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Item 2. Management’s Discussion and Analysis

2022-05-11 compared with 2021-11-10 · 569 added, 822 removed, 688 unchanged (67% of the section changed)

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Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including:

• general conditions in the global capital markets and the economy;

• adverse capital and credit market conditions, including volatility in interest rates and credit spreads, prolonged periods of low interest rates, volatile equity markets and decreased liquidity and credit capacity;

• adverse impacts on our results of operations and capitalization as a result of optional guarantee benefits within certain of our annuities;

• unavailability of hedging instruments and inadequacy of our hedging and reinsurance programs to protect us against the full extent of the exposure or losses we seek to mitigate;

• variance in the performance of our hedge assets and customer funds, also referred to as basis risk;

• disruptions in our business functions as a result of adverse outcomes from our operational risks and those of our material outsourcing partners;

• operational failures, failure of our information technology systems, and the failure to protect the confidentiality of customer information or proprietary business information;

• inability to recruit, motivate and retain experienced and productive employees;

• misconduct by our employees or business partners;

• difficulty in marketing and distributing products;

• conditions in the capital and credit markets and the economy which impact liquidity, investment performance and valuation, hedge program performance, interest rates and credit spreads;

• Jackson Financial’s dependence on the ability of its subsidiaries to transfer funds to meet Jackson Financial’s obligations and liquidity needs;

• risks arising from acquisitions or other strategic transactions;

• downgrade in our financial strength or credit ratings, which impact our business and costs of financing;

• changes in laws and regulations, which impact how we conduct our business, the relative appeal of our products versus those from other financial institutions, and changes in accounting standards, which impact how we account for and present our results of operations;

• operational failures, including failure of our information technology systems, failure to protect the confidentiality of customer information or proprietary business information, and disruptions from third-party outsourcing partners;

• a failure to adequately describe and administer, or meet any of the complex product and regulatory requirements relating to, the many complex features and options contained in our annuities;

• adverse impacts on our results of operations and capitalization as a result of optional guaranteed benefits within certain of our annuities;

• models that rely on a number of estimates, assumptions, sensitivities and projections, which models inform our business decisions and strategy, and which may contain misjudgments and errors and may not be as predictive as desired;

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

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

• deterioration of the credit quality of the securities and loans in our investment portfolio;

• failure to adequately describe and administer, or meet any of the complex product and regulatory requirements relating to, the many complex features and options contained in our annuities;

• our counterparties’ requirements to pledge collateral or make payments related to declines in estimated fair value of specified assets and changes in the actual or perceived soundness or condition of other financial institutions and market participants;

• inadequate reserves due to differences between our actual experience and management’s estimates and assumptions;

• significant deviations from our assumptions regarding the probabilities that our annuity contracts will remain in force from one period to the next;

• changes in the levels of amortization of deferred acquisition costs (“DAC”) ;

• changes in accounting standards;

• models that rely on a number of estimates, assumptions, sensitivities and projections that are inherently uncertain and which may contain misjudgments and errors;

• a downgrade in our financial strength or credit ratings;

• competition from other insurance companies, banks, asset managers and other financial institutions;

• failure of our risk management policies and procedures to adequately identify, monitor and manage risks, which could leave us exposed to unidentified or unanticipated risks;

• changes in U.S.

federal income or other tax laws or the interpretation of tax laws;

• changes in U.S.

federal, state and other securities and state insurance laws and regulations;

• adverse outcomes of legal or regulatory actions.

The risks and uncertainties included here are not exhaustive.

Our Form 10 includes additional factors that could affect our businesses and financial performance.

Our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 7, 2022, (the "2021 Annual Report") and other reports filed with the United States Securities and Exchange Commission (“SEC”) includes additional factors that could affect our businesses and financial performance.

Moreover, we operate in a rapidly changing and competitive environment.

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Available Information

We maintain a public website at www.jackson.com.

We make available free of charge, through our website, investors.jackson.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statements, and any amendments to those reports or statements as soon as reasonably practicable after these materials are electronically filed with, or furnished to, the SEC.

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

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

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

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

The content of Jackson’s website is not incorporated by reference into this Form 10-K or in any other report or document filed with the SEC, and any references to Jackson’s website are intended to be inactive textual references only.

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

Principal Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report

we, us, our and the Company Jackson Financial Inc.

and its consolidated subsidiaries, unless the context refers only to Jackson Financial Inc.

as a corporate entity (which we refer to as "JFI")

Jackson Jackson National Life Insurance Company, a Company subsidiary.

Brooke Life Brooke Life Insurance Company, a Company subsidiary and the direct parent company of Jackson National Life Insurance Company.

Jackson Finance Jackson Finance, LLC, a Company subsidiary.

PPMH PPM Holdings, Inc., a Company subsidiary

PPM PPM America Inc., a subsidiary of PPMH

ACL Allowance for credit loss

Account value or account balance The amount of money in a customer’s account.

For example, the value increases with additional premiums and investment gains, and it decreases with withdrawals, investment losses and fees.

Athene Athene Life Re Ltd.

and its affiliates and permitted transferees, including Athene Co-Invest Reinsurance Affiliate 1A Ltd.

Athene Equity Investment The July 2020 investment of $500 million by Athene in JFI for Class A Common Stock and Class B Common Stock, representing approximately 9.9% of the total combined voting power and approximately 11.1% of the total common stock of the Company

Athene Reinsurance Transaction The funds withheld coinsurance agreement entered into with Athene on June 18, 2020, effective June 1, 2020, to reinsure a 100% quota share of a block of our in-force fixed and fixed index annuity liabilities in exchange for approximately $1.2 billion in ceding commissions

Athene Transactions The Athene Reinsurance Transaction and the Athene Equity Investment, together.

AUM (Assets under management) Investment assets that are managed by one of our subsidiaries and includes:

(i) the assets in our investment portfolio managed by PPM, which excludes assets held in funds withheld accounts for reinsurance transactions, (ii) third-party assets managed by PPM, including those for Prudential and its affiliates or third parties, and (iii) the separate account assets of our Retail Annuities segment that JNAM manages and administers.

Benefit base A notional amount (not actual cash value) used to calculate the owner’s guaranteed benefits within an annuity contract.

The death benefit and living benefit within the same contract may have different benefit bases.

CMBS Commercial mortgage-backed securities

DAC (Deferred acquisition costs) Represent the incremental costs related directly to the successful acquisition of new and certain renewal insurance policies and annuity contracts and which have been deferred on the balance sheet as an asset.

DDTL Facility Delayed Draw Term Loan Facility

Deferred tax asset or Deferred tax liability Assets or liabilities that are recorded for the difference between book basis and tax basis of an asset or a liability.

DSI (Deferred sales inducements) Represent amounts that are credited to a policyholder’s account balance that are higher than the expected crediting rates on similar contracts without such an inducement and that are an incentive to purchase a contract and also meet the accounting criteria to be deferred as an asset that is amortized over the life of the contract.

Fixed Annuity An annuity that guarantees a set annual rate of return with interest at rates we determine, subject to specified minimums.

Credited interest rates are guaranteed not to change for certain limited periods of time.

Fixed Index Annuity An annuity with an ability to share in the upside from certain financial markets, such as equity indices, and provides downside protection.

Form 10 Form 10 registration statement registering the Company’s Class A Common Stock under the Securities Exchange Act of 1934, as amended, which became effective on August 6, 2021.

General account assets The assets held in the general accounts of our insurance companies.

GIC Guaranteed investment contract

Guarantee Fees Fees charged on annuities for optional benefit guarantees

GMAB (Guaranteed minimum accumulation benefit) An add-on benefit (enhanced benefits available for an additional cost) which entitles an owner to a minimum payment, typically in lump-sum, after a set period of time, typically referred to as the accumulation period.

The minimum payment is based on the benefit base, which could be greater than the underlying account value.

GMDB (Guaranteed minimum death benefit) An add-on benefit (enhanced benefits available for an additional cost) that guarantees an owner’s beneficiaries are entitled to a minimum payment based on the benefit base, which could be greater than the underlying account value, upon the death of the owner.

GMIB (Guaranteed minimum income benefit) An add-on benefit (available for an additional cost) where an owner is entitled to annuitize the policy and receive a minimum payment stream based on the benefit base, which could be greater than the payment stream resulting from current annuitization of the underlying account value.

GMWB (Guaranteed minimum withdrawal benefit) An add-on benefit (available for an additional cost) where an owner is entitled to withdraw a maximum amount of their benefit base each year, for which cumulative payments to the owner could be greater than the underlying account value.

GMWB for Life (Guaranteed minimum withdrawal benefit for life) An add-on benefit (available for an additional cost) where an owner is entitled to withdraw the guaranteed annual withdrawal amount each year, for the duration of the policyholder’s life, regardless of account performance.

NAIC National Association of Insurance Commissioners

NAV Net asset value

Net flows Net flows represent the net change in customer account balances during a period, including gross premiums, surrenders, withdrawals and benefits.

Net flows exclude investment performance, interest credited to customer accounts and policy charges.

RBC (Risk-based capital) Rules to determine insurance company statutory capital requirements.

It is based on rules published by the NAIC.

RILA A registered index-linked annuity that offers market index-linked investment options, subject to a cap, and offers a variety of guarantees designed to modify or limit losses.

RMBS Residential mortgage-backed securities

Variable annuity A type of annuity that offers tax-deferred investment into a range of asset classes and a variable return, which offers insurance features related to potential future income payments.

VIE Variable interest entity

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

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

Securities and Exchange Commission (the “SEC”).

The following discussion and analysis of our financial condition and results of operations should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our 2021 Annual Report.

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

As described below, the Company's demerger from Prudential was completed on September 13, 2021 ("Demerger"), and the Company is no longer a majority-owned subsidiary of Prudential.

Jackson Financial’s primary life insurance subsidiary, Jackson, is licensed to sell group and individual annuity products (including fixed, fixed index and variable annuities), and various protection products, primarily whole life, universal life and variable universal life and term life insurance products in all 50 states and the District of Columbia.

On January 28, 2021, Prudential announced its intent to pursue the separation of its U.S.

business operations in 2021.

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

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

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

On September 9, 2021, the Company effected a 104,960.3836276-for-1 stock split of its Class A common stock and Class B common stock by way of a reclassification of its Class A common stock and Class B common stock.

The incremental par value of the newly issued shares was recorded with the offset to additional paid-in capital.

All share and earnings per share information presented herein have been retroactively adjusted to reflect the stock split.

On June 18, 2020, the Company’s subsidiary, Jackson, announced that it had entered into a funds withheld coinsurance agreement with Athene Life Re Ltd.

(“Athene”) effective June 1, 2020 to reinsure on 100% quota share basis, a block of Jackson’s in-force fixed and fixed-index annuity product liabilities in exchange for a $1.2 billion ceding commission.

In addition, we entered into an investment agreement with Athene Life Re Ltd., pursuant to which Athene invested $500.0 million of capital into the Company in return for a 9.9% voting interest corresponding to a 11.1% economic interest in the Company.

The transaction was completed on July 17, 2020.

In August 2020, the Company contributed the $500.0 million, as a capital contribution, to its subsidiary, Jackson.

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

The Company's demerger from Prudential was completed on September 13, 2021 (the "Demerger"), and the Company no longer is a majority-owned subsidiary of Prudential.

See Note 1 to Condensed Consolidated Financial Statements for further discussion of the Demerger.

Jackson Financial’s primary life insurance subsidiary, Jackson, is licensed to sell group and individual annuity products (including immediate, registered index-linked, deferred fixed, fixed index and variable annuities), and various protection products, primarily whole life, universal life and variable universal life and term life insurance products in all 50 states and the District of Columbia.

Executive Summary

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

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

You should read this Quarterly Report on Form 10-Q, together with our 2021 Annual Report, in their entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.

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

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We also offer fixed index annuities and fixed annuities.

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

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

In the fourth quarter of 2021, our primary life insurance subsidiary, Jackson National Life Insurance Company and its insurance subsidiaries (“Jackson”) successfully launched Market Link Pro SM and Market Link Pro Advisory SM , its commission and advisory based suite of registered index-linked annuities ("RILA").

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

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

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

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

Our operating platform is scalable and efficient.

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Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks.

We report certain activities and items that are not included in these segments, including the results of PPM, in Corporate and Other.

We report certain activities and items that are not included in these segments, including the results of PPM Holdings, Inc., the holding company of PPM, which manages the majority of our general account investment portfolio, in Corporate and Other.

See Note 3 to Condensed Consolidated Financial Statements for further information on our segments.

Our revenues come from five primary sources:

• Fee income derived from our annuities and investment management products;

• Net investment income from our investment portfolio;

• Premiums from certain of our life insurance and annuity products, as well as premiums from reinsurance transactions;

• Net realized gains (losses) on investments, including trading activity within our investment portfolio and risk management related derivative activities;

• Other income, which primarily represents expense allowances associated with our reinsurance agreements.

Benefits and Expenses

Our benefits and expenses consist of five primary sources:

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

• Interest credited on contract holder funds, net of deferrals;

• Operating costs and other expenses, net of deferrals;

• Interest expense;

• Amortization of deferred acquisition and sales inducement costs.

Net Income Volatility

Our results experience net income volatility due to the mismatch between movements in our policyholder liabilities and the market driven movements in the derivatives used in our hedging program.

Our hedging program seeks to balance three objectives:

protecting against the economic impact of adverse market conditions, protecting our statutory capital and stabilizing our statutory distributable earnings throughout market cycles.

Our hedging program is based on economic cash flow models of our liabilities, rather than the U.S.

GAAP accounting view of the embedded derivative liabilities.

We do not directly seek to offset the movement in our U.S.

GAAP liabilities from adverse market conditions.

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

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

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

Significant Factors Impacting Results

The following selected factors have impacted, and may in the future impact, our financial condition and results of operations.

Impact of Hedging

We utilize derivatives primarily as part of our variable and fixed index annuity financial risk management program, primarily to reduce the inherent equity market and interest rate risk associated with the optional guarantee benefits embedded in those products.

Derivative contracts, primarily composed of futures and options on equity indices and interest rates, are an essential part of our program and are selected to provide a measure of economic protection.

These transactions are intended to manage the risk of a change in the value, yield, price, cash flows or degree of exposure with respect to assets, liabilities or future cash flows which we have acquired or incurred.

Our hedging program seeks to balance three objectives:

protecting against the economic impact of adverse market conditions, protecting our statutory capital and stabilizing our statutory distributable earnings throughout market cycles.

The balance among these three objectives may shift over time based on our capital position, market conditions and other needs of the business.

For example, in 2020, our total level of hedging requirements under our risk framework were higher as a result of our level of statutory capital and our focus on protecting statutory capital in preparation for the Demerger.

We do not employ a hedging program that seeks to offset the movement in our U.S.

GAAP liabilities.

As a result, the changes in the value of these derivatives are not expected to match the movements in hedged liabilities on a U.S.

GAAP basis from period to period.

With this focus, the program does not meet the accounting requirements for hedge accounting and, accordingly, we have not sought hedge accounting treatment on either a U.S.

GAAP or Statutory accounting principles basis.

Accordingly, changes in value of the derivatives are recognized in the period in which they occur with offsetting changes in reserves recognized in the current period, resulting in net income volatility.

Impact of Mean Reversion Methodology on DAC Amortization

Our operating income includes amortization of DAC balances.

For our variable annuities, DAC is amortized in proportion to expected gross profits.

A significant portion of the expected gross profits on our variable annuities are composed of the core contract charges, investment management fees, and associated administrative fees, which depend on the performance of the account value upon which fees are assessed, as well as guarantee fees, which are assessed on the benefit base.

This, in turn, depends on account value returns from period to period, including in future periods, and the features of optional guarantee benefits selected by our customers.

We employ a mean reversion methodology with the objective of stabilizing the amortization of DAC that would otherwise be highly volatile due to fluctuations in future gross profits arising from changes in equity market and interest rate levels over the short term.

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

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

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

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

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

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

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

Recent Acquisitions and Reinsurance Transactions

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

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

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

A reinsurance transaction could also impact the credit risk in our investment portfolio.

Generally, acquired blocks of business will increase our exposure to credit risk in our investment portfolio, while business that is disposed of or reinsured will reduce the amount of credit risk in our investment portfolio and increase the counterparty credit risk to which we are exposed.

Retail Annuities

Effective June 1, 2020, we entered into a reinsurance agreement with Athene, ceding a $27.6 billion portfolio of fixed and fixed index annuity liabilities in exchange for approximately $1.2 billion in ceding commissions.

Our reinsurance arrangement with Athene is a funds withheld coinsurance arrangement where Athene, as reinsurer, will bear responsibility for all financial terms of the reinsured policies (i.e., premiums, expenses, claims, etc.) and, we, as the ceding company, hold certain assets backing the reserves as collateral in a segregated custody account.

Separation Costs

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

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

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

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

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

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

These expenses primarily relate to information security, finance, risk management, human resources, corporate communications, public relations and other support services.

Macroeconomic, Industry and Regulatory Trends

We discuss a number of trends and uncertainties below that we believe could materially affect our future business performance, including our results of operations, our investments, our cash flows, and our capital and liquidity position.

Macroeconomic and Financial Market Conditions

Our business and results of operations are affected by macroeconomic factors.

The level of interest rates and shape of the yield curve, credit and equity market performance (including market paths, equity volatility and other factors), regulation, tax policy, the level of U.S.

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

Monetary and fiscal policy in the United States, or similar actions in foreign nations, could result in increased volatility in financial markets, including interest rates, currencies and equity markets, and could impact our

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

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

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

In addition, this environment could make it difficult to consistently develop products that are attractive to customers.

Our financial performance can be adversely affected by market volatility and equity market declines if fees assessed on the account value or benefit base of our annuities fluctuate, hedging costs increase and revenues decline due to reduced sales and increased outflows.

Equity Market Environment

Our financial performance is impacted by the performance of equity markets.

For example, our variable annuities earn fees based on the account value, which changes with equity market levels.

After a very volatile 2020, U.S.

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

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

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

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

In particular, our hedges could be less effective in periods of large directional movements or we could experience more frequent or more costly rebalancing in periods of high volatility, which would lead to adverse performance versus our hedge targets and increased hedging costs.

Further, we are also exposed to basis risk, which results from our inability to purchase or sell hedge assets whose performance is perfectly correlated to the performance of the funds into which customers allocate their assets.

We make funds available to customers where we believe we can transact in sufficiently correlated hedge assets, and we anticipate some variance in the performance of our hedge assets and customer funds.

This variance may result in our hedge assets outperforming or underperforming the customer assets they are intended to match.

This variance may be exacerbated during periods of high volatility, leading to a mismatch in our hedge results relative to our hedge targets.

Interest Rate Environment

We believe the interest rate environment will continue to impact our business and financial performance in the future for several reasons, including the following:

• Our investment portfolio is predominantly composed of fixed income securities.

In the near term, we expect the yields we earn on new investments will be materially lower than yields we earned on maturing investments due to the low interest rate environment.

• A prolonged low interest rate environment could subject us to increased hedging costs or an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for optional guarantee benefits, decreasing statutory surplus, which would adversely affect their ability to pay dividends.

Certain inputs to the statutory models rely on prescribed interest rates, which are, in turn, determined using a historical interest rate perspective with a mean reversion path over the longer term.

If rates remain at the current low levels, we expect these prescribed rates to continue to decline as the NAIC updates the calculations each year, which would adversely impact our statutory capital.

In addition, low interest rates could also increase the perceived value of optional guarantee benefits features to our customers, which in turn could lead to a higher utilization of withdrawal or annuitization features of annuity policies and higher persistency of those products over time.

Finally, low interest rates could continue to cause an acceleration of DAC amortization or reserve increase due to loss recognition for annuities and interest-sensitive life insurance.

A gradual rise in interest rates would have benefits that are offsetting to risks previously described.

Those potential benefits include increased new money investment yields, a reduction in hedging requirements and more attractive product features.

• Some of our annuities have a guaranteed minimum interest crediting rate.

These guaranteed minimum interest crediting rates may not be lowered, even if earnings on our investment portfolio decline, resulting in net investment spread compression that negatively impacts earnings.

In addition, we expect more customers to hold policies with comparatively high guaranteed minimum interest crediting rates longer in a low interest rate environment, resulting in lower than previously expected lapse rates.

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

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

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

Credit Market Environment

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

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

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

Conversely, as credit spreads tighten, the fair value of our existing investment portfolio generally increases, and the yield available on new investment purchases decreases.

While changing credit spreads impact the fair value of our investment portfolio, this revaluation will not affect our net income, unless such changes are realized through the sale of securities or are included in our trading portfolios and is instead reflected in our AOCI.

Shifts in the credit quality of the assets underlying our investment portfolio may also impact the level of regulatory required statutory capital for our insurance company subsidiaries.

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

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

The COVID-19 pandemic has caused significant economic and financial turmoil both in the United States and around the world.

These conditions could continue and could worsen in the future.

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

The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition and cash flows will depend on future developments which are highly uncertain and cannot be predicted, including the availability and efficacy of vaccines against COVID-19 and against variant strains of the virus.

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

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

Consumer Behavior

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

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

However, consumer behavior may be impacted by increased economic uncertainty, increased unemployment rates, declining equity markets, lower interest rates and increased volatility of financial markets.

In recent years, we have introduced new products to better address changes in consumer demand and targeted distributions channels which meet changes in consumer preferences.

We expect demographic trends in the U.S.

population, in particular the increase in the number of retirement age individuals, to generate significant demand for our products.

In addition, the potential risk to government social safety net programs and shifting of responsibility for retirement planning and financial security from employers and other institutions to employees, highlights the need for individuals to plan for their long-term financial security and will create additional opportunities to generate sustained demand for our products.

Based on a 2017 U.S.

Census Bureau Population Projection, the portion of the U.S.

population age 55 or older is expected to grow through 2030 at double the annual rate of growth forecast for the overall U.S.

If this growth is realized, 32% of the overall U.S.

population, or 112 million individuals, will be age 55 or older by 2030, compared to 29%, or 95 million individuals, in 2018.

We believe we are well positioned to capture the increased demand generated by these demographic trends.

The insurance industry is highly competitive, with several factors affecting our ability to compete effectively, including the range of products offered, product terms and features, financial strength and credit ratings, brand strength and name recognition, investment management performance and fund management trends, the ability to respond to developing demographic trends, customer appetite for certain products and technological advances.

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

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

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

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

Regulatory Policy

We operate in a highly regulated industry.

Our insurance company subsidiaries are regulated primarily at the state level, with some policies and products also subject to federal regulation.

As such, regulations recently approved or currently under review at both the U.S.

federal and state level could impact our business model, including statutory reserve and capital requirements.

We anticipate that our ability to respond to changes in regulation and other legislative activity will be critical to our long-term financial performance.

In particular, the following could materially impact our business:

Department of Labor Fiduciary Advice Rule

The Department of Labor (“DOL”) has issued a new regulatory action (the “Fiduciary Advice Rule”) effective February 16, 2021, that reinstates the text of the DOL’s 1975 investment advice regulation defining what constitutes fiduciary “investment advice” to ERISA Plans and IRAs and provides guidance interpreting such regulation.

The guidance provided by the DOL broadens the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Tax Code.

In particular, the DOL states that a recommendation to “roll over” assets from a qualified retirement plan to an IRA, or from an IRA to another IRA, can be considered fiduciary investment advice if provided by someone with an existing relationship with the ERISA Plan or an IRA owner (or in anticipation of establishing such a relationship).

This guidance reverses an earlier DOL interpretation suggesting that roll over advice did not constitute investment advice giving rise to a fiduciary relationship.

Because we do not engage in direct distribution of annuities, including IRA products and annuities sold to ERISA plan participants and to IRA owners, we believe that we will have limited exposure to the new Fiduciary Advice Rule.

Unlike the DOL’s previous fiduciary rule issued in 2016, compliance with the Fiduciary Advice Rule will not require us or our distributors to provide the disclosures required for exemptive relief under the previous rule.

However, we continue to analyze the impact of the Fiduciary Advice Rule, and, while we cannot predict the rule’s impact, it could have an adverse effect on sales of annuities through our distribution partners, as approximately 62% of our annuity sales were purchased within IRAs or other qualified accounts (excluding employer-sponsored qualified plans) during 2020.

The Fiduciary Advice Rule may also lead to changes to our compensation practices and product offerings and increased litigation risk, which could adversely affect our results of operations and financial condition.

We may also need to take certain additional actions in order to comply with or assist our distributors in their compliance with the Fiduciary Advice Rule.

Legislative Reforms

Congress approved the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act") on December 20, 2019.

The SECURE Act provides individuals with greater access to retirement products.

Namely, it makes it easier for 401(k) programs to offer annuities as an investment option by, among other things, creating a statutory safe harbor in ERISA for a retirement plan’s selection of an annuity provider.

The SECURE Act represents the largest overhaul to retirement plans in over a decade.

We view these reforms as beneficial to our business model and expect growth opportunities will arise from the new law.

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

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

Key Non-GAAP Financial Measures and Operating Measures

There are several significant recent events involving us, including:

• Demerger from Prudential plc :

We were previously a majority-owned subsidiary of Prudential plc (“Prudential”), London, England and served as the holding company for its U.S.

The demerger, or separation, from Prudential was completed on September 13, 2021 ("Demerger"), and we are no longer a majority-owned subsidiary of Prudential.

Prudential retained an equity interest in us, which represents 19.2% of our outstanding Class A Common Stock as of March 31, 2022.

• Common Stock Reclassification :

On September 9, 2021, Jackson Financial 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.

All share and earnings per share information presented in this Report have been retroactively adjusted to reflect the stock split.

• Athene Transactions :

On June 18, 2020, Jackson announced that it had entered into a funds withheld coinsurance agreement (the “Athene Reinsurance Agreement”) with Athene Life Re Ltd.

As a result, we hold various investments whose economic performance accrues to Athene but is reported in our financial statements.

In July 2020, Athene invested $500 million of capital into the Company for an equity interest.

In August 2020, the Company contributed the $500 million, as a capital contribution to Jackson.

Athene has an equity interest in us, which represents an 8.9% economic interest and an 8.9% voting interest of our outstanding Class A Common Stock and Class B Common Stock as of March 31, 2022.

Athene no longer owns any shares of Class B Common Stock as a result of the automatic conversion of those Class B shares into shares of Class A Common Stock.

Our GAAP results are affected by the potential variability associated with our amortization of deferred acquisition costs and the fact that our use of derivatives does not qualify for GAAP deferral, meaning that the derivatives are marked to market each reporting period.

See “Summary of Critical Accounting Estimates” below for more information.

Also, an understanding of several key operating measures, including sales, account value, net flows, benefit base and AUM, is helpful to evaluating our results.

See “Key Operating Measures” below.

Finally, we are affected by various economic, industry and regulatory trends, which are described below under “Macroeconomic, Industry and Regulatory Trends.”

Non-GAAP Financial Measures

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

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

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

condition and the underlying profitability drivers of our business.

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

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

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

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

Non-GAAP Financial Measures

Adjusted Operating Earnings

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

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

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

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

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Adjusted Operating Earnings equals our net income adjusted to eliminate the impact of the following items:

Guaranteed Benefits and Hedging Results:

the fees attributed to guaranteed benefits, the associated movements in optional guaranteed benefit liabilities and related claims and benefit payments are excluded from Adjusted Operating Earnings, as we believe this approach appropriately removes the impact to both revenue and related expenses associated with the guaranteed benefit features that are offered for certain of our variable annuities and fixed index annuities and gives investors a better picture of what is driving our underlying performance.

This adjustment includes the following components:

• 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.

fees earned 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 presentation of our earnings is intended to directly align revenue and related expenses associated with the guaranteed benefit features;

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 because the market value of these derivatives may vary significantly from period to period as a result of near-term market conditions and therefore are not directly comparable or reflective of the underlying profitability of our business;

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 because the carrying values of these derivatives may vary significantly from period to period as the result of near-term market conditions and policyholder behavior-related inputs and therefore are not directly comparable or reflective of the underlying profitability of our business.

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;

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

Realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio, as well as impairments of securities, after adjustment for the non-credit component of the impairment charges and change in fair value of funds withheld embedded derivative related to the Athene Reinsurance Transaction;

• DAC and DSI Impact:

• DAC and Deferred Sales Inducements ("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;

the impact on the valuation of Net Derivative and Reserve Movements, including amortization on DAC, arising from changes in underlying actuarial assumptions on an annual basis;

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

Loss on Athene Reinsurance Transaction:

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

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

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.

Operating income taxes are calculated using the prevailing corporate federal income tax rate of 21% while taking into account any items recognized differently in our financial statements and federal income tax returns, including the dividends received deduction and other tax credits.

For interim reporting periods, the company uses an estimated annual effective tax rate in computing its tax provision including consideration of discrete items.

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 Adjusted Operating Earnings, as we believe this approach appropriately removes the impact to both revenue and related expenses associated with the guaranteed benefit features that are offered for certain of our variable annuities and fixed index annuities and gives investors a better picture of what is driving our underlying profitability.

The following is a reconciliation of Adjusted Operating Earnings to net income (loss) attributable to Jackson Financial Inc., the most comparable U.S.

GAAP measure.

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

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Non-operating adjustments (income) loss:

Guaranteed benefits and hedging results:

Fees attributable to guarantee benefit reserves (764) (672)

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DAC and DSI impact 345 696

Assumption changes — —

Total guaranteed benefits and hedging results (782) (1,537)

Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative (898) (1,050)

Loss on Athene Reinsurance Transaction — 34.9 — 2,081.6

Net investment income on funds withheld assets (260) (291)

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Adjusted Book Value and Adjusted Operating ROE

We use Adjusted Operating ROE to manage our business and evaluate our financial performance.

We use Adjusted Operating Return on Equity ("ROE") to manage our business and evaluate our financial performance.

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

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

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

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

Adjusted Book Value excludes AOCI attributable to Jackson Financial Inc.

Adjusted Book Value excludes Accumulated Other Comprehensive Income (Loss) ("AOCI") attributable to Jackson Financial Inc.

AOCI attributable to Jackson Financial Inc.

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

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

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

However, we believe the adjustments to equity and earnings are useful to gaining an understanding of our overall results of operations.

The following is a reconciliation of Adjusted Book Value to total stockholders’ equity and a comparison of Adjusted Operating ROE to ROE, the most comparable U.S.

The following is a reconciliation of Adjusted Book Value to total shareholders’ equity and a comparison of Adjusted Operating ROE to ROE, the most comparable U.S.

GAAP measure:

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

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

Adjustments to total stockholders’ equity:

Exclude accumulated other comprehensive income attributable to Jackson Financial Inc.

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

Total shareholders' equity $ 9,574 $ 9,984

Adjustments to total shareholders’ equity:

Exclude accumulated other comprehensive income (loss) attributable to Jackson Financial Inc.

Adjusted Book Value $ 9,827 $ 8,814

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Adjusted Operating ROE on average equity 15.1 % 29.1 %

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

Operating Measures

(1) Excludes $(686) million and $273 million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of March 31, 2022 and 2021, respectively.

Key Operating Measures

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

Sales of annuities and institutional products include all money deposited by customers into new and existing contracts.

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

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Total Sales $ 5,772 $ 4,724

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

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

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

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

For the three months ended March 31, 2022, total sales increased by $1,048 million compared to the three months ended March 31, 2021, driven primarily by $975 million in sales of institutional products and $199 million of sales from our new RILA product launched in the fourth quarter of 2021.

These increases were partially offset by lower sales of variable annuities driven by decreased sales of variable annuities with lifetime living benefits, partially offset by sales of our lifetime income solutions offering in the defined contribution market that was launched in the fourth quarter of 2021.

Sales of fixed index and fixed annuities remained at historically low levels following pricing actions taken in early 2021.

Account Value

Account Value generally equals the policy account value of our variable annuities, fixed index annuities, fixed annuities and institutional products.

Account value generally equals the account value of our variable annuities, RILA, fixed index annuities, fixed annuities and institutional products.

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

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

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

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

As of September 30,

As of March 31,

(in millions)

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Fixed Annuity (1)

1,098.6 1,066.6

Total Fixed & Fixed Index Annuity Account Value 1,407 1,284

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$ 8,666 $ 9,003

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

(1) Net of reinsurance to Athene.

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

Net flows represents the net change in customer account balances during a period, including gross premiums, surrenders, withdrawals and benefits.

Net flows excludes investment performance, interest credited to customer accounts, transfers between fixed and variable benefits for variable annuities and policy charges.

Net flows represent the net change in customer account balances during a period, including gross premiums, surrenders, withdrawals and benefits.

Net flows exclude investment performance, interest credited to customer accounts, transfers between fixed and variable benefits for variable annuities and policy charges.

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

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Fixed Index Annuity (1)

(347.1) (235.5) (998.2) 12.1

Fixed Annuity (1)

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

Total Retail Annuities Net Flows $ (393) $ (869)

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

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

Net flows improved for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, due primarily to positive net flows from variable annuities ("VA") and RILA, as well as increased sales of institutional products, offsetting surrender and death benefit outflows from our large in-force block.

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

The benefit base may be used to calculate the fees

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

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

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

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

September 30, 2021 December 31, 2020

The following table shows variable annuity account value and benefit base as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Account Value Benefit Base Account Value Benefit Base

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1,656 2,019 1,808 2,059

GMAB — — 49.2 7.2

Total $ 240,555 $ 194,033 $ 257,923 $ 191,545

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AUM, or assets under management, refers to investment assets that are managed by one of our subsidiaries and includes:

(i) the assets in our investment portfolio managed by PPM, which excludes assets held in funds withheld accounts for reinsurance transactions, (ii) other assets managed by PPM, including those for Prudential and its affiliates or third parties and (iii) the separate account assets of our Retail Annuities segment which JNAM administers.

Total AUM reflects exclusions between segments to avoid double counting.

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

September 30, December 31,

March 31, December 31,

(in millions)

Jackson Invested Assets $ 44,959 $ 47,224

Former Asia Affiliates Invested Assets 26,721.4 31,009.4

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

Other Third Party Invested Assets 2,922.0 2,253.9

Third Party Invested Assets (including CLOs) 30,639 31,980

Total PPM AUM 75,598 79,204

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Total AUM $ 336,420 $ 359,454

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

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

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

Macroeconomic, Industry and Regulatory Trends

Macroeconomic and Financial Market Conditions

Our business and results of operations are affected by macroeconomic factors.

The level of interest rates and shape of the yield curve, credit and equity market performance (including market paths, equity volatility and other factors), regulation, tax policy, the level of U.S.

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

In the short- to medium-term, the potential for increased volatility could pressure sales and reduce demand for our products as consumers consider purchasing alternative products to meet their objectives, especially while prevailing interest rates remain below historical averages.

In addition, low interest rate environments can make it difficult to consistently develop products that are attractive to customers while rising interest rates may make certain product features more attractive.

Our financial performance can be adversely affected by market volatility and equity market declines if fees assessed on the account value of our annuities fluctuate, hedging costs increase and revenues decline due to reduced sales and increased outflows.

Equity Market Environment

Our financial performance is impacted by the performance of equity markets.

For example, our variable annuities earn fees based on the account value, which changes with equity market levels.

After a very volatile 2020, U.S.

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

In the first quarter of 2022, equity markets declined and equity volatility increased, resulting in higher hedging costs.

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

This variance may result in our hedge assets outperforming or underperforming the customer assets they are intended to match.

This variance may be exacerbated during periods of high volatility, leading to a mismatch in our hedge results relative to our hedge targets and GAAP results.

Interest Rate Environment

We believe the interest rate environment will continue to impact our business and financial performance in the future for several reasons, including the following:

• A prolonged low interest rate environment could subject us to increased hedging costs or an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for optional guaranteed benefits, decreasing statutory surplus, which would adversely affect their ability to pay dividends.

Certain inputs to the statutory models rely on prescribed interest rates, which are, in turn, determined using a historical interest rate perspective with a mean reversion path over the longer term.

At low interest rate levels these prescribed rates could decline further as the NAIC updates the calculations each year, which would adversely impact our statutory capital.

In addition, low interest rates could also increase the perceived value of optional guaranteed benefit features to our customers, which in turn could lead to a higher utilization of withdrawal or annuitization features of annuity policies and higher persistency of those products over time.

Finally, low interest rates could continue to cause an acceleration of DAC amortization or reserve increase due to loss recognition for annuities and interest-sensitive life insurance.

A gradual rise in interest rates would have benefits that are offsetting to risks previously described.

Those potential benefits of rising interest rates include increased new money investment yields, a reduction in hedging requirements and more attractive product features .

• Some of our annuities have a guaranteed minimum interest crediting rate.

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

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

• To the extent interest rates continue to increase, consistent with the Federal Reserve’s signals about upcoming interest rate decisions, the effects of low interest rates discussed above will diminish over time.

However, both nominal and real interest rates remain low by historical standards and may continue to be so even after several rounds of interest rate increase s by the Federal Reserve.

During periods of sharp rises in interest rates, the results of our variable annuity business, statutory capital and RBC Ratio may be impacted both positively and negatively.

While rising rates result in hedging losses in the near-term due to reductions in the market value of interest rate hedges, we would expect lower hedging costs and reduced levels of hedging going forward in a higher interest rate environment.

Further, we expect near-term hedging losses from rising rates may be offset by changes in the fair value of the related guaranteed benefit liabilities as was the case in the first quarter of 2022.

Our statutory capital and RBC Ratio may be negatively impacted by rising rates due to minimum required reserving levels (i.e., cash surrender value floor) where reserve releases are limited and unable to offset interest rate hedging losses.

Credit Market Environment

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

After tightening in 2021, credit spreads widened again in the first quarter of 2022, and credit defaults have also reduced from levels seen in 2020.

Conversely, as credit spreads tighten, the fair value of our existing investment portfolio generally increases, and the yield available on new investment purchases decreases.

While changing credit spreads impact the fair value of our investment portfolio, this revaluation is generally reflected in our Accumulated Other Comprehensive Income.

The revaluation will impact net income for realized gains or losses from the sale of securities, the change in fair value of trading securities or securities carried at fair value under the fair value election, or potential changes in the allowance for credit loss ("ACL").

Shifts in the credit quality of the assets underlying our investment portfolio may also impact the level of regulatory required statutory capital for our insurance company subsidiaries.

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

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

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.

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

Consumer Behavior

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

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

In recent years, we have introduced new products to better address changes in consumer demand and targeted distribution channels which meet changes in consumer preferences.

We expect demographic trends in the U.S.

population, in particular the increase in the number of retirement age individuals, to generate significant demand for our products.

We believe we are well positioned to capture the increased demand generated by these demographic trends.

Regulatory Policy

We operate in a highly regulated industry.

Our insurance company subsidiaries are regulated primarily at the state level, with some policies and products also subject to federal regulation.

As such, regulations recently approved or currently under review at both the U.S.

federal and state level could impact our business model, including statutory reserve and capital requirements.

We anticipate that our ability to respond to changes in regulation and other legislative activity will be critical to our long-term financial performance.

In particular, the following could materially impact our business:

Department of Labor Fiduciary Advice Rule

The Department of Labor (“DOL”) has issued a new regulatory action (the “Fiduciary Advice Rule”) effective February 16, 2021, that reinstates the text of the DOL’s 1975 investment advice regulation defining what constitutes fiduciary “investment advice” to Employee Retirement Income Security Act ("ERISA") Plans and Individual Retirement Accounts ("IRAs") and provides guidance interpreting such regulation.

The guidance provided by the DOL broadens the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Tax Code.

This guidance reverses an earlier DOL interpretation suggesting that roll over advice did not constitute investment advice giving rise to a fiduciary relationship.

We may also need to take certain additional actions in order to comply with or assist our distributors in their compliance with the Fiduciary Advice Rule.

Legislative Reforms

Congress approved the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act") on December 20, 2019.

The SECURE Act provides individuals with greater access to retirement products.

The SECURE Act represents the largest overhaul to retirement plans in over a decade.

We view these reforms as beneficial to our business model and expect growth opportunities will arise from the new law.

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

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

Consolidated Results of Operations

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The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes:

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

Fee income $ 1,922 $ 1,816

Premium 35.1 46.5 100.3 134.0

Premiums 34 34

Net investment income 720 928

7 unchanged sentences

Operating costs and other expenses, net of deferrals 607 598

Cost of reinsurance — 6.2 — 2,520.1

Amortization of deferred acquisition and sales inducement costs 515 812

Total benefits and expenses 1,915 1,921

Pretax income (loss) before noncontrolling interests 251.7 (531.9) 3,298.7 (2,327.8)

Pretax income (loss) 2,386 3,586

Income tax expense (benefit) 330 586

9 unchanged sentences

Non-operating adjustments (income) loss:

Guaranteed benefits and hedging results:

Fees attributable to guarantee benefit reserves (764) (672)

2 unchanged sentences

DAC and DSI impact 345 696

Assumption changes — —

Total guaranteed benefits and hedging results (782) (1,537)

Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative (898) (1,050)

Loss on Athene Reinsurance Transaction — 34.9 — 2,081.6

Net investment income on funds withheld assets (260) (291)

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Adjusted Operating Earnings $ 354 $ 568

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

Net Income (Loss) Attributable to Jackson Financial Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

Net Investment Income

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

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

Net Gains (Losses) on Derivatives and Investments

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

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

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

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

Three Months Ended September 30,

(in millions)

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

Net gains (losses) on freestanding derivatives (455.1) (3,492.2)

Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance) (845.4) 1,342.8

Net gains (losses) on derivative instruments (1,300.5) (2,149.4)

Net gains (losses) on funds withheld reinsurance (115.2) (378.4)

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

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

Total Benefits and Expenses

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

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

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

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

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

Interest Credited on Contract Holder Funds, Net of Deferrals

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

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

Operating Costs and Other Expenses, Net of Deferrals

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

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

Cost of Reinsurance

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

Amortization of Deferred Acquisition Costs and Deferred Sales Inducement Costs

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

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

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

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

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

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

Pretax Adjusted Operating Earnings

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

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

Net Income (Loss) Attributable to Jackson Financial Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

Upon the policy lapse, we received a return of the ceded premium from the reinsurer.

Net Investment Income

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

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

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

Net Gains (Losses) on Derivatives and Investments

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

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

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

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

Nine Months Ended September 30,

Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021

Pretax Income (Loss)

Our pretax income (loss) decreased by $1,200 million to a pretax income of $2,386 million for the three months ended March 31, 2022, from a pretax income of $3,586 million for the three months ended March 31, 2021 primarily due to:

• $1,101 million decrease in total net gains (losses) on derivatives and investments as shown in table below and driven by:

Three Months Ended March 31,

2022 2021 Variance

(in millions)

5 unchanged sentences

Total net gains (losses) on derivatives and investments $ 1,605 $ 2,706 $ (1,101)

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

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

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

Total Benefits and Expenses

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

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

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

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

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

Interest Credited on Contract Holder Funds, Net of Deferrals

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

This decrease was

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

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

Operating Costs and Other Expenses, Net of Deferrals

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

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

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

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

Cost of Reinsurance

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

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

Amortization of Deferred Acquisition Costs and Deferred Sales Inducement Costs

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

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

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

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

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

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

Pretax Adjusted Operating Earnings

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

◦ Less favorable movements in reserves for guaranteed benefits, driven by lower separate account returns compared to prior year;

◦ Lower benefit due to losses on sales of securities recognized on gains (losses) excluding derivatives and funds withheld assets, compared to prior year gains.

Primarily offset by:

◦ Lower freestanding derivative losses as a result of lower losses on our equity derivatives primarily driven by market decreases in 2022 compared to market increases in the prior year and lower losses within our interest rate related hedge instruments as compared to the prior year;

◦ Higher benefit due to gains recognized on funds withheld assets compared to prior year;

• $284 million increase in death, other policy benefits and change in policy reserves primarily due to less favorable movements in reserves on variable annuity guarantees accounted for as insurance liabilities;

• $208 million decrease in net investment income as a result of lower income on limited partnership investments, which are recorded on a one quarter lag, and lower income on debt securities;

• $14 million higher interest expense incurred in the current year related to our term loans and senior notes.

This decrease was partially offset by:

• $106 million increase in fee income primarily due to a $14 billion increase in average variable annuity account values stemming from strong separate account performance over the past year;

• $297 million benefit from amortization of deferred acquisition costs and deferred sales inducement costs driven by lower net freestanding and embedded derivative gains in 2022, leading to lower current period gross profits and, therefore, lesser current period amortization.

Income tax expense decreased $256 million to an expense of $330 million for the three months ended March 31, 2022, from an expense of $586 million for the three months ended March 31, 2021.

The provision for income tax in the current period led to an effective income tax rate of 14% for the three months ended March 31, 2022 compared to the 2021 effective income tax rate of 17%.

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

Segment Results of Operations

1 unchanged sentence

Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks.

We report certain activities and items that are not included in these segments, including the results of PPM, within Corporate and Other.

The following table and discussion represent an overall view of our results of operations for each segment.

We report certain activities and items that are not included in these segments, including the results of PPM Holdings, Inc., the holding company of PPM, within Corporate and Other.

The following tables and discussion represent an overall view of our results of operations for each segment.

Pretax Adjusted Operating Earnings by Segment

The following table summarizes pretax adjusted operating earnings from the Company's business segment operations and also provides a reconciliation of the segment measure to net income on a consolidated GAAP basis.

Also, see Note 3 to Condensed Consolidated Financial Statements for further information:

Three Months Ended March 31,

(in millions)

Pretax Adjusted Operating Earnings by Segment:

Retail Annuities $ 406 $ 568

Institutional Products 23 10

Closed Life and Annuity Blocks (8) 79

Corporate and Other (3) (24)

Pretax Adjusted Operating Earnings 418 633

Pre-tax reconciling items from adjusted operating income to net income (loss) attributable to Jackson Financial, Inc.:

Guaranteed benefits and hedging results:

Fees attributable to guarantee benefit reserves 764 672

Net movement in freestanding derivatives (1,476) (3,031)

Net reserve and embedded derivative movements 1,839 4,592

DAC and DSI impact (345) (696)

Assumption changes — —

Total guaranteed benefits and hedging results 782 1,537

Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative 898 1,050

Net investment income on funds withheld assets 260 291

Other items (3) 7

Total pre-tax reconciling items 1,937 2,885

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

Income tax expense (benefit) 330 586

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

$ 2,025 $ 2,932

Retail Annuities

The following table sets forth, for the periods presented, certain data underlying the results for our Retail Annuities segment.

The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes.

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

15 unchanged sentences

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

Retail Annuities:

Retail Annuities Account Value:

Balance as of beginning of period $ 284,379 $ 256,741

7 unchanged sentences

Balance as of end of period, net of ceded reinsurance $ 242,267 $ 237,814

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

Operating Revenues

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

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

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

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

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

Net Investment Income

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

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

Income on operating derivatives

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

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

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

Operating Benefits and Expenses

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

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

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

Interest credited on contract holder funds, net of deferrals

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

Operating costs and other expenses, net of deferrals

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

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

Amortization of deferred acquisition costs and deferred sales inducement costs

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

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

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

Pretax Adjusted Operating Earnings

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

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

Operating Revenues

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

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

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

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

Net Investment Income

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

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

Income on operating derivatives

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

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

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

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

Operating Benefits and Expenses

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

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

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

Interest credited on contract holder funds, net of deferrals

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

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

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

Operating costs and other expenses, net of deferrals

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

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

Amortization of deferred acquisition costs and deferred sales inducement costs

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

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

Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021

Pretax Adjusted Operating Earnings

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

Pretax Adjusted Operating Earnings decreased $162 million to $406 million for the three months ended March 31, 2022 from $568 million for the three months ended March 31, 2021 primarily due to:

• $87 million decrease in net investment income primarily due to lower levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2021;

• $53 million increase in amortization of deferred acquisition costs and deferred sales inducement costs primarily due to lower separate account returns, which led to decreased expected future gross profits, and therefore higher current period amortization during 2022;

• $28 million increase in operating costs and other expenses, net of deferrals, primarily due to higher incentive compensation expenses in 2022.

These decreases were partially offset by:

• $21 million increase in fee income primarily due to a $14 billion increase in average variable annuity account values stemming from strong separate account performance over the past year.

Account Value

Retail annuities account value, gross of reinsurance, increased $2.5 billion between periods primarily due to positive variable annuity separate account growth in the last three quarters of 2021 and first quarter of 2022 driven by favorable market performance relative to prior year.

This was partially offset by negative net flows in 2022, primarily from our reinsured fixed and fixed index annuity block.

Institutional Products

1 unchanged sentence

The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes.

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

7 unchanged sentences

Interest credited on other contract holder funds 39 52

47.3 58.0 147.1 194.4

Interest expense — 1

(1.9) 2.0 — 14.9

Operating costs and other expenses, net of deferrals 1 1

1 unchanged sentence

Pretax Adjusted Operating Earnings $ 23 $ 10

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

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

7 unchanged sentences

Balance as of end of period $ 9,173 $ 10,579

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

Operating Revenues

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

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

Operating Benefits and Expenses

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

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

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

Pretax Adjusted Operating Earnings

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

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

Operating Revenues

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

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

Operating Benefits and Expenses

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

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

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

Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021

Pretax Adjusted Operating Earnings

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

Pretax Adjusted Operating Earnings increased $13 million to $23 million for the three months ended March 31, 2022 from $10 million for the three months ended March 31, 2021 primarily due to a decrease in interest credited resulting from a reduction in institutional product account values during the year.

Account Value

Institutional product account value decreased from $10,579 million at March 31, 2021 to $9,173 million at March 31, 2022.

The decline in account value was driven by continued maturities of the existing contracts and funding agreements, partially offset by new issuances in 2022.

Closed Life and Annuity Blocks

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The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes.

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

2 unchanged sentences

Fee income $ 121 $ 125

Premium 38.2 49.7 109.5 143.6

Premiums 37 38

Net investment income 196 257

9 unchanged sentences

Pretax Adjusted Operating Earnings $ (8) $ 79

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

Operating Revenues

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

The primary drivers are discussed below.

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

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

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

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

Net Investment Income

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

Income on operating derivatives

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

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

Other Operating Income

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

Operating Benefits and Expenses

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

The primary drivers are discussed below.

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

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

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

Interest credited on contract holder funds, net of deferrals

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

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

Pretax Adjusted Operating Earnings

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

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

Operating Revenues

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

The primary drivers are discussed below.

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

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

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

Upon the policy lapse, we received a return of the ceded premium from the reinsurer.

Net Investment Income

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

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

Income on operating derivatives

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

Other Operating Income

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

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

Operating Benefits and Expenses

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

The primary drivers are discussed below.

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

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

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

Interest credited on contract holder funds, net of deferrals

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

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

Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021

Pretax Adjusted Operating Earnings

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

Pretax Adjusted Operating Earnings decreased $87 million to $(8) million for the three months ended March 31, 2022 from $79 million for the three months ended March 31, 2021 primarily due to:

• $61 million decrease in net investment income primarily due to lower levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2021;

• $21 million increase in death, other policy benefit and change in policy reserves primarily as a result of less favorable reserve movements in 2022 compared to 2021.

Corporate and Other

Corporate and Other includes the operations of PPM and unallocated corporate revenue and expenses, as well as certain eliminations and consolidation adjustments.

Corporate and Other includes the operations of PPM Holdings, Inc., the holding company of PPM, and unallocated corporate revenue and expenses, as well as certain eliminations and consolidation adjustments.

The following table sets forth, for the periods presented, certain data underlying the results for Corporate and Other.

The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes.

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

12 unchanged sentences

Pretax Adjusted Operating Earnings $ (3) $ (24)

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

Operating Revenues

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

The primary drivers are discussed below.

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

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

Net Investment Income

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

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

Income on operating derivatives

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

Operating Benefits and Expenses

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

The primary drivers are discussed below.

Interest Expense

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

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

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

Operating costs and other expenses, net of deferrals

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

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

Pretax Adjusted Operating Earnings

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

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

Operating Revenues

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

The primary drivers are discussed below.

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

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

Net Investment Income

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

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

Income on Operating Derivatives

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

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

Operating Benefits and Expenses

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

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

Interest Expense

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

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

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

as an intercompany obligation in June 2020.

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

Operating costs and other expenses, net of deferrals

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

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

Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021

Pretax Adjusted Operating Earnings

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

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

Pretax adjusted operating earnings increased $21 million to $(3) million for the three months ended March 31, 2022 from $(24) million for the three months ended March 31, 2021 primarily due to the following:

• $41 million increase in net investment income primarily due to higher current quarter net investment income resulting from an increased excess capital position, as the investment income on that excess capital remains in the Corporate and Other segment.

This increase was partially offset by:

• $15 million increase in interest expense related to our senior notes and term loans.

Asset-backed securities include mortgage-backed and other structured securities.

1 unchanged sentence

Investment Strategy

Our overall investment strategy is to maintain a diversified and largely investment grade fixed income portfolio that is capital efficient, achieve risk-adjusted returns that support competitive pricing for our products, generate profitable growth of our business and maintain adequate liquidity to support our obligations.

The investments within our investment portfolio are primarily managed by PPM, our wholly-owned registered investment adviser.

Our overall investment strategy is to maintain a diversified and largely investment grade fixed income portfolio that is capital efficient, achieves risk-adjusted returns that support competitive pricing for our products, generates profitable growth of our business and maintains adequate liquidity to support our obligations.

The investments within our investment portfolio are primarily managed by PPM, our wholly-owned registered investment advisor.

Our investment strategy benefits from PPM’s ability to originate investments directly, as well as participate in transactions originated by banks, investment banks, commercial finance companies and other intermediaries.

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

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

Certain investments held in funds withheld accounts for reinsurance transactions are managed by Apollo Insurance Solutions Group LP, an Athene affiliate, see Note 8 of Condensed Consolidated Financial Statements for further details.

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

As of March 31, 2022, Apollo Insurance Solutions Group LP managed $23.5 billion of cash and investments and other third-party investment managers represented approximately $187 million of investments.

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

6 unchanged sentences

As previously mentioned, our investment manager accesses a broad universe of potential investments to construct the investment portfolio and takes into account the benefits of diversification across various sectors, collateral types and asset classes.

To this end, our SAA and investment portfolio includes allocations to public and private corporate bonds (both investment grade and high yield), commercial mortgage loans, structured securities, private equity and U.S.

To this end, our SAA and investment portfolio includes allocations to public and private corporate bonds (both investment grade and high yield), mortgage loans, structured securities, private equity and U.S.

Treasury securities.

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

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

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

As of March 31, 2022 and December 31, 2021, we had total investments of $69.3 billion and $74.2 billion, respectively.

Portfolio Composition

The following table summarizes the carrying values of our investments:

September 30, December 31,

March 31, 2022 December 31, 2021

Investments excluding Funds Withheld Funds Withheld Total Investments excluding Funds Withheld Funds Withheld Total

(in millions)

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

Debt Securities, available-for-sale, net of allowance for credit losses $ 29,642 $ 17,128 $ 46,770 $ 32,453 $ 19,094 $ 51,547

Debt Securities, at fair value under fair value option 1,628 158 1,786 1,547 164 1,711

Debt securities, at fair value option 117.9 105.7

Debt securities, trading, at fair value 115 — 115 117 — 117

Equity securities, at fair value 162 99 261 163 116 279

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

Mortgage loans, net of allowance for credit losses 6,764 4,666 11,430 6,743 4,739 11,482

Mortgage loans, at fair value under fair value option — 190 190 — — —

Policy loans 973 3,490 4,463 992 3,483 4,475

Derivative instruments 1,141.9 2,219.8

Freestanding derivative instruments 875 51 926 1,375 42 1,417

Other invested assets 2,611 793 3,404 2,484 715 3,199

Total investments $ 42,770 $ 26,575 $ 69,345 $ 45,874 $ 28,353 $ 74,227

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

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

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

Available-for-sale debt securities decreased to $46,770 million at March 31, 2022 from $51,547 million at December 31, 2021, primarily due to sales, consistent with the decrease in underlying policy liabilities, and a decrease in net unrealized gains.

The amortized cost of debt securities, available-for-sale, decreased from $51,206 million as of December 31, 2021 to $50,119 million as of March 31, 2022.

Further, net unrealized gains on these assets decreased from a net unrealized gain of $2,178 million as of December 31, 2021 to a net unrealized loss of $1,416 million as of March 31, 2022.

Other Invested Assets

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

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

In June 2021, we 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.

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

The increase in Other Invested Assets from December 31, 2021 to March 31, 2022 primarily resulted from the increased valuations of limited partnership investments.

Debt Securities

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

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

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

September 30, 2021 Amortized

At March 31, 2022 and December 31, 2021, the amortized cost, gross unrealized gains and losses, fair value, and allowance for credit loss of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions):

March 31, 2022 Amortized

Cost Allowance for Credit Loss Gross

50 unchanged sentences

Debt Securities Credit Quality

The following tables set forth the composition of the fair value of debt securities, including both those held as available for sale and for trading, as classified by rating categories as assigned by nationally recognized statistical rating organizations (“NRSRO”), the NAIC or, if not rated by such organizations, our consolidated investment advisor.

The following tables set forth the composition of the fair value of debt securities, including both those held as available-for-sale and for trading, as classified by rating categories as assigned by nationally recognized statistical rating organizations (“NRSRO”), the NAIC or, if not rated by such organizations, our 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.

Percent of Total Debt

Securities Carrying Value as of

September 30, December 31,

Securities Carrying Value

March 31, December 31,

Investment Rating 2022 2021

10 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Less than 12 months Less than 12 months

35 unchanged sentences

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

The increase in rates on U.S.

Treasury securities and the widening credit spreads of investment grade corporate securities resulted in the reduction in fair values and increase in unrealized losses during the three months ended March 31, 2022.

Of the $1,650 million total increase in unrealized losses and the $11,247 million additional fair value on securities with an associated unrealized loss, $852 million and $4,185 million, respectively, are associated with assets subject to funds withheld agreements.

Evaluation of Available-For-Sale Debt Securities

1 unchanged sentence

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Available-for-sale securities

2 unchanged sentences

Credit loss income (expense) — 9

Gross impairments (0.1) (0.2) (0.1) (26.6)

Credit loss income (expense) on mortgage loans 12 59

13.4 (41.1) 62.2 (38.8)

Net gains (losses) excluding derivatives and funds withheld assets (130) 153

Net gains (losses) on derivative instruments (see Note 4) (1,300.5) (2,149.4) (1,413.4) (5,492.2)

Net gains (losses) on funds withheld reinsurance treaties (see Note 7) (115.2) (378.4) 15.1 790.3

Net gains (losses) on derivative instruments 707 1,655

Net gains (losses) on funds withheld reinsurance treaties 1,028 898

Total net gains (losses) on derivatives and investments $ 1,605 $ 2,706

5 unchanged sentences

The following table summarizes our holdings:

September 30, December 31,

March 31, December 31,

(in millions)

3 unchanged sentences

Total $ 261 $ 279

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

Mortgage Loans

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

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

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

C ommercial mortgage loans of $10.6 billion and $10.5 billion at March 31, 2022 and December 31, 2021, respectively, are reported net of an allowance for credit losses of $78 million and $85 million at each date, respectively.

At March 31, 2022, commercial mortgage loans were collateralized by properties located in 38 states, the District of Columbia, and Europe.

Residential mortgage loans of $1,039 million and $939 million at March 31, 2022 and December 31, 2021, respectively, are reported net of an allowance for credit losses of $6 million and $9 million at each date, respectively.

Loans were collateralized by properties located in 50 states, the District of Columbia, Mexico, and Europe.

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

September 30, December 31,

March 31, December 31,

(in millions)

8 unchanged sentences

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

September 30, December 31,

March 31, December 31,

(in millions)

10 unchanged sentences

Total $ 11,620 $ 11,482

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

September 30, December 31,

The following table provides information about the credit quality of our mortgage loans:

March 31, December 31,

(in millions)

Loan-to-Value Ratio

< 70% $ 9,655.6 $ 9,263.8

70% - 80% 1,034.3 845.0

Commercial mortgage loans

Loan to value ratios:

Less than 70% $ 9,927 $ 9,819

70% - 80% 600 670

80% - 100% 44 44

Greater than 100% 10 10

Total 10,581 10,543

Residential mortgage loans

Performing 897 727

Nonperforming (1)

Total 1,039 939

Total mortgage loans $ 11,620 $ 11,482

(1) As of March 31, 2022 and December 31, 2021, includes $119 million and $202 million of loans purchased when the loans were greater than 90 days delinquent and $17 million and $5 million of loans in process of foreclosure, respectively, and are supported with insurance or other guarantees provided by various governmental programs.

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

September 30,

(in millions)

Balance at beginning of period $ 94 $ 179

Cumulative effect of change in accounting principle — 62.0

Charge offs, net of recoveries — —

Additions from purchase of purchased credit -deteriorated mortgage loans — —

Provision (release) (10) (65)

Balance at end of period $ 84 $ 114

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

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 March 31, 2022, there was $19 million of recorded investment, $20 million of unpaid principal balance, no related loan allowance, $7 million of average recorded investment, and $1 million investment income recognized on impaired residential mortgage loans.

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.

Derivative Instruments

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

September 30, 2021

Assets Liabilities

Contractual/ Contractual/ Net

Notional Fair Notional Fair Fair

Value Amount (1)

March 31, 2022

Contractual/ Assets Liabilities Net

Notional Fair Fair Fair Value

Value Value Asset (Liability)

Freestanding derivatives

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Equity index futures (2)

— — 17,329.8 — —

Equity index put options 35,500 290 — 290

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Interest rate swaps - cleared (2)

1,500.0 — — — —

Put-swaptions 22,000 — 343 (343)

Treasury futures (2)

3,986.6 — 13.9 — —

Credit default swaps — — — — —

Total freestanding derivatives 119,248 868 398 470

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VA embedded derivatives (3)

N/A — N/A 3,091.6 (3,091.6)

N/A — 452 (452)

FIA embedded derivatives (4)

N/A — N/A 1,439.7 (1,439.7)

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

N/A — 1,299 (1,299)

RILA embedded derivatives (4)

N/A — 16 (16)

Total embedded derivatives N/A — 1,767 (1,767)

Derivatives related to funds withheld under reinsurance treaties

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Funds withheld embedded derivative (5)

N/A — N/A 271.7 (271.7)

N/A 1,161 — 1,161

Total derivatives related to funds withheld under reinsurance treaties 1,454 1,219 7 1,212

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The nonperformance risk adjustment is included in the balance above.

(5) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

December 31, 2021

Assets Liabilities

Contractual/ Contractual/ Net

Notional Fair Notional Fair Fair

Amount (1) Value Amount (1) Value Value

Contractual/ Assets Liabilities Net

Notional Fair Fair Fair Value

Value Value Asset (Liability)

Freestanding derivatives

2 unchanged sentences

Equity index futures (2)

— — 27,651.0 — —

Equity index put options 27,500 150 — 150

1 unchanged sentence

Interest rate swaps - cleared (2)

— — 1,500.0 8.2 (8.2)

Put-swaptions 19,000 133 — 133

Treasury futures (2)

8,520.5 — 3.8 — —

Credit default swaps 0.5 — — — —

Total freestanding derivatives 97,665 1,374 35 1,339

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VA embedded derivatives (3)

N/A — N/A 5,592.1 (5,592.1)

N/A — 2,626 (2,626)

FIA embedded derivatives (4)

N/A — N/A 1,483.9 (1,483.9)

Total embedded derivatives N/A — N/A 7,076.0 (7,076.0)

N/A — 1,439 (1,439)

RILA embedded derivatives (4)

Total embedded derivatives N/A — 4,071 (4,071)

Derivatives related to funds withheld under reinsurance treaties

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Funds withheld embedded derivative (5)

N/A — N/A 826.6 (826.6)

N/A — 120 (120)

Total derivatives related to funds withheld under reinsurance treaties 1,277 43 126 (83)

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The nonperformance risk adjustment is included in the balance above.

(5) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets.

Investment Income

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Debt securities (1)

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Total investment income excluding funds withheld assets 473 671

Net investment income on funds withheld assets (see Note 7) 299.6 277.1 884.5 506.0

Net investment income on funds withheld assets 260 291

Investment expenses:

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Expenses related to consolidated entities (2)

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

Other investment expenses (3)

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

Total investment expenses (13) (34)

Net investment income $ 720 $ 928

(1) Includes unrealized gains and losses on trading securities and includes $(10) million and $38 million as of March 31, 2022 and 2021, respectively, related to the change in fair value for securities carried under the fair value option.

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

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and other expenses.

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

Evaluation of Invested Assets

We perform regular evaluations of our invested assets.

On a monthly basis, management identifies those investments that may require additional monitoring and carefully reviews the carrying value of such investments to determine whether specific investments should be placed on a non-accrual status and to determine if any declines in value may be other than temporary.

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

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For investments in partnerships, management reviews the financial statements and other information provided by the general partners.

The carrying values of investments that are determined to have declines in value that are other than temporary are reduced to net realizable value and, in determining whether an other than temporary impairment has occurred, we consider a security’s forecasted cash flows as well as the severity of depressed fair values.

In determination of an allowance for credit loss, we consider a security’s forecasted cash flows as well as the severity of depressed fair values.

Investment income is not accrued on securities in default and otherwise where the collection is uncertain.

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Interest is then accounted for on a cash basis.

Policy and Contract Liabilities

We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments.

Amounts for actuarial liabilities are computed and reported on the Condensed Consolidated Financial Statements in conformity with GAAP.

For more details on Policyholder Liabilities, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” included in our 2021 Annual Report.”

As an insurance company, a substantial portion of our profits are derived from fee income and the invested assets backing our policy and contract liabilities, which includes separate account liabilities, reserves for future policy benefits and claims payable and other contract holder funds.

As of March 31, 2022, 89% of our policy and contract liabilities were in our Retail Annuities segment, 3% were in our Institutional Products segment and 8% were in our Closed Life and Annuity Blocks segment.

The table below represents a breakdown of our policy and contract liabilities:

March 31, 2022 Separate Accounts Reserves for future policy benefits Other contract holder funds Total

(in millions)

Variable Annuities $ 231,113 $ 2,403 $ 10,367 $ 243,883

Registered Index Linked Annuities — — 305 305

Fixed Annuities — 2 12,940 12,942

Fixed Index Annuities — 8 12,835 12,843

Payout Annuities — — 1,389 1,389

Total Retail Annuities 231,113 2,413 37,836 271,362

Total Institutional Products — — 9,173 9,173

Traditional Life — 4,699 4,115 8,814

Interest-sensitive Life 85 1,693 7,323 9,101

Group Payout Annuities — 4,819 — 4,819

Other Annuities — — 1,396 1,396

Total Closed Life and Annuity Blocks 85 11,211 12,834 24,130

Total Policy and Contract Liabilities 231,198 13,624 59,843 304,665

Claims payable and other — 1,943 — 1,943

Total $ 231,198 $ 15,567 $ 59,843 $ 306,608

December 31, 2021 Separate Accounts Reserves for future policy benefits Other contract holder funds Total

(in millions)

Variable Annuities $ 248,859 4,330 10,030 263,219

Registered Index Linked Annuities — — 110 110

Fixed Annuities — 2 13,172 13,174

Fixed Index Annuities — 50 13,161 13,211

Payout Annuities — — 1,399 1,399

Total Retail Annuities 248,859 4,382 37,872 291,113

Total Institutional Products — — 8,830 8,830

Traditional Life — 4,762 4,161 8,923

Interest-sensitive Life 90 1,722 7,410 9,222

Group Payout Annuities — 4,895 — 4,895

Other Annuities — — 1,416 1,416

Total Closed Life and Annuity Blocks 90 11,379 12,987 24,456

Total Policy and Contract Liabilities 248,949 15,761 59,689 324,399

Claims payable and other — 1,868 — 1,868

Total $ 248,949 $ 17,629 $ 59,689 $ 326,267

As of March 31, 2022, $231.2 billion or 76% of our policy and contract liabilities were backed by separate accounts assets.

These separate account assets backed reserves primarily related to our variable annuities.

Separate account liabilities are fully funded by cash flows from the customer’s corresponding separate account assets and are set equal to the fair value of such invested assets.

We generate revenue on our separate account liabilities primarily from asset-based fee income.

Separate account assets and associated liabilities are subject to variability driven by the performance of the underlying investments, which are exposed to fluctuations in equity markets and bond fund valuations.

As a result, revenue derived from asset-based fee income is similarly subject to variability in line with the variability of the underlying separate account assets.

As of March 31, 2022, $48.8 billion or 16% of our policy and contract liabilities were backed by our investment portfolio and $24.6 billion reinsured by Athene, were backed by funds withheld assets.

Our variable annuity fixed account option, variable annuity guaranteed benefit and other reserves, our RILA and fixed annuities and fixed index annuities reserves, not reinsured, our Institutional Products segment reserves, as well as our Closed Life and Annuity Blocks segment reserves, were primarily backed by our investment portfolio.

As of March 31, 2022, our general account policy and contract liabilities, net of those ceded to Athene, were composed of 1% for registered index linked annuities, 5% for fixed index annuities and fixed deferred and payout annuities, 19% for Institutional Products segment, 20% for fixed account option variable annuities, 6% for guaranteed benefit and other variable annuity reserves, and a 49% Closed Life and Annuity Block segment reserves.

As of March 31, 2022, 39% of our fixed annuity and fixed index annuity policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers.

As of March 31, 2022, 100% of our RILA policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers.

We have the discretion, subject to contractual limitations and minimums, to reset the crediting terms on the majority of our fixed index annuities and fixed annuities.

As of March 31, 2022, 93% of fixed annuity, fixed-indexed annuity, and the fixed accounts of RILA and variable annuity correspond to crediting rates that are at the guaranteed minimum crediting rate.

Liabilities for other contract holder funds are policy account balances on interest-sensitive life insurance, fixed annuities, fixed index annuities, RILA and variable annuity or variable life insurance contract allocations to fixed fund options.

These account balance liabilities are equal to the sum of deposits, plus interest credited, less charges and withdrawals.

We establish reserves for future policy benefits and claims payable under insurance policies using methodologies consistent with U.S.

Reserves for insurance policies are generally equal to the present value of future expected benefits to be paid, reduced by the present value of future expected revenue.

The assumptions used in establishing reserves are generally based on our experience, industry benchmarking or other factors, as applicable.

Annually, or as circumstances warrant, we conduct a comprehensive review of our actuarial assumptions, and update those assumptions when appropriate.

The principal assumptions used in the establishment of reserves for future policy benefits are policy lapse, mortality, benefit utilization and withdrawals, investment returns, and expenses.

Generally, we do not expect trends that impact our assumptions to change significantly in the short-term and, to the extent these trends may change, we expect such changes to be gradual over the long-term.

For non–life-contingent components of Guaranteed Minimum Withdrawal Benefits ("GMWB") features available in our variable annuities, the guaranteed benefits are accounted for as embedded derivatives, with fair values calculated as the present value of expected future guaranteed benefit payments to contract holders less the present value of assessed rider fees attributable to the embedded derivative feature.

In accordance with U.S.

GAAP, the fair values of these guaranteed benefit features are based on assumptions a market participant would use in valuing these embedded derivatives.

Changes in the fair value of the embedded derivatives are recorded through a benefit or charge to current period earnings.

Movements in the fair value of the embedded derivatives are typically in the opposite direction relative to primary market risks.

Specifically, downward movements in equity market levels reduce contract holder account value and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, increasing the fair value liability.

Similarly, downward movements in interest rates lower the assumed future market growth and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, increasing the fair value liability.

Downward movements in interest rates also lower the discount rates used in the calculation of the fair value liability associated with higher projected future guaranteed benefit payments, which increases the fair value liability.

For reserves related to the life-contingent components of guaranteed benefit features available in our variable annuities, fixed index annuities and RILA, we calculate the change in reserves by applying a “benefit ratio” to total assessments received in the period.

The benefit ratio is determined by dividing the present value of total expected benefit payments by the present value of total expected assessments, primarily fees based on account value or benefit base, over the life of the contract.

The level and direction of the change in reserves will vary over time based on the benefit ratio and the level of assessments associated with the variable annuity, fixed index annuity, or RILA.

These reserves typically move in the opposite direction relative to primary market risks.

Specifically, downward movements in equity market levels will reduce contract holder account value and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, which increases the reserve.

For traditional life insurance and payout annuities, reserves for future policy benefits are measured using assumptions determined as of the issuance date or acquisition date with provisions for the risk of adverse deviation, as appropriate.

These assumptions are not unlocked unless a premium deficiency exists.

At least annually, we perform premium deficiency tests using best estimate assumptions as of the testing date without provision for adverse deviation.

If the liabilities determined based on these best estimate assumptions are greater than the net reserves (i.e., U.S.

GAAP reserves net of any DAC or reinsurance), the existing net reserves are adjusted by first reducing the DAC or DSI by the amount of the deficiency (or to zero) through a charge to current period earnings.

If the deficiency is more than these asset balances, we increase the reserves by the excess through a charge to current period earnings.

If a premium deficiency is recognized, the assumptions as of the premium deficiency test date are locked in and used in subsequent reserve measurements, and the net reserves continue to be subject to premium deficiency testing.

In a sustained low interest rate environment, there is generally an increased likelihood that the liabilities determined based on best estimate assumptions will be greater than the net reserves.

Liquidity and Capital Resources

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

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

The discussion below describes our liquidity and capital resources for the three months ended March 31, 2022 and 2021.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

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Net cash provided by (used in) financing activities (609) (290)

Net increase (decrease) in cash and cash equivalents 463.1 (486.6)

Cash and cash equivalents, beginning of period 2,018.7 1,934.5

Total cash and cash equivalents, end of period $ 2,481.8 $ 1,447.9

Net increase (decrease) in cash, cash equivalents, and restricted cash 49 (446)

Cash, cash equivalents, and restricted cash at beginning of period 2,631 2,019

Total cash, cash equivalents, and restricted cash at end of period $ 2,680 $ 1,573

Cash flows provided by Operating Activities

The principal operating cash inflows from our insurance activities come from insurance premiums, fees charged on our products, sales of annuities and institutional products and net investment income.

The principal operating cash outflows are the result of annuity, life insurance and institutional product benefits, operating expenses and income tax, as well as interest expense.

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

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

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

The principal operating cash inflows from our insurance activities come from insurance premiums, fees charged on our products and net investment income.

The principal operating cash outflows are the result of annuity and life insurance benefits, interest credited on other contract holder funds, operating expenses and income tax, as well as interest expense.

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

Cash flows provided by (used in) operating activities decreased $484 million to $860 million during the three months ended March 31, 2022 from $1,344 million during the three months ended March 31, 2021.

This decrease in cash provided by operating activities was primarily due to lower net income in 2022 driven by decreases in total net gains on derivatives and investments, compared to 2021.

Cash flows provided by (used in) Investing Activities

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We closely monitor and manage these risks through our comprehensive investment risk management process.

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

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

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

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

Cash flows provided by (used in) investing activities increased $1,298 million to $(202) million during the three months ended March 31, 2022 from $(1,500) million during the three months ended March 31, 2021.

This increase was primarily due to decreased outflows related to derivative settlements in 2022 compared to 2021.

Cash flows provided by (used in) Financing Activities

The principal cash inflows from our financing activities come from deposits of funds associated with policyholder account balances and lending of securities.

The principal cash outflows come from withdrawals associated with policyholder

account balances and the return of securities on loan.

The principal cash inflows from our financing activities come from deposits of funds associated with policyholder account balances, issuance of debt, and lending of securities.

The principal cash outflows come from withdrawals associated with policyholder account balances and the return of securities on loan.

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

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

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

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

Cash flows provided by (used in) financing activities decreased $319 million to $(609) million during the three months ended March 31, 2022 from $(290) million for the three months ended March 31, 2021.

This decrease was primarily due to increased outflows related to the settlement of our repurchase agreements, partially offset by increased sales of our institutional products during 2022 compared to 2021.

Statutory Capital

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RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action.

RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items.

RBC is based on a formula that incorporates both factor-based components (applied to various asset, premium, claim, expense and statutory reserve items) and model-based components.

The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis.

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

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

As of March 31, 2022, our insurance companies were well in excess of the minimum required capital levels.

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

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These principal sources of liquidity are expected to be supplemented by cash and short-term investments held by Jackson Financial and access to bank lines of credit and the capital markets.

We intend to maintain a minimum amount of approximately $250 million in cash and cash equivalents at Jackson Financial.

The main uses of liquidity for Jackson Financial are interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to stockholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries.

We intend to maintain a minimum amount of cash and cash equivalents at Jackson Financial adequate to fund two years of holding company fixed expenses.

The main uses of liquidity for Jackson Financial are interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to shareholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries.

Our principal sources of liquidity and our anticipated capital position are described in the following paragraphs.

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Any distributions above the amount permitted by statute in any twelve-month period are considered to be extraordinary dividends, and the approval of the appropriate regulator is required prior to payment.

In Michigan, the Director of the Michigan Department of Insurance and Financial Services (the Michigan Director of Insurance) may limit, or not permit, the payment of dividends from either Jackson or Brooke Life, if it determines that the surplus of either these subsidiaries is not reasonable in relation to their outstanding liabilities and is not adequate to meet their financial needs, as required by Michigan insurance law.

In Michigan, the Director of the Michigan Department of Insurance and Financial Services (the Michigan Director of Insurance) may limit, or not permit, the payment of dividends from either Jackson or Brooke Life, Jackson's direct parent company, if it determines that the surplus of either these subsidiaries is not reasonable in relation to their outstanding liabilities and is not adequate to meet their financial needs, as required by Michigan insurance law.

Unless otherwise approved by the Michigan Director of Insurance, dividends may only be paid from earned surplus.

Also, surplus note arrangements and interest payments must be approved by the Michigan Director of Insurance and such interest payments to related parties reduce the otherwise calculated ordinary dividend capacity for that period.

In New York, all dividends require approval from NYSDFS.

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

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

insurance company subsidiaries to reach Jackson Financial.

In New York, all dividends require approval from the New York State Department of Financial Services.

For 2022, Jackson and Brooke Life have total ordinary dividend capacity, based on 2021 statutory capital and surplus and statutory net gain from operations, subject to the availability of earned surplus, of nil and $514 million, respectively.

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

On March 1, 2022, Jackson remitted a $600 million return of capital to its parent company, Brooke Life.

Brooke Life subsequently paid a $510 million ordinary dividend to its ultimate parent, Jackson Financial.

In addition, Brooke Life also paid $45 million of interest associated with the $2 billion surplus note between Brooke Life and Jackson Finance, LLC ("Jackson Finance"), a subsidiary of Jackson Financial.

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

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

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

As of March 31, 2022, Jackson’s outstanding surplus notes and bank debt included $ 63 million of bank loans from the Federal Home Loan Bank of Indianapolis ("FHLBI"), collateralized by mortgage-related securities and mortgage loans and $250 million of surplus notes maturing in 2027.

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

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

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

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

As of March 31, 2022, approximately half of Jackson’s general account reserves are either not surrenderable, included surrender charges greater than 5%, or market value adjustments to discourage early withdrawal of policy and contract funds.

The liquidity sources for our insurance company subsidiaries are their cash, short-term investments, sales of publicly traded bonds, insurance premiums, fees charged on our products, sales of annuities and institutional products, investment income, commercial repurchase agreements and utilization of a short-term borrowing facility with the FHLBI.

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

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

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

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

As of March 31, 2022, the portfolio of cash, short-term investments and privately and publicly traded securities and equities, which are unencumbered and unrestricted to sale, amounted to $25.4 billion.

Our Indebtedness

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

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

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

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 was due to mature in May 2022 (the “2022 DDTL Facility”), as described below.

On February 22, 2021, we and a syndicate of banks entered into a credit agreement consisting of a $1.0 billion Revolving Facility, and a credit agreement consisting of a $1.7 billion senior unsecured delayed draw term loan facility that, as subsequently amended, was to mature in May 2022, and a $1.0 billion senior unsecured delayed draw term loan facility that matures in February 2023 (the "2023 DDTL Facility").

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

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

We were in compliance with these covenants at March 31, 2022.

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

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

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

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

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

With respect to the remaining amount of proceeds from the borrowings under the DDTL Facilities, we have (i) established a minimum liquidity buffer of at least $250 million at Jackson Financial, and (ii) retained the balance of the proceeds of approximately $575 million at Jackson Financial.

The amounts at Jackson Financial are expected to be used for general corporate purposes, including interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to shareholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries.

On November 23, 2021, the Company issued $1.6 billion aggregate principal amount of its senior unsecured notes.

The proceeds of the Senior Notes were used, together with cash on hand, to repay the above mentioned $1.6 billion borrowing under the 2022 DDTL Facility.

Surplus Notes

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Interest is payable semi-annually on March 15th and September 15th of each year.

Interest expense on the notes was $5.1 million and $15.3 million for the three and nine months ended September 30, 2021, respectively.

Interest expense on the notes was $5.2 million and $15.4 million for the three and nine months ended September 30, 2020, respectively.

On November 6, 2019, Jackson Financial, through its subsidiary, Brooke Life, issued a 4.5% surplus note payable to Prudential, in the principal amount of $2.0 billion, due November 6, 2059.

Immediately following issuance of the $2.0 billion surplus note, Jackson Financial remitted a return of capital of $2.0 billion to Prudential.

These two actions

increased total indebtedness by $2.0 billion and reduced total stockholder’s equity by $2.0 billion.

The surplus note was unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims.

The Brooke Life surplus note was assigned to Jackson Finance in connection with our debt restructuring in June 2020, ultimately resulting in a cashless transaction, whereby the surplus note was contributed to Jackson Financial and stockholder’s equity increased by $2.0 billion.

Interest expense on the notes was $5 million during both the three months ended March 31, 2022, and 2021, respectively.

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.

Payments of interest or principal may only be made with the prior approval of the Michigan Director of Insurance and only out of surplus earnings which the director determines to be available for such payments under Michigan Insurance Law.

Federal Home Loan Bank

Jackson is a member of the regional FHLBI primarily for the purpose of participating in its collateralized loan advance program with short-term and long-term funding facilities.

Jackson is a member of the regional FHLBI primarily for the purpose of participating in its collateralized loan advance program with funding facilities.

Membership requires us to purchase and hold a minimum amount of FHLBI capital stock, plus additional stock based on outstanding advances.

Advances are in the form of either short-term or long-term notes or funding agreements issued to FHLBI.

As of September 30, 2021, Jackson held a short-term borrowing of nil and a bank loan with an outstanding balance of $68.1 million.

As of December 31, 2020, Jackson held a short-term borrowing of $380 million and a bank loan with an outstanding balance of $72.3 million.

On November 7, 2019, we issued a $350 million short-term note payable to Standard Chartered Bank, which was guaranteed by Prudential.

Immediately following the issuance of the $350 million short-term note payable, we paid a special dividend of $350 million to Prudential.

These two actions increased total indebtedness by $350 million and reduced total stockholder’s equity by $350 million.

This note accrued interest at LIBOR plus .2% per annum and was due November 7, 2020.

In June 2020, we transferred the loan to a Prudential affiliate in connection with our debt restructuring, ultimately resulting in a cashless transaction, whereby the note was transferred to a Prudential affiliate and stockholder’s equity increased by $350 million.

Advances are in the form of either notes or funding agreements issued to FHLBI.

As of March 31, 2022 and December 31, 2021, Jackson held a bank loan with an outstanding balance of $63 million and $67 million, respectively.

Dividend and Stock Repurchase

Consistent with our goals to manage risk and capital and optimize our financial leverage, we generally intend to target return of capital to our shareholders, which may take the form of cash dividends and/or stock repurchases, on an annual basis of approximately 40-60% of the annual change in our excess capital, adjusted for any contributions and distributions, subject to market conditions and approval by our Board of Directors.

For purposes of this analysis, we define excess capital as total adjusted capital less 400% of company action level required capital.

Consistent with statutory accounting requirements, total adjusted capital is defined as Jackson’s statutory capital and surplus, plus asset valuation reserve and 50% of policyholder dividends of Jackson and its subsidiaries.

Company action level required capital is the minimum amount of capital necessary for Jackson to avoid submitting a corrective action plan to its regulator.

Any declaration of cash dividends or stock repurchases will be at the discretion of JFI’s Board of Directors and will depend on our financial condition, earnings, liquidity and capital requirements, regulatory constraints, level of indebtedness, contractual restrictions with respect to paying cash dividends or repurchasing stock, restrictions imposed by Delaware law, general business conditions and any other factors that JFI’s Board of Directors deems relevant in making any such determination.

Therefore, there can be no assurance that we will pay any cash dividends to holders of our common stock or approve any stock repurchase program, or as to the amount of any such cash dividends or stock repurchases.

Delaware law requires that dividends be paid and stock repurchases made only out of “surplus,” which is defined as the fair market value of our net assets, minus our stated capital;

or out of the current or the immediately preceding year’s earnings.

JFI is a holding company and has no direct operations.

All of our business operations are conducted through our subsidiaries.

Any dividends we pay or stock repurchases we make will depend upon the funds legally available for distribution, including dividends or distributions from our subsidiaries to us.

The states in which our insurance subsidiaries are domiciled impose certain restrictions on our insurance subsidiaries’ ability to pay dividends to their parent companies.

These restrictions are based in part on the prior year’s statutory income and surplus, as well as earned surplus.

Such restrictions, or any future restrictions adopted by the states in which our insurance subsidiaries are domiciled, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable by our subsidiaries without affirmative approval of state regulatory authorities.

See “Risk Factors—As a holding company, JFI depends on the ability of its subsidiaries to meet its obligations and liquidity needs, including dividends and stock repurchases.”

Dividends to Shareholders and Share Repurchases

During the first quarter of 2022, we paid a cash dividend of $0.55 per share on JFI's Class A Common Stock totaling $52 million.

On May 9, 2022, our Board of Directors approved a second quarter cash dividend on JFI's Class A Common Stock of $0.55 per share, payable on June 16, 2022 to shareholders of record on June 2, 2022.

During the first quarter of 2022, we repurchased a total of 3,433,610 shares of Class A Common Stock for an aggregate purchase price of $140 million, which were funded with cash on hand.

See Note 17 to Condensed Consolidated Financial Statements for further information on dividends to shareholders and share repurchases.

Financial Strength Ratings

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Financial strength ratings are not recommendations to buy, sell or hold securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

As of May 10, 2022, the financial strength ratings of our principal insurance subsidiaries were as follows :

Best Fitch Moody’s S&P

Jackson National Life Insurance Company

Rating A A A2 A

Outlook stable stable negative stable

In evaluating a company’s financial strength, the rating agencies evaluate a variety of factors including but not limited to our strategy, market positioning and track record, our mix of business, profitability, leverage and liquidity, the adequacy and soundness of our reinsurance, the quality and estimated market value of our assets, the adequacy of our surplus, our capital structure, and the experience and competence of our management.

Jackson National Life Insurance Company of New York

Rating A A A2 A

Outlook stable stable negative stable

Brooke Life Insurance Company

Outlook stable

In evaluating a company’s financial strength, the rating agencies evaluate a variety of factors including our strategy, market positioning and track record, our mix of business, profitability, leverage and liquidity, the adequacy and soundness of our reinsurance, the quality and estimated market value of our assets, the adequacy of our surplus, our capital structure, and the experience and competence of our management.

In addition to the financial strength ratings, rating agencies use an outlook statement to indicate a short- or medium-term trend which, if continued, may lead to a rating change.

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GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in our Condensed Consolidated Financial Statements included elsewhere herein.

For a discussion of our significant accounting policies, see Note 3 to Consolidated Financial Statements in our Form 10.

The most critical estimates include those used in determining:

• deferred acquisition costs and deferred sales inducements

• deferred acquisition costs

• reserves for future policy benefits and claims payable and other contract holder funds

• income taxes

• accounting for reinsurance

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• valuation of embedded derivatives

• income taxes

• value of business acquired

• net investment income

• contingent liabilities

• consolidation of variable interest entities

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Actual results could differ from these estimates.

The above critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and Note 2 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report.

Off–Balance Sheet Arrangements

We do not have any off–balance sheet arrangements as of September 30, 2021.

Principal Definitions, Abbreviations and Acronyms Used in the Text and Notes of this Report

we, us, our and the Company

Jackson Financial Inc.

and its consolidated subsidiaries, unless the context refers only to Jackson Financial Inc.

as a corporate entity (which we refer to as "JFI")

Jackson National Life Insurance Company, a Company subsidiary.

Jackson Finance

Jackson Finance, LLC, a Company subsidiary.

PPM Holdings, Inc., a Company subsidiary.

Allowance for credit loss

Account value or account balance

The amount of money in a customer’s account.

For example, the value increases with additional premiums and investment gains, and it decreases with withdrawals, investment losses and fees.

Athene Life Re Ltd.

and its affiliates and permitted transferees, including Athene Co-Invest Reinsurance Affiliate 1A Ltd.

Athene Equity Investment

The July 2020 investment of $500 million by Athene in JFI for Class A common stock and Class B common stock, representing approximately 9.9% of the total combined voting power and approximately 11.1% of the total common stock of the Company

Athene Reinsurance Transaction

The funds withheld coinsurance agreement entered into with Athene on June 18, 2020, effective June 1, 2020, to reinsure a 100% quota share of a block of our in-force fixed and fixed index annuity liabilities in exchange for approximately $1.2 billion in ceding commissions

Athene Transactions

The Athene Reinsurance Transaction and the Athene Equity Investment, together

AUM (Assets under management)

General account investments and separate account assets.

A notional amount (not actual cash value) used to calculate the owner’s guaranteed benefits within an annuity contract.

The death benefit and living benefit within the same contract may have different benefit bases.

Commercial mortgage-backed securities

DAC (Deferred acquisition costs)

Represent the incremental costs related directly to the successful acquisition of new and certain renewal insurance policies and annuity contracts and which have been deferred on the balance sheet as an asset.

DDTL Facility

Delayed Draw Term Loan Facility

Deferred tax asset or Deferred tax liability

Assets or liabilities that are recorded for the difference between book basis and tax basis of an asset or a liability.

DSI (Deferred sales inducements)

Represent amounts that are credited to a policyholder’s account balance that are higher than the expected crediting rates on similar contracts without such an inducement and that are an incentive to purchase a contract and also meet the accounting criteria to be deferred as an asset that is amortized over the life of the contract.

Fixed Annuity

An annuity that guarantees a set annual rate of return with interest at rates we determine, subject to specified minimums.

Credited interest rates are guaranteed not to change for certain limited periods of time.

Fixed Index Annuity

An annuity with an ability to share in the upside from certain financial markets such as equity indices.

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

General account assets

The assets held in the general accounts of our insurance companies.

Guaranteed investment contract

Guarantee Fees

Fees charged on annuities for optional benefit guarantees

GMAB (Guaranteed minimum accumulation benefit)

An add-on benefit (available for an additional cost) which entitles an owner to a minimum payment, typically in lump-sum, after a set period of time, typically referred to as the accumulation period.

The minimum payment is based on the benefit base, which could be greater than the underlying account value.

GMDB (Guaranteed minimum death benefit)

An add-on benefit that guarantees an owner’s beneficiaries are entitled to a minimum payment based on the benefit base, which could be greater than the underlying account value, upon the death of the owner.

GMIB (Guaranteed minimum income benefit)

An add-on benefit (available for an additional cost) where an owner is entitled to annuitize the policy and receive a minimum payment stream based on the benefit base, which could be greater than the payment stream resulting from current annuitization of the underlying account value.

GMWB (Guaranteed minimum withdrawal benefit)

An add-on benefit (available for an additional cost) where an owner is entitled to withdraw a maximum amount of their benefit base each year, for which cumulative payments to the owner could be greater than the underlying account value.

GMWB for Life (Guaranteed minimum withdrawal benefit for life)

An add-on benefit (available for an additional cost) where an owner is entitled to withdraw the guaranteed annual withdrawal amount each year, for the duration of the policyholder’s life, regardless of account performance.

National Association of Insurance Commissioners

Net asset value

Net flows represent the net change in customer account balances during a period, including gross premiums, surrenders, withdrawals and benefits.

Net flows exclude investment performance, interest credited to customer accounts and policy charges.

RBC (Risk-based capital)

Rules to determine insurance company statutory capital requirements.

It is based on rules published by the NAIC.

Residential mortgage-backed securities

Variable annuity

A type of annuity that offers tax-deferred investment into a range of asset classes and a variable return, which offers insurance features related to potential future income payments.

Variable interest entity

Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the quantitative and qualitative disclosures about market risk described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” previously disclosed in our Form 10.

We do not have any off–balance sheet arrangements as of March 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis