Jackson Financial Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE The information in this Quarterly Report on Form 10-Q (this “report”) contains forward-looking statements about future events and circumstances and their effects upon revenues, expenses and business opportunities. Generally speaking, any statement in this report not based upon historical fact is a forward-looking statement. Forward-looking statements can also be identified by the use of forward-looking or conditional words, such as “could,” “should,” “can,” “continue,” “estimate,” “forecast,” “intend,” “look,” “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain,” “confident” and “commit” or similar expressions. In particular, statements regarding plans, strategies, prospects, targets and expectations regarding the business and industry are forward-looking statements. They reflect expectations, are not guarantees of performance and speak only as of the dates the statements are made. We caution investors that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected, expressed, or implied. Factors that could cause actual results to differ materially from those in the forward-looking statements include those reflected in Part I, Item 1A. Risk Factors and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the U.S. Securities and Exchange Commission (the "SEC") on February 28, 2024, (the "2023 Annual Report"), and elsewhere in Jackson Financial Inc.’s filings with the SEC. Except as required by law, Jackson Financial Inc. does not undertake to update such forward-looking statements. You should not rely unduly on forward-looking statements. We routinely use our investor relations website, at investors.jackson.com, as a primary channel for disclosing key information to our investors, some of which may contain material and previously non-public information. We and certain of our senior executives may also use social media channels to communicate with our investors and the public about our Company and other matters, and those communications could be deemed to be material information. The information contained on, or that may be accessed through, our website, or our or our executives' social media channels, is not incorporated by reference into and is not part of this report. 84 Item 2 | Management’s Discussion and Analysis | Available Information & Principal Definitions Available Information We make available free of charge, through our investor relations page of our website, investors.jackson.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any amendments to those reports or statements as soon as reasonably practicable after these materials are electronically filed with, or furnished to, the SEC. We use our investor relations page of our website as a routine channel for distribution of important information, including news releases, analyst presentations, financial information, and corporate governance information. The content of Jackson’s website is not incorporated by reference into this report or in any other report or document filed with the SEC, and any references to Jackson’s website are intended to be inactive textual references only. The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Principal Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report we, us, our and the Company Jackson Financial Inc. and its consolidated subsidiaries, unless the context refers only to Jackson Financial Inc. as a corporate entity (which we refer to as "JFI" or "Jackson Financial") Jackson Jackson National Life Insurance Company, our primary operating subsidiary Brooke Life Brooke Life Insurance Company, our subsidiary and the direct parent company of Jackson National Life Insurance Company and Brooke Re Brooke Re Brooke Life Reinsurance Company, a direct subsidiary of Brooke Life, and a Michigan-based captive reinsurer Jackson Finance Jackson Finance, LLC, our subsidiary PPMH PPM Holdings, Inc., our subsidiary PPM PPM America, Inc., a subsidiary of PPMH ACL Allowance for credit loss Account value ("AV") or account balance The amount of money in a customer’s account. For example, the account value increases with additional premiums and investment gains, and it decreases with withdrawals, investment losses and fees. Athene Athene Life Re Ltd. and its affiliates and permitted transferees, including Athene Co-Invest Reinsurance Affiliate 1A Ltd. Athene Reinsurance Transaction The funds withheld coinsurance agreement with Athene, entered on June 18, 2020, and effective June 1, 2020, to reinsure a 100% quota share of a block of our in-force fixed and fixed index annuity liabilities in exchange for approximately $1.2 billion in ceding commissions. AUM ("Assets under management") Investment assets that are managed by one of our subsidiaries and includes: (i) assets managed by PPM, including our investment portfolio (but excluding assets held in funds withheld accounts for reinsurance transactions), (ii) third-party assets (including our former parent and its affiliates), and (iii) the separate account assets of our retail annuities managed and administered by JNAM. Benefit base A notional amount (not actual cash value) used to calculate guaranteed benefits within an owner's annuity contract and fees due in respect of those guaranteed benefits. The death benefit and living benefit within the same contract may have different benefit bases. CMBS Commercial mortgage-backed securities DAC ("Deferred acquisition costs") Represent the incremental costs related directly to the successful acquisition of new, and certain renewal, insurance policies and annuity contracts. The recognition of these costs has been deferred, and the deferred amounts are shown on the balance sheet as an asset, which is subject to amortization over the estimated lives of those policies and contracts. Deferred tax asset or Deferred tax liability Assets or liabilities that are recorded for the difference between financial reporting, or book basis, and tax basis of an asset or a liability. 85 Item 2 | Management’s Discussion and Analysis | Available Information & Principal Definitions Fixed Annuity An annuity that guarantees a set annual rate of return with interest at rates we determine, subject to specified minimums. Credited interest rates are guaranteed not to change for certain limited periods of time, after which rates may reset. Fixed Index Annuity An annuity with an ability to share in the upside from certain financial markets, such as equity indices, and provides downside protection General account assets The assets held in the general accounts of our insurance companies GIC Guaranteed investment contract Guarantee Fees Fees charged on our annuity contracts for optional benefit guarantees GMAB ("Guaranteed minimum accumulation benefit") An add-on benefit (enhanced benefits available for an additional cost) that entitles an owner to a minimum payment, typically in lump-sum, after a set period of time, referred to as the accumulation period. The minimum payment is based on the benefit base, which could be greater than the underlying account value. GMDB ("Guaranteed minimum death benefit") An add-on benefit (enhanced benefits available for an additional cost) that guarantees an owner’s beneficiaries are entitled to a minimum payment based on the benefit base, which could be greater than the underlying account value, upon the death of the owner. GMIB ("Guaranteed minimum income benefit") An add-on benefit (available for an additional cost) where an owner is entitled to annuitize the policy and receive a minimum payment stream based on the benefit base, which could be greater than the payment stream resulting from current annuitization of the underlying account value. GMWB ("Guaranteed minimum withdrawal benefit") An add-on benefit (available for an additional cost) where an owner is entitled to withdraw a maximum amount of their benefit base each year, for which cumulative payments to the owner could be greater than the underlying account value. GMWB for Life ("Guaranteed minimum withdrawal benefit for life") An add-on benefit (available for an additional cost) where an owner is entitled to withdraw the guaranteed annual withdrawal amount each year for the duration of the policyholder’s life, regardless of account performance. NAIC National Association of Insurance Commissioners NAV Net asset value Net flows Net flows represent the net change in customer account balances during a period, after reflecting gross premium inflows and surrender, withdrawal and benefit payment outflows. Net flows do not include investment performance, interest credited to customer accounts and policy charges. RBC ("Risk-based capital") Statutory minimum level of capital that is required by regulators for an insurer to support its operations RBC ratio The ratio of statutory total adjusted capital to company action level required capital. A formal calculation is made annually during the fourth quarter. In other periods, the ratio is estimated. RILA A registered index-linked annuity, which offers market index-linked investment options, subject to a cap, and a variety of guarantees designed to modify or limit losses. RMBS Residential mortgage-backed securities Variable annuity An annuity that offers tax-deferred investment into a range of asset classes and a variable return, which offers insurance features related to potential future income payments. VIE Variable interest entity 86 Item 2 | Management’s Discussion and Analysis | Overview & Executive Summary Overview of Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I, Item 1 of this report, as well as the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our 2023 Annual Report. 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. 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. On September 13, 2021, the Company demerged from Prudential (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 This executive summary of Management’s Discussion and Analysis of Financial Condition and Results of Operation highlights selected information and may not contain all the information that is important to current or potential investors in our securities. You should read this report, together with our 2023 Annual Report, in their entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us. We help Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life. We believe that we are uniquely positioned in our markets because of our differentiated products, well-known brand and disciplined risk management. Our market 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, manage our portfolio of investments effectively, and 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 ("U.S. 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. 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. S ee “Non-GAAP Financial Measures” below for information regarding our non-GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures. We manage our business through three segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. We report in Corporate and Other activities and items that are not included in the three segments, including the results of PPM Holdings, Inc., the parent holding company of PPM America Inc. ("PPM"), that manages the majority of our general account investment portfolio. See Note 3 - Segment Information of the Notes to Condensed Consolidated Financial Statements for further information on our segments. 87 Item 2 | Management’s Discussion and Analysis | Executive Summary An understanding of several key operating measures, including sales, account value, net flows, benefit base and assets under management ("AUM"), is helpful in evaluating our results. See “Key Operating Measures” below. Finally, we are affected by various economic, industry and regulatory trends , which are described below under “Macroeconomic, Industry and Regulatory Trends.” The table below presents selected financial and operating measures: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) (in millions) Net income (loss) attributable to Jackson Financial Inc. common shareholders $ (480) $ 2,762 $ 568 $ 2,469 Adjusted Operating Earnings (1) 350 315 1,094 869 Amount of shares repurchased under share repurchase program 113 71 319 188 Dividends on common shares 54 52 164 159 Return on Equity ("ROE") Attributable to Common Shareholders (19.5) % 129.5 % 7.8 % 38.9 % Adjusted Operating ROE Attributable to Common Shareholders on average equity (1) 12.3 % 11.8 % 13.0 % 11.6 % (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. Recent Events of Note • Capital Returned to Common Shareholders: Since January 1, 2024 through September 30, 2024, we have returned $483 million to our common shareholders consisting of $164 million in dividends and $319 million in common share repurchases. Our capital return target for common shareholders for 2024 is $550-$650 million. Share repurchases, net of issuances for our share-based compensation, have reduced our outstanding shares of common stock from 78,660,221 at December 31, 2023 to 74,351,061 at September 30, 2024. See Note 19 of the Notes to Condensed Consolidated Financial Statements for further information on our share repurchases. • 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 primarily 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 transaction. 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 with Jackson described above. 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 utilizes a modified U.S. 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. 88 Item 2 | Management’s Discussion and Analysis | Executive Summary The transaction mitigates the impact of the cash surrender value floor on Jackson’s total adjusted capital, statutory required capital, and risk-based capital ("RBC") ratio and enables more efficient economic hedging of the underlying risks of Jackson’s business. This outcome serves 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. 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. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Sales Variable annuities $ 2,632 $ 2,429 $ 7,788 $ 7,351 RILA 1,608 807 4,187 1,881 Fixed Index Annuities 48 41 127 178 Fixed Annuities (1) 984 35 1,090 146 Total Retail Annuity Sales 5,272 3,312 13,192 9,556 Total Institutional Product Sales 749 112 1,461 1,065 Total Sales $ 6,021 $ 3,424 $ 14,653 $ 10,621 (1) Includes payout annuities. Higher retail sales for the three and nine months ended September 30, 2024 were primarily due to increased RILA and fixed annuity sales. This was a strong quarter in the fixed annuity market, both for the Company and the industry, as consumers looked to lock in crediting rates during a quarter with declining interest rates. While we expect our distribution efforts to continue to deliver higher levels of fixed annuity sales going forward, we expect near-term volumes will be below third quarter levels. In addition, sales of our institutional products were higher for the three and nine months ended September 30, 2024, reflecting our opportunistic approach to this business, which depends on both the risk-adjusted return on investment opportunities available and the prevailing cost of funding required by purchasers. 89 Item 2 | Management’s Discussion and Analysis | Key Operating Measures Account Value Account value ("AV") as shown below 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. September 30, 2024 December 31, 2023 (in millions) Account Value GMWB For Life $ 176,729 $ 166,688 GMWB 6,389 6,092 GMIB 1,276 1,352 No Living Benefits 57,851 53,645 Total Variable Annuity Account Value 242,245 227,777 RILA 10,250 5,219 Fixed Index Annuity (1) 749 622 Fixed Annuity (1) 2,177 1,218 Total Fixed & Fixed Index Annuity Account Value (1) 2,926 1,840 Payout Annuity (1) 607 629 Total Retail Annuities Account Value (1) $ 256,028 $ 235,465 Total Institutional Products Account Value $ 7,929 $ 8,406 Total Closed Life and Annuity Blocks Account Value (1) $ 7,754 $ 8,032 (1) Net of reinsurance. 90 Item 2 | Management’s Discussion and Analysis | 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. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Net Flows: Variable Annuity $ (5,012) $ (2,314) $ (13,327) $ (6,133) RILA 1,550 794 4,057 1,834 Fixed Index Annuity (1) 44 36 103 171 Fixed Annuity (1) 953 10 968 (11) Payout Annuity (1) (8) (18) (36) (55) Total Retail Annuities Net Flows (1) (2,473) (1,492) (8,235) (4,194) Net flows ceded (999) (879) (2,806) (3,078) Total Retail Annuities net flows, gross of reinsurance $ (3,472) $ (2,371) $ (11,041) $ (7,272) Total Institutional Products Net Flows $ 499 $ (242) $ (716) $ (533) Total Closed Life and Annuity Blocks Net Flows (1) $ (74) $ (73) $ (253) $ (205) (1) Net of reinsurance. Net flows, net of reinsurance, decreased for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, driven by increased variable annuity surrenders and withdrawals, partially offset by increased RILA and fixed annuity sales. 91 Item 2 | Management’s Discussion and Analysis | 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 September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 Account Value Benefit Base Account Value Benefit Base (in millions) No Living Benefits $ 57,851 N/A $ 53,645 N/A By Guaranteed Living Benefits: GMWB for Life 176,729 183,279 166,688 188,722 GMWB 6,389 5,140 6,092 5,348 GMIB (1) 1,276 1,595 1,352 1,799 Total $ 242,245 $ 190,014 $ 227,777 $ 195,869 By Guaranteed Death Benefit: Return of AV (No GMDB) $ 29,891 N/A $ 27,486 N/A Return of Premium 186,065 133,931 174,841 137,287 Highest Anniversary Value ("HAV") 13,681 12,916 13,213 13,522 Rollup 3,362 4,191 3,347 4,484 Combination HAV/Rollup 9,246 9,728 8,890 10,057 Total $ 242,245 $ 160,766 $ 227,777 $ 165,350 (1) Substantially all of our GMIB benefits are reinsured. Assets Under Management AUM, or assets under management, includes: (i) investment assets managed by one of our subsidiaries, 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 investment assets of our Retail Annuities segment managed and administered by another subsidiary, JNAM. Total AUM reflects exclusions between segments to avoid double counting. We believe AUM is a useful metric for understanding, among other things, the sources of our earnings, net investment income and performance of our invested assets, customer directed investments and risk management priorities. September 30, December 31, 2024 2023 (in millions) Jackson Invested Assets $ 48,099 $ 44,068 Third Party Invested Assets (including CLOs) 28,564 29,043 Total PPM AUM 76,663 73,111 Total JNAM AUM 257,876 242,727 Total AUM $ 334,539 $ 315,838 92 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Macroeconomic, Industry and Regulatory Trends We discuss a number of trends and uncertainties below that we believe could materially affect our future business performance, including our results of operations, our investments, our cash flows, and our capital and liquidity position. Macroeconomic and Financial Market Conditions Our business and results of operations are affected by macroeconomic factors. The level of interest rates and shape of the yield curve, credit and equity market performance and equity volatility, regulation, tax policy, the level of U.S. employment, inflation and the overall 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, sanctions 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. Equity Market Environment Our financial performance is impacted by equity market performance. On our variable annuities, the fees we earn that are not associated with guaranteed benefits are mainly based on the account value, which changes with equity market levels. In addition, our hedges could be less effective in periods of large directional movements, or we could experience more frequent or more costly rebalancing in periods of high volatility, which would lead to adverse performance versus our hedge targets and increased hedging costs. Further, we also are exposed to basis risk, which results from our inability to purchase or sell hedge assets whose performance is directly correlated to the performance of the funds into which customers allocate their assets. We make available to customers funds where we believe we can transact in sufficiently correlated hedge assets, yet we anticipate some variance in the performance of our hedge assets and customer funds. This variance may result in our hedge assets outperforming or underperforming the customer assets they are intended to match. This variance may be exacerbated during periods of high volatility, leading to a mismatch in our hedge results relative to our hedge targets and U.S. GAAP results. 93 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Interest Rate Environment The interest rate environment has affected, and will continue to affect, our business and financial performance for the following reasons: • Periods of rising interest rates impact investment-related activity including investment income returns, net investment spread results, new money rates, mortgage loan prepayments, and bond redemptions. Rising interest rates also impact the hedging results of our variable annuity business as the market value of interest rate hedges decline, thereby driving 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. • With the execution of the Brooke Re transaction in the first quarter of 2024, we are able to largely moderate the impact of the cash surrender value floor going forward. 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”). • Pricing actions we take in response to decreasing interest rates may reduce the attractiveness of crediting rates, guaranteed benefits, and other product features. This in turn may lead to reduced sales volumes. • Low interest rate environments could also subject us to increased hedging costs or an increase in the amount of regulatory reserves that our insurance subsidiaries are required to hold for optional guaranteed benefits, decreasing regulatory 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. 94 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Credit Market Environment Conditions in fixed income markets impact our financial performance. As credit spreads widen, the fair value of our existing investment portfolio generally decreases, although we generally expect the widening spreads to increase the yield on new fixed income investments. Conversely, as credit spreads tighten, the fair value of our existing investment portfolio generally increases, and the yield available on new investment purchases decreases. While changing credit spreads impact the fair value of our investment portfolio, this revaluation is generally reflected in our 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 our insurance company subsidiaries' regulatory capital. 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 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. 95 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends Regulatory Policy We operate in a highly regulated industry. Our insurance company subsidiaries are regulated primarily at the state level, with some policies and products also subject to federal regulation. New federal and state regulations could impact our business model, including regulatory 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 Effective February 16, 2021, the Department of Labor (the “DOL”) issued a regulatory action that defined what constitutes fiduciary “investment advice” to Employee Retirement Income Security Act ("ERISA") plans and individual retirement accounts ("IRAs"), essentially broadening the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Internal Revenue Code of 1986 (the “Federal tax code”). On April 23, 2024, the DOL adopted a final rule that revised the 2021 definition of fiduciary and related Prohibited Transaction Exemptions (PTE) (combined, the “Fiduciary Advice Rule” or “final rule”), redefining what constitutes fiduciary “investment advice” to ERISA plans and IRAs. The final rule extends fiduciary status to one-time rollover recommendations and broadens the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA or the Federal tax code. The final rule also includes revisions to two PTEs (2020-02 and 84-24) that govern the sale of annuities. PTE 2020-02 governs the sale of annuity products by financial institutions, including broker-dealers, and any recommendations to purchase securities in qualified plans or from rollover funds. PTE 84-24 was narrowed to only apply to independent insurance agents recommending non-securities products. PTE 84-24 also imposes certain supervisory obligations on insurance carriers that are similar to obligations already covered under the National Association of Insurance Commissioner’s (the "NAIC") Suitability in Annuity Transactions Model Regulation, as well as new compliance policies and procedures. The final rule was to take effect on September 23, 2024, with a one-year phase-in period for a majority of the provisions, based on certain conditions. However, the final rule is facing significant litigation challenges; and, on July 25, 2024, a federal district court in Texas issued an order that the effective date of the final rule is stayed until further order of the Court. On September 20, 2024, the DOL timely filed an appeal related to the ruling on the stay. Unless the DOL moves to expedite the appeal, it is expected that the Court will issue a decision in six to eight months. We continue to analyze the impact of the adopted Fiduciary Advice Rule and, while we cannot predict the final rule’s impact, it could have an adverse effect on sales of annuities through our distribution partners and result in increased compliance costs to Jackson. We may need to take additional actions to comply with, or assist our distributors in their compliance with, the Fiduciary Advice Rule. The Fiduciary Advice Rule may also lead to changes to our compensation practices and product offerings and increase litigation risk, which could adversely affect our results of operations and financial condition. Nonetheless, because the distribution of annuities is primarily through intermediaries, most of which have implemented systems and processes to align to existing state and federal fiduciary and/or best interest standards, we believe that we have limited exposure to the Fiduciary Advice Rule. While the final rule may not have a material impact on our business, it may impede certain investors’ access to financial advice or annuities that provide guaranteed income streams. 96 Item 2 | Management’s Discussion and Analysis | Macroeconomic, Industry and Regulatory Trends 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 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. Changes to individual income tax rates and other elements of tax policy can make the tax deferral aspects of our products more or less attractive to consumers, affecting demand for our products. 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. 97 Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures 1. Net Hedging Results : Comprised of: (i) fees attributed to guaranteed benefits; (ii) net gains (losses) on hedging instruments which includes: (a) changes in the fair value of freestanding derivatives, and related commissions and expenses, used to manage the risk associated with market risk benefits and other guaranteed benefit features, excluding earned income from periodic settlements and changes in settlement accruals on cross-currency swaps; and (b) investment income and change in fair value of certain non-derivative assets used to manage the risk associated with market risk benefits and other guaranteed benefit features; (iii) the movements in reserves, market risk benefits, guaranteed benefit features accounted for as embedded derivative instruments, and related claims and benefit payments; (iv) amortization of the balance of unamortized deferred acquisition costs, at January 1, 2021, the date of transition to current accounting guidance (LDTI), associated with items excluded from adjusted operating earnings prior to transition; and (v) the impact on the valuation of Guaranteed Benefits and Net Hedging Results arising from changes in underlying actuarial assumptions. We believe excluding these items removes the impact to both revenue and related expenses associated with Guaranteed Benefits and Net Hedging Results. 2. Net Realized Investment Gains and Losses: Comprised of: (i) realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio, and (ii) impairments of securities, after adjustment for the non-credit component of the impairment charges. 3. Change in Value of Funds Withheld Embedded Derivative and Net investment income on funds withheld assets: Composed of: (i) the change in fair value of funds withheld embedded derivatives, and (ii) net investment income on funds withheld assets related to funds withheld reinsurance transactions. 4. Other items : Comprised of: (i) the impact of investments that are consolidated in our financial statements due to U.S. GAAP accounting requirements, such as our investments in collateralized loan obligations (CLOs), but for which the consolidation effects are not consistent with our economic interest or exposure to those entities, and (ii) one-time or other non-recurring items, such as costs relating to our separation from Prudential. Operating income taxes are calculated using the prevailing corporate federal income tax rate of 21% while taking into account any items recognized differently in our financial statements and federal income tax returns, including the dividends received deduction and other tax credits. For interim reporting periods, the Company uses an estimated annual effective tax rate (“ETR”) in computing its tax provision including consideration of discrete items. 98 Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures The following is a reconciliation of Adjusted Operating Earnings to net income (loss) attributable to Jackson Financial common shareholders, the most comparable U.S. GAAP measure. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Net income (loss) attributable to Jackson Financial Inc. common shareholders $ (480) $ 2,762 $ 568 $ 2,469 Add: dividends on preferred stock 11 11 33 24 Add: income tax expense (benefit) (113) 712 24 399 Pretax income (loss) attributable to Jackson Financial Inc. (582) 3,485 625 2,892 Non-operating adjustments (income) loss: Guaranteed benefits and hedging results: Fees attributable to guarantee benefit reserves (779) (784) (2,347) (2,345) Net (gains) losses on hedging instruments (591) 271 3,068 4,694 Market risk benefits (gains) losses, net 1,172 (2,376) (2,062) (5,120) Net reserve and embedded derivative movements 493 (45) 1,135 338 Amortization of DAC associated with non-operating items at date of transition to LDTI 135 148 410 450 Assumption changes — — — — Total guaranteed benefits and net hedging results 430 (2,786) 204 (1,983) Net realized investment (gains) losses 45 127 82 235 Net realized investment (gains) losses on funds withheld assets 784 (159) 1,199 648 Net investment income on funds withheld assets (269) (303) (824) (862) Other items 3 (9) (13) 32 Total non-operating adjustments 993 (3,130) 648 (1,930) Pretax adjusted operating earnings 411 355 1,273 962 Less: operating income tax expense (benefit) 50 29 146 69 Adjusted operating earnings before dividends on preferred stock 361 326 1,127 893 Less: dividends on preferred stock 11 11 33 24 Adjusted operating earnings $ 350 $ 315 $ 1,094 $ 869 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. 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. 99 Item 2 | Management’s Discussion and Analysis | Non-GAAP Financial Measures Adjusted Book Value Attributable to Common Shareholders and Adjusted Operating ROE Attributable to Common Shareholders should not be used as substitutes for total shareholders’ equity and ROE as calculated using annualized net income and average equity in accordance with U.S. GAAP. However, we believe the adjustments to equity and earnings are useful to gaining an understanding of our overall results of operations. The following is a reconciliation of Adjusted Book Value Attributable to Common Shareholders to total shareholders’ equity and a comparison of Adjusted Operating ROE Attributable to Common Shareholders to ROE Attributable to Common Shareholders, the most comparable U.S. GAAP measure: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Net income (loss) attributable to Jackson Financial Inc. common shareholders $ (480) $ 2,762 $ 568 $ 2,469 Adjusted Operating Earnings 350 315 1,094 869 Total shareholders' equity $ 10,698 $ 9,478 $ 10,698 $ 9,478 Less: Preferred stock 533 533 533 533 Total common shareholders' equity 10,165 8,945 10,165 8,945 Adjustments to total common shareholders’ equity: Exclude AOCI attributable to Jackson Financial Inc. (1) 1,047 2,926 1,047 2,926 Adjusted Book Value Attributable to Common Shareholders $ 11,212 $ 11,871 $ 11,212 $ 11,871 ROE Attributable to Common Shareholders (19.5) % 129.5 % 7.8 % 38.9 % Adjusted Operating ROE Attributable to Common Shareholders on average equity 12.3 % 11.8 % 13.0 % 11.6 % (1) Excludes $(1,336) million and $(2,261) million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of September 30, 2024 and 2023, 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. 100 Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations Consolidated Results of Operations The following table sets forth, for the periods presented, certain data from our Condensed Consolidated Income Statements. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Revenues Fee income $ 2,032 $ 1,950 $ 6,038 $ 5,751 Premiums 31 32 106 109 Net investment income: Net investment income excluding funds withheld assets 457 458 1,384 1,248 Net investment income on funds withheld assets 269 303 824 862 Total net investment income 726 761 2,208 2,110 Net gains (losses) on derivatives and investments: Net gains (losses) on derivatives and investments 102 (335) (4,132) (5,173) Net gains (losses) on funds withheld reinsurance treaties (784) 159 (1,199) (648) Total net gains (losses) on derivatives and investments (682) (176) (5,331) (5,821) Other income 14 18 25 52 Total revenues 2,121 2,585 3,046 2,201 Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 209 232 639 701 (Gain) loss from updating future policy benefits cash flow assumptions, net — (1) (7) 23 Market risk benefits (gains) losses, net 1,172 (2,376) (2,062) (5,120) Interest credited on other contract holder funds, net of deferrals and amortization 275 284 821 864 Interest expense 25 28 76 84 Operating costs and other expenses, net of deferrals 742 626 2,105 1,862 Amortization of deferred acquisition costs 277 290 832 874 Total benefits and expenses 2,700 (917) 2,404 (712) Pretax income (loss) (579) 3,502 642 2,913 Income tax expense (benefit) (113) 712 24 399 Net income (loss) (466) 2,790 618 2,514 Less: Net income (loss) attributable to noncontrolling interests 3 17 17 21 Net income (loss) attributable to Jackson Financial Inc. (469) 2,773 601 2,493 Less: Dividends on preferred stock 11 11 33 24 Net income (loss) attributable to Jackson Financial Inc. common shareholders $ (480) $ 2,762 $ 568 $ 2,469 101 Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations Three Months Ended September 30, 2024 compared to Three Months Ended September 30, 2023 Pretax Income (Loss) Our pretax income (loss) decreased by $4,081 million to $(579) million for the three months ended September 30, 2024, from $3,502 million for the three months ended September 30, 2023, primarily due to: • $3,548 million unfavorable movements in market risk benefits (gains) losses, primarily due to unfavorable interest rate movements, partially offset by favorable fund performance during the three months ended September 30, 2024, compared to the prior year quarter; • $506 million decrease in total net gains (losses) on derivatives and investments as shown in the table below and driven by: Three Months Ended September 30, 2024 2023 Variance (in millions) Net gains (losses) excluding derivatives and funds withheld assets $ (45) $ (127) $ 82 Net gains (losses) on freestanding derivatives 587 (310) 897 Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance) (440) 102 (542) Net gains (losses) on derivative instruments 147 (208) 355 Net gains (losses) on funds withheld reinsurance (784) 159 (943) Total net gains (losses) on derivatives and investments $ (682) $ (176) $ (506) ◦ Embedded derivative movements were unfavorable primarily due to market increase impacts on our growing RILA block during the three months ended September 30, 2024, compared to the prior year quarter; and ◦ Losses recognized on funds withheld reinsurance were driven by a decrease in interest rates impacting the value of the embedded derivative during the three months ended September 30, 2024, compared to increases in interest rates during the three months ended September 30, 2023; These losses were partially offset by: ◦ Volumes of freestanding derivatives can vary significantly period over period and movements in those derivatives are subject to interest rate or market movements. The movements in interest rate hedges during the three months ended September 30, 2024 were primarily driven by a decrease in interest rates whereas the movements in interest rate hedges during the three months ended September 30, 2023 were primarily driven by an increase in interest rates. The movements in equity hedges during the three months ended September 30, 2024 were primarily driven by an increase in equity markets whereas the movement in equity hedges during the three months ended September 30, 2023 were primarily driven by a decrease in equity markets. • $116 million increase in operating costs and other expenses, net of deferrals, primarily due to an increase in incentive and deferred compensation expenses during the three months ended September 30, 2024 and higher asset-based non-deferrable commissions, due to higher account values during the three months ended September 30, 2024; and • $35 million decrease in net investment income as a result of lower income on bonds and lower income on funds withheld assets compared to prior year quarter; These movements were partially offset by: • $82 million increase in fee income primarily due to higher average separate account values compared to the prior year quarter; and • $22 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. 102 Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations Income Taxes Income tax expense decreased $825 million to a benefit of $113 million for the three months ended September 30, 2024, from an expense of $712 million for the three months ended September 30, 2023. The provision for income tax in the current period led to an effective income tax rate ("ETR") of 19% for the three months ended September 30, 2024, compared to the ETR of 21% the three months ended September 30, 2023. The change in the ETR during the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was due to the relationship of the taxable income to the consolidated pre-tax income. The ETR differs from the statutory rate of 21% primarily due to the dividends received deduction, utilization of foreign tax credits, and valuation allowance. See Note 15 - Income Taxes of the Notes to Consolidated Financial Statements in our 2023 Annual Report and Note 15 - Income Taxes of the Notes to Condensed Consolidated Financial Statements in this report for more information. Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023 Pretax Income (Loss) Our pretax income (loss) decreased by $2,271 million to $642 million for the nine months ended September 30, 2024, from $2,913 million for the nine months ended September 30, 2023, primarily due to: • $3,058 million unfavorable movements in market risk benefits (gains) losses, net, primarily due to less favorable movements in interest rates and equity volatility, partially offset by favorable fund performance in 2024 compared to the prior year; • $243 million increase in operating costs and other expenses, net of deferrals, primarily due to an increase in incentive and deferred compensation expenses during the nine months ended September 30, 2024 and higher asset-based non-deferrable commissions, due to higher account values during 2024, compared to the prior year period. These movements were partially offset by: • $490 million increase in total net gains (losses) on derivatives and investments as shown in the table below and driven by: Nine Months Ended September 30, 2024 2023 Variance (in millions) Net gains (losses) excluding derivatives and funds withheld assets $ (82) $ (235) $ 153 Net gains (losses) on freestanding derivatives (3,087) (4,811) 1,724 Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance) (963) (127) (836) Net gains (losses) on derivative instruments (4,050) (4,938) 888 Net gains (losses) on funds withheld reinsurance (1,199) (648) (551) Total net gains (losses) on derivatives and investments $ (5,331) $ (5,821) $ 490 ◦ Embedded derivative movements were unfavorable primarily due to market increase impacts on our growing RILA block during the nine months ended September 30, 2024, compared to the prior year period; and ◦ Higher losses recognized on funds withheld reinsurance were driven by the decrease in interest rates impacting the value of the embedded derivative during 2024, compared to an increase in interest rates in 2023; These losses were partially offset by: ◦ Volumes of freestanding derivatives can vary significantly period over period and movements in those derivatives are subject to interest rate or market movements. The movements in interest rate hedges during the nine months ended September 30, 2024 were primarily driven by a decrease in interest rates whereas the movements in interest rate hedges during the nine months ended September 30, 2023 were primarily driven by an increase in interest rates. The movements in equity hedges during the nine months ended September 30, 2024 were primarily driven by increases in equity markets whereas the movements in equity hedges during the nine months ended September 30, 2023 were primarily driven by a decrease in equity markets. 103 Item 2 | Management’s Discussion and Analysis | Consolidated Results of Operations • $287 million increase in fee income primarily due to higher average separate account values compared to the prior year period; • $98 million increase in net investment income as a result of higher income on limited partnership investments, which are recorded on a one quarter lag, and higher income on bonds, driven primarily by higher yields in 2024, compared to the prior year period, partially offset by higher investment expenses; • $92 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 improved mortality and lower other policyholder benefits; and • $43 million decrease in interest credited on contract holder funds, net of deferrals, primarily due to lower average fixed account balances in 2024, compared to the prior year. Income Taxes Income tax expense decreased $375 million to an expense of $24 million for the nine months ended September 30, 2024, from an expense of $399 million for the nine months ended September 30, 2023. The provision for income tax in the current period led to an ETR of 4% for the nine months ended September 30, 2024 compared to the ETR of 14% the nine months ended September 30, 2023. The change in the ETR during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due to the relationship of the taxable income to the consolidated pre-tax income. Our ETR differs from the statutory rate of 21% primarily due to the dividends received deduction, utilization of foreign tax credits and valuation allowance. See Note 15 - Income Taxes of the Notes to Consolidated Financial Statements in our 2023 Annual Report and Note 15 - Income Taxes of the Notes to Condensed Consolidated Financial Statements in this report for more information. 104 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations 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 U.S. GAAP basis. Also, s ee Note 3 - Segment Information of the Notes to Condensed Consolidated Financial Statements for further information regarding the calculation of pretax adjusted operating earnings: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Pretax Adjusted Operating Earnings by Segment: Retail Annuities $ 458 $ 354 $ 1,342 $ 1,038 Institutional Products 17 21 77 47 Closed Life and Annuity Blocks 7 6 61 (7) Corporate and Other (71) (26) (207) (116) Pretax Adjusted Operating Earnings 411 355 1,273 962 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 779 784 2,347 2,345 Net (gains) losses on hedging instruments 591 (271) (3,068) (4,694) Market risk benefits gains (losses), net (1,172) 2,376 2,062 5,120 Net reserve and embedded derivative movements (493) 45 (1,135) (338) Amortization of DAC associated with non-operating items at date of transition to LDTI (135) (148) (410) (450) Total guaranteed benefits and net hedging results (430) 2,786 (204) 1,983 Net realized investment gains (losses) (45) (127) (82) (235) Net realized investment gains (losses) on funds withheld assets (784) 159 (1,199) (648) Net investment income on funds withheld assets 269 303 824 862 Other items (3) 9 13 (32) Total pre-tax reconciling items (993) 3,130 (648) 1,930 Pretax income (loss) attributable to Jackson Financial Inc. (582) 3,485 625 2,892 Income tax expense (benefit) (113) 712 24 399 Net income (loss) attributable to Jackson Financial Inc. (469) 2,773 601 2,493 Dividends on preferred stock 11 11 33 24 Net income (loss) attributable to Jackson Financial Inc. common shareholders $ (480) $ 2,762 $ 568 $ 2,469 105 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Retail Annuities The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Retail Annuities segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Retail Annuities: Operating Revenues Fee income $ 1,128 $ 1,038 $ 3,313 $ 3,015 Premiums 12 6 34 16 Net investment income 196 110 514 317 Other income 8 9 25 28 Total Operating Revenues 1,344 1,163 3,886 3,376 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves 26 24 51 21 (Gain) loss from updating future policy benefits cash flow assumptions, net (12) (4) (26) (6) Interest credited on other contract holder funds, net of deferrals and amortization 88 90 260 284 Interest expense 6 6 18 18 Operating costs and other expenses, net of deferrals 638 554 1,825 1,605 Amortization of deferred acquisition costs 140 139 416 416 Total Operating Benefits and Expenses 886 809 2,544 2,338 Pretax Adjusted Operating Earnings $ 458 $ 354 $ 1,342 $ 1,038 The following table summarizes a roll-forward of activity affecting account value for our Retail Annuities segment for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Retail Annuities Account Value: Balance as of beginning of period $ 247,213 $ 227,266 $ 235,465 $ 209,967 Premiums and deposits 5,310 3,352 13,299 9,703 Surrenders, withdrawals, and benefits (7,783) (4,844) (21,534) (13,897) Net flows (2,473) (1,492) (8,235) (4,194) Investment performance 11,510 (7,198) 29,794 13,813 Change in value of equity option 440 (102) 964 123 Interest credited 88 89 260 284 Policy charges and other (750) (704) (2,220) (2,134) Balance as of end of period, net of ceded reinsurance 256,028 217,859 256,028 217,859 Ceded reinsurance 15,902 19,323 15,902 19,323 Balance as of end of period, gross of reinsurance $ 271,930 $ 237,182 $ 271,930 $ 237,182 106 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Three Months Ended September 30, 2024 compared to Three Months Ended September 30, 2023 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings increased $104 million to $458 million for the three months ended September 30, 2024, from $354 million for the three months ended September 30, 2023, primarily due to: • $90 million increase in fee income primarily due to higher average separate account values compared to the prior year quarter; and • $88 million increase in spread income primarily due to $86 million higher investment income and $2 million lower interest credited on contract holder funds compared to the prior year quarter. Investment income was driven by higher income on bonds due to higher asset balances earning higher yields in 2024, compared to the prior year quarter, partially offset by higher investment expenses related to repurchase agreements. These increases were partially offset by: • $84 million increase in operating costs and other expenses, net of deferrals, primarily due to higher asset-based non-deferrable commissions, due to higher account values during the three months ended September 30, 2024, compared to the prior year quarter, and an increase in incentive compensation expenses during the three months ended September 30, 2024. Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings increased $304 million to $1,342 million for the nine months ended September 30, 2024, from $1,038 million for the nine months ended September 30, 2023, primarily due to: • $298 million increase in fee income primarily due to higher average separate account values compared to the prior year period; and • $221 million increase in spread income primarily due to $197 million higher investment income driven by higher income on bonds driven by higher asset balances earning higher yields in 2024, compared to the prior year period, partially offset by higher investment expenses related to repurchase agreements, and $24 million lower interest credited on contract holder funds compared to the prior year period. These increases were partially offset by: • $220 million increase in operating costs and other expenses, net of deferrals, primarily due to higher asset-based non-deferrable commissions, due to higher account values during 2024, and an increase in incentive compensation expenses during the nine months ended September 30, 2024. Account Value Retail annuities account value, net of reinsurance, increased $38.2 billion over the prior year period primarily due to positive variable annuity separate account returns driven by favorable market performance in 2024, as well as positive RILA and fixed annuity net flows over the period. 107 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Institutional Products The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Institutional Products segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Institutional Products: Operating Revenues Net investment income $ 101 $ 109 $ 332 $ 297 Total Operating Revenues 101 109 332 297 Operating Benefits and Expenses Interest credited on other contract holder funds, net of deferrals and amortization 83 87 252 247 Operating costs and other expenses, net of deferrals 1 1 3 3 Total Operating Benefits and Expenses 84 88 255 250 Pretax Adjusted Operating Earnings $ 17 $ 21 $ 77 $ 47 The following table summarizes a roll-forward of activity affecting account value for our Institutional Products segment for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Institutional Products: Balance as of beginning of period $ 7,299 $ 8,887 $ 8,406 $ 9,019 Premiums and deposits 749 112 1,461 1,065 Surrenders, withdrawals, and benefits (250) (354) (2,177) (1,598) Net flows 499 (242) (716) (533) Interest credited 83 87 252 247 Policy Charges and other 48 (20) (13) (21) Balance as of end of period $ 7,929 $ 8,712 $ 7,929 $ 8,712 Three Months Ended September 30, 2024 compared to Three Months Ended September 30, 2023 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $4 million to $17 million for the three months ended September 30, 2024, from $21 million for the three months ended September 30, 2023, primarily due to a $4 million decrease in spread income primarily due to $8 million lower investment income, partially offset by $4 million lower interest credited on contract holder funds. 108 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings increased $30 million to $77 million for the nine months ended September 30, 2024, from $47 million for the nine months ended September 30, 2023, primarily due to a $30 million increase in spread income primarily due to $35 million higher investment income, partially offset by $5 million higher interest credited on contract holder funds. Account Value Institutional product account value decreased from $8,712 million at September 30, 2023, to $7,929 million at September 30, 2024. The decrease in account value was driven by continued maturities of the existing contracts and funding agreements. Closed Life and Annuity Blocks The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Closed Life and Annuity Blocks segment. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Closed Life and Annuity Blocks: Operating Revenues Fee income $ 111 $ 112 $ 335 $ 345 Premiums 22 30 80 102 Net investment income 155 161 486 489 Other income 7 8 21 18 Total Operating Revenues 295 311 922 954 Operating Benefits and Expenses Death, other policy benefits and change in policy reserves, net of deferrals 131 150 419 467 (Gain) loss from updating future policy benefits cash flow assumptions, net 11 4 17 31 Interest credited on other contract holder funds, net of deferrals and amortization 104 107 309 333 Operating costs and other expenses, net of deferrals 40 41 110 122 Amortization of deferred acquisition costs 2 3 6 8 Total Operating Benefits and Expenses 288 305 861 961 Pretax Adjusted Operating Earnings $ 7 $ 6 $ 61 $ (7) Three Months Ended September 30, 2024 compared to Three Months Ended September 30, 2023 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings increased $1 million to $7 million for the three months ended September 30, 2024, from $6 million for the three months ended September 30, 2023, primarily due to a $12 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, partially offset by an $8 million decrease in premiums. 109 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings increased $68 million to $61 million for the nine months ended September 30, 2024, from $(7) million for the nine months ended September 30, 2023, primarily due to: • $62 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 improved mortality and lower other policyholder benefits; and • $24 million decrease in interest credited on contract holder funds related to persistency bonuses in 2023. These increases were partially offset by: • $22 million decrease in premiums as the closed block of life business continues to run off. Corporate and Other Corporate and Other includes the operations of PPM Holdings, Inc., the parent holding company of PPM, and unallocated corporate revenue and expenses, as well as certain eliminations and consolidation adjustments. The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for Corporate and Other. The information contained in the table below should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in millions) Corporate and Other: Operating Revenues Fee income $ 12 $ 11 $ 36 $ 37 Net investment income — 14 3 39 Other income (1) 1 (21) 6 Total Operating Revenues 11 26 18 82 Operating Benefits and Expenses Interest expense 19 22 58 66 Operating costs and other expenses, net of deferrals 63 30 167 132 Total Operating Benefits and Expenses 82 52 225 198 Pretax Adjusted Operating Earnings $ (71) $ (26) $ (207) $ (116) Three Months Ended September 30, 2024 compared to Three Months Ended September 30, 2023 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $45 million to $(71) million for the three months ended September 30, 2024, from $(26) million for the three months ended September 30, 2023, primarily driven by a $33 million increase in operating costs and other expenses, net of deferrals, due to increased deferred and incentive compensation expenses during the three months ended September 30, 2024 and a $14 million decrease in net investment income. 110 Item 2 | Management’s Discussion and Analysis | Segment Results of Operations Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023 Pretax Adjusted Operating Earnings Pretax adjusted operating earnings decreased $91 million to $(207) million for the nine months ended September 30, 2024, from $(116) million for the nine months ended September 30, 2023, primarily driven by to a $36 million decrease in net investment income, a $35 million increase in operating costs and other expenses, net of deferrals, due to increased deferred and incentive compensation expenses, and a $27 million decrease in other income primarily due to a one-time reinsurance related adjustment. Investments Our investment portfolio primarily consists of fixed-income securities and loans, 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. 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. The investments within our investment portfolio are primarily managed by PPM, our wholly-owned registered investment advisor. Our investment strategy benefits from PPM’s ability to originate investments directly, as well as participate in transactions originated by banks, investment banks, commercial finance companies and other intermediaries. Certain investments held in funds withheld accounts for reinsurance transactions are managed by Apollo Insurance Solutions Group LP ("Apollo"), an Athene affiliate. See Note 8 - Reinsurance of the Notes to Condensed Consolidated Financial Statements for further details . We may also use other third-party investment managers for certain niche asset classes. As of September 30, 2024, Apollo managed $14.7 billion of cash and investments and other third-party investment managers managed approximately $242 million of investments. 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. 111 Item 2 | Management’s Discussion and Analysis | Investments 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. Portfolio Composition The following table summarizes the carrying values of our investments: September 30, 2024 December 31, 2023 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 $ 31,945 $ 10,344 $ 42,289 $ 28,896 $ 11,526 $ 40,422 Debt Securities, at fair value under fair value option 2,782 155 2,937 2,037 116 2,153 Debt securities, trading, at fair value 73 — 73 68 — 68 Equity securities, at fair value 65 148 213 243 151 394 Mortgage loans, net of allowance for credit losses 6,906 2,658 9,564 7,015 3,067 10,082 Mortgage loans, at fair value under fair value option — 432 432 — 481 481 Policy loans 905 3,548 4,453 928 3,471 4,399 Freestanding derivative instruments 290 5 295 375 15 390 Other invested assets 1,995 752 2,747 1,757 709 2,466 Total investments $ 44,961 $ 18,042 $ 63,003 $ 41,319 $ 19,536 $ 60,855 Available-for-sale debt securities increased to $42,289 million at September 30, 2024, from $40,422 million at December 31, 2023. The amortized cost of available-for-sale debt securities increased to $45,536 million as of September 30, 2024, from $44,843 million as of December 31, 2023. Further, net unrealized losses, after adjusting for allowance for credit loss, were $3,203 million as of September 30, 2024, compared to $4,401 million as of December 31, 2023. Other Invested Assets Other invested assets increased to $2,747 million at September 30, 2024 from $2,466 million at December 31, 2023 . 112 Item 2 | Management’s Discussion and Analysis | Investments Debt Securities At September 30, 2024 and December 31, 2023, the amortized cost, allowance for credit loss, gross unrealized gains and losses, and fair value of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions): September 30, 2024 Amortized Cost Allowance for Credit Loss Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government securities $ 4,231 $ — $ 5 $ 787 $ 3,449 Other government securities 1,530 — 2 192 1,340 Corporate securities Utilities 5,743 16 79 393 5,413 Energy 3,202 — 43 212 3,033 Banking 2,599 — 53 100 2,552 Healthcare 3,447 — 42 287 3,202 Finance/Insurance 4,856 8 77 315 4,610 Technology/Telecom 2,227 1 17 164 2,079 Consumer goods 2,401 — 31 244 2,188 Industrial 1,786 — 26 84 1,728 Capital goods 1,911 — 27 107 1,831 Real estate 1,649 — 19 104 1,564 Media 1,052 — 9 100 961 Transportation 1,419 — 14 132 1,301 Retail 1,276 — 12 110 1,178 Other (1) 2,577 — 35 79 2,533 Total Corporate Securities 36,145 25 484 2,431 34,173 Residential mortgage-backed 392 4 13 68 333 Commercial mortgage-backed 1,691 — 4 87 1,608 Other asset-backed securities 4,557 15 25 171 4,396 Total Debt Securities $ 48,546 $ 44 $ 533 $ 3,736 $ 45,299 (1) No single remaining industry exceeds 3% of the portfolio. 113 Item 2 | Management’s Discussion and Analysis | Investments 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. Evaluation of Available-For-Sale Debt Securities See Note 4 - Investments of the Notes to Condensed Consolidated Financial Statements for information about how we evaluate our available-for-sale debt securities for credit loss. Equity Securities Equity securities consist of investments in common and preferred stock holdings and mutual fund investments. Common and preferred stock investments generally arise out of previous private equity investments or other settlements rather than direct investments. Mutual fund investments typically represent investments made in our own mutual funds to seed those structures for external issuance at a later date. The following table summarizes our holdings: September 30, December 31, 2024 2023 (in millions) Common Stock $ 17 $ 17 Preferred Stock 172 175 Mutual Funds 24 202 Total $ 213 $ 394 Mortgage Loans At September 30, 2024, 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 49 states, the District of Columbia, Mexico, and Europe. 114 Item 2 | Management’s Discussion and Analysis | Investments The table below presents the carrying value, net of allowance of credit loss, of our mortgage loans by property type: September 30, December 31, 2024 2023 (in millions) Commercial: Apartment $ 2,515 $ 2,841 Hotel 821 767 Office 1,302 1,379 Retail 1,830 1,864 Warehouse 2,053 2,016 Other 593 695 Total Commercial (1) $ 9,114 $ 9,562 Residential (2) 882 1,001 Total $ 9,996 $ 10,563 (1) N et of an allowance for credit losses of $143 million and $160 million at September 30, 2024 and December 31, 2023, respectively. (2) Net of an allowance for credit losses of $5 million and $5 million at September 30, 2024 and December 31, 2023, respectively. The table below presents the carrying value, net of allowance for credit loss, of our mortgage loans by region: September 30, December 31, 2024 2023 (in millions) United States: East North Central $ 960 $ 1,024 East South Central 512 502 Middle Atlantic 1,399 1,481 Mountain 478 531 New England 274 287 Pacific 2,248 2,500 South Atlantic 2,119 2,147 West North Central 578 593 West South Central 1,062 992 Total United States 9,630 10,057 Foreign 366 506 Total $ 9,996 $ 10,563 115 Item 2 | Management’s Discussion and Analysis | Investments The following table provides information about the credit quality of our mortgage loans: September 30, December 31, 2024 2023 (in millions) Commercial mortgage loans Loan to value ratios: Less than 70% $ 7,607 $ 8,604 70% - 80% 1,054 711 80% - 100% 362 196 Greater than 100% 91 51 Total 9,114 9,562 Residential mortgage loans Performing 777 911 Nonperforming (1) 105 90 Total 882 1,001 Total mortgage loans $ 9,996 $ 10,563 (1) As of September 30, 2024 and December 31, 2023, includes $18 million and $22 million of loans purchased when the loans were greater than 90 days delinquent and $3 million and $5 million of loans in process of foreclosure, respectively, and are supported with insurance or other guarantees provided by various governmental programs. The following table provides a summary of the allowance for credit losses related to our mortgage loans: September 30, 2024 2023 (in millions) Balance at beginning of year $ 165 $ 95 Charge offs, net of recoveries (3) — Provision (release) (1) (14) 105 Balance at end of period $ 148 $ 200 (1) At September 30, 2023, the $105 million allowance for credit losses are primarily from two mezzanine loans experiencing stress around payoff, or refinance, of the loans for which the Company continues to assess options with the lending group and borrowers. 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 $1 million and $2 million were written off as of September 30, 2024 and 2023, 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): September 30, 2024 December 31, 2023 Recorded investment $ 32 $ 24 Unpaid principal balance 36 27 Related loan allowance 2 1 Average recorded investment 29 19 Investment income recognized — 1 116 Item 2 | Management’s Discussion and Analysis | Investments Derivative Instruments Note 5 – Derivative Instruments of the Notes to Condensed Consolidated Financial Statements presents the aggregate contractual or notional amounts and the fair values of our freestanding and embedded derivatives instruments as of September 30, 2024 and December 31, 2023. 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 Condensed Consolidated Financial Statements in conformity with U.S. GAAP. For more details on Policyholder Liabilities, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” included in our 2023 Annual Report. Our policy and contract liabilities includes separate account liabilities, reserves for future policy benefits and claims payable and other contract holder funds. As of September 30, 2024, 90% of our policy and contract liabilities were in our Retail Annuities segment, 3% were in our Institutional Products segment and 7% were in our Closed Life and Annuity Blocks segment. 117 Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities The tables below represent a breakdown of our policy and contract liabilities: September 30, 2024 Separate Accounts Reserves for future policy benefits Other contract holder funds Market Risk Benefits Total (in millions) Variable Annuities $ 234,736 $ — $ 7,509 $ (3,300) $ 238,945 RILA (1) — — 10,250 11 10,261 Fixed Annuities — — 9,593 1 9,594 Fixed Index Annuities (2) — — 8,990 50 9,040 Payout Annuities — 1,143 852 — 1,995 Other Annuities 216 — — — 216 Total Retail Annuities 234,952 1,143 37,194 (3,238) 270,051 Total Institutional Products — — 7,929 — 7,929 Total Closed Life and Annuity Blocks 85 9,007 12,047 7 21,146 Total Policy and Contract Liabilities 235,037 10,150 57,170 (3,231) 299,126 Claims payable and other — 1,393 164 — 1,557 Total $ 235,037 $ 11,543 $ 57,334 $ (3,231) $ 300,683 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 (1) Includes the embedded derivative liabilities in other contract holder funds related to RILA of $2,799 million and $1,224 million at September 30, 2024 and December 31, 2023, respectively. (2) Includes the embedded derivative liabilities related to fixed index annuity in other contract holder funds of $825 million and $866 million at September 30, 2024 and December 31, 2023, respectively. 118 Item 2 | Management’s Discussion and Analysis | Policy and Contract Liabilities As of September 30, 2024: • $235 billion or 79% 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. • $48 billion of our policy and contract liabilities were backed by our investment portfolio. • $16.1 billion of our policy and contract liabilities were reinsured by Athene and backed by funds withheld assets. As of September 30, 2024, 94% of fixed annuity, fixed-indexed annuity, and the fixed accounts of RILA and variable annuity correspond to crediting rates that are at the guaranteed minimum crediting rate. 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. See 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 the Notes to Condensed Consolidated Financial Statements for additional discussion on accounting policies around Reserves for future policy benefits and claims payable, Other contract holder funds, Separate account assets and liabilities and MRBs. Liquidity and Capital Resources Liquidity is our ability to generate sufficient cash flows to meet the cash requirements of operating, investing and financing activities. Capital refers to our long-term financial resources available to support the business operations and contribute to future growth. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and alternate sources of liquidity and capital described herein. The discussion below describes our liquidity and capital resources for the nine months ended September 30, 2024 and 2023. Cash Flows The following table presents a summary of our cash flow activity for the periods set forth below: Nine Months Ended September 30, 2024 2023 (in millions) Net cash provided by (used in) operating activities $ 4,268 $ 3,676 Net cash provided by (used in) investing activities (4,321) (685) Net cash provided by (used in) financing activities 423 (4,527) Net increase (decrease) in cash, cash equivalents, and restricted cash 370 (1,536) Cash, cash equivalents, and restricted cash at beginning of period 2,691 4,301 Total cash, cash equivalents, and restricted cash at end of period $ 3,061 $ 2,765 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 $592 million to $4,268 million for the nine months ended September 30, 2024, from $3,676 million for the nine months ended September 30, 2023. This was primarily due to the timing of settlements of receivables and payables. 119 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources Cash flows from Investing Activities The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments and settlements of freestanding derivatives. It is not unusual to have a net cash outflow from investing activities because cash inflows from insurance operations are typically reinvested to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors or market disruptions that might impact the timing of investment related cash flows as well as derivative collateral needs, which could result in material liquidity needs for our insurance subsidiaries. Cash flows provided by (used in) investing activities decreased $3,636 million to $(4,321) million during the nine months ended September 30, 2024, from $(685) million during the nine months ended September 30, 2023. This decrease was primarily driven by increased purchases of debt securities, primarily driven by increased RILA and fixed annuity issuances in 2024, partially offset by lower outflows related to our hedging program for derivative settlements and collateral. Cash flows from Financing Activities The principal cash inflows from our financing activities come from deposits of funds associated with policyholder account balances, issuance of securities and lending of securities. The principal cash outflows come from withdrawals associated with policyholder account balances, repayment of debt, and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal. Cash flows provided by (used in) financing activities increased $4,950 million to $423 million during the nine months ended September 30, 2024, from $(4,527) million during the nine months ended September 30, 2023. This increase was primarily due to higher deposits from increased RILA and fixed sales in 2024 in addition to higher proceeds from repurchase agreements in 2024, partially offset by the proceeds we received in the prior year period from the issuance of our preferred stock. Statutory Capital Our insurance company subsidiaries have statutory surplus above the level needed to meet current regulatory requirements. RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action. RBC is based on a formula that incorporates both factor-based components (applied to various asset, premium, and statutory reserve items) and model-based components. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk, and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not to rank insurers generally. As of September 30, 2024, our insurance companies were well in excess of the minimum required capital levels. With the execution of the Brooke Re transaction in the first quarter of 2024, we are able to largely moderate the impact of the cash surrender value floor going forward. In the past, our statutory TAC (total adjusted capital) may have been negatively impacted by minimum required reserving levels ( i.e. , cash surrender value floor) when reserve releases were limited and unable to offset losses from our hedging program. 120 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources Holding Company Liquidity As a holding company with no business operations of its own, Jackson Financial primarily derives cash flows from dividends and interest payments from its insurance subsidiaries. These principal sources of liquidity are expected to be supplemented by cash and short-term investments held by Jackson Financial, and access to bank lines of credit and the capital markets. We intend to maintain a minimum amount of cash and highly liquid securities at Jackson Financial adequate to fund two years of holding company fixed net expenses, which 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 no assurance as to the amount of any such cash dividends or stock repurchases. Under Delaware law, dividends may be paid, or stock may be repurchased out of “surplus,” or out of the current or the immediately preceding year's earnings. Surplus is defined as the fair market value of net assets minus stated capital. 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. See “Distributions from our Insurance Company Subsidiaries” below for a discussion of those restrictions . Such restrictions, or any future restrictions adopted by the states in which our insurance subsidiaries are domiciled, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable by our subsidiaries without affirmative approval of state regulatory authorities. See “Risk Factors—Risks relating to Financing and Liquidity - As a holding company, Jackson Financial depends on the ability of its subsidiaries to pay dividends and make other distributions to meet its obligations and liquidity needs, including servicing debt, dividend payments and stock repurchases” in our 2023 Annual Report. On March 13, 2023, the Company issued and sold depositary shares representing interests in our Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A. After underwriting discounts and expenses, we received net proceeds of approximately $533 million. See Note 19 - Equity of the Notes to Condensed Consolidated Financial Statements for more information, including restrictions on common stock dividends and repurchases if a quarterly dividend on preferred stock is not declared and paid. During the third quarter of 2024, we paid a cash dividend of $0.50 per depositary share and $0.70 per share on JFI's preferred and common stock totaling $11 million and $54 million, respectively. On November 1, 2024, our Board of Directors approved a cash dividend for the fourth quarter on JFI's common stock, $0.70 per share, payable on December 19, 2024, to common shareholders of record on December 5, 2024. The Company also announced the declaration of a cash dividend of $0.50 per depositary share, each representing a 1/1,000th interest in a share of Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A. The dividend will be payable on December 30, 2024, to preferred shareholders of record at the close of business on December 5, 2024. 121 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources On August 1, 2024, our Board of Directors authorized an increase of $750 million in our existing authorization to repurchase shares of our outstanding common stock as part of the Company's share repurchase program. We repurchased a total of 1,352,821 shares and 4,804,666 shares of common stock for an aggregate purchase price of $113 million and $319 million in the three and nine months ended September 30, 2024, respectively, which were funded with cash on hand. See Note 19 - Equity of the Notes to Condensed Consolidated Financial Statements in this report for further information on dividends to shareholders and share repurchases . At a holding company level, Jackson Financial has recorded a decrease of $ 94 million for the three months ended September 30, 2024 resulting in an estimated liability and deferred tax balance of nil for provision of the Federal corporate alternative minimum tax (“CAMT”), based on the Company's interpretation of available guidance, as of September 30, 2024. At the JFI Consolidated level, an estimated $ 7 million was recorded with an offsetting deferred tax asset of $7 million of credit carryover which will reduce future tax liabilities. 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 New York State Department of Financial Services. For 2024, ordinary dividend capacity for Jackson and Brooke Life is based on the greater of 10% of 2023 reported statutory capital and surplus or statutory net gain from operations. This capacity is then reduced by cumulative dividends and other capital distributions in the preceding 12 months, subject to the availability of earned surplus. As a result of cumulative dividends and other capital distributions occurring in the preceding 12 months as of September 30, 2024, including the January 2024 distributions to establish Brooke Re, future dividends from both Jackson and Brooke Life are expected to be classified as extraordinary. There is a process within the Michigan Insurance Code to request extraordinary dividends that the companies have utilized previously. Brooke Life, as the sole owner of Jackson and Brooke Re, 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. 122 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources 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 ratings. In connection with the formation of Brooke Re, Jackson remitted a $1,920 million return of capital to its parent company, Brooke Life, in the first quarter of 2024. Brooke Life subsequently made a $1,870 million capital contribution to its subsidiary, Brooke Re. On June 20, 2024, Jackson paid a $250 million extraordinary dividend to its parent company, Brooke Life. Brooke Life subsequently remitted a $250 million return of capital to its ultimate parent, Jackson Financial. In addition, for the three months ended March 31, 2024, Brooke Life paid $45 million of interest associated with the $2 billion surplus note between Brooke Life and Jackson Finance, LLC ("Jackson Finance"), a subsidiary of Jackson Financial. On September 12, 2024, Jackson paid a $300 million extraordinary dividend to its parent company, Brooke Life. Brooke Life subsequently remitted a $255 million return of capital to its ultimate parent, Jackson Financial. In addition, for the three months ended September 30, 2024, Brooke Life paid $45 million of interest associated with the $2 billion surplus note between Brooke Life and Jackson Finance. Insurance Company Subsidiaries’ Liquidity The liquidity requirements for our insurance company subsidiaries primarily relate to the liabilities associated with their insurance and reinsurance activities, operating expenses and income taxes. Liabilities arising from insurance and reinsurance activities include the payment of policyholder benefits when due, cash payments in connection with policy surrenders and withdrawals and policy loans. Liquidity requirements are principally for purchases of new investments, management of derivative-related margin requirements, repayment of principal and interest on debt, payments of interest on surplus notes, funding of insurance product liabilities including payments for policy benefits, surrenders, maturities and new policy loans, funding of expenses including payment of commissions, operating expenses and taxes. As of September 30, 2024, Jackson’s outstanding surplus notes and bank debt included $52 million of bank loans from the Federal Home Loan Bank of Indianapolis ("FHLBI"), collateralized by mortgage-related securities and mortgage loans and $250 million of surplus notes maturing in 2027. Significant increases in interest rates could create sudden increases in surrender and withdrawal requests by customers and contract holders and result in increased liquidity requirements at our insurance company subsidiaries. Significant increases in interest rates or equity markets may also result in higher margin and collateral requirements on our derivative portfolio. The derivative contracts are an integral part of our risk management program, especially for the management of our variable annuities program, and are managed in accordance with our hedging and risk management program. Our cash flows associated with collateral received from counterparties and posted with counterparties fluctuates with changes in the market value of the underlying derivative contract and/or the market value of the collateral. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. Collateral posting requirements can result in material liquidity needs for our insurance subsidiaries. As of September 30, 2024, we were in a net collateral payable position of $124 million, which is down from $780 million as of December 31, 2023. 123 Item 2 | Management’s Discussion and Analysis | 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 September 30, 2024, 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. Further, 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 as of September 30, 2024. The liquidity sources for our insurance company subsidiaries include their cash, short-term investments, sales of publicly-traded bonds, insurance premiums, fees charged on their products, sales of annuities and institutional products, investment income, commercial repurchase agreements and utilization of a short-term borrowing facility with the FHLBI. Jackson uses a variety of asset liability management techniques to provide for the orderly provision of cash flow from investments and other sources as policies and contracts mature in accordance with their normal terms. Jackson’s principal sources of liquidity to meet unexpected cash outflows associated with sudden and severe increases in surrenders and withdrawals or benefit payments are its portfolio of liquid assets and its net operating cash flows. As of September 30, 2024, the portfolio of cash, short-term investments and privately and publicly traded securities and equities that are unencumbered and unrestricted to sale, amounted to $26.3 billion. Our Indebtedness Senior Notes In November 2021 and June 2022, the Company issued an aggregate of $2,350 million principal amount of its senior notes, shown as Long-term debt on the Condensed Consolidated Balance 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. See Note 13 – Long-Term Debt of Notes to Condensed Consolidated Financial Statements for information regarding Financial maintenance covenants contained in the credit agreement. We were in compliance with these covenants at September 30, 2024. Jackson is a party to an Uncommitted Money Market Line Credit Agreement dated April 6, 2023, among Jackson, Jackson Financial, and Société Générale. This agreement is an uncommitted short-term cash advance facility that provides an additional form of liquidity to Jackson and to Jackson Financial. The aggregate borrowing capacity under the agreement is $500 million and each cash advance request must be at least $100 thousand. The interest rate is set by the lender at the time of the borrowing and is fixed for the duration of the advance. Jackson and Jackson Financial are jointly and severally liable to repay any advance under the agreement, which must be repaid prior to the last day of the quarter in which the advance was drawn. 124 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources 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 $5 million and $15 million for the three and nine months ended September 30, 2024, respectively and interest expense on the notes was $6 million and $18 million for the three and nine months ended September 30, 2023, respectively. Under Michigan insurance law, for statutory reporting purposes, the surplus notes are not part of the legal liabilities of Jackson and are considered surplus funds. Payments of interest or principal may only be made with the prior approval of the Michigan Director of Insurance and only out of surplus earnings that the Director determines to be available for such payments under Michigan insurance law. Federal Home Loan Bank Jackson is a member of the regional FHLBI primarily for the purpose of participating in its collateralized loan advance program with funding facilities. Membership requires us to purchase and hold a minimum amount of FHLBI capital stock, plus additional stock based on outstanding advances. Advances are in the form of either notes or funding agreements issued to FHLBI. As of September 30, 2024 and December 31, 2023, Jackson held a bank loan with an outstanding balance of $52 million and $57 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 collateral upgrade transactions, the Company lends securities (e.g., corporate debt securities or other securities agreed upon between the parties) to bank counterparties in exchange for U.S. Treasury securities that the Company then uses to provide as collateral. The paired repurchase and reverse repurchase transactions are settled on a net basis in accordance with master netting agreements. As a result, there was no cash exchanged at initiation of these agreements. The paired transactions are reported net within the Condensed Consolidated Balance Sheets. These transactions do not have a stated maturity and require at least 150-days' notice prior to termination. 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. 125 Item 2 | Management’s Discussion and Analysis | Liquidity and Capital Resources As of November 1, 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. 126 Item 2 | Management’s Discussion and Analysis | Impact of Recent Accounting Pronouncements Impact of Recent Accounting Pronouncements For a complete discussion of new accounting pronouncements affecting us, s ee Note 2 of the Notes to Condensed Consolidated Financial Statements. Summary of Critical Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in our Condensed Consolidated Financial Statements included elsewhere in this report. The most critical estimates are presented below. The below critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and Notes 1 and 2 of the Notes to the Consolidated Financial Statements included in our 2023 Annual Report: • reserves for future policy benefits and claims payable • market risk benefits • reinsurance • income taxes and the ability to realize certain deferred tax benefits • valuation and impairment of investments, including estimates related to expectations of credit losses on certain financial assets • valuation of freestanding derivative instruments • valuation of embedded derivatives • net investment income • contingent liabilities • consolidation of variable interest entities Off–Balance Sheet Arrangements See Note 13 - Long-term Debt regarding lender commitment under the Company's revolving credit facility and Note 16 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements regarding unfunded investment commitments to limited partnerships and limited liability companies. 127 Item 3 | Quantitative and Qualitative Disclosures about Market Risk