Jackson Financial Q4 2024 Earnings Report

Jackson Financial EPS Results

• Actual EPS: $4.65
• Consensus EPS: $4.72
• Beat/Miss: Missed by -$0.07
• One Year Ago EPS: N/A

Jackson Financial Revenue Results

• Actual Revenue: $1.81 billion
• Expected Revenue: $1.81 billion
• Beat/Miss: Beat by +$1.00 million
• YoY Revenue Growth: N/A

Jackson Financial Announcement Details

• Quarter: Q4 2024
• Date: 2/19/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 20, 2025
• Conference Call Time: 9:00AM ET

Jackson Financial (NYSE:JXN), through its subsidiaries, provides suite of annuities to retail investors in the United States. The company operates through three segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. The Retail Annuities segment offers various retirement income and savings products, including variable, fixed index, fixed, and payout annuities, as well as registered index-linked annuities and lifetime income solutions. The Institutional Products segment provides traditional guaranteed investment contracts; funding agreements comprising agreements issued in conjunction with its participation in the U.S. federal home loan bank program; and medium-term funding agreement-backed notes. The Closed Life and Annuity Blocks segment offers various protection products, such as whole life, universal life, variable universal life, and term life insurance products, as well as fixed, fixed index, and payout annuities; and a block of group payout annuities. The company also offers investment management services. It sells its products through a distribution network that includes independent broker-dealers, wirehouses, regional broker-dealers, banks, independent registered investment advisors, third-party platforms, and insurance agents. The company was formerly known as Brooke (Holdco1) Inc. and changed its name to Jackson Financial Inc. in July 2020. Jackson Financial Inc. was incorporated in 2006 and is headquartered in Lansing, Michigan.

Jackson Financial Q4 2024 Earnings Call Transcript

Key Takeaways

• Jackson delivered record full-year results in 2024 with net income exceeding $900 million, adjusted operating earnings of $1.4 billion and a historic $875 million in capital distributions to the holding company.
• Retail annuity sales surged 39% year-over-year to $18 billion, driven by a diversified product mix including over 30% from Ryla, and achieved $1 billion in advisory channel sales.
• Jackson ended 2024 with an estimated RBC ratio of 572%, maintained over $700 million of holding company liquidity, and returned $631 million to common shareholders via share repurchases and a 14% dividend increase.
• For 2025, management set a total capital return target of $700–$800 million (a 10–25% increase), while retaining a $250 million holding company buffer and targeting an RBC ratio above 425%.
• The shift to a more economic hedging approach stabilized non-operating results, producing a $285 million net hedge gain for the full year and strengthening capital generation.

Presentation

[Operator]

Hello, everyone, and welcome to the Jackson Financial Inc. 4Q24 Earnings Call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. I'd now like to hand the call over to our host, Liz Werner, Head of Investor Relations to begin.

[Operator]

Liz, please go ahead.

[Liz Werner, SVP - Head of IR at Jackson Financial]

Good morning, everyone, and welcome to Jackson's twenty twenty four fourth quarter and full year earnings call. Today's remarks may contain forward looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations. Jackson's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. Except as required by law, Jackson is under no obligation to update any forward looking statements if circumstances or management's estimates or opinions should change.

[Liz Werner, SVP - Head of IR at Jackson Financial]

Today's remarks also refer to certain non GAAP financial measures. The reconciliation of those measures to the most comparable U. S. GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors.jackson.com. Joining us today are our CEO, Laura Prieskorn our CFO, Don Cummings the President of Jackson National Life Distributors, Scott Romine and our Chief Actuary, Steve Benares and the President and Chief Investment Officer of PBM, Craig Smith.

[Liz Werner, SVP - Head of IR at Jackson Financial]

At this time, I'll turn the call over to our CEO, Laura Prieskorn.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Thank you, Liz. Good morning, everyone, and welcome to our fourth quarter and full year twenty twenty four earnings call. I'll begin by reviewing our full year results and the success we had in delivering on our 2024 key financial targets. In addition to reviewing our results, I will highlight the great progress we have made since becoming an independent public company. I will also share our outlook for 2025, including new financial targets for the year, and then I'll turn it over to our CFO, Don Cummings, to discuss our performance in the fourth quarter and past year in more detail.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

2024 was a pivotal year for Jackson, marked by significant operational and financial accomplishments. We completed a full year of operating with a more economic hedging approach, realizing the benefits of greater capital stability. We increased transparency in the capital generation at Jackson National Life and now our capital generation is more closely aligned with our adjusted operating earnings. The strong results at Jackson National Life resulted in 2024 distributions to our holding company of $875,000,000 the highest annual level in the company's history. Moving to our full year results on Slide three, net income exceeded $900,000,000 and adjusted operating earnings were $1,400,000,000 largely due to the significant growth in earnings of our retail annuity segment.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Retail annuity sales of $18,000,000,000 increased 39% year over year with strong sales across our annuity products. In 2024, we benefited from more diversified product sales and growing distribution. Our profitability and healthy capital position were evident throughout the year and Jackson National Life made periodic distributions to our holding company during 2024. At the same time, our RBC ratio was relatively stable during 2024 and we ended the year at an estimated 572%. This was comfortably above our target, providing us with significant capital to return to shareholders and support new business.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

The combination of capital distributions to our holding company and level of holding company liquidity provided for free cash flow of $767,000,000 and $631,000,000 of capital return to common shareholders. We are proud of these results and plan to build upon this momentum in the year ahead. As you can see on Slide four, we were near the top of our targeted range for capital return to common shareholders, while maintaining more than $700,000,000 of highly liquid assets at our holding company. Our capital return increased 36% excluding the $700,000,000 distribution from Jackson National Life used to establish Brook Re, our Michigan based captive reinsurer. This marks the fourth consecutive achievement of our annual financial targets since becoming an independent company and we are eager to continue delivering on our targets going forward.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Our strong holding company liquidity combined with our remaining share repurchase authorization of more than $600,000,000 at year end positions us well for continued capital flexibility, investment in our business and return to shareholders. As you can see on Slide five, we take a balanced long term view of capital management and have steadily increased our common dividend and share buyback program. We also announced the board's approval of our fourth dividend increase to $0.8 per common share, a 14% increase over the prior year's quarterly dividend level. Our healthy and profitable book of business has provided a consistent return of capital to common shareholders, while continuing to maintain our financial strength. By the end of twenty twenty four, our cumulative return to shareholders was more than $1,800,000,000 Product innovation, distribution expansion and industry leading service continue to be differentiators for us.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

On Slide six, you can see the positive outcome of our focus on sales diversification. Over the last three years, Ryla has grown to contribute more than 30% of our total retail annuity sales. Our success with Ryla along with recent growth in fixed annuities and institutional sales has diversified our new business beyond traditional variable annuities with living benefits. Variable annuities remain a valuable product for financial professionals and their clients and our total traditional variable annuity sales were up 11% in 2024. Our consumer oriented product offerings and service capabilities led to new and diverse distribution relationships.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Growth in distribution created increases in new producers, multi product producers and the total number of producers and new sales. Applications for new business have grown and in the fast growing advisory market, I'm pleased to share in 2024, Jackson reached $1,000,000,000 in advisory sales. As more Americans plan for retirement, we see increasing interest in solutions that offer investment protection and guaranteed lifetime income, allowing for greater certainty for the future. Recent LIMRA estimates indicate 2025 industry sales will remain strong with traditional variable annuity sales holding steady near their recent increased levels, assuming stable markets. LIMRA projects Ryla sales to be slightly above 2024 sales and fixed annuities are estimated to decline assuming a lower interest rate environment.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Jackson continues to introduce leading product features to meet the needs of financial professionals and their clients. In the fourth quarter alone, we introduced a Ryla product in New York, partnered with JPMorgan Chase to offer our Ryla product through their network of advisors, and added a guaranteed minimum accumulation benefit to Elite Access, our investment only variable annuity. Our investments in technology and commitment to service excellence position us well in the market and continue to enhance our distribution relationship. Our annuity modeling tools and suitability support kit help financial professionals see the value our products can have in a client's financial plan and understand the expectations of best interest standards for their business and clients. We are proud to be one of the first insurers to implement a paperless annuity replacement in collaboration with the Insured Retirement Institute and the Depository Trust and Clearing Corporation, further bridging the gap between annuities and other financial instruments.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

The outcome for Jackson and the industry is greater efficiency and reduced processing time for financial professionals and their clients. These examples, along with our other corporate initiatives, are a continuation of our long history of excellence, execution and operating discipline, and we look forward to building further on this track record. Turning to Slide seven, as we look ahead to 2025, we are pleased that our healthy business enables us to provide sustainable capital return to shareholders. For 2025, we have increased our total capital return target to $700,000,000 to $800,000,000 Compared to our 2024 capital return of $631,000,000 this represents an increase of more than 10% at the low end of the range and more than 25% at the high end of the range. As you can see, our commitment to holding company liquidity and operating company capital has not changed and we expect to hold a buffer of $250,000,000 at the holding company and maintain an RBC ratio above 425%.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Our capital management approach will continue balancing investment in our business, maintaining financial strength and returning capital to shareholders. Now I'll turn the call over to Don to further discuss our financial results.

[Don Cummings, EVP & CFO at Jackson Financial]

Thank you, Laura. I'll begin on Slide eight with our fourth quarter twenty twenty four consolidated financial results. Adjusted operating earnings of $349,000,000 were up 71% over the fourth quarter of last year. This significant growth in our earnings was primarily due to higher fee income from growth in variable annuity assets under management Outside of the assumptions review, we continued to see positive sequential earnings trends developed for fee and spread income during the fourth quarter. Spread earnings benefited from gains in net investment income, primarily driven by the growth of our Ryla and fixed annuity blocks as well as higher yields on our bond portfolio.

[Don Cummings, EVP & CFO at Jackson Financial]

The investment portfolio supporting our spread products has continued to perform well. The appendix of our earnings presentation provides information on our high quality diversified investment portfolio. This information includes insights into our commercial office loans, which represent less than 2% of the overall investment portfolio. It also includes our exposure to below investment grade securities, which represents only 1% of the portfolio. Before turning to notable items in the quarter, I want to highlight the growth of our book value in 2024.

[Don Cummings, EVP & CFO at Jackson Financial]

Our adjusted book value attributable to common shareholders at the end of the fourth quarter was $11,200,000,000 or $150.11 per diluted share, an increase of 10% from last year, driven by our strong operating performance and common share repurchase activity. Adjusted operating return on equity increased two thirty basis points to 12.9% for full year 2024, up from 10.6% last year. Slide nine outlines the notable items included in adjusted operating earnings. Reported adjusted operating earnings per share were $4.65 for the current quarter. Adjusting for $0.19 of notable items and the difference in tax rates from our 15% guidance, earnings per share were $4.84 for the current quarter, up 55% from 3.13 in the prior year's fourth quarter.

[Don Cummings, EVP & CFO at Jackson Financial]

This strong earnings improvement was primarily due to the growth in assets under management and spread income benefits noted earlier, as well as a reduction in diluted share count from common share repurchase activity. Consistent with prior years, we completed our annual actuarial assumptions review in the fourth quarter. This led to an unfavorable earnings per share impact of $0.31 in the current quarter compared to an unfavorable impact of $0.79 in last year's fourth quarter. The 2024 assumption updates were primarily related to higher mortality, which unfavorably impacted the closed box segment as we recorded a reserve increase for life insurance. The same mortality trends led to a benefit on payout annuity reserves, positively impacting the retail annuity segment.

[Don Cummings, EVP & CFO at Jackson Financial]

The other notable item for the current quarter was a 0.04 benefit from limited partnership results coming in above our 10% long term assumption. Slide 10 provides a breakdown of our full year notable items. Earnings per share in 2024, after adjusting for the notable items, were up 37% compared to the prior year. This was primarily the result of growing variable annuity AUM, improved spread earnings and a reduction in the diluted share count. Turning to Slide 11, we've included a waterfall comparison of our fourth quarter pretax adjusted operating earnings of $4.00 $5,000,000 to the GAAP pretax income attributable to Jackson Financial of $367,000,000 While there are some largely offsetting items for the quarter, the trend of more stable non operating results continued throughout 2024.

[Don Cummings, EVP & CFO at Jackson Financial]

Before covering the results of our hedging program, I want to note that non operating results include $347,000,000 in earnings from business reinsured to third parties. This resulted from fair value gains on a legacy funds withheld reinsurance treaty and the related investment income. Non operating items related to this reinsurance treaty can be volatile from period to period and have a minimal net impact on our adjusted book value. Furthermore, these items do not impact Jackson's capital generation or free cash flow. The fourth quarter non operating results also include an unfavorable impact of $419,000,000 from the annual actuarial assumptions review.

[Don Cummings, EVP & CFO at Jackson Financial]

This was primarily related to data enhancements and assumption updates to allow for more refined projections of timing and frequency of withdrawal behavior on policies with guaranteed withdrawal benefits. Overall, the impact of our updates in the fourth quarter is quite reasonable given the size of our variable annuity block. Now turning to our hedging program. The net hedge result was a gain of $79,000,000 in the fourth quarter and a net hedge gain of $285,000,000 for the full year. While we don't expect to report gains in every market environment, our move to a more economic hedging approach in 2024 has clearly provided more stability in our non operating results and capital generation.

[Don Cummings, EVP & CFO at Jackson Financial]

Our hedging program is supported by a robust stream of guaranteed benefit fees that are assessed on the benefit base rather than account value. This approach provides stability to the guarantee fees even in periods when markets decline as we experienced in 2022. Guarantee fees for the fourth quarter were $800,000,000 and over $3,100,000,000 for the full year. During the fourth quarter, our results included a net loss on hedging assets of about 2,800,000,000 primarily due to losses on interest rate hedges in a quarter where long term interest rates were up about 70 basis points and a smaller loss on equity hedges reflecting modestly higher equity markets. Changes in market risk benefits or MRB were driven in part by the same interest rate and equity market movements, leading to a nearly $2,200,000,000 positive offset to the hedging assets loss.

[Don Cummings, EVP & CFO at Jackson Financial]

The reserve and embedded derivative loss of $89,000,000 during the fourth quarter primarily reflects increases in Rylo reserves resulting from higher equity markets. The Ryla business continues to provide a natural equity risk offset to our guaranteed variable annuity business, which results in hedging efficiencies. We believe this year's results demonstrate that our hedging program continues to be effective in improving the stability of our capital generation and managing the economic risks of our business. On Slide 12, we focus on the diverse new business profile of our Retail Annuities segment, illustrated by growth of 42% from the fourth quarter. Our Ryla product delivered fourth quarter sales of $1,500,000,000 supporting further diversification in our top line growth.

[Don Cummings, EVP & CFO at Jackson Financial]

We expect future growth in our Ryla business to be supported by our 2024 launch of our plus income living benefit, the availability of one of Jackson's Ryla products in New York, and our expanded distribution opportunities through financial professionals at JPMorgan Wealth Management. Sales of variable annuities remained strong, growing 27% from the fourth quarter of last year and 5% from the third quarter of twenty twenty four. Importantly, our sales of variable annuities without lifetime benefits were up 46% from the fourth quarter of last year. As Laura mentioned already, we continue to believe there is long term demand for variable annuity products from the millions of Americans who retire each year seeking additional asset growth and guaranteed income. Jackson's history of product innovation, industry leading service and prudent risk management positions us well to capitalize on opportunities in the variable annuity marketplace going forward.

[Don Cummings, EVP & CFO at Jackson Financial]

During the fourth quarter, we continued to produce healthy volumes of spread product sales and delivered $397,000,000 of fixed and fixed index annuity sales in the quarter. Our overall sales mix during 2024 remains capital efficient and this stability provides us the opportunity to continue allocating some capital towards bread products as we further diversify our business going forward. As Laura mentioned earlier, we have been pleased with our progress in diversifying our new business mix since becoming an independent public company. Turning to net flows, the sales we generated in Ryla and other spread products translated to $1,800,000,000 of non variable annuity net flows in the fourth quarter. These net flows provide valuable economic diversification and hedging efficiency benefits.

[Don Cummings, EVP & CFO at Jackson Financial]

While variable annuity net outflows were elevated, our average variable annuity net account value increased by over 9% in 2024, driven by strong equity market performance, which also resulted in higher fee income. During times of robust equity market performance as seen in 2024, we often observe heightened variable annuity outflows since guaranteed benefits become less in the money. In 2024, our older policy vintages from years of higher sales are exiting their surrender charge periods, which typically leads to increased surrenders. Additionally, as our policyholders age, there is greater utilization of retirement income and death benefits, which positions us to assist in helping customers reach their financial goals. Jackson's long standing commitment to investment freedom and our rigorous fund selection process have contributed to the growth of our healthy variable annuity book of business.

[Don Cummings, EVP & CFO at Jackson Financial]

The more recent environment of higher interest rates and attractive annuity alternatives such as Ryla combined with Jackson's season out of the money book heightens exchange activity for us and the industry. Looking at pretax adjusted operating earnings for our segments on Slide 13, higher equity markets and a continued positive environment for spread products have driven solid growth in our retail annuities segment, up 57% compared to the fourth quarter of last year and 12% from the third quarter of this year. Fourth quarter results for Retail Annuities also benefited from the assumptions review I noted earlier. Jackson's earnings power is supported by the growing level of assets under management as strong separate account returns combined with growing non variable annuity net flows have built our retail annuity AUM up to $252,000,000,000 an increase of 7% from the end of twenty twenty three. Importantly, the positive separate account fund performance has more than offset our retail annuity net outflows by nearly $18,000,000,000 in 2024.

[Don Cummings, EVP & CFO at Jackson Financial]

For our Institutional segment, pretax adjusted operating earnings were broadly in line with the fourth quarter of last year. We believe our higher level of new business activity in 2024 creates positive momentum entering 2025, and we will continue to be opportunistic in the institutional market. Our Closed Block segment reported pretax adjusted operating earnings that were improved from the fourth quarter of twenty twenty three due to higher net investment income. Results were down sequentially due to the assumptions review impacts in the current quarter, which I noted earlier. Slide 14 highlights our capital generation and free cash flow.

[Don Cummings, EVP & CFO at Jackson Financial]

This quarter, we are enhancing our disclosures to bolster transparency regarding these metrics, which we believe will offer clearer insights into the robustness of our results and our updated targets. We acknowledge that there are diverse methodologies within the industry. However, as previously discussed in our calls, Jackson adheres to an earn it, then pay it philosophy for capital return. This philosophy is built upon three pillars: the generation of free capital, where we earn it the creation of free cash flow where we pay it, and ultimately the return of capital to our common shareholders. Starting with the first pillar, after tax statutory capital generation was more than $1,700,000,000 in 2024.

[Don Cummings, EVP & CFO at Jackson Financial]

We believe this metric offers the most insight into the underlying strength of our business and provides the foundation for making capital allocation decisions about future organic growth, pursuing strategic inorganic opportunities and returning capital to shareholders. Free capital generation was more than $1,300,000,000 in 2024 after reducing gross capital generation by about $400,000,000 reflecting the change in required capital or CAO resulting from our strong and diversified new business results during the year. Free capital generation represents excess capital that is available to support cash distributions to the holding company, which continues to be subject to regulatory considerations and desired RBC levels at the operating company. Both after tax statutory capital generation and free capital generation exceeded $1,000,000,000 Each of these capital generation metrics included a one time benefit of about $190,000,000 related to the corporate alternative minimum tax in 2024. In 2025, we continue to expect free capital generation in excess of 1,000,000,000 under normal market conditions.

[Don Cummings, EVP & CFO at Jackson Financial]

We believe this leaves us well positioned to continue to deliver on our strategic and operational objectives as well as our updated capital return targets for 2025. Moving to the second pillar, our free cash flow grew substantially in 2024, once again illustrating the stability of our capital generation. In 2024, over two thirds of free capital generation or $875,000,000 was distributed to JFI, which was up about 46% from $600,000,000 in 2023. After covering expenses and other cash flow items at the holding company, the resulting free cash flow of $498,000,000 in 2023 grew to $767,000,000 in 2024. Finally, looking at the rightmost pillar, the outcome of strong free capital generation and growing free cash flow allowed us to return $631,000,000 to common shareholders in 2024, up 48% from 2023 on a per diluted share basis.

[Don Cummings, EVP & CFO at Jackson Financial]

Our 2025 total capital return target of $700,000,000 to $800,000,000 represents further growth from the 2024 level. Overall, these results and updated targets highlight Jackson's strong capital generation profile and more stable cash distributions to JFI, which have enhanced value for our shareholders. Slide 15 summarizes our formidable capital and liquidity position for 2024. The profitability of our in force business, driven by fee income from our variable annuity based contract and the one time tax benefit I mentioned earlier, provided statutory capital generation of $591,000,000 during the fourth quarter. Consistent with our prior guidance for smaller periodic distributions from Jackson National Life, dollars two eighty million was distributed during the fourth quarter.

[Don Cummings, EVP & CFO at Jackson Financial]

After accounting for the impact of this distribution and the related reduction in deferred tax, asset and miscibility, Jackson's total adjusted capital or TAC increased and ended the quarter at $5,100,000,000 CAL at Jackson National Life has continued to remain stable as was apparent in our fourth quarter results with estimated CAL slightly higher, reflecting strong and diversified new business activity. Our estimated RBC ratio was up from the third quarter to 572% and remains well above our minimum of four twenty five percent. We are also pleased with Brook Reeves' performance during 2024, which continues to operate as expected and remains capitalized well above our minimum operating capital level. While we did see an impact on Brookree capital in the fourth quarter from the actuarial assumption update, capital for the full year increased by about $200,000,000 Other than the initial formation, there were no capital contributions to or distributions from Brookree in 2024. Going forward, we will continue to manage Brook Ray on a self sustaining basis given the long term nature of its liabilities.

[Don Cummings, EVP & CFO at Jackson Financial]

Our holding company cash and highly liquid asset position at the end of the quarter grew to more than $700,000,000 which continues to be above our minimum buffer and provides substantial financial flexibility. The periodic dividends and distributions to JFI throughout 2024 are consistent with the goal of stabilizing RBC compared to our past practice of a sizable annual dividend. We believe our robust capital position provides a strong financial base for future operating company dividends. We returned $148,000,000 to common shareholders during the quarter through share repurchases and dividends, allowing us to finish 2024 near the top of our targeted capital return range of $550,000,000 to $650,000,000 Overall, I am very pleased with our fourth quarter and full year '20 '20 '4 results, which demonstrate positive momentum in sales, earnings, free capital generation, free cash flow and capital return. I'll now turn the call back to Laura.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Thank you, Don. Twenty twenty four was a year of significant progress for Jackson and an important one for demonstrating the consistency of our commitment to all stakeholders. We remain dedicated to serving financial professionals and their clients with the goal of helping Americans grow and protect their retirement savings and income. As always, I'd like to recognize the efforts of all our associates whose talent and dedication remain our greatest strength. Our award winning culture was recently recognized with Jackson National Asset Management and PPM America named best places to work in money management by pensions and investments.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

This further showcases our strong workplace environment, employee engagement, and dedication to supporting each other, our business partners, and community. At this time, I'll turn it over to the operator for questions.

[Operator]

Our first question comes from Ryan Krueger of KBW. Ryan, your line is open. Please go ahead.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, thanks. Good morning. First question was, could you provide a little bit more color on the moving pieces within Brokre in 2024 that ultimately produced the $200,000,000 increase in capital?

[Don Cummings, EVP & CFO at Jackson Financial]

Hey, Ryan, it's Don. Good morning. Happy to kind of take you through the components of that. So, first of all, I would just, maybe remind folks that we've indicated that the consolidated hedging results are a decent directional indicator, but they're not sort of a direct read across for book REIT results given that we follow a modified GAAP approach. The other thing that I would highlight is that on a consolidated basis, the $285,000,000 of net hedge gain for the full year includes both the results of our variable annuity hedging as well as our Ryla.

[Don Cummings, EVP & CFO at Jackson Financial]

And under the structure that we set up with Brookgreen, we are not reinsuring the Ryla business to Brookgreen, nor are we reinsuring the variable immunity business in our New York subsidiary. So that's one sort of scope difference that you need to keep in mind. The second thing is I would just reiterate what we previously disclosed. We have some disclosures around our modified GAAP approach in our 2023 earnings materials. You can look at Slide 19.

[Don Cummings, EVP & CFO at Jackson Financial]

There are essentially four modifications to the GAAP results that we implemented in connection with Brookgreen. The first set was really to kind of promote stability in Brook Reeves balance sheet and included, you know, having sort of a fixed long term volatility assumption, and we have discussed that that element on prior calls, volatility actually for the full year was fairly muted. And then the other sort of balance sheet stability item was just the way that we handle, the nonperformance risk spread. At Brook Ray, it's more of a fixed approach compared to GAAP. And then there are two final modifications, both of which are part of our goal of having Brookbury be a self sustaining organization going forward.

[Don Cummings, EVP & CFO at Jackson Financial]

And that was we apply a haircut to the guaranteed fee stream, and we also apply an expense provision for administrative costs. So when you factor in sort of the difference in the blocks of business that sit at Brookery versus in our consolidated results, which is primarily Ryla, and then, consider these modifications that I just described, those are the items that that sort of, make up the difference between consolidated results and results at Brookery on a stand alone basis.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Thanks. And then a question on the assumption review. It sounds like you the main impact was around utilization. I think you've also had actual to expect adverse actual to expected results over the last year or two around higher lapses.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

I know you also mentioned you're seeing more exchange activity in the current environment. So just curious, did you if you consider changing the long term lapse assumption and ultimately what led to keeping the existing lapse assumption?

[Don Cummings, EVP & CFO at Jackson Financial]

Yes. And so before I kind of get into the specifics of your questions there, maybe just helpful just to kind of step back and put the overall impact of the assumption updates in perspective. So when you combine both the piece of our assumption updates that impacted our operating earnings, that was about $26,000,000 unfavorable and that's primarily due to mortality as we described it kind of impacts closed block in a negative way because that's related to some life business where we increase reserves. There's a favorable impact within retail annuities related to a block of payout annuity products. So that sort of offset the item that we saw in closed block.

[Don Cummings, EVP & CFO at Jackson Financial]

So $26,000,000 operating earnings primarily related to mortality. For the non operating earnings impact, which was the $419,000,000 as we mentioned in our prepared remarks, that's primarily related to refining our projections on withdrawal behavior. And, so we do look at, you know, all of our various assumptions when we go through our unlocking every year and, this year kind of taking a look at, refining the projections around withdrawal behavior for policies that do have GMWBs, we took a look at all the data we have, which is quite substantial given the size of our VA block. And essentially, we updated the granularity of our models so that we could better, more precisely capture elected withdrawal frequencies. So turning to kind of the unexpected policyholder behavior, which you mentioned, which is included in our MRB roll forward, I did want to highlight that that unexpected behavior consists of both surrenders, withdrawals, so the item that we change the assumption for in the fourth quarter as well as debt benefits.

[Don Cummings, EVP & CFO at Jackson Financial]

So it's really all three of those combined. And then lastly, you know, just on the exchanges, well, before I go to the exchanges, just one more comment on surrender. So, obviously given the strong equity market performance that we've seen in 2024 as well as 2023, a lot of the benefits are out of the money in the current environment. And so we do tend to see higher levels of outflows when we're in that situation. We also have the dynamic that we've got some older policy vintages that were from years where our sales were much higher, that are coming out of their surrender charge period.

[Don Cummings, EVP & CFO at Jackson Financial]

So that contributes to the what we're seeing in terms of the surrender rate. And then on the exchange comment in the prepared remarks, given you know that the current environment there are you know there are some more attractive, annuity alternatives for customers who have got these products that are you know kind of out of the money and, which is driven by the higher rate environment also with Ryla products. And so we have seen what we believe is a heightened level of surrender activity. When we look back at, setting our assumption for surrenders going forward, we look at that over time. That includes both periods of up markets and down markets.

[Don Cummings, EVP & CFO at Jackson Financial]

And so as we went through that, we didn't believe that it made sense to make any changes to our surrender assumptions at this point. And I would just highlight that, you know, if you look back to the last, down market that we had in 2022, our surrender rate was about 7%. So that's where we landed on the assumption update.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Thank you.

[Operator]

Thank you. Our next question comes from Suneet Kamath of Jefferies. Suneet, your line is open. Please go ahead.

[Suneet Kamath, Senior Research Analyst at Jefferies & Company Inc]

Great. Thanks. I just want to follow-up to Ryan's question on Brookery. One of the questions that we get most often from investors is how do you get comfort that Brookery is well capitalized? And I take your comments on the call, but is there something that you guys could sort of provide us on a more regular basis that we can sort of anchor to?

[Suneet Kamath, Senior Research Analyst at Jefferies & Company Inc]

Just it seems to be some reluctance in terms of providing additional disclosure on bookings. And since it's such an important part of your strategy, I'm wondering if there's something that you guys could give us on a more regular basis that we can use to track the performance there?

[Don Cummings, EVP & CFO at Jackson Financial]

Yes. Thanks for that, Sameet. So we, we take a look at our disclosures on Brookery, every quarter. And as I mentioned, you know, in in response to Ryan's question, we did provide quite a bit of disclosure around Brook Reade last year. I think we had about a dozen pages in our earnings call materials.

[Don Cummings, EVP & CFO at Jackson Financial]

And we're essentially one year in with Brook Reade. Those liabilities are quite long term, probably twenty years on average. So we're going to continue to manage Brookree on a long term self sustaining basis. As we go forward to the extent we have any need for additional capital in Brookree, We would obviously share that. We'll also share, when we take capital out of Brookery.

[Don Cummings, EVP & CFO at Jackson Financial]

And then as we've done this year end, we'll kind of give a little bit of, additional disclosure at the end of the year in terms of how we saw the results play out during the course of the year.

[Suneet Kamath, Senior Research Analyst at Jefferies & Company Inc]

Okay. And then just second on capital, I mean, I appreciate the increase in the capital return guide for 2025. But if we just sort of think about how much excess capital you have between the RBC level being above your target and then the hold co cash also being above your target, it's a pretty big number. So I guess what is keeping you from bringing down some of that excess capital even more? And again, I appreciate the increase in capital return, but it still seems like there's a sizable amount of excess on the balance sheet.

[Don Cummings, EVP & CFO at Jackson Financial]

Sure. So let me share with you some of our thinking, Suneet. As we kind of laid out with our new disclosures, we are sort of continued to stay focused on this concept of earning the capital, paying it up to the holding company and then returning to shareholders. At the operating company, we are obviously operating with a significant buffer above our $4.25 minimum. Some of that reflects the fact that there is a bit of market sensitivity on the base contract that remains at Jackson National.

[Don Cummings, EVP & CFO at Jackson Financial]

And so, we want to be able to have a sustainable level of capital return coming out of the company. And so you likely see that level of RBC come down over time as opposed to sort of one kind of major transaction. I would also highlight that you know, all of those distributions continue to be subject to discussions with our regulators. But we feel pretty good that, you know, if you look at the capital generation that we had for 2024, on a reported basis, it's up about or represents about 66% of the, or we sent out to the holding company about 66% of what we generated. If you factor in that we had kind of a one time item benefiting the capital generation related to the CANT, we're more like 80%.

[Don Cummings, EVP & CFO at Jackson Financial]

So we feel good about that. And we believe the cash that we have at the holding company provides us with additional flexibility as we look at continuing to grow going forward, including organic growth at the operating company as well as any strategic opportunities that might come up.

[Suneet Kamath, Senior Research Analyst at Jefferies & Company Inc]

Okay. Thanks for the answers.

[Operator]

Thank you. Our next question comes from Alex Scott of Barclays. Alex, your line is open. Please proceed.

[Alex Scott, Insurance Research Analyst at Barclays Capital]

Hey, thanks for taking

[Alex Scott, Insurance Research Analyst at Barclays Capital]

the question. First one is actually on PPM. I know it's a relevant business from an earnings standpoint for you all. But, I would be interested in where you see PPM going over the long term. Is that something that may become a bigger piece of the strategy over time?

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Good morning, Alex. Thanks for the question. We do see PPM as a core part of our business at Jackson. They support us with management of our general account and in other ways with our corporate strategy from an overall performance perspective. As you can see in our disclosures, they do well for us.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

I think as we continue to move forward, if there is opportunity for PPN to be viewed as a larger part of our strategy, we would look for that opportunity to come into play. We'll continue to have them operate as is and manage the general account. I'll invite Craig Smith, who's here with us to share any additional remarks that you may want to in terms of PPM's specific initiatives?

[Craig Smith, CEO & CIO at PPM America, Inc.]

Sure. Thank you, Laura, and thanks, Alex, for the question. Our business at PPM, as Laura mentioned, about half, just under half of the assets under management are

[Craig Smith, CEO & CIO at PPM America, Inc.]

associated with

[Craig Smith, CEO & CIO at PPM America, Inc.]

the Jackson General account. We also have a third party business. We operate our business across five verticals, public fixed income, private fixed income, CLO management, we have CLO business, commercial mortgage debt and private equity. And all of those verticals, we are not only providing those services to Jackson, but also third parties, and have a robust effort to increase distribution to institutional investors across the globe. Recently, you probably read, Alex, of our hiring of an experienced emerging market debt team from Western Asset Management, joined us three or four weeks ago.

[Craig Smith, CEO & CIO at PPM America, Inc.]

And it's just an illustration of Jackson's commitment to PPM's business, the growth of our business and the increasing capabilities at our investment management firm.

[Alex Scott, Insurance Research Analyst at Barclays Capital]

Got it. That's helpful. And that Western Asset Management hire did catch my eye. That was one of the reasons I was interested in asking about that. All right.

[Alex Scott, Insurance Research Analyst at Barclays Capital]

I guess for my follow-up, I wanted to ask about the free capital generation. The guide is unchanged in terms of exceed $1,000,000,000 I'd say 2024 being $1,700,000,000 before funding sort of business growth, $1,300,000,000 after as you laid out in your deck. That seemed pretty darn strong to me. And I guess I just wanted to ask, how much does that number benefit from the strong equity markets, higher interest rates, etcetera? I mean, is that something where maybe we shouldn't think about it being quite that strong in the '25 because there were like sort of one time benefits from the market being strong?

[Alex Scott, Insurance Research Analyst at Barclays Capital]

Or do you view that as a pretty good run rate at this point?

[Don Cummings, EVP & CFO at Jackson Financial]

Yes. So thanks for that, Alex. It's Don. So the first thing I would just highlight in terms of the $1,000,000,000 plus for 2025, as I mentioned earlier, we did have sort of a one time tax benefit in 2024 that will not repeat going forward. So you back that out and you're essentially a kind of 1,100,000,000 for 2024 on a more normalized basis.

[Don Cummings, EVP & CFO at Jackson Financial]

And in terms of going forward, there is some equity market sensitivity, as I mentioned, but we have a fairly, what we believe is reasonable level of equity market return built into our plan for 2025 and we feel very comfortable with that $1,000,000,000 guidance.

[Alex Scott, Insurance Research Analyst at Barclays Capital]

Got it. Thank you.

[Operator]

Thank you. Our next question comes from Tom Gallagher of ISI. Tom, your line is open. Please go ahead.

[Thomas Gallagher, Senior Managing Director at Evercore]

Good morning. First, wanted to come back to the actuarial review. So is it was the charge taken because more customers are utilizing the GMWB features than you had modeled? I guess I've sort of looked at your guarantees and thought the vast majority of them are probably out of the money at this point. But I guess there's cohorts that are in the money.

[Thomas Gallagher, Senior Managing Director at Evercore]

And is that Don, is that where you're making the adjustment change as you've looked at different cohorts? If you can unpack that a little bit. Thanks.

[Don Cummings, EVP & CFO at Jackson Financial]

Sure. Good morning, Tom. So, yeah, let me try and unpack that for you and make it a bit more clear. So, we the adjustment that we made as part of our assumption review was not directly related to utilization. It was more related to, kind of making sure that we've got captured in our projections, you know, more precise information around, the frequency of withdrawals as opposed to being able to utilize those benefits.

[Don Cummings, EVP & CFO at Jackson Financial]

And, you know, even though the overall book is largely out of the money, we still have people who are using these products as they were designed. So they're taking withdrawals on a regular basis and that's really what the focus of our assumption update was in the quarter.

[Thomas Gallagher, Senior Managing Director at Evercore]

Got you. And then just a couple of other quick ones. Did you Don, did you say your ultimate lapse rate assumption for total annuities was around 7%? Because I was just looking at this quarter, it was around 13. I just want to make sure I'm looking at apples to apples.

[Don Cummings, EVP & CFO at Jackson Financial]

Yes. No, the 7% that I mentioned, Tom, that was the surrender rate that we experienced in 2022. My point in having you look back at that is that was the last down market experience that we had. And so because we do tend to see changes in our surrenders in equity markets that tends to result in more surrenders. We have the opposite impact that occurs when we have a down equity market.

[Don Cummings, EVP & CFO at Jackson Financial]

And so that's what the 7% relates to.

[Thomas Gallagher, Senior Managing Director at Evercore]

Okay. And what is your terminal lapse rate assumption? I just want to at least level set where we are now and if lapses remain elevated, whether you might have to make some adjustments?

[Don Cummings, EVP & CFO at Jackson Financial]

Yes. It's probably closer to the 8% to 9% range would be more typical in the money lapse rate or I'm sorry, at the money lapse rate.

[Thomas Gallagher, Senior Managing Director at Evercore]

Got you. And then just one final one, if I could.

[Thomas Gallagher, Senior Managing Director at Evercore]

This is a little more

[Thomas Gallagher, Senior Managing Director at Evercore]

of like a structural question. So I know you have the permitted practice with Brook Rhee. Within that permitted practice, are there guardrails around you still are beholden somehow to RBC on a statutory basis? And the reason I ask is, when I see like there's proposed changes to scenario generator in 2026, I wonder how is that even going to affect you if you're using modified GAAP. But anyway, is there any guardrail that's still where there's still a relevance to statutory or is there is that not even relevant anymore in terms of the deal you have with the Michigan regulator?

[Don Cummings, EVP & CFO at Jackson Financial]

Yes. It's good question, Tom. Thanks for that. So, it is largely, the GOES impact is largely not applicable to the book of business that we've reinsured to Brookly. And in terms of guardrails, the primary, the primary guardrail that we have there is our minimum operating capital, which we had outlined in our disclosures at year end last year in terms of the framework that we used there.

[Don Cummings, EVP & CFO at Jackson Financial]

So we do have a minimum level of capital that we've committed to Michigan to maintain in Brook Creek and we're well above that given where we ended 2024.

[Thomas Gallagher, Senior Managing Director at Evercore]

Okay. Thank you.

[Operator]

Thank you. At this time, we have no further questions registered on today's call. So I'll hand back over to Laura Preecekorn, CEO, for any closing remarks.

[Laura Prieskorn, CEO, President & Director at Jackson Financial]

Thank you. As you've heard this morning, 2024 was a great year of progress for Jackson. We look forward to continuing the discussions and sharing our progress toward our 2025 targets after the first quarter. Thank you all for your continued interest in Jackson.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

Participants

Executives

• Liz Werner, SVP - Head of IR
• Laura Prieskorn, CEO, President & Director
• Don Cummings, EVP & CFO
• Craig Smith, CEO & CIO

Analysts

• Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)
• Suneet Kamath, Senior Research Analyst at Jefferies & Company Inc
• Alex Scott, Insurance Research Analyst at Barclays Capital
• Thomas Gallagher, Senior Managing Director at Evercore