Jackson(JXN) - 2024 Q4 - Annual Report

Business Overview Company Overview Jackson Financial Inc. is a U.S. financial services company focused on retirement savings and income solutions, primarily offering diverse annuities through an industry-leading distribution network, emphasizing differentiated products, efficient operations, and disciplined risk management, reporting significant sales growth and strong capital levels in fiscal year 2024 - Jackson Financial Inc. helps Americans with retirement savings and income by offering diverse annuities through an industry-leading distribution network[18][20][21] Selected Financial and Operating Measures (Year Ended Dec 31, in millions USD) | Measure | 2024 | 2023 | | :--- | :--- | :--- | | Total Sales | $19,849 | $13,898 | | Assets Under Management (AUM) | $324,718 | $315,838 | | Net income attributable to JFI common shareholders | $902 | $899 | | Adjusted Operating Earnings | $1,443 | $1,073 | | Capital Returned to Common Shareholders | $631 | $464 | | Jackson statutory risk-based capital ratio | 572% | 624% | - Total retail annuity sales increased to $17.8 billion in 2024 from $12.8 billion in 2023[21] Product Offerings by Segment The company operates through three main segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks, with Retail Annuities being the largest, driven by strong sales in Variable Annuities and significant RILA growth, while Institutional Products are issued opportunistically and Closed Life and Annuity Blocks consist of acquired, non-new-sale businesses Annuity Sales and Account Value by Type (in millions USD) | Annuity Type | 2024 Sales | 2024 Account Value | 2023 Sales | 2023 Account Value | | :--- | :--- | :--- | :--- | :--- | | Variable annuities | $10,561 | $236,057 | $9,540 | $227,777 | | RILA | $5,674 | $11,685 | $2,890 | $5,219 | | Fixed index annuities | $181 | $816 | $210 | $622 | | Fixed annuities | $1,433 | $2,515 | $193 | $1,218 | - As of December 31, 2024, 73% of total variable annuity account value included a Guaranteed Minimum Withdrawal Benefit for Life (GMWB for Life) feature[30] - The Institutional Products segment reported $2.0 billion in sales and $8.4 billion in account value as of December 31, 2024[36] - The Closed Life and Annuity Blocks segment, comprising acquired policies and discontinued life insurance sales, held $20.6 billion in total reserves as of December 31, 2024[37][38] Distribution and Operations Jackson utilizes a multi-channel distribution network, including approximately 500 broker-dealers and over 1,700 RIAs, ranking 2 in U.S. variable annuity sales for the first nine months of 2024, supported by an efficient operating platform that administers 79% of policies in-house and a product design focused on risk management through investment-only options, GMWB emphasis, and reinsurance - The company distributes retail annuities through approximately 500 broker-dealer partners with over 120,000 advisors and more than 1,700 RIAs[43] - For the nine months ended September 30, 2024, Jackson ranked 2 in U.S. variable annuity sales with a 12.3% market share[42] - The company administers approximately 79% of in-force policies on its in-house platform, contributing to a low combined statutory operating expense-to-asset ratio of 29 basis points for 2024[22][44] - Product design strategy no longer includes offering GMIBs, instead utilizing third-party reinsurance to mitigate associated risks[47] Risk Management The company employs a comprehensive Enterprise Risk Management Framework, organized around six core components and a three-lines model for governance, managing key financial risks like market, counterparty, and asset-liability through dynamic hedging, third-party reinsurance, and disciplined pricing, with most in-force fixed, fixed index, and GMIB variable annuity businesses ceded to unaffiliated reinsurers - The risk management framework employs a three-lines model: Risk Ownership (first line), Risk Oversight (second line), and Independent Assurance (third line)[51][53] - The hedging program aims to protect against adverse market conditions, safeguard statutory capital, and stabilize distributable earnings[62] - The company utilizes third-party reinsurance to mitigate longevity and mortality risks, ceding the majority of its in-force fixed annuity, fixed index annuity, and legacy GMIB variable annuity businesses to unaffiliated reinsurers[63][64] Regulation Jackson Financial is subject to extensive state and federal regulation, with state insurance departments overseeing solvency and market conduct, federal agencies like SEC, FINRA, and DOL impacting product sales and investment advice, and evolving rules around cybersecurity and AI also requiring navigation - The company's primary insurance subsidiary, Jackson National Life, is regulated by the Michigan Department of Insurance and Financial Services (DIFS)[69] - As of December 31, 2024, the RBC ratios for Jackson and its New York subsidiary substantially exceeded minimum required levels[78] - The NAIC's revised Annuity Suitability Model Regulation, imposing a "best interest" standard, has been adopted by 48 states as of January 1, 2025[74] - The DOL's 2024 Fiduciary Advice Rule, redefining "fiduciary" investment advice for ERISA plans and IRAs, is currently stayed pending litigation but could impact compensation and product offerings[89][91] - The company is subject to various cybersecurity regulations, including the NYSDFS Cybersecurity Regulation and the NAIC Insurance Data Security Model Law, adopted in 26 states including Michigan[96][97] Human Capital Resources As of December 31, 2024, Jackson employed approximately 3,970 associates, focusing on internal talent development, competitive compensation, comprehensive benefits, and associate well-being, highlighted by a senior management team with over 20 years average tenure and a robust mentoring program - The company employed approximately 3,970 associates as of December 31, 2024, including 3,060 full-time and 910 part-time[119] - The senior management team boasts an average tenure of over 20 years with the company[120] - In 2024, the company's mentoring program engaged approximately 80 mentors and over 230 mentees, reporting over 1,500 hours of mentoring[121][122] Risk Factors Summary of Key Risks The company faces significant risks from global financial market volatility, including equity market movements and interest rate fluctuations, impacting fee income, guaranteed benefit liabilities, and hedging effectiveness, while financial strength ratings are critical, and dependence on subsidiary dividends, operational risks, complex regulations, and cybersecurity threats also pose challenges - Equity market declines can negatively impact fee-based income, proportional to AUM, and increase liabilities for guaranteed benefits[137][138] - Interest rate movements pose risks, as falling rates increase the present value of future guarantees and rising rates create disintermediation risk[140][141][142] - As a holding company, Jackson Financial's ability to meet obligations depends on dividends from its insurance subsidiaries, which are restricted by state insurance laws and regulations[153][154] - The company faces significant counterparty credit risk from derivatives used for hedging and reinsurance agreements, with a large concentration of risk with Athene for its fixed and fixed index annuity blocks[158][159][160] - Changes in U.S. federal income tax laws, including the elimination of tax deferral for annuities, could adversely affect product sales, and the new 15% Corporate Alternative Minimum Tax (CAMT) could also materially affect results[184][185][186] - A decrease in the RBC ratio of insurance subsidiaries could trigger increased regulatory scrutiny, corrective measures, and rating downgrades[180][181] Cybersecurity Cybersecurity Risk Management and Governance Jackson's enterprise-wide cybersecurity risk management framework aligns with industry standards and regulations, featuring a 24/7 internal Security Operations Center, regular threat intelligence reviews, and external penetration testing, with governance provided by the Board's Finance and Risk Committee and a third-party vendor management program, reporting no material cybersecurity events for the period - The company's cybersecurity program aligns with the NIST Cyber Security Framework and regulations like New York's DFS Cybersecurity Requirements[220] - The Board's Finance and Risk Committee provides oversight, meeting at least annually with the CISO for in-depth reviews of cybersecurity risks[224] - The company's Information Security and Privacy Team comprises over 70 full-time positions, with a significant portion holding relevant industry certifications[227] - The company is not aware of any material cybersecurity events likely to have a material effect on its business, operations, or financial condition[223] Market for Common Equity and Shareholder Matters Share Repurchases and Dividends In 2024, Jackson Financial continued its capital return program, with the Board authorizing a $750 million increase to the share repurchase program on August 1, 2024, resulting in 974,324 shares repurchased during Q4 2024, and $568 million remaining under authorization as of February 18, 2025 Share Repurchases (Q4 2024) | Period | Total Shares Purchased (Program) | Average Price Paid Per Share (USD) | | :--- | :--- | :--- | | Oct 2024 | 469,244 | $98.05 | | Nov 2024 | 261,631 | $103.14 | | Dec 2024 | 243,449 | $93.64 | | Q4 Total | 974,324 | - | - On August 1, 2024, the Board of Directors authorized a $750 million increase to the share repurchase program, with $568 million of authorization remaining as of February 18, 2025[235][362] Management's Discussion and Analysis (MD&A) Executive Summary Jackson's 2024 performance featured strong capital returns, significant free capital generation exceeding $1 billion, and the strategic establishment of Brooke Re, a captive reinsurer, to optimize hedging and stabilize results, despite a Q4 2024 annual actuarial review resulting in a $445 million pretax income loss - In 2024, the company returned $631 million to common shareholders, comprising $216 million in dividends and $415 million in share repurchases[249] - Free capital generation exceeded $1 billion in 2024, with a target to exceed $1 billion again in 2025 under normal market conditions[249] - In Q1 2024, Jackson established Brooke Re, a captive reinsurer, to cede liabilities for variable annuity guaranteed benefits, designed to optimize hedging, stabilize capital, and produce more predictable results[249][250][252] - The 2024 annual actuarial assumption review resulted in a pretax income impact of $(445) million, primarily from updates to market risk benefit (MRB) reserves[253][254] Key Operating Measures In 2024, total sales grew to $19.8 billion from $13.9 billion in 2023, driven by strong RILA and fixed annuity sales, though net outflows increased to $(11.7) billion from $(6.3) billion due to higher variable annuity surrenders, partially offset by positive market performance that increased total AUM to $324.7 billion and retail annuity account value to $251.7 billion Sales by Product (Years Ended Dec 31, in millions USD) | Product | 2024 | 2023 | | :--- | :--- | :--- | | Variable annuities | $10,561 | $9,540 | | RILA | $5,674 | $2,890 | | Fixed Annuities | $1,433 | $193 | | Total Retail Annuity Sales | $17,849 | $12,833 | | Total Institutional Product Sales | $2,000 | $1,065 | | Total Sales | $19,849 | $13,898 | - Total retail annuity net flows were $(11.7) billion in 2024, a larger outflow compared to $(6.3) billion in 2023, driven by increased variable annuity surrenders, partially offset by strong RILA and fixed annuity sales[263] - Total Assets Under Management (AUM) increased to $324.7 billion at year-end 2024 from $315.8 billion at year-end 2023, primarily due to positive equity market returns[267] Consolidated Results of Operations For the year ended December 31, 2024, pretax income increased to $1.022 billion from $958 million in 2023, driven by a $403 million rise in fee income and a $153 million decrease in policy benefits, largely offset by a $276 million increase in operating costs and a $199 million decrease in net gains on derivatives and investments Consolidated Income Statement Highlights (Years Ended Dec 31, in millions USD) | Item | 2024 | 2023 | | :--- | :--- | :--- | | Total revenues | $3,271 | $3,083 | | Total benefits and expenses | $2,249 | $2,125 | | Pretax income (loss) | $1,022 | $958 | | Net income (loss) attributable to JFI common shareholders | $902 | $899 | - The increase in pretax income was primarily due to a $403 million increase in fee income and a $153 million decrease in policy benefits[301] - The gains were partially offset by a $276 million increase in operating costs and a $199 million decrease in total net gains on derivatives and investments[301] Segment Results of Operations For 2024, the Retail Annuities segment saw pretax adjusted operating earnings increase to $1.86 billion, Institutional Products to $96 million, and Closed Life and Annuity Blocks narrowed its loss to $9 million, while Corporate and Other reported a larger loss of $264 million, primarily due to lower net investment income Pretax Adjusted Operating Earnings by Segment (Years Ended Dec 31, in millions USD) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Retail Annuities | $1,855 | $1,364 | | Institutional Products | $96 | $69 | | Closed Life and Annuity Blocks | $(9) | $(95) | | Corporate and Other | $(264) | $(173) | | Total Pretax Adjusted Operating Earnings | $1,678 | $1,165 | - Retail Annuities earnings increased by $491 million, primarily due to a $424 million increase in fee income and a $301 million increase in spread income[307][309] - Closed Life and Annuity Blocks earnings improved by $86 million, mainly due to a $70 million decrease in policy benefits from actuarial updates and improved mortality[315] Investments Jackson's investment strategy focuses on a diversified, largely investment-grade fixed income portfolio, totaling $61.0 billion as of December 31, 2024, with 93% of debt securities rated investment grade and the commercial mortgage loan portfolio diversified across property types like apartments, warehouses, and retail Investment Portfolio Composition (as of Dec 31, in millions USD) | Investment Type | 2024 Total Value | 2023 Total Value | | :--- | :--- | :--- | | Debt Securities (Fair Value) | $43,335 | $42,643 | | Mortgage loans (Carrying Value) | $9,911 | $10,563 | | Other invested assets | $2,864 | $2,466 | | Total Investments (Excluding Policy Loans, Derivatives) | $56,110 | $55,672 | - As of December 31, 2024, 93.0% of the debt securities portfolio was rated investment grade (BBB or higher), consistent with the prior year[550] - The commercial mortgage loan portfolio's largest exposures by property type at year-end 2024 were Apartment (28%), Warehouse (24%), and Retail (19%)[331] - The allowance for credit losses on mortgage loans decreased to $121 million at year-end 2024 from $165 million at year-end 2023, primarily due to changes in expected credit losses in the office sector[332] Policy and Contract Liabilities Total policy and contract liabilities increased to $291.9 billion as of December 31, 2024, with 79% backed by separate account assets, primarily for variable annuities, and the 2024 annual actuarial assumption review resulting in a $445 million pretax loss, mainly due to a $434 million increase in variable annuity Market Risk Benefit (MRB) reserves from updated withdrawal utilization assumptions Policy and Contract Liabilities Breakdown (as of Dec 31, 2024, in billions USD) | Liability Type | Amount | | :--- | :--- | | Separate Accounts | $229.1 | | Other contract holder funds | $58.1 | | Reserves for future policy benefits | $9.7 | | Market Risk Benefits (Net Asset) | $(5.1) | | Total | $291.9 | - The 2024 annual actuarial assumption review resulted in a pretax income loss of $445 million, including a $434 million loss on variable annuity MRB reserves primarily due to updated assumptions for withdrawal utilization on GMWB policies[254][345] - As of December 31, 2024, 94% of fixed annuity and fixed-index annuity account values had crediting rates at their guaranteed minimum[341] Liquidity and Capital Resources Jackson maintains strong liquidity and capital, with its primary insurance subsidiary's statutory RBC ratio at 572% at year-end 2024, well above regulatory requirements, and the holding company relying on subsidiary dividends, including extraordinary ones related to Brooke Re's formation, supported by a $1.0 billion undrawn revolving credit facility and stable financial strength ratings - Jackson's primary insurance subsidiary reported a statutory risk-based capital (RBC) ratio of 572% as of December 31, 2024, compared to 624% at year-end 2023[358] - The holding company maintains a minimum liquidity target of $250 million, sufficient to cover two years of fixed net expenses[359] - In 2024, Jackson's subsidiaries paid $830 million in extraordinary dividends to Brooke Life, which subsequently upstreamed $785 million to JFI[843][844] - The company holds a $1.0 billion revolving credit facility expiring in 2028, which remained undrawn as of year-end 2024[380] - Financial strength ratings from major agencies (A.M. Best, Fitch, Moody's, S&P) were all stable, with ratings of 'A' or 'A3'[389] Critical Accounting Estimates Management identifies critical accounting estimates including the valuation of reserves for future policy benefits based on mortality, persistency, and discount rates, the fair value of Market Risk Benefits (MRBs) sensitive to policyholder behavior and capital market inputs, income taxes (especially deferred tax assets and CAMT), reinsurance accounting, and the valuation and impairment of investments, particularly illiquid assets - Reserves for future policy benefits are based on best-estimate assumptions for mortality, persistency, and discount rates, which undergo annual review[396][398] - The fair value of Market Risk Benefits (MRBs) is calculated using internal models with significant unobservable inputs, including policyholder behavior (lapse, utilization rates) and capital market assumptions (volatility, non-performance risk)[404][405][644] - The determination of the valuation allowance for deferred tax assets requires significant judgment regarding future taxable income[413][414] - Investment valuation, particularly for assets without quoted market prices (Level 3), involves considerable uncertainty and judgment regarding economic conditions, credit risk, and liquidity[421][422] Quantitative and Qualitative Disclosures about Market Risk Market Risk Exposures and Management Jackson's primary market risks stem from interest rate and equity price movements, impacting its fixed-income portfolio, derivatives, and annuity liabilities, managed through product design, ALM, and a comprehensive hedging program that protects economic value and statutory capital but can lead to U.S. GAAP net income volatility, with sensitivity analysis showing significant impacts from interest rate and equity market changes - The company's hedging program seeks to protect economic value and statutory capital but does not directly hedge for U.S. GAAP liability movements, which can result in net income volatility[455][456] Interest Rate Sensitivity Analysis (50 bps parallel shift, as of Dec 31, 2024, in millions USD) | Item | Fair Value | Impact of +50 bps | Impact of -50 bps | | :--- | :--- | :--- | :--- | | Fixed Rate Debt Securities | $30,236 | $(857) | $924 | | Market risk benefits | $(4,939) | $(1,728) | $2,001 | Equity Market Sensitivity Analysis (10% price change, as of Dec 31, 2024, in millions USD) | Item | Fair Value | Impact of +10% | Impact of -10% | | :--- | :--- | :--- | :--- | | Equity Securities & LPs | $1,814 | $(181) | $181 | | Market risk benefits | $(4,939) | $(1,722) | $2,187 | Financial Statements and Supplementary Data Consolidated Financial Statements The consolidated financial statements for Jackson Financial Inc. show total assets of $338.5 billion and total equity of $10.0 billion as of December 31, 2024, with net income attributable to common shareholders of $902 million, or $11.74 per diluted share, reflecting the company's significant investment portfolio, policy liabilities, and hedging activities Consolidated Balance Sheet Highlights (as of Dec 31, in millions USD) | Item | 2024 | 2023 | | :--- | :--- | :--- | | Total Investments | $61,007 | $60,855 | | Separate account assets | $229,143 | $219,656 | | Total assets | $338,450 | $330,255 | | Total liabilities | $328,468 | $319,921 | | Total equity | $9,982 | $10,334 | Consolidated Income Statement Highlights (Year Ended Dec 31, in millions USD) | Item | 2024 | 2023 | | :--- | :--- | :--- | | Total revenues | $3,271 | $3,083 | | Pretax income (loss) | $1,022 | $958 | | Net income attributable to JFI common shareholders | $902 | $899 | | Diluted EPS | $11.74 | $10.76 | Consolidated Cash Flow Highlights (Year Ended Dec 31, in millions USD) | Item | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,793 | $5,310 | | Net cash used in investing activities | $(7,090) | $(592) | | Net cash provided by (used in) financing activities | $2,373 | $(6,328) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial results, highlighting the Q1 2024 establishment of Brooke Re for variable annuity risk management, a significant investment in investment-grade debt, a major funds-withheld reinsurance agreement with Athene, the impact of market conditions on Market Risk Benefits (MRBs), and active capital management through dividends, buybacks, and debt maturities - In Q1 2024, Jackson established Brooke Re, a captive reinsurer, to which it ceded liabilities for variable annuity guaranteed benefits to optimize hedging and stabilize capital[510] - The company maintains a significant funds-withheld coinsurance agreement with Athene, ceding a large block of fixed and fixed-index annuity liabilities, with $13.1 billion in assets held as collateral as of December 31, 2024[707][708] - The net Market Risk Benefit (MRB) position for variable annuities was a net asset of $5.2 billion at year-end 2024, an improvement from a net asset of $2.0 billion at year-end 2023, primarily due to favorable market performance[779] - In March 2023, the company issued $533 million (net proceeds) of Series A Preferred Stock[851] - In 2024, the company repurchased 5.8 million common shares for $415 million and paid common dividends of $2.80 per share[859][861] Controls and Procedures Management's Report on Internal Control Over Financial Reporting Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, based on the COSO framework, with the independent registered public accounting firm, KPMG LLP, also issuing an unqualified audit report on its effectiveness, and no material changes occurred during Q4 2024 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024[903] - No changes in internal control over financial reporting occurred during the fourth quarter of 2024 that have materially affected, or are reasonably likely to materially affect, these controls[905]