Jackson Financial Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE The information in this Quarterly Report on Form 10-Q (this “report”) contains forward-looking statements about future events and circumstances and their effects upon revenues, expenses and business opportunities. Generally speaking, any statement in this report not based upon historical fact is a forward-looking statement. Forward-looking statements can also be identified by the use of forward-looking or conditional words, such as “could,” “should,” “can,” “continue,” “estimate,” “forecast,” “intend,” “look,” “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain,” “confident” and “commit” or similar expressions. In particular, statements regarding plans, strategies, prospects, targets and expectations regarding the business and industry are forward-looking statements. They reflect expectations, are not guarantees of performance and speak only as of the dates the statements are made. We caution investors that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected, expressed, or implied. Factors that could cause actual results to differ materially from those in the forward-looking statements include those reflected in Part I, Item 1A. Risk Factors and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 1, 2023, (the "2022 Annual Report"), as Part II, Item 7 was recast to reflect the adoption of LDTI in our Current Report on Form 8-K filed May 10, 2023, and elsewhere in Jackson Financial Inc.’s filings with the U.S. Securities and Exchange Commission (the "SEC"). Except as required by law, Jackson Financial Inc. does not undertake to update such forward-looking statements. You should not rely unduly on forward-looking statements. 87 Item 2 | Management’s Discussion and Analysis | Available Information & Principal Definitions Available Information We make available free of charge, through our investor relations page of our website, investors.jackson.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statements, and any amendments to those reports or statements as soon as reasonably practicable after these materials are electronically filed with, or furnished to, the SEC. We use our investor relations page of our website as a routine channel for distribution of important information, including news releases, analyst presentations, financial information, and corporate governance information. The content of Jackson’s website is not incorporated by reference into this Report or in any other report or document filed with the SEC, and any references to Jackson’s website are intended to be inactive textual references only. The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Principal Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report we, us, our and the Company Jackson Financial Inc. and its consolidated subsidiaries, unless the context refers only to Jackson Financial Inc. as a corporate entity (which we refer to as "JFI" or "Jackson Financial") Jackson Jackson National Life Insurance Company, our primary operating subsidiary. Brooke Life Brooke Life Insurance Company, our subsidiary and the direct parent company of Jackson National Life Insurance Company. Jackson Finance Jackson Finance, LLC, our subsidiary. JNAM Jackson National Asset Management LLC, our subsidiary. PPMH PPM Holdings, Inc., our subsidiary PPM PPM America, Inc., a subsidiary of PPMH ACL Allowance for credit loss Account value or account balance The amount of money in a customer’s account. For example, the value increases with additional premiums and investment gains, and it decreases with withdrawals, investment losses and fees. Athene Athene Life Re Ltd. and its affiliates and permitted transferees, including Athene Co-Invest Reinsurance Affiliate 1A Ltd. Athene Reinsurance Transaction The funds withheld coinsurance agreement entered into with Athene on June 18, 2020, effective June 1, 2020, to reinsure a 100% quota share of a block of our in-force fixed and fixed index annuity liabilities in exchange for approximately $1.2 billion in ceding commissions AUM (Assets under management) Investment assets that are managed by one of our subsidiaries and includes: (i) assets managed by PPM, including our investment portfolio (but excluding assets held in funds withheld accounts for reinsurance transactions) and third-party assets (including our former parent and its affiliates) and (ii) the separate account assets of our Retail Annuities segment managed and administered by JNAM. Benefit base A notional amount (not actual cash value) used to calculate guaranteed benefits within an owner's annuity contract. The death benefit and living benefit within the same contract may have different benefit bases. CMBS Commercial mortgage-backed securities DAC (Deferred acquisition costs) Represent the incremental costs related directly to the successful acquisition of new and certain renewal insurance policies and annuity contracts. The recognition of those costs has been deferred, and the deferred amounts are shown on the balance sheet as an asset subject to amortization over the estimated lives of those policies and contracts. Deferred tax asset or Deferred tax liability Assets or liabilities that are recorded for the difference between financial reporting, or book basis, and tax basis of an asset or a liability. 88 Item 2 | Management’s Discussion and Analysis | Available Information & Principal Definitions Fixed Annuity An annuity that guarantees a set annual rate of return with interest at rates we determine, subject to specified minimums. Credited interest rates are guaranteed not to change for certain limited periods of time after which rates may reset (up or down) based upon market rates for a trailing historical period, subject to the specified minimum rate. Fixed Index Annuity An annuity with an ability to share in the upside from certain financial markets, such as equity indices, and provides downside protection. General account assets The assets held in the general accounts of our insurance companies. GIC Guaranteed investment contract Guarantee Fees Fees charged on annuities for optional benefit guarantees offered on our annuity contracts. Guaranteed Benefits: GMAB (Guaranteed minimum accumulation benefit) An add-on benefit (enhanced benefits available for an additional cost) which entitles an owner to a minimum payment, typically in lump-sum, after a set period of time, typically referred to as the accumulation period. The minimum payment is based on the benefit base, which could be greater than the underlying account value. GMDB (Guaranteed minimum death benefit) An add-on benefit (enhanced benefits available for an additional cost) that guarantees an owner’s beneficiaries are entitled to a minimum payment based on the benefit base, which could be greater than the underlying account value, upon the death of the owner. GMIB (Guaranteed minimum income benefit) An add-on benefit (available for an additional cost) where an owner is entitled to annuitize the policy and receive a minimum payment stream based on the benefit base, which could be greater than the payment stream resulting from current annuitization of the underlying account value. GMWB (Guaranteed minimum withdrawal benefit) An add-on benefit (available for an additional cost) where an owner is entitled to withdraw a maximum amount of their benefit base each year, for which cumulative payments to the owner could be greater than the underlying account value. GMWB for Life (Guaranteed minimum withdrawal benefit for life) An add-on benefit (available for an additional cost) where an owner is entitled to withdraw the guaranteed annual withdrawal amount each year, for the duration of the policyholder’s life, regardless of account performance. MRB (Market Risk Benefit A contract or contract feature that provides protection to the contract holder from other-than-nominal capital market risk while exposing the insurance entity to other-than-nominal capital market risk. NAIC National Association of Insurance Commissioners NAV Net asset value Net flows Net flows represent the net change in customer account balances during a period after reflecting gross premium inflows and surrenders, withdrawals and benefit payment outflows. Net flows do not include investment performance, interest credited to customer accounts and policy charges. RBC (Risk-based capital) Statutory minimum level of capital that is required by regulators for an insurer to support its operations. RBC Ratio The ratio of statutory total adjusted capital to company action level required capital. A formal calculation is made once per year at year end. In other periods, the ratio is estimated. RILA A registered index-linked annuity that offers market index-linked investment options, subject to a cap, and offers a variety of guarantees designed to modify or limit losses. RMBS Residential mortgage-backed securities Variable annuity A type of annuity that offers tax-deferred investment into a range of asset classes and a variable return, which offers insurance features related to potential future income payments. VIE Variable interest entity 89 Item 2 | Management’s Discussion and Analysis | Overview & Executive Summary Overview of Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I, Item 1 of this report, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our 2022 Annual Report, as recast to reflect the adoption of LDTI in our Current Report on Form 8-K filed May 10, 2023. Jackson Financial Inc. (“Jackson Financial” or “JFI”) along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life. Jackson Financial, domiciled in the United States (“U.S.”), was previously a subsidiary of Prudential plc (“Prudential”), London, England and was the holding company for Prudential’s U.S. operations. The Company's demerger from Prudential was completed on September 13, 2021 (the "Demerger"). Jackson Financial’s primary operating subsidiary, Jackson National Life Insurance Company, is licensed to sell group and individual annuity products (including immediate, registered index-linked, deferred fixed, fixed index, fixed and variable annuities), and various protection products, primarily whole life, universal life and variable universal life and term life insurance products in all 50 states and the District of Columbia. Executive Summary This executive summary of Management’s Discussion and Analysis of Financial Condition and Results of Operation highlights selected information and may not contain all the information that is important to current or potential investors in our securities. You should read this report, together with our 2022 Annual Report, as recast to reflect the adoption of LDTI in our Current Report on Form 8-K filed May 10, 2023, in its entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us. We help Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life. We believe that we are uniquely positioned in our markets because of our differentiated products, well-known brand and disciplined risk management. Our market leadership is supported by our efficient and scalable operating platform and industry-leading distribution network. We believe these core strengths will enable us to grow profitably as an aging, U.S. population transitions into retirement. We earn revenues predominantly from fee income, spread income resulting from what we earn on investments versus our interest credited to contract holders, and margins on other insurance products. Our profitability is dependent on our ability to properly price and manage risk on insurance and annuity products, to manage our portfolio of investments effectively, and to control costs through expense discipline. We experience net income volatility due to the fact that we do not directly use hedging to offset the movement in our U.S. Generally Accepted Accounting Principles ("GAAP") market risk benefit liabilities as market conditions change from period to period. Our core dynamic hedging program seeks to offset changes in the economic liability associated with variable annuity guaranteed benefits due to market movements, while our macro hedging program seeks to protect statutory capital under a range of stress scenarios. We do not directly seek to offset the movement in our market risk benefit liabilities from changes in market conditions. As a result, the changes in the fair value of the derivatives used as part of the hedging program are not expected to match the movements in the market risk benefit liabilities resulting in volatility from changes in fair value recorded to net income. Accordingly, we evaluate and manage the performance of our business using Adjusted Operating Earnings, a non-GAAP financial measure that reduces the impact of market volatility by excluding changes in fair value of freestanding and embedded derivative instruments, market risk benefits and other items. See “Non-GAAP Financial Measures” below for information regarding our non-GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures. We manage our business through three segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. We report certain activities and items that are not included in these segments, including the results of PPM Holdings, Inc., the holding company of PPM, which manages the majority of our general account investment portfolio, in Corporate and Other. See Note 3 of Notes to Condensed Consolidated Financial Statements for further information on our segments. 90 Item 2 | Management’s Discussion and Analysis | Executive Summary An understanding of several key operating measures, including sales, account value, net flows, benefit base and assets under management ("AUM"), is helpful in evaluating our results. See “Key Operating Measures” below. Finally, we are affected by various economic, industry and regulatory trends , which are described below under “Macroeconomic, Industry and Regulatory Trends.” The table below presents selected financial and operating measures: Nine Months Ended September 30, 2023 2022 (in millions) Net income (loss) attributable to Jackson Financial Inc. common shareholders 2,469 7,336 Adjusted Operating Earnings (1) 869 1,160 Amount of shares repurchased under share repurchase program 188 245 Dividends on common shares 159 151 Return on Equity ("ROE") Attributable to Common Shareholders 38.9 % 109.4 % Adjusted Operating ROE Attributable to Common Shareholders on average equity (1) 11.6 % 17.7 % (1) Non-GAAP Financial Measure. See “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures” for information regarding our non-GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures. Recent Events of Note • Capital Returned to Common Shareholders: Since January 1, 2023 through September 30, 2023, we have returned $347 million to our common shareholders consisting of $159 million in dividends and $188 million in common share repurchases. Our capital return target for common shareholders for 2023 is $450-$550 million. Share repurchases, net of issuances for our share-based compensation, have reduced our outstanding shares of common stock from 82,690,098 at December 31, 2022 to 80,051,900 at September 30, 2023. See Note 20 of the Notes to Condensed Consolidated Financial Statements for further information on our share repurchases. • RILA Product: In the fourth quarter of 2021, our primary life insurance subsidiary, Jackson, and its insurance subsidiaries successfully launched Jackson Market Link Pro SM and Jackson Market Link Pro Advisory SM , a commission and an advisory based suite of registered index-linked annuities ("RILA"). In the second quarter of 2023, we enhanced our RILA suite of products with the launch of Jackson Market Link Pro SM II and Jackson Market Link Pro Advisory SM II. See “Key Operating Measures – Sales” below for information regarding RILA sales. • Defined Contribution Market: Also in the fourth quarter of 2021, we entered the defined contribution market as a carrier in the AllianceBernstein Lifetime Income Strategy. • Inflation Reduction Act of 2022 ("IRA"): As discussed in Note 15 of Notes to Condensed Consolidated Financial Statements in this report, a new corporate alternative minimum tax (“CAMT”) based on adjusted financial statement income, rather than reported taxable income, became effective January 1, 2023. We will be subject to the CAMT in 2023. Any CAMT incurred will be treated as a taxable temporary difference, and recorded as a deferred tax asset, so it is not expected to have a direct impact on total income tax expense; although it could affect our cash tax liabilities. As of September 30, 2023, the Company has recorded an estimate of $450 million for the provision for the CAMT based on the Company's interpretation of guidance with an offsetting increase to the deferred tax asset for the credit carryover resulting in no impact to total tax expense. The calculation of adjusted financial statement income, and therefore the CAMT, is subject to the issuance of regulatory g uidance by the U.S. Department of the Treasury. We continue to monitor developments and regulations associated with the IRA for any potential future impacts on our business, financial condition, results of operations and cash flows. 91 Item 2 | Management’s Discussion and Analysis | Key Operating Measures Key Operating Measures We use a number of operating measures, discussed below, that management believes provide useful information about our businesses and the operational factors underlying our financial performance. Sales Sales of annuities and institutional products include all money deposited by customers into new and existing contracts. We believe sales statistics are useful to gaining an understanding of, among other things, the attractiveness of our products, how we can best meet our customers’ needs, evolving industry product trends and the performance of our business from period to period. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Sales Variable annuities $ 2,429 $ 2,886 $ 7,351 $ 11,094 RILA 807 562 1,881 1,251 Fixed Index Annuities 41 37 178 69 Fixed Annuities (1) 35 75 146 85 Total Retail Annuity Sales 3,312 3,560 9,556 12,499 Total Institutional Product Sales 112 314 1,065 1,490 Total Sales $ 3,424 $ 3,874 $ 10,621 $ 13,989 (1) Includes payout annuities Lower retail sales were primarily due to decreased sales of our variable annuities with lifetime living benefits, partially offset by RILA sales. Sales of fixed index annuities increased in 2023 due to the higher interest rate environment, which enabled more favorable pricing actions. Account Value Account value generally equals the account value of our variable annuities, RILA, fixed index annuities, fixed annuities, interest sensitive life, and institutional products. It reflects the total amount of customer invested assets that have accumulated within a respective product and equals cumulative customer contributions, which includes gross deposits or premiums, plus accrued credited interest plus or minus the impact of market movements, as applicable, less withdrawals and various fees. We believe account value is a useful metric in providing an understanding of, among other things, the sources of potential fee income generation, potential benefit obligations and risk management priorities. 92 Item 2 | Management’s Discussion and Analysis | Key Operating Measures September 30, 2023 December 31, 2022 (in millions) Account Value GMWB For Life $ 154,560 $ 149,706 GMWB 5,698 5,674 GMIB 1,290 1,356 No Living Benefits 50,024 49,073 Total Variable Annuity Account Value 211,572 205,809 RILA 3,841 1,875 Fixed Index Annuity (1) 598 415 Fixed Annuity (1) 1,214 1,219 Total Fixed & Fixed Index Annuity Account Value (1) 1,812 1,634 Payout Annuity (1) 634 649 Total Retail Annuities Account Value (1) $ 217,859 $ 209,967 Total Institutional Products Account Value $ 8,712 $ 9,019 Total Closed Life and Annuity Blocks Account Value (1) $ 8,108 $ 8,288 (1) Net of reinsurance. Net Flows Net flows represent the net change in customer account balances during a period, reflecting gross premiums received and surrenders, withdrawals and benefits payments. Net flows exclude investment performance, interest credited to customer accounts, transfers between fixed and variable benefits for variable annuities and policy charges. We believe net flows is a useful metric in providing an understanding of, among other things, sales, ongoing premiums and deposits, the changes in account value from period to period, sources of potential fee income and policyholder behavior. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Net Flows: Variable Annuity $ (2,314) $ (666) $ (6,133) $ (964) RILA 794 561 1,834 1,248 Fixed Index Annuity (1) 36 38 171 71 Fixed Annuity (1) 10 58 (11) 45 Payout Annuity (1) (18) (22) (55) (66) Total Retail Annuities Net Flows (1) (1,492) (31) (4,194) 334 Net flows ceded (879) (880) (3,078) (2,030) Total Retail Annuities net flows, gross of reinsurance $ (2,371) $ (911) $ (7,272) $ (1,696) Total Institutional Products Net Flows $ (242) $ (114) $ (533) $ (465) Total Closed Life and Annuity Blocks Net Flows (1) $ (73) $ (56) $ (205) $ (195) (1) Net of reinsurance. 93 Item 2 | Management’s Discussion and Analysis | Key Operating Measures Net flows, net of reinsurance, decreased for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, driven by increased variable annuity surrenders and withdrawals coupled with decreased variable annuity sales, partially offset by increased RILA sales. Benefit Base Benefit base refers to a notional amount that represents the value of a customer’s guaranteed benefit and, therefore, may be a different value from the invested assets in a customer’s account value. The benefit base may be used to calculate the fees for a customer’s guaranteed benefits within an annuity contract. The guaranteed death benefit and guaranteed living benefit within the same contract may not have the same benefit base. We believe benefit base is a useful metric for our variable annuity policies in providing an understanding of, among other things, fee income generation, potential optional guarantee benefit obligations and risk management priorities. The following table shows variable annuity account value and benefit base as of September 30, 2023 and December 31, 2022: September 30, 2023 December 31, 2022 Account Value Benefit Base Account Value Benefit Base (in millions) No Living Benefits $ 50,024 N/A $ 49,073 N/A By Guaranteed Living Benefits: GMWB for Life 154,560 189,849 149,706 189,814 GMWB 5,698 5,433 5,674 5,655 GMIB (1) 1,290 1,831 1,356 1,929 Total $ 211,572 $ 197,113 $ 205,809 $ 197,398 By Guaranteed Death Benefit: Return of AV (No GMDB) $ 25,563 N/A $ 25,049 N/A Return of Premium 162,243 138,052 157,339 138,419 Highest Anniversary Value 12,313 13,738 12,128 14,272 Rollup 3,179 4,544 3,229 4,695 Combination HAV/Rollup 8,274 10,162 8,064 10,297 Total $ 211,572 $ 166,496 $ 205,809 $ 167,683 (1) Substantially all our GMIB benefits are reinsured. Assets Under Management AUM, or assets under management, refers to investment assets that are managed by one of our subsidiaries and includes: (i) assets managed by PPM, including our investment portfolio (but excluding assets held in funds withheld accounts for reinsurance transactions) and third-party assets (including our former parent and its affiliates) and (ii) the separate account assets of our Retail Annuities segment managed and administered by Jackson National Asset Management LLC ("JNAM"). Total AUM reflects exclusions between segments to avoid double counting. We believe AUM is a useful metric for understanding, among other things, the sources of our earnings, net investment income and performance of our invested assets, customer directed investments and risk management priorities. September 30, December 31, 2023 2022 (in millions) Jackson Invested Assets $ 43,412 $ 44,486 Third Party Invested Assets (including CLOs) 25,800 26,993 Total PPM AUM 69,212 71,479 Total JNAM AUM 224,465 219,070 Total AUM $ 293,677 $ 290,549 94 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Macroeconomic, Industry and Regulatory Trends We discuss a number of trends and uncertainties below that we believe could materially affect our future business performance, including our results of operations, our investments, our cash flows, and our capital and liquidity position. Macroeconomic and Financial Market Conditions Our business and results of operations are affected by macroeconomic factors. The level of interest rates and shape of the yield curve, credit and equity market performance and equity volatility, regulation, tax policy, the level of U.S. employment, inflation and the overall economic growth rate can affect both our short- and long-term profitability. Monetary and fiscal policy in the U.S., or similar actions in foreign nations, could result in increased volatility in financial markets, including interest rates, currencies and equity markets, and could impact our business in both the short-term and medium-term. Political events, including future pandemics, civil unrest, tariffs or other barriers to international trade, and the effects that these or other political events could have on levels of economic activity, could also impact our business through any of their individual impacts on consumers’ behavior or impact on financial markets. In the short- to medium-term, the potential for increased volatility could pressure sales and reduce demand for our products as consumers consider purchasing alternative products to meet their objectives. Our financial performance can be adversely affected by market volatility and equity market declines if fees assessed on the account value of our annuities fluctuate, hedging costs increase, and revenues decline due to reduced sales and increased outflows. In early March through late April 2023, several regional U.S. banks were taken over by federal regulators with the Federal Deposit Insurance Corporation ("FDIC") named as the receiver. These bank failures raised concern among investors and depositors regarding the solvency and liquidity of regional banks across the country, leading to increased stress on the banking sector. Except for assets held as part of reinsurance arrangements within our funds withheld portfolios, where the Company does not have exposure to default risk, the Company's general account portfolio had no exposure to Silicon Valley Bank ("SVB"), Signature Bank, First Republic Bank, and Credit Suisse Additional Tier 1 debt as of September 30, 2023. Equity Market Environment Our financial performance is impacted by equity market performance. On our variable annuities, the fees we earn that are not associated with guaranteed benefits are mainly based on the account value, which changes with equity market levels. In addition, our hedges could be less effective in periods of large directional movements or we could experience more frequent or more costly rebalancing in periods of high volatility, which would lead to adverse performance versus our hedge targets and increased hedging costs. Further, we also are exposed to basis risk, which results from our inability to purchase or sell hedge assets whose performance is directly correlated to the performance of the funds into which customers allocate their assets. We make available to customers funds where we believe we can transact in sufficiently correlated hedge assets, yet we anticipate some variance in the performance of our hedge assets and customer funds. This variance may result in our hedge assets outperforming or underperforming the customer assets they are intended to match. This variance may be exacerbated during periods of high volatility, leading to a mismatch in our hedge results relative to our hedge targets and U.S GAAP results. 95 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Interest Rate Environment The interest rate environment has affected, and will continue to affect, our business and financial performance for the following reasons: • Periods of sharp rises in interest rates, as we have seen recently as a result of the Federal Reserve’s actions impact investment-related activity including investment income returns, net investment spread results, new money rates, mortgage loan prepayments, and bond redemptions. Due to increases in interest rates, the yield on new investments has generally exceeded the yield on asset maturities and redemptions (runoff yield). Rising interest rates also impact the hedging results of our variable annuity business as the market value of interest rate hedges decline, thereby driving immediate hedging losses. We would expect lower hedging costs and reduced levels of hedging going forward. Further, we expect near-term hedging losses from rising rates may be more than offset by changes in the fair value of the related guaranteed benefit liabilities, which are reduced with an increase in interest rates. • Interest rate increases also expose us to disintermediation risk, where higher rates make currently sold fixed annuity products more attractive while simultaneously reducing the market value of assets backing our liabilities. This creates an incentive for our customers to lapse their products in an environment where selling assets causes us to realize losses. • Additionally, our statutory total adjusted capital ("TAC") may be negatively impacted by rising rates due to minimum required reserving levels (i.e., cash surrender value floor) when reserve releases are limited and unable to offset interest rate hedging losses. The risk based capital, or RBC, ratio may increase or decrease depending on the interaction between movements in TAC and movements in statutory required capital (the company action level, or "CAL”), which could impact available dividends from our insurance subsidiaries. CAL will generally decline in rising interest rate environments. However, at times when the cash surrender value floor materially affects the CAL calculation (in addition to reserves), rising rates can, and have, negatively affected the RBC ratio as well. We are pursuing additional methods of moderating the impact of the cash surrender value floor on TAC, CAL and RBC. The implementation of any such method would be subject to Board and regulatory approval. We can provide no assurance that any such method will be approved or the timing or impact of any such adoption and implementation. • Low interest rate environments could also subject us to increased hedging costs or an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for optional guaranteed benefits, decreasing statutory surplus, which would adversely affect our insurance subsidiaries' ability to pay dividends. Certain inputs to the statutory models rely on prescribed interest rates, which are determined using an historical interest rate perspective with a mean reversion path over the longer term. In addition, low interest rates could also increase the perceived value of optional guaranteed benefit features to our customers, which in turn could lead to a higher utilization of withdrawal or annuitization features of annuity policies and higher persistency of those products over time. • Some of our annuities have guaranteed minimum interest crediting rates (“GMICRs”) that limit our ability to reduce crediting rates. If earnings on our investment portfolio decline, those GMICRs may result in net investment spread compression that negatively impacts earnings. Many of our annuities have GMICRs that reset at contractually specified times after issue, subject to a contractually specified minimum GMICR. In the current rising interest rate environment, the interest crediting rate on those GMICRs has increased. Conversely, in a falling interest rate environment interest crediting rate will eventually decrease; however, there may be a lag between interest rate movements and the GMICR reset, temporarily limiting our ability to lower crediting rates. When policies have comparatively high GMICRs, in a subsequent low interest rate environment more customers are expected to hold on to their policies, which may result in lower lapses than previously expected. 96 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Credit Market Environment Conditions in fixed income markets impact our financial performance. As credit spreads widen, the fair value of our existing investment portfolio generally decreases, although we generally expect the widening spreads to increase the yield on new fixed income investments. Conversely, as credit spreads tighten, the fair value of our existing investment portfolio generally increases, and the yield available on new investment purchases decreases. While changing credit spreads impact the fair value of our investment portfolio, this revaluation is generally reflected in our AOCI. The revaluation will impact net income for realized gains or losses from the sale of securities, the change in fair value of trading securities or securities carried at fair value under the fair value election, or potential changes in the allowance for credit loss ("ACL"). In addition, if credit conditions deteriorate due to a recession or other negative credit events in capital markets, we could experience an increase in defaults and other-than-temporary-impairments (“OTTI”). OTTI in our underlying investments would result in a reduction in TAC held by our insurance company subsidiaries. Also, shifts in the credit quality or credit rating downgrades of our investments as a result of stressed credit conditions may also impact the level of regulatory required statutory capital for our insurance company subsidiaries. As such, significant credit rating downgrades along with elevated defaults and OTTI losses would negatively impact our RBC ratio, which could impact available dividends from our insurance subsidiaries. Pandemics and Other Public Health Crises The COVID-19 pandemic disrupted our business and contributed to additional operating costs in prior years. Other similar pandemics, epidemics or disease outbreaks in the U.S. or globally could disrupt our business by affecting how we protect and interact with our critical workforce, customers, key vendors, third-party suppliers, or counterparties with whom we transact. Disruption could result from an inability of those persons to work or transact effectively due to illness, quarantines, and government actions in response to public health emergencies. The extent and severity of governmental actions will necessarily depend on the extent and severity of the perceived emergency. We have risk management plans in place and were able to navigate through COVID-19 with remote and hybrid work environments; however, those plans may be challenged by a new public health emergency. Consumer Behavior We believe that many retirees look to tax-efficient savings products as a tool for addressing their unmet need for retirement planning. We believe our products are well-positioned to meet this increasing consumer demand. However, consumer behavior may be impacted by increased economic uncertainty, unemployment rates, declining equity markets, significant changes in interest rates and increased volatility of financial markets. In recent years, we have introduced new products to better address changes in consumer demand and targeted distribution channels that meet changes in consumer preferences. Demographics We expect demographic trends in the U.S. population, in particular the increase in the number of retirement age individuals, to generate significant demand for our products. In addition, the potential risk to government social safety net programs and shifting of responsibility for retirement planning and financial security from employers and other institutions to employees, highlight the need for individuals to plan for their long-term financial security and will create additional opportunities to generate sustained demand for our products. We believe we are well-positioned to capture the increased demand generated by these demographic trends. 97 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Regulatory Policy We operate in a highly regulated industry. Our insurance company subsidiaries are regulated primarily at the state level, with some policies and products also subject to federal regulation. As such, regulations recently approved or currently under review at both the U.S. federal and state levels could impact our business model, including statutory reserve and capital requirements. We anticipate that our ability to respond to changes in regulation and other legislative activity will be critical to our long-term financial performance. In particular, the following could materially impact our business: Department of Labor Fiduciary Advice Rule The Department of Labor (the “DOL”) issued a regulatory action, effective February 16, 2021, that reinstated the text of the DOL’s 1975 investment advice regulation defining what constitutes fiduciary “investment advice” to Employee Retirement Income Security Act ("ERISA") plans and individual retirement accounts ("IRAs"). The related guidance provided by the DOL broadened the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Federal income tax code. The rule and accompanying guidance faced hurdles, including a February 2023 U.S. District Court decision that vacated the roll over portion of the guidance, ruling that the DOL exceeded its authority in this area. On October 31, 2023, the DOL initiated another significant rulemaking process in this area. The department issued proposed revisions to the definition of fiduciary and related Prohibited Transaction Exemptions (PTE) (the “Fiduciary Advice Rule”), redefining what constitutes fiduciary “investment advice” to ERISA plans and IRAs. The newest proposal again extends fiduciary status to one-time rollover recommendations and broadens the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Federal income tax code, despite the recent U.S. District Court decision. The proposal also narrows the applicability of PTE 84-24 specific to insurance commissions for annuity recommendations to independent insurance agents recommending non-securities products. The changes to PTE 84-24 also impose certain supervisory obligations on insurance carriers that are similar to those already covered under the National Association of Insurance Commissioner’s (NAIC) Suitability in Annuity Transactions Model Regulation. The proposal is subject to a 60-day comment period and a final rulemaking will be effective 60 days after publication in the Federal Register. We continue to analyze the impact of the Fiduciary Advice Rule, and, while we cannot predict the rule’s impact, it could have an adverse effect on sales of annuities through our distribution partners. We may need to take certain additional actions to comply with, or assist our distributors in their compliance with, the Fiduciary Advice Rule. The Fiduciary Advice Rule may also lead to changes to our compensation practices and product offerings and increase litigation risk, which could adversely affect our results of operations and financial condition. Nonetheless, because the distribution of annuities is primarily through intermediaries, most of which have implemented systems and processes to align to existing state and federal fiduciary and/or best interest standards, we believe that we will have more limited exposure to the new Fiduciary Advice Rule. While the rule may not have a material impact on our business, it may impede certain investors’ access to financial advice or annuities that provide guaranteed income streams. Legislative Reforms Congress approved the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act") on December 20, 2019. The SECURE Act provided individuals with greater access to retirement products. Namely, it made it easier for 401(k) programs to offer annuities as an investment option by, among other things, creating a statutory safe harbor in ERISA for a retirement plan’s selection of an annuity provider. The SECURE Act represents the largest overhaul to retirement plans in over a decade. On December 29, 2022, SECURE 2.0 Act of 2022 (“SECURE 2.0”) was signed into law as part of a larger omnibus appropriations bill. SECURE 2.0 contains provisions that expand automatic enrollment programs, increase the age for required minimum distributions, and eliminate age requirements for traditional IRA contributions. These changes are intended to expand and increase Americans’ retirement savings. We view these reforms as beneficial to our business model and expect growth opportunities will arise from the new laws. 98 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Tax Laws All our annuities offer investors the opportunity to benefit from tax deferral. If U.S. tax laws were to change such that our annuities no longer offer tax-deferred advantages, demand for our products could materially decrease. Cybersecurity Event As previously disclosed in our Form 10-Q for the quarter ended June 30, 2023, Jackson determined that Jackson’s information at one of our third-party vendors, Pension Benefit Information, LLC (“PBI”), was impacted by a cybersecurity breach involving Progress Software Corporation’s MOVEit Transfer software. This service helps Jackson to identify possible beneficiaries for death benefits. According to PBI, an unknown actor exploited the MOVEit flaw to access PBI’s systems and download certain data. Our assessment indicated that personally identifiable information relating to approximately 850,000 of Jackson’s customers was obtained by that unknown actor from PBI’s systems. PBI informed Jackson that it rectified the MOVEit vulnerability. Separately, Jackson experienced unauthorized access to two servers as a result of the MOVEit flaw; however, the scope and nature of the data accessed on those servers was significantly less than the PBI impact. Our assessment was that a subset of information relating to certain partner organizations and individuals, including certain customers of Jackson, was obtained from the two affected servers. At this time, we do not believe the incident or related litigation will have a material adverse effect on the business, operations, or financial results of Jackson Financial. Non-GAAP Financial Measures In addition to presenting our results of operations and financial condition in accordance with U.S. GAAP, we use and report selected non-GAAP financial measures. Management believes that the use of these non-GAAP financial measures, together with relevant U.S. GAAP financial measures, provides a better understanding of our results of operations, financial condition and the underlying performance drivers of our business. These non-GAAP financial measures should be considered supplementary to our results of operations and financial condition that are presented in accordance with U.S. GAAP and should not be viewed as a substitute for the U.S. GAAP financial measures. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Consequently, our non-GAAP financial measures may not be comparable to similar measures used by other companies. These non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with U.S. GAAP. Adjusted Operating Earnings Adjusted Operating Earnings is an after-tax non-GAAP financial measure, which we believe should be used to evaluate our financial performance on a consolidated basis by excluding certain items that may be highly variable from period to period due to accounting treatment under U.S. GAAP or that are non-recurring in nature, as well as certain other revenues and expenses that we do not view as driving our underlying performance. Adjusted Operating Earnings should not be used as a substitute for net income as calculated in accordance with U.S. GAAP. However, we believe the adjustments to net income are useful for gaining an understanding of our overall results of operations. 99 Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures Adjusted Operating Earnings equals our Net income (loss) attributable to Jackson Financial Inc's common shareholders (which excludes income attributable to non-controlling interest and dividends on preferred stock) adjusted to eliminate the impact of the items described in the following numbered paragraphs. These items are excluded as they may vary significantly from period to period due to near-term market conditions or are otherwise not directly comparable or reflective of the underlying performance of our business. We believe these exclusions provide investors a better picture of the drivers of our underlying performance. 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 accounting guidance on January 1, 2021 associated with items excluded from adjusted operating earnings prior to transition; and (v) the impact on the valuation of Guaranteed Benefits and Net Hedging Results arising from changes in underlying actuarial assumptions. We believe excluding these items removes the impact to both revenue and related expenses associated with Guaranteed Benefits and Net Hedging Results. 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. 3. Change in Value of Funds Withheld Embedded Derivative and Net investment income on funds withheld assets: Composed 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. 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, such as costs relating to our separation from Prudential. Operating income taxes are calculated using the prevailing corporate federal income tax rate of 21% while taking into account any items recognized differently in our financial statements and federal income tax returns, including the dividends received deduction and other tax credits. For interim reporting periods, the Company uses an estimated annual effective tax rate (“ETR”) in computing its tax provision including consideration of discrete items. 100 Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures The following is a reconciliation of Adjusted Operating Earnings to net income (loss) attributable to Jackson Financial common shareholders, the most comparable U.S. GAAP measure. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Net income (loss) attributable to Jackson Financial Inc common shareholders $ 2,762 $ 1,879 $ 2,469 $ 7,336 Add: dividends on preferred stock 11 — 24 — Add: income tax expense (benefit) 712 657 399 1,890 Pretax income (loss) attributable to Jackson Financial Inc 3,485 2,536 2,892 9,226 Non-operating adjustments (income) loss: Guaranteed benefits and hedging results: Fees attributable to guarantee benefit reserves (784) (771) (2,345) (2,300) Net movement in freestanding derivatives 271 253 4,694 (1,118) Market risk benefits (gains) losses, net (2,376) (913) (5,120) (1,636) Net reserve and embedded derivative movements (45) 7 338 47 Amortization of DAC associated with non-operating items at date of transition to LDTI 148 162 450 501 Assumption changes — — — — Total guaranteed benefits and net hedging results (2,786) (1,262) (1,983) (4,506) Net realized investment (gains) losses 127 6 235 131 Net realized investment (gains) losses on funds withheld assets (159) (555) 648 (2,660) Net investment income on funds withheld assets (303) (313) (862) (937) Loss on funds withheld reinsurance transaction — — — — Other items (9) 2 32 69 Total non-operating adjustments (3,130) (2,122) (1,930) (7,903) Pretax adjusted operating earnings 355 414 962 1,323 Less: operating income tax expense (benefit) 29 38 69 163 Adjusted operating earnings before dividends on preferred stock 326 376 893 1,160 Less: dividends on preferred stock 11 — 24 — Adjusted operating earnings $ 315 $ 376 $ 869 $ 1,160 Adjusted Book Value Attributable to Common Shareholders and Adjusted Operating ROE Attributable to Common Shareholders We use Adjusted Operating Return on Equity ("ROE") Attributable to Common Shareholders to manage our business and evaluate our financial performance which: (i) excludes items that vary from period to period due to accounting treatment under U.S. GAAP or that are non-recurring in nature, as such items may distort the underlying performance of our business; and (ii) is calculated by dividing our Adjusted Operating Earnings by average Adjusted Book Value Attributable to Common Shareholders. Adjusted Book Value Attributable to Common Shareholders excludes Preferred Stock and AOCI attributable to Jackson Financial, which does not include AOCI arising from investments held within the funds withheld account related to the Athene Reinsurance Transaction. We exclude AOCI attributable to Jackson Financial from Adjusted Book Value Attributable to Common Shareholders because our invested assets are generally invested to closely match the duration of our liabilities, which are longer duration in nature, and, therefore we believe period-to-period fair market value fluctuations in AOCI to be inconsistent with this objective. We believe excluding AOCI attributable to Jackson Financial is more useful to investors in analyzing trends in our business. Changes in AOCI within the funds withheld account related to the Athene Reinsurance Transaction offset the related non-operating earnings from the Athene Reinsurance Transaction resulting in a minimal net impact on Adjusted Book Value of Jackson Financial. 101 Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures Adjusted Book Value Attributable to Common Shareholders and Adjusted Operating ROE Attributable to Common Shareholders should not be used as substitutes for total shareholders’ equity and ROE as calculated using annualized net income and average equity in accordance with U.S. GAAP. However, we believe the adjustments to equity and earnings are useful to gaining an understanding of our overall results of operations. The following is a reconciliation of Adjusted Book Value Attributable to Common Shareholders to total shareholders’ equity and a comparison of Adjusted Operating ROE Attributable to Common Shareholders to ROE Attributable to Common Shareholders, the most comparable U.S. GAAP measure: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Net income (loss) attributable to Jackson Financial Inc. common shareholders $ 2,762 $ 1,879 $ 2,469 $ 7,336 Adjusted Operating Earnings 315 376 869 1,160 Total shareholders' equity $ 9,478 $ 10,219 $ 9,478 $ 10,219 Less: Preferred stock 533 — 533 — Total common shareholders' equity 8,945 10,219 8,945 10,219 Adjustments to total common shareholders’ equity: Exclude AOCI attributable to Jackson Financial Inc. (1) 2,926 716 2,926 716 Adjusted Book Value Attributable to Common Shareholders $ 11,871 $ 10,935 $ 11,871 $ 10,935 ROE Attributable to Common Shareholders 129.5 % 75.4 % 38.9 % 109.4 % Adjusted Operating ROE Attributable to Common Shareholders on average equity 11.8 % 14.5 % 11.6 % 17.7 % (1) Excludes $(2,261) million and $(2,317) million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of September 30, 2023 and 2022, respectively, are not attributable to Jackson Financial Inc. and are therefore not included as an adjustment to total shareholders’ equity in the reconciliation of Adjusted Book Value Attributable to Common Shareholders to total shareholders’ equity. 102 Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations Consolidated Results of Operations The following table sets forth, for the periods presented, certain data from our Condensed Consolidated Income Statements. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Revenues Fee income $ 1,950 $ 1,908 $ 5,751 $ 5,854 Premiums 32 36 109 105 Net investment income: Net investment income excluding funds withheld assets 479 327 1,314 1,085 Net investment income on funds withheld assets 303 313 862 937 Total net investment income 782 640 2,176 2,022 Net gains (losses) on derivatives and investments: Net gains (losses) on derivatives and investments (335) (196) (5,173) 1,176 Net gains (losses) on funds withheld reinsurance treaties 159 555 (648) 2,660 Total net gains (losses) on derivatives and investments (176) 359 (5,821) 3,836 Other income 18 19 52 60 Total revenues 2,606 2,962 2,267 11,877 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 232 237 701 811 (Gain) loss from updating future policy benefits cash flow assumptions, net (1) (37) 23 (8) Market risk benefits (gains) losses, net (2,376) (913) (5,120) (1,636) Interest credited on other contract holder funds, net of deferrals and amortization 284 224 864 630 Interest expense 49 29 150 73 Operating costs and other expenses, net of deferrals 626 592 1,862 1,801 Amortization of deferred acquisition costs 290 305 874 929 Total benefits and expenses (896) 437 (646) 2,600 Pretax income (loss) 3,502 2,525 2,913 9,277 Income tax expense (benefit) 712 657 399 1,890 Net income (loss) 2,790 1,868 2,514 7,387 Less: Net income (loss) attributable to noncontrolling interests 17 (11) 21 51 Net income (loss) attributable to Jackson Financial Inc. 2,773 1,879 2,493 7,336 Less: Dividends on preferred stock 11 — 24 — Net income (loss) attributable to Jackson Financial Inc. common shareholders $ 2,762 $ 1,879 $ 2,469 $ 7,336 103 Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations Three Months Ended September 30, 2023 compared to Three Months Ended September 30, 2022 Pretax Income (Loss) Our pretax income (loss) increased by $977 million to $3,502 million for the three months ended September 30, 2023, from $2,525 million for the three months ended September 30, 2022 primarily due to: • $1,463 million favorable movements in market risk benefits (gains) losses, due primarily to more favorable changes in interest rates during the three months ended September 30, 2023, as well as less unfavorable current quarter separate account returns compared to the prior year quarter; • $142 million increase in net investment income as a result of higher income on bonds, driven by higher yields in 2023 compared to the prior year quarter, and higher income on limited partnership investments, which are recorded on a one quarter lag; and • $42 million increase in fee income primarily due to higher average separate account values compared to the prior year quarter. These increases were partially offset by: • $535 million decrease in total net gains (losses) on derivatives and investments as shown in the table below and driven by: Three Months Ended September 30, 2023 2022 Variance (in millions) Net gains (losses) excluding derivatives and funds withheld assets $ (127) $ (6) $ (121) Net gains (losses) on freestanding derivatives (310) (248) (62) Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance) 102 58 44 Net gains (losses) on derivative instruments (208) (190) (18) Net gains (losses) on funds withheld reinsurance 159 555 (396) Total net gains (losses) on derivatives and investments $ (176) $ 359 $ (535) ◦ Losses excluding derivatives and funds withheld assets were driven by losses on disposals of debt securities during the three months ended September 30, 2023; and ◦ Losses recognized on funds withheld reinsurance were driven by the significant rise in interest rates during 2022 which resulted in income reported for the movement in the embedded derivative compared to 2023, where rates did not experience the same increase; • $60 million increase in interest credited on contract holder funds, net of deferrals, primarily due to an increase in flexible annual minimum interest rates on variable annuity general account funds and higher crediting rates on new institutional business; • $34 million increase in operating costs and other expenses, net of deferrals, primarily due to an increase in incentive and deferred compensation expenses during the three months ended September 30, 2023 and higher asset-based non-deferrable commissions, due to higher account values during the three months ended September 30, 2023, compared to the prior year quarter; • $31 million increase in (gain) loss from updating actual benefit cash flows used in the net premium ratio, net of death, other policy benefits, and change in policy reserves primarily due to higher other policy benefits, partially offset by a greater decrease in reserves due to the payout of persistency bonuses on a sub block of business; and • $20 million higher interest expense incurred during 2023 primarily related to interest on our repurchase agreements and other short-term borrowings. 104 Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations Income Taxes Income tax expense increased $55 million to an expense of $712 million for the three months ended September 30, 2023, from an expense of $657 million for the three months ended September 30, 2022. The provision for income tax in the current period led to an effective income tax rate ("ETR") of 20.5% for the three months ended September 30, 2023 compared to the September 30, 2022 ETR of 25.9%. The change in the ETR during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was due to the relationship of the taxable income to the consolidated pre-tax income and the impact of tax adjustments related to prior year returns recorded in the current quarter. Our ETR differs from the statutory rate of 21% primarily due to the dividends received deduction and the utilization of tax credits. See Note 15 of Notes to Consolidated Financial Statements in our audited Consolidated Financial Statements, as recast in our Current Report on Form 8-K filed May 10, 2023 and Note 15 of Notes to Condensed Consolidated Financial Statements in this report for more information. Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022 Pretax Income (Loss) Our pretax income (loss) decreased by $6,364 million to $2,913 million for the nine months ended September 30, 2023, from $9,277 million for the nine months ended September 30, 2022 primarily due to: • $9,657 million decrease in total net gains (losses) on derivatives and investments as shown in the table below and driven by: Nine Months Ended September 30, 2023 2022 Variance (in millions) Net gains (losses) excluding derivatives and funds withheld assets $ (235) $ (131) $ (104) Net gains (losses) on freestanding derivatives (4,811) 1,181 (5,992) Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance) (127) 126 (253) Net gains (losses) on derivative instruments (4,938) 1,307 (6,245) Net gains (losses) on funds withheld reinsurance (648) 2,660 (3,308) Total net gains (losses) on derivatives and investments $ (5,821) $ 3,836 $ (9,657) ◦ Freestanding derivative losses on our equity derivatives were primarily driven by market increases in 2023, compared to decreases in the prior year, partially offset by lower amounts of losses within our interest rate related hedge instruments, reflecting lower interest rate increases in 2023, compared to the prior year. ◦ Losses recognized on funds withheld reinsurance were driven by the significant rise in interest rates during 2022 which resulted in income reported for the movement in the embedded derivative, compared to 2023 where rates were more stable; • $234 million increase in interest credited on contract holder funds, net of deferrals, primarily due to an increase in flexible annual minimum interest rates on variable annuity general account funds and higher crediting rates on new institutional business; • $103 million decrease in fee income primarily due to lower average separate account values compared to prior year; • $77 million higher interest expense incurred during 2023 primarily related to interest on our repurchase agreements, senior notes, and other short-term borrowings; and • $61 million increase in operating costs and other expenses, net of deferrals, primarily due to an increase in deferred compensation expenses during 2023 compared to the prior year, partially offset by lower asset-based non-deferrable commissions and lower sub-advisor expenses due to lower account values, and lower taxes, licenses and fees compared to prior year. These decreases were partially offset by: • $3,484 million favorable movements in market risk benefits (gains) losses, net, primarily driven by positive separate account returns as compared to negative separate account returns in the prior year. This was partially offset by less favorable movements in interest rates in 2023, compared to prior year; 105 Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations • $154 million increase in net investment income as a result of higher income on bonds, driven by higher yields in 2023 compared to prior year, partially offset by lower income on limited partnership investments, which are recorded on a one quarter lag; • $79 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating actual benefit cash flows used in the net premium ratio, primarily due to greater decrease in reserves due to the payout of persistency bonuses on a sub block of business, partially offset by a $25 million increase in our allowance for reinsurance credit losses related to a specific reinsurer which was recently ordered into liquidation. Income Taxes Income tax expense decreased $1,491 million to an expense of $399 million for the nine months ended September 30, 2023, from an expense of $1,890 million for the nine months ended September 30, 2022. The provision for income tax in the current period led to an ETR of 13.8% for the nine months ended September 30, 2023 compared to the September 30, 2022 ETR of 20.5%. The change in the ETR during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due to the relationship of the taxable income to the consolidated pre-tax income and the impact of tax adjustments related to prior year returns recorded in the current quarter. Our ETR differs from the statutory rate of 21% primarily due to the dividends received deduction and utilization of tax credits. See Note 15 of Notes to Consolidated Financial Statements in our audited Consolidated Financial Statements, as recast in our Current Report on Form 8-K filed May 10, 2023 and Note 15 of Notes to Condensed Consolidated Financial Statements in this report for more information. Segment Results of Operations We manage our business through three segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. We report certain activities and items that are not included in these segments, including the results of PPM Holdings, Inc., the holding company of PPM, within Corporate and Other. The following tables and discussion represent an overall view of our results of operations for each segment. Pretax Adjusted Operating Earnings by Segment The following table summarizes pretax adjusted operating earnings (non-GAAP) from the Company's business segment operations and also provides a reconciliation of the segment measure to net income on a consolidated GAAP basis. Also, see Note 3 of the Notes to Condensed Consolidated Financial Statements for further information regarding the calculation of pretax adjusted operating earnings: 106 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Pretax Adjusted Operating Earnings by Segment: Retail Annuities $ 354 $ 330 $ 1,038 $ 1,180 Institutional Products 21 20 47 62 Closed Life and Annuity Blocks 6 76 (7) 79 Corporate and Other (26) (12) (116) 2 Pretax Adjusted Operating Earnings 355 414 962 1,323 Non-operating adjustments income (loss): Guaranteed benefits and hedging results: Fees attributable to guarantee benefit reserves 784 771 2,345 2,300 Net movement in freestanding derivatives (271) (253) (4,694) 1,118 Market risk benefits gains (losses), net 2,376 913 5,120 1,636 Net reserve and embedded derivative movements 45 (7) (338) (47) Amortization of DAC associated with non-operating items at date of transition to LDTI (148) (162) (450) (501) Total guaranteed benefits and hedging results 2,786 1,262 1,983 4,506 Net realized investment gains (losses) (127) (6) (235) (131) Net realized investment gains (losses) on funds withheld assets 159 555 (648) 2,660 Net investment income on funds withheld assets 303 313 862 937 Other items 9 (2) (32) (69) Total pre-tax reconciling items 3,130 2,122 1,930 7,903 Pretax income (loss) attributable to Jackson Financial Inc. 3,485 2,536 2,892 9,226 Income tax expense (benefit) 712 657 399 1,890 Net income (loss) attributable to Jackson Financial Inc. 2,773 1,879 2,493 7,336 Less: Dividends on preferred stock 11 — 24 — Net income (loss) attributable to Jackson Financial Inc. common shareholders $ 2,762 $ 1,879 $ 2,469 $ 7,336 107 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Retail Annuities The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Retail Annuities segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Retail Annuities: Operating Revenues Fee income $ 1,038 $ 1,002 $ 3,015 $ 3,144 Premiums 6 3 16 6 Net investment income 135 72 401 299 Income (loss) on operating derivatives (12) 2 (34) 20 Other income 9 11 28 33 Total Operating Revenues 1,176 1,090 3,426 3,502 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 24 2 21 50 (Gain) loss from updating future policy benefits cash flow assumptions, net (4) (1) (6) (3) Interest credited on other contract holder funds, net of deferrals and amortization 90 72 284 190 Interest expense 19 8 68 19 Operating costs and other expenses, net of deferrals 554 540 1,605 1,647 Amortization of deferred acquisition costs 139 139 416 419 Total Operating Benefits and Expenses 822 760 2,388 2,322 Pretax Adjusted Operating Earnings $ 354 $ 330 $ 1,038 $ 1,180 The following table summarizes a roll-forward of activity affecting account value for our Retail Annuities segment for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Retail Annuities Account Value: Balance as of beginning of period $ 227,266 $ 209,131 $ 209,967 $ 260,135 Premiums and deposits 3,352 3,613 9,703 12,675 Surrenders, withdrawals, and benefits (4,844) (3,644) (13,897) (12,341) Net flows (1,492) (31) (4,194) 334 Investment performance (7,198) (9,853) 13,813 (59,890) Change in value of equity option (102) (60) 123 (127) Interest credited 89 66 284 182 Policy charges and other (704) (697) (2,134) (2,078) Balance as of end of period, net of ceded reinsurance 217,859 198,556 217,859 198,556 Ceded reinsurance 19,323 23,081 19,323 23,081 Balance as of end of period, gross of reinsurance $ 237,182 $ 221,637 $ 237,182 $ 221,637 108 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Three Months Ended September 30, 2023 compared to Three Months Ended September 30, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings increased $24 million to $354 million for the three months ended September 30, 2023 from $330 million for the three months ended September 30, 2022 primarily due to: • $45 million increase in spread income primarily due to $63 million higher investment income, partially offset by $18 million higher interest credited driven by resetting minimum interest crediting rates on variable annuity fixed rate options in the first quarter of 2023; and • $36 million increase in fee income primarily due to higher average separate account values compared to the prior year quarter. These increases were partially offset by: • $19 million increase in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to higher other policyholder benefits in 2023; • $14 million decrease in income (loss) on operating derivatives primarily due to the increase in floating rates in 2023; • $14 million increase in operating costs and other expenses, net of deferrals, primarily due to higher asset-based non-deferrable commissions, due to higher account values during the three months ended September 30, 2023, compared to the prior year quarter; and • $11 million increase in interest expense incurred in the current year primarily related to interest on our repurchase agreements and other short-term borrowings. Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $142 million to $1,038 million for the nine months ended September 30, 2023 from $1,180 million for the nine months ended September 30, 2022 primarily due to: • $129 million decrease in fee income primarily due to lower average separate account values compared to prior year; • $54 million decrease in income on operating derivatives primarily due to the increase in floating rates during 2023; and • $49 million increase in interest expense incurred in the current year primarily related to interest on our repurchase agreements and other short-term borrowings. These decreases were partially offset by: • $42 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower asset-based non-deferrable commissions and lower sub-advisor expenses due to lower account values during 2023, and lower taxes, licenses, and fees compared to prior year, partially offset by an increase in deferred compensation expenses in 2023; • $32 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to lower other policyholder benefits in 2023; • $8 million increase in spread income primarily due to $102 million higher investment income, partially offset by $94 million higher interest credited driven by resetting minimum interest crediting rates on variable annuity fixed rate options in the first quarter of 2023. Account Value Retail annuities account value, net of reinsurance, increased $19.3 billion between periods primarily due to positive variable annuity separate account returns driven by favorable market performance in 2023, as well as positive RILA net flows over the period. 109 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Institutional Products The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Institutional Products segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Institutional Products: Operating Revenues Net investment income $ 130 $ 80 $ 351 $ 216 Income (loss) on operating derivatives (13) (8) (38) (13) Total Operating Revenues 117 72 313 203 Operating Benefits and Expenses Interest credited on other contract holder funds, net of deferrals and amortization 87 51 247 137 Interest expense 8 — 16 — Operating costs and other expenses, net of deferrals 1 1 3 4 Total Operating Benefits and Expenses 96 52 266 141 Pretax Adjusted Operating Earnings $ 21 $ 20 $ 47 $ 62 The following table summarizes a roll-forward of activity affecting account value for our Institutional Products segment for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Institutional Products: Balance as of beginning of period $ 8,887 $ 8,483 $ 9,019 $ 8,830 Premiums and deposits 112 314 1,065 1,490 Surrenders, withdrawals, and benefits (354) (428) (1,598) (1,955) Net flows (242) (114) (533) (465) Credited Interest 87 51 247 137 Policy Charges and other (20) (62) (21) (144) Balance as of end of period $ 8,712 $ 8,358 $ 8,712 $ 8,358 Three Months Ended September 30, 2023 compared to Three Months Ended September 30, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings increased $1 million to $21 million for the three months ended September 30, 2023 from $20 million for the three months ended September 30, 2022 primarily due to higher investment income, which was predominately offset by increased interest credited on contract holder funds due to higher crediting rates on new business and higher interest expense. 110 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $15 million to $47 million for the nine months ended September 30, 2023 from $62 million for the nine months ended September 30, 2022 primarily due to increased interest credited on contract holder funds due to higher crediting rates on new business and increased losses on operating derivatives, partially offset by higher investment income. Account Value Institutional product account value increased from $8,358 million at September 30, 2022 to $8,712 million at September 30, 2023. The increase in account value was driven by new issuances and increased interest credited due to higher crediting rates on new business , partially offset by continued maturities of the existing contracts and funding agreements. Closed Life and Annuity Blocks The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Closed Block Life and Annuity Blocks segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Closed Life and Annuity Blocks: Operating Revenues Fee income $ 112 $ 118 $ 345 $ 358 Premiums 30 36 102 108 Net investment income 172 166 524 522 Income (loss) on operating derivatives (11) 7 (35) 35 Other income 8 8 18 25 Total Operating Revenues 311 335 954 1,048 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 150 168 467 587 (Gain) loss from updating future policy benefits cash flow assumptions, net 4 (36) 31 (4) Interest credited on other contract holder funds, net of deferrals and amortization 107 101 333 303 Operating costs and other expenses, net of deferrals 41 23 122 74 Amortization of deferred acquisition costs 3 3 8 9 Total Operating Benefits and Expenses 305 259 961 969 Pretax Adjusted Operating Earnings $ 6 $ 76 $ (7) $ 79 111 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Three Months Ended September 30, 2023 compared to Three Months Ended September 30, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $70 million to $6 million for the three months ended September 30, 2023 from $76 million for the three months ended September 30, 2022 primarily due to: • $22 million increase in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to higher other policy benefits, partially offset by a greater decrease in reserves due to the payout of persistency bonuses on a sub block of business; • $18 million decrease in income on operating derivatives primarily due to the increase in floating rates during 2023; and • $18 million increase in operating costs and other expenses, net of deferrals, primarily due to an increase in incentive and deferred compensation expenses in 2023. Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $86 million to $(7) million for the nine months ended September 30, 2023 from $79 million for the nine months ended September 30, 2022 primarily due to: • $70 million decrease in income on operating derivatives primarily due to the increase in floating rates during 2023; • $48 million increase in operating costs and other expenses, net of deferrals, primarily due to an increase in deferred compensation expenses in 2023; and • $30 million increase in interest credited related to persistency bonuses in 2023. These decreases were partially offset by: • $85 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating actual benefit cash flows used in the net premium ratio, primarily due to a greater release reserves due to the payout of persistency bonuses on a sub block of business, partially offset by a $25 million increase in our allowance for reinsurance credit losses related to a specific reinsurer which was recently ordered into liquidation. 112 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Corporate and Other Corporate and Other includes the operations of PPM Holdings, Inc., the holding company of PPM, and unallocated corporate revenue and expenses, as well as certain eliminations and consolidation adjustments. The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for Corporate and Other. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Corporate and Other: Operating Revenues Fee income $ 11 $ 13 $ 37 $ 43 Net investment income 16 22 49 65 Income (loss) on operating derivatives (2) 2 (10) 20 Other income 1 — 6 2 Total Operating Revenues 26 37 82 130 Operating Benefits and Expenses Interest expense 22 21 66 54 Operating costs and other expenses, net of deferrals 30 28 132 74 Total Operating Benefits and Expenses 52 49 198 128 Pretax Adjusted Operating Earnings $ (26) $ (12) $ (116) $ 2 Three Months Ended September 30, 2023 compared to Three Months Ended September 30, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $14 million to $(26) million for the three months ended September 30, 2023 from $(12) million for the three months ended September 30, 2022 primarily due to the following: • $6 million decrease in net investment income; and • $4 million decrease in income on operating derivatives primarily due to the increase in floating rates in 2023. Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $118 million to $(116) million for the nine months ended September 30, 2023 from $2 million for the nine months ended September 30, 2022 primarily due to the following: • $58 million increase in operating costs and other expenses, net of deferrals, primarily due an increase in deferred compensation expenses in 2023; • $30 million decrease in income on operating derivatives primarily due to the increase in floating rates in 2023; and • $16 million decrease in net investment income. 113 Item 2 | Management’s Discussion and Analysis | Investments Investments Our investment portfolio primarily consists of fixed-income securities and loans, primarily publicly-traded corporate and government bonds, private securities and loans, asset-backed securities and mortgage loans. Asset-backed securities include mortgage-backed and other structured securities. The fair value of these and our other invested assets fluctuates depending on market and other general economic conditions and the interest rate environment and is affected by other economic factors. Investment Strategy Our overall investment strategy seeks to maintain a diversified and largely investment grade fixed income portfolio that is capital efficient, achieves risk-adjusted returns that support competitive pricing for our products, generates profitable growth of our business and maintains adequate liquidity to support our obligations. The investments within our investment portfolio are primarily managed by PPM, our wholly-owned registered investment advisor. Our investment strategy benefits from PPM’s ability to originate investments directly, as well as participate in transactions originated by banks, investment banks, commercial finance companies and other intermediaries. Certain investments held in funds withheld accounts for reinsurance transactions are managed by Apollo Insurance Solutions Group LP ("Apollo"), an Athene affiliate, see Note 8 - Reinsurance of Notes to Condensed Consolidated Financial Statements for further details. We may also use other third-party investment managers for certain niche asset classes. As of September 30, 2023, Apollo managed $16.7 billion of cash and investments and other third-party investment managers managed approximately $181 million of investments. Our investment program seeks to generate a competitive rate of return on our invested assets to support the profitable growth of our business, while maintaining investment portfolio allocations within the Company’s risk tolerance. This means maximizing risk-adjusted return within the context of a largely fixed income portfolio while also managing exposure to downside risk in a stressed environment, regulatory and rating agency capital models, overall portfolio yield, diversification and correlation with other investments and company exposures. Our Investment Committee has specified a target strategic asset allocation (“SAA”) that is designed to deliver the highest expected return within a defined risk tolerance while meeting other important objectives such as those mentioned in the prior paragraph. The fixed income portion of the SAA is assessed relative to a customized index of public corporate bonds that represents a close approximation of the maturity profile of our liabilities and a credit quality mix that is consistent with our risk tolerance. PPM’s objective is to outperform this index on a number of measures including portfolio yield, total return and capital loss due to downgrades and defaults. While PPM has access to a broad universe of potential investments, we believe grounding the investment program with a customized public corporate index that can be easily tracked and monitored helps guide PPM in meeting the risk and return expectations and assists with performance evaluation. Recognizing the trade-offs between the level of risk, required capital, liquidity and investment return, the largest allocation within our investment portfolio is to investment grade fixed income securities. As previously mentioned, our investment manager accesses a broad universe of potential investments to construct the investment portfolio and considers the benefits of diversification across various sectors, collateral types and asset classes. To this end, our SAA and investment portfolio includes allocations to public and private corporate bonds (both investment grade and high yield), mortgage loans, structured securities, private equity and U.S. Treasury securities. These U.S. Treasury securities, while lower yielding than other alternatives, provide a higher level of liquidity and play a role in managing our interest rate exposure. 114 Item 2 | Management’s Discussion and Analysis | Investments Portfolio Composition The following table summarizes the carrying values of our investments: September 30, 2023 December 31, 2022 Investments excluding Funds Withheld Funds Withheld Total Investments excluding Funds Withheld Funds Withheld Total (in millions) Debt Securities, available-for-sale, net of allowance for credit losses $ 27,567 $ 11,511 $ 39,078 $ 28,867 $ 13,622 $ 42,489 Debt Securities, at fair value under fair value option 2,101 143 2,244 2,014 159 2,173 Debt securities, trading, at fair value 66 — 66 100 — 100 Equity securities, at fair value 140 137 277 316 77 393 Mortgage loans, net of allowance for credit losses 7,030 3,106 10,136 6,840 4,127 10,967 Mortgage loans, at fair value under fair value option — 476 476 — 582 582 Policy loans 921 3,447 4,368 942 3,435 4,377 Freestanding derivative instruments 868 57 925 1,192 78 1,270 Other invested assets 2,876 677 3,553 2,802 793 3,595 Total investments $ 41,569 $ 19,554 $ 61,123 $ 43,073 $ 22,873 $ 65,946 Available-for-sale debt securities decreased to $39,078 million at September 30, 2023 from $42,489 million at December 31, 2022, primarily due to dispositions and an increase in net unrealized losses. The amortized cost of available-for-sale debt securities decreased from $48,798 million as of December 31, 2022 to $46,203 million as of September 30, 2023. Further, net unrealized losses, after adjusting for allowance for credit loss, were $6,286 million as of December 31, 2022 compared to $7,099 million as of September 30, 2023. Other Invested Assets Other invested assets decreased to $3,553 million at September 30, 2023 from $3,595 million at December 31, 2022 . Debt Securities At September 30, 2023 and December 31, 2022, the amortized cost, allowance for credit loss, gross unrealized gains and losses, and fair value of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions): 115 Item 2 | Management’s Discussion and Analysis | Investments September 30, 2023 Amortized Cost Allowance for Credit Loss Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government securities $ 4,877 $ — $ — $ 1,203 $ 3,674 Other government securities 1,684 3 — 303 1,378 Corporate securities Utilities 5,936 — 13 881 5,068 Energy 3,002 1 5 437 2,569 Banking 2,198 1 1 259 1,939 Healthcare 3,114 — 4 498 2,620 Finance/Insurance 4,462 14 3 658 3,793 Technology/Telecom 2,272 1 1 323 1,949 Consumer goods 2,453 — 8 425 2,036 Industrial 1,696 — 6 184 1,518 Capital goods 1,917 — 1 218 1,700 Real estate 1,604 — — 231 1,373 Media 1,175 — 1 184 992 Transportation 1,421 — — 237 1,184 Retail 1,250 — 2 200 1,052 Other (1) 2,164 — — 207 1,957 Total Corporate Securities 34,664 17 45 4,942 29,750 Residential mortgage-backed 441 6 10 69 376 Commercial mortgage-backed 1,639 — — 197 1,442 Other asset-backed securities 5,208 — 2 442 4,768 Total Debt Securities $ 48,513 $ 26 $ 57 $ 7,156 $ 41,388 (1) No single remaining industry exceeds 3% of the portfolio. December 31, 2022 Amortized Cost Allowance for Credit Loss Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government securities $ 6,192 $ — $ 1 $ 1,008 $ 5,185 Other government securities 1,719 2 1 251 1,467 Corporate securities Utilities 5,893 — 27 695 5,225 Energy 3,006 10 7 390 2,613 Banking 1,994 — 2 234 1,762 Healthcare 2,956 — 8 439 2,525 Finance/Insurance 4,497 4 8 621 3,880 Technology/Telecom 2,333 1 2 296 2,038 Consumer goods 2,463 — 10 378 2,095 Industrial 1,675 — 8 173 1,510 Capital goods 1,982 — 3 196 1,789 Real estate 1,723 — 1 225 1,499 Media 1,230 — 1 175 1,056 Transportation 1,576 — 3 214 1,365 Retail 1,312 — 5 182 1,135 Other (1) 2,056 — 1 178 1,879 Total Corporate Securities 34,696 15 86 4,396 30,371 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) No single remaining industry exceeds 3% of the portfolio. 116 Item 2 | Management’s Discussion and Analysis | Investments Evaluation of Available-For-Sale Debt Securities See Note 4 - Investments of Notes to Condensed Consolidated Financial Statements for information about how we evaluate our available-for-sale debt securities for credit loss. Equity Securities Equity securities consist of investments in common and preferred stock holdings and mutual fund investments. Common and preferred stock investments generally arise out of previous private equity investments or other settlements rather than as direct investments. Mutual fund investments typically represent investments made in our own mutual funds to seed those structures for external issuance at a later date. The following table summarizes our holdings: September 30, December 31, 2023 2022 (in millions) Common Stock $ 75 $ 82 Preferred Stock 184 133 Mutual Funds 18 178 Total $ 277 $ 393 Mortgage Loans At September 30, 2023, commercial mortgage loans were collateralized by properties located in 37 states, the District of Columbia, and Europe. Residential mortgage loans were collateralized by properties located in 50 states, the District of Columbia, Mexico, and Europe. The table below presents the carrying value, net of allowance of credit loss, of our mortgage loans by property type: September 30, December 31, 2023 2022 (in millions) Commercial: Apartment $ 3,230 $ 3,558 Hotel 882 1,015 Office 1,459 1,795 Retail 2,011 2,085 Warehouse 2,012 1,788 Total Commercial (1) $ 9,594 $ 10,241 Residential (2) 1,018 1,308 Total $ 10,612 $ 11,549 (1) N et of an allowance for credit losses of $195 million and $91 million at September 30, 2023 and December 31, 2022, respectively. (2) Net of an allowance for credit losses of $5 million and $4 million at September 30, 2023 and December 31, 2022, respectively. 117 Item 2 | Management’s Discussion and Analysis | Investments The table below presents the carrying value, net of allowance for credit loss, of our mortgage loans by region: September 30, December 31, 2023 2022 (in millions) United States: East North Central $ 1,071 $ 1,116 East South Central 516 546 Middle Atlantic 1,475 1,677 Mountain 536 627 New England 293 371 Pacific 2,493 2,850 South Atlantic 2,186 2,313 West North Central 597 572 West South Central 968 920 Total United States 10,135 10,992 Foreign 477 557 Total $ 10,612 $ 11,549 The following table provides information about the credit quality of our mortgage loans: September 30, December 31, 2023 2022 (in millions) Commercial mortgage loans Loan to value ratios: Less than 70% $ 8,695 $ 9,586 70% - 80% 507 424 80% - 100% 359 197 Greater than 100% 33 34 Total 9,594 10,241 Residential mortgage loans Performing 939 1,230 Nonperforming (1) 79 78 Total 1,018 1,308 Total mortgage loans $ 10,612 $ 11,549 (1) As of September 30, 2023 and December 31, 2022, includes $26 million and $41 million of loans purchased when the loans were greater than 90 days delinquent and $7 million and $12 million of loans in process of foreclosure, respectively, and are supported with insurance or other guarantees provided by various governmental programs. The following table provides a summary of the allowance for credit losses related to our mortgage loans: September 30, 2023 2022 (in millions) Balance at beginning of year $ 95 $ 94 Provision (release), net (1) 105 (15) Balance at end of period $ 200 $ 79 (1) At September 30, 2023, the $105 million allowance for credit losses are primarily from two mezzanine loans experiencing stress around payoff, or refinance, of the loans for which the Company continues to assess options with the lending group and borrowers. 118 Item 2 | Management’s Discussion and Analysis | Investments 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. Accrued interest amounting to $2 million and nil were written off as of September 30, 2023 and 2022, respectively, relating to loans that were greater than 90 days delinquent or in the process of foreclosure. At September 30, 2023, there was $23 million of recorded investment, $26 million of unpaid principal balance, no related loan allowance, $17 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. Derivative Instruments Note 5 – Derivative Instruments of Notes to Condensed Consolidated Financial Statements presents the aggregate contractual or notional amounts and the fair values of our freestanding and embedded derivatives instruments as of September 30, 2023 and December 31, 2022. Evaluation of Invested Assets We perform regular evaluations of our invested assets. On a monthly basis, management identifies those investments that may require additional monitoring and carefully reviews the carrying value of such investments to determine whether specific investments should be placed on a non-accrual status and if an allowance for credit loss is required. In making these reviews, management principally considers the adequacy of any collateral, compliance with contractual covenants, the borrower’s recent financial performance, news reports and other externally generated information concerning the borrower’s affairs. In the case of publicly traded bonds, management also considers market value quotations, where available. For mortgage loans, management generally considers information concerning the mortgaged property, including factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral. For investments in partnerships, management reviews the financial statements and other information provided by the general partners. To determine an allowance for credit loss, we consider a security’s forecasted cash flows as well as the severity of depressed fair values. Investment income is not accrued on securities in default and otherwise where the collection is uncertain. Subsequent receipts of interest on such securities are generally used to reduce the cost basis of the securities. The provisions for impairment on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest on mortgage loans is generally suspended when principal or interest payments on mortgage loans are past due more than 90 days. Interest is then accounted for on a cash basis. 119 Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities Policy and Contract Liabilities We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments. Amounts for actuarial liabilities are computed and reported on the Condensed Consolidated Financial Statements in conformity with GAAP. For more details on Policyholder Liabilities, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” included in our 2022 Annual Report, as recast to reflect the adoption of LDTI in our Current Report on Form 8-K filed May 10, 2023. Our policy and contract liabilities includes separate account liabilities, reserves for future policy benefits and claims payable and other contract holder funds. As of September 30, 2023, 89% of our policy and contract liabilities were in our Retail Annuities segment, 3% were in our Institutional Products segment and 8% were in our Closed Life and Annuity Blocks segment. The table below represents a breakdown of our policy and contract liabilities: September 30, 2023 Separate Accounts Reserves for future policy benefits Other contract holder funds Market Risk Benefits Total (in millions) Variable Annuities $ 202,651 $ — $ 8,921 $ (2,927) $ 208,645 RILA 1 — — 3,841 7 3,848 Fixed Annuities — — 10,202 1 10,203 Fixed Index Annuities 2 — — 10,715 15 10,730 Payout Annuities — 1,014 852 — 1,866 Other Annuities 180 — — — 180 Total Retail Annuities 202,831 1,014 34,531 (2,904) 235,472 Total Institutional Products — — 8,712 — 8,712 Total Closed Life and Annuity Blocks 72 8,976 12,351 6 21,405 Total Policy and Contract Liabilities 202,903 9,990 55,594 (2,898) 265,589 Claims payable and other — 1,428 172 — 1,600 Total $ 202,903 $ 11,418 $ 55,766 $ (2,898) $ 267,189 December 31, 2022 Separate Accounts Reserves for future policy benefits Other contract holder funds Market Risk Benefits Total (in millions) Variable Annuities $ 195,550 $ — $ 10,259 $ 767 $ 206,576 RILA 1 — — 1,875 5 1,880 Fixed Annuities — — 11,696 — 11,696 Fixed Index Annuities 2 — — 11,787 17 11,804 Payout Annuities — 1,042 837 — 1,879 Other Annuities 285 — — — 285 Total Retail Annuities 195,835 1,042 36,454 789 234,120 Total Institutional Products — — 9,019 — 9,019 Total Closed Life and Annuity Blocks 71 9,726 12,534 8 22,339 Total Policy and Contract Liabilities 195,906 10,768 58,007 797 265,478 Claims payable and other — 1,550 183 — 1,733 Total $ 195,906 $ 12,318 $ 58,190 $ 797 $ 267,211 (1) Includes the embedded derivative liabilities in other contract holder funds related to RILA of $676 million and $205 million at September 30, 2023 and December 31, 2022 , respectively. (2) Includes the embedded derivative liabilities related to fixed index annuity in other contract holder funds of $956 million and $931 million at September 30, 2023 and December 31, 2022 , respectively. 120 Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities As of September 30, 2023: • $202.9 billion or 76% of our policy and contract liabilities were backed by separate account assets. These separate account assets backed reserves primarily related to our variable annuities. Separate account liabilities are fully funded by cash flows from the customer’s corresponding separate account assets and are set equal to the fair value of such invested assets. • $43.2 billion of our policy and contract liabilities were backed by our investment portfolio. • $19.5 billion of our policy and contract liabilities were reinsured by Athene and backed by funds withheld assets. As of September 30, 2023, 100% of our RILA policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers. We have the discretion, subject to contractual limitations and minimums, to reset the crediting terms on the majority of our fixed index annuities and fixed annuities. As of September 30, 2023, 94% of fixed annuity, fixed-indexed annuity, and the fixed accounts of RILA and variable annuity correspond to crediting rates that are at the guaranteed minimum crediting rate. See Note 9, Note 10, Note 11 and Note 12 of Notes to Condensed Consolidated Financial Statements for additional discussion on accounting policies around Reserves for future policy benefits and claims payable, Other contract holder funds, Separate account assets and liabilities and MRBs. Liquidity and Capital Resources Liquidity is our ability to generate sufficient cash flows to meet the cash requirements of operating, investing and financing activities. Capital refers to our long-term financial resources available to support the business operations and contribute to future growth. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and alternate sources of liquidity and capital described herein. The discussion below describes our liquidity and capital resources for the nine months ended September 30, 2023 and 2022. Cash Flows The following table presents a summary of our cash flow activity for the periods set forth below: Nine Months Ended September 30, 2023 2022 (in millions) Net cash provided by (used in) operating activities $ 3,676 $ 2,941 Net cash provided by (used in) investing activities (685) 2,469 Net cash provided by (used in) financing activities (4,527) (2,700) Net increase (decrease) in cash, cash equivalents, and restricted cash (1,536) 2,710 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 $ 2,765 $ 5,341 Cash flows from Operating Activities The principal operating cash inflows from our insurance activities come from insurance premiums, fees charged on our products and net investment income. The principal operating cash outflows are the result of annuity and life insurance benefits, interest credited on other contract holder funds, operating expenses and income tax, as well as interest expense. The primary liquidity concern with respect to these cash flows is the risk of early contract holder and policyholder benefit payments. 121 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources Cash flows provided by (used in) operating activities increased $735 million to $3,676 million for the nine months ended September 30, 2023 from $2,941 million for the nine months ended September 30, 2022. This was primarily due to the timing of settlements of receivables and payables as well as lower acquisition costs. Cash flows from Investing Activities The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments and settlements of freestanding derivatives. It is not unusual to have a net cash outflow from investing activities because cash inflows from insurance operations are typically reinvested to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors or market disruptions that might impact the timing of investment- related cash flows as well as derivative collateral needs, which could result in material liquidity needs for our insurance subsidiaries. Cash flows provided by (used in) investing activities decreased $3,154 million to $(685) million during the nine months ended September 30, 2023 from $2,469 million during the nine months ended September 30, 2022. This decrease was primarily due to outflows related to our hedging program for derivative settlements and collateral predominantly resulting from market increases in 2023. Cash flows from Financing Activities The principal cash inflows from our financing activities come from deposits of funds associated with policyholder account balances, issuance of securities and lending of securities. The principal cash outflows come from withdrawals associated with policyholder account balances, repayment of debt, and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal. Cash flows provided by (used in) financing activities decreased $1,827 million to $(4,527) million during the nine months ended September 30, 2023 from $(2,700) million during the nine months ended September 30, 2022. This decrease was primarily due to decreased deposits driven by lower variable annuity sales in 2023 compared to 2022, partially offset by lower payments on repurchase agreements and proceeds from the issuance of our preferred stock. Statutory Capital Our insurance company subsidiaries have statutory surplus above the level needed to meet current regulatory requirements. RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action. RBC is based on a formula that incorporates both factor-based components (applied to various asset, premium, claim, expense and statutory reserve items) and model-based components. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not to rank insurers generally. As of September 30, 2023, our insurance companies were well in excess of the minimum required capital levels. Jackson is also subject to risk-based capital guidelines that provide a method to measure the adjusted capital that a life insurance company should have for regulatory purposes, taking into account the risk characteristics of Jackson’s investments and products. Our statutory TAC may be negatively impacted by minimum required reserving levels (i.e., cash surrender value floor) when reserve releases are limited and unable to offset losses from our hedging program. The RBC ratio may increase or decrease depending on the interaction between movements in TAC and movements in statutory CAL, which could impact available dividends from our insurance subsidiaries. At times the cash surrender value floor materially affects the CAL calculation in addition to reserve levels. We are pursuing additional methods of moderating the impact of the cash surrender value floor on TAC, CAL and RBC. The implementation of any such method would be subject to Board and regulatory approval. We can provide no assurance that any such method will be approved or the timing or impact of any adoption and implementation. 122 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources Holding Company Liquidity As a holding company with no business operations of its own, Jackson Financial primarily derives cash flows from dividends and interest payments from its insurance subsidiaries. These principal sources of liquidity are expected to be supplemented by cash and short-term investments held by Jackson Financial, and access to bank lines of credit and the capital markets. We intend to maintain a minimum amount of cash and highly liquid securities at Jackson Financial adequate to fund two years of holding company fixed net expenses, which may change over time as we refinance existing debt or make changes to our debt and capital structure, and is currently targeted at $250 million. The main uses of liquidity for Jackson Financial are interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to shareholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries. Our principal sources of liquidity and our anticipated capital position are described in the following paragraphs. Any declaration of cash dividends or stock repurchases is 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 other contractual restrictions with respect to paying cash dividends or repurchasing stock, restrictions imposed by Delaware law, general business conditions and any other factors that JFI’s Board of Directors deems relevant in making any such determination. Therefore, there can be no assurance that we will pay any cash dividends to holders of our stock or approve any further increase in the existing, or any new, common stock repurchase program, or as to the amount of any such cash dividends or stock repurchases. Delaware law requires that dividends be paid and stock repurchases made only out of “surplus,” which is defined as the fair market value of our net assets, minus our stated capital; or out of the current or the immediately preceding year’s earnings. JFI is a holding company and has no direct operations. All of our business operations are conducted through our subsidiaries. Any dividends we pay or stock repurchases we make will depend upon the funds legally available for distribution, including dividends or distributions from our subsidiaries to us. The states in which our insurance subsidiaries are domiciled impose certain restrictions on our insurance subsidiaries’ ability to pay dividends to their parent companies. These restrictions are based in part on the prior year’s statutory income and surplus, as well as earned surplus. Such restrictions, or any future restrictions adopted by the states in which our insurance subsidiaries are domiciled, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable by our subsidiaries without affirmative approval of state regulatory authorities. See “Risk Factors—Risks relating to Financing and Liquidity - As a holding company, Jackson Financial depends on the ability of its subsidiaries to pay dividends and make other distributions to meet its obligations and liquidity needs, including servicing debt, dividend payments and stock repurchases.” On March 13, 2023, the Company issued and sold depositary shares representing interests in our Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A. After underwriting discounts and expenses, we received net proceeds of approximately $533 million. See Note 20 of the Notes to Condensed Consolidated Financial Statements for more information. During the third quarter of 2023, we paid a cash dividend of $0.50 per depositary share and $0.62 per share on JFI's preferred and common stock totaling $11 million and $52 million, respectively. On November 6, 2023, our Board of Directors approved a fourth quarter cash dividend on JFI's common stock of $0.62 per share, payable on December 14, 2023 to shareholders of record on November 30, 2023. The Company also declared a cash dividend of $0.50 per depositary share. The dividend will be payable on January 2, 2024, to Depositary Shares shareholders of record at the close of business on November 30, 2023. We repurchased a total of 1,873,727 shares and a total of 4,990,261 shares of common stock for an aggregate purchase price of $71 million and $188 million in the three and nine months ended September 30, 2023, respectively, which were funded with cash on hand. See Note 20 of the Notes to Condensed Consolidated Financial Statements in this report for further information on dividends to shareholders and share repurchases. 123 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources During the second quarter of 2023, Jackson Financial purchased certain private equity fund investments from Jackson National Life Insurance Company for $452 million, with a carrying value of $502 million, as part of rebalancing Jackson National Life Insurance Company's portfolio mix. Jackson Financial sold these investments in October 2023. The Company estimated a loss of approximately $93 million which it recognized in Net Investment Income within the consolidated financial statements for the nine months ended September 30, 2023, of which $76 million of this loss was attributable to Jackson Financial. Distributions from our Insurance Company Subsidiaries The ability of our insurance company subsidiaries to pay dividends is limited by applicable laws and regulations of the jurisdictions where such subsidiaries are domiciled as well as agreements entered into with regulators. These laws and regulations require, among other things, our insurance company subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay. Subject to these limitations, our insurance company subsidiaries are permitted to pay ordinary dividends based on calculations specified under insurance laws of the relevant state of domicile, subject to prior notification to the appropriate regulatory agency. Any distributions above the amount permitted by statute in any twelve-month period are considered extraordinary dividends, and the approval of the appropriate regulator is required prior to payment. In Michigan, the Director of the Michigan Department of Insurance and Financial Services (the Michigan Director of Insurance) may limit, or not permit, the payment of dividends from either Jackson or Brooke Life, Jackson's direct parent company, if it determines that the surplus of either of these subsidiaries is not reasonable in relation to their outstanding liabilities and is not adequate to meet their financial needs, as required by the Michigan Insurance Code of 1956. Unless otherwise approved by the Michigan Director of Insurance, dividends may only be paid from earned surplus. Also, surplus note arrangements and interest payments must be approved by the Michigan Director of Insurance and such interest payments to related parties reduce the otherwise calculated ordinary dividend capacity for that period. In New York, all dividends require approval from the NYSDFS. For 2023, Jackson and Brooke Life have total ordinary dividend capacity, based on 2022 statutory capital and surplus and statutory net gain from operations, subject to the availability of earned surplus, of $3,688 million and $501 million, respectively. Brooke Life, as the sole owner of our other insurance company subsidiaries, including Jackson and Jackson National Life NY, is the direct recipient of any dividend payments from those subsidiaries and must make dividend payments to its ultimate parent company, Jackson Financial, in order for any funds from our insurance company subsidiaries to reach Jackson Financial. As such, Jackson Financial’s ability to receive dividend payments from our insurance company subsidiaries is effectively limited by Brooke Life’s ability to make dividend payments to Jackson Financial. On March 1, 2023, Jackson paid a $450 million ordinary dividend and remitted a $150 million return of capital to its parent company, Brooke Life. Brooke Life subsequently paid a $360 million ordinary dividend and remitted a $150 million return of capital to its ultimate parent, Jackson Financial. In addition, for the three and nine months ended September 30, 2023, Brooke Life paid $45 million and $90 million of interest associated with the $2 billion surplus note between Brooke Life and Jackson Finance, LLC ("Jackson Finance"), a subsidiary of Jackson Financial. The maximum distribution permitted by law or contract is not necessarily indicative of an insurer’s actual ability to pay such distributions, which may be constrained by business and other considerations, such as imposition of withholding tax, the impact of such distributions on surplus, which could affect the insurer’s credit and financial strength ratings or competitive position, the ability to generate new annuity sales and the ability to pay future dividends or make other distributions. Further, state insurance laws and regulations require that the statutory surplus of our insurance subsidiaries following any dividend or distribution must be reasonable in relation to their outstanding liabilities and adequate for the insurance subsidiaries’ financial needs. Along with solvency regulations, another primary consideration in determining the amount of capital used for dividends is the level of capital needed to maintain desired financial strength ratings from rating agencies, including A.M. Best, S&P, Moody’s and Fitch. Given recent economic events that have affected the insurance industry, both regulators and rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for insurance company subsidiaries. We believe our insurance company subsidiaries have sufficient statutory capital and surplus to maintain their desired financial strength rating. 124 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources Insurance Company Subsidiaries’ Liquidity The liquidity requirements for our insurance company subsidiaries primarily relate to the liabilities associated with their insurance and reinsurance activities, operating expenses and income taxes. Liabilities arising from insurance and reinsurance activities include the payment of policyholder benefits when due, cash payments in connection with policy surrenders and withdrawals and policy loans. Liquidity requirements are principally for purchases of new investments, management of derivative-related margin requirements, repayment of principal and interest on debt, payments of interest on surplus notes, funding of insurance product liabilities including payments for policy benefits, surrenders, maturities and new policy loans, funding of expenses including payment of commissions, operating expenses and taxes. As of September 30, 2023, Jackson’s outstanding surplus notes and bank debt included $58 million of bank loans from the Federal Home Loan Bank of Indianapolis ("FHLBI"), collateralized by mortgage-related securities and mortgage loans and $250 million of surplus notes maturing in 2027. Significant increases in interest rates could create sudden increases in surrender and withdrawal requests by customers and contract holders and result in increased liquidity requirements at our insurance company subsidiaries. Significant increases in interest rates or equity markets may also result in higher margin and collateral requirements on our derivative portfolio. The derivative contracts are an integral part of our risk management program, especially for the management of our variable annuities program, and are managed in accordance with our hedging and risk management program. Our cash flows associated with collateral received from counterparties and posted with counterparties fluctuates with changes in the market value of the underlying derivative contract and/or the market value of the collateral. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. Collateral posting requirements can result in material liquidity needs for our insurance subsidiaries. As of September 30, 2023, we were in a net collateral payable position of $450 million, which is down from $689 million as of December 31, 2022. Other factors that are not directly related to interest rates can also give rise to an increase in liquidity requirements including, changes in ratings from rating agencies, general policyholder concerns relating to the life insurance industry (e.g., the unexpected default of a large, unrelated life insurer) and competition from other products, including non-insurance products such as mutual funds, certificates of deposit and newly developed investment products. Most of the life insurance and annuity products Jackson offers permit the policyholder or contract holder to withdraw or borrow funds or surrender cash values. As of September 30, 2023, approximately half of Jackson’s general account reserves are not surrenderable, included surrender charges greater than 5%, or included market value adjustments to discourage early withdrawal of policy and contract funds. The liquidity sources for our insurance company subsidiaries are their cash, short-term investments, sales of publicly-traded bonds, insurance premiums, fees charged on their products, sales of annuities and institutional products, investment income, commercial repurchase agreements and utilization of a short-term borrowing facility with the FHLBI. Jackson uses a variety of asset liability management techniques to provide for the orderly provision of cash flow from investments and other sources as policies and contracts mature in accordance with their normal terms. Jackson’s principal sources of liquidity to meet unexpected cash outflows associated with sudden and severe increases in surrenders and withdrawals or benefit payments are its portfolio of liquid assets and its net operating cash flows. As of September 30, 2023, the portfolio of cash, short-term investments and privately- and publicly-traded securities and equities that are unencumbered and unrestricted to sale, amounted to $21.2 billion. Our Indebtedness Senior Notes In November 2021 and June 2022, the Company issued an aggregate of $2,350 million principal amount of its senior notes, shown as Long-term debt on the Condensed Consolidated Balance Sheet. The proceeds of the note issuances were used, together with cash on hand, to retire the Company’s previously outstanding term loans. $600 million of these notes mature on November 22, 2023, and are expected to be paid with cash on hand at maturity. 125 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources Revolving Credit and Short-Term Borrowing Facilities On February 24, 2023, the Company entered into a revolving credit facility (the "2023 Revolving Credit Facility") with a syndicate of banks and Bank of America, N.A., as Administrative Agent. The 2023 Revolving Credit Facility replaced an existing revolving credit facility that was due to expire in February 2024. The 2023 Revolving Credit Facility provides for borrowings for working capital and other general corporate purposes under aggregate commitments of $1.0 billion, with a sub-limit of $500 million available for letters of credit. The 2023 Revolving Credit Facility further provides for the ability to request, subject to customary terms and conditions, an increase in commitments thereunder by up to an additional $500 million. Commitments under the 2023 Revolving Credit Facility terminate on February 24, 2028. Interest on borrowings may be based on a “Base Rate” (as defined in the 2023 Revolving Credit Facility) plus an adder ranging from 0.125% to 0.875%, or a “Term SOFR Rate” (as defined in the 2023 Revolving Credit Facility) plus an adder ranging from 1.125% to 1.875%. The applicable adder is based upon the ratings assigned to the Company’s senior, unsecured, non-credit enhanced debt. The credit agreement governing the 2023 Revolving Credit Facility contains a number of customary representations and warranties, affirmative and negative covenants and events of default (including a change of control provision). The credit agreement contains financial maintenance covenants, including a minimum adjusted consolidated net worth test of no less than 70% of our adjusted consolidated net worth as of September 30, 2022 (plus (to the extent positive) or minus (to the extent negative) 70% of the impact on such adjusted consolidated net worth resulting from the application of a one-time transition adjustment for the LDTI accounting change for insurance contracts, and plus 50% of the aggregate amount of any increase in adjusted consolidated net worth resulting from equity issuances by the Company and its consolidated subsidiaries after September 30, 2022) and a maximum consolidated indebtedness to total capitalization ratio test not to exceed 35%. We were in compliance with these covenants at September 30, 2023. Jackson is a party to an Uncommitted Money Market Line Credit Agreement dated April 6, 2023 among Jackson, Jackson Financial, and Société Générale. This agreement is an uncommitted short-term cash advance facility that provides an additional form of liquidity to Jackson and to Jackson Financial. The aggregate borrowing capacity under the agreement is $500 million and each cash advance request must be at least $100 thousand. The interest rate is set by the lender at the time of the borrowing and is fixed for the duration of the advance. Jackson and Jackson Financial are jointly and severally liable to repay any advance under the agreement, which must be repaid prior to the last day of the quarter in which the advance was drawn. Surplus Notes On March 15, 1997, our subsidiary, Jackson, issued 8.2% surplus notes in the principal amount of $250 million due March 15, 2027. These surplus notes are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims and may not be redeemed at the option of the Company or any holder prior to maturity. Interest is payable semi-annually on March 15th and September 15th of each year. Interest expense on the notes was $6 million and $18 million for the three and nine months ended September 30, 2023, respectively and interest expense on the notes was $5 million and $15 million for the three and nine months ended September 30, 2022, respectively. Under Michigan insurance law, for statutory reporting purposes, the surplus notes are not part of the legal liabilities of the Company and are considered surplus funds. Payments of interest or principal may only be made with the prior approval of the Michigan Director of Insurance and only out of surplus earnings that the director determines to be available for such payments under Michigan Insurance Law. Federal Home Loan Bank Jackson is a member of the regional FHLBI primarily for the purpose of participating in its collateralized loan advance program with funding facilities. Membership requires us to purchase and hold a minimum amount of FHLBI capital stock, plus additional stock based on outstanding advances. Advances are in the form of either notes or funding agreements issued to FHLBI. As of September 30, 2023 and December 31, 2022, Jackson held a bank loan with an outstanding balance of $58 million and $62 million, respectively. 126 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources Financial Strength Ratings Our access to funding and our related cost of borrowing, the attractiveness of certain of our subsidiaries’ products to customers, our attractiveness as a reinsurer to potential ceding companies and requirements for derivatives collateral posting are affected by our credit ratings and financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting consumer confidence in an insurer and its competitive position in marketing products as well as critical factors considered by ceding companies in selecting a reinsurer. Our principal insurance company subsidiaries are rated by A.M. Best, S&P, Moody’s and Fitch. Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurer or reinsurer to meet its obligations under an insurance policy or reinsurance arrangement and generally involve quantitative and qualitative evaluations by rating agencies of a company’s financial condition and operating performance. Generally, rating agencies base their financial strength ratings upon information furnished to them by the company and upon their own investigations, studies and assumptions. Financial strength ratings are based upon factors of concern to customers, distribution partners and ceding companies and are not directed toward the protection of investors. Financial strength ratings are not recommendations to buy, sell or hold securities and may be revised or revoked at any time at the sole discretion of the rating organization. As of November 3, 2023, the financial strength ratings of our principal insurance subsidiaries were as follows : Company A.M. Best Fitch Moody’s (1) S&P Jackson National Life Insurance Company Rating A A A3 A Outlook stable stable stable stable Jackson National Life Insurance Company of New York Rating A A A3 A Outlook stable stable stable stable Brooke Life Insurance Company Rating A Outlook stable (1) On October 20, 2023, Moody's downgraded Jackson Financial Inc.'s issuer rating from Baa2 to Baa3 as well as the insurance financial strength rating for Jackson National Life Insurance Company and Jackson National Life Insurance Company of New York from A2 to A3 and changed its outlook from "negative" to "stable." In evaluating our Company’s financial strength, the rating agencies evaluate a variety of factors including our strategy, market positioning and track record, mix of business, profitability, leverage and liquidity, the adequacy and soundness of our reinsurance, the quality and estimated market value of our assets, the adequacy of our surplus, our capital structure, and the experience and competence of our management. In addition to the financial strength ratings, rating agencies use an outlook statement to indicate a short- or medium-term trend which, if continued, may lead to a rating change. A positive outlook indicates a rating may be raised and a negative outlook indicates a rating may be lowered. A stable outlook is assigned when ratings are not likely to be changed. Outlooks should not be confused with expected stability of the issuer’s financial or economic performance. A stable outlook does not preclude a rating agency from changing a rating at any time without notice. A.M. Best, S&P, Moody’s and Fitch review their ratings of insurance companies from time to time. There can be no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in their judgment, circumstances so warrant. While the degree to which ratings adjustments will affect sales of our annuities and institutional products, and persistency is unknown, if our ratings are negatively adjusted for any reason, we believe we could experience a material decline in the sales in our individual channel, origination in our institutional channel, and the persistency of our existing business. 127 Item 2 | Management’s Discussion and Analysis | Impact of Recent Accounting Pronouncements Impact of Recent Accounting Pronouncements For a complete discussion of new accounting pronouncements affecting us, s ee Note 2 of Notes to Condensed Consolidated Financial Statements. As discussed in Note 2 of Notes to Condensed Consolidated Financial Statements in this report, we adopted Accounting Standards Update ("ASU") 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts” (“LDTI”), for our fiscal year beginning January 1, 2023, with a transition date of January 1, 2021. Based upon the elected transition methods, the adoption of LDTI resulted in a decrease in total equity of $3.0 billion as of the transition date of January 1, 2021, comprised of a reduction in accumulated other comprehensive income ("AOCI") of $0.4 billion and a reduction in retained earnings of $2.6 billion. The adoption of the standard resulted in increases in net income attributable to Jackson Financial Inc. of $489 million and $234 million for the years ended December 31, 2022 and 2021, respectively, and also resulted in an increase in total equity of $223 million and a decrease of $2.8 billion for the years ended December 31, 2022 and 2021, respectively, from the amounts reported prior to the adoption of LDTI. The change in the equity impact from the transition date was primarily due to higher interest rates and is comprised of a reduction in retained earnings that is more than offset by an increase in AOCI. See further discussion in Note 2- New Accounting Standards of the Notes to Condensed Consolidated Financial Statements for the significant changes associated with this change in accounting principle. Summary of Critical Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in our Condensed Consolidated Financial Statements included elsewhere in this report. The most critical estimates are presented below. The below critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and Notes 1 and 2 of the Notes to the Consolidated Financial Statements included in our 2022 Annual Report, as recast to reflect the adoption of LDTI in our Current Report on Form 8-K filed May 10, 2023 . • income taxes and the ability to realize certain deferred tax benefits • valuation and impairment of investments, including estimates related to expectations of credit losses on certain financial assets • valuation of freestanding derivative instruments • valuation of embedded derivatives • net investment income • contingent liabilities • consolidation of variable interest entities The below critical accounting estimates are updated from our 2022 Annual Report for the adoption of LDTI. Reserves for Future Policy Benefits and Claims Payable We establish reserves for future policy benefits to, or on behalf of, customers in the same period in which the policy is issued or acquired, using methodologies prescribed by U.S. GAAP. Reserves for Future Policy Benefits For non-participating traditional life insurance contracts and limited pay life-contingent contracts , which include term, whole life, and payout annuities with significant insurance risk, reserves for future policy benefits represents the present value of estimated future policy benefits to be paid to, or on behalf of, policyholders in future periods and certain related expenses less the present value of estimated future net premiums. 128 Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates Reserves for future policy benefits for non-participating traditional and limited-payment insurance contracts are measured using the net premium ratio (NPR) measurement model. The NPR measurement model accrues for future policy benefits in proportion to the premium revenue recognized. The reserve for future policy benefits is derived from the Company's best estimate of future net premium and future benefits and expenses, which is based on best estimate assumptions, including mortality, persistency, claims expense, and discount rate. On an annual basis, or as circumstances warrant, we conduct a comprehensive review of our current best estimate assumptions based on our experience, industry benchmarking, and other factors, as applicable. Expense assumptions are updated based on estimates of expected non-level costs, such as termination or settlement costs, and costs after the premium-paying period, and exclude acquisition costs or any costs that are required to be charged to expenses as incurred. Updates to assumptions are applied on a retrospective basis, and each reporting period the reserve for future policy benefits is updated to reflect actual experience to date. The Company establishes cohorts, which are product groupings used to measure reserves for future policy benefits. In determining cohorts, the Company considered both qualitative and quantitative factors, including the issue year, type of product, product features, and legal entity. The discount rate used to estimate reserves for future policy benefits is consistent with an upper-medium grade (low-credit risk) fixed-income corporate instrument yield, which has been interpreted to represent a single-A corporate instrument yield. This discount rate curve is determined by fitting a parametric function to yields to maturity and related times to maturity of market observable single-A rated corporate instruments. The discount rate used to recognize interest accretion on the reserves for future policy benefits is locked at the initial measurement of the cohort. Each reporting period, the reserve for future policy benefits is remeasured using the current discount rate. The difference between the reserve calculated using the current discount rate and the reserve calculated using the locked-in discount rate is recorded in other comprehensive income. Additional Liabilities - Universal Life-type The Company issues universal life plans with secondary guarantees and interest-sensitive life plans. The primary reserves for these policies are the contract holder account balances reported within the other contract holder funds line of the balance sheet. Where these contracts provide additional benefits beyond the account balance or base insurance coverage that are not market risk benefits or embedded derivatives, liabilities in addition to the policyholder’s account value are recognized. These additional liabilities for annuitization, death and other insurance benefits are reported within reserves for future policy benefits and claims payable. The methodology uses a benefit ratio defined as a constant percentage of the assessment base. This ratio is multiplied by current period assessments to determine the reserve accrual for the period. The assumptions used in the measurement of the additional liabilities for annuitization, death and other insurance benefits are based on best estimate assumptions including mortality, persistency, investment returns, and discount rates. These assumptions are similarly subject to the annual review process discussed above. Other Future Policy Benefits and Claims Payable In conjunction with a prior acquisition, we recorded a fair value adjustment related to certain annuity and interest-sensitive life blocks of business to reflect the cost of the interest guarantees within the in-force liabilities, based on the difference between the guaranteed interest rate and an assumed new money guaranteed interest rate. This adjustment is recorded in reserves for future policy benefits and claims payable. This component of the acquired reserves is reassessed at the end of each period, taking into account changes in the in-force block. Any resulting change in the reserve is recorded as a change in policy reserve through the Consolidated Income Statements. In addition, life and annuity claims liabilities in course of settlement are included in other future policy benefits and claims payable. See Note 9 - Reserve for Future Policy Benefits and Claims Payable of the Notes to Condensed Consolidated Financial Statements for additional information on these accounting policies. 129 Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates Market Risk Benefits Contracts or contract features that provide protection to the contract holder from capital market risk and expose the Company to other-than-nominal capital market risk are classified as market risk benefits, or MRBs. All long-duration insurance contracts and certain investment contracts are subject to MRB evaluation. MRBs are measured at fair value at the contract level and can be in either an asset or liability position. For contracts that contain multiple MRB features, the MRBs are valued together as a single compound MRB. The use of models and assumptions used to determine fair value of MRBs requires a significant amount of judgement. The significant assumptions used in the MRB fair value calculations are: • Mortality rates - These vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range used reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied. • Base lapse rates - These vary by contract-level factors, such as product type, surrender charge schedule and optional benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized. • Utilization rates - These represents the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money. • Withdrawal rates - These represent the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount under the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates vary based on the product type and duration. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions. • Non-performance risk adjustment - This is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year. • Long-term equity volatility - This represents the equity volatility beyond the period for which observable equity volatilities are available. See Note 6 - Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements for additional information. Variable Annuities We issue variable contracts through our separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder. Certain of these contracts include contract provisions by which we contractually guarantee to the contract holder either a) return of no less than total deposits made to the account adjusted for any partial withdrawals, b) total deposits made to the account adjusted for any partial withdrawals plus a minimum return, or c) the highest account value on a specified anniversary date adjusted for any withdrawals following the contract anniversary. These guarantees include benefits that are payable upon the depletion of funds (GMWB), in the event of death (GMDB), at annuitization (GMIB), or at the end of a specified period (GMAB). Substantially all of our GMIB benefits are reinsured. GMIB benefits and GMAB benefits were discontinued in 2009 and 2011, respectively. For additional information regarding our account value by optional guarantee benefit, see Business–Our Segments–Retail Annuities–Variable Annuities in our 2022 Annual Report. 130 Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates 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. See Note 12 - Market Risk Benefits of the Notes to Condensed Consolidated Financial Statements for additional information on these accounting policies. Reinsurance Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risk with respect to reinsurance receivables. We periodically review actual and anticipated experience compared to the previously mentioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluate the financial strength of counterparties to our reinsurance agreements. Counterparty credit risk may be managed through the use of letters of credit, collateral trusts or on balance sheet funds withheld agreements. Assets held under funds withheld agreements are included on our balance sheets and subject to triggers embedded within the relevant reinsurance agreements. Additionally, for each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. We review all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. For reinsurance contracts, reinsurance recoverable balances are generally calculated using methodologies and assumptions that are consistent with those used to calculate the direct liabilities. For non-participating traditional life insurance contracts and limited pay life-contingent contracts, there may be reinsurance contracts executed subsequent to the direct contract issue dates, and market interest rates may have changed between the date that the underlying insurance contracts were issued and the date the reinsurance contract is recognized in the financial statements, resulting in the underlying discount rate differing between the direct and reinsured business. Our guaranteed minimum income benefits (GMIBs) are reinsured with an unrelated party. For contracts that only ceded the GMIB feature of our annuity products, the reinsurance contract in its entirety is classified as a reinsured market risk benefit or MRB. Accordingly, the reinsured MRB is recorded at fair value using internally developed models consistent with those used to value our direct MRBs. 131 Item 2 | Management’s Discussion and Analysis | Summary of Critical Accounting Estimates See Note 8 - Reinsurance of the Notes to Condensed Consolidated Financial Statements for additional information on these accounting policies. Off–Balance Sheet Arrangements See Note 13 - Long-term Debt regarding lender commitment under the Company's revolving credit facility and Note 16 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements regarding unfunded investment commitments to limited partnerships and limited liability companies. 132 Item 3 | Quantitative and Qualitative Disclosures about Market Risk