Executive Summary / Key Takeaways

• Brooke Re has fundamentally transformed Jackson's capital profile, creating a self-sustaining reinsurance structure that moderates equity market volatility and makes the earnings stream more akin to an asset management business, supporting a higher valuation multiple over time.

• RILA growth from zero to $18 billion AUM in three years provides a powerful new earnings engine with natural hedging efficiencies against traditional variable annuity guarantees, diversifying revenue and reducing single-product risk.

• Capital return discipline is exceptional and sustainable: $875 million returned in 2024 (highest annual level) and $657 million through Q3 2025, with management highly confident in exceeding the $700-800 million full-year target, supported by free capital generation well above $1 billion.

• Record retail annuity sales exceeding $5 billion in Q3 2025 demonstrate strong distribution and product innovation, but interest rate sensitivity, competitive RILA market pressures, and policyholder behavior risks remain key variables for the investment case.

Setting the Scene: The Annuity Specialist's Transformation

Jackson Financial Inc., incorporated in Delaware in 2006 and headquartered in Lansing, Michigan, spent its first 15 years as a subsidiary of Prudential plc (PUK) before becoming an independent public company in September 2021. That independence marked more than a corporate event—it triggered a strategic revolution. The company emerged from a legacy variable annuity writer burdened by capital volatility into a focused annuity specialist with a transformed risk profile.

Jackson makes money through three distinct business segments. The Retail Annuities segment offers variable annuities, registered index-linked annuities (RILA), fixed index annuities, fixed annuities, and payout annuities, generating fees from account values and spreads from general account assets. The Institutional Products segment provides guaranteed investment contracts (GICs) and funding agreements to retirement plans and institutional investors, earning spread income. The Closed Life and Annuity Blocks segment houses legacy life insurance and fixed annuity business acquired since 2004, generating earnings from historical pricing and investment returns.

The annuity industry sits at the intersection of powerful demographic and regulatory tailwinds. An aging U.S. population, with 10,000 baby boomers reaching retirement age daily, creates sustained demand for guaranteed income and principal protection solutions. The SECURE Act of 2019 and SECURE 2.0 of 2022 expanded annuity access in 401(k) plans, while the Department of Labor's Fiduciary Advice Rule creates compliance complexity that favors established players with robust distribution and product infrastructure.

Jackson's competitive positioning reflects a deliberate choice to focus on independent distribution channels—wirehouses, independent broker-dealers, banks, and RIAs—rather than captive agents. This provides pricing power and faster market penetration than wirehouse-dependent peers like Equitable Holdings (EQH) or Prudential (PRU). The company's long-standing emphasis on product innovation and consumer choice, avoiding restrictive investment options in favor of investment freedom, differentiates it in a market increasingly commoditized by low-cost providers.

Technology, Products, and Strategic Differentiation: The RILA Revolution and Hedging Mastery

Jackson's core technological advantage lies in its hedging program and product architecture, which have evolved dramatically since 2024. The company moved to a more economic hedging approach that year, contributing to greater capital stability and consistent capital generation. This shift reduces the earnings volatility that historically plagued variable annuity writers, making Jackson's results more predictable and deserving of a lower risk premium.

The RILA product suite represents Jackson's most significant product innovation. Launched from negligible assets, RILA AUM approached $18 billion by Q3 2025, a 74% increase year-over-year and 21% sequential growth from Q2. RILA sales hit a record $2 billion in Q3 2025, accounting for 38% of total retail annuity sales. RILA provides sustainable investment spread income that diversifies earnings away from traditional variable annuity fees, which are more sensitive to equity market fluctuations.

The product's design creates natural hedging efficiencies. RILA is exposed to upside equity risk while traditional variable annuity guarantees face downside equity risk. This natural offset allows Jackson to net internal trades before purchasing external hedges, reducing hedging costs and capital requirements. CFO Don Cummings explains that even if RILA equity risk surpasses variable annuity risk, it simply shifts external hedging needs from downside to upside protection—avoiding the reserve strain that competitors face under statutory VM-21 frameworks.

RILA 3.0, launched in May 2025 with Market Link Pro III and Market Link Pro Advisory III, accelerated growth by adding NASDAQ 100 index options and full principal protection features. This innovation attracted over 500 new advisers and expanded distribution through a new partnership with JPMorgan Chase (JPM). The product's success underscores Jackson's ability to rapidly iterate and capture market share in the fastest-growing annuity category, where industry sales have grown double-digits for three consecutive years.

The Brooke Re structure, implemented in January 2024, is Jackson's most important strategic differentiator. By ceding variable annuity guaranteed benefit riders to the Michigan captive reinsurer, Jackson removed the cash surrender value floor constraint that previously amplified capital volatility. Brooke Re was capitalized with $1.9 billion, including $700 million in hard assets, and operates on a self-sustaining basis. This structure makes Jackson National Life's capital position and RBC ratio less sensitive to equity market movements, fundamentally altering the risk profile. The earnings stream becomes more asset-management-like, with stable fee income from $268 billion in separate account value and growing spread income from RILA and fixed products.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

Retail Annuities delivered operating revenues of $1.41 billion in Q3 2025, up from $1.34 billion year-over-year, driven by higher account values and record sales. Pretax adjusted operating earnings reached $494 million, reflecting solid fee income from nearly $240 billion of separate account value and growing investment spread income. The segment's account value grew to $268 billion, up from $252 billion at year-end 2024, supported by strong equity market performance and net inflows.

The sales mix shift demonstrates capital efficiency. Variable annuity sales without lifetime benefits increased 24% year-to-date, representing 38% of total variable annuity sales. These products require less capital than guaranteed living benefit riders, freeing capacity for higher-margin spread products. Traditional variable annuities still account for over half of Q3 retail sales, increasing 13% sequentially and 8% year-over-year, proving the core business remains resilient. The all-in surrender rate of 12% breaks down into 7% full surrenders, 4% benefit withdrawals, and 1% deaths—showing policyholders are primarily using products as intended rather than lapsing, which stabilizes liability projections.

Institutional Products generated $148 million in operating revenue and $31 million in pretax earnings in Q3 2025, up from $101 million and $17 million respectively year-over-year. Sales reached $1 billion in the quarter and $3.5 billion year-to-date, reflecting strong demand for spread lending and an opportunistic approach to pricing. This segment provides valuable diversification, though its smaller scale means it contributes less to overall earnings growth than Retail Annuities.

Closed Life and Annuity Blocks produced $318 million in revenue and $15 million in pretax earnings in Q3 2025. While this segment provides stable cash flows from $7.4 billion in account value, its primary strategic value is capital efficiency. The block requires minimal new investment and generates earnings from historical pricing, allowing Jackson to allocate capital to higher-growth opportunities. The segment's mortality experience and reserve assumptions require monitoring, but management's comprehensive annual review process and long-term perspective mitigate sudden earnings volatility.

Corporate and Other, which includes PPM America asset management operations, contributed $35 million in pretax earnings in Q3 2025, up from a $71 million loss year-over-year due to lower expenses and higher investment income. PPM manages the general account portfolio supporting spread products, with strong credit quality and diversification positioning Jackson competitively in rate environments.

Consolidated results show the transformation's impact. Adjusted operating earnings of $433 million in Q3 2025 reflect strong spread product performance and increased variable annuity AUM driving fee income. The effective tax rate of 32.4% in Q3 was elevated by valuation allowances and tax adjustments, but the underlying business generated after-tax statutory capital of $579 million and free capital generation of $459 million. The RBC ratio ended Q3 at 579%, well above the 425% target, providing substantial cushion for growth and capital returns.

Outlook, Management Guidance, and Execution Risk

Management has set a 2025 capital return target of $700-800 million but expressed high confidence in exceeding the top of this range, having already returned $657 million through Q3. This guidance signals sustainable capital generation capacity and management's commitment to shareholder returns. The company adheres to an "earn it, then pay it" philosophy built on three pillars: generating free capital, creating free cash flow, and returning capital to shareholders.

Free capital generation is expected to exceed $1 billion for full-year 2025 under normal market conditions. This outlook includes the impact of a one-time $190 million tax benefit in 2024 that won't repeat, meaning normalized 2024 free capital was approximately $1.1 billion. Management has built a reasonable level of equity market return into their 2025 plan, suggesting the $1 billion guidance is achievable even with moderate market headwinds.

The RBC ratio, currently at 579%, is expected to decline gradually over time rather than through a one-time capital upstreaming. This strategic choice reflects Jackson's focus on diversifying into spread products like RILA and fixed index annuities, which require more capital than traditional variable annuities. The gradual decline allows Jackson to simultaneously grow the business and return significant capital, demonstrating capital allocation discipline.

RILA growth is expected to remain a valuable source of growth, with the product suite now representing 38% of retail sales. The recent New York product launch and JPMorgan partnership expand addressable market, while the Plus Income optional benefit launched in 2024 enhances product competitiveness. Management expects the recently launched Jackson Income Assurance Suite fixed index annuity to contribute to future sales growth, further diversifying the product mix.

Industry projections from LIMRA suggest 2025 traditional variable annuity sales will hold steady near recent levels, RILA sales will be slightly above 2024 assuming stable markets, and fixed annuities will decline in a lower interest rate environment. Jackson's product mix positions it well for these trends, with RILA momentum offsetting potential fixed annuity softness.

Execution risks center on maintaining RILA growth rates in an increasingly competitive market, managing policyholder behavior as equity markets rise (which increases surrender activity), and navigating interest rate volatility. The hedging program's performance during April 2025 market stress demonstrated effectiveness, with Brooke Re requiring no capital contributions despite heightened volatility. This provides confidence in the capital structure's resilience.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is interest rate disintermediation. Rising rates make newly issued fixed annuities more attractive while reducing the market value of assets backing existing liabilities, creating incentives for policyholders to lapse. Jackson's hedging program mitigates this risk, but sustained rate increases could pressure spreads and increase surrender rates beyond the typical 8-9% at-the-money lapse rate. The company's 7% surrender rate experienced in the 2022 down market demonstrates how behavior changes with market conditions, potentially creating earnings volatility if rates move rapidly.

Competitive pressure in the RILA market is intensifying. While Jackson's RILA sales grew 16% sequentially in Q2 2025 versus 13% industry growth, competitors are launching similar features like 100% principal protection. The market's evolution could compress margins or require increased investment in product development and distribution incentives. Jackson's independent distribution moat provides some protection, but wirehouse-focused competitors with larger scale could pressure pricing.

Regulatory changes pose asymmetric risk. The Department of Labor's Fiduciary Advice Rule, while not expected to materially impact Jackson's business, could increase litigation risk and change compensation practices. More significantly, changes to U.S. tax laws that diminish annuities' tax-deferred advantages could materially decrease product demand. Jackson's focus on investment freedom and consumer choice provides some defense, but regulatory shifts remain outside management's control.

Policyholder behavior assumptions are critical to reserve adequacy. While management takes a comprehensive, long-term approach to setting assumptions, actual experience could diverge. Higher mortality in the Closed Block segment led to a $23 million after-tax earnings reduction in Q4 2024 from assumption updates. Similarly, utilization of guaranteed benefits could exceed projections, though CFO Cummings notes the recent assumption adjustment was about withdrawal frequency, not benefit utilization rates.

The concentration in annuities creates vulnerability to market-specific downturns. Unlike diversified insurers like Prudential or Lincoln National (LNC), Jackson's focused strategy amplifies both upside and downside. A prolonged equity market decline would reduce separate account values and fee income, while a shift away from annuities toward direct investment solutions could erode market share. The Brooke Re structure mitigates capital impact but doesn't eliminate earnings sensitivity.

Valuation Context: Positioning Among Peers

At $98.84 per share, Jackson trades at 13.83 times trailing earnings and 0.70 times book value, with a dividend yield of 3.26% and free cash flow yield of approximately 14-16% based on trailing free capital generation. These metrics position Jackson attractively relative to annuity peers, though absolute valuation must be considered in context of the transformed business model.

Comparing Jackson to key competitors reveals its capital efficiency advantage. Equitable Holdings (EQH) trades at a negative price-to-book due to legacy liabilities and carries debt-to-equity of 3.31 versus Jackson's 0.54, reflecting Jackson's cleaner balance sheet post-Brooke Re. Brighthouse Financial (BHF) trades at 4.60 times earnings but has experienced deposit declines and operational hiccups, while Jackson's sales are accelerating. Lincoln National (LNC) and Prudential (PRU) trade at 3.72 and 15.31 times earnings respectively, but their diversified business models dilute annuity-focused growth and margins.

Jackson's return on equity of 5.76% appears modest but understates the underlying economics. The Brooke Re structure and high RBC ratio (579%) reflect excess capital that will gradually deploy into growth or return to shareholders. Adjusted operating ROE of 14% for the first nine months of 2025 better reflects the earnings power of the operating business, comparing favorably to peers.

The free cash flow yield of 14-16% stands out in a sector where many competitors struggle to generate consistent free cash due to capital volatility. This metric, emphasized by management, demonstrates the tangible value creation from the capital transformation. Jackson's ability to generate $1+ billion in free capital annually while maintaining a 579% RBC ratio provides substantial optionality for growth investments, M&A, or enhanced capital returns.

Valuation must also consider the earnings quality improvement. The shift toward spread products (RILA, fixed index annuities) and the Brooke Re structure have reduced non-operating volatility. In Q3 2025, the only notable item was a $0.04 negative impact from limited partnership results, compared to $0.28 in Q3 2024. This stability supports a higher multiple over time as investors gain confidence in predictable earnings streams.

Conclusion: A Transformed Annuity Leader

Jackson Financial has executed a remarkable transformation from a capital-intensive variable annuity writer into a diversified, capital-efficient annuity specialist with asset management-like earnings stability. The Brooke Re structure fundamentally altered the risk profile, while RILA's explosive growth from zero to $18 billion AUM created a powerful new earnings engine that naturally hedges traditional variable annuity guarantees.

The company's capital return discipline—$875 million in 2024 and a highly confident outlook to exceed $700-800 million in 2025—demonstrates management's commitment to shareholder value and the sustainability of free capital generation. Record retail annuity sales exceeding $5 billion in Q3 2025, driven by RILA 3.0 innovation and expanded distribution, position Jackson to capture share in the fastest-growing annuity segments.

The investment case hinges on two critical variables: RILA growth sustainability in an increasingly competitive market, and the company's ability to manage policyholder behavior and interest rate risk as it diversifies into spread products. If Jackson can maintain its product innovation edge and distribution strength while the Brooke Re structure continues moderating capital volatility, the stock's current valuation provides an attractive entry point for investors seeking exposure to demographic-driven annuity demand with improving earnings quality and disciplined capital allocation.

The transformation is not yet fully reflected in valuation metrics, particularly the free cash flow yield of 14-16% and the path toward gradual RBC ratio normalization. As the market recognizes the durability of Jackson's capital generation and the reduced earnings volatility, the stock should command a premium to traditional annuity peers, rewarding patient investors who appreciate the strategic inflection that independence and innovation have created.