Jackson(JXN) - 2025 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents Jackson Financial Inc.'s unaudited condensed consolidated financial statements for Q1 2025, reflecting a net loss attributable to common shareholders and shifts in total assets and equity Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total assets | $327,193 | $338,450 | $(11,257) | | Total liabilities | $316,668 | $328,468 | $(11,800) | | Total shareholders' equity | $10,301 | $9,764 | $537 | | Total equity | $10,525 | $9,982 | $543 | Condensed Consolidated Income Statements Consolidated Income Statement Highlights (in millions, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenues | $3,750 | $(322) | | Pretax income (loss) | $(17) | $903 | | Net income (loss) attributable to Jackson Financial Inc. | $(24) | $795 | | Net income (loss) attributable to JFI common shareholders | $(35) | $784 | | Basic EPS | $(0.48) | $10.04 | | Diluted EPS | $(0.48) | $9.94 | - The significant decrease in net income was primarily driven by a $2,200 million loss from Market Risk Benefits and a $955 million gain on derivatives and investments, compared to a $2,700 million gain and a $3,100 million loss, respectively, in the prior-year period, highlighting the volatility from these items[13] Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive Income (Loss) (in millions) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) | $(18) | $802 | | Total other comprehensive income (loss) | $803 | $(615) | | Comprehensive income (loss) attributable to Jackson Financial Inc. | $779 | $180 | Condensed Consolidated Statements of Equity - Total equity increased from $9,982 million at December 31, 2024, to $10,525 million at March 31, 2025, driven by a net loss of $18 million, other comprehensive income of $803 million, dividends totaling $70 million, and treasury stock purchases of $202 million[19] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,594 | $1,426 | | Net cash used in investing activities | $(953) | $(2,006) | | Net cash (used in) provided by financing activities | $(521) | $433 | Notes to Condensed Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2025 performance, highlighting a U.S. GAAP net loss, positive Adjusted Operating Earnings, and strategic actions including capital return and the establishment of Brooke Re Executive Summary The company reported a Q1 2025 net loss of $35 million, offset by Adjusted Operating Earnings of $376 million, while returning $231 million to shareholders and establishing Brooke Re for capital optimization Selected Financial and Operating Measures (in millions) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) attributable to JFI common shareholders | $(35) | $784 | | Adjusted Operating Earnings (Non-GAAP) | $376 | $334 | | Amount of shares repurchased | $172 | $116 | | Dividends on common shares | $59 | $56 | - In Q1 2024, Jackson established Brooke Re, a Michigan-based captive reinsurer, to reinsure variable annuity guaranteed benefit riders, aiming to moderate statutory capital impact, enable efficient economic hedging, and produce predictable financial results[303][304][305] - The company returned $231 million to common shareholders in Q1 2025, comprising $59 million in dividends and $172 million in share repurchases, with a 2025 capital return target of $700-$800 million[303] Key Operating Measures Total sales increased in Q1 2025, driven by institutional and retail annuity products, despite continued net outflows in retail annuities and a slight decrease in total Assets Under Management Total Sales by Product (in millions) | Product | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Retail Annuity Sales | $4,031 | $3,691 | | Total Institutional Product Sales | $1,599 | $100 | | Total Sales | $5,630 | $3,791 | Net Flows by Segment (in millions) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Retail Annuities Net Flows | $(3,524) | $(2,799) | | Total Institutional Products Net Flows | $736 | $(596) | | Total Closed Life and Annuity Blocks Net Flows | $(69) | $(90) | - Total Assets Under Management (AUM) were $318,000 million as of March 31, 2025, compared to $324,700 million as of December 31, 2024[315] Macroeconomic, Industry, and Regulatory Trends The company's performance is influenced by market conditions and regulatory changes, with strategic responses like Brooke Re and ongoing monitoring of new rules like the DOL Fiduciary Advice Rule - The Brooke Re transaction in Q1 2024 is expected to largely moderate the impact of the cash surrender value floor on statutory capital, previously affected by rising equity markets and interest rates[320][321] - Rising interest rates pose disintermediation risk, potentially leading to product lapses and forced asset sales at a loss[321] - The Department of Labor's 2024 Fiduciary Advice Rule is under court challenge, but the company believes its exposure is limited due to distribution partners' existing best interest adaptations[328][329] Non-GAAP Financial Measures The company utilizes non-GAAP measures such as Adjusted Operating Earnings, Adjusted Book Value, and Free Cash Flow to provide a clearer view of underlying business performance by excluding market volatility Reconciliation of Net Income (Loss) to Adjusted Operating Earnings (in millions) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) attributable to JFI common shareholders | $(35) | $784 | | Pretax adjusted operating earnings | $442 | $389 | | Less: operating income tax expense (benefit) | $55 | $44 | | Less: dividends on preferred stock | $11 | $11 | | Adjusted operating earnings | $376 | $334 | Reconciliation of Total Shareholders' Equity to Adjusted Book Value (in millions) | Line Item | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Total shareholders' equity | $10,301 | $10,169 | | Less: Preferred stock | $533 | $533 | | Exclude AOCI attributable to Jackson Financial Inc. | $1,256 | $1,762 | | Adjusted Book Value Attributable to Common Shareholders | $11,024 | $11,398 | - Free Cash Flow at the parent company was $213 million for Q1 2025, compared to $20 million in Q1 2024, primarily from $240 million in dividends and distributions from subsidiaries, less $27 million in holding company expenses[347][348] Consolidated Results of Operations Pretax loss in Q1 2025 was primarily driven by unfavorable movements in market risk benefits, partially offset by favorable movements in net gains on derivatives and investments - The primary driver of the pretax loss was a $4,964 million unfavorable movement in market risk benefits (gains) losses, largely due to unfavorable changes in interest rates, fund performance, and volatility[352] - This was partially offset by a $4,048 million increase in total net gains on derivatives and investments, mainly from a $4,294 million favorable swing in freestanding and embedded derivatives[350] - The effective tax rate was (6)% in Q1 2025 compared to 11% in Q1 2024, driven by the relationship of taxable income to the consolidated pre-tax loss and changes in the valuation allowance[351][354] Segment Results of Operations Total Pretax Adjusted Operating Earnings increased in Q1 2025, with stable Retail Annuities earnings, decreased Institutional Products earnings, increased Closed Life and Annuity Blocks earnings, and a smaller loss in Corporate and Other Pretax Adjusted Operating Earnings by Segment (in millions) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Retail Annuities | $420 | $419 | | Institutional Products | $18 | $31 | | Closed Life and Annuity Blocks | $28 | $19 | | Corporate and Other | $(24) | $(80) | | Total Pretax Adjusted Operating Earnings | $442 | $389 | - Retail Annuities' earnings remained flat as higher fee and spread income were offset by increased commissions, general expenses, and policy benefits[358][360] - Corporate and Other's improved result was primarily driven by a $34 million decrease in general and administrative expenses, mainly from lower deferred compensation expenses[367] Investments The company's investment strategy focuses on a diversified, largely investment-grade fixed income portfolio, with total investments at $62,950 million as of March 31, 2025, predominantly in debt securities and mortgage loans Investment Portfolio Composition (in millions) | Investment Type | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Debt Securities (AFS & FVO) | $45,673 | $43,335 | | Mortgage loans (Net of ACL & FVO) | $10,026 | $9,911 | | Policy loans | $4,407 | $4,403 | | Other invested assets | $2,844 | $2,864 | | Total Investments (excluding derivatives) | $62,950 | $60,513 | - The debt securities portfolio is 92.5% investment grade as of March 31, 2025, slightly down from 93.0% at December 31, 2024[57] - The allowance for credit losses on mortgage loans increased to $130 million at March 31, 2025, from $121 million at year-end, with a $15 million provision recorded for the quarter[383] Policy and Contract Liabilities As of March 31, 2025, total policy and contract liabilities were $284.4 billion, primarily comprising separate account liabilities, general account liabilities, and reinsured liabilities Policy and Contract Liabilities Breakdown (March 31, 2025, in billions) | Liability Type | Amount | Backing Assets | | :--- | :--- | :--- | | Separate Account Liabilities | $217.6 | Separate Account Assets | | General Account Liabilities | $50.8 | Company Investment Portfolio | | Reinsured Liabilities | $14.5 | Funds Withheld Assets | | Total | $282.9 | | - As of March 31, 2025, 93% of fixed annuity, fixed-index annuity, and fixed accounts of RILA and variable annuity products had crediting rates at their guaranteed minimums[392] Liquidity and Capital Resources The company maintains a strong liquidity and capital position, relying on subsidiary dividends subject to regulatory approval, supported by a $1,000 million revolving credit facility and stable 'A' category financial strength ratings - Jackson Financial Inc. targets a minimum of $250 million in cash and highly liquid securities, sufficient to cover two years of fixed net expenses[406] - For 2025, future dividends from primary insurance subsidiaries, Jackson and Brooke Life, are expected to be extraordinary and require prior approval from the Michigan regulator[414] Financial Strength Ratings (as of May 1, 2025) | Company | A.M. Best | Fitch | Moody's | S&P | | :--- | :--- | :--- | :--- | :--- | | Jackson National Life | A (stable) | A (stable) | A3 (stable) | A (stable) | Impact of Recent Accounting Pronouncements The company is evaluating new accounting standards, including ASU 2023-09 on income tax disclosures and ASU 2024-03 on expense disaggregation, with no material impact expected from the former - ASU 2023-09, enhancing income tax disclosures, will be effective for the annual period ending December 31, 2025, and is not expected to have a material impact[36] - ASU 2024-03, requiring disaggregated income statement expense disclosure, will be effective for annual periods after December 15, 2026, with its impact currently under evaluation[37] Summary of Critical Accounting Estimates The company's financial statements rely on several critical accounting estimates, including the valuation of policy reserves, market risk benefits, investments, and derivatives - Critical accounting estimates include reserves for future policy benefits, market risk benefits, reinsurance, income taxes, investment valuation and impairment, and derivative instrument valuation[441] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the quantitative and qualitative disclosures about market risk since the 2024 Annual Report on Form 10-K - There have been no material changes to the market risk disclosures previously reported in the 2024 Annual Report[442] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[443] - No changes occurred during Q1 2025 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[444] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course litigation, including class action lawsuits, with no expected material adverse effect on its financial condition - The company is involved in ordinary course litigation and does not believe the outcome will have a material adverse effect on its financial condition[266] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2024 Annual Report on Form 10-K - There have been no material changes to the company's risk factors as discussed in the 2024 Annual Report[446] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2025, the company repurchased 1,966,909 common shares for approximately $172 million, with $431 million remaining authorized for future repurchases as of May 1, 2025 Share Repurchases (Jan 1, 2025 - Mar 31, 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2025 | 479,387 | $91.79 | | Feb 2025 | 565,063 | $89.82 | | Mar 2025 | 922,459 | $84.25 | | Total Q1 2025 | 1,966,909 | $87.69 (approx.) | - As of May 1, 2025, the company had $431 million remaining under its share repurchase authorization[449] Item 5. Other Information No Section 16 officers or directors adopted or terminated a Rule 10b5-1 trading plan during Q1 2025, though a pre-existing plan for an Executive Vice President terminated as scheduled - A Rule 10b5-1 trading plan for Craig D. Smith, EVP, terminated on April 7, 2025, as scheduled[451][452] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including new executive compensation agreements, an offer letter, and required CEO/CFO certifications Signatures