JXN filing — read by section

Item 1. Financial Statements

Item 1.

 Financial Statements 

 Jackson Financial Inc. 

 Condensed Consolidated Balance Sheets 

 (In millions, except per share data) 

 June 30,

 December 31,

 2021

 2020

 (Unaudited)

 Assets

 Investments:
 
 Debt Securities, available for sale, net of allowance for credit losses of $ 6.8 and $ 13.6 at June 30, 2021 and
 December 31, 2020, respectively (amortized cost: 2021 $ 49,453.2 ; 2020 $ 54,141.0 )

 $ 
 52,472.6 
 
 $ 
 59,075.0 
 
 Debt Securities, at fair value under fair value option

 1,433.5 
 
 1,276.7 
 
 Debt Securities, trading, at fair value

 114.7 
 
 105.7 
 
 Equity securities, at fair value
 
 239.3 
 
 193.1 
 
 Mortgage loans, net of allowance for credit losses of $ 135.3 and $ 179.2 at June 30, 2021 and December 31, 2020, respectively

 11,649.1 
 
 10,727.5 
 
 Policy loans (including $ 3,537.8 and $ 3,454.2 at fair value under the fair value option at June 30, 2021 and December 31, 2020, respectively)

 4,581.1 
 
 4,523.5 
 
 Freestanding derivative instruments
 
 1,482.9 
 
 2,219.8 
 
 Other invested assets
 
 2,763.1 
 
 2,366.7 
 
 Total investments
 
 74,736.3 
 
 80,488.0 
 
 Cash and cash equivalents
 
 1,534.6 
 
 2,018.7 
 
 Accrued investment income

 519.2 
 
 557.9 
 
 Deferred acquisition costs

 13,813.3 
 
 13,897.0 
 
 Reinsurance recoverable, net of allowance for credit losses of $ 12.5 and $ 12.6 at June 30, 2021 and December 31, 2020, respectively

 34,246.7 
 
 35,269.5 
 
 Deferred income taxes, net

 892.5 
 
 1,057.8 
 
 Other assets

 1,108.7 
 
 1,103.7 
 
 Separate account assets

 239,806.1 
 
 219,062.9 
 
 Total assets
 
 $ 
 366,657.4 
 
 $ 
 353,455.5 
 
 Liabilities and Equity

 Liabilities

 Reserves for future policy benefits and claims payable
 
 $ 
 17,561.1 
 
 $ 
 21,490.1 
 
 Other contract holder funds
 
 60,897.8 
 
 64,538.4 
 
 Funds withheld payable under reinsurance treaties (including $ 3,708.6 and $ 3,626.5 at fair value under the fair value option at June 30, 2021 and December 31, 2020, respectively)

 30,321.8 
 
 31,971.5 
 
 Debt
 
 317.7 
 
 322.0 
 
 Securities lending payable
 
 23.5 
 
 13.3 
 
 Freestanding derivative instruments
 
 55.2 
 
 56.4 
 
 Other liabilities

 6,684.6 
 
 6,078.7 
 
 Separate account liabilities

 239,806.1 
 
 219,062.9 
 
 Total liabilities
 
 355,667.8 
 
 343,533.3 
 
 Commitments, Contingencies, and Guarantees (Note 14)

 Equity

 Common stock, (i) Class A common stock 900,000,000 shares authorized, $ 0.01 par value per share and 93,099,859 shares issued and outstanding at both June 30, 2021 and December 31, 2020, respectively and (ii) Class B common stock 100,000,000 shares authorized, $ 0.01 par value per share and 1,364,484 shares issued and outstanding at both June 30, 2021 and December 31, 2020, respectively 
 (See Note 18)

 0.9 
 
 0.9 
 
 Additional paid-in
 capital
 
 5,926.9 
 
 5,926.9 
 
 Shares held in trust

 ( 4.3 
 ) 
 
 ( 4.3 
 ) 

 Equity compensation reserve

 8.5 
 
 7.7 
 
 Accumulated other comprehensive income, net of tax expense of $ 370.0 in 2021 and $ 765.9 in 2020

 2,390.2 
 
 3,820.6 
 
 Retained earnings

 2,068.3 
 
 ( 323.2 
 ) 

 Total stockholders’ equity
 
 10,390.5 
 
 9,428.6 
 
 Noncontrolling interests

 599.1 
 
 493.6 
 
 Total equity
 
 10,989.6 
 
 9,922.2 
 
 Total liabilities and equity
 
 $ 
 366,657.4 
 
 $ 
 353,455.5 
 
 See notes to condensed consolidated financial statements. 

 3
 
 Table of Contents 
 
 Jackson Financial Inc. 

 Condensed Consolidated Income Statements 

 (Unaudited, in millions, except per share data) 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Revenues

 Fee income

 $ 
 1,895.6 
 
 $ 
 1,563.2 
 
 $ 
 3,711.6 
 
 $ 
 3,181.4 
 
 Premium

 30.7 
 
 20.9 
 
 65.2 
 
 87.5 
 
 Net investment income

 795.9 
 
 436.4 
 
 1,723.6 
 
 1,224.2 
 
 Net gains (losses) on derivatives and investments

 ( 2,520.7 
 ) 
 
 ( 4,371.3 
 ) 
 
 184.9 
 
 ( 2,012.9 
 ) 

 Other income

 30.4 
 
 17.9 
 
 53.6 
 
 14.1 
 
 Total revenues
 
 231.9 
 
 ( 2,332.9 
 ) 
 
 5,738.9 
 
 2,494.3 
 
 Benefits and Expenses

 Death, other policy benefits and change in policy reserves, net of deferrals

 210.3 
 
 ( 140.9 
 ) 
 
 493.0 
 
 847.2 
 
 Interest credited on other contract holder funds, net of deferrals

 217.5 
 
 342.9 
 
 440.0 
 
 749.0 
 
 Interest expense

 6.6 
 
 31.4 
 
 12.7 
 
 73.2 
 
 Operating costs and other expenses, net of deferrals

 599.6 
 
 ( 729.2 
 ) 
 
 1,197.9 
 
 ( 206.1 
 ) 

 Cost of reinsurance

 — 
 
 2,513.9 
 
 — 
 
 2,513.9 
 
 Amortization of deferred acquisition and sales inducement costs

 ( 263.7 
 ) 
 
 ( 731.0 
 ) 
 
 548.3 
 
 313.0 
 
 Total benefits and expenses
 
 770.3 
 
 1,287.1 
 
 2,691.9 
 
 4,290.2 
 
 Pretax income (loss) before noncontrolling interests
 
 ( 538.4 
 ) 
 
 ( 3,620.0 
 ) 
 
 3,047.0 
 
 ( 1,795.9 
 ) 

 Income tax expense (benefit)

 ( 54.5 
 ) 
 
 ( 457.0 
 ) 
 
 531.1 
 
 ( 423.8 
 ) 

 Net income (loss)

 ( 483.9 
 ) 
 
 ( 3,163.0 
 ) 
 
 2,515.9 
 
 ( 1,372.1 
 ) 

 Less: Net income (loss) attributable to noncontrolling interests

 $ 
 56.1 
 
 $ 
 ( 53.7 
 ) 
 
 $ 
 124.4 
 
 $ 
 ( 59.5 
 ) 

 Net income (loss) attributable to Jackson Financial Inc.

 $ 
 ( 540.0 
 ) 
 
 $ 
 ( 3,109.3 
 ) 
 
 $ 
 2,391.5 
 
 $ 
 ( 1,312.6 
 ) 

 Earnings per share

 Basic

 $ 
 ( 5.72 
 ) 
 
 $ 
 ( 69.98 
 ) 
 
 $ 
 25.32 
 
 $ 
 ( 31.75 
 ) 

 Diluted

 $ 
 ( 5.72 
 ) 
 
 $ 
 ( 69.98 
 ) 
 
 $ 
 25.32 
 
 $ 
 ( 31.75 
 ) 
 
 See notes to condensed consolidated financial statements. 

 4
 
 Table of Contents 
 
 Jackson Financial Inc. 

 Condensed Consolidated Statements of Comprehensive Income (Loss) 

 (Unaudited, in millions) 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Net income (loss)

 $ 
 ( 483.9 
 ) 
 
 $ 
 ( 3,163.0 
 ) 
 
 $ 
 2,515.9 
 
 $ 
 ( 1,372.1 
 ) 

 Other comprehensive income (loss), net of tax:

 Change in net unrealized gains (losses) on securities not impaired (net of tax expense (benefit) of: $ 292.4 and $ 528.3 for the three months ended June 30, 2021 and 2020, respectively, and $( 343.7 ) and $ 423.4 for the six months ended June 30, 2021 and 2020, respectively

 1,062.9 
 
 1,987.5 
 
 ( 1,240.8 
 ) 
 
 1,592.8 
 
 Change in unrealized gains (losses) on securities for which an allowance for credit losses has been recorded (net of tax expense (benefit) of: nil and $ 0.2 for the three months ended June 30, 2021 and 2020, respectively, and $ 0.6 and $ 1.0 for the six months ended June 30, 2021 and 2020, respectively)

 ( 0.1 
 ) 
 
 0.7 
 
 2.2 
 
 3.9 
 
 Reclassification adjustment for gains (losses) included in net income (loss) (net of tax expense (benefit) of: $( 32.4 ) and $( 138.7 ) for the three months ended June 30, 2021, respectively, and 2020, and $( 52.8 ) and $( 149.9 ) for the six months ended June 30, 2021 and 2020, respectively)

 ( 115.1 
 ) 
 
 ( 521.8 
 ) 
 
 ( 191.8 
 ) 
 
 ( 564.0 
 ) 

 Total other comprehensive income (loss)

 947.7 
 
 1,466.4 
 
 ( 1,430.4 
 ) 
 
 1,032.7 
 
 Comprehensive income (loss)

 463.8 
 
 ( 1,696.6 
 ) 
 
 1,085.5 
 
 ( 339.4 
 ) 

 Less: Comprehensive income (loss) attributable to noncontrolling interests

 56.1 
 
 ( 53.7 
 ) 
 
 124.4 
 
 ( 59.5 
 ) 

 Comprehensive income (loss) attributable to Jackson Financial Inc.

 $ 
 407.7 
 
 $ 
 ( 1,642.9 
 ) 
 
 $ 
 961.1 
 
 $ 
 ( 279.9 
 ) 

 See notes to condensed consolidated financial statements. 

 5
 
 Table of Contents 
 
 Jackson Financial Inc. 

 Condensed Consolidated Statements of Equity 

 (Unaudited, in millions) 

 Common
 Stock

 Additional
 Paid-In

 Capital

 Shares
 Held
 In Trust

 Equity
 Compensation
 Reserve

 Accumulated
 Other
 Comprehensive
 Income

 Retained
 Earnings

 Total
 Stockholders’
 Equity

 Non-
 Controlling
 Interests

 Total
 Equity

 Balances as of 
 March 31, 2021

 $ 
 0.9 
 
 $ 
 5,926.9 
 
 $ 
 ( 4.3 
 ) 
 
 $ 
 9.6 
 
 $ 
 1,442.5 
 
 $ 
 2,608.3 
 
 $ 
 9,983.9 
 
 $ 
 584.6 
 
 $ 
 10,568.5 
 
 Net income (loss)

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 540.0 
 ) 
 
 ( 540.0 
 ) 
 
 56.1 
 
 ( 483.9 
 ) 

 Change in unrealized 
 investment gains and losses, net of tax

 — 
 
 — 
 
 — 
 
 — 
 
 947.7 
 
 — 
 
 947.7 
 
 — 
 
 947.7 
 
 Change in equity of noncontrolling interests

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 41.6 
 ) 
 
 ( 41.6 
 ) 

 Reserve for equity compensation plans

 — 
 
 — 
 
 — 
 
 ( 1.1 
 ) 
 
 — 
 
 — 
 
 ( 1.1 
 ) 
 
 — 
 
 ( 1.1 
 ) 

 Balances as of June 30, 2021

 $ 
 0.9 
 
 $ 
 5,926.9 
 
 $ 
 ( 4.3 
 ) 
 
 $ 
 8.5 
 
 $ 
 2,390.2 
 
 $ 
 2,068.3 
 
 $ 
 10,390.5 
 
 $ 
 599.1 
 
 $ 
 10,989.6 
 
 Common
 Stock

 Additional
 Paid-In

 Capital

 Shares
 Held

 In Trust

 Equity
 Compensation
 Reserve

 Accumulated
 Other
 Comprehensive
 Income

 Retained
 Earnings

 Total
 Stockholder’s
 Equity

 Non-
 Controlling
 Interests

 Total
 Equity

 Balances as of 
 March 31, 2020

 $ 
 0.4 
 
 $ 
 3,077.4 
 
 $ 
 ( 4.3 
 ) 
 
 $ 
 0.5 
 
 $ 
 1,963.0 
 
 $ 
 3,117.0 
 
 $ 
 8,154.0 
 
 $ 
 492.8 
 
 $ 
 8,646.8 
 
 Net income (loss)

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 3,109.3 
 ) 
 
 ( 3,109.3 
 ) 
 
 ( 53.7 
 ) 
 
 ( 3,163.0 
 ) 

 Change in unrealized
 investment gains and 
 losses, net of tax

 — 
 
 — 
 
 — 
 
 — 
 
 1,466.4 
 
 — 
 
 1,466.4 
 
 — 
 
 1,466.4 
 
 Change in equity of noncontrolling interests

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 0.8 
 ) 
 
 ( 0.8 
 ) 

 Common stock issuance 
 - 

debt restructure

 0.4 
 
 2,349.6 
 
 — 
 
 — 
 
 — 
 
 — 
 
 2,350.0 
 
 — 
 
 2,350.0 
 
 Change in accounting principle, net of tax

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 2.5 
 ) 
 
 ( 2.5 
 ) 
 
 — 
 
 ( 2.5 
 ) 

 Balances as of June 30, 2020

 $ 
 0.8 
 
 $ 
 5,427.0 
 
 $ 
 ( 4.3 
 ) 
 
 $ 
 0.5 
 
 $ 
 3,429.4 
 
 $ 
 5.2 
 
 $ 
 8,858.6 
 
 $ 
 438.3 
 
 $ 
 9,296.9 
 
 Common
 Stock

 Additional
 Paid-In

 Capital

 Shares
 Held

 In Trust

 Equity
 Compensation
 Reserve

 Accumulated
 Other
 Comprehensive
 Income

 Retained
 Earnings

 Total
 Stockholders’
 Equity

 Non-
 Controlling
 Interests

 Total
 Equity

 Balances as of 
 December 31, 2020

 $ 
 0.9 
 
 $ 
 5,926.9 
 
 $ 
 ( 4.3 
 ) 
 
 $ 
 7.7 
 
 $ 
 3,820.6 
 
 $ 
 ( 323.2 
 ) 
 
 $ 
 9,428.6 
 
 $ 
 493.6 
 
 $ 
 9,922.2 
 
 Net income (loss)

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 2,391.5 
 
 2,391.5 
 
 124.4 
 
 2,515.9 
 
 Change in unrealized 
 investment gains and 
 losses, net of tax

 — 
 
 — 
 
 — 
 
 — 
 
 ( 1,430.4 
 ) 
 
 — 
 
 ( 1,430.4 
 ) 
 
 — 
 
 ( 1,430.4 
 ) 

 Change in equity of noncontrolling interests

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 18.9 
 ) 
 
 ( 18.9 
 ) 

 Reserve for equity 
 compensation plans

 — 
 
 — 
 
 — 
 
 0.8 
 
 — 
 
 — 
 
 0.8 
 
 — 
 
 0.8 
 
 Balances as of June 30, 2021

 $ 
 0.9 
 
 $ 
 5,926.9 
 
 $ 
 ( 4.3 
 ) 
 
 $ 
 8.5 
 
 $ 
 2,390.2 
 
 $ 
 2,068.3 
 
 $ 
 10,390.5 
 
 $ 
 599.1 
 
 $ 
 10,989.6 
 
 Common
 Stock

 Additional
 Paid-In

 Capital

 Shares
 Held
 In Trust

 Equity
 Compensation
 Reserve

 Accumulated
 Other
 Comprehensive
 Income

 Retained
 Earnings

 Total
 Stockholder’s
 Equity

 Non-
 Controlling
 Interests

 Total
 Equity

 Balances as of 
 December 31, 2019

 $ 
 0.4 
 
 $ 
 3,077.4 
 
 $ 
 ( 4.3 
 ) 
 
 $ 
 0.5 
 
 $ 
 2,396.7 
 
 $ 
 1,365.8 
 
 $ 
 6,836.5 
 
 $ 
 484.1 
 
 $ 
 7,320.6 
 
 Net income (loss)

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 1,312.6 
 ) 
 
 ( 1,312.6 
 ) 
 
 ( 59.5 
 ) 
 
 ( 1,372.1 
 ) 

 Change in unrealized 
 investment gains and 
 losses, net of tax

 — 
 
 — 
 
 — 
 
 — 
 
 1,032.7 
 
 — 
 
 1,032.7 
 
 — 
 
 1,032.7 
 
 Change in equity of noncontrolling interests

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 13.7 
 
 13.7 
 
 Common stock issuance - debt restructure
 
 0.4 
 
 2,349.6 
 
 — 
 
 — 
 
 — 
 
 — 
 
 2,350.0 
 
 — 
 
 2,350.0 
 
 Change in accounting 
 principle, net of tax

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 48.0 
 ) 
 
 ( 48.0 
 ) 
 
 — 
 
 ( 48.0 
 ) 

 Balances as of June 30, 2020

 $ 
 0.8 
 
 $ 
 5,427.0 
 
 $ 
 ( 4.3 
 ) 
 
 $ 
 0.5 
 
 $ 
 3,429.4 
 
 $ 
 5.2 
 
 $ 
 8,858.6 
 
 $ 
 438.3 
 
 $ 
 9,296.9 
 
 See notes to condensed consolidated financial statements. 

 6
 
 Table of Contents 
 
 Jackson Financial Inc. 

 Condensed Consolidated Statements of Cash Flows 

 (Unaudited, in millions) 

 Six Months Ended June 30,

 2021

 2020

 Cash flows from operating activities:

 Net income (loss)

 $ 
 2,515.9 
 
 $ 
 ( 1,372.1 
 ) 

 Adjustments to reconcile net income to net cash provided by operating activities:

 Net realized losses (gains) on investments

 ( 167.5 
 ) 
 
 ( 161.2 
 ) 

 Net losses (gains) on derivatives

 112.9 
 
 3,342.8 
 
 Net losses (gains) on funds withheld reinsurance

 ( 130.3 
 ) 
 
 ( 1,168.7 
 ) 

 Interest credited on other contract holder funds, gross

 440.0 
 
 751.6 
 
 Mortality, expense and surrender charges

 ( 280.0 
 ) 
 
 ( 308.7 
 ) 

 Amortization of discount and premium on investments

 27.1 
 
 16.8 
 
 Deferred income tax expense (benefit)

 562.5 
 
 ( 448.6 
 ) 

 Share-based compensation

 — 
 
 — 
 
 Cash received (paid to) from reinsurance transaction

 — 
 
 ( 31.7 
 ) 

 Change in:

 Accrued investment income

 38.8 
 
 17.8 
 
 Deferred acquisition costs and sales inducements

 148.4 
 
 ( 269.4 
 ) 

 Other assets and liabilities, net

 ( 1,120.4 
 ) 
 
 1,033.0 
 
 Net cash provided by (used in) operating activities

 2,147.4 
 
 1,401.6 
 
 Cash flows from investing activities:

 Sales, maturities and repayments of:

 Debt securities

 10,325.4 
 
 17,412.7 
 
 Equity securities

 24.5 
 
 24.8 
 
 Mortgage loans

 681.7 
 
 792.5 
 
 Purchases of:

 Debt securities

 ( 5,501.6 
 ) 
 
 ( 17,020.0 
 ) 

 Equity securities

 ( 51.4 
 ) 
 
 ( 16.1 
 ) 

 Mortgage loans

 ( 1,556.5 
 ) 
 
 ( 689.8 
 ) 

 Settlements related to derivatives and collateral on investments

 ( 2,947.7 
 ) 
 
 2,302.2 
 
 Other investing activities

 ( 394.4 
 ) 
 
 2,430.3 
 
 Net cash provided by (used in) investing activities

 580.0 
 
 5,236.6 
 
 Cash flows from financing activities:

 Policyholders’ account balances:

 Deposits

 9,758.5 
 
 10,008.8 
 
 Withdrawals

 ( 15,184.1 
 ) 
 
 ( 11,224.4 
 ) 

 Net transfers to separate accounts

 1,191.3 
 
 1,790.5 
 
 Net proceeds from (payments on) borrowings
 
 1,157.1 
 
 — 
 
 Net proceeds from (payments on) Federal Home Loan Bank notes

 ( 130.0 
 ) 
 
 ( 300.1 
 ) 

 Net proceeds from
 (payments on) borrowings
 
 ( 4.3 
 ) 
 
 ( 36.5 
 ) 

 Net cash provided by (used in) financing activities

 ( 3,211.5 
 ) 
 
 238.3 
 
 Net increase (decrease) in cash and cash equivalents

 $ 
 ( 484.1 
 ) 
 
 $ 
 6,876.5 
 
 Cash and cash equivalents, beginning of period

 2,018.7 
 
 1,934.5 
 
 Total cash and cash equivalents, end of period

 $ 
 1,534.6 
 
 $ 
 8,811.0 
 
 Supplemental cash flow information

 Income taxes paid
 
 $ 
 34.1 
 
 $ 
 38.9 
 
 Interest paid
 
 $ 
 10.0 
 
 $ 
 47.7 
 
 Non-cash investing activities

 Debt securities acquired from exchanges, payments-in-kind, and similar transactions
 
 $ 
 116.6 
 
 $ 
 193.5 
 
 Other invested assets acquired from stock splits and stock distributions
 
 $ 
 98.8 
 
 $ 
 4.1 
 
 See notes to condensed consolidated financial statements. 

 7
 
 Table of Contents 
 
 Jackson Financial Inc. 

 Notes to Condensed Consolidated Financial Statements 

 (Unaudited) 

 1.

 Business and Basis of Presentation 

 Jackson Financial Inc. (“Jackson Financial”) along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life in the United States (“U.S.”). Jackson Financial, domiciled in the U.S., was, as of June 30, 2021, a majority-owned subsidiary of Prudential plc (“Prudential”), London, England and was the holding company for Prudential’s U.S. operations. As described below under “Other,” the Company’s demerger from Prudential was completed on September 13, 2021 (“Demerger”), and the Company is no longer a majority-owned subsidiary of Prudential. 

 Jackson Financial’s primary life insurance subsidiary, Jackson National Life Insurance Company and its insurance subsidiaries (“Jackson”), is licensed to sell group and individual annuity products (including immediate, index linked, deferred fixed, and variable annuities), and individual life insurance products, including variable universal life, in all 50 states and the District of Columbia. Jackson also participates in the institutional products market through the issuance of guaranteed investment contracts (“GICs”), funding agreements and medium term note funding agreements. In addition to Jackson, Jackson Financial’s primary operating subsidiaries are as follows: 

 •
 
 PPM Holdings, Inc. (“PPM”), is the Company’s investment management operation that manages the life insurance companies’ general account investment funds. PPM also provides investment services to other affiliated and unaffiliated institutional clients. 

 •
 
 Brooke Life Insurance Company (“Brooke Life”), Jackson’s direct parent, is a life insurance company licensed to sell life insurance and annuity products in the state of Michigan. 

 Other subsidiaries, which are wholly owned by Jackson, consist of the following: 

 •
 
 Life insurers: Jackson National Life Insurance Company of New York (“JNY”), Squire Reassurance Company LLC (“Squire Re”), Squire Reassurance Company II, Inc. (“Squire Re II”), VFL International Life Company SPC, LTD and Jackson National Life (Bermuda) LTD; 

 •
 
 Broker-dealer, investment management and investment advisor subsidiaries: Jackson National Life Distributors, LLC; Jackson National Asset Management, LLC (“JNAM”); 

 •
 
 PGDS (US One) LLC (“PGDS”), which provides certain services to the Company and certain affiliates; and 

 •
 
 Other insignificant wholly owned subsidiaries. 

 The condensed consolidated financial statements also include other insignificant partnerships, limited liability companies (“LLCs”) and variable interest entities (“VIEs”) in which the Company is deemed the primary beneficiary. 

 Other 

 On August 6, 2021, the registration statement on Form 10 of the Company’s Class A common stock, par value 

$ 0.01 per share, filed with the U.S. Securities and Exchange Commission (the “SEC”), became effective under the Securities Exchange Act of 1934, as amended. We refer to that effective Form 10 registration as the “Form 10.” The Demerger transaction described in the Form 10 was consummated on September 13, 2021. Post-demerger, Prudential retained a 

 19.9 percent remaining interest in the Company.
 
 On September 9, 2021, the Company effected a 

 1 04,9 

 60.3836276-for-1

 stock split of its Class A common stock and Class B common stock by way of a reclassification of its Class A common stock and Class B common stock (the “stock split”). The incremental par value of the newly issued shares was recorded with the offset to additional paid-in
 capital. All share and earnings per share information presented herein have been retroactively adjusted to reflect the stock 
 split. 

 8 

 Table of Contents 
 On June 

18, 2020, the Company’s subsidiary, Jackson, announced that it had entered into a funds withheld coinsurance agreement with Athene Life Re Ltd. (“Athene”) effective June 1, 2020 to reinsure on 100 % quota share basis, a block of Jackson’s in-force
 fixed and fixed-index annuity product liabilities in exchange for a $ 1.2 billion ceding commission. 
 In addition, we entered into an investment agreement with Athene Life Re Ltd., pursuant to which Athene would invest $ 500.0 million of capital into the Company in return for a 9.9 % voting interest corresponding to a 11.1 
 % economic interest in the Company. The transaction was completed on July 17, 2020. In August 2020, the Company made a 

 $ 500.0 
 
million capital contribution to its subsidiary, Jackson.

 We continue to closely monitor developments related to the COVID-19
 pandemic. The COVID-19
 pandemic has caused significant economic and financial turmoil both in the United States and around the world. These conditions could continue and could worsen in the future. The extent to which the COVID-19
 pandemic impacts our business, results of operations, financial condition and cash flows will depend on future developments which are highly uncertain and cannot be predicted. The Company implemented business continuity plans that were already in place to ensure the availability of services for our customers, work at home capabilities for our employees, where appropriate, and other ongoing risk management activities. The Company has had employees, as needed or voluntarily, in our offices during this time, as permitted by local and state restrictions. Starting in the third quarter of 2021, the Company is rolling out a broader return to office plan for all employees in waves over the remainder of 2021. 

 Basis of Presentation 

 The accompanying unaudited condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted. The information contained in the Notes to Consolidated Financial Statements for the year ended December 31, 2020 in the Company’s Form 10, should be read in connection with the reading of these interim unaudited condensed consolidated financial statements. 

 Certain accounting policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in the Company’s Notes to Consolidated Financial Statements for the year ended December 31, 2020 in the Company’s Form 10. 

 In the opinion of management, these financial statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three and six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021. All material inter-company accounts and transactions have been eliminated in consolidation.

 Use of Estimates 

 The preparation of the condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions about future events that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Significant estimates or assumptions, as further discussed in the notes, include: 

 1)
 
 Valuation of investments and derivative instruments, including fair values of securities deemed to be in an illiquid market and the determination of when an impairment is necessary; 

 2)
 
 Assessments as to whether certain entities are variable interest entities, the existence of reconsideration events and the determination of which party, if any, should consolidate the entity; 

 3)
 
 Assumptions impacting estimated future gross profits, including policyholder behavior, mortality rates, expenses, projected hedging costs, investment returns and policy crediting rates, used in the calculation of amortization of deferred acquisition costs and deferred sales inducements; 

 4)
 
 Assumptions used in calculating policy reserves and liabilities, including policyholder behavior, mortality rates, expenses, investment returns and policy crediting rates; 

 5)
 
 Assumptions as to future earnings levels being sufficient to realize deferred tax benefits; 

 6)
 
 Estimates related to expectations of credit losses on certain financial assets and off balance sheet exposures;

 9
 
 Table of Contents 
 
 7)
 
 Assumptions and estimates associated with the Company’s tax positions, including an estimate of the dividends received deduction, which impact the amount of recognized tax benefits recorded by the Company; 

 8)
 
 Value of guaranteed benefits; and, 

 9)
 
 Value of business acquired, its recoverability and amortization. 

 These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors deemed appropriate. As facts and circumstances dictate, these estimates and assumptions may be adjusted. Since future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates, including those resulting from continuing changes in the economic environment, will be reflected in the consolidated financial statements in the periods the estimates are changed. 

 2.

 New Accounting Standards 

 Changes in Accounting Principles – Adopted in Current Year 

 In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04,
 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The new guidance provides optional expedients for applying GAAP to contracts and other transactions affected by reference rate reform, and is effective for contract modifications made between March 12, 2020 and December 31, 2022. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. The practical expedient allowed by this standard was elected and will be applied prospectively by the Company as reference rate reform unfolds. The contracts modified met the criteria for the practical expedient and therefore had no material impact on the Company’s consolidated financial statements. The Company will continue to evaluate the impacts of reference rate reform on contract modifications and other transactions through December 31, 2022. 

 In October 2020, the FASB issued ASU No. 2020-08,
 “Codification Improvements to Subtopic 310-20,
 Receivables—Nonrefundable Fees and Other Costs,” which clarifies an entity’s accounting responsibilities related to callable debt securities. Effective January 1, 2021, the Company adopted ASU 2020-08,
 which did not have a material impact on the Company’s consolidated financial statements. 

 On December 18, 2019, FASB issued ASU No. 2019-12,
 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which includes changes to the accounting for income taxes by eliminating certain exceptions to the approach for intra-period allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The amendments also simplified other areas including the accounting for franchise taxes and enacted tax laws or rates and clarified the accounting for transactions that result in the step-up
 in the tax basis of goodwill. Effective January 1, 2021, the Company adopted ASU 2019-12,
 which did not have a material impact on the Company’s consolidated financial statements. 

 Changes in Accounting Principles – Issued but Not Yet Adopted 

 In August 2018, the FASB issued ASU 2018-12,
 “Targeted Improvements to the Accounting for Long Duration Contracts,” which includes changes to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments in ASU 2018-12
 contain four significant changes: 1) for the calculation of the liability for future policy benefits of nonparticipating traditional and limited-payment insurance and reinsurance contracts, cash flow assumptions and discount rates will be required to be updated at least annually; 2) market risk benefits, a new term for certain contracts or features that provide for potential benefits in addition to the account balance which exposes the insurer to other than nominal market risk, will be measured at fair value; 3) deferred acquisition costs (“DAC”) will be amortized on a constant-level basis, independent of profitability; and 4) enhanced disclosures, including quantitative information in rollforwards for balance sheet accounts, as well as information about significant inputs, judgments, assumptions and methods used in measurement will be required. ASU No. 2018-12
 is effective for fiscal years beginning after December 15, 2022, with required retrospective application to January 1, 2021, and early adoption is permitted. The Company has begun its implementation efforts and is currently assessing the impact of the new guidance and does not plan to early adopt. Given the nature and extent of the required changes, the adoption of this standard is expected to have a significant impact on the Company’s consolidated financial statements and disclosures. In addition to 

 1 0

 Table of Contents 
 the initial balance sheet impact upon adoption, the Company also expects a change in the pattern of future profit emergence. 

 1 1

 Table of Contents 
 
 Subsequent Events 

 The Company has evaluated events through September 20, 2021, which is the date the condensed consolidated financial statements were available to be issued. 

 3.

 Investments 

 Investments are comprised primarily of fixed-income securities and loans, primarily publicly-traded corporate and government bonds, asset-backed securities and mortgage loans. Asset-backed securities include mortgage-backed and other structured securities. The Company generates the majority of its general account deposits from interest-sensitive individual annuity contracts, life insurance products and guaranteed investment contracts on which it has committed to pay a declared rate of interest. The Company’s strategy of investing in fixed-income securities and loans aims to ensure matching of the asset yield with the amounts credited to the interest-sensitive liabilities and to earn a stable return on its investments. 

 Debt Securities 

 The following table sets forth the composition of the fair value of debt securities at June 30, 2021, classified by rating categories as assigned by nationally recognized statistical rating organizations (“NRSRO”), the National Association of Insurance Commissioners (“NAIC”), or if not rated by such organizations, the Company’s consolidated investment advisor, PPM. The Company uses the second lowest rating by an NRSRO when NRSRO ratings are not equivalent and, for purposes of the table, if not otherwise rated by a NRSRO, the NAIC rating of a security is converted to an equivalent NRSRO-style rating. At June 30, 2021, the carrying value of investments rated by the Company’s consolidated investment advisor totaled $ 128.2 million. 

 Investment Rating

 Percent of Total
 Debt Securities
 Carrying Value
 June 30, 2021

 AAA

 16.8 
 % 

 AA

 9.0 
 % 

 A

 29.1 
 % 

 BBB

 39.2 
 % 

 Investment grade

 94.1 
 % 

 BB

 3.3 
 % 

 B and below

 2.6 
 % 

 Below investment grade

 5.9 
 % 

 Total debt securities

 100.0 
 % 

 At June 30, 2021, based on ratings by NRSROs, of the total carrying value of debt securities in an unrealized loss position, 75 % were investment grade, 5 % were below investment grade and 20 % were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 11 % of the aggregate gross unrealized losses on available for sale debt securities. 

 Corporate securities in an unrealized loss position were diversified across industries. As of June 30, 2021, the industries accounting for the largest percentage of unrealized losses included financial services ( 18 % of corporate gross unrealized losses) and consumer goods ( 16 %). The largest unrealized loss related to a single corporate obligor was $ 16.8 million at June 30, 2021. 

 1 2

 Table of Contents 
 At June 30, 2021 and December 31, 2020, the amortized cost, gross unrealized gains and losses, fair value, and allowance for credit loss (“ACL”) of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions): 

 June 30, 2021

 Amortized
 Cost (1)

 Allowance
 for

 Credit Loss

 Gross
 Unrealized
 Gains

 Gross
 Unrealized
 Losses

 Fair

 Value

 U.S. government securities

 $ 
 4,783.9 
 
 $ 
 — 
 
 $ 
 88.0 
 
 $ 
 403.4 
 
 $ 
 4,468.5 
 
 Other government securities

 1,510.5 
 
 — 
 
 152.3 
 
 13.8 
 
 1,649.0 
 
 Public utilities

 5,892.8 
 
 — 
 
 770.0 
 
 16.3 
 
 6,646.5 
 
 Corporate securities

 29,717.1 
 
 — 
 
 2,307.3 
 
 179.9 
 
 31,844.5 
 
 Residential mortgage-backed

 770.5 
 
 0.8 
 
 66.6 
 
 1.7 
 
 834.6 
 
 Commercial mortgage-backed

 2,702.2 
 
 — 
 
 171.0 
 
 2.2 
 
 2,871.0 
 
 Other asset-backed securities

 5,624.4 
 
 6.0 
 
 106.4 
 
 18.1 
 
 5,706.7 
 
 Total debt securities

 $ 
 51,001.4 
 
 $ 
 6.8 
 
 $ 
 3,661.6 
 
 $ 
 635.4 
 
 $ 
 54,020.8 
 
 December 31, 2020

 Amortized
 Cost (1)

 Allowance
 for

 Credit Loss

 Gross
 Unrealized
 Gains

 Gross
 Unrealized
 Losses

 Fair

 Value

 U.S. government securities

 $ 
 5,078.9 
 
 $ 
 — 
 
 $ 
 162.0 
 
 $ 
 114.9 
 
 $ 
 5,126.0 
 
 Other government securities

 1,497.1 
 
 — 
 
 200.6 
 
 0.8 
 
 1,696.9 
 
 Public utilities

 6,270.4 
 
 — 
 
 1,029.2 
 
 1.9 
 
 7,297.7 
 
 Corporate securities

 33,180.3 
 
 — 
 
 3,301.6 
 
 41.9 
 
 36,440.0 
 
 Residential mortgage-backed

 911.7 
 
 — 
 
 74.4 
 
 1.2 
 
 984.9 
 
 Commercial mortgage-backed

 3,077.6 
 
 — 
 
 248.5 
 
 3.5 
 
 3,322.6 
 
 Other asset-backed securities

 5,507.4 
 
 13.6 
 
 100.2 
 
 4.7 
 
 5,589.3 
 
 Total debt securities

 $ 
 55,523.4 
 
 $ 
 13.6 
 
 $ 
 5,116.5 
 
 $ 
 168.9 
 
 $ 
 60,457.4 
 
 (1)

 Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities. 

 The amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair value of debt securities at June 30, 2021, by contractual maturity, are shown below (in millions). Actual maturities may differ from contractual maturities where securities can be called or prepaid with or without early redemption penalties. 

 Amortized (1)

 Cost

 Allowance
 for

 Credit Loss

 Gross
 Unrealized
 Gains

 Gross
 Unrealized
 Losses

 Fair

 Value

 Due in 1 year or less

 $ 
 1,032.4 
 
 $ 
 — 
 
 $ 
 19.1 
 
 $ 
 — 
 
 $ 
 1,051.5 
 
 Due after 1 year through 5 years

 8,414.3 
 
 — 
 
 542.2 
 
 18.4 
 
 8,938.1 
 
 Due after 5 years through 10 years

 16,976.7 
 
 — 
 
 1,111.9 
 
 68.9 
 
 18,019.7 
 
 Due after 10 years through 20 years

 5,810.1 
 
 — 
 
 946.3 
 
 169.9 
 
 6,586.5 
 
 Due after 20 years

 9,670.8 
 
 — 
 
 698.1 
 
 356.2 
 
 10,012.7 
 
 Residential mortgage-backed

 770.5 
 
 0.8 
 
 66.6 
 
 1.7 
 
 834.6 
 
 Commercial mortgage-backed

 2,702.2 
 
 — 
 
 171.0 
 
 2.2 
 
 2,871.0 
 
 Other asset-backed securities

 5,624.4 
 
 6.0 
 
 106.4 
 
 18.1 
 
 5,706.7 
 
 Total

 $ 
 51,001.4 
 
 $ 
 6.8 
 
 $ 
 3,661.6 
 
 $ 
 635.4 
 
 $ 
 54,020.8 
 
 (1)

 Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities. 

 Securities with a carrying value of $ 115.7 million and $ 123.4 million at June 30, 2021 and December 31, 2020, respectively, were on deposit with regulatory authorities, as required by law in various states in which business is conducted. 

 1 3

 Table of Contents 
 
 Residential mortgage-backed securities (“RMBS”) include certain RMBS that are collateralized by residential mortgage loans and are neither explicitly nor implicitly guaranteed by U.S. government agencies (“non-agency
 RMBS”). The Company’s non-agency
 RMBS include investments in securities backed by prime, Alt-A,
 and subprime loans as follows (in millions): 
 
 June 30, 2021

 Amortized
 Cost (1)

 Allowance
 for

 Credit Loss

 Gross
 Unrealized
 Gains

 Gross
 Unrealized
 Losses

 Fair
 Value

 Prime

 $ 
 248.2 
 
 $ 
 0.7 
 
 $ 
 14.0 
 
 $ 
 1.0 
 
 $ 
 260.5 
 
 Alt-A

 108.2 
 
 0.1 
 
 25.7 
 
 0.2 
 
 133.6 
 
 Subprime

 49.4 
 
 — 
 
 14.9 
 
 — 
 
 64.3 
 
 Total non-agency
 RMBS
 
 $ 
 405.8 
 
 $ 
 0.8 
 
 $ 
 54.6 
 
 $ 
 1.2 
 
 $ 
 458.4 
 
 December 31, 2020

 Amortized
 Cost (1)

 Allowance
 for

 Credit Loss

 Gross
 Unrealized
 Gains

 Gross
 Unrealized
 Losses

 Fair
 Value

 Prime

 $ 
 287.4 
 
 $ 
 — 
 
 $ 
 17.1 
 
 $ 
 0.7 
 
 $ 
 303.8 
 
 Alt-A

 122.9 
 
 — 
 
 25.6 
 
 0.3 
 
 148.2 
 
 Subprime

 61.0 
 
 — 
 
 13.9 
 
 0.2 
 
 74.7 
 
 Total non-agency
 RMBS
 
 $ 
 471.3 
 
 $ 
 — 
 
 $ 
 56.6 
 
 $ 
 1.2 
 
 $ 
 526.7 
 
 (1)

 Amortized cost, apart from carrying value for securities carried at fair value under the fair value option and trading securities. 

 The Company defines its exposure to non-agency
 residential mortgage loans as follows: 

 •
 
 Prime loan-backed securities are collateralized by mortgage loans made to the highest rated borrowers. 

 •
 
 Alt-A
 loan-backed securities are collateralized by mortgage loans made to borrowers who lack credit documentation or necessary requirements to obtain prime borrower rates. 

 •
 
 Subprime loan-backed securities are collateralized by mortgage loans made to borrowers that have a FICO score of 680 or lower. 

 1 4

 Table of Contents 
 The following table summarizes the number of securities, fair value and the gross unrealized losses of debt securities, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position (dollars in millions): 

 June 30, 2021

 December 31, 2020

 Less than 12 months

 Less than 12 months

 Gross
 Unrealized
 Losses

 Fair

 Value

 # of
 securities

 Gross
 Unrealized
 Losses

 Fair

 Value

 # of
 securities

 U.S. government securities

 $ 
 403.4 
 
 $ 
 3,407.2 
 
 20 
 
 $ 
 114.9 
 
 $ 
 3,944.7 
 
 7 
 
 Other government securities

 13.8 
 
 231.0 
 
 25 
 
 0.8 
 
 89.4 
 
 7 
 
 Public utilities

 16.3 
 
 436.8 
 
 56 
 
 1.8 
 
 146.5 
 
 8 
 
 Corporate securities

 173.7 
 
 4,499.6 
 
 438 
 
 41.5 
 
 1,391.1 
 
 161 
 
 Residential mortgage-backed

 1.6 
 
 137.0 
 
 78 
 
 1.2 
 
 35.4 
 
 28 
 
 Commercial mortgage-backed

 2.2 
 
 162.5 
 
 15 
 
 3.2 
 
 151.9 
 
 13 
 
 Other asset-backed securities

 10.4 
 
 1,150.2 
 
 157 
 
 1.4 
 
 796.4 
 
 91 
 
 Total temporarily impaired securities

 $ 
 621.4 
 
 $ 
 10,024.3 
 
 789 
 
 $ 
 164.8 
 
 $ 
 6,555.4 
 
 315 
 
 12 months or longer

 12 months or longer

 Gross
 Unrealized
 Losses

 Fair

 Value

 # of
 securities

 Gross
 Unrealized
 Losses

 Fair

 Value

 # of
 securities

 U.S. government securities

 $ 
 — 
 
 $ 
 — 
 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 — 
 
 Other government securities

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Public utilities

 — 
 
 0.5 
 
 2 
 
 — 
 
 — 
 
 — 
 
 Corporate securities

 6.2 
 
 164.9 
 
 23 
 
 0.5 
 
 2.9 
 
 3 
 
 Residential mortgage-backed

 0.1 
 
 3.0 
 
 11 
 
 — 
 
 1.8 
 
 4 
 
 Commercial mortgage-backed

 — 
 
 19.9 
 
 2 
 
 0.3 
 
 9.7 
 
 1 
 
 Other asset-backed securities

 7.7 
 
 19.3 
 
 4 
 
 3.3 
 
 29.8 
 
 4 
 
 Total temporarily impaired securities

 $ 
 14.0 
 
 $ 
 207.6 
 
 42 
 
 $ 
 4.1 
 
 $ 
 44.2 
 
 12 
 
 Total

 Total

 Gross
 Unrealized
 Losses

 Fair

 Value

 # of
 securities

 Gross
 Unrealized
 Losses

 Fair

 Value

 # of
 securities

 U.S. government securities

 $ 
 403.4 
 
 $ 
 3,407.2 
 
 20 
 
 $ 
 114.9 
 
 $ 
 3,944.7 
 
 7 
 
 Other government securities

 13.8 
 
 231.0 
 
 25 
 
 0.8 
 
 89.4 
 
 7 
 
 Public utilities

 16.3 
 
 437.3 
 
 58 
 
 1.8 
 
 146.5 
 
 8 
 
 Corporate securities (1)

 179.9 
 
 4,664.5 
 
 453 
 
 42.0 
 
 1,394.0 
 
 164 
 
 Residential mortgage-backed

 1.7 
 
 140.0 
 
 89 
 
 1.2 
 
 37.2 
 
 32 
 
 Commercial mortgage-backed

 2.2 
 
 182.4 
 
 16 
 
 3.5 
 
 161.6 
 
 14 
 
 Other asset-backed securities

 18.1 
 
 1,169.5 
 
 161 
 
 4.7 
 
 826.2 
 
 95 
 
 Total temporarily impaired securities

 $ 
 635.4 
 
 $ 
 10,231.9 
 
 822 
 
 $ 
 168.9 
 
 $ 
 6,599.6 
 
 327 
 
 (1)

 Certain corporate securities contain multiple lots and fit the criteria of both aging groups. 

 1 5

 Table of Contents 
 
 Debt securities in an unrealized loss position as of June 30, 2021 did no t require an impairment recognized in earnings as the Company did not intend to sell these debt securities, as it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost basis and the difference in the fair value compared to the amortized cost was due to factors other than credit loss. Based upon this evaluation, the Company believes it has the ability to generate adequate amounts of cash from normal operations to meet cash requirements with a reasonable margin of safety without requiring the sale of impaired securities. 

 As of June 30, 2021, unrealized losses associated with debt securities are primarily due to widening credit spreads or rising risk free rates since purchase. The Company performed a detailed analysis of the financial performance of the underlying issues in an unrealized loss position and determined that recovery of the entire amortized cost of each impaired security is expected. In addition, mortgage-backed and asset-backed securities were assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities, and prepayment rates. The Company estimated losses for a security by forecasting the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. The forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts, and other independent market data. Based upon this assessment of the expected credit losses of the security given the performance of the underlying collateral compared to subordination or other credit enhancement, the Company expects to recover the entire amortized cost of each impaired security. 

 Evaluation of Available For Sale Debt Securities for Credit Loss 

 For debt securities in an unrealized loss position, management first assesses whether the Company has the intent to sell, or whether it is more likely than not it will be required to sell the security before the amortized cost basis is fully recovered. If either criteria is met, the amortized cost is written down to fair value through net gains on derivatives and investments as an impairment. 

 Debt securities in an unrealized loss position for which the Company does not have the intent to sell or is not more likely than not to sell the security before recovery to amortized cost are further evaluated to determine if the cause of the decline in fair value resulted from credit losses or other factors, which includes estimates about the operations of the issuer and future earnings potential. 

 The credit loss evaluation may consider the extent to which the fair value is below amortized cost; changes in ratings of the security; whether a significant covenant related to the security has been breached; or an issuer has filed or indicated a possibility of filing for bankruptcy, has missed or announced it intends to miss a scheduled interest or principal payment, or has experienced a specific material adverse change that may impair its creditworthiness; judgments about an obligor’s current and projected financial position; an issuer’s current and projected ability to service and repay its debt obligations; the existence of, and realizable value of, any collateral backing the obligations; and the macro-economic and micro-economic outlooks for specific industries and issuers. 

 In addition to the above, the credit loss review of investments in asset-backed securities includes the review of future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments. These estimated cash flows are developed using available performance indicators from the underlying assets including current and projected default or delinquency rates, levels of credit enhancement, current subordination levels, vintage, expected loss severity and other relevant characteristics. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against third-party sources. 

 For mortgage-backed securities, credit losses are assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral characteristics and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements existing in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment timing, default rates and loss severity. Specifically, for prime and Alt-A
 RMBS, the assumed default percentage is dependent on the severity of delinquency status, with foreclosures and real estate owned receiving higher rates, but also includes the currently performing loans. 

 1 6

 Table of Contents 
 These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against other third-party sources. In addition, these estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. When a credit loss is determined to exist and the present value of cash flows expected to be collected is less than the amortized cost of the security, an allowance for credit loss is recorded along with a charge to net gains (losses) on derivatives and investments, limited by the amount that the fair value is less than amortized cost. Any remaining unrealized loss after recording the allowance for credit loss is the non-credit
 amount and is recorded to other comprehensive income. 
 The allowance for credit loss for specific debt securities may be increased or reversed in subsequent periods due to changes in the assessment of the present value of cash flows that are expected to be collected. Any changes to the allowance for credit loss is recorded as a provision for (or reversal of) credit loss expense in net gains (losses) on derivatives and investments. 

 When all, or a portion, of a security is deemed uncollectible, the uncollectible portion is written-off
 with an adjustment to amortized cost and a corresponding reduction to the allowance for credit losses. 
 Accrued interest receivables are presented separate from the amortized cost basis of debt securities. Accrued interest receivables that are determined to be uncollectible are written off with a corresponding reduction to net investment income. No accrued interest was written off during the three and six months ended June 30, 2021 and 2020. 

 The rollforward of the allowance for credit loss for available for sale securities by sector is as follows (in millions): 

 Three Months Ended June 30, 2021

 US

 government

 securities

 Other
 government
 securities

 Public

 utilities

 Corporate
 securities

 Residential
 mortgage-
 backed

 Commercial
 mortgage-
 backed

 Other

 asset-
 backed
 securities

 Total

 Balance at April 1, 2021

 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 0.7 
 
 $ 
 — 
 
 $ 
 4.2 
 
 $ 
 4.9 
 
 Additions for which credit loss was not previously recorded

 — 
 
 — 
 
 — 
 
 — 
 
 0.5 
 
 — 
 
 — 
 
 0.5 
 
 Changes for securities with previously recorded credit loss

 — 
 
 — 
 
 — 
 
 — 
 
 ( 0.4 
 ) 
 
 — 
 
 1.8 
 
 1.4 
 
 Additions for purchases of PCD debt securities 
 (1)

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Reductions from charge-offs

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Reductions for securities disposed

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Securities intended/required to be sold before recovery of amortized cost basis

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Balance at June 30, 2021 
 (2)

 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 0.8 
 
 $ 
 — 
 
 $ 
 6.0 
 
 $ 
 6.8 
 
 Three Months Ended June 30, 2020 

 US

 government

 securities

 Other
 government
 securities

 Public

 utilities

 Corporate
 securities

 Residential
 mortgage-
 backed

 Commercial
 mortgage-
 backed

 Other

 asset-
 backed
 securities

 Total

 Balance at April 1, 2020

 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 Additions for which credit loss was not previously recorded

 — 
 
 — 
 
 — 
 
 — 
 
 0.3 
 
 — 
 
 17.2 
 
 17.5 
 
 Changes for securities with previously recorded credit loss

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Additions for purchases of PCD debt securities 

 (1)

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Reductions from charge-offs

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Reductions for securities disposed

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Securities intended/required to be sold before recovery of amortized cost basis

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Balance at June 30, 2020 
 (2)

 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 0.3 
 
 $ 
 — 
 
 $ 
 17.2 
 
 $ 
 17.5 
 
 17

 Table of Contents 
 
 Six Months Ended June 30, 2021

 US

 government

 securities

 Other
 government
 securities

 Public

 utilities

 Corporate
 securities

 Residential
 mortgage-
 backed

 Commercial
 mortgage-
 backed

 Other

 asset-
 backed

 securities

 Total

 Balance at January 1, 2021

 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 13.6 
 
 $ 
 13.6 
 
 Additions for which credit loss was not previously recorded

 — 
 
 — 
 
 — 
 
 — 
 
 1.2 
 
 — 
 
 — 
 
 1.2 
 
 Changes for securities with previously recorded credit loss

 — 
 
 — 
 
 — 
 
 — 
 
 ( 0.4 
 ) 
 
 — 
 
 ( 7.6 
 ) 
 
 ( 8.0 
 ) 

 Additions for purchases of PCD debt securities (1)

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Reductions from charge-offs

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Reductions for securities disposed

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Securities intended/required to be sold before recovery of amortized cost basis

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Balance at June 30, 2021 (2)

 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 0.8 
 
 $ 
 — 
 
 $ 
 6.0 
 
 $ 
 6.8 
 
 Six Months Ended June 30, 2020

 US

 government

 securities

 Other
 government
 securities

 Public

 utilities

 Corporate
 securities

 Residential
 mortgage-
 backed

 Commercial
 mortgage-
 backed

 Other

 asset-
 backed
 securities

 Total

 Balance at January 1, 2020

 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 Additions for which credit loss was not previously recorded

 — 
 
 — 
 
 — 
 
 — 
 
 0.3 
 
 — 
 
 17.2 
 
 17.5 
 
 Changes for securities with previously recorded credit loss

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Additions for purchases of PCD debt securities (1)

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Reductions from charge-offs

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Reductions for securities disposed

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Securities intended/required to be sold before recovery of amortized cost basis

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Balance at June 30, 2020 (2)

 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 0.3 
 
 $ 
 — 
 
 $ 
 17.2 
 
 $ 
 17.5 
 
 (1)

 R e
presents purchased credit-deteriorated (“PCD”) fixed maturity AFS securities.

 (2)

 Accrued interest receivable on debt securities totaled $ 397.2 million and $ 454.9 million as of June 30, 2021 and 2020, respectively, and was excluded from the estimate of credit losses for the three and six months ended June 30, 2021 and 2020. 

 18

 Table of Contents 
 
 Net Investment Income 

 The sources of net investment income were as follows (in millions): 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Debt securities

 $ 
 277.2 
 
 $ 
 404.6 
 
 $ 
 600.5 
 
 $ 
 921.9 
 
 Equity securities

 7.0 
 
 1.7 
 
 6.6 
 
 ( 13.7 
 ) 

 Mortgage loans

 80.3 
 
 91.1 
 
 162.1 
 
 201.7 
 
 Policy loans

 17.0 
 
 17.1 
 
 35.7 
 
 37.9 
 
 Limited partnerships

 150.0 
 
 ( 168.8 
 ) 
 
 392.9 
 
 ( 139.3 
 ) 

 Other investment income

 4.6 
 
 6.6 
 
 8.1 
 
 17.7 
 
 Total investment income excluding funds withheld assets

 536.1 
 
 352.3 
 
 1,205.9 
 
 1,026.2 
 
 Net investment income on funds withheld assets (see Note 7)

 293.8 
 
 144.2 
 
 584.9 
 
 228.9 
 
 Investment expenses:

 Derivative trading commission

 ( 0.5 
 ) 
 
 ( 1.5 
 ) 
 
 ( 1.3 
 ) 
 
 ( 3.1 
 ) 

 Depreciation on real estate

 ( 2.0 
 ) 
 
 ( 2.8 
 ) 
 
 ( 4.8 
 ) 
 
 ( 5.5 
 ) 

 Expenses related to consolidated entities (1)

 ( 9.0 
 ) 
 
 ( 11.1 
 ) 
 
 ( 16.6 
 ) 
 
 ( 20.3 
 ) 

 Other investment expenses (2)

 ( 22.5 
 ) 
 
 ( 44.7 
 ) 
 
 ( 44.5 
 ) 
 
 ( 2.0 
 ) 

 Total investment expenses

 $ 
 ( 34.0 
 ) 
 
 $ 
 ( 60.1 
 ) 
 
 ( 67.2 
 ) 
 
 ( 30.9 
 ) 

 Net investment income

 $ 
 795.9 
 
 $ 
 436.4 
 
 $ 
 1,723.6 
 
 $ 
 1,224.2 
 
 (1)

 Includes management fees, administrative fees, legal fees, and other expenses related to the consolidation of certain investments. 

 (2)

 Includes interest expense and market appreciation on deferred compensation; investment software expense, custodial fees, and other bank fees; institutional product issuance related expenses; and other expenses. 

 Unrealized gains (losses) included in investment income that were recognized on equity securities held were $ 10.3 million and $ 15.4 million for the three and six months ended June 30, 2021, respectively. Investment income (expense) of $( 2.4 ) million and $ 36.9 million was recognized on securities carried at fair value recorded through income for the three and six months ended June 30, 2021, respectively. 

 Unrealized gains (losses) included in investment income that were recognized on equity securities held were $( 13.7 ) million and $( 43.6 ) million for the three and six months ended June 30, 2020, respectively. Investment income (expense) of $( 67.0 ) million and $( 91.2 ) million was recognized on securities carried at fair value recorded through income for the three and six months ended June 30, 2020, respectively. 

 19
 
 Table of Contents 
 
 Net Gains (Losses) on Derivatives and Investments 

 The following table summarizes net gains (losses) on derivatives and investments (in millions): 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Available-for-sale

 securities
 
 Realized gains on sale

 $ 
 95.7 
 
 $ 
 358.3 
 
 $ 
 120.8 
 
 $ 
 420.0 
 
 Realized losses on sale

 ( 51.7 
 ) 
 
 ( 57.7 
 ) 
 
 ( 57.7 
 ) 
 
 ( 183.7 
 ) 

 Credit loss income (expense)

 ( 1.4 
 ) 
 
 0.4 
 
 7.2 
 
 ( 17.1 
 ) 

 Gross impairments

 — 
 
 ( 1.0 
 ) 
 
 — 
 
 ( 26.4 
 ) 

 Credit loss income (expense) on mortgage loans

 ( 10.1 
 ) 
 
 14.6 
 
 48.4 
 
 ( 33.9 
 ) 

 Other 

 (1) 

 ( 17.5 
 ) 
 
 ( 48.8 
 ) 
 
 48.8 
 
 2.3 
 
 Net gains (losses) excluding derivatives and funds withheld assets

 15.0 
 
 265.8 
 
 167.5 
 
 161.2 
 
 Net gains (losses) on derivative instruments (see Note 4)

 ( 1,768.3 
 ) 
 
 ( 5,890.5 
 ) 
 
 ( 112.9 
 ) 
 
 ( 3,342.8 
 ) 

 Net gains (losses) on funds withheld reinsurance treaties (see Note 7)

 ( 767.4 
 ) 
 
 1,253.4 
 
 130.3 
 
 1,168.7 
 
 Total net gains (losses) on derivatives and investments

 $ 
 ( 2,520.7 
 ) 
 
 $ 
 ( 4,371.3 
 ) 
 
 $ 
 184.9 
 
 $ 
 ( 2,012.9 
 ) 

 (1)

 Includes the foreign currency gain or loss related to foreign denominated trust instruments supporting funding agreements. 

 Net gains (losses) on funds withheld reinsurance treaties represents income (loss) from the sale of investments held in segregated funds withheld accounts in support of reinsurance agreements for which Jackson retains legal ownership of the underlying investments. These gains (losses) are increased or decreased by changes in the embedded derivative liability related to the Athene Reinsurance Agreement and also includes (i) changes in the related funds withheld payable, as all economic performance of the investments held in the segregated accounts inure to the benefit of the reinsurers under the respective reinsurance agreements with each reinsurer, and (ii) amortization of the difference between book value and fair value of the investments as of the effective date of the reinsurance agreements with each reinsurer. 

 The aggregate fair value of securities sold at a loss for the three and six months ended June 30, 2021 was $ 887.5 million and $ 1,184.4 million, respectively, which was approximately 94 % of book value in both periods, respectively. The aggregate fair value of securities sold at a loss for the three and six months ended June 30, 2020 was $ 568.7 million and $ 7,138.7 million, respectively, which was approximately 98 % of book value in both periods, respectively. 

 Proceeds from sales of available-for-sale

 debt securities were $ 2.8 billion and $ 13.9 billion during the three months ended June 30, 2021 and 2020, respectively. Proceeds from sales of available-for-sale

 debt securities were $ 5.6 billion and $ 15.5 billion during the six months ended June 30, 2021 and 2020, respectively. 
 There are inherent uncertainties in assessing the fair values assigned to the Company’s investments and in determining whether a decline in fair value is other-than-temporary. The Company’s reviews of net present value and fair value involve several criteria including economic conditions, credit loss experience, other issuer-specific developments and estimated future cash flows. These assessments are based on the best available information at the time. Factors such as market liquidity, the widening of bid/ask spreads and a change in the cash flow assumptions can contribute to future price volatility. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financial statements, unrealized losses currently reported in accumulated other comprehensive income may be recognized in the consolidated income statements in future periods. 

 The Company currently has no intent to sell securities with unrealized losses considered to be temporary until they mature or recover in value and believes that it has the ability to do so. However, if the specific facts and circumstances surrounding an individual security, or the outlook for its industry sector change, the Company may sell the security prior to its maturity or recovery and realize a loss. 

 Consolidated VIEs 

 In 2017, the Company funded PPM Loan Holding Management Company, LLC, an affiliated investment entity facilitating the issuance of collateralized loan obligations. The Company concluded that PPM Loan Management Holding Company, 

 2 0

 Table of Contents 
 LLC is a VIE and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the fund as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the fund. In 2020, PPM Loan Holding Management Company, LLC sold the interest in one of the four CLO issuances resulting in the reduction of consolidated assets and liabilities. 

 The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to PPM Loan Holding Management Company, LLC. 

 Private Equity Funds III – VII are limited partnership structures that invest the ownership capital in portfolios of various other limited partnership structures. The Company concluded that the Private Equity Funds are VIEs and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the funds as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the funds. 

 The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to Private Equity Funds III – VII. 

 In 2018, PPM created and began managing institutional share class mutual funds. Jackson seeds new funds, or new share classes within a fund, when deemed necessary to develop the requisite track record prior to allowing investment by external parties. Jackson may sell its interest in the fund once opened to investment by external parties. The Company concluded that these funds are VIEs and that the Company is the primary beneficiary as it has both the power to direct the most significant activities of the VIE as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. 

 Asset and liability information for the consolidated VIEs included on the condensed consolidated balance sheets are as follows (in millions): 

 June 30, 2021

 December 31, 2020

 Assets

 Debt securities, available for sale

 $ 
 1,267.6 
 
 $ 
 1,108.9 
 
 Debt securities, trading

 114.7 
 
 105.7 
 
 Equity securities

 121.9 
 
 125.8 
 
 Limited partnerships

 1,126.2 
 
 958.7 
 
 Cash

 57.5 
 
 57.1 
 
 Other assets

 14.8 
 
 10.2 
 
 Total assets

 $ 
 2,702.7 
 
 $ 
 2,366.4 
 
 Liabilities

 Debt owed to non-controlling
 interests
 
 $ 
 1,013.6 
 
 $ 
 943.7 
 
 Other liabilities

 276.0 
 
 200.5 
 
 Total other liabilities

 1,289.6 
 
 1,144.2 
 
 Securities lending payable

 — 
 
 1.0 
 
 Total liabilities

 $ 
 1,289.6 
 
 $ 
 1,145.2 
 
 Equity

 Noncontrolling equity

 $ 
 599.1 
 
 $ 
 493.6 
 
 Unconsolidated VIEs 

 The Company invests in certain LPs and LLCs that they have concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs as it does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. In addition, the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities. Therefore the Company does not consolidate these VIEs and the carrying amounts of the Company’s investments in these LPs and LLCs are recognized in other invested assets on the consolidated balance sheets. Unfunded capital commitments for these 

 21 

 Table of Contents 
 investments are detailed in Note 14. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to the LPs/LLCs, which was $ 3,317.8 million and $ 2,976.4 million as of June 30, 2021 and December 31, 2020, respectively. The capital invested in an LP or LLC equals the original capital contributed, increased for additional capital contributed after the initial investment, and reduced for any returns of capital from the LP or LLC. LPs and LLCs are carried at fair value. 

 The Company invests in certain mutual funds that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs. Mutual funds for which the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities are recognized in equity securities on the consolidated balance sheets and were $ 31.3 million and $ 23.6 million as of June 30, 2021 and December 31, 2020, respectively. The Company’s maximum exposure to loss on these mutual funds is limited to the amortized cost for these investments. 

 The Company makes investments in structured debt securities issued by VIEs for which they are not the manager. These structured debt securities include RMBS, CMBS, and ABS. The Company does not consolidate the securitization trusts utilized in these transactions because they do not have the power to direct the activities that most significantly impact the economic performance of these securitization trusts. The Company does not consider its continuing involvement with these VIEs to be significant because they either invest in securities issued by the VIE and were not involved in the design of the VIE or no transfers have occurred between the Company and the VIE. The Company’s maximum exposure to loss on these structured debt securities is limited to the amortized cost of these investments. The Company does not have any further contractual obligations to the VIE. The Company recognizes the variable interest in these VIEs at fair value on the consolidated balance sheets. 

 Commercial Mortgage Loans 

 Commercial mortgage loans of $ 11.1 billion and $ 10.2 billion at June 30, 2021 and December 31, 2020, respectively, are reported net of an allowance for credit losses of $ 113.9 million and $ 164.7 million at each date, respectively. At June 30, 2021, commercial mortgage loans were collateralized by properties located in 38 states, the District of Columbia, and Europe. Accrued interest receivable on commercial mortgage loans was $ 36.7 million and $ 32.3 million at June 30, 2021 and December 31, 2020, respectively. 

 Residential Mortgage Loans 

 Residential mortgage loans of $ 571.8 million and $ 448.6 million at June 30, 2021 and December 31, 2020, respectively, are reported net of an allowance for credit losses of $ 21.4 million and $ 14.5 million at each date, respectively. Loans were collateralized by properties located in 48 states, the District of Columbia, and Europe. Accrued interest receivable on residential mortgage loans was $ 3.1 million and $ 2.9 million at June 30, 2021 and December 31, 2020, respectively. 

 Mortgage Loan Concessions 

 In response to the adverse economic impact of the COVID-19
 pandemic, the Company granted concessions to certain of its commercial mortgage loan borrowers, including payment deferrals and other loan modifications. The Company has elected the option under the Coronavirus Aid, Relief, and Economic Security Act, the Consolidated Appropriations Act of 2021, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by bank regulatory agencies, not to account for or report qualifying concessions as troubled debt restructurings and does not classify such loans as past due during the payment deferral period. Additionally, in accordance with the FASB’s published response to a COVID-19
 Pandemic technical inquiry, the Company continues to accrue interest income on such loans that have deferred payment. For some commercial mortgage loan borrowers (principally in the hotel and retail sectors), the Company granted concessions which were primarily interest and/or principal payment deferrals generally ranging from 6 to 14 months and, to a much lesser extent, maturity date extensions. Repayment periods are generally within one year but may extend until maturity date. Deferred commercial mortgage loan interest and principal payments were $ 18.6 million at June 30, 2021. The concessions granted had no impact on the Company’s results of operations or financial position as the Company has not granted concessions that would have been disclosed and accounted for as troubled debt restructurings. 
 
 2 2

 Table of Contents 
 
 Evaluation for Credit Losses on Mortgage Loans 

 The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net gains (losses) on derivatives and investments. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level. The model forecasts net operating income and property values for the economic scenario selected. The debt service coverage ratios (“DSCR”) and loan to values (“LTV”) are calculated over the forecastable period by comparing the projected net operating income and property valuations to the loan payment and principal amounts of each loan. The model utilizes historical mortgage loan performance based on DSCRs and LTV to derive probability of default and expected losses based on the economic scenario that is similar to the Company’s expectations of economic factors such as unemployment, GDP growth, and interest rates. The Company determined the forecastable period to be reasonable and supportable for a period of two years beyond the end of the reporting period. Over the following one-year
 period, the model reverts to the historical performance of the portfolio for the remainder of the contractual term of the loans. In cases where the Company does not have an appropriate length of historical performance, the relevant historical rate from an index or the lifetime expected credit loss calculated from the model may be used. 
 Unfunded commitments are included in the model and an ACL is determined accordingly. Credit loss estimates are pooled by property type and the Company does not include accrued interest in the determination of ACL. 

 For individual loans or for types of loans for which the third-party model is deemed not suitable, the Company utilizes relevant current market data, industry data, and publicly available historical loss rates to calculate an estimate of the lifetime expected credit loss. 

 Mortgage loans on real estate deemed uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL, limited to the aggregate of amounts previously charged-off
 and expected to be charged-off.
 Mortgage loans on real estate are presented net of the allowance for credit losses on the condensed consolidated balance sheets. 
 The following table provides a summary of the allowance for credit losses in the Company’s mortgage loan portfolios (in millions): 

 Three Months Ended June 30, 2021

 Apartment

 Hotel

 Office

 Retail

 Warehouse

 Residential
 Mortgage (2)

 Total

 Balance at April 1, 2021

 $ 
 26.7 
 
 $ 
 22.1 
 
 $ 
 16.3 
 
 $ 
 15.0 
 
 $ 
 13.3 
 
 $ 
 20.3 
 
 $ 
 113.7 
 
 Charge offs, net of recoveries

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Additions from purchase of PCD

 —
 
 mortgage loans

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Provision

 — 
 
 10.9 
 
 3.4 
 
 7.7 
 
 ( 1.5 
 ) 
 
 1.1 
 
 21.6 
 
 Balance at June 30, 2021 (1)

 $ 
 26.7 
 
 $ 
 33.0 
 
 $ 
 19.7 
 
 $ 
 22.7 
 
 $ 
 11.8 
 
 $ 
 21.4 
 
 $ 
 135.3 
 
 Three Months Ended June 30, 2020

 Apartment

 Hotel

 Office

 Retail

 Warehouse

 Total

 Balance at April 1, 2020

 $
 
 51.2 
 
 $
 
 8.0 
 
 $
 
 14.7 
 
 $
 
 21.9 
 
 $
 
 23.6 
 
 $
 
 119.4 
 
 Cumulative effect of change in accounting principle

 —
 
 Charge offs, net of recoveries

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Additions from purchase of PCD

 mortgage loans

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Provision

 ( 17.1 
 
 ) 
 
 3.4 
 
 7.3 
 
 ( 3.9 
 
 ) 
 
 ( 4.3 
 
 ) 
 
 ( 14.6 
 
 ) 
 
 Balance at June 30, 2020 (1)

 $
 
 34.1 
 
 $
 
 11.4 
 
 $
 
 22.0 
 
 $
 
 18.0 
 
 $
 
 19.3 
 
 $
 
 104.8 
 
 23 

 Table of Contents 
 
 Six Months Ended June 30, 2021

 Apartment

 Hotel

 Office

 Retail

 Warehouse

 Residential
 Mortgage (2)

 Total

 Balance at January 1, 2021

 $
 
 57.9 
 
 $
 
 33.9 
 
 $
 
 24.9 
 
 $
 
 24.2 
 
 $
 
 23.8 
 
 $
 
 14.5 
 
 $
 
 179.2 
 
 Charge offs, net of recoveries

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Additions from purchase of PCD

 — 
 
 mortgage loans

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Provision

 ( 31.2 
 
 ) 
 
 ( 0.9 
 
 ) 
 
 ( 5.2 
 
 ) 
 
 ( 1.5 
 
 ) 
 
 ( 12.0 
 
 ) 
 
 6.9 
 
 ( 43.9 
 
 ) 
 
 Balance at June 30, 2021 (1)

 $
 
 26.7 
 
 $
 
 33.0 
 
 $
 
 19.7 
 
 $
 
 22.7 
 
 $
 
 11.8 
 
 $
 
 21.4 
 
 $
 
 135.3 
 
 Six Months Ended June 30, 2020

 Apartment

 Hotel

 Office

 Retail

 Warehouse

 Total

 Balance at January 1, 2020

 $
 
 3.7 
 
 $
 
 0.8 
 
 $
 
 1.1 
 
 $
 
 2.0 
 
 $
 
 1.3 
 
 $
 
 8.9 
 
 Cumulative effect of change in accounting principle

 23.6 
 
 5.0 
 
 7.8 
 
 10.3 
 
 15.3 
 
 62.0 
 
 Charge offs, net of recoveries

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Additions from purchase of PCD

 mortgage loans

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Provision

 6.8 
 
 5.6 
 
 13.1 
 
 5.7 
 
 2.7 
 
 33.9 
 
 Balance at June 30, 2020 (1)

 $
 
 34.1 
 
 $
 
 11.4 
 
 $
 
 22.0 
 
 $
 
 18.0 
 
 $
 
 19.3 
 
 $
 
 104.8 
 
 (1)

 Accrued interest receivable totaled $ 39.8 million and $ 29.9 million as of June 30, 2021 and 2020, respectively, and was excluded from the estimate of credit losses. 

 (2)

 During the three and six months ended June 30, 2021, $ 136 thousand of accrued interest was written off relating to loans that were greater than 90
 days delinquent or in the process of foreclosure. 

 The Company’s mortgage loans that are current and in good standing are accruing interest. Interest is not accrued on loans greater than 90 days delinquent and in process of foreclosure. Delinquency status is determined from the date of the first missed contractual payment. 

 At June 30, 2021 there was $ 1.0 million of recorded investment, $ 1.0 million of unpaid principal balance, no related loan allowance, $ 0.4 million of average recorded investment, and no investment income recognized on impaired residential mortgage loans without a valuation allowance. At December 31, 2020, there was no recorded investment, no unpaid principal balance, no related loan allowance, no average recorded investment, and no investment income recognized on impaired loans. 

 The following tables provide information about the credit quality and vintage year of commercial mortgage loans (in millions): 

 June 30, 2021

 2021

 2020

 2019

 2018

 2017

 Prior

 Revolving

 Loans

 Total

 % of

 Total

 Loan to value ratios:

 Less than 70%

 $ 
 1,148.2 
 
 $ 
 1,451.3 
 
 $ 
 1,441.0 
 
 $ 
 1,585.7 
 
 $ 
 1,505.2 
 
 $ 
 2,872.6 
 
 $ 
 4.1 
 
 $ 
 10,008.1 
 
 90 
 % 

 70% - 
80%

 85.0 
 
 133.1 
 
 236.7 
 
 127.0 
 
 100.2 
 
 160.9 
 
 — 
 
 842.9 
 
 8 
 % 

 80% - 
100%

 — 
 
 — 
 
 63.2 
 
 4.8 
 
 47.5 
 
 26.4 
 
 — 
 
 141.9 
 
 1 
 % 

 Greater than 100%

 69.4 
 
 — 
 
 15.0 
 
 — 
 
 — 
 
 — 
 
 — 
 
 84.4 
 
 1 
 % 

 Total

 $ 
 1,302.6 
 
 $ 
 1,584.4 
 
 $ 
 1,755.9 
 
 $ 
 1,717.5 
 
 $ 
 1,652.9 
 
 $ 
 3,059.9 
 
 $ 
 4.1 
 
 $ 
 11,077.3 
 
 100 
 % 

 Debt service coverage ratios:

 Greater than 1.20x

 $ 
 796.6 
 
 $ 
 1,095.5 
 
 $ 
 1,569.5 
 
 $ 
 1,400.4 
 
 $ 
 1,537.5 
 
 $ 
 2,763.3 
 
 $ 
 4.1 
 
 $ 
 9,166.9 
 
 83 
 % 

 1.00x - 
1.20x

 506.0 
 
 361.1 
 
 56.0 
 
 95.1 
 
 11.1 
 
 96.3 
 
 — 
 
 1,125.6 
 
 10 
 % 

 Less than 1.00x

 — 
 
 127.8 
 
 130.4 
 
 222.0 
 
 104.3 
 
 200.3 
 
 — 
 
 784.8 
 
 7 
 % 

 Total

 $ 
 1,302.6 
 
 $ 
 1,584.4 
 
 $ 
 1,755.9 
 
 $ 
 1,717.5 
 
 $ 
 1,652.9 
 
 $ 
 3,059.9 
 
 $ 
 4.1 
 
 $ 
 11,077.3 
 
 100 
 % 

 24 

 Table of Contents 
 
 December 31, 2020

 2020

 2019

 2018

 2017

 2016

 Prior

 Revolving

 Loans

 Total

 % of

 Total

 Loan to value ratios:

 Less than 70%

 $ 
 1,346.5 
 
 $ 
 1,315.0 
 
 $ 
 1,752.8 
 
 $ 
 1,678.7 
 
 $ 
 1,320.5 
 
 $ 
 1,846.3 
 
 $ 
 4.0 
 
 $ 
 9,263.8 
 
 90 
 % 

 70% - 
80%

 66.2 
 
 348.1 
 
 127.9 
 
 80.0 
 
 94.3 
 
 128.5 
 
 — 
 
 845.0 
 
 8 
 % 

 80% - 
100%

 — 
 
 91.7 
 
 4.9 
 
 46.8 
 
 — 
 
 26.7 
 
 — 
 
 170.1 
 
 2 
 % 

 Greater than 100%

 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 

 — 
 
 — 
 
 — 
 
 %
 
 Total

 1,412.7 
 
 1,754.8 
 
 1,885.6 
 
 1,805.5 
 
 1,414.8 
 
 2,001.5 
 
 4 
 
 10,278.9 
 
 1.00 
 
 Debt service coverage ratios:

 Greater than 1.20x

 $ 
 1,078.4 
 
 $ 
 1,601.7 
 
 $ 
 1,738.0 
 
 $ 
 1,794.4 
 
 $ 
 1,408.8 
 
 $ 
 1,880.6 
 
 $ 
 4.0 
 
 $ 
 9,505.9 
 
 93 
 % 

 1.00x - 
1.20x

 334.3 
 
 137.9 
 
 89.7 
 
 11.1 
 
 — 
 
 88.8 
 
 — 
 
 661.8 
 
 6 
 % 

 Less than 1.00x

 — 
 
 15.2 
 
 57.9 
 
 — 
 
 6.0 
 
 32.1 
 
 — 
 
 111.2 
 
 1 
 % 

 Total

 $ 
 1,412.7 
 
 $ 
 1,754.8 
 
 $ 
 1,885.6 
 
 $ 
 1,805.5 
 
 $ 
 1,414.8 
 
 $ 
 2,001.5 
 
 $ 
 4.0 
 
 $ 
 10,278.9 
 
 100 
 % 

 June 30, 2021

 In Good
 Standing (1)

 Restructured

 Greater than 90 Days
 Delinquent

 In the Process of
 Foreclosure

 Total Carrying
 Value

 Apartment

 $
 
 4,217.3 
 
 $
 
 — 
 
 $
 
 — 
 
 $
 
 — 
 
 $
 
 4,217.3 
 
 Hotel

 1,043.7 
 
 — 
 
 — 
 
 — 
 
 1,043.7 
 
 Office

 1,966.3 
 
 — 
 
 — 
 
 — 
 
 1,966.3 
 
 Retail

 2,132.8 
 
 — 
 
 — 
 
 — 
 
 2,132.8 
 
 Warehouse

 1,717.2 
 
 — 
 
 — 
 
 — 
 
 1,717.2 
 
 Total commercial

 $
 
 11,077.3 
 
 $
 
 — 
 
 $
 
 — 
 
 $
 
 — 
 
 $
 
 11,077.3 
 
 Residential (2)

 495.7 
 
 — 
 
 75.1 
 
 (2)
 
 1.0 
 
 571.8 
 
 Total

 $
 
 11,573.0 
 
 $
 
 —
 
 $
 
 75.1 
 
 $
 
 1.0 
 
 $
 
 11,649.1 
 
 December 31, 2020

 In Good
 Standing (1)

 Restructured

 Greater than 90 Days
 Delinquent

 In the Process of
 Foreclosure

 Total Carrying
 Value

 Apartment

 $
 
 3,905.3 
 
 $
 
 — 
 
 $
 
 — 
 
 $
 
 — 
 
 $
 
 3,905.3 
 
 Hotel

 882.7 
 
 — 
 
 — 
 
 — 
 
 882.7 
 
 Office

 1,569.7 
 
 — 
 
 — 
 
 — 
 
 1,569.7 
 
 Retail

 1,942.4 
 
 — 
 
 — 
 
 — 
 
 1,942.4 
 
 Warehouse

 1,978.8 
 
 — 
 
 — 
 
 — 
 
 1,978.8 
 
 Total commercial

 $
 
 10,278.9 
 
 $
 
 — 
 
 $
 
 — 
 
 $
 
 — 
 
 $
 
 10,278.9 
 
 Residential (2)

 448.6 
 
 — 
 
 — 
 
 — 
 
 448.6 
 
 Total

 $
 
 10,727.5 
 
 $
 
 —
 
 $
 
 —
 
 $
 
 — 

 $
 
 10,727.5 
 
 (1)

 At June 30, 2021 and December 31, 2020, includes mezzanine loans of $ 73.3 million and $ 44.6 million in the Apartment category, $ 207.7 million and $ 116.8 million in the Office category, $ 38.9 million and $ 33.4 million in the Hotel category, and $ 49.6 million and $ 48.1 million in the Warehouse category, respectively. 

 (2)

 Includes $ 69.1 million of loans purchased when the loans were greater than 90 days delinquent and are supported with insurance or other guarantees provided by various governmental programs. 

 As of June 30, 2021 and December 31, 2020, there were no commercial mortgage loans involved in troubled debt restructuring, and there were no stressed loans for which the Company is dependent, or expects to be dependent, on the underlying property to satisfy repayment. As of June 30, 2021 and December 31, 2020, $ 1.0 million and nil of residential mortgage loans, respectively, were in the process of foreclosure. 

 25
 
 Table of Contents 
 
 Other Invested Assets 

 Other invested assets primarily includes investments in limited partnerships (“LPs”), Federal Home Loan Bank capital stock, and real estate. At June 30, 2021 and December 31, 2020, investments in limited partnerships had carrying values of $ 2,391.6 million and $ 1,991.3 million, respectively. At both June 30, 2021 and December 31, 2020, Federal Home Loan Bank capital stock had carrying value of $ 125.4 million. At June 30, 2021 and December 31, 2020, real estate totaling $ 246.2 million and $ 250.0 million, respectively, included foreclosed properties with a book value of $ 0.7 million at both June 30, 2021 and December 31, 2020. 

 In June 2021, the Company entered into an arrangement to sell $ 420.4 million of limited partnership investments, of which $ 235.8 million was sold in second quarter of 2021, $ 168.0 
 million is expected to be sold in third quarter of 2021, and the remainder is to be sold by January 2022. The limited partnerships that are expected to be sold are carried at estimated sales price. The Company will reinvest in new limited partnerships as attractive opportunities become available. 

 Securities Lendin g
 
 The Company has entered into securities lending agreements with agent banks whereby blocks of securities are loaned to third parties, primarily major brokerage firms. As of June 30, 2021 and December 31, 2020, the estimated fair value of loaned securities was $ 22.9 million and $ 12.9 million, respectively. The agreements require a minimum of 102 percent of the fair value of the loaned securities to be held as collateral, calculated on a daily basis. To further minimize the credit risks related to these programs, the financial condition of counterparties is monitored on a regular basis. At June 30, 2021 and December 31, 2020, cash collateral received in the amount of $ 23.5 million and $ 13.3 million, respectively, was invested by the agent banks and included in cash and cash equivalents of the Company. A securities lending payable for the overnight and continuous loans is included in liabilities in the amount of cash collateral received. Securities lending transactions are used to generate income. Income and expenses associated with these transactions are reported as net investment income. 

 Repurchase Agreements 

 The Company routinely enters into repurchase agreements whereby the Company agrees to sell and repurchase securities. These agreements are accounted for as financing transactions, with the assets and associated liabilities included in the condensed consolidated balance sheets. As of June 30, 2021 and December 31, 2020, short-term borrowings under such agreements averaged $ 1,785.3 million and $ 454.9 million, respectively, with weighted average interest rates of 0.07 % and 0.16 %, respectively. At June 30, 2021 and December 31, 2020, the outstanding repurchase agreement balance was $ 2,257.1 million and $ 1,100.0 million, respectively, collateralized with U.S. Treasury notes and maturing within 30 days, and was included within other liabilities in the consolidated balance sheets. In the event of a decline in the fair value of the pledged collateral under these agreements, the Company may be required to transfer cash or additional securities as pledged collateral. Interest expense totaled $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2021, respectively, and nil and $ 0.2 million for the three and six months ended June 30, 2020. The highest level of short-term borrowings at any month end was $ 2,257.2 million and nil million for the six months ended June 30, 2021 and 2020, respectively. 

 4.

 Derivative Instruments 

 The Company’s business model includes the acceptance, monitoring and mitigation of risk. Specifically, the Company considers, among other factors, exposures to interest rate and equity market movements, foreign exchange rates and other asset or liability prices. The Company uses derivative instruments to mitigate or reduce these risks in accordance with established policies and goals. The Company’s derivative holdings, while effective in managing defined risks, are not structured to meet accounting requirements to be designated as hedging instruments. As a result, freestanding derivatives are carried at fair value with changes recorded in net gains (losses) on derivatives and investments. 

 26
 
 Table of Contents 
 A summary of the aggregate contractual or notional amounts and fair values of the Company’s freestanding and embedded derivative instruments are as follows (in millions): 

 June 30, 2021

 Assets

 Liabilities

 Contractual/
 Notional
 Amount (1)

 Fair
 Value

 Contractual/
 Notional
 Amount (1)

 Fair
 Value

 Net

 Fair

 Value

 Freestanding derivatives

 Cross-currency swaps

 $ 
 1,113.3 
 
 $ 
 45.7 
 
 $ 
 654.1 
 
 $ 
 34.3 
 
 $ 
 11.4 
 
 Equity index call options

 19,000.0 
 
 597.6 
 
 — 
 
 — 
 
 597.6 
 
 Equity index futures (2)

 — 
 
 — 
 
 15,900.0 
 
 — 
 
 — 
 
 Equity index put options

 35,000.0 
 
 127.2 
 
 — 
 
 — 
 
 127.2 
 
 Interest rate swaps

 7,978.1 
 
 516.5 
 
 — 
 
 — 
 
 516.5 
 
 Interest rate swaps - cleared (2)

 1,500.0 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Put-swaptions

 16,000.0 
 
 179.1 
 
 2,000.0 
 
 17.5 
 
 161.6 
 
 Treasury futures (2)

 1,611.7 
 
 — 
 
 10.6 
 
 — 
 
 — 
 
 Total freestanding derivatives

 82,203.1 
 
 1,466.1 
 
 18,564.7 
 
 51.8 
 
 1,414.3 
 
 Embedded derivatives-product liabilities

 VA embedded derivatives (3)

 N/A 
 
 — 
 
 N/A 
 
 2,235.7 
 
 ( 2,235.7 
 ) 

 FIA embedded derivatives (4) 

 N/A 
 
 — 
 
 N/A 
 
 1,489.9 
 
 ( 1,489.9 
 ) 

 Total embedded derivatives

 N/A 
 
 — 
 
 N/A 
 
 3,725.6 
 
 ( 3,725.6 
 ) 

 Derivatives related to funds withheld under reinsurance treaties

 Cross-currency swaps

 73.0 
 
 3.4 
 
 84.9 
 
 3.3 
 
 0.1 
 
 Cross-currency forwards

 1,039.3 
 
 13.4 
 
 76.1 
 
 0.1 
 
 13.3 
 
 Funds withheld embedded derivative (5)

 N/A 
 
 — 
 
 N/A 
 
 372.9 
 
 ( 372.9 
 ) 

 Total derivatives related to funds withheld under reinsurance treaties

 1,112.3 
 
 16.8 
 
 161.0 
 
 376.3 
 
 ( 359.5 
 ) 

 Total

 $ 
 83,315.4 
 
 $ 
 1,482.9 
 
 $ 
 18,725.7 
 
 $ 
 4,153.7 
 
 $ 
 ( 2,670.8 
 ) 

 (1)
 
 The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions. 

 (2)
 
 Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades. 

 (3)
 
 Included within reserves for future policy benefits and claims payable on the condensed consolidated balance sheets. The nonperformance risk adjustment is included in the balance above. 

 (4)
 
 Included within other contract holder funds on the condensed consolidated balance sheets. The nonperformance risk adjustment is included in the balance above. 

 (5)
 
 Included within funds withheld payable under reinsurance treaties on the condensed consolidated balance sheets. 

 2 7
 
 Table of Contents 
 
 December 31, 2020

 Assets

 Liabilities

 Contractual/
 Notional
 Amount (1)

 Fair
 Value

 Contractual/
 Notional
 Amount (1)

 Fair
 Value

 Net

 Fair

 Value

 Freestanding derivatives

 Cross-currency swaps

 $ 
 1,228.1 
 
 $ 
 93.0 
 
 $ 
 516.0 
 
 $ 
 34.0 
 
 $ 
 59.0 
 
 Equity index call options

 26,300.0 
 
 1,127.3 
 
 — 
 
 — 
 
 1,127.3 
 
 Equity index futures (2)

 — 
 
 — 
 
 27,651.0 
 
 — 
 
 — 
 
 Equity index put options

 27,000.0 
 
 178.0 
 
 — 
 
 — 
 
 178.0 
 
 Interest rate swaps

 4,250.0 
 
 721.8 
 
 500.0 
 
 0.9 
 
 720.9 
 
 Interest rate swaps - cleared (2)

 — 
 
 — 
 
 1,500.0 
 
 8.2 
 
 ( 8.2 
 ) 

 Put-swaptions

 1,000.0 
 
 99.5 
 
 — 
 
 — 
 
 99.5 
 
 Treasury futures (2)

 8,520.5 
 
 — 
 
 3.8 
 
 — 
 
 — 
 
 Credit default swaps

 0.5 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Total freestanding derivatives

 68,299.1 
 
 2,219.6 
 
 30,170.8 
 
 43.1 
 
 2,176.5 
 
 Embedded derivatives

 VA embedded derivatives (3)

 N/A 
 
 — 
 
 N/A 
 
 5,592.1 
 
 ( 5,592.1 
 ) 

 FIA embedded derivatives (4) 

 N/A 
 
 — 
 
 N/A 
 
 1,483.9 
 
 ( 1,483.9 
 ) 

 Total embedded derivatives

 N/A 
 
 — 
 
 N/A 
 
 7,076.0 
 
 ( 7,076.0 
 ) 

 Derivatives related to funds withheld under reinsurance treaties

 Cross-currency swaps

 7.4 
 
 — 
 
 100.7 
 
 5.2 
 
 ( 5.2 
 ) 

 Cross-currency forwards

 75.3 
 
 0.2 
 
 668.3 
 
 8.1 
 
 ( 7.9 
 ) 

 Funds withheld embedded derivative (5)

 N/A 
 
 — 
 
 N/A 
 
 $ 
 826.6 
 
 $ 
 ( 826.6 
 ) 

 Total derivatives related to funds withheld under reinsurance treaties

 82.7 
 
 0.2 
 
 769.0 
 
 839.9 
 
 ( 839.7 
 ) 

 Total

 $ 
 68,381.8 
 
 $ 
 2,219.8 
 
 $ 
 30,939.8 
 
 $ 
 7,959.0 
 
 $ 
 ( 5,739.2 
 ) 

 (1)

 The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions. 

 (2)

 Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades. 

 (3)

 Included within reserves for future policy benefits and claims payable on the condensed consolidated balance sheets. The nonperformance risk adjustment is included in the balance above. 

 (4)

 Included within other contract holder funds on the condensed consolidated balance sheets. The nonperformance risk adjustment is included in the balance above. 

 (5)

 Included within funds withheld payable under reinsurance treaties on the condensed consolidated balance sheets. 

 28
 
 Table of Contents 
 
 The following table reflects the results of the Company’s derivatives, including gains (losses) and change in fair value of freestanding derivative instruments and embedded derivatives (in millions): 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Derivatives excluding funds withheld under reinsurance treaties

 Cross-currency swaps

 $ 
 21.1 
 
 $ 
 42.5 
 
 $ 
 ( 44.3 
 ) 
 
 $ 
 28.4 
 
 Equity index call options

 666.6 
 
 347.8 
 
 798.6 
 
 122.2 
 
 Equity index futures

 ( 1,376.9 
 ) 
 
 ( 6,699.1 
 ) 
 
 ( 2,669.7 
 ) 
 
 ( 1,067.5 
 ) 

 Equity index put options

 ( 259.6 
 ) 
 
 ( 3,038.5 
 ) 
 
 ( 610.8 
 ) 
 
 752.2 
 
 Interest rate swaps

 116.7 
 
 45.6 
 
 ( 148.2 
 ) 
 
 690.8 
 
 Interest rate swaps - 
cleared

 35.4 
 
 — 
 
 ( 50.3 
 ) 
 
 — 
 
 Put-swaptions

 394.9 
 
 12.0 
 
 103.2 
 
 265.1 
 
 Treasury futures

 ( 0.1 
 ) 
 
 90.6 
 
 ( 772.7 
 ) 
 
 1,978.8 
 
 Fixed index annuity embedded derivatives

 ( 1.7 
 ) 
 
 ( 202.3 
 ) 
 
 ( 2.1 
 ) 
 
 31.9 
 
 Variable annuity embedded derivatives

 ( 1,364.7 
 ) 
 
 3,510.9 
 
 3,283.4 
 
 ( 6,144.7 
 ) 

 Total net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treaties

 ( 1,768.3 
 ) 
 
 ( 5,890.5 
 ) 
 
 ( 112.9 
 ) 
 
 ( 3,342.8 
 ) 

 Derivatives related to funds withheld under reinsurance treaties

 Cross-currency swaps

 7.7 
 
 — 
 
 5.9 
 
 — 
 
 Cross-currency forwards

 ( 5.4 
 ) 
 
 — 
 
 13.4 
 
 — 
 
 Treasury futures

 — 
 
 ( 204.2 
 ) 
 
 — 
 
 ( 204.2 
 ) 

 Funds withheld embedded derivative

 ( 544.3 
 ) 
 
 ( 279.0 
 ) 
 
 453.7 
 
 ( 279.0 
 ) 

 Total net gains (losses) on derivative instruments related to funds withheld under reinsurance treaties

 ( 542.0 
 ) 
 
 ( 483.2 
 ) 
 
 473.0 
 
 ( 483.2 
 ) 

 Total net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treaties

 $ 
 ( 2,310.3 
 ) 
 
 $ 
 ( 6,373.7 
 ) 
 
 $ 
 360.1 
 
 $ 
 ( 3,826.0 
 ) 

 All of the 

Company’s trade agreements for freestanding, over-the-counter

 derivatives, contain credit downgrade provisions that allow a party to assign or terminate derivative transactions if the counterparty’s credit rating declines below an established limit. At June 30, 2021 and December 31, 2020, the fair value of the Company’s net non-cleared,
 over-the-counter

 derivative assets by counterparty were $ 1,427.8 million and $ 2,184.7 million, respectively, and held collateral was $ 1,465.1 million and $ 2,124.2 million, respectively, related to these agreements. At June 30, 2021 and December 31, 2020, the fair value of the Company’s net non-cleared,
 over-the-counter

 derivative liabilities by counterparty were nil and $ 13.1 million, respectively, and provided collateral was $ 0.1 million and $ 25.7 million, respectively, related to these agreements. If all of the downgrade provisions had been triggered at June 30, 2021 and December 31, 2020, in aggregate, the Company would have had to disburse $ 37.3 million and nil , respectively, to counterparties, representing the net fair values of derivatives by counterparty, less collateral held. 
 
 Offsetting Assets and Liabilities 

 T
he Company’s derivative instruments, repurchase agreements and securities lending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company recognizes amounts subject to master netting arrangements on a gross basis within the condensed consolidated balance sheets. 

 29
 
 Table of Contents 
 The following tables present the gross and net information about the Company’s financial instruments subject to master netting arrangements (in millions): 

 June 30, 2021

 Gross

 Amounts

 Recognized

 Gross

 Amounts

 Offset in the
 Condensed

 Consolidated

 Balance Sheets

 Net Amounts

 Presented in

 the Condensed
 Consolidated

 Balance Sheets

 Gross Amounts Not Offset

 in the Condensed Consolidated Balance Sheets

 Financial

 Instruments (1)

 Cash

 Collateral

 Securities

 Collateral (2)

 Net

 Amount

 Financial Assets:

 Freestanding derivative assets

 $ 
 1,482.9 
 
 $ 
 — 
 
 $ 
 1,482.9 
 
 $ 
 55.2 
 
 $ 
 752.3 
 
 $ 
 641.1 
 
 $ 
 34.3 
 
 Financial Liabilities:

 Freestanding derivative liabilities

 $ 
 55.2 
 
 $ 
 — 
 
 $ 
 55.2 
 
 $ 
 55.2 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 Securities loaned

 23.5 
 
 — 
 
 23.5 
 
 — 
 
 23.5 
 
 — 
 
 — 
 
 Repurchase agreements

 2,257.1 
 
 — 
 
 2,257.1 
 
 — 
 
 — 
 
 2,257.1 
 
 — 
 
 Total financial liabilities

 $ 
 2,335.8 
 
 $ 
 — 
 
 $ 
 2,335.8 
 
 $ 
 55.2 
 
 $ 
 23.5 
 
 $ 
 2,257.1 
 
 $ 
 — 
 
 (1)

 Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the condensed consolidated balance sheet s
. 

 (2)

 Excludes initial margin amounts for exchange-traded derivatives. 

 December 31, 2020

 Gross

 Amounts

 Recognized

 Gross

 Amounts

 Offset in the
 Condensed

 Consolidated

 Balance Sheets

 Net Amounts

 Presented in

 the Condensed
 Consolidated

 Balance Sheets

 Gross Amounts Not Offset

 in the Condensed Consolidated Balance Sheets

 Financial

 Instruments (1)

 Cash

 Collateral

 Securities

 Collateral (2)

 Net

 Amount

 Financial Assets:

 Freestanding derivative assets

 $ 
 2,219.8 
 
 $ 
 — 
 
 $ 
 2,219.8 
 
 $ 
 35.1 
 
 $ 
 1,097.9 
 
 $ 
 890.0 
 
 $ 
 196.8 
 
 Financial Liabilities:

 Freestanding derivative liabilities

 $ 
 56.4 
 
 $ 
 — 
 
 $ 
 56.4 
 
 $ 
 35.1 
 
 $ 
 13.1 
 
 $ 
 — 
 
 $ 
 8.2 
 
 Securities loaned

 13.3 
 
 — 
 
 13.3 
 
 — 
 
 13.3 
 
 — 
 
 — 
 
 Repurchase agreements

 1,100.0 
 
 — 
 
 1,100.0 
 
 — 
 
 — 
 
 1,100.0 
 
 — 
 
 Total financial liabilities

 $ 
 1,169.7 
 
 $ 
 — 
 
 $ 
 1,169.7 
 
 $ 
 35.1 
 
 $ 
 26.4 
 
 $ 
 1,100.0 
 
 $ 
 8.2 
 
 (1)

 R
epresents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the condensed consolidated balance sheets. 

 (2)

 Excludes initial margin amounts for exchange-traded derivatives. 

 In the above tables, the amounts of assets or liabilities presented in the Company’s condensed consolidated balance sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables. The above tables exclude net embedded derivative liabilities of $ 3,725.6 million and $ 7,076.0 million as of June 30, 2021 and December 31, 2020, respectively, as these derivatives are not subject to master netting arrangements. The above tables also exclude the funds withheld embedded derivative liability of $ 372.9 million and $ 826.6 million at June 30, 2021 and December 31, 2020. In addition, repurchase agreements are presented within other liabilities in the condensed consolidated balance sheets. 

 3 0

 Table of Contents 
 
 5.

 Fair Value Measurements 

 T
he following table summarizes the fair value and carrying value of the Company’s financial instruments (in millions): 

 June 30, 2021

 December 31, 2020

 Carrying

 Value

 Fair

 Value

 Carrying

 Value

 Fair

 Value

 Assets

 Debt securities 
 (1)

 $ 
 54,020.8 
 
 $ 
 54,020.8 
 
 $ 
 60,457.4 
 
 $ 
 60,457.4 
 
 Equity securities

 239.3 
 
 239.3 
 
 193.1 
 
 193.1 
 
 Mortgage loans

 11,649.1 
 
 12,151.4 
 
 10,727.5 
 
 11,348.9 
 
 Limited partnerships

 2,391.6 
 
 2,391.6 
 
 1,991.3 
 
 1,991.3 
 
 Policy loans 
 (1)

 4,581.1 
 
 4,581.1 
 
 4,523.5 
 
 4,523.5 
 
 Freestanding derivative instruments

 1,482.9 
 
 1,482.9 
 
 2,219.8 
 
 2,219.8 
 
 Federal Home Loan Bank of Indianapolis (“FHLBI”) capital stock

 125.4 
 
 125.4 
 
 125.4 
 
 125.4 
 
 Cash and cash equivalents

 1,534.6 
 
 1,534.6 
 
 2,018.7 
 
 2,018.7 
 
 GMIB reinsurance recoverable

 267.2 
 
 267.2 
 
 340.4 
 
 340.4 
 
 Separate account assets

 239,806.1 
 
 239,806.1 
 
 219,062.9 
 
 219,062.9 
 
 Liabilities

 Annuity reserves 
 (2)

 $ 
 40,989.1 
 
 $ 
 49,051.4 
 
 $ 
 45,638.8 
 
 $ 
 54,005.7 
 
 Reserves for guaranteed investment contracts
 (3)

 1,099.8 
 
 1,143.3 
 
 1,275.5 
 
 1,332.1 
 
 Trust instruments supported by funding agreements
 (3)

 6,331.7 
 
 6,587.9 
 
 8,383.9 
 
 8,701.8 
 
 Federal Home Loan Bank funding agreements
 (3)

 1,478.4 
 
 1,468.3 
 
 1,478.4 
 
 1,421.3 
 
 Funds withheld payable under reinsurance treaties 
 (1)

 30,321.8 
 
 30,321.8 
 
 31,971.5 
 
 31,971.5 
 
 Debt

 317.7 
 
 397.7 
 
 322.0 
 
 412.3 
 
 Securities lending payable

 23.5 
 
 23.5 
 
 13.3 
 
 13.3 
 
 Freestanding derivative instruments

 55.2 
 
 55.2 
 
 56.4 
 
 56.4 
 
 Repurchase agreements

 2,257.1 
 
 2,257.1 
 
 1,100.0 
 
 1,100.0 
 
 Federal Home Loan Bank advances

 250.0 
 
 250.0 
 
 380.0 
 
 380.0 
 
 Separate account liabilities

 239,806.1 
 
 239,806.1 
 
 219,062.9 
 
 219,062.9 
 
 (1)

 Includes items carried at fair value under the fair value option and trading securities. 

 (2)

 Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments. 

 (3)

 Included as a component of other contract holder funds on the condensed consolidated balance sheets. 

 The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on both a recurring and nonrecurring basis reported in the following tables. 

 D
ebt and Equity Securities 

 The fair values for debt and equity securities are determined using information available from independent pricing services, broker-dealer quotes, or internally derived estimates. Priority is given to publicly available prices from independent sources, when available. Securities for which the independent pricing service does not provide a quotation are either submitted to independent broker-dealers for prices or priced internally. Typical inputs used by these three pricing methods include reported trades, benchmark yields, credit spreads, liquidity premiums and/or estimated cash flows based on default and prepayment assumptions. 

 As a result of typical trading volumes and the lack of specific quoted market prices for most debt securities, independent pricing services will normally derive the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recently reported trades, the independent pricing services and broker-dealers may use matrix or pricing model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at relevant market rates. Certain securities are priced using broker-dealer quotes, which may utilize proprietary inputs and models. Additionally, the majority of these quotes are non-binding.
 
 3 1

 Table of Contents 
 Included in the pricing of asset-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment assumptions believed to be relevant for the underlying collateral. Actual prepayment experience may vary from these estimates. 

 Internally derived estimates may be used to develop a fair value for securities for which the Company is unable to obtain either a reliable price from an independent pricing service or a suitable broker-dealer quote. These fair value estimates may incorporate Level 2 and Level 3 inputs and are generally derived using expected future cash flows, discounted at market interest rates available from market sources based on the credit quality and duration of the instrument. For securities that may not be reliably priced using these internally developed pricing models, a fair value may be estimated using indicative market prices. These prices are indicative of an exit price, but the assumptions used to establish the fair value may not be observable or corroborated by market observable information and, therefore, represent Level 3 inputs. 

 The Company performs an analysis on the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and ongoing review of third-party pricing service methodologies, review of pricing statistics and trends, back testing recent trades and monitoring of trading volumes. In addition, the Company considers whether prices received from independent broker-dealers represent a reasonable estimate of fair value through the use of internal and external cash flow models, which are developed based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party may be adjusted accordingly. 

 For those securities that were internally valued at June 30, 2021 and December 31, 2020, the pricing model used by the Company utilizes current spread levels of similarly rated securities to determine the market discount rate for the security. Furthermore, appropriate risk premiums for illiquidity and non-performance
 are incorporated in the discount rate. Cash flows, as estimated by the Company using issuer-specific default statistics and prepayment assumptions, are discounted to determine an estimated fair value.

 On an ongoing basis, the Company reviews the independent pricing services’ valuation methodologies and related inputs, and evaluates the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy distribution based upon trading activity and the observability of market inputs. Based on the results of this evaluation, each price is classified into Level 1, 2, or 3. Most prices provided by independent pricing services, including broker-dealer quotes, are classified into Level 2 due to their use of market observable inputs. 

 Limited Partnerships 

 Fair values for limited partnership interests, which are included in other invested assets, is generally determined using the proportion of the Company’s investment in the value of the net assets of each fund (“NAV equivalent”) as a practical expedient for fair value, and generally, are recorded on a three-month lag. No adjustments to these amounts were deemed necessary at June 30, 2021 and December 31, 2020. As a result of using the net asset value per share practical expedient, limited partnership interests are not classified in the fair value hierarchy. 

 The Company’s limited partnership interests are not redeemable and distributions received are generally the result of liquidation of the underlying assets of the partnerships. The Company generally has the ability under the partnership agreements to sell its interest to another limited partner with the prior written consent of the general partner. In cases when the Company expects to sell the limited partnership interest, the estimated sales price is used to determine the fair value. These limited partnership interests are classified as Level 2 in the fair value hierarchy. 

 In cases when a limited partnership’s financial statements are unavailable and a NAV equivalent is not available or practical, an internally developed model is used to determine fair value for that fund. These investments are classified as Level 3 in the fair value hierarchy. 

 3 2

 Table of Contents 
 
 M
ortgage Loans 

 Fair values are generally determined by discounting expected future cash flows at current market interest rates, inclusive of a credit spread, for similar quality loans. For loans whose value is dependent upon the underlying property, fair value is determined to be the estimated value of the collateral. Certain characteristics considered significant in determining the spread or collateral value may be based on internally developed estimates. As a result, these investments have been classified as Level 3 within the fair value hierarchy. 

 Policy Loans 

 Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. Policy loans have been classified as Level 3 within the fair value hierarchy. 

 Freestanding Derivative Instruments 

 Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, which the Company would receive or pay upon sale or termination of the contracts at the reporting date. Changes in fair value are included in net gains (losses) on derivatives and investments. Freestanding derivatives priced using third party pricing services incorporate inputs that are predominantly observable in the market. Inputs used to value derivatives include, but are not limited to, interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels. 

 Freestanding derivative instruments classified as Level 1 include futures, which are traded on active exchanges. Freestanding derivative instruments classified as Level 2 include interest rate swaps, cross currency swaps, cross-currency forwards, credit default swaps, put-swaptions and certain equity index call and put options. These derivative valuations are determined by third-party pricing services using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Freestanding derivative instruments classified as Level 3 include interest rate contingent options that are valued by third-party pricing services utilizing significant unobservable inputs. 

 F
HLBI Capital Stock 

 FHLBI capital stock, which is included in other invested assets, can only be sold to FHLBI at a constant price of $ 100 per share. Due to the lack of valuation uncertainty, the investment has been classified as Level 1. 

 Cash and Cash Equivalents 

 Cash and cash equivalents primarily include money market instruments and bank deposits. Certain money market instruments are valued using unadjusted quoted prices in active markets and are classified as Level 1. 

 Funds Withheld Payable Under Reinsurance Treaties 

 T
he funds withheld payable under reinsurance treaties includes both the funds withheld payable and the funds withheld embedded derivative. Certain funds withheld payable are held at fair value under the fair value option. The fair value of the funds withheld payable is equal to the fair value of the assets held as collateral, which primarily consists of debt and equity securities, mortgage loans, and policy loans. The fair value of the assets generally use industry standard valuation techniques and the valuation of the embedded derivative also requires certain significant unobservable inputs. The funds withheld payable are considered Level 2, while certain funds withheld payable at fair value under the fair value option and the funds withheld embedded derivative are considered Level 3, respectively, in the fair value hierarchy. The fair value of 

 33
 
 Table of Contents 
 
 embedded derivatives associated with funds withheld reinsurance contracts is determined based upon a total return swap technique referencing the fair value of the investments held under the reinsurance contract and included in the Company’s condensed consolidated balance sheet. 

 Separate Account Assets and Liabilities 

 Separate account assets are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2 assets. The values of separate account liabilities are set equal to the values of separate account assets. 

 Other Contract Holder Funds

 Fair values for immediate annuities without mortality features are derived by discounting the future estimated cash flows using current market interest rates for similar maturities. Fair values for deferred annuities, including fixed index annuities, are determined using projected future cash flows discounted at current market interest rates. 

 The fair value of the fixed index annuities embedded option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires, is calculated using the closed form Black-Scholes Option Pricing model or Monte Carlo simulations, as appropriate for the type of option. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders. 

 Fair values for guaranteed investment contracts are based on the present value of future cash flows discounted at current market interest rates. 

 Fair values for trust instruments supported by funding agreements are based on the present value of future cash flows discounted at current market interest rates. 

 Fair values of the FHLBI funding agreements are based on the present value of future cash flows discounted at current market interest rates. 

 Variable Annuity Guarantees 

 Variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal, income and accumulation benefits. Certain benefits, including non-life
 contingent components of guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum withdrawal benefits for life (“GMWB for Life”), guaranteed minimum accumulation benefits (“GMAB”), and the reinsurance recoverable on the Company’s guaranteed minimum income benefits (“GMIB”), are recorded at fair value. Guaranteed benefits that are not subject to fair value accounting are accounted for as insurance benefits. The Company discontinued offering the GMIB in 2009 and GMAB in 2011. 

 GMABs and non-life
 contingent components of GMWB and GMWB for Life contracts are recorded at fair value with changes in fair value recorded in net gains (losses) on derivatives and investments. The fair value of the reserve is based on the expectations of future benefit payments and certain future fees associated with the benefits. At the inception of the contract, the Company attributes to the embedded derivative a portion of rider fees collected from the contract holder, which is then held static in future valuations. Those fees, generally referred to as the attributed fees, are set such that the present value of the attributed fees is equal to the present value of future claims expected to be paid under the guaranteed benefit at the inception of the contract. In subsequent valuations, both the present value of future benefits and the present value of attributed fees are revalued based on current market conditions and policyholder behavior assumptions. The difference between each of the two components represents the fair value of the embedded derivative. Thus, when unfavorable equity market movements cause declines in the contract holder’s account value relative to the guarantee benefit, the valuation of future expected claims would generally increase relative to the measurement performed at the inception of the contract, resulting in an increase in the fair value of the embedded derivative liability (and vice versa). 

 The Company’s GMIB book is reinsured through an unrelated party, and due to the net settlement provisions of the reinsurance agreement, this contract meets the definition of a derivative. Accordingly, the GMIB reinsurance agreement is recorded at fair value, with changes in fair value recorded in net gains (losses) on derivatives and investments. Due to the 

 34 

 Table of Contents 
 
 inability to economically reinsure or hedge new issues of the GMIB, the Company discontinued offering the benefit in 2009. 

 Fair values for GMWB, GMWB for Life, and GMAB embedded derivatives, as well as GMIB reinsurance recoverables, are calculated using internally developed models because active, observable markets do not exist for those guaranteed benefits. 

 The fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behavior. Capital market inputs include expected market rates of return, market volatility, correlations of market index returns to funds, fund performance and discount rates. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable. 

 At each valuation date, the fair value calculation reflects expected returns based on the greater of LIBOR swap rates and constant maturity treasury rates as of that date to determine the value of expected future cash flows produced in a stochastic process. Volatility assumptions are based on a weighting of available market data for implied market volatility for durations up to 10 years, grading to a historical volatility level by year 15 , where such long-term historical volatility levels contain an explicit risk margin. Additionally, non-performance
 risk is incorporated into the calculation through the use of discount rates based on a blend of observed market yields on debt for life insurers with similar credit ratings to the Company and matrix pricing data for expected yields on Jackson Financial debt (either actual debt issuance or indicative quotes) adjusted to operating company levels. Risk margins are also incorporated into the model assumptions, particularly for policyholder behavior. Estimates of future policyholder behavior are subjective and are based primarily on the Company’s experience. 
 As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for this component of the fair value model. 

 The use of the models and assumptions described above requires a significant amount of judgment. Management believes the aggregation of each of these components results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to or from a willing buyer or seller, if one existed, for those market participants to assume the risks associated with the guaranteed benefits and the related reinsurance. However, the ultimate settlement amount of the asset or liability, which is currently unknown, could likely be significantly different than this fair value. 

 Debt 

 Fair values for the Company’s surplus notes and other long-term debt are generally determined by prices obtained from independent broker dealers or discounted cash flow models. Such prices are derived from market observable inputs and are classified as Level 2.

 Securities Lending Payable 

 The Company’s securities lending payable is set equal to the cash collateral received. Due to the short-term nature of the loans, carrying value is a reasonable estimate of fair value and is classified as Level 2. 

 Repurchase Agreements 

 Carrying value of the Company’s repurchase agreements, which are included in other liabilities, is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2. 

 Federal Home Loan Bank Advances 

 Carrying value of the Company’s Federal Home Loan Bank advances, which are included in other liabilities, is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2. 

 35

 Table of Contents 
 
 Assets and Liabilities Measured at Fair Value on a Recurring Basis 

 The following tables summarize the Company’s assets and liabilities that are carried at fair value by hierarchy levels (in millions): 

 June 30, 2021

 Total

 Level 1

 Level 2

 Level 3

 Assets

 Debt securities

 U.S. government securities

 $ 
 4,468.5 
 
 $ 
 4,468.5 
 
 $ 
 — 
 
 $ 
 — 
 
 Other government securities

 1,649.0 
 
 — 
 
 1,649.0 
 
 — 
 
 Public utilities

 6,646.5 
 
 — 
 
 6,646.5 
 
 — 
 
 Corporate securities

 31,844.5 
 
 — 
 
 31,813.3 
 
 31.2 
 
 Residential mortgage-backed

 834.6 
 
 — 
 
 834.6 
 
 — 
 
 Commercial mortgage-backed

 2,871.0 
 
 — 
 
 2,871.0 
 
 — 
 
 Other asset-backed securities

 5,706.7 
 
 — 
 
 5,706.6 
 
 0.1 
 
 Equity securities

 239.3 
 
 92.3 
 
 43.8 
 
 103.2 
 
 Limited partnerships

 185.3 
 
 — 
 
 184.6 
 
 0.7 
 
 Policy loans

 3,537.8 
 
 — 
 
 — 
 
 3,537.8 
 
 Freestanding derivative instruments

 1,482.9 
 
 — 
 
 1,482.9 
 
 — 
 
 Cash and cash equivalents

 1,534.6 
 
 1,534.6 
 
 — 
 
 — 
 
 GMIB reinsurance recoverable

 267.2 
 
 — 
 
 — 
 
 267.2 
 
 Separate account assets

 239,806.1 
 
 — 
 
 239,806.1 
 
 — 
 
 Total

 $ 
 301,074.0 
 
 $ 
 6,095.4 
 
 $ 
 291,038.4 
 
 $ 
 3,940.2 
 
 Liabilities

 Embedded derivative liabilities (1)

 $ 
 3,725.6 
 
 $ 
 — 
 
 $ 
 1,489.9 
 
 $ 
 2,235.7 
 
 Funds withheld payable under reinsurance treaties (2)

 4,081.5 
 
 — 
 
 — 
 
 4,081.5 
 
 Freestanding derivative instruments

 55.2 
 
 — 
 
 55.2 
 
 — 
 
 Total

 $ 
 7,862.3 
 
 $ 
 — 
 
 $ 
 1,545.1 
 
 $ 
 6,317.2 
 
 (1)

 Includes the embedded derivative liabilities of $ 2,235.7 million related to GMWB reserves included in reserves for future policy benefits and claims payable and $ 1,489.9 million of fixed index annuities included in other contract holder funds on the condensed consolidated balance sheets. 

 (2)

 Includes the Athene embedded derivative liability of $ 372.9 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. 

 36

 Table of Contents 
 
 December 31, 2020

 Total

 Level 1

 Level 2

 Level 3

 Assets

 Debt securities

 U.S. government securities

 $ 
 5,126.0 
 
 $ 
 5,126.0 
 
 $ 
 — 
 
 $ 
 — 
 
 Other government securities

 1,696.9 
 
 — 
 
 1,696.9 
 
 — 
 
 Public utilities

 7,297.7 
 
 — 
 
 7,297.7 
 
 — 
 
 Corporate securities

 36,440.0 
 
 — 
 
 36,411.3 
 
 28.7 
 
 Residential mortgage-backed

 984.9 
 
 — 
 
 984.9 
 
 — 
 
 Commercial mortgage-backed

 3,322.6 
 
 — 
 
 3,322.6 
 
 — 
 
 Other asset-backed securities

 5,589.3 
 
 — 
 
 5,589.2 
 
 0.1 
 
 Equity securities

 193.1 
 
 65.4 
 
 24.1 
 
 103.6 
 
 Limited partnerships

 0.8 
 
 — 
 
 — 
 
 0.8 
 
 Policy loans

 3,454.2 
 
 — 
 
 — 
 
 3,454.2 
 
 Freestanding derivative instruments

 2,219.8 
 
 — 
 
 2,219.8 
 
 — 
 
 Cash and cash equivalents

 2,018.7 
 
 2,018.7 
 
 — 
 
 — 
 
 GMIB reinsurance recoverable

 340.4 
 
 — 
 
 — 
 
 340.4 
 
 Separate account assets

 219,062.9 
 
 — 
 
 219,062.9 
 
 — 
 
 Total

 $ 
 287,747.3 
 
 $ 
 7,210.1 
 
 $ 
 276,609.4 
 
 $ 
 3,927.8 
 
 Liabilities

 Embedded derivative liabilities (1)

 $ 
 7,076.0 
 
 $ 
 — 
 
 $ 
 1,483.9 
 
 $ 
 5,592.1 
 
 Funds withheld payable under reinsurance treaties (2)

 4,453.1 
 
 — 
 
 — 
 
 4,453.1 
 
 Freestanding derivative instruments

 56.4 
 
 — 
 
 56.4 
 
 — 
 
 Total

 $ 
 11,585.5 
 
 $ 
 — 
 
 $ 
 1,540.3 
 
 $ 
 10,045.2 
 
 (1)

 Includes the embedded derivative liabilities of $ 5,592.1 million related to GMWB reserves included in reserves for future policy benefits and claims payable and $ 1,483.9 million of fixed index annuities included in other contract holder funds on the condensed consolidated balance sheets. 

 (2)

 Includes the Athene embedded derivative liability of $ 826.6 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. 

 37

 Table of Contents 
 
 Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) 

 Level 3 Assets and Liabilities by Price Source 

 The t
able below presents the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources (in millions): 

 June 30, 2021

 Total

 Internal

 External

 Asset s

 Debt securities:

 Corporate

 $ 
 31.2 
 
 $ 
 — 
 
 $ 
 31.2 
 
 Other asset-backed securities

 0.1 
 
 0.1 
 
 — 
 
 Equity securities

 103.2 
 
 1.2 
 
 102.0 
 
 Limited partnerships

 0.7 
 
 0.7 
 
 — 
 
 Policy loans

 3,537.8 
 
 3,537.8 
 
 — 
 
 GMIB reinsurance recoverable

 267.2 
 
 267.2 
 
 — 
 
 Total

 $ 
 3,940.2 
 
 $ 
 3,807.0 
 
 $ 
 133.2 
 
 Liabilities

 Embedded derivative liabilities (1)

 $ 
 2,235.7 
 
 $ 
 2,235.7 
 
 $ 
 — 
 
 Funds withheld payable under reinsurance treaties

 4,081.5 
 
 4,081.5 
 
 — 
 
 Total

 $ 
 6,317.2 
 
 $ 
 6,317.2 
 
 $ 
 — 
 
 (1)

 Includes the embedded derivative related to GMWB reserves. 

 December 31, 2020

 Total

 Internal

 External

 Asset s

 Debt securities:

 Corporate

 $ 
 28.7 
 
 $ 
 — 
 
 $ 
 28.7 
 
 Other asset-backed securities

 0.1 
 
 — 
 
 0.1 
 
 Equity securities

 103.6 
 
 1.2 
 
 102.4 
 
 Limited partnerships

 0.8 
 
 0.8 
 
 — 
 
 Policy loans

 3,454.2 
 
 3,454.2 
 
 — 
 
 GMIB reinsurance recoverable

 340.4 
 
 340.4 
 
 — 
 
 Total

 $ 
 3,927.8 
 
 $ 
 3,796.6 
 
 $ 
 131.2 
 
 Liabilities

 Embedded derivative liabilities (1)

 $ 
 5,592.1 
 
 $ 
 5,592.1 
 
 $ 
 — 
 
 Funds withheld payable under reinsurance treaties

 4,453.1 
 
 4,453.1 
 
 — 
 
 Total

 $ 
 10,045.2 
 
 $ 
 10,045.2 
 
 $ 
 — 
 
 (1)

 Includes the embedded derivative related to GMWB reserves. 

 External pricing sources for securities represent unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available. 

 38

 Table of Contents 
 Quantitative Information Regarding Internally-Priced Level 3 Assets and Liabilities 

 The table below presents quantitative information on significant internally-priced Level 3 assets and liabilities (in millions): 

 As of June 30, 2021

 Fair

 Value

 Valuation

 Technique(s)

 Significant Unobservable
 Input(s)

 Assumption or
 Input Range

 Impact of Increase in
 Input on Fair Value

 Assets

 GMIB reinsurance recoverable

 $ 
 267.2 
 
 Discounted cash flow 
 
 Mortality (1)

 0.01 % - 23.52 % 
 
 Decrease 
 
 Lapse (2)

 3.33 % - 9.23 % 
 
 Decrease 
 
 Utilization (3)

 0.00 % - 20.00 % 
 
 Increase 
 
 Withdrawal (4)

 3.75 % - 4.50 % 
 
 Increase 
 
 Nonperformance risk (5)

 0.09 % - 1.41 % 
 
 Decrease 
 
 Long-term Equity Volatility (6)

 18.50 % - 
 22.04 % 
 
 Increase 
 
 Liabilities

 Embedded derivative liabilities

 $ 
 2,235.7 
 
 Discounted cash flow 
 
 Mortality (1)

 0.04 % - 21.53 % 
 
 Decrease 
 
 Lapse (2)

 0.16 % - 30.26 % 
 
 Decrease 
 
 Utilization (3)

 5.00 % - 100.00 % 
 
 Increase 
 
 Withdrawal (4)

 56.00 % - 94.75 % 
 
 Increase 
 
 Nonperformance risk (5)

 0.09 % - 1.41 % 
 
 Decrease 
 
 Long-term Equity Volatility (6)

 18.50 % - 22.04 % 
 
 Increase 
 
 (1)

 Mortality rates vary by attained age, tax qualification status, GMWB benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. 

 (2)

 Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money,

 with lower lapse applying when contracts are more in-the-money.

 Lapse rates are also adjusted to reflect lower lapse expectations when GMWB benefits are utilized. 

 (3)
 
 The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.

 (4)

 The withdrawal rate represents the utilization rate of the contract’s free partial withdrawal provision (GMIB) or the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount (GMWB). Withdrawal rates on contracts with a GMIB vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions. 

 (5)

 Nonperformance risk spread varies by duration. 

 (6)

 Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available. 

 39

 Table of Contents 
 
 As of December 31, 2020

 Fair

 Value

 Valuation

 Technique(s)

 Significant Unobservable
 Input(s)

 Assumption or
 Input Range

 Impact of Increase in
 Input on Fair Value

 Assets

 GMIB reinsurance recoverable

 $

 340.4 
 
 Discounted cash flow 
 
 Mortality (1)
 
 0.01 % - 23.52 %
 
 Decrease 
 
 Lapse (2)

 3.30 % - 9.20 % 
 
 Decrease 
 
 Utilization (3)

 0.00 % - 20.00 % 
 
 Increase 
 
 Withdrawal (4)

 3.75 % - 4.50 % 
 
 Increase 
 
 Nonperformance risk (5)

 0.33 % - 1.57 % 
 
 Decrease 
 
 Long-term Equity Volatility (6)

 18.50 % - 22.47 %
 
 Increase 
 
 Liabilities

 Embedded derivative liabilities

 $

 5,592.1 
 
 Discounted cash flow 
 
 Mortality (1)
 
 0.04 % - 21.53 % 
 
 Decrease 
 
 Lapse (2)

 0.20 % - 30.30 %
 
 Decrease 
 
 Utilization (3)

 5.00 % - 100.00 %
 
 Increase 
 
 Withdrawal (4)

 56.00 % - 95.00 % 
 
 Increase 
 
 Nonperformance risk (5)

 0.33 % - 1.57 % 
 
 Decrease 
 
 Long-term Equity
 Volatility (6)

 18.50 % - 22.47 % 
 
 Increase 
 
 (1)

 Mortality rates vary by attained age, tax qualification status, GMWB benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. 

 (2)

 Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money,

 with lower lapse applying when contracts are more in-the-money.

 Lapse rates are also adjusted to reflect lower lapse expectations when GMWB benefits are utilized. 

 (3)

 The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.

 (4)

 The withdrawal rate represents the utilization rate of the contract’s free partial withdrawal provision (GMIB) or the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount (GMWB). Withdrawal rates on contracts with a GMIB vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions. 

 (5)

 Nonperformance risk spread varies by duration. 

 (6)

 Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available. 

 40

 Table of Contents 
 
 Sensitivity to Changes in Unobservable Inputs 

 The following is a general description of sensitivities of significant unobservable inputs and their impact on the fair value measurement for the assets and liabilities reflected in the table above. 

 At both 
June 30, 2021 and December 31, 2020, securities of $ 2.0 million are fair valued using techniques incorporating unobservable inputs and are classified in Level 3 of the fair value hierarchy. For these assets, their unobservable inputs and ranges of possible inputs do not materially affect their fair valuations and have been excluded from the quantitative information in the table above. 

 Policy loans that support funds withheld reinsurance agreements that are held at fair value under the fair value option on the Company’s condensed consolidated balance sheet are excluded from the table above. These policy loans do not have a stated maturity and the balances, plus accrued investment income, are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans, which includes accrued investment income, approximates fair value and have been classified as Level 3 within the fair value hierarchy. 

 Funds withheld payable under reinsurance treaties, for funds withheld payable held at fair value under the fair value option and the Athene embedded derivative, are excluded from the table above. The fair value of Funds withheld payable under reinsurance treaties, excluding the Athene embedded derivative, is determined based upon the fair value of the investments held by the Company related to the Company’s funds withheld payable under reinsurance treaties. The fair value of these underlying assets is generally based on market observable inputs using industry standard valuation techniques. The Athene embedded derivative utilizes a total return swap technique which incorporates the fair value of the invested assets supporting the reinsurance agreement as a component of the valuation. In addition, these valuations for the funds withheld payable under reinsurance treaties and the Athene embedded derivative also require certain significant inputs which are generally not observable and, accordingly, the valuation is considered Level 3 in the fair value hierarchy. 

 The GMIB reinsurance recoverable fair value calculation is based on the present value of future cash flows comprised of future expected reinsurance benefit receipts, less future attributed premium payments to reinsurers, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerning policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality. 

 Embedded derivative liabilities classified in Level 3 represent the fair value of guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”) liabilities. These fair value calculations are based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerning policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality. 

 41

 Table of Contents 
 
 The tables below provide rollforwards for the three and six months ended June 30, 2021 and 2020 of the financial instruments for which significant unobservable inputs (Level 3) are used in the fair value measurement. Gains and losses in the table below include changes in fair value due partly to observable and unobservable factors. The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments hedging the related risks may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the impact of the derivative instruments reported in Level 3 may vary significantly from the total income effect of the hedged instruments. 

 Total Realized/Unrealized
 Gains (Losses) Included in

 Three Months Ended June 30, 2021

 Fair 
Value 
as
 of April 1,
 2021

 Net Income

 Other
 Comprehensive
 Income

 Purchases,
 Sales,
 Issuances and
 Settlements

 Transfers in
 and/or (out

 of) Level 3

 Fair Value as
 of June 30,
 2021

 Assets

 Debt securities

 Corporate securities

 $ 
 17.7 
 
 $ 
 1.2 
 
 $ 
 — 
 
 $ 
 4.9 
 
 $ 
 7.4 
 
 $ 
 31.2 
 
 Other asset-backed securities

 0.1 
 
 — 
 
 — 
 
 — 
 
 — 
 
 0.1 
 
 Equity securities

 101.5 
 
 8.9 
 
 — 
 
 ( 7.5 
 ) 
 
 0.3 
 
 103.2 
 
 Limited partnerships

 0.8 
 
 — 
 
 — 
 
 ( 0.1 
 ) 
 
 — 
 
 0.7 
 
 GMIB reinsurance recoverable

 266.0 
 
 1.2 
 
 — 
 
 — 
 
 — 
 
 267.2 
 
 Policy Loans

 3,486.1 
 
 69.9 
 
 — 
 
 ( 18.2 
 ) 
 
 — 
 
 3,537.8 
 
 Liabilities

 Embedded derivative liabilities

 $ 
 ( 869.6 
 ) 
 
 $ 
 ( 1,366.1 
 ) 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 ( 2,235.7 
 ) 

 Funds withheld payable under reinsurance treaties

 ( 3,485.9 
 ) 
 
 ( 584.6 
 ) 
 
 0.2 
 
 ( 11.2 
 ) 
 
 — 
 
 ( 4,081.5 
 ) 
 
 Total Realized/Unrealized
 Gains (Losses) Included in

 Three Months Ended June 30, 2020

 Fair Value as
 of April 1,
 2020

 Net Income

 Other
 Comprehensive
 Income

 Purchases,
 Sales,
 Issuances and
 Settlements

 Transfers in
 and/or (out
 of) Level 3

 Fair Value as
 of June 30,
 2020

 Assets

 Debt securities

 Corporate securities

 $ 
 45.8 
 
 $ 
 ( 6.2 
 ) 
 
 $ 
 — 
 
 $ 
 38.9 
 
 $ 
 ( 27.6 
 ) 
 
 $ 
 50.9 
 
 Equity securities

 154.7 
 
 ( 12.6 
 ) 
 
 — 
 
 ( 23.2 
 ) 
 
 ( 0.1 
 ) 
 
 118.8 
 
 Limited partnerships

 1.1 
 
 ( 0.2 
 ) 
 
 — 
 
 — 
 
 — 
 
 0.9 
 
 GMIB reinsurance recoverable

 502.1 
 
 ( 66.6 
 ) 
 
 — 
 
 — 
 
 — 
 
 435.5 
 
 Policy loans

 3,602.2 
 
 66.1 
 
 — 
 
 ( 63.3 
 ) 
 
 — 
 
 3,605.0 
 
 Liabilities

 Embedded derivative liabilities

 $ 
 ( 12,645.4 
 ) 
 
 $ 
 3,577.6 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 ( 9,067.8 
 ) 

 Funds withheld payable under reinsurance 
treaties

 ( 3,773.0 
 ) 
 
 ( 346.4 
 ) 
 
 1.2 
 
 62.9 
 
 — 
 
 ( 4,055.3 
 ) 
 
 42

 Table of Contents 
 
 Total Realized/Unrealized
 Gains (Losses) Included in

 Six Months Ended June 30, 2021

 Fair Value as
 of January 1,
 2021

 Net Income

 Other
 Comprehensive
 Income

 Purchases,
 Sales,
 Issuances and
 Settlements

 Transfers in
 and/or (out
 of) Level 3

 Fair Value as
 of June 30,
 2021

 Assets

 Debt securities

 Corporate securities

 $ 
 28.7 
 
 $ 
 1.8 
 
 $ 
 — 
 
 $ 
 5.7 
 
 $ 
 ( 5.0 
 ) 
 
 $ 
 31.2 
 
 Other asset-backed securities

 0.1 
 
 — 
 
 — 
 
 — 
 
 — 
 
 0.1 
 
 Equity securities

 103.6 
 
 6.8 
 
 — 
 
 ( 7.5 
 ) 
 
 0.3 
 
 103.2 
 
 Limited partnerships

 0.8 
 
 — 
 
 — 
 
 ( 0.1 
 ) 
 
 — 
 
 0.7 
 
 GMIB reinsurance recoverable

 340.4 
 
 ( 73.2 
 ) 
 
 — 
 
 — 
 
 — 
 
 267.2 
 
 Policy loans

 3,454.2 
 
 125.1 
 
 — 
 
 ( 41.5 
 ) 
 
 — 
 
 3,537.8 
 
 Liabilities

 Embedded derivative liabilities

 $ 
 ( 5,592.1 
 ) 
 
 $ 
 3,356.4 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 ( 2,235.7 
 ) 

 Funds withheld payable under reinsurance treaties

 ( 4,453.1 
 ) 
 
 329.7 
 
 1.8 
 
 40.1 
 
 — 
 
 ( 4,081.5 
 ) 
 
 Total Realized/Unrealized
 Gains (Losses) Included in

 Six Months Ended June 30, 2020

 Fair Value as

 of January 1,
 2020

 Net Income

 Other
 Comprehensive
 Income

 Purchases,
 Sales,
 Issuances and
 Settlements

 Transfers in
 and/or (out
 of) Level 3

 Fair Value as
 of June 30,
 2020

 Assets

 Debt securities

 Corporate securities

 $ 
 — 
 
 $ 
 ( 5.3 
 ) 
 
 $ 
 — 
 
 $ 
 17.3 
 
 $ 
 38.9 
 
 $ 
 50.9 
 
 Equity securities

 182.9 
 
 ( 33.1 
 ) 
 
 — 
 
 ( 30.9 
 ) 
 
 ( 0.1 
 ) 
 
 118.8 
 
 Limited partnerships

 1.1 
 
 ( 0.2 
 ) 
 
 — 
 
 — 
 
 — 
 
 0.9 
 
 GMIB reinsurance recoverable

 302.8 
 
 132.7 
 
 — 
 
 — 
 
 — 
 
 435.5 
 
 Policy loans

 3,585.8 
 
 120.9 
 
 — 
 
 ( 101.7 
 ) 
 
 — 
 
 3,605.0 
 
 Liabilities

 Embedded derivative liabilities

 $ 
 ( 2,790.4 
 ) 
 
 $ 
 ( 6,277.4 
 ) 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 ( 9,067.8 
 ) 

 Funds withheld payable under reinsurance treaties

 ( 3,760.3 
 ) 
 
 ( 402.2 
 ) 
 
 ( 1.4 
 ) 
 
 108.6 
 
 — 
 
 ( 4,055.3 
 ) 
 
 43

 Table of Contents 
 
 The components of the amounts included in purchases, sales, issuances and settlements for the three and six months ended June 30, 2021 and 2020 shown above are as follows (in millions): 

 Three Months Ended June 30, 2021

 Purchases

 Sales

 Issuances

 Settlements

 Total

 Assets

 Debt securities

 Corporate securities

 $ 
 5.2 
 
 $ 
 ( 0.3 
 ) 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 4.9 
 
 Equity securities

 — 
 
 ( 7.5 
 ) 
 
 — 
 
 — 
 
 ( 7.5 
 ) 

 Limited partnerships

 — 
 
 ( 0.1 
 ) 
 
 — 
 
 — 
 
 ( 0.1 
 ) 

 Policy loans

 — 
 
 — 
 
 8.1 
 
 ( 26.3 
 ) 
 
 ( 18.2 
 ) 

 Total

 $ 
 5.2 
 
 $ 
 ( 7.9 
 ) 
 
 $ 
 8.1 
 
 $ 
 ( 26.3 
 ) 
 
 $ 
 ( 20.9 
 ) 

 Liabilities

 Funds withheld payable under reinsurance treaties

 $ 
 — 
 
 $ 
 — 
 
 $ 
 ( 128.7 
 ) 
 
 $ 
 117.5 
 
 $ 
 ( 11.2 
 ) 
 
 Three Months Ended June 30, 2020

 Purchases

 Sales

 Issuances

 Settlements

 Total

 Assets

 Debt securities

 Corporate securities

 $ 
 39.0 
 
 $ 
 ( 0.1 
 ) 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 38.9 
 
 Equity securities

 1.6 
 
 ( 24.8 
 ) 
 
 — 
 
 — 
 
 ( 23.2 
 ) 

 Policy loans

 — 
 
 — 
 
 9.6 
 
 ( 72.9 
 ) 
 
 ( 63.3 
 ) 

 Total

 $ 
 40.6 
 
 $ 
 ( 24.9 
 ) 
 
 $ 
 9.6 
 
 $ 
 ( 72.9 
 ) 
 
 $ 
 ( 47.6 
 ) 

 Liabilities

 Funds withheld payable under reinsurance treaties

 $ 
 — 
 
 $ 
 — 
 
 $ 
 ( 10.0 
 ) 
 
 $ 
 72.9 
 
 $ 
 62.9 
 
 Six Months Ended June 30, 2021

 Purchases

 Sales

 Issuances

 Settlements

 Total

 Assets

 Debt securities

 Corporate securities

 $ 
 6.1 
 
 $ 
 ( 0.4 
 ) 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 5.7 
 
 Equity securities

 — 
 
 ( 7.5 
 ) 
 
 — 
 
 — 
 
 ( 7.5 
 ) 

 Limited partnerships

 — 
 
 ( 0.1 
 ) 
 
 — 
 
 — 
 
 ( 0.1 
 ) 

 Policy loans

 — 
 
 — 
 
 36.2 
 
 ( 77.7 
 ) 
 
 ( 41.5 
 ) 

 Total

 $ 
 6.1 
 
 $ 
 ( 8.0 
 ) 
 
 $ 
 36.2 
 
 $ 
 ( 77.7 
 ) 
 
 $ 
 ( 43.4 
 ) 

 Liabilities

 Funds withheld payable under reinsurance treaties

 $ 
 — 
 
 $ 
 — 
 
 $ 
 ( 211.2 
 ) 
 
 $ 
 251.3 
 
 $ 
 40.1 
 
 Six Months Ended June 30, 2020

 Purchases

 Sales

 Issuances

 Settlements

 Total

 Assets

 Debt securities

 Corporate securities

 $ 
 19.6 
 
 $ 
 ( 2.3 
 ) 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 17.3 
 
 Equity securities

 1.6 
 
 ( 32.5 
 ) 
 
 — 
 
 — 
 
 ( 30.9 
 ) 

 Policy loans

 — 
 
 — 
 
 51.7 
 
 ( 153.4 
 ) 
 
 ( 101.7 
 ) 

 Total

 $ 
 21.2 
 
 $ 
 ( 34.8 
 ) 
 
 $ 
 51.7 
 
 $ 
 ( 153.4 
 ) 
 
 $ 
 ( 115.3 
 ) 

 Liabilities

 Funds withheld payable under reinsurance treaties

 $ 
 — 
 
 $ 
 — 
 
 $ 
 ( 52.8 
 ) 
 
 $ 
 161.4 
 
 $ 
 108.6 
 
 For the three and six months ended June 30, 2021 and 2020, there were no transfers from Level 3 to NAV equivalent. For the three and six months ended June 30, 2021, transfers from Level 3 to Level 2 of the fair value hierarchy were $ 13.4 million and $ 22.9 million, respectively, and transfers from Level 2 to Level 3 were $ 21.1 
million and $ 18.2 million, respectively. For the three and six months ended June 30, 2020, transfers from Level 3 to Level 2 of the fair value hierarchy were 
 $ 27.7 million and
 $ 0.1 million, respectively, and transfers from Level 2 to Level 3 were nil and $ 38.9 million, respectively. 

 44

 Table of Contents 
 The portion of gains (losses) included in net income or other comprehensive income (“OCI”) attributable to the change in unrealized gains and losses on Level 3 financial instruments still held was as follows (in millions): 

 Three Months Ended June 30,

 2021

 2020

 Included in

 Net Income

 Included in

 OCI

 Included in

 Net Income

 Included in

 OCI

 Assets

 Debt securities

 Corporate securities

 $ 
 1.1 
 
 $ 
 — 
 
 $ 
 ( 5.9 
 ) 
 
 $ 
 — 
 
 Other asset-backed securities

 — 
 
 — 
 
 — 
 
 — 
 
 Equity securities

 8.9 
 
 — 
 
 ( 12.7 
 ) 
 
 — 
 
 Limited partnerships

 — 
 
 — 
 
 ( 0.2 
 ) 
 
 — 
 
 GMIB reinsurance recoverable

 1.2 
 
 — 
 
 ( 66.6 
 ) 
 
 — 
 
 Funds withheld reinsurance assets

 69.9 
 
 — 
 
 66.1 
 
 — 
 
 Liabilities

 Embedded derivative liabilities

 $ 
 ( 1,366.1 
 ) 
 
 $ 
 — 
 
 $ 
 3,577.6 
 
 $ 
 — 
 
 Funds withheld payable under reinsurance treaties

 ( 542.5 
 ) 
 
 — 
 
 ( 277.9 
 ) 
 
 — 
 
 Six Months Ended June 30,

 2021

 2020

 Included in

 Net Income

 Included in

 OCI

 Included in

 Net Income

 Included in

 OCI

 Assets

 Debt securities

 Corporate securities

 $ 
 1.7 
 
 $ 
 — 
 
 $ 
 ( 5.3 
 ) 
 
 $ 
 — 
 
 Other asset-backed securities

 — 
 
 — 
 
 — 
 
 — 
 
 Equity securities

 6.8 
 
 — 
 
 ( 33.0 
 ) 
 
 — 
 
 Limited partnerships

 — 
 
 — 
 
 ( 0.2 
 ) 
 
 — 
 
 GMIB reinsurance recoverable

 ( 73.2 
 ) 
 
 — 
 
 132.7 
 
 — 
 
 Funds withheld reinsurance assets

 125.1 
 
 — 
 
 120.9 
 
 — 
 
 Liabilities

 Embedded derivative liabilities

 $ 
 3,356.4 
 
 $ 
 — 
 
 $ 
 ( 6,277.4 
 ) 
 
 $ 
 — 
 
 Funds withheld payable under reinsurance treaties

 455.5 
 
 — 
 
 ( 280.5 
 ) 
 
 — 
 
 45

 Table of Contents 
 
 Fair Value of Financial Instruments Carried at Other Than Fair Value 

 The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value (in millions). 

 June 30, 2021

 December 31, 2020

 Fair Value

 Hierarchy
 Level

 Carrying

 Value

 Fair

 Value

 Carrying

 Value

 Fair

 Value

 Assets

 Mortgage loans

 Level 3 
 
 $ 
 11,649.1 
 
 $ 
 12,151.4 
 
 $ 
 10,727.5 
 
 $ 
 11,348.9 
 
 Policy loans

 Level 3 
 
 1,043.3 
 
 1,043.3 
 
 1,069.3 
 
 1,069.3 
 
 FHLB capital stock

 Level 1 
 
 125.4 
 
 125.4 
 
 125.4 
 
 125.4 
 
 Liabilities

 Annuity reserves (1)

 Level 3 
 
 $ 
 37,263.5 
 
 $ 
 45,325.8 
 
 $ 
 38,562.8 
 
 $ 
 46,929.7 
 
 Reserves for guaranteed investment contracts (2)

 Level 3 
 
 1,099.8 
 
 1,143.3 
 
 1,275.5 
 
 1,332.1 
 
 Trust instruments supported by funding agreements (2)

 Level 3 
 
 6,331.7 
 
 6,587.9 
 
 8,383.9 
 
 8,701.8 
 
 Federal Home Loan Bank funding agreements (2)

 Level 3 
 
 1,478.4 
 
 1,468.3 
 
 1,478.4 
 
 1,421.3 
 
 Funds withheld payable under reinsurance treaties

 Level 2 
 
 26,240.3 
 
 26,240.3 
 
 27,518.4 
 
 27,518.4 
 
 Debt- all other

 Level 2 
 
 317.7 
 
 397.7 
 
 322.0 
 
 412.3 
 
 Securities lending payable

 Level 2 
 
 23.5 
 
 23.5 
 
 13.3 
 
 13.3 
 
 Federal Home Loan Bank advances

 Level 2 
 
 250.0 
 
 250.0 
 
 380.0 
 
 380.0 
 
 Repurchase agreements

 Level 2 
 
 2,257.1 
 
 2,257.1 
 
 1,100.0 
 
 1,100.0 
 
 Separate account liabilities (3)

 Level 2 
 
 239,806.1 
 
 239,806.1 
 
 219,062.9 
 
 219,062.9 
 
 (1)

 Annuity reserves represent only the components of other contract holder funds that are considered to be financial instruments. 

 (2)

 Included as a component of other contract holder funds on the condensed consolidated balance sheets. 

 (3)

 The values of separate account liabilities are set equal to the values of separate account assets. 

 Fair Value Option 

 The Company has elected the fair value option for funds withheld assets, which are held as collateral for reinsurance, totaling $ 3,703.6 million and $ 3,622.0 million at June 30, 2021 and December 31, 2020, respectively, as previously discussed above. 

 PPM America is a related-party of Jackson. As necessary, Jackson seeds new collateralized loan obligation issuances, or new share classes within these funds, in order to develop the requisite track record prior to allowing investment by external parties. Jackson may sell its interest in the fund once opened to investment by external parties. The Company concluded that these funds are VIEs and that the Company is the primary beneficiary as they have both the power to direct the most significant activities of the VIE as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. As such, the assets within these funds are consolidated into Jackson’s statement of financial position. PPM elected the fair value option for debt securities within these funds, totaling $ 1,267.6 million and $ 1,108.9 million at June 30, 2021 and December 31, 2020, respectively. These debt securities are reflected on the Company’s condensed consolidated balance sheet as debt securities, at fair value under the fair value option. 

 Income and changes in unrealized gains and losses on other assets for which the Company has elected the fair value option are immaterial to the Company’s condensed consolidated financial statements. 

 46

 Table of Contents 
 
 6.

 Deferred Acquisition Costs 

 The balances of and changes in deferred acquisition costs were as follows (in millions): 

 Six Months Ended June 30,

 2021

 2020

 Balance, beginning of period

 $ 
 13,897.0 
 
 $ 
 12,336.8 
 
 Deferrals of acquisition costs

 400.3 
 
 351.5 
 
 Amortization related to:

 Operating amortization

 ( 94.4 
 ) 
 
 ( 175.1 
 ) 

 Non-operating amortization

 ( 453.1 
 ) 
 
 631.1 
 
 Write-off
 related to Athene transaction
 
 — 
 
 ( 625.8 
 ) 

 Total amortization (expense) benefit

 ( 547.5 
 ) 
 
 ( 169.8 
 ) 

 Unrealized investment (gains) 

 losses

 63.5 
 
 90.8 
 
 Balance, end of period

 $ 
 13,813.3 
 
 $ 
 12,609.3 
 
 7.

 Reinsurance 

 The Company assumes and cedes reinsurance from and to other insurance companies in order to limit losses from large exposures. However, if the reinsurer is unable to meet its obligations, the originating issuer of the coverage retains the liability. The Company reinsures certain of its risks to other reinsurers under a coinsurance, modified coinsurance, or yearly renewable term basis. The Company regularly monitors the financial strength ratings of its reinsurers. 

 The Company has also acquired certain lines of business that are wholly ceded to non-affiliates.
 These include both direct and assumed accident and health business, direct and assumed life insurance business, and certain institutional annuities. 
 As indicated in Note 1, on June 18, 2020, the Company’s subsidiary, Jackson, entered into a funds withheld coinsurance agreement with Athene effective June 1, 2020 to reinsure on 100 % quota share basis, a block of Jackson’s in-force
 fixed and fixed-index annuity product liabilities in exchange for a $ 1.2 billion ceding commission, which was subject to a post-closing adjustment. Jackson allocated investments with a statutory book value of approximately $ 25.6 billion in support of reserves associated with the transaction to a segregated custody account, which investments are subject to an investment management agreement between Jackson and Apollo Insurance Solutions Group, LP (“Apollo”), an Athene affiliate. To further support its obligations under the coinsurance agreement, Athene procured $ 1.2 billion in letters of credit for Jackson’s benefit and has established a trust account for Jackson’s benefit funded with assets with a book value of approximately $ 69.5 million. In September 2020, the post-closing settlement resulted in ceded premium of $ 6.3 million and a decrease of $ 28.5 million in ceding commission. 
 Pursuant to the Athene coinsurance agreement, the Company holds certain assets as collateral. At June 30, 2021 and December 31, 2020, assets held as collateral in the segregated custody account were $ 26.6 billion and $ 28.3 billion, respectively. 

 The Company’s GMIBs are reinsured with an unrelated party and due to the net settlement provisions of the reinsurance agreement, meet the definition of a derivative. Accordingly, the GMIB reinsurance agreement is recorded at fair value on the Company’s consolidated balance sheets, with changes in fair value recorded in net gains (losses) on derivatives and investments. GMIB reinsured benefits are subject to aggregate annual claim limits. Deductibles also apply on reinsurance of GMIB business issued since March 1, 2005. 

 The Company has three retro treaties with Swiss Reinsurance Company Ltd. (“SRZ”). Pursuant to these retro treaties, the Company ceded to SRZ on a 100 % coinsurance basis, subject to pre-existing
 reinsurance with other parties, certain blocks of business. These blocks of business include disability income and accident and health business, a mix of life and annuity insurance business, and corporate owned life insurance business. 
 
 47

 Table of Contents 
 
 The following assets and liabilities were held in support of reserves associated with the Company’s funds withheld reinsurance agreements and were reported in the respective financial statement line items in the condensed consolidated balance sheets (in millions): 

 June 30, 2021

 December 31, 2020

 Assets

 Debt securities

 $ 
 21,170.3 
 
 $ 
 24,642.4 
 
 Equity securities

 84.5 
 
 42.2 
 
 Mortgage loans

 4,389.6 
 
 2,985.5 
 
 Policy loans

 3,553.8 
 
 3,470.8 
 
 Derivative instruments, net

 13.4 
 
 ( 13.1 
 ) 

 Limited partnerships

 423.5 
 
 124.9 
 
 Cash and cash equivalents

 345.6 
 
 394.1 
 
 Accrued investment income

 175.6 
 
 190.3 
 
 Other assets and liabilities, net

 38.4 
 
 22.8 
 
 Total assets (2)

 $ 
 30,194.7 
 
 $ 
 31,859.9 
 
 Liabilities

 Funds held under reinsurance treaties (1)

 30,321.8 
 
 31,971.5 
 
 Total liabilities

 $ 
 30,321.8 
 
 $ 
 31,971.5 
 
 (1)

 Includes funds withheld embedded derivative of $ 372.9 million and $ 826.6 million at June 30, 2021 and December 31, 2020, respectively. 

 (2)

 Certain assets are reported at amortized cost while the fair value of those assets are reported in the embedded derivative in the funds withheld liability. 

 The sources of income related to funds withheld under reinsurance treaties reported in net investment income in the consolidated income statements were as follows (in millions): 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Debt securities

 $ 
 194.4 
 
 $ 
 67.7 
 
 $ 
 397.5 
 
 $ 
 71.9 
 
 Equity securities

 3.5 
 
 — 
 
 2.4 
 
 — 
 
 Mortgage loans

 43.4 
 
 10.5 
 
 78.0 
 
 10.5 
 
 Policy loans

 80.6 
 
 74.0 
 
 161.7 
 
 154.5 
 
 Limited partnerships

 ( 2.1 
 ) 
 
 — 
 
 0.6 
 
 — 
 
 Other investment income

 — 
 
 0.1 
 
 0.2 
 
 0.1 
 
 Total investment income on funds withheld assets

 319.8 
 
 152.3 
 
 640.4 
 
 237.0 
 
 Other investment expenses on funds withheld assets (1)

 ( 26.0 
 ) 
 
 ( 8.1 
 ) 
 
 ( 55.5 
 ) 
 
 ( 8.1 
 ) 

 Total net investment income on funds withheld reinsurance treaties

 $ 
 293.8 
 
 $ 
 144.2 
 
 $ 
 584.9 
 
 $ 
 228.9 
 
 (1)

 Includes management fees. 

 48

 Table of Contents 
 The gains and losses on funds withheld reinsurance treaties as a component of net gains (losses) on derivatives and investments in the condensed consolidated income statements were as follows (in millions): 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Available-for-sale

 securities
 
 Realized gains on sale

 $ 
 85.0 
 
 $ 
 1,598.1 
 
 $ 
 258.3 
 
 $ 
 1,598.1 
 
 Realized losses on sale

 ( 10.9 
 ) 
 
 ( 2.2 
 ) 
 
 ( 12.8 
 ) 
 
 ( 2.2 
 ) 

 Credit loss expense

 ( 0.5 
 ) 
 
 — 
 
 ( 0.5 
 ) 
 
 — 
 
 Gross impairments

 — 
 
 ( 1.6 
 ) 
 
 — 
 
 ( 1.6 
 ) 

 Credit loss expense on mortgage loans

 ( 11.6 
 ) 
 
 ( 17.7 
 ) 
 
 ( 4.6 
 ) 
 
 ( 17.7 
 ) 

 Other

 ( 3.1 
 ) 
 
 — 
 
 ( 12.1 
 ) 
 
 — 
 
 Net gains (losses) on non-derivative
 investments
 
 58.9 
 
 1,576.6 
 
 228.3 
 
 1,576.6 
 
 Net gains (losses) on derivative instruments

 2.3 
 
 ( 204.2 
 ) 
 
 19.3 
 
 ( 204.2 
 ) 

 Net gains (losses) on funds withheld payable under reinsurance treaties (1)

 ( 828.6 
 ) 
 
 ( 119.0 
 ) 
 
 ( 117.3 
 ) 
 
 ( 203.7 
 ) 

 Total net gains (losses) on derivatives and investments

 $ 
 ( 767.4 
 ) 
 
 $ 
 1,253.4 
 
 $ 
 130.3 
 
 $ 
 1,168.7 
 
 (1)

 Includes the Athene embedded derivative gain (loss) of $( 544.3 ) million and $ 453.7 million for the three and six months ended June 30, 2021, respectively, and $( 279.0 ) million for both the three and six months ended June 30, 2020. 

 While the economic benefits of the funds withheld assets flow to the respective reinsurers, Jackson retains physical possession and legal ownership of the investments supporting the reserves. Net Investment Income and Net Gains (Losses) on Derivatives and Investments related to the funds withheld assets are included in periodic settlements under the reinsurance agreements which results in the flow of returns on the assets to the reinsurers. Net gains (losses) on the funds withheld assets are increased or decreased by changes in the embedded derivative liability related to the Athene Reinsurance Agreement and also include (i) changes in the related funds withheld payable and (ii) amortization of the basis difference between book value and fair value of the investments as of the effective date of the reinsurance agreements. 

 Components of the Company’s reinsurance recoverable were as follows (in millions): 

 June 30,

 2021

 December 31,

 2020

 Reserves:

 Life

 $ 
 5,920.9 
 
 $ 
 5,963.9 
 
 Accident and health

 557.8 
 
 568.7 
 
 Guaranteed minimum income benefits

 267.2 
 
 340.3 
 
 Other annuity benefits (1)

 26,687.8 
 
 27,535.8 
 
 Claims liability and other

 813.0 
 
 860.8 
 
 Total

 $ 
 34,246.7 
 
 $ 
 35,269.5 
 
 (1)

 Other annuity benefits primarily attributable to fixed and fixed index annuities reinsured with Athene. 

 49

 Table of Contents 
 
 8.

 Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds 

 T
he following table sets forth the Company’s reserves for future policy benefits and claims payable balances (in millions): 

 June 30,
 2021

 December 31,
 2020

 Traditional life

 $ 
 4,358.8 
 
 $ 
 4,535.3 
 
 Guaranteed benefits (1)

 5,046.1 
 
 8,508.5 
 
 Claims payable

 1,029.8 
 
 1,109.5 
 
 Accident and health

 1,225.8 
 
 1,257.2 
 
 Group payout annuities

 5,077.2 
 
 5,220.3 
 
 Other

 823.4 
 
 859.3 
 
 Total

 $ 
 17,561.1 
 
 $ 
 21,490.1 
 
 (1)

 Primarily includes the embedded derivative liabilities related to the GMWB reserve. 

 For traditional life insurance contracts, which include term and whole life, reserves are determined using the net level premium method and assumptions as of the issue date or acquisition date as to mortality, interest rates, lapse and expenses plus provisions for adverse deviation. These assumptions are not unlocked unless the reserve is determined to be deficient. 

 The Company’s liability for future policy benefits also includes liabilities for guaranteed benefits related to certain nontraditional long-duration life and annuity contracts, which are further discussed in Note 9. 

 The following table sets forth the Company’s liabilities for other contract holder funds balances (in millions): 

 June 30,
 2021

 December 
31,
 2020 

 Interest-sensitive life

 $ 
 11,725.4 
 
 $ 
 11,835.5 
 
 Variable annuity fixed option

 10,168.2 
 
 10,609.6 
 
 Fixed annuity

 16,284.6 
 
 16,746.3 
 
 Fixed index annuity (1)

 13,809.6 
 
 14,209.2 
 
 GICs, funding agreements and FHLB advances

 8,910.0 
 
 11,137.8 
 
 Total

 $ 
 60,897.8 
 
 $ 
 64,538.4 
 
 (1)

 Includes the embedded derivative liabilities related to fixed index annuity of $ 1,489.9 million and $ 1,483.9 million at June 30, 2021 and December 31, 2020, respectively. 

 For interest-sensitive life contracts, liabilities approximate the policyholder’s account value, plus the remaining balance of the fair value adjustment related to previously acquired business, which is further discussed below. The liability for fixed index annuities is based on three components, 1) the imputed value of the underlying guaranteed host contract, 2) the fair value of the embedded option component of the contract, and 3) the liability for guaranteed benefits related to the optional lifetime income rider. For fixed annuities, variable annuity fixed option, and other investment contracts, as detailed in the above table, the liability is the policyholder’s account value, plus the unamortized balance of the fair value adjustment related to previously acquired business. At June 30, 2021, the Company had interest sensitive life business with minimum guaranteed interest rates ranging from 2.5 % to 6.0 % with a 4.68 % average guaranteed rate and fixed interest rate annuities with minimum guaranteed rates ranging from 1.0 % to 5.5 % and a 2.03 % average guaranteed rate. 

 The Company recorded a fair value adjustment at acquisition related to certain annuity and interest sensitive liability blocks of business to reflect the cost of the interest guarantees within the in-force
 liabilities, based on the difference between the guaranteed interest rate and an assumed new money guaranteed interest rate at acquisition. This adjustment was recorded in reserves for future policy benefits and claims payable. This reserve is reassessed at the end of each period, taking into account changes in the in-force
 block. Any resulting change in the reserve is recorded as a change in reserve through the condensed consolidated income statements. 
 
 50

 Table of Contents 
 
 At both June 30, 2021 and December 31, 2020, approximately 95 % of the Company’s annuity account values correspond to crediting rates that are at the minimum guaranteed interest rates. The following tables show the distribution of th e fixed int
erest rate annuities’ account values within the presented ranges of minimum guaranteed interest rates (in millions): 

 June 30, 2021

 Account Value

 Minimum

 Guaranteed Interest Rate

 Fixed

 Fixed Index

 Variable

 Total

 1.0%

 $ 
 124.5 
 
 $ 
 232.7 
 
 $ 
 6,097.2 
 
 $ 
 6,454.4 
 
 >1.0% - 2.0%

 59.6 
 
 1.5 
 
 226.5 
 
 287.6 
 
 >2.0% - 3.0%

 1,130.6 
 
 185.4 
 
 3,291.3 
 
 4,607.3 
 
 >3.0% - 4.0%

 607.6 
 
 — 
 
 — 
 
 607.6 
 
 >4.0% - 5.0%

 278.0 
 
 — 
 
 — 
 
 278.0 
 
 >5.0% - 5.5%

 72.2 
 
 — 
 
 — 
 
 72.2 
 
 Subtotal

 2,272.5 
 
 419.6 
 
 9,615.0 
 
 12,307.1 
 
 Ceded reinsurance

 12,529.5 
 
 13,390.0 
 
 — 
 
 25,919.5 
 
 Total

 $ 
 14,802.0 
 
 $ 
 13,809.6 
 
 $ 
 
 9,615.0 
 
 $ 
 38,226.6 
 
 December 31, 2020

 Account Value

 Minimum

 Guaranteed Interest Rate

 Fixed

 Fixed Index

 Variable

 Total

 1.0%

 $ 
 92.1 
 
 $ 
 164.5 
 
 $ 
 6,501.6 
 
 $ 
 6,758.2 
 
 >1.0% - 2.0%

 63.3 
 
 2.7 
 
 235.7 
 
 301.7 
 
 >2.0% - 3.0%

 1,162.1 
 
 189.9 
 
 3,356.6 
 
 4,708.6 
 
 >3.0% - 4.0%

 622.5 
 
 — 
 
 — 
 
 622.5 
 
 >4.0% - 5.0%

 280.3 
 
 — 
 
 — 
 
 280.3 
 
 >5.0% - 5.5%

 73.2 
 
 — 
 
 — 
 
 73.2 
 
 Subtotal

 2,293.5 
 
 357.1 
 
 10,093.9 
 
 12,744.5 
 
 Ceded reinsurance

 12,923.7 
 
 13,852.1 
 
 — 
 
 26,775.8 
 
 Total

 $ 
 15,217.2 
 
 $ 
 14,209.2 
 
 $ 
 10,093.9 
 
 $ 
 39,520.3 
 
 At June 30, 2021 and December 31, 2020, approximately 81 % and 80 %, respectively, of the Company’s interest sensitive life business account values correspond to crediting rates that are at the minimum guaranteed interest rates. The following table shows the distribution of the interest sensitive life business account values within the presented ranges of minimum guaranteed interest rates, excluding the business that is subject to the previously mentioned retro treaties (in millions): 

 June 30, 2021

 December 31, 2020

 Minimum

 Guaranteed Interest Rate

 Account Value - Interest Sensitive Life

 >2.0% - 3.0%

 $ 
 258.0 
 
 $ 
 269.6 
 
 >3.0% - 4.0%

 2,775.4 
 
 2,819.5 
 
 >4.0% - 5.0%

 2,439.9 
 
 2,488.2 
 
 >5.0% - 6.0%

 2,001.3 
 
 2,044.6 
 
 Subtotal

 7,474.6 
 
 7,621.9 
 
 Retro treaties

 4,250.8 
 
 4,213.6 
 
 Total

 $ 
 11,725.4 
 
 $ 
 11,835.5 
 
 The Company has established a $ 23.0 billion aggregate Global Medium Term Note program. Jackson National Life Global Funding was formed as a statutory business trust, solely for the purpose of issuing Medium Term Note instruments to institutional investors, the proceeds of which are deposited with the Company and secured by the issuance of funding agreements. The carrying values at June 30, 2021 and December 31, 2020 totaled $ 6.3 billion and $ 8.4 billion, respectively. 

 Those Medium Term Note instruments issued in a foreign currency have been hedged for changes in exchange rates using cross-currency swaps. The unrealized foreign currency gains and losses on those Medium Term Note instruments are included in the carrying value of the trust instruments supported by funding agreements. 

 51 

 Table of Contents 
 Trust instrument liabilities are adjusted to reflect the effects of foreign currency translation gains and losses using exchange rates as of the reporting date. Foreign currency translation gains and losses are included in net gains (losses) on derivatives and investments. 

 Jackson and Squire Re are members of the FHLBI primarily for the purpose of participating in the bank’s mortgage-collateralized loan advance program with short-term and long-term funding facilities. Advances are in the form of short-term or long-term notes or funding agreements issued to FHLBI. At both June 30, 2021 and December 31, 2020, the Company held $ 125.4 million of FHLBI capital stock, supporting $ 1.8 billion and $ 1.9 billion in funding agreements, short-term and long-term borrowing capacity at June 30, 2021 and December 31, 2020, respectively. 

 9.

 Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees 

 The Company issues variable contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (“traditional variable annuities”). The Company also issues variable annuity and life contracts through separate accounts where the Company contractually guarantees to the contract holder (“variable contracts with guarantees”) either a) return of no less than total deposits made to the account adjusted for any partial withdrawals, b) total deposits made to the account adjusted for any partial withdrawals plus a minimum return, or c) the highest account value on a specified anniversary date adjusted for any withdrawals following the contract anniversary. These guarantees include benefits that are payable in the event of death (guaranteed minimum death benefits, or “GMDB”), at annuitization (GMIB), upon the depletion of funds (GMWB) or at the end of a specified period (GMAB). 

 The assets supporting the variable portion of both traditional variable annuities and variable contracts with guarantees are carried at fair value and reported as summary total separate account assets with an equivalent summary total reported for separate account liabilities. Liabilities for guaranteed benefits are general account obligations and are reported in reserves for future policy benefits and claims payable. Amounts assessed against the contract holders for mortality, administrative, and other services are reported in revenue as fee income. Changes in liabilities for minimum guarantees are reported within death, other policy benefits and change in policy reserves within the condensed consolidated income statements with the exception of changes in embedded derivatives, which are included in net gains (losses) on derivatives and investments. Separate account net investment income, net investment realized and unrealized gains and losses, and the related liability changes are offset within the same line item in the condensed consolidated income statements. 

 52

 Table of Contents 
 
 At June 30, 2021 and December 31, 2020, the Company provided variable annuity contracts with guarantees, for which the net amount at risk is defined as the amount of guaranteed benefit in excess of current account value, as follows (dollars in millions): 

 June 30, 2021

 Minimum
 Return

 Account

 Value

 Net Amount at
 Risk

 Weighted
 Average
 Attained Age

 Average Period

 until Expected

 Annuitization

 Return of net deposits plus a minimum return

 GMDB

 0 - 6 
 
 % 
 
 $ 
 186,886.5 
 
 $ 
 2,078.7 
 
 68.5 years 
 
 GMWB - Premium only

 0 
 % 
 
 2,993.0 
 
 8.4 
 
 GMWB

 0 - 5 
 
 %* 
 
 249.9 
 
 8.5 
 
 GMAB - Premium only

 0 
 % 
 
 — 
 
 — 
 
 Highest specified anniversary account value minus withdrawals post-anniversary

 GMDB

 14,555.7 
 
 65.0 
 
 69.6 years 
 
 GMWB - Highest anniversary only

 3,783.6 
 
 31.6 
 
 GMWB

 663.5 
 
 47.7 
 
 Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary

 GMDB

 0 - 6 
 
 % 
 
 9,628.8 
 
 498.9 
 
 71.7 years 
 
 GMIB

 0 - 6 
 
 % 
 
 1,718.0 
 
 466.2 
 
 0.6 years 
 
 GMWB

 0 - 8 
 
 %* 
 
 175,081.0 
 
 4,174.3 
 
 December 31, 2020

 Minimum
 Return

 Account
 Value

 Net Amount at
 Risk

 Weighted

 Average

 Attained Age

 Average Period

 until Expected

 Annuitization

 Return of net deposits plus a minimum return

 GMDB

 0 - 6 
 
 % 
 
 $ 
 170,510.2 
 
 $ 
 2,339.5 
 
 67.3 years 
 
 GMWB - Premium only

 0 
 % 
 
 2,858.1 
 
 11.7 
 
 GMWB

 0 - 5 
 
 %* 
 
 247.5 
 
 10.8 
 
 GMAB - Premium only

 0 
 % 
 
 39.4 
 
 — 
 
 Highest specified anniversary account value minus withdrawals post-anniversary

 GMDB

 13,511.9 
 
 86.1 
 
 68.3 years 
 
 GMWB - Highest anniversary only

 3,459.2 
 
 41.1 
 
 GMWB

 646.0 
 
 55.4 
 
 Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary

 GMDB

 0 - 6 
 
 % 
 
 8,890.8 
 
 614.8 
 
 70.5 years 
 
 GMIB

 0 - 6 
 
 % 
 
 1,675.3 
 
 555.5 
 
 0.5 years 
 
 GMWB

 0 - 8 
 
 %* 
 
 159,856.9 
 
 5,655.7 
 
 *

 R a
nges shown based on simple interest. The upper limits of 5
% or 8
% simple interest are approximately equal to 4.1 % and 6 %, respectively, on a compound interest basis over a typical 
 10 -year

 bonus period. The combination GMWB category also includes benefits with a defined increase in the withdrawal percentage under 
 pre-defined

 non-market

 conditions. 

 53

 Table of Contents 
 A
mounts shown as GMWB above include a ‘not-for-life’

 component up to the point at which the guaranteed withdrawal benefit is exhausted, after which benefits paid are considered to be ‘for-life’
 benefits. The liability related to this ‘not-for-life’

 portion is valued as an embedded derivative, while the ‘for-life’
 benefits are valued as an insurance liability (see below). For this table, the net amount at risk of the ‘not-for-life’

 component is the undiscounted excess of the guaranteed withdrawal benefit over the account value, and that of the ‘for-life’
 component is the estimated value of additional life contingent benefits paid after the guaranteed withdrawal benefit is exhausted. 
 Account balances of contracts with guarantees were invested in variable separate accounts as follows (in millions): 

 June 30,

 December 31,

 2021

 2020

 Fund type:

 Equity

 $ 
 147,776.6 
 
 $ 
 132,213.0 
 
 Bond

 20,288.8 
 
 20,202.9 
 
 Balanced

 42,117.4 
 
 39,626.1 
 
 Money market

 1,745.0 
 
 1,861.6 
 
 Total

 $ 
 211,927.8 
 
 $ 
 193,903.6 
 
 GMDB liabilities reflected in the general account were as follows (in millions):

 Six Months Ended June 30,

 2021

 2020

 Balance as of beginning of period

 $ 
 1,418.2 
 
 $ 
 1,282.9 
 
 Incurred guaranteed benefits

 47.0 
 
 340.9 
 
 Paid guaranteed benefits

 ( 56.7 
 ) 
 
 ( 81.4 
 ) 

 Balance as of end of period

 $ 
 1,408.5 
 
 $ 
 1,542.4 
 
 The GMDB liability is determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the liability balance through the condensed consolidated income statement, within death, other policy benefits and change in policy reserves, if actual experience or other evidence suggests that earlier assumptions should be revised. 

 The following assumptions and methodology were used to determine the GMDB liability at both June 30, 2021 and December 31, 2020 (except where otherwise noted): 

 1) 
 Use of a series of stochastic investment performance scenarios, based on historical average market volatility. 

 2) 
 Mean investment performance assumption of 7.15 %, after investment management fees, but before external investment advisory fees and mortality and expense charges. 

 3) 
 Mortality equal to 38 % to 100 % of the IAM 2012 basic table improved using Scale G through 2019. 

 4) 
 Lapse rates varying by contract type, duration and degree the benefit is in-the-money

 and ranging from 0.3 % to 27.9 % (before application of dynamic adjustments). 
 
 5) 
 Discount rates: 7.15 % on 2020 and later issues, 7.4 % on 2013 through 2019 issues, 8.4 % on 2012 and prior issues. 

 Most GMWB reserves are considered to be derivatives under current accounting guidance and are recognized at fair value, as previously defined, with the change in fair value reported in net income (as net gains (losses) on derivatives and investments). The fair value of these liabilities is determined using stochastic modeling and inputs as further described in Note 5. The fair valued GMWB had a reserve liability of $ 2,235.7 million and $ 5,592.1 million at June 30, 2021 and December 31, 2020, respectively, and was reported in reserves for future policy benefits and claims payable. 

 T
he Company has also issued certain GMWB products that guarantee payments over a lifetime. Reserves for the portion of these benefits after the point where the guaranteed withdrawal balance is exhausted are calculated using assumptions and methodology similar to the GMDB liability. At June 30, 2021 and December 31, 2020, these GMWB reserves totaled

 54 

 Table of Contents 
 $ 185.6 million and $ 181.3 million, respectively, and were reported in reserves for future policy benefits and claims payable. 

 GMAB benefits were offered on some variable annuity plans. However, the Company no longer offers these benefits and all have expired as of June 30, 2021. The GMAB had an asset value that was immaterial to the consolidated financial statements at December 31, 2020. 

 The direct GMIB liability is determined at each period end by estimating the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating the direct GMIB liability are consistent with those used for calculating the GMDB liability. At June 30, 2021 and December 31, 2020, GMIB reserves before reinsurance totaled $ 76.4 million and $ 86.9 million, respectively. 

 Other Liabilities – Insurance and Annuitization Benefits 

 The Company has established additional reserves for life insurance business for universal life plans with secondary guarantees, interest-sensitive life plans that exhibit “profits followed by loss” patterns and account balance adjustments to tabular guaranteed cash values on one interest-sensitive life plan. 

 Liabilities for these benefits have been established according to the methodologies described below: 

 June 30, 2021

 December 31, 2020

 Benefit Type

 Liability
 (in millions) 
 
 Net Amount
 at Risk
 (in millions) 
 
 Weighted
 Average
 Attained Age 
 
 Liability
 (in millions) 
 
 Net Amount
 at Risk
 (in millions) 
 
 Weighted
 Average
 Attained
 Age 
 
 Insurance benefits *

 $ 
 935.0 
 
 $ 
 19,032.3 
 
 63.9 years 
 
 $ 
 939.6 
 
 $ 
 19,483.0 
 
 63.5 years 
 
 Account balance adjustments

 136.7 
 
 N/A 
 
 N/A 
 
 133.6 
 
 N/A 
 
 N/A 
 
 * 
 Amounts for the universal life benefits are for the total of the plans containing any policies having projected non-zero
 excess benefits, and thus may include some policies with zero projected excess benefits. 
 
 The following assumptions and methodology were used to determine the universal life insurance benefit liability for the periods referenced in the table above: 

 1) 
 Use of a series of deterministic premium persistency scenarios. 

 2) 
 Other experience assumptions similar to those used in amortization of deferred acquisition costs. 

 3) 
 Discount rates equal to credited interest rates, approximately 3.0 % to 5.5 % at both June 30, 2021 and December 31, 2020. 

 The Company also has a small closed block of two-tier
 annuities, where different crediting rates are used for annuitization and surrender benefit calculations. A liability is established to cover future annuitization benefits in excess of surrender values, and was immaterial to the condensed consolidated financial statements at both June 30, 2021 and December 31, 2020. The Company also offers an optional lifetime income rider with certain of its fixed index annuities. The liability established for this rider before reinsurance was $ 26.2 million and $ 18.1 

million at June 30, 2021 and December 31, 2020, respectively. 
 
 10.

 Debt 

 The aggregate carrying value of borrowings was as follows (in millions): 

 June 30,

 December 31,

 2021

 2020

 Surplus note s

 $

 249.7 
 
 $

 249.7 
 
 FHLBI bank loans

 68.0 
 
 72.3 
 
 Total

 $

 317.7 
 
 $

 322.0 
 
 55 

 Table of Contents 
 A
t June 30, 2021, the above borrowings were all due after five years. 

 On February 22, 2021, the Company entered into loan facilities including a $ 1.0 

 billion revolving credit facility (the “Revolving Facility”), a $ 1.7 billion senior unsecured delayed draw term loan facility that matures in May 2022 (the “2022 DDTL Facility”) and the $ 1.0 billion senior unsecured delayed draw term loan facility that matures in February 2023 (the “2023 DDTL Facility”, and together with the Revolving Facility and the 2022 DDTL Facility, the “Credit Facilities”) with a syndicate of banks. The Revolving Facility provides liquidity backstop after separation from Prudential, and the delayed draw term loans will be used for general corporate purposes, including liquidity at the holding company and capitalization of the insurance subsidiaries. On September 10, 2021, we borrowed an aggregate principal amount of $

 2.35 
 billion
 
 as follows: $ 1.6 billion under the 2022 DDTL Facility and $ 750 million under the 2023 DDTL Facility. Under the terms of the credit agreement for the DDTL Facilities, subject to certain exceptions, 100% of the net cash proceeds from any debt issuance, preferred equity issuance or hybrid instrument issuance by us or our subsidiaries is required to be applied (i) first to prepay the then outstanding principal amount and accrued interest thereon, if any, under the 2022 DDTL Facility (ii) thereafter, to prepay the then outstanding principal amount and accrued interest thereon, if any, under the 2023 DDTL Facility.

 Surplus Notes 

 Under Michigan Insurance Law, for statutory reporting purposes, the surplus notes are not part of the legal liabilities of the Company and are considered surplus funds. Payments of interest or principal may only be made with the prior approval of the commissioner of insurance of the state of Michigan and only out of surplus earnings which the commissioner determines to be available for such payments under Michigan Insurance Law. 

 On March 15, 1997, the Company, through its subsidiary, Jackson, issued 8.15 % surplus notes in the principal amount of $ 250.0 million due March 15, 2027 . These surplus notes were issued pursuant to Rule 144A under the Securities Act of 1933, and are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims and may not be redeemed at the option of the Company or any holder prior to maturity. Interest is payable semi-annually on March 15th and September 15th of each year. Interest expense on the notes was $ 5.1 million and $ 10.2 million for both the three and six months ended June 30, 2021 and 2020, respectively. 

 On November 6, 2019, the Company, through its subsidiary, Brooke Life, issued a 4.5 % surplus note payable to its ultimate parent, Prudential, plc, in the principal amount of $ 2.0 billion due November 6, 2059 . In exchange, the Company remitted a return of capital of $ 2.0 billion to Prudential, plc. In June 2020, Prudential transferred this note to the Company’s newly formed subsidiary, Jackson Finance, LLC (“Jackson Finance”). As settlement, the Company issued shares as further described in Note 18. As a result of the transfer, this note is considered intercompany and is eliminated in consolidation. This surplus note was issued pursuant to Rule 144A under the Securities Act of 1933, and is unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims. This note may be redeemed subject to prior approval of the Michigan Department of Insurance and Financial Services and at the mutual agreement of the Company and the holder after the thirtieth anniversary of the note’s issuance. Interest is payable semi-annually on March 15th and September 15th of each year. Interest expense on the notes was $ 18.5 million and $ 41.0 million for the three and six months ended June 30, 2020. 

 Federal Home Loan Bank Loans 

 The Company received loans of $ 50.0 million from the FHLBI under its community investment program in both 2015 and 2014, which amortize on a straight line basis over the loan term. The weighted average interest rate on these loans was 0.10 % and 0.80 % for the for the six months ended June 30, 2021 and 2020. 

 The outstanding balance on these loans was $ 68.1 million and $ 72.3 million at June 30, 2021 and December 31, 2020, respectively. At June 30, 2021, the loans were collateralized by mortgage-related securities and commercial mortgage loans with a carrying value of $ 92.9 million. 

 Bank Loan 

 On November 7, 2019, the Company, issued a $ 350.0 million short-term note payable to Standard Chartered Bank, which was guaranteed by the Company’s ultimate parent, Prudential, plc. In exchange, the Company paid a dividend of $ 350.0 

 56 

 Table of Contents 
 million to Prudential. This note accrued interest at LIBOR plus 0.20 
% per annum and was due November 7, 2020 . In 2020, the Company transferred this note, plus all outstanding interest due, to Prudential and in turn the Company issued shares as further described in Note 18. Interest expense on the notes was $ 1.7 million and $ 3.6 million for the three and six months ended June 30, 2020, respectively. 

 11.

 Federal Home Loan Bank Advances 

 The Company, through its subsidiary, Jackson, entered into a short-term advance program with the FHLBI in which interest rates were either fixed or variable based on the FHLBI cost of funds or market rates. Advances of $ 250.0 million and $ 380.0 million were outstanding at June 30, 2021 and December 31, 2020, respectively, and were recorded in other liabilities. 

 12.

 Income Taxes 

 On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law and included a tax provision allowing a five-year carryback of net operating losses for years 2018 through 2020. As a result of this provision, the Company recognized a tax expense of $ 33.0 million and a benefit of $ 16.3 million for the three and six months ended June 30, 2020, respectively. On June 18, 2020, the Company’s subsidiary announced the funds withheld coinsurance agreement with Athene effective June 1, 2020. As a result of the impact on forecasted taxable earnings the Company recorded a $ 33.0 million reduction to the impact of the CARES Act during the three months ended June 30, 2020. 

 The Company uses the estimated annual effective tax rate (“ETR”) method in computing the interim tax provision. Certain items, including those deemed unusual, infrequent, or that cannot be reliably estimated, are treated as discrete items and excluded from the estimated annual ETR. The actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual ETR, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions and are recorded in the period in which the change occurs. The estimated annual ETR is revised, as necessary, at the end of successive interim reporting periods. 

 The Company’s effective income tax rate
 
 was 9.2 % for the three months ended June 30, 2021, compared with 12.8 % for the same period in 2020. The Company’s effective income tax rate
 
 was 18.2 % for the six months ended June 30, 2021, compared with 24.4 % 

 for the same period in 2020. The reduction in the effective tax rate for the three and six months ended June 30, 2021 was due to the relationship of income subject to tax compared to consolidated income before taxes and the impact of the CARES Act. The effective tax rate differs from the statutory rate of 21 % primarily due to the dividends received deduction and utilization of tax credits. 
 The effective tax rate of 18.2 % for the six months ended June 30, 2021 differs from the effective tax rate of 34.3 % for the full year-ended December 31, 2020 due to the relationship of income subject to tax compared to consolidated income and losses before taxes, and for 2020, the impact of the CARES Act and tax true-ups related to prior years. 
 
 13.

 Segment Information 

 The Company has three reportable segments consisting of Retail Annuities, Institutional Products, Closed Life and Annuity Block, plus its Corporate and Other segment. These segments reflect the manner by which the Company’s chief operating decision maker views and manages the business. The following is a brief description of the Company’s reportable segments. 

 Retail Annuities 

 The Company’s Retail Annuities segment offers a variety of retirement income and savings products through its diverse suite of products, consisting primarily of variable annuities, fixed index annuities, and fixed annuities. These products are distributed through various wirehouses, insurance brokers and independent broker-dealers, as well as through banks and financial institutions, primarily to high net worth investors and the mass and affluent markets. 

 The Company’s variable annuities, represent an attractive option for retirees and soon-to-be

 retirees, providing access to equity market appreciation and add-on
 benefits, including guaranteed lifetime income. A fixed index annuity is designed 
 
 57 

 Table of Contents 
 for investors who desire principal protection with the opportunity to participate in capped upside investment returns linked to a reference market index. The Company also provides access to guaranteed lifetime income as an add-on
 benefit. A fixed annuity is a guaranteed product designed to build wealth without market exposure, through a crediting rate that is likely to be superior to interest rates offered from banks or money market funds. 
 The financial results of the variable annuity business within the Company’s Retail Annuities segment are largely dependent on the performance of the contract holder account value, which impacts both the level of fees collected and the benefits paid to the contract holder. The financial results of the Company’s fixed annuities, including the fixed portion of its variable annuity account values and fixed index annuities, are largely dependent on the Company’s ability to earn a spread between earned investment rates on general account assets and the interest credited to contract holders. 

 Institutional Products 

 The Company’s Institutional Products consist of traditional GICs, funding agreements (including agreements issued in conjunction with the Company’s participation in the U.S. Federal Home Loan Bank of Indianapolis program) and medium-term note funding agreements. The Company’s GIC products are marketed to defined contribution pension and profit sharing retirement plans. Funding agreements are marketed to institutional investors, including corporate cash accounts and securities lending funds, as well as money market funds, and are issued to the FHLBI in connection with its program. 

 The financial results of the Company’s institutional products business are primarily dependent on the Company’s ability to earn 
spreads on general account assets. 

 Closed Life and Annuity Blocks 

 Although the Company historically offered traditional life insurance products, it discontinued new sales of life insurance products in 2012. The Company’s Closed Life and Annuity Blocks segment includes life insurance products offered through that point, including various protection products, such as whole life, universal life, variable universal life and term life insurance products that provide financial safety for individuals and their families. This segment distributed these products primarily through independent insurance agents; independent broker-dealers; regional broker-dealers; wirehouses; registered investment advisers; and banks, credit unions and other financial institutions, primarily to the mass market. This segment also includes acquired closed blocks consisting primarily of life insurance. 

 The Company’s Closed Life and Annuity Blocks segment also includes group pay-out
 annuities, consisting of a closed block of defined benefit annuity plans assumed from John Hancock USA and John Hancock Life Insurance Company of New York through a reinsurance agreement. A single premium payment from an employer (contract holder) funds the pension benefits for its employees (participants). The contracts are tailored to meet the requirements of the specific pension plan being covered. 
 The profitability of the Company’s Closed Life and Annuity Blocks segment is largely driven by its historical ability to appropriately price its products and purchase appropriately priced blocks of business, as realized through underwriting, expense and net gains (losses) on derivatives and investments, and the ability to earn an assumed rate of return on the assets supporting that business. 

 Corporate and Other 

 The Company’s Corporate and Other segment primarily consists of the operations of its investment management company, VIE’s and unallocated corporate income and expenses. The Corporate and Other segment also includes certain eliminations and consolidation adjustments. 

 Segment Performance Measurement 

 Segment operating revenues and pretax adjusted operating earnings are non-GAAP
 financial measures that management believes are critical to the evaluation of the financial performance of the Company’s segments. The Company uses the same accounting policies and procedures to measure segment pretax adjusted operating earnings as used in its reporting of consolidated net income. Its primary measure is pretax adjusted operating earnings, which is defined as net income recorded in accordance with GAAP, excluding certain items that may be highly variable from period to period due to 

 58 

 Table of Contents 
 accounting treatment under GAAP, or that are non-recurring
 in nature, as well as certain other revenues and expenses which are not considered to drive underlying profitability. Operating revenues and pretax adjusted operating earnings should not be used as a substitute for net income as calculated in accordance with GAAP. 
 Pretax adjusted operating earnings equals net income adjusted to eliminate the impact of the following items: 

 • 
 
 Fees attributable to guarantee benefits: fees paid in conjunction with guaranteed benefit features offered for certain of the Company’s variable annuities and fixed index annuities are set at a level intended to mitigate the cost of hedging and funding the liabilities associated with such guaranteed benefit features. The full amount of the fees attributable to guarantee benefit features have been excluded from pretax adjusted operating earnings as the related net movements in freestanding derivatives and net reserve and embedded derivative movements, as described below, have been excluded from pretax adjusted operating earnings. This presentation of earnings is intended to directly align revenue and related expenses associated with the guaranteed benefit features; 

 • 
 
 Net movement in freestanding derivatives, except earned income (periodic settlements and changes in settlement accruals) on derivatives that are hedges of investments, but do not qualify for hedge accounting treatment: changes in the fair value of freestanding derivatives used to manage the risk associated with life and annuity reserves, including those arising from the guaranteed benefit features offered for certain variable annuities and fixed index annuities. Net movements in freestanding derivatives have been excluded from pretax adjusted operating earnings because the market value of these derivatives may vary significantly from period to period as a result of near-term market conditions and therefore are not directly comparable or reflective of the underlying profitability of the business; 

 • 
 
 Net reserve and embedded derivative movements: changes in the valuation of certain life and annuity reserves, a portion of which are accounted for as embedded derivative instruments and which primarily comprise of variable and fixed index annuity reserves, including those guaranteed benefit features offered for certain of the Company’s variable annuities. Net reserve and embedded derivative movements have been excluded from pretax adjusted operating earnings because the carrying values of these derivatives may vary significantly from period to period as the result of near-term market conditions and policyholder behavior-related inputs and therefore are not directly comparable or reflective of the underlying profitability of the business. Movements in reserves attributable to the current period claims and benefit payments in excess of a customer’s account value on these policies are also excluded from pretax adjusted operating earnings as these benefit payments are affected by near-term market conditions and policyholder behavior-related inputs and therefore may vary significantly from period to period; 

 • 
 
 Net Realized Investment Gains and Losses including change in fair value of funds withheld embedded derivative: Realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio, as well as impairments of securities, after adjustment for the non-credit
 component of the impairment charges and change in fair value of funds withheld embedded derivative related to the Athene Reinsurance transaction; 
 
 • 
 
 DAC and DSI impact: amortization of deferred acquisition costs and deferred sales inducements associated with the items excluded from pretax adjusted operating earnings; 

 • 
 
 Net investment income on funds withheld assets: Includes net investment income on funds withheld assets related to the reinsurance transaction; 

 • 
 
 Other items: one-time
 or other non-recurring
 items, such as costs relating to the Company’s separation from its parent, Prudential, the impact of discontinued operations and investments that are consolidated on the financial statements due to U.S. GAAP accounting requirements, such as investments in collateralized loan obligations, but for which the consolidation effects are not aligned with the Company’s economic interest or exposure to those entities; and 
 
 • 
 
 Income taxes. 

 As detailed above, the fees attributed to guaranteed benefits, the associated movements in optional guaranteed benefit liabilities, and related claims and benefit payments are excluded from pretax adjusted operating earnings, as the Company believes this approach appropriately removes the impact to both revenue and expenses associated with the guaranteed benefit features that are offered for certain variable annuities and fixed index annuities. 

 59

 Table of Contents 
 
 Set forth in the tables below is certain information with respect to the Company’s segments, as described above (in millions): 

 Three Months Ended June 30, 2021

 Retail
 Annuities 
 
 Closed Life
 and
 Annuity
 Blocks 
 
 Institutional
 Products 
 
 Corporate
 and
 Other 
 
 Intersegment
 Eliminations 
 
 Total
 Consolidated 
 
 Operating Revenues

 Fee income

 $ 
 1,050.0 
 
 $ 
 122.8 
 
 $ 
 — 
 
 $ 
 33.3 
 
 $ 
 ( 14.5 
 ) 
 
 $ 
 1,191.6 
 
 Premium

 — 
 
 33.8 
 
 — 
 
 — 
 
 — 
 
 33.8 
 
 Net investment income

 143.6 
 
 204.9 
 
 56.7 
 
 ( 8.5 
 ) 
 
 48.4 
 
 445.1 
 
 Income on operating derivatives

 14.6 
 
 17.5 
 
 — 
 
 8.1 
 
 — 
 
 40.2 
 
 Other income

 12.0 
 
 12.0 
 
 — 
 
 6.4 
 
 — 
 
 30.4 
 
 Total Operating Revenues

 1,220.2 
 
 391.0 
 
 56.7 
 
 39.3 
 
 33.9 
 
 1,741.1 
 
 Operating Benefits and Expenses

 Death, other policy benefits and change in policy reserves, net of deferrals

 11.5 
 
 191.5 
 
 — 
 
 — 
 
 — 
 
 203.0 
 
 Interest credited on other contract holder funds, net of deferrals

 66.3 
 
 103.0 
 
 48.2 
 
 — 
 
 — 
 
 217.5 
 
 Interest expense

 5.6 
 
 — 
 
 1.0 
 
 — 
 
 — 
 
 6.6 
 
 Operating costs and other expenses, net of deferrals

 484.6 
 
 37.9 
 
 1.2 
 
 50.5 
 
 — 
 
 574.2 
 
 Deferred acquisition and sales inducements amortization

 ( 31.0 
 ) 
 
 2.2 
 
 — 
 
 — 
 
 7.8 
 
 ( 21.0 
 ) 

 Total Operating Benefits and Expenses

 537.0 
 
 334.6 
 
 50.4 
 
 50.5 
 
 7.8 
 
 980.3 
 
 Pretax Adjusted Operating Earnings

 $ 
 683.2 
 
 $ 
 56.4 
 
 $ 
 6.3 
 
 $ 
 ( 11.2 
 ) 
 
 $ 
 26.1 
 
 $ 
 760.8 
 
 Three Months Ended June 30, 2020

 Retail
 Annuities 
 
 Closed Life
 and
 Annuity
 Blocks 
 
 Institutional
 Products 
 
 Corporate
 and
 Other 
 
 Intersegment
 Eliminations 
 
 Total
 Consolidated 
 
 Operating Revenues

 Fee income

 $ 
 792.2 
 
 $ 
 128.5 
 
 $ 
 — 
 
 $ 
 43.0 
 
 $ 
 ( 21.5 
 ) 
 
 $ 
 942.2 
 
 Premium

 — 
 
 24.0 
 
 — 
 
 — 
 
 — 
 
 24.0 
 
 Net investment income

 230.1 
 
 105.8 
 
 84.5 
 
 ( 61.0 
 ) 
 
 42.8 
 
 402.2 
 
 Income on operating derivatives

 14.7 
 
 10.5 
 
 — 
 
 5.3 
 
 — 
 
 30.5 
 
 Other income

 4.4 
 
 12.3 
 
 — 
 
 1.2 
 
 — 
 
 17.9 
 
 Total Operating Revenues

 1,041.4 
 
 281.1 
 
 84.5 
 
 ( 11.5 
 ) 
 
 21.3 
 
 1,416.8 
 
 Operating Benefits and Expenses

 Death, other policy benefits and change in policy reserves, net of deferrals

 9.5 
 
 256.8 
 
 — 
 
 — 
 
 — 
 
 266.3 
 
 Interest credited on other contract holder funds, net of deferrals

 173.8 
 
 106.3 
 
 62.8 
 
 — 
 
 — 
 
 342.9 
 
 Interest expense

 7.0 
 
 — 
 
 4.2 
 
 20.2 
 
 — 
 
 31.4 
 
 Operating costs and other expenses, net of deferrals

 406.2 
 
 36.6 
 
 1.3 
 
 54.1 
 
 — 
 
 498.2 
 
 Deferred acquisition and sales inducements amortization

 ( 241.3 
 ) 
 
 4.0 
 
 — 
 
 — 
 
 5.9 
 
 ( 231.4 
 ) 

 Total Operating Benefits and Expenses

 355.2 
 
 403.7 
 
 68.3 
 
 74.3 
 
 5.9 
 
 907.4 
 
 Pretax Adjusted Operating Earnings

 $ 
 686.2 
 
 $ 
 ( 122.6 
 ) 
 
 $ 
 16.2 
 
 $ 
 ( 85.8 
 ) 
 
 $ 
 15.4 
 
 $ 
 509.4 
 
 60 

 Table of Contents 
 
 Six Months Ended June 30, 2021

 Retail
 Annuities 
 
 Closed Life
 and
 Annuity
 Blocks 
 
 Institutional
 Products 
 
 Corporate
 and
 Other 
 
 Intersegment
 Eliminations 
 
 Total
 Consolidated 
 
 Operating Revenues

 Fee income

 $ 
 2,045.7 
 
 $ 
 248.0 
 
 $ 
 — 
 
 $ 
 68.9 
 
 $ 
 ( 29.7 
 ) 
 
 $ 
 2,332.9 
 
 Premium

 — 
 
 71.3 
 
 — 
 
 — 
 
 — 
 
 71.3 
 
 Net investment income

 348.7 
 
 461.4 
 
 120.4 
 
 ( 44.6 
 ) 
 
 97.1 
 
 983.0 
 
 Income on operating derivatives

 28.6 
 
 37.7 
 
 — 
 
 12.4 
 
 — 
 
 78.7 
 
 Other income

 23.6 
 
 21.7 
 
 — 
 
 8.3 
 
 — 
 
 53.6 
 
 Total Operating Revenues

 2,446.6 
 
 840.1 
 
 120.4 
 
 45.0 
 
 67.4 
 
 3,519.5 
 
 Operating Benefits and Expenses

 Death, other policy benefits and change in policy reserves, net of deferrals

 17.5 
 
 412.7 
 
 — 
 
 — 
 
 — 
 
 430.2 
 
 Interest credited on other contract holder funds, net of deferrals

 133.6 
 
 206.6 
 
 99.8 
 
 — 
 
 — 
 
 440.0 
 
 Interest expense

 10.8 
 
 — 
 
 1.9 
 
 — 
 
 — 
 
 12.7 
 
 Operating costs and other expenses, net of deferrals

 960.0 
 
 78.6 
 
 2.5 
 
 106.4 
 
 — 
 
 1,147.5 
 
 Deferred acquisition and sales inducements amortization

 73.2 
 
 7.0 
 
 — 
 
 — 
 
 14.9 
 
 95.1 
 
 Total Operating Benefits and Expenses

 1,195.1 
 
 704.9 
 
 104.2 
 
 106.4 
 
 14.9 
 
 2,125.5 
 
 Pretax Adjusted Operating Earnings

 $
 
 1,251.5 
 
 $
 
 135.2 
 
 $
 
 16.2 
 
 $
 
 ( 61.4 
 
 ) 
 
 $
 
 52.5 
 
 $
 
 1,394.0 
 
 Six Months Ended June 30, 2020

 Retail
 Annuities 
 
 Closed Life
 and
 Annuity
 Blocks 
 
 Institutional
 Products 
 
 Corporate
 and
 Other 
 
 Intersegment
 Eliminations 
 
 Total
 Consolidated 
 
 Operating Revenues

 Fee income

 $ 
 1,649.7 
 
 $ 
 258.5 
 
 $ 
 — 
 
 $ 
 87.1 
 
 $ 
 ( 45.0 
 ) 
 
 $ 
 1,950.3 
 
 Premium

 — 
 
 93.9 
 
 — 
 
 — 
 
 — 
 
 93.9 
 
 Net investment income

 626.8 
 
 298.3 
 
 196.8 
 
 ( 77.4 
 ) 
 
 77.2 
 
 1,121.7 
 
 Income on operating derivatives

 25.7 
 
 17.8 
 
 — 
 
 8.5 
 
 — 
 
 52.0 
 
 Other income

 4.5 
 
 5.7 
 
 1.6 
 
 2.3 
 
 — 
 
 14.1 
 
 Total Operating Revenues

 2,306.7 
 
 674.2 
 
 198.4 
 
 20.5 
 
 32.2 
 
 3,232.0 
 
 Operating Benefits and Expenses

 Death, other policy benefits and change in policy reserves, net of deferrals

 17.8 
 
 405.5 
 
 — 
 
 — 
 
 — 
 
 423.3 
 
 Interest credited on other contract holder funds, net of deferrals

 398.0 
 
 214.6 
 
 136.4 
 
 — 
 
 — 
 
 749.0 
 
 Interest expense

 15.8 
 
 — 
 
 12.8 
 
 44.6 
 
 — 
 
 73.2 
 
 Operating costs and other expenses, net of deferrals

 849.3 
 
 76.3 
 
 2.6 
 
 92.8 
 
 — 
 
 1,021.0 
 
 Deferred acquisition and sales inducements amortization

 163.8 
 
 7.8 
 
 — 
 
 — 
 
 9.1 
 
 180.7 
 
 Total Operating Benefits and Expenses

 1,444.7 
 
 704.2 
 
 151.8 
 
 137.4 
 
 9.1 
 
 2,447.2 
 
 Pretax Adjusted Operating Earnings

 $ 
 862.0 
 
 $ 
 ( 30.0 
 ) 
 
 $ 
 46.6 
 
 $ 
 ( 116.9 
 ) 
 
 $ 
 23.1 
 
 $ 
 784.8 
 
 Included in the intersegment eliminations in the above tables, is the elimination from fee income and investment income of investment fees paid by Jackson to PPM , and the elimination of investment income between Retail Annuities and the Corporate and Other segments. 

 61 

 Table of Contents 
 The following table summarizes the reconciling items from the non-GAAP
 measure of operating revenues to the GAAP measure of total revenues attributable to the Company (in millions): 
 
 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Total operating revenues

 $ 
 1,741.1 
 
 $ 
 1,416.8 
 
 $ 
 3,519.5 
 
 $ 
 3,232.0 
 
 Fees attributed to variable annuity benefit reserves

 701.0 
 
 617.7 
 
 1,372.6 
 
 1,224.6 
 
 Net gains (losses) on derivatives and investments

 ( 2,560.9 
 ) 
 
 ( 4,401.9 
 ) 
 
 106.2 
 
 ( 2,065.1 
 ) 

 Net investment income related to noncontrolling interests

 56.1 
 
 ( 53.7 
 ) 
 
 124.4 
 
 ( 59.5 
 ) 

 Consolidated investments

 0.8 
 
 ( 56.0 
 ) 
 
 31.3 
 
 ( 66.6 
 ) 

 Net investment income on funds withheld assets

 293.8 
 
 144.2 
 
 584.9 
 
 228.9 
 
 Total revenues

 $ 
 231.9 
 
 $ 
 ( 2,332.9 
 ) 
 
 $ 
 5,738.9 
 
 $ 
 2,494.3 
 
 The following table summarizes the reconciling items from the non-GAAP
 measure of operating benefits and expenses to the GAAP measure of total benefits and expenses attributable to the Company (in millions): 
 
 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Total operating benefits and expenses

 $ 
 980.3 
 
 $ 
 907.4 
 
 $ 
 2,125.5 
 
 $ 
 2,447.2 
 
 Benefits attributed to variable annuity benefit reserves

 28.5 
 
 50.3 
 
 66.4 
 
 89.9 
 
 Amortization of DAC and DSI related to non-operating
 revenues and expenses
 
 ( 242.7 
 ) 
 
 ( 1,263.5 
 ) 
 
 453.1 
 
 ( 631.7 
 ) 

 SOP 03-1
 reserve movements
 
 ( 21.2 
 ) 
 
 ( 457.5 
 ) 
 
 ( 3.6 
 ) 
 
 334.1 
 
 Athene reinsurance transaction

 — 
 
 2,046.7 
 
 — 
 
 2,046.7 
 
 Other items

 25.4 
 
 3.7 
 
 50.5 
 
 4.0 
 
 Total benefits and expenses

 $ 
 770.3 
 
 $ 
 1,287.1 
 
 $ 
 2,691.9 
 
 $ 
 4,290.2 
 
 The following table summarizes the reconciling items, net of deferred acquisition costs and deferred sales inducements, from the non-GAAP
 measure of pretax adjusted operating earnings to the GAAP measure of net income attributable to the Company (in millions): 
 
 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Pretax adjusted operating earnings

 $ 
 760.8 
 
 $ 
 509.4 
 
 $ 
 1,394.0 
 
 $ 
 784.8 
 
 Non-operating
 adjustments (income) loss:
 
 Fees attributable to guarantee benefit reserves

 701.0 
 
 617.7 
 
 1,372.6 
 
 1,224.6 
 
 Net movement in freestanding derivatives

 ( 442.2 
 ) 
 
 ( 9,340.3 
 ) 
 
 ( 3,472.9 
 ) 
 
 2,717.9 
 
 Net reserve and embedded derivative movements

 ( 1,373.7 
 ) 
 
 3,715.9 
 
 3,218.5 
 
 ( 6,536.7 
 ) 

 DAC and DSI impact

 242.8 
 
 1,264.6 
 
 ( 453.1 
 ) 
 
 631.8 
 
 Net realized investment gains (losses) including change in fair value of funds withheld embedded derivative

 ( 752.4 
 ) 
 
 1,629.8 
 
 297.8 
 
 1,329.9 
 
 Loss on funds withheld reinsurance transaction

 — 
 
 ( 2,046.7 
 ) 
 
 — 
 
 ( 2,046.7 
 ) 

 Net investment income on funds withheld assets

 293.8 
 
 144.2 
 
 584.9 
 
 228.9 
 
 Other items

 ( 24.6 
 ) 
 
 ( 60.9 
 ) 
 
 ( 19.2 
 ) 
 
 ( 70.9 
 ) 

 Pretax income (loss) attributable to Jackson Financial Inc.

 ( 594.5 
 ) 
 
 ( 3,566.3 
 ) 
 
 2,922.6 
 
 ( 1,736.4 
 ) 

 Income tax expense (benefit)

 ( 54.5 
 ) 
 
 ( 457.0 
 ) 
 
 531.1 
 
 ( 423.8 
 ) 

 Net income (loss) attributable to Jackson Financial, Inc.

 $ 
 ( 540.0 
 ) 
 
 $ 
 ( 3,109.3 
 ) 
 
 $ 
 2,391.5 
 
 $ 
 ( 1,312.6 
 ) 

 14.

 Commitments, Contingencies, and Guarantees 

 The Company and its subsidiaries are involved in litigation arising in the ordinary course of business. It is the opinion of management that the ultimate disposition of such litigation will not have a material adverse effect on the Company’s financial condition. Jackson has been named in civil litigation proceedings, which appear to be substantially similar to other class action litigation brought against many life insurers including allegations of misconduct in the sale of insurance 

 62 

 Table of Contents 
 products. The Company accrues for legal contingencies once the contingency is deemed to be probable and reasonably estimable. At June 30, 2021 and December 31, 2020, the Company recorded accruals totaling $ 6.4 million and $ 13.1 million, respectively. 

 At June 30, 2021, the Company had unfunded commitments related to its investments in limited partnerships and limited liability companies totaling $ 1,451.5 million. At June 30, 2021, unfunded commitments related to fixed-rate commercial mortgage loans and other debt securities totaled $ 1,335.6 million. 

 15.

 Other Related Party Transactions 

 The Company’s investment management operation, PPM, provides investment services to other non-consolidated
 Prudential affiliated entities. The Company recognized $ 8.9 million and $ 8.8 million of revenue during the three months ended June 30, 2021 and 2020, and $ 18.7 million and $ 17.1 million of revenue during the six months ended June 30, 2021 and 2020, associated with these investment services. This revenue is included in fee income in the accompanying consolidated income statements. 
 The Company, through its PGDS subsidiary, provides various information security and technology services to certain non-consolidated
 Prudential affiliates. The Company recognized $ 1.1 million and $ 0.4 million of revenue during the three months ended June 30, 2021 and 2020, and $ 2.3 million and $ 0.7 million of revenue during the six months ended June 30, 2021 and 2020, associated with these services. This revenue is included in other income in the accompanying consolidated income statements, and is substantially equal to the costs incurred to provide the services, which are reported in operating costs and other expenses in the consolidated income statements. 
 
 As a result of the previously mentioned investment management agreement between Jackson and Apollo, an affiliate of Athene, the Company pays Apollo management fees which are calculated and paid monthly in arrears. The Company incurred $ 25.8 million and $ 4.1 million during the three months ended June 30, 2021 and 2020, and $ 53.9 million and $ 4.1 million during the six months ended June 30, 2021 and 2020, associated with these services. 

 16.

 Operating Costs and Other Expenses 

 The following table is a summary of the Company’s operating costs and other expenses (in millions): 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Asset-based commission expenses

 $ 
 281.1 
 
 $ 
 213.5 
 
 $ 
 548.2 
 
 $ 
 425.5 
 
 Other commission expenses 

 263.0 
 
 206.0 
 
 529.5 
 
 483.4 
 
 Athene ceding commission (1)

 — 
 
 ( 1,231.1 
 ) 
 
 — 
 
 ( 1,231.1 
 ) 

 General and administrative expenses

 256.5 
 
 227.6 
 
 520.6 
 
 466.4 
 
 Deferral of acquisition costs

 ( 201.0 
 ) 
 
 ( 145.2 
 ) 
 
 ( 400.4 
 ) 
 
 ( 350.3 
 ) 

 Total operating costs and other expenses

 $ 
 599.6 
 
 $ 
 ( 729.2 
 ) 
 
 $ 
 1,197.9 
 
 $ 
 ( 206.1 
 ) 

 (1)
 
 See Note 7 for further information 

 63 

 Table of Contents 
 
 17.

 Accumulated Other Comprehensive Income 

 The following table represents changes in the balance of accumulated other comprehensive income (“

AOCI”), net of income tax, related to unrealized investment gains (losses) (in millions): 
 
 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 Balance, beginning of period (1)

 $ 
 1,442.5 
 
 $ 
 1,963.0 
 
 $ 
 3,820.6 
 
 $ 
 2,396.7 
 
 OCI before reclassifications

 1,062.8 
 
 1,988.2 
 
 ( 1,238.6 
 ) 
 
 1,596.7 
 
 Amounts reclassified from AOCI

 ( 115.1 
 ) 
 
 ( 521.8 
 ) 
 
 ( 191.8 
 ) 
 
 ( 564.0 
 ) 

 Balance, end of period (1)

 $ 
 2,390.2 
 
 $ 
 3,429.4 
 
 $ 
 2,390.2 
 
 $ 
 3,429.4 
 
 (1)
 
 Includes $ 632.1 million, $ 1,212.8 million, and $ 1,107.9 million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of June 30, 2021, December 31, 2020, and June 30, 2020, respectively. 

 The following table represents amounts reclassified out of AOCI (in millions): 

 AOCI Components

 Amounts

 Reclassified from AOCI

 Affected Line Item in the

 Consolidated Income Statement

 Three Months Ended June 30,

 2021

 2020

 Net unrealized investment gain (loss):

 Net realized gain (loss) on investments

 $ 
 ( 147.5 
 ) 
 
 $ 
 ( 663.5 
 ) 
 
 Net gains (losses) on derivatives and investments 

 Other impaired securities

 — 
 
 3.0 
 
 Net gains (losses) on derivatives and investments 

 Net unrealized gain (loss), before income taxes

 ( 147.5 
 ) 
 
 ( 660.5 
 ) 
 
 Income tax expense (benefit)

 ( 32.4 
 ) 
 
 ( 138.7 
 ) 
 
 Reclassifications, net of income taxes

 $ 
 ( 115.1 
 ) 
 
 $ 
 ( 521.8 
 ) 
 
 AOCI Components

 Amounts

 Reclassified from AOCI

 Affected Line Item in the

 Consolidated Income Statement

 Six Months Ended June 30,

 2021

 2020

 Net unrealized investment gain (loss):

 Net realized gain (loss) on investments

 $ 
 ( 244.6 
 ) 
 
 $ 
 ( 721.4 
 ) 
 
 Net gains (losses) on derivatives and investments 

 Other impaired securities

 — 
 
 7.5 
 
 Net gains (losses) on derivatives and investments 

 Net unrealized gain (loss), before income taxes

 ( 244.6 
 ) 
 
 ( 713.9 
 ) 
 
 Income tax expense (benefit)

 ( 52.8 
 ) 
 
 ( 149.9 
 ) 
 
 Reclassifications, net of income taxes

 $ 
 ( 191.8 
 ) 
 
 $ 
 ( 564.0 
 ) 
 
 18.

 Equity 

 Common Stock 

 The Company has two classes of common stock: Class A common stock and Class B common stock. Both classes have a par value of $ 0.01 per share. Each share of Class A common stock is entitled to one 

 vote per share. Each share of Class B common stock is entitled to one-tenth of one vote per share. Except for voting rights, the Company’s Class A common stock and Class B common stock have the same dividend rights, are equal in all respects, and are otherwise treated as if they were one class of shares. At both June 30, 2021 and December 31, 2020, the Company was authorized to issue up to

 900 million shares of Class A stock and 100 million shares of Class B stock. 

 On September 9, 2021, the Company effected a 104,960.3836276-for-1 

 stock split of its Class A common stock and Class B common stock by way of a reclassification of its Class A common stock and Class B common stock. The incremental par value of the newly issued shares was recorded with the offset to additional paid-in
 capital. All share and earnings per share 
 
 64 

 Table of Contents 
 information presented herein have been retroactively adjusted to reflect the stock split. At both June 30, 2021 and December 31, 2020, there were 93,099,859 shares of Class A common stock and 1,364,484 shares of Class B common stock issued and outstanding, as all share information presented herein has been retroactively adjusted to reflect the stock split. 
 
 In June 2020, the Company formed a new subsidiary, Jackson Finance, LLC (“Jackson Finance”), a Michigan limited liability company. Subsequently, Prudential and Jackson Finance entered into an Assignment and Assumption Agreement, whereby Prudential assigned to Jackson Finance all of its right, title, and interest in a $ 2.0 billion surplus note issued by Brooke Life, an affiliate of the Company, to Prudential in exchange for Jackson Finance giving an undertaking to Prudential to pay the $ 2.0 billion principal plus accrued interest (“JF Receivable”). Subsequently, the Company issued 39,255,183 shares of Class A common stock to a Prudential affiliate, adjusted for the effect of the stock split, pursuant to a share subscription and accepted the JF Receivable in settlement of the share subscription, ultimately resulting in a cashless transaction in which the surplus note was contributed to Jackson Finance. 

 On June 24, 2020, the Company entered into a Supplemental Agreement in respect to its outstanding $ 350.0 million loan with Standard Chartered Bank, pursuant to which the Company transferred the loan to its ultimate parent, Prudential, the former guarantor of the loan. The Company established a payable to Prudential for the $ 350.0 million, plus all outstanding interest due, and Prudential, in turn, set up a receivable, which was contributed to the Company’s parent. Subsequently, the Company issued 6,927,385 
 shares of Class A common stock to Prudential, adjusted for the effect of the stock split, pursuant to a subscription agreement and accepted the receivable in settlement of the share subscription under a deed of assignment and settlement, ultimately resulting in a cashless transaction. 
 
 On June 18, 2020, the Company entered into an investment agreement with Athene Life Re Ltd., pursuant to which Athene would invest $ 500.0 million of capital into the Company in return for a 9.9 percent voting interest corresponding to a 11.1 percent economic interest in the Company. The agreement was completed on July 17, 2020 and the Company issued 9,131,553 shares of Class A common stock and 1,364,484 
 shares of Class B common stock to Athene, adjusted for the effect of the stock split. Subsequently, in August 2020, the Company ultimately made a 
 $ 500.0 
 million capital contribution to its insurance company subsidiary, Jackson. 
 
 Effective July 17, 2020, the 83,968,306 split-adjusted shares of Class A common stock issued to the Company’s parent, Prudential, with a par value of $ 125.00 per share, were reclassified and converted into Class A common stock with a par value of $ 0.01 per share. 

 Dividends to Shareholders 

 There were no dividends declared or paid to the Company’s stockholders for three and six months ended June 30, 2021 and 2020, respectively. 

 Incentive Stock Plan 

 In April 2021, the Company’s board of directors adopted, and the Company’s stockholders approved, the Jackson Financial Inc. 2021 Omnibus Incentive Plan (the “Incentive Plan”). This Incentive Plan became effective following the completion of the Demerger, and will replace the Prudential PLTIP and Retention Share Plans. 

 Cumulative Effect of Changes in Accounting Principles 

 In 2020, the Company adopted ASU No. 2016-13
 and all related amendments with a cumulative effect pre-tax
 adjustment at June 30, 2020 of $ 60.7 million to reduce retained earnings primarily related to the Company’s commercial mortgage loans. 
 
 65 

 Table of Contents 
 
 19.

 Earnings Per Share 

 Basic earnings per share is calculated by dividing net income (loss) attributable to Jackson Financial Inc. shareholders by the weighted-average number of Class A and Class B common shares outstanding during the period. Diluted earnings per share would be calculated by dividing the net income (loss) attributable to Jackson Financial Inc. shareholders, by the weighted-average number of shares of Class A common stock and Class B common stock outstanding for the period, plus shares representing the dilutive effect of share-based awards. For the three and six months ended June 30, 2021 and 2020, the Company did not have any share-based plans involving the issuance of the Company’s equity and, therefore, no impact to the diluted earnings per share calculation. Following the completion of the Demerger, the Company expects to have dilutive shares as a result of the conversion of existing Prudential share-based incentive plans and issuance of new awards as described above. 

 The following table sets forth the calculation of earnings per common share: 

 Three Months Ended June 30,

 Six Months Ended June 30,

 2021

 2020

 2021

 2020

 (in millions, except share and per share data) 
 
 Net income (loss) attributable to Jackson Financial Inc.

 $ 
 ( 540.0 
 ) 
 
 $ 
 ( 3,109.3 
 ) 
 
 $ 
 2,391.5 
 
 $ 
 ( 1,312.6 
 ) 

 Weighted average shares of common stock outstanding - basic

 94,464,343 
 
 44,433,998 
 
 94,464,343 
 
 41,336,994 
 
 Weighted average shares of common stock outstanding - diluted

 94,464,343 
 
 44,433,998 
 
 94,464,343 
 
 41,336,994 
 
 Earnings per share—common stock

 Basic

 $ 
 ( 5.72 
 ) 
 
 $ 
 ( 69.98 
 ) 
 
 $ 
 25.32 
 
 $ 
 ( 31.75 
 ) 

 Diluted

 $ 
 ( 5.72 
 ) 
 
 $ 
 ( 69.98 
 ) 
 
 $ 
 25.32 
 
 $ 
 ( 31.75 
 ) 
 
 66 

 Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
Jackson Financial Inc. 10-Q

Item 1. Financial Statements
