Jackson Financial Inc. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm ( KPMG LLP , Dallas, TX , Auditor Firm ID: 185 ) 117 Consolidated Balance Sheet s as of December 31, 2021 and December 31, 2020 120 Consolidated Income Statements for the years ended December 31, 2021, 2020 and 2019 121 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019 122 Consolidated Statements of Equity for the years ended December 31, 2021, 2020 and 2019 123 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 124 Notes to Consolidated Financial Statements Note 1. Business and Basis of Presentation 126 Note 2. Summary of Significant Accounting Policies 128 Note 3. Segment Information 130 Note 4. Investments 135 Note 5. Derivative Instruments 150 Note 6. Fair Value Measurements 156 Note 7. Deferred Acquisition Cost s and Deferred Sales Inducement s 172 Note 8. Reinsurance 174 Note 9. Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds 178 Note 10. Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees 181 Note 11. Long-term Debt 187 Note 12. Federal Home Loan Bank Advances 188 Note 13. Income Taxes 189 Note 14. Commitments and Contingencies 193 Note 15. Leases 193 Note 16. Share-Based Compensation 194 Note 17. Other Related Party Transactions 196 Note 18. Statutory Accounting and Regulatory Matters 197 Note 19. Benefit Plans 198 Note 20. Operating Costs and Other Expenses 198 Note 21. Accumulated Other Comprehensive Income 199 Note 22. Equity 199 Note 23. Earnings Per Share 201 Note 24. Subsequent Events 202 Financial Statement Schedules: Schedule I—Summary of Investments—Other Than Investments in Related Parties as of December 31, 2021 203 Schedule II—Financial Statements of Jackson Financial Inc. (Parent Only) as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019 204 Schedule III—Supplemental Insurance Information for the years ended December 31, 2021, 2020 and 2019 207 Schedule IV—Reinsurance for the years ended December 31, 2021, 2020 and 2019 209 Schedule V—Valuation and Qualifying Accounts for the years ended December 31, 2021 and 2020 210 116 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Jackson Financial Inc. and Subsidiaries: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Jackson Financial Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated income statements and statements of comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedules I to V (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Change in Accounting Principle As discussed in Note 22 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses due to the adoption of ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Statements, as of January 1, 2020. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Liability for future policy benefits for certain variable annuity guarantees As disclosed in Notes 6 and 10 to the consolidated financial statements, variable annuity contracts issued by the Company offer guaranteed minimum death benefits (GMDBs) and guaranteed minimum withdrawal benefits (GMWBs). The liability for the non-life contingent component of GMWBs is considered an embedded derivative and reported at fair value. The liability for GMDBs is measured in accordance with the measurement guidance for death and other insurance benefits. The Company estimates the liabilities for the GMDBs and non-life contingent component of the GMWBs using subjective 117 judgments related to capital market assumptions, as well as actuarially determined assumptions related to expectations of future policyholder behavior. The Company regularly evaluates and updates these assumptions, causing adjustment to the estimated liability, if actual experience or other evidence suggests that earlier assumptions should be revised. As of December 31, 2021, the liability for the non-life contingent component of GMWBs was estimated to be $2.6 billion in Notes 6 and 10 and the liability for GMDBs was estimated to be $1.4 billion in Notes 6 and 10. These liabilities are reported within reserves for future policy benefits and claims payable in the Company’s consolidated balance sheets. We identified the evaluation of certain assumptions used to estimate the value of these liabilities as a critical audit matter. Due to the significant measurement uncertainty, this evaluation involved subjective auditor judgment and required specialized skills and knowledge related to the assumptions for mortality, benefit utilization, lapse, and discount rates (for non-life contingent GMWB liabilities) and mortality, lapse, fund performance, and discount rates (for GMDB liabilities), collectively, assumptions. The following are the primary procedures we performed to address this critical audit matter. With the assistance of actuarial professionals with specialized skills and industry knowledge, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s development and selection of assumptions used in the estimation of these liabilities. We involved actuarial professionals with specialized skills and industry knowledge, who assisted in: • evaluating the consistency with prior periods of the Company’s methodology for estimating assumptions • comparing the assumptions with the Company’s emerging experience or market trends and evaluating the reasonableness of assumptions where deviations from company experience or market trends were identified • testing the Company’s estimate of the liability for the non-life contingent component of GMWBs and the liability for GMDBs and confirming the use of the Company’s assumptions by recalculating the estimated reserve for a selection of policies and comparing the results to the Company’s estimates Amortization of deferred acquisition costs As discussed in Note 7 to the consolidated financial statements, for the year ended December 31, 2021, the Company reported amortization of deferred acquisition costs of $(519) million. A substantial portion of this amortization and the unamortized DAC balance as of December 31, 2021, relates to variable annuity contracts, including contracts with guaranteed benefit riders, which is amortized into income in proportion to estimated gross profits of the relevant contracts. Assumptions impacting estimated future gross profits used in the calculation of the amortization of the deferred acquisition costs include but are not limited to policyholder behavior assumptions, mortality rates, investment returns and projected hedging costs. The Company regularly evaluates and updates these assumptions, causing adjustments to the estimated gross profits, if actual experience or other evidence suggests that earlier assumptions should be revised. We identified the evaluation of certain assumptions used to estimate gross profits used in the amortization of deferred acquisition costs for variable annuity contracts as a critical audit matter. Specifically, a high degree of subjective auditor judgment, as well as specialized skills and industry knowledge, were required in evaluating certain assumptions, including mortality, lapse, benefit utilization rates, investment returns, and projected hedging costs, collectively defined as assumptions. 118 The following are the primary procedures we performed to address this critical audit matter. With the assistance of actuarial professionals with specialized skills and industry knowledge, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s development and selection of assumptions used to estimate future gross profits. We involved actuarial professionals with specialized skills and industry knowledge, who assisted in: • evaluating the consistency with prior periods of the Company’s methodology for estimating assumptions • comparing the assumptions with the Company’s emerging experience or market trends and evaluating the reasonableness of the assumptions where deviations from Company experience or market trends were identified • testing the application of the Company’s estimation of gross profits used in the amortization of deferred acquisition costs and confirming the use of the Company’s assumptions by recalculating the estimates of future gross profits for a selection of policies and comparing the results to the Company’s estimates /s/ KPMG LLP Dallas, Texas March 7, 2022 We have served as the Company’s auditor since 1999. 119 Jackson Financial Inc. Consolidated Balance Sheets (in millions, except per share data) December 31, 2021 2020 Assets Investments: Debt Securities, available-for-sale, net of allowance for credit losses of $ 9 and $ 14 at December 31, 2021 and 2020, respectively (amortized cost: 2021 $ 49,378 ; 2020 $ 54,141 ) $ 51,547 $ 59,075 Debt Securities, at fair value under fair value option 1,711 1,277 Debt Securities, trading, at fair value 117 105 Equity securities, at fair value 279 193 Mortgage loans, net of allowance for credit losses of $ 94 and $ 179 at December 31, 2021 and 2020, respectively 11,482 10,728 Policy loans (including $ 3,467 and $ 3,454 at fair value under the fair value option at December 31, 2021 and 2020, respectively) 4,475 4,524 Freestanding derivative instruments 1,417 2,220 Other invested assets 3,199 2,366 Total investments 74,227 80,488 Cash and cash equivalents 2,623 2,019 Accrued investment income 503 558 Deferred acquisition costs 14,249 13,897 Reinsurance recoverable, net of allowance for credit losses of $ 12 and $ 13 at December 31, 2021 and 2020, respectively 33,126 35,270 Deferred income taxes, net 954 1,058 Other assets 853 1,103 Separate account assets 248,949 219,063 Total assets $ 375,484 $ 353,456 Liabilities and Equity Liabilities Reserves for future policy benefits and claims payable $ 17,629 $ 21,490 Other contract holder funds 59,689 64,538 Funds withheld payable under reinsurance treaties (including $ 3,639 and $ 3,627 at fair value under the fair value option at December 31, 2021 and 2020, respectively) 29,007 31,972 Long-term debt 2,649 322 Repurchase agreements and securities lending payable 1,589 1,113 Collateral payable for derivative instruments 913 1,103 Freestanding derivative instruments 41 56 Other liabilities 3,944 3,876 Separate account liabilities 248,949 219,063 Total liabilities 364,410 343,533 Commitments, Contingencies, and Guarantees (Note 14) Equity Common stock, (i) Class A common stock 900,000,000 shares authorized, $ 0.01 par value per share and 88,046,833 and 93,099,859 shares issued and outstanding at December 31, 2021 and 2020, respectively and (ii) Class B common stock 100,000,000 shares authorized, $ 0.01 par value per share and 638,861 and 1,364,484 shares issued and outstanding at December 31, 2021 and 2020, respectively (See Note 22) 1 1 Additional paid-in capital 6,051 5,927 Treasury stock, at cost; 5,778,649 and nil shares at December 31, 2021 and 2020, respectively. ( 211 ) — Shares held in trust — ( 4 ) Equity compensation reserve — 8 Accumulated other comprehensive income, net of tax expense of $ 194 in 2021 and $ 766 in 2020 1,744 3,821 Retained earnings 2,809 ( 324 ) Total shareholders' equity 10,394 9,429 Noncontrolling interests 680 494 Total equity 11,074 9,923 Total liabilities and equity $ 375,484 $ 353,456 See notes to consolidated financial statements. 120 Jackson Financial Inc. Consolidated Income Statements (in millions, except per share data) For the Years Ended December 31, 2021 2020 2019 Revenues Fee income $ 7,670 $ 6,604 $ 6,413 Premiums 133 160 567 Net investment income 3,429 2,829 3,143 Net gains (losses) on derivatives and investments ( 2,478 ) ( 6,451 ) ( 6,714 ) Other income 94 64 69 Total revenues 8,848 3,206 3,478 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 913 1,284 1,464 Interest credited on other contract holder funds, net of deferrals 868 1,210 1,641 Interest expense 37 88 99 Operating costs and other expenses, net of deferrals 2,462 984 2,066 Cost of reinsurance — 2,520 — Amortization of deferred acquisition and sales inducement costs 521 ( 389 ) ( 981 ) Total benefits and expenses 4,801 5,697 4,289 Pretax income (loss) 4,047 ( 2,491 ) ( 811 ) Income tax expense (benefit) 602 ( 854 ) ( 369 ) Net income (loss) 3,445 ( 1,637 ) ( 442 ) Less: Net income (loss) attributable to noncontrolling interests 262 ( 3 ) 55 Net income (loss) attributable to Jackson Financial Inc. $ 3,183 $ ( 1,634 ) $ ( 497 ) Earnings per share Basic $ 33.86 $ ( 24.14 ) $ ( 13.16 ) Diluted $ 33.69 $ ( 24.14 ) $ ( 13.16 ) See notes to consolidated financial statements. 121 Jackson Financial Inc. Consolidated Statements of Comprehensive Income (Loss) (in millions) For the Years Ended December 31, 2021 2020 2019 Net income (loss) $ 3,445 $ ( 1,637 ) $ ( 442 ) Other comprehensive income (loss), net of tax: Securities with no credit impairment net of tax expense (benefit) of: $( 573 ), $ 414 , and $ 697 for the years ended December 31, 2021, 2020 and 2019, respectively ( 2,080 ) 1,419 2,623 Securities with credit impairment, net of tax expense (benefit) of: $ 1 , $ 1 , and nil for the years ended December 31, 2021, 2020 and 2019, respectively 3 4 ( 1 ) Total other comprehensive income (loss) ( 2,077 ) 1,423 2,622 Comprehensive income (loss) 1,368 ( 214 ) 2,180 Less: Comprehensive income (loss) attributable to noncontrolling interests 262 ( 3 ) 55 Comprehensive income (loss) attributable to Jackson Financial Inc. $ 1,106 $ ( 211 ) $ 2,125 See notes to consolidated financial statements. 122 Jackson Financial Inc. Consolidated Statements of Equity (in millions) Accumulated Additional Treasury Shares Equity Other Total Non- Common Paid-In Stock Held Compensation Comprehensive Retained Shareholders' Controlling Total Stock Capital at Cost In Trust Reserve Income Earnings Equity Interests Equity Balances as of December 31, 2018 $ 1 $ 5,077 $ — $ ( 11 ) $ 3 $ ( 224 ) $ 2,738 $ 7,584 $ 390 $ 7,974 Net income (loss) — — — — — — ( 497 ) ( 497 ) 55 ( 442 ) Change in unrealized investment gains and losses, net of tax — — — — — 2,622 — 2,622 — 2,622 Change in equity of noncontrolling interests — — — — — — — — 39 39 Dividends paid to former parent — — — — — — ( 875 ) ( 875 ) — ( 875 ) Return of Capital — ( 2,000 ) — — — — — ( 2,000 ) — ( 2,000 ) Shares acquired at cost — — — ( 3 ) — — — ( 3 ) — ( 3 ) Shares distributed at cost — — — 10 — — — 10 — 10 Reserve for equity compensation plans — — — — 1 — — 1 — 1 Fair value of shares issued under equity compensation plans — — — — ( 4 ) — — ( 4 ) — ( 4 ) Balances as of December 31, 2019 $ 1 $ 3,077 $ — $ ( 4 ) $ — $ 2,398 $ 1,366 $ 6,838 $ 484 $ 7,322 Net income (loss) — — — — — — ( 1,634 ) ( 1,634 ) ( 3 ) ( 1,637 ) Change in unrealized investment gains and losses, net of tax — — — — — 1,423 — 1,423 — 1,423 Change in equity of noncontrolling interests — — — — — — — — 13 13 Common stock issuance - debt restructure — 2,350 — — — — — 2,350 — 2,350 Common stock issuance - Athene — 500 — — — — — 500 — 500 Change in accounting principle, net of tax — — — — — — ( 56 ) ( 56 ) — ( 56 ) Shares acquired at cost — — — ( 18 ) — — — ( 18 ) — ( 18 ) Shares distributed at cost — — — 18 — — — 18 — 18 Reserve for equity compensation plans — — — — 8 — — 8 — 8 Fair value of shares issued under equity compensation plans — — — — — — — — — — Balances as of December 31, 2020 $ 1 $ 5,927 $ — $ ( 4 ) $ 8 $ 3,821 $ ( 324 ) $ 9,429 $ 494 $ 9,923 Net income (loss) — — — — — — 3,183 3,183 262 3,445 Change in unrealized investment gains and losses, net of tax — — — — — ( 2,077 ) — ( 2,077 ) — ( 2,077 ) Change in equity of noncontrolling interests — — — — — — — — ( 76 ) ( 76 ) Treasury stock acquired in connection with share repurchases — — ( 211 ) — — — — ( 211 ) — ( 211 ) Dividends on common stock — — — — — — ( 50 ) ( 50 ) — ( 50 ) Share based compensation — 123 — — — — — 123 — 123 Shares sold in connection with demerger — 1 — 4 — — — 5 — 5 Reserve for equity compensation plans — — — — ( 8 ) — — ( 8 ) — ( 8 ) Balances as of December 31, 2021 $ 1 $ 6,051 $ ( 211 ) $ — $ — $ 1,744 $ 2,809 $ 10,394 $ 680 $ 11,074 See notes to consolidated financial statements. 123 Jackson Financial Inc. Consolidated Statements of Cash Flows (in millions) Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ 3,445 $ ( 1,637 ) $ ( 442 ) Adjustments to reconcile net income to net cash provided by operating activities: Net realized losses (gains) on investments ( 182 ) ( 377 ) ( 189 ) Net losses (gains) on derivatives 2,639 7,268 6,573 Net losses (gains) on funds withheld reinsurance 21 ( 440 ) 330 Interest credited on other contract holder funds, gross 868 1,213 1,648 Mortality, expense and surrender charges ( 553 ) ( 593 ) ( 641 ) Amortization of discount and premium on investments 49 55 19 Deferred income tax expense (benefit) 675 ( 776 ) ( 674 ) Share-based compensation 129 56 79 Cash received (paid to) from reinsurance transaction — ( 32 ) 37 Change in: Accrued investment income 55 36 38 Deferred acquisition costs and sales inducements ( 269 ) ( 1,359 ) ( 1,788 ) Funds withheld, net of reinsurance ( 757 ) 792 ( 267 ) Other assets and liabilities, net ( 377 ) ( 429 ) ( 355 ) Net cash provided by (used in) operating activities 5,743 3,777 4,368 Cash flows from investing activities: Sales, maturities and repayments of: Debt securities 19,568 30,094 10,123 Equity securities 50 45 423 Mortgage loans 1,747 1,201 1,243 Purchases of: Debt securities ( 14,733 ) ( 28,400 ) ( 11,068 ) Equity securities ( 111 ) ( 97 ) ( 120 ) Mortgage loans ( 2,427 ) ( 2,189 ) ( 1,750 ) Settlements related to derivatives and collateral on investments ( 4,836 ) ( 5,321 ) ( 7,041 ) Other investing activities ( 554 ) 334 ( 139 ) Net cash provided by (used in) investing activities ( 1,296 ) ( 4,333 ) ( 8,329 ) See notes to consolidated financial statements. 124 Jackson Financial Inc. Consolidated Statements of Cash Flows (continued) (in millions) Years Ended December 31, 2021 2020 2019 Cash flows from financing activities: Policyholders' account balances: Deposits 20,149 19,635 22,636 Withdrawals ( 28,788 ) ( 23,176 ) ( 23,132 ) Net transfers to separate accounts 2,664 2,561 2,646 Proceeds from (payments on) repurchase agreements and securities lending 476 1,100 — Net proceeds from (payments on) Federal Home Loan Bank notes ( 380 ) 80 300 Net proceeds from (payments on) debt 735 ( 60 ) 2,345 Net proceeds from issuance of senior notes 1,593 — — Debt issuance costs ( 28 ) — — Disposition of shares held in trust at cost, net 5 — 7 Dividends on common stock ( 50 ) — — Dividends paid to former Parent — — ( 875 ) Purchase of treasury stock ( 211 ) — — Capital distribution to former Parent — — ( 2,000 ) Common stock issuance - Athene — 500 — Net cash provided by (used in) financing activities ( 3,835 ) 640 1,927 Net increase (decrease) in cash, cash equivalents, and restricted cash 612 84 ( 2,034 ) Cash, cash equivalents, and restricted cash at beginning of period 2,019 1,935 3,969 Total cash, cash equivalents, and restricted cash at end of period $ 2,631 $ 2,019 $ 1,935 Supplemental cash flow information Income taxes paid (received) $ ( 403 ) $ 4 $ 395 Interest paid $ 30 $ 81 $ 31 Non-cash investing activities Debt securities acquired from exchanges, payments-in-kind, and similar transactions $ 370 $ 418 $ 1,219 Other invested assets acquired from stock splits and stock distributions $ 99 $ 4 $ 1 Non-cash financing activities Non-cash debt restructuring transactions (1) $ — $ ( 2,350 ) $ — Shares issued in settlement of the debt restructuring (1) $ — $ 2,350 $ — Reconciliation to Consolidated Balance Sheets Cash and cash equivalents $ 2,623 $ 2,019 $ 1,935 Restricted cash (included in Other assets) 8 — — Total cash, cash equivalents, and restricted cash $ 2,631 $ 2,019 $ 1,935 (1) See Note 22 for further description of the debt restructuring transactions. See notes to consolidated financial statements. 125 Jackson Financial Inc. Notes to Consolidated Financial Statements 1. Business and Basis of Presentation Jackson Financial Inc. (“Jackson Financial”) along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life in the United States (“U.S.”). Jackson Financial, domiciled in the U.S., was a majority-owned subsidiary of Prudential plc (“Prudential”), London, England and was the holding company for Prudential’s U.S. operations. As described below under "Other," the Company's demerger from Prudential was completed on September 13, 2021 ("Demerger"), and the Company is no longer a majority-owned subsidiary of Prudential. Jackson Financial’s primary life insurance subsidiary, Jackson National Life Insurance Company and its insurance subsidiaries (“Jackson”), is licensed to sell group and individual annuity products (including immediate, index-linked, registered index-linked, deferred fixed, and variable annuities), and individual life insurance products, including variable universal life, in all 50 states and the District of Columbia. Jackson also participates in the institutional products market through the issuance of guaranteed investment contracts (“GICs”), funding agreements and medium- term note funding agreements. In addition to Jackson, Jackson Financial’s primary operating subsidiaries are as follows: • PPM America, Inc. (“PPM”), is the Company’s investment management operation that manages the life insurance companies’ general account investment funds. PPM also provides investment services to other former affiliated and unaffiliated institutional clients. • Brooke Life Insurance Company (“Brooke Life”), Jackson’s direct parent, is a life insurance company licensed to sell life insurance and annuity products in the state of Michigan. Other subsidiaries, which are wholly owned by Jackson, consist of the following: • Life insurers: Jackson National Life Insurance Company of New York (“JNY”), Squire Reassurance Company LLC (“Squire Re”), Squire Reassurance Company II, Inc. (“Squire Re II”), VFL International Life Company SPC, LTD and Jackson National Life (Bermuda) LTD; • Broker-dealer, investment management and investment advisor subsidiaries: Jackson National Life Distributors, LLC ("JNLD"); Jackson National Asset Management, LLC ("JNAM"); • PGDS (US One) LLC (“PGDS”), which provides certain services to the Company and certain former affiliates; and • Other insignificant wholly owned subsidiaries. The consolidated financial statements also include other insignificant partnerships, limited liability companies (“LLCs”) and other variable interest entities (“VIEs”) in which the Company is deemed the primary beneficiary. Other On August 6, 2021, the registration statement on Form 10 of the Company's Class A common stock, par value $ 0.01 per share, filed with the U.S. Securities and Exchange Commission (the "SEC"), became effective under the Securities Exchange Act of 1934, as amended. We refer to that effective Form 10 registration as the "Form 10." The Demerger transaction described in the Form 10 was consummated on September 13, 2021. As of December 31, 2021, Prudential retained a 18.4 % remaining interest in the Company, after the Company repurchased 2,242,516 shares of the Company’s Class A common stock subsequent to the Demerger, as further discussed in Note 22. 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 “stock split”). The incremental par value of the newly issued shares was recorded with the offset to additional paid-in capital. All share and earnings per share information presented herein have been retroactively adjusted to reflect the stock split. 126 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 invested $ 500 million of capital in return for a 9.9 % voting interest corresponding to a 11.1 % economic interest in the Company. That investment was completed on July 17, 2020. In August 2020, the Company made a $ 500 million capital contribution to its subsidiary, Jackson. As of December 31, 2021, Athene retained a 9.9 % voting interest and 10.6 % economic interest, after the Company repurchased 1,134,767 shares of Class A Common Stock and converted a total of 725,623 shares of its Class B common stock to Class A common stock on a one-for-one basis as further discussed in Note 22. We continue to closely monitor developments related to the COVID-19 pandemic. The COVID-19 pandemic has caused significant economic and financial turmoil both in the United States and around the world. These conditions could continue and could worsen in the future. The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted. The Company implemented business continuity plans that were already in place to ensure the availability of services for our customers, work at home capabilities for our employees, where appropriate, and other ongoing risk management activities. The Company has had employees, as needed or voluntarily, in our offices during this time, as permitted by local and state restrictions. During 2021, the Company rolled out a broader return to office plan for all employees. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Intercompany accounts and transactions have been eliminated upon consolidation. Certain amounts in the 2020 notes to consolidated financial statements have been reclassified to conform to the 2021 presentation. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates or assumptions, as further discussed in the notes, include: • Valuation of investments and derivative instruments, including fair values of securities deemed to be in an illiquid market and the determination of when an impairment is necessary; • Assessments as to whether certain entities are variable interest entities, the existence of reconsideration events and the determination of which party, if any, should consolidate the entity; • Assumptions impacting estimated future gross profits, including policyholder behavior, mortality rates, expenses, projected hedging costs, investment returns and policy crediting rates, used in the calculation of amortization of deferred acquisition costs; • Assumptions used in calculating policy reserves and liabilities, including policyholder behavior, mortality rates, expenses, investment returns and policy crediting rates; • Assumptions as to future earnings levels being sufficient to realize deferred tax benefits; • Estimates related to expectations of credit losses on certain financial assets and off balance sheet exposures; • Assumptions and estimates associated with the Company’s tax positions, including an estimate of the dividends received deduction, which impact the amount of recognized tax benefits recorded by the Company; and • Value of guaranteed benefits. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors deemed appropriate. As facts and circumstances dictate, these estimates and assumptions may be adjusted. Since future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates, including those resulting from continuing changes in the economic environment, will be reflected in the consolidated financial statements in the periods the estimates are changed. 127 2. Summary of Significant Accounting Policies The following table identifies our significant accounting policies presented in other Notes to Consolidated Financial Statements: Investments Note 4 Derivatives and Hedge Accounting Note 5 Fair Value Measurements Note 6 Deferred Acquisition Costs Note 7 Reinsurance Note 8 Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds Note 9 Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees Note 10 Long-Term Debt Note 11 Income Taxes Note 13 Commitments, Contingencies, and Guarantees Note 14 Share-Based Compensation Note 16 Accumulated Other Comprehensive Income Note 21 Earnings Per Share Note 23 Other Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents primarily include money market instruments and bank deposits. Revenue and Expense Recognition Premiums for traditional life insurance are reported as revenues when due. Benefits, claims and expenses are associated with earned revenues in order to recognize profit over the lives of the contracts. This association is accomplished through provisions for future policy benefits and the deferral and amortization of certain acquisition costs. Deposits on interest-sensitive life products and investment contracts, principally deferred annuities and guaranteed investment contracts, are treated as policyholder deposits and excluded from revenue. Revenues consist primarily of investment income and charges assessed against the account value for mortality charges, surrenders, variable annuity benefit guarantees and administrative expenses. Fee income also includes revenues related to asset management fees and certain service fees. Surrender benefits are treated as repayments of the policyholder account. Annuity benefit payments are treated as reductions to the policyholder account. Death benefits in excess of the policyholder account are recognized as an expense when incurred. Expenses consist primarily of the interest credited to policyholder deposits. Other direct acquisition expenses are associated with gross profit in order to recognize profit over the life of the business. This is accomplished through deferral and amortization of acquisition costs. Expenses not related to policy acquisition are recognized when incurred. Advisory and wealth management fees are primarily related to commission revenue earned by the Company’s independent broker-dealer subsidiaries, which is recorded as earned at the time of sale. The related commission expense is also recognized at the time of sale and is recorded in operating costs and other expenses, net of deferrals. Management Fees Based on a Formula PPM receives an investment management fee for services as an asset manager for various entities. Revenue for these services is measured based on the terms specified in a contract with a customer and is recognized when PPM has satisfied a performance obligation. These investment management fees are recognized ratably over the period that assets are managed, and when the probability of significant revenue reversal is remote. PPM also receives performance-based incentive fees from certain entities for which it invests based on predetermined formulas. Performance related management fees are earned over a specified period and can result in additional fees. These fees are recognized at the end of the agreement, once 128 the fees are fixed, determinable, not subject to further performance metrics, and probability of significant revenue reversal is remote. Changes in Accounting Principles – Adopted in Current Year In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The new guidance provides optional expedients for applying GAAP to contracts and other transactions affected by reference rate reform and is effective for contract modifications made between March 12, 2020 and December 31, 2022. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. The practical expedient allowed by this standard was elected and will be applied prospectively by the Company as reference rate reform unfolds. The contracts modified to date met the criteria for the practical expedient and therefore had no material impact on the Company’s consolidated financial statements. The Company will continue to evaluate the impacts of reference rate reform on contract modifications and other transactions through December 31, 2022. In October 2020, the FASB issued ASU No. 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs,” which clarifies an entity’s accounting responsibilities related to callable debt securities. Effective January 1, 2021, the Company adopted ASU 2020-08, which did not have a material impact on the Company’s consolidated financial statements. In December 2019, FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which includes changes to the accounting for income taxes by eliminating certain exceptions to the approach for intra-period allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The amendments also simplified other areas including the accounting for franchise taxes and enacted tax laws or rates and clarified the accounting for transactions that result in the step-up in the tax basis of goodwill. Effective January 1, 2021, the Company adopted ASU 2019-12, which did not have a material impact on the Company’s consolidated financial statements. Changes in Accounting Principles – Issued but Not Yet Adopted In August 2018, the FASB issued ASU 2018-12, “Targeted Improvements to the Accounting for Long Duration Contracts,” which includes changes to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments in ASU 2018-12 contain four significant changes: 1) for the calculation of the liability for future policy benefits of nonparticipating traditional and limited-payment insurance and reinsurance contracts, cash flow assumptions and discount rates will be required to be updated at least annually; 2) market risk benefits, a new term for certain contracts or features that provide for potential benefits in addition to the account balance which exposes the insurer to other than nominal market risk, will be measured at fair value; 3) deferred acquisition costs (“DAC”) will be amortized on a constant-level basis, independent of profitability; and 4) enhanced disclosures, including quantitative information in rollforwards for balance sheet accounts, as well as information about significant inputs, judgments, assumptions and methods used in measurement will be required. ASU No. 2018-12 is effective for fiscal years beginning after December 15, 2022, with required retrospective application to January 1, 2021, and early adoption is permitted. The Company has begun its implementation efforts and is currently assessing the impact of the new guidance and does not plan to early adopt. Given the nature and extent of the required changes, the adoption of this standard is expected to have a significant impact on the Company’s consolidated financial statements and disclosures. In addition to the initial balance sheet impact upon adoption, the Company also expects a change in the pattern of future profit emergence. 129 3. Segment Information The Company has three reportable segments consisting of Retail Annuities, Institutional Products, Closed Life and Annuity Block, plus its Corporate and Other segment. These segments reflect the manner by which the Company’s chief operating decision maker views and manages the business. The following is a brief description of the Company’s reportable segments. Retail Annuities The Company’s Retail Annuities segment offers a variety of retirement income and savings products through its diverse suite of products, consisting primarily of variable annuities, fixed index annuities, fixed, and immediate payout annuities, and Registered Index-Linked Annuities ("RILA") starting in the fourth quarter of 2021. These products are distributed through various wirehouses, insurance brokers and independent broker-dealers, as well as through banks and financial institutions, primarily to high net worth investors and the mass and affluent markets. The Company’s variable annuities represent an attractive option for retirees and soon-to-be retirees, providing access to equity market appreciation and add-on benefits, including guaranteed lifetime income. A fixed index annuity is designed for investors who desire principal protection with the opportunity to participate in capped upside investment returns linked to a reference market index. The Company also provides access to guaranteed lifetime income as an add-on benefit. A fixed annuity is a guaranteed product designed to build wealth without market exposure, through a crediting rate that is likely to be superior to interest rates offered from banks or money market funds. The Company's new RILA product offers customers exposure to market returns through market index-linked investment options, subject to a cap, and offers a variety of guarantees designed to modify or limit losses. The financial results of the variable annuity business within the Company’s Retail Annuities segment are largely dependent on the performance of the contract holder account value, which impacts both the level of fees collected and the benefits paid to the contract holder. The financial results of the Company’s fixed annuities, including the fixed portion of its variable annuity account values, RILA and fixed index annuities, are largely dependent on the Company’s ability to earn a spread between earned investment rates on general account assets and the interest credited to contract holders. Institutional Products The Company’s Institutional Products consist of traditional Guaranteed Investment Contracts (GICs), funding agreements (including agreements issued in conjunction with the Company’s participation in the U.S. Federal Home Loan Bank ("FHLB") program) and medium-term note funding agreements. The Company’s GIC products are marketed to defined contribution pension and profit sharing retirement plans. Funding agreements are marketed to institutional investors, including corporate cash accounts and securities lending funds, as well as money market funds, and are issued to the FHLB in connection with its program. The financial results of the Company’s institutional products business are primarily dependent on the Company’s ability to earn spreads on general account assets. Closed Life and Annuity Blocks The Company's Closed Life and Annuity Blocks segment is primarily composed of blocks of business that have been acquired since 2004. The segment includes various protection products, primarily whole life, universal life, variable universal life, and term life insurance products, as well as fixed, fixed index, and payout annuities. The Closed Life and Annuity Blocks segment also includes a block of group payout annuities that we assumed from John Hancock Life Insurance Company (USA) (“John Hancock”) and John Hancock Life Insurance Company of New York (“John Hancock NY”) through reinsurance transactions in 2018 and 2019, respectively. The Company historically offered traditional and interest-sensitive life insurance products but discontinued new sales of life insurance products in 2012, as we believe opportunistically acquiring mature blocks of life insurance policies is a more efficient means of diversifying our in-force business than selling new life insurance products. 130 The profitability of the Company’s Closed Life and Annuity Blocks segment is largely driven by its historical ability to appropriately price its products and purchase appropriately priced blocks of business, as realized through underwriting, expense and net gains (losses) on derivatives and investments, and the ability to earn an assumed rate of return on the assets supporting that business. Corporate and Other The Company’s Corporate and Other segment primarily consists of the operations of its investment management company, PPM, VIE’s, and unallocated corporate income and expenses. The Corporate and Other segment also includes certain eliminations and consolidation adjustments. Segment Performance Measurement Segment operating revenues and pretax adjusted operating earnings are non-GAAP financial measures that management believes are critical to the evaluation of the financial performance of the Company’s segments. The Company uses the same accounting policies and procedures to measure segment pretax adjusted operating earnings as used in its reporting of consolidated net income. Its primary measure is pretax adjusted operating earnings, which is defined as net income recorded in accordance with GAAP, excluding certain items that may be highly variable from period to period due to accounting treatment under GAAP, or that are non-recurring in nature, as well as certain other revenues and expenses which are not considered to drive underlying performance. Operating revenues and pretax adjusted operating earnings should not be used as a substitute for revenues and net income as calculated in accordance with GAAP. Pretax adjusted operating earnings equals net income adjusted to eliminate the impact of the following items: • Fees Attributable to Guarantee Benefits: fees paid in conjunction with guaranteed benefit features offered for certain of our variable annuities and fixed index annuities are set at a level intended to mitigate the cost of hedging and funding the liabilities associated with such guaranteed benefit features. The full amount of the fees attributable to guaranteed benefit features have been excluded from Adjusted Operating Earnings as the related net movements in freestanding derivatives and net reserve and embedded derivative movements, as described below, have been excluded from Adjusted Operating Earnings. This adjusted presentation of our earnings is intended to directly align revenue and related expenses associated with the guaranteed benefit features; • Net Movement in Freestanding Derivatives, except earned income (periodic settlements and changes in settlement accruals) on derivatives that are hedges of investments, but do not qualify for hedge accounting treatment: changes in the fair value of our freestanding derivatives used to manage the risk associated with our life and annuity reserves, including those arising from the guaranteed benefit features offered for certain of our variable annuities and fixed index annuities. Net movements in freestanding derivatives have been excluded from Adjusted Operating Earnings as the market value of these derivatives may vary significantly from period to period as a result of near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business; • Net Reserve and Embedded Derivative Movements: changes in the valuation of certain life and annuity reserves, a portion of which are accounted for as embedded derivative instruments, and which are primarily composed of variable and fixed index annuity reserves, including those arising from the guaranteed benefit features offered for certain of our variable annuities. Net reserve and embedded derivative movements have been excluded from Adjusted Operating Earnings as the carrying values of these derivatives may vary significantly from period to period as the result of near-term market conditions and policyholder behavior-related inputs and therefore are not directly comparable or reflective of the underlying performance of our business. Movements in reserves attributable to the current period claims and benefit payments in excess of a customer’s account value on these policies are also excluded from Adjusted Operating Earnings as these benefit payments are affected by near-term market conditions and policyholder behavior-related inputs and therefore may vary significantly from period to period; • DAC and DSI Impact: amortization of deferred acquisition costs and deferred sales inducements associated with the items excluded from Adjusted Operating Earnings; • Assumption changes: the impact on the valuation of Net Derivative and Reserve Movements, including amortization on DAC, arising from changes in underlying actuarial assumptions; 131 • Net Realized Investment Gains and Losses including change in fair value of funds withheld embedded derivative: Realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio, as well as impairments of securities, after adjustment for the non-credit component of the impairment charges and change in fair value of funds withheld embedded derivative related to the Athene Reinsurance Transaction; • 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; • Net investment income on funds withheld assets: includes net investment income on funds withheld assets related to funds withheld reinsurance transactions; • 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 in our financial statements due to U.S. GAAP accounting requirements, such as our investments in CLOs, but for which the consolidation effects are not aligned with our economic interest or exposure to those entities; and • Income taxes. As detailed above, the fees attributed to guaranteed benefits, the associated movements in optional guaranteed benefit liabilities, and related claims and benefit payments are excluded from pretax adjusted operating earnings, as the Company believes this approach appropriately removes the impact to both revenue and expenses associated with the guaranteed benefit features that are offered for certain variable annuities and fixed index annuities. Set forth in the tables below is certain information with respect to the Company’s segments, as described above (in millions): For the Year Ended December 31, 2021 Retail Annuities Closed Life and Annuity Blocks Institutional Products Corporate and Other Total Consolidated Operating Revenues Fee income $ 4,236 $ 492 $ — $ 76 $ 4,804 Premiums — 145 — — 145 Net investment income 675 925 260 102 1,962 Income on operating derivatives 52 72 ( 3 ) 32 153 Other income 47 39 — 8 94 Total Operating Revenues 5,010 1,673 257 218 7,158 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals ( 45 ) 861 — — 816 Interest credited on other contract holder funds, net of deferrals (1) 268 412 188 — 868 Interest expense (1) 22 — — 15 37 Operating costs and other expenses, net of deferrals 2,039 162 5 204 2,410 Deferred acquisition and sales inducements amortization 198 14 — 34 246 Total Operating Benefits and Expenses 2,482 1,449 193 253 4,377 Pretax Adjusted Operating Earnings $ 2,528 $ 224 $ 64 $ ( 35 ) $ 2,781 (1) Interest expense recorded for institutional products has been reclassified to interest credited on other contract holder funds for the year-ended December 31, 2021. 132 For the Year Ended December 31, 2020 Retail Annuities Closed Life and Annuity Blocks Institutional Products Corporate and Other Total Consolidated Operating Revenues Fee income $ 3,470 $ 513 $ — $ 100 $ 4,083 Premiums — 172 — — 172 Net investment income 931 759 355 20 2,065 Income on operating derivatives 48 58 — 21 127 Other income 30 25 1 8 64 Total Operating Revenues 4,479 1,527 356 149 6,511 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 54 916 — — 970 Interest credited on other contract holder funds, net of deferrals 532 428 250 — 1,210 Interest expense 27 — 16 45 88 Operating costs and other expenses, net of deferrals 1,797 166 5 201 2,169 Deferred acquisition and sales inducements amortization 63 17 — 20 100 Total Operating Benefits and Expenses 2,473 1,527 271 266 4,537 Pretax Adjusted Operating Earnings $ 2,006 $ — $ 85 $ ( 117 ) $ 1,974 For the Year Ended December 31, 2019 Retail Annuities Closed Life and Annuity Blocks Institutional Products Corporate and Other Total Consolidated Operating Revenues Fee income $ 3,406 $ 528 $ — $ 88 $ 4,022 Premiums — 581 — — 581 Net investment income 1,504 802 450 41 2,797 Income on operating derivatives 39 26 — 8 73 Other income 1 58 — 10 69 Total Operating Revenues 4,950 1,995 450 147 7,542 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 27 1,425 — — 1,452 Interest credited on other contract holder funds, net of deferrals 906 444 291 — 1,641 Interest expense 35 — 49 15 99 Operating costs and other expenses, net of deferrals 1,757 107 4 198 2,066 Deferred acquisition and sales inducements amortization ( 62 ) 19 — 1 ( 42 ) Total Operating Benefits and Expenses 2,663 1,995 344 214 5,216 Pretax Adjusted Operating Earnings $ 2,287 $ — $ 106 $ ( 67 ) $ 2,326 Intersegment eliminations in the above tables are included in the Corporate and Other segment. These include the elimination of investment income between Retail Annuities and the Corporate and Other segments, as well as the elimination from fee income and investment income of investment fees paid by Jackson to its subsidiary PPM, which was $ 58 million, $ 66 million, and $ 93 million for the years ended December 31, 2021, 2020 and 2019. 133 The following table summarizes the reconciling items from the non-GAAP measure of operating revenues to the GAAP measure of total revenues attributable to the Company (in millions): Years Ended December 31, 2021 2020 2019 Total operating revenues 7,158 6,511 $ 7,542 Fees attributed to variable annuity benefit reserves 2,854 2,509 2,377 Net gains (losses) on derivatives and investments ( 2,631 ) ( 6,578 ) ( 6,787 ) Net investment income (loss) related to noncontrolling interests 262 ( 3 ) 55 Consolidated investments 17 ( 25 ) ( 39 ) Net investment income on funds withheld assets 1,188 792 330 Total revenues (1) $ 8,848 $ 3,206 $ 3,478 (1) Substantially all of the Company's revenues originated in the United States. There were no individual customers that exceeded 10% of total revenues. The following table summarizes the reconciling items from the non-GAAP measure of operating benefits and expenses to the GAAP measure of total benefits and expenses attributable to the Company (in millions): Years Ended December 31, 2021 2020 2019 Total operating benefits and expenses 4,377 4,537 $ 5,216 Benefits attributed to variable annuity benefit reserves 119 150 132 Amortization of DAC and DSI related to non-operating revenues and expenses 275 ( 1,252 ) ( 940 ) SOP 03-1 reserve movements ( 22 ) 164 ( 119 ) Athene reinsurance transaction — 2,082 — Other items 52 16 — Total benefits and expenses $ 4,801 $ 5,697 $ 4,289 The following table summarizes the reconciling items, net of deferred acquisition costs and deferred sales inducements, from the non-GAAP measure of pretax adjusted operating earnings to the GAAP measure of net income attributable to the Company (in millions): Years Ended December 31, 2021 2020 2019 Pretax adjusted operating earnings $ 2,781 $ 1,974 $ 2,326 Non-operating adjustments (income) loss: Fees attributable to guarantee benefit reserves 2,854 2,509 2,377 Net movement in freestanding derivatives ( 5,674 ) ( 4,662 ) ( 6,595 ) Net reserve and embedded derivative movements 2,753 ( 3,184 ) 60 DAC and DSI impact ( 266 ) 1,261 898 Assumption changes 24 128 ( 81 ) Net realized investment gains (losses) including change in fair value of funds withheld embedded derivative 161 817 ( 141 ) Loss on funds withheld reinsurance transaction — ( 2,082 ) — Net investment income on funds withheld assets 1,188 792 330 Other items ( 36 ) ( 41 ) ( 40 ) Pretax income (loss) attributable to Jackson Financial Inc. 3,785 ( 2,488 ) ( 866 ) Income tax expense (benefit) 602 ( 854 ) ( 369 ) Net income (loss) attributable to Jackson Financial, Inc. $ 3,183 $ ( 1,634 ) $ ( 497 ) 134 The following table summarizes total assets by segment (in millions): December 31, 2021 2020 Retail Annuities $ 327,194 $ 304,305 Closed Life and Annuity Blocks 32,541 34,161 Institutional Products 10,713 13,688 Corporate and Other 5,036 1,302 Total Assets $ 375,484 $ 353,456 4. Investments Investments are comprised primarily of fixed-income securities and loans, primarily publicly-traded corporate and government bonds, asset-backed securities and mortgage loans. Asset-backed securities include mortgage-backed and other structured securities. The Company generates the majority of its general account deposits from interest-sensitive individual annuity contracts, life insurance products and institutional products on which it has committed to pay a declared rate of interest. The Company's strategy of investing in fixed-income securities and loans aims to ensure matching of the asset yield with the amounts credited to the interest-sensitive liabilities and to earn a stable return on its investments. Debt Securities Debt securities consist primarily of bonds, notes, and asset-backed securities. Acquisition discounts and premiums on debt securities are amortized into investment income through call or maturity dates using the effective interest method. Discounts and premiums on asset-backed securities are amortized over the estimated redemption period. Certain asset-backed securities for which the Company might not recover substantially all of its recorded investment are accounted for on a prospective basis according to changes in the estimated future cash flows. Debt securities are generally classified as available-for-sale and are carried at fair value. For debt securities in an unrealized loss position, for which the Company deems an impairment necessary, the amortized cost may be written down to fair value through net gains (losses) on derivatives and investments, or an allowance for credit loss (“ACL”) may be recorded along with a charge to net gains (losses) on derivatives and investments. Certain debt securities included from consolidation of certain VIEs are carried at fair value under the fair value option with changes in fair value included in net investment income. Other debt securities included from consolidation of certain VIEs are classified as trading securities and are carried at fair value with the changes in fair value included in net investment income. 135 The following table sets forth the composition of the fair value of debt securities at December 31, 2021 and 2020, classified by rating categories as assigned by nationally recognized statistical rating organizations (“NRSRO”), the National Association of Insurance Commissioners (“NAIC”), or if not rated by such organizations, the Company’s consolidated investment advisor, PPM. The Company uses the second lowest rating by an NRSRO when NRSRO ratings are not equivalent and, for purposes of the table, if not otherwise rated by a NRSRO, the NAIC rating of a security is converted to an equivalent NRSRO-style rating. At December 31, 2021 and 2020, the carrying value of investments rated by the Company’s consolidated investment advisor totaled $ 13 million and $ 960 million, respectively. Percent of Total Debt Securities Carrying Value December 31, Investment Rating 2021 2020 AAA 14.5 % 18.8 % AA 9.6 % 8.1 % A 28.5 % 30.5 % BBB 40.9 % 37.7 % Investment grade 93.5 % 95.1 % BB 3.6 % 2.9 % B and below 2.9 % 2.0 % Below investment grade 6.5 % 4.9 % Total debt securities 100.0 % 100.0 % At December 31, 2021, based on ratings by NRSROs, of the total carrying value of debt securities in an unrealized loss position, 76 % were investment grade, 2 % were below investment grade and 22 % were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 16 % of the aggregate gross unrealized losses on available-for-sale debt securities. At December 31, 2020, based on ratings by NRSROs, of the total carrying value of debt securities in an unrealized loss position, 82 % were investment grade, 2 % were below investment grade and 16 % were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 18 % of the aggregate gross unrealized losses on available for sale debt securities. Corporate securities in an unrealized loss position were diversified across industries. As of December 31, 2021, the industries accounting for the largest percentage of unrealized losses included financial services ( 16 % of corporate gross unrealized losses) and consumer goods ( 15 %). The largest unrealized loss related to a single corporate obligor was $ 16 million at December 31, 2021. Corporate securities in an unrealized loss position were diversified across industries. As of December 31, 2020, the industries accounting for the largest percentage of unrealized losses included financial services ( 36 % of corporate gross unrealized losses) and energy ( 19 %). The largest unrealized loss related to a single corporate obligor was $ 14 million at December 31, 2020. 136 At December 31, 2021 and 2020, the amortized cost, gross unrealized gains and losses, fair value, and ACL of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions): Allowance Gross Gross Amortized for Unrealized Unrealized Fair December 31, 2021 Cost (1) Credit Loss Gains Losses Value U.S. government securities $ 4,525 $ — $ 97 $ 301 $ 4,321 Other government securities 1,489 — 147 17 1,619 Public utilities 6,069 — 671 25 6,715 Corporate securities 29,701 — 1,682 237 31,146 Residential mortgage-backed 528 2 46 3 569 Commercial mortgage-backed 1,968 — 76 6 2,038 Other asset-backed securities 6,926 7 71 23 6,967 Total debt securities $ 51,206 $ 9 $ 2,790 $ 612 $ 53,375 Allowance Gross Gross Amortized for Unrealized Unrealized Fair December 31, 2020 Cost (1) Credit Loss Gains Losses Value U.S. government securities $ 5,079 $ — $ 162 $ 115 $ 5,126 Other government securities 1,497 — 201 1 1,697 Public utilities 6,270 — 1,029 2 7,297 Corporate securities 33,180 — 3,302 42 36,440 Residential mortgage-backed 912 — 74 1 985 Commercial mortgage-backed 3,078 — 249 3 3,324 Other asset-backed securities 5,507 14 100 5 5,588 Total debt securities $ 55,523 $ 14 $ 5,117 $ 169 $ 60,457 (1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities. The amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair value of debt securities at December 31, 2021, by contractual maturity, are shown below (in millions). Actual maturities may differ from contractual maturities where securities can be called or prepaid with or without early redemption penalties. Allowance Gross Gross Amortized for Unrealized Unrealized Fair Cost (1) Credit Loss Gains Losses Value Due in 1 year or less $ 908 $ — $ 15 $ — $ 923 Due after 1 year through 5 years 8,434 — 386 24 8,796 Due after 5 years through 10 years 14,260 — 743 107 14,896 Due after 10 years through 20 years 9,178 — 847 172 9,853 Due after 20 years 9,004 — 606 277 9,333 Residential mortgage-backed 528 2 46 3 569 Commercial mortgage-backed 1,968 — 76 6 2,038 Other asset-backed securities 6,926 7 71 23 6,967 Total $ 51,206 $ 9 $ 2,790 $ 612 $ 53,375 (1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities. Securities with a carrying value of $ 117 million and $ 123 million at December 31, 2021 and 2020, respectively, were on deposit with regulatory authorities, as required by law in various states in which business is conducted. 137 Residential mortgage-backed securities (“RMBS”) include certain RMBS that are collateralized by residential mortgage loans and are neither explicitly nor implicitly guaranteed by U.S. government agencies (“non-agency RMBS”). The Company’s non-agency RMBS include investments in securities backed by prime, Alt-A, and subprime loans as follows (in millions): Allowance Gross Gross Amortized for Unrealized Unrealized Fair December 31, 2021 Cost (1) Credit Loss Gains Losses Value Prime $ 228 $ 1 $ 10 $ 2 $ 235 Alt-A 94 1 21 — 114 Subprime 39 — 13 — 52 Total non-agency RMBS $ 361 $ 2 $ 44 $ 2 $ 401 Allowance Gross Gross Amortized for Unrealized Unrealized Fair December 31, 2020 Cost (1) Credit Loss Gains Losses Value Prime $ 287 $ — $ 18 $ 1 $ 304 Alt-A 123 — 25 — 148 Subprime 61 — 14 — 75 Total non-agency RMBS $ 471 $ — $ 57 $ 1 $ 527 (1) Amortized cost, apart from carrying value for securities carried at fair value under the fair value option and trading securities. The Company defines its exposure to non-agency residential mortgage loans as follows: • Prime loan-backed securities are collateralized by mortgage loans made to the highest rated borrowers. • Alt-A loan-backed securities are collateralized by mortgage loans made to borrowers who lack credit documentation or necessary requirements to obtain prime borrower rates. • Subprime loan-backed securities are collateralized by mortgage loans made to borrowers that have a FICO score of 660 or lower. 138 The following table summarizes the number of securities, fair value and the gross unrealized losses of debt securities, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position (dollars in millions): December 31, 2021 December 31, 2020 Less than 12 months Less than 12 months Gross Fair Value Gross Fair Value Unrealized # of Unrealized # of Losses securities Losses securities U.S. government securities $ 2 $ 107 16 $ 115 $ 3,945 7 Other government securities 17 252 23 1 89 7 Public utilities 17 721 93 2 147 8 Corporate securities 180 6,343 728 41 1,391 161 Residential mortgage-backed 3 174 109 1 35 28 Commercial mortgage-backed 5 314 37 3 152 13 Other asset-backed securities 22 3,224 338 2 797 91 Total temporarily impaired securities $ 246 $ 11,135 1,344 $ 165 $ 6,556 315 12 months or longer 12 months or longer Gross Fair Value Gross Fair Value Unrealized # of Unrealized # of Losses securities Losses securities U.S. government securities $ 299 $ 3,190 7 $ — $ — — Other government securities — 4 2 — — — Public utilities 7 99 8 — — — Corporate securities 58 661 69 1 3 3 Residential mortgage-backed — 11 12 — 2 4 Commercial mortgage-backed 1 30 3 — 10 1 Other asset-backed securities 1 11 3 3 29 4 Total temporarily impaired securities $ 366 $ 4,006 104 $ 4 $ 44 12 Total Total Gross Fair Value Gross Fair Value Unrealized # of Unrealized # of Losses securities Losses securities U.S. government securities $ 301 $ 3,297 21 $ 115 $ 3,945 7 Other government securities 17 256 25 1 89 7 Public utilities 24 820 98 2 147 8 Corporate securities (1) 238 7,004 776 42 1,394 164 Residential mortgage-backed 3 185 121 1 37 32 Commercial mortgage-backed 6 344 39 3 162 14 Other asset-backed securities 23 3,235 341 5 826 95 Total temporarily impaired securities $ 612 $ 15,141 1,421 $ 169 $ 6,600 327 (1) Certain corporate securities contain multiple lots and fit the criteria of both aging groups. 139 Debt securities in an unrealized loss position as of December 31, 2021 did not require an impairment recognized in earnings as the Company did not intend to sell these debt securities, it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost basis, and the difference in the fair value compared to the amortized cost was due to factors other than credit loss. Based upon this evaluation, the Company believes it has the ability to generate adequate amounts of cash from normal operations to meet cash requirements with a reasonable margin of safety without requiring the sale of impaired securities. As of December 31, 2021, unrealized losses associated with debt securities are primarily due to widening credit spreads or rising risk-free rates since purchase. The Company performed a detailed analysis of the financial performance of the underlying issues in an unrealized loss position and determined that recovery of the entire amortized cost of each impaired security is expected. In addition, mortgage-backed and asset-backed securities were assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities, and prepayment rates. The Company estimated losses for a security by forecasting the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. The forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts, and other independent market data. Based upon this assessment of the expected credit losses of the security given the performance of the underlying collateral compared to subordination or other credit enhancement, the Company expects to recover the entire amortized cost of each impaired security. Evaluation of Available-for-Sale Debt Securities for Credit Loss For debt securities in an unrealized loss position, management first assesses whether the Company has the intent to sell, or whether it is more likely than not it will be required to sell the security before the amortized cost basis is fully recovered. If either criteria is met, the amortized cost is written down to fair value through net gains (losses) on derivatives and investments as an impairment. Debt securities in an unrealized loss position for which the Company does not have the intent to sell or is not more likely than not to sell the security before recovery to amortized cost are further evaluated to determine if the cause of the decline in fair value resulted from credit losses or other factors, which includes estimates about the operations of the issuer and future earnings potential. The credit loss evaluation may consider the extent to which the fair value is below amortized cost; changes in ratings of the security; whether a significant covenant related to the security has been breached; or an issuer has filed or indicated a possibility of filing for bankruptcy, has missed or announced it intends to miss a scheduled interest or principal payment, or has experienced a specific material adverse change that may impair its creditworthiness; judgments about an obligor’s current and projected financial position; an issuer’s current and projected ability to service and repay its debt obligations; the existence of, and realizable value of, any collateral backing the obligations; and the macro-economic and micro-economic outlooks for specific industries and issuers. In addition to the above, the credit loss review of investments in asset-backed securities includes the review of future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments. These estimated cash flows are developed using available performance indicators from the underlying assets including current and projected default or delinquency rates, levels of credit enhancement, current subordination levels, vintage, expected loss severity and other relevant characteristics. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against third-party sources. For mortgage-backed securities, credit losses are assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral characteristics and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements existing in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment timing, default rates and loss severity. Specifically, for prime and Alt-A RMBS, the assumed default percentage is dependent on the severity of delinquency status, with foreclosures and real estate owned receiving higher rates, but also includes the currently performing loans. 140 These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against other third-party sources. In addition, these estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. When a credit loss is determined to exist and the present value of cash flows expected to be collected is less than the amortized cost of the security, an allowance for credit loss is recorded along with a charge to net gains (losses) on derivatives and investments, limited by the amount that the fair value is less than amortized cost. Any remaining unrealized loss after recording the allowance for credit loss is the non-credit amount and is recorded to other comprehensive income. The allowance for credit loss for specific debt securities may be increased or reversed in subsequent periods due to changes in the assessment of the present value of cash flows that are expected to be collected. Any changes to the allowance for credit loss is recorded as a provision for (or reversal of) credit loss expense in net gains (losses) on derivatives and investments. When all, or a portion, of a security is deemed uncollectible, the uncollectible portion is written-off with an adjustment to amortized cost and a corresponding reduction to the allowance for credit losses. Accrued interest receivables are presented separate from the amortized cost basis of debt securities. Accrued interest receivables that are determined to be uncollectible are written off with a corresponding reduction to net investment income. No accrued interest was written off during the years ended December 31, 2021 and 2020. The rollforward of the allowance for credit loss for available-for-sale securities by sector is as follows (in millions): December 31, 2021 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at January 1, 2021 $ — $ — $ — $ — $ — $ — $ 14 $ 14 Additions for which credit loss was not previously recorded — — — — 2 — — 2 Changes for securities with previously recorded credit loss — — — — — — 9 9 Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — — — — — Reductions for securities disposed — — — — — — ( 16 ) ( 16 ) Securities intended/required to be sold before recovery of amortized cost basis — — — — — — — — Balance at December 31, 2021 (2) $ — $ — $ — $ — $ 2 $ — $ 7 $ 9 December 31, 2020 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at January 1, 2020 $ — $ — $ — $ — $ — $ — $ — $ — Additions for which credit loss was not previously recorded — — — — — — 17 17 Changes for securities with previously recorded credit loss — — — — — — ( 3 ) ( 3 ) Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — — — — — Reductions for securities disposed — — — — — — — — Securities intended/required to be sold before recovery of amortized cost basis — — — — — — — — Balance at December 31, 2020 (2) $ — $ — $ — $ — $ — $ — $ 14 $ 14 (1) Represents purchased credit-deteriorated ("PCD") fixed maturity available-for-sale securities. (2) Accrued interest receivable on debt securities totaled $ 381 million and $ 434 million as of December 31, 2021 and 2020, respectively, and was excluded from the determination of credit losses for the years ended December 30, 2021 and 2020. 141 Net Investment Income The sources of net investment income were as follows (in millions): Years Ended December 31, 2021 2020 2019 Debt securities (1) $ 1,154 $ 1,617 $ 2,164 Equity securities 8 ( 14 ) 15 Mortgage loans 319 365 392 Policy loans 73 79 89 Limited partnerships 795 105 248 Other investment income 13 12 57 Total investment income excluding funds withheld assets 2,362 2,164 2,965 Net investment income on funds withheld assets (see Note 8) 1,188 792 330 Investment expenses: Derivative trading commission ( 3 ) ( 5 ) ( 4 ) Depreciation on real estate ( 11 ) ( 11 ) ( 11 ) Expenses related to consolidated entities (2) ( 41 ) ( 43 ) ( 52 ) Other investment expenses (3) ( 66 ) ( 68 ) ( 85 ) Total investment expenses ( 121 ) ( 127 ) ( 152 ) Net investment income $ 3,429 $ 2,829 $ 3,143 (1) Includes unrealized gains and losses on trading securities and securities for which the Company elected the fair value option. (2) Includes management fees, administrative fees, legal fees, and other expenses related to the consolidation of certain investments. (3) Includes interest expense and market appreciation on deferred compensation; investment software expense, custodial fees, and other bank fees; institutional product issuance related expenses; and other expenses. Investment income is not accrued on securities in default and otherwise where the collection is uncertain. In these cases, receipts of interest on such securities are used to reduce the cost basis of the securities. Unrealized gains (losses) included in investment income that were recognized on equity securities held were $ 26 million, $( 51 ) million and $ 8 million, for the years ended December 31, 2021, 2020 and 2019, respectively. Investment income (expense) of $ 26 million, $( 25 ) million and $( 40 ) million was recognized on securities carried at fair value recorded through income for the years ended December 31, 2021, 2020 and 2019, respectively. 142 Net Gains (Losses) on Derivatives and Investments Realized gains and losses on sales of investments are recognized in income at the date of sale and are determined using the specific cost identification method. The following table summarizes net gains (losses) on derivatives and investments (in millions): Years Ended December 31, 2021 2020 2019 Available-for-sale securities Realized gains on sale $ 169 $ 778 $ 307 Realized losses on sale ( 88 ) ( 196 ) ( 107 ) Credit loss income (expense) ( 10 ) ( 14 ) — Gross impairments — ( 27 ) ( 3 ) Credit loss income (expense) on mortgage loans 62 ( 61 ) — Other (1) 49 ( 103 ) ( 8 ) Net gains (losses) excluding derivatives and funds withheld assets 182 377 189 Net gains (losses) on derivative instruments (see Note 5) ( 2,639 ) ( 7,268 ) ( 6,573 ) Net gains (losses) on funds withheld reinsurance treaties (see Note 8) ( 21 ) 440 ( 330 ) Total net gains (losses) on derivatives and investments $ ( 2,478 ) $ ( 6,451 ) $ ( 6,714 ) (1) Includes the foreign currency gain or loss related to foreign denominated trust instruments supporting funding agreements. Net gains (losses) on funds withheld reinsurance treaties represents income (loss) from the sale of investments held in segregated funds withheld accounts in support of reinsurance agreements for which Jackson retains legal ownership of the underlying investments. These gains (losses) are increased or decreased by changes in the embedded derivative liability related to the Athene Reinsurance Agreement and also include (i) changes in the related funds withheld payable, as all economic performance of the investments held in the segregated accounts inure to the benefit of the reinsurers under the respective reinsurance agreements with each reinsurer, and (ii) amortization of the difference between book value and fair value of the investments as of the effective date of the reinsurance agreements with each reinsurer. The aggregate fair value of securities sold at a loss for the years ended December 31, 2021, 2020 and 2019 was $ 2,604 million, $ 7,612 million and $ 2,312 million, which was approximately 95 %, 97 % and 96 % of book value, respectively. Proceeds from sales of available-for-sale debt securities were $ 9,600 million, $ 25,533 million and $ 6,520 million during the years ended December 31, 2021, 2020 and 2019, respectively. There are inherent uncertainties in assessing the fair values assigned to the Company’s investments. The Company’s reviews of net present value and fair value involve several criteria including economic conditions, credit loss experience, other issuer-specific developments and estimated future cash flows. These assessments are based on the best available information at the time. Factors such as market liquidity, the widening of bid/ask spreads and a change in the cash flow assumptions can contribute to future price volatility. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financial statements, unrealized losses currently reported in accumulated other comprehensive income may be recognized in the consolidated income statements in future periods. The Company currently has no intent to sell securities with unrealized losses considered to be temporary until they mature or recover in value and believes that it has the ability to do so. However, if the specific facts and circumstances surrounding an individual security, or the outlook for its industry sector change, the Company may sell the security prior to its maturity or recovery and realize a loss. 143 Consolidated Variable Interest Entities ("VIEs") The Company’s involvement with VIEs is primarily to invest in assets that gain exposure to a broadly diversified portfolio of asset classes. A VIE is an entity that does not have sufficient equity to finance the activities of the entity without additional subordinated financial support or where equity investors lack certain characteristics of a controlling financial interest. The Company performs ongoing qualitative assessments of variable interests in VIEs to determine whether it has a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. If the Company determines it is the primary beneficiary of a VIE, it consolidates the assets and liabilities of the VIE in its consolidated financial statements. In 2017, the Company funded PPM Loan Management Holding Company, LLC, an affiliated investment entity facilitating the issuance of collateralized loan obligations ("CLOs"). The Company concluded that PPM Loan Management Holding Company, LLC is a VIE and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the entity as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. In 2020, PPM Loan Management Holding Company, LLC sold the interest in one of the collateralized loan obligation issuances resulting in the reduction of consolidated assets and liabilities. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to PPM Loan Management Holding Company, LLC. Private Equity Funds III – VIII are limited partnership structures that invest the ownership capital in portfolios of various other limited partnership structures. The Company concluded that the Private Equity Funds are VIEs and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the funds as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the funds. In the fourth quarter of 2021, the Company entered into a commitment to invest up to $ 300 million in the newly formed Private Equity Fund VIII. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to Private Equity Funds III – VIII. In 2018, PPM created and began managing institutional share class mutual funds. Jackson seeds new funds, or new share classes within a fund, when deemed necessary to develop the requisite track record prior to allowing investment by external parties. Jackson may sell its interest in the fund once opened to investment by external parties. The Company concluded that these funds are VIEs and that the Company is the primary beneficiary as it has both the power to direct the most significant activities of the VIE as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company’s exposure to loss related to these mutual funds is limited to the capital invested. 144 Asset and liability information for the consolidated VIEs included on the consolidated balance sheets are as follows (in millions): December 31, 2021 December 31, 2020 Assets Debt securities, at fair value under fair value option $ 1,546 $ 1,109 Debt securities, trading 117 105 Equity securities 129 126 Limited partnerships 1,309 959 Cash and cash equivalents 120 57 Other assets 45 10 Total assets $ 3,266 $ 2,366 Liabilities Debt owed to non-controlling interests $ 1,404 $ 944 Other liabilities 307 200 Total other liabilities 1,711 1,144 Securities lending payable 4 1 Total liabilities $ 1,715 $ 1,145 Equity Noncontrolling interests $ 680 $ 494 Unconsolidated VIEs The Company invests in certain LPs and LLCs that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs as it does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. In addition, the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities. Therefore, the Company does not consolidate these VIEs and the carrying amounts of the Company’s investments in these LPs and LLCs are recognized in other invested assets on the consolidated balance sheets. Unfunded capital commitments for these investments are detailed in Note 14. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to the LPs/LLCs, for both consolidated and unconsolidated VIEs, which was $ 3,860 million and $ 2,976 million as of December 31, 2021 and 2020, respectively. The capital invested in an LP or LLC equals the original capital contributed, increased for additional capital contributed after the initial investment, and reduced for any returns of capital from the LP or LLC. LPs and LLCs are carried at fair value. The Company invests in certain mutual funds that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs. Mutual funds for which the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities are recognized in equity securities on the consolidated balance sheets and were $ 33 million and $ 24 million as of December 31, 2021 and 2020, respectively. The Company’s maximum exposure to loss on these mutual funds is limited to the amortized cost for these investments. The Company makes investments in structured debt securities issued by VIEs for which they are not the manager. These structured debt securities include RMBS, CMBS, and asset-backed securities ("ABS"). The Company does not consolidate the securitization trusts utilized in these transactions because they do not have the power to direct the activities that most significantly impact the economic performance of these securitization trusts. The Company does not consider its continuing involvement with these VIEs to be significant because they either invest in securities issued by the VIE and were not involved in the design of the VIE or no transfers have occurred between the Company and the VIE. The Company’s maximum exposure to loss on these structured debt securities is limited to the amortized cost of these investments. The Company does not have any further contractual obligations to the VIE. The Company recognizes the variable interest in these VIEs at fair value on the consolidated balance sheets. 145 Commercial and Residential Mortgage Loans Commercial and residential mortgage loans are generally carried at the aggregate unpaid principal balance, adjusted for any applicable unamortized discount or premium, or ACL. Acquisition discounts and premiums on mortgage loans are amortized into investment income through maturity dates using the effective interest method. Interest income is accrued on the principal balance of the loan based on the loan’s contractual interest rate. Interest income and amortization of premiums and discounts are reported in net investment income along with prepayment fees and mortgage loan fees, which are recorded as incurred. Commercial mortgage loans of $ 10.5 billion and $ 10.2 billion at December 31, 2021 and 2020, respectively, are reported net of an allowance for credit losses of $ 85 million and $ 165 million at each date, respectively. At December 31, 2021, commercial mortgage loans were collateralized by properties located in 38 states, the District of Columbia, and Europe. Accrued interest receivable on commercial mortgage loans was $ 32 million and $ 32 million at December 31, 2021 and December 31, 2020, respectively. Residential mortgage loans of $ 939 million and $ 449 million at December 31, 2021 and 2020, respectively, are reported net of an allowance for credit losses of $ 9 million and $ 14 million at each date, respectively. Loans were collateralized by properties located in 50 states, the District of Columbia, Mexico, and Europe. Accrued interest receivable on residential mortgage loans was $ 13 million and $ 3 million at December 31, 2021 and December 31, 2020, respectively. Mortgage Loan Concessions In response to the adverse economic impact of the COVID-19 pandemic, the Company granted concessions to certain of its commercial mortgage loan borrowers, including payment deferrals and other loan modifications. The Company has elected the option under the Coronavirus Aid, Relief, and Economic Security Act, the Consolidated Appropriations Act of 2021, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by bank regulatory agencies, not to account for or report qualifying concessions as troubled debt restructurings and does not classify such loans as past due during the payment deferral period. Additionally, in accordance with the FASB’s published response to a COVID-19 Pandemic technical inquiry, the Company continues to accrue interest income on such loans that have deferred payment. For some commercial mortgage loan borrowers (principally in the hotel and retail sectors), the Company granted concessions which were primarily interest and/or principal payment deferrals generally ranging from 6 to 14 months and, to a much lesser extent, maturity date extensions. Repayment periods are generally within one year but may extend until maturity date. Deferred commercial mortgage loan interest and principal payments were $ 9 million at December 31, 2021. The concessions granted had no impact on the Company’s results of operations or financial position as the Company has not granted concessions that would have been disclosed and accounted for as troubled debt restructurings. Evaluation for Credit Losses on Mortgage Loans The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net gains (losses) on derivatives and investments. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level for commercial mortgage loans. The model forecasts net operating income and property values for the economic scenario selected. The debt service coverage ratios (“DSCR”) and loan to values (“LTV”) are calculated over the forecastable period by comparing the projected net operating income and property valuations to the loan payment and principal amounts of each loan. The model utilizes historical mortgage loan performance based on DSCRs and LTV to derive probability of default and expected losses based on the economic scenario that is similar to the Company’s expectations of economic factors such as unemployment, GDP growth, and interest rates. The Company determined the forecastable period to be reasonable and supportable for a period of two years beyond the end of the reporting period. Over the following one-year period, the model reverts to the historical performance of the portfolio for the remainder of the contractual term of the loans. In cases where the Company does not have an appropriate length of historical performance, the relevant historical rate from an index or the lifetime expected credit loss calculated from the model may be used. Unfunded commitments are included in the model and an ACL is determined accordingly. Credit loss estimates are pooled by property type and the Company does not include accrued interest in the determination of ACL. 146 For individual loans or for types of loans for which the third-party model is deemed not suitable, the Company utilizes relevant current market data, industry data, and publicly available historical loss rates to calculate an estimate of the lifetime expected credit loss. Mortgage loans on real estate deemed uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL, limited to the aggregate of amounts previously charged-off and expected to be charged-off. Mortgage loans on real estate are presented net of the allowance for credit losses on the consolidated balance sheets. The following table provides a summary of the allowance for credit losses in the Company’s mortgage loan portfolios (in millions): December 31, 2021 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at January 1, 2021 $ 58 $ 34 $ 25 $ 24 $ 24 $ 14 $ 179 Charge offs, net of recoveries — — — — — — — Additions from purchase of PCD mortgage loans — — — — — — — Provision (release) ( 39 ) ( 25 ) 3 ( 7 ) ( 12 ) ( 5 ) ( 85 ) Balance at December 31, 2021 (1) $ 19 $ 9 $ 28 $ 17 $ 12 $ 9 $ 94 December 31, 2020 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at January 1, 2020 $ 4 $ 1 $ 1 $ 2 $ 1 $ — $ 9 Cumulative effect of change in accounting principle 24 5 8 10 15 — 62 Charge offs, net of recoveries — — — — — — — Additions from purchase of PCD mortgage loans — — — — — — — Provision (release) 30 28 16 12 8 14 108 Balance at December 31, 2020 (1) $ 58 $ 34 $ 25 $ 24 $ 24 $ 14 $ 179 (1) Accrued interest receivable totaled $ 44 million and $ 35 million as of December 31, 2021 and 2020, respectively, and was excluded from the determination of credit losses. Accrued interest receivables are presented separate from the amortized cost of mortgage loans. An ACL is not estimated on an accrued interest receivable, rather receivable balances that are deemed uncollectable are written off with a corresponding reduction to net investment income. The Company’s mortgage loans that are current and in good standing are accruing interest. Interest is not accrued on loans greater than 90 days delinquent and in process of foreclosure, when deemed uncollectible. Delinquency status is determined from the date of the first missed contractual payment. At December 31, 2021, there was $ 6 million of recorded investment, $ 7 million of unpaid principal balance, no related loan allowance, $ 2 million of average recorded investment, and no investment income recognized on impaired residential mortgage loans. At December 31, 2020, there were no impaired mortgages. 147 The following tables provide information about the credit quality and vintage year of mortgage loans (in millions): December 31, 2021 2021 2020 2019 2018 2017 Prior Revolving Loans Total % of Total Commercial mortgage loans Loan to value ratios: Less than 70% $ 1,270 $ 1,346 $ 1,592 $ 1,599 $ 1,305 $ 2,703 $ 4 $ 9,819 93 % 70% - 80% 345 35 — 52 85 153 — 670 6 % 80% - 100% — — 39 5 — — — 44 — % Greater than 100% — — — — — 10 — 10 — % Total commercial mortgage loans 1,615 1,381 1,631 1,656 1,390 2,866 4 10,543 100 % Debt service coverage ratios: Greater than 1.20x 796 974 1,532 1,293 1,257 2,609 4 8,465 80 % 1.00x - 1.20x 651 329 81 90 11 68 — 1,230 12 % Less than 1.00x 168 78 18 273 122 189 — 848 8 % Total commercial mortgage loans 1,615 1,381 1,631 1,656 1,390 2,866 4 10,543 100 % Residential mortgage loans Performing 268 22 18 16 7 396 — 727 77 % Nonperforming (1) 4 44 22 19 23 100 — 212 23 % Total residential mortgage loans 272 66 40 35 30 496 — 939 100 % Total mortgage loans $ 1,887 $ 1,447 $ 1,671 $ 1,691 $ 1,420 $ 3,362 $ 4 $ 11,482 100 % December 31, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Total % of Total Commercial mortgage loans Loan to value ratios: Less than 70% $ 1,347 $ 1,315 $ 1,753 $ 1,679 $ 1,321 $ 1,845 $ 4 $ 9,264 90 % 70% - 80% 66 348 128 80 94 129 — 845 8 % 80% - 100% — 92 5 47 — 26 — 170 2 % Greater than 100% — — — — — — — — — % Total commercial mortgage loans 1,413 1,755 1,886 1,806 1,415 2,000 4 10,279 100 % Debt service coverage ratios: Greater than 1.20x 1,079 1,602 1,738 1,795 1,409 1,879 4 9,506 93 % 1.00x - 1.20x 334 138 90 11 — 89 — 662 6 % Less than 1.00x — 15 58 — 6 32 — 111 1 % Total commercial mortgage loans 1,413 1,755 1,886 1,806 1,415 2,000 4 10,279 100 % Residential mortgage loans Performing 12 2 — 1 2 432 — 449 100 % Nonperforming — — — — — — — — — % Total residential mortgage loans 12 2 — 1 2 432 — 449 100 % Total mortgage loans $ 1,425 $ 1,757 $ 1,886 $ 1,807 $ 1,417 $ 2,432 $ 4 $ 10,728 100 % 148 December 31, 2021 In Good Standing (1) Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value Apartment $ 3,755 $ — $ — $ — $ 3,755 Hotel 1,054 — — — 1,054 Office 1,889 — — — 1,889 Retail 2,104 — — — 2,104 Warehouse 1,741 — — — 1,741 Total commercial 10,543 — — — 10,543 Residential (2) 727 — 206 6 939 Total $ 11,270 $ — $ 206 $ 6 $ 11,482 December 31, 2020 In Good Standing (1) Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value Apartment $ 3,905 $ — $ — $ — $ 3,905 Hotel 883 — — — 883 Office 1,570 — — — 1,570 Retail 1,942 — — — 1,942 Warehouse 1,979 — — — 1,979 Total commercial 10,279 — — — 10,279 Residential 449 — — — 449 Total $ 10,728 $ — $ — $ — $ 10,728 (1) At December 31, 2021 and 2020, includes mezzanine loans of $ 278 million and $ 45 million in the Apartment category, $ 75 million and $ 33 million in the Hotel category, $ 252 million and $ 117 million in the Office category, $ 27 million and nil in the Retail category, and $ 26 million and $ 48 million in the Warehouse category, respectively. (2) Includes $ 202 million of loans purchased when the loans were greater than 90 days delinquent and are supported with insurance or other guarantees provided by various governmental programs, and $ 5 million of loans in process of foreclosure. As of December 31, 2021 and 2020, there were no commercial mortgage loans involved in troubled debt restructuring, and stressed loans for which the Company is dependent, or expects to be dependent, on the underlying property to satisfy repayment were nil. Equity Securities Equity securities include common stocks, preferred stocks and mutual funds. All equity securities are carried at fair value with changes in value included in net investment income. Policy Loans Policy loans are loans the Company issues to contract holders that use the cash surrender value of their life insurance policy or annuity contract as collateral. At both December 31, 2021 and 2020, $ 3.5 billion of these loans were carried at fair value, which the Company believes is equal to unpaid principal balances, plus accrued investment income. At December 31, 2021 and 2020, the Company had $ 1.0 billion and $ 1.1 billion of policy loans not held as collateral for reinsurance, which were carried at the unpaid principal balances. Other Invested Assets Other invested assets primarily include investments in Federal Home Loan Bank capital stock, limited partnerships (“LPs”), and real estate. Federal Home Loan Bank capital stock is carried at cost and adjusted for any impairment. At both December 31, 2021 and 2020, FHLB capital stock had carrying value of $ 125 million. Real estate is carried at the lower of depreciated cost or fair value. At December 31, 2021 and 2020, real estate totaling $ 243 million and $ 250 million, respectively, included foreclosed properties with a book value of $ 1 million at both December 31, 2021 and 2020. 149 Carrying values for limited partnership investments are generally determined by using the proportion of the Company’s investment in each fund (Net Asset Value (“NAV”) equivalent) as a practical expedient for fair value, and generally are recorded on a three-month lag, with changes in value included in net investment income. At December 31, 2021 and 2020, investments in LPs had carrying values of $ 2,831 million and $ 1,991 million, respectively. In June 2021, the Company entered into an arrangement to sell $ 420 million of limited partnership investments, of which $ 236 million and $ 168 million were sold in the second and third quarter of 2021, respectively, and the remainder was sold in January 2022. The LPs sold were carried at estimated sales price. The Company expects to reinvest in new LPs as attractive opportunities become available. Securities Lending The Company has entered into securities lending agreements with agent banks whereby blocks of securities are loaned to third parties, primarily major brokerage firms. As of December 31, 2021 and 2020, the estimated fair value of loaned securities was $ 17 million and $ 13 million, respectively. The agreements require a minimum of 102 percent of the fair value of the loaned securities to be held as collateral, calculated on a daily basis. To further minimize the credit risks related to these programs, the financial condition of counterparties is monitored on a regular basis. At December 31, 2021 and 2020, cash collateral received in the amount of $ 17 million and $ 13 million, respectively, was invested by the agent banks and included in cash and cash equivalents of the Company. A securities lending payable for the overnight and continuous loans is included in liabilities in the amount of cash collateral received. Securities lending transactions are used to generate income. Income and expenses associated with these transactions are reported as net investment income. Repurchase Agreements The Company routinely enters into repurchase agreements whereby the Company agrees to sell and repurchase securities. These agreements are accounted for as financing transactions, with the assets and associated liabilities included in the consolidated balance sheets. As of December 31, 2021 and 2020, short-term borrowings under such agreements averaged $ 1,548 million and $ 455 million, respectively, with weighted average interest rates of 0.07 % and 0.16 %, respectively. At December 31, 2021 and 2020, the outstanding repurchase agreement balance was $ 1,572 million and $ 1,100 million, respectively, collateralized with U.S. Treasury notes and maturing within 30 days, and was included within repurchase agreements and securities lending payable in the consolidated balance sheets. In the event of a decline in the fair value of the pledged collateral under these agreements, the Company may be required to transfer cash or additional securities as pledged collateral. Interest expense totaled $ 1 million, $ 1 million and $ 2 million for the years ended December 31, 2021, 2020 and 2019, respectively. The highest level of short-term borrowings at any month end was $ 2,349 million and $ 1,486 million for the years ended December 31, 2021 and 2020, respectively. 5. Derivative Instruments Freestanding Derivative Instruments The Company enters into financial derivative transactions, including swaps, put-swaptions, futures and options to reduce and manage business risks. These transactions manage the risk of a change in the value, yield, price, cash flows, credit quality or degree of exposure with respect to assets, liabilities or future cash flows which the Company has acquired or incurred. The Company does not account for freestanding derivatives as either fair value or cash flow hedges as might be permitted if specific hedging documentation requirements were followed. As a result, freestanding derivatives are carried at fair value on the balance sheet with settlements and changes in fair value recorded in net gains (losses) on derivatives and investments. With respect to the Company’s interest rate swaps and cross-currency swaps, the Company records the income related to periodic interest payment settlements within net gains (losses) on derivatives and investments. Although the Company does not account for these as cash flow hedges, the income from these settlements is considered operating income due to the cash settlement nature and is reported, as such, within the Company’s segment related disclosure within pretax adjusted operating earnings. 150 The Company manages the potential credit exposure for over-the-counter derivative contracts through evaluation of the counterparty credit standing, collateral agreements, and master netting agreements. The Company is exposed to credit-related losses in the event of nonperformance by counterparties, however, it does not anticipate nonperformance. There were no charges due to nonperformance by derivative counterparties in 2021, 2020 or 2019. Embedded Derivatives—Product Liabilities Certain product liabilities, including fixed index annuities, RILAs and guarantees offered in connection with variable, fixed index, and registered index-linked annuities issued by the Company, may contain embedded derivatives. Derivatives embedded in certain host insurance contracts that have been separated for accounting and financial reporting purposes, are carried at fair value. The results from changes in value of embedded derivatives are reported in net income. See “Variable Annuity Guarantees” and “Fixed Index Annuities”, which are further discussed in Note 10 for additional information on the accounting policies for embedded derivatives bifurcated from insurance host contracts. Embedded Derivatives—Funds Withheld Reinsurance Agreements The Company has recorded an embedded derivative liability related to the Athene Reinsurance Agreement (the “Athene Embedded Derivative”) in accordance with FASB ASC 815-15-55-107 and 108, “Derivatives and Hedging Case B: Reinsurer’s Receivable Arising from a Modified Coinsurance Arrangement” as Jackson’s obligation under the Reinsurance Agreement is based on the total return of investments in a segregated funds withheld account rather than Jackson’s own creditworthiness. As the Reinsurance Agreement transfers the economics of the investments in the segregated funds withheld account to Athene, they will receive an investment return equivalent to owning the underlying assets. At inception of the Reinsurance Agreement, the Athene Embedded Derivative was valued at zero. Additionally, the inception fair value of the investments in the segregated funds withheld account differed from their book value and, accordingly, the amortization of this difference is reported in net gains (losses) on derivatives and investments in the Consolidated Income Statements, while the investments are held. Subsequent to the effective date of the Reinsurance Agreement, the Athene Embedded Derivative is measured at fair value with changes reported in net gains (losses) on derivatives and investments in the Consolidated Income Statements. The Athene Embedded Derivative Liability is included in funds withheld payable under reinsurance treaties in the consolidated balance sheets. See “Athene Reinsurance” in Note 8 for additional information on the Athene Reinsurance Transaction. 151 A summary of the aggregate contractual or notional amounts and fair values of the Company’s freestanding and embedded derivative instruments are as follows (in millions): December 31, 2021 Contractual/ Assets Liabilities Net Notional Fair Fair Fair Value Amount (1) Value Value Asset (Liability) Freestanding derivatives Cross-currency swaps $ 1,767 $ 55 $ 35 $ 20 Equity index call options 21,000 606 — 606 Equity index futures (2) 18,258 — — — Equity index put options 27,500 150 — 150 Interest rate swaps 7,728 430 — 430 Interest rate swaps - cleared (2) 1,500 — — — Put-swaptions 19,000 133 — 133 Treasury futures (2) 912 — — — Total freestanding derivatives 97,665 1,374 35 1,339 Embedded derivatives VA embedded derivatives (3) N/A — 2,626 ( 2,626 ) FIA embedded derivatives (4) N/A — 1,439 ( 1,439 ) RILA embedded derivatives N/A — 6 ( 6 ) Total embedded derivatives N/A — 4,071 ( 4,071 ) Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps 158 10 1 9 Cross-currency forwards 1,119 33 5 28 Funds withheld embedded derivative (5) N/A — 120 ( 120 ) Total derivatives related to funds withheld under reinsurance treaties 1,277 43 126 ( 83 ) Total $ 98,942 $ 1,417 $ 4,232 $ ( 2,815 ) (1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions. (2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades. (3) Included within reserves for future policy benefits and claims payable on the consolidated balance sheets. The nonperformance risk adjustment is included in the balance above. (4) Included within other contract holder funds on the consolidated balance sheets. The nonperformance risk adjustment is included in the balance above. (5) Included within funds withheld payable under reinsurance treaties on the consolidated balance sheets. 152 December 31, 2020 Contractual/ Assets Liabilities Net Notional Fair Fair Fair Value Amount (1) Value Value Asset (Liability) Freestanding derivatives Cross-currency swaps $ 1,744 $ 93 $ 34 $ 59 Equity index call options 26,300 1,127 — 1,127 Equity index futures (2) 27,651 — — — Equity index put options 27,000 178 — 178 Interest rate swaps 4,750 722 1 721 Interest rate swaps - cleared (2) 1,500 — 8 ( 8 ) Put-swaptions 1,000 100 — 100 Treasury futures (2) 8,525 — — — Total freestanding derivatives 98,470 2,220 43 2,177 Embedded derivatives VA embedded derivatives (3) N/A — 5,592 ( 5,592 ) FIA embedded derivatives (4) N/A — 1,484 ( 1,484 ) RILA embedded derivatives N/A — — — Total embedded derivatives N/A — 7,076 ( 7,076 ) Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps 109 — 5 ( 5 ) Cross-currency forwards 743 — 8 ( 8 ) Funds withheld embedded derivative (5) N/A — 827 ( 827 ) Total derivatives related to funds withheld under reinsurance treaties 852 — 840 ( 840 ) Total $ 99,322 $ 2,220 $ 7,959 $ ( 5,739 ) (1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions. (2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades. (3) Included within reserves for future policy benefits and claims payable on the consolidated balance sheets. The nonperformance risk adjustment is included in the balance above. (4) Included within other contract holder funds on the consolidated balance sheets. The nonperformance risk adjustment is included in the balance above. (5) Included within funds withheld payable under reinsurance treaties on the consolidated balance sheets. 153 The following table reflects the results of the Company’s derivatives, including gains (losses) and change in fair value of freestanding derivative instruments and embedded derivatives (in millions): Years Ended December 31, 2021 2020 2019 Derivatives excluding funds withheld under reinsurance treaties Cross-currency swaps $ ( 36 ) $ 74 $ 11 Equity index call options 1,479 1,468 104 Equity index futures ( 4,663 ) ( 8,286 ) ( 6,391 ) Equity index put options ( 1,202 ) ( 218 ) ( 1,279 ) Interest rate swaps ( 179 ) 578 427 Interest rate swaps - cleared ( 64 ) 1 — Put-swaptions 134 199 65 Treasury futures ( 989 ) 1,650 540 Credit default swaps — — ( 2 ) Fixed index annuity embedded derivatives ( 5 ) 30 ( 310 ) Registered index linked annuity embedded derivative ( 1 ) — — Variable annuity embedded derivatives 2,887 ( 2,764 ) 262 Total net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treaties ( 2,639 ) ( 7,268 ) ( 6,573 ) Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps 15 ( 5 ) — Cross-currency forwards 42 ( 19 ) — Treasury futures — ( 204 ) — Funds withheld embedded derivative 707 ( 827 ) — Total net gains (losses) on derivative instruments related to funds withheld under reinsurance treaties 764 ( 1,055 ) — Total net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treaties $ ( 1,875 ) $ ( 8,323 ) $ ( 6,573 ) All of the Company’s trade agreements for freestanding, over-the-counter derivatives, contain credit downgrade provisions that allow a party to assign or terminate derivative transactions if the counterparty’s credit rating declines below an established limit. At December 31, 2021 and 2020, the fair value of the Company’s net non-cleared, over-the-counter derivative assets by counterparty were $ 1,376 million and $ 2,185 million, respectively, and held collateral was $ 1,576 million and $ 2,124 million, respectively, related to these agreements. At December 31, 2021 and 2020, the fair value of the Company’s net non-cleared, over-the-counter derivative liabilities by counterparty were nil and $ 13 million, respectively, and provided collateral was nil and $ 26 million, respectively, related to these agreements. If all of the downgrade provisions had been triggered at December 31, 2021 and 2020, in aggregate, the Company would have had to disburse $ 200 million and nil , respectively, to counterparties, representing the net fair values of derivatives by counterparty, less collateral held. Offsetting Assets and Liabilities The Company’s derivative instruments, repurchase agreements and securities lending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company recognizes amounts subject to master netting arrangements on a gross basis within the consolidated balance sheets. 154 The following tables present the gross and net information about the Company’s financial instruments subject to master netting arrangements (in millions): December 31, 2021 Gross Amounts Recognized Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets Financial Instruments (1) Cash Collateral Securities Collateral (2) Net Amount Financial Assets: Freestanding derivative assets $ 1,417 $ — $ 1,417 $ 41 $ 817 $ 555 $ 4 Financial Liabilities: Freestanding derivative liabilities $ 41 $ — $ 41 $ 41 $ — $ — $ — Securities loaned 17 — 17 — 17 — — Repurchase agreements 1,572 — 1,572 — — 1,572 — Total financial liabilities $ 1,630 $ — $ 1,630 $ 41 $ 17 $ 1,572 $ — (1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the consolidated balance sheets. (2) Excludes initial margin amounts for exchange-traded derivatives. December 31, 2020 Gross Amounts Recognized Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets Financial Instruments (1) Cash Collateral Securities Collateral (2) Net Amount Financial Assets: Freestanding derivative assets $ 2,220 $ — $ 2,220 $ 35 $ 1,098 $ 890 $ 197 Financial Liabilities: Freestanding derivative liabilities $ 56 $ — $ 56 $ 35 $ 13 $ — $ 8 Securities loaned 13 — 13 — 13 — — Repurchase agreements 1,100 — 1,100 — — 1,100 — Total financial liabilities $ 1,169 $ — $ 1,169 $ 35 $ 26 $ 1,100 $ 8 (1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the consolidated balance sheets. (2) Excludes initial margin amounts for exchange-traded derivatives. In the above tables, the amounts of assets or liabilities presented in the Company’s consolidated balance sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables. The above tables exclude net embedded derivative liabilities of $ 4,071 million and $ 7,076 million as of December 31, 2021 and 2020, respectively, as these derivatives are not subject to master netting arrangements. The above tables also exclude the funds withheld embedded derivative liability of $ 120 million and $ 827 million at December 31, 2021 and 2020. 155 6. Fair Value Measurements Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All financial assets and liabilities measured at fair value are required to be classified into one of the following categories: Level 1 Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include U.S. Treasury securities and exchange traded equity securities and derivative instruments. Level 2 Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Most debt securities that are model priced using observable inputs are classified within Level 2. Also included are freestanding and embedded derivative instruments that are priced using models with observable market inputs. Level 3 Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Embedded derivatives that are valued using unobservable inputs are included in Level 3. Because Level 3 fair values, by their nature, contain unobservable market inputs, considerable judgment may be used to determine the Level 3 fair values. Level 3 fair values represent the Company’s best estimate of an amount that could be realized in a current market exchange absent actual market exchanges. In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these situations, the Company determines the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. As a result, both observable and unobservable inputs may be used in the determination of fair values that the Company has classified within Level 3. The Company determines the fair values of certain financial assets and liabilities based on quoted market prices, where available. The Company may also determine fair value based on estimated future cash flows discounted at the appropriate current market rate. When appropriate, fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity and risk margins on unobservable inputs. Where quoted market prices are not available, fair value estimates are made at a point in time, based on relevant market data, as well as the best information about the individual financial instrument. At times, illiquid market conditions may result in inactive markets for certain of the Company’s financial instruments. In such instances, there may be no or limited observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable uncertainty and variability as a result of the inputs selected and may differ materially from the values that would have been used had an active market existed. As a result of market inactivity, such calculated fair value estimates may not be realizable in an immediate sale or settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates. 156 The following table summarizes the fair value and carrying value of the Company’s financial instruments (in millions): December 31, 2021 December 31, 2020 Carrying Value Fair Value Carrying Value Fair Value Assets Debt securities (1) $ 53,375 $ 53,375 $ 60,457 $ 60,457 Equity securities 279 279 193 193 Mortgage loans 11,482 11,910 10,728 11,349 Limited partnerships 2,831 2,831 1,991 1,991 Policy loans (1) 4,475 4,475 4,524 4,524 Freestanding derivative instruments 1,417 1,417 2,220 2,220 Federal Home Loan Bank of Indianapolis ("FHLBI") capital stock 125 125 125 125 Cash and cash equivalents 2,623 2,623 2,019 2,019 GMIB reinsurance recoverable 262 262 340 340 Separate account assets 248,949 248,949 219,063 219,063 Liabilities Annuity reserves (2) 40,389 50,116 45,639 54,006 Reserves for guaranteed investment contracts (3) 894 923 1,276 1,332 Trust instruments supported by funding agreements (3) 5,986 6,175 8,384 8,702 FHLB funding agreements (3) 1,950 1,938 1,478 1,421 Funds withheld payable under reinsurance treaties (1) 29,007 29,007 31,972 31,972 Long-term debt 2,649 2,745 322 412 Securities lending payable 17 17 13 13 Freestanding derivative instruments 41 41 56 56 Repurchase agreements 1,572 1,572 1,100 1,100 FHLB advances — — 380 380 Separate account liabilities 248,949 248,949 219,063 219,063 (1) Includes items carried at fair value under the fair value option and trading securities. (2) Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments. (3) Included as a component of other contract holder funds on the consolidated balance sheets. The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on both a recurring and nonrecurring basis reported in the following tables. Debt and Equity Securities The fair values for debt and equity securities are determined using information available from independent pricing services, broker-dealer quotes, or internally derived estimates. Priority is given to publicly available prices from independent sources, when available. Securities for which the independent pricing service does not provide a quotation are either submitted to independent broker-dealers for prices or priced internally. Typical inputs used by these three pricing methods include reported trades, benchmark yields, credit spreads, liquidity premiums and/or estimated cash flows based on default and prepayment assumptions. As a result of typical trading volumes and the lack of specific quoted market prices for most debt securities, independent pricing services will normally derive the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recently reported trades, the independent pricing services and broker-dealers may use matrix or pricing model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at relevant market rates. Certain securities are priced using broker-dealer quotes, which may utilize proprietary inputs and models. Additionally, the majority of these quotes are non-binding. 157 Included in the pricing of asset-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment assumptions believed to be relevant for the underlying collateral. Actual prepayment experience may vary from these estimates. Internally derived estimates may be used to develop a fair value for securities for which the Company is unable to obtain either a reliable price from an independent pricing service or a suitable broker-dealer quote. These fair value estimates may incorporate Level 2 and Level 3 inputs and are generally derived using expected future cash flows, discounted at market interest rates available from market sources based on the credit quality and duration of the instrument. For securities that may not be reliably priced using these internally developed pricing models, a fair value may be estimated using indicative market prices. These prices are indicative of an exit price, but the assumptions used to establish the fair value may not be observable or corroborated by market observable information and, therefore, represent Level 3 inputs. The Company performs an analysis on the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and ongoing review of third-party pricing service methodologies, review of pricing statistics and trends, back testing recent trades and monitoring of trading volumes. In addition, the Company considers whether prices received from independent broker-dealers represent a reasonable estimate of fair value through the use of internal and external cash flow models, which are developed based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party may be adjusted accordingly. For those securities that were internally valued at December 31, 2021 and 2020, the pricing model used by the Company utilizes current spread levels of similarly rated securities to determine the market discount rate for the security. Furthermore, appropriate risk premiums for illiquidity and non-performance are incorporated in the discount rate. Cash flows, as estimated by the Company using issuer-specific default statistics and prepayment assumptions, are discounted to determine an estimated fair value. On an ongoing basis, the Company reviews the independent pricing services’ valuation methodologies and related inputs and evaluates the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy distribution based upon trading activity and the observability of market inputs. Based on the results of this evaluation, each price is classified into Level 1, 2, or 3. Most prices provided by independent pricing services, including broker-dealer quotes, are classified into Level 2 due to their use of market observable inputs. Limited Partnerships Fair values for limited partnership interests, which are included in other invested assets, is generally determined using the proportion of the Company’s investment in the value of the net assets of each fund (“NAV equivalent”) as a practical expedient for fair value, and generally, are recorded on a three-month lag. No adjustments to these amounts were deemed necessary at December 31, 2021 and 2020. As a result of using the net asset value per share practical expedient, limited partnership interests are not classified in the fair value hierarchy. The Company’s limited partnership interests are not redeemable and distributions received are generally the result of liquidation of the underlying assets of the partnerships. The Company generally has the ability under the partnership agreements to sell its interest to another limited partner with the prior written consent of the general partner. In cases when the Company expects to sell the limited partnership interest, the estimated sales price is used to determine the fair value. These limited partnership interests are classified as Level 2 in the fair value hierarchy. In cases when a limited partnership’s financial statements are unavailable and a NAV equivalent is not available or practical, an internally developed model is used to determine fair value for that fund. These investments are classified as Level 3 in the fair value hierarchy. 158 Policy Loans Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The reinsurance related component of policy loans at fair value under the fair value option have been classified as Level 3 within the fair value hierarchy. Freestanding Derivative Instruments Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, which the Company would receive or pay upon sale or termination of the contracts at the reporting date. Changes in fair value are included in net gains (losses) on derivatives and investments. Freestanding derivatives priced using third party pricing services incorporate inputs that are predominantly observable in the market. Inputs used to value derivatives include, but are not limited to, interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels. Freestanding derivative instruments classified as Level 1 include futures, which are traded on active exchanges. Freestanding derivative instruments classified as Level 2 include interest rate swaps, cross currency swaps, cross-currency forwards, credit default swaps, put-swaptions and certain equity index call and put options. These derivative valuations are determined by third-party pricing services using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Freestanding derivative instruments classified as Level 3 include interest rate contingent options that are valued by third-party pricing services utilizing significant unobservable inputs. Cash and Cash Equivalents Cash and cash equivalents primarily include money market instruments and bank deposits. Certain money market instruments are valued using unadjusted quoted prices in active markets and are classified as Level 1. Funds Withheld Payable Under Reinsurance Treaties The funds withheld payable under reinsurance treaties includes both the funds withheld payable which are held at fair value under the fair value option and the funds withheld embedded derivative liability. The fair value of the funds withheld payable which are held at fair value under the fair value option is equal to the fair value of the assets held as collateral, which primarily consists of policy loans using industry standard valuation techniques. The funds withheld embedded derivative liability is determined based upon a total return swap technique referencing the fair value of the investments held under the reinsurance contract and requires certain significant unobservable inputs. The funds withheld payable which are held at fair value under the fair value option and the funds withheld embedded derivative are considered Level 3 in the fair value hierarchy. Separate Account Assets Separate account assets are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2 assets. Variable Annuity Guarantees Variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal, income and accumulation benefits. Certain benefits, including non-life contingent components of guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum withdrawal benefits for life (“GMWB for Life”), guaranteed minimum accumulation benefits (“GMAB”), and the reinsurance recoverable on the Company’s guaranteed minimum income 159 benefits (“GMIB”), are recorded at fair value. Guaranteed benefits that are not subject to fair value accounting are accounted for as insurance benefits. The Company discontinued offering the GMIB in 2009 and GMAB in 2011. GMABs and non-life contingent components of GMWB and GMWB for Life contracts are recorded at fair value with changes in fair value recorded in net gains (losses) on derivatives and investments. The fair value of the reserve is based on the expectations of future benefit payments and certain future fees associated with the benefits. At the inception of the contract, the Company attributes to the embedded derivative a portion of rider fees collected from the contract holder, which is then held static in future valuations. Those fees, generally referred to as the attributed fees, are set such that the present value of the attributed fees is equal to the present value of future claims expected to be paid under the guaranteed benefit at the inception of the contract. In subsequent valuations, both the present value of future benefits and the present value of attributed fees are revalued based on current market conditions and policyholder behavior assumptions. The difference between each of the two components represents the fair value of the embedded derivative. Thus, when unfavorable equity market movements cause declines in the contract holder’s account value relative to the guarantee benefit, the valuation of future expected claims would generally increase relative to the measurement performed at the inception of the contract, resulting in an increase in the fair value of the embedded derivative liability (and vice versa). The Company’s GMIB book is reinsured through an unrelated party, and due to the net settlement provisions of the reinsurance agreement, this contract meets the definition of a derivative. Accordingly, the GMIB reinsurance agreement is recorded at fair value, with changes in fair value recorded in net gains (losses) on derivatives and investments. Due to the inability to economically reinsure or hedge new issues of the GMIB, the Company discontinued offering the benefit in 2009. Fair values for GMWB, GMWB for Life, and GMAB embedded derivatives, as well as GMIB reinsurance recoverables, are calculated using internally developed models because active, observable markets do not exist for those guaranteed benefits. The fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behavior. Capital market inputs include expected market rates of return, market volatility, correlations of market index returns to funds, fund performance and discount rates. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable. At each valuation date, the fair value calculation reflects expected returns based on the greater of LIBOR swap rates and constant maturity treasury rates as of that date to determine the value of expected future cash flows produced in a stochastic process. Volatility assumptions are based on a weighting of available market data for implied market volatility for durations up to 10 years, grading to a historical volatility level by year 15, where such long-term historical volatility levels contain an explicit risk margin. Additionally, non-performance risk is incorporated into the calculation through the use of discount rates based on a blend of yields on similarly-rated peer debt and yields on JFI debt (adjusted to operating company levels). Risk margins are also incorporated into the model assumptions, particularly for policyholder behavior. Estimates of future policyholder behavior are subjective and are based primarily on the Company’s experience. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for this component of the fair value model. The use of the models and assumptions described above requires a significant amount of judgment. Management believes the aggregation of each of these components results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to or from a willing buyer or seller, if one existed, for those market participants to assume the risks associated with the guaranteed benefits and the related reinsurance. However, the ultimate settlement amount of the asset or liability, which is currently unknown, could likely be significantly different than this fair value. 160 Fixed Index Annuities The fair value of the fixed index annuities embedded option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires, is calculated using the closed form Black-Scholes Option Pricing model or Monte Carlo simulations, as appropriate for the type of option. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders. RILA The fair value of the RILA embedded option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires, is calculated using the closed form Black-Scholes Option Pricing model. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders. Fair Value Option The Company has elected the fair value option for certain funds withheld assets, which are held as collateral for reinsurance, totaling $ 3,632 million and $ 3,622 million at December 31, 2021 and 2020, respectively, as discussed above. The Company elected the fair value option for debt securities related to certain consolidated investments totaling $ 1,546 million and $ 1,109 million at December 31, 2021 and 2020, respectively. These debt securities are reflected on the Company’s consolidated balance sheet as debt securities, at fair value under the fair value option. Income and changes in unrealized gains and losses on other assets for which the Company has elected the fair value option are immaterial to the Company’s consolidated financial statements. 161 Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables summarize the Company’s assets and liabilities that are carried at fair value by hierarchy levels (in millions): December 31, 2021 Total Level 1 Level 2 Level 3 Assets Debt securities U.S. government securities $ 4,321 $ 4,321 $ — $ — Other government securities 1,619 — 1,619 — Public utilities 6,715 — 6,715 — Corporate securities 31,146 — 31,137 9 Residential mortgage-backed 569 — 569 — Commercial mortgage-backed 2,038 — 2,038 — Other asset-backed securities 6,967 — 6,967 — Equity securities 279 111 56 112 Limited partnerships (1) 18 — 17 1 Policy loans 3,467 — — 3,467 Freestanding derivative instruments 1,417 — 1,417 — Cash and cash equivalents 2,623 2,623 — — GMIB reinsurance recoverable 262 — — 262 Separate account assets 248,949 — 248,949 — Total $ 310,390 $ 7,055 $ 299,484 $ 3,851 Liabilities Embedded derivative liabilities (2) $ 4,071 $ — $ 1,445 $ 2,626 Funds withheld payable under reinsurance treaties (3) 3,759 — — 3,759 Freestanding derivative instruments 41 — 41 — Total $ 7,871 $ — $ 1,486 $ 6,385 (1) Excludes $ 2,813 million of limited partnership investments measured at NAV. (2) Includes the embedded derivative liabilities of $ 2,626 million related to GMWB reserves included in reserves for future policy benefits and claims payable, $ 6 million of RILA and $ 1,439 million of fixed index annuities, both included in other contract holder funds on the consolidated balance sheets. (3) Includes the Athene embedded derivative liability of $ 120 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. 162 December 31, 2020 Total Level 1 Level 2 Level 3 Assets Debt securities U.S. government securities $ 5,126 $ 5,126 $ — $ — Other government securities 1,697 — 1,697 — Public utilities 7,297 — 7,297 — Corporate securities 36,440 — 36,411 29 Residential mortgage-backed 985 — 985 — Commercial mortgage-backed 3,324 — 3,324 — Other asset-backed securities 5,588 — 5,588 — Equity securities 193 65 24 104 Limited partnerships (1) 1 — — 1 Policy loans 3,454 — — 3,454 Freestanding derivative instruments 2,220 — 2,220 — Cash and cash equivalents 2,019 2,019 — — GMIB reinsurance recoverable 340 — — 340 Separate account assets 219,063 — 219,063 — Total $ 287,747 $ 7,210 $ 276,609 $ 3,928 Liabilities Embedded derivative liabilities (2) $ 7,076 $ — $ 1,484 $ 5,592 Funds withheld payable under reinsurance treaties (3) 4,453 — — 4,453 Freestanding derivative instruments 56 — 56 — Total $ 11,585 $ — $ 1,540 $ 10,045 (1) Excludes $ 1,991 million of limited partnership investments measured at NAV. (2) Includes the embedded derivative liabilities of $ 5,592 million related to GMWB reserves included in reserves for future policy benefits and claims payable and $ 1,484 million of fixed index annuities included in other contract holder funds on the consolidated balance sheets. (3) Includes the Athene embedded derivative liability of $ 827 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. 163 Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) Level 3 Assets and Liabilities by Price Source The table below presents the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources (in millions): December 31, 2021 Assets Total Internal External Debt securities: Corporate $ 9 $ — $ 9 Equity securities 112 1 111 Limited partnerships 1 1 — Policy loans 3,467 3,467 — GMIB reinsurance recoverable 262 262 — Total $ 3,851 $ 3,731 $ 120 Liabilities Embedded derivative liabilities (1) $ 2,626 $ 2,626 $ — Funds withheld payable under reinsurance treaties (2) 3,759 3,759 — Total $ 6,385 $ 6,385 $ — (1) Includes the embedded derivative related to GMWB reserves. (2) Includes the Athene embedded derivative liability of $ 120 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. December 31, 2020 Assets Total Internal External Debt securities: Corporate $ 29 $ — $ 29 Equity securities 104 1 103 Limited partnerships 1 1 — Policy loans 3,454 3,454 — GMIB reinsurance recoverable 340 340 — Total $ 3,928 $ 3,796 $ 132 Liabilities Embedded derivative liabilities (1) $ 5,592 $ 5,592 $ — Funds withheld payable under reinsurance treaties (2) 4,453 4,453 — Total $ 10,045 $ 10,045 $ — (1) Includes the embedded derivative related to GMWB reserves. (2) Includes the Athene embedded derivative liability of $ 827 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. External pricing sources for securities represent unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available. 164 Quantitative Information Regarding Internally-Priced Level 3 Assets and Liabilities The table below presents quantitative information on significant internally-priced Level 3 assets and liabilities (in millions): As of December 31, 2021 Fair Value Valuation Technique(s) Significant Unobservable Input(s) Assumption or Input Range Impact of Increase in Input on Fair Value Assets GMIB reinsurance recoverable $ 262 Discounted cash flow Mortality (1) 0.01 % - 23.42 % Decrease Lapse (2) 3.30 % - 9.00 % Decrease Utilization (3) 0.00 % - 20.00 % Increase Withdrawal (4) 3.75 % - 4.50 % Increase Nonperformance risk (5) 0.11 % - 1.50 % Decrease Long-term Equity Volatility (6) 18.50 % - 22.06 % Increase Liabilities Embedded derivative liabilities $ 2,626 Discounted cash flow Mortality (1) 0.04 % - 21.45 % Decrease Lapse (2) 0.20 % - 30.90 % Decrease Utilization (3) 5.00 % - 100.00 % Increase Withdrawal (4) 58.00 % - 97.00 % Increase Nonperformance risk (5) 0.11 % - 1.50 % Decrease Long-term Equity Volatility (6) 18.50 % - 22.06 % Increase (1) Mortality rates vary by attained age, tax qualification status, GMWB benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. (2) Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when contracts are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when GMWB benefits are utilized. (3) The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money. (4) The withdrawal rate represents the utilization rate of the contract’s free partial withdrawal provision (GMIB) or the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount (GMWB). Withdrawal rates on contracts with a GMIB vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions. (5) Nonperformance risk spread varies by duration. (6) Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available. 165 As of December 31, 2020 Fair Value Valuation Technique(s) Significant Unobservable Input(s) Assumption or Input Range Impact of Increase in Input on Fair Value Assets GMIB reinsurance recoverable $ 340 Discounted cash flow Mortality (1) 0.01 % - 23.52 % Decrease Lapse (2) 3.30 % - 9.20 % Decrease Utilization (3) 0.00 % - 20.00 % Increase Withdrawal (4) 3.75 % - 4.50 % Increase Nonperformance risk (5) 0.33 % - 1.57 % Decrease Long-term Equity Volatility (6) 18.50 % - 22.47 % Increase Liabilities Embedded derivative liabilities $ 5,592 Discounted cash flow Mortality (1) 0.04 % - 21.53 % Decrease Lapse (2) 0.20 % - 30.30 % Decrease Utilization (3) 5.00 % - 100.00 % Increase Withdrawal (4) 56.00 % - 95.00 % Increase Nonperformance risk (5) 0.33 % - 1.57 % Decrease Long-term Equity Volatility (6) 18.50 % - 22.47 % Increase (1) Mortality rates vary by attained age, tax qualification status, GMWB benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. (2) Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when contracts are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when GMWB benefits are utilized. (3) The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money. (4) The withdrawal rate represents the utilization rate of the contract’s free partial withdrawal provision (GMIB) or the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount (GMWB). Withdrawal rates on contracts with a GMIB vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions. (5) Nonperformance risk spread varies by duration. (6) Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available. 166 Sensitivity to Changes in Unobservable Inputs The following is a general description of sensitivities of significant unobservable inputs and their impact on the fair value measurement for the assets and liabilities reflected in the tables above. At both December 31, 2021 and 2020, securities of $ 2 million are fair valued using techniques incorporating unobservable inputs and are classified in Level 3 of the fair value hierarchy. For these assets, their unobservable inputs and ranges of possible inputs do not materially affect their fair valuations and have been excluded from the quantitative information in the tables above. Policy loans that support funds withheld reinsurance agreements that are held at fair value under the fair value option on the Company’s consolidated balance sheet are excluded from the tables above. These policy loans do not have a stated maturity and the balances, plus accrued investment income, are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans, which includes accrued investment income, approximates fair value and have been classified as Level 3 within the fair value hierarchy. Funds withheld payable under reinsurance treaties, for funds withheld payable held at fair value under the fair value option and the Athene embedded derivative, are excluded from the tables above. The fair value of Funds withheld payable under reinsurance treaties, excluding the Athene embedded derivative, is determined based upon the fair value of the investments held by the Company related to the Company’s funds withheld payable under reinsurance treaties. The Athene embedded derivative utilizes a total return swap technique which incorporates the fair value of the invested assets supporting the reinsurance agreement as a component of the valuation. As a result, these valuations for the funds withheld payable under reinsurance treaties and the Athene embedded derivative require certain significant inputs which are generally not observable and, accordingly, the valuation is considered Level 3 in the fair value hierarchy. The GMIB reinsurance recoverable fair value calculation is based on the present value of future cash flows comprised of future expected reinsurance benefit receipts, less future attributed premium payments to reinsurers, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerning policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality. Embedded derivative liabilities classified in Level 3 represent the fair value of guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”) liabilities. These fair value calculations are based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerning policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality. 167 The tables below provide rollforwards for 2021 and 2020 of the financial instruments for which significant unobservable inputs (Level 3) are used in the fair value measurement. Gains and losses in the tables below include changes in fair value due partly to observable and unobservable factors. The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments hedging the related risks may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the impact of the derivative instruments reported in Level 3 may vary significantly from the total income effect of the hedged instruments. Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Other Issuances in and/or as of January 1, Net Comprehensive and (out of) December 31, December 31, 2021 2021 Income Income Settlements Level 3 2021 Assets Debt securities Corporate securities $ 29 $ 2 $ — $ 10 $ ( 32 ) $ 9 Equity securities 104 14 — ( 6 ) — 112 Limited partnerships 1 — — — — 1 GMIB reinsurance recoverable 340 ( 78 ) — — — 262 Policy loans 3,454 ( 2 ) — 15 — 3,467 Liabilities Embedded derivative liabilities $ ( 5,592 ) $ 2,966 $ — $ — $ — $ ( 2,626 ) Funds withheld payable under reinsurance treaties ( 4,453 ) 708 — ( 14 ) — ( 3,759 ) Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Other Issuances in and/or as of January 1, Net Comprehensive and (out of) December 31, December 31, 2020 2020 Income Income Settlements Level 3 2020 Assets Debt securities Corporate securities $ — $ 1 $ — $ 8 $ 20 $ 29 Other asset-backed securities — — ( 1 ) — 1 — Equity securities 183 ( 44 ) — ( 35 ) — 104 Limited partnerships 1 — — — — 1 GMIB reinsurance recoverable 302 38 — — — 340 Policy loans 3,586 ( 2 ) — ( 130 ) — 3,454 Liabilities Embedded derivative liabilities $ ( 2,790 ) $ ( 2,802 ) $ — $ — $ — $ ( 5,592 ) Funds withheld payable under reinsurance treaties ( 3,760 ) ( 674 ) — ( 19 ) — ( 4,453 ) 168 The components of the amounts included in purchases, sales, issuances and settlements for the years ended December 31, 2021 and 2020 shown above are as follows (in millions): December 31, 2021 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ 11 $ ( 1 ) $ — $ — $ 10 Equity securities 2 ( 8 ) — — ( 6 ) Policy loans — — 261 ( 246 ) 15 Total $ 13 $ ( 9 ) $ 261 $ ( 246 ) $ 19 Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 468 ) $ 454 $ ( 14 ) December 31, 2020 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ 9 $ ( 1 ) $ — $ — $ 8 Equity securities 2 ( 37 ) — — ( 35 ) Limited partnerships — — — — — Policy loans — — 271 ( 401 ) ( 130 ) Total $ 11 $ ( 38 ) $ 271 $ ( 401 ) $ ( 157 ) Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 760 ) $ 741 $ ( 19 ) In 2021 and 2020, there were no transfers from Level 3 to NAV equivalent. In 2021, transfers from Level 3 to Level 2 of the fair value hierarchy were $ 59 million, and transfers from Level 2 to Level 3 were $ 27 million. In 2020, transfers from Level 3 to Level 2 of the fair value hierarchy were nil , and transfers from Level 2 to Level 3 were $ 21 million. The portion of gains (losses) included in net income or other comprehensive income ("OCI") attributable to the change in unrealized gains and losses on Level 3 financial instruments still held was as follows (in millions): Year Ended December 31, 2021 2020 Included in Net Income Included in OCI Included in Net Income Included in OCI Assets Debt securities Corporate securities $ 2 $ — $ — $ — Other asset-backed securities — — ( 1 ) — Equity securities 14 — ( 44 ) — Limited partnerships — — — — GMIB reinsurance recoverable ( 78 ) — 38 — Policy loans ( 2 ) — — — Liabilities Embedded derivative liabilities $ 2,966 $ — $ ( 2,802 ) $ — Funds withheld payable under reinsurance treaties 708 — 826 — 169 Fair Value of Financial Instruments Carried at Other Than Fair Value Mortgage Loans Fair values are generally determined by discounting expected future cash flows at current market interest rates, inclusive of a credit spread, for similar quality loans. For loans whose value is dependent upon the underlying property, fair value is determined to be the estimated value of the collateral. Certain characteristics considered significant in determining the spread or collateral value may be based on internally developed estimates. As a result, these investments have been classified as Level 3 within the fair value hierarchy. Policy Loans Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The non-reinsurance related component of policy loans have been classified as Level 3 within the fair value hierarchy. FHLBI Capital Stock FHLBI capital stock, which is included in other invested assets, can only be sold to FHLBI at a constant price of $ 100 per share. Due to the lack of valuation uncertainty, the investment has been classified as Level 1. Other Contract Holder Funds Fair values for immediate annuities without mortality features are derived by discounting the future estimated cash flows using current market interest rates for similar maturities. Fair values for deferred annuities, including the fixed option on variable annuities, fixed annuities, fixed index annuities and RILAs, are determined using projected future cash flows discounted at current market interest rates. Fair values for guaranteed investment contracts are based on the present value of future cash flows discounted at current market interest rates. Fair values for trust instruments supported by funding agreements are based on the present value of future cash flows discounted at current market interest rates. Fair values of the FHLB funding agreements are based on the present value of future cash flows discounted at current market interest rates. Funds Withheld Payable Under Reinsurance Treaties The fair value of the funds withheld payable is equal to the fair value of the assets held as collateral, which primarily consists of bonds, mortgages, limited partnerships, and cash and cash equivalents. The fair value of the assets generally use industry standard valuation techniques as described above and the funds withheld payable components are valued consistent with the assets in the fair value hierarchy. Debt Fair values for the Company’s surplus notes and long-term debt are generally determined by prices obtained from independent broker dealers or discounted cash flow models. Such prices are derived from market observable inputs and are classified as Level 2. 170 Securities Lending Payable The Company’s securities lending payable is set equal to the cash collateral received. Due to the short-term nature of the loans, carrying value is a reasonable estimate of fair value and is classified as Level 2. FHLB Advances Carrying value of the Company’s FHLB advances, which are included in other liabilities, is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2. Repurchase Agreements Carrying value of the Company’s repurchase agreements is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2. Separate Account Liabilities The values of separate account liabilities are set equal to the values of separate account assets, which are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2. The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value (in millions). 171 December 31, 2021 Fair Value Carrying Value Total Level 1 Level 2 Level 3 Assets Mortgage loans $ 11,482 $ 11,910 $ — $ — $ 11,910 Policy loans 1,008 1,008 — — 1,008 FHLBI capital stock 125 125 125 — — Liabilities Annuity reserves (1) $ 36,318 $ 46,045 $ — $ — $ 46,045 Reserves for guaranteed investment contracts (2) 894 923 — — 923 Trust instruments supported by funding agreements (2) 5,986 6,175 — — 6,175 FHLB funding agreements (2) 1,950 1,938 — — 1,938 Funds withheld payable under reinsurance treaties (3) 24,533 24,533 537 19,127 4,869 Debt 2,649 2,745 — 2,745 — Securities lending payable 17 17 — 17 — FHLB advances — — — — — Repurchase agreements 1,572 1,572 — 1,572 — Separate Account Liabilities (4) 248,949 248,949 — 248,949 — December 31, 2020 Fair Value Carrying Value Total Level 1 Level 2 Level 3 Assets Mortgage loans $ 10,728 $ 11,349 $ — $ — $ 11,349 Policy loans 1,070 1,070 — — 1,070 FHLBI capital stock 125 125 125 — — Liabilities Annuity reserves (1) $ 38,563 $ 46,930 $ — $ — $ 46,930 Reserves for guaranteed investment contracts (2) 1,276 1,332 — — 1,332 Trust instruments supported by funding agreements (2) 8,384 8,702 — — 8,702 FHLB funding agreements (2) 1,478 1,421 — — 1,421 Funds held under reinsurance treaties 27,519 27,519 432 23,972 3,115 Debt 322 412 — 412 — Securities lending payable 13 13 — 13 — FHLB advances 380 380 — 380 — Repurchase agreements 1,100 1,100 — 1,100 — Separate Account Liabilities (4) 219,063 219,063 — 219,063 — (1) Annuity reserves represent only the components of other contract holder funds that are considered to be financial instruments. (2) Included as a component of other contract holder funds on the consolidated balance sheets. (3) Excludes $ 715 million of limited partnership investments measured at NAV at December 31, 2021. (4) The values of separate account liabilities are set equal to the values of separate account assets. 7. Deferred Acquisition Costs and Deferred Sales Inducements Deferred Acquisition Costs Under current accounting guidance, certain costs that are directly related to the successful acquisition of new or renewal insurance business are capitalized as deferred acquisition costs. These costs primarily pertain to commissions and certain costs associated with policy issuance and underwriting. All other acquisition costs are expensed as incurred. Deferred acquisition costs are increased by interest thereon and amortized into income in proportion to anticipated premium revenues for traditional life policies and in proportion to estimated gross profits, including net gains (losses) on derivatives 172 and investments, for annuities and interest-sensitive life products. Due to volatility of certain factors that affect gross profits, including net gains (losses) on derivatives and investments, amortization may be a benefit or a charge in any given period. In the event of negative amortization, the related deferred acquisition cost balance is capped at the initial amount capitalized, plus interest. Unamortized deferred acquisition costs are written off when a contract is internally replaced and substantially changed. Deferred acquisition costs are reviewed periodically to ensure that the unamortized portion does not exceed the expected recoverable amounts. The Company’s accounting policy includes reinsurance balances when evaluating recoverability of deferred acquisition costs. Any amount deemed unrecoverable is written off with a charge through deferred acquisition costs amortization. Other than the amounts related to the Athene Reinsurance Transaction in 2020 noted below, no such write-offs were required for 2021, 2020, and 2019. As available-for-sale debt securities are carried at fair value, an adjustment is made to deferred acquisition costs equal to the change in amortization that would have occurred if such securities had been sold at their stated fair value and the proceeds reinvested at current yields. This adjustment, along with the change in net unrealized gains (losses) on available-for-sale debt securities, net of applicable tax, is credited or charged directly to equity as a component of other comprehensive income. At December 31, 2021 and 2020, deferred acquisition costs decreased by $ 63 million and $ 146 million, respectively, to reflect this adjustment. For variable annuity business, the Company employs a mean reversion methodology that is applied with the objective of adjusting the amortization of deferred acquisition costs that would otherwise be highly volatile due to fluctuations in the level of future gross profits arising from changes in equity market levels. The mean reversion methodology achieves this objective by applying a dynamic adjustment to the assumption for short-term future investment returns. Under this methodology, the projected returns for the next five years are set such that, when combined with the actual returns for the current and preceding two years, the average rate of return over the eight-year period is 7.15 % for 2021 and 2020, after external investment management fees. The mean reversion methodology does, however, include a cap and a floor of 15 % and 0 % per annum, respectively, on the projected return for each of the next five years. At December 31, 2021 and 2020, projected returns under mean reversion were within the range bound by the 15 % cap and 0 % floor. At both December 31, 2021 and 2020, projected returns after the next five years were set at 7.15 %. The Company evaluated the recoverability of previously established deferred acquisition cost assets in accordance with ASC 944-30-35-22. The Company determined it was appropriate to immediately write-off the remaining deferred acquisition costs on the business reinsured to Athene as no future profits will be recognized on this business at this aggregated level of recoverability testing. Accordingly, amortization of deferred acquisition costs for the year ended December 31, 2020 included a write-off of $ 626 million, related to the blocks of fixed and fixed-index annuity business, as a result of the Athene transaction. The balances of, and changes, in deferred acquisition costs were as follows (in millions): . Years Ended December 31, 2021 2020 2019 Balance, beginning of period $ 13,897 $ 12,337 $ 11,075 Deferrals of acquisition costs 789 738 796 Amortization ( 519 ) 533 1,003 Unrealized investment (gains) losses 82 289 ( 537 ) Balance, end of period 14,249 13,897 12,337 Actuarial Assumption Changes (Unlocking) Annually, or as circumstances warrant, the Company conducts a comprehensive review of the assumptions used for its estimates of future gross profits underlying the amortization of deferred acquisition costs and deferred sales inducements, as well as the valuation of the embedded derivatives and reserves for life insurance and annuity products with living benefit and death benefit guarantees. These assumptions include, but may not be limited to, policyholder behavior, mortality rates, expenses, projected hedging costs, investment returns and policy crediting rates. Based on this review, the cumulative balances of deferred acquisition costs, deferred sales inducements and life and annuity guaranteed benefit reserves are adjusted with a corresponding benefit or charge to net income. 173 Deferred Sales Inducements Certain sales inducement costs that are directly related to the successful acquisition of new or renewal insurance business are capitalized as deferred sales inducement costs. Bonus interest on deferred fixed annuities and contract enhancements on fixed index annuities and variable annuities are capitalized as deferred sales inducements and included in other assets. Deferred sales inducements (“DSI”) are increased by interest thereon and amortized into income in proportion to estimated gross profits, including net gains (losses) on derivatives and investments. Deferred sales inducements are reviewed periodically to ensure that the unamortized portion does not exceed the expected recoverable amounts. Any amount deemed unrecoverable is written off with a charge through deferred sales inducements amortization. Other than the amounts related to the Athene Reinsurance Transaction in 2020 noted below, no such write-offs were required for 2021, 2020, and 2019. The Company evaluated the recoverability of previously established deferred acquisition costs and deferred sales inducement assets in accordance with ASC 944-30-35-22. The Company determined it was appropriate to immediately write-off the remaining deferred acquisition costs and deferred sales inducement costs on the business reinsured to Athene as no future profits will be recognized on this business at this aggregated level of recoverability testing. Accordingly, amortization of deferred sales inducement costs for the year ended December 31, 2020 included a write-off of $ 138 million, related to the blocks of fixed and fixed-index annuity business, as a result of the Athene transaction. The balances of and changes in deferred sales inducements, which are reported in other assets, were as follows (in millions): Years Ended December 31, 2021 2020 2019 Balance, beginning of year $ 1 $ 54 $ 145 Deferrals of sales inducements 1 3 11 Amortization ( 2 ) ( 144 ) ( 22 ) Unrealized investment losses (gains) 1 88 ( 80 ) Balance, end of year 1 1 54 8. Reinsurance The Company assumes and cedes reinsurance from and to other insurance companies in order to limit losses from large exposures. However, if the reinsurer is unable to meet its obligations, the originating issuer of the coverage retains the liability. The Company reinsures certain of its risks to other reinsurers under a coinsurance, modified coinsurance, or yearly renewable term basis. The Company regularly monitors the financial strength ratings of its reinsurers. The Company has also acquired certain lines of business that are wholly ceded to non-affiliates. These include both direct and assumed accident and health business, direct and assumed life insurance business, and certain institutional annuities. The Company’s GMIBs are reinsured with an unrelated party and due to the net settlement provisions of the reinsurance agreement, meet the definition of a derivative. Accordingly, the GMIB reinsurance agreement is recorded at fair value on the Company’s consolidated balance sheets, with changes in fair value recorded in net gains (losses) on derivatives and investments. GMIB reinsured benefits are subject to aggregate annual claim limits. Deductibles also apply on reinsurance of GMIB business issued since March 1, 2005. The Company discontinued offering the GMIB in 2009. At December 31, 2021 and 2020, the Company had an ACL of $ 12 million and $ 13 million, respectively, on its reinsurance recoverables, which are reported net of ACL on the consolidated balance sheets. The ACL considers the credit quality of the reinsurer and is generally determined based on probability of default and loss given default assumptions, after considering any applicable collateral arrangements. Additions to or releases of the allowance were reported in death, other policyholder benefits, and changes in reserves, net of deferrals in the consolidated income statements. Reinsurance and Funds Withheld Payable Under Reinsurance Treaties Ceded reinsurance agreements are reported on a gross basis on the Company’s consolidated balance sheets as an asset for amounts recoverable from reinsurers or as a component of other assets or liabilities for amounts, such as premiums, owed to or due from reinsurers. Reinsurance assumed and ceded premiums and benefits paid or provided are accounted for on 174 bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premium income and benefit expenses are reported net of reinsurance assumed and ceded. Athene Reinsurance On June 18, 2020, the Company’s subsidiary, Jackson, announced that it had entered into a funds withheld coinsurance agreement with Athene effective June 1, 2020 to reinsure on 100 % quota share basis, a block of Jackson’s in-force fixed and fixed-index annuity product liabilities in exchange for a $ 1.2 billion ceding commission, which was subject to a post-closing adjustment. The coinsurance with funds withheld agreement required Jackson to establish a segregated account in which the investments supporting the ceded obligations are maintained. While the economic benefits of the investments flow to Athene, Jackson retains physical possession and legal ownership of the investments supporting the reserves. Upon closing of the transaction, Jackson placed investments into the segregated account with a statutory book value of $ 25.6 billion. The investments maintained in the segregated account are valued at statutory carrying value for purposes of determining periodic settlement amounts under the coinsurance agreement. The investments in the segregated account are subject to an investment management agreement between Jackson and Apollo Insurance Solutions Group LP (“Apollo”), an Athene affiliate. Apollo management fees, which are calculated and paid monthly in arrears, are paid directly from the funds withheld agreement, administered by Athene. These payments were $ 104 million, $ 60 million, and nil during the years ended December 31, 2021, 2020 and 2019, associated with these services. Further, the investments in the segregated account are not available to settle any policyholder obligations other than those specifically covered by the coinsurance agreement and are not available to settle obligations to general creditors of Jackson. The profit and loss with respect to obligations ceded to Athene are included in periodic net settlements pursuant to the coinsurance agreement. To further support its obligations under the coinsurance agreement, Athene procured $ 1.2 billion in letters of credit for Jackson’s benefit and established a trust account for Jackson’s benefit, which had a book value of approximately $ 313 million at December 31, 2021. In September 2020, the post-closing settlement resulted in ceded premium of $ 6 million and a decrease of $ 29 million in ceding commission. As a result of this transaction, the Company evaluated the recoverability of previously established deferred acquisition costs, deferred sales inducement assets, and of cost of reinsurance assets in accordance with ASC 944-30-35-22. The Company’s accounting policy includes reinsurance balances when evaluating recoverability of DAC and DSI. Accordingly, the Company determined it was appropriate to immediately write-off the remaining DAC, DSI and the cost of reinsurance on the business reinsured to Athene as no future profits will be recognized on this business at this aggregated level of recoverability testing. The following table summarizes the impact of the Athene transaction on the consolidated income statements (in millions): December 31, 2020 Contractual ceding commission $ 1,202 Cost of reinsurance write-off (1) ( 2,520 ) DAC and DSI write-off ( 764 ) Total pretax loss on Athene Reinsurance Transaction $ ( 2,082 ) (1) Cost of reinsurance reflects the net impact of the fair value of assets of $ 30.1 billion and ceded reserves of $ 27.6 billion. Pursuant to the Athene coinsurance agreement, the Company holds certain assets as collateral. At December 31, 2021 and 2020, assets held as collateral in the segregated custody account were $ 25.4 billion and $ 28.3 billion, respectively. Swiss Re Reinsurance The Company has three retrocession reinsurance agreements (“retro treaties”) with Swiss Reinsurance Company Ltd. (“SRZ”). Pursuant to these retro treaties, the Company ceded to SRZ on a 100 % coinsurance basis, subject to pre-existing reinsurance with other parties, certain blocks of business. As a result, the Company holds certain assets, primarily in the form of policy loans and debt securities, as collateral for the reinsurance recoverable. Investment income and net gains (losses) on derivatives and investments earned on assets held as collateral are paid by the Company to the reinsurer, pursuant to the terms of the agreements. Investment income and net 175 gains (losses) on derivatives and investments are reported net of net gains (losses) on derivatives and investments on funds withheld payable under reinsurance treaties, with no net impact on the Company’s consolidated income statements. The Company elected the fair value option for assets which are held as collateral for reinsurance, as well as the related established funds withheld payable as further described below. The value of the funds withheld payable is equal to the fair value of the assets held as collateral. The income credited to reinsurers on the funds withheld payable for the reinsurance agreements is based on the income earned on those assets, which results in an embedded derivative (total return swap). However, for the funds withheld payable, the changes in fair value reported in net gains (losses) on derivatives and investments. Accordingly, the embedded derivative is not bifurcated or separately valued. The following assets and liabilities were held in support of reserves associated with the Company’s funds withheld reinsurance agreements and were reported in the respective financial statement line items in the consolidated balance sheets (in millions): December 31, 2021 2020 Assets Debt securities, available-for-sale $ 19,094 $ 24,474 Debt securities, at fair value under the fair value option 164 168 Equity securities 116 42 Mortgage loans 4,739 2,986 Policy loans 3,483 3,471 Freestanding derivative instruments, net 37 ( 13 ) Other invested assets 715 125 Cash and cash equivalents 438 394 Accrued investment income 162 190 Other assets and liabilities, net ( 56 ) 23 Total assets (1) $ 28,892 $ 31,860 Liabilities Funds held under reinsurance treaties (2) $ 29,007 $ 31,972 Total liabilities $ 29,007 $ 31,972 (1) Certain assets are reported at amortized cost while the fair value of those assets is reported in the embedded derivative in the funds withheld liability. (2) Includes funds withheld embedded derivative of $ 120 million and $ 827 million at December 31, 2021 and 2020, respectively. The sources of income related to funds withheld under reinsurance treaties reported in net investment income in the consolidated income statements were as follows (in millions): Years Ended December 31, 2021 2020 2019 Debt securities $ 762 $ 490 $ 8 Equity securities 5 2 — Mortgage loans 179 51 — Policy loans 314 315 321 Limited partnerships 35 — — Other investment income — — 1 Total investment income on funds withheld assets 1,295 858 330 Other investment expenses on funds withheld assets (1) ( 107 ) ( 66 ) — Total net investment income on funds withheld reinsurance treaties $ 1,188 $ 792 $ 330 (1) Includes management fees. 176 The gains and losses on funds withheld reinsurance treaties as a component of net gains (losses) on derivatives and investments in the consolidated income statements were as follows (in millions): Years Ended December 31, 2021 2020 2019 Available-for-sale securities Realized gains on sale $ 536 $ 2,074 $ — Realized losses on sale ( 52 ) ( 12 ) — Credit loss expense ( 1 ) — — Gross impairments — ( 2 ) — Credit loss expense on mortgage loans 23 ( 47 ) — Other ( 29 ) 4 — Net gains (losses) on non-derivative investments 477 2,017 — Net gains (losses) on derivative instruments 58 ( 228 ) — Net gains (losses) on funds withheld payable under reinsurance treaties (1) ( 556 ) ( 1,349 ) ( 330 ) Total net gains (losses) on derivatives and investments $ ( 21 ) $ 440 $ ( 330 ) (1) Includes the Athene embedded derivative gain (loss) of $ 707 million and $( 827 ) million for the years ended December 31, 2021 and 2020, respectively. While the economic benefits of the funds withheld assets flow to the respective reinsurers, Jackson retains physical possession and legal ownership of the investments supporting the reserves. Net investment income and net gains (losses) on derivatives and investments related to the funds withheld assets are included in periodic settlements under the reinsurance agreements which results in the flow of returns on the assets to the reinsurers. Net gains (losses) on the funds withheld assets are increased or decreased by changes in the embedded derivative liability related to the Athene Reinsurance Agreement and also include (i) changes in the related funds withheld payable and (ii) amortization of the basis difference between book value and fair value of the investments as of the effective date of the reinsurance agreements. The effect of reinsurance on premiums and benefits was as follows (in millions): Years Ended December 31, 2021 2020 2019 Premiums Direct $ 392 $ 309 $ 558 Assumed 42 47 456 Ceded ( 301 ) ( 196 ) ( 447 ) Total premium $ 133 160 567 Benefits Direct $ 1,415 $ 1,524 $ 1,441 Assumed 876 749 794 Ceded ( 863 ) ( 666 ) ( 665 ) Change in reserves, net of reinsurance ( 515 ) ( 323 ) $ ( 106 ) Total benefits $ 913 $ 1,284 $ 1,464 177 Components of the Company’s reinsurance recoverable were as follows (in millions): December 31, 2021 2020 Reserves: Life $ 5,829 $ 5,964 Accident and health 547 569 Guaranteed minimum income benefits 262 340 Other annuity benefits (1) 25,625 27,536 Claims liability and other 863 861 Total $ 33,126 $ 35,270 (1) Other annuity benefits primarily attributable to fixed and fixed index annuities reinsured with Athene. 9. Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds For traditional life insurance contracts, which include term and whole life, reserves for future policy benefits are determined using the net level premium method and assumptions as of the issue date or acquisition date as to mortality, interest, lapse and expenses, plus provisions for adverse deviations. These assumptions are not unlocked unless the reserve is determined to be deficient. Interest rate assumptions range from 2.5 % t o 6.0 %. Lapse, mortality, and expense assumptions for recoverability are based primarily on Company experience. The Company’s liability for future policy benefits also includes net liabilities for guaranteed benefits related to certain nontraditional long-duration life and annuity contracts, which are further discussed in Note 10. Group payout annuities consist of a closed block of defined benefit annuity plans. The liability for future benefits for these limited payment contracts is calculated using assumptions as of the acquisition date as to mortality and expense plus provisions for adverse deviation. In conjunction with a prior acquisition, the Company recorded a fair value adjustment at acquisition related to certain annuity and interest sensitive liability blocks of business to reflect the cost of the interest guarantees within the in-force liabilities, based on the difference between the guaranteed interest rate and an assumed new money guaranteed interest rate at acquisition. This adjustment was recorded in reserves for future policy benefits and claims payable. This reserve is reassessed at the end of each period, taking into account changes in the in-force block. Any resulting change in the reserve is recorded as a change in policy reserve through the consolidated income statements. The following table sets forth the Company’s reserves for future policy benefits and claims payable balances (in millions): December 31, 2021 2020 Traditional life $ 4,187 $ 4,535 Guaranteed benefits (1) 5,477 8,509 Claims payable 1,050 1,110 Accident and health 1,204 1,257 Group payout annuities 4,895 5,220 Other 816 859 Total $ 17,629 $ 21,490 (1) Primarily i ncludes the embedded derivative liabilities related to the GMWB reserve. 178 The following table sets forth the Company’s liabilities for other contract holder funds balances (in millions): December 31, 2021 2020 Interest-sensitive life $ 11,570 $ 11,836 Variable annuity fixed option 10,030 10,609 RILA (1) 110 — Fixed annuity 15,816 16,746 Fixed index annuity (2) 13,333 14,209 GICs, funding agreements and FHLB advances 8,830 11,138 Total $ 59,689 $ 64,538 (1) Includes the embedded derivative liabilities related RILA of $ 6 million and nil at December 31, 2021 and 2020, respectively. (2) Includes the embedded derivative liabilities related to fixed index annuity of $ 1,439 million and $ 1,484 million at December 31, 2021 and 2020, respectively. For interest-sensitive life contracts, liabilities approximate the policyholder’s account value, plus the remaining balance of the fair value adjustment related to previously acquired business, which is further discussed below. The liability for fixed index annuities and registered index linked annuities is based on three components, 1) the imputed value of the underlying guaranteed host contract, 2) the fair value of the embedded option component of the contract, and 3) the liability for guaranteed benefits related to the optional lifetime income rider. For fixed annuities, variable annuity fixed option, and other investment contracts, as included in the above table, the liability is the account value, plus the unamortized balance of the fair value adjustment related to previously acquired business. For payout annuities, as included in the above table, reserves are determined under the methodology for limited-payment contracts (for those with significant life contingencies) or using a constant yield method and assumptions as of the issue date for mortality, interest rates, lapse and expenses plus provisions for adverse deviations. At December 31, 2021, the Company had interest sensitive life business with minimum guaranteed interest rates ranging from 2.5 % to 6.0 % with a 4.68 % average guaranteed rate and fixed interest rate annuities with minimum guaranteed rates ranging from 1.0 % to 5.5 % and a 2.02 % average guaranteed rate. 179 At December 31, 2021 and 2020, approximately 94 % and 95 %, respectively, of the Company’s annuity account values correspond to crediting rates that are at the minimum guaranteed interest rates. The following tables show the distribution of the annuity account values within the presented ranges of minimum guaranteed interest rates (in millions): December 31,2021 Minimum Guaranteed Interest Rate Account Value Fixed Fixed Index RILA Variable Total 1.0% $ 156 $ 279 $ 1 $ 5,988 $ 6,424 >1.0% - 2.0% 57 1 — 214 272 >2.0% - 3.0% 1,113 183 — 3,254 4,550 >3.0% - 4.0% 594 — — — 594 >4.0% - 5.0% 276 — — — 276 >5.0% - 5.5% 72 — — — 72 Subtotal 2,268 463 1 9,456 12,188 Ceded reinsurance 12,086 12,870 — — 24,956 Total $ 14,354 $ 13,333 $ 1 $ 9,456 $ 37,144 December 31, 2020 Minimum Guaranteed Interest Rate Account Value Fixed Fixed Index RILA Variable Total 1.0% $ 92 $ 164 $ — $ 6,502 $ 6,758 >1.0% - 2.0% 63 3 — 236 302 >2.0% - 3.0% 1,162 190 — 3,356 4,708 >3.0% - 4.0% 623 — — — 623 >4.0% - 5.0% 280 — — — 280 >5.0% - 5.5% 73 — — — 73 Subtotal 2,293 357 — 10,094 12,744 Ceded reinsurance 12,924 13,852 — — 26,776 Total $ 15,217 $ 14,209 $ — $ 10,094 $ 39,520 At both December 31, 2021 and 2020, approximately 80 % of the Company’s interest sensitive life business account values correspond to crediting rates that are at the minimum guaranteed interest rates. The following table shows the distribution of the interest sensitive life business account values within the presented ranges of minimum guaranteed interest rates, excluding the business that is subject to the previously mentioned retro treaties (in millions): December 31, Minimum Guaranteed Interest Rate 2021 2020 Account Value - Interest Sensitive Life >2.0% - 3.0% $ 252 $ 270 >3.0% - 4.0% 2,742 2,819 >4.0% - 5.0% 2,387 2,488 >5.0% - 6.0% 1,967 2,045 Subtotal 7,348 7,622 Retro treaties 4,222 4,214 Total $ 11,570 $ 11,836 The Company has established a $ 23 billion aggregate Global Medium Term Note ("MTN") program. Jackson National Life Global Funding was formed as a statutory business trust, solely for the purpose of issuing Medium Term Note instruments to institutional investors, the proceeds of which are deposited with the Company and secured by the issuance of funding agreements. The carrying values at December 31, 2021 and 2020 totaled $ 6.0 billion and $ 8.4 billion, respectively. 180 Those Medium Term Note instruments issued in a foreign currency have been hedged for changes in exchange rates using cross-currency swaps. The unrealized foreign currency gains and losses on those Medium Term Note instruments are included in the carrying value of the trust instruments supported by funding agreements. Trust instrument liabilities are adjusted to reflect the effects of foreign currency translation gains and losses using exchange rates as of the reporting date. Foreign currency translation gains and losses are included in net gains (losses) on derivatives and investments. Jackson and Squire Re are members of the FHLBI primarily for the purpose of participating in the bank’s mortgage-collateralized loan advance program with long-term funding facilities. Advances are in the form of long-term notes or funding agreements issued to FHLBI. At both December 31, 2021 and 2020, the Company held $ 125 million of FHLBI capital stock, supporting $ 2.0 billion and $ 1.9 billion in funding agreements and long-term borrowings at December 31, 2021 and 2020, respectively. The Company’s institutional products business is comprised of the traditional guaranteed investment contracts, medium-term funding agreement-backed notes and funding agreements (including agreements issued in conjunction with the Company’s participation in the U.S. Federal Home Loan Bank ("FHLB") program) described above. 10. Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees Variable Annuity Guarantees Variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal, income and accumulation benefits. Certain benefits, including non-life contingent components of guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum withdrawal benefits for life (“GMWB for Life”), guaranteed minimum accumulation benefits (“GMAB”) and the reinsurance recoverable on the Company’s guaranteed minimum income benefits (“GMIB”), are recorded at fair value. Guaranteed benefits that are not subject to fair value accounting are accounted for as insurance benefits. Variable annuity embedded derivatives are carried at fair value on the Company’s balance sheet as a component of reserves for future policy benefits and claims payable. The Company discontinued offering the GMIB in 2009 and GMAB in 2011. The non-life contingent component of GMWB and GMWB for Life contracts consists of those guaranteed withdrawal amounts paid to the contract holder in excess of the account value of the contract, up to the amount of the living benefit base. Withdrawal amounts paid to the contract holder in excess of the living benefit base are considered life contingent, and are accounted for as insurance benefits. GMABs and non-life contingent components of GMWB and GMWB for Life contracts are recorded at fair value with changes in fair value recorded in net gains (losses) on derivatives and investments. The fair value of the reserve is based on the expectations of future benefit payments and certain future fees associated with the benefits. At the inception of the contract, the Company attributes to the embedded derivative a portion of rider fees collected from the contract holder, which is then held static in future valuations. Those fees, generally referred to as the attributed fees, are set such that the present value of the attributed fees is equal to the present value of future claims expected to be paid under the guaranteed benefit at the inception of the contract. In subsequent valuations, both the present value of future benefits and the present value of attributed fees are revalued based on current market conditions and policyholder behavior assumptions. The difference between each of the two components represents the fair value of the embedded derivative. Thus, when unfavorable equity market movements cause declines in the contract holder’s account value relative to the guarantee benefit, the valuation of future expected claims would generally increase relative to the measurement performed at the inception of the contract, resulting in an increase in the fair value of the embedded derivative liability (and vice versa). Fair values for GMWB, GMWB for Life, and GMAB embedded derivatives, as well as GMIB reinsurance recoverables, are calculated using internally developed models because active, observable markets do not exist for those guaranteed benefits. The fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations regarding policyholder behavior. Capital market inputs include expected market rates of return, market volatility, 181 correlations of market index returns to funds, fund performance and discount rates. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable. At each valuation date, the fair value calculation reflects expected returns based on the greater of LIBOR swap rates and constant maturity treasury rates as of that date to determine the value of expected future cash flows produced in a stochastic process. Volatility assumptions are based on available market data for implied market volatility for durations up to 10 years, grading to a historical volatility level by year 15, where such long-term historical volatility levels contain an explicit risk margin. Risk margins are also incorporated into the model assumptions, particularly for policyholder behavior. Estimates of future policyholder behavior are subjective and are based primarily on the Company’s experience. The fair value of a liability reflects the effect of nonperformance risk. Nonperformance risk includes, but may not be limited to, a reporting entity’s own credit risk. Additionally, non-performance risk is incorporated into the calculation through the use of discount rates based on a blend of yields on similarly-rated peer debt and yields on JFI debt (adjusted to operating company levels). As markets change, mature and evolve and actual policyholder behavior emerges, management regularly evaluates the appropriateness of its assumptions for this component of the fair value model. The use of the models and assumptions described above requires a significant amount of judgment. Management believes the aggregation of each of these components results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to or from a willing buyer or seller, if one existed, for those market participants to assume the risks associated with the guaranteed benefits and the related reinsurance. However, the ultimate settlement amount of the asset or liability, which is currently unknown, could be significantly different than this fair value. The Company issues variable contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (“traditional variable annuities”). The Company also issues variable annuity and life contracts through separate accounts where the Company contractually guarantees to the contract holder (“variable contracts with guarantees”) either a) return of no less than total deposits made to the account adjusted for any partial withdrawals, b) total deposits made to the account adjusted for any partial withdrawals plus a minimum return, or c) the highest account value on a specified anniversary date adjusted for any withdrawals following the contract anniversary. These guarantees include benefits that are payable in the event of death (guaranteed minimum death benefits, or "GMDB"), at annuitization (GMIB), upon the depletion of funds (GMWB) or at the end of a specified period (GMAB). The assets supporting the variable portion of both traditional variable annuities and variable contracts with guarantees are carried at fair value and reported as summary total separate account assets with an equivalent summary total reported for separate account liabilities. Liabilities for guaranteed benefits are general account obligations and are reported in reserves for future policy benefits and claims payable. Amounts assessed against the contract holders for mortality, administrative, and other services are reported in revenue as fee income. Changes in liabilities for minimum guarantees are reported within death, other policy benefits and change in policy reserves within the consolidated income statements with the exception of changes in embedded derivatives, which are included in net gains (losses) on derivatives and investments. Separate account net investment income, net investment realized and unrealized gains and losses, and the related liability changes are offset within the same line item in the consolidated income statements. Fixed Index Annuities The equity-linked option associated with fixed index annuities issued by the Company is accounted for at fair value as an embedded derivative on the Company’s consolidated balance sheets as a component of other contract holder funds, with changes in fair value recorded in net income. The fair value is determined using an option-budget method with capital market inputs of market index returns and discount rates as well as actuarial assumptions including lapse, mortality and withdrawal rates. Thus, favorable equity market movements cause increases in future contract holder benefits, resulting in an increase in the fair value of the embedded derivative liability (and vice versa). The Company also establishes a host contract reserve to support the underlying guaranteed account value growth. This host reserve is a component of other contract holder funds on the Company’s consolidated balance sheets. In addition, longevity riders may be issued on fixed index annuities. The benefits for these riders are accounted for as insurance benefits similarly to the life-contingent variable 182 annuity guaranteed benefits described above, and are a component of reserves for future policy benefits and claims payable on the Company’s consolidated balance sheets. RILA The equity-linked option associated with registered index linked annuities issued by the Company is accounted for at fair value as an embedded derivative on the Company’s consolidated balance sheets as a component of other contract holder funds, with changes in fair value recorded in net income. The fair value is determined using an option-budget method with capital market inputs of market index returns and discount rates as well as actuarial assumptions including lapse, mortality and withdrawal rates. Thus, favorable equity market movements cause increases in future contract holder benefits, resulting in an increase in the fair value of the embedded derivative liability (and vice versa). The Company also establishes a host contract reserve to support the associated account value growth and policyholder benefits. This host reserve is a component of other contract holder funds on the Company’s consolidated balance sheets. Separate Account Assets and Liabilities The Company maintains separate account assets, which are reported at fair value. The related liabilities are reported at an amount equivalent to the separate account assets. At December 31, 2021 and 2020, the assets and liabilities associated with variable life and annuity contracts were $ 248.9 billion and $ 219.1 billion, respectively. Investment risks associated with market value changes are borne by the contract holders, except to the extent of minimum guarantees made by the Company. Separate account net investment income, net investment realized and unrealized gains and losses, and the related liability changes are offset within the same line item in the consolidated income statements. Amounts assessed against the contract holders for mortality, variable annuity benefit guarantees, administrative, and other services are reported in revenue as fee income. Included in the assets and liabilities described above is a Jackson issued group variable annuity contract designed for use in connection with and issued to the Company’s Defined Contribution Retirement Plan. These deposits are allocated to the Jackson National Separate Account – II, which had balances of $ 390 million and $ 365 million at December 31, 2021 and 2020, respectively. The Company receives administrative fees for managing the funds. These fees are recorded as earned and included in fee income in the consolidated income statements. 183 At December 31, 2021 and 2020, the Company provided variable annuity contracts with guarantees, for which the net amount at risk is defined as the amount of guaranteed benefit in excess of current account value, as follows (dollars in millions): Minimum Return Account Value Net Amount at Risk Weighted Average Attained Age Average Period until Expected Annuitization December 31, 2021 Return of net deposits plus a minimum return GMDB 0 - 6 % $ 194,060 $ 2,124 68.7 years GMWB - Premium only 0 % 2,937 7 GMWB 0 - 5 %* 245 8 Highest specified anniversary account value minus withdrawals post-anniversary GMDB 14,806 93 69.8 years GMWB - Highest anniversary only 3,919 33 GMWB 643 44 Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary GMDB 0 - 6 % 9,896 522 71.9 years GMIB 0 - 6 % 1,662 463 0.5 years GMWB 0 - 8 %* 181,457 4,295 Weighted Average Attained Age Average Period until Expected Annuitization Minimum Return Account Value Net Amount at Risk December 31, 2020 Return of net deposits plus a minimum return GMDB 0 - 6 % $ 170,510 $ 2,340 67.3 years GMWB - Premium only 0 % 2,858 12 GMWB 0 - 5 %* 248 11 GMAB - Premium only 0 % 39 — Highest specified anniversary account value minus withdrawals post-anniversary GMDB 13,512 86 68.3 years GMWB - Highest anniversary only 3,459 41 GMWB 646 55 Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary GMDB 0 - 6 % 8,891 615 70.5 years GMIB 0 - 6 % 1,675 556 0.5 years GMWB 0 - 8 %* 159,857 5,656 * Ranges shown based on simple interest. The upper limits of 5% or 8% simple interest are approximately equal to 4.1 % and 6.0 %, respectively, on a compound interest basis over a typical 10-year bonus period. The combination GMWB category also includes benefits with a defined increase in the withdrawal percentage under pre-defined non-market conditions. 184 Amounts shown as GMWB above include a ‘not-for-life’ component up to the point at which the guaranteed withdrawal benefit is exhausted, after which benefits paid are considered to be ‘for-life’ benefits. The liability related to this ‘not-for-life’ portion is valued as an embedded derivative, while the ‘for-life’ benefits are valued as an insurance liability (see below). For this table, the net amount at risk of the ‘not-for-life’ component is the undiscounted excess of the guaranteed withdrawal benefit over the account value, and that of the ‘for-life’ component is the estimated value of additional life contingent benefits paid after the guaranteed withdrawal benefit is exhausted. Account balances of contracts with guarantees were invested in variable separate accounts as follows (in millions): December 31, 2021 2020 Fund type: Equity $ 154,368 $ 132,213 Bond 20,207 20,203 Balanced 43,185 39,626 Money market 1,564 1,862 Total $ 219,324 $ 193,904 GMDB liabilities reflected in the general account were as follows (in millions): December 31, 2021 2020 Balance as of beginning of period $ 1,418 $ 1,283 Incurred guaranteed benefits 55 270 Paid guaranteed benefits ( 103 ) ( 135 ) Balance as of end of period $ 1,370 $ 1,418 The GMDB liability is determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the liability balance through the consolidated income statement, within death, other policy benefits and change in policy reserves, if actual experience or other evidence suggests that earlier assumptions should be revised. The following assumptions and methodology were used to determine the GMDB liability at both December 31, 2021 and 2020 (except where otherwise noted): • Use of a series of stochastic investment performance scenarios, based on historical average market volatility. • Mean investment performance assumption of 7.15 %, after investment management fees, but before external investment advisory fees and mortality and expense charges. • Mortality equal to 38 % to 100 % of the IAM 2012 basic table improved using Scale G through 2019. • Lapse rates varying by contract type, duration and degree the benefit is in-the-money and ranging from 0.3 % to 27.9 % (before application of dynamic adjustments). • Discount rates: 7.15 % on 2020 and later issues, 7.4 % on 2013 through 2019 issues, 8.4 % on 2012 and prior issues. Most GMWB reserves are considered to be derivatives under current accounting guidance and are recognized at fair value, as previously defined, with the change in fair value reported in net income (as net gains (losses) on derivatives and investments). The fair value of these liabilities is determined using stochastic modeling and inputs as further described in Note 6. The fair valued GMWB had a reserve liability of $ 2,626 million and $ 5,592 million at December 31, 2021 and 2020, respectively, and was reported in reserves for future policy benefits and claims payable. The Company has also issued certain GMWB products that guarantee payments over a lifetime. Reserves for the portion of these benefits after the point where the guaranteed withdrawal balance is exhausted are calculated using assumptions and 185 methodology similar to the GMDB liability. At December 31, 2021 and 2020, these GMWB reserves totaled $ 196 million and $ 181 million, respectively, and were reported in reserves for future policy benefits and claims payable. GMAB benefits were offered on some variable annuity products. However, the Company no longer offers these benefits and all have expired as of June 30, 2021. The GMAB had an asset value that was immaterial to the consolidated financial statements at December 31, 2020. The direct GMIB liability is determined at each period end by estimating the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating the direct GMIB liability are consistent with those used for calculating the GMDB liability. At December 31, 2021 and 2020, GMIB reserves before reinsurance totaled $ 78 million and $ 87 million, respectively. Other Liabilities – Insurance and Annuitization Benefits The Company has established additional reserves for life insurance business for universal life plans with secondary guarantees, interest-sensitive life plans that exhibit “profits followed by loss” patterns and account balance adjustments to tabular guaranteed cash values on one interest-sensitive life plan. Liabilities for these benefits, as established according to the methodologies described below, are as follows: December 31, 2021 December 31, 2020 Benefit Type Liability (in millions) Net Amount at Risk (in millions) Weighted Average Attained Age Liability (in millions) Net Amount at Risk (in millions) Weighted Average Attained Age Insurance benefits * $ 943 $ 18,506 64.0 years $ 940 $ 19,483 63.5 years Account balance adjustments 141 N/A N/A 134 N/A N/A * Amounts for the universal life benefits are for the total of the plans containing any policies having projected non-zero excess benefits, and thus may include some policies with zero projected excess benefits. The following assumptions and methodology were used to determine the universal life insurance benefit liability for the periods referenced in the table above: • Use of a series of deterministic premium persistency scenarios. • Other experience assumptions similar to those used in amortization of deferred acquisition costs. • Discount rates equal to credited interest rates, approximately 3.0 % to 5.5 % at both December 31, 2021 and 2020, respectively. The Company also has a small closed block of two-tier annuities, where different crediting rates are used for annuitization and surrender benefit calculations. A liability is established to cover future annuitization benefits in excess of surrender values and was immaterial to the consolidated financial statements at both December 31, 2021 and 2020, respectively. The Company also offers an optional lifetime income rider with certain of its fixed index annuities. The liability established for this rider before reinsurance was $ 37 million and $ 18 million at December 31, 2021 and 2020, respectively. 186 11. L ong-Term Debt Liabilities for the Company’s debt are primarily carried at an amount equal to the unpaid principal balance. Original issuance discount or premium and any debt issue costs, if applicable, are recognized as a component of interest expense over the period the debt is expected to be outstanding. The aggregate carrying value of long-term debt were as follows (in millions): December 31, 2021 2020 Long-Term Debt Senior Notes due 2023 $ 596 $ — Senior Notes due 2031 495 — Senior Notes due 2051 490 — Term loan due 2023 751 — Surplus notes 250 250 FHLBI bank loans 67 72 Total long-term debt $ 2,649 $ 322 The following table presents the contractual maturities of the Company's long-term debt as of December 31, 2021: (in millions): Calendar Year 2022 2023 2024 2025 2026 and thereafter Total Long-term debt $ 5 $ 1,345 $ — $ — $ 1,299 $ 2,649 Senior Notes On November 23, 2021, the Company issued $ 1.6 billion aggregate principal amount of its senior unsecured notes consisting of $ 600 million aggregate principal amount of 1.1 % Senior Notes due November 22, 2023 (the “2023 Senior Notes”), $ 500 million aggregate principal amount of 3.1 % Senior Notes due November 23, 2031 (the “2031 Senior Notes”) and $ 500 million aggregate principal amount of 4.0 % Senior Notes due November 23, 2051 (the “2051 Senior Notes” and, together with the 2023 Senior Notes and the 2031 Senior Notes, the “Senior Notes”). The proceeds of the Senior Notes were used, together with cash on hand, to repay the Company’s $ 1.6 billion aggregate principal amount of senior unsecured delayed draw term loan facility that matures in May 2022 (the “2022 DDTL Facility”), as described below. Term Loans On February 22, 2021, the Company entered into loan facilities including a $ 1.0 billion revolving credit facility (the “Revolving Facility”), a $ 1.7 billion 2022 DDTL Facility and a $ 1.0 billion senior unsecured delayed draw term loan facility that matures in February 2023 (the “2023 DDTL Facility”, and together with the Revolving Facility and the 2022 DDTL Facility, the “Credit Facilities”) with a syndicate of banks. The Revolving Facility provides liquidity backstop. On September 10, 2021, the Company borrowed an aggregate principal amount of $ 2.4 billion under the term loan facilities as follows: $ 1.6 billion under the 2022 DDTL Facility and $ 750 million under the 2023 DDTL Facility. The proceeds of those borrowings were used for general corporate purposes, including liquidity at the holding company and capitalization of the insurance subsidiaries. Under the terms of the credit agreement for the DDTL Facilities, subject to certain exceptions, 100% of the net cash proceeds from any debt issuance, preferred equity issuance or hybrid instrument issuance by the Company or its subsidiaries is required to be applied (i) first to prepay the then outstanding principal amount and accrued interest thereon, if any, under the 2022 DDTL Facility and (ii) thereafter, to prepay the then outstanding principal amount and accrued interest thereon, if any, under the 2023 DDTL Facility. The 2022 DDTL Facility was repaid as previously discussed. 187 Surplus Notes Under Michigan Insurance Law, for statutory reporting purposes, the surplus notes are not part of the legal liabilities of the Company and are considered surplus funds. Payments of interest or principal may only be made with the prior approval of the commissioner of insurance of the state of Michigan and only out of surplus earnings which the commissioner determines to be available for such payments under Michigan Insurance Law. On March 15, 1997, the Company, through its subsidiary, Jackson, issued 8.2 % 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, 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 $ 20 million, $ 21 million, and $ 20 million for the years ended December 31, 2021, 2020 and 2019, respectively. On November 6, 2019, the Company, through its subsidiary, Brooke Life, issued a 4.5 % surplus note payable to its ultimate parent, Prudential plc, in the principal amount of $ 2.0 billion due November 6, 2059. In exchange, the Company remitted a return of capital of $ 2.0 billion to Prudential, plc. In June 2020, Prudential transferred this note to the Company’s newly formed subsidiary, Jackson Finance, LLC (“Jackson Finance”). As settlement, the Company issued shares as further described in Note 22. As a result of the transfer, this note is considered intercompany and is eliminated in consolidation. This surplus note was issued pursuant to Rule 144A under the Securities Act of 1933, as amended, and is unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims. This note may be redeemed subject to prior approval of the Michigan Department of Insurance and Financial Services and at the mutual agreement of the Company and the holder after the thirtieth anniversary of the note’s issuance. Interest is payable semi-annually on March 15th and September 15th of each year. Interest expense on the notes was nil , $ 41 million and $ 14 million for the years ended December 31, 2021, 2020 and 2019, respectively. FHLB Loans The Company received loans of $ 50 million from the FHLBI under its community investment program in both 2015 and 2014, which amortize on a straight-line basis over the loan term. The weighted average interest rate on these loans was 0.1 % and 0.5 % for the years ended December 31, 2021 and 2020, respectively. The outstanding balance on these loans was $ 67 million and $ 72 million at December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, the loans were collateralized by mortgage-related securities and commercial mortgage loans with a carrying value of $ 95 million and $ 96 million, respectively. Bank Loan On November 7, 2019, the Company, issued a $ 350 million note payable to Standard Chartered Bank, which was guaranteed by the Company’s ultimate parent, Prudential plc. In exchange, the Company paid a dividend of $ 350 million to Prudential. This note accrued interest at LIBOR plus 0.2 % per annum and was due November 7, 2020. In 2020, the Company transferred this note, plus all outstanding interest due, to Prudential and in turn the Company issued shares as further described in Note 22. Interest expense on the notes was nil , $ 4 million and $ 1 million for the years ended December 31, 2021, 2020 and 2019, respectively. 12. Federal Home Loan Bank Advances The Company, through its subsidiary, Jackson, entered into a advance program with the FHLBI in which interest rates were either fixed or variable based on the FHLBI cost of funds or market rates. Advances of nil and $ 380 million were outstanding at December 31, 2021 and 2020, respectively, and were recorded in other liabilities. 188 13. Income Taxes U.S. Tax Law Changes On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act, “the CARES ACT”, was signed into legislation. The CARES ACT includes tax provisions relevant to businesses that during 2020 impacted taxes related to 2018 and 2019. Some of the significant changes are reducing the interest expense disallowance for 2019 and 2020, allowing the five year carryback of net operating losses for 2018-2020, suspension of the 80% limitation of taxable income for net operating loss carryforwards for 2018-2020, and the acceleration of depreciation expense from 2018 and forward on qualified improvement property. In 2020, the Company recognized a tax benefit of $ 16 million as a result of the CARES ACT. In addition, the Taxpayer Certainty & Disaster Tax Relief Act was enacted on December 27, 2020. There was no impact to taxes from this legislation in 2021 or 2020. Effective Tax Rate The components of the provision for federal, state and local income taxes were as follows (in millions): Years Ended December 31, 2021 2020 (1) 2019 (1) Current tax expense (benefit) Federal $ ( 71 ) $ ( 80 ) $ 305 State and local ( 2 ) 2 — Total current tax expense (benefit) ( 73 ) ( 78 ) 305 Deferred tax expense (benefit) Federal 653 ( 703 ) ( 674 ) State and local 22 ( 73 ) — Total deferred tax expense (benefit) 675 ( 776 ) ( 674 ) Total income taxes $ 602 $ ( 854 ) $ ( 369 ) (1) Years ended December 31, 2020, and 2019 were reclassified to conform with the current year presentation of State and local taxes. For the tax year ended December 31, 2021, current tax benefit includes $ 24 million benefit of net interest related to tax refunds and $ 3 million benefit for the reversal of the uncertain tax position. The federal income tax provisions differ from the amounts determined by multiplying pretax income attributable to the Company by the statutory federal income tax rate of 21% were as follows (in millions): Years Ended December 31, 2021 2020 2019 Income taxes at statutory rate $ 795 $ ( 522 ) $ ( 182 ) State income taxes (1) 15 ( 56 ) — Dividends received deduction ( 146 ) ( 158 ) ( 171 ) Valuation allowance — 1 1 U.S. federal tax reform impact (2) — ( 16 ) — Foreign and other tax credits (3) ( 46 ) ( 61 ) ( 40 ) Prior year deferred tax benefit — ( 53 ) — Other (4) ( 16 ) 11 23 Income tax (benefit) expense $ 602 $ ( 854 ) $ ( 369 ) Effective tax rate 15.9 % 34.3 % 42.6 % (1) For the year ended December 31, 2020, includes a benefit of $ 33 million relating to prior periods. (2) For the year ended December 31, 2020, the benefit is the result of the CARES Act. (3) For the years ended December 31, 2021, 2020 and 2019, this primarily represents the benefit from foreign tax credits generated by the fund investments of the variable life and annuity contracts (4) Aggregation of insignificant reconciling items that are less than 5% of the computed income tax expense (benefit) in accordance with guidance. 189 For 2019, the rate reconciling items for foreign and other tax credits and other included a reclassification to conform with the current year presentation. The Dividends received deduction (“DRD”) reduces the amount of divided income subject to tax. The DRD for the current period was estimated using information from 2020 and estimates of current year investments results. The actual current year DRD can vary based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from fund investments, changes in the account balances of variable life and annuity contracts, and the Company’s taxable income before the DRD. Income Taxes Paid Income taxes paid (refunded) were $( 403 ) million, $ 4 million, and $ 395 million in 2021, 2020 and 2019, respectively. The income taxes refunded in 2021 include $( 314 ) million of taxes and $( 24 ) million of net interest related to the IRS audit that closed during the year and $( 73 ) million of refunds from the overpayment of 2020 taxes in the current year. Deferred Taxes and Assessment of Valuation Allowance The tax effects of significant temporary differences that gave rise to deferred tax assets and liabilities were as follows (in millions): December 31, 2021 2020 Gross deferred tax asset Difference between financial reporting and the tax basis of: Policy reserves and other insurance items $ 2,695 $ 3,259 Employee benefits 181 165 Derivative investments 1,128 1,121 Other investment items — 329 Net operating loss carryforward 306 29 Other 15 55 Total gross deferred tax asset 4,325 4,958 Valuation allowance ( 2 ) ( 2 ) Gross deferred tax asset, net of valuation allowance $ 4,323 $ 4,956 Gross deferred tax liability Difference between financial reporting and the tax basis of: Deferred acquisition costs and sales inducements $ ( 2,873 ) $ ( 2,812 ) Other investment items ( 23 ) — Net unrealized investment gains ( 453 ) ( 1,024 ) Other ( 20 ) ( 62 ) Total gross deferred tax liability ( 3,369 ) ( 3,898 ) Net deferred tax asset $ 954 $ 1,058 Deferred income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the effects of recording certain invested assets at market value, the deferral of acquisition costs and sales inducements and the provisions for future policy benefits and expenses. Deferred tax assets and liabilities are measured using the tax rates expected to be in effect when such benefits are realized. In 2016, the Company reached an agreement with the IRS regarding the taxation of hedging activities. This agreement requires the current taxation of all unrealized gains and losses on hedge-related investments, but then defers two-thirds of the amount ratably over the following two years. Accordingly, there is an acceleration of taxes incurred currently and a related offset to the taxes being deferred. The Company is required to evaluate the recoverability of its deferred tax assets and establish a valuation allowance, if necessary, to reduce its deferred tax asset to an amount that is more likely than not to be realizable. Considerable judgment and the use of estimates are required when determining whether a valuation allowance is necessary and, if so, the amount of 190 such valuation allowance. When evaluating the need for a valuation allowance, the Company considers many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of temporary differences; the length of time carryovers can be utilized; and any tax planning strategies the Company would employ to avoid a tax benefit from expiring unused. The Company utilized a three year rolling calculation of actual income before taxes adjusted for permanent items to measure the cumulative losses in recent years. The total historical cumulative loss includes significant increases in the dividend received deduction (DRD) benefit for 2019 due to the funds in separate accounts converting regulated investment companies (RICs) to Partnerships. The conversion resulted in two years of DRD from RIC distributions being deducted in 2019. Significant increases in the DRD from fund conversions are not expected to continue as there are a limited number of RIC funds that could still be converted. In 2020, the Company entered into a funds withheld coinsurance agreement with Athene that resulted in a significant one-time loss related to the net consideration of the reinsurance transaction during the year. The Company considered increased DRD and Athene loss as well as a one-time loss for hedges related to managing to the risk limits under the previous VA reserving regime in 2019, in assessing the sources of taxable income available to realize the benefit of deferred tax assets. The Company evaluated each component of the deferred tax asset and assessed the effects of limitations and/or interpretations on the value of such components to be fully recognized in the future. The Company also evaluated the likelihood of sufficient taxable income in the future to offset the available deferred tax assets based on evidence considered to be objective and verifiable. Based on the analysis at December 31, 2021 and 2020, the Company concluded that it is more likely than not, that the $ 922 million and $ 1,031 million of net deferred tax assets for the life insurance group and $ 32 million and $ 27 million of net deferred tax assets for the non-life insurance group will be realized through future projected taxable income. At both December 31, 2021 and 2020, the Company recorded a valuation allowance in the amount of $ 2 million against the deferred tax assets associated with both realized and unrealized losses on capital assets, in the non-life group, where management no longer believes that it is more likely than not that the full tax benefit of the losses will be realized. Carryforwards The following table sets forth the amount and expiration dates of federal and state operating, capital loss and tax credit carryforwards for tax periods indicated. Included in the table is a Section 382 loss carryforward attributable to a previous acquisition. Section 382 of the Internal Revenue Code imposes limitations on the utilization of net operating loss carryforwards. The Section 382 limitation is an annual limitation on the amount of pre-acquisition net operating losses that a corporation may use to offset post-acquisition income. Section 382 further limits certain unrealized built-in losses at the time of acquisition. December 31, 2021 2020 Federal net operating and capital loss carryforwards (1) $ 1,280 $ — Section 382 net operating loss from previous acquisition (2) 137 137 State net operating and capital loss carryforwards (3) 161 — Alternative Minimum Credit (4) 6 6 Total $ 1,584 $ 143 (1) Unlimited carryforward (2) Begins to expire in 2026 with annual limitation of approximately $ 21 million. (3) For the year ended December 31, 2021, includes $ 52 million with expiration of 0-20 years, and with $ 109 million unlimited carryforward. (4) Subject to 383 limitations. Accounting for Uncertainty in Income Taxes The Company determines whether a tax position is more likely than not to be sustained upon examination by tax authorities. The portion of a tax position that is greater than the 50% likelihood of being realized is recorded on the financial statements and any unrecognized part of a position due to uncertainties are recorded as a liability and are charged to income tax in the period that determination is made. The Company has considered both permanent and temporary 191 positions in determining the unrecognized tax benefit rollforward. At December 31, 2021, the Company held no reserves related to unrecognized tax benefits. For the year ended December 31, 2021, the Company decreased the reserve related to a change in the calculation of its tax basis reserves as a result of the lapse of the statute of limitations. For the year ended December 31, 2020, the Company decreased the reserve related to the exclusion of short-term capital gains from the separate account dividends received deduction (“DRD”) calculation as a result of settlement through the IRS Fast Track Settlement process. The unrecognized benefit had been recorded in the net FIT receivable included in other assets on the consolidated balance sheets. The following table summarizes the changes in the Company’s unrecognized tax benefits (in millions): December 31, 2021 2020 Unrecognized tax benefit, beginning of year $ 2 $ 33 Additions for tax positions identified — — Decrease for Change in Tax Reserves position ( 2 ) — Decrease for DRD short-term position — ( 31 ) Unrecognized tax benefit, end of year $ — $ 2 The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as a component of income tax (benefit) expense. The Company did not recognize any interest and penalty expense in 2021, 2020 or 2019. For 2021 and 2020, the Company had accrued total interest expense of nil and $ 5 million, respectively. For 2021 and 2020, the Company did not accrue any amounts for penalties. Based on information available as of December 31, 2021, the Company believes that, in the next 12 months, there are no positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease. Tax Examinations And Litigation The Company is no longer subject to U.S. federal tax examinations by tax authorities for years prior to 2018. Tax years from 2018 to 2021 remain open under the statute of limitations. The 2017 IRS exam of the Brooke Life consolidated return closed during 2021 with no material impact to the company. The JFI non-life federal consolidated return is currently under examination by the Internal Revenue Service for the 2018 tax year. Certain of the Company’s subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 2011 to 2018. The Company does not anticipate any material changes from any of these audits. Organization and Tax Sharing Agreements Our U.S. federal consolidated income tax group includes both life companies and non-life companies. The Company files separate non-life and life insurance consolidated federal income tax returns with the U.S. federal government and various state and local jurisdictions, as well as certain foreign jurisdictions. Jackson Financial and its non-life insurance subsidiaries, Jackson Holdings, LLC and PPM Holdings, Inc file a consolidated non-life federal income tax return. Brooke Life files a consolidated life insurance company tax return with Jackson, JNY, and Squire Re II. Jackson National Life (Bermuda) LTD and VFL International Life Company SPC, LTD are taxed as controlled foreign corporations of Jackson. With the exception of several insignificant wholly-owned subsidiaries that are not included in the Brooke Life consolidated tax return, all other subsidiaries of Jackson are limited liability companies with all of their interests owned by Jackson. Accordingly, they are not considered separate entities for income tax purposes and, therefore, are taxed as part of the operations of Jackson. Income tax expense is calculated on a separate company basis. Jackson Financial, Jackson Holdings LLC, and PPM Holdings, Inc. have entered into written tax sharing agreements. These tax sharing agreements are generally based on a separate return basis with benefits for credits and losses. Brooke Life, Jackson, JNY, and Squire RE II have entered into written tax sharing agreements. These tax sharing agreements are generally based on a separate return basis with benefits for credits and losses. 192 14. Commitments and Contingencies In the ordinary course of business, the Company and its subsidiaries are parties to legal actions and, at times, regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate their impact on the Company’s financial position. A reserve is established for contingent liabilities if it is probable that a loss has been incurred and the amount is reasonably estimable. It is possible that an adverse outcome in certain of the Company’s contingent liabilities, or the use of different assumptions in the determination of amounts recorded, could have a material effect upon the Company’s financial position. However, it is the opinion of management that the ultimate disposition of contingent liabilities is unlikely to have a material adverse effect on the Company’s financial position. Jackson has been named in civil litigation proceedings, which appear to be substantially similar to other class action litigation brought against many life insurers including allegations of misconduct in the sale of insurance products. The Company accrues for legal contingencies once the contingency is deemed to be probable and reasonably estimable. At December 31, 2021, the Company had unfunded commitments related to its investments in limited partnerships and limited liability companies totaling $ 1,741 million. At December 31, 2021, unfunded commitments related to fixed-rate mortgage loans and other debt securities totaled $ 1,398 million. 15. Leases The Company leases office space and equipment under several operating leases that expire at various dates through 2051. The Company determines if a contract is a lease at inception or modification. Lease terms may include options to extend or terminate the lease and are included in the lease measurement when it is reasonably certain that the Company will exercise that option. Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and corresponding lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are determined using the Company’s incremental borrowings rate based upon information available at lease commencement. Certain lease incentives such as free rent periods are recorded as a reduction of the ROU asset. Lease costs for operating leases are recognized on a straight-line basis over the life of the lease. The Company has lease agreements with both lease and non-lease components. The Company elected the practical expedient to combine lease and non-lease components for certain real estate leases. Variable lease expenses may include changes in index-linked lease payments and certain variable operating expenses associated with real estate leases. These payments are recognized in operating expenses in the period incurred. At December 31, 2021 and 2020, the Company had operating lease net ROU assets of $ 31 million and $ 37 million and associated lease liabilities of $ 43 million and $ 51 million, respectively, classified within other assets and other liabilities , respectively. Net lease expense was $ 33 million, $ 28 million, and $ 36 million in 2021, 2020 and 2019, respectively, including expenses associated with software leases. The following table summarizes the components of operating lease costs and other information related to operating leases recorded within operating costs and other expenses, net of deferrals, (in millions): Years Ended December 31, 2021 2020 2019 Lease Cost: Operating leases (1) $ 8 $ 12 $ 14 Variable lease costs 4 5 4 Sublease income ( 4 ) ( 5 ) ( 3 ) Net Lease Cost $ 8 $ 12 $ 15 Other Information: Cash paid for amounts included in the measurement of operating lease liability $ 11 $ 12 $ 15 Weighted average lease term 7 years 7 years 7 years Weighted average discount rate 3.8 % 3.8 % 3.7 % (1) Operating lease costs exclude software leases, as intangible assets are excluded from the scope of Accounting Standard Codification 842, Leases. 193 At December 31, 2021, the maturities of operating lease liabilities were as follows (in millions): 2022 $ 9 2023 9 2024 8 2025 6 2026 6 Thereafter 11 Total $ 49 Less: interest 6 Present value of lease liabilities $ 43 16. Share-Based Compensatio n Prudential Share Plans Historically, certain employees participated in various share award plans relating to Prudential shares and/or American Depositary Receipts (“ADRs”) that were tradable on the New York Stock Exchange and are described below. At certain times, the Company granted one-off type retention awards to certain key senior executives within Jackson and PPM. These awards were subject to the prior approval of the respective Jackson and PPM Remuneration Committees (collectively, “REMCO”) and were nil cost awards with a contingent right to receive Prudential ADRs. The awards were contingent upon continued employment of the recipient through the award vesting date. There were no performance measurements with these awards. The Company reflected the above plan as an equity classified plan and, therefore, reported the net reserve related to the compensation expense and the value of the shares distributed under this plan within the consolidated statements of equity. At December 31, 2021 and 2020, the Company had nil and $ 8 million, respectively, reserved for future payments under this plan. The Company either acquired shares/ADRs or reimbursed Prudential for the costs of any shares/ADRs that were distributed to participants in the above plan. The shares/ADRs acquired for all the share-award plans were held at cost in a trust account for future distributions. The Company reflected the costs of shares/ADRs held within the consolidated balance sheet as shares held in trust. At December 31, 2021 and 2020, the Company had nil and $ 4 million of shares/ADRs held at cost in the trust, respectively. The Prudential Long Term Incentive Plan (the “Prudential PLTIP”) was a Prudential incentive plan in which the Company granted share awards to eligible employees in the form of a contingent right to receive Prudential ADRs, or a conditional allocation of Prudential ADRs, subject to the prior approval of REMCO. Historically, these share awards vested based on the achievement of planned International Financial Reporting Standards (“IFRS”) pretax operating income for the U.S. business, had vesting periods of three years and were at nil cost to the employee. Share awards vested between 0 % (less than 90 % of plan) and 100 % (more than 110 % of plan) of the grant amounts dependent on IFRS pretax operating income attained over the performance period. Award holders did not have any right to dividends or voting rights attached to the ADRs granted during the performance period. Upon vesting, a number of ADRs equivalent to the value of dividends that otherwise would have been received over the performance period were added to vested awards. The Company reflected the above plan as a liability classified plan and, therefore, reported the accrued compensation expense and the value of the shares distributed within other liabilities. At December 31, 2021 and 2020, the Company had nil and $ 119 million accrued for future payments under this plan. Outstanding non-vested Prudential ADRs granted as of December 31, 2020 were 6,241,847 . In 2021, these plans were replaced through a re-issuance by Jackson Financial Inc.’s 2021 Omnibus Incentive Plan (the “Incentive Plan”) and the remaining outstanding awards were exchanged for awards under the new plan as further described below. 194 2021 Omnibus Incentive Plan In April 2021, the Company’s board of directors adopted, and the Company’s shareholders approved, the Incentive Plan. This Incentive Plan became effective following the completion of the Demerger and replaced the Prudential Share Plans. The outstanding unvested awards previously issued under the Prudential Share Plans were exchanged for equivalent awards of shares of JFI’s Class A common stock under the Incentive Plan, with a grant date of October 4, 2021. The performance conditions of the awards were modified to be based on U.S. GAAP based metrics, rather than IFRS. The incremental compensation cost resulting from the modifications will be recognized ratably over the remaining requisite service period of each award. Jackson Financial Inc.’s 2021 Omnibus Incentive Plan allows for stock-based awards including stock options, stock appreciation rights, restricted share awards, performance share awards, and deferred share units. The Incentive Plan has a ten-year term, expiring in September 2031. The Company currently has Restricted Share Unit and Performance Unit equity-based compensation awards outstanding. Dividend equivalents are generally accrued on restricted stock units and performance share units outstanding as of the record date. These dividend equivalents are paid only on the restricted stock units and performance units that ultimately vest. Generally, the requisite service period is the vesting period. In the case of retirement (eligibility for which is based on the employee's age and years of service as provided in the relevant award agreement), awards vest in full, but are subject to the satisfaction of any applicable performance criteria and paid in line with the original vesting date. The maximum aggregate number of shares of the Company’s common stock that may be issued pursuant to awards under the Incentive Plan shall not exceed 11,000,000 shares. Shares for which payment or exercise is in cash, including the shares sold to cover employee payroll taxes, as well as shares that expire, terminate, or are canceled or forfeited, may be awarded or granted again under the Incentive Plan. The Company reflects the cash settled awards of the above plan as a liability classified plan and, therefore, reports the accrued compensation expense and the value of the cash settled awards within other liabilities. At December 31, 2021, the Company had $ 80 million accrued for future payments under this plan. Restricted Share Units (RSUs) JFI grants RSUs to certain employees and non-employee directors. The majority of employee RSUs are expected to vest in three equal installments on the first through third anniversaries of the grant date over a 3-year service period, subject to forfeiture and transfer restrictions, and are payable in cash or shares at the Company’s discretion. The employee awards granted in 2021 will have a shortened, 30-month vesting period. In addition, 1 and 2-year awards were issued in connection with the Company’s Demerger. Restricted share units have immediate dividend rights and voting rights upon issuance of underlying shares. In lieu of cash dividend payments, the dividends on unvested RSUs are awarded in additional units equal to the value of the dividends, and are subject to the same vesting and distribution conditions as the underlying RSU. Outstanding non-vested RSUs granted to employees were as follows: Year Ended December 31, 2021 Share-Settled Cash-Settled RSUs Weighted-Average Grant Date Fair Value per Share RSUs Weighted-Average Grant Date Fair Value per Share Non-vested at beginning of period — $ — — $ — Granted (1) 641,312 $ 26.91 1,694,960 $ 26.57 Vested — $ — — $ — Forfeited — $ — ( 8,772 ) $ 26.41 Re-issuance due to modification 704,089 $ 26.41 234,692 $ 26.41 Non-vested at end of period 1,345,401 $ 26.65 1,920,880 $ 26.09 (1) Includes dividend equivalents granted in the current period on awards outstanding Performance Share Units (PSUs) JFI grants PSUs to certain employees. PSU vesting is contingent on meeting a specified service requirement and the level of achievement of performance conditions. The PSU awards entitle recipients to receive, upon vesting, a number of units that ranges from 0 % to 200 % of the number of PSUs awarded, depending on the level of achievement of the specified 195 performance conditions. The awards are generally expected to vest after a period of three years , subject to forfeiture and transfer restrictions, and are payable in cash or shares at the Company’s discretion. However, the awards granted in 2021 will have a shortened, 30-month vesting period. Award recipients have immediate dividend rights and voting rights upon issuance of underlying shares. The dividends on unvested PSUs are awarded in additional units equal to the value of the dividends, and are subject to the same vesting and distribution conditions as the underlying PSUs. The modified PSU awards retained their vesting and performance conditions, modified to be based on U.S. GAAP based metrics, rather than IFRS. Outstanding non-vested PSUs granted were as follows: Year Ended December 31, 2021 Share-Settled Cash-Settled PSUs Weighted-Average Grant Date Fair Value per Share PSUs Weighted-Average Grant Date Fair Value per Share Non-vested at beginning of period — $ — — $ — Granted (1) 678,468 $ 27.95 294,976 $ 27.42 Vested — $ — — $ — Forfeited ( 43,753 ) $ 26.41 ( 14,868 ) $ 26.41 Re-issuance due to modification 5,141,080 $ 26.41 1,713,533 $ 26.41 Non-vested at end of period 5,775,795 $ 26.59 1,993,641 $ 26.56 (1) Includes dividend equivalents granted in the current period on awards outstanding Compensation Cost JFI charges the fair value of the restricted share units and performance share units to expense over the requisite service period. The fair value of equity-classified RSUs and PSUs is based on the price of JFI’s common stock on the grant date. The fair value of liability-classified RSUs and PSUs is based on the price of JFI’s common stock as of the reporting date. For performance-based awards, JFI estimates the number of shares expected to vest at the end of the performance period based on the probable achievement of the performance objective. RSUs have graded vesting features and JFI recognizes expense for those awards on a straight-line basis over the requisite service period. The Company recognizes forfeitures as they occur when recognizing share-based compensation expense. Total expense related to these share-based plans was as follows (in millions): For the Years Ended December 31, 2021 2020 2019 Compensation expense recognized $ 129 $ 56 $ 79 Income tax benefit recognized $ 26 $ 12 $ 17 Unrecognized compensation cost for RSUs and PSUs under the Incentive Plan as of December 31, 2021 was $ 143 million with a weighted average recognition period of 1.44 years. The shares issued under the Plan may be authorized and unissued, or reacquired treasury shares. 17. Other Related Party Transactions The Company's investment management operation, PPM, provides investment services to certain Prudential affiliated entities. The Company recognized $ 28 million, $ 37 million, and $ 69 million of revenue during the years ended December 31, 2021, 2020 and 2019, associated with these investment services. This revenue is included in fee income in the accompanying consolidated income statements. The Company, through its PGDS subsidiary, provides various information security and technology services to certain Prudential affiliated entities. The Company recognized $ 4 million, $ 5 million, and $ 3 million of revenue during the years ended December 31, 2021, 2020 and 2019, associated with these services. This revenue is included in other income in the accompanying consolidated income statements and is substantially equal to the costs incurred to provide the services, which are reported in operating costs and other expenses in the consolidated income statements. 196 18. Statutory Accounting and Regulatory Matters The Company’s insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred and establishing future policy benefit liabilities using different actuarial assumptions, as well as valuing investments and certain assets and accounting for deferred income taxes on a different basis. At December 31, 2021 and 2020, Jackson’s statutory capital and surplus was $ 6.1 billion and $ 4.8 billion, respectively. Jackson had statutory net income (loss) of $ 136 million, $( 1,933 ) million, and $( 1,058 ) million, in 2021, 2020 and 2019, respectively. Furthermore, at December 31, 2021 and 2020, Brooke Life’s statutory capital and surplus was $ 6.1 billion and $ 4.7 billion, respectively, which includes its investment in Jackson of $ 6.1 billion and $ 4.8 billion, in 2021 and 2020, respectively. Brooke Life’s statutory net income (loss) was $( 94 ) million, $( 85 ) million, and $ 511 million in 2021, 2020, and 2019, respectively. Brooke Life’s statutory net income included dividend payments from Jackson of $ 525 million in 2019 with no related dividend payments in 2021 and 2020. Brooke Life paid dividends of $ 525 million to its parent in 2019 with no related dividend payments in 2021 and 2020. The Company’s consolidated assets are primarily those of its life insurance subsidiary, Jackson. Under Michigan Insurance Law, Jackson must provide notification to the Michigan commissioner of insurance prior to payment of any dividend. Ordinary dividends on capital stock may only be distributed out of earned surplus, excluding any unrealized capital gains and the effect of permitted practices (referred to as adjusted earned surplus). Ordinary dividends are also limited to the greater of 10% of statutory surplus as of the preceding year end, excluding any increase arising from the application of permitted practices, or the statutory net income, excluding any net realized investment gains, for the twelve month period ended on the preceding December 31. The commissioner may approve payment of dividends in excess of these amounts, which would be deemed an extraordinary dividend. The maximum amount that would qualify as an ordinary dividend for Jackson, which would consequently be free from restriction and available for payment of dividends to Brooke Life in 2022, is estimated to be $ 608 million, subject to the availability of adjusted earned surplus as of the dividend date. At December 31, 2021, Jackson had no adjusted earned surplus available for ordinary dividends. Furthermore, at December 31, 2021, Brooke Life had adjusted earned surplus of $ 1,165 million. The maximum amount that would qualify as an ordinary dividend for Brooke Life, which would consequently be free from restriction and available for payment of dividends to Brooke Life’s parent in 2022, is estimated to be $ 514 million, subject to the availability of adjusted earned surplus as of the dividend date. On February 14, 2022, Jackson received approval from the Michigan Department of Insurance and Financial Services for a $ 453 million extraordinary dividend and $ 147 million return of capital to Jackson’s parent company, Brooke Life. The combined dividend and return of capital payment to Brooke of $ 600 million is expected to occur in the first quarter of 2022. Brooke Life expects to pay a $ 510 million ordinary dividend to its ultimate parent, Jackson Financial, subsequent to the receipt of the $ 600 million combined extraordinary dividend and return of capital from Jackson in the first quarter of 2022. The Company received approval from the Michigan Department of Insurance and Financial Services regarding the use of a permitted practice which allows early adoption of an exemption for ordinary life insurance certificates issued during 2021 and 2020 that would be subject to VM-20 of the NAIC Valuation Manual. The exemption for companies meeting the conditions of APF 2020-09 will be part of the 2022 Valuation Manual. The permitted practice does not result in differences in net income or capital and surplus between NAIC SAP and practices prescribed or permitted by the state of Michigan, as reserves are established utilizing the same methodology as prior years. However, the additional principle-based reserving requirements are eliminated. In December 2020, Jackson NY received approval from NYSDFS regarding the use of a permitted practice to allow Jackson NY to exempt life insurance policies issued during 2020 and 2021 from a VM-20 principle-based reserving approach that would have impacted an immaterial number of policies. 197 Under Michigan Insurance Law, Value of Business Acquired ("VOBA") is reported as an admitted asset if certain criteria are met. Pursuant to Michigan Insurance Law, Jackson reported $ 33 million and $ 82 million of statutory basis VOBA, at December 31, 2021 and 2020, respectively, which is fully admissible. The NAIC has developed certain risk-based capital (“RBC”) requirements for life insurance companies. Under those requirements, compliance is determined by a ratio of a company’s total adjusted capital (“TAC”), calculated in a manner prescribed by the NAIC to its authorized control level RBC, calculated in a manner prescribed by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The minimum level of TAC before corrective action commences is twice the authorized control level RBC (“Company action level RBC”). At December 31, 2021, Jackson and Brooke Life’s TAC remained well in excess of the Company action level RBC. In addition, on the basis of statutory financial statements that insurers file with the state insurance regulators, the NAIC annually calculates twelve financial ratios to assist state regulators in monitoring the financial condition of insurance companies. A usual range of results for each ratio is used as a benchmark and departure from the usual range on four or more of the ratios can lead to inquiries from individual state insurance departments. In 2021 and 2020, there were no significant exceptions with any ratios. 19. Benefit Plans The Company has a defined contribution retirement plan covering substantially all employees and certain affiliates. Effective January 1, 2020, employees are immediately eligible to participate in the Company’s matching contribution. To be eligible to participate in the Company’s profit sharing contribution, an employee must have attained the age of 21, completed at least 1,000 hours of service in a 12-month period and passed their 12-month employment anniversary. In addition, the employee must be employed on the applicable January 1 or July 1 entry date. The Company’s annual profit sharing contributions, as declared by Jackson’s board of directors, are based on a percentage of eligible compensation paid to participating employees during the year. In addition, the Company matches a participant’s elective contribution, up to 6 percent of eligible compensation, to the plan during the year. The Company’s expense related to this plan was $ 32 million, $ 34 million, and $ 32 million in 2021, 2020 and 2019, respectively. The Company maintains non-qualified voluntary deferred compensation plans for certain employees and independent agents. At December 31, 2021 and 2020, the total aggregate liability for such plans was $ 564 million and $ 595 million, respectively, and was reported in other liabilities. The Company’s expense (income) related to these plans, including a match of elective deferrals for the agents’ deferred compensation plan and the change in value of participant elective deferrals, was $ 54 million, $ 56 million, and $ 70 million in 2021, 2020 and 2019, respectively. 20. Operating Costs and Other Expenses The following table is a summary of the Company’s operating costs and other expenses (in millions): Years Ended December 31, 2021 2020 2019 Asset-based commission expenses $ 1,126 $ 907 $ 861 Other commission expenses 1,042 1,020 1,074 John Hancock ceding commission and expense reimbursement write-off — — ( 66 ) Athene ceding commission (1) — ( 1,202 ) — General and administrative expenses 1,083 996 994 Deferral of acquisition costs ( 789 ) ( 737 ) ( 797 ) Total operating costs and other expenses $ 2,462 $ 984 $ 2,066 (1) See Note 8 for further information 198 21. Accumulated Other Comprehensive Income Comprehensive income includes all changes in shareholders’ equity (except those arising from transactions with owners/shareholders) and includes net income and net unrealized gains or losses on available-for-sale securities. The following table represents changes in the balance of accumulated other comprehensive income (" AOCI"), net of income tax, related to unrealized investment gains (losses) (in millions): Years Ended December 31, 2021 2020 2019 Balance, beginning of period (1) $ 3,821 $ 2,398 $ ( 224 ) Change in unrealized appreciation (depreciation) of investments ( 1,829 ) 2,598 3,898 Change in unrealized appreciation (depreciation) - other 90 131 ( 661 ) Change in deferred tax asset 375 ( 602 ) ( 680 ) Other comprehensive income (loss) before reclassifications ( 1,364 ) 2,127 2,557 Reclassifications from AOCI, net of tax ( 713 ) ( 704 ) 65 Other comprehensive income (loss) ( 2,077 ) 1,423 2,622 Balance, end of period (1) $ 1,744 $ 3,821 $ 2,398 (1) Includes $ 287 million and $ 1,213 million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of December 31, 2021 and December 31, 2020, respectively. The following table represents amounts reclassified out of AOCI (in millions): AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Consolidated Income Statement Years Ended December 31, 2021 2020 2019 Net unrealized investment gain (loss): Net realized gain (loss) on investments $ ( 932 ) $ ( 1,148 ) $ 114 Net gains (losses) on derivatives and investments Other impaired securities ( 10 ) 10 ( 1 ) Net gains (losses) on derivatives and investments Net unrealized gain (loss) ( 942 ) ( 1,138 ) 113 Amortization of deferred acquisition costs 32 247 ( 31 ) Reclassifications, before income taxes ( 910 ) ( 891 ) 82 Income tax expense (benefit) ( 197 ) ( 187 ) 17 Reclassifications, net of income taxes $ ( 713 ) $ ( 704 ) $ 65 22. Equity Common Stock The Company has two classes of common stock: Class A common stock and Class B common stock. Both classes have a par value of $ 0.01 per share. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to one-tenth of one vote per share. Except for voting rights, the Company’s Class A common stock and Class B common stock have the same dividend rights, are equal in all respects, and are otherwise treated as if they were one class of shares. At December 31, 2021 and 2020, the Company was authorized to issue up to 900 million shares of Class A stock and 100 million shares of Class B stock. Stock Split 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 199 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. Share Repurchase and Common Stock Conversion On November 8, 2021, our Board of Directors authorized a share repurchase program of our Class A common stock of $ 300 million. On December 13, 2021, we repurchased 2,242,516 shares of our Class A Common Stock from Prudential and 1,134,767 shares of our Class A Common Stock from Athene. The price per share in the repurchase was $ 37.01 . On December 13, 2021, Athene converted a total of 725,623 shares of its Class B common stock to Class A common stock on a one-for-one basis. On February 1, 2022, Athene converted the remaining 638,861 shares of its Class B common stock to Class A common stock on a one-for-one basis. As of December 31, 2021, the Company had repurchased a total of 5,778,649 shares with a value of $ 211 million, which were funded with cash on hand. The average price per share paid in the repurchase was $ 36.51 . The Company records share repurchases at cost as Treasury Stock in the Consolidated Balance Sheets. On February 28, 2022, our Board of Directors authorized an increase of $ 300 million in our existing share repurchase authorization of JFI's Class A common stock. For the period of January 1, 2022 through March 2, 2022, the Company repurchased $ 53 million of its common shares at average per share price of $ 41.76 . As of March 2, 2022, the Company had remaining authorization to purchase $ 336 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company's capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time. It does not have an expiration date. The following table represents changes in the balance of common shares outstanding: Common Stock Treasury Stock Total Common Stock Outstanding Shares outstanding at December 31, 2019 37,785,738 — 37,785,738 Shares issued—debt restructuring 46,182,568 — 46,182,568 Shares issued—investment from Athene (1) 10,496,037 — 10,496,037 Shares outstanding at December 31, 2020 94,464,343 — 94,464,343 Shares repurchased — ( 5,778,649 ) ( 5,778,649 ) Shares outstanding at December 31, 2021 (2) 94,464,343 ( 5,778,649 ) 88,685,694 (1) Shares issued included 1,364,484 shares of Class B common stock. (2) Included 638,861 shares of Class B common stock. In June 2020, the Company formed a new subsidiary, Jackson Finance, LLC (“Jackson Finance”), a Michigan limited liability company. Subsequently, Prudential and Jackson Finance entered into an Assignment and Assumption Agreement, whereby Prudential assigned to Jackson Finance all of its right, title, and interest in a $ 2.0 billion surplus note issued by Brooke Life, an affiliate of the Company, to Prudential in exchange for Jackson Finance giving an undertaking to Prudential to pay the $ 2.0 billion principal plus accrued interest (“JF Receivable”). Subsequently, the Company issued 39,255,183 shares of Class A common stock to a Prudential affiliate, adjusted for the effect of the stock split, pursuant to a share subscription and accepted the JF Receivable in settlement of the share subscription, ultimately resulting in a cashless transaction in which the surplus note was contributed to Jackson Finance. On June 24, 2020, the Company entered into a Supplemental Agreement in respect to its outstanding $ 350 million loan with Standard Chartered Bank, pursuant to which the Company transferred the loan to its ultimate (former) parent, Prudential, the former guarantor of the loan. The Company established a payable to Prudential for the $ 350 million, plus all outstanding interest due, and Prudential, in turn, set up a receivable, which was contributed to the Company’s parent. Subsequently, the Company issued 6,927,385 shares of Class A common stock to Prudential, adjusted for the effect of the stock split, pursuant to a subscription agreement and accepted the receivable in settlement of the share subscription under a deed of assignment and settlement, ultimately resulting in a cashless transaction. 200 On June 18, 2020, the Company entered into an investment agreement with Athene Life Re Ltd., pursuant to which Athene invested $ 500 million of capital into the Company in return for a 9.9 percent voting interest corresponding to a 11.1 percent economic interest in the Company. The investment was completed on July 17, 2020 and the Company issued 9,131,553 shares of Class A common stock and 1,364,484 shares of Class B common stock to Athene, adjusted for the effect of the stock split. Subsequently, in August 2020, the Company ultimately made a $ 500 million capital contribution to its insurance company subsidiary, Jackson. Effective July 17, 2020, the 83,968,306 split-adjusted shares of Class A common stock issued to the Company’s parent, Prudential, with a par value of $ 125.00 per share, were reclassified and converted into Class A common stock with a par value of $ 0.01 per share. Dividends to Shareholders On November 8, 2021, our Board of Directors approved the commencement of a regular quarterly cash dividend and declared a fourth quarter cash dividend on JFI's Class A and Class B common stock of $ 0.50 per share, that was paid on December 9, 2021 to shareholders of record on November 19, 2021. There were no dividends declared or paid to the Company’s shareholders for the year ended December 31, 2020. Dividends declared and paid to the Company’s former ultimate parent, Prudential, were $ 875 million for the year ended December 31, 2019. Dividends paid in 2019 consisted of $ 525 million of ordinary dividends and $ 350 million in exchange for the short-term note payable to Standard Charter Bank, see Note 11 to Consolidated Financial Statements. Cumulative Effect of Changes in Accounting Principles In 2020, the Company adopted ASU No. 2016-13 and all related amendments with a cumulative effect after-tax adjustment at December 31, 2020 of $ 56 million to reduce retained earnings primarily related to the Company’s commercial mortgage loans. 23. Earnings Per Share Basic earnings per share is calculated by dividing net income (loss) attributable to Jackson Financial Inc. shareholders by the weighted-average number of Class A and Class B common shares outstanding during the period. Except for voting rights, the Company’s Class A common stock and Class B common stock have the same dividend rights, are equal in all respects, and are otherwise treated as if they were one class of shares, including the treatment for the earnings per share calculations. Diluted earnings per share is calculated by dividing the net income (loss) attributable to Jackson Financial Inc. shareholders, by the weighted-average number of shares of Class A common stock and Class B common stock outstanding for the period, plus shares representing the dilutive effect of share-based awards. In 2020 and 2019, the Company did not have any outstanding share-based awards involving the issuance of the Company’s equity and, therefore, no impact to the diluted earnings per share calculation. On October 4, 2021, the Company granted share-based awards totaling approximately 7.2 million shares subject to vesting provisions of the Incentive Plan, which will have a dilutive effect. See Note 16 for further description of share-based awards. The following table sets forth the calculation of earnings per common share: Years Ended December 31, 2021 2020 2019 (in millions, except share and per share data) Net income (loss) attributable to Jackson Financial Inc. $ 3,183 $ ( 1,634 ) $ ( 497 ) Weighted average shares of common stock outstanding - basic 93,994,520 67,658,901 37,785,738 Dilutive common shares 470,991 — — Weighted average shares of common stock outstanding - diluted 94,465,511 67,658,901 37,785,738 Earnings per share—common stock Basic $ 33.86 $ ( 24.14 ) $ ( 13.16 ) Diluted $ 33.69 $ ( 24.14 ) $ ( 13.16 ) 201 24. Subsequent Events The Company has evaluated subsequent events through the date these consolidated financial statements were issued. Dividends Declared to Shareholders On February 28, 2022, our Board of Directors declared a first quarter cash dividend on JFI's Class A common stock of $ 0.55 per share, payable on March 23, 2022 to shareholders of record on March 14, 2022. Share Repurchase Authorization On February 28, 2022, our Board of Directors authorized an increase of $ 300 million in our existing share repurchase authorization of JFI's Class A common stock. 202 Schedule I Jackson Financial Inc. Summary of Investments—Other Than Investments in Related Parties (In millions) As of December 31, 2021 Amount at Which Shown Cost or on Balance Type of Investment Amortized Cost Fair Value Sheet Debt securities: Bonds: U.S. government securities $ 4,525 $ 4,321 $ 4,321 Other government securities 1,489 1,619 1,619 Public utilities 6,069 6,715 6,715 Corporate securities 29,701 31,146 31,146 Residential mortgage-backed 528 569 569 Commercial mortgage-backed 1,968 2,038 2,038 Other asset-backed securities 6,926 6,967 6,967 Total debt securities 51,206 53,375 53,375 Equity securities 279 279 279 Mortgage loans 11,482 N/A 11,482 Policy loans 4,475 N/A 4,475 Derivative instruments 1,417 N/A 1,417 Other invested assets 2,484 N/A 3,199 Total investments $ 71,343 $ 74,227 See the accompanying Report of Independent Registered Public Accounting Firm 203 Schedule II Jackson Financial Inc. (Parent Company Only) Balance Sheets (In millions, except share data) December 31, 2021 2020 Assets Investment in subsidiaries $ 10,073 $ 7,432 Cash and cash equivalents 604 2 Intercompany receivables 2,064 2,027 Deferred income taxes, net 2 — Other assets 3 — Total assets $ 12,746 $ 9,461 Liabilities and Equity Liabilities Senior Notes due 2023 - unaffiliated (1) (2) $ 596 $ — Senior Notes due 2031 - unaffiliated (1) (2) 495 — Senior Notes due 2051 - unaffiliated (1) (2) 490 — Term loan due 2023 - unaffiliated (1) 751 — Intercompany payables — 31 Other liabilities 20 1 Total liabilities 2,352 32 Equity Common stock, (i) Class A common stock 900,000,000 shares authorized, $ 0.01 par value per share and 88,046,833 and 93,099,859 shares issued and outstanding at December 31, 2021 and 2020, respectively and (ii) Class B common stock 100,000,000 shares authorized, $$ 0.01 par value per share and 638,861 and 1,364,484 shares issued and outstanding at December 31, 2021 and 2020, respectively (See Note 22 to Consolidated Financial Statements) 1 1 Additional paid-in capital 6,051 5,927 Treasury stock, at cost; 5,778,649 and nil shares at December 31, 2021 and 2020, respectively. ( 211 ) — Shares held in trust — ( 4 ) Equity compensation reserve — 8 Accumulated other comprehensive income 1,744 3,821 Retained earnings (deficit) 2,809 ( 324 ) Total equity 10,394 9,429 Total liabilities and equity $ 12,746 $ 9,461 (1) See Note 11 - Long-Term Debt to our consolidated financial statements for additional information regarding these borrowings. (2) Includes unamortized debt issuance costs totaling $ 17 million for the senior notes on a combined basis at December 31, 2021. (continued) 204 Schedule II Jackson Financial Inc. (Parent Company Only) Statements of Income (In millions) For the Years Ended December 31, 2021 2020 2019 Revenues Net investment income $ — $ — $ — Dividends from subsidiaries — — 525 Interest income from subsidiaries 90 49 — Total revenues 90 49 525 Benefits and Expenses Interest expense 15 4 1 Operating costs and other expenses 53 17 1 Total benefits and expenses 68 21 2 Pretax income 22 28 523 Income tax expense (benefit) 9 10 ( 1 ) Subsidiary equity earnings (loss) 3,170 ( 1,652 ) ( 1,021 ) Net income (loss) $ 3,183 $ ( 1,634 ) $ ( 497 ) (continued) 205 Schedule II Jackson Financial Inc. (Parent Company Only) Statements of Cash Flows (In millions) For the Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income $ 3,183 $ ( 1,634 ) $ ( 497 ) Adjustments to reconcile net income to net cash provided by operating activities: Subsidiary equity earnings ( 3,170 ) 1,652 1,021 Interest expense 15 4 1 Change in other assets and liabilities, net ( 43 ) 4 — Net cash provided by (used in) operating activities ( 15 ) 26 525 Cash flows from financing activities: Net proceeds from (payments on) borrowings 740 — 350 Net proceeds from issuance of senior notes 1,593 — — Debt issuance costs ( 28 ) — — Dividends on common stock ( 50 ) — — Dividends paid to former parent — — ( 875 ) Capital distribution to subsidiary ( 1,550 ) ( 526 ) — Share based compensation 123 — — Purchase of treasury stock ( 211 ) — — Common stock issuance—Athene — 500 — Net cash provided by (used in) financing activities 617 ( 26 ) ( 525 ) Net increase (decrease) in cash and short-term investments 602 — — Cash and cash equivalents, beginning of year 2 2 2 Total cash and cash equivalents, end of year $ 604 $ 2 $ 2 Non-cash transactions Non-cash debt restructuring transactions (1) $ — $ ( 2,350 ) $ — Shares issued in settlement of the debt restructuring (1) $ — $ 2,350 $ — (1) See Note 22. Equity for further description of the debt restructuring transactions See the accompanying Report of Independent Registered Public Accounting Firm 206 Schedule III Jackson Financial Inc. Supplemental Insurance Information (In millions) Reserves for Deferred Future Policy Acquisition Benefits and Other Contract Costs Claims Payable Holder Funds December 31, 2021 Retail Annuities $ 14,128 $ 4,845 $ 37,872 Closed Life and Annuity Blocks 126 12,784 12,987 Institutional Products — — 8,830 Corporate and Other ( 5 ) — — Total $ 14,249 $ 17,629 $ 59,689 December 31, 2020 Retail Annuities $ 13,739 $ 7,956 $ 40,084 Closed Life and Annuity Blocks 134 13,534 13,316 Institutional Products — — 11,138 Corporate and Other 24 — — Total $ 13,897 $ 21,490 $ 64,538 December 31, 2019 Retail Annuities $ 12,236 $ 4,872 $ 38,182 Closed Life and Annuity Blocks 149 14,328 13,836 Institutional Products — — 12,287 Corporate and Other ( 48 ) — — Total $ 12,337 $ 19,200 $ 64,305 (continued) 207 Schedule III Jackson Financial Inc. Supplemental Insurance Information (In millions) Interest Credited Deferred on Other Acquisition and Operating Net Investment Contract Holder Sales Inducements Costs and Premium Income Funds Amortization Other Expenses December 31, 2021 Retail Annuities $ — $ 675 $ 268 $ 198 $ 2,039 Closed Life and Annuity Blocks 145 925 412 14 162 Institutional Products — 260 188 — 5 Corporate and Other — 102 — 34 204 Segment subtotal 145 1,962 868 246 2,410 Non-operating items (1) ( 12 ) 1,467 — 275 52 Total $ 133 $ 3,429 $ 868 $ 521 $ 2,462 December 31, 2020 Retail Annuities $ — $ 931 $ 532 $ 63 $ 1,797 Closed Life and Annuity Blocks 172 759 428 17 166 Institutional Products — 355 250 — 5 Corporate and Other — 20 — 20 201 Segment subtotal 172 2,065 1,210 100 2,169 Non-operating items (1) ( 12 ) 764 — ( 489 ) ( 1,185 ) Total $ 160 $ 2,829 $ 1,210 $ ( 389 ) $ 984 December 31, 2019 Retail Annuities $ — $ 1,504 $ 906 $ ( 62 ) $ 1,757 Closed Life and Annuity Blocks 581 802 444 19 107 Institutional Products — 450 291 — 4 Corporate and Other — 41 — 1 198 Segment subtotal 581 2,797 1,641 ( 42 ) 2,066 Non-operating items (1) ( 14 ) 346 — ( 939 ) — Total $ 567 $ 3,143 $ 1,641 $ ( 981 ) $ 2,066 (1) See Note 3. Segment Information for further details on the non-operating items. See the accompanying Report of Independent Registered Public Accounting Firm 208 Schedule IV Jackson Financial Inc. Reinsurance For the Years Ended December 31, 2021, 2020, and 2019 (In millions) % Amount Assumed to Gross Amount Ceded Assumed Net Amount Net 2021 Life insurance in-force $ 105,704 $ 63,548 $ 16,358 $ 58,514 28.0 % Insurance premium Life insurance $ 354 $ 247 $ 38 $ 145 26.2 % Accident and health 38 42 4 — Annuity guaranteed benefits — 12 — ( 12 ) Total insurance premium $ 392 $ 301 $ 42 $ 133 31.6 % 2020 Life insurance in-force $ 118,328 $ 72,188 $ 17,034 $ 63,174 27.0 % Insurance premium Life insurance $ 273 $ 142 $ 42 $ 173 24.5 % Accident and health 36 41 5 — Annuity guaranteed benefits — 13 — ( 13 ) Total insurance premium $ 309 $ 196 $ 47 $ 160 29.5 % 2019 Life insurance in-force $ 142,233 $ 88,435 $ 18,206 $ 72,004 25.3 % Insurance premium Life insurance $ 518 $ 387 $ 44 $ 175 25.4 % Group payout annuity — — 406 406 Accident and health 40 46 6 — Annuity guaranteed benefits — 14 — ( 14 ) Total insurance premium $ 558 $ 447 $ 456 $ 567 80.4 % See the accompanying Report of Independent Registered Public Accounting Firm 209 Schedule V Jackson Financial Inc. Valuation and Qualifying Accounts For the Years Ended December 31, 2021 and 2020 (In millions) Balance at Charged to Beginning Costs and Balance at of Period Expenses Deductions End of Period 2021 Allowance for credit losses on debt securities $ 14 $ 11 $ ( 16 ) (1) $ 9 Allowances for credit losses on mortgage and other loans 179 — ( 85 ) (2) 94 Allowance for credit losses on reinsurance recoverable 13 — ( 1 ) 12 Valuation allowance on deferred tax asset 2 — — 2 $ 208 $ 11 $ ( 102 ) $ 117 2020 Allowance for credit losses on debt securities $ — $ 14 $ — $ 14 Allowances for credit losses on mortgage and other loans 9 170 (3) — 179 Allowance for credit losses on reinsurance recoverable — 13 (4) — 13 Valuation allowance on deferred tax asset 1 1 — 2 $ 10 $ 198 $ — $ 208 (1) Represents reductions for securities disposed. (2) Represents release of allowance for write-offs. (3) Includes cumulative effect adjustment related to the adoption of ASU 2016-13 of $ 62 million. (4) Includes cumulative effect adjustment related to the adoption of ASU 2016-13 of $ 10 million. See the accompanying Report of Independent Registered Public Accounting Firm 210 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.