Jackson Financial Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "Form 10-K") in its entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us. Discussion related to the results of operations for the Company's comparison of 2022 results to 2021 results has been omitted in this Form 10-K. The Company's comparison of 2022 results to 2021 results is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 1, 2023, (the "2022 Annual Report"), as recast to reflect the adoption of LDTI in our Current Report on Form 8-K filed May 10, 2023, under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations . 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 state of Delaware, 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 ("Jackson"), 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, variable universal life and term life insurance products in all 50 states and the District of Columbia. Executive Summary 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 position 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 the interest we credit 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. Due to funds withheld reinsurance arrangements, including the Athene Reinsurance Transaction, we hold significant assets whose investment performance accrues to the benefit of the related reinsurer. 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 our overall 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. 44 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Executive Summary 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 America Inc. ("PPM"), which manages the majority of our general account investment portfolio, in Corporate and Other. See Item 8. Financial Statements and Supplementary Data — Note 3 - Segment Information of Notes to Condensed Consolidated Financial Statements for further information on our segments. 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: Years Ended December 31, 2023 2022 (in millions, except percentages) Total Sales $ 13,898 $ 18,135 Assets Under Management ("AUM") 315,838 290,549 Net income (loss) attributable to Jackson Financial Inc. common shareholders 899 6,186 Adjusted Operating Earnings (1) 1,073 1,454 Capital Returned to Common Shareholders 464 482 Return on Equity ("ROE") Attributable to Common Shareholders 10.3 % 69.7 % Adjusted Operating ROE Attributable to Common Shareholders on average adjusted book value (1) 10.6 % 16.2 % Jackson statutory risk-based capital (2) 624 % 544 % (1) Non-GAAP Financial Measure. See “Non-GAAP Financial Measures” below for information regarding our non-GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures. (2) Based on a Company Action Level basis. Recent Events of Note • Capital Returned to Common Shareholders: During 2023, we returned $464 million to our common shareholders consisting of $209 million in dividends and $255 million in common share repurchases. Our capital return target for common shareholders for 2023 was $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 78,660,221 at December 31, 2023. See Item 8. Financial Statement and Supplementary Data -- Note 24 - Equity of Notes to Consolidated Financial Statements for further information on our share repurchases. • RILA Product: In the fourth quarter of 2021, our primary life insurance subsidiary, Jackson, 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. • 2023 Annual Assumption Updates: Consistent with prior years, we completed our annual actuarial assumptions review in the fourth quarter of 2023. See “Policy and Contract Liabilities – Actuarial Assumption Changes (Unlocking)” below and Item 8. Financial Statements and Supplementary Data -- Note 12 - Market Risk Benefits of Notes to Consolidated Financial Statements for further information regarding the notable assumption change updates included in the MRB calculation. 45 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Executive Summary • Inflation Reduction Act of 2022 ("IRA"): As discussed in Item 8. Note 15 - Income Taxes of Notes to 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 are subject to the CAMT in 2023. Any CAMT incurred is treated as a taxable temporary difference, and recorded as a deferred tax asset ("DTA"). We have determined that a valuation allowance against the DTA is not currently required therefore there is no direct impact on total income tax expense; although it could affect our cash tax liabilities. As of December 31, 2023, the Company has recorded an estimate of $263 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 guidance by the U .S. Department of the Treasury, which may materially change the estimated provision for the CAMT. 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. • Brooke Life Reinsurance Company (“Brooke Re”): During the first quarter of 2024, Jackson entered into a 100% coinsurance with funds withheld reinsurance transaction with Brooke Re with all economics of the transaction effective as of January 1, 2024. Jackson and Brooke Re are both direct subsidiaries of Brooke Life. The transaction provides for the cession from Jackson to Brooke Re of liabilities associated with certain guaranteed benefit riders under our variable annuity contracts and similar products of Jackson (“market risk benefits”), both in-force on the effective date of the reinsurance agreement and written in the future ( i.e. , on a “flow” basis) as well as related future fees, claims and other benefits, and maintenance expenses in exchange for a ceding commission for the in-force business. Jackson retains the variable annuity base contract, the annuity contract administration of the ceded business, and responsibility for investment management of the assets in the funds withheld account supporting the ceded liabilities. Brooke Re paid a ceding commission of approximately $1.2 billion to Jackson in connection with the execution of the reinsurance transaction. The reinsurance transaction eliminates upon consolidation at JFI. Holding company liquidity at JFI was not impacted by the transactions. Brooke Re is a Michigan captive insurer regulated by the Michigan Department of Insurance and Financial Services and created in the first quarter of 2024 for the express purpose of serving as the counterparty to the reinsurance transaction previously described with Jackson. Brooke Re was capitalized with assets contributed from Brooke Life of approximately $1.9 billion originating from Jackson as a return of capital to Brooke Life. Brooke Re will utilize a modified GAAP approach primarily related to market risk benefits, with the intent to increase alignment between assets and liabilities in response to changes in economic factors. The transaction allows us to mitigate the impact of the cash surrender value floor on Jackson’s total adjusted capital, statutory required capital, and risk-based capital ratio, as well as to allow for more efficient economic hedging of the underlying risks of Jackson’s business. This outcome will serve the interests of policyholders by protecting statutory capital through diminished non-economic hedging and related costs. Overall, this transaction allows us to optimize our hedging, stabilize capital generation, and produce more predictable financial results going forward. 46 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Key Operating Measures Key Operating Measures We use a number of operating measures, discussed below, which 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. Years Ended December 31, 2023 2022 2021 (in millions) Sales Variable annuities $ 9,540 $ 13,638 $ 19,073 RILA 2,890 1,811 108 Fixed Index Annuities 210 126 115 Fixed Annuities (1) 193 162 33 Total Retail Annuity Sales 12,833 15,737 19,329 Total Institutional Product Sales 1,065 2,398 475 Total Sales $ 13,898 $ 18,135 $ 19,804 (1) Includes payout annuities For the year ended December 31, 2023, total sales decreased significantly compared to the year ended December 31, 2022. 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 and fixed annuities increased in 2023 due to the higher interest rate environment, which enabled more favorable pricing actions. In addition, sales of our institutional products were lower compared to the year ended December 31, 2022, reflecting our opportunistic approach to this business, depending on both the risk-adjusted return on investment opportunities available and the prevailing cost of funding required by purchasers. 47 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Key Operating Measures Account Value Account value ("AV") 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 and spread income generation, potential benefit obligations and risk management priorities. December 31, 2023 2022 (in millions) Account Value GMWB For Life $ 166,688 $ 149,706 GMWB 6,092 5,674 GMIB 1,352 1,356 No Living Benefits 53,645 49,073 Total Variable Annuity Account Value 227,777 205,809 RILA 5,219 1,875 Fixed Index Annuity (1) 622 415 Fixed Annuity (1) 1,218 1,219 Total Fixed & Fixed Index Annuity Account Value (1) 1,840 1,634 Payout Annuity (1) $ 629 $ 649 Total Retail Annuities Account Value (1) $ 235,465 $ 209,967 Total Institutional Products Account Value $ 8,406 $ 9,019 Total Closed Life and Annuity Blocks Account Value (1) $ 8,032 $ 8,288 (1) Net of reinsurance 48 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Key Operating Measures 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 and spread income and policyholder behavior. Years Ended December 31, 2023 2022 2021 (in millions) Net Flows: Variable Annuity $ (9,277) $ (2,407) $ (1,011) RILA 2,820 1,803 108 Fixed Index Annuity (1) 199 124 106 Fixed Annuity (1) (11) 90 13 Payout Annuity (1) (69) (79) (81) Total Retail Annuities Net Flows (1) (6,338) (469) (865) Net flows ceded to Athene (4,063) (3,182) (2,521) Total Retail Annuities net flows, gross of reinsurance $ (10,401) $ (3,651) $ (3,386) Total Institutional Products Net Flows $ (985) $ 40 $ (2,440) Total Closed Life and Annuity Blocks Net Flows (1) $ (273) $ (270) $ (250) (1) Net of reinsurance Net flows, net of reinsurance, decreased for the year ended December 31, 2023, compared to the year ended December 31, 2022, driven by the decreased variable annuity sales coupled with increased variable annuity surrenders and withdrawals, partially offset by increased RILA sales. Variable annuity net flows were more than offset by an increase in AUM, as defined below, due to market performance in 2023. 49 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Key Operating Measures 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 December 31, 2023 and 2022: Years Ended December 31, 2023 2022 Account Value Benefit Base Account Value Benefit Base (in millions) No Living Benefits $ 53,645 N/A $ 49,073 N/A By Guaranteed Living Benefits: GMWB for Life 166,688 188,722 149,706 189,814 GMWB 6,092 5,348 5,674 5,655 GMIB (1) 1,352 1,799 1,356 1,929 Total $ 227,777 $ 195,869 $ 205,809 $ 197,398 By Guaranteed Death Benefit: Return of AV (No GMDB) $ 27,486 N/A $ 25,049 N/A Return of Premium 174,841 137,287 157,339 138,419 Highest Anniversary Value ("HAV") 13,213 13,522 12,128 14,272 Rollup 3,347 4,484 3,229 4,695 Combination HAV/Rollup 8,890 10,057 8,064 10,297 Total $ 227,777 $ 165,350 $ 205,809 $ 167,683 (1) Substantially all our GMIB benefits are reinsured. 50 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Key Operating Measures 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 one of our subsidiaries, 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. December 31, 2023 2022 (in millions) Jackson Invested Assets $ 44,068 $ 44,486 Third Party Invested Assets (including CLOs) 29,043 26,993 Total PPM AUM 73,111 71,479 Total JNAM AUM 242,727 219,070 Total AUM $ 315,838 $ 290,549 Total AUM increased for the year ended December 31, 2023, compared to the year ended December 31, 2022, driven primarily by an increase in separate account balances managed by JNAM due to positive equity market returns during the year. 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 U.S. 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- and medium-term. Government actions, including responses to future pandemics, civil unrest, tariffs or other barriers to international trade, and the effects that these or other government events could have on levels of U.S. economic activity, could also impact our business through any of their individual impacts on consumers’ behavior or 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 direct 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 December 31, 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 51 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Macroeconomic, Industry and Regulatory Trends 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. 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 as a result of the Federal Reserve’s past 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 after such an increase in rates. 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 due to the higher discount rate. • 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. • In the past, our statutory total adjusted capital ("TAC") has been 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 increased or decreased depending on the interaction between movements in TAC and movements in statutory required capital (the company action level, or "CAL”); such movements can impact available dividends from our insurance subsidiaries. We expect the Brooke Re transaction to largely moderate the impact of the cash surrender value floor going forward. See Executive Summary above for more information regarding the Brooke Re Transaction. • 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. 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 a rising interest rate environment, these GMICRs can increase over time. Conversely, in a falling interest rate environment the 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. 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 52 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Macroeconomic, Industry and Regulatory Trends generally increases, and the yield available on new investment purchases decreases. While changing credit spreads impact the fair value of our investment portfolio, this revaluation is generally reflected in our accumulated other comprehensive income, or 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. 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. New federal and state regulations could impact our business model, including statutory reserve and capital requirements. Our ability to respond to changes in regulation and other legislative activity are critical to our long-term financial performance. T he following regulations could materially impact our business: Department of Labor Fiduciary Advice Rule See Part I, Item I Business—Regulation—"Federal Initiatives Impacting Insurance Companies—Department of Labor’s Fiduciary Advice Rule" for a discussion of the 2023 Fiduciary Advice Rule. Legislative Reforms In recent years, Congress approved legislation beneficial to our business model. The Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act"), approved by Congress on December 20, 2019, provides 53 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Macroeconomic, Industry and Regulatory Trends 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. On December 29, 2022, Congress signed into law the SECURE 2.0 Act of 2022 (“SECURE 2.0”). SECURE 2.0 expands automatic enrollment programs, increases the age for required minimum distributions, and eliminates age requirements for traditional IRA contributions. These changes are intended to expand and increase Americans’ retirement savings. Tax Laws Our annuities offer investors the opportunity to benefit from tax deferrals. If U.S. tax laws change such that our annuities no longer offer tax-deferred advantages, demand for our products could materially decrease. 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. 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, excluding earned income (periodic settlements and changes in settlement accruals); (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. 54 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Non-GAAP Financial Measures 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. 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: Years Ended December 31, 2023 2022 2021 (in millions) Net income (loss) attributable to Jackson Financial Inc common shareholders $ 899 $ 6,186 $ 3,417 Add: dividends on preferred stock 35 — — Add: income tax expense (benefit) 4 1,505 666 Pretax income (loss) attributable to Jackson Financial Inc 938 7,691 4,083 Non-operating adjustments (income) loss: Guaranteed benefits and hedging results: Fees attributable to guarantee benefit reserves (3,125) (3,077) (2,855) Net movement in freestanding derivatives 4,651 2,744 5,674 Market risk benefits (gains) losses, net (3,897) (3,536) (3,966) Net reserve and embedded derivative movements 787 222 141 Amortization of DAC associated with non-operating items at date of transition to LDTI 591 658 737 Total guaranteed benefits and net hedging results (993) (2,989) (269) Net realized investment (gains) losses 554 359 (182) Net realized investment (gains) losses on funds withheld assets 1,801 (2,186) 21 Net investment income on funds withheld assets (1,174) (1,254) (1,188) Other items 39 22 36 Total non-operating adjustments 227 (6,048) (1,582) Pretax adjusted operating earnings 1,165 1,643 2,501 Less: operating income tax expense (benefit) 57 189 322 Adjusted operating earnings before dividends on preferred stock 1,108 1,454 2,179 Less: dividends on preferred stock 35 — — Adjusted operating earnings $ 1,073 $ 1,454 $ 2,179 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 that: (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. 55 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Non-GAAP Financial Measures 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. 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: Years Ended December 31, 2023 2022 2021 (in millions) Net income (loss) attributable to Jackson Financial Inc. common shareholders $ 899 $ 6,186 $ 3,417 Adjusted Operating Earnings 1,073 1,454 2,179 Total shareholders' equity $ 10,170 $ 8,646 $ 7,641 Less: Preferred stock 533 — — Total common shareholders' equity 9,637 8,646 7,641 Adjustments to total common shareholders’ equity: Exclude AOCI attributable to Jackson Financial Inc. (1) 1,196 1,272 (1,073) Adjusted Book Value Attributable to Common Shareholders $ 10,833 $ 9,918 $ 6,568 ROE Attributable to Common Shareholders 10.3 % 69.7 % 44.1 % Adjusted Operating ROE Attributable to Common Shareholders on average equity 10.6 % 16.2 % 32.8 % (1) Excludes $(1,612) million, $(2,106) million and $287 million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of December 31, 2023, 2022 and 2021, respectively, which 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. 56 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Consolidated Results of Operations Consolidated Results of Operations The following table sets forth, for the periods presented, certain data from our Consolidated Income Statements. The information contained in the table below should be read in conjunction with our Consolidated Financial Statements and the related notes elsewhere in this report: Years Ended December 31, 2023 2022 2021 (in millions) Revenues Fee income $ 7,680 $ 7,722 $ 8,059 Premiums 147 132 148 Net investment income: Net investment income excluding funds withheld assets 1,756 1,507 2,236 Net investment income on funds withheld assets 1,174 1,254 1,188 Total net investment income 2,930 2,761 3,424 Net gains (losses) on derivatives and investments: Net gains (losses) on derivatives and investments (5,864) (3,023) (5,344) Net gains (losses) on funds withheld reinsurance treaties (1,801) 2,186 (21) Total net gains (losses) on derivatives and investments (7,665) (837) (5,365) Other income 67 85 94 Total revenues 3,159 9,863 6,360 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 965 1,062 925 (Gain) loss from updating future policy benefits cash flow assumptions, net 102 (34) 41 Market risk benefits (gains) losses, net (3,897) (3,536) (3,966) Interest credited on other contract holder funds, net of deferrals and amortization 1,145 866 832 Interest expense 185 113 37 Operating costs and other expenses, net of deferrals 2,549 2,432 2,839 Amortization of deferred acquisition costs 1,152 1,226 1,307 Total benefits and expenses 2,201 2,129 2,015 Pretax income (loss) 958 7,734 4,345 Income tax expense (benefit) 4 1,505 666 Net income (loss) 954 6,229 3,679 Less: Net income (loss) attributable to noncontrolling interests 20 43 262 Net income (loss) attributable to Jackson Financial Inc. 934 6,186 3,417 Less: Dividends on preferred stock 35 — — Net income (loss) attributable to Jackson Financial Inc. common shareholders $ 899 $ 6,186 $ 3,417 57 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Consolidated Results of Operations Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Pretax Income (Loss) Our pretax income (loss) decreased by $6,776 million to pretax income of $958 million for the year ended December 31, 2023, from $7,734 million for the year ended December 31, 2022, primarily due to: • $6,828 million decrease in total net gains (losses) on derivatives and investments as shown in table below and driven by: Years Ended December 31, 2023 2022 Variance (in millions) Net gains (losses) excluding derivatives and funds withheld assets $ (554) $ (359) $ (195) Net gains (losses) on freestanding derivatives (4,804) (2,704) (2,100) Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance) (506) 40 (546) Net gains (losses) on derivative instruments (5,310) (2,664) (2,646) Net gains (losses) on funds withheld reinsurance (1,801) 2,186 (3,987) Total net gains (losses) on derivatives and investments $ (7,665) $ (837) $ (6,828) • 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 gains within our interest rate related hedge instruments, reflecting relatively flat interest rate movements in 2023, compared to increasing rates in the prior year; and • Losses recognized on funds withheld reinsurance were driven by slightly lower rates in 2023 compared to gains in the prior year due to the significant rise in interest rates during 2022. • $279 million increase in interest credited on contract holder funds, net of deferrals, primarily due to an increase in GMICRs on variable annuity general account funds and higher crediting rates on new institutional business; • $117 million increase in operating costs and other expenses, net of deferrals, primarily due to an increase in deferred and incentive compensation expenses during 2023 compared to the prior year; • $72 million higher interest expense incurred during 2023 primarily related to interest on our repurchase agreements, senior notes, and other short-term borrowings; • $42 million decrease in fee income primarily due to lower average separate account values compared to prior year; and • $39 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 the impact of actuarial assumption updates and a $31 million increase in our allowance for reinsurance credit losses related to a specific reinsurer that was recently ordered into liquidation, partially offset by improved mortality and a greater decrease in reserves due to the payout of persistency bonuses on a portion of the business. See " Policy and Contract Liabilities" below for further information regarding our actuarial assumption changes . These decreases were partially offset by: • $361 million favorable movements in market risk benefits (gains) losses, net, primarily driven by positive fund performance in the current year compared to declines in the prior year, as well as favorable changes in implied volatility, with offsetting unfavorable movements in interest rates in the current year; and • $169 million increase in net investment income as a result of higher income on bonds and short-term investments, driven by higher yields in 2023, partially offset by higher expenses related to consolidation in 2023 and lower income on limited partnership investments, which are recorded on a one quarter lag. Income Taxes Income tax expense decreased $1,501 million to an expense of $4 million for the year ended December 31, 2023, from an expense of $1,505 million for the year ended December 31, 2022. The 2023 income tax expense represents an effective tax 58 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Consolidated Results of Operations rate of 1%, versus a 2022 income tax expense that represents an effective income tax rate of 20%. The lower effective tax rate for December 31, 2023 compared to December 31, 2022 is due to lower pretax earnings with similar amounts of permanent benefits. Our effective tax rate typically varies from the marginal statutory rate of 21% due to the impact of permanent tax differences, such as dividends received deduction and foreign tax credits. See “Recent Events of Note – Inflation Reduction Act of 2022” above regarding the effect of the IRA on cash tax liabilities. 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 Item 8. Financial Statements and Supplementary Data - Note 3 - Segment Information of Notes to Consolidated Financial Statements for further information regarding the calculation of pretax adjusted operating earnings : Years Ended December 31, 2023 2022 2021 (in millions) Pretax Adjusted Operating Earnings by Segment: Retail Annuities $ 1,364 $ 1,507 $ 2,184 Institutional Products 69 79 64 Closed Life and Annuity Blocks (95) 117 255 Corporate and Other (173) (60) (2) Pretax Adjusted Operating Earnings 1,165 1,643 2,501 Pre-tax reconciling items from adjusted operating income to net income (loss) attributable to Jackson Financial Inc.: Guaranteed benefits and hedging results: Fees attributable to guarantee benefit reserves 3,125 3,077 2,855 Net movement in freestanding derivatives (4,651) (2,744) (5,674) Market risk benefits gains (losses), net 3,897 3,536 3,966 Net reserve and embedded derivative movements (787) (222) (141) Amortization of DAC associated with non-operating items at date of transition to LDTI (591) (658) (737) Total guaranteed benefits and net hedging results 993 2,989 269 Net realized investment gains (losses) (554) (359) 182 Net realized investment gains (losses) on funds withheld assets (1,801) 2,186 (21) Net investment income on funds withheld assets 1,174 1,254 1,188 Other items (39) (22) (36) Total pre-tax reconciling items (227) 6,048 1,582 Pretax income (loss) attributable to Jackson Financial Inc. 938 7,691 4,083 Income tax expense (benefit) 4 1,505 666 Net income (loss) attributable to Jackson Financial Inc. 934 6,186 3,417 Less: Dividends on preferred stock 35 — — Net income (loss) attributable to Jackson Financial Inc. common shareholders $ 899 $ 6,186 $ 3,417 59 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 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 Consolidated Financial Statements and the related notes appearing elsewhere in this report: Years Ended December 31, 2023 2022 2021 (in millions) Retail Annuities: Operating Revenues Fee income $ 4,036 $ 4,108 $ 4,636 Premiums 21 10 15 Net investment income 541 403 692 Income (loss) on operating derivatives (45) 17 52 Other income 37 42 47 Total Operating Revenues 4,590 4,580 5,442 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves 43 61 6 (Gain) loss from updating future policy benefits cash flow assumptions, net (4) (4) 225 Interest credited on other contract holder funds, net of deferrals and amortization 374 253 (8) Interest expense 84 32 22 Operating costs and other expenses, net of deferrals 2,178 2,174 2,456 Amortization of deferred acquisition costs 551 557 557 Total Operating Benefits and Expenses 3,226 3,073 3,258 Pretax Adjusted Operating Earnings $ 1,364 $ 1,507 $ 2,184 The following table summarizes a roll-forward of activity affecting account value for our Retail Annuities segment for the periods indicated: Years Ended December 31, 2023 2022 2021 (in millions) Retail Annuities Account Value: Balance as of beginning of period $ 209,967 $ 260,135 $ 230,741 Premiums and deposits 13,015 15,961 19,594 Surrenders, withdrawals, and benefits (19,353) (16,430) (20,459) Net flows (6,338) (469) (865) Investment performance 33,807 (47,149) 32,621 Change in value of equity option 509 (41) 7 Interest credited 372 244 223 Policy charges and other (2,852) (2,753) (2,592) Balance as of end of period, net of ceded reinsurance 235,465 209,967 260,135 Ceded reinsurance 18,370 22,037 25,075 Balance as of end of period, gross of reinsurance $ 253,835 $ 232,004 $ 285,210 Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Pretax Adjusted Operating Earnings Pretax a djusted operating earnings decreased $143 million to $1,364 million for the year ended December 31, 2023 from $1,507 million for the year ended December 31, 2022 primarily due to: • $72 million decrease in fee income primarily due to lower average separate account values compared to prior year; 60 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Segment Results of Operations • $62 million decrease in income on operating derivatives primarily due to the increase in floating rates during 2023; and • $52 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: • $18 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; and • $17 million increase in spread income primarily due to $138 million higher net investment income, partially offset by $121 million higher interest credited on contract holder funds driven by resetting GMICRs on variable annuity fixed rate options in the first quarter of 2023. Account Value Retail annuities account value, net of reinsurance, increased $25.5 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. 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 Consolidated Financial Statements and the related notes appearing elsewhere in this report: Years Ended December 31, 2023 2022 2021 (in millions) Institutional Products: Operating Revenues Net investment income $ 474 $ 312 $ 260 Income (loss) on operating derivatives (50) (22) (3) Total Operating Revenues 424 290 257 Operating Benefits and Expenses Interest credited on other contract holder funds, net of deferrals and amortization 334 201 188 Interest expense 16 5 — Operating costs and other expenses, net of deferrals 5 5 5 Total Operating Benefits and Expenses 355 211 193 Pretax Adjusted Operating Earnings $ 69 $ 79 $ 64 The following table summarizes a roll-forward of activity affecting account value for our Institutional Products segment for the periods indicated: Years Ended December 31, 2023 2022 2021 (in millions) Institutional Products: Balance as of beginning of period $ 9,019 $ 8,830 $ 11,138 Premiums and deposits 1,065 2,398 475 Surrenders, withdrawals, and benefits (2,050) (2,358) (2,915) Net flows (985) 40 (2,440) Credited Interest 334 201 188 Policy Charges and other 38 (52) (56) Balance as of end of period $ 8,406 $ 9,019 $ 8,830 61 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Segment Results of Operations Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $10 million to $69 million for the year ended December 31, 2023 from $79 million for the year ended December 31, 2022 primarily due to higher interest credited on new business and floating rate contract holder funds, decreased income on operating derivatives resulting from changes in currency exchange rates and the increase in floating rates in 2023, and higher interest expense, partially offset by higher investment income. Account Value Institutional product account value decreased from $9,019 million at December 31, 2022 to $8,406 million at December 31, 2023. The decrease in account value was driven by continued maturities of the existing contracts, partially offset by new issuances in 2023. 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 Consolidated Financial Statements and the related notes appearing elsewhere in this report: Years Ended December 31, 2023 2022 2021 (in millions) Closed Life and Annuity Blocks: Operating Revenues Fee income $ 457 $ 474 $ 492 Premiums 136 134 145 Net investment income 689 706 950 Income (loss) on operating derivatives (45) 31 72 Other income 25 35 39 Total Operating Revenues 1,262 1,380 1,698 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves 641 734 752 (Gain) loss from updating future policy benefits cash flow assumptions, net 106 (24) 419 Interest credited on other contract holder funds, net of deferrals and amortization 437 412 80 Operating costs and other expenses, net of deferrals 163 130 179 Amortization of deferred acquisition costs 10 11 13 Total Operating Benefits and Expenses 1,357 1,263 1,443 Pretax Adjusted Operating Earnings $ (95) $ 117 $ 255 Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $212 million to $(95) million for the year ended December 31, 2023 from $117 million for the year ended December 31, 2022 primarily due to: • $76 million decrease in income on operating derivatives primarily due to the increase in floating rates during 2023; • $37 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 the impact of actuarial assumption updates and a $31 million increase in our allowance for reinsurance credit losses related to a specific reinsurer which was recently ordered into liquidation, partially offset by improved mortality and a greater decrease in reserves due to 62 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Segment Results of Operations the payout of persistency bonuses on a portion of the business. See “ Policy and Contract Liabilities” below for further information regarding our actuarial assumption changes ; • $33 million increase in operating costs and other expenses, net of deferrals, primarily due to higher commissions, net of deferrals, related to persistency bonuses in 2023, and an increase in incentive compensation expenses compared to the prior year; and • $25 million increase in interest credited on other contract holder funds related to persistency bonuses in 2023. 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 Consolidated Financial Statements and the related notes appearing elsewhere in this report: Years Ended December 31, 2023 2022 2021 (in millions) Corporate and Other: Operating Revenues Fee income $ 52 $ 52 $ 65 Net investment income 71 65 55 Income (loss) on operating derivatives (13) 14 32 Other income 5 8 8 Total Operating Revenues 115 139 160 Operating Benefits and Expenses Interest expense 85 76 15 Operating costs and other expenses, net of deferrals 203 123 147 Total Operating Benefits and Expenses 288 199 162 Pretax Adjusted Operating Earnings $ (173) $ (60) $ (2) Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $113 million to $(173) million for the year ended December 31, 2023 from $(60) million for the year ended December 31, 2022 primarily due to the following: • $80 million increase in operating costs and other expenses, net of deferrals, primarily due to an increase in deferred compensation expenses in 2023; • $27 million decrease in income on operating derivatives primarily due to the increase in floating rates in 2023; and • $9 million higher interest expense incurred in the current year primarily related to our senior notes. See Item 8. Financial Statements and Supplementary Data - Note 13 - Long-Term Debt of Notes to Consolidated Financial Statements for further information regarding our long-term debt . 63 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 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. We utilize repurchase and reverse repurchase transactions as a part of our overall portfolio management program to assist with collateral requirements associated with our hedging program and other liquidity needs of our insurance subsidiaries. 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. S ee Item 8. Financial Statements and Supplementary Data -- Note 8 - Reinsurance of Notes to Consolidated Financial Statements for further details . We may also use other third-party investment managers for certain niche asset classes. As of December 31, 2023, Apollo managed $16.6 billion of cash and investments and other third-party investment managers managed approximately $218 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. 64 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments Portfolio Composition The following table summarizes the carrying values of our investments: December 31, 2023 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 $ 28,896 $ 11,526 $ 40,422 $ 28,867 $ 13,622 $ 42,489 Debt Securities, at fair value under fair value option 2,037 116 2,153 2,014 159 2,173 Debt securities, trading, at fair value 68 — 68 100 — 100 Equity securities, at fair value 243 151 394 316 77 393 Mortgage loans, net of allowance for credit losses 7,015 3,067 10,082 6,840 4,127 10,967 Mortgage loans, at fair value under fair value option — 481 481 — 582 582 Policy loans 928 3,471 4,399 942 3,435 4,377 Freestanding derivative instruments 375 15 390 1,192 78 1,270 Other invested assets 1,757 709 2,466 2,802 793 3,595 Total investments $ 41,319 $ 19,536 $ 60,855 $ 43,073 $ 22,873 $ 65,946 Available-for-sale debt securities decreased to $40,422 million at December 31, 2023 from $42,489 million at the end of 2022, primarily due to dispositions, partially offset by declines in unrealized losses primarily in the funds withheld portfolio. The amortized cost of debt securities, available-for-sale, decreased from $48,798 million as of December 31, 2022 to $44,843 million as of December 31, 2023. Further, net unrealized losses, after adjusting for allowance for credit loss, were $6,286 million as of December 31, 2022 compared to $4,401 million as of December 31, 2023. Other Invested Assets Other invested assets decreased to $2,466 million at December 31, 2023 from $3,595 million at December 31, 2022 , primarily due to the sale of limited partnerships during 2023. 65 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments Debt Securities At December 31, 2023 and December 31, 2022, the amortized cost, allowance for credit loss, gross unrealized gains and losses, and fair value of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions): December 31, 2023 Amortized Cost Allowance for Credit Loss Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government securities $ 5,154 $ — $ 3 $ 845 $ 4,312 Other government securities 1,622 — 1 221 1,402 Corporate securities Utilities 5,598 — 42 513 5,127 Energy 2,946 — 24 272 2,698 Banking 2,204 1 23 148 2,078 Healthcare 2,985 — 20 338 2,667 Finance/Insurance 4,392 13 31 429 3,981 Technology/Telecom 2,058 1 10 191 1,876 Consumer goods 2,395 — 21 285 2,131 Industrial 1,609 — 14 112 1,511 Capital goods 1,838 — 14 127 1,725 Real estate 1,572 — 6 153 1,425 Media 1,082 — 4 109 977 Transportation 1,381 — 7 157 1,231 Retail 1,197 — 6 132 1,071 Other (1) 2,211 — 14 119 2,106 Total Corporate Securities 33,468 15 236 3,085 30,604 Residential mortgage-backed 422 6 12 53 375 Commercial mortgage-backed 1,569 — 1 147 1,423 Other asset-backed securities 4,830 — 6 309 4,527 Total Debt Securities $ 47,065 $ 21 $ 259 $ 4,660 $ 42,643 (1) No single remaining industry exceeds 3% of the portfolio. 66 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments 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. The tightening credit spreads of investment grade corporate securities resulted in decreased unrealized losses during the year ended December 31, 2023. Of the $1,741 million total decrease in unrealized losses and the $6,014 million reduction in fair value on securities with an associated unrealized loss, $641 million and $1,679 million, respectively, are associated with assets subject to funds withheld agreements. 67 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments Evaluation of Available-For-Sale Debt Securities See Item 8. Financial Statements and Supplementary Data -- Note 4 - Investments of Notes to 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: December 31, 2023 2022 (in millions) Common Stock $ 17 $ 82 Preferred Stock 175 133 Mutual Funds 202 178 Total $ 394 $ 393 Mortgage Loans At December 31, 2023, commercial mortgage loans were collateralized by properties located in 36 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: December 31, 2023 2022 (in millions) Commercial: Apartment $ 3,213 $ 3,558 Hotel 870 1,015 Office 1,440 1,795 Retail 1,992 2,085 Warehouse 2,047 1,788 Total Commercial (1) $ 9,562 $ 10,241 Residential (2) 1,001 1,308 Total $ 10,563 $ 11,549 (1) N et of an allowance for credit losses of $160 million and $91 million at December 31, 2023 and 2022, respectively. (2) Net of an allowance for credit losses of $5 million and $4 million at December 31, 2023 and 2022, respectively. 68 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments The table below presents the carrying value, net of allowance for credit loss, of our mortgage loans by region: December 31, 2023 2022 (in millions) United States: East North Central 1,024 1,116 East South Central 502 546 Middle Atlantic 1,481 1,677 Mountain 531 627 New England 287 371 Pacific 2,500 2,850 South Atlantic 2,147 2,313 West North Central 593 572 West South Central 992 920 Total United States 10,057 10,992 Foreign 506 557 Total 10,563 11,549 The following table provides information about the credit quality of our mortgage loans: December 31, 2023 2022 (in millions) Commercial mortgage loans Loan to value ratios: Less than 70% $ 8,604 $ 9,586 70% - 80% 711 424 80% - 100% 196 197 Greater than 100% 51 34 Total 9,562 10,241 Residential mortgage loans Performing 911 1,230 Nonperforming (1) 90 78 Total 1,001 1,308 Total mortgage loans $ 10,563 $ 11,549 (1) At December 31, 2023 and 2022, includes $22 million and $41 million of loans purchased when the loans were greater than 90 days delinquent and $5 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: December 31, 2023 2022 (in millions) Balance at beginning of period $ 95 $ 94 Charge offs, net of recoveries (1) (66) — Provision (release) (1) 136 1 Balance at end of period $ 165 $ 95 (1) At December 31, 2023, the $70 million net increase in allowance for credit losses is due to an increase in expected credit losses, primarily in the office sector. 69 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 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 December 31, 2023 and 2022, respectively, relating to loans that were greater than 90 days delinquent or in the process of foreclosure. The following table provides information about our impaired residential mortgage loans (in millions): December 31, 2023 2022 Recorded investment $ 24 $ 15 Unpaid principal balance 27 16 Related loan allowance 1 — Average recorded investment 19 18 Investment income recognized 1 — Derivative Instruments See Item 8. Financial Statements and Supplementary Data -- Note 5 – Derivative Instruments of Notes to Consolidated Financial Statements, which presents the aggregate contractual or notional amounts and the fair values of our freestanding and embedded derivatives instruments as of December 31, 2023 and 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. 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 Consolidated Financial Statements in conformity with U.S. GAAP. For more details on Policyholder Liabilities, see “Critical Accounting Estimates" below. Our policy and contract liabilities includes separate account liabilities, reserves for future policy benefits and claims payable and other contract holder funds. As of December 31, 2023, 89% of our policy and contract liabilities were in our Retail Annuities segment, 3% were in our Institutional Products segment and 8% were in our Closed Life and Annuity Blocks segment. 70 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Policy and Contract Liabilities The table below represents a breakdown of our policy and contract liabilities: December 31, 2023 Separate Accounts Reserves for future policy benefits Other contract holder funds Market Risk Benefits Total (in millions) Variable Annuities $ 219,381 $ — $ 8,396 $ (2,000) $ 225,777 RILA 1 — — 5,219 3 5,222 Fixed Annuities — — 9,736 1 9,737 Fixed Index Annuities 2 — — 10,243 37 10,280 Payout Annuities — 1,090 860 — 1,950 Other Annuities 198 — — — 198 Total Retail Annuities 219,579 1,090 34,454 (1,959) 253,164 Total Institutional Products — — 8,406 — 8,406 Total Closed Life and Annuity Blocks 77 9,362 12,291 7 21,737 Total Policy and Contract Liabilities 219,656 10,452 55,151 (1,952) 283,307 Claims payable and other — 1,446 168 — 1,614 Total $ 219,656 $ 11,898 $ 55,319 $ (1,952) $ 284,921 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 $1,224 million and $205 million at December 31, 2023 and 2022, respectively. (2) Includes the embedded derivative liabilities related to fixed index annuity in other contract holder funds of $866 million and $931 million at December 31, 2023 and 2022, respectively. As of December 31, 2023: • $219.7 billion or 78% 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. • $45.1 billion of our policy and contract liabilities were backed by our investment portfolio. • $18.6 billion of our policy and contract liabilities were reinsured by Athene and backed by funds withheld assets. As of December 31, 2023, 100% of our RILA policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers. As of December 31, 2023, 94% of fixed annuity, fixed index annuity, and the fixed accounts of RILA and variable annuity correspond to crediting rates that are at the guaranteed minimum crediting rate. 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. 71 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Policy and Contract Liabilities See Item 8. Financial Statements and Supplementary Data -- Note 9 - Reserves for Future Policy Benefits and Claims Payable, Note 10 - Other Contract Holder Funds, Note 11 - Separate Account Assets and Liabilities, and Note 12 - Market Risk Benefits of Notes to 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. Actuarial Assumption Changes (Unlo cking) The following tables reflect the impacts from our annual assumption review to pre-tax income (loss), pre-tax non-operating adjustments and Pre-Tax Adjusted Operating Earnings for the periods presented: Years Ended December 31, 2023 2022 2021 (in millions) Assumption Review Impact: Total assumption review impact on pretax (loss) income $ (466) $ (448) $ (13) Less: total assumption review impact on pretax non-operating (406) (486) (13) Total assumption review impact on Pretax Adjusted Operating Earnings $ (60) $ 38 $ — Assumption Review Impact on Pretax Adjusted Operating Earnings by Segment: Retail Annuities $ — $ (9) $ — Closed Life and Annuity Blocks (60) 47 — Total assumption review impact on Pretax Adjusted Operating Earnings $ (60) $ 38 $ — 2023 Assumption Updates The impact of assumption changes on Pretax Adjusted Operating Earnings was $(60) million, with the impact attributed to the Closed Life and Annuity Blocks segment. The impact was mainly on the additional reserve for life insurance and annuitization benefits driven by a decrease in lapses, offset by a change in the long-term earned-rate. The impact on pretax non-operating earnings was $(406) million attributed to the Retail Annuities segment. See Item 8. Financial Statements and Supplementary Data -- Note 12 - Market Risk Benefits of Notes to Consolidated Financial Statements for further information regarding the notable assumption change updates included in the MRB calculation. 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 years ended December 31, 2023, 2022 and 2021. 72 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources Cash Flows The following table presents a summary of our cash flow activity for the periods set forth below: Years Ended December 31, 2023 2022 2021 (in millions) Net cash provided by (used in) operating activities $ 5,310 $ 5,206 $ 5,682 Net cash provided by (used in) investing activities (592) (1,374) (1,296) Net cash provided by (used in) financing activities (6,328) (2,162) (3,774) Net increase (decrease) in cash, cash equivalents, and restricted cash (1,610) 1,670 612 Cash, cash equivalents, and restricted cash at beginning of period 4,301 2,631 2,019 Total cash, cash equivalents, and restricted cash at end of period $ 2,691 $ 4,301 $ 2,631 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 the payment of annuity and life insurance benefits, operating expenses and income tax, as well as interest expense. The primary liquidity concern with respect to these cash flows is the risk of earlier than expected contract holder and policyholder benefit payments. Cash flows provided by (used in) operating activities increased $104 million to $5,310 million during the year ended December 31, 2023 from $5,206 million during the year ended December 31, 2022. This was primarily due to the timing of settlements of receivables and payables as well as lower acquisition costs. Cash flows from Investing Activities The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. 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 increased $782 million to $(592) million during the year ended December 31, 2023 from $(1,374) million during the year ended December 31, 2022. This increase was primarily due to lower purchases of debt securities in 2023 compared to 2022 and sales of limited partnerships in 2023, partially offset by increased outflows related to our hedging program for derivative settlements and collateral, predominately resulting from market increases in 2023 compared to 2022. 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 $4,166 million to $(6,328) million during the year ended December 31, 2023 from $(2,162) million for the year ended December 31, 2022. This decrease was primarily due to lower deposits from variable annuity sales in 2023 compared to 2022, higher payments on repurchase agreements, and repayment of our maturing 2023 senior notes, partially offset by proceeds from the issuance of our preferred stock. 73 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources 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, 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 December 31, 2023, our insurance companies were well in excess of the minimum required capital levels. Our statutory TAC (total adjusted capital) 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 (the company action level), 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. The formation and operation of Brooke Re is anticipated to mitigate these impacts. See “Recent Events of Note – Brooke Life Reinsurance Company” above for more information on Brooke Re and associated transactions. Jackson had an RBC ratio of 624%, 544% and 580% as of December 31, 2023, 2022 and 2021, respectively. The increase in Jackson’s RBC ratio as of December 31, 2023 as compared to December 31, 2022 was primarily due to reductions in interest rate and market risk. There was also lower asset risk subsequent to the sale of the private equities limited partnerships. 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 is currently targeted at $250 million but may change over time as we refinance existing debt or make changes to our debt and capital structure. 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 Item 1A. 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 74 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources 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 Item 8. Financial Statements and Supplementary Data -- Note 24 - Equity of Notes to Consolidated Financial Statements for more information. During the year ended December 31, 2023, we paid a cash dividend of $0.50 per depositary share and $0.62 per common share totaling $35 million and $209 million, respectively. On February 20, 2024, our Board of Directors approved a first quarter cash dividend on JFI's common stock of $0.70 per share, payable on March 21, 2024 to shareholders of record on March 12, 2024. The company also declared a cash dividend of $0.50 per depositary share. The dividend will be payable on April 1, 2024, to depositary shareholders of record at the close of business on March 12, 2024. On February 27, 2023, our Board of Directors authorized an increase of $450 million in our existing share repurchase authorization of JFI's common stock. We repurchased a total of 6,502,524 shares of common stock for an aggregate purchase price of $255 million for the year ended December 31, 2023, which were funded with cash on hand. As of February 20, 2024, the Company had remaining authorization to purchase $237 million of its common shares. See Item 8. Financial Statements and Supplementary Data -- Note 24 - Equity of Notes to Consolidated Financial Statements for further information on dividends to shareholders and share repurchase s. During 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 recorded a loss of $ 97 million on the sale, which it recognized in Net Investment Income within the consolidated financial statements for the year ended December 31, 2023 , of which $37 million of this loss was attributable to Jackson Financial. As of December 31, 2023 , Jackson Financial has recorded an estimate of $74 million ($263 million at a consolidated level) for the provision for the CAMT based on our 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 the CAMT, is subject to the issuance of regulatory guidance by the U.S. Department of the Treasury. We continue to monitor developments and regulations associated with the CAMT for any potential future impacts on our business, financial condition, results of operations and cash flows. 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. 75 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources For 2023, Jackson and Brooke Life had a 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 year ended December 31, 2023, Brooke Life paid $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. For 2024, Jackson and Brooke Life has a total ordinary dividend capacity, based on 2023 statutory capital and surplus and statutory net gain from operations, subject to the availability of earned surplus, of $464 million and $371 million, respectively. The maximum distribution permitted by law or contract is not necessarily indicative of an insurer’s actual ability to pay such distributions, which may be constrained by business and other considerations, such as imposition of withholding tax, the impact of such distributions on surplus, which could affect the insurer’s 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. 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 December 31, 2023, Jackson’s outstanding surplus notes and bank debt included $ 57 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 December 31, 2023, we were in a net collateral payable position of $780 million, as compared to $689 million as of December 31, 2022. 76 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources 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 December 31, 2023, approximately half of Jackson’s general account reserves are not surrenderable, included surrender charges greater than 5%, or included market value adjustments to discourage early withdrawal of policy and contract funds. The liquidity sources for our insurance company subsidiaries are their cash, short-term investments, sales of publicly traded bonds, insurance premiums, fees charged on our 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 December 31, 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 $22.4 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 Consolidated Balance Sheets. 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 matured on November 22, 2023, and were paid with cash on hand at maturity. 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 December 31, 2023. Jackson is a party to an Uncommitted Money Market Line Credit Agreement dated April 6, 2023 among Jackson, Jackson Financial, and Société Générale. This agreement is an uncommitted short-term cash advance facility that provides an 77 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources 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 $20 million, $20 million, and $20 million for the years ended December 31, 2023, 2022 and 2021, 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 December 31, 2023 and 2022, Jackson held a bank loan with an outstanding balance of $57 million and $62 million, respectively. Collateral Upgrade Transactions During the first quarter of 2024, Jackson executed certain paired repurchase and reverse repurchase transactions (“Collateral Upgrade” transactions) totaling $1.5 billion pursuant to master repurchase agreements with participating bank counterparties. Under these transactions, the Company lends securities (e.g., corporate debt securities or other securities agreed upon between the parties) to one or more bank counterparties in exchange for cash (repurchase agreement) and exchange that cash for an equal value of U.S. Treasury securities (reverse repurchase agreement) to provide as collateral as part of our hedging program. The transactions are paired as two legs of a Collateral Upgrade trade. 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. 78 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources As of February 20, 2024, the financial strength ratings of our principal insurance subsidiaries were as follows : Company A.M. Best Fitch Moody’s 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 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. Contractual Obligations We have contractual obligations identified within Item 8. Financials Statements and Supplementary Data -- Note. 5. Derivative Instruments, Note 9. Reserves for Future Policy Benefits and Claims Payable, Note 10. Other Contract Holder Funds, Note 11. Separate Account Assets and Liabilities, Note 12. Market Risk Benefits, Note 13. Long-Term Debt, Note 16. Commitments and Contingencies, and Note 17. Leases. Impact of Recent Accounting Pronouncements For a complete discussion of new accounting pronouncements affecting us, s ee Item 8. Financials Statements and Supplementary Data -- Note 2 - Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements . As discussed in Note 2 of Notes to 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 79 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Critical Accounting Estimates by an increase in AOCI. See further discussion in Item 8. Financial Statements and Supplementary Data -- Note 2 - Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for the significant changes associated with this change in accounting principle . 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 Consolidated Financial Statements. The following are our most critical estimates, which require management’s most difficult, subjective and complex judgments, including the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The following discussion is not intended to represent a comprehensive list of the estimates and judgments that we apply or our accounting policies. For a detailed discussion of the application of these and other accounting policies, see Item 8. Financials Statements and Supplementary Data — Note 2- Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements. 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. 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 considers 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 Consolidated Balance Sheets. 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 80 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Critical Accounting Estimates 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 measurements 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 Item 8. Financial Statements and Supplementary Data -- Note 9- Reserve for Future Policy Benefits and Claims Payable of Notes to Consolidated Financial Statements for additional information on these accounting policies. Market Risk Benefits Contracts or contract features that provide protection to the contract holder from capital market risk and expose the Company to other-than-nominal capital market risk are classified as 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 to determine fair value of MRBs requires a significant amount of judgment. 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 represent 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 Item 8. Financial Statements and Supplementary Data -- Note 6 - Fair Value Measurements of Notes to Consolidated Financial Statements for additional information. 81 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Critical Accounting Estimates 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 Item 1. Business–Our Product Offerings by Segments–Retail Annuities–Variable Annuities in this report. Variable annuity guaranteed benefit features classified as MRBs, which have explicit fees, are measured using the attributed fee method. Under the attributed fee method, fair value is measured as the difference between the present value of projected future liabilities and the present value of projected attributed fees. At the inception of the contract, the Company attributes to the MRB a portion of total fees expected to be assessed against the contract holder to offset the projected claims over the lifetime of the contract. The attributed fee is expressed as a percentage of total projected future fees at inception of the contract. This percentage of total projected fees is considered a fixed term of the MRB feature and is held static over the life of the contract. This percentage may not exceed 100% of the total projected contract fees as of contract inception. As the Company may issue contracts that have projected future liabilities greater than the projected future guaranteed benefit fees at issue, the Company may also attribute mortality and expense charges when performing this calculation. In subsequent valuations, both the present value of future projected liabilities and the present value of projected attributed fees are remeasured based on current market conditions and policyholder behavior assumptions. Fixed Index Annuities The longevity riders issued on fixed index annuities are classified as MRBs and measured at fair value. Similar to the variable annuity guaranteed benefits features, these contracts have explicit fees and are measured using the attributed fee method. The Company attributes a percentage of total projected future fees expected to be assessed against the policyholder to offset the projected future claims over the lifetime of the contract. If the fees attributed are insufficient to offset the claims at issue, the shortfall is borrowed from the host contract rather than recognizing a loss at inception. RILA 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 Item 8. Financial Statements and Supplementary Data -- Note 12 - Market Risk Benefits of Notes to Consolidated Financial Statements for additional information on these accounting policies. Income Taxes Income taxes represent the net amount of income taxes that we expect to pay to or receive from various taxing jurisdictions in connection with our operations. We provide for federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. As of December 31, 2023, the Company has recorded an estimate for the provision of the Corporate Alternative Minimum Tax (“CAMT”), based on the Company’s interpretation of available guidance, with an offsetting increase to the deferred tax asset for the credit carryover resulting in no impact to total tax expense. The U.S. Department of the Treasury is expected to issue additional regulatory guidance in 2024 that may materially change the estimated provision of the CAMT. Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the effects of recording certain invested assets at market value, the deferral of acquisition costs and 82 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Critical Accounting Estimates sales inducements and the provisions for future policy benefits and expenses. Deferred tax assets and liabilities are measured using the tax rates expected to be in effect when such benefits are realized. We are required to test the value of deferred tax assets for realizability. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. In determining the need for a valuation allowance, we consider the carryback eligibility of losses, reversal of existing temporary differences, estimated future taxable income and tax planning strategies. Determining the valuation allowance for our deferred tax assets requires management to make certain judgments and assumptions regarding future operations that are based on historical experience and expectations of future performance. To recognize a tax benefit in the Consolidated Financial Statements, there must be a greater than 50% chance of success of our position being sustained by the relevant taxing authority. Management’s judgments are potentially subject to change given the inherent uncertainty in predicting future performance, which is impacted by such factors as policyholder behavior, competitor pricing and other specific industry and market conditions. See Item 8. Financial Statements and Supplementary Data -- Note 15 – Income Taxes for additional information on these accounting policies and the estimated provision for the CAMT. 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 Consolidated 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. See Item 8. Financial Statements and Supplementary Data -- Note 8 - Reinsurance of Notes to Consolidated Financial Statements for additional information on these accounting policies. Investments – Valuation and Impairment We determine the fair values of certain financial assets and liabilities based on quoted market prices, where available. When necessary, we may also determine fair value based on estimated future cash flows discounted at the appropriate current market rate. Fair values also, if appropriate, reflect adjustments for counterparty credit quality, credit rating, liquidity and incorporate risk margins for unobservable inputs. Where quoted market prices are not available, fair value estimates are made at a point in time, based on relevant market data, as well as the best information about the individual financial instrument. At times, illiquid market conditions could 83 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Critical Accounting Estimates result in inactive markets for certain of our financial instruments. In such instances, there could be no or limited observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable uncertainty and variability as a result of the inputs selected and may differ materially from the values that would have been used had an active market existed. As a result of market inactivity, such calculated fair value estimates may not be realizable in an immediate sale or settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates. We periodically review our available-for-sale debt securities on a case-by-case basis to determine if an impairment is necessary for securities with a decline in fair value to below cost or amortized cost. Factors considered in determining whether an impairment is necessary include whether we have the intent to sell, or whether it is more likely than not we will be required to sell the security before the amortized cost basis is fully recovered, the severity of the unrealized loss, the reasons for the decline in value and expectations for the amount and timing of a recovery in fair value. For debt securities in an unrealized loss position, for which we deem an impairment necessary, the amortized cost may be written down to fair value through net gains (losses) on derivatives and investments, or an ACL may be recorded along with a charge to net gains (losses) on derivatives and investments. Securities determined to be underperforming or potential problem securities are subject to regular review. To facilitate the review, securities with significant declines in value, or where other objective criteria evidencing credit deterioration have been met, are included on a watch list. Among the criteria for securities to be included on a watch list are: credit deterioration that has led to a significant decline in fair value of the security; a significant covenant related to the security has been breached; or an issuer has filed or indicated a possibility of filing for bankruptcy, has missed or announced it intends to miss a scheduled interest or principal payment, or has experienced a specific material adverse change that could impair its creditworthiness. In performing these reviews, we consider the relevant facts and circumstances relating to each investment and exercise considerable judgment in determining whether an impairment is needed for a particular security. Assessment factors include judgments about an obligor’s current and projected financial position, an issuer’s current and projected ability to service and repay its debt obligations, the existence of, and realizable value of, any collateral backing the obligations and the outlooks for specific industries and issuers. This assessment may also involve assumptions regarding underlying collateral such as prepayment rates, default and recovery rates, and third-party servicing capabilities. In addition to the review procedures described above, investments in asset-backed securities where market prices are depressed are subject to a review of their future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments. These estimated cash flows are developed using available performance indicators from the underlying assets including current and projected default or delinquency rates, levels of credit enhancement, current subordination levels, vintage, expected loss severity and other relevant characteristics. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against third-party sources. For mortgage-backed securities, credit losses are assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral characteristics and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements existing in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment speeds, default rates and loss severity. Specifically, for prime and Alt-A RMBS, the assumed default percentage is dependent on the severity of delinquency status, with foreclosures and real estate owned receiving higher rates, but also includes the currently performing loans. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against other third-party sources. In addition, these estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. After these reviews, we recognize impairments on debt securities in an unrealized loss position when any of the following circumstances exists: • We intend to sell a security; 84 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Critical Accounting Estimates • It is more likely than not that we will be required to sell a security prior to recovery; or • We do not expect full recovery of the amortized cost based on the discounted cash flows estimated to be collected. Mortgage loans, which are not carried at fair value under the fair value option, are carried at the aggregate unpaid principal balance, adjusted for any applicable unamortized discount or premium, or ACL. Acquisition discounts and premiums on mortgage loans are amortized into investment income through maturity dates using the effective interest method. Interest income is accrued on the principal balance of the loan based on the loan’s contractual interest rate. Interest income and amortization of premiums and discounts are reported in net investment income along with prepayment fees and mortgage loan fees, which are recorded as incurred. We review mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net gains (losses) on derivatives and investments. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, we record an ACL on the pool of mortgage loans based on lifetime expected credit losses. Credit loss estimates are pooled by property type and unfunded commitments are included in the model with an allowance for credit losses determined accordingly. Mortgage loans on real estate deemed uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL. Accrued interest receivables are presented separate from the amortized cost of debt securities and mortgage loans. An allowance for credit losses is not estimated on an accrued interest receivable. Rather, receivable balances that are deemed uncollectible are written off with a corresponding reduction to net investment income. Derivatives Freestanding Derivative Instruments We enter into financial derivative transactions, including swaps, put-swaptions, futures and options to reduce and manage business risks. These transactions manage the risk of a change in the value, yield, price, cash flows, credit quality or degree of exposure with respect to assets, liabilities or future cash flows that we have acquired or incurred. Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, that we would receive or pay upon sale or termination of the contracts at the reporting date. Freestanding derivatives priced using third party pricing services incorporate inputs that are predominantly observable in the market. The determination of the estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, non-performance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. See Item 8. Financials Statements and Supplementary Data — Note 5 - Derivative Instruments and Note 6 - Fair Value Measurements of Notes to Consolidated Financial Statements for additional information on significant inputs into our derivative pricing methodology. Embedded Derivatives - Product Liabilities For our registered index-linked and fixed index annuities, the equity-linked option issued by the Company is accounted for at fair value as an embedded derivative on the Company’s Consolidated Balance Sheets as a component of other contract holder funds, with changes in fair value recorded in net income. The policyholder account value is the imputed value of the underlying guaranteed host contract. The fair value of the embedded derivative for the FIA and RILA products is determined using an option-budget method with capital market inputs of market index returns and discount rates as well as actuarial assumptions including lapse, mortality and withdrawal rates. We typically update our actuarial assumptions annually as discussed above, unless a material change is observed in an interim period that we feel is indicative of a long-term trend. 85 Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Critical Accounting Estimates The underlying assumptions may have a material impact on the measurement of the embedded derivative, including equity market movements. Thus, favorable equity market movements cause increases in future contract holder benefits, resulting in an increase in the fair value of the embedded derivative liability (and vice versa). See Item 8. Financials Statements and Supplementary Data -- Note 5 - Derivative Instruments and Note 10 - Other Contract Holder Funds of Notes to Consolidated Financial Statements for additional information on our accounting policies for embedded derivatives bifurcated for insurance host contracts. Embedded Derivatives - Funds Withheld Reinsurance Agreements The Company has recorded an embedded derivative liability related to the Athene coinsurance agreement (the “Athene Embedded Derivative”) in accordance with ASC 815-15 as Jackson’s obligation under the coinsurance agreement is based on the total return of investments in a segregated funds withheld account rather than Jackson’s own creditworthiness. As the coinsurance agreement transfers the economics of the investments in the segregated funds withheld account to Athene, they will receive an investment return equivalent to owning the underlying assets. At inception of the coinsurance agreement, the Athene Embedded Derivative was valued at zero. Additionally, the inception fair value of the investments in the segregated funds withheld account differed from their book value and, accordingly, the amortization of this difference is reported in Net gains (losses) on derivatives and investments in the Consolidated Income Statement, while the investments are held. Subsequent to the effective date of the coinsurance agreement, the Athene Embedded Derivative is measured at fair value with changes reported in Net gains (losses) on derivatives and investments in the Consolidated Income Statement. The Athene Embedded Derivative Liability is included in Funds withheld payable under reinsurance treaties in the Consolidated Balance Sheet. See Item 8. Financial Statements and Supplementary Data -- Note 8 - Reinsurance of Notes to Consolidated Financial Statements for additional information on Athene Reinsurance Transaction. Net Investment Income Net investment income reported for each of our three segments and Corporate and Other includes an allocation for investment income generated on assigned capital. The amount of capital assigned to each of our segments for purposes of measuring segment net investment income is established at a level that management considers necessary to support the segment’s risks. This assessment is determined based upon internal models and contemplates National Association of Insurance Commissioners (“NAIC”) RBC requirements at internally defined levels. Net investment income on capital in excess of the amount required to support our core operating strategies is reflected in Corporate and Other. Contingent Liabilities We are a party to legal actions and, at times, regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate their impact on our financial position. A reserve is established for contingent liabilities if it is probable that a loss has been incurred and the amount is reasonably estimable. It is possible that an adverse outcome in certain of our contingent liabilities, or the use of different assumptions in the determination of amounts recorded, could have a material effect upon our financial position. However, it is the opinion of management that the ultimate disposition of contingent liabilities is unlikely to have a material adverse effect on our financial position. Consolidation of Variable Interest Entities (“VIEs”) The Company invests in a number of asset types that it has determined are VIEs, such as equity positions in collateralized loan obligations (“CLOs”), limited partnerships (“LPs”), limited liability companies (“LLCs”), and mutual funds that are assessed to determine whether they meet the criteria as a VIE. For those entities deemed to be VIEs, we further assess whether the VIE must be consolidated as a result of the terms specific to each entity. Entities for which consolidation is required are included on our Consolidated Financial Statements. To the extent that external parties are also invested in these VIEs, a non-controlling interest is reflected on our Consolidated Financial Statements as well. See Item 8. Financial Statements and Supplementary Data -- Note 4 - Investments of Notes to Consolidated Financial Statements for additional information. 86 Part II | Item 7A. Quantitative and Qualitative Disclosures about Market Risk