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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-10 · 469 added, 577 removed, 832 unchanged (56% of the section changed)

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FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

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

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

Forward-looking statements may contain words like:

“anticipate,” “believe,” “estimate,” “expect,” “project,” “shall,” “will” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance.

In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results and the outcome of contingencies, such as legal proceedings.

Forward- looking statements are subject to risks and uncertainties.

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

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

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

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

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

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

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

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

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

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

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

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

• adverse outcomes of legal or regulatory actions.

The risks and uncertainties included here are not exhaustive.

Our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 7, 2022, (the "2021 Annual Report") and other reports filed with the U.S.

Securities and Exchange Commission (“SEC”) includes additional factors that could affect our businesses and financial performance.

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

New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

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

The information in this Quarterly Report on 10-Q (this “report”) contains forward-looking statements about future events and circumstances and their effects upon revenues, expenses and business opportunities.

Generally speaking, any statement in this Form 10-Q not based upon historical fact is a forward-looking statement.

Forward-looking statements can also be identified by the use of forward-looking or conditional words, such as “could,” “should,” “can,” “continue,” “estimate,” “forecast,” “intend,” “look,” “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain,” “confident” and “commit” or similar expressions.

In particular, statements regarding plans, strategies, prospects, targets and expectations regarding the business and industry are forward-looking statements.

They reflect expectations, are not guarantees of performance and speak only as of the dates the statements are made.

We caution investors that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected, expressed, or implied.

Factors that could cause actual results to differ materially from those in the forward-looking statements include those reflected in Part I, Item 1A.

Risk Factors and Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 1, 2023, (the "2022 Annual Report") and elsewhere in Jackson Financial Inc.’s filings with the U.S.

Securities and Exchange Commission (the "SEC").

Except as required by law, Jackson Financial Inc.

does not undertake to update such forward-looking statements.

You should not rely unduly on forward-looking statements.

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

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

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

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

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

DDTL Facility Delayed Draw Term Loan Facility

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

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

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

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

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

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

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

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

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

It is based on rules published by the NAIC.

RBC (Risk-based capital) Statutory minimum level of capital that is required by regulators for an insurer to support its operations.

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

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

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

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

Executive Summary

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

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

You should read this report, together with our 2022 Annual Report, in its entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.

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

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We also offer fixed index annuities and fixed annuities.

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

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

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

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

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

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

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

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

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

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public company.

Prudential retained an equity interest in us, which, as a result of sales subsequent to the Demerger, represents 9.1% of our outstanding common stock as of September 30, 2022.

• Common Stock Reclassification:

On September 9, 2021, Jackson Financial effected a 104,960.3836276-for-1 stock split of its Class A Common Stock and Class B Common Stock by way of a reclassification of its Class A Common Stock and Class B Common Stock.

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

• Athene Transactions:

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

(“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 “Athene Reinsurance Transaction”).

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

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

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

Athene has an equity interest in us, which as a result of sales subsequent to the Demerger, represents an 9.0% economic interest and an 9.0% voting interest of our outstanding common stock as of September 30, 2022.

• Elimination of Class B Common Stock:

On June 9, 2022, our shareholders approved the Third Amended and Restated Certificate of Incorporation, which amended and restated the Second Amended and Restated Certificate of Incorporation, to eliminate the Class B Common Stock.

As a result, our Class A Common Stock became simply, common stock.

Prudential retained an equity interest in us, which, as a result of sales subsequent to the Demerger, represents 7.1% of our outstanding common stock as of March 31, 2023.

• Common Stock Repurchases:

Since the Demerger and through September 30, 2022, we have repurchased 12,283,113 shares of our common stock for an aggregate consideration of $456 million.

After giving effect to those repurchases and issuances for our share-based compensation, we had 10,807,076 shares of treasury stock and 83,666,942 shares of common stock outstanding at September 30, 2022.

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

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

As a result of market changes since the transition date, primarily higher interest rates, the estimated negative impact at the transition date is trending toward a positive impact, as of September 30, 2022, to the Company’s total equity.

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

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

Since the Demerger and through March 31, 2023, we have repurchased 15,146,955 shares of our common stock for an aggregate consideration of $564 million.

After giving effect to those repurchases and issuances for our share-based compensation, we had 13,431,514 shares of treasury stock and 81,044,318 shares of common stock outstanding at March 31, 2023.

• Inflation Reduction Act of 2022:

As discussed in Note 15 of Notes to Condensed Consolidated Financial Statements in this report, on August 16, 2022, the U.S.

government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“AMT”) based on adjusted financial statement income, rather than reported taxable income, and imposes a 1% excise tax on corporate stock repurchases.

The AMT provision is effective January 1, 2023.

The AMT provision became effective January 1, 2023.

We expect that we will be subject to the AMT beginning in 2023.

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although it could affect our cash tax liabilities.

As of September 30, 2022, we have not recorded any provision for the AMT.

As of March 31, 2023, we have not recorded any provision for the AMT.

The calculation of adjusted financial statement income, and therefore the AMT, is subject to the issuance of regulatory guidance by the U.S.

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Any excise tax incurred on corporate stock repurchases will generally be recognized as part of the cost basis of the treasury stock acquired and not reported as part of income tax expense.

We continue to monitor developments and regulations associated with the IRA for any potential future impacts on our business, results of operations and financial position.

Item 1A, Risk Factors, in this Report.

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

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

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

We continue to monitor developments and regulations associated with the IRA for any potential future impacts on our business, financial condition, results of operations and cash flows.

An understanding of several key operating measures, including sales, account value, net flows, benefit base and assets under management ("AUM"), is helpful to evaluating our results.

See “Key Operating Measures” below.

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

Impact of Recent Accounting Pronouncements

For a complete discussion of new accounting pronouncements affecting us, s ee Note 2 of Notes to Condensed Consolidated Financial Statements.

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

Based upon the elected transition methods, the adoption of LDTI resulted in a decrease in total equity of $3.0 billion as of the transition date of January 1, 2021, comprised of a reduction in accumulated other comprehensive income ("AOCI") of $0.4 billion and a reduction in retained earnings of $2.6 billion.

The adoption of the standard resulted in increases in net income attributable to Jackson Financial Inc.

of $489 million and $234 million for the years ended December 31, 2022 and 2021, respectively, and also resulted in an increase in total equity of $223 million and a decrease of $2.8 billion for the years ended December 31, 2022 and 2021, respectively, from the amounts reported prior to the adoption of LDTI.

The change in the equity impact from the transition date was primarily due to higher interest rates and is comprised of a reduction in retained earnings that is more than offset by an increase in AOCI.

See further discussion in Note 2- New Accounting Standards of the Notes to Condensed Consolidated Financial Statements for the significant changes associated with this change in accounting principle.

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

Non-GAAP Financial Measures

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

Guaranteed Benefits and Hedging Results:

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

This adjustment includes the following components:

Net Hedging Results :

Comprised of:

(i) fees attributed to guaranteed benefits;

(ii) changes in the fair value of freestanding derivatives used to manage the risk associated with market risk benefits and other guaranteed benefit features;

(iii) the movements in reserves, market risk benefits, guaranteed benefit features accounted for as embedded derivative instruments, and related claims and benefit payments;

(iv) amortization of the balance of unamortized deferred acquisition costs at the date of transition to current accounting guidance on January 1, 2021 associated with items excluded from adjusted operating earnings prior to transition;

and (v) the impact on the valuation of Guaranteed Benefits and Net Hedging Results arising from changes in underlying actuarial assumptions.

These items are excluded from adjusted operating earnings as they may vary significantly from period to period due to near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business.

We believe this approach appropriately removes the impact to both revenue and related expenses associated with Guaranteed Benefits and Net Hedging Results and provides investors a better picture of the drivers of our underlying performance.

Net Realized Investment Gains and Losses :

Comprised of:

(i) realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio;

and (ii) impairments of securities, after adjustment for the non-credit component of the impairment charges.

These items are excluded from pretax adjusted operating earnings as they may vary significantly from period to period due to near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business.

We believe this approach provides investors a better picture of the drivers of our underlying performance.

Change in Value of Funds Withheld Embedded Derivative and Net investment income on funds withheld assets :

(i) the change in fair value of funds withheld embedded derivatives;

and (ii) net investment income on funds withheld assets related to funds withheld reinsurance transactions.

These items are excluded from pretax adjusted operating earnings as they are not reflective of the underlying performance of our business.

We believe this approach provides investors a better picture of the drivers of our underlying performance.

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

• 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 Adjusted Operating Earnings as the related net movements in freestanding derivatives and net reserve and embedded derivative movements, as described below, have been excluded from Adjusted Operating Earnings.

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

• Net Movement in Freestanding Derivatives, except earned income (periodic settlements and changes in settlement accruals) on derivatives that are hedges of investments, but do not qualify for hedge accounting treatment :

changes in the fair value of our freestanding derivatives used to manage the risk associated with our life and annuity reserves, including those arising from the guaranteed benefit features offered for certain of our variable annuities and fixed index annuities.

Net movements in freestanding derivatives have been excluded from Adjusted Operating Earnings as the market value of these derivatives may vary significantly from period to period as a result of near-term market conditions and therefore are not directly comparable or reflective of the underlying performance of our business;

• Net Reserve and Embedded Derivative Movements :

changes in the valuation of certain life and annuity reserves, a portion of which are accounted for as embedded derivative instruments, and which are primarily composed of variable and fixed index annuity reserves, including those arising from the guaranteed benefit features offered for certain of our variable annuities.

Net reserve and embedded derivative movements have been excluded from Adjusted Operating Earnings as the carrying values of these derivatives may vary significantly from period to period as the result of near-term market conditions and policyholder behavior-related inputs and therefore are not directly comparable or reflective of the underlying performance of our business.

Movements in reserves attributable to the current period claims and benefit payments in excess of a customer’s account value on these policies are also excluded from Adjusted Operating Earnings as these benefit payments are affected by near-term market conditions and policyholder behavior-related inputs and therefore may vary significantly from period to period;

• DAC and Deferred Sales Inducements ("DSI") Impact:

amortization of deferred acquisition costs and DSI associated with the items excluded from Adjusted Operating Earnings;

• Assumption changes:

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

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

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

Loss on Athene Reinsurance Transaction:

includes contractual ceding commission, cost of reinsurance write-off and DAC and DSI write-off related to the Athene Reinsurance Transaction;

Net investment income on funds withheld assets :

includes net investment income on funds withheld assets related to funds withheld reinsurance transactions;

Other items :

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

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

Comprised of:

(i) the impact of investments that are consolidated in our financial statements due to U.S.

GAAP accounting requirements, such as our investments in collateralized loan obligations (CLOs), but for which the consolidation effects are not consistent with our economic interest or exposure to those entities, and (ii) one-time or other non-recurring items, such as costs relating to our separation from Prudential.

These items are excluded from adjusted operating earnings as they are not reflective of the underlying performance of our business.

We believe this approach provides investors a better picture of the drivers of our underlying performance.

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.

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GAAP measure.

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

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Net movement in freestanding derivatives 2,512 1,476

Market risk benefits (gains) losses, net (174) (1,907)

Net reserve and embedded derivative movements 189 40

DAC and DSI impact 458 (169) 1,648 284

Assumption changes — — — —

Total guaranteed benefits and hedging results (774) 593 (3,551) (73)

Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative (549) 79 (2,529) (219)

Amortization of DAC associated with non-operating items at date of transition to LDTI 153 173

Total guaranteed benefits and net hedging results 1,900 (982)

Net realized investment (gains) losses 68 130

Net realized investment (gains) losses on funds withheld assets 673 (1,028)

Net investment income on funds withheld assets (307) (260)

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

Adjusted Book Value and Adjusted Operating ROE

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

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

Adjusted Book Value Attributable to Common Shareholders and Adjusted Operating ROE Attributable to Common Shareholders

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

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

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

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

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

We calculate Adjusted Operating ROE Attributable to Common Shareholders by dividing our Adjusted Operating Earnings by average Adjusted Book Value Attributable to Common Shareholders.

Adjusted Book Value Attributable to Common Shareholders excludes AOCI attributable to Jackson Financial Inc.

AOCI attributable to Jackson Financial Inc.

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We exclude AOCI attributable to Jackson Financial Inc.

from Adjusted Book Value because our invested assets are generally invested to closely match the duration of our liabilities, which are longer duration in nature, and therefore we believe period-to-period fair market value fluctuations in AOCI to be inconsistent with this objective.

from Adjusted Book Value Attributable to Common Shareholders because our invested assets are generally invested to closely match the duration of our liabilities, which are longer duration in nature, and therefore we believe period-to-period fair market value fluctuations in AOCI to be inconsistent with this objective.

We believe excluding AOCI attributable to Jackson Financial Inc.

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

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

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

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

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

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

GAAP measure:

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

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Total shareholders' equity $ 8,638 $ 8,194

Adjustments to total shareholders’ equity:

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

3,402 (1,564) 3,402 (1,564)

Adjusted Book Value $ 12,376 $ 8,694 $ 12,376 $ 8,694

ROE 63.8 % 8.0 % 88.7 % 34.6 %

Adjusted Operating ROE on average equity 12.4 % 22.5 % 11.9 % 27.4 %

(1) Excludes $(2,316) million and $481 million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of September 30, 2022 and 2021, respectively.

Preferred stock 533 —

Total common shareholders' equity 8,105 8,194

Adjustments to total common shareholders’ equity:

Exclude AOCI attributable to Jackson Financial Inc.

Adjusted Book Value Attributable to Common Shareholders $ 8,581 $ 7,627

ROE Attributable to Common Shareholders (71.5) % 110.8 %

Adjusted Operating ROE Attributable to Common Shareholders on average equity 11.7 % 21.2 %

(1) Excludes $(1,832) million and $(686) million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of March 31, 2023 and 2022, respectively, are not attributable to Jackson Financial Inc.

and are therefore not included as an adjustment to total shareholders’ equity in the reconciliation of Adjusted Book Value Attributable to Common Shareholders to total shareholders’ equity.

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

Variable annuities $ 2,474 $ 4,575

RILA 562 — 1,251 —

Fixed Index Annuities 62 19

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Total Sales $ 3,789 $ 5,772

For the three and nine months ended September 30, 2022, total sales decreased by $938 million and $406 million compared to the three and nine months ended September 30, 2021, respectively.

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

In addition, sales of our institutional products were higher by $271 million and $1,447 million, compared to the three and nine months ended September 30, 2021, respectively.

Sales of fixed index and fixed annuities increased in 2022 due to the rising interest rate environment, which enabled more favorable pricing actions.

(1) Includes payout annuities

For the three months ended March 31, 2023, total sales decreased by $1,983 million compared to the three months ended March 31, 2022.

Lower retail sales were primarily due to decreased sales of our variable annuities with lifetime living benefits, partially offset by RILA sales.

In addition, sales of our institutional products were lower by $326 million, compared to the three months ended March 31, 2022.

Sales of fixed index and fixed annuities increased in 2023 due to the higher interest rate environment, which enabled more favorable pricing actions.

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

Account Value

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

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

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

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

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Total Fixed & Fixed Index Annuity Account Value (1)

Payout Annuity (1)

Total Retail Annuities Account Value (1)

$ 218,770 $ 209,967

Total Institutional Products Account Value $ 8,691 $ 9,019

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$ 8,272 $ 8,288

(1) Net of reinsurance to Athene.

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

(1) Net of reinsurance.

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

Variable Annuity $ (1,774) $ 2

RILA 561 — 1,248 —

Fixed Index Annuity (1)

Fixed Annuity (1)

Total Retail Annuities Net Flows, Net of Reinsurance (9) (92) 400 (593)

Net flows ceded to Athene $ (893) $ (634) $ (2,081) $ (1,886)

Payout Annuity (1)

Total Retail Annuities Net Flows (1)

Net flows ceded (1,203) (586)

Total Retail Annuities net flows, gross of reinsurance $ (2,428) $ (405)

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$ (47) $ (80)

(1) Net of reinsurance to Athene.

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

Net flows, net of reinsurance, improved for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021, driven by the increased sales of RILA and institutional products which has a positive effect on net flows.

(1) Net of reinsurance.

Net flows, net of reinsurance, decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, driven by decreased variable annuity sales and increased withdrawals for institutional products.

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

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

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

September 30, 2022 December 31, 2021

The following table shows variable annuity account value and benefit base as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

Account Value Benefit Base Account Value Benefit Base

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

September 30, December 31,

March 31, December 31,

(in millions)

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

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

The level of interest rates and shape of the yield curve, credit and equity market performance and equity volatility, regulation, tax policy, the level of U.S.

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

Monetary and fiscal policy in the United States, or similar actions in foreign nations, could result in increased volatility in financial markets, including interest rates, currencies and equity markets, and could impact our business in both the short-term and medium-term.

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

Monetary and fiscal policy in the U.S., or similar actions in foreign nations, could result in increased volatility in financial markets, including interest rates, currencies and equity markets, and could impact our business in both the short-term and medium-term.

Political events, including precautions with the COVID-19 pandemic, civil unrest, tariffs or other barriers to international trade, and the effects that these or other political events could have on levels of economic activity, could also impact our business through impacts on consumers’ behavior or impact on financial markets.

In the short- to medium-term, the potential for increased volatility could pressure sales and reduce demand for our products as consumers consider purchasing alternative products to meet their objectives.

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

In early March through late April, several regional U.S.

banks were taken over by federal regulators with the Federal Deposit Insurance Corporation ("FDIC") being named the receiver.

These bank failures raised concern among investors and depositors regarding the solvency and liquidity of regional banks across the country, leading to increased stress on the banking sector.

In response, the FDIC invoked a systemic risk exception allowing the government to ensure repayment of all amounts on deposit at the failed banks.

We continue to monitor and analyze the ongoing situation in the banking sector.

Except for assets held as part of reinsurance arrangements within our funds withheld portfolios, where the Company does not have exposure to default risk, the Company's general account portfolio had no exposure to Silicon Valley Bank ("SVB"), Signature Bank, First Republic Bank, and Credit Suisse Additional Tier 1 debt as of March 31, 2023.

Equity Market Environment

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

Through the first nine months of 2022 equity markets declined and equity volatility increased, resulting in higher hedging costs.

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

In 2022, equity markets declined, and equity volatility increased, resulting in higher hedging costs.

While that reversed in the first quarter of 2023 (as markets increased and equity volatility eased somewhat), the financial performance of our hedging program could be impacted by any future large directional market movements, or periods of high volatility.

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

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

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

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

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

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

• During periods of sharp rises in interest rates, as we have seen recently as a result of the Federal Reserve's actions and signals about upcoming interest rate decisions, the results of our variable annuity business, statutory capital and RBC ratio may be impacted both positively and negatively.

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

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

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

The RBC ratio will take into account the interaction of TAC and the CAL movements.

• Periods of sharp rises in interest rates, as we have seen recently as a result of the Federal Reserve's actions and signals about upcoming interest rate decisions, impact investment related activity including investment income returns, net investment spread results, new money rates, mortgage loan prepayments, and bond redemptions.

Due to increases in interest rates, the yield on new investments has generally exceeded the yield on asset maturities and redemptions (runoff yield).

Rising interest rates also impact the hedging results of our variable annuity business as the market value of interest rate hedges decline driving immediate hedging losses.

We would expect lower hedging costs and reduced levels of hedging going forward.

Further, we expect near-term hedging losses from rising rates may be more than offset by changes in the fair value of the related guaranteed benefit liabilities as was the case for the three months ended March 31, 2023.

• Interest rate increases also expose us to disintermediation risk, where higher rates make currently sold fixed annuity products more attractive while simultaneously reducing the market value of assets backing our liabilities.

This creates an incentive for our customers to lapse their products in an environment where selling assets causes us to realize losses.

• Additionally, our statutory total adjusted capital ("TAC") may be negatively impacted by rising rates due to minimum required reserving levels (i.e., cash surrender value floor) when reserve releases are limited and unable to offset interest rate hedging losses.

The RBC ratio may increase or decrease depending on the interaction between movements in TAC and movements in statutory required capital (the company action level, or "CAL”), which could impact available dividends from our insurance subsidiaries.

CAL will generally decline in rising interest rate environments.

However, the cash surrender value floor may also materially affect the CAL calculation (in addition to reserves), potentially leading to rising rates negatively impacting the RBC ratio as well.

• We operated in a low interest rate environment for several years.

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

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

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

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

• Finally, some of our annuities have a guaranteed minimum interest crediting rate.

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

More customers are expected to hold policies with comparatively high guaranteed minimum interest crediting rates longer in a low interest rate environment, resulting in lower than previously expected lapse rates.

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

• Finally, some of our annuities have guaranteed minimum interest crediting rates (“GMICRs”) that limit our ability to reduce crediting rates.

If earnings on our investment portfolio decline, those GMICRs may result in net investment spread compression that negatively impacts earnings.

Many of our annuities have GMICRs that reset at contractually specified times after issue.

In the current rising interest rate environment, those GMICRs have increased.

Conversely, in a falling interest rate environment they will eventually decrease;

however, there may be a lag between interest rate movements and the GMICR reset, temporarily limiting our ability to lower crediting rates.

When policies have comparatively high GMICRs, in a subsequent low interest rate environment more customers are expected to hold on to their policies, which may result in lower lapses than previously expected.

Credit Market Environment

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

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

After tightening in 2021, credit spreads widened in 2023 and remained relatively unchanged in the first quarter of 2023.

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

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

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

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

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

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

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

In addition, if credit conditions deteriorate due to a recession or other negative credit events in capital markets, we could experience an increase in defaults and other-than-temporary-impairments (“OTTI”).

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

We continue to 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.

There has been a steady resumption of activity during 2022, however, at this time it is not possible to estimate the long-term effectiveness of any therapeutic treatments and vaccines for COVID-19, or their efficacy with respect to current or future variants or mutations of COVID-19, or the longer-term effects that the COVID-19 pandemic could have on our business.

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

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

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

OTTI in our underlying investments would result in a reduction in TAC held by our insurance company subsidiaries.

Also, shifts in the credit quality or credit rating downgrades of our investments as a result of stressed credit conditions may also impact the level of regulatory required statutory capital for our insurance company subsidiaries.

As such, significant credit rating downgrades along with elevated defaults and OTTI losses would negatively impact our RBC ratio, which could impact available dividends from our insurance subsidiaries.

Pandemics and Other Public Health Crises

The COVID-19 pandemic disrupted our business and contributed to additional operating costs over the past several years.

While the effects of that pandemic appear to be subsiding, other pandemics, epidemics or disease outbreaks in the U.S.

or globally could disrupt our business by affecting how we protect and interact with our critical workforce, customers, key vendors, third-party suppliers, or counterparties with whom we transact.

Disruption could result from an inability of those persons to work or transact effectively due to illness, quarantines, and government actions in response to public health emergencies.

The extent and severity of governmental actions will necessarily depend on the extent and severity of the perceived emergency.

We have risk management plans in place and have been able to navigate through COVID-19 with remote and hybrid work environments;

however, those plans may be challenged by a new public health emergency.

Consumer Behavior

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

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

Regulatory Policy

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In particular, the following could materially impact our business:

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

Department of Labor Fiduciary Advice Rule

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

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

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

The guidance provided by the DOL broadens the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Federal income tax code.

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

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

However, the guidance has been subject to court challenges.

In one recent decision issued in February 2023, a U.S.

district court in Florida vacated the roll over portion of the guidance, ruling that the DOL exceeded its authority in this area by issuing guidance without going through a rulemaking process.

Because our distribution of annuities is primarily through intermediaries, we believe that we will have limited exposure to the new Fiduciary Advice Rule.

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

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

On December 29, 2022, SECURE 2.0 Act of 2022 (“SECURE 2.0”) was signed into law as part of a larger omnibus appropriations bill.

SECURE 2.0 contains provisions that expand automatic enrollment programs, increase the age of required minimum distributions, and eliminate age requirements for traditional IRA contributions.

These changes are intended to expand and increase Americans’ retirement savings.

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

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

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Net investment income:

Net investment income excluding funds withheld assets 415 430

Net investment income on funds withheld assets 307 260

Total net investment income 722 690

Net gains (losses) on derivatives and investments:

Net gains (losses) on derivatives and investments (2,726) (1,566)

Net gains (losses) on funds withheld reinsurance treaties (673) 1,028

Total net gains (losses) on derivatives and investments (3,399) (538)

Other income 15 20

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Death, other policy benefits and change in policy reserves, net of deferrals 228 300

(Gain) loss from updating future policy benefits cash flow assumptions, net 14 15

Market risk benefits (gains) losses, net (174) (1,907)

Interest credited on other contract holder funds, net of deferrals and amortization 285 197

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Net movement in freestanding derivatives 2,512 1,476

Market risk benefits (gains) losses, net (174) (1,907)

Net reserve and embedded derivative movements 189 40

DAC and DSI impact 458 (169) 1,648 284

Assumption changes — — — —

Total guaranteed benefits and hedging results (774) 593 (3,551) (73)

Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative (549) 79 (2,529) (219)

Amortization of DAC associated with non-operating items at date of transition to LDTI 153 173

Total guaranteed benefits and net hedging results 1,900 (982)

Net realized investment (gains) losses 68 130

Net realized investment (gains) losses on funds withheld assets 673 (1,028)

Net investment income on funds withheld assets (307) (260)

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

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

Pretax Income (Loss)

Our pretax income (loss) increased by $1,775 million to a pretax income of $2,027 million for the three months ended September 30, 2022, from a pretax income of $252 million for the three months ended September 30, 2021 primarily due to:

• $2,798 million increase in total net gains (losses) on derivatives and investments as shown in the table below and driven by:

Three Months Ended September 30,

2022 2021 Variance

(in millions)

Net gains (losses) excluding derivatives and funds withheld assets $ (6) $ 37 $ (43)

Net gains (losses) on freestanding derivatives (248) (455) 207

Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance) 1,118 (846) 1,964

Net gains (losses) on derivative instruments 870 (1,301) 2,171

Net gains (losses) on funds withheld reinsurance 555 (115) 670

Total net gains (losses) on derivatives and investments $ 1,419 $ (1,379) $ 2,798

◦ Favorable movements in reserves for guaranteed benefits, primarily driven by more favorable increases in interest rates, partially offset by equity market declines compared to the prior year.

◦ Higher benefit recognized on funds withheld reinsurance driven by increased interest rates compared to prior year;

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

• $107 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower incentive compensation expenses in 2022 and lower asset-based non-deferrable commissions due to lower account values during the three months ended September 30, 2022.

These increases were partially offset by:

• $560 million increase in amortization of deferred acquisition costs driven by higher net freestanding and embedded derivative gains in 2022, leading to higher current period gross profits and, therefore, higher current period amortization.

• $197 million decrease in net investment income as a result of lower income on limited partnership investments, which are recorded on a one quarter lag;

• $181 million increase in death, other policy benefits and change in policy reserves primarily due to changes in reserves on variable annuity guarantees accounted for as insurance liabilities driven by unfavorable equity movements during the three months ended September 30, 2022 compared to relatively flat movements during the three months ended September 30, 2021;

• $155 million decrease in fee income primarily due to decrease in average variable annuity account values stemming from unfavorable separate account performance in 2022;

• $23 million higher interest expense incurred in the current year primarily related to our senior notes, which refinanced our term loan facilities.

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

Income tax expense increased $575 million to an expense of $559 million for the three months ended September 30, 2022, from a benefit of $16 million for the three months ended September 30, 2021.

The provision for income tax in the current period led to an effective income tax rate of 27% for the three months ended September 30, 2022 compared to the 2021 effective income tax rate of (9)%.

The expense during the three months ended September 30, 2022 increased primarily due to the relationship of the taxable income to the consolidated pre-tax income and the impact of tax adjustments related to prior year returns recorded in the current quarter.

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

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

Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Pretax Income (Loss)

Our pretax income (loss) increased by $4,765 million to a pretax income of $8,064 million for the nine months ended September 30, 2022, from a pretax income of $3,299 million for the nine months ended September 30, 2021 primarily due to:

• $8,085 million increase in total net gains (losses) on derivatives and investments as shown in the table below and driven by:

Nine Months Ended September 30,

Our pretax income (loss) decreased by $4,667 million to $(2,054) million for the three months ended March 31, 2023, from $2,613 million for the three months ended March 31, 2022 primarily due to:

• $2,861 million decrease in total net gains (losses) on derivatives and investments as shown in the table below and driven by:

Three Months Ended March 31,

2023 2022 Variance

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Total net gains (losses) on derivatives and investments $ (3,399) $ (538) $ (2,861)

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

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

◦ Higher benefit recognized on funds withheld reinsurance driven by increased interest rates compared to prior year;

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

Primarily offset by:

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

• $289 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower deferred compensation in 2022, lower asset-based non-deferrable commissions due to lower account values during the nine months ended September 30, 2022, and higher separation costs in 2021.

◦ Higher freestanding derivative losses as a result of losses on our equity derivatives primarily driven by market increases in 2023, compared to decreases in the prior year, partially offset by gains within our interest rate related hedge instruments, reflecting decreases in interest rates, compared to increasing interest rates in the prior year.

◦ Lower benefit recognized on funds withheld reinsurance driven by decreasing interest rates during the current quarter compared to rising interest rates in the prior year;

• $1,733 million unfavorable movements in market risk benefits (gains) losses, net, primarily driven by declining interest rates in 2023, compared to increasing rates in the prior year.

This was partially offset by positive separate account returns and decreases in implied equity market volatility in 2023, as compared to negative separate account returns and increased volatility in the prior year;

• $124 million decrease in fee income primarily due to lower average separate account values compared to prior year.

• $88 million increase in interest credited on contract holder funds, net of deferrals, primarily due to an increase in flexible annual minimum interest rates on variable annuity general account funds and higher crediting rates on new institutional business.

These decreases were partially offset by:

• $73 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to lower death claims and lower other policyholder benefits in 2023;

• $50 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based non-deferrable commissions and lower sub-advisor expenses due to lower account values during the three months ended March 31, 2023.

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

These increases were partially offset by:

• $1,725 million increase in amortization of deferred acquisition costs driven by higher net freestanding derivative and embedded derivative gains in 2022, leading to higher current period gross profits and, therefore, higher current period amortization;

• $1,157 million increase in death, other policy benefits and change in policy reserves primarily due to changes in reserves on variable annuity guarantees accounted for as insurance liabilities driven by unfavorable equity movements in 2022 compared to favorable movements in 2021;

• $546 million decrease in net investment income as a result of lower income on limited partnership investments, which are recorded on a one quarter lag;

• $109 million decrease in fee income primarily due to decreases in variable fee income and asset management fees compared to prior year, partially offset by increases in benefit-based guarantee fee income;

• $54 million higher interest expense incurred in the current year primarily related to our senior notes, which refinanced our term loan facilities.

Income tax expense increased $1,091 million to an expense of $1,606 million for the nine months ended September 30, 2022, from an expense of $515 million for the nine months ended September 30, 2021.

The provision for income tax in the current period led to an effective income tax rate of 20% for the nine months ended September 30, 2022 compared to the 2021 effective income tax rate of 17%.

The expense during the nine months ended September 30, 2022 increased primarily due to the relationship of the taxable income to the consolidated pre-tax income and the impact of tax adjustments related to prior year returns recorded in the current quarter.

Income tax expense decreased $946 million to a benefit of $558 million for the three months ended March 31, 2023, from an expense of $388 million for the three months ended March 31, 2022.

The provision for income tax in the current period led to an effective income tax rate of 27.2% for the three months ended March 31, 2023 compared to the 2022 effective income tax rate of 15.0%.

The benefit during the three months ended March 31, 2023 increased primarily due to the relationship of the taxable income to the consolidated pre-tax income.

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

See Note 13 of Notes to Consolidated Financial Statements in our 2022 Annual Report for more information.

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

Segment Results of Operations

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

Also, see Note 3 to Condensed Consolidated Financial Statements for further information regarding the calculation of pretax adjusted operating earnings:

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

2022 2021 2022 2021

Also, see Note 3 of the Notes to Condensed Consolidated Financial Statements for further information regarding the calculation of pretax adjusted operating earnings:

Three Months Ended March 31,

(in millions)

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Net movement in freestanding derivatives (2,512) (1,476)

Market risk benefits gains (losses), net 174 1,907

Net reserve and embedded derivative movements (189) (40)

DAC and DSI impact (458) 169 (1,648) (284)

Assumption changes — — — —

Amortization of DAC associated with non-operating items at date of transition to LDTI (153) (173)

Total guaranteed benefits and hedging results (1,900) 982

Net realized investment (gains) losses including change in fair value of funds withheld embedded derivative 549 (79) 2,529 219

Net realized investment gains (losses) (68) (130)

Net realized investment gains (losses) on funds withheld assets (673) 1,028

Net investment income on funds withheld assets 307 260

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Retail Annuities

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings (non-GAAP) results for our Retail Annuities segment.

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

2 unchanged sentences

Fee income $ 975 $ 1,108

Premiums 3 2 6 15

Net investment income 136 114

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Operating Benefits and Expenses

Death, other policy benefits and change in policy

reserves, net of deferrals 5 38 54 90

Interest credited on other contract holder funds, net of

deferrals and amortization 72 56 191 168

Death, other policy benefits and change in policy reserves, net of deferrals (15) 32

(Gain) loss from updating future policy benefits cash flow assumptions, net (2) (3)

Interest credited on other contract holder funds, net of deferrals and amortization 98 57

Interest expense 17 5

4 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

4 unchanged sentences

Net flows (1,225) 181

Credited Interest/Investment performance (9,780) (1,559) (59,712) 20,952

Investment performance 10,528 (16,727)

Change in value of equity option 108 (4)

Interest credited 99 56

Policy charges and other (707) (690)

Balance as of end of period 220,810 273,210 220,810 273,210

Ceded reinsurance (22,909) (25,440) (22,909) (25,440)

Balance as of end of period, net of ceded reinsurance 218,770 242,951

Ceded reinsurance 20,952 24,519

Balance as of end of period, gross of reinsurance $ 239,722 $ 267,470

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

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

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased $163 million to $364 million for the three months ended September 30, 2022 from $527 million for the three months ended September 30, 2021 primarily due to:

• $192 million decrease in fee income primarily due to a decrease in average variable annuity account values stemming from unfavorable separate account performance in 2022;

• $108 million decrease in net investment income primarily due to lower levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2021.

These decreases were partially offset by:

• $60 million decrease in amortization of deferred acquisition costs primarily due to higher projected separate account returns during the current quarter, driven by the release of the historical returns from the mean reversion formula, and a negative impact from this same item for three months ended September 30, 2021;

• $73 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based non-deferrable commissions due to lower account values during the three months ended September 30, 2022, and lower incentive compensation expenses in 2022.

Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased $791 million to $988 million for the nine months ended September 30, 2022 from $1,779 million for the nine months ended September 30, 2021 primarily due to:

• $370 million increase in amortization of deferred acquisition costs primarily due to lower separate account returns during 2022, which led to decreased expected future gross profits, and therefore higher current period amortization during 2022;

• $289 million decrease in fee income primarily due to a decrease in average variable annuity account values stemming from unfavorable separate account performance in 2022;

• $242 million decrease in net investment income primarily due to lower levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2021.

Pretax adjusted operating earnings decreased $69 million to $356 million for the three months ended March 31, 2023 from $425 million for the three months ended March 31, 2022 primarily due to:

• $133 million decrease in fee income primarily due to lower average separate account values compared to prior year;

• $21 million decrease in income (loss) on operating derivatives primarily due to the increase in floating rates in 2023;

• $19 million decrease in spread income primarily due to $41 million higher interest credited driven by resetting minimum interest crediting rates on variable annuity fixed rate options in the first quarter of 2023, partially offset by $22 million higher investment income.

These decreases were partially offset by:

• $132 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based non-deferrable commissions due to lower account values during 2022, and lower deferred compensation expenses in 2022.

• $70 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based non-deferrable commissions and lower sub-advisor expenses due to lower account values during the three months ended March 31, 2023, and lower incentive compensation expenses in 2023;

• $46 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to lower other policyholder benefits in 2023.

Account Value

Retail annuities account value, gross of reinsurance, decreased $52 billion between periods primarily due to negative variable annuity separate account growth driven by unfavorable market performance in 2022, as well as negative net flows over the period, primarily from our reinsured fixed and fixed index annuity block.

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

Retail annuities account value, net of reinsurance, decreased $24.2 billion between periods primarily due to negative variable annuity separate account returns driven by unfavorable market performance in 2022, as well as negative net flows over the period, primarily from variable annuities.

Institutional Products

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings (non-GAAP) results for our Institutional Products segment.

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Institutional Products segment.

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

5 unchanged sentences

Operating Benefits and Expenses

Interest credited on other contract holder funds, net of

deferrals and amortization 51 47 137 147

Interest credited on other contract holder funds, net of deferrals and amortization 76 39

Interest expense 4 —

2 unchanged sentences

Pretax Adjusted Operating Earnings $ 9 $ 23

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

7 unchanged sentences

Balance as of end of period $ 8,691 $ 9,173

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

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings remained relatively flat at $20 million for the three months ended September 30, 2022 from $21 million for the three months ended September 30, 2021.

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

Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $25 million to $62 million for the nine months ended September 30, 2022 from $37 million for the nine months ended September 30, 2021 primarily due to increased investment income and a decrease in interest credited, partially offset by increased losses on operating derivatives, driven by interest rate and foreign exchange movements, compared to prior year.

Pretax adjusted operating earnings decreased $14 million to $9 million for the three months ended March 31, 2023 from $23 million for the three months ended March 31, 2022 primarily due to increased interest credited on contract holder funds due to higher crediting rates on new business and increased losses on operating derivatives, partially offset by higher investment income.

Account Value

Institutional product account value decreased from $8,839 million at September 30, 2021 to $8,358 million at September 30, 2022.

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

Institutional product account value decreased from $9,173 million at March 31, 2022 to $8,691 million at March 31, 2023.

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

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

Closed Life and Annuity Blocks

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings (non-GAAP) results for our Closed Life and Annuity Blocks segment.

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Closed Block Life and Annuity Blocks segment.

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

8 unchanged sentences

Operating Benefits and Expenses

Death, other policy benefits and change in policy

reserves, net of deferrals 176 216 636 629

Interest credited on other contract holder funds, net of

deferrals and amortization 101 106 300 315

Death, other policy benefits and change in policy reserves, net of deferrals 163 225

(Gain) loss from updating future policy benefits cash flow assumptions, net 16 18

Interest credited on other contract holder funds, net of deferrals and amortization 111 101

Operating costs and other expenses, net of deferrals 39 32

2 unchanged sentences

Pretax Adjusted Operating Earnings $ (20) $ (9)

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

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased $35 million to $33 million for the three months ended September 30, 2022 from $68 million for the three months ended September 30, 2021 primarily due to:

Pretax adjusted operating earnings decreased $11 million to $(20) million for the three months ended March 31, 2023 from $(9) million for the three months ended March 31, 2022 primarily due to:

• $25 million decrease in income on operating derivatives primarily due to the increase in floating rates during 2023.

• $12 million decrease in net investment income primarily due to lower levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2022.

These decreases were partially offset by:

• $64 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to lower death claims.

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

This decrease was partially offset by:

• $40 million decrease in death, other policy benefits and change in policy reserves, net of deferrals, primarily due to lower death claims.

Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings decreased $172 million to $31 million for the nine months ended September 30, 2022 from $203 million for the nine months ended September 30, 2021 primarily due to:

• $201 million decrease in net investment income primarily due to lower levels of investment income on private equity and other limited partnership investments, when compared to the same period in 2021.

This decrease was partially offset by:

• $57 million decrease in operating costs and other expenses, net of deferrals, primarily due to deferred compensation expenses in 2022.

Corporate and Other

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

The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings (non-GAAP) results for Corporate and Other.

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

9 unchanged sentences

Operating costs and other expenses, net of deferrals 54 40

Amortization of deferred acquisition costs 1 10 18 25

Total Operating Benefits and Expenses 76 55

Pretax Adjusted Operating Earnings $ (43) $ 6

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

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

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $32 million to $(13) million for the three months ended September 30, 2022 from $(45) million for the three months ended September 30, 2021 primarily due to the following:

• $45 million increase in net investment income primarily due to higher net investment income resulting from higher levels of capital, as the investment income on that excess capital remains in the Corporate and Other segment.

This increase was partially offset by:

• $19 million higher interest expense incurred in the current year primarily related to our Senior Notes, which refinanced our term loan facilities.

Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Pretax Adjusted Operating Earnings

Pretax adjusted operating earnings increased $38 million to $(16) million for the nine months ended September 30, 2022 from $(54) million for the nine months ended September 30, 2021 primarily due to the following:

• $56 million increase in net investment income primarily due to higher net investment income resulting from an increased excess capital position, as the investment income on that excess capital remains in the Corporate and Other segment;

• $37 million decrease in operating costs and other expenses, net of deferrals, primarily due to deferred compensation expenses in 2022.

This increase was partially offset by:

• $52 million higher interest expense incurred in the current year primarily related to our senior notes.

Pretax adjusted operating earnings decreased $49 million to $(43) million for the three months ended March 31, 2023 from $6 million for the three months ended March 31, 2022 primarily due to the following:

• $14 million decrease in income on operating derivatives primarily due to the increase in floating rates in 2023;

• $14 million increase in operating costs and other expenses, net of deferrals, primarily due to higher deferred compensation expenses in 2023;

• $7 million higher interest expense primarily related to our senior notes.

See Note 13 - Long-Term Debt of Notes to Condensed Consolidated Financial Statements .

Item 2 | Management’s Discussion and Analysis | Investments

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

5 unchanged sentences

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

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

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

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

As of September 30, 2022, Apollo managed $21 billion of cash and investments and other third-party investment managers represented approximately $191 million of investments.

Item 2 | Management’s Discussion and Analysis | Investments

As of March 31, 2023, Apollo managed $19.0 billion of cash and investments and other third-party investment managers managed approximately $186 million of investments.

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

9 unchanged sentences

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

As of September 30, 2022 and December 31, 2021, we had total investments of $65.9 billion and $74.2 billion, respectively.

As of March 31, 2023 and December 31, 2022, we had total investments of $66.9 billion and $65.9 billion, respectively.

Item 2 | Management’s Discussion and Analysis | Investments

Portfolio Composition

The following table summarizes the carrying values of our investments:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

10 unchanged sentences

Total investments $ 44,582 $ 22,303 $ 66,885 $ 43,073 $ 22,873 $ 65,946

Available-for-sale debt securities decreased to $41,681 million at September 30, 2022 from $51,547 million at December 31, 2021, primarily due to a decrease in net unrealized gain.

The amortized cost of debt securities, available-for-sale, decreased from $51,206 million as of December 31, 2021 to $51,094 million as of September 30, 2022.

Further, net unrealized gains on these assets decreased from a net unrealized gain of $2,178 million as of December 31, 2021 to a net unrealized loss of $7,156 million as of September 30, 2022.

Item 2 | Management’s Discussion and Analysis | Investments

Available-for-sale debt securities increased to $43,774 million at March 31, 2023 from $42,489 million at December 31, 2022, primarily due to an decrease in net unrealized losses.

The amortized cost of available-for-sale debt securities increased from $48,798 million as of December 31, 2022 to $49,026 million as of March 31, 2023.

Further, net unrealized losses were $6,286 million as of December 31, 2022 compared to $5,223 million as of March 31, 2023.

Other Invested Assets

In June 2021, we entered into an arrangement to sell $420 million of limited partnership investments, of which $236 million and $168 million were sold in the second and third quarter of 2021, respectively, and the remainder was sold in January 2022.

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

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

The increase in Other Invested Assets from December 31, 2022 to March 31, 2023 primarily resulted from additional private equity funding in the current period.

Debt Securities

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

September 30, 2022 Amortized

At March 31, 2023 and December 31, 2022, the amortized cost, allowance for credit loss, gross unrealized gains and losses, and fair value of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions):

Item 2 | Management’s Discussion and Analysis | Investments

March 31, 2023 Amortized

Cost Allowance for Credit Loss Gross

23 unchanged sentences

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

Item 2 | Management’s Discussion and Analysis | Investments

December 31, 2022 Amortized

24 unchanged sentences

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

Debt Securities Credit Quality

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

The Company uses the second lowest rating by an NRSRO when NRSRO ratings are not equivalent and, for purposes of the table, if not otherwise rated by a NRSRO, the NAIC rating of a security is converted to an equivalent NRSRO-style rating.

Percent of Total Debt

Securities Carrying Value

September 30, December 31,

Investment Rating 2022 2021

AAA 15.3 % 14.5 %

AA 8.8 % 9.6 %

A 29.9 % 28.5 %

BBB 38.2 % 40.9 %

Investment grade 92.2 % 93.5 %

BB 4.0 % 3.6 %

B and below 3.8 % 2.9 %

Below investment grade 7.8 % 6.5 %

Total debt securities 100.0 % 100.0 %

Item 2 | Management’s Discussion and Analysis | Investments

Unrealized Losses

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

September 30, 2022 December 31, 2021

Less than 12 months Less than 12 months

Value Gross Fair

Unrealized # of Unrealized # of

Losses securities Losses securities

government securities $ 276 $ 2,260 41 $ 2 $ 107 16

Other government securities 256 1,371 154 17 252 23

Public utilities 659 4,476 530 17 721 93

Corporate securities 3,217 19,878 2,649 180 6,343 728

Residential mortgage-backed 40 293 217 3 174 109

Commercial mortgage-backed 146 1,537 192 5 314 37

Other asset-backed securities 519 4,912 610 22 3,224 338

Total temporarily impaired securities $ 5,113 $ 34,727 4,393 $ 246 $ 11,135 1,344

12 months or longer 12 months or longer

Value Gross Fair

Unrealized # of Unrealized # of

Losses securities Losses securities

government securities $ 732 $ 1,634 8 $ 299 $ 3,190 7

Other government securities 6 47 10 — 4 2

Public utilities 152 336 55 7 99 8

Corporate securities 1,143 2,704 396 58 661 69

Residential mortgage-backed 12 71 75 — 11 12

Commercial mortgage-backed 27 95 16 1 30 3

Other asset-backed securities 51 309 41 1 11 3

Total temporarily impaired securities $ 2,123 $ 5,196 601 $ 366 $ 4,006 104

Value Gross Fair

Unrealized # of Unrealized # of

Losses securities (1)

government securities $ 1,008 $ 3,894 43 $ 301 $ 3,297 23

Other government securities 262 1,418 164 17 256 25

Public utilities 811 4,812 575 24 820 101

Corporate securities 4,360 22,582 2,936 238 7,004 797

Residential mortgage-backed 52 364 292 3 185 121

Commercial mortgage-backed 173 1,632 207 6 344 40

Other asset-backed securities 570 5,221 651 23 3,235 341

Total temporarily impaired securities $ 7,236 $ 39,923 4,868 $ 612 $ 15,141 1,448

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

The increase in rates on U.S.

Treasury securities and the widening credit spreads of investment grade corporate securities resulted in the reduction in fair values and increase in unrealized losses during the nine months ended September 30, 2022.

Of the $6,624 million total increase in unrealized losses and the $24,782 million additional fair value on securities with an associated unrealized loss, $2,784 million and $5,219 million, respectively, are associated with assets subject to funds withheld agreements.

Item 2 | Management’s Discussion and Analysis | Investments

Evaluation of Available-For-Sale Debt Securities

See Note 4 to Condensed Consolidated Financial Statements for information about how we evaluate our available-for-sale debt securities for credit loss.

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

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

2022 2021 2022 2021

Available-for-sale securities

Realized gains on sale $ 3 $ 28 $ 32 $ 149

Realized losses on sale (57) (1) (298) (59)

Credit loss income (expense) (6) (17) (5) (10)

Credit loss income (expense) on mortgage loans (5) 14 (2) 62

Net gains (losses) excluding derivatives and funds withheld assets (6) 37 (131) 204

Net gains (losses) on derivative instruments 870 (1,301) 4,362 (1,413)

Net gains (losses) on funds withheld reinsurance treaties 555 (115) 2,660 15

Total net gains (losses) on derivatives and investments $ 1,419 $ (1,379) $ 6,891 $ (1,194)

(1) Includes the foreign currency gain or loss related to foreign denominated mortgage loans and trust instruments supporting funding agreements.

See Note 4 - Investments of Notes to Condensed Consolidated Financial Statements for information about how we evaluate our available-for-sale debt securities for credit loss.

Equity Securities

3 unchanged sentences

The following table summarizes our holdings:

September 30, December 31,

March 31, December 31,

(in millions)

4 unchanged sentences

Mortgage Loans

C ommercial mortgage loans of $10.5 billion and $10.5 billion at September 30, 2022 and December 31, 2021, respectively, are reported net of an allowance for credit losses of $76 million and $85 million at each date, respectively.

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

Residential mortgage loans of $1,280 million and $939 million at September 30, 2022 and December 31, 2021, respectively, are reported net of an allowance for credit losses of $3 million and $9 million at each date, respectively.

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

Item 2 | Management’s Discussion and Analysis | Investments

C ommercial mortgage loans of $10.2 billion and $10.2 billion at March 31, 2023 and December 31, 2022, respectively, are reported net of an allowance for credit losses of $139 million and $91 million at each date, respectively.

At March 31, 2023, commercial mortgage loans were collateralized by properties located in 37 states, the District of Columbia, and Europe.

Residential mortgage loans of $1,146 million and $1308 million at March 31, 2023 and December 31, 2022, respectively, are reported net of an allowance for credit losses of $7 million and $4 million at each date, respectively.

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

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

September 30, December 31,

March 31, December 31,

(in millions)

7 unchanged sentences

Total $ 11,391 $ 11,549

Item 2 | Management’s Discussion and Analysis | Investments

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

September 30, December 31,

March 31, December 31,

(in millions)

12 unchanged sentences

Total $ 11,391 $ 11,549

Item 2 | Management’s Discussion and Analysis | Investments

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

September 30, December 31,

March 31, December 31,

(in millions)

11 unchanged sentences

Total mortgage loans $ 11,391 $ 11,549

(1) As of September 30, 2022 and December 31, 2021, includes $48 million and $202 million of loans purchased when the loans were greater than 90 days delinquent and $14 million and $5 million of loans in process of foreclosure, respectively, and are supported with insurance or other guarantees provided by various governmental programs.

(1) As of March 31, 2023 and December 31, 2022, includes $41 million and $41 million of loans purchased when the loans were greater than 90 days delinquent and $11 million and $12 million of loans in process of foreclosure, respectively, and are supported with insurance or other guarantees provided by various governmental programs.

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

September 30,

(in millions)

2 unchanged sentences

Balance at end of period $ 146 $ 84

(1) At March 31, 2023, the $51 million increase in the allowance for credit loss resulted primarily from a single mezzanine loan experiencing stress around payoff, or refinance, of the loan for which the Company continues to assess options with the lending group and borrower.

Item 2 | Management’s Discussion and Analysis | Investments

The Company’s mortgage loans that are current and in good standing are accruing interest.

1 unchanged sentence

Delinquency status is determined from the date of the first missed contractual payment.

At September 30, 2022, there was $17 million of recorded investment, $18 million of unpaid principal balance, no related loan allowance, $15 million of average recorded investment, and no investment income recognized on impaired residential mortgage loans.

At March 31, 2023, there was $15 million of recorded investment, $16 million of unpaid principal balance, no related loan allowance, $16 million of average recorded investment, and no investment income recognized on impaired residential mortgage loans.

At December 31, 2022, there was $15 million of recorded investment, $16 million of unpaid principal balance, no related loan allowance, $18 million of average recorded investment, and no investment income recognized on impaired residential mortgage loans.

Item 2 | Management’s Discussion and Analysis | Investments

Derivative Instruments

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

September 30, 2022

March 31, 2023

Contractual/ Assets Liabilities Net

13 unchanged sentences

Embedded derivatives

Variable annuity embedded derivatives (3)

N/A 484 — 484

Fixed index annuity embedded derivatives (3)

13 unchanged sentences

(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.

(3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets.

The nonperformance risk adjustment is included in the balance above.

The non-performance risk adjustment is included in the balance above.

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

13 unchanged sentences

Interest rate futures (2)

105,261 — — —

Total return swaps 739 31 — 31

1 unchanged sentence

Embedded derivatives

Variable annuity embedded derivatives (3)

N/A — 2,626 (2,626)

Fixed index annuity embedded derivatives (3)

1 unchanged sentence

Registered index linked annuity embedded derivatives (3)

N/A — 205 (205)

Total embedded derivatives N/A — 1,136 (1,136)

9 unchanged sentences

(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.

(3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets.

The nonperformance risk adjustment is included in the balance above.

The non-performance risk adjustment is included in the balance above.

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

Item 2 | Management’s Discussion and Analysis | Investments

Investment Income

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

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

2022 2021 2022 2021

Debt securities (1)

$ 306 $ 272 $ 792 $ 872

Equity securities (25) — (18) 6

Mortgage loans 70 79 211 242

Policy loans 18 20 52 55

Limited partnerships (7) 193 151 586

Other investment income 14 2 25 10

Total investment income excluding funds withheld assets 376 566 1,213 1,771

Net investment income on funds withheld assets 313 300 937 884

Investment expenses:

Derivative trading commission (3) (1) (5) (2)

Depreciation on real estate (2) (4) (8) (8)

Expenses related to consolidated entities (2)

(26) (8) (62) (24)

Other investment income (expense) (3)

(18) (16) (53) (53)

Total investment expenses (49) (29) (128) (87)

Net investment income $ 640 $ 837 $ 2,022 $ 2,568

(1) Includes unrealized gains and losses on trading securities and includes $(8) million and $(103) million for the three and nine months ended September 30, 2022, respectively, and $(1) and $37 million for the three and nine months ended September 30, 2021, respectively, related to the change in fair value for securities carried under the fair value option.

(2) Includes interest expense and change in fair value related to notes issued by consolidated VIE's, management fees, administrative fees, legal fees, and other expenses related to the consolidation of certain investments.

(3) Includes interest expense, investment software expense, custodial fees, and other bank fees;

institutional product issuance related expenses;

and other expenses.

Evaluation of Invested Assets

We perform regular evaluations of our invested assets.

On a monthly basis, management identifies those investments that may require additional monitoring and carefully reviews the carrying value of such investments to determine whether specific investments should be placed on a non-accrual status and to determine if an allowance for credit loss is required.

In making these reviews, management principally considers the adequacy of any collateral, compliance with contractual covenants, the borrower’s recent financial performance, news reports and other externally generated information concerning the issuer’s affairs.

In the case of publicly traded bonds, management also considers market value quotations, where available.

For mortgage loans, management generally considers information concerning the mortgaged property and, among other things, factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral.

For mortgage loans, management generally considers information concerning the mortgaged property, including factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral.

For investments in partnerships, management reviews the financial statements and other information provided by the general partners.

In determination of an allowance for credit loss, we consider a security’s forecasted cash flows as well as the severity of depressed fair values.

To determine an allowance for credit loss, we consider a security’s forecasted cash flows as well as the severity of depressed fair values.

Investment income is not accrued on securities in default and otherwise where the collection is uncertain.

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As an insurance company, a substantial portion of our profits are derived from fee income and the invested assets backing our policy and contract liabilities, which includes separate account liabilities, reserves for future policy benefits and claims payable and other contract holder funds.

As of September 30, 2022, 88% of our policy and contract liabilities were in our Retail Annuities segment, 3% were in our Institutional Products segment and 9% were in our Closed Life and Annuity Blocks segment.

As of March 31, 2023, 89% of our policy and contract liabilities were in our Retail Annuities segment, 3% were in our Institutional Products segment and 8% were in our Closed Life and Annuity Blocks segment.

The table below represents a breakdown of our policy and contract liabilities:

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

March 31, 2023 Separate Accounts Reserves for future policy benefits Other contract holder funds Market Risk Benefits Total

(in millions)

Variable Annuities $ 203,990 $ — $ 9,927 $ 318 $ 214,235

Registered Index Linked Annuities — — 1,235 1,235

— — 2,501 4 2,505

Fixed Annuities — — 11,082 2 11,084

Fixed Index Annuities 2

— — 11,375 26 11,401

Payout Annuities — 1,067 847 — 1,914

Other Annuities 304 — — — 304

Total Retail Annuities 204,294 1,067 35,732 350 241,443

Total Institutional Products — — 8,691 — 8,691

Traditional Life — 4,564 4,158 8,722

Interest-sensitive Life 66 1,735 7,195 8,996

Group Payout Annuities — 4,660 — 4,660

Other Annuities — 18 1,345 1,363

Total Closed Life and Annuity Blocks 72 9,737 12,495 6 22,310

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Total $ 204,366 $ 12,369 $ 57,094 $ 356 $ 274,185

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

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

December 31, 2022 Separate Accounts Reserves for future policy benefits Other contract holder funds Market Risk Benefits Total

(in millions)

Variable Annuities $ 195,550 $ — $ 10,259 $ 767 $ 206,576

Registered Index Linked Annuities — — 110 110

— — 1,875 5 1,880

Fixed Annuities — — 11,696 — 11,696

Fixed Index Annuities 2

— — 11,787 17 11,804

Payout Annuities — 1,042 837 — 1,879

Other Annuities 285 — — — 285

Total Retail Annuities 195,835 1,042 36,454 789 234,120

Total Institutional Products — — 9,019 — 9,019

Traditional Life — 4,762 4,161 8,923

Interest-sensitive Life 90 1,797 7,410 9,297

Group Payout Annuities — 4,895 — 4,895

Other Annuities — 17 1,399 1,416

Total Closed Life and Annuity Blocks 71 9,726 12,534 8 22,339

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Total $ 195,906 $ 12,318 $ 58,190 $ 797 $ 267,211

As of September 30, 2022, $185.0 billion or 72% of our policy and contract liabilities were backed by separate accounts assets.

(1) Includes the embedded derivative liabilities in other contract holder funds related to RILA of $421 million and $205 million at March 31, 2023 and December 31, 2022 , respectively.

(2) Includes the embedded derivative liabilities related to fixed index annuity in other contract holder funds of $963 million and $931 million at March 31, 2023 and December 31, 2022 , respectively.

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

As of March 31, 2023, $204.4 billion or 75% of our policy and contract liabilities were backed by separate account assets.

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

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As a result, revenue derived from asset-based fee income is similarly subject to variability in line with the variability of the underlying separate account assets.

As of September 30, 2022, $49.3 billion or 19% of our policy and contract liabilities were backed by our investment portfolio and $23.2 billion reinsured by Athene, were backed by funds withheld assets.

Our variable annuity fixed account option, variable annuity guaranteed benefit and other reserves, our RILA and fixed annuities and fixed index annuities reserves, not reinsured, our Institutional Products segment reserves, as well as our Closed Life and Annuity Blocks segment reserves, were primarily backed by our investment portfolio.

As of September 30, 2022, our general account policy and contract liabilities, net of those ceded to Athene, were composed of 3% for registered index linked annuities, 5% for fixed index annuities and fixed deferred and payout annuities, 17% for Institutional Products segment, 21% for fixed account option variable annuities, 6% for guaranteed benefit and other variable annuity reserves, and a 48% Closed Life and Annuity Block segment reserves.

As of September 30, 2022, 38% of our fixed annuity and fixed index annuity policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers.

As of September 30, 2022, 100% of our RILA policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers.

As of March 31, 2023, $47.0 billion of our policy and contract liabilities were backed by our investment portfolio and $21.1 billion reinsured by Athene, were backed by funds withheld assets.

As of March 31, 2023, 100% of our RILA policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers.

We have the discretion, subject to contractual limitations and minimums, to reset the crediting terms on the majority of our fixed index annuities and fixed annuities.

As of September 30, 2022, 94% of fixed annuity, fixed-indexed annuity, and the fixed accounts of RILA and variable annuity correspond to crediting rates that are at the guaranteed minimum crediting rate.

Liabilities for other contract holder funds are policy account balances on interest-sensitive life insurance, fixed annuities, fixed index annuities, RILA and variable annuity or variable life insurance contract allocations to fixed fund options.

These account balance liabilities are equal to the sum of deposits, plus interest credited, less charges and withdrawals.

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

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

Reserves for insurance policies are generally equal to the present value of future expected benefits to be paid, reduced by the present value of future expected revenue.

The assumptions used in establishing reserves are generally based on our experience, industry benchmarking or other factors, as applicable.

Annually, or as circumstances warrant, we conduct a comprehensive review of our actuarial assumptions, and update those assumptions when appropriate.

The principal assumptions used in the establishment of reserves for future policy benefits are policy lapse, mortality, benefit utilization and withdrawals, investment returns, and expenses.

Generally, we do not expect trends that impact our assumptions to change significantly in the short-term and, to the extent these trends may change, we expect such changes to be gradual over the long-term.

For non–life-contingent components of Guaranteed Minimum Withdrawal Benefits ("GMWB") features available in our variable annuities, the guaranteed benefits are accounted for as embedded derivatives, with fair values calculated as the present value of expected future guaranteed benefit payments to contract holders less the present value of assessed rider fees attributable to the embedded derivative feature.

In accordance with U.S.

GAAP, the fair values of these guaranteed benefit features are based on assumptions a market participant would use in valuing these embedded derivatives.

Changes in the fair value of the embedded derivatives are recorded through a benefit or charge to current period earnings.

Movements in the fair value of the embedded derivatives are typically in the opposite direction relative to primary market risks.

Specifically, downward movements in equity market levels reduce contract holder account value and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, increasing the fair value liability.

Similarly, downward movements in interest rates lower the assumed future market growth and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, increasing the fair value liability.

Downward movements in interest rates also lower the discount rates used in the calculation of the fair value liability associated with higher projected future guaranteed benefit payments, which increases the fair value liability.

For reserves related to the life-contingent components of guaranteed benefit features available in our variable annuities, fixed index annuities and RILA, we calculate the change in reserves by applying a “benefit ratio” to total assessments received in the period.

The benefit ratio is determined by dividing the present value of total expected benefit payments by the present value of total expected assessments, primarily fees based on account value or benefit base, over the life of the contract.

The level and direction of the change in reserves will vary over time based on the benefit ratio and the level of assessments associated with the variable annuity, fixed index annuity, or RILA.

These reserves typically move in the opposite direction relative to primary market risks.

Specifically, downward movements in equity market levels will reduce contract holder account value and typically correlate with an increased likelihood that outstanding guaranteed benefits will result in a claim, which increases the reserve.

For traditional life insurance and payout annuities, reserves for future policy benefits are measured using assumptions determined as of the issuance date or acquisition date with provisions for the risk of adverse deviation, as appropriate.

These assumptions are not unlocked unless a premium deficiency exists.

At least annually, we perform premium deficiency tests using best estimate assumptions as of the testing date without provision for adverse deviation.

If the liabilities determined based on these best estimate assumptions are greater than the net reserves (i.e., U.S.

GAAP reserves net of any DAC or reinsurance), the existing net reserves are adjusted by first reducing the DAC or DSI by the amount of the deficiency (or to zero) through a charge to current period earnings.

If the deficiency is more than these asset balances, we increase the reserves by the excess through a charge to current period earnings.

If a premium deficiency is recognized, the assumptions as of the premium deficiency test date are locked in and used in subsequent reserve measurements, and the net reserves continue to be subject to premium deficiency testing.

In a sustained low interest rate environment, there is generally an increased likelihood that the liabilities determined based on best estimate assumptions will be greater than the net reserves.

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

As of March 31, 2023, 93% of fixed annuity, fixed-indexed annuity, and the fixed accounts of RILA and variable annuity correspond to crediting rates that are at the guaranteed minimum crediting rate.

See Note 9, Note 10, Note 11 and Note 12 of Notes to Condensed Consolidated Financial Statements for additional discussion on accounting policies around Reserves for future policy benefits and claims payable, Other contract holder funds, Separate account assets and liabilities and MRBs.

Liquidity and Capital Resources

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Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and the alternate sources of liquidity and capital described herein.

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

The discussion below describes our liquidity and capital resources for the three months ended March 31, 2023 and 2022.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

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Total cash, cash equivalents, and restricted cash at end of period $ 1,781 $ 2,680

Cash flows provided by Operating Activities

Cash flows from Operating Activities

The principal operating cash inflows from our insurance activities come from insurance premiums, fees charged on our products and net investment income.

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The primary liquidity concern with respect to these cash flows is the risk of early contract holder and policyholder benefit payments.

Cash flows provided by (used in) operating activities decreased $594 million to $2,941 million for the nine months ended September 30, 2022 from $3,535 million for the nine months ended September 30, 2021.

This decrease was primarily due to lower investment income as a result of lower income on limited partnership investments in 2022, compared to the prior year.

Cash flows provided by (used in) Investing Activities

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

Cash flows provided by (used in) operating activities increased $628 million to $1,461 million for the three months ended March 31, 2023 from $833 million for the three months ended March 31, 2022.

This was primarily due to the timing of settlements of receivables and payables as well as lower acquisition costs.

Cash flows from Investing Activities

The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives.

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We closely monitor and manage these risks through our comprehensive investment risk management process.

The primary liquidity concerns with respect to these cash flows are the risk of default by debtors or market disruptions that might impact the timing of investment related cash flows as well as derivative collateral needs.

Cash flows provided by (used in) investing activities increased $1,845 million to $2,469 million during the nine months ended September 30, 2022 from $624 million during the nine months ended September 30, 2021.

This increase was primarily due to inflows related to our hedging program for derivative settlements and collateral predominantly resulting from movements in the equity markets in 2022 compared to outflows in 2021, partially offset by lower sales of funds withheld assets in 2022, as compared to 2021.

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

Cash flows provided by (used in) Financing Activities

The principal cash inflows from our financing activities come from deposits of funds associated with policyholder account balances, issuance of debt, and lending of securities.

Cash flows provided by (used in) investing activities decreased $2,680 million to $(2,882) million during the three months ended March 31, 2023 from $(202) million during the three months ended March 31, 2022.

This decrease was primarily due to outflows related to our hedging program for derivative settlements and collateral predominantly resulting from market increases in 2023.

Cash flows from Financing Activities

The principal cash inflows from our financing activities come from deposits of funds associated with policyholder account balances, issuance of securities and lending of securities.

The principal cash outflows come from withdrawals associated with policyholder account balances, repayment of debt, and the return of securities on loan.

The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal.

Cash flows provided by (used in) financing activities increased $996 million to $(2,700) million during the nine months ended September 30, 2022 from $(3,696) million during the nine months ended September 30, 2021.

This increase was primarily due to decreased withdrawals of policyholders' account balances during 2022 compared to 2021.

This favorable variance was partially offset by higher inflows in the prior year related to debt agreements entered into in 2021.

Cash flows provided by (used in) financing activities decreased $517 million to $(1,099) million during the three months ended March 31, 2023 from $(582) million during the three months ended March 31, 2022.

This decrease was primarily due to decreased deposits driven by lower variable annuity and institutional sales in 2023 compared to 2022, partially offset by inflows from our issuance of preferred stock in 2023.

Statutory Capital

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

As of September 30, 2022, our insurance companies were well in excess of the minimum required capital levels.

As of March 31, 2023, our insurance companies were well in excess of the minimum required capital levels.

Jackson is also subject to risk-based capital guidelines that provide a method to measure the adjusted capital that a life insurance company should have for regulatory purposes, taking into account the risk characteristics of Jackson’s investments and products.

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These principal sources of liquidity are expected to be supplemented by cash and short-term investments held by Jackson Financial and access to bank lines of credit and the capital markets.

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

We intend to maintain a minimum amount of cash and highly liquid securities at Jackson Financial adequate to fund two years of holding company fixed net expenses, which may change over time as we refinance existing debt or make changes to our debt and capital structure, and is currently targeted at $250 million.

The main uses of liquidity for Jackson Financial are interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to shareholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries.

Our principal sources of liquidity and our anticipated capital position are described in the following paragraphs.

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

Any declaration of cash dividends or stock repurchases will be at the discretion of JFI’s Board of Directors and will depend on our financial condition, earnings, liquidity and capital requirements, regulatory constraints, level of indebtedness, contractual restrictions with respect to paying cash dividends or repurchasing stock, restrictions imposed by Delaware law, general business conditions and any other factors that JFI’s Board of Directors deems relevant in making any such determination.

Therefore, there can be no assurance that we will pay any cash dividends to holders of our common stock or approve any further increase in the existing, or any new, stock repurchase program, or as to the amount of any such cash dividends or stock repurchases.

Delaware law requires that dividends be paid and stock repurchases made only out of “surplus,” which is defined as the fair market value of our net assets, minus our stated capital;

or out of the current or the immediately preceding year’s earnings.

JFI is a holding company and has no direct operations.

All of our business operations are conducted through our subsidiaries.

Any dividends we pay or stock repurchases we make will depend upon the funds legally available for distribution, including dividends or distributions from our subsidiaries to us.

The states in which our insurance subsidiaries are domiciled impose certain restrictions on our insurance subsidiaries’ ability to pay dividends to their parent companies.

These restrictions are based in part on the prior year’s statutory income and surplus, as well as earned surplus.

Such restrictions, or any future restrictions adopted by the states in which our insurance subsidiaries are domiciled, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable by our subsidiaries without affirmative approval of state regulatory authorities.

See “Risk Factors—Risks relating to Financing and Liquidity - As a holding company, Jackson Financial depends on the ability of its subsidiaries to pay dividends and make other distributions to meet its obligations and liquidity needs, including servicing debt, dividend payments and stock repurchases.”

On March 13, 2023, the Company issued and sold 22,000,000 depositary shares (the “Depositary Shares”), each representing a 1/1,000th fractional interest in a share of the Company’s Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A, $25,000 liquidation preference per share (equivalent to $25 per Depositary Share), with a 5-year dividend rate reset period and noncumulative dividends (the “Series A Preferred Stock”).

After underwriting discounts and expenses, we received net proceeds of approximately $533 million.

See Note 20 - Equity of the Notes to Condensed Consolidated Financial Statements for more information.

During the first quarter of 2023, we paid a cash dividend of $0.62 per share on JFI's common stock totaling $54 million.

On May 8, 2023, our Board of Directors approved a second quarter cash dividend on JFI's common stock of $0.62 per share, payable on June 15, 2023 to shareholders of record on June 1, 2023.

The Company also announced the declaration of a cash dividend of $0.59444 per depositary share, each representing a 1/1,000th interest in a share of Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A.

The dividend will be payable on June 30, 2023, to shareholders of record at the close of business on June 1, 2023.

During the first quarter of 2023, we repurchased a total of 1,721,737 shares of common stock for an aggregate purchase price of $70 million, which were funded with cash on hand.

See Note 20 to Condensed Consolidated Financial Statements in this Report for further information on dividends to shareholders and share repurchases.

Distributions from our Insurance Company Subsidiaries

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Any distributions above the amount permitted by statute in any twelve-month period are considered extraordinary dividends, and the approval of the appropriate regulator is required prior to payment.

In Michigan, the Director of the Michigan Department of Insurance and Financial Services (the Michigan Director of Insurance) may limit, or not permit, the payment of dividends from either Jackson or Brooke Life, Jackson's direct parent company, if it determines that the surplus of either these subsidiaries is not reasonable in relation to their outstanding liabilities and is not adequate to meet their financial needs, as required by Michigan insurance law.

In Michigan, the Director of the Michigan Department of Insurance and Financial Services (the Michigan Director of Insurance) may limit, or not permit, the payment of dividends from either Jackson or Brooke Life, Jackson's direct parent company, if it determines that the surplus of either of these subsidiaries is not reasonable in relation to their outstanding liabilities and is not adequate to meet their financial needs, as required by the Michigan Insurance Code of 1956.

Unless otherwise approved by the Michigan Director of Insurance, dividends may only be paid from earned surplus.

Also, surplus note arrangements and interest payments must be approved by the Michigan Director of Insurance and such interest payments to related parties reduce the otherwise calculated ordinary dividend capacity for that period.

In New York, all dividends require approval from the New York State Department of Financial Services.

In New York, all dividends require approval from the NYSDFS.

For 2023, Jackson and Brooke Life have total ordinary dividend capacity, based on 2022 statutory capital and surplus and statutory net gain from operations, subject to the availability of earned surplus, of $3,688 million and $501 million, respectively.

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As such, Jackson Financial’s ability to receive dividend payments from our insurance company subsidiaries is effectively limited by Brooke Life’s ability to make dividend payments to Jackson Financial.

On March 1, 2022, Jackson remitted a $600 million return of capital to its parent company, Brooke Life.

Brooke Life subsequently paid a $510 million ordinary dividend to its ultimate parent, Jackson Financial.

In addition, for the three and nine months ended September 30, 2022, Brooke Life paid $45 million and $90 million of interest associated with the $2 billion surplus note between Brooke Life and Jackson Finance, LLC ("Jackson Finance"), a subsidiary of Jackson Financial, respectively.

The maximum distribution permitted by law or contract is not necessarily indicative of an insurer’s actual ability to pay such distributions, which may be constrained by business and other considerations, such as imposition of withholding tax, the impact of such distributions on surplus, which could affect the insurer’s ratings or competitive position, the ability to generate new annuity sales and the ability to pay future dividends or make other distributions.

On March 1, 2023, Jackson paid a $450 million ordinary dividend and remitted a $150 million return of capital to its parent company, Brooke Life.

Brooke Life subsequently paid a $360 million ordinary dividend and remitted a $150 million return of capital to its ultimate parent, Jackson Financial.

In addition, for the quarter ended March 31, 2023, Brooke Life paid $45 million of interest associated with the $2 billion surplus note between Brooke Life and Jackson Finance, LLC ("Jackson Finance"), a subsidiary of Jackson Financial.

The maximum distribution permitted by law or contract is not necessarily indicative of an insurer’s actual ability to pay such distributions, which may be constrained by business and other considerations, such as imposition of withholding tax, the impact of such distributions on surplus, which could affect the insurer’s credit and financial strength ratings or competitive position, the ability to generate new annuity sales and the ability to pay future dividends or make other distributions.

Further, state insurance laws and regulations require that the statutory surplus of our insurance subsidiaries following any dividend or distribution must be reasonable in relation to their outstanding liabilities and adequate for the insurance subsidiaries’ financial needs.

6 unchanged sentences

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

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

Liquidity requirements are principally for purchases of new investments, management of derivative related margin requirements, repayment of principal and interest on debt, payments of interest on surplus notes, funding of insurance product liabilities including payments for policy benefits, surrenders, maturities and new policy loans, funding of expenses including payment of commissions, operating expenses and taxes.

As of September 30, 2022, Jackson’s outstanding surplus notes and bank debt included $ 62 million of bank loans from the Federal Home Loan Bank of Indianapolis ("FHLBI"), collateralized by mortgage-related securities and mortgage loans and $250 million of surplus notes maturing in 2027.

As of March 31, 2023, Jackson’s outstanding surplus notes and bank debt included $ 58 million of bank loans from the Federal Home Loan Bank of Indianapolis ("FHLBI"), collateralized by mortgage-related securities and mortgage loans and $250 million of surplus notes maturing in 2027.

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

Significant increases in interest rates could create sudden increases in surrender and withdrawal requests by customers and contract holders and result in increased liquidity requirements at our insurance company subsidiaries.

Significant increases in interest rates or equity markets may also result in higher margin and collateral requirements on our derivative portfolio.

The derivative contracts are an integral part of our risk management program, especially for the management of our variable annuities program, and are managed in accordance with our hedging and risk management program.

Our cash flows associated with collateral received from counterparties and posted with counterparties fluctuates with changes in the market value of the underlying derivative contract and/or the market value of the collateral.

The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged.

Collateral posting requirements can result in material liquidity needs for our insurance subsidiaries.

As of March 31, 2023, we were in a net collateral payable position of $545 million compared to $689 million as of December 31, 2022.

Other factors that are not directly related to interest rates can also give rise to an increase in liquidity requirements, including, changes in ratings from rating agencies, general policyholder concerns relating to the life insurance industry (e.g., the unexpected default of a large, unrelated life insurer) and competition from other products, including non-insurance products such as mutual funds, certificates of deposit and newly developed investment products.

Most of the life insurance and annuity products Jackson offers permit the policyholder or contract holder to withdraw or borrow funds or surrender cash values.

As of September 30, 2022, approximately half of Jackson’s general account reserves are either not surrenderable, included surrender charges greater than 5%, or market value adjustments to discourage early withdrawal of policy and contract funds.

The liquidity sources for our insurance company subsidiaries are their cash, short-term investments, sales of publicly traded bonds, insurance premiums, fees charged on our products, sales of annuities and institutional products, investment income, commercial repurchase agreements and utilization of a short-term borrowing facility with the FHLBI.

As of March 31, 2023, approximately half of Jackson’s general account reserves are not surrenderable, included surrender charges greater than 5%, or included market value adjustments to discourage early withdrawal of policy and contract funds.

The liquidity sources for our insurance company subsidiaries are their cash, short-term investments, sales of publicly traded bonds, insurance premiums, fees charged on their products, sales of annuities and institutional products, investment income, commercial repurchase agreements and utilization of a short-term borrowing facility with the FHLBI.

Jackson uses a variety of asset liability management techniques to provide for the orderly provision of cash flow from investments and other sources as policies and contracts mature in accordance with their normal terms.

Jackson’s principal sources of liquidity to meet unexpected cash outflows associated with sudden and severe increases in surrenders and withdrawals or benefit payments are its portfolio of liquid assets and its net operating cash flows.

As of September 30, 2022, the portfolio of cash, short-term investments and privately and publicly traded securities and equities, which are unencumbered and unrestricted to sale, amounted to $23.6 billion.

As of March 31, 2023, the portfolio of cash, short-term investments and privately and publicly traded securities and equities, which are unencumbered and unrestricted to sale, amounted to $22.6 billion.

Our Indebtedness

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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 1.125% Senior Notes due November 22, 2023, $500 million aggregate principal amount of 3.125% Senior Notes due November 23, 2031, and $500 million aggregate principal amount of 4.000% Senior Notes due November 23, 2051.

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

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

Revolving Credit Agreement

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

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

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

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

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

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

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

Revolving Credit and Short-Term Borrowing Facilities

On February 24, 2023, the Company entered into a revolving credit facility (the "2023 Revolving Credit Facility") with a syndicate of banks and Bank of America, N.A., as Administrative Agent.

The 2023 Revolving Credit Facility replaced an existing revolving credit facility that was due to expire in February 2024.

The 2023 Revolving Credit Facility provides for borrowings for working capital and other general corporate purposes under aggregate commitments of $1.0 billion, with a sub-limit of $500 million available for letters of credit.

The 2023 Revolving Credit Facility further provides for the ability to request, subject to customary terms and conditions, an increase in commitments thereunder by up to an additional $500 million.

Commitments under the 2023 Revolving Credit Facility terminate on February 24, 2028.

Interest on borrowings may be based on a “Base Rate” (as defined in the 2023 Revolving Credit Facility) plus an adder ranging from 0.125% to 0.875%, or a “Term SOFR Rate” (as defined in the 2023 Revolving Credit Facility) plus an adder ranging from 1.125% to 1.875%.

The applicable adder is based upon the ratings assigned to the Company’s senior, unsecured, non-credit enhanced debt.

The credit agreement governing the 2023 Revolving Credit Facility contains a number of customary representations and warranties, affirmative and negative covenants and events of default (including a change of control provision).

The credit agreement contains financial maintenance covenants, including a minimum adjusted consolidated net worth test of no less than 70% of our adjusted consolidated net worth as of September 30, 2022 (plus (to the extent positive) or minus (to the extent negative) 70% of the impact on such adjusted consolidated net worth resulting from the application of a one-time transition adjustment for the LDTI accounting change for insurance contracts, and plus 50% of the aggregate amount of any increase in adjusted consolidated net worth resulting from equity issuances by the Company and its consolidated subsidiaries after September 30, 2022) and a maximum consolidated indebtedness to total capitalization ratio test not to exceed 35%.

We were in compliance with these covenants at March 31, 2023.

Jackson is a party to an Uncommitted Money Market Line Credit Agreement dated April 6, 2023 among Jackson, Jackson Financial, and Société Générale.

This agreement is an uncommitted short-term cash advance facility that provides an additional form of liquidity to Jackson and to Jackson Financial.

The aggregate borrowing capacity under the agreement is $500 million and each cash advance request must be at least $100 thousand.

The interest rate is set by the lender at the time of the borrowing and is fixed for the duration of the advance.

Jackson and Jackson Financial are jointly and severally liable to repay any advance under the agreement, which must be repaid prior to the last day of the quarter in which the advance was drawn.

As of May 9, the Company has not borrowed on this line of credit.

Surplus Notes

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Interest is payable semi-annually on March 15th and September 15th of each year.

Interest expense on the notes was $5 million and $15 million for both the three and nine months ended September 30, 2022 and 2021, respectively.

Interest expense on the notes was $5 million and $5 million for the three months ended March 31, 2023 and 2022, respectively.

Under Michigan insurance law, for statutory reporting purposes, the surplus notes are not part of the legal liabilities of the Company and are considered surplus funds.

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Advances are in the form of either notes or funding agreements issued to FHLBI.

As of September 30, 2022 and December 31, 2021, Jackson held a bank loan with an outstanding balance of $62 million and $67 million, respectively.

Dividend and Stock Repurchase

Consistent with our goals to manage risk and capital and optimize our financial leverage, we generally intend to target return of capital to our shareholders, which may take the form of cash dividends and/or stock repurchases, on an annual basis of approximately 40-60% of the annual change in our excess capital, adjusted for any contributions and distributions, subject to market conditions and approval by our Board of Directors.

For purposes of this analysis, we define excess capital as total adjusted capital less 400% of company action level required capital.

Consistent with statutory accounting requirements, total adjusted capital is defined as Jackson’s statutory capital and surplus, plus asset valuation reserve and 50% of policyholder dividends of Jackson and its subsidiaries.

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

As of March 31, 2023 and December 31, 2022, Jackson held a bank loan with an outstanding balance of $58 million and $62 million, respectively.

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

Therefore, there can be no assurance that we will pay any cash dividends to holders of our common stock or approve any increase in the existing, or any new, stock repurchase program, or as to the amount of any such cash dividends or stock repurchases.

Delaware law requires that dividends be paid and stock repurchases made only out of “surplus,” which is defined as the fair market value of our net assets, minus our stated capital;

or out of the current or the immediately preceding year’s earnings.

JFI is a holding company and has no direct operations.

All our business operations are conducted through our subsidiaries.

Any dividends we pay or stock repurchases we make will depend upon the funds legally available for distribution, including dividends or distributions from our subsidiaries to us.

The states in which our insurance subsidiaries are domiciled impose certain restrictions on our insurance subsidiaries’ ability to pay dividends to their parent companies.

These restrictions are based in part on the prior year’s statutory income and surplus, as well as earned surplus.

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

Risk Factors—As a holding company, JFI depends on the ability of its subsidiaries to meet its obligations and liquidity needs, including dividends and stock repurchases” in our 2021 Annual Report.

Dividends to Shareholders and Share Repurchases

During the third quarter of 2022, we paid a cash dividend of $0.55 per share on JFI's common stock totaling $49 million.

On November 7, 2022, our Board of Directors approved a fourth quarter cash dividend on JFI's common stock of $0.55 per share, payable on December 15, 2022 to shareholders of record on December 1, 2022.

We repurchased a total of 1,200,000 shares and a total of 6,504,464 shares of common stock for an aggregate purchase price of $39 million and $245 million in the three and nine months ended September 30, 2022, respectively, which were funded with cash on hand.

See Note 18 to Condensed Consolidated Financial Statements in this Report for further information on dividends to shareholders and share repurchases.

Financial Strength Ratings

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Financial strength ratings are not recommendations to buy, sell or hold securities and may be revised or revoked at any time at the sole discretion of the rating organization.

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

As of November 3, 2022, the financial strength ratings of our principal insurance subsidiaries were as follows :

As of May 3, 2023, the financial strength ratings of our principal insurance subsidiaries were as follows :

Best Fitch Moody’s S&P

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

The most critical estimates include those used in determining:

• deferred acquisition costs

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

The most critical estimates are presented below.

The below critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and Notes 1 and 2 of the Notes to the Consolidated Financial Statements included in our 2022 Annual Report.

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

• accounting for reinsurance

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

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• consolidation of variable interest entities

In applying our accounting policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain.

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

Since future events and their effects cannot be determined with precision, actual results could differ from these estimates.

The above critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and Notes 1 and 2 of the Notes to the Consolidated Financial Statements included in our 2021 Annual Report.

The below critical accounting estimates are updated from our 2022 Annual Report for the adoption of LDTI.

Reserves for Future Policy Benefits and Claims Payable

We establish reserves for future policy benefits to, or on behalf of, customers in the same period in which the policy is issued or acquired, using methodologies prescribed by U.S.

Reserves for Future Policy Benefits

For non-participating traditional life insurance contracts and limited pay life-contingent contracts , which includes term, whole life, and payout annuities with significant insurance risk, reserves for future policy benefits represents the present value of estimated future policy benefits to be paid to or on behalf of policyholders in future periods and certain related expenses less the present value of estimated future net premiums.

Reserves for future policy benefits for non-participating traditional and limited-payment insurance contracts are measured using the net premium ratio (NPR) measurement model.

The NPR measurement model accrues for future policy benefits in proportion to the premium revenue recognized.

The reserve for future policy benefits is derived from the Company's best estimate of future net premium and future benefits and expenses, which is based on best estimate assumptions including mortality, persistency, claims expense, and discount rate.

On an annual basis, or as circumstances warrant, we conduct a comprehensive review of our current best estimate assumptions based on our experience, industry benchmarking, and other factors, as applicable.

Expense assumptions are updated based on estimates of expected non-level costs, such as termination or settlement costs, and costs after the premium-paying period and exclude acquisition costs or any costs that are required to be charged to expenses as incurred.

Updates to assumptions are applied on a retrospective basis, and each reporting period the reserve for future policy benefits is updated to reflect actual experience to date.

The Company establishes cohorts, which are product groupings used to measure reserves for future policy benefits.

In determining cohorts, the Company considered both qualitative and quantitative factors, including the issue year, type of product, product features, and legal entity.

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

The discount rate used to estimate reserves for future policy benefits is consistent with an upper-medium grade (low-credit risk) fixed-income corporate instrument yield, which has been interpreted to represent a single-A corporate instrument yield.

This discount rate curve is determined by fitting a parametric function to yields to maturity and related times to maturity of market observable single-A rated corporate instruments.

The discount rate used to recognize interest accretion on the reserves for future policy benefits is locked at the initial measurement of the cohort.

Each reporting period, the reserve for future policy benefits is remeasured using the current discount rate.

The difference between the reserve calculated using the current discount rate and the reserve calculated using the locked-in discount rate is recorded in other comprehensive income.

Additional Liabilities - Universal Life-type

The Company issues universal life plans with secondary guarantees and interest-sensitive life plans.

The primary reserves for these policies are the contract holder account balances reported within the other contract holder funds line of the balance sheet.

Where these contracts provide additional benefits beyond the account balance or base insurance coverage that are not market risk benefits or embedded derivatives, liabilities in addition to the policyholder’s account value are recognized.

These additional liabilities for annuitization, death and other insurance benefits are reported within reserves for future policy benefits and claims payable.

The methodology uses a benefit ratio defined as a constant percentage of the assessment base.

This ratio is multiplied by current period assessments to determine the reserve accrual for the period.

The assumptions used in the measurement of the additional liabilities for annuitization, death and other insurance benefits are based on best estimate assumptions including mortality, persistency, investment returns, and discount rates.

These assumptions are similarly subject to the annual review process discussed above.

Other Future Policy Benefits and Claims Payable

In conjunction with a prior acquisition, we recorded a fair value adjustment related to certain annuity and interest-sensitive life 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.

This adjustment is recorded in reserves for future policy benefits and claims payable.

This component of the acquired reserves 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.

In addition, life and annuity claims liabilities in course of settlement are included in other future policy benefits and claims payable.

See Note 9- Reserve for Future Policy Benefits and Claims Payable to Condensed Consolidated Financial Statements for additional information on these accounting policies.

Market Risk Benefits

Contracts or contract features that provide protection to the contract holder from capital market risk and expose the Company to other-than-nominal capital market risk are classified as MRBs.

All long-duration insurance contracts and certain investment contracts are subject to MRB evaluation.

MRBs are measured at fair value at the contract level and can be in either an asset or liability position.

For contracts that contain multiple MRB features, the MRBs are valued together as a single compound MRB.

The use of models and assumptions used to determine fair value of MRBs requires a significant amount of judgement.

The significant assumptions used in the MRB fair value calculations are:

• Mortality rates - These vary by attained age, tax qualification status, guaranteed benefit election, and duration.

The range used 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.

• Base lapse rates - These 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 guaranteed benefits are utilized.

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

• Utilization rates - These 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.

• Withdrawal rates - These represent the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount under the free partial withdrawal provision or the GMWB, as applicable.

Free partial withdrawal rates 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.

• Non-performance risk adjustment - This is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.

• Long-term equity volatility - This represents the equity volatility beyond the period for which observable equity volatilities are available.

See Note 6- Fair Value Measurements to Consolidated Financial Statements for additional information.

Variable Annuities

We issue variable contracts through our separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder.

Certain of these contracts include contract provisions by which we contractually guarantee to the contract holder 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 upon the depletion of funds (GMWB), in the event of death (GMDB), at annuitization (GMIB), or at the end of a specified period (GMAB).

Substantially all of our GMIB benefits are reinsured.

GMIB benefits and GMAB benefits were discontinued in 2009 and 2011, respectively.

For additional information regarding our account value by optional guarantee benefit, see Business–Our Segments–Retail Annuities–Variable Annuities in the 2022 Annual Report.

Variable annuity guaranteed benefit features classified as MRBs, which have explicit fees, are measured using the attributed fee method.

Under the attributed fee method, fair value is measured as the difference between the present value of projected future liabilities and the present value of projected attributed fees.

At the inception of the contract, the Company attributes to the MRB a portion of total fees expected to be assessed against the contract holder to offset the projected claims over the lifetime of the contract.

The attributed fee is expressed as a percentage of total projected future fees at inception of the contract.

This percentage of total projected fees is considered a fixed term of the MRB feature and is held static over the life of the contract.

This percentage may not exceed 100% of the total projected contract fees as of contract inception.

As the Company may issue contracts that have projected future liabilities greater than the projected future guaranteed benefit fees at issue, the Company may also attribute mortality and expense charges when performing this calculation.

In subsequent valuations, both the present value of future projected liabilities and the present value of projected attributed fees are remeasured based on current market conditions and policyholder behavior assumptions.

Fixed Index Annuities

The longevity riders issued on fixed index annuities are classified as MRBs and measured at fair value.

Similar to the variable annuity guaranteed benefits features, these contracts have explicit fees and are measured using the attributed fee method.

The Company attributes a percentage of total projected future fees expected to be assessed against the policyholder to offset the projected future claims over the lifetime of the contract.

If the fees attributed are insufficient to offset the claims at issue, the shortfall is borrowed from the host contract rather than recognizing a loss at inception.

RILA guaranteed benefit features are classified as MRBs and measured at fair value.

Unlike variable or fixed index annuities, RILA products do not have explicit fees and are measured using an option-based method.

The fair value measurement represents the present value of future claims payable by the MRB feature.

At inception, the value of the MRB is deducted from the value of the contract resulting in no gain or loss.

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

See Note 12- Market Risk Benefits of the Notes to Condensed Consolidated Financial Statements for additional information on these accounting policies.

Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risk with respect to reinsurance receivables.

We periodically review actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluate the financial strength of counterparties to our reinsurance agreements.

Counterparty credit risk may be managed through the use of letters of credit, collateral trusts or on balance sheet funds withheld agreements.

Assets held under funds withheld agreements are included on our balance sheets and subject to triggers embedded within the relevant reinsurance agreements.

Additionally, for each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards.

We review all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.

For reinsurance contracts, reinsurance recoverable balances are generally calculated using methodologies and assumptions that are consistent with those used to calculate the direct liabilities.

For non-participating traditional life insurance contracts and limited pay life-contingent contracts, there may be reinsurance contracts executed subsequent to the direct contract issue dates, and market interest rates may have changed between the date that the underlying insurance contracts were issued and the date the reinsurance contract is recognized in the financial statements, resulting in the underlying discount rate differing between the direct and reinsured business.

Our guaranteed minimum income benefits (GMIBs) are reinsured with an unrelated party.

For contracts that only ceded the GMIB feature of our annuity products, the reinsurance contract in its entirety is classified as a reinsured market risk benefit.

Accordingly, the reinsured market risk benefit is recorded at fair value using internally developed models consistent with those used to value our direct market risk benefits.

See Note 8- Reinsurance of the Notes to Condensed Consolidated Financial Statements for additional information on these accounting policies.

Off–Balance Sheet Arrangements

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

We do not have any off–balance sheet arrangements as of March 31, 2023.

Item 3 | Quantitative and Qualitative Disclosures about Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis