Jackson Financial Inc. 10-Q

Item 1. Financial Statements Jackson Financial Inc. Condensed Consolidated Balance Sheets (in millions, except per share data) June 30, December 31, 2022 2021 (Unaudited) Assets Investments: Debt Securities, available-for-sale, net of allowance for credit losses of $ 43 and $ 9 at June 30, 2022 and December 31, 2021, respectively (amortized cost: 2022 $ 48,223 ; 2021 $ 49,378 ) $ 43,478 $ 51,547 Debt Securities, at fair value under fair value option 2,005 1,711 Debt Securities, trading, at fair value 103 117 Equity securities, at fair value 260 279 Mortgage loans, net of allowance for credit losses of $ 80 and $ 94 at June 30, 2022 and December 31, 2021, respectively 11,574 11,482 Mortgage loans, at fair value under fair value option 357 — Policy loans (including $ 3,485 and $ 3,467 at fair value under the fair value option at June 30, 2022 and December 31, 2021, respectively) 4,459 4,475 Freestanding derivative instruments 1,243 1,417 Other invested assets 3,648 3,199 Total investments 67,127 74,227 Cash and cash equivalents 5,258 2,623 Accrued investment income 504 503 Deferred acquisition costs 13,115 14,249 Reinsurance recoverable, net of allowance for credit losses of $ 11 and $ 12 at June 30, 2022 and December 31, 2021, respectively 31,667 33,126 Deferred income taxes, net 981 954 Other assets 1,369 853 Separate account assets 196,184 248,949 Total assets $ 316,205 $ 375,484 Liabilities and Equity Liabilities Reserves for future policy benefits and claims payable $ 16,053 $ 17,629 Other contract holder funds 59,576 59,689 Funds withheld payable under reinsurance treaties (including $ 3,649 and $ 3,639 at fair value under the fair value option at June 30, 2022 and December 31, 2021, respectively) 25,506 29,007 Long-term debt 2,634 2,649 Repurchase agreements and securities lending payable 32 1,589 Collateral payable for derivative instruments 621 913 Freestanding derivative instruments 1,217 41 Other liabilities 4,072 3,944 Separate account liabilities 196,184 248,949 Total liabilities 305,895 364,410 Commitments, Contingencies, and Guarantees (Note 14) Equity Common stock, (i) Class A Common Stock 900,000,000 shares authorized, $ 0.01 par value per share and 84,864,727 and 88,046,833 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively and (ii) No authorized Class B Common Stock at June 30, 2022 and 100,000,000 shares authorized, $ 0.01 par value per share and 638,861 shares issued and outstanding at December 31, 2021 (See Note 18) 1 1 Additional paid-in capital 6,020 6,051 Treasury stock, at cost; 9,608,399 and 5,778,649 shares at June 30, 2022 and December 31, 2021, respectively ( 371 ) ( 211 ) Accumulated other comprehensive income (loss), net of tax expense (benefit) of $( 907 ) and $ 194 at June 30, 2022 and December 31, 2021, respectively ( 3,722 ) 1,744 Retained earnings 7,635 2,809 Total shareholders' equity 9,563 10,394 Noncontrolling interests 747 680 Total equity 10,310 11,074 Total liabilities and equity $ 316,205 $ 375,484 See Notes to Condensed Consolidated Financial Statements. 2 Jackson Financial Inc. Condensed Consolidated Income Statements (Unaudited, in millions, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenues Fee income $ 1,852 $ 1,896 $ 3,774 $ 3,712 Premiums 32 31 66 65 Net investment income 747 796 1,467 1,724 Net gains (losses) on derivatives and investments 3,867 ( 2,521 ) 5,472 185 Other income 21 30 41 53 Total revenues 6,519 232 10,820 5,739 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 912 210 1,479 493 Interest credited on other contract holder funds, net of deferrals 217 217 423 440 Interest expense 24 7 44 13 Operating costs and other expenses, net of deferrals 517 600 1,124 1,198 Amortization of deferred acquisition and sales inducement costs 1,198 ( 264 ) 1,713 548 Total benefits and expenses 2,868 770 4,783 2,692 Pretax income (loss) 3,651 ( 538 ) 6,037 3,047 Income tax expense (benefit) 717 ( 54 ) 1,047 531 Net income (loss) 2,934 ( 484 ) 4,990 2,516 Less: Net income (loss) attributable to noncontrolling interests 31 56 62 124 Net income (loss) attributable to Jackson Financial Inc. $ 2,903 $ ( 540 ) $ 4,928 $ 2,392 Earnings per share Basic $ 33.77 $ ( 5.72 ) $ 56.87 $ 25.32 Diluted $ 32.56 $ ( 5.72 ) $ 54.72 $ 25.32 See Notes to Condensed Consolidated Financial Statements. 3 Jackson Financial Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited, in millions) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income (loss) $ 2,934 $ ( 484 ) $ 4,990 $ 2,516 Other comprehensive income (loss), net of tax: Securities with no credit impairment net of tax expense (benefit) of: $( 363 ) and $ 260 , for the three months ended June 30, 2022 and 2021, respectively, and $( 1,108 ) and $( 397 ), for the six months ended June 30, 2022 and 2021, respectively ( 2,791 ) 948 ( 5,488 ) ( 1,432 ) Securities with credit impairment, net of tax expense (benefit) of: $ 2 and nil for the three months ended June 30, 2022 and 2021, respectively, and $ 6 and $ 1 , for the six months ended June 30, 2022 and 2021, respectively 8 — 22 2 Total other comprehensive income (loss) ( 2,783 ) 948 ( 5,466 ) ( 1,430 ) Comprehensive income (loss) 151 464 ( 476 ) 1,086 Less: Comprehensive income (loss) attributable to noncontrolling interests 31 56 62 124 Comprehensive income (loss) attributable to Jackson Financial Inc. $ 120 $ 408 $ ( 538 ) $ 962 See Notes to Condensed Consolidated Financial Statements. 4 Jackson Financial Inc. Condensed Consolidated Statements of Equity (Unaudited, in millions) Accumulated Additional Treasury Shares Equity Other Total Non- Common Paid-In Stock Held Compensation Comprehensive Retained Shareholders' Controlling Total Stock Capital at Cost In Trust Reserve Income Earnings Equity Interests Equity Balances as of March 31, 2022 $ 1 $ 6,081 $ ( 351 ) $ — $ — $ ( 939 ) $ 4,782 $ 9,574 $ 715 $ 10,289 Net income (loss) — — — — — — 2,903 2,903 31 2,934 Change in unrealized investment gains and losses, net of tax — — — — — ( 2,783 ) — ( 2,783 ) — ( 2,783 ) Change in equity of noncontrolling interests — — — — — — — — 1 1 Treasury stock acquired in connection with share repurchases — — ( 100 ) — — — — ( 100 ) — ( 100 ) Dividends on common stock — — — — — — ( 50 ) ( 50 ) — ( 50 ) Share based compensation — ( 61 ) 80 — — — — 19 — 19 Balances as of June 30, 2022 $ 1 $ 6,020 $ ( 371 ) $ — $ — $ ( 3,722 ) $ 7,635 $ 9,563 $ 747 $ 10,310 Accumulated Additional Treasury Shares Equity Other Total Non- Common Paid-In Stock Held Compensation Comprehensive Retained Shareholders' Controlling Total Stock Capital at Cost In Trust Reserve Income Earnings Equity Interests Equity Balances as of March 31, 2021 $ 1 $ 5,927 $ — $ ( 4 ) $ 10 $ 1,443 $ 2,608 $ 9,985 $ 585 $ 10,570 Net income (loss) — — — — — — ( 540 ) ( 540 ) 56 ( 484 ) Change in unrealized investment gains and losses, net of tax — — — — — 948 — 948 — 948 Change in equity of noncontrolling interests — — — — — — — — ( 42 ) ( 42 ) Reserve for equity compensation plans — — — — $ ( 1 ) — — ( 1 ) — ( 1 ) Balances as of June 30, 2021 $ 1 $ 5,927 $ — $ ( 4 ) $ 9 $ 2,391 $ 2,068 $ 10,392 $ 599 $ 10,991 Accumulated Additional Treasury Shares Equity Other Total Non- Common Paid-In Stock Held Compensation Comprehensive Retained Shareholders' Controlling Total Stock Capital at Cost In Trust Reserve Income Earnings Equity Interests Equity Balances as of December 31, 2021 $ 1 $ 6,051 $ ( 211 ) $ — $ — $ 1,744 $ 2,809 $ 10,394 $ 680 $ 11,074 Net income (loss) — — — — — — 4,928 4,928 62 4,990 Change in unrealized investment gains and losses, net of tax — — — — — ( 5,466 ) — ( 5,466 ) — ( 5,466 ) Change in equity of noncontrolling interests — — — — — — — — 5 5 Treasury stock acquired in connection with share repurchases — — ( 240 ) — — — — ( 240 ) — ( 240 ) Dividends on common stock — — — — — — ( 102 ) ( 102 ) — ( 102 ) Share based compensation — ( 31 ) 80 — — — — 49 — 49 Balances as of June 30, 2022 $ 1 $ 6,020 $ ( 371 ) $ — $ — $ ( 3,722 ) $ 7,635 $ 9,563 $ 747 $ 10,310 Accumulated Additional Treasury Shares Equity Other Total Non- Common Paid-In Stock Held Compensation Comprehensive Retained Shareholders' Controlling Total Stock Capital at Cost In Trust Reserve Income Earnings Equity Interests Equity Balances as of December 31, 2020 $ 1 $ 5,927 $ — $ ( 4 ) $ 8 $ 3,821 $ ( 324 ) $ 9,429 $ 494 $ 9,923 Net income (loss) — — — — — — 2,392 2,392 124 2,516 Change in unrealized investment gains and losses, net of tax — — — — — ( 1,430 ) — ( 1,430 ) — ( 1,430 ) Change in equity of noncontrolling interests — — — — — — — — ( 19 ) ( 19 ) Reserve for equity compensation plans — — — — 1 — — 1 — 1 Balances as of June 30, 2021 $ 1 $ 5,927 $ — $ ( 4 ) $ 9 $ 2,391 $ 2,068 $ 10,392 $ 599 $ 10,991 See Notes to Condensed Consolidated Financial Statements. 5 Jackson Financial Inc. Condensed Consolidated Statements of Cash Flows (Unaudited, in millions) Six Months Ended June 30, 2022 2021 Cash flows from operating activities: Net income (loss) $ 4,990 $ 2,516 Adjustments to reconcile net income to net cash provided by operating activities: Net realized losses (gains) on investments 125 ( 168 ) Net losses (gains) on derivatives ( 3,492 ) 113 Net losses (gains) on funds withheld reinsurance ( 2,105 ) ( 130 ) Interest credited on other contract holder funds, gross 423 440 Mortality, expense and surrender charges ( 269 ) ( 280 ) Amortization of discount and premium on investments 13 27 Deferred income tax expense (benefit) 1,075 563 Share-based compensation 69 46 Change in: Accrued investment income ( 2 ) 39 Deferred acquisition costs and sales inducements 1,364 148 Funds withheld, net of reinsurance ( 90 ) ( 398 ) Other assets and liabilities, net ( 5 ) ( 768 ) Net cash provided by (used in) operating activities 2,096 2,148 Cash flows from investing activities: Sales, maturities and repayments of: Debt securities 6,942 10,325 Equity securities 43 25 Mortgage loans 551 682 Purchases of: Debt securities ( 5,981 ) ( 5,502 ) Equity securities ( 25 ) ( 51 ) Mortgage loans ( 1,039 ) ( 1,557 ) Settlements related to derivatives and collateral on investments 2,570 ( 2,948 ) Other investing activities ( 446 ) ( 394 ) Net cash provided by (used in) investing activities 2,615 580 See Notes to Condensed Consolidated Financial Statements. 6 Jackson Financial Inc. Condensed Consolidated Statements of Cash Flows (continued) (Unaudited, in millions) Six Months Ended June 30, 2022 2021 Cash flows from financing activities: Policyholders' account balances: Deposits $ 10,285 $ 9,759 Withdrawals ( 12,983 ) ( 15,184 ) Net transfers from (to) separate accounts 2,554 1,191 Proceeds from (payments on) repurchase agreements and securities lending ( 1,557 ) 1,157 Net proceeds from (payments on) Federal Home Loan Bank notes — ( 130 ) Net proceeds from (payments on) debt ( 783 ) ( 4 ) Net proceeds from issuance of senior notes 750 — Debt issuance costs ( 7 ) — Dividends on common stock ( 102 ) — Purchase of treasury stock ( 240 ) — Other financing activities 7 — Net cash provided by (used in) financing activities ( 2,076 ) ( 3,211 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 2,635 ( 483 ) Cash, cash equivalents, and restricted cash at beginning of period 2,631 2,019 Total cash, cash equivalents, and restricted cash at end of period $ 5,266 $ 1,536 Supplemental cash flow information Income taxes paid (received) $ ( 2 ) $ 34 Interest paid $ 40 $ 10 Non-cash investing activities Debt securities acquired from exchanges, payments-in-kind, and similar transactions $ 214 $ 117 Other invested assets acquired from stock splits and stock distributions $ 42 $ 99 Reconciliation to Statement of Financial Position Cash and cash equivalents $ 5,258 $ 1,536 Restricted cash (included in Other assets) 8 — Total cash, cash equivalents, and restricted cash $ 5,266 $ 1,536 See Notes to Condensed Consolidated Financial Statements. 7 Jackson Financial Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Business and Basis of Presentation Jackson Financial Inc. (“Jackson Financial”) along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life. Jackson Financial, domiciled in the United States (“U.S.”), was a majority-owned subsidiary of Prudential plc (“Prudential”), London, England and was the holding company for Prudential’s U.S. operations. As described below under "Other," the Company's demerger from Prudential was completed on September 13, 2021 ("Demerger"), and the Company is no longer a majority-owned subsidiary of Prudential. Jackson Financial’s primary life insurance subsidiary, Jackson National Life Insurance Company and its insurance subsidiaries (“Jackson”), is licensed to sell group and individual annuity products (including immediate, registered index-linked, deferred fixed, fixed index and variable annuities), and individual life insurance products, including variable universal life, in all 50 states and the District of Columbia. Jackson also participates in the institutional products market through the issuance of guaranteed investment contracts (“GICs”), funding agreements and medium-term note funding agreements. In addition to Jackson, Jackson Financial’s primary operating subsidiaries are as follows: • PPM America, Inc. (“PPM”), is the Company’s investment management operation that manages the life insurance companies’ general account investment funds. PPM also provides investment services to other former affiliated and unaffiliated institutional clients. • Brooke Life Insurance Company (“Brooke Life”), Jackson’s direct parent, is a life insurance company licensed to sell life insurance and annuity products in the state of Michigan. Other subsidiaries, which are wholly owned by Jackson, consist of the following: • Life insurers: Jackson National Life Insurance Company of New York (“JNY”); Squire Reassurance Company LLC (“Squire Re”); Squire Reassurance Company II, Inc. (“Squire Re II”) and VFL International Life Company SPC, LTD; • Broker-dealer, investment management and investment advisor subsidiaries: Jackson National Life Distributors, LLC ("JNLD"); Jackson National Asset Management, LLC ("JNAM"); • PGDS (US One) LLC (“PGDS”), which provides certain services to the Company and certain former affiliates; and • Other insignificant wholly owned subsidiaries. The Condensed Consolidated Financial Statements also include other insignificant partnerships, limited liability companies (“LLCs”) and other variable interest entities (“VIEs”) in which the Company is deemed the primary beneficiary. Other On August 6, 2021, the registration statement on Form 10 of the Company's Class A Common Stock filed with the U.S. Securities and Exchange Commission (the "SEC"), became effective under the Securities Exchange Act of 1934, as amended. We refer to that effective Form 10 registration as the "Form 10." The Demerger transaction described in the Form 10 was consummated on September 13, 2021. As of June 30, 2022, Prudential retained a 14.3 % remaining interest in the Company. 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. On September 9, 2021, the Company effected a 104,960.3836276 -for-1 stock split of its Class A Common Stock and Class B Common Stock by way of a reclassification of its Class A Common Stock and Class B Common Stock (the “stock split”). The incremental par value of the newly issued shares was recorded with the offset to additional paid-in capital. All share and earnings per share information presented herein have been retroactively adjusted to reflect the stock split. 8 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 1. Business and Basis of Presentation On June 18, 2020, the Company’s subsidiary, Jackson, announced that it had entered into a funds withheld coinsurance agreement with Athene Life Re Ltd. (“Athene”) effective June 1, 2020 to reinsure on 100 % quota share basis, a block of Jackson’s in-force fixed and fixed-index annuity product liabilities in exchange for a $ 1.2 billion ceding commission ("Athene Reinsurance Agreement"). In addition, we entered into an investment agreement with Athene Life Re Ltd., pursuant to which Athene invested $ 500 million of capital in return for a 9.9 % voting interest corresponding to a 11.1 % economic interest in the Company. That investment was completed on July 17, 2020. In August 2020, the Company made a $ 500 million capital contribution to its subsidiary, Jackson. As of June 30, 2022, Athene retained a 8.9 % voting interest and 8.9 % economic interest. We continue to closely monitor developments related to the COVID-19 pandemic. The COVID-19 pandemic has caused significant economic and financial turmoil both in the United States and around the world. While there has been a gradual resumption of activity, COVID-19 and its variants continue to affect activity, and those effects could continue and could worsen in the future. The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted. The Company implemented business continuity plans that were already in place to ensure the availability of services for our customers, work at home capabilities for our employees, where appropriate, and other ongoing risk management activities. The Company has had employees, as needed or voluntarily, in our offices during this time, as permitted by local and state restrictions. The Company rolled out a broader “return to office plan” for all employees, with many associates in 2022 now working on an “office-centric” hybrid schedule between in-office and remote working arrangements. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but not required for interim reporting purposes, has been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 7, 2022, (the "2021 Annual Report"). The condensed consolidated financial information as of December 31, 2021 included herein has been derived from the audited Consolidated Financial Statements in the 2021 Annual Report, although certain amounts have been reclassified to conform to the 2022 presentation. Certain accounting policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in the Company’s Notes to Consolidated Financial Statements for the year ended December 31, 2021 in the Company’s 2021 Annual Report. In the opinion of management, these financial statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022. All material intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires the use of estimates and assumptions about future events that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. Significant estimates or assumptions, as further discussed in the notes, include: • Valuation of investments and derivative instruments, including fair values of securities deemed to be in an illiquid market and the determination of when an impairment is necessary; • Assessments as to whether certain entities are variable interest entities, the existence of reconsideration events and the determination of which party, if any, should consolidate the entity; • Assumptions impacting estimated future gross profits, including policyholder behavior, mortality rates, expenses, projected hedging costs, investment returns and policy crediting rates, used in the calculation of amortization of deferred acquisition costs; 9 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 1. Business and Basis of Presentation • Assumptions used in calculating policy reserves and liabilities, including policyholder behavior, mortality rates, expenses, investment returns and policy crediting rates; • Assumptions as to future earnings levels being sufficient to realize deferred tax benefits; • Estimates related to expectations of credit losses on certain financial assets and off balance sheet exposures; • Assumptions and estimates associated with the Company’s tax positions, including an estimate of the dividends received deduction, which impact the amount of recognized tax benefits recorded by the Company; and • Assumptions used in calculating the value of guaranteed benefits. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors deemed appropriate. As facts and circumstances dictate, these estimates and assumptions may be adjusted. Since future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates, including those resulting from continuing changes in the economic environment, will be reflected in the consolidated financial statements in the periods the estimates are changed. 2. New Accounting Standards Changes in Accounting Principles – Adopted in Current Year In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The new guidance provides optional expedients for applying GAAP to contracts and other transactions affected by reference rate reform and is effective for contract modifications made between March 12, 2020 and December 31, 2022. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. The practical expedient allowed by this standard was elected and will be applied prospectively by the Company as reference rate reform unfolds. The contracts modified to date met the criteria for the practical expedient and therefore had no material impact on the Company’s consolidated financial statements. The Company will continue to evaluate the impacts of reference rate reform on contract modifications and other transactions through December 31, 2022. Changes in Accounting Principles – Issued but Not Yet Adopted In August 2018, the FASB issued ASU 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts,” which includes changes to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. ASU No. 2018-12 is effective for fiscal years beginning after December 15, 2022. The amendments in ASU 2018-12 contain four significant changes: 1. Market risk benefits: market risk benefits, a new term for certain contracts or features that provide for potential benefits in addition to the account balance which expose us to other than nominal market risk (for example, certain guaranteed benefits on annuity contracts, including guaranteed minimum withdrawal benefits and guaranteed minimum death benefits on variable annuities), will be measured at fair value. Changes in fair value will be recorded and presented separately within the income statement, with the exception of changes in fair value due to instrument-specific credit risk, which will be recognized in other comprehensive income (loss) (“OCI”). See Note 10 for more information regarding guaranteed benefits; 2. Deferred acquisition costs: deferred acquisition costs (“DAC”) will be amortized on a constant-level basis, independent of profitability on the underlying business; 3. Liability for future policy benefits: annual review and, if necessary, update of cash flow assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment insurance contracts will be required. These liabilities will be discounted using an upper-medium grade fixed income instrument yield which will be updated quarterly, with related changes in the liability recognized in OCI; and 10 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards 4. Enhanced disclosures: enhanced disclosures, including disaggregated roll-forwards of certain balance sheet accounts that provide information about actual and expected cash flows, as well as information about significant inputs, judgments, assumptions and methods used in measurement, will be required. The enhanced disclosures are intended to improve the ability of users of the financial statements to evaluate the timing, amount, and uncertainty of cash flows arising from long-duration contracts. The Company will adopt the standard effective January 1, 2023, with a transition date of January 1, 2021, using a modified retrospective approach, except for market risk benefits for which we will apply a full retrospective transition approach. Under the modified retrospective approach, the Company will apply the guidance to contracts in force on the transition date on the basis of their existing carrying value, using updated future cash flow assumptions, and eliminate certain related amounts in accumulated other comprehensive income (loss) (“AOCI”). Under the full retrospective transition approach, the Company will apply the guidance as of the earliest period presented, using actual historical experience information as of contract inception, as if the accounting principle had always been applied. In accordance with its established governance framework, the Company continues to progress with implementation efforts including determining significant accounting policy decisions, modifying actuarial valuation models, revising reporting processes, and updating internal controls over financial reporting. Given the nature and extent of the required changes, the adoption of this standard is expected to have a significant impact on the Company’s consolidated financial statements and disclosures. 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. This estimate is based on the economic conditions experienced at the transition date. The most significant drivers of the transition adjustment are expected to be: • changes to the measurement of certain benefits currently accounted for as insurance benefits (e.g., guaranteed minimum death benefits on variable annuities) which will be classified as market risk benefits upon adoption and remeasured at fair value, the impact of which is highly dependent on market conditions, including interest rates; • changes to the discount rate used to measure liabilities for future policyholder benefits that will be remeasured using current upper-medium grade fixed-income instrument yields, which are generally considered to be those on single-A rated public corporate debt; and • the removal of certain balances recorded in AOCI related to changes in unrealized appreciation (depreciation) on investments. In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.” The new guidance allows multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. If multiple hedged layers are designated, an entity is required to perform an analysis to support its expectation that the aggregate amount of the hedged layers is anticipated to be outstanding for the designated hedge periods. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. An entity may designate multiple hedged layers of a single closed portfolio solely on a prospective basis. All entities are required to apply the amendments related to hedge basis adjustments under the portfolio layer method, except for those related to disclosures, on a modified retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings on the initial application date. Early adoption is permitted. The Company does not anticipate any impact when adopting the new guidance and does not plan to early adopt. 11 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The new guidance eliminates the accounting guidance for troubled debt restructurings by creditors, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan. The amendments also enhance disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. New guidance for vintage disclosures requires that current-period gross write-offs be disclosed by year of origination for financing receivables and net investments in leases that fall within scope of the current expected credit loss model. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Updates should be applied prospectively. However, an entity has the option to apply the modified retrospective method related to the recognition and measurements of troubled debt restructurings. Early adoption is permitted. The Company does not anticipate a significant impact when adopting the new guidance and does not plan to early adopt. 3. Segment Information The Company has three reportable segments consisting of Retail Annuities, Institutional Products, Closed Life and Annuity Block, plus its Corporate and Other segment. These segments reflect the manner by which the Company’s chief operating decision maker views and manages the business. The following is a brief description of the Company’s reportable segments. Retail Annuities The Company’s Retail Annuities segment offers a variety of retirement income and savings products through its diverse suite of products, consisting primarily of variable annuities, fixed index annuities, fixed annuities, immediate payout annuities, and registered index-linked annuities ("RILA"). These products are distributed through various wirehouses, insurance brokers and independent broker-dealers, as well as through banks and financial institutions, primarily to high net worth investors and the mass and affluent markets. The Company’s variable annuities represent an attractive option for retirees and soon-to-be retirees, providing access to equity market appreciation and add-on benefits, including guaranteed lifetime income. A fixed index annuity is designed for investors who desire principal protection with the opportunity to participate in capped upside investment returns linked to a reference market index. The Company also provides access to guaranteed lifetime income as an add-on benefit. A fixed annuity is a guaranteed product designed to build wealth without market exposure, through a crediting rate that is likely to be superior to interest rates offered from banks or money market funds. A RILA product offers customers exposure to market returns through market index-linked investment options, subject to a cap, and offers a variety of guarantees designed to modify or limit losses. The financial results of the variable annuity business within the Company’s Retail Annuities segment are largely dependent on the performance of the contract holder account value, which impacts both the level of fees collected and the benefits paid to the contract holder. The financial results of the Company’s fixed annuities, including the fixed portion of its variable annuity, RILA and fixed index annuities, are largely dependent on the Company’s ability to earn a spread between earned investment rates on general account assets and the interest credited to contract holders. Institutional Products The Company’s Institutional Products consist of traditional Guaranteed Investment Contracts (GICs), funding agreements (including agreements issued in conjunction with the Company’s participation in the U.S. Federal Home Loan Bank ("FHLB") program) and medium-term note funding agreements. The Company’s GIC products are marketed to defined contribution pension and profit-sharing retirement plans. Funding agreements are marketed to institutional investors, including corporate cash accounts and securities lending funds, as well as money market funds, and are issued to the FHLB in connection with its program. The financial results of the Company’s institutional products business are primarily dependent on the Company’s ability to earn spreads on general account assets. 12 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information Closed Life and Annuity Blocks The Company's Closed Life and Annuity Blocks segment is primarily composed of blocks of business that have been acquired since 2004. The segment includes various protection products, primarily whole life, universal life, variable universal life, and term life insurance products, as well as fixed, fixed index, and payout annuities. The Closed Life and Annuity Blocks segment also includes a block of group payout annuities that we assumed from John Hancock Life Insurance Company (USA) (“John Hancock”) and John Hancock Life Insurance Company of New York (“John Hancock NY”) through reinsurance transactions in 2018 and 2019, respectively. The Company historically offered traditional and interest-sensitive life insurance products but discontinued new sales of life insurance products in 2012, as we believe opportunistically acquiring mature blocks of life insurance policies is a more efficient means of diversifying our in-force business than selling new life insurance products. The profitability of the Company’s Closed Life and Annuity Blocks segment is largely driven by its historical ability to appropriately price its products and purchase appropriately priced blocks of business, as realized through underwriting, expense and net gains (losses) on derivatives and investments, and the ability to earn an assumed rate of return on the assets supporting that business. Corporate and Other The Company’s Corporate and Other segment primarily consists of the operations of its investment management subsidiary, PPM, VIE’s, and unallocated corporate income and expenses. The Corporate and Other segment also includes certain eliminations and consolidation adjustments. Segment Performance Measurement Segment operating revenues and pretax adjusted operating earnings are non-GAAP financial measures that management believes are critical to the evaluation of the financial performance of the Company’s segments. The Company uses the same accounting policies and procedures to measure segment pretax adjusted operating earnings as used in its reporting of consolidated net income. Its primary measure is pretax adjusted operating earnings, which is defined as net income recorded in accordance with GAAP, excluding certain items that may be highly variable from period to period due to accounting treatment under GAAP, or that are non-recurring in nature, as well as certain other revenues and expenses which are not considered to drive underlying performance. Operating revenues and pretax adjusted operating earnings should not be used as a substitute for revenues and net income as calculated in accordance with GAAP. Pretax adjusted operating earnings equals net income adjusted to eliminate the impact of the following items: 1. Guaranteed Benefits and Hedging Results: the fees attributed to guaranteed benefits, the associated movements in optional guaranteed benefit liabilities and related claims and benefit payments are excluded from pretax adjusted operating earnings, as we believe this approach appropriately removes the impact to both revenue and related expenses associated with the guaranteed benefit features that are offered for certain of our variable annuities and fixed index annuities and gives investors a better picture of what is driving our underlying performance. This adjustment includes the following components: • Fees Attributable to Guarantee Benefits : fees earned in conjunction with guaranteed benefit features offered for certain of our variable annuities and fixed index annuities are set at a level intended to mitigate the cost of hedging and funding the liabilities associated with such guaranteed benefit features. The full amount of the fees attributable to guaranteed benefit features have been excluded from pretax adjusted operating earnings as the related net movements in freestanding derivatives and net reserve and embedded derivative movements, as described below, have been excluded from pretax adjusted operating earnings. This adjusted presentation of our earnings is intended to directly align revenue and related expenses associated with the guaranteed benefit features; 13 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information • Net Movement in Freestanding Derivatives, except earned income (periodic settlements and changes in settlement accruals) on derivatives that are hedges of investments, but do not qualify for hedge accounting treatment : changes in the fair value of our freestanding derivatives used to manage the risk associated with our life and annuity reserves, including those arising from the guaranteed benefit features offered for certain of our variable annuities and fixed index annuities. Net movements in freestanding derivatives have been excluded from pretax adjusted operating earnings as the market value of these derivatives may vary significantly from period to period as a result of near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business; • Net Reserve and Embedded Derivative Movements: changes in the valuation of certain life and annuity reserves, a portion of which are accounted for as embedded derivative instruments, and which are primarily composed of variable and fixed index annuity reserves, including those arising from the guaranteed benefit features offered for certain of our variable annuities. Net reserve and embedded derivative movements have been excluded from pretax adjusted operating earnings as the carrying values of these derivatives may vary significantly from period to period as the result of near-term market conditions and policyholder behavior-related inputs and therefore are not directly comparable or reflective of the underlying performance of our business. Movements in reserves attributable to the current period claims and benefit payments in excess of a customer’s account value on these policies are also excluded from pretax adjusted operating earnings as these benefit payments are affected by near-term market conditions and policyholder behavior-related inputs and therefore may vary significantly from period to period; • DAC and Deferred Sales Inducements ("DSI") Impact: amortization of deferred acquisition costs and deferred sales inducements associated with the items excluded from pretax adjusted operating earnings; • Assumption changes : the impact on the valuation of Net Derivative and Reserve Movements, including amortization on DAC, arising from changes in underlying actuarial assumptions on an annual basis; 2. Net Realized Investment Gains and Losses including change in fair value of funds withheld embedded derivative: Realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio, as well as impairments of securities, after adjustment for the non-credit component of the impairment charges and change in fair value of funds withheld embedded derivative related to the Athene Reinsurance Transaction; 3. Loss on Athene Reinsurance Transaction: includes contractual ceding commission, cost of reinsurance write-off and DAC and DSI write-off related to the Athene Reinsurance Transaction; 4. Net investment income on funds withheld assets : includes net investment income on funds withheld assets related to funds withheld reinsurance transactions; 5. Other items : one-time or other non-recurring items, such as costs relating to the Demerger and our separation from Prudential, the impact of discontinued operations and investments that are consolidated on our financial statements due to U.S. GAAP accounting requirements, such as our investments in CLOs, but for which the consolidation effects are not aligned with our economic interest or exposure to those entities. Operating income taxes are calculated using the prevailing corporate federal income tax rate of 21% while taking into account any items recognized differently in our financial statements and federal income tax returns, including the dividends received deduction and other tax credits. For interim reporting periods, the Company uses an estimated annual effective tax rate ("ETR") in computing its tax provision including consideration of discrete items. 14 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information Set forth in the tables below is certain information with respect to the Company’s segments, as described above (in millions): Three Months Ended June 30, 2022 Retail Annuities Institutional Products Closed Life and Annuity Blocks Corporate and Other Total Consolidated Operating Revenues Fee income $ 949 $ — $ 119 $ 17 $ 1,085 Premiums — — 35 — 35 Net investment income 124 72 185 35 416 Income (loss) on operating derivatives 7 ( 4 ) 13 8 24 Other income 11 — 9 1 21 Total Operating Revenues 1,091 68 361 61 1,581 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 9 — 217 — 226 Interest credited on other contract holder funds, net of deferrals 71 47 99 — 217 Interest expense 6 — — 18 24 Operating costs and other expenses, net of deferrals 441 2 39 35 517 Deferred acquisition and sales inducements amortization 346 — — 8 354 Total Operating Benefits and Expenses 873 49 355 61 1,338 Pretax Adjusted Operating Earnings $ 218 $ 19 $ 6 $ — $ 243 Three Months Ended June 30, 2021 Retail Annuities Institutional Products Closed Life and Annuity Blocks Corporate and Other Total Consolidated Operating Revenues Fee income $ 1,050 $ — $ 123 $ 19 $ 1,192 Premiums — — 34 — 34 Net investment income 144 57 205 39 445 Income (loss) on operating derivatives 15 — 17 8 40 Other income 11 — 12 7 30 Total Operating Revenues 1,220 57 391 73 1,741 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 11 — 192 — 203 Interest credited on other contract holder funds, net of deferrals 66 48 103 — 217 Interest expense 6 1 — — 7 Operating costs and other expenses, net of deferrals 485 2 38 49 574 Deferred acquisition and sales inducements amortization ( 31 ) — 2 8 ( 21 ) Total Operating Benefits and Expenses 537 51 335 57 980 Pretax Adjusted Operating Earnings $ 683 $ 6 $ 56 $ 16 $ 761 15 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information Six Months Ended June 30, 2022 Retail Annuities Institutional Products Closed Life and Annuity Blocks Corporate and Other Total Consolidated Operating Revenues Fee income $ 1,965 $ — $ 240 $ 35 $ 2,240 Premiums — — 72 — 72 Net investment income 242 136 381 88 847 Income (loss) on operating derivatives 18 ( 5 ) 28 18 59 Other income 22 — 17 2 41 Total Operating Revenues 2,247 131 738 143 3,259 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 25 — 459 — 484 Interest credited on other contract holder funds, net of deferrals 139 86 198 — 423 Interest expense 11 — — 33 44 Operating costs and other expenses, net of deferrals 945 3 79 96 1,123 Deferred acquisition and sales inducements amortization 503 — 4 17 524 Total Operating Benefits and Expenses 1,623 89 740 146 2,598 Pretax Adjusted Operating Earnings $ 624 $ 42 $ ( 2 ) $ ( 3 ) $ 661 Six Months Ended June 30, 2021 Retail Annuities Institutional Products Closed Life and Annuity Blocks Corporate and Other Total Consolidated Operating Revenues Fee income $ 2,046 $ — $ 248 $ 39 $ 2,333 Premiums — — 71 — 71 Net investment income 349 120 461 54 984 Income (loss) on operating derivatives 29 — 38 12 79 Other income 23 — 22 8 53 Total Operating Revenues 2,447 120 840 113 3,520 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 17 — 413 — 430 Interest credited on other contract holder funds, net of deferrals 133 100 207 — 440 Interest expense 11 2 — — 13 Operating costs and other expenses, net of deferrals 961 2 78 107 1,148 Deferred acquisition and sales inducements amortization 73 — 7 15 95 Total Operating Benefits and Expenses 1,195 104 705 122 2,126 Pretax Adjusted Operating Earnings $ 1,252 $ 16 $ 135 $ ( 9 ) $ 1,394 Intersegment eliminations in the above tables are included in the Corporate and Other segment. These include the elimination of investment income, net of deferred acquisition costs amortization, between Retail Annuities and the Corporate and Other segments, as well as the elimination from fee income and investment income of investment fees paid by Jackson to its affiliate PPM, which were $ 15 million for both the three months ended June 30, 2022 and 2021 , respectively, and $ 29 million and $ 30 million for the six months ended June 30, 2022 and 2021, respectively . 16 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information The following table summarizes the reconciling items from the non-GAAP measure of operating revenues to the GAAP measure of total revenues attributable to the Company (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Total operating revenues $ 1,581 $ 1,741 $ 3,259 $ 3,520 Fees attributed to variable annuity benefit reserves 765 701 1,529 1,373 Net gains (losses) on derivatives and investments 3,843 ( 2,561 ) 5,413 106 Net investment income (loss) related to noncontrolling interests 31 56 62 124 Consolidated investments ( 65 ) 1 ( 67 ) 31 Net investment income on funds withheld assets 364 294 624 585 Total revenues (1) $ 6,519 $ 232 $ 10,820 $ 5,739 (1) Substantially all of the Company's revenues originated in the United States. There were no individual customers that exceeded 10% of total revenues. The following table summarizes the reconciling items from the non-GAAP measure of operating benefits and expenses to the GAAP measure of total benefits and expenses attributable to the Company (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Total operating benefits and expenses $ 1,338 $ 980 $ 2,598 $ 2,126 Benefits attributed to variable annuity benefit reserves 54 29 93 66 Amortization of DAC and DSI related to non-operating revenues and expenses 845 ( 243 ) 1,190 453 SOP 03-1 reserve movements 632 ( 21 ) 901 ( 4 ) Other items ( 1 ) 25 1 51 Total benefits and expenses $ 2,868 $ 770 $ 4,783 $ 2,692 The following table summarizes the reconciling items, net of deferred acquisition costs and deferred sales inducements, from the non-GAAP measure of pretax adjusted operating earnings to the GAAP measure of net income attributable to the Company (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Pretax adjusted operating earnings $ 243 $ 761 $ 661 $ 1,394 Non-operating adjustments (income) loss: Guaranteed benefits and hedging results: Fees attributable to guarantee benefit reserves 765 701 1,529 1,373 Net movement in freestanding derivatives 2,847 ( 442 ) 1,371 ( 3,473 ) Net reserve and embedded derivative movements ( 772 ) ( 1,374 ) 1,067 3,219 DAC and DSI impact ( 845 ) 243 ( 1,190 ) ( 453 ) Assumption changes — — — — Total guaranteed benefits and hedging results 1,995 ( 872 ) 2,777 666 Net realized investment gains (losses) including change in fair value of funds withheld embedded derivative 1,082 ( 752 ) 1,980 298 Net investment income on funds withheld assets 364 294 624 585 Other items ( 64 ) ( 25 ) ( 67 ) ( 20 ) Pretax income (loss) attributable to Jackson Financial Inc. 3,620 ( 594 ) 5,975 2,923 Income tax expense (benefit) 717 ( 54 ) 1,047 531 Net income (loss) attributable to Jackson Financial Inc. $ 2,903 $ ( 540 ) $ 4,928 $ 2,392 17 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments 4. Investments Investments are comprised primarily of fixed-income securities and loans, primarily publicly-traded corporate and government bonds, asset-backed securities and mortgage loans. Asset-backed securities include mortgage-backed and other structured securities. The Company generates the majority of its general account deposits from interest-sensitive individual annuity contracts, life insurance products and institutional products on which it has committed to pay a declared rate of interest. The Company's strategy of investing in fixed-income securities and loans aims to ensure matching of the asset yield with the amounts credited to the interest-sensitive liabilities and to earn a stable return on its investments. Debt Securities The following table sets forth the composition of the fair value of debt securities at June 30, 2022 and December 31, 2021, classified by rating categories as assigned by nationally recognized statistical rating organizations (“NRSRO”), the National Association of Insurance Commissioners (“NAIC”), or if not rated by such organizations, the Company’s investment advisors. The Company uses the second lowest rating by an NRSRO when NRSRO ratings are not equivalent and, for purposes of the table, if not otherwise rated by a NRSRO, the NAIC rating of a security is converted to an equivalent NRSRO-style rating. At June 30, 2022 and December 31, 2021, the carrying value of investments rated by the Company’s consolidated investment advisor totaled $ 76 million and $ 13 million, respectively. Percent of Total Debt Securities Carrying Value June 30, 2022 December 31, 2021 Investment Rating AAA 12.4 % 14.5 % AA 9.2 % 9.6 % A 30.4 % 28.5 % BBB 40.3 % 40.9 % Investment grade 92.3 % 93.5 % BB 4.0 % 3.6 % B and below 3.7 % 2.9 % Below investment grade 7.7 % 6.5 % Total debt securities 100.0 % 100.0 % At June 30, 2022, based on ratings by NRSROs, of the total carrying value of debt securities in an unrealized loss position, 76 % were investment grade, 3 % were below investment grade and 21 % were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 20 % of the aggregate gross unrealized losses on available-for-sale debt securities. At December 31, 2021, based on ratings by NRSROs, of the total carrying value of debt securities in an unrealized loss position, 76 % were investment grade, 2 % were below investment grade and 22 % were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 16 % of the aggregate gross unrealized losses on available for sale debt securities. Corporate securities in an unrealized loss position were diversified across industries. As of June 30, 2022, the industries accounting for the largest percentage of unrealized losses included utilities ( 13 % of corporate gross unrealized losses) and energy ( 10 %). The largest unrealized loss related to a single corporate obligor was $ 52 million at June 30, 2022. As of December 31, 2021, the industries accounting for the largest percentage of unrealized losses included financial services ( 16 % of corporate gross unrealized losses) and consumer goods ( 15 %). The largest unrealized loss related to a single corporate obligor was $ 16 million at December 31, 2021. 18 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments At June 30, 2022 and December 31, 2021, the amortized cost, allowance for credit loss ("ACL"), 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): Allowance Gross Gross Amortized for Unrealized Unrealized Fair June 30, 2022 Cost (1) Credit Loss Gains Losses Value U.S. government securities $ 3,733 $ — $ — $ 745 $ 2,988 Other government securities 1,659 6 3 155 1,501 Public utilities 5,927 1 57 465 5,518 Corporate securities 30,145 30 84 3,008 27,191 Residential mortgage-backed 479 6 26 29 470 Commercial mortgage-backed 1,769 — — 111 1,658 Other asset-backed securities 6,619 — 14 373 6,260 Total debt securities $ 50,331 $ 43 $ 184 $ 4,886 $ 45,586 Allowance Gross Gross Amortized for Unrealized Unrealized Fair December 31, 2021 Cost (1) Credit Loss Gains Losses Value U.S. government securities $ 4,525 $ — $ 97 $ 301 $ 4,321 Other government securities 1,489 — 147 17 1,619 Public utilities 6,069 — 671 25 6,715 Corporate securities 29,701 — 1,682 237 31,146 Residential mortgage-backed 528 2 46 3 569 Commercial mortgage-backed 1,968 — 76 6 2,038 Other asset-backed securities 6,926 7 71 23 6,967 Total debt securities $ 51,206 $ 9 $ 2,790 $ 612 $ 53,375 (1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities. The amortized cost, ACL, gross unrealized gains and losses, and fair value of debt securities at June 30, 2022, by contractual maturity, are shown below (in millions). Actual maturities may differ from contractual maturities where securities can be called or prepaid with or without early redemption penalties. Allowance Gross Gross Amortized for Unrealized Unrealized Fair Cost (1) Credit Loss Gains Losses Value Due in 1 year or less $ 988 $ — $ 2 $ 3 $ 987 Due after 1 year through 5 years 8,792 4 21 253 8,556 Due after 5 years through 10 years 14,468 26 31 1,302 13,171 Due after 10 years through 20 years 9,192 3 83 1,230 8,042 Due after 20 years 8,024 4 7 1,585 6,442 Residential mortgage-backed 479 6 26 29 470 Commercial mortgage-backed 1,769 — — 111 1,658 Other asset-backed securities 6,619 — 14 373 6,260 Total $ 50,331 $ 43 $ 184 $ 4,886 $ 45,586 (1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities. 19 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Securities with a carrying value of $ 98 million and $ 117 million at June 30, 2022 and December 31, 2021, respectively, were on deposit with regulatory authorities, as required by law in various states in which business is conducted. Residential mortgage-backed securities (“RMBS”) include certain RMBS that are collateralized by residential mortgage loans and are neither explicitly nor implicitly guaranteed by U.S. government agencies (“non-agency RMBS”). The Company’s non-agency RMBS include investments in securities backed by prime, Alt-A, and subprime loans as follows (in millions): Allowance Gross Gross Amortized for Unrealized Unrealized Fair June 30, 2022 Cost (1) Credit Loss Gains Losses Value Prime $ 190 $ 4 $ 3 $ 14 $ 175 Alt-A 83 2 12 2 91 Subprime 31 — 11 — 42 Total non-agency RMBS $ 304 $ 6 $ 26 $ 16 $ 308 Allowance Gross Gross Amortized for Unrealized Unrealized Fair December 31, 2021 Cost (1) Credit Loss Gains Losses Value Prime $ 228 $ 1 $ 10 $ 2 $ 235 Alt-A 94 1 21 — 114 Subprime 39 — 13 — 52 Total non-agency RMBS $ 361 $ 2 $ 44 $ 2 $ 401 (1) Amortized cost, apart from carrying value for securities carried at fair value under the fair value option and trading securities. The Company defines its exposure to non-agency residential mortgage loans as follows: • Prime loan-backed securities are collateralized by mortgage loans made to the highest rated borrowers. • Alt-A loan-backed securities are collateralized by mortgage loans made to borrowers who lack credit documentation or necessary requirements to obtain prime borrower rates. • Subprime loan-backed securities are collateralized by mortgage loans made to borrowers that have a FICO score of 660 or lower. 20 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments The following table summarizes the number of securities, fair value and the gross unrealized losses of debt securities, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position (dollars in millions): June 30, 2022 December 31, 2021 Less than 12 months Less than 12 months Gross Fair Value Gross Fair Value Unrealized # of Unrealized # of Losses securities Losses securities U.S. government securities $ 172 $ 1,013 29 $ 2 $ 107 16 Other government securities 154 1,282 153 17 252 23 Public utilities 398 4,453 508 17 721 93 Corporate securities 2,426 20,501 2,585 180 6,343 728 Residential mortgage-backed 26 288 205 3 174 109 Commercial mortgage-backed 97 1,567 203 5 314 37 Other asset-backed securities 360 5,081 625 22 3,224 338 Total temporarily impaired securities $ 3,633 $ 34,185 4,308 $ 246 $ 11,135 1,344 12 months or longer 12 months or longer Gross Fair Value Gross Fair Value Unrealized # of Unrealized # of Losses securities Losses securities U.S. government securities $ 573 $ 1,801 8 $ 299 $ 3,190 7 Other government securities 1 10 5 — 4 2 Public utilities 67 171 29 7 99 8 Corporate securities 582 1,729 217 58 661 69 Residential mortgage-backed 3 45 47 — 11 12 Commercial mortgage-backed 14 72 6 1 30 3 Other asset-backed securities 13 119 20 1 11 3 Total temporarily impaired securities $ 1,253 $ 3,947 332 $ 366 $ 4,006 104 Total Total Gross Fair Value Gross Fair Value Unrealized # of Unrealized # of Losses securities Losses securities U.S. government securities $ 745 $ 2,814 33 $ 301 $ 3,297 23 Other government securities 155 1,292 157 17 256 25 Public utilities 465 4,624 530 24 820 101 Corporate securities (1) 3,008 22,230 2,728 238 7,004 797 Residential mortgage-backed 29 333 252 3 185 121 Commercial mortgage-backed 111 1,639 208 6 344 40 Other asset-backed securities 373 5,200 637 23 3,235 341 Total temporarily impaired securities $ 4,886 $ 38,132 4,545 $ 612 $ 15,141 1,448 (1) Certain corporate securities contain multiple lots and fit the criteria of both aging groups. Debt securities in an unrealized loss position as of June 30, 2022 did not require an impairment recognized in earnings as (i) the Company did not intend to sell these debt securities, (ii) it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost basis, and (iii) the difference in the fair value compared to the amortized cost was due to factors other than credit loss. Based upon this evaluation, the Company believes it has the ability to generate adequate amounts of cash from normal operations to meet cash requirements with a reasonable margin of safety without requiring the sale of impaired securities. 21 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments As of June 30, 2022, unrealized losses associated with debt securities are primarily due to widening credit spreads or rising risk-free rates since purchase. The Company performed a detailed analysis of the financial performance of the underlying issues in an unrealized loss position and determined that recovery of the entire amortized cost of each impaired security is expected. In addition, mortgage-backed and asset-backed securities were assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities, and prepayment rates. The Company estimated losses for a security by forecasting performance in the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. The forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts, and other independent market data. Based upon this assessment of the expected credit losses of the security given the performance of the underlying collateral compared to subordination or other credit enhancement, the Company expects to recover the entire amortized cost of each impaired security. Evaluation of Available-for-Sale Debt Securities for Credit Loss For debt securities in an unrealized loss position, management first assesses whether the Company has the intent to sell, or whether it is more likely than not it will be required to sell the security before the amortized cost basis is fully recovered. If either criteria is met, the amortized cost is written down to fair value through net gains (losses) on derivatives and investments as an impairment. Debt securities in an unrealized loss position for which the Company does not have the intent to sell or is not more likely than not to sell the security before recovery to amortized cost are further evaluated to determine if the cause of the decline in fair value resulted from credit losses or other factors, which includes estimates about the operations of the issuer and future earnings potential. The credit loss evaluation may consider the following: the extent to which the fair value is below amortized cost; changes in ratings of the security; whether a significant covenant related to the security has been breached; whether an issuer has filed or indicated a possibility of filing for bankruptcy, has missed or announced it intends to miss a scheduled interest or principal payment, or has experienced a specific material adverse change that may impair its creditworthiness; judgments about an obligor’s current and projected financial position; an issuer’s current and projected ability to service and repay its debt obligations; the existence of, and realizable value of, any collateral backing the obligations; and the macro-economic and micro-economic outlooks for specific industries and issuers. In addition to the above, the credit loss review of investments in asset-backed securities includes the review of future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments. These estimated cash flows are developed using available performance indicators from the underlying assets including current and projected default or delinquency rates, levels of credit enhancement, current subordination levels, vintage, expected loss severity and other relevant characteristics. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against third-party sources. For mortgage-backed securities, credit losses are assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral characteristics and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements existing in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment timing, default rates and loss severity. Specifically, for prime and Alt-A RMBS, the assumed default percentage is dependent on the severity of delinquency status, with foreclosures and real estate owned receiving higher rates, but also includes the currently performing loans. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against other third-party sources. In addition, these estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. When a credit loss is determined to exist and the present value of cash flows expected to be collected is less than the amortized cost of the security, an allowance for credit loss is recorded along with a charge to net gains (losses) on derivatives and investments, limited by the amount that the fair value is less than amortized cost. Any remaining unrealized loss after recording the allowance for credit loss is the non-credit amount and is recorded to other comprehensive income. 22 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments The allowance for credit loss for specific debt securities may be increased or reversed in subsequent periods due to changes in the assessment of the present value of cash flows that are expected to be collected. Any changes to the allowance for credit loss is recorded as a provision for (or reversal of) credit loss expense in net gains (losses) on derivatives and investments. When all, or a portion, of a security is deemed uncollectible, the uncollectible portion is written-off with an adjustment to amortized cost and a corresponding reduction to the allowance for credit losses. Accrued interest receivables are presented separate from the amortized cost basis of debt securities. Accrued interest receivables that are determined to be uncollectible are written off with a corresponding reduction to net investment income. Accrued interest of nil was written off both during the three and six months ended June 30, 2022 and 2021. The roll forward of the allowance for credit loss for available-for-sale securities by sector is as follows (in millions): Three Months Ended June 30, 2022 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at April 1, 2022 $ — $ 6 $ — $ 22 $ 2 $ — $ 2 $ 32 Additions for which credit loss was not previously recorded — — 1 3 2 — — 6 Changes for securities with previously recorded credit loss — — — 5 3 — ( 2 ) 6 Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — ( 1 ) — — ( 1 ) Reductions for securities disposed — — — — — — — — Securities intended/required to be sold before recovery of amortized cost basis — — — — — — — — Balance at June 30, 2022 (2) $ — $ 6 $ 1 $ 30 $ 6 $ — $ — $ 43 Three Months Ended June 30, 2021 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at April 1, 2021 $ — $ — $ — $ — $ 1 $ — $ 4 $ 5 Additions for which credit loss was not previously recorded — — — — — — — — Changes for securities with previously recorded credit loss — — — — — — 2 2 Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — — — — — Reductions for securities disposed — — — — — — — — Securities intended/required to be sold before recovery of amortized cost basis — — — — — — — — Balance at June 30, 2021 (2) $ — $ — $ — $ — $ 1 $ — $ 6 $ 7 23 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Six Months Ended June 30, 2022 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at January 1, 2022 $ — $ — $ — $ — $ 2 $ — $ 7 $ 9 Additions for which credit loss was not previously recorded — 6 1 30 2 — — 39 Changes for securities with previously recorded credit loss — — — 5 3 — ( 7 ) 1 Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — — — — — Reductions for securities disposed — — — — ( 1 ) — — ( 1 ) Securities intended/required to be sold before recovery of amortized cost basis — — — ( 5 ) — — — ( 5 ) Balance at June 30, 2022 (2) $ — $ 6 $ 1 $ 30 $ 6 $ — $ — $ 43 Six Months Ended June 30, 2021 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at January 1, 2021 $ — $ — $ — $ — $ — $ — $ 14 $ 14 Additions for which credit loss was not previously recorded — — — — 1 — — 1 Changes for securities with previously recorded credit loss — — — — — — ( 8 ) ( 8 ) Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — — — — — Reductions for securities disposed — — — — — — — — Securities intended/required to be sold before recovery of amortized cost basis — — — — — — — — Balance at June 30, 2021 (2) $ — $ — $ — $ — $ 1 $ — $ 6 $ 7 (1) Represents purchased credit-deteriorated ("PCD") fixed maturity available-for-sale securities. (2) Accrued interest receivable on debt securities totaled $ 382 million and $ 397 million as of June 30, 2022 and 2021, respectively, and was excluded from the determination of credit losses for the three and six months ended June 30, 2022 and 2021. 24 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Net Investment Income The sources of net investment income were as follows (in millions): 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 Mortgage loans 68 80 141 162 Policy loans 17 17 34 36 Limited partnerships 50 150 158 393 Other investment income 10 5 11 8 Total investment income excluding funds withheld assets 364 536 837 1,207 Net investment income on funds withheld assets (see Note 8) 364 294 624 585 Investment expenses: Derivative trading commission ( 1 ) ( 1 ) ( 2 ) ( 1 ) Depreciation on real estate ( 3 ) ( 2 ) ( 6 ) ( 5 ) Expenses related to consolidated entities (2) ( 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 $( 95 ) million and $( 85 ) million for the three and six months ended June 30, 2022, respectively, and nil and $ 38 million for the three and six months ended June 30, 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; institutional product issuance related expenses; and other expenses. Unrealized gains (losses) included in investment income that were recognized on equity securities held were $( 13 ) million and $ 10 million, for the three months ended June 30, 2022 and 2021, respectively, and $( 31 ) million and $ 15 million, for the six months ended June 30, 2022 and 2021, respectively. 25 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Net Gains (Losses) on Derivatives and Investments The following table summarizes net gains (losses) on derivatives and investments (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Available-for-sale securities Realized gains on sale $ 5 $ 96 $ 29 $ 121 Realized losses on sale ( 63 ) ( 52 ) ( 241 ) ( 58 ) Credit loss income (expense) 1 ( 1 ) 1 7 Credit loss income (expense) on mortgage loans ( 9 ) ( 10 ) 3 48 Other (1) 71 ( 18 ) 83 50 Net gains (losses) excluding derivatives and funds withheld assets 5 15 ( 125 ) 168 Net gains (losses) on derivative instruments (see Note 5) 2,785 ( 1,768 ) 3,492 ( 113 ) Net gains (losses) on funds withheld reinsurance treaties (see Note 8) 1,077 ( 768 ) 2,105 130 Total net gains (losses) on derivatives and investments $ 3,867 $ ( 2,521 ) $ 5,472 $ 185 (1) Includes the foreign currency gain or loss related to foreign denominated trust instruments supporting funding agreements. Net gains (losses) on funds withheld reinsurance treaties represents income (loss) from the sale of investments held in segregated funds withheld accounts in support of reinsurance agreements for which Jackson retains legal ownership of the underlying investments. These gains (losses) are increased or decreased by changes in the embedded derivative liability related to the Athene Reinsurance Agreement and also include (i) changes in the related funds withheld payable, as all economic performance of the investments held in the segregated accounts inure to the benefit of the reinsurers under the respective reinsurance agreements with each reinsurer, and (ii) amortization of the difference between book value and fair value of the investments as of the effective date of the reinsurance agreements with each reinsurer. The aggregate fair value of securities sold at a loss for the three and six months ended June 30, 2022 was $ 506 million and $ 2,898 million, which was approximately 93 % and 92 % of book value, respectively. The aggregate fair value of securities sold at a loss for the three and six months ended June 30, 2021 was $ 888 million and $ 1,184 million, which was approximately 94 % of book value in both periods. Proceeds from sales of available-for-sale debt securities were $ 0.8 billion and $ 4.9 billion during the three and six months ended June 30, 2022, respectively, and $ 2.8 billion and $ 5.6 billion during the three and six months ended June 30, 2021, respectively. There are inherent uncertainties in assessing the fair values assigned to the Company’s investments. The Company’s reviews of net present value and fair value involve several criteria including economic conditions, credit loss experience, other issuer-specific developments and estimated future cash flows. These assessments are based on the best available information at the time. Factors such as market liquidity, the widening of bid/ask spreads and a change in the cash flow assumptions can contribute to future price volatility. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financial statements, unrealized losses currently reported in accumulated other comprehensive income (loss) may be recognized in the consolidated income statements in future periods. The Company currently has no intent to sell securities with unrealized losses considered to be temporary until they mature or recover in value and believes that it has the ability to do so. However, if the specific facts and circumstances surrounding an individual security, or the outlook for its industry sector change, the Company may sell the security prior to its maturity or recovery and realize a loss. 26 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Consolidated Variable Interest Entities ("VIEs") The Company funds affiliated limited liability companies to facilitate the issuance of collateralized loan obligations ("CLOs"). The Company concluded that these limited liability companies are VIEs and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the entity as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. In April 2022, the Company reinvested in collateralized loan obligation issuances resulting in the increase of consolidated assets and liabilities. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments. Private Equity Funds III – VIII are limited partnership structures that invest the ownership capital in portfolios of various other limited partnership structures. The Company concluded that the Private Equity Funds are VIEs and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the funds as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the funds. In the fourth quarter of 2021, the Company entered into a commitment to invest up to $ 300 million in the newly formed Private Equity Fund VIII. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments. PPM has created and managed institutional share class mutual funds, where Jackson seeds new funds, or new share classes within a fund, when deemed necessary to develop the requisite track record prior to allowing investment by external parties. Jackson may sell its interest in the fund once opened to investment by external parties. The Company concluded that these funds are VIEs and that the Company is the primary beneficiary as it has both the power to direct the most significant activities of the VIE as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company’s exposure to loss related to these mutual funds is limited to the capital invested. Asset and liability information for the consolidated VIEs included on the Condensed Consolidated Balance Sheets are as follows (in millions): June 30, 2022 December 31, 2021 Assets Debt securities, at fair value under fair value option $ 1,991 $ 1,546 Debt securities, trading 103 117 Equity securities 128 129 Limited partnerships 1,491 1,309 Cash and cash equivalents 45 120 Other assets 36 45 Total assets $ 3,794 $ 3,266 Liabilities Debt owed to non-controlling interests $ 1,757 $ 1,404 Other liabilities 417 307 Total other liabilities 2,174 1,711 Securities lending payable 5 4 Total liabilities $ 2,179 $ 1,715 Equity Noncontrolling interests $ 747 $ 680 27 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Unconsolidated VIEs The Company invests in certain limited partnerships ("LPs") and limited liability companies ("LLCs") that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs as it does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. In addition, the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities. Therefore, the Company does not consolidate these VIEs and the carrying amounts of the Company’s investments in these LPs and LLCs are recognized in other invested assets on the consolidated balance sheets. Unfunded capital commitments for these investments are detailed in Note 14. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to the LPs/LLCs, for both consolidated and unconsolidated VIEs, which was $ 4,276 million and $ 3,860 million as of June 30, 2022 and December 31, 2021, respectively. The capital invested in an LP or LLC equals the original capital contributed, increased for additional capital contributed after the initial investment, and reduced for any returns of capital from the LP or LLC. LPs and LLCs are carried at fair value. The Company invests in certain mutual funds that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs. Mutual funds for which the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities are recognized in equity securities on the Condensed Consolidated Balance Sheets and were $ 28 million and $ 33 million as of June 30, 2022 and December 31, 2021, respectively. The Company’s maximum exposure to loss on these mutual funds is limited to the amortized cost for these investments. The Company makes investments in structured debt securities issued by VIEs for which they are not the manager. These structured debt securities include RMBS, Commercial Mortgage-Backed Securities ("CMBS"), and asset-backed securities ("ABS"). The Company does not consolidate the securitization trusts utilized in these transactions because they do not have the power to direct the activities that most significantly impact the economic performance of these securitization trusts. The Company does not consider its continuing involvement with these VIEs to be significant because they either invest in securities issued by the VIE and were not involved in the design of the VIE or no transfers have occurred between the Company and the VIE. The Company’s maximum exposure to loss on these structured debt securities is limited to the amortized cost of these investments. The Company does not have any further contractual obligations to the VIE. The Company recognizes the variable interest in these VIEs at fair value on the consolidated balance sheets. Commercial and Residential Mortgage Loans Commercial 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. Accrued interest receivable on commercial mortgage loans was $ 35 million and $ 32 million at June 30, 2022 and December 31, 2021, respectively. 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. Accrued interest receivable on residential mortgage loans was $ 9 million and $ 13 million at June 30, 2022 and December 31, 2021, respectively. 28 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Mortgage Loan Concessions In response to the adverse economic impact of the COVID-19 pandemic, the Company granted concessions to certain of its commercial mortgage loan borrowers, including payment deferrals and other loan modifications. The Company has elected the option under the Coronavirus Aid, Relief, and Economic Security Act, the Consolidated Appropriations Act of 2021, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by bank regulatory agencies, not to account for or report qualifying concessions as troubled debt restructurings and does not classify such loans as past due during the payment deferral period. Additionally, in accordance with the FASB’s published response to a COVID-19 Pandemic technical inquiry, the Company continues to accrue interest income on such loans that have deferred payment. For some commercial mortgage loan borrowers (principally in the hotel and retail sectors), the Company granted concessions which were primarily interest and/ or principal payment deferrals generally ranging from 6 to 14 months and, to a much lesser extent, maturity date extensions. Repayment periods are generally within one year but may extend until maturity date. Deferred commercial mortgage loan interest and principal payments were $ 11 million at June 30, 2022. The concessions granted had no impact on the Company’s results of operations or financial position as the Company has not granted concessions that would have been disclosed and accounted for as troubled debt restructurings. Evaluation for Credit Losses on Mortgage Loans The Company reviews mortgage loans that are not carried at fair value under the fair value option on a quarterly basis to estimate the ACL with changes in the ACL recorded in net gains (losses) on derivatives and investments. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level for mortgage loans. The model forecasts net operating income and property values for the economic scenario selected. The debt service coverage ratios (“DSCR”) and loan to values (“LTV”) are calculated over the forecastable period by comparing the projected net operating income and property valuations to the loan payment and principal amounts of each loan. The model utilizes historical mortgage loan performance based on DSCRs and LTV to derive probability of default and expected losses based on the economic scenario that is similar to the Company’s expectations of economic factors such as unemployment, GDP growth, and interest rates. The Company determined the forecastable period to be reasonable and supportable for a period of two years beyond the end of the reporting period. Over the following one-year period, the model reverts to the historical performance of the portfolio for the remainder of the contractual term of the loans. In cases where the Company does not have an appropriate length of historical performance, the relevant historical rate from an index or the lifetime expected credit loss calculated from the model may be used. Unfunded commitments are included in the model and an ACL is determined accordingly. Credit loss estimates are pooled by property type and the Company does not include accrued interest in the determination of ACL. For individual loans or for types of loans for which the third-party model is deemed not suitable, the Company utilizes relevant current market data, industry data, and publicly available historical loss rates to calculate an estimate of the lifetime expected credit loss. Mortgage loans on real estate deemed uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL, limited to the aggregate of amounts previously charged-off and expected to be charged-off. Mortgage loans on real estate are presented net of the allowance for credit losses on the Condensed Consolidated Balance Sheets. 29 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments The following table provides a summary of the allowance for credit losses in the Company’s mortgage loan portfolios (in millions): Three Months Ended June 30, 2022 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at April 1, 2022 $ 21 $ 9 $ 22 $ 14 $ 12 $ 6 $ 84 Charge offs, net of recoveries — — — — — — — Provision (release) — 9 ( 6 ) ( 1 ) ( 3 ) ( 3 ) ( 4 ) Balance at June 30, 2022 (1) $ 21 $ 18 $ 16 $ 13 $ 9 $ 3 $ 80 Three Months Ended June 30, 2021 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at April 1, 2021 $ 27 $ 22 $ 16 $ 15 $ 13 $ 20 $ 113 Charge offs, net of recoveries — — — — — — — Provision (release) — 11 4 8 ( 1 ) 1 23 Balance at June 30, 2021 (1) $ 27 $ 33 $ 20 $ 23 $ 12 $ 21 $ 136 Six Months Ended June 30, 2022 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at January 1, 2022 $ 19 $ 9 $ 28 $ 17 $ 12 $ 9 $ 94 Charge offs, net of recoveries — — — — — — — Provision (release) 2 9 ( 12 ) ( 4 ) ( 3 ) ( 6 ) ( 14 ) Balance at June 30, 2022 (1) $ 21 $ 18 $ 16 $ 13 $ 9 $ 3 $ 80 Six Months Ended June 30, 2021 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at January 1, 2021 $ 58 $ 34 $ 25 $ 24 $ 24 $ 14 $ 179 Charge offs, net of recoveries — — — — — — — Provision (release) ( 31 ) ( 1 ) ( 5 ) ( 1 ) ( 12 ) 7 ( 43 ) Balance at June 30, 2021 (1) $ 27 $ 33 $ 20 $ 23 $ 12 $ 21 $ 136 (1) Accrued interest receivable totaled $ 44 million and $ 40 million as of June 30, 2022 and 2021, respectively, and was excluded from the determination of credit losses. The Company’s mortgage loans that are current and in good standing are accruing interest. Interest is not accrued on loans greater than 90 days delinquent and in process of foreclosure, when deemed uncollectible. Delinquency status is determined from the date of the first missed contractual payment. At 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. 30 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments The following tables provide information about the credit quality with vintage year and category of mortgage loans (in millions): June 30, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Total % of Total Commercial mortgage loans Loan to value ratios: Less than 70% $ 396 $ 1,376 $ 1,343 $ 1,542 $ 1,498 $ 3,866 $ 4 $ 10,025 93 % 70% - 80% 80 374 33 — 52 144 — 683 6 % 80% - 100% — — — 38 5 — — 43 — % Greater than 100% — — — — — 10 — 10 — % Total commercial mortgage loans 476 1,750 1,376 1,580 1,555 4,020 4 10,761 100 % Debt service coverage ratios: Greater than 1.20x 442 963 859 1,453 1,347 3,727 4 8,795 82 % 1.00x - 1.20x 34 529 375 85 79 144 — 1,246 12 % Less than 1.00x — 258 142 42 129 149 — 720 7 % Total commercial mortgage loans 476 1,750 1,376 1,580 1,555 4,020 4 10,761 100 % Residential mortgage loans Performing 96 465 54 43 17 416 — 1,091 93 % Nonperforming (2) — 3 10 6 8 52 — 79 7 % Total residential mortgage loans 96 468 64 49 25 468 — 1,170 100 % Total mortgage loans $ 572 $ 2,218 $ 1,440 $ 1,629 $ 1,580 $ 4,488 $ 4 $ 11,931 100 % December 31, 2021 2021 2020 2019 2018 2017 Prior Revolving Loans Total % of Total Commercial mortgage loans Loan to value ratios: Less than 70% $ 1,270 $ 1,346 $ 1,592 $ 1,599 $ 1,305 $ 2,703 $ 4 $ 9,819 93 % 70% - 80% 345 35 — 52 85 153 — 670 6 % 80% - 100% — — 39 5 — — — 44 — % Greater than 100% — — — — — 10 — 10 — % Total commercial mortgage loans 1,615 1,381 1,631 1,656 1,390 2,866 4 10,543 100 % Debt service coverage ratios: Greater than 1.20x 796 974 1,532 1,293 1,257 2,609 4 8,465 80 % 1.00x - 1.20x 651 329 81 90 11 68 — 1,230 12 % Less than 1.00x 168 78 18 273 122 189 — 848 8 % Total commercial mortgage loans 1,615 1,381 1,631 1,656 1,390 2,866 4 10,543 100 % Residential mortgage loans Performing 268 22 18 16 7 396 — 727 77 % Nonperforming (2) 4 44 22 19 23 100 — 212 23 % Total residential mortgage loans 272 66 40 35 30 496 — 939 100 % Total mortgage loans $ 1,887 $ 1,447 $ 1,671 $ 1,691 $ 1,420 $ 3,362 $ 4 $ 11,482 100 % 31 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments June 30, 2022 In Good Standing (1) Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value Apartment $ 3,920 $ — $ — $ — $ 3,920 Hotel 1,067 — — — 1,067 Office 1,894 — — — 1,894 Retail 2,134 — — — 2,134 Warehouse 1,746 — — — 1,746 Total commercial 10,761 — — — 10,761 Residential (2) 1,091 — 61 18 1,170 Total $ 11,852 $ — $ 61 $ 18 $ 11,931 December 31, 2021 In Good Standing (1) Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value Apartment $ 3,755 $ — $ — $ — $ 3,755 Hotel 1,054 — — — 1,054 Office 1,889 — — — 1,889 Retail 2,104 — — — 2,104 Warehouse 1,741 — — — 1,741 Total commercial 10,543 — — — 10,543 Residential (2) 727 — 206 6 939 Total $ 11,270 $ — $ 206 $ 6 $ 11,482 (1) At June 30, 2022 and December 31, 2021, includes mezzanine loans of $ 420 million and $ 278 million in the Apartment category, $ 69 million and $ 75 million in the Hotel category, $ 259 million and $ 252 million in the Office category, $ 27 million and $ 27 million in the Retail category, and $ 55 million and $ 26 million in the Warehouse category, respectively. (2) At 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, and are supported with insurance or other guarantees provided by various governmental programs, respectively. As of June 30, 2022 and December 31, 2021, there were no commercial mortgage loans involved in troubled debt restructuring, and stressed mortgage loans for which the Company is dependent, or expects to be dependent, on the underlying property to satisfy repayment were $ 3 million. Other Invested Assets Other invested assets primarily include investments in Federal Home Loan Bank capital stock, limited partnerships (“LPs”), and real estate. Federal Home Loan Bank capital stock is carried at cost and adjusted for any impairment. At June 30, 2022 and December 31, 2021, FHLB capital stock had carrying value of $ 146 million and $ 125 million, respectively. Real estate is carried at the lower of depreciated cost or fair value. At June 30, 2022 and December 31, 2021, real estate totaling $ 241 million and $ 243 million, respectively, included foreclosed properties with a book value of $ 1 million at both June 30, 2022 and December 31, 2021. Carrying values for limited partnership investments are generally determined by using the proportion of the Company’s investment in each fund (Net Asset Value (“NAV”) equivalent) as a practical expedient for fair value, and generally are recorded on a three-month lag, with changes in value included in net investment income. At June 30, 2022 and December 31, 2021, investments in LPs had carrying values of $ 3,261 million and $ 2,831 million, respectively. In June 2021, the Company entered into an arrangement to sell $ 420 million of limited partnership investments, of which $ 236 million and $ 168 million were sold in the second and third quarter of 2021, respectively, and the remainder was sold in January 2022. The LPs sold were carried at estimated sales price. The Company expects to reinvest in new LPs as attractive opportunities become available. 32 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Securities Lending The Company has entered into securities lending agreements with agent banks whereby blocks of securities are loaned to third parties, primarily major brokerage firms. As of June 30, 2022 and December 31, 2021, the estimated fair value of loaned securities was $ 31 million and $ 17 million, respectively. The agreements require a minimum of 102 percent of the fair value of the loaned securities to be held as collateral, calculated on a daily basis. To further minimize the credit risks related to these programs, the financial condition of counterparties is monitored on a regular basis. At June 30, 2022 and December 31, 2021, cash collateral received in the amount of $ 32 million and $ 17 million, respectively, was invested by the agent banks and included in cash and cash equivalents of the Company. A securities lending payable for the overnight and continuous loans is included in liabilities in the amount of cash collateral received. Securities lending transactions are used to generate income. Income and expenses associated with these transactions are reported as net investment income. Repurchase Agreements The Company routinely enters into repurchase agreements whereby the Company agrees to sell and repurchase securities. These agreements are accounted for as financing transactions, with the assets and associated liabilities included in the Condensed Consolidated Balance Sheets. Short-term borrowings under such agreements averaged $ 271 million for six months ended June 30, 2022 and $ 1,548 million for the year ended December 31, 2021, with weighted average interest rates of 0.19 % and 0.07 %, respectively. At June 30, 2022 and December 31, 2021, the outstanding repurchase agreement balance was nil and $ 1,572 million, respectively, collateralized with U.S. Treasury notes and corporate securities and maturing within 30 days, and was included within repurchase agreements and securities lending payable in the Condensed Consolidated Balance Sheets. In the event of a decline in the fair value of the pledged collateral under these agreements, the Company may be required to transfer cash or additional securities as pledged collateral. Interest expense totaled nil both for the three and six months ended June 30, 2022, respectively, and nil and $ 1 million for the three and six months ended June 30, 2021. The highest level of short-term borrowings at any month end was $ 584 million and $ 2,257 million for the six months ended June 30, 2022 and 2021, respectively. 33 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments 5. Derivative Instruments The Company’s business model includes the acceptance, monitoring and mitigation of risk. Specifically, the Company considers, among other factors, exposures to interest rate and equity market movements, foreign exchange rates and other asset or liability prices. The Company uses derivative instruments to mitigate or reduce these risks in accordance with established policies and goals. The Company’s derivative holdings, while effective in managing defined risks, are not structured to meet accounting requirements to be designated as hedging instruments. As a result, freestanding derivatives are carried at fair value with changes recorded in net gains (losses) on derivatives and investments. A summary of the aggregate contractual or notional amounts and fair values of the Company’s freestanding and embedded derivative instruments are as follows (in millions): June 30, 2022 Contractual/ Assets Liabilities Net Notional Fair Fair Fair Value Amount (1) Value Value Asset (Liability) Freestanding derivatives Cross-currency swaps $ 1,802 $ 48 $ 108 $ ( 60 ) Equity index call options 24,000 13 — 13 Equity index futures (2) 25,272 — — — Equity index put options 32,500 1,030 — 1,030 Interest rate swaps 7,728 30 60 ( 30 ) Interest rate swaps - cleared (2) 1,500 — — — Put-swaptions 22,000 — 1,029 ( 1,029 ) Treasury futures (2) 14 — — — Total return swaps 700 12 4 8 Total freestanding derivatives 115,516 1,133 1,201 ( 68 ) Embedded derivatives Variable annuity embedded derivatives (3) N/A — 601 ( 601 ) Fixed index annuity embedded derivatives (4) N/A — 1,087 ( 1,087 ) Registered index linked annuity embedded derivatives (4) N/A — 4 ( 4 ) Total embedded derivatives N/A — 1,692 ( 1,692 ) Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps 158 24 1 23 Cross-currency forwards 1,190 86 15 71 Funds withheld embedded derivative (5) N/A 2,508 — 2,508 Total derivatives related to funds withheld under reinsurance treaties 1,348 2,618 16 2,602 Total $ 116,864 $ 3,751 $ 2,909 $ 842 (1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions. (2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades. (3) Included within reserves for future policy benefits and claims payable on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above. (4) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above. (5) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets. 34 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments December 31, 2021 Contractual/ Assets Liabilities Net Notional Fair Fair Fair Value Amount (1) Value Value Asset (Liability) Freestanding derivatives Cross-currency swaps $ 1,767 $ 55 $ 35 $ 20 Equity index call options 21,000 606 — 606 Equity index futures (2) 18,258 — — — Equity index put options 27,500 150 — 150 Interest rate swaps 7,728 430 — 430 Interest rate swaps - cleared (2) 1,500 — — — Put-swaptions 19,000 133 — 133 Treasury futures (2) 912 — — — Total return swaps — — — — Total freestanding derivatives 97,665 1,374 35 1,339 Embedded derivatives Variable annuity embedded derivatives (3) N/A — 2,626 ( 2,626 ) Fixed index annuity embedded derivatives (4) N/A — 1,439 ( 1,439 ) Registered index linked annuity embedded derivatives (4) N/A — 6 ( 6 ) Total embedded derivatives N/A — 4,071 ( 4,071 ) Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps 158 10 1 9 Cross-currency forwards 1,119 33 5 28 Funds withheld embedded derivative (5) N/A — 120 ( 120 ) Total derivatives related to funds withheld under reinsurance treaties 1,277 43 126 ( 83 ) Total $ 98,942 $ 1,417 $ 4,232 $ ( 2,815 ) (1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions. (2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades. (3) Included within reserves for future policy benefits and claims payable on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above. (4) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. The nonperformance risk adjustment is included in the balance above. (5) Included within funds withheld payable under reinsurance treaties on the Condensed Consolidated Balance Sheets. 35 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments The following table reflects the results of the Company’s derivatives, including gains (losses) and change in fair value of freestanding derivative instruments and embedded derivatives (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Derivatives excluding funds withheld under reinsurance treaties Cross-currency swaps $ ( 50 ) $ 21 $ ( 82 ) $ ( 44 ) Equity index call options ( 642 ) 667 ( 1,231 ) 799 Equity index futures 3,618 ( 1,377 ) 4,241 ( 2,670 ) Equity index put options 822 ( 260 ) 507 ( 611 ) Interest rate swaps ( 150 ) 117 ( 411 ) ( 148 ) Interest rate swaps - cleared ( 49 ) 36 ( 137 ) ( 50 ) Put-swaptions ( 686 ) 395 ( 1,154 ) 103 Treasury futures ( 1 ) — ( 312 ) ( 773 ) Total return swaps 8 — 8 — Fixed index annuity embedded derivatives 4 ( 2 ) 5 ( 2 ) Registered index linked annuity embedded derivative 60 — 63 — Variable annuity embedded derivatives ( 149 ) ( 1,365 ) 1,995 3,283 Total net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treaties 2,785 ( 1,768 ) 3,492 ( 113 ) Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps 12 8 15 6 Cross-currency forwards 51 ( 6 ) 69 13 Funds withheld embedded derivative 1,347 ( 544 ) 2,628 454 Total net gains (losses) on derivative instruments related to funds withheld under reinsurance treaties 1,410 ( 542 ) 2,712 473 Total net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treaties $ 4,195 $ ( 2,310 ) $ 6,204 $ 360 All of the Company’s trade agreements for freestanding, over-the-counter derivatives, contain credit downgrade provisions that allow a party to assign or terminate derivative transactions if the counterparty’s credit rating declines below an established limit. At June 30, 2022 and December 31, 2021, the fair value of the Company’s net non-cleared, over-the-counter derivative assets by counterparty were $ 977 million and $ 1,376 million, respectively, and held collateral was $ 879 million and $ 1,576 million, respectively, related to these agreements. At June 30, 2022 and December 31, 2021, the fair value of the Company’s net non-cleared, over-the-counter derivative liabilities by counterparty were $ 951 million and nil , respectively, and provided collateral was $ 1,128 million and nil , respectively, related to these agreements. If all of the downgrade provisions had been triggered at June 30, 2022 and December 31, 2021, in aggregate, the Company would have had to disburse nil and $ 200 million, respectively, and would have been allowed to claim $ 275 million and nil , respectively. Offsetting Assets and Liabilities The Company’s derivative instruments, repurchase agreements and securities lending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company recognizes amounts subject to master netting arrangements on a gross basis within the Condensed Consolidated Balance Sheets. 36 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments The following tables present the gross and net information about the Company’s financial instruments subject to master netting arrangements (in millions): June 30, 2022 Gross Amounts Recognized Gross Amounts Offset in the Condensed Consolidated Balance Sheets Net Amounts Presented in the Condensed Consolidated Balance Sheets Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Financial Instruments (1) Cash Collateral Securities Collateral (2) Net Amount Financial Assets: Freestanding derivative assets $ 1,243 $ — $ 1,243 $ 266 $ 610 $ 246 $ 121 Financial Liabilities: Freestanding derivative liabilities $ 1,217 $ — $ 1,217 $ 266 $ 66 $ 885 $ — Securities loaned 32 — 32 — 32 — — Repurchase agreements — — — — — — — Total financial liabilities $ 1,249 $ — $ 1,249 $ 266 $ 98 $ 885 $ — (1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets. (2) Excludes initial margin amounts for exchange-traded derivatives. December 31, 2021 Gross Amounts Recognized Gross Amounts Offset in the Condensed Consolidated Balance Sheets Net Amounts Presented in the Condensed Consolidated Balance Sheets Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Financial Instruments (1) Cash Collateral Securities Collateral (2) Net Amount Financial Assets: Freestanding derivative assets $ 1,417 $ — $ 1,417 $ 41 $ 817 $ 555 $ 4 Financial Liabilities: Freestanding derivative liabilities $ 41 $ — $ 41 $ 41 $ — $ — $ — Securities loaned 17 — 17 — 17 — — Repurchase agreements 1,572 — 1,572 — — 1,572 — Total financial liabilities $ 1,630 $ — $ 1,630 $ 41 $ 17 $ 1,572 $ — (1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets. (2) Excludes initial margin amounts for exchange-traded derivatives. In the above tables, the amounts of assets or liabilities presented in the Company’s Condensed Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables. The above tables exclude net embedded derivative liabilities of $ 1,692 million and $ 4,071 million as of June 30, 2022 and December 31, 2021, respectively, as these derivatives are not subject to master netting arrangements. The above tables also exclude the funds withheld embedded derivative asset (liability) of $ 2,508 million and $( 120 ) million at June 30, 2022 and December 31, 2021. 37 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements 6. Fair Value Measurements The following table summarizes the fair value and carrying value of the Company’s financial instruments (in millions): June 30, 2022 December 31, 2021 Carrying Value Fair Value Carrying Value Fair Value Assets Debt securities (1) $ 45,586 $ 45,586 $ 53,375 $ 53,375 Equity securities 260 260 279 279 Mortgage loans (1) 11,931 11,586 11,482 11,910 Limited partnerships 3,261 3,261 2,831 2,831 Policy loans (1) 4,459 4,459 4,475 4,475 Freestanding derivative instruments 1,243 1,243 1,417 1,417 Federal Home Loan Bank of Indianapolis ("FHLBI") capital stock 146 146 125 125 Cash and cash equivalents 5,258 5,258 2,623 2,623 Guaranteed minimum income benefits ("GMIB") reinsurance recoverable 232 232 262 262 Separate account assets 196,184 196,184 248,949 248,949 Liabilities Annuity reserves (2) 38,787 35,844 40,389 50,116 Reserves for guaranteed investment contracts (3) 1,181 1,156 894 923 Trust instruments supported by funding agreements (3) 5,301 5,174 5,986 6,175 FHLB funding agreements (3) 2,001 2,090 1,950 1,938 Funds withheld payable under reinsurance treaties (1) 25,506 25,506 29,007 29,007 Long-term debt 2,634 2,422 2,649 2,745 Securities lending payable 32 32 17 17 Freestanding derivative instruments 1,217 1,217 41 41 Repurchase agreements — — 1,572 1,572 FHLB advances — — — — Separate account liabilities 196,184 196,184 248,949 248,949 (1) Includes items carried at fair value under the fair value option and trading securities. (2) Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments. (3) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets. The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on both a recurring and nonrecurring basis reported in the following tables. Debt and Equity Securities The fair values for debt and equity securities are determined using information available from independent pricing services, broker-dealer quotes, or internally derived estimates. Priority is given to publicly available prices from independent sources, when available. Securities for which the independent pricing service does not provide a quotation are either submitted to independent broker-dealers for prices or priced internally. Typical inputs used by these three pricing methods include reported trades, benchmark yields, credit spreads, liquidity premiums and/or estimated cash flows based on default and prepayment assumptions. As a result of typical trading volumes and the lack of specific quoted market prices for most debt securities, independent pricing services will normally derive the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recently reported trades, the independent pricing services and broker-dealers may use matrix or pricing model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at relevant market rates. Certain securities are priced using broker-dealer quotes, which may utilize 38 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements proprietary inputs and models. Additionally, the majority of these quotes are non-binding. Included in the pricing of asset-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment assumptions believed to be relevant for the underlying collateral. Actual prepayment experience may vary from these estimates. Internally derived estimates may be used to develop a fair value for securities for which the Company is unable to obtain either a reliable price from an independent pricing service or a suitable broker-dealer quote. These fair value estimates may incorporate Level 2 and Level 3 inputs and are generally derived using expected future cash flows, discounted at market interest rates available from market sources based on the credit quality and duration of the instrument. For securities that may not be reliably priced using these internally developed pricing models, a fair value may be estimated using indicative market prices. These prices are indicative of an exit price, but the assumptions used to establish the fair value may not be observable or corroborated by market observable information and, therefore, represent Level 3 inputs. The Company performs an analysis on the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include initial and ongoing review of third-party pricing service methodologies, review of pricing statistics and trends, back testing recent trades and monitoring of trading volumes. In addition, the Company considers whether prices received from independent broker-dealers represent a reasonable estimate of fair value through the use of internal and external cash flow models, which are developed based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party may be adjusted accordingly. For those securities that were internally valued at June 30, 2022 and December 31, 2021, the pricing model used by the Company utilizes current spread levels of similarly rated securities to determine the market discount rate for the security. Furthermore, appropriate risk premiums for illiquidity and non-performance are incorporated in the discount rate. Cash flows, as estimated by the Company using issuer-specific default statistics and prepayment assumptions, are discounted to determine an estimated fair value. On an ongoing basis, the Company reviews the independent pricing services’ valuation methodologies and related inputs and evaluates the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy distribution based upon trading activity and the observability of market inputs. Based on the results of this evaluation, each price is classified into Level 1, 2, or 3. Most prices provided by independent pricing services, including broker-dealer quotes, are classified into Level 2 due to their use of market observable inputs. Limited Partnerships Fair values for limited partnership interests, which are included in other invested assets, is generally determined using the proportion of the Company’s investment in the value of the net assets of each fund (“NAV equivalent”) as a practical expedient for fair value, and generally, are recorded on a three-month lag. No adjustments to these amounts were deemed necessary at June 30, 2022 and December 31, 2021. As a result of using the net asset value per share practical expedient, limited partnership interests are not classified in the fair value hierarchy. The Company’s limited partnership interests are not redeemable and distributions received are generally the result of liquidation of the underlying assets of the partnerships. The Company generally has the ability under the partnership agreements to sell its interest to another limited partner with the prior written consent of the general partner. In cases when the Company expects to sell the limited partnership interest, the estimated sales price is used to determine the fair value rather than the practical expedient. These limited partnership interests are classified as Level 2 in the fair value hierarchy. In cases when a limited partnership’s financial statements are unavailable and a NAV equivalent is not available or practical, an internally developed model is used to determine fair value for that fund. These investments are classified as Level 3 in the fair value hierarchy. 39 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Policy Loans Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The reinsurance related component of policy loans at fair value under the fair value option have been classified as Level 3 within the fair value hierarchy. Freestanding Derivative Instruments Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, which the Company would receive or pay upon sale or termination of the contracts at the reporting date. Changes in fair value are included in net gains (losses) on derivatives and investments. Freestanding derivatives priced using third party pricing services incorporate inputs that are predominantly observable in the market. Inputs used to value derivatives include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels. Freestanding derivative instruments classified as Level 1 include futures, which are traded on active exchanges. Freestanding derivative instruments classified as Level 2 include interest rate swaps, cross currency swaps, cross-currency forwards, credit default swaps, total return swaps, put-swaptions and certain equity index call and put options. These derivative valuations are determined by third-party pricing services using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Freestanding derivative instruments classified as Level 3 include interest rate contingent options that are valued by third-party pricing services utilizing significant unobservable inputs. Cash and Cash Equivalents Cash and cash equivalents primarily include money market instruments and bank deposits. Cash equivalents also includes all highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase. Certain money market instruments are valued using unadjusted quoted prices in active markets and are classified as Level 1. Funds Withheld Payable Under Reinsurance Treaties The funds withheld payable under reinsurance treaties includes both the funds withheld payable which are held at fair value under the fair value option and the funds withheld embedded derivative liability. The fair value of the funds withheld payable which are held at fair value under the fair value option is equal to the fair value of the assets held as collateral, which primarily consists of policy loans using industry standard valuation techniques. The funds withheld embedded derivative liability is determined based upon a total return swap technique referencing the fair value of the investments held under the reinsurance contract and requires certain significant unobservable inputs. The funds withheld payable which are held at fair value under the fair value option and the funds withheld embedded derivative are considered Level 3 in the fair value hierarchy. Separate Account Assets Separate account assets are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2 assets. 40 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Variable Annuity Guarantees Variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal, income and accumulation benefits. Certain benefits, including non-life contingent components of guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum withdrawal benefits for life (“GMWB for Life”), guaranteed minimum accumulation benefits (“GMAB”), and the reinsurance recoverable on the Company’s GMIB, are recorded at fair value. Guaranteed benefits that are not subject to fair value accounting are accounted for as insurance benefits. The Company discontinued offering the GMIB in 2009 and GMAB in 2011. GMABs and non-life contingent components of GMWB and GMWB for Life contracts are recorded at fair value with changes in fair value recorded in net gains (losses) on derivatives and investments. The fair value of the reserve is based on the expectations of future benefit payments and certain future fees associated with the benefits. At the inception of the contract, the Company attributes to the embedded derivative a portion of rider fees collected from the contract holder, which is then held static in future valuations. Those fees, generally referred to as the attributed fees, are set such that the present value of the attributed fees is equal to the present value of future claims expected to be paid under the guaranteed benefit at the inception of the contract. In subsequent valuations, both the present value of future benefits and the present value of attributed fees are revalued based on current market conditions and policyholder behavior assumptions. The difference between each of the two components represents the fair value of the embedded derivative. Thus, when unfavorable equity market movements cause declines in the contract holder’s account value relative to the guarantee benefit, the valuation of future expected claims would generally increase relative to the measurement performed at the inception of the contract, resulting in an increase in the fair value of the embedded derivative liability (and vice versa). The Company’s GMIB book is reinsured through an unrelated party, and due to the net settlement provisions of the reinsurance agreement, this contract meets the definition of a derivative. Accordingly, the GMIB reinsurance agreement is recorded at fair value, with changes in fair value recorded in net gains (losses) on derivatives and investments. Due to the inability to economically reinsure or hedge new issues of the GMIB, the Company discontinued offering the benefit in 2009. Fair values for GMWB, GMWB for Life, and GMAB embedded derivatives, as well as GMIB reinsurance recoverables, are calculated using internally developed models because active, observable markets do not exist for those guaranteed benefits. The fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behavior. Capital market inputs include expected market rates of return, market volatility, correlations of market index returns to funds, fund performance and discount rates. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable. At each valuation date, the fair value calculation reflects expected returns based on the greater of LIBOR swap rates and constant maturity treasury rates as of that date to determine the value of expected future cash flows produced in a stochastic process. Volatility assumptions are based on a weighting of available market data for implied market volatility for durations up to 10 years, grading to a historical volatility level by year 15, where such long-term historical volatility levels contain an explicit risk margin. Additionally, non-performance risk is incorporated into the calculation through the use of discount rates based on a blend of yields on similarly-rated peer debt and yields on JFI debt (adjusted to operating company levels). Risk margins are also incorporated into the model assumptions, particularly for policyholder behavior. Estimates of future policyholder behavior are subjective and are based primarily on the Company’s experience. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for this component of the fair value model. 41 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements The use of the models and assumptions described above requires a significant amount of judgment. Management believes the aggregation of each of these components results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to or from a willing buyer or seller, if one existed, for those market participants to assume the risks associated with the guaranteed benefits and the related reinsurance. However, the ultimate settlement amount of the asset or liability, which is currently unknown, could likely be significantly different than this fair value. Fixed Index Annuities The fair value of the fixed index annuities embedded option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires, is calculated using the closed form Black-Scholes Option Pricing model or Monte Carlo simulations, as appropriate for the type of option. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders. RILA The fair value of the RILA embedded option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires, is calculated using the closed form Black-Scholes Option Pricing model. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders. Fair Value Option The Company elected the fair value option for debt securities related to certain consolidated investments totaling $ 1,991 million and $ 1,546 million at June 30, 2022 and December 31, 2021, respectively. These debt securities are reflected on the Company’s Condensed Consolidated Balance Sheets as debt securities, at fair value under the fair value option. The Company has elected the fair value option for certain funds withheld assets, which are held as collateral for reinsurance, totaling $ 3,999 million and $ 3,632 million at June 30, 2022 and December 31, 2021, respectively, as discussed above, and includes mortgage loans as discussed below. The Company elected the fair value option for certain mortgage loans held under the funds withheld reinsurance agreement. The fair value option was elected for these mortgage loans, purchased or funded after December 31, 2021, to mitigate inconsistency in earnings that would otherwise result between these mortgage loan assets and the funds withheld liability, including the associated embedded derivative, and are valued using third-party pricing services. Changes in fair value are reflected in net investment income on the Condensed Consolidated Income Statements. The fair value and aggregate contractual principal for mortgage loans where the fair value option was elected after December 31, 2021, were as follows (in millions): June 30, 2022 Fair value $ 357 Aggregate contractual principal 362 As of June 30, 2022, no loans for which the fair value option was elected were in non-accrual status, and no loans were more than 90 days past due and still accruing interest. Income and changes in unrealized gains and losses on other assets for which the Company has elected the fair value option are immaterial to the Company’s Condensed Consolidated Financial Statements. 42 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables summarize the Company’s assets and liabilities that are carried at fair value by hierarchy levels (in millions): June 30, 2022 Total Level 1 Level 2 Level 3 Assets Debt securities U.S. government securities $ 2,988 $ 2,988 $ — $ — Other government securities 1,501 — 1,501 — Public utilities 5,518 — 5,518 — Corporate securities 27,191 — 27,144 47 Residential mortgage-backed 470 — 470 — Commercial mortgage-backed 1,658 — 1,658 — Other asset-backed securities 6,260 — 6,260 — Equity securities 260 81 55 124 Mortgage loans 357 — — 357 Limited partnerships (1) 1 — — 1 Policy loans 3,485 — — 3,485 Freestanding derivative instruments 1,243 — 1,243 — Cash and cash equivalents 5,258 5,258 — — GMIB reinsurance recoverable 232 — — 232 Separate account assets 196,184 — 196,184 — Total $ 252,606 $ 8,327 $ 240,033 $ 4,246 Liabilities Embedded derivative liabilities (2) $ 1,692 $ — $ 1,091 $ 601 Funds withheld payable under reinsurance treaties (3) 1,141 — — 1,141 Freestanding derivative instruments 1,217 — 1,217 — Total $ 4,050 $ — $ 2,308 $ 1,742 (1) Excludes $ 3,260 million of limited partnership investments measured at NAV. (2) Includes the embedded derivative liabilities of $ 601 million related to GMWB reserves included in reserves for future policy benefits and claims payable, $ 4 million of RILA and $ 1,087 million of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets. (3) Includes the Athene embedded derivative asset of $ 2,508 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. 43 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements December 31, 2021 Total Level 1 Level 2 Level 3 Assets Debt securities U.S. government securities $ 4,321 $ 4,321 $ — $ — Other government securities 1,619 — 1,619 — Public utilities 6,715 — 6,715 — Corporate securities 31,146 — 31,137 9 Residential mortgage-backed 569 — 569 — Commercial mortgage-backed 2,038 — 2,038 — Other asset-backed securities 6,967 — 6,967 — Equity securities 279 111 56 112 Limited partnerships (1) 18 — 17 1 Policy loans 3,467 — — 3,467 Freestanding derivative instruments 1,417 — 1,417 — Cash and cash equivalents 2,623 2,623 — — GMIB reinsurance recoverable 262 — — 262 Separate account assets 248,949 — 248,949 — Total $ 310,390 $ 7,055 $ 299,484 $ 3,851 Liabilities Embedded derivative liabilities (2) $ 4,071 $ — $ 1,445 $ 2,626 Funds withheld payable under reinsurance treaties (3) 3,759 — — 3,759 Freestanding derivative instruments 41 — 41 — Total $ 7,871 $ — $ 1,486 $ 6,385 (1) Excludes $ 2,813 million of limited partnership investments measured at NAV. (2) Includes the embedded derivative liabilities of $ 2,626 million related to GMWB reserves included in reserves for future policy benefits and claims payable, $ 6 million of RILA and $ 1,439 million of fixed index annuities, both included in other contract holder funds on the consolidated balance sheets. (3) Includes the Athene embedded derivative liability of $ 120 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. 44 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) Level 3 Assets and Liabilities by Price Source The table below presents the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources (in millions): June 30, 2022 Assets Total Internal External Debt securities: Corporate $ 47 $ — $ 47 Equity securities 124 1 123 Mortgage loans 357 — 357 Limited partnerships 1 1 — Policy loans 3,485 3,485 — GMIB reinsurance recoverable 232 232 — Total $ 4,246 $ 3,719 $ 527 Liabilities Embedded derivative liabilities (1) $ 601 $ 601 $ — Funds withheld payable under reinsurance treaties (2) 1,141 1,141 — Total $ 1,742 $ 1,742 $ — (1) Includes the embedded derivative related to GMWB reserves. (2) Includes the Athene embedded derivative asset of $ 2,508 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. December 31, 2021 Assets Total Internal External Debt securities: Corporate $ 9 $ — $ 9 Equity securities 112 1 111 Limited partnerships 1 1 — Policy loans 3,467 3,467 — GMIB reinsurance recoverable 262 262 — Total $ 3,851 $ 3,731 $ 120 Liabilities Embedded derivative liabilities (1) $ 2,626 $ 2,626 $ — Funds withheld payable under reinsurance treaties (2) 3,759 3,759 — Total $ 6,385 $ 6,385 $ — (1) Includes the embedded derivative related to GMWB reserves. (2) Includes the Athene embedded derivative liability of $ 120 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. External pricing sources for securities represent unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available. 45 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Quantitative Information Regarding Internally-Priced Level 3 Assets and Liabilities The table below presents quantitative information on significant internally-priced Level 3 assets and liabilities (in millions): As of June 30, 2022 Fair Value Valuation Technique(s) Significant Unobservable Input(s) Assumption or Input Range Impact of Increase in Input on Fair Value Assets GMIB reinsurance recoverable $ 232 Discounted cash flow Mortality (1) 0.01 % - 23.42 % Decrease Lapse (2) 3.30 % - 9.00 % Decrease Utilization (3) 0.00 % - 20.00 % Increase Withdrawal (4) 3.75 % - 4.50 % Increase Nonperformance risk (5) 0.00 % - 2.32 % Decrease Long-term Equity Volatility (6) 18.50 % - 23.00 % Increase Liabilities Embedded derivative liabilities $ 601 Discounted cash flow Mortality (1) 0.04 % - 21.45 % Decrease Lapse (2) 0.20 % - 30.90 % Decrease Utilization (3) 5.00 % - 100.00 % Increase Withdrawal (4) 58.00 % - 97.00 % Increase Nonperformance risk (5) 0.00 % - 2.32 % Decrease Long-term Equity Volatility (6) 18.50 % - 23.00 % Increase (1) Mortality rates vary by attained age, tax qualification status, GMWB benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. (2) Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when GMWB benefits are utilized. (3) The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money. (4) The withdrawal rate represents the utilization rate of the contract’s free partial withdrawal provision (GMIB) or the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount (GMWB). Withdrawal rates on contracts with a GMIB vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions. (5) Nonperformance risk spread varies by projection year. (6) Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available. 46 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements As of December 31, 2021 Fair Value Valuation Technique(s) Significant Unobservable Input(s) Assumption or Input Range Impact of Increase in Input on Fair Value Assets GMIB reinsurance recoverable $ 262 Discounted cash flow Mortality (1) 0.01 % - 23.42 % Decrease Lapse (2) 3.30 % - 9.00 % Decrease Utilization (3) 0.00 % - 20.00 % Increase Withdrawal (4) 3.75 % - 4.50 % Increase Nonperformance risk (5) 0.11 % - 1.50 % Decrease Long-term Equity Volatility (6) 18.50 % - 22.06 % Increase Liabilities Embedded derivative liabilities $ 2,626 Discounted cash flow Mortality (1) 0.04 % - 21.45 % Decrease Lapse (2) 0.20 % - 30.90 % Decrease Utilization (3) 5.00 % - 100.00 % Increase Withdrawal (4) 58.00 % - 97.00 % Increase Nonperformance risk (5) 0.11 % - 1.50 % Decrease Long-term Equity Volatility (6) 18.50 % - 22.06 % Increase (1) Mortality rates vary by attained age, tax qualification status, GMWB benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. (2) Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when GMWB benefits are utilized. (3) The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money. (4) The withdrawal rate represents the utilization rate of the contract’s free partial withdrawal provision (GMIB) or the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount (GMWB). Withdrawal rates on contracts with a GMIB vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions. (5) Nonperformance risk spread varies by projection year. (6) Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available. 47 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Sensitivity to Changes in Unobservable Inputs The following is a general description of sensitivities of significant unobservable inputs and their impact on the fair value measurement for the assets and liabilities reflected in the tables above. At both June 30, 2022 and December 31, 2021, securities of $ 2 million are fair valued using techniques incorporating unobservable inputs and are classified in Level 3 of the fair value hierarchy. For these assets, their unobservable inputs and ranges of possible inputs do not materially affect their fair valuations and have been excluded from the quantitative information in the tables above. Policy loans that support funds withheld reinsurance agreements that are held at fair value under the fair value option on the Company’s Condensed Consolidated Balance Sheets are excluded from the tables above. These policy loans do not have a stated maturity and the balances, plus accrued investment income, are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans, which includes accrued investment income, approximates fair value and have been classified as Level 3 within the fair value hierarchy. Funds withheld payable under reinsurance treaties, for funds withheld payable held at fair value under the fair value option and the Athene embedded derivative, are excluded from the tables above. The fair value of Funds withheld payable under reinsurance treaties, excluding the Athene embedded derivative, is determined based upon the fair value of the investments held by the Company related to the Company’s funds withheld payable under reinsurance treaties. The Athene embedded derivative utilizes a total return swap technique which incorporates the fair value of the invested assets supporting the reinsurance agreement as a component of the valuation. As a result, these valuations for the funds withheld payable under reinsurance treaties and the Athene embedded derivative require certain significant inputs which are generally not observable and, accordingly, the valuation is considered Level 3 in the fair value hierarchy. The GMIB reinsurance recoverable fair value calculation is based on the present value of future cash flows comprised of future expected reinsurance benefit receipts, less future attributed premium payments to reinsurers, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerning policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality. Embedded derivative liabilities classified in Level 3 represent the fair value of guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”) liabilities. These fair value calculations are based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerning policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality. 48 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements The tables below provide rollforwards for the three and six months ended June 30, 2022 and 2021 of the financial instruments for which significant unobservable inputs (Level 3) are used in the fair value measurement. Gains and losses in the tables below include changes in fair value due partly to observable and unobservable factors. The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments hedging the related risks may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the impact of the derivative instruments reported in Level 3 may vary significantly from the total income effect of the hedged instruments. Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Other Issuances in and/or as of April 1, Net Comprehensive and (out of) June 30, Three Months Ended June 30, 2022 2022 Income Income Settlements Level 3 2022 Assets Debt securities Corporate securities $ 14 $ 5 $ — $ 1 $ 27 $ 47 Equity securities 115 13 — ( 4 ) — 124 Mortgage loans 190 ( 5 ) — 172 — 357 Limited partnerships 1 — — — — 1 GMIB reinsurance recoverable 232 — — — — 232 Policy loans 3,472 76 — ( 63 ) — 3,485 Liabilities Embedded derivative liabilities $ ( 452 ) $ ( 149 ) $ — $ — $ — $ ( 601 ) Funds withheld payable under reinsurance treaties ( 2,479 ) 1,272 — 66 — ( 1,141 ) Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Other Issuances in and/or as of April 1, Net Comprehensive and (out of) June 30, Three Months Ended June 30, 2021 2021 Income Income Settlements Level 3 2021 Assets Debt securities Corporate securities $ 19 $ 1 $ — $ 5 $ 7 $ 32 Equity securities 102 9 — ( 8 ) — 103 Limited partnerships 1 — — — — 1 GMIB reinsurance recoverable 266 1 — — — 267 Policy loans 3,486 70 — ( 18 ) — 3,538 Liabilities Embedded derivative liabilities $ ( 869 ) $ ( 1,367 ) $ — $ — $ — $ ( 2,236 ) Funds withheld payable under reinsurance treaties ( 3,486 ) ( 585 ) — ( 11 ) — ( 4,082 ) 49 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Other Issuances in and/or as of January 1, Net Comprehensive and (out of) June 30, Six Months Ended June 30, 2022 2022 Income Income Settlements Level 3 2022 Assets Debt securities Corporate securities $ 9 $ 5 $ — $ 3 $ 30 $ 47 Equity securities 112 16 — ( 4 ) — 124 Mortgage loans — ( 3 ) — 360 — 357 Limited partnerships 1 — — — — 1 GMIB reinsurance recoverable 262 ( 30 ) — — — 232 Policy loans 3,467 136 — ( 118 ) — 3,485 Liabilities Embedded derivative liabilities $ ( 2,626 ) $ 2,025 $ — $ — $ — $ ( 601 ) Funds withheld payable under reinsurance treaties ( 3,759 ) 2,492 — 126 — ( 1,141 ) Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Other Issuances in and/or as of January 1, Net Comprehensive and (out of) June 30, Six Months Ended June 30, 2021 2021 Income Income Settlements Level 3 2021 Assets Debt securities Corporate securities $ 29 $ 2 $ — $ 6 $ ( 5 ) $ 32 Equity securities 104 7 — ( 8 ) — 103 Limited partnerships 1 — — — — 1 GMIB reinsurance recoverable 340 ( 73 ) — — — 267 Policy loans 3,454 125 — ( 41 ) — 3,538 Liabilities Embedded derivative liabilities $ ( 5,592 ) $ 3,356 $ — $ — $ — $ ( 2,236 ) Funds withheld payable under reinsurance treaties ( 4,453 ) 329 2 40 — ( 4,082 ) 50 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements The components of the amounts included in purchases, sales, issuances and settlements for the three and six months ended June 30, 2022 and 2021 shown above are as follows (in millions): Three Months Ended June 30, 2022 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ 1 $ — $ — $ — $ 1 Equity securities — ( 4 ) — — ( 4 ) Mortgage loans 172 — — — 172 Policy loans — — 1 ( 64 ) ( 63 ) Total $ 173 $ ( 4 ) $ 1 $ ( 64 ) $ 106 Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 1 ) $ 67 $ 66 Three Months Ended June 30, 2021 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ 5 $ — $ — $ — $ 5 Equity securities — ( 8 ) — — ( 8 ) Policy loans — — 8 ( 26 ) ( 18 ) Total $ 5 $ ( 8 ) $ 8 $ ( 26 ) $ ( 21 ) Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 129 ) $ 118 $ ( 11 ) Six Months Ended June 30, 2022 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ 3 $ — $ — $ — $ 3 Equity securities — ( 4 ) — — ( 4 ) Mortgage loans 360 — — — 360 Policy loans — — 31 ( 149 ) ( 118 ) Total $ 363 $ ( 4 ) $ 31 $ ( 149 ) $ 241 Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 32 ) $ 158 $ 126 Six Months Ended June 30, 2021 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ 6 $ — $ — $ — $ 6 Equity securities — ( 8 ) — — ( 8 ) Policy loans — — 36 ( 77 ) ( 41 ) Total $ 6 $ ( 8 ) $ 36 $ ( 77 ) $ ( 43 ) Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 211 ) $ 251 $ 40 For the three and six months ended June 30, 2022 and 2021, there were no transfers from Level 3 to NAV. For the three and six months ended June 30, 2022, transfers from Level 3 to Level 2 of the fair value hierarchy were $ 1 million and $ 5 million, respectively, and transfers from Level 2 to Level 3 were $ 28 million and $ 35 million, respectively. 51 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements For the three and six months ended June 30, 2021, transfers from Level 3 to Level 2 of the fair value hierarchy were $ 13 million and $ 23 million, respectively, and transfers from Level 2 to Level 3 were $ 21 million and $ 18 million, respectively. The portion of gains (losses) included in net income (loss) or other comprehensive income (loss) ("OCI") attributable to the change in unrealized gains and losses on Level 3 financial instruments still held was as follows (in millions): Three Months Ended June 30, 2022 2021 Included in Net Income Included in OCI Included in Net Income Included in OCI Assets Debt securities Corporate securities $ 5 $ — $ 1 $ — Equity securities 13 — 9 — Mortgage loans ( 5 ) — — — GMIB reinsurance recoverable — — 1 — Policy loans 76 — 70 — Liabilities Embedded derivative liabilities $ ( 149 ) $ — $ ( 1,367 ) $ — Funds withheld payable under reinsurance treaties 1,272 — ( 543 ) — Six Months Ended June 30, 2022 2021 Included in Net Income Included in OCI Included in Net Income Included in OCI Assets Debt securities Corporate securities $ 5 $ — $ 2 $ — Equity securities 16 — 7 — Mortgage loans ( 3 ) — — — GMIB reinsurance recoverable ( 30 ) — ( 73 ) — Policy loans 136 — 125 — Liabilities Embedded derivative liabilities $ 2,025 $ — $ 3,356 $ — Funds withheld payable under reinsurance treaties 2,492 — 456 — 52 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Fair Value of Financial Instruments Carried at Other Than Fair Value Mortgage Loans Fair values are generally determined by discounting expected future cash flows at current market interest rates, inclusive of a credit spread, for similar quality loans. For loans whose value is dependent upon the underlying property, fair value is determined to be the estimated value of the collateral. Certain characteristics considered significant in determining the spread or collateral value may be based on internally developed estimates. As a result, these investments have been classified as Level 3 within the fair value hierarchy. Mortgage loans held under the funds withheld reinsurance agreement are valued using third-party pricing services, which may use economic inputs, geographical information, and property specific assumptions in deriving the fair value price. The Company reviews the valuations from these pricing providers to ensure they are reasonable. Due to lack of observable inputs, these investments have been classified as Level 3 within the fair value hierarchy. Policy Loans Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The non-reinsurance related component of policy loans has been classified as Level 3 within the fair value hierarchy. FHLBI Capital Stock FHLBI capital stock, which is included in other invested assets, can only be sold to FHLBI at a constant price of $ 100 per share. Due to the lack of valuation uncertainty, the investment has been classified as Level 1. Other Contract Holder Funds Fair values for immediate annuities without mortality features are derived by discounting the future estimated cash flows using current market interest rates for similar maturities. Fair values for deferred annuities, including the fixed option on variable annuities, fixed annuities, fixed index annuities and RILAs, are determined using projected future cash flows discounted at current market interest rates. Fair values for guaranteed investment contracts are based on the present value of future cash flows discounted at current market interest rates. Fair values for trust instruments supported by funding agreements are based on the present value of future cash flows discounted at current market interest rates. Fair values of the FHLB funding agreements are based on the present value of future cash flows discounted at current market interest rates. Funds Withheld Payable Under Reinsurance Treaties The fair value of the funds withheld payable is equal to the fair value of the assets held as collateral, which primarily consists of bonds, mortgages, limited partnerships, and cash and cash equivalents. The fair value of the assets generally use industry standard valuation techniques as described above and the funds withheld payable components are valued consistent with the assets in the fair value hierarchy. 53 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Debt Fair values for the Company’s surplus notes and long-term debt are generally determined by prices obtained from independent broker dealers or discounted cash flow models. Such prices are derived from market observable inputs and are classified as Level 2. Securities Lending Payable The Company’s securities lending payable is set equal to the cash collateral received. Due to the short-term nature of the loans, carrying value is a reasonable estimate of fair value and is classified as Level 2. FHLB Advances Carrying value of the Company’s FHLB advances, which are included in other liabilities, is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2. Repurchase Agreements Carrying value of the Company’s repurchase agreements is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2. Separate Account Liabilities The values of separate account liabilities are set equal to the values of separate account assets, which are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2. 54 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value (in millions). June 30, 2022 Fair Value Carrying Value Total Level 1 Level 2 Level 3 Assets Mortgage loans $ 11,574 $ 11,229 $ — $ — $ 11,229 Policy loans 974 974 — — 974 FHLBI capital stock 146 146 146 — — Liabilities Annuity reserves (1) $ 37,095 $ 34,152 $ — $ — $ 34,152 Reserves for guaranteed investment contracts (2) 1,181 1,156 — — 1,156 Trust instruments supported by funding agreements (2) 5,301 5,174 — — 5,174 FHLB funding agreements (2) 2,001 2,090 — — 2,090 Funds withheld payable under reinsurance treaties (3)(4) 23,496 23,496 422 17,927 5,147 Debt 2,634 2,422 — 2,422 — Securities lending payable 32 32 — 32 — Repurchase agreements — — — — — Separate Account Liabilities (5) 196,184 196,184 — 196,184 — December 31, 2021 Fair Value Carrying Value Total Level 1 Level 2 Level 3 Assets Mortgage loans $ 11,482 $ 11,910 $ — $ — $ 11,910 Policy loans 1,008 1,008 — — 1,008 FHLBI capital stock 125 125 125 — — Liabilities Annuity reserves (1) $ 36,318 $ 46,045 $ — $ — $ 46,045 Reserves for guaranteed investment contracts (2) 894 923 — — 923 Trust instruments supported by funding agreements (2) 5,986 6,175 — — 6,175 FHLB funding agreements (2) 1,950 1,938 — — 1,938 Funds withheld payable under reinsurance treaties (3) 24,533 24,533 537 19,127 4,869 Debt 2,649 2,745 — 2,745 — Securities lending payable 17 17 — 17 — Repurchase agreements 1,572 1,572 — 1,572 — Separate Account Liabilities (5) 248,949 248,949 — 248,949 — (1) Annuity reserves represent only the components of other contract holder funds that are considered to be financial instruments. (2) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets. (3) Excludes $ 753 million and $ 715 million of limited partnership investments measured at NAV at June 30, 2022 and December 31, 2021, respectively. (4) Excludes $ 117 million of non-financial instruments at June 30, 2022. (5) The values of separate account liabilities are set equal to the values of separate account assets. 55 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 7. Deferred Acquisition Costs 7. Deferred Acquisition Costs The balances of, and changes, in deferred acquisition costs were as follows (in millions): . Six Months Ended June 30, 2022 2021 Balance, beginning of period $ 14,249 $ 13,897 Deferrals of acquisition costs 349 400 Amortization ( 1,713 ) ( 548 ) Unrealized investment (gains) losses 230 64 Balance, end of period $ 13,115 $ 13,813 See Note 7 of Notes to Consolidated Financial Statements in Part II, Item 8, Financial Statements and Supplementary Data of the Company’s 2021 Annual Report, for more information regarding deferred acquisition costs. 8. Reinsurance The Company assumes and cedes reinsurance from and to other insurance companies in order to limit losses from large exposures. However, if the reinsurer is unable to meet its obligations, the originating issuer of the coverage retains the liability. The Company reinsures certain of its risks to other reinsurers under a coinsurance, modified coinsurance, or yearly renewable term basis. The Company regularly monitors the financial strength ratings of its reinsurers. The Company has also acquired certain lines of business that are wholly ceded to non-affiliates. These include both direct and assumed accident and health business, direct and assumed life insurance business, and certain institutional annuities. Athene Reinsurance The Company entered into a funds withheld coinsurance agreement with Athene effective June 1, 2020 to reinsure on 100 % quota share basis, a block of Jackson’s in-force fixed and fixed-index annuity product liabilities in exchange for a $ 1.2 billion ceding commission. The coinsurance with funds withheld agreement required Jackson to establish a segregated account in which the investments supporting the ceded obligations are maintained. While the economic benefits of the investments flow to Athene, Jackson retains physical possession and legal ownership of the investments supporting the reserve. Further, the investments in the segregated account are not available to settle any policyholder obligations other than those specifically covered by the coinsurance agreement and are not available to settle obligations to general creditors of Jackson. The profit and loss with respect to obligations ceded to Athene are included in periodic net settlements pursuant to the coinsurance agreement. To further support its obligations under the coinsurance agreement, Athene procured $ 1.2 billion in letters of credit for Jackson’s benefit and established a trust account for Jackson’s benefit, which had a book value of approximately $ 303 million at June 30, 2022. Swiss Re Reinsurance The Company has three retrocession reinsurance agreements (“retro treaties”) with Swiss Reinsurance Company Ltd. (“SRZ”). Pursuant to these retro treaties, the Company ceded certain blocks of business to SRZ on a 100 % coinsurance basis, subject to pre-existing reinsurance with other parties. 56 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance The following assets and liabilities were held in support of reserves associated with the Company’s funds withheld reinsurance agreements and were reported in the respective financial statement line items in the Condensed Consolidated Balance Sheets (in millions): June 30, December 31, 2022 2021 Assets Debt securities, available-for-sale $ 15,451 $ 19,094 Debt securities, at fair value under the fair value option 157 164 Equity securities 88 116 Mortgage loans 4,639 4,739 Mortgage loans, at fair value under the fair value option 357 — Policy loans 3,500 3,483 Freestanding derivative instruments, net 94 37 Other invested assets 889 715 Cash and cash equivalents 324 438 Accrued investment income 165 162 Other assets and liabilities, net ( 46 ) ( 56 ) Total assets (1) $ 25,618 $ 28,892 Liabilities Funds held under reinsurance treaties (2) $ 25,506 $ 29,007 Total liabilities $ 25,506 $ 29,007 (1) Certain assets are reported at amortized cost while the fair value of those assets is reported in the embedded derivative in the funds withheld liability. (2) Includes funds withheld embedded derivative asset (liability) of $ 2,508 million and $( 120 ) million at June 30, 2022 and December 31, 2021, respectively. The sources of income related to funds withheld under reinsurance treaties reported in net investment income in the Condensed Consolidated Income Statements were as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Debt securities (1) $ 180 $ 194 $ 330 $ 398 Equity securities ( 9 ) 4 ( 25 ) 2 Mortgage loans (2) 49 43 101 78 Policy loans 79 81 159 162 Limited partnerships 86 ( 2 ) 102 1 Other investment income 1 — 1 — Total investment income on funds withheld assets 386 320 668 641 Other investment expenses on funds withheld assets (3) ( 22 ) ( 26 ) ( 44 ) ( 56 ) Total net investment income on funds withheld reinsurance treaties $ 364 $ 294 $ 624 $ 585 (1) Includes $( 2 ) million and $( 8 ) million for the three and six months ended June 30, 2022, respectively, and nil and $( 1 ) million for the three and six months ended June 30, 2021, respectively, related to the change in fair value for securities carried under the fair value option. (2) Includes $( 5 ) million and $( 3 ) million for the three and six months ended June 30, 2022, respectively, and nil both for the three and six months ended June 30, 2021, respectively, related to the change in fair value for mortgage loans carried under the fair value option. (3) Includes management fees. 57 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance The gains and losses on funds withheld reinsurance treaties as a component of net gains (losses) on derivatives and investments in the Condensed Consolidated Income Statements were as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Available-for-sale securities Realized gains on sale $ 3 $ 85 $ 40 $ 258 Realized losses on sale ( 4 ) ( 11 ) ( 31 ) ( 13 ) Credit loss expense ( 12 ) ( 1 ) ( 40 ) ( 1 ) Credit loss expense on mortgage loans 13 ( 12 ) 11 ( 5 ) Other ( 43 ) ( 2 ) ( 59 ) ( 11 ) Net gains (losses) on non-derivative investments ( 43 ) 59 ( 79 ) 228 Net gains (losses) on derivative instruments 63 2 84 19 Net gains (losses) on funds withheld payable under reinsurance treaties (1) 1,057 ( 829 ) 2,100 ( 117 ) Total net gains (losses) on derivatives and investments $ 1,077 $ ( 768 ) $ 2,105 $ 130 (1) Includes the Athene embedded derivative gain (loss) of $ 1,347 million and $ 2,628 million for the three and six months ended June 30, 2022, respectively, and $( 544 ) million and $ 454 million for the three and six months ended June 30, 2021, respectively. While the economic benefits of the funds withheld assets flow to the respective reinsurers, Jackson retains physical possession and legal ownership of the investments supporting the reserves. Net investment income and net gains (losses) on derivatives and investments related to the funds withheld assets are included in periodic settlements under the reinsurance agreements which results in the flow of returns on the assets to the reinsurers. Net gains (losses) on the funds withheld assets are increased or decreased by changes in the embedded derivative liability related to the Athene Reinsurance Agreement and also include (i) changes in the related funds withheld payable and (ii) amortization of the basis difference between book value and fair value of the investments as of the effective date of the reinsurance agreements. Components of the Company’s reinsurance recoverable were as follows (in millions): June 30, December 31, 2022 2021 Reserves: Life $ 5,728 $ 5,829 Accident and health 538 547 Guaranteed minimum income benefits 232 262 Other annuity benefits (1) 24,347 25,625 Claims liability and other 822 863 Total $ 31,667 $ 33,126 (1) Other annuity benefits primarily attributable to fixed and fixed index annuities reinsured with Athene. 9. Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds For traditional life insurance contracts, which include term and whole life, reserves for future policy benefits are determined using the net level premium method and assumptions as of the issue date or acquisition date as to mortality, interest, lapse and expenses, plus provisions for adverse deviations. These assumptions are not unlocked unless the reserve is determined to be deficient. Interest rate assumptions range from 2.5 % to 6.0 %. Lapse, mortality, and expense assumptions for recoverability are based primarily on Company experience. The Company’s liability for future policy benefits also includes net liabilities for guaranteed benefits related to certain nontraditional long-duration life and annuity contracts, which are further discussed in Note 10. Group payout annuities consist of a closed block of defined benefit annuity plans. The liability for future benefits for these limited payment contracts is calculated using assumptions as of the acquisition date as to mortality and expense plus provisions for adverse deviation. 58 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds In conjunction with a prior acquisition, the Company recorded a fair value adjustment at acquisition related to certain annuity and interest sensitive liability blocks of business to reflect the cost of the interest guarantees within the in-force liabilities, based on the difference between the guaranteed interest rate and an assumed new money guaranteed interest rate at acquisition. This adjustment was recorded in reserves for future policy benefits and claims payable. This reserve is reassessed at the end of each period, taking into account changes in the in-force block. Any resulting change in the reserve is recorded as a change in policy reserve through the consolidated income statements. The following table sets forth the Company’s reserves for future policy benefits and claims payable balances (in millions): June 30, December 31, 2022 2021 Traditional life $ 4,076 $ 4,187 Guaranteed benefits (1) 4,231 5,477 Claims payable 1,041 1,050 Accident and health 1,177 1,204 Group payout annuities 4,734 4,895 Other 794 816 Total $ 16,053 $ 17,629 (1) Primarily i ncludes the embedded derivative liabilities related to the GMWB reserve. The following table sets forth the Company’s liabilities for other contract holder funds balances (in millions): June 30, December 31, 2022 2021 Interest-sensitive life $ 11,363 $ 11,570 Variable annuity fixed option 11,060 10,030 RILA (1) 735 110 Fixed annuity 15,320 15,816 Fixed index annuity (2) 12,615 13,333 GICs, funding agreements and FHLB advances 8,483 8,830 Total $ 59,576 $ 59,689 (1) Includes the embedded derivative liabilities related to RILA of $ 4 million and $ 6 million at June 30, 2022 and December 31, 2021, respectively. (2) Includes the embedded derivative liabilities related to fixed index annuity of $ 1,087 million and $ 1,439 million at June 30, 2022 and December 31, 2021, respectively. For interest-sensitive life contracts, liabilities approximate the policyholder’s account value, plus the remaining balance of the fair value adjustment related to previously acquired business, which is further discussed below. The liability for fixed index annuities and registered index linked annuities is based on three components: 1) the imputed value of the underlying guaranteed host contract, 2) the fair value of the embedded option component of the contract, and 3) the liability for guaranteed benefits related to the optional lifetime income rider. For fixed annuities, variable annuity fixed option, and other investment contracts, as included in the above table, the liability is the account value, plus the unamortized balance of the fair value adjustment related to previously acquired business. For payout annuities, as included in the above table, reserves are determined under the methodology for limited-payment contracts (for those with significant life contingencies) or using a constant yield method and assumptions as of the issue date for mortality, interest rates, lapse and expenses plus provisions for adverse deviations. At June 30, 2022, the Company had interest sensitive life business with minimum guaranteed interest rates ranging from 2.5 % to 6.0 % with a 4.68 % average guaranteed rate and fixed interest rate annuities with minimum guaranteed rates ranging from 1.0 % to 5.5 % and a 1.95 % average guaranteed rate. 59 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds At June 30, 2022 and December 31, 2021, approximately 92 % and 94 %, respectively, of the Company’s annuity account values correspond to crediting rates that are at the minimum guaranteed interest rates. The following tables show the distribution of the annuity account values within the presented ranges of minimum guaranteed interest rates, excluding the reinsured business (in millions): June 30,2022 Minimum Guaranteed Interest Rate Account Value Fixed Fixed Index RILA Variable Total 1.0% $ 178 $ 309 $ 10 $ 6,911 $ 7,408 >1.0% - 2.0% 53 1 — 211 265 >2.0% - 3.0% 1,091 169 — 3,347 4,607 >3.0% - 4.0% 581 — — — 581 >4.0% - 5.0% 273 — — — 273 >5.0% - 5.5% 72 — — — 72 Subtotal 2,248 479 10 10,469 13,206 Ceded reinsurance 11,626 12,136 — — 23,762 Total $ 13,874 $ 12,615 $ 10 $ 10,469 $ 36,968 December 31, 2021 Minimum Guaranteed Interest Rate Account Value Fixed Fixed Index RILA Variable Total 1.0% $ 156 $ 279 $ 1 $ 5,988 $ 6,424 >1.0% - 2.0% 57 1 — 214 272 >2.0% - 3.0% 1,113 183 — 3,254 4,550 >3.0% - 4.0% 594 — — — 594 >4.0% - 5.0% 276 — — — 276 >5.0% - 5.5% 72 — — — 72 Subtotal 2,268 463 1 9,456 12,188 Ceded reinsurance 12,086 12,870 — — 24,956 Total $ 14,354 $ 13,333 $ 1 $ 9,456 $ 37,144 At both June 30, 2022 and December 31, 2021, approximately 80 % of the Company’s interest sensitive life business account values correspond to crediting rates that are at the minimum guaranteed interest rates. The following table shows the distribution of the interest sensitive life business account values within the presented ranges of minimum guaranteed interest rates, excluding the business that is subject to the previously mentioned retro treaties (in millions): June 30, December 31, Minimum Guaranteed Interest Rate 2022 2021 Account Value - Interest Sensitive Life >2.0% - 3.0% $ 247 $ 252 >3.0% - 4.0% 2,686 2,742 >4.0% - 5.0% 2,338 2,387 >5.0% - 6.0% 1,923 1,967 Subtotal 7,194 7,348 Retro treaties 4,169 4,222 Total $ 11,363 $ 11,570 The Company has established a $ 27 billion aggregate Global Medium Term Note ("MTN") program. Jackson National Life Global Funding was formed as a statutory business trust, solely for the purpose of issuing Medium Term Note instruments to institutional investors, the proceeds of which are deposited with the Company and secured by the issuance of funding agreements. The carrying values at June 30, 2022 and December 31, 2021 totaled $ 5.3 billion and $ 6.0 billion, respectively. 60 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable and Other Contract Holder Funds Those Medium-Term Note instruments issued in a foreign currency have been hedged for changes in exchange rates using cross-currency swaps. The unrealized foreign currency gains and losses on those Medium-Term Note instruments are included in the carrying value of the trust instruments supported by funding agreements. Trust instrument liabilities are adjusted to reflect the effects of foreign currency translation gains and losses using exchange rates as of the reporting date. Foreign currency translation gains and losses are included in net gains (losses) on derivatives and investments. Jackson is a member of the FHLBI primarily for the purpose of participating in the bank’s mortgage-collateralized loan advance program with long-term funding facilities. Advances are in the form of long-term notes or funding agreements issued to FHLBI. At June 30, 2022 and December 31, 2021, the Company held $ 146 million and $ 125 million of FHLBI capital stock, respectively, supporting $ 2.1 billion and $ 2.0 billion in funding agreements and long-term borrowings at June 30, 2022 and December 31, 2021, respectively. The Company’s institutional products business is comprised of the traditional guaranteed investment contracts, medium-term funding agreement-backed notes and funding agreements (including agreements issued in conjunction with the Company’s participation in the U.S. Federal Home Loan Bank ("FHLB") program) described above. 10. Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees The Company issues variable contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (“traditional variable annuities”). The Company also issues variable annuity and life contracts through separate accounts where the Company contractually guarantees to the contract holder (“variable contracts with guarantees”) either a) return of no less than total deposits made to the account adjusted for any partial withdrawals, b) total deposits made to the account adjusted for any partial withdrawals plus a minimum return, or c) the highest account value on a specified anniversary date adjusted for any withdrawals following the contract anniversary. These guarantees include benefits that are payable in the event of death (guaranteed minimum death benefits, or "GMDB"), at annuitization (GMIB), upon the depletion of funds (GMWB) or at the end of a specified period (GMAB). The assets supporting the variable portion of both traditional variable annuities and variable contracts with guarantees are carried at fair value and reported as summary total separate account assets with an equivalent summary total reported for separate account liabilities. Liabilities for guaranteed benefits are general account obligations and are reported in reserves for future policy benefits and claims payable. Amounts assessed against the contract holders for mortality, administrative, and other services are reported in revenue as fee income. Changes in liabilities for minimum guarantees are reported within death, other policy benefits and change in policy reserves within the Condensed Consolidated Income Statements with the exception of changes in embedded derivatives, which are included in net gains (losses) on derivatives and investments. Separate account net investment income, net investment realized and unrealized gains and losses, and the related liability changes are offset within the same line item in the Condensed Consolidated Income Statements. 61 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees At June 30, 2022 and December 31, 2021, the Company provided variable annuity contracts with guarantees, for which the net amount at risk is defined as the amount of guaranteed benefit in excess of current account value, as follows (dollars in millions): Minimum Return Account Value Net Amount at Risk Weighted Average Attained Age Average Period until Expected Annuitization June 30, 2022 Return of net deposits plus a minimum return GMDB 0 - 6 % $ 152,355 $ 8,287 69 years GMWB - Premium only 0 % 2,224 63 GMWB 0 - 5 %* 179 15 Highest specified anniversary account value minus withdrawals post-anniversary GMDB 11,351 2,567 70.2 years GMWB - Highest anniversary only 2,985 591 GMWB 877 137 Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary GMDB 0 - 6 % 7,727 2,332 72.1 years GMIB 0 - 6 % 1,256 751 0.6 years GMWB 0 - 8 %* 142,263 38,815 Weighted Average Attained Age Average Period until Expected Annuitization Minimum Return Account Value Net Amount at Risk December 31, 2021 Return of net deposits plus a minimum return GMDB 0 - 6 % $ 194,060 $ 2,124 68.7 years GMWB - Premium only 0 % 2,937 7 GMWB 0 - 5 %* 245 8 Highest specified anniversary account value minus withdrawals post-anniversary GMDB 14,806 93 69.8 years GMWB - Highest anniversary only 3,919 33 GMWB 643 44 Combination net deposits plus minimum return, highest specified anniversary account value minus withdrawals post-anniversary GMDB 0 - 6 % 9,896 522 71.9 years GMIB 0 - 6 % 1,662 463 0.5 years GMWB 0 - 8 %* 181,457 4,295 * Ranges shown based on simple interest. The upper limits of 5% or 8% simple interest are approximately equal to 4.1 % and 6.0 %, respectively, on a compound interest basis over a typical 10-year bonus period. The combination GMWB category also includes benefits with a defined increase in the withdrawal percentage under pre-defined non-market conditions. 62 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees Amounts shown as GMWB above include a ‘not-for-life’ component up to the point at which the guaranteed withdrawal benefit is exhausted, after which benefits paid are considered to be ‘for-life’ benefits. The liability related to this ‘not-for-life’ portion is valued as an embedded derivative, while the ‘for-life’ benefits are valued as an insurance liability (see below). For this table, the net amount at risk of the ‘not-for-life’ component is the undiscounted excess of the guaranteed withdrawal benefit over the account value, and that of the ‘for-life’ component is the estimated value of additional life contingent benefits paid after the guaranteed withdrawal benefit is exhausted. Account balances of contracts with guarantees were invested in variable separate accounts as follows (in millions): June 30, December 31, 2022 2021 Fund type: Equity $ 117,636 $ 154,368 Bond 16,834 20,207 Balanced 35,325 43,185 Money market 2,256 1,564 Total $ 172,051 $ 219,324 GMDB liabilities reflected in the general account were as follows (in millions): Six Months Ended June 30, 2022 2021 Balance as of beginning of period $ 1,370 $ 1,418 Incurred guaranteed benefits 812 47 Paid guaranteed benefits ( 86 ) ( 57 ) Balance as of end of period $ 2,096 $ 1,408 The GMDB liability is determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the liability balance through the Condensed Consolidated Income Statements, within death, other policy benefits and change in policy reserves, if actual experience or other evidence suggests that earlier assumptions should be revised. The following assumptions and methodology were used to determine the GMDB liability at both June 30, 2022 and December 31, 2021 (except where otherwise noted): • Use of a series of stochastic investment performance scenarios, based on historical average market volatility. • Mean investment performance assumption of 7.15 %, after investment management fees, but before external investment advisory fees and mortality and expense charges. • Mortality equal to 38 % to 100 % of the 2012 Individual Annuity Mortality basic table improved using Scale G2 through 2020. • Lapse rates varying by contract type, duration and degree the benefit is in-the-money and ranging from 0.3 % to 27.9 % (before application of dynamic adjustments). • Discount rates: 7.15 % on 2020 and later issues, 7.4 % on 2013 through 2019 issues, 8.4 % on 2012 and prior issues. Most GMWB reserves are considered to be derivatives under current accounting guidance and are recognized at fair value, as previously defined, with the change in fair value reported in net income (as net gains (losses) on derivatives and investments). The fair value of these liabilities is determined using stochastic modeling and inputs as further described in Note 6. The fair valued GMWB had a reserve liability of $ 601 million and $ 2,626 million at June 30, 2022 and December 31, 2021, respectively, and was reported in reserves for future policy benefits and claims payable. 63 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Certain Nontraditional Long-Duration Contracts and Variable Annuity Guarantees The Company has also issued certain GMWB products that guarantee payments over a lifetime. Reserves for the portion of these benefits after the point where the guaranteed withdrawal balance is exhausted are calculated using assumptions and methodology similar to the GMDB liability. At June 30, 2022 and December 31, 2021, these GMWB reserves totaled $ 306 million and $ 196 million, respectively, and were reported in reserves for future policy benefits and claims payable. GMAB benefits were offered on some variable annuity products. However, the Company no longer offers these benefits and all have expired as of June 30, 2021. The direct GMIB liability is determined at each period end by estimating the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating the direct GMIB liability are consistent with those used for calculating the GMDB liability. At June 30, 2022 and December 31, 2021, GMIB reserves before reinsurance totaled $ 132 million and $ 78 million, respectively. Other Liabilities – Insurance and Annuitization Benefits The Company has established additional reserves for life insurance business for universal life plans with secondary guarantees, interest-sensitive life plans that exhibit “profits followed by loss” patterns and account balance adjustments to tabular guaranteed cash values on one interest-sensitive life plan. Liabilities for these benefits, as established according to the methodologies described below, are as follows: June 30, 2022 December 31, 2021 Benefit Type Liability (in millions) Net Amount at Risk (in millions) Weighted Average Attained Age Liability (in millions) Net Amount at Risk (in millions) Weighted Average Attained Age Insurance benefits * $ 949 $ 17,905 64.4 years $ 943 $ 18,506 64.0 years Account balance adjustments 143 N/A N/A 141 N/A N/A * Amounts for the universal life benefits are for the total of the plans containing any policies having projected non-zero excess benefits, and thus may include some policies with zero projected excess benefits. The following assumptions and methodology were used to determine the universal life insurance benefit liability for the periods referenced in the table above: • Use of a series of deterministic premium persistency scenarios. • Other experience assumptions similar to those used in amortization of deferred acquisition costs. • Discount rates equal to credited interest rates, approximately 3.0 % to 5.5 % at both June 30, 2022 and December 31, 2021. The Company also has a small closed block of two-tier annuities, where different crediting rates are used for annuitization and surrender benefit calculations. A liability is established to cover future annuitization benefits in excess of surrender values and was immaterial to the Condensed Consolidated Financial Statements at both June 30, 2022 and December 31, 2021, respectively. The Company also offers an optional lifetime income rider with certain of its fixed index annuities. The liability established for this rider before reinsurance was $ 49 million and $ 37 million at June 30, 2022 and December 31, 2021, respectively. 64 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 11. Long-Term Debt 11. Long-Term Debt Liabilities for the Company’s debt are primarily carried at an amount equal to the unpaid principal balance. Original issuance discount or premium and any debt issue costs, if applicable, are recognized as a component of interest expense over the period the debt is expected to be outstanding. The aggregate carrying value of long-term debt were as follows (in millions): June 30, December 31, 2022 2021 Long-Term Debt Senior Notes due 2023 $ 596 $ 596 Senior Notes due 2027 397 — Senior Notes due 2031 493 495 Senior Notes due 2032 347 — Senior Notes due 2051 488 490 Term loan due 2023 — 751 Surplus notes 250 250 FHLBI bank loans 63 67 Total long-term debt $ 2,634 $ 2,649 The following table presents the contractual maturities of the Company's long-term debt as of June 30, 2022 (in millions): Calendar Year 2023 2024 2025 2026 2027 and thereafter Total Long-term debt $ 596 $ — $ — $ — $ 2,038 $ 2,634 Senior Notes 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 senior unsecured amount term loan due February 2023 (the “2023 DDTL Facility”). 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 senior unsecured term loan due May 2022 (the “2022 DDTL Facility”), as described below. 65 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 11. Long-Term Debt Term Loans On February 22, 2021, the Company entered into loan facilities including a $ 1.0 billion revolving credit facility (the “Revolving Facility”), a $ 1.7 billion 2022 DDTL Facility and a $ 1.0 billion 2023 DDTL Facility (the “Credit Facilities”) with a syndicate of banks. The Revolving Facility provides liquidity backstop. On September 10, 2021, the Company borrowed an aggregate principal amount of $ 2.4 billion under the term loan facilities as follows: $ 1.6 billion under the 2022 DDTL Facility and $ 750 million under the 2023 DDTL Facility. The proceeds of those borrowings were used for general corporate purposes, including liquidity at the holding company and capitalization of the insurance subsidiaries. Under the terms of the credit agreement for the DDTL Facilities, subject to certain exceptions, 100% of the net cash proceeds from any debt issuance, preferred equity issuance or hybrid instrument issuance by the Company or its subsidiaries is required to be applied (i) first to prepay the 2022 DDTL Facility and (ii) thereafter, to prepay the 2023 DDTL Facility. As noted above, both term loans have been retired through the application of the proceeds from senior unsecured notes and cash on hand. 12. Federal Home Loan Bank Advances The Company, through its subsidiary, Jackson, entered into an advance program with the FHLBI in which interest rates were either fixed or variable based on the FHLBI cost of funds or market rates. Advances of nil were outstanding at both June 30, 2022 and December 31, 2021, respectively, and were recorded in other liabilities. 13. Income Taxes The Company uses the estimated annual effective tax rate (“ETR”) method in computing the interim tax provision. Certain items, including those deemed unusual, infrequent, or that cannot be reliably estimated, are treated as discrete items and excluded from the estimated annual ETR. In these cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual ETR, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions and are recorded in the period in which the change occurs. The estimated annual ETR is revised, as necessary, at the end of successive interim reporting periods. The Company’s effective income tax rate was 19.8 % and 17.5 % for the three and six months ended June 30, 2022, compared with 9.2 % and 18.2 % for the same periods in 2021. The ETR differs from the statutory rate of 21% primarily due to the dividends received deduction and utilization of foreign tax credits. The change in the ETR for the three and six months ended June 30, 2022 was due to the relationship of taxable income to consolidated pre-tax income. The ETR differs for the six months ended June 30, 2022 from the full year-ended December 31, 2021 ETR of 15.9 % due to the relationship of taxable income to consolidated pre-tax income, the provision-to-return adjustments recorded in 2021 and the net interest related to income taxes recorded in 2021. The Company is required to evaluate the recoverability of its deferred tax assets and establish a valuation allowance, if necessary, to reduce its deferred tax asset to an amount that is more likely than not to be realizable. Considerable judgment and the use of estimates are required when determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. When evaluating the need for a valuation allowance, the Company considers many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of temporary differences; the length of time carryovers can be utilized; and any tax planning strategies the Company would employ to avoid a tax benefit from expiring unused. For the three month period ended June 30, 2022, recent changes in market conditions, including rising interest rates, impacted the unrealized tax gains and losses in the available for sale securities portfolio resulting in deferred tax assets related to net unrealized tax capital losses. The deferred tax asset relates to the unrealized losses for which the carryforward period has not yet begun, and as such, when assessing its recoverability, we consider our ability and intent to hold the underlying securities to recovery. As of June 30, 2022, based on all available evidence, we concluded that a valuation allowance should be established on a portion of the deferred tax asset related to unrealized losses that are not more-likely-than-not to be realized. For the three months ending June 30, 2022, the Company established $ 320 million of valuation allowance associated with the unrealized tax losses in the companies’ available for sale securities portfolio. All of the valuation allowance establishment was allocated to other comprehensive income. 66 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 14. Commitments and Contingencies 14. Commitments and Contingencies The Company and its subsidiaries are involved in litigation arising in the ordinary course of business. It is the opinion of management that the ultimate disposition of such litigation will not have a material adverse effect on the Company's financial condition. Jackson has been named in civil litigation proceedings, which appear to be substantially similar to other class action litigation brought against many life insurers including allegations of misconduct in the sale of insurance products. The Company accrues for legal contingencies once the contingency is deemed to be probable and reasonably estimable. At June 30, 2022, the Company had unfunded commitments related to its investments in limited partnerships and limited liability companies totaling $ 1,676 million. At June 30, 2022, unfunded commitments related to fixed-rate mortgage loans and other debt securities totaled $ 1,596 million. 15. Other Related Party Transactions The Company's investment management operation, PPM, provides investment services to certain Prudential affiliated entities. The Company recognized $ 9 million and $ 9 million of revenue during the three months ended June 30, 2022, and 2021, and $ 18 million and $ 19 million of revenue during the six months ended June 30, 2022 and 2021, associated with these investment services. This revenue was included in fee income in the accompanying Condensed Consolidated Income Statements. The investments in the segregated account related to the coinsurance agreement with Athene are subject to an investment management agreement between Jackson and Apollo Insurance Solutions Group LP (“Apollo”), which merged with Athene in 2022. Apollo management fees, which are calculated and paid monthly in arrears, are paid directly from the funds withheld account, administered by Athene. These payments were $ 21 million and $ 26 million during the three months ended June 30, 2022, and 2021, and $ 43 million and $ 54 million during the six months ended June 30, 2022 and 2021, associated with these services. 16. Operating Costs and Other Expenses The following table is a summary of the Company’s operating costs and other expenses (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Asset-based commission expenses $ 250 $ 281 $ 525 $ 548 Other commission expenses 229 264 469 530 General and administrative expenses 208 257 479 521 Deferral of acquisition costs ( 170 ) ( 202 ) ( 349 ) ( 401 ) Total operating costs and other expenses $ 517 $ 600 $ 1,124 $ 1,198 67 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 17. Accumulated Other Comprehensive Income (Loss) 17. Accumulated Other Comprehensive Income (Loss) The following table represents changes in the balance of AOCI, net of income tax, related to unrealized investment gains (losses) (in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Balance, beginning of period (1) $ ( 939 ) $ 1,443 $ 1,744 $ 3,821 Change in unrealized appreciation (depreciation) of investments ( 3,290 ) 1,440 ( 6,871 ) ( 1,652 ) Change in unrealized appreciation (depreciation) - other 141 ( 84 ) 312 71 Change in deferred tax asset 362 ( 293 ) 1,100 343 Other comprehensive income (loss) before reclassifications ( 2,787 ) 1,063 ( 5,459 ) ( 1,238 ) Reclassifications from AOCI, net of tax 4 ( 115 ) ( 7 ) ( 192 ) Other comprehensive income (loss) ( 2,783 ) 948 ( 5,466 ) ( 1,430 ) Balance, end of period (1) $ ( 3,722 ) $ 2,391 $ ( 3,722 ) $ 2,391 (1) Includes $( 1,677 ) million, $ 287 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, December 31, 2021 and June 30, 2021, respectively. The following table represents amounts reclassified out of AOCI (in millions): AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Condensed Consolidated Income Statement Three Months Ended June 30, 2022 2021 Net unrealized investment gain (loss): Net realized gain (loss) on investments $ ( 7 ) $ ( 166 ) Net gains (losses) on derivatives and investments Other impaired securities 12 — Net gains (losses) on derivatives and investments Net unrealized gain (loss) 5 ( 166 ) Amortization of deferred acquisition costs 2 18 Reclassifications, before income taxes 7 ( 148 ) Income tax expense (benefit) 3 ( 33 ) Reclassifications, net of income taxes $ 4 $ ( 115 ) AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Condensed Consolidated Income Statement Six Months Ended June 30, 2022 2021 Net unrealized investment gain (loss): Net realized gain (loss) on investments $ ( 38 ) $ ( 268 ) Net gains (losses) on derivatives and investments Other impaired securities 30 — Net gains (losses) on derivatives and investments Net unrealized gain (loss) ( 8 ) ( 268 ) Amortization of deferred acquisition costs — 23 Reclassifications, before income taxes ( 8 ) ( 245 ) Income tax expense (benefit) ( 1 ) ( 53 ) Reclassifications, net of income taxes $ ( 7 ) $ ( 192 ) 68 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 18. Equity 18. Equity Common Stock The Company had two classes of common stock: Class A Common Stock and Class B Common Stock. Both classes had a par value of $ 0.01 per share. Each share of Class A Common Stock is entitled to one vote per share. Each share of Class B Common Stock was entitled to one-tenth of one vote per share. Except for voting rights, the Company’s Class A Common Stock and Class B Common Stock had the same dividend rights, were equal in all respects, and were otherwise treated as if they were one class of shares. 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. At June 30, 2022 and December 31, 2021, the Company was authorized to issue up to 900 million shares of common stock (formerly known as the Class A Common Stock). At June 30, 2022 and December 31, 2021, the Company was authorized to issue nil and 100 million shares of Class B Common Stock, respectively. Share Repurchase Program On February 28, 2022, our Board of Directors authorized an increase of $ 300 million in our existing authorization to repurchase shares of our outstanding Class A Common Stock as part of the Company's share repurchase program. As of August 3, 2022, the Company had remaining authority to purchase $ 183 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company's capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time. It does not have an expiration date. There can be no assurance that we will continue share repurchases or approve any increase to, or approve any new, stock repurchase program, or as to the amount of any repurchases made pursuant to such programs. The following table represents share repurchase activities as part of this share repurchase program: Period Number of Shares Repurchased Total Payments (in millions) Average Price Paid Per Share 2021(October 1 - December 31) 5,778,649 $ 211 $ 36.51 Total 2021 5,778,649 211 36.51 2022 (January 1- March 31) 3,433,610 140 40.84 2022 (April 1- June 30) 1,870,854 66 35.15 Total 2022 5,304,464 $ 206 $ 38.83 The following table represents changes in the balance of common stock outstanding: Common Stock Issued Treasury Stock Total Common Stock Outstanding Shares at December 31, 2021 94,464,343 ( 5,778,649 ) 88,685,694 Share-based compensation programs 8,783 1,474,714 (1) 1,483,497 Shares repurchased under repurchase program — ( 5,304,464 ) ( 5,304,464 ) Shares at June 30, 2022 94,473,126 ( 9,608,399 ) 84,864,727 (1) Represents net shares issued from treasury stock pursuant to the Company’s share-based compensation programs. On December 13, 2021, we repurchased 2,242,516 shares of our Class A Common Stock from Prudential and 1,134,767 shares of our Class A Common Stock from Athene. The price per share in the repurchase was $ 37.01 . On December 13, 2021, Athene converted a total of 725,623 shares of its Class B common stock to Class A Common Stock on a one-for-one basis. On February 1, 2022, Athene converted the remaining 638,861 shares of its Class B Common Stock to Class A Common Stock on a one-for-one basis. 69 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 18. Equity On March 12, 2022, we repurchased 750,000 shares of our Class A Common Stock from Athene. The price per share in the repurchase was $ 37.89 . Dividends to Shareholders Any declaration of cash dividends 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, 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 as to the amount of any such cash dividend. The following table presents declaration date, record date, payment date and dividends paid on per JFI’s Class A and Class B common shares: Declaration Date Record Date Payment Date Dividends Paid Per Share 03/31/2022 February 28, 2022 March 14, 2022 March 23, 2022 $ 0.55 06/30/2022 May 9, 2022 June 2, 2022 June 16, 2022 $ 0.55 19. Earnings Per Share Basic earnings per share is calculated by dividing net income (loss) attributable to Jackson Financial Inc. shareholders by the weighted-average number of Class A and Class B common shares outstanding during the period. Except for voting rights, the Company’s Class A Common Stock and Class B Common Stock had the same dividend rights, were equal in all respects, and were otherwise treated as if they were one class of shares, including the treatment for the earnings per share calculations. Diluted earnings per share is calculated by dividing the net income (loss) attributable to Jackson Financial Inc. shareholders, by the weighted-average number of shares of Class A Common Stock and Class B Common Stock outstanding for the period, plus shares representing the dilutive effect of share-based awards. For the three and six months ended June 30, 2021, the Company did not have any outstanding share-based awards involving the issuance of the Company’s equity and, therefore, no impact to the diluted earnings per share calculation. The Company grants share-based awards subject to vesting provisions as provided in the Company's 2021 Omnibus Incentive Plan, which have a dilutive effect. See Note 16 for further description of share-based awards in the Company's 2021 Annual Report. The following table sets forth the calculation of earnings per common share: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in millions, except share and per share data) Net income (loss) attributable to Jackson Financial Inc. $ 2,903 $ ( 540 ) $ 4,928 $ 2,392 Weighted average shares of common stock outstanding - basic 85,968,564 94,464,343 86,649,493 94,464,343 Dilutive common shares 3,200,211 — 3,402,618 — Weighted average shares of common stock outstanding - diluted 89,168,775 94,464,343 90,052,111 94,464,343 Earnings per share—common stock Basic $ 33.77 $ ( 5.72 ) $ 56.87 $ 25.32 Diluted $ 32.56 $ ( 5.72 ) $ 54.72 $ 25.32 70 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 20. Subsequent Events 20. Subsequent Events The Company has evaluated subsequent events through the date these Condensed Consolidated Financial Statements were issued. Dividends Declared to Shareholders 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. 71