What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-05-11 · 322 added, 186 removed, 1071 unchanged (32% of the section changed)

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FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

Certain statements made in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”).

Certain statements made in this Quarterly Report on Form 10-Q (this "Report") are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

A forward-looking statement is a statement that is not a historical fact and includes any statement that may predict, forecast, indicate or imply future results, performance or achievements.

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In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this Report, except as otherwise required by law.

Item 2 | Management’s Discussion and Analysis | Available Information & Principal Definitions

Available Information

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

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 content of Jackson’s website is not incorporated by reference into this Report 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.

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

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

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

Jackson Jackson National Life Insurance Company, a Company subsidiary.

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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.

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DDTL Facility Delayed Draw Term Loan Facility

Item 2 | Management’s Discussion and Analysis | Available Information & Principal Definitions

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.

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VIE Variable interest entity

Item 2 | Management’s Discussion and Analysis | Overview & Executive Summary

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

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

Item 2 | Management’s Discussion and Analysis | Executive Summary

There are several significant recent events involving us, including:

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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.

Prudential retained an equity interest in us, which, as a result of sales subsequent to the Demerger, represents 14.3% of our outstanding Class A Common Stock as of June 30, 2022.

Prudential sold additional shares of the Company’s Class A Common Stock during the third quarter of 2022 and as of August 5, 2022 Prudential retained a 9.0% remaining interest in the Company.

• Common Stock Reclassification:

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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.

In August 2020, the Company contributed $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 as of June 30, 2022.

• Elimination of Class B Common Stock:

On June 9, 2022, our Second Amended and Restated Certificate of Incorporation was further amended and restated, following shareholder approval, to eliminate the Class B Common Stock.

• Common Stock Repurchases:

Since the Demerger and through June 30, 2022, we have repurchased 11,083,113 shares of our Class A Common Stock for an aggregate consideration of $417 million.

After giving effect to those repurchases and issuances for our share based compensation, we had 9,608,399 of treasury stock and 84,864,727 shares of Class A Common Stock outstanding at June 30, 2022.

• As discussed in Note 2 of Notes to Condensed Consolidated Financial Statements in this Report, we will be adopting ASU 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts,” (“LDTI”) for our fiscal year beginning January 1, 2023, with a transition date of January 1, 2021.

Based upon the elected transition methods, the Company currently estimates the adoption of the standard will result in a decrease of between approximately $2 billion and $4 billion in the Company’s total equity at the transition date of January 1, 2021.

Market changes since the transition date, primarily higher interest rates, have significantly reduced the estimated negative impact to the Company’s total equity as of June 30, 2022.

See further discussion in Note 2 for the significant changes for this future change in accounting principle.

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.

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

Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures

Non-GAAP Financial Measures

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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;

Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures

• Net Reserve and Embedded Derivative Movements :

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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.

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

Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

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Adjusted Operating Earnings $ 225 $ 636 $ 579 $ 1,205

Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures

Adjusted Book Value and Adjusted Operating ROE

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GAAP measure:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

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

$ 2,903 $ (540) $ 4,928 $ 2,392

Adjusted Operating Earnings $ 225 636 579 1,205

Total shareholders' equity $ 9,563 $ 10,391 $ 9,563 $ 10,391

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

2,045 (1,758) 2,045 (1,758)

Adjusted Book Value $ 11,608 $ 8,633 $ 11,608 $ 8,633

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Adjusted Operating ROE on average equity 8.4 % 29.2 % 11.4 % 31.2 %

(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.

(1) Excludes $(1,677) million and $632 million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of June 30, 2022 and 2021, respectively.

Item 2 | Management’s Discussion and Analysis | Key Operating Measures

Key Operating Measures

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

Variable annuities $ 3,633 $ 4,821 $ 8,208 $ 9,495

RILA 490 — 689 —

Fixed Index Annuities 13 32 32 72

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Total Sales $ 4,343 $ 4,859 $ 10,115 $ 9,583

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.

For the three and six months ended June 30, 2022, total sales decreased by $516 million and increased by $532 million compared to the three and six months ended June 30, 2021, respectively.

Lower retail sales were primarily due to decreased sales of our variable annuities with lifetime living benefits, partially offset by sales of our lifetime income solutions offering in the defined contribution market and our new RILA product, that were both launched in the fourth quarter of 2021.

In addition, sales of our institutional products were higher by $201 million and $1,176 million, compared to the three and six months ended June 30, 2021, respectively.

Sales of fixed index and fixed annuities remained at historically low levels although higher rates in 2022 have enabled more frequent pricing actions.

Item 2 | Management’s Discussion and Analysis | Key Operating Measures

Account Value

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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 March 31,

June 30, 2022 December 31, 2021

(in millions)

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

Item 2 | Management’s Discussion and Analysis | Key Operating Measures

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

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

Variable Annuity $ (300) $ (325) $ (298) $ (565)

RILA 489 — 687 —

Fixed Index Annuity (1)

Fixed Annuity (1)

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

(8) 13 (13) 3

Total Retail Annuities Net Flows, Net of Reinsurance 199 (285) 409 (500)

Net flows ceded to Athene $ (585) $ (599) $ (1,188) $ (1,252)

Total Retail Annuities net flows, Gross of Reinsurance $ (386) $ (884) $ (779) $ (1,752)

Total Institutional Products Net Flows $ (667) $ (1,735) $ (351) $ (2,281)

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$ (72) $ (61) $ (159) $ (145)

(1) Gross of reinsurance to Athene.

(1) Net of reinsurance to Athene.

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

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.

Net flows improved for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021, due primarily to increased sales of both RILA and institutional products which has a positive effect on net flows.

Item 2 | Management’s Discussion and Analysis | Key Operating Measures

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.

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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.

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

The following table shows variable annuity account value and benefit base as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

Account Value Benefit Base Account Value Benefit Base

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

Assets Under Management

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

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

March 31, December 31,

June 30, December 31,

(in millions)

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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.

Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends

Macroeconomic, Industry and Regulatory Trends

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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.

Through the first half 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.

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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.

Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends

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.

The interest rate environment has affected, and will continue to affect our business and financial performance in the future for the following reasons:

• 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 below will diminish over time.

However, both nominal and real interest rates remain low by historical standards and may continue to be so even after additional rounds of interest rate increases 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 immediately 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 more than offset by changes in the fair value of the related guaranteed benefit liabilities as was the case in the first half 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) when reserve releases are limited and unable to offset interest rate hedging losses.

• For the past several years, we have operated in a low interest rate environment.

A prolonged low interest rate environment subjects 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.

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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.

Finally, low interest rates would 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 a low interest rate environment 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 .

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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.

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.

Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends

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.

After tightening in 2021, credit spreads widened in the first half of 2022.

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

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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.

While there has been a gradual resumption of activity, COVID-19 and its variants continue to affect activity, and those effects 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.

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In particular, the following could materially impact our business:

Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends

Department of Labor Fiduciary Advice Rule

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

Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations

Consolidated Results of Operations

The following table sets forth, for the periods presented, certain data from our Condensed Consolidated Income Statements.

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 March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

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Adjusted Operating Earnings $ 225 $ 636 $ 579 $ 1,205

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

Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations

Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 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,

Our pretax income (loss) increased by $4,189 million to a pretax income of $3,651 million for the three months ended June 30, 2022, from a pretax loss of $538 million for the three months ended June 30, 2021 primarily due to:

• $6,388 million increase in total net gains (losses) on derivatives and investments as shown in the table below and driven by:

Three Months Ended June 30,

2022 2021 Variance

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Total net gains (losses) on derivatives and investments $ 3,867 $ (2,521) $ 6,388

◦ 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.

◦ Higher freestanding derivative gains as a result of gains on our equity derivatives primarily driven by significant market decreases in 2022, compared to market increases in the prior year, partially offset by losses within our interest rate related hedge instruments, reflecting increases in interest rates, compared to the prior year;

◦ Higher benefit recognized on funds withheld reinsurance compared to prior year;

◦ Lower unfavorable movements in reserves for guaranteed benefits, primarily driven by more favorable movements in interest rates, partially offset by unfavorable equity and equity volatility movements compared to prior year.

• $83 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower incentive compensation expenses in 2022, higher separation costs in 2021, and lower asset-based commissions, which are non-deferrable and the result of lower account values during the three months ended June 30, 2022.

This increase was partially offset by:

• $1,462 million increase in amortization of deferred acquisition costs and deferred sales inducement costs driven by higher net freestanding and embedded derivative gains in 2022, leading to higher current period gross profits and, therefore, higher current period amortization.

• $702 million increase in death, other policy benefits and change in policy reserves primarily due to changes in reserves on variable annuity guarantees accounted for as insurance liabilities driven by unfavorable equity movements during the three months ended June 30, 2022 compared to favorable movements during the three months ended June 30, 2021;

• $49 million decrease in net investment income as a result of lower income on limited partnership investments, which are recorded on a one quarter lag;

• $44 million decrease in fee income primarily due to decrease in average variable annuity account values stemming from unfavorable separate account performance in 2022;

• $17 million higher interest expense incurred in the current year primarily related to our senior notes.

Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations

Income tax expense increased $771 million to an expense of $717 million for the three months ended June 30, 2022, from a benefit of $54 million for the three months ended June 30, 2021.

The provision for income tax in the current period led to an effective income tax rate of 20% for the three months ended June 30, 2022 compared to the 2021 effective income tax rate of 9%.

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

See Note 13 of Notes to Consolidated Financial Statements in our 2021 Annual Report for more information.

Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021

Pretax Income (Loss)

Our pretax income (loss) increased by $2,990 million to a pretax income of $6,037 million for the six months ended June 30, 2022, from a pretax income of $3,047 million for the six months ended June 30, 2021 primarily due to:

• $5,287 million increase in total net gains (losses) on derivatives and investments as shown in the table below and driven by:

Six Months Ended June 30,

2022 2021 Variance

(in millions)

Net gains (losses) excluding derivatives and funds withheld assets $ (125) $ 168 $ (293)

Net gains (losses) on freestanding derivatives 1,421 (3,394) 4,815

Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance) 2,071 3,281 (1,210)

Net gains (losses) on derivative instruments 3,492 (113) 3,605

Net gains (losses) on funds withheld reinsurance 2,105 130 1,975

Total net gains (losses) on derivatives and investments $ 5,472 $ 185 $ 5,287

◦ Higher freestanding derivative gains on our equity derivatives primarily driven by significant market decreases in 2022, compared to market increases in the prior year.

These gains were partially offset by losses within our interest rate related hedge instruments, reflecting increases in interest rates, as compared to the prior year;

◦ Higher benefit recognized on funds withheld reinsurance compared to prior year;

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.

◦ Less favorable movements in reserves for guaranteed benefits, primarily driven by unfavorable equity and equity volatility movements, partially offset by more favorable movements in interest rates, compared to prior year;

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

• $74 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based commissions, which are non-deferrable and the result of lower account values during the six months ended June 30, 2022, and higher separation costs in 2021.

These favorable variances were partially offset by higher incentive compensation in 2022.

• $62 million increase in fee income primarily due to increases in benefit based guarantee fee income compared to prior year, partially offset by decreases in variable fee income.

Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations

This increase was partially offset by:

• $1,165 million increase in amortization of deferred acquisition costs and deferred sales inducement costs driven by higher net freestanding derivative gains in 2022, leading to higher current period gross profits and, therefore, higher current period amortization;

• $986 million increase in death, other policy benefits and change in policy reserves primarily due changes in reserves on variable annuity guarantees accounted for as insurance liabilities driven by unfavorable equity movements in 2022 compared to favorable movements in 2021;

• $257 million decrease in net investment income as a result of lower income on limited partnership investments, which are recorded on a one quarter lag;

• $31 million higher interest expense incurred in the current year primarily related to our senior notes.

Income tax expense increased $516 million to an expense of $1,047 million for the six months ended June 30, 2022, from an expense of $531 million for the six months ended June 30, 2021.

The provision for income tax in the current period led to an effective income tax rate of 18% for the six months ended June 30, 2022 compared to the 2021 effective income tax rate of 18%.

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

See Note 13 of Notes to Consolidated Financial Statements in our 2021 Annual Report for more information.

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations

Segment Results of Operations

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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,

The following table summarizes pretax adjusted operating earnings (non-GAAP) 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 regarding the calculation of pretax adjusted operating earnings:

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

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Pretax income (loss) attributable to Jackson Financial Inc.

3,620 (594) 5,975 2,923

Income tax expense (benefit) 717 (54) 1,047 531

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$ 2,903 $ (540) $ 4,928 $ 2,392

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations

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 March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

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Net investment income 124 144 242 349

Income on operating derivatives 11 14

Income (loss) on operating derivatives 7 15 18 29

Other income 11 11 22 23

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Pretax Adjusted Operating Earnings $ 218 $ 683 $ 624 $ 1,252

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

Three Months Ended March 31,

The following table summarizes a roll forward of activity affecting account value for our Retail Annuities segment for the periods indicated:

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

9 unchanged sentences

Balance as of end of period, net of ceded reinsurance $ 208,457 $ 250,265 $ 208,457 $ 250,265

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

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations

Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 2021

Pretax Adjusted Operating Earnings

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:

Pretax Adjusted Operating Earnings decreased $465 million to $218 million for the three months ended June 30, 2022 from $683 million for the three months ended June 30, 2021 primarily due to:

• $377 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;

• $101 million decrease in fee income primarily due to a decrease in average variable annuity account values stemming from unfavorable separate account performance in 2022;

• $20 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.

These decreases were partially offset by:

• $44 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based commissions, which are non-deferrable and the result of lower account values during the three months ended June 30, 2022, and lower incentive compensation expenses in 2022.

Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021

Pretax Adjusted Operating Earnings

Pretax Adjusted Operating Earnings decreased $628 million to $624 million for the six months ended June 30, 2022 from $1,252 million for the six months ended June 30, 2021 primarily due to:

• $430 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.

• $107 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;

• $81 million decrease in fee income primarily due to a decrease in average variable annuity account values stemming from unfavorable separate account performance 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.

• $16 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based commissions, which are non-deferrable and the result of lower account values during 2022.

This favorable variance was partially offset by higher incentive compensation in 2022.

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.

Retail annuities account value, gross of reinsurance, decreased $44 billion between periods primarily due to negative variable annuity separate account growth driven by unfavorable market performance in 2022, as well as negative net flows over the period, primarily from our reinsured fixed and fixed index annuity block.

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations

Institutional Products

The following table sets forth, for the periods presented, certain data underlying the results for our Institutional Products 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 March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

2 unchanged sentences

Net investment income $ 72 $ 57 $ 136 $ 120

Income on operating derivatives (1) —

Other income — —

Income (loss) on operating derivatives (4) — (5) —

Total Operating Revenues 68 57 131 120

5 unchanged sentences

Pretax Adjusted Operating Earnings $ 19 $ 6 $ 42 $ 16

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

Three Months Ended March 31,

The following table summarizes a roll forward of activity affecting account value for our Institutional Products segment for the periods indicated:

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

7 unchanged sentences

Balance as of end of period $ 8,483 $ 8,910 $ 8,483 $ 8,910

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

Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 2021

Pretax Adjusted Operating Earnings

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.

Pretax Adjusted Operating Earnings increased $13 million to $19 million for the three months ended June 30, 2022 from $6 million for the three months ended June 30, 2021 primarily due to increased investment income compared to prior year.

Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021

Pretax Adjusted Operating Earnings

Pretax Adjusted Operating Earnings increased $26 million to $42 million for the six months ended June 30, 2022 from $16 million for the six months ended June 30, 2021 primarily due to increased investment income and a decrease in interest credited compared to prior year.

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations

Account Value

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

Institutional product account value decreased from $8,910 million at June 30, 2021 to $8,483 million at June 30, 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.

1 unchanged sentence

The following table sets forth, for the periods presented, certain data underlying the results for our Closed Life and Annuity Blocks 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 March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

4 unchanged sentences

Net investment income 185 205 381 461

Income on operating derivatives 15 20

Income (loss) on operating derivatives 13 17 28 38

Other income 9 12 17 22

7 unchanged sentences

Pretax Adjusted Operating Earnings $ 6 $ 56 $ (2) $ 135

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

Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 2021

Pretax Adjusted Operating Earnings

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:

Pretax Adjusted Operating Earnings decreased $50 million to $6 million for the three months ended June 30, 2022 from $56 million for the three months ended June 30, 2021 primarily due to:

• $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.

• $25 million increase in death, other policy benefit and change in policy reserves as a result of higher death claims and less favorable reserve movements in 2022 compared to 2021.

Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021

Pretax Adjusted Operating Earnings

Pretax Adjusted Operating Earnings decreased $137 million to $(2) million for the six months ended June 30, 2022 from $135 million for the six months ended June 30, 2021 primarily due to:

• $80 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;

• $46 million increase in death, other policy benefit and change in policy reserves as a result of higher death claims and less favorable reserve movements in 2022 compared to 2021.

Item 2 | Management’s Discussion and Analysis | Segment Results of Operations

Corporate and Other

1 unchanged sentence

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 March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in millions)

3 unchanged sentences

Net investment income 35 39 88 54

Income on operating derivatives 10 4

Income (loss) on operating derivatives 8 8 18 12

Other income 1 7 2 8

6 unchanged sentences

Pretax Adjusted Operating Earnings $ — $ 16 $ (3) $ (9)

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

Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 2021

Pretax Adjusted Operating Earnings

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.

Pretax adjusted operating earnings decreased $16 million to nil for the three months ended June 30, 2022 from $16 million for the three months ended June 30, 2021 primarily due to the following:

• $18 million higher interest expense incurred in the current year primarily related to our senior notes;

this decrease was partially offset by:

• $14 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower incentive compensation expenses in 2022.

Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $6 million to $(3) million for the six months ended June 30, 2022 from $(9) million for the six months ended June 30, 2021 primarily due to the following:

• $34 million increase in net investment income primarily due to higher 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;

• $11 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower compensation expenses in 2022.

This increase was partially offset by:

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

• $33 million higher interest expense incurred in the current year primarily related to our senior notes.

Item 2 | Management’s Discussion and Analysis | Investments

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 mortgage loans.

5 unchanged sentences

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.

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.

Certain investments held in funds withheld accounts for reinsurance transactions are managed by Apollo Insurance Solutions Group LP ("Apollo"), 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.

As of June 30, 2022, Apollo managed $22 billion of cash and investments and other third-party investment managers represented approximately $185 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.

1 unchanged sentence

Our Investment Committee has specified a target strategic asset allocation (“SAA”) that is designed to deliver the highest expected return within a defined risk tolerance while meeting other important objectives such as those mentioned in the prior paragraph.

The fixed income portion of the SAA is assessed relative to a customized index of public corporate bonds that represents a close approximation of the maturity profile of our liabilities and a credit quality mix that that is consistent with our risk tolerance.

PPM’s objective is to outperform this index on a number of measures including portfolio yield, total return and capital loss due to downgrades and defaults.

5 unchanged sentences

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.

As of June 30, 2022 and December 31, 2021, we had total investments of $67.1 billion and $74.2 billion, respectively.

Item 2 | Management’s Discussion and Analysis | Investments

Portfolio Composition

The following table summarizes the carrying values of our investments:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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

10 unchanged sentences

Total investments $ 41,952 $ 25,175 $ 67,127 $ 45,874 $ 28,353 $ 74,227

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.

Available-for-sale debt securities decreased to $43,478 million at June 30, 2022 from $51,547 million at December 31, 2021, primarily due to a decrease in net unrealized gain and sales, consistent with the decrease in underlying policy liabilities.

The amortized cost of debt securities, available-for-sale, decreased from $51,206 million as of December 31, 2021 to $50,331 million as of June 30, 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 $4,702 million as of June 30, 2022.

Other Invested Assets

1 unchanged sentence

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.

The increase in Other Invested Assets from December 31, 2021 to June 30, 2022 primarily resulted from the increased valuations of limited partnership investments.

Item 2 | Management’s Discussion and Analysis | Investments

Debt Securities

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

At June 30, 2022 and December 31, 2021, the amortized cost, allowance for credit loss, gross unrealized gains and losses, and fair value of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions):

June 30, 2022 Amortized

Cost Allowance for Credit Loss Gross

23 unchanged sentences

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

Item 2 | Management’s Discussion and Analysis | Investments

December 31, 2021 Amortized

29 unchanged sentences

Securities Carrying Value

March 31, December 31,

June 30, December 31,

Investment Rating 2022 2021

8 unchanged sentences

Total debt securities 100.0 % 100.0 %

Item 2 | Management’s Discussion and Analysis | Investments

Unrealized Losses

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):

March 31, 2022 December 31, 2021

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

June 30, 2022 December 31, 2021

Less than 12 months Less than 12 months

36 unchanged sentences

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 $4,274 million total increase in unrealized losses and the $22,991 million additional fair value on securities with an associated unrealized loss, $1,999 million and $5,773 million, respectively, are associated with assets subject to funds withheld agreements.

Item 2 | Management’s Discussion and Analysis | Investments

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Available-for-sale securities

3 unchanged sentences

Credit loss income (expense) on mortgage loans (9) (10) 3 48

71 (18) 83 50

Net gains (losses) excluding derivatives and funds withheld assets 5 15 (125) 168

8 unchanged sentences

The following table summarizes our holdings:

March 31, December 31,

June 30, December 31,

(in millions)

4 unchanged sentences

Mortgage Loans

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.

C ommercial mortgage loans of $10.8 billion and $10.5 billion at June 30, 2022 and December 31, 2021, respectively, are reported net of an allowance for credit losses of $77 million and $85 million at each date, respectively.

At June 30, 2022, commercial mortgage loans were collateralized by properties located in 38 states, the District of Columbia, and Europe.

Residential mortgage loans of $1,170 million and $939 million at June 30, 2022 and December 31, 2021, respectively, are reported net of an allowance for credit losses of $3 million and $9 million at each date, respectively.

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

Item 2 | Management’s Discussion and Analysis | Investments

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

March 31, December 31,

June 30, 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:

March 31, December 31,

June 30, December 31,

(in millions)

United States:

East North Central $ 1,210 $ 1,184

7 unchanged sentences

West South Central 960 829

Total United States 11,378 10,946

Foreign 553 536

Total $ 11,931 $ 11,482

Item 2 | Management’s Discussion and Analysis | Investments

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

March 31, December 31,

June 30, December 31,

(in millions)

11 unchanged sentences

Total mortgage loans $ 11,931 $ 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.

(1) As of June 30, 2022 and December 31, 2021, includes $56 million and $202 million of loans purchased when the loans were greater than 90 days delinquent and $15 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:

1 unchanged sentence

Balance at beginning of period $ 94 $ 179

Charge offs, net of recoveries — —

Provision (release) (14) (43)

3 unchanged sentences

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 June 30, 2022, there was $18 million of recorded investment, $19 million of unpaid principal balance, no related loan allowance, $12 million of average recorded investment, and no 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.

Item 2 | Management’s Discussion and Analysis | Investments

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):

March 31, 2022

June 30, 2022

Contractual/ Assets Liabilities Net

10 unchanged sentences

Treasury futures (2)

Total return swaps 700 12 4 8

Total freestanding derivatives 115,516 1,133 1,201 (68)

Embedded derivatives

VA embedded derivatives (3)

N/A — 452 (452)

FIA embedded derivatives (4)

Variable annuity embedded derivatives (3)

N/A — 601 (601)

RILA embedded derivatives (4)

Fixed index annuity embedded derivatives (4)

N/A — 1,087 (1,087)

Registered index linked annuity embedded derivatives (4)

Total embedded derivatives N/A — 1,692 (1,692)

14 unchanged sentences

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

Item 2 | Management’s Discussion and Analysis | Investments

December 31, 2021

11 unchanged sentences

Treasury futures (2)

Total return swaps — — — —

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

Embedded derivatives

VA embedded derivatives (3)

Variable annuity embedded derivatives (3)

N/A — 2,626 (2,626)

FIA embedded derivatives (4)

Fixed index annuity embedded derivatives (4)

N/A — 1,439 (1,439)

RILA embedded derivatives (4)

Registered index linked annuity embedded derivatives (4)

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

14 unchanged sentences

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

Item 2 | Management’s Discussion and Analysis | Investments

Investment Income

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Debt securities (1)

$ 213 $ 277 $ 486 $ 601

Equity securities 6 7 7 7

9 unchanged sentences

Expenses related to consolidated entities (2)

Other investment expenses (3)

(15) (9) (36) (17)

Other investment income (expense) (3)

38 (22) 50 (45)

Total investment expenses 19 (34) 6 (68)

Net investment income $ 747 $ 796 $ 1,467 $ 1,724

(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.

(1) Includes unrealized gains and losses on trading securities and includes $(95) million and $(85) million as of June 30, 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.

(3) Includes interest expense and market appreciation on deferred compensation;

investment software expense, custodial fees, and other bank fees;

(3) Includes interest expense and market appreciation on deferred compensation, investment software expense, custodial fees, and other bank fees;

institutional product issuance related expenses;

13 unchanged sentences

Interest is then accounted for on a cash basis.

Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities

Policy and Contract Liabilities

3 unchanged sentences

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.

As of June 30, 2022, 88% of our policy and contract liabilities were in our Retail Annuities segment, 3% were in our Institutional Products segment and 9% 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

June 30, 2022 Separate Accounts Reserves for future policy benefits Other contract holder funds Total

(in millions)

14 unchanged sentences

Total $ 196,184 $ 16,053 $ 59,576 $ 271,813

Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities

December 31, 2021 Separate Accounts Reserves for future policy benefits Other contract holder funds Total

15 unchanged sentences

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.

As of June 30, 2022, $196.2 billion or 73% of our policy and contract liabilities were backed by separate accounts assets.

These separate account assets backed reserves primarily related to our variable annuities.

3 unchanged sentences

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.

As of June 30, 2022, $49.8 billion or 18% of our policy and contract liabilities were backed by our investment portfolio and $24.0 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.

As of June 30, 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, 17% for Institutional Products segment, 21% for fixed account option variable annuities, 8% for guaranteed benefit and other variable annuity reserves, and a 48% Closed Life and Annuity Block segment reserves.

As of June 30, 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 June 30, 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.

As of June 30, 2022, 92% 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.

Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities

We establish reserves for future policy benefits and claims payable under insurance policies using methodologies consistent with U.S.

25 unchanged sentences

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.

Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources

Liquidity and Capital Resources

2 unchanged sentences

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 three months ended March 31, 2022 and 2021.

The discussion below describes our liquidity and capital resources for the six months ended June 30, 2022 and 2021.

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

Three Months Ended March 31,

Six Months Ended June 30,

(in millions)

9 unchanged sentences

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) operating activities of $2,096 million for the six months ended June 30, 2022 were relatively flat compared to the $2,148 million for the six months ended June 30, 2021.

Cash flows provided by (used in) Investing Activities

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The primary liquidity concerns with respect to these cash flows are the risk of default by debtors or market disruptions that might impact the timing of investment related cash flows 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) investing activities increased $2,035 million to $2,615 million during the six months ended June 30, 2022 from $580 million during the six months ended June 30, 2021.

This increase was primarily due to inflows related to derivative settlements in 2022 compared to outflows in 2021, partially offset by lower sales of funds withheld assets in 2022, as compared to 2021.

Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources

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, 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 principal cash outflows come from withdrawals associated with policyholder account balances, repayment of debt, 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 $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.

Cash flows provided by (used in) financing activities increased $1,135 million to $(2,076) million during the six months ended June 30, 2022 from $(3,211) million during the six months ended June 30, 2021.

This increase was primarily due to decreased withdrawals of policyholders' account balances during 2022 compared to 2021, partially offset by outflows related to the settlement of our repurchase agreements, compared to inflows in the prior year.

Statutory Capital

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

As of March 31, 2022, our insurance companies were well in excess of the minimum required capital levels.

As of June 30, 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 cash and cash equivalents at Jackson Financial adequate to fund two years of holding company fixed expenses.

We intend to maintain a minimum amount of cash and highly liquid securities at Jackson Financial adequate to fund two years of holding company fixed expenses which is currently targeted at $250 million.

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.

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These laws and regulations require, among other things, our insurance company subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay.

Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources

Subject to these limitations, our insurance company subsidiaries are permitted to pay ordinary dividends based on calculations specified under insurance laws of the relevant state of domicile, subject to prior notification to the appropriate regulatory agency.

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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.

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.

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Liabilities arising from insurance and reinsurance activities include the payment of policyholder benefits when due, cash payments in connection with policy surrenders and withdrawals and policy loans.

Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources

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 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.

As of June 30, 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 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.

As of June 30, 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.

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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.

As of June 30, 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 $24.4 billion.

Our Indebtedness

On June 8, 2022, the Company issued $750 million aggregate principal amount of its senior unsecured notes, consisting of $400 million aggregate principal amount of 5.170% Senior Notes due June 8, 2027 (the “2027 Notes”) and $350 million aggregate principal amount of 5.670% Senior Notes due June 8, 2032 (the “2032 Notes”).

The net proceeds of the 2027 Notes and 2032 Notes were used, together with cash on hand, to repay the Company’s $750 million aggregate principal amount term loan due February 2023.

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").

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.

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).

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

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

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

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.

The Revolving Facility further provides for the ability to request, subject to customary terms and conditions, an increase in commitments thereunder by an additional $500 million.

The proceeds of the Senior Notes were used, together with cash on hand, to repay the Company’s $1.6 billion aggregate principal amount term loan that was due May 2022.

Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources

Revolving Credit Agreement

The Company is party to a Revolving Facility providing for borrowings for working capital and other general corporate purposes under aggregate commitments of $1.0 billion, with a sub-limit of $500 million available for letters of credit.

The Revolving Facility further provides for the ability to request, subject to customary terms and conditions, an increase in commitments thereunder by up to an additional $500 million.

Commitments under the Revolving Facility terminate on February 22, 2024.

On September 10, 2021, we borrowed an aggregate principal amount of $2.35 billion as follows:

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

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.

The credit agreement contains a number of customary representations and warranties, affirmative and negative covenants and events of default (including a change of control provision).

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

We were in compliance with these covenants at June 30, 2022.

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 million during both the three months ended March 31, 2022, and 2021, respectively.

Interest expense on the notes was $5 million and $10 million for both the three and six months ended June 30, 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.

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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.

As of June 30, 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

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Company action level required capital is the minimum amount of capital necessary for Jackson to avoid submitting a corrective action plan to its regulator.

Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources

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.

Therefore, there can be no assurance that we will pay any cash dividends to holders of our common stock or approve any increase in the existing, or any new, 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;

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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.”

See “Holding Company Liquidity – Distributions from our Insurance Company Subsidiaries” above, and “Part I, Item 1A.

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” in our 2021 Annual Report.

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.

During the second quarter of 2022, we paid a cash dividend of $0.55 per share on JFI's Class A Common Stock totaling $50 million.

On August 8, 2022, our Board of Directors approved a third quarter cash dividend on JFI's Common Stock of $0.55 per share, payable on September 15, 2022 to shareholders of record on September 1, 2022.

We repurchased a total of 1,870,854 shares and a total of 5,304,464 shares of Class A Common Stock for an aggregate purchase price of $66 million and $206 million in the three and six months ended June 30, 2022, respectively, which were funded with cash on hand.

See Note 18 to Condensed Consolidated Financial Statements in this Report 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 :

Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources

As of August 5, 2022, the financial strength ratings of our principal insurance subsidiaries were as follows :

Best Fitch Moody’s S&P

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While the degree to which ratings adjustments will affect sales of our annuities and institutional products, and persistency is unknown, if our ratings are negatively adjusted for any reason, we believe we could experience a material decline in the sales in our individual channel, origination in our institutional channel, and the persistency of our existing business.

Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates

Summary of Critical Accounting Estimates

The preparation of financial statements in conformity with U.S.

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.

GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in our Condensed Consolidated Financial Statements included elsewhere in this Report.

The most critical estimates include those used in determining:

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• reserves for future policy benefits and claims payable and other contract holder funds

• income taxes

• income taxes and the ability to realize certain deferred tax benefits

• accounting for reinsurance

• valuation and impairment of investments

• valuation and impairment of investments, including estimates related to expectations of credit losses on certain financial assets

• valuation of freestanding derivative instruments

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Many of these policies, estimates and related judgments are common in the insurance and financial services industries while others are specific to our business and operations.

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.

Since future events and their effects cannot be determined with precision, 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 Notes 1 and 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 March 31, 2022.

We do not have any off–balance sheet arrangements as of June 30, 2022.

Item 3 | Quantitative and Qualitative Disclosures about Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis