Jackson Financial Inc. 10-Q

Item 1. Financial Statements . Jackson Financial Inc. Condensed Consolidated Balance Sheets (in millions, except share data) June 30, December 31, 2023 2022 (1) Assets (Unaudited) Investments: Debt Securities, available-for-sale, net of allowance for credit losses of $ 16 and $ 23 at June 30, 2023 and December 31, 2022, respectively (amortized cost: 2023 $ 47,871 ; 2022 $ 48,798 ) $ 42,063 $ 42,489 Debt Securities, at fair value under fair value option 2,210 2,173 Debt Securities, trading, at fair value 101 100 Equity securities, at fair value 267 393 Mortgage loans, net of allowance for credit losses of $ 162 and $ 95 at June 30, 2023 and December 31, 2022, respectively 10,303 10,967 Mortgage loans, at fair value under fair value option 509 582 Policy loans (including $ 3,438 and $ 3,419 at fair value under the fair value option at June 30, 2023 and December 31, 2022, respectively) 4,381 4,377 Freestanding derivative instruments 946 1,270 Other invested assets 3,503 3,595 Total investments 64,283 65,946 Cash and cash equivalents 2,100 4,298 Accrued investment income 528 514 Deferred acquisition costs 12,599 12,923 Reinsurance recoverable, net of allowance for credit losses of $ 39 and $ 15 at June 30, 2023 and December 31, 2022, respectively 27,069 29,046 Reinsurance recoverable on market risk benefits, at fair value 194 221 Market risk benefit assets, at fair value 5,957 4,865 Deferred income taxes, net 681 320 Other assets 850 944 Separate account assets 212,719 195,906 Total assets $ 326,980 $ 314,983 Liabilities and Equity Liabilities Reserves for future policy benefits and claims payable $ 12,003 $ 12,318 Other contract holder funds 56,477 58,190 Market risk benefit liabilities, at fair value 4,463 5,662 Funds withheld payable under reinsurance treaties (including $ 3,602 and $ 3,582 at fair value under the fair value option at June 30, 2023 and December 31, 2022, respectively) 21,170 22,957 Long-term debt 2,633 2,635 Repurchase agreements and securities lending payable 1,678 1,048 Collateral payable for derivative instruments 498 689 Freestanding derivative instruments 1,816 2,065 Notes issued by consolidated variable interest entities, at fair value under fair value option (Note 4) 1,996 1,732 Other liabilities 2,104 2,403 Separate account liabilities 212,719 195,906 Total liabilities 317,557 305,605 Commitments, Contingencies, and Guarantees (Note 16) Equity Series A non-cumulative preferred stock and additional paid in capital, $ 1.00 par value per share: 24,000 shares authorized; shares issued: 2023 - 22,000 ; liquidation preference $ 25,000 per share (See Note 20) 533 — Common stock; 1,000,000,000 shares authorized, $ 0.01 par value per share and 81,910,831 and 82,690,098 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively (See Note 20) 1 1 Additional paid-in capital 5,997 6,063 Treasury stock, at cost; 12,570,175 and 11,784,813 shares at June 30, 2023 and December 31, 2022, respectively ( 466 ) ( 443 ) Accumulated other comprehensive income (loss), net of tax expense (benefit) of $( 127 ) and $( 66 ) at June 30, 2023 and December 31, 2022, respectively ( 3,365 ) ( 3,378 ) Retained earnings 5,952 6,403 Total shareholders' equity 8,652 8,646 Noncontrolling interests 771 732 Total equity 9,423 9,378 Total liabilities and equity $ 326,980 $ 314,983 (1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements . See Notes to Condensed Consolidated Financial Statements. 2 Jackson Financial Inc. Condensed Consolidated Income Statements (Unaudited, in millions, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 (1) 2023 2022 (1) Revenues Fee income $ 1,913 $ 1,934 $ 3,801 $ 3,946 Premiums 52 32 77 69 Net investment income: Net investment income excluding funds withheld assets 420 328 835 758 Net investment income on funds withheld assets 252 364 559 624 Total net investment income 672 692 1,394 1,382 Net gains (losses) on derivatives and investments: Net gains (losses) on derivatives and investments ( 2,112 ) 2,938 ( 4,838 ) 1,372 Net gains (losses) on funds withheld reinsurance treaties ( 134 ) 1,077 ( 807 ) 2,105 Total net gains (losses) on derivatives and investments ( 2,246 ) 4,015 ( 5,645 ) 3,477 Other income 19 21 34 41 Total revenues 410 6,694 ( 339 ) 8,915 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 241 274 469 574 (Gain) loss from updating future policy benefits cash flow assumptions, net 10 14 24 29 Market risk benefits (gains) losses, net ( 2,570 ) 1,184 ( 2,744 ) ( 723 ) Interest credited on other contract holder funds, net of deferrals and amortization 295 209 580 406 Interest expense 58 24 101 44 Operating costs and other expenses, net of deferrals 620 543 1,236 1,209 Amortization of deferred acquisition costs 291 307 584 624 Total benefits and expenses ( 1,055 ) 2,555 250 2,163 Pretax income (loss) 1,465 4,139 ( 589 ) 6,752 Income tax expense (benefit) 245 845 ( 313 ) 1,233 Net income (loss) 1,220 3,294 ( 276 ) 5,519 Less: Net income (loss) attributable to noncontrolling interests 3 31 4 62 Net income (loss) attributable to Jackson Financial Inc. 1,217 3,263 ( 280 ) 5,457 Less: Dividends on preferred stock 13 — 13 — Net income (loss) attributable to Jackson Financial Inc. common shareholders $ 1,204 $ 3,263 $ ( 293 ) $ 5,457 Earnings per share Basic $ 14.58 $ 37.96 $ ( 3.55 ) $ 62.98 Diluted $ 14.21 $ 36.59 $ ( 3.55 ) $ 60.60 (1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements . See Notes to Condensed Consolidated Financial Statements. 3 Jackson Financial Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited, in millions) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 (1) 2023 2022 (1) Net income (loss) $ 1,220 $ 3,294 $ ( 276 ) $ 5,519 Other comprehensive income (loss), net of tax: Change in unrealized gains (losses) on securities with no credit impairment net of tax expense (benefit) of: $( 34 ) and $( 390 ), for the three months ended June 30, 2023 and 2022, respectively, and $ 58 and $( 1,167 ) for the six months ended June 30, 2023 and 2022, respectively. ( 532 ) ( 2,888 ) 436 ( 5,714 ) Change in unrealized gains (losses) on securities with credit impairment, net of tax expense (benefit) of: $( 1 ) and $ 2 million for the three months ended June 30, 2023 and 2022, respectively, and $( 3 ) and $ 6 for the six months ended June 30, 2023 and 2022, respectively. ( 1 ) 8 ( 9 ) 22 Change in current discount rate related to reserve for future policy benefits, net of tax expense (benefit) of $ 21 and $ 128 for the three months ended June 30, 2023 and 2022, respectively, and $( 11 ) and $ 294 for the six months ended June 30, 2023 and 2022, respectively. 75 463 ( 39 ) 1,062 Change in non-performance risk on market risk benefits, net of tax expense (benefit) of $( 165 ) and $ 220 for the three months ended June 30, 2023 and 2022, respectively, and $( 105 ) and $ 422 for the six months ended June 30, 2023 and 2022, respectively. ( 599 ) 797 ( 375 ) 1,531 Total other comprehensive income (loss) ( 1,057 ) ( 1,620 ) 13 ( 3,099 ) Comprehensive income (loss) 163 1,674 ( 263 ) 2,420 Less: Comprehensive income (loss) attributable to noncontrolling interests 3 31 4 62 Comprehensive income (loss) attributable to Jackson Financial Inc. $ 160 $ 1,643 $ ( 267 ) $ 2,358 (1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements . See Notes to Condensed Consolidated Financial Statements. 4 Jackson Financial Inc. Condensed Consolidated Statements of Equity (Unaudited, in millions) Accumulated Additional Treasury Other Total Non- Preferred Common Paid-In Stock Comprehensive Retained Shareholders' Controlling Total Stock Stock Capital at Cost Income Earnings Equity Interests Equity Balances as of March 31, 2023 $ 533 $ 1 $ 6,070 $ ( 510 ) $ ( 2,308 ) $ 4,852 $ 8,638 $ 829 $ 9,467 Net income (loss) — — — — — 1,217 1,217 3 1,220 Other comprehensive income (loss) — — — — ( 1,057 ) — ( 1,057 ) — ( 1,057 ) Change in equity of noncontrolling interests — — — — — — — ( 61 ) ( 61 ) Dividends on preferred stock — — — — — ( 13 ) ( 13 ) — ( 13 ) Dividends on common stock — — — — — ( 53 ) ( 53 ) — ( 53 ) Purchase of treasury stock — — — ( 94 ) — — ( 94 ) — ( 94 ) Share based compensation — — ( 73 ) 138 — ( 51 ) 14 — 14 Balances as of June 30, 2023 $ 533 $ 1 $ 5,997 $ ( 466 ) $ ( 3,365 ) $ 5,952 $ 8,652 $ 771 $ 9,423 Accumulated Additional Treasury Other Total Non- Preferred Common Paid-In Stock Comprehensive Retained Shareholders' Controlling Total Stock Stock Capital at Cost Income Earnings Equity Interests Equity Balances as of March 31, 2022 (1) $ — $ 1 $ 6,081 $ ( 351 ) $ ( 119 ) $ 2,582 $ 8,194 $ 715 $ 8,909 Net income (loss) — — — — — 3,263 3,263 31 3,294 Other comprehensive income (loss) — — — — ( 1,620 ) — ( 1,620 ) — ( 1,620 ) Change in equity of noncontrolling interests — — — — — — — 1 1 Dividends on common stock — — — — — ( 50 ) ( 50 ) — ( 50 ) Purchase of treasury stock — — — ( 100 ) — — ( 100 ) — ( 100 ) Share based compensation — — ( 61 ) 80 — — 19 — 19 Balances as of June 30, 2022 (1) $ — $ 1 $ 6,020 $ ( 371 ) $ ( 1,739 ) $ 5,795 $ 9,706 $ 747 $ 10,453 Accumulated Additional Treasury Other Total Non- Preferred Common Paid-In Stock Comprehensive Retained Shareholders' Controlling Total Stock Stock Capital at Cost Income Earnings Equity Interests Equity Balances as of December 31, 2022 (1) $ — $ 1 $ 6,063 $ ( 443 ) $ ( 3,378 ) $ 6,403 $ 8,646 $ 732 $ 9,378 Net income (loss) — — — — — ( 280 ) ( 280 ) 4 ( 276 ) Other comprehensive income (loss) — — — — 13 — 13 — 13 Change in equity of noncontrolling interests — — — — — — — 35 35 Dividends on preferred stock — — — — — ( 13 ) ( 13 ) — ( 13 ) Dividends on common stock — — — — — ( 107 ) ( 107 ) — ( 107 ) Purchase of treasury stock — — — ( 164 ) — — ( 164 ) — ( 164 ) Issuance of preferred stock 533 — — — — — 533 — 533 Share based compensation — — ( 66 ) 141 — ( 51 ) 24 — 24 Balances as of June 30, 2023 $ 533 $ 1 $ 5,997 $ ( 466 ) $ ( 3,365 ) $ 5,952 $ 8,652 $ 771 $ 9,423 Accumulated Additional Treasury Other Total Non- Preferred Common Paid-In Stock Comprehensive Retained Shareholders' Controlling Total Stock Stock Capital at Cost Income Earnings Equity Interests Equity Balances as of December 31, 2021 (1) $ — $ 1 $ 6,051 $ ( 211 ) $ 1,360 $ 440 $ 7,641 $ 680 $ 8,321 Net income (loss) — — — — — 5,457 5,457 62 5,519 Other comprehensive income (loss) — — — — ( 3,099 ) — ( 3,099 ) — ( 3,099 ) Change in equity of noncontrolling interests — — — — — — — 5 5 Dividends on common stock — — — — — ( 102 ) ( 102 ) — ( 102 ) Purchase of treasury stock — — — ( 240 ) — — ( 240 ) — ( 240 ) Share based compensation — — ( 31 ) 80 — — 49 — 49 Balances as of June 30, 2022 (1) $ — $ 1 $ 6,020 $ ( 371 ) $ ( 1,739 ) $ 5,795 $ 9,706 $ 747 $ 10,453 (1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements . See Notes to Condensed Consolidated Financial Statements. 5 Jackson Financial Inc. Condensed Consolidated Statements of Cash Flows (Unaudited, in millions) Six Months Ended June 30, 2023 2022 (1) Cash flows from operating activities: Net income (loss) $ ( 276 ) $ 5,519 Adjustments to reconcile net income to net cash provided by operating activities: Net realized losses (gains) on investments 108 125 Net losses (gains) on derivatives 4,730 ( 1,497 ) Net losses (gains) on funds withheld reinsurance treaties 807 ( 2,105 ) Net (gain) loss on market risk benefits ( 2,744 ) ( 723 ) (Gain) loss from updating future policy benefits cash flow assumptions, net 24 29 Interest credited on other contract holder funds, gross 580 406 Mortality, expense and surrender charges ( 266 ) ( 269 ) Amortization of discount and premium on investments ( 13 ) 13 Deferred income tax expense (benefit) ( 300 ) 1,261 Share-based compensation 39 69 Change in: Accrued investment income ( 15 ) ( 2 ) Deferred acquisition costs 325 275 Funds withheld, net of reinsurance 177 224 Other assets and liabilities, net ( 629 ) ( 1,273 ) Net cash provided by (used in) operating activities 2,547 2,052 Cash flows from investing activities: Sales, maturities and repayments of: Debt securities 5,125 6,942 Equity securities 180 43 Mortgage loans 1,362 551 Purchases of: Debt securities ( 4,514 ) ( 5,981 ) Equity securities ( 6 ) ( 25 ) Mortgage loans ( 657 ) ( 1,039 ) Settlements related to derivatives and collateral on investments ( 4,659 ) 2,570 Other investing activities 365 ( 446 ) Net cash provided by (used in) investing activities ( 2,804 ) 2,615 (1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements . (continued) See Notes to Condensed Consolidated Financial Statements. 6 Jackson Financial Inc. Condensed Consolidated Statements of Cash Flows (continued) (Unaudited, in millions) Six Months Ended June 30, 2023 2022 (1) Cash flows from financing activities: Policyholders' account balances: Deposits $ 7,349 $ 10,282 Withdrawals ( 14,314 ) ( 12,936 ) Net transfers from (to) separate accounts 4,185 2,554 Proceeds from (payments on) repurchase agreements and securities lending 630 ( 1,557 ) Net proceeds from (payments on) debt ( 46 ) ( 783 ) Net proceeds from issuance of Senior Notes — 750 Debt issuance costs — ( 7 ) Dividends on common stock ( 101 ) ( 102 ) Dividends on preferred stock ( 13 ) — Purchase of treasury stock ( 164 ) ( 240 ) Issuance of preferred stock 533 — Other financing activities — 7 Net cash provided by (used in) financing activities ( 1,941 ) ( 2,032 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 2,198 ) 2,635 Cash, cash equivalents, and restricted cash at beginning of period 4,301 2,631 Total cash, cash equivalents, and restricted cash at end of period $ 2,103 $ 5,266 Supplemental cash flow information Income taxes paid (received) $ — $ ( 2 ) Interest paid $ 99 $ 40 Non-cash investing activities Debt securities acquired from exchanges, payments-in-kind, and similar transactions $ 49 $ 214 Other invested assets acquired from stock splits and stock distributions $ 181 $ 42 Non-cash financing activities Non-cash dividend equivalents on stock-based awards $ ( 6 ) $ — Reconciliation to Statement of Financial Position Cash and cash equivalents $ 2,100 $ 5,258 Restricted cash (included in Other assets) 3 8 Total cash, cash equivalents, and restricted cash $ 2,103 $ 5,266 (1) Recast for the adoption of ASU 2018-12. See Notes 1 and 2 to the Condensed Consolidated Financial Statements . See Notes to Condensed Consolidated Financial Statements. 7 Jackson Financial Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Business and Basis of Presentation Jackson Financial Inc. ("JFI" or “Jackson Financial”) together with its subsidiaries, (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 state of Delaware in the United States (“U.S.”), was a majority-owned subsidiary of Prudential plc (“Prudential”), London, England, and was the holding company for Prudential’s U.S. operations. As described below under "Other," the Company's demerger from Prudential was completed on September 13, 2021 ("Demerger"), and the Company is a stand-alone U.S. public company. As of June 30, 2023, Prudential has no remaining equity interest in the Company. Jackson Financial’s primary life insurance subsidiary, Jackson National Life Insurance Company and its insurance subsidiaries (collectively, “Jackson”), is licensed to sell group and individual annuity products (including immediate, registered index-linked, deferred fixed, fixed index and variable annuities), and individual life insurance products, including variable universal life, in all 50 states and the District of Columbia. Jackson also participates in the institutional products market through the issuance of guaranteed investment contracts (“GICs”), funding agreements and medium-term note funding agreements. In addition to Jackson, Jackson Financial’s other operating subsidiaries are as follows: • PPM America, Inc. (“PPM”), is the Company’s investment management operation that manages the life insurance companies’ general account investment funds. PPM also provides investment services to other former affiliated and unaffiliated institutional clients. • Brooke Life Insurance Company (“Brooke Life”), Jackson’s direct parent, is a life insurance company licensed to sell life insurance and annuity products in the state of Michigan. Other wholly-owned subsidiaries of Jackson are as follows: • Life insurers: Jackson National Life Insurance Company of New York (“Jackson NY” or “JNY”); Squire Reassurance Company LLC (“Squire Re”); Squire Reassurance Company II, Inc. (“Squire Re II”); and VFL International Life Company SPC, LTD; • Registered broker-dealer: Jackson National Life Distributors LLC (“JNLD”); • Registered investment adviser: Jackson National Asset Management LLC (“JNAM”), which manages the life insurance companies' separate account funds underlying our variable annuities products, which funds are sub-advised. JNAM manages and oversees those sub-advisers; • Service provider: PGDS (US One) LLC (“PGDS”), which provides certain services to the Company and certain former affiliates; and • Other insignificant wholly-owned subsidiaries. The Company's Condensed Consolidated Financial Statements also include other insignificant partnerships, limited liability companies (“LLCs”) and other variable interest entities (“VIEs”) in which the Company is deemed the primary beneficiary. Other On August 6, 2021, the Company's Class A Common Stock was registered on a Form 10 registration statement filed with the U.S. Securities and Exchange Commission (the "SEC") and became effective under the Securities Exchange Act of 1934, as amended. We refer to that effective Form 10 registration as the "Form 10." The Demerger transaction described in the Form 10 was consummated on September 13, 2021. 8 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 1. Business and Basis of Presentation Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, certain financial information that is normally included in annual financial statements prepared in accordance with U.S. GAAP, but not required for interim reporting purposes, has been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 1, 2023, (the "2022 Annual Report"), as recast in our Current Report on 8-K filed May 10, 2023, to reflect the adoption of the accounting standard discussed in the next paragraph. The condensed consolidated financial information as of December 31, 2022, included herein, has been derived from the audited Consolidated Financial Statements, as so recast. The Company adopted Accounting Standards Update (“ASU”) 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts” (“LDTI”), effective January 1, 2023, with a transition date of January 1, 2021. See Note 2 of the Notes to Condensed Consolidated Financial Statements for further description of our adoption of LDTI. Certain accounting policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in the Notes to Consolidated Financial Statements in the Company’s 2022 Annual Report, as recast in our Current Report on Form 8-K filed May 10, 2023. New accounting policies adopted for LDTI are included in Notes 7, 8, 9, 10, 11, and 12 to the Condensed Consolidated Financial Statements in this Form 10-Q. In the opinion of management, these Condensed Consolidated Financial Statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three and six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023. All material intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of these Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires the use of estimates and assumptions about future events that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. Significant estimates or assumptions, as further discussed in the notes, include: • Valuation of investments and derivative instruments, including fair values of securities deemed to be in an illiquid market and the determination of when an impairment is necessary; • Assessments as to whether certain entities are VIEs, the existence of reconsideration events and the determination of which party, if any, should consolidate the entity; • Assumptions used in calculating policy reserves and liabilities including policyholder behavior, mortality rates, expenses, investment returns and policy crediting rates; • Assumptions as to future earnings levels being sufficient to realize deferred tax benefits; • Estimates related to expectations of credit losses on certain financial assets and off-balance sheet exposures; • Assumptions and estimates associated with the Company’s tax positions, including an estimate of the dividends received deduction, which impact the amount of recognized tax benefits recorded by the Company; • Assumptions used in calculating market risk benefits including policyholder behavior, mortality rates, and capital market assumptions; and • Assumptions impacting the expected term used amortizing deferred acquisition costs, including policyholder behavior and mortality rates. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other appropriate factors. As facts and circumstances dictate, these estimates and assumptions may be adjusted. Since future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates, including those resulting from continuing changes in the economic environment, will be reflected in the consolidated financial statements in the periods the estimates are changed. 9 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 1. Business and Basis of Presentation Revision of Prior Period Financial Statements In 2022, the Company identified errors related to the classification of certain balances and amounts in the line items of the Condensed Consolidated Balance Sheets and Condensed Consolidated Income Statements. These errors resulted in the revision of balances and amounts related to deferred sales inducement assets, liabilities for certain life-contingent annuities, sub-advisor fee expenses, and other operating expense items that impacted previously issued Condensed Consolidated Financial Statements. The impact of these errors to the prior periods' Condensed Consolidated Financial Statements were not considered to be material and had no impact on shareholders' equity or net income (loss). However, to improve the consistency and comparability of the financial statements, management revised the financial statements and related disclosures in this quarterly report. See Note 22 to the Notes to Condensed Consolidated Financial Statements for details of the revisions. 2. New Accounting Standards Changes in Accounting Principles – Adopted in Current Year In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The new guidance provides optional expedients for applying U.S. GAAP to contracts and other transactions affected by reference rate reform and is effective for contract modifications made between March 12, 2020 and December 31, 2022. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. The practical expedient allowed by this standard was elected and is being applied prospectively by the Company as reference rate reform unfolds. The contracts modified to date met the criteria for the practical expedient and therefore had no material impact on the Company’s Condensed Consolidated Financial Statements. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments are effective for all entities as of December 21, 2022. The Company will continue to evaluate the impacts of reference rate reform on contract modifications and other transactions through December 31, 2024. In August 2018, the FASB issued ASU 2018-12, “Targeted Improvements to the Accounting for Long Duration Contracts,” ("LDTI"), which included changes to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The Company adopted LDTI effective January 1, 2023, with a transition date of January 1, 2021, using the modified retrospective transition method relating to liabilities for traditional and limited payment contracts and deferred policy acquisition costs associated therewith, and on a retrospective basis, in relation to market risk benefits ("MRBs"). Under the modified retrospective approach, the Company applied the guidance to contracts in force on the transition date on the basis of their existing carrying value, using updated future cash flow assumptions, and eliminated certain related amounts in accumulated other comprehensive income (loss) (“AOCI”). Under the full retrospective transition approach, the Company applied the guidance as of the transition date, using actual historical assumption information as of contract inception, as if the accounting principle had always been applied. Amounts reported as of June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022 within these Condensed Consolidated Financial Statements are accounted for and presented in accordance with U.S. GAAP reflecting the adoption of LDTI. LDTI contains four significant changes: 1. Market risk benefits: market risk benefits (“MRBs”), a new term for certain contract features that provide for potential benefits in addition to the account balance that expose the Company to other-than-nominal market risk (for example, guaranteed benefits on annuity contracts, including guaranteed minimum withdrawal benefits and guaranteed minimum death benefits on variable annuities), are measured at fair value. Changes in fair value are recorded and presented separately within the income statement, with the exception of changes in fair value due to non-performance risk, which are recognized in other comprehensive income (loss) (“OCI”); 10 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards 2. Deferred acquisition costs: deferred acquisition costs (“DAC”) are amortized on a constant-level basis, independent of profitability of the underlying business; 3. Liability for future policy benefits: annual review and, if necessary, update of cash flow assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment insurance contracts is required. These liabilities are discounted using an upper-medium grade fixed income instrument yield which is updated quarterly, with related changes in the liability recognized in OCI; and 4. Enhanced disclosures: enhanced disclosures, including disaggregated roll-forwards of certain balance sheet accounts that provide information about actual and expected cash flows, as well as information about significant inputs, judgments, assumptions and methods used in measurement, are required. The enhanced disclosures are intended to improve the ability of users of the financial statements to evaluate the timing, amount, and uncertainty of cash flows arising from long-duration contracts. The 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 AOCI of $ 0.4 billion and a reduction in retained earnings of $ 2.6 billion. The primary drivers for this impact to total equity included: 1. the classification of certain benefits as market risk benefits, which were remeasured at fair value as of the transition date. The resulting change in the value of these benefits at the transition date, net of the related deferred tax effect, is recognized in retained earnings, with the exception of the cumulative effect of changes in non-performance risk, net of the related deferred tax effect, which is recognized in AOCI; 2. changes to the discount rate used to measure liabilities for future policyholder benefits which, under LDTI, are remeasured each reporting period using current upper-medium grade fixed-income instrument yields, which are generally considered to be those on single-A rated public corporate debt. The cumulative effect of the remeasurement of these liabilities using the transition date discount rate, net of the related deferred tax effect, is recognized in AOCI; and 3. the removal of certain shadow adjustments previously recorded in AOCI related to the impact of unrealized gains (losses) on investments that were included in the estimated gross profit amortization calculation for deferred acquisition costs, which are no longer recognized upon the adoption of LDTI. The following table presents the effect of transition adjustments on shareholders' equity due to the adoption of LDTI (in millions): January 1, 2021 Accumulated other Retained earnings comprehensive income Deferred acquisition costs $ — $ 106 Reinsurance recoverable on market risk benefits — ( 34 ) Reserves for future policy benefits and claims payable 97 141 Market risk benefits ( 2,700 ) ( 598 ) Total $ ( 2,603 ) $ ( 385 ) 11 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards The following table presents amounts previously reported as of December 31, 2020, to reflect the effect of the change due to the adoption of LDTI, and the adjusted amounts as of January 1, 2021 (in millions): As Previously Effect of As of Reported Changes 1/1/2021 Assets Deferred acquisition costs $ 13,897 $ 146 $ 14,043 Reinsurance recoverable, net of allowance for credit losses 35,270 ( 154 ) 35,116 Reinsurance recoverable on market risk benefits, at fair value — 471 471 Market risk benefit assets, at fair value — 690 690 Deferred income taxes, net 1,058 824 1,882 Other assets 1,179 2 1,181 Total assets $ 353,532 $ 1,979 $ 355,511 Liabilities and Equity Liabilities Reserves for future policy benefits and claims payable $ 22,512 $ ( 5,716 ) $ 16,796 Other contract holder funds 63,592 ( 7 ) 63,585 Market risk benefit liabilities, at fair value — 10,690 10,690 Total liabilities 343,609 4,967 348,576 Equity Accumulated other comprehensive income, net of tax expense 3,821 ( 385 ) 3,436 Retained earnings ( 324 ) ( 2,603 ) ( 2,927 ) Total equity 9,923 ( 2,988 ) 6,935 Total liabilities and equity $ 353,532 $ 1,979 $ 355,511 Liability for future policy benefits For the liability for future policy benefits, the net transition adjustment is related to the difference in the discount rate used pre-transition and the discount rate at January 1, 2021. The discount rate used to measure the liability at transition was generally lower than the rates used to measure the liability prior to the adoption of LDTI. Additionally, at transition, where net premiums exceeded gross premiums at the cohort level, the Company set net premiums equal to gross premiums and recognized the resulting increase in the liability for future policy benefits as an adjustment to opening retained earnings. The following table presents the impact of the adoption of LDTI, as of the transition date, on reserves for future policy benefits and claims payable (in millions): Payout Closed Closed Annuities Block Life Block Annuity Total Reserves for future policy benefits at December 31, 2020 $ 1,148 $ 5,809 $ 5,328 $ 12,285 Adjustment for loss contracts under the modified retrospective approach 4 15 18 37 Effect of remeasurement of liability at current discount rate 143 560 997 1,700 Reserves for future policy benefits at January 1, 2021 $ 1,295 $ 6,384 $ 6,343 $ 14,022 Other future policy benefits and claims payable 2,774 Reserves for future policy benefits and claims payable at January 1, 2021 $ 16,796 The following table presents the transition date reclassifications and adjustments to reserves for future policy benefits by category resulting from the adoption of LDTI (in millions): Reserve for future policy benefits Other (1) Total Reserve for future policy benefits and claims payable at December 31, 2020 $ 12,285 $ 10,227 $ 22,512 Adjustments for LDTI transition 1,737 ( 7,453 ) ( 5,716 ) Reserve for future policy benefits and claims payable at January 1, 2021 $ 14,022 $ 2,774 $ 16,796 (1) Includes variable annuity embedded derivatives that were reclassed to market risk benefits. 12 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards The following table presents the impact of the adoption of LDTI, as of the transition date, on Closed Block Life additional liabilities for universal life-type contracts (in millions): Closed Block Life Balance, December 31, 2020 $ 1,157 Adjustment for reversal of AOCI adjustments 28 Adjustment for cumulative effect of adoption of LDTI — Balance, January 1, 2021 $ 1,185 Market risk benefits For MRBs, the net transition adjustment relates to the measurement of certain guaranteed benefit features at fair value that were previously measured using an insurance accrual model. The measurement of these features at fair value includes use of generally lower discount rates and lower assumed future fund performance relative to their previous measurement, as well as inclusion of risk margins, all of which lead to a generally higher fair value balance relative to the carrying value prior to transition to LDTI. The transition adjustment to AOCI for MRBs relates to the effect of changes in the non-performance risk between the contract issuance date and the transition date. The remaining difference between the carrying value of these contract features under the insurance accrual model prior to transition to LDTI and the fair value measured at transition was recorded as an adjustment to retained earnings as of the transition date. The following table presents the impact of the adoption of LDTI, as of the transition date, on MRBs, net (in millions): Variable Other Annuities Product Lines Total Balance, December 31, 2020 - Carrying amount of MRBs under prior guidance $ 7,306 $ 74 $ 7,380 Adjustment for reversal of AOCI adjustments ( 27 ) ( 48 ) ( 75 ) Cumulative effect of the changes in non-performance risk between the original contract issuance date and the transition date ( 743 ) ( 6 ) ( 749 ) Remaining cumulative difference (exclusive of non-performance risk change) between 12/31/20 carrying amount and fair value measurement for the MRBs 3,372 72 3,444 Balance, January 1, 2021 - Market risk benefits, net, at fair value $ 9,908 $ 92 $ 10,000 Deferred acquisition costs For DAC, at transition to LDTI, the Company removed shadow adjustments previously recorded in AOCI for the impact of unrealized gains and losses that were included in the estimated gross profit amortization calculation prior to the adoption of LDTI. The following table presents the impact of the adoption of LDTI, as of the transition date, on DAC (in millions): Variable Other Annuities Product Lines Total Balance, December 31, 2020 - Deferred acquisition costs $ 13,725 $ 172 $ 13,897 Adjustment for reversal of AOCI adjustments 151 ( 5 ) 146 Balance, January 1, 2021 - Deferred acquisition costs $ 13,876 $ 167 $ 14,043 13 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards Reinsurance recoverable The following table presents the impact of the adoption of LDTI, as of the transition date, on reinsurance recoverable (in millions) : Total Balance, December 31, 2020 $ 35,270 Reclass of carrying amount of MRBs under prior guidance ( 407 ) Adjustment for loss contracts under the modified retrospective approach — Effect of remeasurement of liability at current discount rate 253 Balance, January 1, 2021 $ 35,116 The following table presents the impact of the adoption of LDTI, as of the transition date, on reinsurance recoverable on market risk benefits at fair value (in millions): Variable Other Annuities Product Lines Total Balance, December 31, 2020 - Carrying amount of MRBs under prior guidance $ 340 $ 67 $ 407 Adjustment for reversal of AOCI adjustments — ( 47 ) ( 47 ) Cumulative difference between 12/31/2020 carrying amount and fair value measurement for the MRBs 28 83 111 Balance, January 1, 2021 - Reinsurance recoverable on market risk benefits at fair value $ 368 $ 103 $ 471 The adoption of LDTI resulted in an increase in net income attributable to Jackson Financial of $ 360 million and $ 529 million for the three and six months ended June 30, 2022, respectively, and also resulted in an increase in total equity of $ 223 million for the year ended December 31, 2022. The following table presents amounts previously reported in the Consolidated Balance Sheets as of December 31, 2022, to reflect the effect of the change due to the adoption of LDTI, and the adjusted amounts as of December 31, 2022 (in millions): As Previously As Adjusted Reported Effect of As of December 31, 2022 Changes December 31, 2022 Assets Deferred acquisition costs $ 13,422 $ ( 499 ) $ 12,923 Reinsurance recoverable, net of allowance for credit losses 29,641 ( 595 ) 29,046 Reinsurance recoverable on market risk benefits, at fair value — 221 221 Market risk benefit assets, at fair value — 4,865 4,865 Deferred income taxes, net 385 ( 65 ) 320 Other assets 946 ( 2 ) 944 Total assets $ 311,058 $ 3,925 $ 314,983 Liabilities and Equity Liabilities Reserves for future policy benefits and claims payable $ 14,273 $ ( 1,955 ) $ 12,318 Other contract holder funds 58,195 ( 5 ) 58,190 Market risk benefit liabilities, at fair value — 5,662 5,662 Total liabilities 301,903 3,702 305,605 Equity Accumulated other comprehensive income, net of tax expense ( 5,481 ) 2,103 ( 3,378 ) Retained earnings 8,283 ( 1,880 ) 6,403 Total equity 9,155 223 9,378 Total liabilities and equity $ 311,058 $ 3,925 $ 314,983 14 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards The following table presents amounts previously reported in Condensed Consolidated Income Statements as revised ( see Note 22- Revision and Reclassifications of Prior Period Financial Statements for further details ) for the three and six months ended June 30, 2022, to reflect the effect of the change due to the adoption of LDTI, and the adjusted amounts (in millions): As revised As Adjusted Three Months Ended Effect of Three Months Ended June 30, 2022 Changes June 30, 2022 Revenues Total net gains (losses) on derivatives and investments $ 3,867 $ 148 $ 4,015 Total revenues 6,546 148 6,694 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 923 ( 649 ) 274 (Gain) loss from updating future policy benefits cash flow assumptions, net — 14 14 Market risk benefits (gains) losses, net — 1,184 1,184 Interest credited on other contract holder funds, net of deferrals and amortization 208 1 209 Amortization of deferred acquisition costs 1,197 ( 890 ) 307 Total benefits and expenses 2,895 ( 340 ) 2,555 Pretax income (loss) 3,651 488 4,139 Income tax expense (benefit) 717 128 845 Net income (loss) 2,934 360 3,294 Net income (loss) attributable to Jackson Financial Inc. $ 2,903 $ 360 $ 3,263 Earnings per share Basic $ 33.77 $ 4.19 $ 37.96 Diluted $ 32.56 $ 4.03 $ 36.59 As revised As Adjusted Six Months Ended Effect of Six Months Ended June 30, 2022 Changes June 30, 2022 Revenues Total net gains (losses) on derivatives and investments $ 5,472 $ ( 1,995 ) $ 3,477 Total revenues 10,910 ( 1,995 ) 8,915 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 1,504 ( 930 ) 574 (Gain) loss from updating future policy benefits cash flow assumptions, net — 29 29 Market risk benefits (gains) losses, net — ( 723 ) ( 723 ) Interest credited on other contract holder funds, net of deferrals and amortization 404 2 406 Amortization of deferred acquisition costs 1,712 ( 1,088 ) 624 Total benefits and expenses 4,873 ( 2,710 ) 2,163 Pretax income (loss) 6,037 715 6,752 Income tax expense (benefit) 1,047 186 1,233 Net income (loss) 4,990 529 5,519 Net income (loss) attributable to Jackson Financial Inc. $ 4,928 $ 529 $ 5,457 Earnings per share Basic $ 56.87 $ 6.11 $ 62.98 Diluted $ 54.72 $ 5.88 $ 60.60 15 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards The following table presents amounts previously reported in Condensed Consolidated Statements of Comprehensive Income (Loss) as revised ( see Note 22- Revision and Reclassifications of Prior Period Financial Statements for further details ) for the three and six months ended June 30, 2022, to reflect the effect of the change due to the adoption of LDTI, and the adjusted amounts (in millions): As Revised As Adjusted Three Months Ended Effect of Three Months Ended June 30, 2022 Changes June 30, 2022 Net income (loss) $ 2,934 $ 360 $ 3,294 Other comprehensive income (loss), net of tax: Change in unrealized gains (losses) on securities with no credit impairment, net of tax expense (benefit) ( 2,791 ) ( 97 ) ( 2,888 ) Change in current discount rate related to reserve for future policy benefits, net of tax expense (benefit) — 463 463 Change in non-performance risk on market risk benefits, net of tax expense (benefit) — 797 797 Total other comprehensive income (loss) ( 2,783 ) 1,163 ( 1,620 ) Comprehensive income (loss) attributable to Jackson Financial Inc. $ 120 $ 1,523 $ 1,643 As Revised As adjusted Six Months Ended Effect of Six Months Ended June 30, 2022 Changes June 30, 2022 Net income (loss) $ 4,990 $ 529 $ 5,519 Other comprehensive income (loss), net of tax: Change in unrealized gains (losses) on securities with no credit impairment, net of tax expense (benefit) ( 5,488 ) ( 226 ) ( 5,714 ) Change in current discount rate related to reserve for future policy benefits, net of tax expense (benefit) — 1,062 1,062 Change in non-performance risk on market risk benefits, net of tax expense (benefit) — 1,531 1,531 Total other comprehensive income (loss) ( 5,466 ) 2,367 ( 3,099 ) Comprehensive income (loss) attributable to Jackson Financial Inc. $ ( 538 ) $ 2,896 $ 2,358 The adoption of LDTI did not affect the previously reported as revised ( see Note 22- Revision and Reclassifications of Prior Period Financial Statements for further details ) totals for net cash flows provided by (used in) operating, investing, or financing activities, but did affect the following components of net cash flows provided by (used in) operating activities: As Revised As Adjusted Six Months Ended Effect of Six Months Ended June 30, 2022 Changes June 30, 2022 Cash flows from operating activities: Net income (loss) $ 4,990 $ 529 $ 5,519 Adjustments to reconcile net income to net cash provided by operating activities: Net losses (gains) on derivatives ( 3,492 ) 1,995 ( 1,497 ) Net (gain) loss on market risk benefits — ( 723 ) ( 723 ) (Gain) loss from updating future policy benefits cash flow assumptions, net — 29 29 Interest credited on other contract holder funds, gross 404 2 406 Deferred income tax expense (benefit) 1,075 186 1,261 Change in deferred acquisition costs 1,363 ( 1,088 ) 275 Change in funds withheld, net of reinsurance ( 90 ) 314 224 Change in other assets and liabilities, net ( 29 ) ( 1,244 ) ( 1,273 ) Total adjustments ( 769 ) ( 529 ) ( 1,298 ) Net cash provided by (used in) operating activities $ 2,052 $ — $ 2,052 16 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 2. New Accounting Standards In addition, information regarding periods ended on or before December 31, 2022 presented in the following Notes to the Condensed Consolidated Financial Statements has been recast to reflect the adoption of LDTI: Notes 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 15, 19, 20, 21, and 22. In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The new guidance eliminates the accounting guidance for troubled debt restructurings by creditors, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan. The amendments also enhance disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. New guidance for vintage disclosures requires that current-period gross write-offs be disclosed by year of origination for financing receivables and net investments in leases that fall within scope of the current expected credit loss model. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Updates should be applied prospectively. However, an entity has the option to apply the modified retrospective method related to the recognition and measurements of troubled debt restructurings. Effective January 1, 2023, the Company adopted ASU 2022-02, which did not have a material impact to the Condensed Consolidated Financial Statements. 3. Segment Information The Company has three reportable segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Block. The Company reports certain activities and items that are not included in these reportable segments, including the results of PPM Holdings, Inc., the holding company of PPM, which manages the majority of the Company’s general account investment portfolio, in Corporate and Other. The reportable segments reflect how the Company’s chief operating decision maker views and manages the business. The following is a brief description of the Company’s reportable segments, plus its Corporate and Other segment. Retail Annuities The Company’s Retail Annuities segment offers a variety of retirement income and savings products through its diverse suite of products, consisting primarily of variable annuities, fixed index annuities, fixed annuities, payout annuities, and registered index-linked annuities ("RILA"). These products are distributed through various wirehouses, insurance brokers and independent broker-dealers, as well as through banks and financial institutions, primarily to high-net worth investors and the mass and affluent markets. The Company’s variable annuities represent an attractive option for retirees and soon-to-be retirees, providing access to equity market appreciation and add-on benefits, including guaranteed lifetime income. A fixed index annuity is designed for investors who desire principal protection with the opportunity to participate in capped upside investment returns linked to a reference market index. The Company also provides access to guaranteed lifetime income as an add-on benefit. A fixed annuity is a guaranteed product designed to build wealth without market exposure, through a crediting rate that is likely to be superior to interest rates offered from banks or money market funds. A RILA offers customers exposure to market returns through market index-linked investment options, subject to a cap, and offers a variety of guarantees designed to modify or limit losses. The financial results of the variable annuity business within the Company’s Retail Annuities segment are largely dependent on the performance of the contract holder account value, which impacts both the level of fees collected and the benefits paid to the contract holder. The financial results of the Company’s fixed annuities, including the fixed option on variable annuities, RILA and fixed index annuities, are largely dependent on the Company’s ability to earn a spread between earned investment rates on general account assets and the interest credited to contract holders. 17 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information Institutional Products The Company’s Institutional Products segment consists of traditional Guaranteed Investment Contracts ("GICs"), funding agreements (including agreements issued in conjunction with the Company’s participation in the U.S. Federal Home Loan Bank ("FHLB") program) and medium-term note funding agreements. The Company’s GIC products are marketed to defined contribution pension and profit-sharing retirement plans. Funding agreements are marketed to institutional investors, including corporate cash accounts and securities lending funds, as well as money market funds, and are issued to the FHLB in connection with its program. The financial results of the Company’s institutional products business are primarily dependent on the Company’s ability to earn a spread between earned investment rates on general account assets and the interest credited on GICs and funding agreements. Closed Life and Annuity Blocks The Company's Closed Life and Annuity Blocks segment is primarily composed of blocks of business that have been acquired since 2004. This segment includes various protection products, primarily whole life, universal life, variable universal life, and term life insurance products, as well as fixed, fixed index, and payout annuities. The Closed Life and Annuity Blocks segment also includes a block of group payout annuities that we assumed from John Hancock Life Insurance Company (USA) and John Hancock Life Insurance Company of New York through reinsurance transactions in 2018 and 2019, respectively. The Company historically offered traditional and interest-sensitive life insurance products but discontinued new sales of life insurance products in 2012, as we believe opportunistically acquiring mature blocks of life insurance policies was a more efficient means of diversifying our in-force business than selling new life insurance products. The profitability of the Company’s Closed Life and Annuity Blocks segment is largely driven by its historical ability to appropriately price its products and purchase appropriately priced blocks of business, as realized through underwriting, expense and net gains (losses) on derivatives and investments, and the ability to earn an assumed rate of return on the assets supporting that business. Corporate and Other The Company’s Corporate and Other segment primarily consists of the operations of its investment management subsidiary, PPM, VIE’s, and unallocated corporate income and expenses. The Corporate and Other segment also includes certain eliminations and consolidation adjustments. 18 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information Segment Performance Measurement Segment operating revenues and pretax adjusted operating earnings are non-GAAP financial measures that management believes are critical to the evaluation of the financial performance of the Company’s segments. The Company uses the same accounting policies and procedures to measure segment pretax adjusted operating earnings as used in its reporting of consolidated net income. Its primary measure is pretax adjusted operating earnings, which is defined as net income recorded in accordance with U.S. GAAP, 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 are not considered to drive underlying performance. Operating revenues and pretax adjusted operating earnings should not be used as a substitute for revenues and net income as calculated in accordance with U.S. GAAP. Pretax adjusted operating earnings equals net income adjusted to eliminate the impact of the following items: 1. 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 LDTI accounting guidance on January 1, 2021 associated with items excluded from pretax 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 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 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. 2. 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. 3. Change in Value of Funds Withheld Embedded Derivative and Net Investment Income on Funds Withheld Assets: Comprised of: (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. 4. 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. 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. 5. Income taxes. 19 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information Set forth in the tables below is certain information with respect to the Company’s segments, as described above (in millions, 2022 information recast for the adoption of LDTI): Three Months Ended June 30, 2023 Retail Annuities Institutional Products Closed Life and Annuity Blocks Corporate and Other Total Consolidated Operating Revenues Fee income $ 1,002 $ — $ 116 $ 13 $ 1,131 Premiums 6 — 49 — 55 Net investment income 130 119 175 11 435 Income (loss) on operating derivatives ( 12 ) ( 13 ) ( 14 ) ( 4 ) ( 43 ) Other income 10 — 6 3 19 Total Operating Revenues 1,136 106 332 23 1,597 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 12 — 154 — 166 (Gain) loss from updating future policy benefits cash flow assumptions, net — — 11 — 11 Interest credited on other contract holder funds, net of deferrals and amortization 96 84 115 — 295 Interest expense 32 4 — 22 58 Operating costs and other expenses, net of deferrals 529 1 42 48 620 Amortization of deferred acquisition costs 139 — 3 — 142 Total Operating Benefits and Expenses 808 89 325 70 1,292 Pretax Adjusted Operating Earnings $ 328 $ 17 $ 7 $ ( 47 ) $ 305 Three Months Ended June 30, 2022 Retail Annuities Institutional Products Closed Life and Annuity Blocks Corporate and Other Total Consolidated Operating Revenues Fee income $ 1,034 $ — $ 119 $ 14 $ 1,167 Premiums — — 35 — 35 Net investment income 113 72 167 9 361 Income (loss) on operating derivatives 7 ( 4 ) 13 8 24 Other income 11 — 9 1 21 Total Operating Revenues 1,165 68 343 32 1,608 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 16 — 194 — 210 (Gain) loss from updating future policy benefits cash flow assumptions, net 1 — 14 — 15 Interest credited on other contract holder funds, net of deferrals and amortization 61 47 101 — 209 Interest expense 6 — — 18 24 Operating costs and other expenses, net of deferrals 515 2 19 6 542 Amortization of deferred acquisition costs 141 — 3 — 144 Total Operating Benefits and Expenses 740 49 331 24 1,144 Pretax Adjusted Operating Earnings $ 425 $ 19 $ 12 $ 8 $ 464 20 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information Six Months Ended June 30, 2023 Retail Annuities Institutional Products Closed Life and Annuity Blocks Corporate and Other Total Consolidated Operating Revenues Fee income $ 1,977 $ — $ 233 $ 26 $ 2,236 Premiums 10 — 72 — 82 Net investment income 266 221 352 33 872 Income (loss) on operating derivatives ( 22 ) ( 25 ) ( 24 ) ( 8 ) ( 79 ) Other income 19 — 10 5 34 Total Operating Revenues 2,250 196 643 56 3,145 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals ( 3 ) — 317 — 314 (Gain) loss from updating future policy benefits cash flow assumptions, net ( 2 ) — 27 — 25 Interest credited on other contract holder funds, net of deferrals and amortization 194 160 226 — 580 Interest expense 49 8 — 44 101 Operating costs and other expenses, net of deferrals 1,051 2 81 102 1,236 Amortization of deferred acquisition costs 277 — 5 — 282 Total Operating Benefits and Expenses 1,566 170 656 146 2,538 Pretax Adjusted Operating Earnings $ 684 $ 26 $ ( 13 ) $ ( 90 ) $ 607 Six Months Ended June 30, 2022 Retail Annuities Institutional Products Closed Life and Annuity Blocks Corporate and Other Total Consolidated Operating Revenues Fee income $ 2,142 $ — $ 240 $ 30 $ 2,412 Premiums 3 — 72 — 75 Net investment income 227 136 356 43 762 Income (loss) on operating derivatives 18 ( 5 ) 28 18 59 Other income 22 — 17 2 41 Total Operating Revenues 2,412 131 713 93 3,349 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 48 — 419 — 467 (Gain) loss from updating future policy benefits cash flow assumptions, net ( 2 ) — 32 — 30 Interest credited on other contract holder funds, net of deferrals and amortization 118 86 202 — 406 Interest expense 11 — — 33 44 Operating costs and other expenses, net of deferrals 1,107 3 51 46 1,207 Amortization of deferred acquisition costs 280 — 6 — 286 Total Operating Benefits and Expenses 1,562 89 710 79 2,440 Pretax Adjusted Operating Earnings $ 850 $ 42 $ 3 $ 14 $ 909 Intersegment eliminations in the above tables are included in the Corporate and Other segment. These include the elimination of investment income, between Retail Annuities and the Corporate and Other segments, as well as the elimination from fee income and investment income of investment fees paid by Jackson to its affiliate PPM, which were $ 19 million and $ 18 million for the three months ended June 30, 2023 and 2022, respectively, and $ 37 million and $ 34 million for the six months ended June 30, 2023 and 2022, respectively . 21 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 3. Segment Information The following table summarizes the reconciling items from the non-GAAP measure of operating revenues to the U.S. GAAP measure of total revenues attributable to the Company (in millions, 2022 information recast for the adoption of LDTI): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Total operating revenues $ 1,597 $ 1,608 $ 3,145 $ 3,349 Fees attributed to guarantee benefit reserves 781 765 1,561 1,529 Net gains (losses) on derivatives and investments ( 2,205 ) 3,991 ( 5,567 ) 3,418 Net investment income (loss) related to noncontrolling interests 3 31 4 62 Consolidated investments ( 18 ) ( 65 ) ( 41 ) ( 67 ) Net investment income on funds withheld assets 252 364 559 624 Total revenues (1) $ 410 $ 6,694 $ ( 339 ) $ 8,915 (1) Substantially all the Company's revenues originated in the United States. There were no individual customers that exceeded 10% of total revenues. The following table summarizes the reconciling items from the non-GAAP measure of operating benefits and expenses to the U.S. GAAP measure of total benefits and expenses attributable to the Company (in millions, 2022 information recast for the adoption of LDTI): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Total operating benefits and expenses $ 1,292 $ 1,144 $ 2,538 $ 2,440 Net (gain) loss on market risk benefits ( 2,570 ) 1,184 ( 2,744 ) ( 723 ) Benefits attributed to guaranteed benefit features 74 62 154 106 Amortization of DAC related to non-operating revenues and expenses 149 166 302 339 Other items — ( 1 ) — 1 Total benefits and expenses $ ( 1,055 ) $ 2,555 $ 250 $ 2,163 The following table summarizes the reconciling items, from the non-GAAP measure of pretax adjusted operating earnings to the U.S. GAAP measure of net income attributable to the Company (in millions, 2022 information recast for the adoption of LDTI): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Pretax adjusted operating earnings $ 305 $ 464 $ 607 $ 909 Non-operating adjustments income (loss): Fees attributable to guarantee benefit reserves 781 765 1,561 1,529 Net movement in freestanding derivatives ( 1,911 ) 2,847 ( 4,423 ) 1,371 Market risk benefits gains (losses), net 2,570 ( 1,184 ) 2,744 723 Net reserve and embedded derivative movements ( 194 ) — ( 383 ) ( 40 ) Amortization of DAC associated with non-operating items at date of transition to LDTI ( 149 ) ( 166 ) ( 302 ) ( 339 ) Total guaranteed benefits and net hedging results 1,097 2,262 ( 803 ) 3,244 Net realized investment gains (losses) ( 40 ) 5 ( 108 ) ( 125 ) Net realized investment gains (losses) on funds withheld assets ( 134 ) 1,077 ( 807 ) 2,105 Net investment income on funds withheld assets 252 364 559 624 Other items ( 18 ) ( 64 ) ( 41 ) ( 67 ) Pretax income (loss) attributable to Jackson Financial Inc 1,462 4,108 ( 593 ) 6,690 Income tax expense (benefit) 245 845 ( 313 ) 1,233 Net income (loss) attributable to Jackson Financial Inc 1,217 3,263 ( 280 ) 5,457 Less: Dividends on preferred stock 13 — 13 — Net income (loss) attributable to Jackson Financial Inc common shareholders $ 1,204 $ 3,263 $ ( 293 ) $ 5,457 22 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments 4. Investments Investments are comprised primarily of fixed-income securities and loans, primarily publicly-traded corporate and government bonds, asset-backed securities and mortgage loans. Asset-backed securities include mortgage-backed and other structured securities. The Company generates the majority of its general account deposits from interest-sensitive individual annuity contracts, life insurance products and institutional products on which it has committed to pay a declared rate of interest. The Company's strategy of investing in fixed-income securities and loans aims to ensure matching of the asset yield with the amounts credited to the interest-sensitive liabilities and to earn a stable return on its investments. Debt Securities The following table sets forth the composition of the fair value of debt securities at June 30, 2023 and December 31, 2022, classified by rating categories as assigned by a nationally recognized statistical rating organization (“NRSRO”), the National Association of Insurance Commissioners (“NAIC”), or if not rated by such organizations, the Company’s investment advisors. The Company uses the second lowest rating by an NRSRO when NRSRO ratings are not equivalent and, for purposes of the table, if not otherwise rated by a NRSRO, the NAIC rating of a security is converted to an equivalent NRSRO-style rating. At June 30, 2023 and December 31, 2022, the carrying value of investments rated by the Company’s consolidated investment advisor totaled $ 492 million and $ 32 million, respectively. Percent of Total Debt Securities Carrying Value June 30, 2023 December 31, 2022 Investment Rating AAA 15.6 % 17.9 % AA 10.2 % 8.2 % A 30.3 % 29.9 % BBB 36.8 % 36.4 % Investment grade 92.9 % 92.4 % BB 3.6 % 3.9 % B and below 3.5 % 3.7 % Below investment grade 7.1 % 7.6 % Total debt securities 100.0 % 100.0 % At June 30, 2023, of the total carrying value of debt securities in an unrealized loss position, 77 % were investment grade, 2 % were below investment grade and 21 % were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 21 % of the aggregate gross unrealized losses on available-for-sale debt securities. At December 31, 2022, of the total carrying value of debt securities in an unrealized loss position, 78 % were investment grade, 2 % were below investment grade and 20 % were not rated. Unrealized losses on debt securities that were below investment grade or not rated were approximately 21 % of the aggregate gross unrealized losses on available-for-sale debt securities. Corporate securities in an unrealized loss position were diversified across industries. As of June 30, 2023, the industries accounting for the largest percentage of unrealized losses included utility ( 16 % of corporate gross unrealized losses) and healthcare ( 10 %). The largest unrealized loss related to a single corporate obligor was $ 53 million at June 30, 2023. As of December 31, 2022, the industries accounting for the largest percentage of unrealized losses included utility ( 16 % of corporate gross unrealized losses) and healthcare ( 10 %). The largest unrealized loss related to a single corporate obligor was $ 57 million at December 31, 2022. At June 30, 2023 and December 31, 2022, the amortized cost, allowance for credit loss ("ACL"), gross unrealized gains and losses, and fair value of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions): 23 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Allowance Gross Gross Amortized for Unrealized Unrealized Fair June 30, 2023 Cost (1) Credit Loss Gains Losses Value U.S. government securities $ 5,630 $ — $ — $ 961 $ 4,669 Other government securities 1,685 3 1 221 1,462 Public utilities 5,974 — 26 669 5,331 Corporate securities 29,423 7 68 3,387 26,097 Residential mortgage-backed 456 6 12 52 410 Commercial mortgage-backed 1,676 — — 185 1,491 Other asset-backed securities 5,338 — 12 436 4,914 Total debt securities $ 50,182 $ 16 $ 119 $ 5,911 $ 44,374 Allowance Gross Gross Amortized for Unrealized Unrealized Fair December 31, 2022 Cost (1) Credit Loss Gains Losses Value U.S. government securities $ 6,192 $ — $ 1 $ 1,008 $ 5,185 Other government securities 1,719 2 1 251 1,467 Public utilities 5,893 — 27 695 5,225 Corporate securities 28,803 15 59 3,701 25,146 Residential mortgage-backed 510 6 19 59 464 Commercial mortgage-backed 1,821 — — 183 1,638 Other asset-backed securities 6,133 — 8 504 5,637 Total debt securities $ 51,071 $ 23 $ 115 $ 6,401 $ 44,762 (1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities. The amortized cost, ACL, gross unrealized gains and losses, and fair value of debt securities at June 30, 2023, by contractual maturity, are shown below (in millions). Actual maturities may differ from contractual maturities where securities can be called or prepaid with or without early redemption penalties. Allowance Gross Gross Amortized for Unrealized Unrealized Fair Cost (1) Credit Loss Gains Losses Value Due in 1 year or less $ 1,971 $ 1 $ — $ 11 $ 1,959 Due after 1 year through 5 years 10,622 2 5 482 10,143 Due after 5 years through 10 years 13,542 4 35 1,409 12,164 Due after 10 years through 20 years 9,076 3 49 1,517 7,605 Due after 20 years 7,501 — 6 1,819 5,688 Residential mortgage-backed 456 6 12 52 410 Commercial mortgage-backed 1,676 — — 185 1,491 Other asset-backed securities 5,338 — 12 436 4,914 Total $ 50,182 $ 16 $ 119 $ 5,911 $ 44,374 (1) Amortized cost, apart from the carrying value for securities carried at fair value under the fair value option and trading securities. As required by law in various states in which business is conducted, securities with a carrying value of $ 93 million and $ 90 million at June 30, 2023 and December 31, 2022, respectively, were on deposit with regulatory authorities. 24 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Residential mortgage-backed securities (“RMBS”) include certain RMBS that are collateralized by residential mortgage loans and are neither expressly nor implicitly guaranteed by U.S. government agencies (“non-agency RMBS”). The Company’s non-agency RMBS include investments in securities backed by prime, Alt-A, and subprime loans, as follows (in millions): Allowance Gross Gross Amortized for Unrealized Unrealized Fair June 30, 2023 Cost (1) Credit Loss Gains Losses Value Prime $ 192 $ 3 $ 1 $ 25 $ 165 Alt-A 63 3 6 12 54 Subprime 14 — 5 — 19 Total non-agency RMBS $ 269 $ 6 $ 12 $ 37 $ 238 Allowance Gross Gross Amortized for Unrealized Unrealized Fair December 31, 2022 Cost (1) Credit Loss Gains Losses Value Prime $ 206 $ 4 $ 2 $ 30 $ 174 Alt-A 84 2 7 10 79 Subprime 27 — 10 1 36 Total non-agency RMBS $ 317 $ 6 $ 19 $ 41 $ 289 (1) Amortized cost, apart from carrying value for securities carried at fair value under the fair value option and trading securities. The Company defines its exposure to non-agency residential mortgage loans as follows: • Prime loan-backed securities are collateralized by mortgage loans made to the highest rated borrowers. • Alt-A loan-backed securities are collateralized by mortgage loans made to borrowers who lack credit documentation or necessary requirements to obtain prime borrower rates. • Subprime loan-backed securities are collateralized by mortgage loans made to borrowers that have a FICO score of 660 or lower. 25 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments The following table summarizes the number of securities, fair value and the gross unrealized losses of debt securities, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position (dollars in millions): June 30, 2023 December 31, 2022 Less than 12 months Less than 12 months Gross Fair Value Gross Fair Value Unrealized # of Unrealized # of Losses securities Losses securities U.S. government securities $ 91 $ 2,106 26 $ 339 $ 2,815 40 Other government securities 27 570 73 174 1,258 143 Public utilities 74 1,245 139 508 4,279 490 Corporate securities 263 6,281 902 2,087 17,068 2,323 Residential mortgage-backed 6 125 84 43 279 196 Commercial mortgage-backed 13 225 29 138 1,421 177 Other asset-backed securities 47 1,161 89 282 3,485 417 Total temporarily impaired securities $ 521 $ 11,713 1,342 $ 3,571 $ 30,605 3,786 12 months or longer 12 months or longer Gross Fair Value Gross Fair Value Unrealized # of Unrealized # of Losses securities Losses securities U.S. government securities $ 870 $ 2,116 17 $ 669 $ 1,386 6 Other government securities 194 884 133 77 177 23 Public utilities 595 3,649 437 187 520 87 Corporate securities 3,124 15,933 2,011 1,614 4,601 644 Residential mortgage-backed 46 212 206 16 81 94 Commercial mortgage-backed 172 1,246 179 45 192 31 Other asset-backed securities 389 3,447 448 222 1,551 171 Total temporarily impaired securities $ 5,390 $ 27,487 3,431 $ 2,830 $ 8,508 1,056 Total Total Gross Gross Unrealized Fair # of Unrealized Fair # of Losses Value securities (1) Losses Value securities (1) U.S. government securities $ 961 $ 4,222 41 $ 1,008 $ 4,201 42 Other government securities 221 1,454 165 251 1,435 162 Public utilities 669 4,894 575 695 4,799 562 Corporate securities 3,387 22,214 2,737 3,701 21,669 2,806 Residential mortgage-backed 52 337 289 59 360 290 Commercial mortgage-backed 185 1,471 202 183 1,613 206 Other asset-backed securities 436 4,608 526 504 5,036 577 Total temporarily impaired securities $ 5,911 $ 39,200 4,535 $ 6,401 $ 39,113 4,645 (1) Certain securities contain multiple lots and fit the criteria of both aging groups. Debt securities in an unrealized loss position as of June 30, 2023 did not require an impairment recognized in earnings as (i) the Company did not intend to sell these debt securities, (ii) it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost basis, and (iii) the difference in the fair value compared to the amortized cost was due to factors other than credit loss. Based upon this evaluation, the Company believes it has the ability to generate adequate amounts of cash from normal operations to meet cash requirements with a reasonable margin of safety without requiring the sale of impaired securities. 26 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments As of June 30, 2023, unrealized losses associated with debt securities are primarily due to widening credit spreads or rising risk-free rates since purchase. The Company performed a detailed analysis of the financial performance of the underlying issues in an unrealized loss position and determined that recovery of the entire amortized cost of each impaired security is expected. In addition, mortgage-backed and asset-backed securities were assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities, and prepayment rates. The Company estimated losses for a security by forecasting performance in the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. The forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts, and other independent market data. Based upon this assessment of the expected credit losses of the security given the performance of the underlying collateral compared to subordination or other credit enhancement, the Company expects to recover the entire amortized cost of each impaired security. Evaluation of Available-for-Sale Debt Securities for Credit Loss For debt securities in an unrealized loss position, management first assesses whether the Company has the intent to sell, or whether it is more likely than not it will be required to sell the security before the amortized cost basis is fully recovered. If either criterion is met, the amortized cost is written down to fair value through net gains (losses) on derivatives and investments as an impairment. Debt securities in an unrealized loss position for which the Company does not have the intent to sell or is not more likely than not to sell the security before recovery to amortized cost are further evaluated to determine if the cause of the decline in fair value resulted from credit losses or other factors, which includes estimates about the operations of the issuer and future earnings potential. The credit loss evaluation may consider the following: the extent to which the fair value is below amortized cost; changes in ratings of the security; whether a significant covenant related to the security has been breached; whether an issuer has filed or indicated a possibility of filing for bankruptcy, has missed or announced it intends to miss a scheduled interest or principal payment, or has experienced a specific material adverse change that may impair its creditworthiness; judgments about an obligor’s current and projected financial position; an issuer’s current and projected ability to service and repay its debt obligations; the existence of, and realizable value of, any collateral backing the obligations; and the macro-economic and micro-economic outlooks for specific industries and issuers. In addition to the above, the credit loss review of investments in asset-backed securities includes the review of future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments. These estimated cash flows are developed using available performance indicators from the underlying assets including current and projected default or delinquency rates, levels of credit enhancement, current subordination levels, vintage, expected loss severity and other relevant characteristics. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against third-party sources. For mortgage-backed securities, credit losses are assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral characteristics and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements existing in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment timing, default rates and loss severity. Specifically, for prime and Alt-A RMBS, the assumed default percentage is dependent on the severity of delinquency status, with foreclosures and real estate owned receiving higher rates, but also includes the currently performing loans. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against other third-party sources. In addition, these estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. When a credit loss is determined to exist and the present value of cash flows expected to be collected is less than the amortized cost of the security, an allowance for credit loss is recorded along with a charge to net gains (losses) on derivatives and investments, limited by the amount that the fair value is less than amortized cost. Any remaining unrealized loss after recording the allowance for credit loss is the non-credit amount and is recorded to other comprehensive income. 27 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments The allowance for credit loss for specific debt securities may be increased or reversed in subsequent periods due to changes in the assessment of the present value of cash flows that are expected to be collected. Any changes to the allowance for credit loss is recorded as a provision for (or reversal of) credit loss expense in net gains (losses) on derivatives and investments. When all, or a portion, of a security is deemed uncollectible, the uncollectible portion is written-off with an adjustment to amortized cost and a corresponding reduction to the allowance for credit losses. Accrued interest receivable s are presented separate from the amortized cost basis of debt securities. Accrued interest receivables that are determined to be uncollectible are written off with a corresponding reduction to net investment income. Accrued interest of nil was written off during the three and six months ended June 30, 2023 and 2022. The roll-forward of the allowance for credit loss for available-for-sale securities by sector is as follows (in millions): Three Months Ended June 30, 2023 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at April 1, 2023 $ — $ 3 $ — $ 21 $ 5 $ — $ — $ 29 Additions for which credit loss was not previously recorded — — — 1 — — — 1 Changes for securities with previously recorded credit loss — — — ( 1 ) 2 — — 1 Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — — — — — Reductions for securities disposed — — — ( 14 ) ( 1 ) — — ( 15 ) Securities intended/required to be sold before recovery of amortized cost basis — — — — — — — — Balance at June 30, 2023 (2) $ — $ 3 $ — $ 7 $ 6 $ — $ — $ 16 Three Months Ended June 30, 2022 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at April 1, 2022 $ — $ 6 $ — $ 22 $ 2 $ — $ 2 $ 32 Additions for which credit loss was not previously recorded — — 1 3 2 — — 6 Changes for securities with previously recorded credit loss — — — 5 3 — ( 2 ) 6 Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — ( 1 ) — — ( 1 ) Reductions for securities disposed — — — — — — — — Securities intended/required to be sold before recovery of amortized cost basis — — — — — — — — Balance at June 30, 2022 (2) $ — $ 6 $ 1 $ 30 $ 6 $ — $ — $ 43 28 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Six Months Ended June 30, 2023 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at January 1, 2023 $ — $ 2 $ — $ 15 $ 6 $ — $ — $ 23 Additions for which credit loss was not previously recorded — — — 33 — — — 33 Changes for securities with previously recorded credit loss — 1 — ( 1 ) 2 — — 2 Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — — — — — Reductions for securities disposed — — — ( 23 ) ( 2 ) — — ( 25 ) Securities intended/required to be sold before recovery of amortized cost basis — — — ( 17 ) — — — ( 17 ) Balance at June 30, 2023 (2) $ — $ 3 $ — $ 7 $ 6 $ — $ — $ 16 Six Months Ended June 30, 2022 US government securities Other government securities Public utilities Corporate securities Residential mortgage-backed Commercial mortgage-backed Other asset-backed securities Total Balance at January 1, 2022 $ — $ — $ — $ — $ 2 $ — $ 7 $ 9 Additions for which credit loss was not previously recorded — 6 1 30 2 — — 39 Changes for securities with previously recorded credit loss — — — 5 3 — ( 7 ) 1 Additions for purchases of PCD debt securities (1) — — — — — — — — Reductions from charge-offs — — — — — — — — Reductions for securities disposed — — — — ( 1 ) — — ( 1 ) Securities intended/required to be sold before recovery of amortized cost basis — — — ( 5 ) — — — ( 5 ) Balance at June 30, 2022 (2) $ — $ 6 $ 1 $ 30 $ 6 $ — $ — $ 43 (1) Represents purchased credit-deteriorated ("PCD") fixed maturity available-for-sale securities. (2) Accrued interest receivable on debt securities totaled $ 429 million and $ 382 million as of June 30, 2023 and 2022, respectively, and was excluded from the determination of credit losses for the three and six months ended June 30, 2023 and 2022. 29 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Net Investment Income The sources of net investment income were as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Debt securities (1) $ 338 $ 213 $ 720 $ 486 Equity securities 9 6 ( 1 ) 7 Mortgage loans 78 68 154 141 Policy loans 16 17 33 34 Limited partnerships ( 38 ) 50 ( 1 ) 158 Other investment income 22 10 50 11 Total investment income excluding funds withheld assets 425 364 955 837 Investment expenses ( 5 ) ( 36 ) ( 120 ) ( 79 ) Net investment income excluding funds withheld assets 420 328 835 758 Net investment income on funds withheld assets (see Note 8) 252 364 559 624 Net investment income $ 672 $ 692 $ 1,394 $ 1,382 (1) Includes unrealized gains (losses) on trading securities and includes $( 35 ) million and $( 8 ) million for the three and six months ended June 30, 2023, respectively, and $( 95 ) million and $( 85 ) million for the three and six months ended June 30, 2022, respectively, related to the change in fair value for securities carried under the fair value option. Unrealized gains (losses) included in investment income that were recognized on equity securities held were $( 8 ) million and $( 13 ) million, for the three months ended June 30, 2023 and 2022, respectively, and $( 22 ) million and $( 31 ) million, for the six months ended June 30, 2023 and 2022, respectively. Net Gains (Losses) on Derivatives and Investments The following table summarizes net gains (losses) on derivatives and investments (in millions, 2022 information recast for the adoption of LDTI): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Available-for-sale securities Realized gains on sale $ 2 $ 5 $ 6 $ 29 Realized losses on sale ( 18 ) ( 63 ) ( 43 ) ( 241 ) Credit loss income (expense) — 1 ( 11 ) 1 Credit loss income (expense) on mortgage loans ( 13 ) ( 9 ) ( 60 ) 3 Other (1) ( 11 ) 71 — 83 Net gains (losses) excluding derivatives and funds withheld assets ( 40 ) 5 ( 108 ) ( 125 ) Net gains (losses) on derivative instruments (see Note 5) ( 2,072 ) 2,933 ( 4,730 ) 1,497 Net gains (losses) on derivatives and investments ( 2,112 ) 2,938 ( 4,838 ) 1,372 Net gains (losses) on funds withheld reinsurance treaties (see Note 8) ( 134 ) 1,077 ( 807 ) 2,105 Total net gains (losses) on derivatives and investments $ ( 2,246 ) $ 4,015 $ ( 5,645 ) $ 3,477 (1) Includes the foreign currency gain or loss related to foreign denominated trust instruments supporting funding agreements. Net gains (losses) on funds withheld reinsurance treaties represents income (loss) from the sale of investments held in segregated funds withheld accounts in support of reinsurance agreements for which Jackson retains legal ownership of the underlying investments. These gains (losses) are increased or decreased by changes in the embedded derivative liability related to the Athene funds withheld coinsurance agreement and also include (i) changes in the related funds withheld payable, as all economic performance of the investments held in the segregated accounts inure to the benefit of the reinsurers under the respective reinsurance agreements with each reinsurer, and (ii) amortization of the difference between book value and fair value of the investments as of the effective date of the reinsurance agreements with each reinsurer. 30 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments The aggregate fair value of securities sold at a loss for the three and six months ended June 30, 2023 was $ 356 million and $ 2,153 million, which was approximately 93 % and 96 % of book value, respectively. The aggregate fair value of securities sold at a loss for the three and six months ended June 30, 2022 was $ 506 million and $ 2,898 million, which was approximately 93 % and 92 % of book value, respectively. Proceeds from sales of available-for-sale debt securities were $ 1.3 billion and $ 3.3 billion during the three and six months ended June 30, 2023, respectively, and $ 0.8 billion and $ 4.9 billion during the three and six months ended June 30, 2022, respectively. There are inherent uncertainties in assessing the fair values assigned to the Company’s investments. The Company’s reviews of net present value and fair value involve several criteria including economic conditions, credit loss experience, other issuer-specific developments and estimated future cash flows. These assessments are based on the best available information at the time. Factors such as market liquidity, the widening of bid/ask spreads and a change in the cash flow assumptions can contribute to future price volatility. If actual experience differs negatively from the assumptions and other considerations used in the Consolidated Financial Statements, unrealized losses currently reported in accumulated other comprehensive income (loss) may be recognized in the Consolidated Income Statements in future periods. The Company currently has no intent to sell securities with unrealized losses considered to be temporary until they mature or recover in value and believes that it has the ability to do so. However, if the specific facts and circumstances surrounding an individual security, or the outlook for its industry sector change, the Company may sell the security prior to its maturity or recovery and realize a loss. Consolidated Variable Interest Entities ("VIEs") The Company funds affiliated limited liability companies to facilitate the issuance of collateralized loan obligations ("CLOs"). The Company concluded that these limited liability companies are VIEs and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the entity as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. In April 2022, the Company reinvested in CLO issuances resulting in an increase of consolidated assets and liabilities. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments. In December 2022, a consolidated VIE issued $ 276 million par, net of the Company’s holding, of CLOs. The Company’s policy is to record the consolidation of VIEs on a one-month lag due to the timing of when information is available from the VIE. Therefore, the VIE's issuance of this CLO is not reflected in the Company’s Consolidated Balance Sheet as of December 31, 2022 but would not materially impact the financial position of the Company as a result of the offsetting changes to assets and liabilities. Private Equity Funds III – VIII are limited partnership structures that invest the ownership capital in portfolios of various other limited partnership structures. The Company concluded that the Private Equity Funds are VIEs and that the Company is the primary beneficiary as it has the power to direct the most significant activities affecting the performance of the funds as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the funds. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments. The Company intends to divest its investment in certain private equity funds. While there are multiple scenarios for how the divestiture may be completed, it is probable that the divestiture will result in a loss due to the illiquidity discount that market participants require. The Company estimates that the loss will approximate $ 50 million and has recognized this amount in Net Investment Income as of June 30, 2023. PPM has created and managed institutional share class mutual funds, where Jackson seeds new funds, or new share classes within a fund, when deemed necessary to develop the requisite track record prior to allowing investment by external parties. Jackson may sell its interest in the fund once opened to investment by external parties. The Company concluded that these funds are VIEs and that the Company is the primary beneficiary as it has both the power to direct the most significant activities of the VIE as well as the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company’s exposure to loss related to these mutual funds is limited to the capital invested. 31 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Asset and liability information for the consolidated VIEs included on the Condensed Consolidated Balance Sheets are as follows (in millions): June 30, 2023 December 31, 2022 Assets Debt securities, at fair value under fair value option $ 2,049 $ 2,014 Debt securities, trading 101 100 Equity securities 92 127 Other invested assets 1,507 1,507 Cash and cash equivalents 102 75 Other assets 43 19 Total assets $ 3,894 $ 3,842 Liabilities Notes issued by consolidated VIEs, at fair value under fair value option $ 1,996 $ 1,732 Other liabilities 114 343 Total other liabilities 2,110 2,075 Securities lending payable 4 4 Total liabilities $ 2,114 $ 2,079 Equity Noncontrolling interests $ 771 $ 732 Unconsolidated VIEs The Company invests in certain limited partnerships ("LPs") and limited liability companies ("LLCs") that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs as it does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. In addition, the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities. Therefore, the Company does not consolidate these VIEs and the carrying amounts of the Company’s investments in these LPs and LLCs are recognized in other invested assets on the Condensed Consolidated Balance Sheets. Unfunded capital commitments for these investments are detailed in Note 16 of the Notes to Condensed Consolidated Financial Statements. The Company’s exposure to loss is limited to the capital invested and unfunded capital commitments related to the LPs/LLCs, which was $ 3,016 million and $ 3,285 million as of June 30, 2023 and December 31, 2022, respectively. The capital invested in an LP or LLC equals the original capital contributed, increased for additional capital contributed after the initial investment, and reduced for any returns of capital from the LP or LLC. LPs and LLCs are carried at fair value. The Company invests in certain mutual funds that it has concluded are VIEs. Based on the analysis of these entities, the Company is not the primary beneficiary of the VIEs. Mutual funds for which the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entities are recognized in equity securities on the Condensed Consolidated Balance Sheets and were $ 19 million and $ 28 million as of June 30, 2023 and December 31, 2022, respectively. The Company’s maximum exposure to loss on these mutual funds is limited to the amortized cost for these investments. The Company makes investments in structured debt securities issued by VIEs for which it is not the manager. These structured debt securities include RMBS, Commercial Mortgage-Backed Securities ("CMBS"), and asset-backed securities ("ABS"). The Company does not consolidate the securitization trusts utilized in these transactions because it does not have the power to direct the activities that most significantly impact the economic performance of these securitization trusts. The Company does not consider its continuing involvement with these VIEs to be significant because it either invests in securities issued by the VIE and was not involved in the design of the VIE or no transfers have occurred between the Company and the VIE. The Company’s maximum exposure to loss on these structured debt securities is limited to the amortized cost of these investments. The Company does not have any further contractual obligations to the VIE. The 32 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Company recognizes the variable interest in these VIEs at fair value on the Condensed Consolidated Balance Sheets. Commercial and Residential Mortgage Loans Commercial mortgage loans of $ 9.7 billion and $ 10.2 billion at June 30, 2023 and December 31, 2022, respectively, are reported net of an allowance for credit losses of $ 154 million and $ 91 million at each date, respectively. At June 30, 2023, commercial mortgage loans were collateralized by properties located in 37 states, the District of Columbia, and Europe. Accrued interest receivable on commercial mortgage loans was $ 37 million and $ 39 million at June 30, 2023 and December 31, 2022, respectively. Residential mortgage loans of $ 1.1 billion and $ 1.3 billion at June 30, 2023 and December 31, 2022, respectively, are reported net of an allowance for credit losses of $ 8 million and $ 4 million at each date, respectively. Loans were collateralized by properties located in 50 states, the District of Columbia, Mexico, and Europe. Accrued interest receivable on residential mortgage loans was $ 7 million and $ 9 million at June 30, 2023 and December 31, 2022, respectively. Mortgage Loan Concessions In response to the generally adverse economic impact of the COVID-19 pandemic, the Company granted concessions to certain of its commercial mortgage loan borrowers, including payment deferrals and other loan modifications. The Company has elected the option under the Coronavirus Aid, Relief, and Economic Security Act, the Consolidated Appropriations Act of 2021, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) not to account for or report qualifying concessions as troubled debt restructurings and does not classify such loans as past due during the payment deferral period. Additionally, in accordance with the FASB’s published response to a COVID-19 Pandemic technical inquiry, the Company continues to accrue interest income on such loans that have deferred payment. For some commercial mortgage loan borrowers (principally in the hotel and retail sectors), the Company granted concessions that were primarily interest and/or principal payment deferrals generally ranging from 6 to 14 months and, to a much lesser extent, maturity date extensions. Repayment periods are generally within one year but may extend until maturity date. Deferred commercial mortgage loan interest and principal payments were $ 9 million at June 30, 2023. The concessions granted had no impact on the Company’s results of operations or financial position as the Company has not granted concessions that would have been disclosed and accounted for as troubled debt restructurings. Evaluation for Credit Losses on Mortgage Loans The Company reviews mortgage loans that are not carried at fair value under the fair value option on a quarterly basis to estimate the ACL with changes in the ACL recorded in net gains (losses) on derivatives and investments. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level for mortgage loans. The model forecasts net operating income and property values for the economic scenario selected. The debt service coverage ratios (“DSCR”) and loan to values (“LTV”) are calculated over the forecastable period by comparing the projected net operating income and property valuations to the loan payment and principal amounts of each loan. The model utilizes historical mortgage loan performance based on DSCRs and LTV to derive probability of default and expected losses based on the economic scenario that is similar to the Company’s expectations of economic factors such as unemployment, gross domestic product growth, and interest rates. The Company determined the forecastable period to be reasonable and supportable for a period of two years beyond the end of the reporting period. Over the following one-year period, the model reverts to the historical performance of the portfolio for the remainder of the contractual term of the loans. In cases where the Company does not have an appropriate length of historical performance, the relevant historical rate from an index or the lifetime expected credit loss calculated from the model may be used. Unfunded commitments are included in the model and an ACL is determined accordingly. Credit loss estimates are pooled by property type and the Company does not include accrued interest in the determination of ACL. 33 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments For individual loans or for types of loans for which the third-party model is deemed not suitable, the Company utilizes relevant current market data, industry data, and publicly available historical loss rates to calculate an estimate of the lifetime expected credit loss. Mortgage loans on real estate deemed uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL, limited to the aggregate of amounts previously charged-off and expected to be charged-off. Mortgage loans on real estate are presented net of the ACL on the Condensed Consolidated Balance Sheets. The following table provides the change in the allowance for credit losses in the Company’s mortgage loan portfolios (in millions): Three Months Ended June 30, 2023 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at April 1, 2023 $ 20 $ 19 $ 67 $ 22 $ 11 $ 7 $ 146 Charge offs, net of recoveries — — — — — — — Provision (release) ( 2 ) ( 12 ) 24 4 1 1 16 Balance at June 30, 2023 (1) (2) $ 18 $ 7 $ 91 $ 26 $ 12 $ 8 $ 162 Three Months Ended June 30, 2022 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at April 1, 2022 $ 21 $ 9 $ 22 $ 14 $ 12 $ 6 $ 84 Charge offs, net of recoveries — — — — — — — Provision (release) — 9 ( 6 ) ( 1 ) ( 3 ) ( 3 ) ( 4 ) Balance at June 30, 2022 (1) (2) $ 21 $ 18 $ 16 $ 13 $ 9 $ 3 $ 80 Six Months Ended June 30, 2023 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at January 1, 2023 $ 18 $ 20 $ 15 $ 22 $ 16 $ 4 $ 95 Charge offs, net of recoveries — — — — — — — Provision (release) — ( 13 ) 76 4 ( 4 ) 4 67 Balance at June 30, 2023 (1) (2) $ 18 $ 7 $ 91 $ 26 $ 12 $ 8 $ 162 Six Months Ended June 30, 2022 Apartment Hotel Office Retail Warehouse Residential Mortgage Total Balance at January 1, 2022 $ 19 $ 9 $ 28 $ 17 $ 12 $ 9 $ 94 Charge offs, net of recoveries — — — — — — — Provision (release) 2 9 ( 12 ) ( 4 ) ( 3 ) ( 6 ) ( 14 ) Balance at June 30, 2022 (1) (2) $ 21 $ 18 $ 16 $ 13 $ 9 $ 3 $ 80 (1) Accrued interest receivable totaled $ 44 million and $ 44 million as of June 30, 2023 and 2022, respectively, and was excluded from the determination of credit losses. (2) Accrued interest amounting to $ 2 million and nil were written off as of June 30, 2023 and 2022, respectively, relating to loans that were greater than 90 days delinquent or in the process of foreclosure. The Company’s mortgage loans that are current and in good standing are accruing interest. Interest is not accrued on loans greater than 90 days delinquent and in process of foreclosure, when deemed uncollectible. Delinquency status is determined from the date of the first missed contractual payment. At June 30, 2023, there was $ 13 million of recorded investment, $ 14 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 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. 34 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments The following tables provide information about the credit quality with vintage year and category of mortgage loans (in millions): June 30, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Total % of Total Commercial mortgage loans Loan to value ratios: Less than 70% $ 406 $ 776 $ 1,012 $ 796 $ 1,370 $ 4,633 $ 4 $ 8,997 93 % 70% - 80% — 163 220 — 13 61 — 457 5 % 80% - 100% — — 151 27 — 44 — 222 2 % Greater than 100% — — — — 24 — — 24 — % Total commercial mortgage loans 406 939 1,383 823 1,407 4,738 4 9,700 100 % Debt service coverage ratios: Greater than 1.20x 360 672 891 753 1,331 4,499 4 8,510 88 % 1.00x - 1.20x 46 258 341 70 31 151 — 897 9 % Less than 1.00x — 9 151 — 45 88 — 293 3 % Total commercial mortgage loans 406 939 1,383 823 1,407 4,738 4 9,700 100 % Residential mortgage loans Performing 104 246 238 41 31 382 — 1,042 94 % Nonperforming — 17 9 7 4 33 — 70 6 % Total residential mortgage loans 104 263 247 48 35 415 — 1,112 100 % Total mortgage loans $ 510 $ 1,202 $ 1,630 $ 871 $ 1,442 $ 5,153 $ 4 $ 10,812 100 % December 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Total % of Total Commercial mortgage loans Loan to value ratios: Less than 70% $ 771 $ 1,266 $ 1,171 $ 1,473 $ 1,480 $ 3,421 $ 4 $ 9,586 94 % 70% - 80% 125 190 32 13 5 59 — 424 4 % 80% - 100% — 152 — — 5 40 — 197 2 % Greater than 100% — — — 25 — 9 — 34 — % Total commercial mortgage loans 896 1,608 1,203 1,511 1,490 3,529 4 10,241 100 % Debt service coverage ratios: Greater than 1.20x 694 1,092 955 1,387 1,324 3,211 4 8,667 85 % 1.00x - 1.20x 202 372 106 83 34 172 — 969 9 % Less than 1.00x — 144 142 41 132 146 — 605 6 % Total commercial mortgage loans 896 1,608 1,203 1,511 1,490 3,529 4 10,241 100 % Residential mortgage loans Performing 413 308 49 37 14 409 — 1,230 94 % Nonperforming 6 11 8 6 7 40 — 78 6 % Total residential mortgage loans 419 319 57 43 21 449 — 1,308 100 % Total mortgage loans $ 1,315 $ 1,927 $ 1,260 $ 1,554 $ 1,511 $ 3,978 $ 4 $ 11,549 100 % 35 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments June 30, 2023 In Good Standing (1) Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value Apartment $ 3,278 $ — $ — $ — $ 3,278 Hotel 933 — — — 933 Office 1,497 — — — 1,497 Retail 2,080 — — — 2,080 Warehouse 1,912 — — — 1,912 Total commercial 9,700 — — — 9,700 Residential (2) 1,042 — 57 13 1,112 Total $ 10,742 $ — $ 57 $ 13 $ 10,812 December 31, 2022 In Good Standing (1) Restructured Greater than 90 Days Delinquent In the Process of Foreclosure Total Carrying Value Apartment $ 3,558 $ — $ — $ — $ 3,558 Hotel 1,015 — — — 1,015 Office 1,795 — — — 1,795 Retail 2,085 — — — 2,085 Warehouse 1,788 — — — 1,788 Total commercial 10,241 — — — 10,241 Residential (2) 1,230 — 63 15 1,308 Total $ 11,471 $ — $ 63 $ 15 $ 11,549 (1) At June 30, 2023 and December 31, 2022, includes mezzanine and bridge loans of $ 377 million and $ 410 million in the Apartment category, $ 29 million and $ 41 million in the Hotel category, $ 171 million and $ 236 million in the Office category, $ 31 million and $ 43 million in the Retail category, and $ 253 million and $ 140 million in the Warehouse category, respectively. (2) At June 30, 2023 and December 31, 2022, includes $ 28 million and $ 41 million of loans purchased when the loans were greater than 90 days delinquent and $ 9 million and $ 12 million of loans in process of foreclosure, and are supported with insurance or other guarantees provided by various governmental programs, respectively. As of June 30, 2023 and December 31, 2022, there were no commercial mortgage loans involved in troubled debt restructuring, and stressed mortgage loans for which the Company is dependent, or expects to be dependent, on the underlying property to satisfy repayment were $ 3 million and $ 3 million, respectively. Policy Loans Policy loans are loans the Company issues to contract holders that use the cash surrender value of their life insurance policy or annuity contract as collateral. At both June 30, 2023 and December 31, 2022, $ 3.4 billion of these loans were carried at fair value, which the Company believes is equal to unpaid principal balances, plus accrued investment income. At both June 30, 2023 and December 31, 2022, the Company had $ 1.0 billion of policy loans not held as collateral for reinsurance, which were carried at the unpaid principal balances. 36 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 4. Investments Other Invested Assets Other invested assets primarily include investments in Federal Home Loan Bank of Indianapolis ("FHLBI") capital stock, limited partnerships (“LPs”), and real estate. FHLBI capital stock is carried at cost and adjusted for any impairment. At both June 30, 2023 and December 31, 2022, FHLB capital stock had carrying value of $ 146 million, respectively. Real estate is carried at the lower of depreciated cost or fair value. At June 30, 2023 and December 31, 2022, real estate totaling $ 234 million and $ 237 million, respectively, included foreclosed properties with a book value of $ 1 million and nil at June 30, 2023 and December 31, 2022, respectively. Carrying values for LP investments are generally determined by using the proportion of the Company’s investment in each fund (Net Asset Value (“NAV”) equivalent) as a practical expedient for fair value, and generally are recorded on a three-month lag, with changes in value included in net investment income. At June 30, 2023 and December 31, 2022, investments in LPs had carrying values of $ 3,123 million and $ 3,212 million, respectively. Securities Lending The Company has entered into securities lending agreements with agent banks whereby blocks of securities are loaned to third parties, primarily major brokerage firms. As of June 30, 2023 and December 31, 2022, the estimated fair value of loaned securities was $ 51 million and $ 35 million, respectively. The agreements require a minimum of 102 % of the fair value of the loaned securities to be held as collateral, calculated daily. To further minimize the credit risks related to these programs, the financial condition of counterparties is monitored on a regular basis. At June 30, 2023 and December 31, 2022, cash collateral received in the amount of $ 52 million and $ 36 million, respectively, was invested by the agent banks and included in cash and cash equivalents of the Company. A securities lending payable for the overnight and continuous loans is included in liabilities in the amount of cash collateral received. Securities lending transactions are used to generate income. Income and expenses associated with these transactions are reported as net investment income. Repurchase Agreements The Company routinely enters into repurchase agreements whereby the Company agrees to sell and repurchase securities. These agreements are accounted for as financing transactions, with the assets and associated liabilities included in the Condensed Consolidated Balance Sheets. Short-term borrowings under such agreements averaged $ 1,051 million and $ 271 million with weighted average interest rates of 4.71 % and 0.19 % for the six months ended June 30, 2023 and 2022, respectively. At June 30, 2023 and December 31, 2022, the outstanding repurchase agreement balance was $ 1,626 million and $ 1,012 million, respectively, collateralized with U.S. Treasury notes and corporate securities maturing within 30 days, and was included within repurchase agreements and securities lending payable in the Condensed Consolidated Balance Sheets. In the event of a decline in the fair value of the pledged collateral under these agreements, the Company may be required to transfer cash or additional securities as pledged collateral. Interest expense totaled $ 17 million and $ 25 million for the three and six months ended June 30, 2023, respectively, and nil for both the three and six months ended June 30, 2022, respectively. The highest level of short-term borrowings at any month end was $ 1,626 million and $ 584 million for the six months ended June 30, 2023 and 2022, respectively. 37 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments 5. Derivative Instruments The Company’s business model includes the acceptance, monitoring and mitigation of risk. Specifically, the Company considers, among other factors, exposures to interest rate and equity market movements, foreign exchange rates and other asset or liability prices. The Company uses derivative instruments to mitigate or reduce these risks in accordance with established policies and goals. The Company’s derivative holdings, while effective in managing defined risks, are not structured to meet accounting requirements to be designated as hedging instruments. As a result, freestanding derivatives are carried at fair value with changes recorded in net gains (losses) on derivatives and investments. A summary of the aggregate contractual or notional amounts and fair values of the Company’s freestanding and embedded derivative instruments are as follows (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 Contractual/ Assets Liabilities Net Notional Fair Fair Fair Value Amount (1) Value Value Asset (Liability) Freestanding derivatives Cross-currency swaps $ 1,854 $ 108 $ 143 $ ( 35 ) Equity index call options 12,000 486 — 486 Equity index futures (2) 14,377 — — — Equity index put options 41,500 283 — 283 Interest rate swaps 7,728 5 241 ( 236 ) Put-swaptions 19,500 — 1,362 ( 1,362 ) Interest rate futures (2) 37,339 — — — Total return swaps 1,460 — 40 ( 40 ) Total freestanding derivatives 135,758 882 1,786 ( 904 ) Embedded derivatives Fixed index annuity embedded derivatives (3) N/A — 970 ( 970 ) Registered index linked annuity embedded derivatives (3) N/A — 639 ( 639 ) Total embedded derivatives N/A — 1,609 ( 1,609 ) Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps 158 20 1 19 Cross-currency forwards 1,401 44 29 15 Funds withheld embedded derivative (4) N/A 2,901 — 2,901 Total derivatives related to funds withheld under reinsurance treaties 1,559 2,965 30 2,935 Total $ 137,317 $ 3,847 $ 3,425 $ 422 (1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions. (2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades. (3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. 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. 38 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments December 31, 2022 Contractual/ Assets Liabilities Net Notional Fair Fair Fair Value Amount (1) Value Value Asset (Liability) Freestanding derivatives Cross-currency swaps $ 1,825 $ 73 $ 104 $ ( 31 ) Equity index call options 17,500 106 — 106 Equity index futures (2) 19,760 — — — Equity index put options 30,500 958 — 958 Interest rate swaps 7,728 5 231 ( 226 ) Interest rate swaps - cleared (2) 1,500 — — — Put-swaptions 25,000 — 1,711 ( 1,711 ) Interest rate futures (2) 105,261 — — — Total return swaps 739 31 — 31 Total freestanding derivatives 209,813 1,173 2,046 ( 873 ) Embedded derivatives Fixed index annuity embedded derivatives (3) N/A — 931 ( 931 ) Registered index linked annuity embedded derivatives (3) N/A — 205 ( 205 ) Total embedded derivatives N/A — 1,136 ( 1,136 ) Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps 158 23 1 22 Cross-currency forwards 1,490 74 18 56 Funds withheld embedded derivative (4) N/A 3,158 — 3,158 Total derivatives related to funds withheld under reinsurance treaties 1,648 3,255 19 3,236 Total $ 211,461 $ 4,428 $ 3,201 $ 1,227 (1) The notional amount for swaps and swaptions represents the stated principal balance used as a basis for calculating payments. The contractual amount for futures and options represents the market exposure of open positions. (2) Variation margin is considered settlement resulting in the netting of cash received/paid for variation margin against the fair value of the trades. (3) Included within other contract holder funds on the Condensed Consolidated Balance Sheets. 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. 39 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments The following table reflects the results of the Company’s derivatives, including gains (losses) and change in fair value of freestanding derivative instruments and embedded derivatives (in millions, 2022 information recast for the adoption of LDTI): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Derivatives excluding funds withheld under reinsurance treaties Cross-currency swaps $ — $ ( 50 ) $ ( 26 ) $ ( 82 ) Equity index call options 256 ( 642 ) 92 ( 1,231 ) Equity index futures ( 822 ) 3,618 ( 2,707 ) 4,241 Equity index put options ( 645 ) 822 ( 1,407 ) 507 Interest rate swaps ( 118 ) ( 150 ) ( 52 ) ( 411 ) Interest rate swaps - cleared ( 26 ) ( 49 ) ( 10 ) ( 137 ) Put-swaptions ( 400 ) ( 686 ) 173 ( 1,154 ) Interest rate futures ( 95 ) ( 2 ) ( 401 ) ( 312 ) Total return swaps ( 102 ) 8 ( 163 ) 8 Fixed index annuity embedded derivatives ( 2 ) 4 ( 4 ) 5 Registered index linked annuity embedded derivatives ( 118 ) 60 ( 225 ) 63 Total net gains (losses) on derivative instruments excluding derivative instruments related to funds withheld under reinsurance treaties ( 2,072 ) 2,933 ( 4,730 ) 1,497 Derivatives related to funds withheld under reinsurance treaties Cross-currency swaps ( 3 ) 12 ( 2 ) 15 Cross-currency forwards ( 11 ) 51 ( 21 ) 69 Funds withheld embedded derivative 113 1,347 ( 257 ) 2,628 Total net gains (losses) on derivative instruments related to funds withheld under reinsurance treaties 99 1,410 ( 280 ) 2,712 Total net gains (losses) on derivative instruments including derivative instruments related to funds withheld under reinsurance treaties $ ( 1,973 ) $ 4,343 $ ( 5,010 ) $ 4,209 All the Company’s trade agreements for freestanding, over-the-counter derivatives, contain credit downgrade provisions that allow a party to assign or terminate derivative transactions if the counterparty’s credit rating declines below an established limit. At June 30, 2023 and December 31, 2022, the fair value of the Company’s net non-cleared, over-the-counter derivative assets by counterparty were $ 581 million and $ 885 million, respectively, and held collateral was $ 519 million and $ 858 million, respectively, related to these agreements. At June 30, 2023 and December 31, 2022, the fair value of the Company’s net non-cleared, over-the-counter derivative liabilities by counterparty were $ 1,451 million and $ 1,680 million, respectively, and provided collateral was $ 1,652 million and $ 1,650 million, respectively, related to these agreements. If all the downgrade provisions had been triggered at June 30, 2023 and December 31, 2022, in aggregate, the Company would have had to disburse nil and $ 30 million, respectively, and would have been allowed to claim $ 263 million and $ 27 million, respectively. Offsetting Assets and Liabilities The Company’s derivative instruments, repurchase agreements and securities lending agreements are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company recognizes amounts subject to master netting arrangements on a gross basis within the Condensed Consolidated Balance Sheets. 40 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 5. Derivative Instruments The following tables present the gross and net information about the Company’s financial instruments subject to master netting arrangements (in millions): June 30, 2023 Gross Amounts Recognized Gross Amounts Offset in the Condensed Consolidated Balance Sheets Net Amounts Presented in the Condensed Consolidated Balance Sheets Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Financial Instruments (1) Cash Collateral Securities Collateral (2) Net Amount Financial Assets: Freestanding derivative assets $ 946 $ — $ 946 $ 365 $ 477 $ 20 $ 84 Financial Liabilities: Freestanding derivative liabilities $ 1,816 $ — $ 1,816 $ 365 $ 1 $ 1,439 $ 11 Securities loaned 52 — 52 — 52 — — Repurchase agreements 1,626 — 1,626 — — 1,626 — Total financial liabilities $ 3,494 $ — $ 3,494 $ 365 $ 53 $ 3,065 $ 11 (1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets. (2) Excludes initial margin amounts for exchange-traded derivatives. December 31, 2022 Gross Amounts Recognized Gross Amounts Offset in the Condensed Consolidated Balance Sheets Net Amounts Presented in the Condensed Consolidated Balance Sheets Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Financial Instruments (1) Cash Collateral Securities Collateral (2) Net Amount Financial Assets: Freestanding derivative assets $ 1,270 $ — $ 1,270 $ 385 $ 683 $ 157 $ 45 Financial Liabilities: Freestanding derivative liabilities $ 2,065 $ — $ 2,065 $ 385 $ — $ 1,638 $ 42 Securities loaned 36 — 36 — 36 — — Repurchase agreements 1,012 — 1,012 — — 1,012 — Total financial liabilities $ 3,113 $ — $ 3,113 $ 385 $ 36 $ 2,650 $ 42 (1) Represents the amount that could be offset under master netting or similar arrangements that management elects not to offset on the Condensed Consolidated Balance Sheets. (2) Excludes initial margin amounts for exchange-traded derivatives. In the above tables, the amounts of assets or liabilities presented in the Company’s Condensed Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables. The above tables exclude net embedded derivative liabilities of $ 1,609 million and $ 1,136 million as of June 30, 2023 and December 31, 2022, respectively, as these derivatives are not subject to master netting arrangements. The above tables also exclude the funds withheld embedded derivative asset (liability) of $ 2,901 million and $ 3,158 million at June 30, 2023 and December 31, 2022. 41 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements 6. Fair Value Measurements The following table summarizes the fair value and carrying value of the Company’s financial instruments (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value Assets Debt securities (1) $ 44,374 $ 44,374 $ 44,762 $ 44,762 Equity securities 267 267 393 393 Mortgage loans (1) 10,812 10,150 11,549 10,841 Limited partnerships 3,123 3,123 3,212 3,212 Policy loans (1) 4,381 4,381 4,377 4,377 Freestanding derivative instruments 946 946 1,270 1,270 FHLBI capital stock 146 146 146 146 Cash and cash equivalents 2,100 2,100 4,298 4,298 Reinsurance recoverable on market risk benefits 194 194 221 221 Market risk benefit assets 5,957 5,957 4,865 4,865 Separate account assets 212,719 212,719 195,906 195,906 Liabilities Annuity reserves (2) 35,886 30,780 37,357 32,377 Market risk benefit liabilities 4,463 4,463 5,662 5,662 Reserves for guaranteed investment contracts (3) 865 819 1,128 1,099 Trust instruments supported by funding agreements (3) 5,917 5,607 5,887 5,760 FHLB funding agreements (3) 2,105 1,914 2,004 2,104 Funds withheld payable under reinsurance treaties (1) 21,170 21,170 22,957 22,957 Long-term debt 2,633 2,356 2,635 2,344 Securities lending payable 52 52 36 36 Freestanding derivative instruments 1,816 1,816 2,065 2,065 Notes issued by consolidated VIEs 1,996 1,996 1,732 1,732 Repurchase agreements 1,626 1,626 1,012 1,012 Separate account liabilities 212,719 212,719 195,906 195,906 (1) Includes items carried at fair value under the fair value option and trading securities included as a component of debt securities. (2) Annuity reserves represent only the components of other contract holder funds and reserves for future policy benefits and claims payable that are considered to be financial instruments. (3) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets. The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on a recurring basis reported in the following tables. Debt and Equity Securities The fair values for debt and equity securities are determined using information available from independent pricing services, broker-dealer quotes, or internally derived estimates. Priority is given to publicly available prices from independent sources, when available. Securities for which the independent pricing service does not provide a quotation are either submitted to independent broker-dealers for prices or priced internally. Typical inputs used by these three pricing methods include reported trades, benchmark yields, credit spreads, liquidity premiums and/or estimated cash flows based on default and prepayment assumptions. As a result of typical trading volumes and the lack of specific quoted market prices for most debt securities, independent pricing services will normally derive the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable information as outlined above. If 42 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements there are no recently reported trades, the independent pricing services and broker-dealers may use matrix or pricing model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at relevant market rates. Certain securities are priced using broker-dealer quotes, which may utilize proprietary inputs and models. Additionally, the majority of these quotes are non-binding. Included in the pricing of asset-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment assumptions believed to be relevant for the underlying collateral. Actual prepayment experience may vary from these estimates. Internally derived estimates may be used to develop a fair value for securities for which the Company is unable to obtain either a reliable price from an independent pricing service or a suitable broker-dealer quote. These fair value estimates may incorporate Level 2 and Level 3 inputs, as defined below, and are generally derived using expected future cash flows, discounted at market interest rates available from market sources based on the credit quality and duration of the instrument. For securities that may not be reliably priced using these internally developed pricing models, a fair value may be estimated using indicative market prices. These prices are indicative of an exit price, but the assumptions used to establish the fair value may not be observable or corroborated by market observable information and, therefore, represent Level 3 inputs. The Company performs an analysis on the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include initial and ongoing review of third-party pricing service methodologies, review of pricing statistics and trends, back testing recent trades and monitoring of trading volumes. In addition, the Company considers whether prices received from independent broker-dealers represent a reasonable estimate of fair value using internal and external cash flow models, which are developed based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party may be adjusted accordingly. For those securities that were internally valued at June 30, 2023 and December 31, 2022, the pricing model used by the Company utilizes current spread levels of similarly rated securities to determine the market discount rate for the security. Furthermore, appropriate risk premiums for illiquidity and non-performance are incorporated in the discount rate. Cash flows, as estimated by the Company using issuer-specific default statistics and prepayment assumptions, are discounted to determine an estimated fair value. On an ongoing basis, the Company reviews the independent pricing services’ valuation methodologies and related inputs and evaluates the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy distribution based upon trading activity and the observability of market inputs. Based on the results of this evaluation, each price is classified into Level 1, 2, or 3. Most prices provided by independent pricing services, including broker-dealer quotes, are classified into Level 2 due to their use of market observable inputs. Limited Partnerships Fair values for limited partnership interests, which are included in other invested assets, is generally determined using the proportion of the Company’s investment in the value of the net assets of each fund (“NAV equivalent”) as a practical expedient for fair value, and generally, are recorded on a three-month lag. No adjustments to these amounts were deemed necessary at June 30, 2023 and December 31, 2022. As a result of using the net asset value per share practical expedient, limited partnership interests are not classified in the fair value hierarchy. The Company’s limited partnership interests are not redeemable, and distributions received are generally the result of liquidation of the underlying assets of the partnerships. The Company generally has the ability under the partnership agreements to sell its interest to another limited partner with the prior written consent of the general partner. In cases when the Company expects to sell the limited partnership interest, the estimated sales price is used to determine the fair value rather than the practical expedient. These limited partnership interests are classified as Level 2 in the fair value hierarchy. 43 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements In cases when a limited partnership’s financial statements are unavailable and a NAV equivalent is not available or practical, the fair value may be based on an internally developed model or provided by the general partner as determined using private transactions, information obtained from the primary co-investor or underlying company, or financial metrics provided by the lead sponsor. These investments are classified as Level 3 in the fair value hierarchy. Policy Loans Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits, which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The reinsurance related component of policy loans at fair value under the fair value option have been classified as Level 3 within the fair value hierarchy. Freestanding Derivative Instruments Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, that the Company would receive or pay upon sale or termination of the contracts at the reporting date. Changes in fair value are included in net gains (losses) on derivatives and investments. Freestanding derivatives priced using third-party pricing services incorporate inputs that are predominantly observable in the market. Inputs used to value derivatives include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels. Freestanding derivative instruments classified as Level 1 include futures, which are traded on active exchanges. Freestanding derivative instruments classified as Level 2 include interest rate swaps, cross currency swaps, cross-currency forwards, credit default swaps, total return swaps, put-swaptions and certain equity index call and put options. These derivative valuations are determined by third-party pricing services using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Freestanding derivative instruments classified as Level 3 include interest rate contingent options that are valued by third-party pricing services utilizing significant unobservable inputs. Cash and Cash Equivalents Cash and cash equivalents primarily include money market instruments and bank deposits. Cash equivalents also includes all highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase. Certain money market instruments are valued using unadjusted quoted prices in active markets and are classified as Level 1. Funds Withheld Payable Under Reinsurance Treaties The funds withheld payable under reinsurance treaties includes both the funds withheld payable that are held at fair value under the fair value option and the funds withheld embedded derivative. The fair value of the funds withheld payable that are held at fair value under the fair value option is equal to the fair value of the assets held as collateral, which primarily consists of policy loans using industry standard valuation techniques. The funds withheld embedded derivative is determined based upon a total return swap technique referencing the fair value of the investments held under the reinsurance contract and requires certain significant unobservable inputs. The funds withheld payable that are held at fair value under the fair value option and the funds withheld embedded derivative are both considered Level 3 in the fair value hierarchy. 44 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Separate Account Assets Separate account assets are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and are categorized as Level 2 assets. Market Risk Benefits Variable Annuities Variable annuity contracts issued by the Company may include various guaranteed minimum death, withdrawal, income and accumulation benefits, which are classified as MRBs and measured at fair value. The Company discontinued offering guaranteed minimum interest benefits (“GMIB”) in 2009 and guaranteed minimum accumulation benefits (“GMAB”) in 2011. Our MRB assets and MRB liabilities are reported separately on our Condensed Consolidated Balance Sheets. Increases to an asset or decreases to a liability are described as favorable changes to fair value. Changes in fair value are reported in Market risk benefits (gains) losses, net on the Condensed Consolidated Income Statements. However, the change in fair value related to our own non-performance risk is recognized as a component of other comprehensive income ("OCI") and is reported in Change in non-performance on market risk benefits, net of tax expense (benefit) on the Condensed Consolidated Statements of Comprehensive Income (Loss). 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's account value 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. The percentage of guaranteed benefit fees and the percentage of mortality and expense charges may not exceed 100% of the total projected fees as of contract inception. 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. The Company has ceded the guaranteed minimum income benefit (“GMIB”) features elected on certain annuity contracts to an unrelated party. The GMIBs ceded under this reinsurance treaty are classified as a MRB in their entirety. The reinsurance contract is measured at fair value and reported in Reinsurance recoverable on market risk benefits. Changes in fair value are recorded in Market risk benefits (gains) losses, net. Due to the inability to economically reinsure or hedge new issues of the GMIB, the Company discontinued offering the benefit in 2009. Fair values for MRBs related to variable annuities, including the contract reinsuring GMIB features, are calculated using internally developed models because active, observable markets do not exist for those guaranteed benefits. The fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed rider fees, over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behavior. Capital market inputs include expected market rates of return, market volatility, correlations of market index returns to fund returns, and discount rates, which includes an adjustment for non-performance risk. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable. 45 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements At each valuation date, the fair value calculation reflects expected returns based on constant maturity treasury rates as of that date to determine the value of expected future cash flows produced in a stochastic process. Volatility assumptions are based on a weighting of available market data for implied market volatility for durations up to 10 years, grading to a historical volatility level by year 15, where such long-term historical volatility levels contain an explicit risk margin. Non-performance risk is incorporated into the calculation through the adjustment of the risk-free rate curve based on credit spreads for debt and debt-like instruments issued by the Company or its insurance operating subsidiaries, adjusted, as necessary, to reflect the financial strength ratings of the issuing insurance subsidiaries. Risk margins are also incorporated into the model assumptions, particularly for policyholder behavior. Estimates of future policyholder behavior are subjective and are based primarily on the Company’s experience. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for the fair value model. The use of the models and assumptions described above requires a significant amount of judgment. Management believes this results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to or from a willing buyer or seller, if one existed, for those market participants to assume the risks associated with the guaranteed benefits and the related reinsurance. However, the ultimate settlement amount of the asset or liability, which is currently unknown, could likely be significantly different than this fair value. Fixed Index Annuities The longevity riders issued on fixed index annuities are classified as MRBs and measured at fair value. Similar to the variable annuity guaranteed benefit 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 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. See Note 12 of the Notes to Condensed Consolidated Financial Statements for more information regarding MRBs. Fixed Index Annuities The fair value of the index-linked crediting derivative feature embedded in fixed index annuities, included in Annuity Reserves in the above tables, is calculated using the closed form Black-Scholes Option Pricing model or Monte Carlo simulations, as appropriate for the type of option, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders. RILA The fair value of the index-linked crediting derivative feature embedded in RILAs, included in Annuity Reserves in the above table, is calculated using the closed form Black-Scholes Option Pricing model, incorporating such factors as the volatility of returns, the level of interest rates and the time remaining until the option expires. Additionally, assumed withdrawal rates are used to estimate the expected volume of embedded options that will be realized by policyholders. 46 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Notes Issued by Consolidated VIEs These notes, at fair value under the fair value option, are based on the fair values of corresponding fixed maturity collateral. The CLO liabilities are also reduced by the fair value of the beneficial interest the Company retains in the CLO and the carrying value of any beneficial interests that represent compensation for services. As the notes are valued based on the reference collateral, they are classified as Level 2. Fair Value Option The Company elected the fair value option for debt securities related to certain consolidated investments totaling $ 2,049 million and $ 2,014 million at June 30, 2023 and December 31, 2022, respectively. These debt securities are reflected on the Company’s Condensed Consolidated Balance Sheets as debt securities, at fair value under the fair value option. The Company has elected the fair value option for certain funds withheld assets, which are held as collateral for reinsurance, totaling $ 4,108 million and $ 4,160 million at June 30, 2023 and December 31, 2022, respectively, as discussed above, and includes mortgage loans as discussed below. The Company elected the fair value option for certain mortgage loans held under the funds withheld reinsurance agreement with Athene. The fair value option was elected for these mortgage loans, purchased or funded after December 31, 2021, to mitigate inconsistency in earnings that would otherwise result between these mortgage loan assets and the funds withheld liability, including the associated embedded derivative, and are valued using third-party pricing services. Changes in fair value are reflected in net investment income on the Condensed Consolidated Income Statements. The fair value and aggregate contractual principal for mortgage loans where the fair value option was elected after December 31, 2021, were as follows (in millions): June 30, December 31, 2023 2022 Fair value $ 509 $ 582 Aggregate contractual principal 519 591 As of June 30, 2023, no loans in good standing for which the fair value option was elected were in non-accrual status, and no loans were more than 90 days past due and still accruing interest. The Company elected the fair value option for notes issued by consolidated VIEs totaling $ 1,996 million and $ 1,732 million at June 30, 2023 and December 31, 2022, respectively. Income and changes in unrealized gains and losses on other assets for which the Company has elected the fair value option are immaterial to the Company’s Condensed Consolidated Financial Statements. 47 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables summarize the Company’s assets and liabilities that are carried at fair value by hierarchy levels (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 Total Level 1 Level 2 Level 3 Assets Debt securities U.S. government securities $ 4,669 $ 4,669 $ — $ — Other government securities 1,462 — 1,462 — Public utilities 5,331 — 5,331 — Corporate securities 26,097 — 26,076 21 Residential mortgage-backed 410 — 410 — Commercial mortgage-backed 1,491 — 1,491 — Other asset-backed securities 4,914 — 4,914 — Equity securities 267 6 175 86 Mortgage loans 509 — — 509 Limited partnerships (1) 545 — 123 422 Policy loans 3,438 — — 3,438 Freestanding derivative instruments 946 — 946 — Cash and cash equivalents 2,100 2,100 — — Reinsurance recoverable on market risk benefits 194 — — 194 Market risk benefit assets 5,957 — — 5,957 Separate account assets 212,719 — 212,719 — Total $ 271,049 $ 6,775 $ 253,647 $ 10,627 Liabilities Embedded derivative liabilities (2) $ 1,609 $ — $ 1,609 $ — Funds withheld payable under reinsurance treaties (3) 701 — — 701 Freestanding derivative instruments 1,816 — 1,816 — Notes issued by consolidated VIEs 1,996 — 1,996 — Market risk benefit liabilities 4,463 — — 4,463 Total $ 10,585 $ — $ 5,421 $ 5,164 (1) Excludes $ 2,578 million of limited partnership investments measured at NAV. (2) Includes the embedded derivative liabilities of $ 639 million related to RILA and $ 970 million liability of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets. (3) Includes the Athene embedded derivative asset of $ 2,901 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. 48 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements December 31, 2022 Total Level 1 Level 2 Level 3 Assets Debt securities U.S. government securities $ 5,185 $ 5,184 $ 1 $ — Other government securities 1,467 — 1,467 — Public utilities 5,225 — 5,225 — Corporate securities 25,146 — 25,090 56 Residential mortgage-backed 464 — 464 — Commercial mortgage-backed 1,638 — 1,638 — Other asset-backed securities 5,637 — 5,637 — Equity securities 393 165 106 122 Mortgage loans 582 — — 582 Limited partnerships (1) 440 — — 440 Policy loans 3,419 — — 3,419 Freestanding derivative instruments 1,270 — 1,270 — Cash and cash equivalents 4,298 4,298 — — Reinsurance recoverable on market risk benefits 221 — — 221 Market risk benefit assets 4,865 — — 4,865 Separate account assets 195,906 — 195,906 — Total $ 256,156 $ 9,647 $ 236,804 $ 9,705 Liabilities Embedded derivative liabilities (2) $ 1,135 $ — $ 1,135 $ — Funds withheld payable under reinsurance treaties (3) 424 — — 424 Freestanding derivative instruments 2,065 — 2,065 — Notes issued by consolidated VIEs 1,732 — 1,732 — Market risk benefit liabilities 5,662 — — 5,662 Total $ 11,018 $ — $ 4,932 $ 6,086 (1) Excludes $ 2,772 million of limited partnership investments measured at NAV. (2) Includes the embedded derivative liabilities of $ 205 million related to RILA and $ 931 million of fixed index annuities, both included in other contract holder funds on the Condensed Consolidated Balance Sheets. (3) Includes the Athene embedded derivative asset of $ 3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. 49 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) Level 3 Assets and Liabilities by Price Source The table below presents the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 Assets Total Internal External Debt securities: Corporate $ 21 $ — $ 21 Equity securities 86 — 86 Mortgage loans 509 — 509 Limited partnerships 422 1 421 Policy loans 3,438 3,438 — Reinsurance recoverable on market risk benefits 194 194 — Market risk benefit assets 5,957 5,957 — Total $ 10,627 $ 9,590 $ 1,037 Liabilities Funds withheld payable under reinsurance treaties (1) 701 701 — Market risk benefit liabilities 4,463 4,463 — Total $ 5,164 $ 5,164 $ — (1) Includes the Athene embedded derivative asset of $ 2,901 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. December 31, 2022 Assets Total Internal External Debt securities: Corporate $ 56 $ — $ 56 Equity securities 122 1 121 Mortgage loans 582 — 582 Limited partnerships 440 8 432 Policy loans 3,419 3,419 — Reinsurance recoverable on market risk benefits 221 221 — Market risk benefit assets 4,865 4,865 — Total $ 9,705 $ 8,514 $ 1,191 Liabilities Funds withheld payable under reinsurance treaties (1) 424 424 — Market risk benefit liabilities 5,662 5,662 — Total $ 6,086 $ 6,086 $ — (1) Includes the Athene embedded derivative asset of $ 3,158 million and funds withheld payable under reinsurance treaties at fair value under the fair value option. External pricing sources for securities represent unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available. 50 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Quantitative Information Regarding Internally-Priced Level 3 Assets and Liabilities The table below presents quantitative information on internally-priced Level 3 assets and liabilities that use significant unobservable inputs (in millions, 2022 information recast for the adoption of LDTI): As of June 30, 2023 Fair Value Valuation Technique(s) Significant Unobservable Input(s) Assumption or Input Range Impact of Increase in Input on Fair Value Assets Reinsurance recoverable on market risk benefits $ 194 Discounted cash flow Mortality (1) 0.01 % - 23.33 % Decrease Lapse (2) 2.97 % - 8.10 % Decrease Utilization (3) 0.00 % - 20.00 % Increase Withdrawal (4) 47.50 % - 52.50 % Increase Non-performance risk (5) 0.50 % - 1.87 % Decrease Long-term Equity Volatility (6) 18.50 % Increase Market risk benefit assets $ 5,957 Discounted cash flow Mortality (1) 0.01 % - 23.33 % Decrease Lapse (2) 0.05 % - 41.28 % Decrease Utilization (3) 0.00 % - 100.00 % Increase Withdrawal (4) 11.25 % - 100.00 % Increase Non-performance risk (5) 1.63 % - 2.46 % Decrease Long-term Equity Volatility (6) 18.50 % Increase Liabilities Market risk benefit liabilities $ 4,463 Discounted cash flow Mortality (1) 0.01 % - 23.33 % Decrease Lapse (2) 0.05 % - 41.28 % Decrease Utilization (3) 0.00 % - 100.00 % Increase Withdrawal (4) 11.25 % - 100.00 % Increase Non-performance risk (5) 1.63 % - 2.46 % Decrease Long-term Equity Volatility (6) 18.50 % Increase (1) Mortality rates vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. (2) Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized. (3) The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money. (4) The withdrawal rate represents the 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. (5) Non-performance risk adjustment 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. (6) Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available. 51 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements As of December 31, 2022 Fair Value Valuation Technique(s) Significant Unobservable Input(s) Assumption or Input Range Impact of Increase in Input on Fair Value Assets Reinsurance recoverable on market risk benefits $ 221 Discounted cash flow Mortality (1) 0.01 % - 23.33 % Decrease Lapse (2) 2.97 % - 8.10 % Decrease Utilization (3) 0.00 % - 20.00 % Increase Withdrawal (4) 47.50 % - 52.50 % Increase Non-performance risk (5) 0.64 % - 2.27 % Decrease Long-term Equity Volatility (6) 18.50 % - 23.68 % Increase Market risk benefit assets $ 4,865 Discounted cash flow Mortality (1) 0.01 % - 23.33 % Decrease Lapse (2) 0.05 % - 41.28 % Decrease Utilization (3) 0.00 % - 100.00 % Increase Withdrawal (4) 11.25 % - 100.00 % Increase Non-performance risk (5) 0.64 % - 2.27 % Decrease Long-term Equity Volatility (6) 18.50 % - 23.68 % Increase Liabilities Market risk benefit liabilities $ 5,662 Discounted cash flow Mortality (1) 0.01 % - 23.33 % Decrease Lapse (2) 0.05 % - 41.28 % Decrease Utilization (3) 0.00 % - 100.00 % Increase Withdrawal (4) 11.25 % - 100.00 % Increase Non-performance risk (5) 0.64 % - 2.27 % Decrease Long-term Equity Volatility (6) 18.50 % - 23.68 % Increase (1) Mortality rates vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range displayed reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. (2) Base lapse rates vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized. (3) The utilization rate represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money. (4) The withdrawal rate represents the 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. (5) Non-performance risk adjustment 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. (6) Long-term equity volatility represents the equity volatility beyond the period for which observable equity volatilities are available. 52 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Sensitivity to Changes in Unobservable Inputs The following is a general description of sensitivities of significant unobservable inputs and their impact on the fair value measurement for the assets and liabilities reflected in the tables above. At June 30, 2023 and December 31, 2022, securities of $ 1 million and $ 9 million are fair valued using techniques incorporating unobservable inputs and are classified in Level 3 of the fair value hierarchy, respectively. For these assets, their unobservable inputs and ranges of possible inputs do not materially affect their fair valuations and have been excluded from the quantitative information in the tables above. Policy loans that support funds withheld reinsurance agreements that are held at fair value under the fair value option on the Company’s Condensed Consolidated Balance Sheets are excluded from the tables above. These policy loans do not have a stated maturity and the balances, plus accrued investment income, are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans, which includes accrued investment income, approximates fair value and is classified as Level 3 within the fair value hierarchy. The fair value of funds withheld payable under the Reassure America Life Insurance Company ("REALIC") reinsurance treaties, is determined based upon the fair value of the funds withheld investments held by the Company and is excluded from the tables above. The funds withheld payable under the Athene reinsurance treaty includes the Athene embedded derivative which is measured at fair value. The valuation of the embedded derivative utilizes a total return swap technique that incorporates the fair value of the invested assets supporting the reinsurance agreement as a component of the valuation. As a result, these valuations for the funds withheld payable under the REALIC reinsurance treaties and the Athene embedded derivative require certain significant inputs that are generally not observable and, accordingly, the valuation is considered Level 3 in the fair value hierarchy. The GMIB reinsurance recoverable fair value calculation is based on the present value of future cash flows comprised of future expected reinsurance benefit receipts, less future attributed premium payments to reinsurers, over the lives of the contracts. Estimating these cash flows requires actuarially determined assumptions related to expectations concerning policyholder behavior and long-term market volatility. The more significant policyholder behavior actuarial assumptions include benefit utilization, fund allocation, lapse, and mortality. The MRB asset and liability fair value calculation is based on the present value of future cash flows comprised of future expected benefit payments, less future attributed fees (if applicable), over the lives of the contracts. Estimating these cash flows requires numerous estimates and subjective judgments related to capital market inputs, as well as actuarially determined assumptions related to expectations concerning policyholder behavior. The more significant actuarial assumptions include benefit utilization by policyholders, lapse, mortality, and withdrawal rates. Best estimate assumptions plus risk margins are used as applicable. 53 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements The tables below, 2022 information recast for the adoption of LDTI, provide roll-forwards for the three and six months ended June 30, 2023 and 2022 of the financial instruments for which significant unobservable inputs (Level 3) are used in the fair value measurement. Gains and losses in the tables below include changes in fair value due partly to observable and unobservable factors. The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments hedging the related risks may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the impact of the derivative instruments reported in Level 3 may vary significantly from the total income effect of the hedged instruments. Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Net Other Issuances in and/or as of April 1, Income Comprehensive and (out of) June 30, Three Months Ended June 30, 2023 2023 (Loss) Income (Loss) Settlements Level 3 2023 Assets Debt securities Corporate securities $ 26 $ ( 9 ) $ 1 $ ( 1 ) $ 4 $ 21 Equity securities 111 ( 25 ) — 1 ( 1 ) 86 Mortgage loans 480 — — 29 — 509 Limited partnerships 448 ( 26 ) — — — 422 Reinsurance recoverable on market risk benefits 238 ( 44 ) — — — 194 Market risk benefit assets 5,204 753 — — — 5,957 Policy loans 3,427 78 — ( 67 ) — 3,438 Liabilities Funds withheld payable under reinsurance treaties ( 803 ) 37 — 65 — ( 701 ) Market risk benefit liabilities ( 5,560 ) 1,861 ( 764 ) — — ( 4,463 ) Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Net Other Issuances in and/or as of April 1, Income Comprehensive and (out of) June 30, Three Months Ended June 30, 2022 2022 (Loss) Income (Loss) Settlements Level 3 2022 Assets Debt securities Corporate securities $ 14 $ 5 $ — $ 1 $ 27 $ 47 Equity securities 115 13 — ( 4 ) — 124 Mortgage loans 190 ( 5 ) — 172 — 357 Limited partnerships 396 — — — — 396 Reinsurance recoverable on market risk benefits 326 ( 20 ) — — — 306 Market risk benefit assets 2,433 ( 104 ) — — — 2,329 Policy loans 3,472 76 — ( 63 ) — 3,485 Liabilities Funds withheld payable under reinsurance treaties ( 2,479 ) 1,272 — 66 — ( 1,141 ) Market risk benefit liabilities ( 5,902 ) ( 1,060 ) 1,017 — — ( 5,945 ) 54 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Net Other Issuances in and/or as of January 1, Income Comprehensive and (out of) June 30, Six Months Ended June 30, 2023 2023 (Loss) Income (Loss) Settlements Level 3 2023 Assets Debt securities Corporate securities $ 56 $ ( 9 ) $ — $ ( 4 ) $ ( 22 ) $ 21 Equity securities 122 ( 35 ) — — ( 1 ) 86 Mortgage loans 582 ( 2 ) — ( 71 ) — 509 Limited partnerships 440 ( 22 ) — 11 ( 7 ) 422 Reinsurance recoverable on market risk benefits 221 ( 27 ) — — — 194 Market risk benefit assets 4,865 1,092 — — — 5,957 Policy loans 3,419 107 — ( 88 ) — 3,438 Liabilities Funds withheld payable under reinsurance treaties ( 424 ) ( 362 ) — 85 — ( 701 ) Market risk benefit liabilities ( 5,662 ) 1,679 ( 480 ) — — ( 4,463 ) Total Realized/Unrealized Gains (Losses) Included in Purchases, Fair Value Sales, Transfers Fair Value as of Net Other Issuances in and/or as of January 1, Income Comprehensive and (out of) June 30, Six Months Ended June 30, 2022 2022 (Loss) Income (Loss) Settlements Level 3 2022 Assets Debt securities Corporate securities $ 9 $ 5 $ — $ 3 $ 30 $ 47 Equity securities 112 16 — ( 4 ) — 124 Mortgage loans — ( 3 ) — 360 — 357 Limited partnerships 396 — — — — 396 Reinsurance recoverable on market risk benefits 383 ( 77 ) — — — 306 Market risk benefit assets 1,664 665 — — — 2,329 Policy loans 3,467 136 — ( 118 ) — 3,485 Liabilities Funds withheld payable under reinsurance treaties ( 3,759 ) 2,492 — 126 — ( 1,141 ) Market risk benefit liabilities ( 8,033 ) 135 1,953 — — ( 5,945 ) 55 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements The components of the amounts included in purchases, sales, issuances and settlements for the three and six months ended June 30, 2023 and 2022 shown above are as follows (in millions): Three Months Ended June 30, 2023 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ ( 1 ) $ — $ — $ — $ ( 1 ) Equity securities — 1 — — 1 Mortgage loans 99 ( 70 ) — — 29 Limited partnerships — — — — — Policy loans — — — ( 67 ) ( 67 ) Total $ 98 $ ( 69 ) $ — $ ( 67 ) $ ( 38 ) Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 1 ) $ 66 $ 65 Three Months Ended June 30, 2022 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ 1 $ — $ — $ — $ 1 Equity securities — ( 4 ) — — ( 4 ) Mortgage loans 172 — — — 172 Policy loans — — 1 ( 64 ) ( 63 ) Total $ 173 $ ( 4 ) $ 1 $ ( 64 ) $ 106 Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 1 ) $ 67 $ 66 Six Months Ended June 30, 2023 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ — $ ( 4 ) $ — $ — $ ( 4 ) Equity securities — — — — — Mortgage loans 135 ( 206 ) — — ( 71 ) Limited partnerships 18 ( 7 ) — — 11 Policy loans — — 35 ( 123 ) ( 88 ) Total $ 153 $ ( 217 ) $ 35 $ ( 123 ) $ ( 152 ) Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 36 ) $ 121 $ 85 Six Months Ended June 30, 2022 Purchases Sales Issuances Settlements Total Assets Debt securities Corporate securities $ 3 $ — $ — $ — $ 3 Equity securities — ( 4 ) — — ( 4 ) Mortgage loans 360 — — — 360 Policy loans — — 31 ( 149 ) ( 118 ) Total $ 363 $ ( 4 ) $ 31 $ ( 149 ) $ 241 Liabilities Funds withheld payable under reinsurance treaties $ — $ — $ ( 32 ) $ 158 $ 126 56 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements For the three and six months ended June 30, 2023, transfers from Level 3 to Level 2 of the fair value hierarchy were $( 6 ) million and $ 31 million, respectively, transfers from Level 2 to Level 3 were $( 3 ) million and $ 8 million, respectively, and transfers from Level 3 to NAV were nil and $ 7 million, respectively. For the three and six months ended June 30, 2022, transfers from Level 3 to Level 2 of the fair value hierarchy were $ 1 million and $ 5 million, respectively, and transfers from Level 2 to Level 3 were $ 28 million and $ 35 million, respectively, and no transfers from Level 3 to NAV. The portion of gains (losses) included in net income (loss) or OCI attributable to the change in unrealized gains and losses on Level 3 financial instruments still held was as follows (in millions, 2022 information recast for the adoption of LDTI): Three Months Ended June 30, 2023 2022 Included in Net Income Included in OCI Included in Net Income Included in OCI Assets Debt securities Corporate securities $ ( 9 ) $ 1 $ 5 $ — Equity securities ( 25 ) — 13 — Mortgage loans — — ( 5 ) — Limited partnerships ( 32 ) — — — Reinsurance recoverable on market risk benefits ( 44 ) — ( 20 ) — Market risk benefit assets 753 — ( 104 ) — Policy loans 78 — 76 — Liabilities Funds withheld payable under reinsurance treaties 37 — 1,272 — Market risk benefit liabilities 1,861 ( 764 ) ( 1,060 ) 1,017 Six Months Ended June 30, 2023 2022 Included in Net Income Included in OCI Included in Net Income Included in OCI Assets Debt securities Corporate securities $ ( 9 ) $ — $ 5 $ — Equity securities ( 35 ) — 16 — Mortgage loans ( 2 ) — ( 3 ) — Limited partnerships ( 22 ) — — — Reinsurance recoverable on market risk benefits ( 27 ) — ( 77 ) — Market risk benefit assets 1,092 — 665 — Policy loans 107 — 136 — Liabilities Funds withheld payable under reinsurance treaties ( 362 ) — 2,492 — Market risk benefit liabilities 1,679 ( 480 ) 135 1,953 57 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Fair Value of Financial Instruments Carried at Other Than Fair Value The following is a discussion of the methodologies used to determine fair values of the financial instruments measured on a nonrecurring basis reported in the following table. Mortgage Loans Fair values are generally determined by discounting expected future cash flows at current market interest rates, inclusive of a credit spread, for similar quality loans. For loans whose value is dependent on the underlying property, fair value is the estimated value of the collateral. Certain characteristics considered significant in determining the spread or collateral value may be based on internally developed estimates. As a result, these investments have been classified as Level 3 within the fair value hierarchy. Mortgage loans held under the funds withheld reinsurance agreement are valued using third-party pricing services, which may use economic inputs, geographical information, and property specific assumptions in deriving the fair value price. The Company reviews the valuations from these pricing providers to ensure they are reasonable. Due to lack of observable inputs, these investments have been classified as Level 3 within the fair value hierarchy. Policy Loans Policy loans are funds provided to policyholders in return for a claim on the policies values and function like demand deposits which are redeemable upon repayment, death or surrender, and there is only one market price at which the transaction could be settled – the then current carrying value. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The non-reinsurance related component of policy loans has been classified as Level 3 within the fair value hierarchy. FHLBI Capital Stock FHLBI capital stock, which is included in other invested assets, can only be sold to FHLBI at a constant price of $ 100 per share. Due to the lack of valuation uncertainty, the investment has been classified as Level 1. Other Contract Holder Funds Fair values for immediate annuities without mortality features are derived by discounting the future estimated cash flows using current market interest rates for similar maturities. Fair values for deferred annuities, including the fixed option on variable annuities, fixed annuities, fixed index annuities and RILAs, are determined using projected future cash flows discounted at current market interest rates. Fair values for guaranteed investment contracts, trust instruments supported by funding agreements and FHLB funding agreements are based on the present value of future cash flows discounted at current market interest rates. Funds Withheld Payable Under Reinsurance Treaties The fair value of the funds withheld payable is equal to the fair value of the assets held as collateral, which primarily consists of bonds, mortgages, limited partnerships, and cash and cash equivalents. The fair value of the assets generally uses industry standard valuation techniques as described above and the funds withheld payable components are valued consistent with the assets in the fair value hierarchy. 58 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements Debt Fair values for the Company’s surplus notes and long-term debt are generally determined by prices obtained from independent broker dealers or discounted cash flow models. Such prices are derived from market observable inputs and are classified as Level 2. Securities Lending Payable The Company’s securities lending payable is set equal to the cash collateral received. Due to the short-term nature of the loans, carrying value is a reasonable estimate of fair value and is classified as Level 2. FHLB Advances Carrying value of the Company’s FHLB advances, which are included in other liabilities, is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2. Repurchase Agreements Carrying value of the Company’s repurchase agreements is considered a reasonable estimate of fair value due to their short-term maturities and are classified as Level 2. Separate Account Liabilities The values of separate account liabilities are set equal to the values of separate account assets, which are comprised of investments in mutual funds that transact regularly, but do not trade in active markets as they are not publicly available, and, are categorized as Level 2. 59 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 6. Fair Value Measurements The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value (in millions): June 30, 2023 Fair Value Carrying Value Total Level 1 Level 2 Level 3 Assets Mortgage loans $ 10,303 $ 9,641 $ — $ — $ 9,641 Policy loans 943 943 — — 943 FHLBI capital stock 146 146 146 — — Liabilities Annuity reserves (1) $ 34,277 $ 29,171 $ — $ — $ 29,171 Reserves for guaranteed investment contracts (2) 865 819 — — 819 Trust instruments supported by funding agreements (2) 5,917 5,607 — — 5,607 FHLB funding agreements (2) 2,105 1,914 — — 1,914 Funds withheld payable under reinsurance treaties 20,469 20,469 — — 20,469 Debt 2,633 2,356 — 2,356 — Securities lending payable 52 52 — 52 — Repurchase agreements 1,626 1,626 — 1,626 — Separate account liabilities (3) 212,719 212,719 — 212,719 — December 31, 2022 Fair Value Carrying Value Total Level 1 Level 2 Level 3 Assets Mortgage loans $ 10,967 $ 10,259 $ — $ — $ 10,259 Policy loans 958 958 — — 958 FHLBI capital stock 146 146 146 — — Liabilities Annuity reserves (1) $ 36,222 $ 31,242 $ — $ — $ 31,242 Reserves for guaranteed investment contracts (2) 1,128 1,099 — — 1,099 Trust instruments supported by funding agreements (2) 5,887 5,760 — — 5,760 FHLB funding agreements (2) 2,004 2,104 — — 2,104 Funds withheld payable under reinsurance treaties 22,533 22,533 — — 22,533 Debt 2,635 2,344 — 2,344 — Securities lending payable 36 36 — 36 — Repurchase agreements 1,012 1,012 — 1,012 — Separate account liabilities (3) 195,906 195,906 — 195,906 — (1) Annuity reserves represent only the components of other contract holder funds that are considered to be financial instruments. (2) Included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets. (3) The values of separate account liabilities are set equal to the values of separate account assets. 60 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 7. Deferred Acquisition Costs 7. Deferred Acquisition Costs This note contains the new accounting policy for the adoption of LDTI Certain costs that are directly related to the successful acquisition of new or renewal insurance business are capitalized as DAC in the period they are incurred. These costs primarily pertain to commissions and certain costs associated with policy issuance and underwriting. All other acquisition costs are expensed as incurred. Contracts are grouped into cohorts by contract type and issue year. For traditional and limited-payment insurance contracts, contracts are grouped consistent with the groupings used in estimating the associated liability. DAC are amortized into expense on a constant level basis over the expected term of the grouped contracts. For traditional and limited-payment insurance contracts, amortization is determined based on projected in force amounts. For non-traditional contracts, amortization is determined based on projected policy counts . The expected term used to amortize DAC is determined using best estimate assumptions, including mortality and persistency, consistent with the best estimate assumptions used to determine the reserve for future policy benefits, MRBs, and additional liabilities for applicable contracts. For amortization of DAC related to contracts without these balances, assumptions used to determine expected term are developed in a similar manner. The amortization rate is determined using all information available as of the end of the reporting period, including actual experience and any assumption updates. Annually, or as circumstances warrant, a comprehensive review of assumptions is conducted and assumptions are revised as appropriate. If assumptions are revised, the amortization rate is calculated using revised assumptions such that the effect of revised assumptions is recognized prospectively as of the beginning of that reporting period. Unamortized DAC are written off when a contract is internally replaced and substantially changed. Substantially unchanged contracts are treated as a continuation of the replaced contract, with no change to the unamortized DAC at the time of the replacement. The following table presents the roll-forward of the DAC (in millions, 2022 information recast for the adoption of LDTI). The current period amortization is based on the end of the period estimates of mortality and persistency. The amortization pattern is revised on a prospective basis at the beginning of the period based on the period’s actual experience. Six Months Ended June 30, Year Ended December 31, 2023 2022 Variable Annuities Balance, beginning of period $ 12,699 $ 13,364 Deferrals of acquisition costs 206 544 Amortization ( 572 ) ( 1,209 ) Variable Annuities balance, end of period $ 12,333 $ 12,699 Reconciliation of total DAC Variable Annuities balance, end of period $ 12,333 $ 12,699 Other product lines, end of period 266 224 Total balance, end of period $ 12,599 $ 12,923 61 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance 8. Reinsurance This note contains the new accounting policy for the adoption of LDTI. The Company, through its subsidiary insurance companies, assumes and cedes reinsurance from and to other insurance companies to limit losses from large exposures. However, if the reinsurer is unable to meet its obligations, the originating issuer of the coverage retains the liability. The Company reinsures certain of its risks to other reinsurers on a coinsurance, coinsurance with funds withheld, modified coinsurance, or yearly renewable term basis. The Company regularly monitors the financial strength ratings of its reinsurers. Athene Reinsurance The Company entered into a funds withheld coinsurance agreement with Athene effective June 1, 2020, to reinsure on a 100 % quota share basis, a block of Jackson’s in-force fixed and fixed-index annuity product liabilities in exchange for a $ 1.2 billion ceding commission. The coinsurance with funds withheld agreement ("the coinsurance agreement") required Jackson to establish a segregated account in which the investments supporting the ceded obligations are maintained. While the economic benefits of the investments flow to Athene, Jackson retains physical possession and legal ownership of the investments supporting the reserve. Further, the investments in the segregated account are not available to settle any policyholder obligations other than those specifically covered by the coinsurance agreement and are not available to settle obligations to general creditors of Jackson. The profit and loss with respect to obligations ceded to Athene are included in periodic net settlements pursuant to the coinsurance agreement. To further support its obligations under the coinsurance agreement, Athene procured $ 1.2 billion in letters of credit for Jackson’s benefit and established a trust account for Jackson’s benefit, which had a book value of approximately $ 135 million at June 30, 2023. Swiss Re Reinsurance Jackson has three retrocession reinsurance agreements (“retro treaties”) with Swiss Reinsurance Company Ltd. (“SRZ”). Pursuant to these retro treaties, Jackson ceded certain blocks of business to SRZ on a 100 % coinsurance with funds withheld basis, subject to pre-existing reinsurance with other parties. As a result of the reinsurance agreements with SRZ, Jackson withholds certain assets, primarily in the form of policy loans and debt securities, as collateral for the reinsurance recoverable. The Company has also acquired certain blocks of business that are closed to new business and wholly ceded to non-affiliates. These include both direct and assumed accident and health businesses, direct and assumed life insurance business, and certain institutional annuities. GMIB Reinsurance The Company’s guaranteed minimum income benefits (“GMIBs”) are reinsured with an unrelated party. GMIB reinsured benefits are subject to aggregate annual claim limits. Deductibles also apply on reinsurance of GMIB business issued since March 1, 2005. The Company discontinued offering the GMIB in 2009. Reinsurance Recoverables and Reinsured Market Risk Benefits Ceded reinsurance agreements are reported on a gross basis on the Company’s Condensed Consolidated Balance Sheets as an asset for amounts recoverable from reinsurers or as a component of other assets or liabilities for amounts, such as premiums, owed to or due from reinsurers. 62 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance Reinsurance recoverables relating to reinsurance of traditional and limited-payment contracts are required to be recognized and measured in a manner consistent with liabilities relating to the underlying reinsured contracts, including using consistent assumptions. Reinsurance contracts may be 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. The Company regularly monitors the financial strength ratings of its reinsurers. At June 30, 2023 and December 31, 2022, the Company had an allowance for credit losses (“ACL”) of $ 39 million and $ 15 million, respectively, on its reinsurance recoverables, which are reported net of ACL on the Condensed Consolidated Balance Sheets. The ACL considers the credit quality of the reinsurer and is generally determined based on probability of default and loss given default assumptions, after considering any applicable collateral arrangements. During the second quarter, the Company increased its ACL related to a specific reinsurer which was recently ordered into liquidation. The recognized ACL represents our current best estimate of our remaining loss exposure associated with this reinsurer. For reinsurance recoverables that are collateralized, and the amount of collateral is expected to be adjusted as necessary as a result of fair value changes in the collateral, the Company determines that the expectation of nonpayment of the carrying value of the reinsurance recoverable is zero. If the fair value of the collateral at the reporting date is less than the carrying value of the reinsurance recoverable, the Company recognizes an ACL on the difference between the fair value of the collateral at the reporting date and the carrying value of the reinsurance recoverable. Additions to or releases of the ACL are reported in Death, other policyholder benefits, and changes in reserves, net of deferrals in the Condensed Consolidated Income Statements. Reinsurance recoverable on market risk benefits is recognized at fair value. The change in the fair value of reinsurance recoverable on market risk benefits, including the change in fair value due to the change in third-party credit risk (i.e., non-performance risk of the reinsurer), is recognized in current period earnings within market risk benefit (gains) losses, net. Non-performance risk of the reinsurer is incorporated into the calculation through the adjustment of the risk-free rate curve based on credit spreads observed on instruments issued by similarly-rated life insurance companies. The Company’s reinsurance contract that cedes only the GMIB elected on certain variable annuity products is classified as a reinsurance recoverable on market risk benefits. These reinsured MRBs may have direct MRB balances recorded as either assets or liabilities; however, because the unit of account for the reinsured MRB is the reinsurance contract, the ceded MRB is presented in total within reinsurance recoverable on market risk benefits. The fees used to determine the fair value of the reinsurance recoverable on market risk benefits are those defined in the reinsurance contract. Guaranteed benefits related to the optional lifetime income rider offered on certain fixed index annuities are MRBs that are reinsured with Athene. The reinsured MRBs is measured using a non-option valuation approach which uses cash flow assumptions and an attributed fee ratio consistent with those used to measure the MRBs on the direct contract and a discount rate that considered the reinsurer’s credit risk. The attributed fee is locked-in at inception of the contract. Components of the Company’s reinsurance recoverable excluding MRBs were as follows (in millions, 2022 information recast for the adoption of LDTI): June 30, December 31, 2023 2022 Reserves: Life $ 5,317 $ 5,307 Accident and health 459 482 Annuity benefits (1) 20,590 22,470 Claims liability and other 703 787 Total $ 27,069 $ 29,046 (1) Other annuity benefits primarily attributable to fixed and fixed index annuities reinsured with Athene. 63 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance Components of the Company’s reinsurance recoverable on market risk benefits were as follows (in millions, 2022 information recast for the adoption of LDTI): June 30, December 31, 2023 2022 Variable annuity $ 151 $ 183 Other product lines 43 38 Total $ 194 $ 221 Reinsurance and Funds Withheld Payable Under Reinsurance Treaties Under the reinsurance agreement with Athene and the retro treaties with SRZ, the Company maintains ownership of the underlying investments instead of transferring them to the reinsurer and, as a result, records a funds withheld liability payable to the reinsurer. Investment returns earned on withheld assets are paid by the Company to the reinsurer, pursuant to the terms of the agreements. Investment income and net gains (losses) on derivatives and investments are reported net of gains or losses on the funds withheld payable under reinsurance treaties. The amounts credited to reinsurers on the funds withheld payable is based on the return earned on those assets. The return earned on the assets is subject to the credit risk of the original issuer of the instrument rather than Jackson’s own creditworthiness, which results in an embedded derivative (total return swap). Funds withheld under reinsurance agreement with Athene The Company recognizes a liability for the embedded derivative related to the funds withheld under the reinsurance agreement with Athene within funds withheld payable under reinsurance treaties in the Condensed Consolidated Balance Sheets. The embedded derivative is measured at fair value with changes in fair value reported in net gains (losses) on derivatives and investments in the Condensed Consolidated Income Statements. At inception of the reinsurance agreement with Athene, the fair value of the withheld investments differed from their book value and, accordingly, while the investments are held, the amortization of this difference is reported in net gains (losses) on derivatives and investments in the Condensed Consolidated Income Statements. Funds withheld under reinsurance agreements with SRZ At execution of the retro treaties with SRZ, the Company elected the fair value option for the withheld assets, as well as the related funds withheld payable. Accordingly, the embedded derivative is not bifurcated or separately measured. The funds withheld payable is measured at fair value with changes in fair value reported in net gains (losses) on derivatives and investments. The fair value of the funds withheld payable is equal to the fair value of the assets held as collateral. 64 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance The following assets and liabilities were held in support of reserves associated with the Company’s funds withheld reinsurance agreements and were reported in the respective financial statement line items in the Condensed Consolidated Balance Sheets (in millions): June 30, December 31, 2023 2022 Assets Debt securities, available-for-sale $ 12,085 $ 13,622 Debt securities, at fair value under the fair value option 161 159 Equity securities 148 77 Mortgage loans 3,302 4,127 Mortgage loans, at fair value under the fair value option 509 582 Policy loans 3,451 3,435 Freestanding derivative instruments, net 34 78 Other invested assets 638 793 Cash and cash equivalents 987 260 Accrued investment income 151 166 Other assets and liabilities, net ( 49 ) ( 73 ) Total assets (1) $ 21,417 $ 23,226 Liabilities Funds held under reinsurance treaties (2) $ 21,170 $ 22,957 Total liabilities $ 21,170 $ 22,957 (1) Certain assets are reported at amortized cost while the fair value of those assets is reported in the embedded derivative in the funds withheld liability. (2) Includes funds withheld embedded derivative asset (liability) of $ 2,901 million and $ 3,158 million at June 30, 2023 and December 31, 2022, respectively. The sources of income related to funds withheld under reinsurance treaties reported in net investment income in the Condensed Consolidated Income Statements were as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Debt securities (1) $ 160 $ 180 $ 332 $ 330 Equity securities ( 37 ) ( 9 ) ( 38 ) ( 25 ) Mortgage loans (2) 60 49 126 101 Policy loans 77 79 158 159 Limited partnerships 7 86 15 102 Other investment income 3 1 3 1 Total investment income on funds withheld assets 270 386 596 668 Other investment expenses on funds withheld assets (3) ( 18 ) ( 22 ) ( 37 ) ( 44 ) Total net investment income on funds withheld reinsurance treaties $ 252 $ 364 $ 559 $ 624 (1) Includes nil and $ 2 million for the three and six months ended June 30, 2023, respectively, and $( 2 ) million and $( 8 ) million for the three and six months ended June 30, 2022, respectively, related to the change in fair value for securities carried under the fair value option. (2) Includes nil and $( 2 ) million for the three and six months ended June 30, 2023, respectively, and $( 5 ) million and $( 3 ) million for the three and six months ended June 30, 2022, respectively, related to the change in fair value for mortgage loans carried under the fair value option. (3) Includes management fees. 65 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8. Reinsurance The gains and losses on funds withheld reinsurance treaties as a component of net gains (losses) on derivatives and investments in the Condensed Consolidated Income Statements were as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Available-for-sale securities Realized gains on sale $ 11 $ 3 $ 16 $ 40 Realized losses on sale ( 10 ) ( 4 ) ( 48 ) ( 31 ) Credit loss expense 13 ( 12 ) 2 ( 40 ) Credit loss expense on mortgage loans ( 4 ) 13 ( 7 ) 11 Other 3 ( 43 ) 12 ( 59 ) Net gains (losses) on non-derivative investments 13 ( 43 ) ( 25 ) ( 79 ) Net gains (losses) on derivative instruments ( 14 ) 63 ( 23 ) 84 Net gains (losses) on funds withheld payable under reinsurance treaties (1) ( 133 ) 1,057 ( 759 ) 2,100 Total net gains (losses) on derivatives and investments $ ( 134 ) $ 1,077 $ ( 807 ) $ 2,105 (1) Includes the Athene embedded derivative gain (loss) of $ 113 million and $( 257 ) million for the three and six months ended June 30, 2023, respectively, and $ 1,347 million and $ 2,628 million for the three and six months ended June 30, 2022, respectively. 9. Reserves for Future Policy Benefits and Claims Payable This note contains the new accounting policy for the adoption of LDTI. Reserves for Future Policy Benefits For non-participating traditional and limited-payment insurance contracts, the reserve 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 the change in the reserve for future policy benefits resulting from updates to assumptions is reported separately on the Condensed Consolidated Income Statements within the (Gain) loss from updating future policy benefits cash flow assumptions, net. Each reporting period the reserve for future policy benefits is updated to reflect actual experience to date. The Company establishes cohorts, which are 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. 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 OCI. 66 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable For limited-payment insurance contracts, premiums are paid over a period shorter than the period over which benefits are provided. Gross premiums received in excess of the net premium are deferred and recognized as a deferred profit liability ("DPL"). The DPL is included within the reserve for future policy benefits and profits are recognized in income as a component of benefit expenses on a constant relationship with the amount of expected future benefit payments. Interest is accreted on the balance of the DPL using the discount rate locked in at the initial measurement of the cohort. Measurement of the DPL uses best estimate assumptions for mortality. These assumptions are similarly subject to the annual review process discussed above. Additional Liabilities – Universal Life-type For universal life-type insurance contracts, a liability is recognized for the policyholder’s account value as discussed further in Note 10 of the Notes to Condensed Consolidated Financial Statements. 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. As available-for-sale debt securities are carried at fair value, an adjustment is made to these additional liabilities equal to the change in liability that would have occurred if such securities had been sold at their stated fair value and the proceeds reinvested at current yields. This adjustment, along with the change in net unrealized gains (losses) on available-for-sale debt securities, net of applicable tax, is credited or charged directly to equity as a component of OCI. See Note 10 of the Notes to Condensed Consolidated Financial Statements for more information regarding other contract holder funds. Other Future Policy Benefits and Claims Payable In conjunction with a prior acquisition, the Company recorded a fair value adjustment at acquisition related to certain annuity and interest-sensitive liability blocks of business to reflect the cost of the interest guarantees within the in-force liabilities, based on the difference between the guaranteed interest rate and an assumed new money guaranteed interest rate at acquisition. This adjustment is included in other future policy benefits and claims payable as disclosed in the table below. This liability is remeasured at the end of each period, taking into account changes in the in-force block. Any resulting change in the liability is recorded as a Gain (loss) from updating future policy benefits cash flow assumptions, net through the Condensed Consolidated Income Statements. In addition, annuity and life claims liabilities in course of settlement are included in other future policy benefits and claims payable as disclosed in the table below. 67 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable The following table summarizes the Company’s reserves for future policy benefits and claims payable balances (in millions, 2022 information recast for the adoption of LDTI): June 30, December 31, 2023 2022 Reserves for future policy benefits Payout Annuities $ 1,054 $ 1,042 Closed Block Life 4,047 4,161 Closed Block Annuity 4,287 4,434 Reserves for future policy benefits 9,388 9,637 Additional liabilities Closed Block Life 1,102 1,131 Other future policy benefits and claims payable 1,513 1,550 Reserves for future policy benefits and claims payable $ 12,003 $ 12,318 The following tables present the roll-forward of components of reserves for future policy benefits (in millions, 2022 information recast for the adoption of LDTI): Present Value of Expected Net Premiums Six Months Ended June 30, Year Ended December 31, 2023 2022 Payout Closed Block Closed Block Payout Closed Block Closed Block Annuities Life Annuity Annuities Life Annuity Balance, beginning of period $ — $ 1,287 $ — $ — $ 1,464 $ — Beginning of period cumulative effect of changes in discount rate assumptions — 161 — — ( 157 ) — Beginning balance at original discount rate — 1,448 — — 1,307 — Effect of changes in cash flow assumptions — — — — 242 — Effect of actual variances from expected experience — ( 78 ) — — 1 — Balance adjusted for variances from expectation — 1,370 — — 1,550 — Issuances — 4 — — 6 — Interest accrual — 19 — — 39 — Net premiums collected — ( 94 ) — — ( 147 ) — Ending balance at original discount rate — 1,299 — — 1,448 — End of period cumulative effect of changes in discount rate assumptions — ( 137 ) — — ( 161 ) — Balance, end of period $ — $ 1,162 $ — $ — $ 1,287 $ — 68 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable Present Value of Expected Future Policy Benefits Six Months Ended June 30, Year Ended December 31, 2023 2022 Payout Closed Block Closed Block Payout Closed Block Closed Block Annuities Life Annuity Annuities Life Annuity Balance, beginning of period $ 1,042 $ 5,448 $ 4,434 $ 1,249 $ 6,913 $ 5,739 Beginning of period cumulative effect of changes in discount rate assumptions 132 958 275 ( 84 ) ( 349 ) ( 689 ) Beginning balance at original discount rate (including DPL of $ 40 , $ 0 and $ 671 in June 30, 2023, and, $ 38 , $ 0 and $ 459 in December 31, 2022 for payout annuities, closed block life and closed block annuity, respectively) 1,174 6,406 4,709 1,165 6,564 5,050 Effect of changes in cash flow assumptions — — — 4 331 ( 15 ) Effect of actual variances from expected experience ( 10 ) ( 60 ) ( 11 ) ( 37 ) 38 ( 34 ) Balance adjusted for variances from expectation 1,164 6,346 4,698 1,132 6,933 5,001 Issuances 59 8 — 126 14 4 Interest accrual 21 102 99 40 209 210 Benefits payments ( 66 ) ( 358 ) ( 253 ) ( 124 ) ( 750 ) ( 506 ) Ending balance of original discount rate (including DPL of $ 41 , $ 0 and $ 644 in June 30, 2023, and, $ 40 , $ 0 and $ 671 in December 31, 2022 for payout annuities, closed block life and closed block annuity, respectively) 1,178 6,098 4,544 1,174 6,406 4,709 End of period cumulative effect of changes in discount rate assumptions ( 124 ) ( 889 ) ( 257 ) ( 132 ) ( 958 ) ( 275 ) Balance, end of period $ 1,054 $ 5,209 $ 4,287 $ 1,042 $ 5,448 $ 4,434 Reserves for future policy benefits 1,054 4,047 4,287 1,042 4,161 4,434 Less: Reinsurance recoverable 83 2,223 2 71 2,263 2 Reserves for future policy benefits, after reinsurance recoverable $ 971 $ 1,824 $ 4,285 $ 971 $ 1,898 $ 4,432 The following table presents the weighted average duration of the reserves for future policy benefits (2022 information recast for the adoption of LDTI). The weighted average duration represents average cohort-level duration weighted by the benefit reserves amount: Payout Closed Block Closed Block Annuities Life Annuity June 30, 2023 Weighted average duration (years) 7.0 7.9 7.1 December 31, 2022 Weighted average duration (years) 6.9 7.8 7.0 The discount rate assumption was updated based on current market data. Discount rates was flat in the second quarter of 2023 compared to the fourth quarter of 2022. Discount rates increased substantially throughout 2022 primarily due to increases in risk-free rates, which resulted in a decrease in the liability for future policy benefits. Refer to the roll-forward above for further details. 69 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable The following table presents the amount of undiscounted and discounted expected future gross premiums and expected future benefit payments for future policy benefits for non-participating traditional and limited-payment insurance contracts (in millions, 2022 information recast for the adoption of LDTI). The discounted premiums are calculated using the current discount rate, while the undiscounted cash flows represent the gross cash flows before any discounting is applied: June 30, 2023 December 31, 2022 Undiscounted Discounted Undiscounted Discounted Payout Annuities Expected future benefit payments $ 1,559 $ 1,012 $ 1,542 $ 999 Expected future gross premiums — — — — Closed Block Life Expected future benefit payments 8,361 5,334 8,751 5,578 Expected future gross premiums 5,574 3,219 5,976 3,489 Closed Block Annuity Expected future benefit payments 5,630 3,620 5,834 3,729 Expected future gross premiums $ — $ — $ — $ — The following table presents the amount of revenue and interest related to non-participating traditional and limited-pay insurance contracts recognized in the Condensed Consolidated Income Statements (in millions, 2022 information recast for the adoption of LDTI): Gross Premiums Interest Expense Six Months Ended June 30, 2023 Year Ended December 31, 2022 Six Months Ended June 30, 2023 Year Ended December 31, 2022 Payout Annuities $ 10 $ 10 $ 21 $ 40 Closed Block Life 165 390 83 170 Closed Block Annuity 1 — 99 210 Total $ 176 $ 400 $ 203 $ 420 The following table presents the weighted average interest rate for the reserves for future policy benefits at the cohort's level for the locked-in discount rate (interest accretion rate), and current discount rate, weighted by the cohort's benefit reserve amount (2022 information recast for the adoption of LDTI): June 30, 2023 December 31, 2022 Payout Annuities Interest accretion rate 3.78 % 3.71 % Current discount rate 5.38 % 5.40 % Closed Block Life Interest accretion rate 3.01 % 3.01 % Current discount rate 5.34 % 5.34 % Closed Block Annuity Interest accretion rate 4.40 % 4.40 % Current discount rate 5.38 % 5.41 % 70 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 9. Reserves for Future Policy Benefits and Claims Payable The following table presents a roll-forward of Closed Block Life additional liabilities for annuitization, death and other insurance benefits (in millions, 2022 information recast for the adoption of LDTI): Six Months Ended June 30, 2023 Year Ended December 31, 2022 Balance, beginning of period $ 1,131 $ 1,173 Beginning of period cumulative effect of changes in shadow adjustments 41 ( 14 ) Beginning balance excluding shadow 1,172 1,159 Effect of changes in cash flow assumptions — 6 Effect of actual variances from expected experience 21 58 Interest accrual 28 56 Net assessments collected ( 92 ) ( 107 ) Ending balance excluding shadow 1,129 1,172 End of period cumulative effect of changes in shadow adjustments ( 27 ) ( 41 ) Balance, end of period $ 1,102 $ 1,131 The following table presents the weighted average duration of Closed Block Life additional liabilities for annuitization, death and other insurance benefits. The weighted average duration represents average cohort-level duration weighted by the benefit reserves amount (2022 information recast for the adoption of LDTI): June 30, 2023 December 31, 2022 Weighted average duration (years) 7.8 8.1 The following table presents assessments and interest expense of Closed Block Life additional liabilities for annuitization, death and other insurance benefits recognized in the Condensed Consolidated Income Statements (in millions, 2022 information recast for the adoption of LDTI): Assessments Interest Expense Six Months Ended June 30, 2023 Year Ended December 31, 2022 Six Months Ended June 30, 2023 Year Ended December 31, 2022 Additional liability for annuitization, death and other insurance benefits $ ( 92 ) $ ( 107 ) $ 28 $ 56 The following table presents the weighted average current discount rate of Closed Block Life additional liabilities for annuitization, death and other insurance benefits, applied at the cohort level weighted by reserve benefit amount (2022 information recast for the adoption of LDTI): June 30, 2023 December 31, 2022 Weighted average current discount rate 4.96 % 4.96 % 71 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds 10. Other Contract Holder Funds This note contains the new accounting policy for the adoption of LDTI. Other contract holder funds represent the policyholder account balance on our universal life-type products, investment contracts, and the fair value of the embedded derivatives associated with the indexed crediting features on our fixed index annuities and registered index-linked annuities. Universal life type contracts have, as a principal component, an account balance in which interest is credited to policyholders and assessments are deducted for mortality risk and contract administration. The account balance is recognized as a liability within other contract holder funds, and the liability is updated each period for fee and assessment deductions and increased for interest or returns credited to the account balance. Certain of our universal life type contracts contain features that are not classified as market risk benefits or embedded derivatives but provide additional benefits beyond the account balance or base insurance coverage for which a liability in addition to the account balance is necessary. These additional liabilities for death or other insurance benefits are reported as a component of reserves for future policy benefits and claims payable in the Condensed Consolidated Balance Sheets. See Note 9 of the Notes to the Condensed Consolidated Financial Statements for more information regarding these additional liabilities. Certain contracts without significant mortality or morbidity risk and certain annuities that lack insurance risk are treated as investment contracts. For investment contracts, payments received are reported as liabilities and accounted for in a manner consistent with the accounting for interest-bearing or other financial instruments, within other contract holder funds. The Company issues a variety of annuity products including fixed annuities, fixed index annuities, registered index linked annuities, variable annuities and payout annuities. For annuity contracts that are classified as investment contracts, the liability is the account balance as of the reporting date, reported within the other contract holder funds. For the variable annuity products only the allocations to fixed fund options are reported in other contract holder funds. For our fixed index annuities and registered index linked annuities, the equity-linked option issued by the Company is accounted for as an embedded derivative measured at fair value and reported as a component of other contract holder funds on the Condensed Consolidated Balance Sheets with changes in fair value recorded in net income within net gains (losses) on derivatives and investments. The fair value is determined using an option-budget method with capital market inputs of market index returns and discount rates as well as actuarial assumptions including lapse, mortality and withdrawal rates. Favorable equity market movements cause increases in future contract holder benefits, resulting in an increase in the fair value of the embedded derivative liability (and vice versa). The Company also establishes a host contract reserve to support the underlying guaranteed account value growth. This host contract liability is included as a component of other contract holder funds on the Condensed Consolidated Balance Sheets. Interest is accreted to the host contract liability using an effective yield method. Our annuity products may contain certain features or guarantees that are classified as MRBs. These market risk benefits are a component of the market risk benefits line items in the Condensed Consolidated Balance Sheet. See Note 12 of the Notes to Condensed Consolidated Financial Statements for more information regarding market risk benefits. The Company’s institutional products business is comprised of the guaranteed investment contracts, medium-term funding agreement-backed notes and funding agreements (including agreements issued in conjunction with the Company’s participation in the U.S. Federal Home Loan Bank ("FHLB") program) described below. The Company has established a $ 27 billion aggregate Global Medium-Term Note ("MTN") program. Jackson National Life Global Funding was formed as a statutory business trust, solely for the purpose of issuing Medium-Term Note instruments to institutional investors, the proceeds of which are deposited with the Company and secured by the issuance of funding agreements. The carrying values at both June 30, 2023 and December 31, 2022 totaled $ 5.9 billion, respectively. 72 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds Those Medium-Term Note instruments issued in a foreign currency have been hedged for changes in exchange rates using cross-currency swaps. The unrealized foreign currency gains and losses on those Medium-Term Note instruments are included in the carrying value of the trust instruments supported by funding agreements. Trust instrument liabilities are adjusted to reflect the effects of foreign currency translation gains and losses using exchange rates as of the reporting date. Foreign currency translation gains and losses are included in net gains (losses) on derivatives and investments. Jackson is a member of the FHLBI primarily for the purpose of participating in the bank’s mortgage-collateralized loan advance program with long-term funding facilities. Advances are in the form of long-term notes or funding agreements issued to FHLBI. At both June 30, 2023 and December 31, 2022, the Company held $ 146 million of FHLBI capital stock, respectively, supporting $ 2.2 billion and $ 2.1 billion in funding agreements and long-term borrowings at June 30, 2023 and December 31, 2022, respectively. The following table presents the liabilities for other contract holder funds (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 December 31, 2022 Payout Annuity $ 853 $ 837 Variable Annuity 9,384 10,259 Fixed Annuity 10,601 11,696 Fixed Indexed Annuities 11,049 11,787 RILA 3,144 1,875 Closed Block Life 11,100 11,215 Closed Block Annuity 1,284 1,319 Institutional Products 8,887 9,019 Other Product Lines 175 183 Total other contract holder funds $ 56,477 $ 58,190 The following table presents a roll-forward of other contract holder funds, gross of reinsurance (in millions, 2022 information recast for the adoption of LDTI): Fixed Closed Closed Payout Variable Fixed Indexed Block Block Annuity Annuity Annuity Annuities RILA Life Annuity Total Balance as of January 1, 2023 $ 837 $ 10,259 $ 11,696 $ 11,787 $ 1,875 $ 11,215 $ 1,319 $ 48,988 Deposits 102 588 142 138 1,074 155 2 2,201 Surrenders, withdrawals and benefits ( 121 ) ( 911 ) ( 1,348 ) ( 1,035 ) ( 34 ) ( 449 ) ( 60 ) ( 3,958 ) Net transfers from (to) separate accounts — ( 650 ) — — — — — ( 650 ) Investment performance / change in value of equity option — — — 104 225 — — 329 Interest credited 12 144 178 107 5 404 21 871 Policy charges and other 23 ( 46 ) ( 67 ) ( 52 ) ( 1 ) ( 225 ) 2 ( 366 ) Balance as of June 30, 2023 $ 853 $ 9,384 $ 10,601 $ 11,049 $ 3,144 $ 11,100 $ 1,284 $ 47,415 73 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds Fixed Closed Closed Payout Variable Fixed Indexed Block Block Annuity Annuity Annuity Annuities RILA Life Annuity Total Balance as of December 31, 2021 $ 831 $ 9,456 $ 13,185 $ 13,161 $ 110 $ 11,570 $ 1,394 $ 49,707 Deposits 213 1,350 276 126 1,811 320 9 4,105 Surrenders, withdrawals and benefits ( 230 ) ( 1,492 ) ( 2,017 ) ( 1,414 ) ( 8 ) ( 766 ) ( 118 ) ( 6,045 ) Net transfers from (to) separate accounts — 870 — — — — — 870 Investment performance / change in value of equity option — — — ( 302 ) ( 37 ) — — ( 339 ) Interest credited 20 168 389 238 2 659 48 1,524 Policy charges and other 3 ( 93 ) ( 137 ) ( 22 ) ( 3 ) ( 568 ) ( 14 ) ( 834 ) Balance as of December 31, 2022 $ 837 $ 10,259 $ 11,696 $ 11,787 $ 1,875 $ 11,215 $ 1,319 $ 48,988 The following table presents weighted average crediting rate, net amount at risk, and cash surrender value of contract holder account balances (dollars in millions, 2022 information recast for the adoption of LDTI): Fixed Closed Closed Payout Variable Fixed Indexed Block Block Annuity Annuity Annuity Annuities RILA Life Annuity June 30, 2023 Weighted-average crediting rate (1) 2.81 % 3.07 % 3.36 % 1.94 % 0.32 % 7.28 % 3.27 % Net amount at risk (2) $ — $ — $ — $ — $ — $ 16,885 $ — Cash surrender value (3) $ — $ 9,271 $ 10,505 $ 10,643 $ 2,956 $ 11,022 $ 1,284 December 31, 2022 Weighted-average crediting rate (1) 2.39 % 1.64 % 3.33 % 2.02 % 0.11 % 5.88 % 3.64 % Net amount at risk (2) $ — $ — $ — $ — $ — $ 17,427 $ — Cash surrender value (3) $ — $ 10,101 $ 11,573 $ 11,409 $ 1,728 $ 7,096 $ 1,319 (1) Weighted average crediting rate is the average crediting rate weighted by contract holder account balances invested in fixed account funds. (2) Net amount at risk represents the standard excess benefit base for guaranteed death benefits on universal life type products. The net amount at risk associated with market risk benefits are presented within Note 12 of the Notes to Consolidated Financial Statements, as recast in our Current Report on Form 8-K filed May 10, 2023. (3) Cash surrender value represents the amount of the contract holder’s account balance distributable at the balance sheet date less the applicable surrender charges. At June 30, 2023 and December 31, 2022, excluding reinsurance business, approximately 93 % and 92 % of the Company’s annuity account values correspond to crediting rates that are at the minimum guaranteed interest rates, respectively. At June 30, 2023 and December 31, 2022, excluding reinsurance business, approximately 62 % and 65 % of the Company’s closed block life account values correspond to crediting rates that are at the minimum guaranteed interest rates, respectively. 74 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds The following table presents contract holder account balances invested in fixed account funds by range of guaranteed minimum crediting rates and the related range of the difference between rates being credited to other contract holder funds and the respective guaranteed minimums (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 At Guaranteed 1 Basis Point-50 51 Basis Points-150 Greater Than 150 Range of Guaranteed Minimum Crediting Rate Minimum Basis Points Above Basis Points Above Basis Points Above Total Variable Annuities 0.00 %- 1.50 % $ — $ 14 $ 1 $ — $ 15 1.51 %- 2.50 % 187 — — — 187 Greater than 2.50 % 9,120 — — 62 9,182 Total $ 9,307 $ 14 $ 1 $ 62 $ 9,384 Fixed Annuities 0.00 %- 1.50 % $ 18 $ 63 $ 78 $ 1 $ 160 1.51 %- 2.50 % 30 1 2 — 33 Greater than 2.50 % 668 53 291 — 1,012 Total $ 716 $ 117 $ 371 $ 1 $ 1,205 Fixed Indexed Annuities 0.00 %- 1.50 % $ 6 $ 13 $ 4 $ 42 $ 65 1.51 %- 2.50 % — — — — — Greater than 2.50 % 22 — 45 — 67 Total $ 28 $ 13 $ 49 $ 42 $ 132 RILA 0.00 %- 1.50 % $ 8 $ — $ 4 $ 1 $ 13 1.51 %- 2.50 % — — — — — Greater than 2.50 % 20 — — — 20 Total $ 28 $ — $ 4 $ 1 $ 33 Closed Block Life 0.00 %- 1.50 % $ — $ — $ — $ — $ — 1.51 %- 2.50 % — — — — — Greater than 2.50 % 4,308 2,057 621 15 7,001 Total $ 4,308 $ 2,057 $ 621 $ 15 $ 7,001 Closed Block Annuity 0.00 %- 1.50 % $ — $ — $ — $ — $ — 1.51 %- 2.50 % — — 1 12 13 Greater than 2.50 % 929 163 23 — 1,115 Total $ 929 $ 163 $ 24 $ 12 $ 1,128 75 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10. Other Contract Holder Funds December 31, 2022 At Guaranteed 1 Basis Point-50 51 Basis Points-150 Greater Than 150 Range of Guaranteed Minimum Crediting Rate Minimum Basis Points Above Basis Points Above Basis Points Above Total Variable Annuities 0.00 %- 1.50 % $ 6,679 $ 32 $ 2 $ 75 $ 6,788 1.51 %- 2.50 % 200 — — — 200 Greater than 2.50 % 3,271 — — — 3,271 Total $ 10,150 $ 32 $ 2 $ 75 $ 10,259 Fixed Annuities 0.00 %- 1.50 % $ 19 $ 76 $ 95 $ — $ 190 1.51 %- 2.50 % 35 2 1 — 38 Greater than 2.50 % 576 64 351 — 991 Total $ 630 $ 142 $ 447 $ — $ 1,219 Fixed Indexed Annuities 0.00 %- 1.50 % $ 6 $ 17 $ 5 $ 40 $ 68 1.51 %- 2.50 % — — — — — Greater than 2.50 % 24 — — — 24 Total $ 30 $ 17 $ 5 $ 40 $ 92 RILA 0.00 %- 1.50 % $ 10 $ — $ 7 $ — $ 17 1.51 %- 2.50 % — — — — — Greater than 2.50 % — — — — — Total $ 10 $ — $ 7 $ — $ 17 Closed Block Life 0.00 %- 1.50 % $ — $ — $ — $ — $ — 1.51 %- 2.50 % — — — — — Greater than 2.50 % 4,566 1,868 619 14 7,067 Total $ 4,566 $ 1,868 $ 619 $ 14 $ 7,067 Closed Block Annuity 0.00 %- 1.50 % $ — $ — $ — $ — $ — 1.51 %- 2.50 % — — 1 10 11 Greater than 2.50 % 980 159 21 — 1,160 Total $ 980 $ 159 $ 22 $ 10 $ 1,171 76 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 11. Separate Account Assets and Liabilities 11. Separate Account Assets and Liabilities This note contains the new accounting policy for the adoption of LDTI. The Company issues variable contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (traditional variable annuities). The Company also issues variable annuity and life contracts through separate accounts where the Company contractually guarantees to the contract holder (variable contracts with guarantees) either a) return of no less than total deposits made to the account adjusted for any partial withdrawals, b) total deposits made to the account adjusted for any partial withdrawals plus a minimum return, or c) the highest account value on a specified anniversary date adjusted for any withdrawals following the contract anniversary. These guarantees include benefits that are payable in the event of death (guaranteed minimum death benefits, or "GMDB"), at annuitization ("GMIB"), upon the depletion of funds ("GMWB") or at the end of a specified period ("GMAB"). These guarantees are classified as market risk benefits. See Note 12 of the Notes to Condensed Consolidated Financial Statements for more information regarding market risk benefits. The separate account assets supporting the variable portion of both traditional variable annuities and variable contracts with guarantees are carried at fair value and reported as summary total separate account assets with an equivalent summary total reported for separate account liabilities. At June 30, 2023 and December 31, 2022, the assets and liabilities associated with variable life and annuity contracts were $ 213 billion and $ 196 billion, respectively. Investment risks associated with market value changes are borne by the contract holders, except to the extent of minimum guarantees made by the Company. Separate account net investment income, net investment realized and unrealized gains and losses, and the related liability changes are offset within the same line item in the Condensed Consolidated Income Statements. Amounts assessed against the contract holders for mortality, variable annuity benefit guarantees, administrative, and other services are reported in revenue as fee income. Included in the separate account assets and liabilities described above is a Jackson issued group variable annuity contract designed for use in connection with and issued to the Company’s Defined Contribution Retirement Plan. These deposits are allocated to the Jackson National Separate Account - II, which had balances of $ 316 million and $ 285 million at June 30, 2023 and December 31, 2022, respectively. The Company receives administrative fees for managing the funds. These fees are recorded as earned and included in fee income in the Condensed Consolidated Income Statements. The following table presents the roll-forward of the separate account balance for variable annuities (in millions, 2022 information recast for the adoption of LDTI): Six Months Ended June 30, 2023 Year Ended December 31, 2022 Balance as of beginning of period $ 195,550 $ 248,469 Deposits 4,334 12,288 Surrenders, withdrawals and benefits ( 7,830 ) ( 14,554 ) Net transfer from (to) general account 650 ( 870 ) Investment performance 21,011 ( 47,150 ) Policy charges and other ( 1,387 ) ( 2,633 ) Balance as of end of period, gross $ 212,328 $ 195,550 Cash surrender value (1) $ 207,170 $ 190,243 (1) Cash surrender value represents the amount of the contract holder’s account balances distributable at the balance sheet date less applicable surrender charges. 77 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 11. Separate Account Assets and Liabilities The following table presents the reconciliation of the separate account balance in the Condensed Consolidated Balance Sheets (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 December 31, 2022 Variable Annuities $ 212,328 $ 195,550 Other 391 356 Total $ 212,719 $ 195,906 The following table presents aggregate fair value of assets, by major investment asset category, supporting separate accounts (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 December 31, 2022 Variable Annuities By Fund Type Equity $ 147,040 $ 132,547 Bond 19,503 19,155 Balanced 42,953 40,797 Money Market 2,832 3,051 Total Variable Annuities 212,328 195,550 Other Product Lines 391 356 Total Separate Accounts $ 212,719 $ 195,906 12. Market Risk Benefits This note contains the new accounting policy for the adoption of LDTI. 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. Market risk benefit assets and Market risk benefit liabilities are reported separately on the Condensed Consolidated Balance Sheets. Changes in fair value are reported in Net (gains) losses on market risk benefits on the Condensed Consolidated Income Statements. However, the change in fair value related to our own non-performance risk is reported as a component of other comprehensive income in Change in non-performance risk on market risk benefits on the Condensed Consolidated Statements of Comprehensive Income (Loss). A description of the items effecting the change in fair value by category is as follows: • Changes in interest rates — movement in risk free rates (impacts both assumed future separate account returns and discounting of cash flows) • Fund performance — separate account returns gross of fees • Change in equity index volatility — movement in implied volatility • Expected policyholder behavior — policyholder behavior as assumed in reserving • Actual policyholder behavior different than expected — difference between actual behavior during the period versus assumed behavior • Time — effect of passage of time including reduction to separate account balances from fees, the change in proximity of future cash flows, and impacts to policy features such as bonus credits • Change in assumptions — changes in assumptions resulting from our periodic review • Change in non-performance risk — changes in Jackson’s non-performance risk See Note 6 of the Notes to Condensed Consolidated Financial Statements for more information regarding fair value measurements. 78 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 12. Market Risk Benefits Additionally, when an annuitization occurs (for annuitization benefits) or upon extinguishment of the account balance (for withdrawal benefits), the balance related to the MRB is derecognized and the amount deducted (after derecognition of any related amount included in accumulated other comprehensive income) is used in the calculation of the liability for future policy benefits for the resulting payout annuity. Variable Annuities Variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal, income and accumulation benefits. These guaranteed benefit features, as well as the reinsurance recoverable on the Company’s guaranteed minimum income benefits (“GMIB”), are classified as MRBs and measured at fair value. The Company discontinued offering the GMIB in 2009 and the guaranteed minimum accumulation benefits (“GMAB”) in 2011. 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 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. The following table presents the reconciliation of the market risk benefits balance in the Condensed Consolidated Balance Sheets (in millions, 2022 information recast for the adoption of LDTI): June 30, 2023 December 31, 2022 Variable Other Variable Other Annuities Product Lines Total Annuities Product Lines Total Market risk benefit - (assets) $ ( 5,951 ) $ ( 6 ) $ ( 5,957 ) $ ( 4,856 ) $ ( 9 ) $ ( 4,865 ) Market risk benefit - liabilities 4,423 40 4,463 5,623 39 5,662 Market risk benefit - net $ ( 1,528 ) $ 34 $ ( 1,494 ) $ 767 $ 30 $ 797 79 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 12. Market Risk Benefits The following table presents the roll-forward of the net MRB (assets) liabilities for variable annuities (in millions, 2022 information recast for the adoption of LDTI): Six Months Ended June 30, 2023 Year Ended December 31, 2022 Net MRB balance, beginning of period $ 767 $ 6,281 Beginning of period cumulative effect of changes in non-performance risk 2,185 326 Net MRB balance, beginning of period, before effect of changes in non-performance risk 2,952 6,607 Effect of changes in interest rates 515 ( 14,137 ) Effect of fund performance ( 3,616 ) 6,432 Effect of changes in equity index volatility ( 1,069 ) 1,576 Effect of expected policyholder behavior 209 532 Effect of actual policyholder behavior different from expected 288 ( 230 ) Effect of time 898 1,707 Effect of changes in assumptions — 465 Net MRB balance, end of period, before effect of changes in non-performance risk 177 2,952 End of period cumulative effect of changes in non-performance risk ( 1,705 ) ( 2,185 ) Net MRB balance, end of period, gross ( 1,528 ) 767 Reinsurance recoverable on market risk benefits at fair value, end of period ( 151 ) ( 183 ) Net MRB balance, end of period, net of reinsurance ( 1,679 ) 584 Weighted average attained age (years) (1) 69 69 Net amount at risk (2) $ 10,106 $ 15,592 (1) Weighted-average attained age is defined as the average age of policyholders weighted by account value. (2) Net amount at risk (NAR) is defined as of the valuation date for each contract as the greater of Death Benefit NAR (DBNAR) and Living Benefit NAR (LBNAR), as applicable, where DBNAR is the GMDB benefit base in excess of the account value, and the LBNAR is the actuarial present value of guaranteed living benefits in excess of the account value. At each reporting date, the Company regularly evaluates the inputs and assumptions to be used to measure the fair value of the MRB assets and MRB liabilities. In prior periods, the non-performance risk adjustment was determined based on credit spreads indicated by a blend of yields on similarly rated peer debt and yields on Company debt. As of June 30, 2023, non-performance risk is incorporated into the calculation through the adjustment of the risk-free rate curve based only on credit spreads for debt and debt-like instruments issued by the Company or its insurance operating subsidiaries, adjusted, as necessary, to reflect the financial strength ratings of the issuing insurance subsidiaries. The change was made as a result of management’s determination that the reliability of credit spreads on debt and debt-like instruments issued by the Company as a measure of company-specific credit risk has increased due to sustained levels of market trading volume of these instruments. For the three months ended June 30, 2023, this change in estimate resulted in other comprehensive income of $ 692 million and is reflected as a component of the change in non-performance risk on market risk benefits in Condensed Consolidated Statements of Comprehensive Income (Loss). The significant assumptions used in the MRB fair value calculations are discussed in Note 6 of the Notes to Condensed Consolidated Financial Statements. 13. Long-Term Debt Liabilities for the Company’s debt are primarily carried at an amount equal to the principal balance net of any unamortized original issuance discount or premium. Original issuance discount or premium and any debt issue costs, if applicable, are recognized as a component of interest expense over the period the debt is expected to be outstanding. 80 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 13. Long-Term Debt The aggregate carrying value of long-term debt was as follows (in millions): June 30, December 31, 2023 2022 Long-Term Debt Senior Notes due 2023 $ 599 $ 598 Senior Notes due 2027 397 397 Senior Notes due 2031 493 493 Senior Notes due 2032 347 347 Senior Notes due 2051 489 488 Surplus notes 250 250 FHLBI bank loans 58 62 Total long-term debt $ 2,633 $ 2,635 The following table presents the contractual maturities of the Company's long-term debt as of June 30, 2023 (in millions): Calendar Year 2023 2024 2025 2026 2027 and thereafter Total Long-term debt $ 599 $ — $ — $ — $ 2,034 $ 2,633 Senior Notes On June 8, 2022, the Company issued $ 750 million aggregate principal amount of senior unsecured notes, consisting of $ 400 million aggregate principal amount of 5.170 % Senior Notes due June 8, 2027 and $ 350 million aggregate principal amount of 5.670 % Senior Notes due June 8, 2032. The net proceeds of these notes were used, together with cash on hand, to repay the Company’s $ 750 million aggregate principal amount senior unsecured term loan due February 2023. Revolving Credit Facility On February 24, 2023, the Company replaced the 2021 Revolving Credit Facility that was due to expire in February 2024 and 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 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. The credit agreement for the 2023 Revolving Credit Facility 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 %. Commitments under the 2023 Revolving Credit Facility terminate on February 24, 2028. Line of Credit Agreement 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. 81 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 14. Federal Home Loan Bank Advances 14. Federal Home Loan Bank Advances The Company, through its subsidiary, Jackson, entered into an advance program with the FHLBI in which interest rates were either fixed or variable based on the FHLBI cost of funds or market rates. Advances of nil were outstanding at both June 30, 2023 and December 31, 2022 and were recorded in other liabilities. Interest expense on such advances was $ 6 million and nil for the three months ended June 30, 2023 and 2022, respectively, and $ 6 million and nil for the six months ended June 30, 2023 and 2022, respectively. 15. Income Taxes The Inflation Reduction Act of 2022 (“IRA”) includes a new Federal alternative minimum tax (“AMT”), effective in 2023, that is based on 15% of an applicable corporation’s adjusted financial statement income (“AFSI”). A corporation will be subject to the AMT if its average pre-tax AFSI over three prior years (starting with 2020-2022) is greater than $1 billion (an “applicable corporation”). Upon becoming an applicable corporation, an entity will remain so for all future years, except under limited circumstances. The corporation’s AMT liability is payable to the extent the AMT liability exceeds regular corporate income tax. However, any AMT paid would be indefinitely available as a credit carryover that could reduce future regular corporate income tax in excess of AMT. The Company expects to be an applicable corporation starting in 2023. That expectation is based on interpretations and assumptions we have made regarding the AMT provisions of the IRA, which may change once regulatory guidance is issued. As of June 30, 2023, we have not recorded any provision for the AMT. The U.S. Department of the Treasury is expected to issue regulatory guidance regarding the AMT throughout 2023. The Company uses the estimated annual effective tax rate (“ETR”) method in computing the interim tax provision. Certain items, including those deemed unusual, infrequent, or that cannot be reliably estimated, are treated as discrete items and excluded from the estimated annual ETR. In these cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual ETR, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions and are recorded in the period in which the change occurs. The estimated annual ETR is revised, as necessary, at the end of successive interim reporting periods. The Company’s effective income tax rate was 16.8 % and 52.8 % for the three and six months ended June 30, 2023, compared with 20.6 % and 18.4 % for the same period in 2022. The ETR differs from the statutory rate of 21% primarily due to the dividends received deduction and utilization of foreign tax credits. The change in the ETR for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was due to the relationship of taxable income to consolidated pre-tax income. The ETR differs for the six months ended June 30, 2023 from the full year-ended December 31, 2022 ETR of 19.6 % due to the relationship of taxable income to consolidated pre-tax income. The Company is required to evaluate the recoverability of its deferred tax assets and establish a valuation allowance, if necessary, to reduce its deferred tax asset to an amount that is more likely than not to be realizable. Considerable judgment and the use of estimates are required when determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. When evaluating the need for a valuation allowance, the Company considers many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of temporary differences; the length of time carryovers can be utilized; and any tax planning strategies the Company would employ to avoid a tax benefit from expiring unused. For the six months ended June 30, 2023, changes in market conditions and interest rates impacted the unrealized tax gains and losses in the available for sale securities portfolio resulting in deferred tax assets related to net unrealized tax capital losses. The deferred tax asset relates to the unrealized losses for which the carryforward period has not yet begun, and as such, when assessing its recoverability, we consider our ability and intent to hold the underlying securities to recovery. As of June 30, 2023, based on all available evidence, we concluded that a valuation allowance should be established on a portion of the deferred tax asset related to unrealized losses that are not more-likely-than-not to be realized. For the three and six months ended June 30, 2023, the Company recorded an increase of $ 93 million and a decrease of $ 42 million to the valuation allowance associated with the unrealized tax losses in the Company's available for sale securities portfolio. The $ 93 million increase for the three months ended June 30, 2023 to the valuation allowance consists of $ 88 million tax 82 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 15. Income Taxes expense recorded to other comprehensive income and $ 5 million tax expense recorded in the income tax expense. The $ 42 million decrease for the six months ended June 30, 2023 to the valuation allowance consists of $ 52 million tax (benefit) recorded to other comprehensive income offset by $ 10 million tax expense recorded in the income tax (benefit). At June 30, 2023 and December 31, 2022, the Company has recorded a total valuation allowance for $ 864 million and $ 906 million, respectively, associated with the unrealized tax losses in the Company's available for sale securities portfolio. At June 30, 2023 and December 31, 2022, the Company has recorded a total valuation allowance for $ 4 million and $ 4 million, respectively, against the deferred tax assets associated with both realized and unrealized losses on capital assets in the Non-life Companies’ where it is not more-likely-than-not that the full tax benefit of the losses will be realized. 16. Commitments and Contingencies The Company and its subsidiaries are involved in litigation arising in the ordinary course of business. It is the opinion of management that the ultimate disposition of such litigation will not have a material adverse effect on the Company's financial condition. Jackson has been named in civil litigation proceedings, which appear to be substantially similar to other class action litigation brought against many life insurers including allegations of misconduct in the sale of insurance products. The Company accrues for legal contingencies once the contingency is deemed to be probable and reasonably estimable. At June 30, 2023, the Company had unfunded commitments related to its investments in limited partnerships and limited liability companies totaling $ 994 million. At June 30, 2023, unfunded commitments related to fixed-rate mortgage loans and other debt securities totaled $ 942 million. 17. Other Related Party Transactions The Company's investment management operation, PPM, provides investment services to certain Prudential affiliated entities. The Company recognized $ 10 million and $ 9 million of revenue during the three months ended June 30, 2023, and 2022, and $ 18 million and $ 18 million of revenue during the six months ended June 30, 2023 and 2022, associated with these investment services. This revenue was included in fee income in the accompanying Condensed Consolidated Income Statements. As discussed further in Note 1 of the Notes to Condensed Consolidated Financial Statements, as of June 30, 2023, Prudential has no remaining equity interest in the Company and is no longer a related party. 18. Operating Costs and Other Expenses The following table is a summary of the Company’s operating costs and other expenses (in millions): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Asset-based commission expenses $ 255 $ 250 $ 505 $ 525 Other commission expenses 177 229 351 469 Sub-advisor expenses 77 83 154 173 General and administrative expenses 238 153 474 394 Deferral of acquisition costs ( 127 ) ( 172 ) ( 248 ) ( 352 ) Total operating costs and other expenses $ 620 $ 543 $ 1,236 $ 1,209 83 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 19. Accumulated Other Comprehensive Income (Loss) 19. Accumulated Other Comprehensive Income (Loss) The following table represents changes in the balance of AOCI, net of income tax, related to unrealized investment gains (losses) (in millions, 2022 information recast for the adoption of LDTI): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Balance, beginning of period (1) $ ( 2,308 ) $ ( 119 ) $ ( 3,378 ) $ 1,360 Change in unrealized gains (losses) of investments ( 580 ) ( 3,290 ) 447 ( 6,871 ) Change in current discount rate - reserve for future policy benefits (2) 96 591 ( 50 ) 1,356 Change in non-performance risk on market risk benefits ( 764 ) 1,017 ( 480 ) 1,953 Change in unrealized gains (losses) - other 3 17 ( 11 ) 26 Change in deferred tax asset 181 42 71 444 Other comprehensive income (loss) before reclassifications ( 1,064 ) ( 1,623 ) ( 23 ) ( 3,092 ) Reclassifications from AOCI, net of tax 7 3 36 ( 7 ) Other comprehensive income (loss) ( 1,057 ) ( 1,620 ) 13 ( 3,099 ) Balance, end of period (1) $ ( 3,365 ) $ ( 1,739 ) $ ( 3,365 ) $ ( 1,739 ) (1) Includes $( 1,930 ) million and $( 2,106 ) million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of June 30, 2023 and December 31, 2022, respectively. (2) Represents the impact of changes in the discount rate used in the remeasurement of our direct reserves for future policy benefits and claims payable, net of the remeasurement of ceded reserves for future policy benefits and claims payable. The following table represents amounts reclassified out of AOCI (in millions, 2022 information recast for the adoption of LDTI): AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Condensed Consolidated Income Statement Three Months Ended June 30, 2023 2022 Net unrealized investment gain (loss): Net realized gain (loss) on investments $ 16 $ ( 7 ) Net gains (losses) on derivatives and investments Other impaired securities ( 7 ) 12 Net gains (losses) on derivatives and investments Net unrealized gain (loss), before income taxes 9 5 Income tax expense (benefit) 2 2 Reclassifications, net of income taxes $ 7 $ 3 AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Condensed Consolidated Income Statement Six Months Ended June 30, 2023 2022 Net unrealized investment gain (loss): Net realized gain (loss) on investments $ 76 $ ( 38 ) Net gains (losses) on derivatives and investments Other impaired securities ( 30 ) 30 Net gains (losses) on derivatives and investments Net unrealized gain (loss), before income taxes 46 ( 8 ) Income tax expense (benefit) 10 ( 1 ) Reclassifications, net of income taxes $ 36 $ ( 7 ) 84 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 20. Equity 20. Equity Preferred Stock 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. The Series A Preferred Stock carries i) an initial dividend rate of 8.000 % per annum to but excluding, March 30, 2028; and ii) from, and including, March 30, 2028, during each reset period, at a rate per annum equal to the Five-year U.S. Treasury Rate as of the applicable reset dividend determination date plus 3.728 %. The dividend is payable quarterly in arrears on March 30, June 30, September 30 and December 30, and commenced on June 30, 2023. Dividends on the Series A Preferred Stock are not cumulative. Under the terms of the Series A Preferred Stock, if the Company has not declared and paid, or declared and set aside a sum sufficient for the payment of, dividends on the Series A Preferred Stock for the immediately preceding dividend period (for the avoidance of doubt, there is no preceding dividend period for the initial dividend period), then the Company’s ability to pay dividends or make distributions with respect to its common stock, or to repurchase or otherwise acquire its common stock, is subject to certain restrictions. Similar restrictions would apply in respect of any preferred stock ranking on parity with, or junior to, the Series A Preferred Stock, if any such preferred stock were to be issued by the Company. We may, at our option, redeem the shares of Series A Preferred Stock (a) in whole but not in part at any time prior to March 30, 2028, (i) within 90 days after the occurrence of a “rating agency event” at a redemption price equal to $ 25,500 per share (equivalent to $ 25.50 per Depositary Share), plus an amount equal to any accrued but unpaid dividends to, but excluding, the redemption date, or (ii) within 90 days after the occurrence of a “regulatory capital event,” at a redemption price equal to $ 25,000 per share (equivalent to $ 25 per Depositary Share), plus an amount equal to any accrued but unpaid dividends to, but excluding, the redemption date, or (b) in whole or in part, from time to time, on or after March 30, 2028, at a redemption price equal to $ 25,000 per share (equivalent to $ 25 per Depositary Share), plus an amount equal to any accrued but unpaid dividends to, but excluding, the redemption date. If we redeem any shares of Series A Preferred Stock, a proportionate number of Depositary Shares will be redeemed. Holders of Depositary Shares have no right to require the redemption or repurchase of the Series A Preferred Stock or the Depositary Shares. The net proceeds from the sale are being used for general corporate purposes, including future repayments of debt. The following table presents declaration date, record date, payment date and dividends paid per preferred share and per depositary share of JFI’s Series A preferred stock: Dividends Paid Declaration Date Record Date Payment Date Per Preferred Share Per Depositary Share Quarter Ended 06/30/2023 May 8, 2023 June 1, 2023 June 30, 2023 $ 594.44 $ 0.59444 Common Stock At the time of the Demerger, the Company had two classes of common stock: Class A Common Stock and Class B Common Stock. Both classes had a par value of $ 0.01 per share. Each share of Class A Common Stock was entitled to one vote per share. Each share of Class B Common Stock was entitled to one-tenth of one vote per share. Except for voting rights, the Company’s Class A Common Stock and Class B Common Stock had the same dividend rights, were equal in all other respects, and were otherwise treated as if they were one class of shares. 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. At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 1 billion shares of common stock (formerly known as the Class A Common Stock at December 31, 2021). 85 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 20. Equity Share Repurchase Program On February 27, 2023, our Board of Directors authorized an increase of $ 450 million in our existing authorization to repurchase shares of our outstanding common stock as part of the Company's share repurchase program. As of August 3, 2023, the Company had remaining authorization to purchase $ 439 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company's capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time. It does not have an expiration date. There can be no assurance that we will continue share repurchases or approve any increase to, or approve any new, stock repurchase program, or as to the amount of any repurchases made pursuant to such programs. The Inflation Reduction Act of 2022 creates a 1% excise tax on net stock buybacks of publicly-traded U.S. corporations. Starting in 2023, such excise tax generally applies if a company repurchases in excess of $1 million of its stock in any given calendar year. The impact of this provision depends on the extent to which net share repurchases are made. 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 income tax expense. Through June 30, 2023, we have not incurred any excise tax as stock issuances (including preferred stock) were greater than stock repurchases. The following table represents share repurchase activities as part of this share repurchase program: Period Number of Shares Repurchased Total Payments (in millions) Average Price Paid Per Share 2022 (January 1- March 31) 3,433,610 $ 140 $ 40.84 2022 (April 1- June 30) 1,870,854 66 35.15 2022 (July 1- September 30) 1,200,000 39 32.75 2022 (October 1 - December 31) 1,142,105 38 33.33 Total 2022 7,646,569 $ 283 $ 37.05 2023 (January 1- March 31) 1,721,737 70 40.42 2023 (April 1- June 30) 1,394,797 47 33.87 Total 2023 3,116,534 $ 117 $ 37.49 The following table represents changes in the balance of common stock outstanding: Common Stock Issued Treasury Stock Total Common Stock Outstanding Shares at December 31, 2022 94,474,911 ( 11,784,813 ) 82,690,098 Share-based compensation programs 6,095 2,331,172 (1) 2,337,267 Shares repurchased under repurchase program — ( 3,116,534 ) ( 3,116,534 ) Shares at June 30, 2023 94,481,006 ( 12,570,175 ) 81,910,831 (1) Represents net shares issued from treasury stock pursuant to the Company’s share-based compensation programs. Dividends to Shareholders Any declaration of cash dividends on common stock 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, preferred stock, and contractual restrictions with respect to paying cash dividends, restrictions imposed by Delaware law, general business conditions and any other factors that JFI’s Board of Directors deems relevant in making any such determination. Therefore, there can be no assurance that we will pay any cash dividends to holders of our stock or as to the amount of any such cash dividend. 86 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 20. Equity The following table presents declaration date, record date, payment date and dividends paid per share of JFI’s common stock: Declaration Date Record Date Payment Date Dividends Paid Per Share Quarter Ended 03/31/2023 February 27, 2023 March 14, 2023 March 23, 2023 $ 0.62 06/30/2023 May 8, 2023 June 1, 2023 June 15, 2023 $ 0.62 Quarter Ended 03/31/2022 February 28, 2022 March 14, 2022 March 23, 2022 $ 0.55 06/30/2022 May 9, 2022 June 2, 2022 June 16, 2022 $ 0.55 21. Earnings Per Share Basic earnings per share is calculated by dividing net income (loss) attributable to Jackson Financial shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the net income (loss) attributable to Jackson Financial shareholders, by the weighted-average number of shares of common stock outstanding for the period, plus shares representing the dilutive effect of share-based awards. Beginning in 2021, the Company granted its first share-based awards subject to vesting provisions of the 2021 Omnibus Incentive Plan, which have a dilutive effect. See Note 18 of the Notes to Consolidated Financial Statements in the Company’s 2022 Annual Report, as recast in our Current Report on Form 8-K filed May 10, 2023, for further description of share-based awards. The following table sets forth the calculation of earnings per common share (2022 information recast for the adoption of LDTI): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (in millions, except share and per share data) Net income (loss) attributable to Jackson Financial Inc. $ 1,217 $ 3,263 $ ( 280 ) $ 5,457 Less: Preferred stock dividends 13 — 13 — Net income (loss) attributable to Jackson Financial Inc. common shareholders $ 1,204 $ 3,263 $ ( 293 ) $ 5,457 Weighted average shares of common stock outstanding - basic 82,595,287 85,968,564 82,620,558 86,649,493 Dilutive common shares 2,159,324 3,200,211 — 3,402,618 Weighted average shares of common stock outstanding - diluted (1) 84,754,611 89,168,775 82,620,558 90,052,111 Earnings per share—common stock Basic $ 14.58 $ 37.96 $ ( 3.55 ) $ 62.98 Diluted $ 14.21 $ 36.59 $ ( 3.55 ) $ 60.60 (1) In a quarter in which we reported a net loss attributable to Jackson Financial Inc., all common stock equivalents are anti-dilutive and are therefore excluded from the calculation of diluted shares and diluted per share amounts. The shares excluded from the diluted EPS calculation were 2,794,562 shares for the six months ended June 30, 2023. 87 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 22. Revision and Reclassifications of Prior Period Financial Statements 22. Revision and Reclassifications of Prior Period Financial Statements At September 30, 2022, the Company identified errors related to the classification of certain balances and amounts in line items of Condensed Consolidated Income Statements, and Condensed Consolidated Statements of Cash Flows of its previously issued Condensed Consolidated Financial Statements. These errors consisted of balances and amounts related to deferred sales inducement assets, liabilities for certain life-contingent annuities, sub-advisor fee expenses, and other operating expenses and did not impact previously reported net income, total equity, or net cash flows. Management evaluated these errors and the impact to previously issued financial statements based upon SEC Staff Accounting Bulletin No. 99, Materiality, which has since been codified in Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections. Based on this evaluation, management concluded that the adjustments and impact of the errors were not material to any previously issued quarterly or annual financial statements. However, to improve the consistency and comparability of the financial statements, management revised previously reported financial statement line items and related disclosures in this report. In addition, certain other immaterial amounts in prior period financial statements have been reclassified to conform to the current period presentation. The following tables, recast for the adoption of LDTI, present Condensed Consolidated Income Statements line items affected by the revisions and reclassifications of previously reported financial statements, detailing amounts previously reported, the impact upon those line items due to revisions and reclassifications and amounts as currently revised within the financial statements. For the six months ended June 30, 2022, the reclassification also impacted the Condensed Consolidated Statement of Cash Flows in the amount of $ 44 million, which increased financing cash flows offset by a decrease in operating cash flows. Condensed Consolidated Income Statements (in millions) As Previously Reported Impact for the Adoption of LDTI Impact of Revisions and Reclassifications As Revised Three Months Ended Three Months Ended Three Months Ended Three Months Ended 6/30/22 6/30/22 6/30/22 6/30/22 Revenues Fee income $ 1,852 $ — $ 82 $ 1,934 Premium 32 — — 32 Net investment income 747 — ( 55 ) 692 Total net gains (losses) on derivatives and investments 3,867 148 — 4,015 Total revenues 6,519 148 27 6,694 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 912 ( 649 ) 11 274 (Gain) loss from updating future policy benefits cash flow assumptions, net — 14 — 14 Market risk benefits (gains) losses, net — 1,184 — 1,184 Interest credited on other contract holder funds, net of deferrals and amortization 217 1 ( 9 ) 209 Operating costs and other expenses, net of deferrals 517 — 26 543 Amortization of DAC 1,198 ( 890 ) ( 1 ) 307 Total benefits and expenses 2,868 ( 340 ) 27 2,555 Pretax income (loss) 3,651 488 — 4,139 Income tax (benefit) expense 717 128 — 845 Net income (loss) $ 2,934 $ 360 $ — $ 3,294 88 Item 1 | Notes to Condensed Consolidated Financial Statements (Unaudited) | 22. Revision and Reclassifications of Prior Period Financial Statements Condensed Consolidated Income Statements (in millions) As Previously Reported Impact for the Adoption of LDTI Impact of Revisions and Reclassifications As Revised Six Months Ended Six Months Ended Six Months Ended Six Months Ended 6/30/22 6/30/22 6/30/22 6/30/22 Revenues Fee income $ 3,774 $ — $ 172 $ 3,946 Premium 66 — 3 69 Net investment income 1,467 — ( 85 ) 1,382 Total net gains (losses) on derivatives and investments 5,472 ( 1,995 ) — 3,477 Total revenues 10,820 ( 1,995 ) 90 8,915 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 1,479 ( 930 ) 25 574 (Gain) loss from updating future policy benefits cash flow assumptions, net — 29 — 29 Market risk benefits (gains) losses, net — ( 723 ) — ( 723 ) Interest credited on other contract holder funds, net of deferrals and amortization 423 2 ( 19 ) 406 Operating costs and other expenses, net of deferrals 1,124 — 85 1,209 Amortization of deferred acquisition costs 1,713 ( 1,088 ) ( 1 ) 624 Total benefits and expenses 4,783 ( 2,710 ) 90 2,163 Pretax income (loss) 6,037 715 — 6,752 Income tax (benefit) expense 1,047 186 — 1,233 Net income (loss) $ 4,990 $ 529 $ — $ 5,519 23. Subsequent Events The Company has evaluated subsequent events through the date these Condensed Consolidated Financial Statements were issued. Dividends Declared to Shareholders On August 7, 2023, our Board of Directors approved a third quarter cash dividend on JFI's common stock, $ 0.62 per share, payable on September 14, 2023, to shareholders of record on August 31, 2023. The Company also declared a cash dividend of $ 0.50 per depositary share (the "Depositary Shares"), 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 October 2, 2023, to Depositary Shares shareholders of record at the close of business on August 31, 2023. 89