What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 383 added, 293 removed, 1008 unchanged (40% of the section changed)

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FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

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.

The information in this Quarterly Report on Form 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 report 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.

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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.

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"), as Part II, Item 7 was recast to reflect the adoption of LDTI in our Current Report on Form 8-K filed May 10, 2023, and elsewhere in Jackson Financial Inc.’s filings with the U.S.

Securities and Exchange Commission (the "SEC").

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Available Information

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

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

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

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

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

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Jackson Finance Jackson Finance, LLC, a Company subsidiary.

JNAM Jackson National Asset Management LLC, a Company subsidiary.

PPMH PPM Holdings, Inc., a Company subsidiary

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

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

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

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

MRB (Market Risk Benefit A contract or contract feature that both provides protection to the contract holder from other-than-nominal capital market risk and exposes the insurance entity to other-than-nominal capital market risk.

NAIC National Association of Insurance Commissioners

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

The following discussion and analysis of our financial condition and results of operations should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I, Item 1 of this report, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our 2022 Annual Report.

Jackson Financial Inc.

(“Jackson Financial”) along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life.

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

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

(“Jackson Financial”or “JFI”) along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life.

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

The Company's demerger from Prudential was completed on September 13, 2021 (the "Demerger").

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

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.

Jackson Financial’s primary operating subsidiary, Jackson National Life Insurance Company, is licensed to sell group and individual annuity products (including immediate, registered index-linked, deferred fixed, fixed index, fixed 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 2022 Annual Report, in its 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, as recast to reflect the adoption of LDTI in our Current Report on Form 8-K filed May 10, 2023, 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 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").

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 , a commission and an 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.

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

The Demerger, or separation, from Prudential was completed on September 13, 2021, and we are now a stand-alone U.S.

The Demerger, or separation, from Prudential was completed on September 13, 2021, and we became then a stand-alone U.S.

public company.

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.

Prudential retained an equity interest in us after the Demerger.

As a result of sales subsequent to the Demerger, Prudential has no remaining equity interest in the Company as of June 30, 2023.

• Common Stock Repurchases:

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.

Since the Demerger and through June 30, 2023, we have repurchased 16,541,752 shares of our common stock for an aggregate consideration of $611 million.

After giving effect to those repurchases and issuances for our share-based compensation, we had 12,570,175 shares of treasury stock and 81,910,831 shares of common stock outstanding at June 30, 2023.

See Note 20 of the Notes to Condensed Consolidated Financial Statements for further information on our share repurchases.

• Inflation Reduction Act of 2022:

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although it could affect our cash tax liabilities.

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.

As of June 30, 2023, we have not recorded any provision for the AMT.

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

Department of the Treasury, which is expected throughout 2023.

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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.

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

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

GAAP, we use and report, selected non-GAAP financial measures.

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

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

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

GAAP and should not be viewed as a substitute for the U.S.

GAAP financial measures.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures.

Consequently, our non-GAAP financial measures may not be comparable to similar measures used by other companies.

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

Adjusted Operating Earnings

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

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

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

However, we believe the adjustments to net income are useful for gaining an understanding of our overall results of operations.

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

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

Other items :

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.

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

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

GAAP measure.

Three Months Ended March 31,

(in millions)

Net income (loss) attributable to Jackson Financial Inc.

$ (1,497) $ 2,194

Income tax expense (benefit) (558) 388

Pretax income (loss) attributable to Jackson Financial Inc (2,055) 2,582

Non-operating adjustments (income) loss:

Guaranteed benefits and hedging results:

Fees attributable to guarantee benefit reserves (780) (764)

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

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)

Other items 23 3

Total non-operating adjustments 2,357 (2,137)

Pretax Adjusted Operating Earnings 302 445

Operating income taxes 31 68

Adjusted Operating Earnings $ 271 $ 377

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

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 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.

does not include AOCI arising from investments held within the funds withheld account related to the Athene Reinsurance Transaction.

We exclude AOCI attributable to Jackson Financial Inc.

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.

is more useful to investors in analyzing trends in our business.

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 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 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 March 31,

(in millions)

Net income (loss) attributable to Jackson Financial Inc.

$ (1,497) $ 2,194

Adjusted Operating Earnings 271 377

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

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

Key Operating Measures

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

Three Months Ended March 31,

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

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

2023 2022 2023 2022

(in millions)

Variable annuities $ 2,448 $ 3,633 $ 4,922 $ 8,208

RILA 541 490 1,074 689

Fixed Index Annuities 76 13 138 32

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(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.

For the three and six months ended June 30, 2023, total sales decreased by $935 million and $2,918 million compared to the three and six months ended June 30, 2022, respectively.

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.

In addition, sales of our institutional products were higher by $103 million and lower by $223 million, compared to the three and six months ended June 30, 2022, respectively.

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

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

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

Three Months Ended March 31,

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

2023 2022 2023 2022

(in millions)

Variable Annuity $ (2,045) $ (300) $ (3,819) $ (298)

RILA 524 489 1,040 687

Fixed Index Annuity (1)

Fixed Annuity (1)

(10) (8) (21) (13)

Payout Annuity (1)

(11) (15) (37) (44)

Total Retail Annuities Net Flows (1)

(1,477) 184 (2,702) 365

Net flows ceded (996) (564) (2,199) (1,150)

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(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.

Net flows, net of reinsurance, decreased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, driven by decreased variable annuity sales.

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 March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

The following table shows variable annuity account value and benefit base as of June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

Account Value Benefit Base Account Value Benefit Base

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

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

(i) the assets in our investment portfolio managed by PPM, which excludes assets held in funds withheld accounts for reinsurance transactions, (ii) third-party assets managed by PPM, including those for our former parent, and other third parties, and (iii) the separate account assets of our Retail Annuities segment that Jackson National Asset Management LLC ("JNAM") manages and administers.

Total AUM reflects exclusions between segments to avoid double counting.

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

March 31, December 31,

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

June 30, December 31,

(in millions)

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Total AUM $ 306,402 $ 290,549

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

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

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

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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.

Political events, including precautions with future pandemics, 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.

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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.

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

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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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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.

While that reversed in the first half of 2023 (as equity markets increased and equity volatility eased), 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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The interest rate environment has affected, and will continue to affect our business and financial performance in the future for the following reasons:

• 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.

• Periods of sharp rises in interest rates, as we have seen recently as a result of the Federal Reserve's actions 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).

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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.

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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.

However, at times the cash surrender value floor materially affects the CAL calculation (in addition to reserves), rising rates can, and have, negatively affected the RBC ratio as well.We are considering additional methods of moderating the impact of the cash surrender value floor on TAC, CAL and RBC.

The implementation of any such method would be subject to Board and regulatory approval.

We can provide no assurance that any such method will be approved or the timing or impact of any adoption and implementation.

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

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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.

Many of our annuities have GMICRs that reset at contractually specified times after issue, subject to a contractually specified minimum GMICR.

In the current rising interest rate environment, the interest crediting rate on those GMICRs has increased.

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

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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.

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

Credit Market Environment

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

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

After tightening in 2021, credit spreads widened in 2022 and remained relatively unchanged in the first half 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.

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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

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

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

Cybersecurity Event

Progress Software Corporation disclosed a zero-day vulnerability, which is a previously unknown flaw, in its MOVEit Transfer software (“MOVEit”) that could enable malicious actors to gain unauthorized access to sensitive files and information.

MOVEit is now the subject of a widely reported cybersecurity event impacting numerous organizations and governmental agencies.

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

Jackson determined that Jackson’s information at one of our third-party vendors, Pension Benefit Information, LLC (“PBI”), was impacted by this event.

Jackson, and many other insurance carriers, use PBI to satisfy our regulatory obligations to search various databases to determine the death of certain life insurance policyholders or annuity contract holders.

This service helps Jackson to identify possible beneficiaries for death benefits.

According to PBI, an unknown actor exploited the MOVEit flaw to access PBI’s systems and download certain data.

Our current assessment indicates that personally identifiable information relating to approximately 850,000 of Jackson’s customers was obtained by that unknown actor from PBI’s systems.

PBI has informed Jackson that it has rectified the MOVEit vulnerability.

Separately, Jackson experienced unauthorized access to two servers as a result of the MOVEit zero-day vulnerability, however, the scope and nature of the data accessed on those servers was significantly less than the PBI impact.

Notably, the unauthorized actor did not gain access to any other systems or software, there was no interruption of Jackson’s business operations, and we believe there was no impact to our financial results.

Jackson, with assistance of third-party cybersecurity specialists, promptly launched an investigation into the unauthorized access, secured Jackson’s servers, patched the identified MOVEit vulnerability, and conducted a forensic analysis.

Our assessment is that a subset of information relating to certain partner organizations and individuals, including certain customers of Jackson, was obtained from the two affected servers.

Jackson notified law enforcement, as well as our primary insurance regulators, and we will continue to keep them informed.

Further, we have completed appropriate notification to the affected individuals and applicable regulators.

In addition, affected individuals are eligible to receive credit monitoring and identity theft services.

At this time, we do not believe the incident has a material adverse effect on the business, operations, or financial results of Jackson Financial.

Non-GAAP Financial Measures

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

GAAP, we use and report, selected non-GAAP financial measures.

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

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

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

GAAP and should not be viewed as a substitute for the U.S.

GAAP financial measures.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures.

Consequently, our non-GAAP financial measures may not be comparable to similar measures used by other companies.

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

Adjusted Operating Earnings

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

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

However, we believe the adjustments to net income are useful for gaining an understanding of our overall results of operations.

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

Adjusted Operating Earnings equals our Net income (loss) attributable to Jackson Financial Inc.

common shareholders (which excludes income attributable to non-controlling interest and dividends on preferred stock) adj usted to eliminate the impact of the following items: