Jackson(JXN) - 2022 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements Jackson Financial Inc. reported a net income of $4.99 billion for the six months ended June 30, 2022, driven by net gains on derivatives, with total assets decreasing Condensed Consolidated Balance Sheets Total assets decreased to $316.2 billion as of June 30, 2022, primarily due to reduced separate account assets, with total equity also slightly decreasing Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total investments | $67,127 | $74,227 | | Total assets | $316,205 | $375,484 | | Total liabilities | $305,895 | $364,410 | | Total equity | $10,310 | $11,074 | Condensed Consolidated Income Statements Net income significantly improved to $2.93 billion for Q2 2022 and $4.99 billion for the six months, primarily driven by net gains on derivatives and investments Key Income Statement Data (in millions, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $6,519 | $232 | $10,820 | $5,739 | | Net gains (losses) on derivatives and investments | $3,867 | $(2,521) | $5,472 | $185 | | Pretax income (loss) | $3,651 | $(538) | $6,037 | $3,047 | | Net income (loss) | $2,934 | $(484) | $4,990 | $2,516 | | Net income (loss) attributable to JFI | $2,903 | $(540) | $4,928 | $2,392 | | Diluted EPS | $32.56 | $(5.72) | $54.72 | $25.32 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $2.10 billion, while investing activities significantly increased cash, leading to an overall $2.64 billion increase in cash Summary of Cash Flows (in millions) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,096 | $2,148 | | Net cash provided by investing activities | $2,615 | $580 | | Net cash used in financing activities | $(2,076) | $(3,211) | | Net increase (decrease) in cash | $2,635 | $(483) | Notes to Condensed Consolidated Financial Statements The notes detail business operations, including the Prudential demerger and Athene reinsurance, and highlight the expected $2 billion to $4 billion equity decrease from ASU 2018-12 adoption - The company completed its demerger from Prudential plc on September 13, 2021, becoming an independent entity[33] - A significant funds withheld coinsurance agreement with Athene, effective June 1, 2020, reinsures a large block of in-force fixed and fixed-index annuity liabilities[38] - The upcoming adoption of ASU 2018-12 (LDTI) effective January 1, 2023, is expected to decrease total equity by $2 billion to $4 billion at the January 1, 2021 transition date[52] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the significant increase in Q2 2022 pretax income, driven by net gains on derivatives, despite a decrease in Adjusted Operating Earnings, while highlighting strong liquidity Executive Summary The company, a market leader in retail annuities, highlights recent events like the Prudential demerger and Athene transactions, noting GAAP volatility and expected LDTI impact on equity - The company has been the top-selling retail annuity company in the U.S. for nine of the past ten years, according to LIMRA[272] - Significant recent corporate events include the demerger from Prudential, a major reinsurance transaction with Athene, elimination of Class B stock, and substantial common stock repurchases[276] - The company launched its RILA product suite in Q4 2021 and entered the Defined Contribution market[272] Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted Operating Earnings and Adjusted Book Value to clarify performance, with Q2 2022 Adjusted Operating Earnings at $225 million and Adjusted Operating ROE at 8.4% Reconciliation of Net Income to Adjusted Operating Earnings (in millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income (loss) attributable to JFI | $2,903 | $(540) | | Total non-operating adjustments (pretax) | $(3,377) | $1,355 | | Pretax Adjusted Operating Earnings | $243 | $761 | | Operating income taxes | $18 | $125 | | Adjusted Operating Earnings | $225 | $636 | Adjusted Book Value and ROE | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Total shareholders' equity | $9,563M | $10,391M | | Adjusted Book Value | $11,608M | $8,633M | | ROE | 121.4% | (21.2)% | | Adjusted Operating ROE | 8.4% | 29.2% | Key Operating Measures Total sales for Q2 2022 decreased to $4.3 billion, with Retail Annuities account value and AUM also declining, though net flows improved due to lower outflows Sales by Product (in millions) | Product | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Variable annuities | $3,633 | $4,821 | | RILA | $490 | $0 | | Total Retail Annuity Sales | $4,142 | $4,859 | | Total Institutional Product Sales | $201 | $0 | | Total Sales | $4,343 | $4,859 | Account Value Highlights (in millions) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Variable Annuity Account Value | $206,299 | $257,923 | | Total Retail Annuities Account Value | $208,457 | $259,423 | | Total AUM | $294,652 | $359,454 | Consolidated Results of Operations Pretax income for Q2 2022 significantly increased to $3.65 billion, primarily driven by a $6.4 billion positive variance in net gains on derivatives and investments - The increase in pretax income was primarily driven by a $6.4 billion positive swing in 'Net gains (losses) on derivatives and investments' compared to the prior-year quarter[318] - The gains on derivatives were driven by significant equity market decreases and interest rate increases in 2022, favorable for the company's hedge positions[319] - Partially offsetting the gains were higher amortization of deferred acquisition costs ($1.46 billion increase) and higher death/policy benefits ($702 million increase)[319] Segment Results of Operations Retail Annuities segment's pretax adjusted operating earnings decreased to $218 million in Q2 2022, while Institutional Products earnings increased and Closed Life and Annuity Blocks earnings decreased Pretax Adjusted Operating Earnings by Segment (in millions) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Retail Annuities | $218 | $683 | | Institutional Products | $19 | $6 | | Closed Life and Annuity Blocks | $6 | $56 | | Corporate and Other | $0 | $16 | | Total | $243 | $761 | Liquidity and Capital Resources The company maintains a strong liquidity position with cash and equivalents increasing to $5.3 billion, having paid dividends and repurchased stock in Q2 2022 - The holding company, Jackson Financial Inc., derives its cash primarily from dividends from its insurance subsidiaries[395] - In Q2 2022, the company paid a cash dividend of $0.55 per share, totaling $50 million[417] - The company repurchased 1.87 million shares for $66 million in Q2 2022 and 5.30 million shares for $206 million in the first six months of 2022[418] Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the quantitative and qualitative disclosures about market risk since the 2021 Annual Report on Form 10-K - There have been no material changes to the market risk disclosures from the 2021 Annual Report[429] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to a material weakness, with remediation expected by year-end 2022 - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2022[431] - The ineffectiveness is due to a previously identified material weakness related to accounting for complex transactions; remediation efforts are underway and expected to be completed by year-end 2022[432] PART II—OTHER INFORMATION Legal Proceedings The company is involved in ordinary course litigation, which management believes will not materially affect its financial condition - Management does not expect ongoing litigation to have a material adverse effect on the company's financial condition[244] Risk Factors No material changes have occurred in the company's risk factors since the 2021 Annual Report on Form 10-K - No material changes to risk factors have occurred since the 2021 Annual Report[435] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 1,870,854 shares of Class A Common Stock, with $183 million remaining for future repurchases Share Repurchase Activity (Q2 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2022 | 349,357 | $43.40 | | May 2022 | 1,046,497 | $35.29 | | June 2022 | 475,000 | $28.75 | | Total Q2 2022 | 1,870,854 | - | - As of the end of June 2022, $183 million remained authorized for purchase under the share repurchase program[438]