Jackson Financial Inc. 10-Q

Item 1A. Risk Factors. Below are material changes to the risk factors described in the section titled “Risk Factors” previously disclosed in the Form 10: Our new registered index-linked annuities, Market Link Pro SM and Market Link Pro Advisory SM , involve risk, as described below: The terms of our new registered index-linked annuities may not meet customer needs, and we may encounter delays and missed market opportunities if we need to revise those terms, with consequent effects on revenues, costs and results of operations. Our registered index-linked annuity (RILA) products are intended to provide a product that meets the growing demand for RILA products. Creation of the product required the preparation, filing and effectiveness of a registration statement with the SEC. Changes to that product offering may require an amendment to that registration statement, or a new registration statement, which would entail analysis of the needed changes and their effects, a new product description and review by the SEC. Those steps could interrupt and delay the marketing of our product, with consequent impacts on revenues, costs and results of operations. As described in the paragraphs that follow, several of the risk factors described under “Risk Factors” in our Form 10 registration statement no longer apply, or have changed, as a result of the completion of the Demerger on September 13, 2021 and the term loan borrowings made on September 10, 2021 under our DDTL Facilities. The paragraph labelled “Our inability to recruit, motivate and retain key employees and experienced and productive employees could cause a material adverse effect on our business, financial condition, results of operations and cash flows.” under “Risk Factors – Risks Relating to Our Operations” is amended as follows: Our inability to recruit, motivate and retain key employees and experienced and productive employees could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Our business depends on our ability to attract, motivate and retain highly skilled, and often highly specialized, technical, investment, actuarial, managerial and executive personnel. For example, we rely upon the knowledge and experience of employees with technical expertise to provide sound operational controls for our overall enterprise, including the accurate and timely preparation of required regulatory filings and U.S. GAAP and statutory financial statements and operation of internal controls. Our success also depends on the continued service of our key senior management team, including executive officers and senior managers. In all cases, we depend on the ability of our employees, including senior management, to work together to accomplish the Company’s business plans and strategic objectives. As of the Demerger, we are now a public company and will need employees with different skillsets and public company experience. We may not be able to attract this talent. In addition, we may not have the resources we need or associates with the right skillsets and working relationships may not develop properly among existing employees and senior management, which may force us to supplement or replace personnel at inopportune times with possible disruption and additional costs. Employees may also leave. We may not retain these key employees or identify or attract suitable replacements for various reasons, including if we do not maintain responsible, diverse and inclusive working practices. Our succession plans may not operate effectively, and our compensation plans may not be effective in helping us retain our key employees, the loss of one or more of whom could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Intense competition exists generally and among insurers and other financial services companies for highly skilled and experienced employees. Further, heightened competition for talent and skilled employees in localities in which we operate could limit our ability to grow our business in those localities as quickly as planned. Technological advances 116 could result in increased competition (including from outside the insurance industry) and a failure to be able to attract sufficient numbers of skilled staff. The paragraph labelled “We expect to incur indebtedness in connection with the Recapitalization, which will increase our costs, and the degree to which we will be leveraged could cause a material adverse effect on our business, financial condition, results of operations and cash flows.” under “Risk Factors -- Risks Relating to Our Operations” is amended as follows: We have incurred term loan indebtedness in connection with the Demerger that we will need to service and refinance, which will depend, among other things, upon cash made available to us by our operating subsidiaries and our ability to access the capital markets. Our ability to make payments on and to refinance our indebtedness, including our $1.6 billion term loan due May 2022 and our $750 million term loan due February 2023, as well as any future indebtedness that we may incur, will depend on our ability to generate cash in the future from operations, financing or asset sales. Our ability to generate cash to meet our debt obligations in the future is sensitive to capital market returns and interest rates, primarily due to our variable annuity business. In addition, despite our indebtedness levels, we may be able to incur substantially more indebtedness under the terms of our debt agreements. Any such incurrence of additional indebtedness would increase the risks created by our level of indebtedness. Overall, our ability to generate cash is subject to general economic, financial market, competitive, legislative, regulatory, client behavior and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we could be forced to take unfavorable actions, including significant business and legal entity restructuring, limited new business investment, selling assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired. In the event we default, the lenders who hold our debt could also accelerate amounts due, which could potentially trigger a default or acceleration of the maturity of our other debt. In addition, the level of our indebtedness could put us at a competitive disadvantage compared to our competitors that are less leveraged than us. These competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. The level of our indebtedness could also impede our ability to withstand downturns in our industry or the economy in general. The credit agreement for the DDTL Facilities contains a covenant requiring net cash proceeds from any debt issuance, preferred equity issuance or hybrid instrument issuance by the Company or its subsidiaries to be applied first, to the repayment of the term loan due 2022, and second, to the repayment of the term loan due 2023. That credit agreement 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. See Note 10 of Notes to Condensed Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Our Indebtedness” in this Report for more information regarding the term loans and our other indebtedness. The “Risks Relating to the Demerger and our Separation from Prudential” under “Risk Factors” are amended and restated as follows: The Company may fail to realize any or all of the anticipated benefits of the Demerger. The realization of the anticipated benefits of the Demerger is subject to a number of factors, including the Company’s ability to access capital markets, to maintain credit ratings, and to demonstrate financial resilience as a separate company. There are also many factors that are outside the control of the Company, including the performance of financial markets, consumer behavior, and regulatory, legislative, and tax changes. There can be no guarantee that the anticipated benefits of the Demerger will be realized in full or in part, or as to the timing of when any such benefits may be realized. Prudential may not complete the ultimate separation of our business as planned and may retain a significant ownership stake in JFI for a period of time. Prudential holds shares of JFI’s outstanding Class A common stock representing approximately 19.9% of the total combined voting power of JFI’s common stock and approximately 19.7% of JFI’s total common stock. Prudential has 117 stated its intention to monetize a portion of its retained shares of Class A common stock for cash proceeds within 12 months following the completion of the Demerger, such that Prudential expects to own less than 10% of the total combined voting power of JFI’s common stock at the end of such period. There can be no assurance regarding the method by which Prudential will dispose of its interest in us or the timing thereof. The disposition by Prudential of its remaining ownership interest in us may be subject to various conditions, including receipt of any necessary regulatory and other approvals, the existence of satisfactory market conditions, and the confirmation of credit and financial strength ratings. These conditions may not be satisfied, or Prudential may decide for any other reason to retain its ownership interest in us for a period of time. Prudential and Athene will have influence over us as large stockholders and could pursue business interests or exercise their voting power as stockholders in ways that are detrimental to us or our other stockholders. Prudential and Athene, respectively, own approximately 19.9% and 9.9%, of the total combined voting power of JFI’s common stock. As large stockholders, Prudential and Athene are able to influence matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions we may undertake. The interests of Prudential or Athene could conflict with our interests or the interest of our other stockholders. Prudential, Athene and their respective affiliates could pursue business interests or acquisition opportunities or exercise their voting power as stockholders of our company in ways that are detrimental to us or our other stockholders but beneficial to themselves or to other companies in which they invest or with which they have a material relationship. Conflicts of interest could also arise between Athene and us with respect to the Athene Reinsurance Transaction or future transactions we may engage in with Athene. In addition, because of our relationships with Prudential and Athene, adverse publicity, increased regulatory scrutiny or investigations by regulators or law enforcement agencies involving Prudential or Athene could have a negative impact on us. Prudential and its affiliates provide a significant amount of PPM’s assets under management, and if they choose to terminate their investment advisory agreements it could cause a material adverse effect on our business, financial condition, results of operations and cash flows. Prudential and its affiliates are significant clients of PPM. Prudential and its affiliates (and former affiliates) other than us represented approximately $29 billion of assets under management or 36% of PPM’s total assets under management as of September 30, 2021 and approximately 46% and 40% of PPM’s revenue for the year ended December 31, 2020 and the nine months ended September 30, 2021, respectively. Since December 31, 2020, PPM’s assets under management have decreased primarily due to withdrawals by Prudential’s former UK affiliate. PPM’s investment management agreements with Prudential and its affiliates are terminable at any time or on short notice by either party, and Prudential and its affiliates are not under any obligation to maintain any level of assets under management with PPM. If Prudential and its affiliates were to terminate their investment management agreements with PPM, it could cause disruption in the operations and investment advisory capabilities of PPM, including as a result of the loss of investment management personnel, which could in turn result in a material adverse effect on our business, financial condition, results of operations and cash flows. Mutual indemnities have been given under the Demerger Agreement by Prudential in favor of the Company and by the Company in favor of the Prudential Group. Should any substantial amounts be payable by Prudential or the Company pursuant to such indemnities, this could have a material adverse effect on the financial condition and/or results of the indemnifying party. We have entered into the Demerger Agreement with Prudential in connection with the Demerger, which governs the post-Demerger obligations of the Prudential Group and the Company and contains, among other provisions, mutual indemnities under which Prudential indemnifies us against liabilities arising in respect of the Prudential Group (other than the Company’s business) and the Company indemnifies the Prudential Group against liabilities arising in respect of the business carried on us. These indemnities are customary for agreements of this type. If any amount payable under the indemnities were substantial, this could have a material adverse effect on our business, financial condition, results of operations and cash flows. Prudential continues to hold shares of Class A common stock but has ceased to have any control over the Company. Prudential holds shares of Class A common stock representing approximately 19.9% of the combined voting power of JFI’s common stock and but does not have any board nomination or special governance rights. In connection with disposition of control filings with DIFS and NYSDFS as part of the Demerger process, Prudential agreed to certain governance restrictions relating to its ongoing ownership of shares of our common stock. See “Certain Relationships and Related Party Transactions—Relationship with Prudential Following the Demerger—Certain Insurance Regulatory Governance 118 Restrictions on Prudential.” As a result, we are no longer controlled by Prudential, and you will be relying on our management regarding strategic, financial and operational decisions. We may conduct our business in a manner that differs from the manner in which Prudential might have conducted the business had it retained control, and we could be subject to adverse publicity, increased regulatory scrutiny or investigations by regulators or law enforcement agencies. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Recent Sales of Unregistered Securities. None. Repurchase of Equity by the Company. None.