for greater efficiency and reduced processing time for advisors and clients.

Performance and Operational Strength

Jackson's strategic initiatives and market positioning are reflected in its recent financial performance. Adjusted operating earnings, a key metric used by management to evaluate underlying business performance, have shown solid growth. In the first quarter of 2025, adjusted operating earnings reached $376 million, a 13% increase over the first quarter of 2024. This growth was primarily driven by higher earnings on spread products, benefiting from gains in net investment income fueled by the expansion of the RILA and fixed annuity blocks and higher yields on the bond portfolio. On a per-share basis, adjusted operating earnings saw an even stronger increase, rising over 20% from the prior year due to the combination of earnings growth and share repurchase activity.

GAAP net income, however, can exhibit significant volatility due to accounting treatments for market risk benefits and derivatives used in hedging programs that do not qualify for hedge accounting. The first quarter of 2025 saw a net loss, reflecting unfavorable movements in market risk benefits gains/losses, largely tied to interest rate and fund performance volatility, partially offset by favorable movements in derivatives and investments. Management emphasizes that these non-operating items, particularly those related to third-party reinsurance and net hedging results, have minimal net impact on statutory capital or free cash flow and a minimal net impact on shareholders' equity, highlighting the importance of focusing on adjusted operating earnings for core performance.

Segment performance in Q1 2025 showed varied contributions. The Retail Annuities segment, the largest contributor, saw pretax adjusted operating earnings remain relatively flat year-over-year at $420 million, as increased fee income (driven by higher average separate account values) and spread income were offset by higher expenses and policy benefits. Retail annuity sales, however, demonstrated strong momentum, totaling $4,031 million in Q1 2025, up over 9% from Q1 2024, with notable growth in both variable annuities ($2,662 million, up 9.3%) and RILA ($1,195 million, up 3.5%). Fixed annuity sales also surged significantly to $139 million (up 131.7%). The Institutional Products segment reported pretax adjusted operating earnings of $18 million, down from $31 million in Q1 2024, primarily due to lower spread income despite a massive increase in sales to $1,599 million (up 1499%), reflecting the opportunistic nature of this business. The Closed Life and Annuity Blocks segment saw pretax adjusted operating earnings increase to $28 million (from $19 million), driven by higher net investment income.

The company's investment portfolio, primarily managed by its subsidiary PPM, is a critical component supporting its spread-based earnings and overall financial stability. The strategy focuses on a diversified, largely investment-grade fixed income portfolio. As of March 31, 2025, the total investment portfolio stood at $63,728 million. The debt securities portfolio, with an amortized cost of $49,742 million, was 92.5% investment grade. Mortgage loans totaled $10,026 million (net of ACL), with commercial mortgage loans ($9,087 million) diversified across property types and regions, and residential mortgage loans ($1,069 million). The portfolio's conservative positioning, with limited exposure to commercial office loans (less than 2% of the investment portfolio) and below-investment-grade securities (1% on a statutory basis excluding funds withheld assets), is highlighted by management as a strength in volatile markets.

Risk Management and Capital Strength

Operating in the financial services sector exposes Jackson to various market, credit, and regulatory risks. Market risks, including fluctuations in interest rates, equity markets, and volatility, can impact investment performance, hedging effectiveness, product profitability, and liquidity. Credit risk in the investment portfolio can lead to defaults and impairments, affecting regulatory capital. Regulatory changes, such as the Department of Labor's Fiduciary Advice Rule, could potentially impact distribution, product offerings, and compliance costs. Disintermediation risk arises when rising interest rates make alternative products more attractive, potentially leading to increased policy surrenders.

Jackson employs a disciplined risk management framework to mitigate these exposures. A core dynamic hedging program aims to offset changes in the economic liability of variable annuity guaranteed benefits. A macro hedging program provides additional liquidity and statutory capital protection. A pivotal development in enhancing risk management and capital stability was the establishment of Brooke Re, a Michigan captive reinsurer, effective January 1, 2024. Through a coinsurance transaction with Jackson, Brooke Re reinsures certain variable annuity guaranteed benefit riders. This structure utilizes a modified U.S. GAAP approach for regulatory reporting, designed to increase asset/liability alignment and largely moderate the impact of the cash surrender value floor on statutory capital and the RBC ratio. Management views Brooke Re as enabling more efficient economic hedging and stabilizing capital generation, leading to more predictable financial results. The performance of Brooke Re during periods of market volatility, such as early April 2025, is monitored closely, and management noted that despite heightened volatility, Brooke Re remained well-capitalized and did not require capital contributions.

This enhanced capital stability is evident in Jackson's strong statutory capital position. Jackson National Life's statutory capital generation was $441 million in Q1 2025, contributing to a total adjusted capital (TAC) of $5.2 billion at March 31, 2025. The estimated Company Action Level required capital (CAL) remained stable, resulting in a robust estimated RBC ratio of 585% at quarter-end, well above the company's minimum target of 425%. This strong operating company capital position supports the holding company's liquidity and ability to return capital to shareholders. Jackson Financial (Parent Company only) reported free cash flow of $213 million in Q1 2025, a significant increase from $20 million in Q1 2024, and received $240 million in distributions from its operating subsidiary. Holding company cash and highly liquid assets stood at over $600 million, exceeding the minimum buffer and providing substantial financial flexibility.

Outlook and Shareholder Return

Jackson's outlook is underpinned by its strategic momentum and stable capital generation. Management is confident in the company's ability to continue delivering on its financial targets. For 2025, the company has set a target to return $700-$800 million in capital to common shareholders. This target represents a significant increase from the $631 million returned in 2024 and is supported by the expectation of free capital generation exceeding $1 billion in 2025 under normal market conditions. This "earn it, then pay it" philosophy emphasizes generating capital at the operating level, converting it to free cash flow at the holding company, and returning it to shareholders through dividends and share repurchases. The company's consistent track record of meeting or exceeding its capital return targets since becoming independent reinforces this commitment.

Future growth is expected to be driven by continued strength in the Retail Annuities segment, particularly RILA, supported by recent product enhancements and expanded distribution. The company also anticipates remaining active in the spread business, leveraging its capital stability to pursue profitable growth opportunities, although near-term fixed annuity sales volumes are expected to moderate from the strong Q3 2024 levels. Investments in the digital ecosystem and distribution capabilities are expected to continue enhancing sales momentum and advisor engagement. While market volatility and the evolving regulatory landscape remain factors to monitor, Jackson's established risk management framework, conservative investment strategy, and strong capital position provide a solid foundation for executing its strategy and delivering on its commitments to shareholders.

Conclusion

Jackson Financial has successfully navigated its transition to an independent public company, establishing a track record of consistent capital generation and increasing shareholder returns. The strategic focus on diversifying its annuity product mix, particularly the growth in RILA and targeted fixed annuities, is driving robust operating performance. The formation of Brooke Re represents a significant structural enhancement, providing greater capital stability and enabling more efficient risk management, which in turn supports predictable cash flows to the holding company. Backed by a conservative investment portfolio and a strong balance sheet, Jackson is well-positioned to capitalize on the growing demand for retirement solutions from an aging population. Management's clear commitment to returning capital, evidenced by the increased 2025 target and consistent share repurchases, underscores confidence in the business's ability to generate excess capital. While competitive pressures and market volatility persist, Jackson's disciplined approach, product innovation, and investments in its digital capabilities provide a solid foundation for continued profitable growth and value creation for shareholders.