Jackson Financial Inc. Q2 FY2025 earnings call

• Retail Annuities: Benefited from growing RILA product suite, with RILA account balances and sales growth. Launched new products like Market Link Pro III and Market Link Pro Advisory III. Invested in service and technology with a new digital experience for financial professionals. Recognized in Barron's Annual 100 Best Annuities Guide.
• Capital Position: Ended 2Q 2025 with total adjusted capital over $5.3 billion, risk-based capital at 566%. Excess capital generation and free cash flow exceeded $1 billion annualized. Returned $216 million to shareholders in 2Q 2025, with $447 million returned in the first half of 2025, on track to meet/exceed $700M-$800M target range.
• Hedging Program: Net hedge gain of $61 million in 2Q 2025, effective in supporting capital stability. MRB changes and reserve/embedded derivative losses occurred, but RILA business provided economic offset to equity risk.

Retail Annuities: Second quarter Retail Annuity sales totaled $4.4 billion, a 9% increase from the first quarter and 4% year-over-year. RILA account balances have increased nearly 80% from 2Q 2024 and 26% since year-end 2024, with RILA sales approaching $1.4 billion, up 16% from the previous quarter. RILA now accounts for nearly 1/3 of total Retail Annuity sales. Fixed annuity sales are consistent with a competitive product suite. Variable annuity sales were relatively flat in the first half of 2025, but sales of variable annuities without a lifetime benefit increased 16% in the first 6 months of 2025. Total retail annuity net outflows were $2.2 billion in 2Q 2025, down 27% year-over-year and 39% from the first quarter. Institutional segment pretax adjusted operating earnings were down year-over-year. Closed Block segment pretax adjusted operating earnings were down year-over-year due to unfavorable comparative impacts from policyholder benefits and cash flow assumption updates.

• Capital return: On track to meet or exceed the targeted range of $700 million to $800 million with $447 million returned in the first half of 2025. Board approved a $0.80 per common share cash dividend for the third quarter.
• Confidence: Confident in strong and sustainable capital generation to support future growth initiatives and ongoing capital return to shareholders.

• Market Volatility: Impacted fee income in the quarter and influenced variable annuity net flows.
• Policyholder Behavior: Elevated variable annuity net outflows in recent quarters due to policyholder surrender periods and aging policyholders.
• Competition: Annuity market competition affecting sales and product positioning.

Q: First one I had is just on your excess capital position and cash flow and potential uses of capital, I mean, at this point, you've got such a strong excess capital position. You're sort of taking up so much free cash flow to the Holdco, you're not using it all for share repurchases. So the excess is building even further. And just in light of that situation, I wanted to better understand, like, as you look at this capital position what is the pecking order for priority for potential upsizing capital return or M&A.

A: Alex, thank you for the question. I'll turn it to Don to get to your question specifically. But as you heard Don shared in his prepared remarks, our approach is to first generate or earn excess capital and then pay it in the form of free cash flow and then return capital to shareholders that will continue to be our philosophy going forward, and I'll let Don address more specifically your question.

Q: Just a sort of a strategic question on -- is there any consideration to remixing the business when -- and it's kind of slowly happening already from the mix shift that's happening on the sales side. But anything that you would consider on something more strategic on legacy VA risk transfer, maybe lowering the reliance on shorter-term hedges for the VA or anything else that you would consider? Or would you say you're broadly happy with the structure you have today? And just thinking specifically about lowering your cost of capital, given your lower valuation versus peers.

A: Tom, thank you for this question. I'll share a couple of comments given the range of topics that you covered there and then turn it to Don. In terms of risk transfer, I'll say, if there is a good strategic partnership opportunity that would makes sense from a shareholder value perspective, we would certainly give consideration to that opportunity. You commented on the diversity that we're seeing in our sales mix and our multiproduct portfolio does position us well to serve a range of market environments and client needs, and we're going to continue to focus on product innovation to create greater access across those different annuity types going forward. I'll turn it to Don to comment on some of the other points that you included in your question.

Q: First, just a quick follow-up on RILA and the answer you just gave. So this new product that offers 100% principal protection. I had thought that one of the things that made the RILA more capital efficient is that it didn't have principal protection and that the downside was sort of shared with the consumer. So maybe just want to understand that a little bit more? And is this a relatively unique feature in the market versus kind of what your competitors are offering? And how do the capital requirements associated with this 100% principal protection compared to some of the other RILA that you offer.

A: Suneet, it's Don. I'll take that question. So in terms of capital efficiency, the new RILA product is -- remains very capital light in terms of requirements. And so we're comfortable with that. The feature itself is one that is offered by a number of our competitors. So it's not entirely a new feature. It's new for Jackson but not new in the industry.

Q: I had some follow-ups. One was you mentioned that you could use captives to reduce the strain from increased sales of fixed and fixed indexed annuities. When you mentioned that, were you referring to potentially setting up like a new affiliated reinsurer that would be separate from Brooke Re and that could be used to put some of the new business into.

A: Yes, that's exactly what I was referring to, Ryan. We think we've been very successful with Brooke Re and we obviously observed what some of our competitors have done in terms of using Bermuda and other offshore locations. That could be a possibility. We would also look very strongly at what we could do on a domestic basis. But yes, it would be to be able to have a captive that we can see spread business to.