What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-09-20 · 499 added, 443 removed, 1011 unchanged (48% of the section changed)

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• risks arising from acquisitions or other strategic transactions;

risks related to natural and man-made

disasters and catastrophes, diseases, epidemics, pandemics (including COVID-19),

malicious acts, cyberattacks, terrorist acts, civil unrest and climate change;

• risks related to natural and man-made disasters and catastrophes, diseases, epidemics, pandemics (including COVID-19), malicious acts, cyberattacks, terrorist acts, civil unrest and climate change;

• the degree to which we are leveraged and our inability to refinance our indebtedness;

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We use our website as a routine channel for distribution of important information, including news releases, analyst presentations, financial information and corporate governance information.

We post filings on our website as soon as practicable after they are electronically filed with, or furnished to, the SEC, including our annual and quarterly reports on Forms 10-K

and current reports on Form 8-K;

our proxy statements;

and any amendments to those reports or statements.

All such postings and filings are available on the “Investor Relations” section of our website free of charge.

We post filings on our website as soon as practicable after they are electronically filed with, or furnished to, the SEC, including our annual and quarterly reports on Forms 10-K and 10-Q, respectively, and current reports on Form 8-K;

our proxy statements, and any amendments to those reports or statements.

All such postings and filings are available free of charge on the “Investor Relations” section of our website, investors.jackson.com.

The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Overview of Management's Discussion and Analysis of Financial Condition and Results of Operations.

as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Form 10 filed with the U.S.

Securities and Exchange Commission (the “SEC”) that was declared effective by the SEC on August 6, 2021 (the “Form 10”).

The following discussion and analysis of our financial condition and results of operations should be read in its entirety and in conjunction with the condensed consolidated financial statements and related notes contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Form 10 that was declared effective by the SEC on August 6, 2021 (the “Form 10”) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s quarterly report for the quarter ended June 30, 2021, that were filed with the U.S.

Securities and Exchange Commission (the “SEC”).

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.

Jackson Financial, domiciled in the U.S., was previously a majority-owned subsidiary of Prudential plc (“Prudential”), London, England and was the holding company for Prudential’s U.S.

As described below, 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.

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business operations in 2021.

On August 6, 2021, the registration on Form 10 of the Company’s Class A common stock, par value $0.01 per share, became effective under the Securities Exchange Act of 1934, as amended.

On August 6, 2021, the registration on Form 10 of the Company's Class A common stock became effective under the Securities Exchange Act of 1934, as amended.

The Demerger transaction described in the Form 10 was effective on September 13, 2021.

Post-demerger, Prudential retained a 19.9 percent non-controlling

interest in the Company.

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

Post-demerger, Prudential retained a 19.9 percent non-controlling interest in the Company.

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 information presented herein have been retroactively adjusted to reflect the stock split.

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.

(“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 invested $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.

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This executive summary of Management’s Discussion and Analysis of Financial Condition and Results of Operation highlights selected information and may not contain all of the information that is important to current or potential investors in our securities.

You should read this Quarterly Report on Form 10-Q,

together with the Form 10, in their entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.

You should read this Quarterly Report on Form 10-Q, together with the Form 10, in their entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.

We help Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life.

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primarily due to the differentiated features we offer as compared to our competitors, in particular the wider range of investment options and greater freedom to invest across multiple investment options.

We also offer fixed index annuities and fixed annuities and intend to offer a registered index-linked annuity, or RILA, in the fourth quarter of 2021.

We also offer fixed index annuities and fixed annuities.

In the fourth quarter of 2021, Jackson successfully launched Market Link Pro SM and Market Link Pro Advisory SM , its commission and advisory based suite of Registered Index-Linked Annuities (RILAs).

Also in the fourth quarter of 2021, we entered the Defined Contribution market as a carrier in the AllianceBernstein Lifetime Income Strategy.

We sell our products through a distribution network that includes independent broker-dealers, wirehouses, regional broker-dealers, banks, and independent registered investment advisors, third-party platforms and insurance agents.

We have been the top selling retail annuity company in the United States for eight of the past nine years, according to LIMRA.

We have been the top selling retail annuity company in the United States for eight of the past nine years, according to the Life Insurance Marketing and Research Association (LIMRA).

Our operating platform is scalable and efficient.

We administer approximately 75% of our in-force

policies on our in-house

policy administration platform.

We administer approximately 75% of our in-force policies on our in-house policy administration platform.

The remainder of our business is administered through established third-party arrangements.

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As a result, the changes in the value of the derivatives used as part of the hedging program are not expected to match the movements in the hedged liabilities on a U.S.

GAAP basis from period to period, resulting in net income volatility.

Accordingly, we evaluate and manage the performance of our business using Adjusted Operating Earnings, a non-GAAP

financial measure that reduces the impact of market volatility by excluding changes in fair value of freestanding and embedded derivative instruments.

GAAP basis from period to period, resulting in volatility as a result of changes in fair value recorded to net income.

Accordingly, we evaluate and manage the performance of our business using Adjusted Operating Earnings, a non-GAAP financial measure that reduces the impact of market volatility by excluding changes in fair value of freestanding and embedded derivative instruments.

Significant Factors Impacting Results

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The mean reversion methodology seeks to achieve this objective by applying a dynamic adjustment to the assumption for short-term future investment returns.

This dynamic adjustment incorporates actual returns for the current and preceding two years combined along with our estimate of projected returns for the next five years that are set such that the average rate of return over the eight- year period is equivalent to the current long-term assumed return.

This methodology prevents our DAC models from being distorted by a significant increase or decrease in the account value or benefit base in one period from inflated or deflated projected contract-related charges (including core contract charges and guarantee fees, as applicable) due to volatility in equity market returns or interest rates.

This dynamic adjustment incorporates actual returns for the current and preceding two years combined along with our estimate of

projected returns for the next five years that are set such that the average rate of return over the eight-year period is equivalent to the current long-term assumed return.

This methodology prevents our DAC models from being distorted by a significant increase or decrease in the account value or benefit base in one peri od from inflated or deflated projected contract-related charges (including core contract charges and guarantee fees, as applicable) due to volatility in equity market returns or interest rates.

However, this methodology does result in income volatility when historical period returns that deviate significantly from the mean are dropped from the mean reversion formula .

For example, during a period in

which a large negative return falls out of the calculation due to the passage of time, the projected returns for the next five years would be reset at a lower level, such that the average rate of return over the eight-year period remains equivalent to the current long-term assumed return.

For example, during a period in which a large negative return falls out of the calculation due to the passage of time, the projected returns for the next five years would be reset at a lower level, such that the average rate of return over the eight-year period remains equivalent to the current long-term assumed return.

This would result in a potentially materially higher amortization of DAC for the current period, even if the actual returns for the current period are equivalent to the current long-term assumed return.

Recent Acquisitions and Reinsurance Transactions

We have and expect to continue to manage and diversify our overall mortality and longevity risks through closed block acquisitions, which we believe provide opportunities to deploy capital at attractive risk-adjusted returns and diversify our in-force

We also use third-party reinsurance to manage capital in support of our strategy by monetizing selected risks in our in-force

We expect to continue to manage and diversify our overall mortality and longevity risks through closed block acquisitions, which we believe provide opportunities to deploy capital at attractive risk-adjusted returns and diversify our in-force business.

We also use third-party reinsurance to manage capital in support of our strategy by monetizing selected risks in our in-force business.

A reinsurance transaction could have a significant impact on our results of operations in the period in which the transaction occurs as a result of the reserves acquired or divested at the time the transaction is closed, and assets added or removed from the balance sheet (including any premium paid or received), net of ceding commission.

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Prior to the Demerger, we received certain operational support services from Prudential and provided services to Prudential, pursuant to an intra-group master services agreement.

Such intra-group master services agreement was terminated in connection with the Demerger as part of the complete operational separation of Prudential’s and our businesses.

That intra-group master services agreement was terminated in connection with the Demerger as part of the complete operational separation of Prudential’s and our businesses.

The process of replicating and replacing functions, systems and infrastructure provided by Prudential or certain of its affiliates in order to operate as a separate public company has been completed.

In connection with preparing for the Demerger and our operation as a separate, publicly traded company, we incurred, and expect to incur, one-time

and recurring expenses.

We estimate that the aggregate amount of these one-time

expenses will be approximately $75 million, of which approximately $18 million was incurred in 2020 and approximately $51 million was incurred during the six months ended June 30, 2021, with the remainder expected to be incurred throughout the remainder of the year.

In connection with preparing for the Demerger and our operation as a separate, publicly traded company, we incurred, and expect to incur, one-time and recurring expenses.

We estimated that the aggregate amount of these one-time expenses would be approximately $75 million, of which approximately $18 million was incurred in 2020 and approximately $63 million was incurred during the nine months ended September 30, 2021.

We estimate that our incremental annual recurring expenses relating to operating on a stand-alone basis will be between approximately $25 million and $30 million.

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employment, inflation and the overall economic growth rate can affect both our short and long-term profitability.

Monetary and fiscal policy in the United States, or similar actions in foreign nations, could result in increased volatility in financial markets, including interest rates, currencies and equity markets, and could impact our business in both the short-term and medium-term.

Political events, including the imposition of stay-at-home

orders and business shutdowns or other effects arising as a result of the COVID-19

pandemic, civil unrest, tariffs or other barriers to international trade, and the effects that these or other political events could have on levels of economic activity, could also impact our business through impacts on consumers’ behavior or impact on financial markets.

business in both the short-term and medium-term.

Political events, including the imposition of stay-at-home orders and business shutdowns or other effects arising as a result of the COVID-19 pandemic, civil unrest, tariffs or other barriers to international trade, and the effects that these or other political events could have on levels of economic activity, could also impact our business through impacts on consumers’ behavior or impact on financial markets.

In the short- to medium-term, the potential for increased volatility, coupled with prevailing interest rates remaining below historical averages and uncertain equity market performance, could pressure sales and reduce demand for our products as consumers consider purchasing alternative products to meet their objectives.

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After a very volatile 2020, U.S.

equity markets reached new all time highs in the first half of 2021.

Equity volatility moderated in the first half of 2021 from historically high levels in 2020 resulting in reduced hedging costs year over year.

Equity implied volatility remains above its historical average in 2021.

equity markets have performed well in 2021 with the S&P 500 generally at or near all time highs throughout the year.

Equity volatility has moderated in 2021 from historically high levels in 2020 resulting in reduced hedging costs year over year.

While equity implied volatility has decreased in 2021 it still remains above its historical median despite the high S&P 500 levels.

The financial performance of our hedging program could be impacted by large directional market movements or periods of high volatility.

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Conversely, a rise in the average yield on our investment portfolio should positively impact earnings.

Similarly, we expect customers would be less likely to hold policies if existing guaranteed minimum interest crediting rates are perceived to have less value as interest rates rise, resulting in higher than previously expected lapse rates.

Similarly, we expect customers would be less likely to hold policies if existing

guaranteed minimum interest crediting rates are perceived to have less value as interest rates rise, resulting in higher than previously expected lapse rates.

Credit Market Environment

Our financial performance is impacted by conditions in fixed income markets.

With an improving economy, credit spreads have tightened in 2021 after increasing substantially at the onset of the COVID-19

pandemic in 2020, and credit defaults have also reduced from levels seen in 2020.

With an improving economy, credit spreads have tightened in 2021 after increasing substantially at the onset of the COVID-19 pandemic in 2020, and credit defaults have also reduced from levels seen in 2020.

As credit spreads widen, the fair value of our existing investment portfolio generally decreases, although we generally expect the widening spreads to increase the yield on new fixed income investments.

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As such, significant credit rating downgrades or payment defaults could negatively impact our RBC ratio.

We continue to closely monitor developments related to the COVID-19

pandemic has caused significant economic and financial turmoil both in the United States and around the world.

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.

At this time, it is not possible to estimate the long-term effectiveness of any therapeutic treatments and vaccines for COVID-19,

or their efficacy with respect to current or future variants or mutations of COVID-19,

or the longer-term effects that the COVID-19

pandemic could have on our business.

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, including the availability and efficacy of vaccines against COVID-19

and against variant strains of the virus.

At this time, it is not possible to estimate the long-term effectiveness of any therapeutic treatments and vaccines for COVID-19, or their efficacy with respect to current or future variants or mutations of COVID-19, or the longer-term effects that the COVID-19 pandemic could have on our business.

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, including the availability and efficacy of vaccines against COVID-19 and against variant strains of the virus.

Federal and state authorities’ actions could include restrictions of movements.

We are not able to predict the duration and effectiveness of governmental and regulatory actions taken to contain or address the COVID-19

pandemic or the impact of future laws, regulations or restrictions on our business.

We are not able to predict the duration and effectiveness of governmental and regulatory actions taken to contain or address the COVID-19 pandemic or the impact of future laws, regulations or restrictions on our business.

Consumer Behavior

We believe that many retirees have begun to look to tax-efficient

savings products as a tool for addressing their unmet need for retirement planning.

We believe that many retirees have begun to look to tax-efficient savings products as a tool for addressing their unmet need for retirement planning.

We believe our products are well positioned to meet this increasing consumer demand.

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Our competitors include major stock and mutual insurance companies, mutual fund organizations, banks and other financial services companies.

In recent years, there has been substantial consolidation and convergence among companies in the insurance and financial services industries resulting in increased competition from large, well-capitalized insurance and financial services firms that market products and services similar to us.

Increased consolidation among banks and other financial services companies could create firms with even stronger competitive positions, negatively impact the insurance industry’s sales, increase competition for access to distribution partners, result in greater distribution expenses and impair our ability to market our

annuities to our current customer base or expand our customer base.

years, there has been substantial consolidation and convergence among companies in the insurance and financial services industries resulting in increased competition from large, well-capitalized insurance and financial services firms that market products and services similar to us.

Despite the increasing competition, we believe that our competitive strengths position us well in the current competitive environment.

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All of our annuities offer investors the opportunity to benefit from tax deferral.

tax laws were to change, such that our annuities no longer offer tax-deferred

advantages, demand for our products could materially decrease.

Financial Measures and Operating Measures

tax laws were to change, such that our annuities no longer offer tax-deferred advantages, demand for our products could materially decrease.

Key Non-GAAP Financial Measures and Operating Measures

In addition to presenting our results of operations and financial condition in accordance with U.S.

GAAP, we use and report, selected non-GAAP

financial measures.

Management believes that the use of these non-GAAP

financial measures, together with relevant U.S.

GAAP financial measures, provides a better understanding of our results of operations, financial condition and the underlying profitability drivers of our business.

These non-GAAP

financial measures should be considered supplementary to our results of operations and financial condition that are presented in accordance with U.S.

GAAP, we use and report, selected non-GAAP financial measures.

Management believes that the use of these non-GAAP financial measures, together with relevant U.S.

GAAP financial measures, provides a better understanding of our results of operations, financial

condition and the underlying profitability drivers of our business.

These non-GAAP financial measures should be considered supplementary to our results of operations and financial condition that are presented in accordance with U.S.

GAAP and should not be viewed as a substitute for the U.S.

GAAP financial measures.

Other companies may use similarly titled non-GAAP

financial measures that are calculated differently from the way we calculate such measures.

Consequently, our non-GAAP

financial measures may not be comparable to similar measures used by other companies.

These non-GAAP

financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with U.S.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures.

Consequently, our non-GAAP financial measures may not be comparable to similar measures used by other companies.

These non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with U.S.

We also use a number of operating measures that management believes provide useful information about our businesses and the operational factors underlying our financial performance.

Financial Measures

Non-GAAP Financial Measures

Adjusted Operating Earnings

Adjusted Operating Earnings is an after-tax

financial measure, which we believe should be used to evaluate our financial performance on a consolidated basis by excluding certain items that may be highly variable from period to period due to accounting treatment under U.S.

GAAP or that are non-recurring

in nature, as well as certain other revenues and expenses which we do not view as driving our underlying profitability.

Adjusted Operating Earnings is an after-tax non-GAAP financial measure, which we believe should be used to evaluate our financial performance on a consolidated basis by excluding certain items that may be highly variable from period to period due to accounting treatment under U.S.

GAAP or that are non-recurring in nature, as well as certain other revenues and expenses which we do not view as driving our underlying profitability.

Adjusted Operating Earnings should not be used as a substitute for net income as calculated in accordance with U.S.

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• Net Realized Investment Gains and Losses including change in fair value of funds withheld embedded derivative:

component of the impairment charges and change in fair value of funds withheld embedded derivative related to the Athene Reinsurance Transaction;

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:

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• Loss on Athene Reinsurance Transaction:

includes contractual ceding commission, cost of reinsurance write-off

and DAC and DSI write-off

related to the Athene Reinsurance Transaction;

includes contractual ceding commission, cost of reinsurance write-off and DAC and DSI write-off related to the Athene Reinsurance Transaction;

• Net investment income on funds withheld assets:

includes net investment income on funds withheld assets related to funds withheld reinsurance transactions;

or other non-recurring

items, such as costs relating to the Demerger and our separation from Prudential, the impact of discontinued operations and investments that are consolidated on our financial statements due to U.S.

• Other items:

one-time or other non-recurring items, such as costs relating to the Demerger and our separation from Prudential, the impact of discontinued operations and investments that are consolidated on our financial statements due to U.S.

GAAP accounting requirements, such as our investments in collateralized loan obligations, but for which the consolidation effects are not aligned with our economic interest or exposure to those entities;

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GAAP measure.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

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

$ 206.2 $ (396.6) $ 2,597.7 $ (1,709.2)

Income tax expense (benefit) (16.4) (157.0) 514.7 (580.8)

Pretax income (loss) attributable to Jackson Financial Inc 189.8 (553.6) 3,112.4 (2,290.0)

Non-operating

adjustments (income) loss:

Non-operating adjustments (income) loss:

Fees attributable to guarantee benefit reserves (728.1) (633.7) (2,100.7) (1,858.3)

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Net investment income on funds withheld assets (299.6) (277.1) (884.5) (506.0)

Total non-operating

Other items 9.3 (83.3) 28.5 (12.4)

Total non-operating adjustments 381.4 1,199.3 (1,147.1) 3,720.5

Pretax Adjusted Operating Earnings 571.2 645.7 1,965.3 1,430.5

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Adjusted Operating ROE excludes items that vary from period to period due to accounting treatment under U.S.

GAAP or that are non-recurring

in nature, as such items may distort the underlying profitability of our business.

GAAP or that are non-recurring in nature, as such items may distort the underlying profitability of our business.

We calculate Adjusted Operating ROE by dividing our Adjusted Operating Earnings by average Adjusted Book Value.

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We exclude AOCI attributable to Jackson Financial Inc.

from Adjusted Book Value because our invested assets are generally invested to

closely match the duration of our liabilities, which are longer duration in nature, and therefore we believe period-to-period

fair market value fluctuations in AOCI to be inconsistent with this objective.

from Adjusted Book Value because our invested assets are generally invested to closely match the duration of our liabilities, which are longer duration in nature, and therefore we believe period-to-period fair market value fluctuations in AOCI to be inconsistent with this objective.

We believe excluding AOCI attributable to Jackson Financial Inc.

is more useful to investors in analyzing trends in our business.

Changes in AOCI within the funds withheld account related to the Athene Reinsurance Transaction offset the related non-operating

earnings from the Athene Reinsurance Transaction resulting in a minimal net impact on Adjusted Book Value of Jackson Financial Inc.

Changes in AOCI within the funds withheld account related to the Athene Reinsurance Transaction offset the related non-operating earnings from the Athene Reinsurance Transaction resulting in a minimal net impact on Adjusted Book Value of Jackson Financial Inc.

Adjusted Book Value and Adjusted Operating ROE should not be used as substitutes for total stockholders’ equity and ROE as calculated using net income and total equity in accordance with U.S.

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GAAP measure:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

Total stockholder’s equity

Total stockholders' equity $ 10,258.2 $ 9,375.8 $ 10,258.2 $ 9,375.8

Adjustments to total stockholders’ equity:

Exclude accumulated other comprehensive income attributable to Jackson Financial Inc.

(1,563.9) (2,636.7) (1,563.9) (2,636.7)

Adjusted Book Value $ 8,694.3 $ 6,739.1 $ 8,694.3 $ 6,739.1

ROE 8.0 % (17.4) % 34.6 % (28.1) %

Adjusted Operating ROE on average equity 22.5 % 33.0 % 27.4 % 24.3 %

Excludes $632.1 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 and June 30, 2020, respectively.

(1) Excludes $481.3 million and $1,213.9 million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of September 30, 2021 and September 30, 2020, respectively.

Operating Measures

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We believe sales statistics are useful to gaining an understanding of, among other things, the attractiveness of our products, how we can best meet our customers’ needs, evolving industry product trends and the performance of our business from period to period.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

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Total Institutional Product Sales 43.4 — 43.4 1,284.2

Our new business annuities sales levels for the three and six months ended June 30, 2021 have been in line with the trends seen in the second half of 2020.

For the three and six months ended June 30, 2021, sales of variable annuities were higher than in the three and six months ended June 30, 2020.

For the three and six months ended June 30, 2021, sales of fixed index annuities and fixed annuities remained at historically low levels following pricing actions taken in early 2020.

In addition, there were no sales of institutional products during the three and six months ended June 30, 2021, compared to nil and $1.3 billion during the comparable periods in the prior year.

Total Sales $ 4,812.1 $ 4,528.2 $ 14,395.4 $ 14,306.3

Our new business annuities sales levels for the three and nine months ended September 30, 2021 have been in line with the trends seen in the second half of 2020.

For the three and nine months ended September 30, 2021, sales of variable annuities were higher than in the three and nine months ended September 30, 2020, driven primarily by an increased level of sales of variable annuities without lifetime living benefits.

For the three and nine months ended September 30, 2021, sales of fixed index annuities and fixed annuities remained at historically low levels following pricing actions taken in early 2020.

In addition, there were $43.4 million in sales of institutional products during the three and nine months ended September 30, 2021, compared to nil and $1.3 billion during the comparable periods in the prior year.

Account Value

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It reflects the total amount of customer invested assets that have accumulated within a respective product and equals cumulative customer contributions, which includes gross deposits or premiums plus accrued credited interest plus or minus the impact of market movements, as applicable, less withdrawals and various fees.

Annual average account value is calculated by averaging balances as of the end of each month in the trailing 12-month

period, as well as the ending balance of the prior 12-month

Annual average account value is calculated by averaging balances as of the end of each month in the trailing 12-month period, as well as the ending balance of the prior 12-month period.

Quarterly average account value is calculated by averaging balances as of the end of each month in the quarter, as well as the ending balance of the prior quarter.

We believe account value is a useful metric in providing an understanding of, among other things, the sources of potential fee income generation, potential benefit obligations and risk management priorities.

As of June 30,

As of September 30,

(in millions)

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GMWB For Life $ 179,806.7 $ 148,657.6

GMWB 7,078.9 6,196.2

Other Guarantees - Living Benefits 1,788.9 1,730.8

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Fixed Annuity (1)

1,098.6 1,066.6

Total Fixed & Fixed Index Annuity Account Value 1,364.0 1,192.1

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Total Closed Life and Annuity Blocks Account Value (2)

Substantially all of our in-force

fixed and fixed index annuity product liabilities were reinsured to Athene, effective June 1, 2020.

$ 8,847.2 $ 9,183.3

(1) Net of reinsurance to Athene, where substantially all of our in-force fixed and fixed index annuity product liabilities were reinsured, effective June 1, 2020.

(2) Excludes payout annuities and traditional life insurance without account value.

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We believe net flows is a useful metric in providing an understanding of, among other things, sales, ongoing premiums and deposits, the changes in account value from period to period, sources of potential fee income and policyholder behavior.

Three Months Ended

Six Months Ended

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

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Fixed Index Annuity (1)

(347.1) (235.5) (998.2) 12.1

Fixed Annuity (1)

(249.8) (257.0) (786.0) (637.2)

Total Retail Annuities Net Flows $ (726.3) $ 392.8 $ (2,479.0) $ 564.9

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Total Closed Life and Annuity Blocks Net Flows (2)

$ (65.4) $ (62.3) $ (209.9) $ (218.8)

(1) Gross of reinsurance to Athene.

(2) Excludes payout annuities and traditional life insurance without account value.

The decrease in net flows for the three and nine months ended September 30, 2021, was primarily due to strong variable annuity sales being exceeded by surrender and death benefit outflows from our large in-force block.

Benefit base refers to a notional amount that represents the value of a customer’s guaranteed benefit, and therefore may be a different value from the invested assets in a customer’s account value.

The benefit base may be used to calculate the fees for a customer’s guaranteed benefits within an annuity contract.

The benefit base may be used to calculate the fees

for a customer’s guaranteed benefits within an annuity contract.

The guaranteed death benefit and guaranteed living benefit within the same contract may not have the same benefit base.

We believe benefit base is a useful metric for our variable annuity policies in providing an understanding of, among other things, fee income generation, potential optional guarantee benefit obligations and risk management priorities.

June 30, 2021

December 31, 2020

Account Value

September 30, 2021 December 31, 2020

Account Value Benefit Base Account Value Benefit Base

(in millions)

No Living Benefits

No Living Benefits $ 57,731.8 N/A $ 53,021.6 N/A

By Guaranteed Living Benefits:

GMWB for Life 179,806.7 178,354.8 167,007.2 160,225.7

GMWB 7,078.9 5,834.6 6,807.4 5,557.7

1,788.9 2,096.8 1,826.5 2,216.3

GMAB — — 49.2 7.2

Total $ 246,406.3 $ 186,286.2 $ 228,711.9 $ 168,006.9

By Guaranteed Death Benefit:

Return of AV (No GMDB)

Return of AV (No GMDB) $ 28,821.6 N/A $ 26,368.6 N/A

Return of Premium 188,608.5 133,447.5 174,678.2 128,481.5

Highest Anniversary Value 15,015.1 14,606.2 14,322.9 13,175.2

Rollup 4,119.1 4,906.3 4,061.8 5,005.5

Combination HAV/Rollup 9,842.0 10,294.0 9,280.4 9,447.0

Total $ 246,406.3 $ 163,254.0 $ 228,711.9 $ 156,109.2

(1) Substantially all of our GMIB benefits are reinsured.

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We believe AUM is a useful metric for understanding of, among other things, the sources of our earnings, net investment income and performance of our invested assets, customer directed investments and risk management priorities.

September 30, December 31,

(in millions)

Jackson Invested Assets $ 47,400.6 $ 49,832.2

Prudential Affiliates Invested Assets

Former Prudential Affiliates Invested Assets

Former Asia Affiliates Invested Assets 26,721.4 31,009.4

Former United Kingdom Affiliates Invested Assets 2,071.6 22,882.1

Other Third Party Invested Assets 2,922.0 2,253.9

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Total JNAM AUM 268,452.0 255,668.7

PPM manages the majority of our investment portfolio and provides investment management services to Prudential’s Asian affiliates and other third parties across markets, including public fixed income, private equity, private debt and commercial real estate.

Since December 31, 2020, PPM’s assets under management have decreased, primarily due to withdrawals by Prudential’s former UK affiliate.

Total AUM $ 347,567.6 $ 361,646.3

PPM manages the majority of our investment portfolio and provides investment management services to former affiliates in Asia and the United Kingdom and other third parties across markets, including public fixed income, private equity, private debt and commercial real estate.

Since December 31, 2020, PPM’s assets under management have decreased, primarily due to withdrawals by the former United Kingdom affiliate.

Consolidated Results of Operations

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The information contained in the table below should be read in conjunction with our condensed consolidated financial statements and the related notes.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

Fee income $ 1,961.9 $ 1,666.5 $ 5,673.5 $ 4,847.9

Premium 35.1 46.5 100.3 134.0

Net investment income 852.0 881.4 2,575.6 2,105.6

Net gains (losses) on derivatives and investments (1,379.3) (2,504.8) (1,194.4) (4,517.7)

Other income 16.6 21.5 70.2 35.6

Total revenues 1,486.3 111.1 7,225.2 2,605.4

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Net income (loss) attributable to Jackson Financial Inc.

$ 206.2 $ (396.6) $ 2,597.7 $ (1,709.2)

Adjusted Operating Earnings

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

$ 206.2 $ (396.6) $ 2,597.7 $ (1,709.2)

Income tax expense (benefit) (16.4) (157.0) 514.7 (580.8)

Pretax income (loss) attributable to Jackson Financial Inc 189.8 (553.6) 3,112.4 (2,290.0)

Non-operating

adjustments (income) loss:

Non-operating adjustments (income) loss:

Fees attributable to guarantee benefit reserves (728.1) (633.7) (2,100.7) (1,858.3)

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Net investment income on funds withheld assets (299.6) (277.1) (884.5) (506.0)

Total non-operating

Other items 9.3 (83.3) 28.5 (12.4)

Total non-operating adjustments 381.4 1,199.3 (1,147.1) 3,720.5

Pretax Adjusted Operating Earnings 571.2 645.7 1,965.3 1,430.5

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Adjusted Operating Earnings $ 487.4 $ 546.8 $ 1,692.0 $ 1,234.7

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020

Net Income (Loss) Attributable to Jackson Financial Inc.

Our net income (loss) attributable to Jackson Financial Inc.

improved by $2,569 million, or 83%, to net loss of $540 million during the three months ended June 30, 2021, from net loss of $3,109 million during the three months ended June 30, 2020.

This was driven by an improvement on net losses on derivatives instruments, as freestanding derivatives improved during the three months ended June 30, 2021 compared to the same period in 2020, partially offset by losses on embedded derivative instruments on our variable annuities during the three months ended June 30, 2021 compared to gains during the same period in 2020, as further described below.

In addition, contributing to the improvement were higher fee income, lower interest credited (primarily due to the Athene Reinsurance Transaction), and lower amortization of deferred acquisition costs, as further described below.

These favorable variances were partially offset by losses on funds withheld reinsurance of $767 million for the three months ended June 30, 2021, compared to gains of $1,253 million for the same period in 2020.

Total revenues increased by $2,565 million, or 110%, to $232 million during the three months ended June 30, 2021 from $(2,333) million during the three months ended June 30, 2020.

A discussion of the notable items related to the change in revenues from the three months ended June 30, 2021 to three months ended June 30, 2020 is included in the below commentary.

Fee income increased $333 million, or 21%, to $1,896 million during the three months ended June 30, 2021 from $1,563 million during the three months ended June 30, 2020.

Fee income includes $1,754 million of variable annuity related fees and charges during the three months ended June 30, 2021 versus $1,405 million during the three months ended June 30, 2020.

improved by $603 million, or 152%, to net income of $206 million during the three months ended September 30, 2021, from net loss of $397 million during the three months ended September 30, 2020.

This was driven by lower net losses on derivatives instruments, as freestanding derivative losses were lower during the three months ended September 30, 2021 compared to the same period in 2020.

These improvements were partially offset by losses on embedded derivative instruments on our variable annuities during the three months ended September 30, 2021 compared to gains during the same period in 2020, as further described below.

In addition, contributing to the improvement was higher fee income and lower losses on funds withheld reinsurance of $115 million for the three months ended September 30, 2021, compared to losses of $378 million for the same period in 2020, as further described below.

Total revenues increased by $1,375 million to $1,486 million during the three months ended September 30, 2021 from $111 million during the three months ended September 30, 2020.

A discussion of the notable items related to the change in revenues from the three months ended September 30, 2021 to three months ended September 30, 2020 is included in the below commentary.

Fee income increased $295 million, or 18%, to $1,962 million during the three months ended September 30, 2021 from $1,667 million during the three months ended September 30, 2020.

Fee income includes $1,821 million of variable annuity related fees and charges during the three months ended September 30, 2021 versus $1,519 million during the three months ended September 30, 2020.

This increase was primarily due to a $47 billion, or 25%, increase in average variable annuity account value balances to $232 billion in 2021 from $185 billion in 2020.

The increase in average variable annuity account value balances was primarily a result of favorable separate account returns over the last year.

Premium increased $10 million, or 48%, to $31 million during the three months ended June 30, 2021 from $21 million during the three months ended June 30, 2020.

This increase was primarily due to assumed reinsurance premium reimbursements paid on certain term life insurance products for a specified reinsured block of business that lapsed at the end of the level term period in 2020.

Premium decreased $12 million, or 26%, to $35 million during the three months ended September 30, 2021 from $47 million during the three months ended September 30, 2020.

This decrease was primarily a result of ongoing terminations as the closed block of life business continues to run off.

Net Investment Income

Net investment income increased $360 million, or 83%, to $796 million during the three months ended June 30, 2021 from $436 million during the three months ended June 30, 2020.

The increase in net investment income was primarily due to higher income on private equity and other limited partnership investments, which are recorded on a one quarter lag.

Net investment income decreased $29 million, or 3%, to $852 million during the three months ended September 30, 2021 from $881 million during the three months ended September 30, 2020.

The decrease in net investment income was primarily due to lower income on debt securities due to lower portfolio balances partially offset by higher income on limited partnership investments, which are recorded on a one quarter lag.

Net Gains (Losses) on Derivatives and Investments

Total net gains (losses) on derivatives and investments increased $1,850 million, to a loss of $2,521 million during the three months ended June 30, 2021, from a loss of $4,371 million during the three months ended June 30, 2020.

This increase was primarily a result of lower net derivative losses driven by lower losses on freestanding derivatives during the three months ended June 30, 2021, compared to losses during the same period in the prior year due to lower market returns.

This increase was partially offset by losses on movements in reserves on guarantees that are accounted for as embedded derivatives, which were primarily driven by lower gains on market returns and lower interest rates, compared to the same period in the prior year.

In addition, losses on funds withheld assets were driven by a decrease on the Athene embedded derivative and lower net gains on sales of assets were realized during the three months ended June 30, 2021 compared to gains on sales of assets during the three months ended June 30, 2020.

Three Months Ended June 30,

(in millions, except percentages)

Total net gains (losses) on derivatives and investments increased $1,126 million, to a loss of $1,379 million during the three months ended September 30, 2021, from a loss of $2,505 million during the three months ended September 30, 2020.

This increase was primarily a result of lower net derivative losses driven by lower losses on freestanding derivatives during the three months ended September 30, 2021, compared to losses during the same period in the prior year due to relatively flat market performance during the third quarter 2021 compared to significant market increases and higher hedging costs in the comparable period in 2020.

In addition, there were lower losses on funds withheld reinsurance for the three months ended September 30, 2021 compared to the same period in 2020.

These increases were partially offset by losses on movements in reserves on guarantees that are accounted for as embedded derivatives for the three months ended September 30, 2021 compared to gains on reserve movements due to market returns in the same period in the prior year.

Three Months Ended September 30,

(in millions)

Net gains (losses) excluding derivatives and funds withheld assets $ 36.4 $ 23.0

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Total net gains (losses) on derivatives and investments $ (1,379.3) $ (2,504.8)

Other income increased $12 million, or 67%, to $30 million during the three months ended June 30, 2021 from $18 million during the three months ended June 30, 2020.

This increase was primarily driven by the expense allowance received related to the Athene Reinsurance Transaction, which is a benefit to us and is recorded within other income.

Other income decreased $5 million, or 23%, to $17 million during the three months ended September 30, 2021 from $22 million during the three months ended September 30, 2020.

Total Benefits and Expenses

Total benefits and expenses decreased $517 million, or 40%, to $770 million during the three months ended June 30, 2021 from $1,287 million during the three months ended June 30, 2020.

Total benefits and expenses increased $592 million, or 92%, to $1,235 million during the three months ended September 30, 2021 from $643 million during the three months ended September 30, 2020.

A discussion of the notable items related to the change in total benefits and expenses is included in the below commentary.

Death, Other Policy Benefits and Change in Policy Reserves, Net of Deferrals

Death, other policy benefits and change in policy reserves increased $351 million, or 249%, to $210 million during the three months ended June 30, 2021 from $(141) million during the three months ended June 30, 2020.

This increase was primarily a result of marginally favorable movements in reserves on variable annuity guarantees accounted for as insurance liabilities, compared to more favorable movements in reserves in the same period in the prior year.

Death, other policy benefits and change in policy reserves increased $170 million, or 76%, to $394 million during the three months ended September 30, 2021 from $224 million during the three months ended September 30, 2020.

This increase was primarily a result of unfavorable movements in reserves on variable annuity guarantees accounted for as insurance liabilities, compared to favorable movements in reserves in the same period in the prior year.

Interest Credited on Contract Holder Funds, Net of Deferrals

Interest credited on contract holder funds, net of deferrals, decreased $125 million, or 36%, to $218 million during the three months ended June 30, 2021 from $343 million during the three months ended June 30, 2020.

This decrease was primarily driven from the impact of ceding the majority of the fixed and fixed-index annuity business to Athene, as previously described.

For the three months ended June 30, 2021, $158 million of interest credited was ceded to Athene, compared to $55 million for the three months ended June 30, 2020.

Interest credited on contract holder funds, net of deferrals, decreased $13 million, or 6%, to $217 million during the three months ended September 30, 2021 from $230 million during the three months ended September 30, 2020.

This decrease was primarily driven by a reduction in our institutional products account value.

Operating Costs and Other Expenses, Net of Deferrals

Operating costs and other expenses, net of deferrals, increased $1,329 million, or 182%, to $600 million during the three months ended June 30, 2021 from $(729) million during the three months ended June 30, 2020.

The ceding commission of $1.2 billion received in 2020 due to the Athene Reinsurance Transaction was included as a contra expense within operating costs and other expenses.

Excluding this ceding commission, operating costs and other expenses increased by 19% primarily due to higher asset-based commissions, which are non-deferrable

and the result of higher account values during the three months ended June 30, 2021, compared to the equivalent period in 2020.

In addition, other general expenses were higher due to higher costs of $22 million related to separation costs during the three months ended June 30, 2021, compared to the same period in the prior year.

Operating costs and other expenses, net of deferrals, increased $41 million, or 7%, to $614 million during the three months ended September 30, 2021 from $573 million during the three months ended September 30, 2020.

This increase was primarily due to higher asset-based commissions, which are non-deferrable and are the result of higher account values during the three months ended September 30, 2021, compared to the equivalent period in 2020.

Cost of Reinsurance

There was no cost of reinsurance during the three months ended June 30, 2021, compared to $2,514 million during the three months ended June 30, 2020.

Cost of reinsurance was due to the Athene Reinsurance transaction in June 2020 and includes the net impact of the ceded premium of $30.1 billion and ceded reserves of $27.6 billion, resulting in a net charge of $2.5 billion as of the effective date of the agreement.

There was no cost of reinsurance during the three months ended September 30, 2021, compared to $6 million during the three months ended September 30, 2020, which was due to the Athene post-closing settlement.

Amortization of Deferred Acquisition Costs and Deferred Sales Inducement Costs

Amortization of deferred acquisition costs and deferred sales inducement costs increased $467 million, or 64%, to a benefit of $264 million during the three months ended June 30, 2021 from a benefit of $731 million during the three months ended June 30, 2020.

This was primarily due to lower net freestanding and embedded derivative losses in 2021 leading to lesser negative impacts to current period gross profits and, therefore, greater current period amortization during the three months ended June 30, 2021 compared to the same period in 2020.

Income taxes increased $402 million to a benefit of $55 million during the three months ended June 30, 2021, from a benefit of $457 million during the three months ended June 30, 2020.

The provision for income tax in the current period led to an effective tax rate of 9.2% for the three months ended June 30, 2021, compared to 12.8% during the three months ended June 30, 2020.

The expense during the three months ended June 30, 2021 increased primarily due to the relationship of the taxable income to the consolidated U.S.

income, and the impact of the CARES Act recognized in the first quarter of the prior year.

Amortization of deferred acquisition costs and deferred sales inducement costs increased $403 million, or 101%, to an expense of $4 million during the three months ended September 30, 2021 from a benefit of $399 million during the three months ended September 30, 2020.

Income taxes increased $141 million to a benefit of $16 million during the three months ended September 30, 2021, from a benefit of $157 million during the three months ended September 30, 2020.

The provision for income tax in the current period led to an effective tax rate of (8.6)% for the three months ended September 30, 2021, compared to 28.4% during the three months ended September 30, 2020.

The expense during the three months ended September 30, 2021 increased primarily due to the relationship of the taxable income to the consolidated pre-tax income and the impact of the 2020 provision-to-return adjustments recorded in the current quarter.

The effective tax rate differs from the statutory rate of 21% primarily due to the dividends received deduction and utilization of tax credits.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $252 million, or 50%, to $761 million during the three months ended June 30, 2021, from $509 million during the three months ended June 30, 2020, primarily due to higher fee income, driven by separate account returns, and higher spread income partially offset by higher amortization of DAC.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Pretax adjusted operating earnings decreased $75 million, or 12%, to $571 million during the three months ended September 30, 2021, from $646 million during the three months ended September 30, 2020, primarily due to higher amortization of DAC and higher asset-based commissions, partially offset by higher fee income driven by separate account returns.

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020

Net Income (Loss) Attributable to Jackson Financial Inc.

Our net income (loss) attributable to Jackson Financial Inc.

improved by $3,705 million, or 282%, to net income of $2,392 million during the six months ended June 30, 2021, from net loss of $1,313 million during the six months ended June 30, 2020.

This was driven by an improvement on net losses on derivatives instruments, due to gains on embedded derivative instruments on our variable annuities during the six months ended June 30, 2021 compared to losses during the same period in 2020, partially offset by losses on freestanding derivatives during the six months ended June 30, 2021 compared to the gains during the same period in 2020, as further described below.

These favorable variances were partially offset by lower gains on funds withheld reinsurance of $130 million for the six months ended June 30, 2021, compared to gains of $1,169 million for the same period in 2020.

Total revenues increased by $3,245 million, or 130%, to $5,739 million during the six months ended June 30, 2021 from $2,494 million during the six months ended June 30, 2020.

A discussion of the notable items related to the change in revenues from the six months ended June 30, 2021 to six months ended June 30, 2020 is included in the below commentary.

Fee income increased $531 million, or 17%, to $3,712 million during the six months ended June 30, 2021 from $3,181 million during the six months ended June 30, 2020.

Fee income includes $3,424 million of variable annuity related fees and charges during the six months ended June 30, 2021 versus $2,861 million during the six months ended June 30, 2020.

improved by $4,307 million to net income of $2,598 million during the nine months ended September 30, 2021, from net loss of $1,709 million during the nine months ended September 30, 2020.

This was driven by an improvement on net losses on derivatives instruments, due to gains on embedded derivative instruments on our variable annuities during the nine months ended September 30, 2021 compared to losses during the same period in 2020, partially offset by larger losses on freestanding derivatives during the nine months ended September 30, 2021 compared to the same period in 2020, as further described below.

In addition, contributing to the improvement were higher fee income and lower interest credited, as further described below.

These favorable variances were partially offset by lower gains on funds withheld reinsurance of $15 million for the nine months ended September 30, 2021, compared to gains of $790 million for the same period in 2020, and higher amortization of deferred acquisition costs.

Total revenues increased by $4,620 million to $7,225 million during the nine months ended September 30, 2021 from $2,605 million during the nine months ended September 30, 2020.

A discussion of the notable items related to the change in revenues from the nine months ended September 30, 2021 to nine months ended September 30, 2020 are included in the below commentary.

Fee income increased $826 million, or 17%, to $5,674 million during the nine months ended September 30, 2021 from $4,848 million during the nine months ended September 30, 2020.

Fee income includes $5,245 million of variable annuity related fees and charges during the nine months ended September 30, 2021 versus $4,380 million during the nine months ended September 30, 2020.

This increase was primarily due to a $47 billion, or 25%, increase in average variable annuity account value balances to $232 billion in 2021 from $185 billion in 2020.

The increase in average variable annuity account value balances was primarily a result of favorable separate account returns during the period.

Premium decreased $23 million, or 26%, to $65 million during the six months ended June 30, 2021 from $88 million during the six months ended June 30, 2020.

Premium decreased $34 million, or 25%, to $100 million during the nine months ended September 30, 2021 from $134 million during the nine months ended September 30, 2020.

This decrease was primarily due to reinsurance premium recoveries on certain term life insurance products for a specified reinsured block of business that lapsed at the end of the level term period in 2020.

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Net Investment Income

Net investment income increased $500 million, or 41%, to $1,724 million during the six months ended June 30, 2021 from $1,224 million during the six months ended June 30, 2020.

The increase in net investment income was primarily due to higher income on private equity and other limited partnership investments, which are recorded on a one quarter lag.

Partially offsetting this increase was higher investment expenses related to market appreciation on deferred compensation during the six months ended June 30, 2021.

Net investment income increased $470 million, or 22%, to $2,576 million during the nine months ended September 30, 2021 from $2,106 million during the nine months ended September 30, 2020.

The increase in net investment income was primarily due to higher income on limited partnership investments, which are recorded on a one quarter lag.

Partially offsetting this increase was lower income on debt securities due to lower portfolio balances and higher investment expenses related to market appreciation on deferred compensation during the nine months ended September 30, 2021.

Net Gains (Losses) on Derivatives and Investments

Total net gains on derivatives and investments increased $2,198 million, to a gain of $185 million during the six months ended June 30, 2021, from a loss of $2,013 million during the six months ended June 30, 2020.

This increase was primarily a result of favorable movements in reserves on guarantees that are accounted for as embedded derivatives, which were primarily driven by positive separate account returns and higher interest rates (influencing drift and discount rates), compared to losses during the same period in the prior year.

This increase was mostly offset by losses on freestanding derivatives during the six months ended June 30, 2021, compared to gains during the comparable period in the prior year due to higher market returns as well as a higher interest rate environment, which resulted in losses within our interest rate related hedge movements.

In addition, there were lower gains on funds withheld reinsurance for the six months ended June 30, 2021, compared to the same period in 2020.

Six Months Ended June 30,

Total net gains on derivatives and investments increased $3,324 million, to a loss of $1,194 million during the nine months ended September 30, 2021, from a loss of $4,518 million during the nine months ended September 30, 2020.

This increase was primarily a result of favorable movements in reserves on guarantees that are accounted for as embedded derivatives, which were primarily driven by higher interest rates (influencing projected separate account returns and discount rates), compared to losses during the same period in the prior year.

This increase was partially offset by higher losses on freestanding derivatives during the nine months ended September 30, 2021, compared to losses during the comparable period in the prior year due to higher market returns as well as a higher interest rate environment, which resulted in losses within our interest rate related hedge movements.

In addition, there were lower gains on funds withheld reinsurance for the nine months ended September 30, 2021, compared to the same period in 2020.

Nine Months Ended September 30,

(in millions)

Net gains (losses) excluding derivatives and funds withheld assets $ 203.9 $ 184.2

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Total net gains (losses) on derivatives and investments $ (1,194.4) $ (4,517.7)

Other income increased $40 million, or 286%, to $54 million during the six months ended June 30, 2021 from $14 million during the six months ended June 30, 2020.

In the first quarter of 2020, we reimbursed a portion of reinsurance expense allowances resulting from lapses on certain term life insurance products described above which resulted in a net other expense during that period.

This increase was also driven by higher expense allowances received related to the Athene Reinsurance Transaction, which is a benefit to us and is recorded within other income.

Other income increased $34 million, or 94%, to $70 million during the nine months ended September 30, 2021 from $36 million during the nine months ended September 30, 2020.

This increase was driven by higher expense allowances received related to the Athene Reinsurance Transaction, which is a benefit to us and is recorded within other income.

In addition, in the first quarter of 2020, we reimbursed a portion of reinsurance expense allowances resulting from lapses on certain term life insurance products described above which resulted in a net other expense during that period.

Total Benefits and Expenses

Total benefits and expenses decreased $1,598 million, or 37%, to $2,692 million during the six months ended June 30, 2021 from $4,290 million during the six months ended June 30, 2020.

Total benefits and expenses decreased $1,006 million, or 20%, to $3,927 million during the nine months ended September 30, 2021 from $4,933 million during the nine months ended September 30, 2020.

A discussion of the notable items related to the change in total benefits and expenses is included in the below commentary.

Death, Other Policy Benefits and Change in Policy Reserves, Net of Deferrals

Death, other policy benefits and change in policy reserves decreased $354 million, or 42%, to $493 million during the six months ended June 30, 2021 from $847 million during the six months ended June 30, 2020.

Death, other policy benefits and change in policy reserves decreased $184 million, or 17%, to $887 million during the nine months ended September 30, 2021 from $1,071 million during the nine months ended September 30, 2020.

This decrease was primarily a result of more favorable movements in reserves on variable annuity guarantees accounted for as insurance liabilities, compared to the same period in prior year.

Interest Credited on Contract Holder Funds, Net of Deferrals

Interest credited on contract holder funds, net of deferrals, decreased $309 million, or 41%, to $440 million during the six months ended June 30, 2021 from $749 million during the six months ended June 30, 2020.

This decrease was primarily driven from the impact of ceding the majority of the fixed and fixed-index annuity business to Athene, as previously described.

For the six months ended June 30, 2021, $317 million of interest credited was ceded to Athene, compared to $55 million for the six months ended June 30, 2020.

Interest credited on contract holder funds, net of deferrals, decreased $322 million, or 33%, to $657 million during the nine months ended September 30, 2021 from $979 million during the nine months ended September 30, 2020.

This decrease was

primarily driven from the impact of ceding the majority of the fixed and fixed-index annuity business to Athene, as previously described.

For the nine months ended September 30, 2021, $475 million of interest credited was ceded to Athene, compared to $221 million for the nine months ended September 30, 2020.

Operating Costs and Other Expenses, Net of Deferrals

Operating costs and other expenses, net of deferrals, increased $1,404 million to $1,198 million during the six months ended June 30, 2021 from $(206) million during the six months ended June 30, 2020.

Operating costs and other expenses, net of deferrals, increased $1,445 million to $1,812 million during the nine months ended September 30, 2021 from $367 million during the nine months ended September 30, 2020.

The ceding commission of $1.2 billion received in 2020 due to the Athene Reinsurance Transaction was included as a contra expense within operating costs and other expenses.

Excluding this ceding commission, operating costs and other expenses increased by 17% primarily due to higher asset-based commissions, which are non-deferrable,

and the result of higher account values during the six months ended June 30, 2021, compared to the equivalent period in 2020.

In addition, other general expenses were higher due to higher costs of $47 million related to separation costs during the six months ended June 30, 2021, compared to the same period in the prior year.

Excluding this ceding commission, operating costs and other expenses increased by 16% primarily due to higher asset-based commissions, which are non-deferrable, and the result of higher account values during the nine months ended September 30, 2021, compared to the equivalent period in 2020.

In addition, other general expenses were higher due to higher costs of $52 million related to separation costs during the nine months ended September 30, 2021, compared to the same period in the prior year.

Cost of Reinsurance

Cost of reinsurance decreased $2,514 million, or 100%.

There was no cost of reinsurance during the six months ended June 30, 2021, compared to $2,514 million during the six months ended June 30, 2020.

There was no cost of reinsurance during the nine months ended September 30, 2021, compared to $2,520 million during the nine months ended September 30, 2020.

Amortization of Deferred Acquisition Costs and Deferred Sales Inducement Costs

Amortization of deferred acquisition costs and deferred sales inducement costs increased $235 million, or 75%, to $548 million during the six months ended June 30, 2021 from $313 million during the six months ended June 30, 2020.

This was primarily due to lower net freestanding and embedded derivative losses in 2021 leading to lesser negative impacts to current period gross profits and, therefore, greater current period amortization during the six months ended June 30, 2021 compared to the same period in 2020.

Income taxes increased $955 million to an expense of $531 million during the six months ended June 30, 2021, from a benefit of $424 million during the six months ended June 30, 2020.

The provision for income tax in the current period led to an effective tax rate of 18.2% for the six months ended June 30, 2021, compared to 24.4% during the six months ended June 30, 2020.

The expense during the six months ended June 30, 2021 increased primarily due to the relationship of the taxable income to the consolidated U.S.

income, and the impact of the CARES Act recognized in the first six months of the prior year.

Amortization of deferred acquisition costs and deferred sales inducement costs increased $638 million to $552 million during the nine months ended September 30, 2021 from $(86) million during the nine months ended September 30, 2020.

This was primarily due to lower net freestanding and embedded derivative losses in 2021 leading to lesser negative impacts to current period gross profits and, therefore, greater current period amortization during the nine months ended September 30, 2021 compared to the same period in 2020.

Income taxes increased $1,096 million to an expense of $515 million during the nine months ended September 30, 2021, from a benefit of $581 million during the nine months ended September 30, 2020.

The provision for income tax in the current period led to an effective tax rate of 16.5% for the nine months ended September 30, 2021, compared to 25.4% during the nine months ended September 30, 2020.

The expense during the nine months ended September 30, 2021 increased primarily due to the relationship of the taxable income to the consolidated pre-tax income, the impact of the CARES Act recognized in the first nine months of the prior year, offset by the impact of the 2020 provision-to-return adjustments recorded in the current quarter.

The effective tax rate differs from the statutory rate of 21% primarily due to the dividends received deduction and utilization of tax credits.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $609 million, or 78%, to $1,394 million during the six months ended June 30, 2021, from $785 million during the six months ended June 30, 2020, primarily as a result of lower amortization of DAC and higher fee income, driven by separate account returns, partially offset by lower spread income.

Pretax adjusted operating earnings increased $534 million, or 37%, to $1,965 million during the nine months ended September 30, 2021, from $1,431 million during the nine months ended September 30, 2020, primarily as a result of higher fee income, driven by separate account returns, and lower interest credited, resulting from the Athene Reinsurance Transaction, partially offset by lower spread income and higher amortization of DAC.

Segment Results of Operations

6 unchanged sentences

The information contained in the table below should be read in conjunction with our condensed consolidated financial statements and the related notes.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

1 unchanged sentence

Operating Revenues

Fee income $ 1,089.9 $ 881.0 $ 3,135.6 $ 2,530.7

Net investment income 180.7 135.3 529.4 762.1

Income on operating derivatives 13.3 10.2 41.9 35.9

Other income 11.8 12.9 35.4 17.3

Total Operating Revenues 1,295.7 1,039.4 3,742.3 3,346.0

8 unchanged sentences

The following table summarizes a roll forward of account value for our Retail Annuities segment as of the dates indicated:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

3 unchanged sentences

Surrenders, withdrawals, and benefits (5,544.6) (4,564.1) (16,971.7) (12,939.6)

Net flows (726.3) 392.8 (2,479.0) 564.9

Credited Interest/Investment performance (1,559.2) 11,879.6 20,952.1 3,298.0

3 unchanged sentences

Balance as of end of period, net of ceded reinsurance $ 247,770.3 $ 205,725.6 $ 247,770.3 $ 205,725.6

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020

Operating Revenues

Operating revenues increased $179 million, or 17%, to $1,220 million during the three months ended June 30, 2021 from $1,041 million during the three months ended June 30, 2020, primarily due to higher fee income resulting from growth in variable annuity account values.

Fee income increased by $258 million to $1,050 million during the three months ended June 30, 2021 from $792 million during the three months ended June 30, 2020.

Fees associated with variable annuities represented the substantial majority of fee income, totaling $1,050 million for the three months ended June 30, 2021, up $265 million from $785 million for the three months ended June 30, 2020.

This increase was primarily due to a $48 billion, or 26%, increase in average separate account balances to $228 billion at June 30, 2021, compared to an average separate account balance of $180 billion at

June 30, 2020.

Operating revenues increased $257 million, or 25%, to $1,296 million during the three months ended September 30, 2021 from $1,039 million during the three months ended September 30, 2020, primarily due to higher fee income resulting from growth in variable annuity account values.

Fee income increased by $209 million to $1,090 million during the three months ended September 30, 2021 from $881 million during the three months ended September 30, 2020.

Fees associated with variable annuities represented the substantial majority of fee income, totaling $1,089 million for the three months ended September 30, 2021, up $208 million from $881 million for the three months ended September 30, 2020.

This increase was primarily due to a $47 billion, or 25%, increase in average separate account balances to $232 billion at September 30, 2021, compared to an average separate account balance of $185 billion at September 30, 2020.

The increase in average separate account balances was primarily a result of favorable separate account returns over the last year.

Net Investment Income

Net investment income decreased $86 million, or 37%, to $144 million during the three months ended June 30, 2021 from $230 million during the three months ended June 30, 2020.

This decrease was primarily due to the decrease in invested assets as a result of the Athene Reinsurance Transaction partially offset by higher income on private equity and other limited partnership investments.

Net investment income increased $46 million, or 34%, to $181 million during the three months ended September 30, 2021 from $135 million during the three months ended September 30, 2020.

This increase was primarily due to higher income on limited partnership investments.

Income on operating derivatives

Income on operating derivatives remains flat amounting to $15 million during the three months ended June 30, 2021 and 2020.

Income on operating derivatives increased to $13 million during the three months ended September 30, 2021 from $10 million during the three months ended September 30, 2020.

This income relates to quarterly interest payments and accruals with respect to our interest rate swaps and, for which, we generally receive amounts based on fixed rates and pay amounts based on floating rates.

Other operating income increased to $12 million during the three months ended June 30, 2021 from $4 million during the three months ended June 30, 2020.

This increase is driven by the expense allowance received related to the Athene Reinsurance Transaction, which is a benefit to us and is recorded within other income.

Other operating income decreased to $12 million during the three months ended September 30, 2021 from $13 million during the three months ended September 30, 2020.

Operating Benefits and Expenses

Operating benefits and expenses increased $182 million, or 51%, to $537 million during the three months ended June 30, 2021 from $355 million during the three months ended June 30, 2020, primarily from higher DAC amortization due to separate account returns, and higher operating costs, driven by higher non-deferrable

commission expenses, partially offset by lower interest credited from the Athene Reinsurance Transaction.

Operating benefits and expenses increased $272 million, or 55%, to $769 million during the three months ended September 30, 2021 from $497 million during the three months ended September 30, 2020, primarily from higher DAC amortization due to separate account returns, and higher operating costs, driven by higher non-deferrable commission expenses.

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

Death, other policy benefits and change in policy reserves increased to a net charge of $12 million during the three months ended June 30, 2021 from $10 million during the three months ended June 30, 2020.

Death, other policy benefits and change in policy reserves increased to a net charge of $25 million during the three months ended September 30, 2021 from $22 million during the three months ended September 30, 2020.

Interest credited on contract holder funds, net of deferrals

Interest credited on contract holder funds, net of deferrals, decreased $108 million, or 62%, to $66 million during the three months ended June 30, 2021 from $174 million during the three months ended June 30, 2020.

This decrease was primarily driven from the impact of ceding the majority of the fixed and fixed index annuity business to Athene.

For the three months ended June 30, 2021, $158 million of interest credited was ceded to Athene, compared to $55 million for the three months ended June 30, 2020.

Interest credited on contract holder funds, net of deferrals, increased $1 million, or 2%, to $66 million during the three months ended September 30, 2021 from $65 million during the three months ended September 30, 2020.

Operating costs and other expenses, net of deferrals

Operating costs and other expenses, net of deferrals, increased $79 million, or 19%, to $485 million during the three months ended June 30, 2021 from $406 million during the three months ended June 30, 2020.

This increase was primarily due to higher non-deferrable

commission expenses, a result of higher account values during the three months ended June 30, 2021, compared to the same period in 2020.

Operating costs and other expenses, net of deferrals, increased $49 million, or 11%, to $513 million during the three months ended September 30, 2021 from $464 million during the three months ended September 30, 2020.

This increase was primarily due to higher non-deferrable commission expenses, a result of higher account values during the three months ended September 30, 2021, compared to the same period in 2020.

Amortization of deferred acquisition costs and deferred sales inducement costs

Amortization of deferred acquisition costs and deferred sales inducement costs increased $210 million, or 87%, to a benefit of $31 million for the three months ended June 30, 2021 from a benefit of $241 million during the three months ended June 30, 2020.

This was primarily due to a separate account return of 6% in 2021 that was higher than the expected 2021 quarterly return but lower than the quarterly return of 17% in 2020, which resulted in a smaller increase in expected gross profits and, therefore, higher current period amortization during the three months ended June 30, 2021 compared to the same period in 2020.

Amortization of deferred acquisition costs and deferred sales inducement costs increased $220 million, or 361%, to an expense of $159 million for the three months ended September 30, 2021 from a benefit of $61 million during the three months ended September 30, 2020.

This was primarily due to a separate account return of (1)% in 2021 that was lower than both the expected 2021 quarterly return and the quarterly return of 7% in 2020, which resulted in a decrease in expected

gross profits and, therefore, higher current period amortization during the three months ended September 30, 2021 compared to the same period in 2020.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased $3 million to $683 million during the three months ended June 30, 2021 from $686 million during the three months ended June 30, 2020, as a result of the items described above.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Pretax adjusted operating earnings decreased $16 million to $527 million during the three months ended September 30, 2021 from $543 million during the three months ended September 30, 2020, as a result of the items described above.

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020

Operating Revenues

Operating revenues increased $140 million, or 6%, to $2,447 million during the six months ended June 30, 2021 from $2,307 million during the six months ended June 30, 2020, primarily due to higher fee income resulting from growth in variable annuity account values, partially offset by lower net investment income.

Fee income increased by $396 million to $2,046 million during the six months ended June 30, 2021 from $1,650 million during the six months ended June 30, 2020.

Fees associated with variable annuities represented the substantial majority of fee income, totaling $2,046 million for the six months ended June 30, 2021, up $396 million from $1,650 million for the six months ended June 30, 2020.

Operating revenues increased $396 million, or 12%, to $3,742 million during the nine months ended September 30, 2021 from $3,346 million during the nine months ended September 30, 2020, primarily due to higher fee income resulting from growth in variable annuity account values, partially offset by lower net investment income.

Fee income increased by $605 million to $3,136 million during the nine months ended September 30, 2021 from $2,531 million during the nine months ended September 30, 2020.

Fees associated with variable annuities represented the substantial majority of fee income, totaling $3,135 million for the nine months ended September 30, 2021, up $623 million from $2,512 million for the nine months ended September 30, 2020.

The increase in average separate account balances was primarily a result of favorable separate account returns over the last year.

Net Investment Income

Net investment income decreased $278 million, or 44%, to $349 million during the six months ended June 30, 2021 from $627 million during the six months ended June 30, 2020.

This decrease was primarily due to the decrease in invested assets a result of the Athene Reinsurance Transaction, partially offset by higher income on private equity and other limited partnership investments.

Net investment income decreased $233 million, or 31%, to $529 million during the nine months ended September 30, 2021 from $762 million during the nine months ended September 30, 2020.

This decrease was primarily due to the decrease in invested assets a result of the Athene Reinsurance Transaction, partially offset by higher income on limited partnership investments.

Income on operating derivatives

Income on operating derivatives increased $3 million, or 12%, to $29 million during the six months ended June 30, 2021 from $26 million during the six months ended June 30, 2020.

Income on operating derivatives increased $6 million, or 17%, to $42 million during the nine months ended September 30, 2021 from $36 million during the nine months ended September 30, 2020.

The increase in income compared to prior year was primarily due to the floating rates being lower during the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

Other operating income increased $24 million during the six months ended June 30, 2021 from $5 million during the six months ended June 30, 2020.

This increase is driven by the expense allowance received related to the Athene Reinsurance Transaction, which is a benefit to us and is recorded within other income.

The increase in income compared to prior year was primarily due to the floating rates being lower during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

Other operating income increased $18 million, or 106%, to $35 million during the nine months ended September 30, 2021 from $17 million during the nine months ended September 30, 2020.

This increase was driven by the expense allowance received related to the Athene Reinsurance Transaction, which is a benefit to us and is recorded within other income.

Operating Benefits and Expenses

Operating benefits and expenses decreased $250 million, or 17%, to $1,195 million during the six months ended June 30, 2021 from $1,445 million during the six months ended June 30, 2020, primarily from lower interest credited from the Athene Reinsurance Transaction and lower DAC amortization due to separate account returns, partially offset by higher operating costs driven by higher non-deferrable

commission expenses.

Operating benefits and expenses increased $23 million, or 1%, to $1,964 million during the nine months ended September 30, 2021 from $1,941 million during the nine months ended September 30, 2020, primarily from higher DAC amortization due to separate account returns and higher operating costs driven by higher non-deferrable commission expenses, partially offset by lower interest credited from the Athene Reinsurance Transaction.

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

Death, other policy benefits and change in policy reserves remained flat at $18 million during the six months ended June 30, 2021 and 2020.

Death, other policy benefits and change in policy reserves remained relatively flat during the nine months ended September 30, 2021 and 2020.

Interest credited on contract holder funds, net of deferrals

Interest credited on contract holder funds, net of deferrals, decreased $264 million, or 66%, to $134 million during the six months ended June 30, 2021 from $398 million during the six months ended June 30, 2020.

Interest credited on contract holder funds, net of deferrals, decreased $263 million, or 57%, to $200 million during the nine months ended September 30, 2021 from $463 million during the nine months ended September 30, 2020.

This decrease was primarily driven from the impact of ceding the majority of the fixed and fixed index annuity business to Athene.

For the six months ended June 30, 2021, $317 million of interest credited was ceded to Athene, compared to $55 million for the six months ended June 30, 2020.

For the nine months ended September 30, 2021, $475 million of interest credited was ceded to Athene, compared to $221 million for the nine months ended September 30, 2020.

Operating costs and other expenses, net of deferrals

Operating costs and other expenses, net of deferrals, increased $111 million, or 13%, to $960 million during the six months ended June 30, 2021 from $849 million during the six months ended June 30, 2020.

This increase was primarily due to higher non-deferrable

commission expenses, a result of higher account values during the six months ended June 30, 2021, compared to the same period in 2020.

Operating costs and other expenses, net of deferrals, increased $159 million, or 12%, to $1,473 million during the nine months ended September 30, 2021 from $1,314 million during the nine months ended September 30, 2020.

This increase was primarily due to higher non-deferrable commission expenses, a result of higher account values during the nine months ended September 30, 2021, compared to the same period in 2020.

Amortization of deferred acquisition costs and deferred sales inducement costs

Amortization of deferred acquisition costs and deferred sales inducement costs decreased $91 million, or 55%, to $73 million for the six months ended June 30, 2021 from $164 million during the six months ended June 30, 2020.

This was primarily due to a separate account return of 10% in 2021 that was higher than both the expected 2021 return and the return of (5)% in 2020, which resulted in a greater increase in expected gross profits and, therefore, lower current period amortization during the six months ended June 30, 2021 compared to the same period in 2020.

Amortization of deferred acquisition costs and deferred sales inducement costs increased $130 million, or 126%, to $233 million for the nine months ended September 30, 2021 from $103 million during the nine months ended September 30, 2020.

This was primarily due to a decrease in the short-term future variable annuities separate account growth assumption resulting from the mean reversion methodology, which led to decreased expected future gross profits, and therefore, higher current period amortization during the nine months ended September 30, 2021 compared to the same period in 2020.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $390 million, or 45%, to $1,252 million during the six months ended June 30, 2021 from $862 million during the six months ended June 30, 2020, as a result of the items described above.

Pretax adjusted operating earnings increased $374 million, or 27%, to $1,779 million during the nine months ended September 30, 2021 from $1,405 million during the nine months ended September 30, 2020, as a result of the items described above.

Institutional Products

1 unchanged sentence

The information contained in the table below should be read in conjunction with our condensed consolidated financial statements and the related notes.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

2 unchanged sentences

Net investment income $ 68.7 $ 87.6 $ 189.1 $ 284.4

Income on operating derivatives (1.1) — (1.1) —

Other income — — — 1.6

Total Operating Revenues 67.6 87.6 188.0 286.0

1 unchanged sentence

Interest credited on other contract holder funds (1)

47.3 58.0 147.1 194.4

Interest expense (1)

(1.9) 2.0 — 14.9

Operating costs and other expenses, net of deferrals 1.1 1.3 3.6 3.9

1 unchanged sentence

Pretax Adjusted Operating Earnings $ 21.1 $ 26.3 $ 37.3 $ 72.8

(1) At September 30, 2021, interest expense recorded for certain funding agreements has been reclassified to interest credited on other contract holder funds, prospectively.

The following table summarizes a roll forward of account value for our Institutional Products segment as of the dates indicated:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

3 unchanged sentences

Surrenders, withdrawals, and benefits (147.1) (115.0) (2,427.7) (1,507.6)

Net flows (103.7) (115.0) (2,384.3) (223.4)

Credited Interest 45.4 60.0 147.1 209.3

1 unchanged sentence

Balance as of end of period $ 8,838.5 $ 12,310.8 $ 8,838.5 $ 12,310.8

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020

Operating Revenues

Operating revenues decreased $28 million, or 33%, to $57 million during the three months ended June 30, 2021 from $85 million during the three months ended June 30, 2020.

This change was driven by a decrease in investment income, as described below.

Net Investment Income

Net investment income decreased $28 million, or 33%, to $57 million during the three months ended June 30, 2021 from $85 million during the three months ended June 30, 2020.

This decrease was primarily a result of lower invested asset balances, as well as the impact of reinvesting at lower rates due to current market yields below the average existing portfolio yield.

Operating revenues decreased $20 million, or 23%, to $68 million during the three months ended September 30, 2021 from $88 million during the three months ended September 30, 2020.

This change was driven by a decrease in net investment income, primarily due to lower income on debt securities due to lower portfolio balances.

Operating Benefits and Expenses

Operating benefits and expenses decreased $18 million, or 26%, to $50 million during the three months ended June 30, 2021 from $68 million during the three months ended June 30, 2020.

This decrease was due to a decrease in liabilities due to a reduction in the institutional book.

In addition, lower interest rates resulted in lower interest expense, compared to prior year, with respect to our FHLB loans, which are mostly floating rate contracts.

Institutional product liabilities decreased from $12,325 million as of June 30, 2020, to $8,910 million as of June 30, 2021.

Operating benefits and expenses decreased $14 million, or 23%, to $47 million during the three months ended September 30, 2021 from $61 million during the three months ended September 30, 2020.

This decrease was due to the reduction in the institutional products account value.

Institutional products account value decreased from $12,311 million as of September 30, 2020, to $8,839 million as of September 30, 2021.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased to $6 million during the three months ended June 30, 2021 from $16 million during the three months ended June 30, 2020, as a result of the items described above.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Pretax adjusted operating earnings decreased to $21 million during the three months ended September 30, 2021 from $26 million during the three months ended September 30, 2020, as a result of the items described above.

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020

Operating Revenues

Operating revenues decreased $78 million, or 39%, to $120 million during the six months ended June 30, 2021 from $198 million during the six months ended June 30, 2020.

This change was driven by a decrease in investment income, as described below.

Net Investment Income

Net investment income decreased $77 million, or 39%, to $120 million during the six months ended June 30, 2021 from $197 million during the six months ended June 30, 2020.

This decrease was primarily a result of lower invested asset balances, as well as the impact of reinvesting at lower rates due to current market yields below the average existing portfolio yield.

Operating revenues decreased $98 million, or 34%, to $188 million during the nine months ended September 30, 2021 from $286 million during the nine months ended September 30, 2020.

This change was driven by a decrease in net investment income, primarily due to lower income on debt securities due to lower portfolio balances.

Operating Benefits and Expenses

Operating benefits and expenses decreased $48 million, or 32%, to $104 million during the six months ended June 30, 2021 from $152 million during the six months ended June 30, 2020.

This decrease was due to a decrease in liabilities due to a reduction in the institutional book.

In addition, lower interest rates resulted in lower interest expense, compared to prior year, with respect to our FHLB loans, which are mostly floating rate contracts.

Institutional product liabilities decreased from $12,325 million as of June 30, 2020, to $8,910 million as of June 30, 2021.

Operating benefits and expenses decreased $62 million, or 29%, to $151 million during the nine months ended September 30, 2021 from $213 million during the nine months ended September 30, 2020.

This decrease was due to a reduction in the institutional product account value.

Institutional product account value decreased from $12,311 million as of September 30, 2020, to $8,839 million as of September 30, 2021.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased to $16 million during the six months ended June 30, 2021 from $47 million during the six months ended June 30, 2020, as a result of the items described above.

Pretax adjusted operating earnings decreased to $37 million during the nine months ended September 30, 2021 from $73 million during the nine months ended September 30, 2020, as a result of the items described above.

Closed Life and Annuity Blocks

1 unchanged sentence

The information contained in the table below should be read in conjunction with our condensed consolidated financial statements and the related notes.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

1 unchanged sentence

Operating Revenues

Fee income $ 122.5 $ 127.3 $ 370.5 $ 385.8

Premium 38.2 49.7 109.5 143.6

Net investment income 244.4 245.6 705.8 543.9

Income on operating derivatives 18.4 21.4 56.1 39.2

Other income 7.6 7.6 29.3 13.4

Total Operating Revenues 431.1 451.6 1,271.2 1,125.9

6 unchanged sentences

Pretax Adjusted Operating Earnings $ 68.3 $ 64.9 $ 203.6 $ 35.0

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020

Operating Revenues

Operating revenues increased $110 million, or 39%, to $391 million during the three months ended June 30, 2021 from $281 million during the three months ended June 30, 2020.

Operating revenues decreased $21 million, or 5%, to $431 million during the three months ended September 30, 2021 from $452 million during the three months ended September 30, 2020.

The primary drivers are discussed below.

Fee income decreased $6 million, or 5%, to $123 million during the three months ended June 30, 2021 from $129 million during the three months ended June 30, 2020.

Fee income decreased $4 million, or 3%, to $123 million during the three months ended September 30, 2021 from $127 million during the three months ended September 30, 2020.

This decrease was primarily due to an overall decrease in mortality and expense charges as the closed block of life business continues to run off.

Premium increased by $10 million, or 42%, to $34 million during the three months ended June 30, 2021 from $24 million during the three months ended June 30, 2020.

This increase was primarily due to assumed reinsurance premium

reimbursements paid on certain term life insurance products for a specified reinsured block of business that lapsed at the end of the level term period in 2020.

Premium decreased by $12 million, or 24%, to $38 million during the three months ended September 30, 2021 from $50 million during the three months ended September 30, 2020.

This decrease was primarily a result of ongoing terminations as the closed block of life business continues to run off.

Net Investment Income

Net investment income increased $99 million, or 93%, to $205 million during the three months ended June 30, 2021 from $106 million during the three months ended June 30, 2020.

This increase was primarily due to higher levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2020.

Net investment income decreased $2 million, or 1%, to $244 million during the three months ended September 30, 2021 from $246 million during the three months ended September 30, 2020.

Income on operating derivatives

Income on operating derivatives increased $7 million, or 64%, to $18 million during the three months ended June 30, 2021 from $11 million during the three months ended June 30, 2020.

Income on operating derivatives decreased $3 million, or 14%, to $18 million during the three months ended September 30, 2021 from $21 million during the three months ended September 30, 2020.

The increase in income compared to prior year was primarily due to the floating rates being lower during the three months ended June 30, 2021, compared to the three months ended June 30, 2020.

The decrease in income compared to prior year was primarily due to the floating rates being higher during the three months ended September 30, 2021, compared to the three months ended September 30, 2020.

Other Operating Income

Other operating income remained flat at $12 million during the three months ended three months ended June 30, 2021 and 2020.

Other operating income remained flat at $8 million during the three months ended September 30, 2021 and 2020.

Operating Benefits and Expenses

Operating benefits and expenses decreased $69 million, or 17%, to $335 million during the three months ended three months ended June 30, 2021 from $404 million during the three months ended June 30, 2020.

Operating benefits and expenses decreased $24 million, or 6%, to $363 million during the three months ended September 30, 2021 from $387 million during the three months ended September 30, 2020.

The primary drivers are discussed below.

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

Death, other policy benefits and change in policy reserves decreased $65 million, to $192 million during the three months ended June 30, 2021 from $257 million during the three months ended June 30, 2020.

Death, other policy benefits and change in policy reserves decreased $19 million, to $218 million during the three months ended September 30, 2021 from $237 million during the three months ended September 30, 2020.

This decrease was primarily due to lower benefits resulting from the continued decrease in the size of the closed blocks.

Interest credited on contract holder funds, net of deferrals

Interest credited on contract holder funds, net of deferrals, decreased $3 million, or 3%, to $103 million during the three months ended June 30, 2021 from $106 million during the three months ended June 30, 2020.

Interest credited on contract holder funds, net of deferrals, decreased $4 million, or 4%, to $103 million during the three months ended September 30, 2021 from $107 million during the three months ended September 30, 2020.

This decrease was largely a result of the continued decrease in the size of the closed blocks.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $179 million to $56 million during the three months ended June 30, 2021 from $(123) million during the three months ended June 30, 2020, as a result of the items described above.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Pretax adjusted operating earnings increased $3 million to $68 million during the three months ended September 30, 2021 from $65 million during the three months ended September 30, 2020, as a result of the items described above.

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020

Operating Revenues

Operating revenues increased $166 million, or 25%, to $840 million during the six months ended June 30, 2021 from $674 million during the six months ended June 30, 2020.

Operating revenues increased $145 million, or 13%, to $1,271 million during the nine months ended September 30, 2021 from $1,126 million during the nine months ended September 30, 2020.

The primary drivers are discussed below.

Fee income decreased $11 million, or 4%, to $248 million during the six months ended June 30, 2021 from $259 million during the six months ended June 30, 2020.

Fee income decreased $15 million, or 4%, to $371 million during the nine months ended September 30, 2021 from $386 million during the nine months ended September 30, 2020.

This decrease was primarily due to an overall decrease in mortality and expense charges as the closed block of life business continues to run off.

Premium decreased by $23 million, or 24%, to $71 million during the six months ended June 30, 2021 from $94 million during the six months ended June 30, 2020.

Premium decreased by $34 million, or 24%, to $110 million during the nine months ended September 30, 2021 from $144 million during the nine months ended September 30, 2020.

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Net Investment Income

Net investment income increased $163 million, or 55%, to $461 million during the six months ended June 30, 2021 from $298 million during the six months ended June 30, 2020.

Net investment income increased $162 million, or 30%, to $706 million during the nine months ended September 30, 2021 from $544 million during the nine months ended September 30, 2020.

This increase was primarily due to higher levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2020.

Income on operating derivatives

Income on operating derivatives increased $20 million, or 111%, to $38 million during the six months ended June 30, 2021 from $18 million during the six months ended June 30, 2020.

Income on operating derivatives increased $17 million, or 44%, to $56 million during the nine months ended September 30, 2021 from $39 million during the nine months ended September 30, 2020.

The increase in income compared to prior year was primarily due to the floating rates being lower during the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

Other Operating Income

Other operating income increased $16 million to $22 million during the six months ended June 30, 2021 from $6 million during the six months ended June 30, 2020.

Other operating income increased $16 million to $29 million during the nine months ended September 30, 2021 from $13 million during the nine months ended September 30, 2020.

Operating Benefits and Expenses

Operating benefits and expenses remained relatively flat at $705 million during the three months ended six months ended June 30, 2021, as compared to $704 million during the six months ended June 30, 2020.

Operating benefits and expenses decreased $23 million to $1,068 million during the nine months ended September 30, 2021, as compared to $1,091 million during the nine months ended September 30, 2020.

The primary drivers are discussed below.

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

Death, other policy benefits and change in policy reserves increased $7 million, to $413 million during the six months ended June 30, 2021 from $406 million during the six months ended June 30, 2020.

This increase was primarily due to the benefit of a reserve decrease during the six months ended June 30, 2020, related to certain term life insurance products, in addition to a benefit allowance decrease for similar products reinsured by Scottish Re.

This was mostly offset by lower benefits during the six months ended June 30, 2021, resulting from the continued decrease in the size of the closed blocks.

Death, other policy benefits and change in policy reserves decreased $12 million, to $631 million during the nine months ended September 30, 2021 from $643 million during the nine months ended September 30, 2020.

This decrease was primarily due to the benefit of a reserve increase during the nine months ended September 30, 2020, related to certain term life insurance products.

Interest credited on contract holder funds, net of deferrals

Interest credited on contract holder funds, net of deferrals, decreased $8 million, or 4%, to $207 million during the six months ended June 30, 2021 from $215 million during the six months ended June 30, 2020.

Interest credited on contract holder funds, net of deferrals, decreased $12 million, or 4%, to $310 million during the nine months ended September 30, 2021 from $322 million during the nine months ended September 30, 2020.

This decrease was largely a result of the continued decrease in the size of the closed blocks.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $165 million to $135 million during the six months ended June 30, 2021 from $(30) million during the six months ended June 30, 2020, as a result of the items described above.

Pretax adjusted operating earnings increased $169 million to $204 million during the nine months ended September 30, 2021 from $35 million during the nine months ended September 30, 2020, as a result of the items described above.

Corporate and Other

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The information contained in the table below should be read in conjunction with our condensed consolidated financial statements and the related notes.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(in millions)

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Operating Revenues

Fee income $ 18.3 $ 21.4 $ 57.5 $ 63.5

Net investment income (6.4) 23.4 46.1 23.2

Income on operating derivatives 7.9 6.6 20.3 15.1

Other income (2.8) 1.0 5.5 3.3

Total Operating Revenues 17.0 52.4 129.4 105.1

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Pretax Adjusted Operating Earnings $ (45.4) $ 11.6 $ (54.3) $ (82.2)

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020

Operating Revenues

Operating revenues increased $63 million, or 630%, to $73 million during the three months ended June 30, 2021 from $10 million during the three months ended June 30, 2020.

Operating revenues decreased $35 million, or 67%, to $17 million during the three months ended September 30, 2021 from $52 million during the three months ended September 30, 2020.

The primary drivers are discussed below.

Fee income decreased $3 million, or 14%, to $19 million during the three months ended June 30, 2021 from $22 million during the three months ended June 30, 2020.

Fee income decreased $3 million, or 14%, to $18 million during the three months ended September 30, 2021 from $21 million during the three months ended September 30, 2020.

This decrease was due to slightly lower asset management fees generated at PPM.

Net Investment Income

Net investment income increased $58 million to $40 million during the three months ended June 30, 2021 from $(18) million during the three months ended June 30, 2020.

This increase was primarily due to higher income on private equity and other limited partnership investments.

Net investment income decreased $29 million to $(6) million during the three months ended September 30, 2021 from $23 million during the three months ended September 30, 2020.

This decrease was due to the allocation of net investment income from Corporate and Other to Institutional Products reflecting internal portfolio rebalancing and the attribution of net investment income on capital to support the business segments.

Income on operating derivatives

Income on operating derivatives increased $3 million, or 60%, to $8 million during the three months ended June 30, 2021 from $5 million during the three months ended June 30, 2020.

Income on operating derivatives increased $1 million, or 14%, to $8 million during the three months ended September 30, 2021 from $7 million during the three months ended September 30, 2020.

Operating Benefits and Expenses

Operating benefits and expenses decreased to $58 million during the three months ended June 30, 2021 from $80 million during the three months ended June 30, 2020.

This decrease was primarily due to interest expense, as described below.

Operating benefits and expenses increased to $62 million during the three months ended September 30, 2021 from $41 million during the three months ended September 30, 2020.

The primary drivers are discussed below.

Interest Expense

Interest expense was nil during the during the three months ended June 30, 2021, compared to $20 million during the three months ended June 30, 2020.

The interest expense incurred in the prior year relates to interest on the surplus note, which was restructured as an intercompany obligation in June 2020.

See Note 10 - Debt to our condensed consolidated financial statements.

Interest expense was $3 million during the during the three months ended September 30, 2021, compared to nil during the three months ended September 30, 2020.

The interest expense incurred in the current year relates to interest on our term loans.

See Note 10 - Short-Term and Long-Term Debt of our condensed consolidated financial statements.

Operating costs and other expenses, net of deferrals

Operating costs and other expenses, net of deferrals decreased $3 million, or 6%, to $51 million during the three months ended June 30, 2021 from $54 million during the three months ended June 30, 2020.

This decrease is due to a slight decrease in general expenses related to PPM, primarily due to lower compensation related expenses.

Operating costs and other expenses, net of deferrals increased $17 million, or 52%, to $50 million during the three months ended September 30, 2021 from $33 million during the three months ended September 30, 2020.

This increase was primarily due to the receipt of an insurance settlement during the three months ended September 30, 2020 which reduced operating expenses.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $85 million to $15 million during the three months ended June 30, 2021 from $(70) million during the three months ended June 30, 2020, as a result of the items described above.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Pretax adjusted operating earnings decreased $57 million to $(45) million during the three months ended September 30, 2021 from $12 million during the three months ended September 30, 2020, as a result of the items described above.

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020

Operating Revenues

Operating revenues increased $59 million, or 111%, to $112 million during the six months ended June 30, 2021 from $53 million during the six months ended June 30, 2020.

Operating revenues increased $24 million, or 23%, to $129 million during the nine months ended September 30, 2021 from $105 million during the nine months ended September 30, 2020.

The primary drivers are discussed below.

Fee income decreased $3 million, or 7%, to $39 million during the six months ended June 30, 2021 from $42 million during the six months ended June 30, 2020.

Fee income decreased $6 million, or 9%, to $58 million during the nine months ended September 30, 2021 from $64 million during the nine months ended September 30, 2020.

This decrease was due to slightly lower asset management fees generated at PPM.

Net Investment Income

Net investment income increased $53 million to $53 million during the six months ended June 30, 2021 from nil during the six months ended June 30, 2020.

This increase was primarily due to higher income on private equity and other limited partnership investments.

Net investment income increased $23 million to $46 million during the nine months ended September 30, 2021 from $23 million during the nine months ended September 30, 2020.

This increase was primarily due to higher income on limited partnership investments.

Income on Operating Derivatives

Income on operating derivatives increased $3 million, or 33%, to $12 million during the six months ended June 30, 2021 from $9 million during the six months ended June 30, 2020.

Income on operating derivatives increased $5 million, or 33%, to $20 million during the nine months ended September 30, 2021 from $15 million during the nine months ended September 30, 2020.

This income relates to quarterly interest payments and accruals with respect to our interest rate swaps and, for which we generally receive amounts based on fixed rates and pay amounts based on floating rates.

Operating Benefits and Expenses

Operating benefits and expenses decreased to $121 million during the six months ended June 30, 2021 from $147 million during the six months ended June 30, 2020.

Operating benefits and expenses decreased to $184 million during the nine months ended September 30, 2021 from $187 million during the nine months ended September 30, 2020.

This decrease was primarily due to interest expense, as described below.

Interest Expense

Interest expense was nil during the during the six months ended June 30, 2021, compared to $45 million during the six months ended June 30, 2020.

The interest expense incurred in the prior year relates to interest on the surplus note, which was restructured as an intercompany obligation in June 2020.

See Note 10 - Debt to our condensed consolidated financial statements.

Interest expense was $3 million during the during the nine months ended September 30, 2021, compared to $45 million during the nine months ended September 30, 2020.

The interest expense incurred in the current year relates to interest on our term loans.

The interest expense incurred in the prior year relates to interest on our surplus note, which was restructured

as an intercompany obligation in June 2020.

See Note 10 - Short-Term and Long-Term Debt to our condensed consolidated financial statements.

Operating costs and other expenses, net of deferrals

Operating costs and other expenses, net of deferrals increased $13 million, or 14%, to $106 million during the six months ended June 30, 2021 from $93 million during the six months ended June 30, 2020.

This increase is due to an increase in general expenses related to PPM, primarily due to higher compensation related expenses.

Operating costs and other expenses, net of deferrals increased $30 million, or 24%, to $156 million during the nine months ended September 30, 2021 from $126 million during the nine months ended September 30, 2020.

This increase was primarily due to the receipt of an insurance settlement during the nine months ended September 30, 2020 which reduced operating expenses.

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $85 million to $(9) million during the six months ended June 30, 2021 from $(94) million during the six months ended June 30, 2020, as a result of the items described above.

Pretax adjusted operating earnings increased $28 million to $(54) million during the nine months ended September 30, 2021 from $(82) million during the nine months ended September 30, 2020, as a result of the items described above.

Our investment portfolio primarily consists of fixed-income securities and loans, primarily publicly-traded corporate and government bonds, private securities and loans, asset-backed securities and commercial mortgage loans.

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We may also use third-party investment managers for certain niche asset classes.

As of June 30, 2021, third-party investment managers represented less than 1% of our AUM.

As of September 30, 2021, third-party investment managers represented approximately 1% of our AUM.

Our investment program seeks to generate a competitive rate of return on our invested assets to support the profitable growth of our business, while maintaining investment portfolio allocations within the company’s risk tolerance.

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Treasury securities.

Treasury securities, while lower yielding than other alternatives, provide a higher level of liquidity and play a meaningful role in managing our interest rate exposure.

As of June 30, 2021 and December 31, 2020, we had total investments of $75 billion and $80 billion, respectively.

securities, while lower yielding than other alternatives, provide a higher level of liquidity and play a meaningful role in managing our interest rate exposure.

As of September 30, 2021 and December 31, 2020, we had total investments of $74 billion and $80 billion, respectively.

Portfolio Composition

The following table summarizes the carrying values of our investments:

September 30, December 31,

(in millions)

Available-for-sale

debt securities, at fair value

Available-for-sale debt securities, at fair value $ 52,123.0 $ 59,075.0

Debt Securities, at fair value under fair value option 1,516.6 1,276.7

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Mortgage loans, net of allowance 11,731.4 10,727.5

Policy loans 4,511.9 4,523.5

Derivative instruments 1,141.9 2,219.8

1 unchanged sentence

Total investments $ 74,203.3 $ 80,488.0

Available-for-sale

debt securities decreased to $52,473 million at June 30, 2021 from $59,075 million at the end of 2020, primarily due to a decrease in net unrealized gains.

The amortized cost of debt securities, available for sale, decreased from $55,523 million as of December 31, 2020 to $51,001 million as of June 30, 2021.

Further, net unrealized gains on these assets decreased from a net unrealized gain of $4,948 million as of December 31, 2020 to a net unrealized gain of $3,026 million as of June 30, 2021.

Available-for-sale debt securities decreased to $52,123 million at September 30, 2021 from $59,075 million at the end of 2020, primarily due to a decrease in net unrealized gains.

The amortized cost of debt securities, available for sale, decreased from $55,523 million as of December 31, 2020 to $51,199 million as of September 30, 2021.

Further, net unrealized gains on these assets decreased from a net unrealized gain of $4,948 million as of December 31, 2020 to a net unrealized gain of $2,568 million as of September 30, 2021.

Other Invested Assets

In June 2021, we 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.

In June 2021, we entered into an arrangement to sell $420.4 million of limited partnership investments, of which $235.8 million and $168.0 million was sold in second and third quarter of 2021, respectively, and the remainder is to be sold by January 2022.

We expect to reinvest in new limited partnerships as attractive opportunities become available.

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In accordance with guidance adopted January 1, 2020 regarding expected credit loss, securities that incurred a credit loss after December 31, 2019 and were still held at 2020, are presented net of allowance for credit losses.

In accordance with previous guidance, the non-credit

other-than-temporary impairment (“OTTI”) loss is presented for debt securities, where applicable.

At June 30, 2021 and December 31, 2020, the amortized cost, gross unrealized gains and losses, fair value and OTTI of debt securities or allowance for credit losses, including $1,434 million and $1,277 million in securities carried at fair value under the fair value option, were as follows (in millions):

June 30, 2021

Allowance for

In accordance with previous guidance, the non-credit other-than-temporary impairment (“OTTI”) loss is presented for debt securities, where applicable.

At September 30, 2021 and December 31, 2020, the amortized cost, gross unrealized gains and losses, fair value and OTTI of debt securities or allowance for credit losses, including $1,517 million and $1,277 million in securities carried at fair value under the fair value option, were as follows (in millions):

September 30, 2021 Amortized

Cost Allowance for Credit Loss Gross

Gains Gross Unrealized

government securities $ 4,792.9 $ — $ 83.0 $ 412.9 $ 4,463.0

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Corporate securities

Utilities 5,830.7 — 711.4 20.8 6,521.3

Energy 3,137.4 — 277.9 16.8 3,398.5

Banking 1,744.2 — 99.4 8.5 1,835.1

Healthcare 3,188.4 — 201.5 23.6 3,366.3

Finance/Insurance 4,089.5 — 285.9 41.4 4,334.0

1 unchanged sentence

Consumer goods 2,522.6 — 143.1 39.5 2,626.2

Industrial 2,176.3 — 152.8 11.4 2,317.7

Capital goods 2,114.0 — 158.5 7.4 2,265.1

Real estate 1,842.4 — 106.8 9.0 1,940.2

Media 1,185.4 — 94.4 15.9 1,263.9

Transportation 1,787.4 — 124.9 11.6 1,900.7

Retail 1,380.9 — 87.0 15.8 1,452.1

2,419.6 — 165.8 6.4 2,579.0

Total Corporate Securities 35,795.4 — 2,755.3 259.8 38,290.9

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(1) No single remaining industry exceeds 3% of the portfolio.

December 31, 2020

December 31, 2020 Amortized

Cost Allowance for Credit Loss Gross

Gains Gross Unrealized

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

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Corporate securities

Utilities 6,270.4 — 1,029.2 1.9 7,297.7

Energy 3,430.2 — 351.1 8.2 3,773.1

Banking 2,341.6 — 206.4 0.4 2,547.6

Healthcare 3,729.4 — 357.6 1.6 4,085.4

Finance/Insurance 3,586.0 — 390.6 15.9 3,960.7

1 unchanged sentence

Consumer goods 2,508.1 — 277.0 0.3 2,784.8

Industrial 2,582.5 — 279.9 0.6 2,861.8

Capital goods 2,384.6 — 230.8 1.5 2,613.9

Real estate 2,113.2 — 169.5 1.3 2,281.4

Media 1,352.9 — 148.9 0.9 1,500.9

Transportation 2,011.2 — 184.4 3.8 2,191.8

Retail 1,749.4 — 181.1 0.3 1,930.2

2,625.5 — 245.1 1.3 2,869.3

Total Corporate Securities 39,450.7 — 4,330.8 43.8 43,737.7

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Securities Carrying Value as of

September 30, December 31,

Investment Rating 2021 2020

AAA 16.5 % 18.8 %

AA 9.2 % 8.1 %

A 29.2 % 30.5 %

BBB 39.1 % 37.7 %

Investment grade 94.0 % 95.1 %

BB 3.4 % 2.9 %

B and below 2.6 % 2.0 %

Below investment grade 6.0 % 4.9 %

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The following tables summarize the number of securities, fair value and the related amount of gross unrealized losses 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

September 30, 2021 December 31, 2020

Less than 12 months Less than 12 months

Value Gross Fair

Unrealized # of Unrealized # of

Losses securities Losses securities

government securities $ 1.3 $ 134.5 20 $ 114.9 $ 3,944.7 7

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Total temporarily impaired securities $ 235.5 $ 8,703.7 1,125 $ 164.8 $ 6,555.4 315

12 months or longer

12 months or longer 12 months or longer

Value Gross Fair

Unrealized # of Unrealized # of

Losses securities Losses securities

government securities $ 411.5 $ 3,335.3 6 $ — $ — —

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Total temporarily impaired securities $ 482.2 $ 4,111.1 100 $ 4.1 $ 44.2 12

Value Gross Fair

Unrealized # of Unrealized # of

Losses securities Losses securities

government securities $ 412.8 $ 3,469.8 26 $ 114.9 $ 3,944.7 7

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Corporate securities (1)

239.0 6,131.0 690 42.0 1,394.0 164

Residential mortgage-backed 1.9 190.1 108 1.2 37.2 32

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

Three Months Ended June 30,

Six Months Ended June 30,

Available-for-sale

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Available-for-sale securities

Realized gains on sale $ 28.3 $ 99.2 $ 149.1 $ 519.2

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Credit loss income (expense) on mortgage loans 13.5 (31.9) 61.9 (65.8)

13.4 (41.1) 62.2 (38.8)

Net gains (losses) excluding derivatives and funds withheld assets 36.4 23.0 203.9 184.2

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The following table summarizes our holdings:

September 30, December 31,

(in millions)

Common Stock $ 81.0 $ 71.9

Preferred Stock 178.0 97.6

Mutual Funds 31.1 23.6

Total $ 290.1 $ 193.1

The increase in limited partnerships was due to strong fourth-quarter financial statements of the limited partnerships that increased the value of our investments, which we received and recorded during the three months ended March 31, 2021.

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Our investments in mortgage loans provide an opportunity for higher investment yields within an asset class where PPM has a positive track record and a demonstrated ability to manage risk in the portfolio.

As of June 30, 2021 and December 31, 2020, commercial mortgage loans of $11,649 million and $10,728 million, respectively, are reported net of allowance for credit losses of $135 million and $179 million at each date, respectively.

As of June 30, 2021, commercial mortgage loans were collateralized by properties located in 38 states and the District of Columbia and residential mortgage loans were collateralized by properties located in 48 states and the District of Colombia.

As of September 30, 2021 and December 31, 2020, commercial mortgage loans of $11,731 million and $10,728 million, respectively, are reported net of allowance for credit losses of $135 million and $179 million at each date, respectively.

As of September 30, 2021, commercial mortgage loans were collateralized by properties located in 38 states and the District of Columbia and residential mortgage loans were collateralized by properties located in 50 states and the District of Columbia.

The table below presents the carrying value, net of allowance of credit loss, of our mortgage loans by property type:

September 30, December 31,

(in millions)

Apartment $ 3,807.8 $ 3,905.3

Hotel 1,052.3 882.7

Office 1,942.4 1,569.7

Retail 2,130.8 1,942.4

Warehouse 1,856.0 1,978.8

Total Commercial $ 10,789.3 $ 10,278.9

Residential 942.1 448.6

Total $ 11,731.4 $ 10,727.5

The table below presents the carrying value, net of allowance for credit loss, of our mortgage loans by region:

September 30, December 31,

(in millions)

2 unchanged sentences

Middle Atlantic 1,538.2 1,275.8

Mountain 695.7 840.0

New England 479.9 476.2

Pacific 2,886.6 2,588.6

South Atlantic 2,469.0 2,529.9

1 unchanged sentence

West South Central 835.5 811.8

The following table provides information relating to the loan-to-value

ratio of our commercial mortgage loans:

Foreign 512.4 161.8

Total $ 11,731.4 $ 10,727.5

The following table provides information relating to the loan-to-value ratio of our commercial mortgage loans:

September 30, December 31,

(in millions)

Loan-to-Value

Loan-to-Value Ratio

< 70% $ 9,655.6 $ 9,263.8

70% - 80% 1,034.3 845.0

80% - 100% 84.7 170.1

> 100% 14.7 —

Total $ 10,789.3 $ 10,278.9

The following table provides a summary of the allowance for credit losses related to our mortgage loans:

September 30,

(in millions)

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Balance at end of period $ 96.4 $ 159.0

As of June 30, 2021 and 2020, our commercial mortgage loan portfolio is current and accruing interest, and we had no commercial mortgage loans that were delinquent greater than 90 days, restructured or in the process of foreclosure.

As of September 30, 2021 and 2020, our commercial mortgage loan portfolio is current and accruing interest, and we had no commercial mortgage loans that were delinquent greater than 90 days, restructured or in the process of foreclosure.

Delinquency status is determined from the date of the first missed contractual payment.

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The following table presents the aggregate contractual or notional amounts and the fair values of our freestanding and embedded derivatives instruments (in millions):

June 30, 2021

September 30, 2021

Assets Liabilities

Contractual/ Contractual/ Net

Notional Fair Notional Fair Fair

Value Amount (1)

Freestanding derivatives

2 unchanged sentences

Equity index futures (2)

— — 17,329.8 — —

Equity index put options 25,000.0 339.0 — — 339.0

1 unchanged sentence

Interest rate swaps - cleared (2)

1,500.0 — — — —

Put-swaptions 15,500.0 104.8 2,500.0 4.9 99.9

Treasury futures (2)

3,986.6 — 13.9 — —

Credit default swaps — — — — —

Total freestanding derivatives 74,473.5 1,102.5 20,852.3 39.5 1,063.0

Embedded derivatives-product liabilities

Embedded derivatives

VA embedded derivatives (3)

N/A — N/A 3,091.6 (3,091.6)

FIA embedded derivatives (4)

Total embedded derivatives

N/A — N/A 1,439.7 (1,439.7)

Total embedded derivatives N/A — N/A 4,531.3 (4,531.3)

Derivatives related to funds withheld under reinsurance treaties

2 unchanged sentences

Funds withheld embedded derivative (5)

N/A — N/A 271.7 (271.7)

Total derivatives related to funds withheld under reinsurance treaties 1,009.4 39.4 68.9 272.6 (233.2)

Total $ 75,482.9 $ 1,141.9 $ 20,921.2 $ 4,843.4 $ (3,701.5)

(1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments.

6 unchanged sentences

December 31, 2020

Assets Liabilities

Contractual/ Contractual/ Net

Notional Fair Notional Fair Fair

Amount (1) Value Amount (1) Value Value

Freestanding derivatives

2 unchanged sentences

Equity index futures (2)

— — 27,651.0 — —

Equity index put options 27,000.0 178.0 — — 178.0

1 unchanged sentence

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 — — — —

2 unchanged sentences

VA embedded derivatives (3)

N/A — N/A 5,592.1 (5,592.1)

FIA embedded derivatives (4)

Total embedded derivatives

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

2 unchanged sentences

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.

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Our sources of net investment income are as follows (in millions) :

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Debt securities $ 271.7 $ 416.8 $ 872.2 $ 1,338.7

1 unchanged sentence

Mortgage loans 79.4 83.6 241.5 285.3

Policy loans 19.8 21.8 55.5 59.7

Limited partnerships 192.7 113.3 585.6 (26.0)

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Expenses related to consolidated entities (1)

(7.5) (9.1) (24.1) (29.4)

Other investment expenses (2)

(0.8) (22.6) (45.3) (24.6)

Total investment expenses (12.8) (35.5) (80.0) (66.4)

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and other expenses.

Other investment expenses includes deferred compensation expenses, which may become positive when markets decline, as was the case during the three and six months ended June 30, 2020, when markets declined due to the economic shutdown resulting from the pandemic.

Other investment expenses includes deferred compensation expenses, which may become positive when markets decline, as was the case during the three and nine months ended September 30, 2020, when markets declined due to the economic shutdown resulting from the pandemic.

Evaluation of Invested Assets

We perform regular evaluations of our invested assets.

On a monthly basis, management identifies those investments that may require additional monitoring and carefully reviews the carrying value of such investments to determine whether specific investments should be placed on a non-accrual

status and to determine if any declines in value may be other than temporary.

In making these reviews, management principally considers the adequacy of any collateral, compliance with contractual covenants, the borrower’s recent financial performance, news reports and other externally generated information concerning the issuer’s affairs.

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Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and the alternate sources of liquidity and capital described herein.

The discussion below describes our liquidity and capital resources for the six months ended June 30, 2021 and 2020.

The discussion below describes our liquidity and capital resources for the nine months ended September 30, 2021 and 2020.

The following table presents a summary of our cash flow activity for the periods set forth below:

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions)

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The primary liquidity concern with respect to these cash flows is the risk of early contract holder and policyholder withdrawal.

Cash flows provided by operating activities increased $720 million to $2,147 million during the six months ended June 30, 2021 from $1,427 million during the six months ended June 30, 2020.

This increase in cash provided by operating activities was primarily due to higher net loss in six months of 2020 due to the impact of the Athene Reinsurance Transaction.

Cash flows provided by Investing Activities

Cash flows provided by operating activities increased $1,129 million to $3,577 million during the nine months ended September 30, 2021 from $2,447 million during the nine months ended September 30, 2020.

This increase in cash provided by operating activities was primarily due to a higher net loss in nine months of 2020 due to the impact of the Athene Reinsurance Transaction.

Cash flows provided by (used in) Investing Activities

The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives.

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The primary liquidity concerns with respect to these cash flows are the risk of default by debtors or market disruptions that might impact the timing of investment related cash flows.

Cash flows provided by investing activities decreased $4,654 million to $580 million during the six months ended June 30, 2021 from $5,234 million during the six months ended June 30, 2020.

This decrease was due to an increase in outflows related to the previously mentioned decreased derivative gains during the six months of 2021, compared to the six months of 2020.

Cash flows provided by (used in) investing activities increased $4,327 million to $624 million during the nine months ended September 30, 2021 from $(3,703) million during the nine months ended September 30, 2020.

This increase was due to the sale of assets during the nine months of 2020 related to the Athene Reinsurance Transaction.

Cash flows provided by (used in) Financing Activities

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The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal.

Cash flows (used in) provided by financing activities decreased $3,428 million to $(3,212) million during the six months ended June 30, 2021 from $216 million for the six months ended June 30, 2020.

This decrease was primarily due to lower sales within our institutional products and net transfers from variable annuity separate accounts to the general account during the six months of 2020, partially offset by repurchase agreements entered into during the six months of 2021.

Cash flows provided by (used in) financing activities decreased $4,506 million to $(3,738) million during the nine months ended September 30, 2021 from $769 million for the nine months ended September 30, 2020.

This decrease was primarily due to higher variable annuity surrender and death benefit outflows from our large in-force block in addition to reductions in the institutional products account value.

This was partially offset by debt agreements entered into during the nine months ended September 30, 2021.

Statutory Capital

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The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally.

As of June 30, 2021, our insurance companies were well in excess of the minimum required capital levels.

As of September 30, 2021, our insurance companies were well in excess of the minimum required capital levels.

Jackson is also subject to risk-based capital guidelines that provide a method to measure the adjusted capital that a life insurance company should have for regulatory purposes, taking into account the risk characteristics of Jackson’s investments and products.

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For 2021, Jackson and Brooke Life, Jackson’s direct parent company, had total ordinary dividend capacity, based on 2020 statutory capital and surplus and statutory net gain from operations, subject to the availability of earned surplus, of $477 million and $377 million, respectively.

Brooke Life, as the sole owner of our other insurance company subsidiaries, including Jackson and Jackson National Life NY, is the direct recipient of any dividend payments from those subsidiaries and must make dividend payments to its ultimate parent company, Jackson Financial, in order for any funds from our insurance company subsidiaries to reach Jackson Financial.

As such, Jackson Financial’s ability to receive dividend

payments from our insurance company subsidiaries is effectively limited by Brooke Life’s ability to make dividend payments to Jackson Financial.

insurance company subsidiaries to reach Jackson Financial.

As such, Jackson Financial’s ability to receive dividend payments from our insurance company subsidiaries is effectively limited by Brooke Life’s ability to make dividend payments to Jackson Financial.

The maximum distribution permitted by law or contract is not necessarily indicative of an insurer’s actual ability to pay such distributions, which may be constrained by business and other considerations, such as imposition of withholding tax, the impact of such distributions on surplus, which could affect the insurer’s ratings or competitive position, the ability to generate new annuity sales and the ability to pay future dividends or make other distributions.

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Liquidity requirements are principally for purchases of new investments, management of derivative related margin requirements, repayment of principal and interest on debt, payments of interest on surplus notes, funding of insurance product liabilities including payments for policy benefits, surrenders, maturities and new policy loans, funding of expenses including payment of commissions, operating expenses and taxes.

As of June 30, 2021, Jackson’s outstanding surplus notes and bank debt included $68.0 million of bank loans from the Federal Home Loan Bank of Indianapolis, collateralized by mortgage-related securities and mortgage loans and $250 million of surplus notes maturing in 2027.

As of September 30, 2021, Jackson’s outstanding surplus notes and bank debt included $ 68.1 million of bank loans from the Federal Home Loan Bank of Indianapolis ("FHLBI"), collateralized by mortgage-related securities and mortgage loans and $250.0 million of surplus notes maturing in 2027.

Significant increases in interest rates could create sudden increases in surrender and withdrawal requests by customers and contract holders, and result in increased liquidity requirements at our insurance company subsidiaries.

Significant increases in interest rates or equity markets may also result in higher margin and collateral requirements on our derivative portfolio.

Other factors that are not directly related to interest rates can also give rise to an increase in liquidity requirements, including, changes in ratings from rating agencies, general policyholder concerns relating to the life insurance industry (e.g., the unexpected default of a large, unrelated life insurer) and competition from other products, including non-insurance

products such as mutual funds, certificates of deposit and newly developed investment products.

Most of the life insurance and annuity products Jackson offers permit the policyholder or contract holder to withdraw or borrow funds or surrender cash values.

As of June 30, 2021, approximately half of Jackson’s general account reserves are either not surrenderable, or included policy restrictions such as surrender charges greater than 5%, or market value adjustments to discourage early withdrawal of policy and contract funds.

The liquidity sources for our insurance company subsidiaries are their cash, short-term investments, sales of publicly traded bonds, premium income, sales of annuities and institutional products, investment income, commercial repurchase agreements and utilization of a short-term borrowing facility with the Federal Home Loan Bank of Indianapolis.

As of September 30, 2021, approximately half of Jackson’s general account reserves are either not surrenderable, or included policy restrictions such as surrender charges greater than 5%, or market value adjustments to discourage early withdrawal of policy and contract funds.

Jackson uses a variety of asset liability management techniques to provide for the orderly provision of cash flow from investments and other sources as policies and contracts mature in accordance with their normal terms.

Jackson’s principal sources of liquidity to meet unexpected cash outflows associated with sudden and severe increases in surrenders and withdrawals are its portfolio of liquid assets and its net operating cash flows.

As of June 30, 2021, the portfolio of cash, short-term investments and privately and publicly traded securities and equities amounted to $37.2 billion.

As of September 30, 2021, the portfolio of cash, short-term investments and privately and publicly traded securities and equities, which are unencumbered and unrestricted to sale, amounted to $26.5 billion.

Our Indebtedness

On February 22, 2021, we and a syndicate of banks entered into a credit agreement consisting of a $1.0 billion Revolving Facility, and a credit agreement consisting of a $1.7 billion senior unsecured delayed draw term loan facility that matures in February 2022 and a $1.0 billion senior unsecured delayed draw term loan facility that matures in February 2023.

anniversary of our entry into the credit agreements to the date that was the nine-month anniversary of our entry into the credit agreements, (ii) extend the maturity date of the 2022 DDTL Facility from February 2022 to May 2022 and (iii) amend the definition used to calculate our adjusted consolidated net worth to reflect certain changes in our restated audited financial statements included in the Form 10.

On July 19, 2021, we and such banks entered into amendments to such credit agreements in order to (i) extend the period during which we were permitted to draw under the Credit Facilities from the date that was the six-month anniversary of our entry into the credit agreements to the date that was the nine-month anniversary of our entry into the credit agreements, (ii) extend the maturity date of the 2022 DDTL Facility from February 2022 to May 2022 and (iii) amend the definition used to calculate our adjusted consolidated net worth to reflect certain changes in our restated audited financial statements included in the Form 10.

When referring to the Credit Facilities, the associated credit agreements and the terms and conditions thereof, in each case in this report, we are referring to the Credit Facilities, the credit agreements and their terms and conditions as amended by the amendments entered into on July 19, 2021.

The credit agreements for the Credit Facilities contain a number of customary representations and warranties, affirmative and negative covenants and events of default (including a change of control provision).

enhanced, debt ratings are either (x) BBB+ or better from S&P or (y) Baa1 or better from Moody’s), incur additional indebtedness, create liens on our or our subsidiaries’ assets and make fundamental changes.

Such covenants, among other things, restrict, subject to certain exceptions, our ability to pay dividends and distributions or repurchase common shares if a default or event of default has occurred and is continuing (with such negative covenant dropping away if our long term unsecured senior, non-credit enhanced, debt ratings are either (x) BBB+ or better from S&P or (y) Baa1 or better from Moody’s), incur additional indebtedness, create liens on our or our subsidiaries’ assets and make fundamental changes.

The credit agreements for the Credit Facilities contain financial maintenance covenants, including a minimum adjusted consolidated net worth test of no less than 70% of our adjusted consolidated net worth as of the date of the Demerger (taking into account 50% of the proceeds of any additional equity issuances) and a maximum consolidated indebtedness to total capitalization ratio test not to exceed 35%.

The credit agreement for the DDTL Facilities also contains a covenant that requires we maintain minimum long term unsecured senior, non-credit

enhanced, debt ratings of at least (x) BBB-

from S&P and (y) Baa3 from Moody’s.

The credit agreement for the DDTL Facilities also contains a covenant that requires we maintain minimum long term unsecured senior, non-credit enhanced, debt ratings of at least (x) BBB- from S&P and (y) Baa3 from Moody’s.

The Revolving Facility provides for borrowings to be available for working capital and other general corporate purposes under aggregate commitments of $1.0 billion, with a sublimit of $500 million available for letters of credit.

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$1.6 billion under the 2022 DDTL Facility and $750 million under the 2023 DDTL Facility.

We have contributed a majority of the proceeds from the borrowings under the DDTL Facilities to Jackson.

With respect to the remaining amount of proceeds from the borrowings under the DDTL Facilities, we intend to (i) establish a minimum liquidity buffer of at least $250.0 million at the Company, and (ii) retain the balance of the proceeds of approximately $575.0 million at the Company.

We have contributed a majority of the proceeds from the borrowings under the DDTL Facilities to Jackson.With respect to the remaining amount of proceeds from the borrowings under the DDTL Facilities, we have (i) established a minimum liquidity buffer of at least $250.0 million at the Company, and (ii) retained the balance of the proceeds of approximately $575.0 million at the Company.

With respect to items (i) and (ii), such amounts are expected to be used for general corporate purposes, including interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to stockholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries.

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On March 15, 1997, our subsidiary, Jackson, issued 8.15% surplus notes in the principal amount of $250 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.

These surplus notes were issued pursuant to Rule 144A under the Securities Act of 1933, as amended, 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.

Interest expense on the notes was $5.1 million and $15.3 million for the three and nine months ended September 30, 2021, respectively.

Interest expense on the notes was $5.2 million and $15.4 million for the three and nine months ended September 30, 2020, respectively.

On November 6, 2019, Jackson Financial, through its subsidiary, Brooke Life, issued a 4.5% surplus note payable to Prudential, in the principal amount of $2.0 billion, due November 6, 2059.

Immediately following issuance of the $2.0 billion surplus note, Jackson Financial remitted a return of capital of $2.0 billion to Prudential.

These two actions increased total indebtedness by $2.0 billion and reduced total stockholder’s equity by $2.0 billion.

These two actions

increased total indebtedness by $2.0 billion and reduced total stockholder’s equity by $2.0 billion.

The surplus note was unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims.

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Advances are in the form of either short-term or long-term notes or funding agreements issued to FHLBI.

As of June 30, 2021, Jackson held a short-term borrowing of $250.0 million and a bank loan with an outstanding balance of $68.1 million.

As of September 30, 2021, Jackson held a short-term borrowing of nil and a bank loan with an outstanding balance of $68.1 million.

As of December 31, 2020, Jackson held a short-term borrowing of $380 million and a bank loan with an outstanding balance of $72.3 million.

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Financial strength ratings are not recommendations to buy, sell or hold securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

and soundness of our reinsurance, the quality and estimated market value of our assets, the adequacy of our surplus, our capital structure, and the experience and competence of our management.

Best Fitch Moody’s S&P

Rating A A A2 A

Outlook stable stable negative stable

In evaluating a company’s financial strength, the rating agencies evaluate a variety of factors including but not limited to our strategy, market positioning and track record, our mix of business, profitability, leverage and liquidity, the adequacy and soundness of our reinsurance, the quality and estimated market value of our assets, the adequacy of our surplus, our capital structure, and the experience and competence of our management.

In addition to the financial strength ratings, rating agencies use an outlook statement to indicate a short or medium term trend which, if continued, may lead to a rating change.

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• valuation of embedded derivatives

• income taxes

• value of business acquired

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Off–Balance Sheet Arrangements

We do not have any off–balance sheet arrangements as of June 30, 2021.

We do not have any off–balance sheet arrangements as of September 30, 2021.

Principal Definitions, Abbreviations and Acronyms Used in the Text and Notes of this Report

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Athene Life Re Ltd.

and its affiliates and permitted transferees, including Athene Co-Invest

Reinsurance Affiliate 1A Ltd.

and its affiliates and permitted transferees, including Athene Co-Invest Reinsurance Affiliate 1A Ltd.

Athene Equity Investment

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Athene Reinsurance Transaction

The funds withheld coinsurance agreement entered into with Athene on June 18, 2020, effective June 1, 2020, to reinsure a 100% quota share of a block of our in-force

fixed and fixed index annuity liabilities in exchange for approximately $1.2 billion in ceding commissions

The funds withheld coinsurance agreement entered into with Athene on June 18, 2020, effective June 1, 2020, to reinsure a 100% quota share of a block of our in-force fixed and fixed index annuity liabilities in exchange for approximately $1.2 billion in ceding commissions

Athene Transactions

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GMAB (Guaranteed minimum accumulation benefit)

benefit (available for an additional cost) which entitles an owner to a minimum payment, typically in lump-sum,

after a set period of time, typically referred to as the accumulation period.

An add-on benefit (available for an additional cost) which entitles an owner to a minimum payment, typically in lump-sum, after a set period of time, typically referred to as the accumulation period.

The minimum payment is based on the benefit base, which could be greater than the underlying account value.

GMDB (Guaranteed minimum death benefit)

benefit that guarantees an owner’s beneficiaries are entitled to a minimum payment based on the benefit base, which could be greater than the underlying account value, upon the death of the owner.

An add-on benefit that guarantees an owner’s beneficiaries are entitled to a minimum payment based on the benefit base, which could be greater than the underlying account value, upon the death of the owner.

GMIB (Guaranteed minimum income benefit)

benefit (available for an additional cost) where an owner is entitled to annuitize the policy and receive a minimum payment stream based on the benefit base, which could be greater than the payment stream resulting from current annuitization of the underlying account value.

An add-on benefit (available for an additional cost) where an owner is entitled to annuitize the policy and receive a minimum payment stream based on the benefit base, which could be greater than the payment stream resulting from current annuitization of the underlying account value.

GMWB (Guaranteed minimum withdrawal benefit)

benefit (available for an additional cost) where an owner is entitled to withdraw a maximum amount of their benefit base each year, for which cumulative payments to the owner could be greater than the underlying account value.

An add-on benefit (available for an additional cost) where an owner is entitled to withdraw a maximum amount of their benefit base each year, for which cumulative payments to the owner could be greater than the underlying account value.

GMWB for Life (Guaranteed minimum withdrawal benefit for life)

benefit (available for an additional cost) where an owner is entitled to withdraw the guaranteed annual withdrawal amount each year, for the duration of the policyholder’s life, regardless of account performance.

An add-on benefit (available for an additional cost) where an owner is entitled to withdraw the guaranteed annual withdrawal amount each year, for the duration of the policyholder’s life, regardless of account performance.

National Association of Insurance Commissioners

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Variable annuity

A type of annuity that offers tax-deferred

investment into a range of asset classes and a variable return, which offers insurance features related to potential future income payments.

A type of annuity that offers tax-deferred investment into a range of asset classes and a variable return, which offers insurance features related to potential future income payments.

Variable interest entity

Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the quantitative and qualitative disclosures about market risk described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” previously disclosed in our Form 10.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis