Jackson Financial Inc. Q3 FY2025 earnings call

Key Points

• Strong earnings diversification: Adjusted operating earnings increased over 20% YoY, led by Retail Annuities.
• Retail Annuities growth: Sales exceeded $5 billion in Q3, driven by RILA and traditional variable annuities. RILA 3.0 launch added over 500 new advisers, with $2 billion in Q3 sales.
• Variable annuity performance: 13% QoQ growth, average balances up $10B, fee income up 8% QoQ. Sales without a lifetime benefit increased 24% YTD.
• Fixed index annuity launch: Expected to drive future sales growth with the Jackson Income Assurance Suite.
• PPM's role: Enhanced investment capabilities supported spread-based products, enabling new money allocation to higher-yielding assets.
• Capital generation and return: Free capital generation over $1B YTD, free cash flow $719M YTD. Returned $210M in Q3, YTD total $657M, on track to exceed 2025 target of $700M-$800M.
• Board actions: Approved $1B increase to common share repurchase authorization and $0.80 per share Q4 cash dividend. Risk-based capital ratio ended Q3 at 579%, well above target.

The Retail Annuities segment saw adjusted operating earnings of $433 million, with significant growth led by RILA sales. RILA 3.0 had record sales of $2 billion in the quarter, accounting for 38% of overall retail annuity sales, and its account balance approached $18 billion, a 21% increase from the second quarter. Variable annuities had 13% quarter-over-quarter growth, with average balances increasing by $10 billion, supporting 8% quarter-over-quarter fee income growth. Fixed and fixed index annuities contributed to sales diversification. PPM America's investment expertise supported the competitiveness and profitability of spread-based products, with new money allocation to higher-yielding asset classes.

Forward-Looking Statements

• Expect to exceed 2025 capital return target of $700M-$800M.
• Board of Directors approved a $1 billion increase to common share repurchase authorization.
• Announced a fourth quarter cash dividend of $0.80 per common share.

Risks

• Policyholder behavior and surrender rates: Monitored during actuarial assumption reviews, with long-term liability consideration.
• General market uncertainties: Potential impacts on hedging and capital positions, though robust capital position and hedging strategy aim to mitigate risks.

Q: On actual to expected policyholder behavior improvement and higher lapse rates, cause and dynamic lapse assumption.

A: Don Cummings said surrender rate breakdown (7% full surrenders, 4% withdrawals, 1% death benefits), influenced by equity markets, and they review assumptions annually, considering long-term liabilities.

Q: Follow-up on distributors rolling older VA contracts, impact on lapse rates.

A: Don Cummings said primarily market-driven, not specific distributor activities.

Q: On RBC target, excess capital and how ratio comes down.

A: Don Cummings said the RBC ratio will come down over time through diversifying into spread products and returning capital.

Q: Strategic value of Closed Block segment and capital supporting it.

A: Don Cummings said it provides balance to general account structure, with liabilities approximately $20B.

Q: Hedging, RILA hedging VA guarantees, comparison to Brighthouse.

A: Don Cummings explained RILA and VA guarantees have natural equity offset, reducing need for external hedging, and impacts on actuarial review would be minimal at JNL.

Q: Impact on Brooke Re from actuarial review, self-sustaining capital.

A: Don Cummings said Brooke Re is expected to be self-sustaining long-term, but will update on actuarial review in Q4.

Q: Reinsurance opportunities for VA blocks.

A: Don Cummings said they monitor VA blocks and may consider complementary reinsurance opportunities, but diversification is the priority.