Q3 2021 Jackson Financial Inc Earnings Call
[music].
Ladies and gentlemen, Hello, and welcome to the Jackson Financial Inc. 's weak Q2021 earnings call. My name is Maxine and I'll be coordinating the call today, if you would like to ask a question. During the presentation. You may do so by pressing star fleet by one on your telephone keypad now hundred she'll hoist at least will not.
Investor Relations to begin let's please go ahead when you're ready.
Morning, everyone before we start we remind you that today's presentation may include forward looking statements, which are not guarantees of future performance or outcomes, a number of important factors, including the risks uncertainties and assumptions discussed in risk factors managements discussion and analysis of financial condition and results of operations and business financial goals in the company.
The registration statement on form 10, and management's discussion and analysis of financial condition and results of operations and the company's most recent second quarter 10-Q could cause actual results and outcomes to differ materially from those reflected in the forward looking statements. In this presentation management will refer to certain non-GAAP measures, which management believes provide useful information.
<unk> and measuring the financial performance of the business a reconciliation of non-GAAP financial measures to the most comparable GAAP measures is contained in the appendix to the presentation.
With us today are Jackson, CEO, Laura pre scorn, our CFO, Marcia Watson and our Vice Chair Chad Myers at this time I will turn it over to Laura.
Good morning, everyone and welcome to our third quarter earnings call.
We look forward to this call as the first of many opportunities to discuss Jackson's quarterly results and progress towards our financial targets.
Is it clear annuity market leader Jackson is focused on meeting the growing demand for retirement income and savings solutions.
Before we review financial results I'd like to reflect on the Companys accomplishments to position Jackson as an independent public company.
In September we reached the end of a complicated and time consuming 18 month process that.
It culminated in an independent Jackson.
While we have historically run as a standalone operation there were a number of functions that we needed to build out to support a public company.
This required recruiting many highly talented individuals during a time of change for the company and in the midst of a global pandemic.
We were able to exit the Prudential umbrella with no legacy service agreements or other operational ties simplifying our go forward strategy.
Throughout this process, we continued our steady focus on business execution.
Delivering new product to the market alongside our best in class operational and distribution support to customers and partners.
We expanded our distribution footprint and built the foundation for our launch into new annuity products.
Since the separation announcement six quarters ago, our retail annuity sales have remained steady and in total exceeded $27 billion.
Prior to our September separation, we held our first Standalone analyst day, and discuss our new business objectives and financial targets with the investment community.
We access debt facilities, establishing our go forward capital structure.
And our new board of directors was appointed at separation and have been actively engaged sense.
I'm immensely grateful for all the hard working long hours put in by the team to make this a reality.
Their extraordinary efforts have led to extraordinary results and will continue to power our future success.
Turning to our financial targets on slide four.
We're well positioned to execute on our 12 month post merger target of a $325 million to $425 million cash returned to shareholders.
We announced our board's approval of a quarterly dividend program, which in the fourth quarter of 2021 will be 50 cents per common share or roughly $50 million in the quarter. This annualized to approximately $200 million.
We also obtained board authorization for share repurchase of 300 million.
We believe these capital management actions are consistent with our outlook for sustainable capital generation.
And a long term commitment to shareholders combination of dividends and share repurchase was deliberate and thoughtfully incorporates our views on Jackson today and into the future.
Dividends represent a highly consistent source of capital returned to shareholders.
Our dividend is well supported by the distributable cash projections that we've provided in existing disclosures, giving room for potential future growth.
Given our current share valuation and the accretion associated with share buyback at these levels, we expect benefits from share repurchase to emerge as we execute on our authorization.
Between the dividend and share repurchase, we anticipate reaching our $325 million to $425 million capital return target in the first 12 months following the merger.
We ended the quarter with over 800 million in cash and liquid assets well above our minimum holding company cash target.
Our estimated risk based capital or RBC ratio at the operating company level, which does not take into account the holding company liquidity position exceeded our targeted 500% to 525% range.
And total financial leverage is within our target range.
As we look beyond 2021.
We expect to grow our business and allocate capital as discussed in our form 10 and at our analyst day presentation.
We continue to balance financial strength leverage profitable growth and capital returned to shareholders for the long term success of the company.
Now, let's look at the financial and operating highlights for the quarter on slide five.
For the third quarter adjusted operating earnings of $5.16 per share reflect the strong fee income from our growing variable annuity account balances.
Retail annuity fee income increased 24% compared to last year's third quarter.
With over 240 billion in annuity assets, we benefit from a level of profitability and scale that supports our business growth plans and capital return targets.
Third quarter adjusted operating earnings reflected the natural market sensitivity in deferred acquisition costs or DAC amortization as a reminder, market related DAC volatility is expected to change with the adoption of the new GAAP accounting standard referred to as L. D T I, which will be effective in the first.
Quarter of 2023.
At that time Dec will no longer be expense to as a percentage of profits and we would expect less volatility due to the market changes.
Marshall will speak to DAC in our financials in more detail later in this presentation.
Jackson's return on equity continues to exceed 20% due to the quality of our in force book.
We expect our retail annuity segment to drive further profitability and growth as we benefit from an increasingly diverse set of products and features as well as our focus on expanding distribution.
During the third quarter, we completed our term loan draw as planned and contributed over $1.5 billion to our operating companies.
Putting us within our target leverage range and above our target RBC ratio range.
We believe our strong balance sheet and free cash flow position provide us with valuable capital flexibility.
As I mentioned, our business did not skip a beat as we successfully executed our to merger.
For the third quarter annuity sales were $4.8 billion and in October we introduced the Jackson market linked pro product suite, our new registered index linked annuity or Raila product.
We've received positive feedback from our advisors regarding this competitive differentiated product as well as the enhanced digital experience provided with this product launch.
Jackson market link pro meets policyholders to man the market participation subject to a cap with protection on the downside.
Our fee based annuity business continues to grow with third quarter 2021 sales of $330 million up 18% from the prior year.
Sales of elite access advisory to our fee based investment only variable annuity where the key driver of the growth.
The RIAA channel represents 5.7 trillion dollars in assets with an expanding presence in the annuity market. We continue to focus on expanding distribution through independent or as we also recently entered the defined contribution market as a provider within the lifetime income strategy offered by Alliance Bernstein.
Jackson is one of several insurance provider selected to offer a lifetime income solution for participants at the time of retirement.
The defined contribution market represents significant opportunity and we look forward to partnering with retirement plan sponsors looking to address both income protection and longevity risk for their plan participants.
The Alliance Bernstein relationship is part of our focused strategy to expand our commercial opportunities and meet market demand for protected retirement solutions.
The total industry annuity sales for the first nine months of 2021 where the strongest year to date periods. Since 2008 with every single annuity category up from the prior year.
This provides a very strong backdrop for further growth in our retail annuity business going forward.
And now I'll turn it over to Marcia to provide more details on our third quarter financial results.
Thank you Laura looking at our results on slide six we continue to generate significant levels of adjusted operating earnings.
As largest mentioned our fee focused business mix benefited from higher average separate account balances driving higher fee income.
However, this was more than offset by higher DAC amortization in the current quarter, resulting largely from lower separate account returns compared to the prior year.
As a reminder, we believe that Jackson has taken a conservative approach to the treatment of guarantee fees within our definition of adjusted operating earnings as all of the fees are moved below the line with no assumed profit on guaranteed benefits included in adjusted operating earnings.
On a year to date basis strong adjusted operating earnings combined with positive nonoperating income resulted in a growing book value.
Slide seven outlines the notable items included in adjusted operating earnings for the third quarter, starting with the acceleration and deceleration of deck.
To provide a little more background the amortization of DAC is a key item for our results given our annuity focused balance sheet and operating DAC amortization has several components.
For clarity our financial supplement reports deck amortization split between core amortization, which is driven primarily by our pre deck gross profits for the period as.
As well as any market related acceleration or deceleration of that.
Results from the pattern of separate account returns over time.
Additionally, we will breakout the DAC impact from our annual assumption review, which will be provided in Q4.
In the third quarter of 2021, there was an acceleration of DAC amortization, resulting in 63 million of additional DAC expense in the quarter. This was primarily due to slightly negative separate account returns in that period, which fell short of the assumed return.
In the third quarter of 2020, there was a deceleration of DAC amortization, resulting in a pretax $125 million reduction in DAC expense primarily.
Primarily due to a 7% separate account return in that period, which significantly exceeded the assumed return as a result, the market driven DAC effect was a net drag of 188 million on a pretax basis, when comparing third quarter. This year to prior year third quarter in terms of future DAC acceleration or deceleration.
For modeling purposes, we have provided additional details on the mechanics of the DAC amortization calculation within the appendix of this presentation, which aligns with our financial supplement.
As Laura noted this is expected to change with the adoption in the first quarter of 2023 of L. D. G I under GAAP accounting.
We expect to be providing more information regarding L. D T I impacts in the middle of next year.
Additionally, we would note that both third quarters included strong limited partnership income, which was reported on a lag and can vary significantly from quarter to quarter.
Limited partnership income in excess of long term expectations with $98 million in the current quarter compared to $63 million in prior year's quarter, creating a comparative pre tax benefit of $35 million.
We continue to see positive momentum and limited partnership performance, but do not expect Q4 to be as robust as Q3.
Additionally, with respect to Q4 as we stand today, we expect our operating effective tax rate to be similar or slightly higher than the third quarter's 15%.
Another important item consider for the fourth quarter is the conversion of existing Prudential plc share based awards over to Jay accident share based awards in Q4 share based awards will increase our diluted share count by 7.2 million shares and will be partially offset by any shares that we repurchased over the fourth quarter.
Slide eight illustrates the reconciliation of third quarter 2021 pretax adjusted operating earnings.
571 million to pretax income attributable to Jackson financial of $190 million.
As shown in the table the total guaranteed benefits and hedging results. Our net hedge result was negative 593 million in the third quarter.
As we've noted net income include some changes in liability values under GAAP accounting that we consider to be non economic and therefore will not align with our hedging assets.
Refocus our hedging on the economics of the business as well as statutory capital position and choose to accept the resulting gap below the line volatility.
I would also note that while this was a loss in the current quarter. It was a small gain of $73 million for the year to date period.
Starting from the left side of the waterfall chart, you see a robust guarantee fee stream of 728 million in the third quarter providing.
Providing significant resources to support the hedging of our guarantee.
These fees are calculated based on the benefit base, rather than the account value, which provides stability to the guarantee fee stream and protects our hedging budget when markets decline.
As previously noted all guarantee fees are presented in nonoperating income to align with the hedging and liability movements.
Net reserves and embedded derivative liabilities for guaranteed benefits are defined by both Ah. So P O three dash, one which calculates the insurance contract liabilities using longer term assumptions.
And by fast 157, which calculates the embedded derivative liabilities using current market inputs.
This quarter's losses, primarily the result of a thousand and 57 accounting for the increase in implied volatility over the third quarter.
This implied volatility impact is an example of where our hedging approach and the GAAP treatment of liabilities are not aligned as we do not explicitly hedge implied volatility, but rather focus on realized volatility under market shocks.
We included a slide in the appendix, which shows the key macroeconomic drivers of a GAAP net hedging result, and how changes in these macro items may lead to non economic gains or losses due to the lack of alignment between our hedging approach and GAAP accounting.
Now, let's switch gears and look at our segments, starting with retail annuities on slide nine where we see our healthy sales trends.
We continue to have strong levels of retail sales driven this quarter by growth in variable annuities without lifetime living benefits.
Sales of elite access our investment only variable annuity increased to 71% from the prior year's quarter and sales of other variable annuities without lifetime benefit guarantees were up 33%.
While sales without lifetime benefits increased from 23% in third quarter of last year to 33% in the third quarter of this year. We expect this percentage may vary through time based on market conditions and customer demand.
Our total annuity market share highlights our consistent presence in the market, our strong distribution relationships and disciplined approach to pricing and product design.
We expect these attributes to be supportive of the recent launch of our rail our product.
We view this as an important product launch capturing the economic diversification benefit between a roller in a traditional living benefit variable annuity as well as capital efficiencies through Rolla account value growth alongside our large healthy enforced traditional variable annuity block.
Looking at pretax adjusted operating earnings on Slide 10, we are down from the prior year third quarter due to the market driven DAC impacts I detailed earlier importantly.
Importantly earnings were up from the prior year quarter outside of that impact.
This was the result of higher separate account assets.
As the third quarter 2021 variable annuity ending account value was up over 20% from the third quarter 'twenty 'twenty ending account value primarily due to strong return.
As a reminder, we have investment freedom on our variable annuity product, allowing both policyholders and Jackson to more fully capture the benefits of rising equity markets.
While fixed annuity and fixed index annuity account values are minimal after accounting for the business reinsured to athene. They did grow during the period as well.
Sales remained low but the black has low surrender activity given the business was recently issued meaning sales largely contribute directly to positive net flows.
We will have a similar dynamic on railcar sales going forward as we are starting from scratch following our October launch.
This gives us multiple levers to grow and diversify our book going forward.
Our other operating segments are shown on slide 11.
We suspended institutional business for new sales starting in early 'twenty 'twenty as we began the separation process.
And this is largely continued through the third quarter of 2021.
This led to significant outflows as existing business has run off throughout the year with account values declining from $12 3 billion a year ago to 8.8 billion as of the end of the third quarter.
Now that we have completed our separation, we expect to return to the market with new issuances on an opportunistic basis.
Our pretax adjusted operating earnings for the institutional segment of $21 million during the third quarter of 2021 was down from $26 million in the third quarter last year due to the declining account value of the segment and lower reinvestment yields overtime going forward the earnings should largely track the account.
Lastly, our close life and annuity blocks segment reported a slight increase in pre tax adjusted operating earnings.
This reflected lower levels of benefits paid partially offset by lower premium income.
Absent future M&A activity the earnings should trend downward as the business runs off over time.
Slide 12 summarizes our robust capital position as of the end of the third quarter 2021.
This strong position has given us the confidence to provide detail on the form and timing of our capital return.
Given our strong cash generation, we are pleased that the board authorized a dividend program, which shows our confidence in the level of cash return going forward.
The fourth quarter cash dividend of <unk> 50 per share corresponds to a cash outlay of roughly $50 million for the quarter at our current share count a healthy level of cash to shareholders.
We also announced the $300 million share repurchase authorization, which we believe will allow us sufficient capacity in combination with the dividend to deliver our 325 to 425 million cash return in the first 12 months after the demerger.
The share repurchase authorization has the benefit of allowing us to be opportunistic and cash return given our current valuation.
The number of shares to be repurchased and the timing of such transactions will depend upon a variety of factors including market conditions.
During the quarter, we completed the term loan draw and contributed the majority of the proceeds into our statutory operating company the.
The remainder was retained at the holding company, providing us with over $800 million of cash well above our minimum liquidity target.
It is also important to note that following the draw our total GAAP leverage was at 23, 5% within our 20% to 25% target range.
We expect to refinance the two term loan facilities by the end of the year.
Following the capital contribution Jackson National Life Insurance Company grew its total adjusted capital position to $6 8 billion up from $4 4 billion as of the end of the prior quarter not.
Not only did the capital position and benefit from the capital contribution, but also from meaningful enforced capital generation continuing the trend from the second quarter.
The estimated RBC at Jackson National life as of this quarter with about 525% up from the 500% to 525% pro forma RPC that we reported as of the prior quarter continuing the growing RBC trend we've seen throughout 2021.
This means that we are above our 500% to 525% adjusted RBC target looking solely at the operating company and without taking any credit for the current level of excess capital at the holding company.
So in summary, it was a very successful quarter, we completed our term loan draw provided further clarity on our current and future capital return program and have ample holding company liquidity.
With our robust capital levels at the operating company, we are well positioned for the future.
And with that I will turn it back to Laura for closing remarks.
Thank you Marcia.
We had a remarkable quarter when factoring in the successful completion of the merger the diversification of our distribution and product offering as well as positioning the company to deliver on our financial targets.
As we work to meet the growing demand for the retirement savings and income market, we remain focused on supporting financial professionals providing.
Providing award winning service to our customers and delivering value to all of our stakeholders.
At this time, we'd like to open up our call for Q&A Maxime could you take our first question.
Ladies and gentlemen, if you would like to ask a question. Please press star led by one on your kind of think he Pat now if you do change your mind. Please press star followed by Chase length hands Wash. Your question piece and show your line is on mute it Alex.
First question comes from Tom Gallagher from Evercore. Your line is now open piece of seed.
Good morning.
<unk>.
First question I had is just on if I add up the common dividend of around 200 million annualized.
And the 300 million of buyback you know that gets me to 500 million that's above your initial capital return guidance.
And I realize there's slight timing issues here, but would.
Would you say the 500 million is a level you would expect you could sustain.
Based on excess capital generation or does that include any drawdown of your card access.
Good morning, Pam Thanks for the question I'll.
Just make a general remark and then turn it over to Marcia to address the capital return outlook, but certainly with the announcement, we wanted to provide a balanced return of capital that's rooted in the expected cash generation of the company will recognize the value of of both options for <unk>.
Sure, but I'll turn it over to Marcia to get to the.
Longer term part of the question sure. Thanks, Tom.
Yeah, you are correct in terms of how you're kind of putting the numbers together there and in noting that there are you know timing or practical considerations around around these returns.
<unk>, but we we.
Really wanted to come out with the shareholder dividends, you know that piece or a longer term view of the business and the ability of us to generate sustainable cash returns going forward into the future and you know we're we're looking at the share repurchase at 300 million as you know pretty significant probe.
Brands that you know will translate to about 10% of our current market cap, which is high relative to industry norm.
And it's also you know size, we think appropriately given given the practical consideration around.
The regulatory requirements and you know trying to work within the Timeframes that we've put for us, but I think in terms of how that translates into future a capital return of course, that's necessarily going to be dependent upon you know future capital formation.
And that'll be obviously somewhat dependent upon market, but I think what we see.
Set out here or something that we feel.
Really is a good.
Reflection of our use of these types of capital generation that that we think the business.
We'll generate and is in line with the kind of robust levels. We saw in the period you know more recent period prior to when we were preparing for the merger and working through the Covid market condition. So we see you know we see that you know that aligns reasonably well with how the business.
<unk> has performed in the past.
Okay.
Thanks, Marcia and would you say is it fair to say the 300 million dollar.
Share repurchase is going to be the variable component.
And that's going to be more market dependent or do you believe under most plausible market scenarios 300 billion.
Buybacks would appear to be sustainable base based on what you think is.
Part of a sustainable level of cash flow generation in the future.
Above your targets of RBC and.
Excess holdco cash.
Well, if you know it certainly will be market dependent I think that's true but I.
As Laura mentioned, we really did want to have a balanced approach with both the dividend and a longer term commitment component unbalanced along with repurchase activity. So you know we would expect to have a balance you know somewhat similar to this as we move forward in time, but certainly recognize that.
The the share repurchase component of it is a little bit more opportunistic in nature and in market consistent but I think our market sensitive, but I think it's consistent with kind of our view of the capital generation of potential within the business.
Got you. Thank you and then just one quick follow up the 600 million.
Statutory net income in the quarter would you say that's a decent run rate to think about if markets are benign like they were this quarter. When you don't have much in the way of derivative gains and losses.
Or was there anything unusual that broke positive or negative well when we think about what might be trend double in terms of statutory net income.
Okay.
Yeah, that's you know.
That's always a little bit challenging because it depends so much on the position of the business then and like you say the market environment that develops over the period, but I think you know in generally benign markets you know what.
I can't.
Point anything I think notable or exceptional to raise it in terms of how the how the statutory capital generation are developed over this past quarter in the context of the market environment that we had.
Okay. Thank you.
Our next question comes from Ryan Krueger from K B W. Your line is now a pen.
Hi, Thanks. Good morning. My first question was on the additional seven 2 million shares that will come into the share count in the fourth quarter will that be will that come into the common share count or just the diluted share count and I'm, just asking to get a sense of how it impacts the amount of.
Dollars associated with your dividend.
That will be coming into the diluted share count.
Got it but not the comment.
Right.
Okay.
Can you can you discuss.
How are your variable annuity lapse assumptions compared to the NII received four requirement in the standard projection and then just any sense of how you've seen the lapse rates trend over time.
Oh sure.
I guess I would say first with respect to the.
A lap.
Functions that we would have it in our results.
We have significant block would be a business that we have the benefit of having a very bad.
Net of experience data to use to inform our assumption setting process and you know the nature of the VA lapse assumption, it's fairly complex driven by a lot of different factors I think which is I think consistent with what you would see all across the industry.
With our standard projection I'll say is a you know as you know it kind of a guardrail tests around prescribed assumptions relative to a company's assumptions and I would say just in.
In General says the result, we see when we test that set of prescribers assumptions relative to our own company assumption is that that does not generate any additional reserve our capital requirement.
Indicating that.
We're not.
Needing anything additional to kind of meet the requirements of the regulatory assumption set.
And I guess with respect to trends over time I mean, you know this is one where.
As I said, there's a lot of factors that go into the assumption structure and the drivers of that which some of which are going to be market dependent or the age of the block dependent and I would say generally what we've seen in our experiences.
Our lives with those kinds of features and I'd just note that in the financial supplement we do have.
In aggregate lapse or lapsed slash surrender or withdrawal activity rate, that's shown and you know while that simplified relative to the the assumption structure as a whole I think you'll see that that shows our.
<unk>.
In the most recent quarter is quite in line with where it was a year prior.
Got it thanks, and then just my last one was given that the NDA. He has some proposals to change their interest rate generator can you.
Give us some some level of sensitivity that.
The RBC ratio would have to be the longer term statutory mean reversion rate. That's currently embedded in the model.
Sure.
I'd say first the the potential scenario changes that may become a you know I think our.
You know not well defined yet so that's something that we'll be watching as we move into 2022, I believe there'll be field testing in the early part of the year that we'll be able to participate in that will give us a little bit more of it.
Transparency I guess into the potential set of changes, but under today's scenario structure and requirements. There is as you noted that mean reversion parameter that automatically gets updated at the first of each year. So we are expecting for 2022 at that parameter will reduce.
Two 3% from three in a quarter, where it is today it had decreased in the current year, two or three in a quarter from a 3.5% where it was.
In the prior year and we had.
Modest impact to our RBC when.
When we've made that change at the beginning of this year and we expect.
The magnitude of the MRP reduction is similar that will be a similarly manageable change your RBC ratio as we move into 2022.
It was I correct am I correct.
Richard was about 20 to 25 points last time.
That's correct.
Okay. Thank you.
Yeah.
Our next question comes from that.
Yeah.
Maxine are you still there I apologize.
Our next question comes from Nigel Dally from Morgan Stanley. Your line is now open. Please go ahead.
Great. Thanks, good morning.
Comment on where you stand with considering other actions to accelerate the pace of capital return.
Particular, several companies have executed risk transfer transactions to free up capital on some of their older annuity blocks. He is wondering with less also an opportunity for Jackson.
Are you actively looking to pursue.
Yeah, Good morning, Nigel and we considered and executed on a reinsurance transaction in the past.
We would be open to transactions. If they were on terms that were beneficial to our shareholders and certainly to the long term profitability of the company.
Marcia I don't know if you would have any other remarks related to that topic sure.
Thanks.
And Nigel I guess, you know when we look at our business you know we have obviously the large V. A block we have already reinsured a significant component there on the fixed and fixed indexed annuities are last year and then we've got.
The closed block a life, primarily life business that we have on the books as well I guess thinking about the VA and the life component that we have one of the things that we've thought about it and with respect to the VA block is just the fact that you know what we've typically seen in the market has.
Has on the enforced I had been more focused on blocks that are less healthy and maybe come with large reserve or capital requirements that can be released over time, and we're really comfortable with the VA pricing and the position of our in force book, So well, while as Laura said, we certainly.
The open to considering opportunities we would we would really have to be you know compensated for what we think is the value of that business in a way that is.
Doing the right thing for our shareholders and then I guess with respect to the lifeblood.
Does provide us with diversification benefits that are valuable to us both in terms of you know the source of earnings being mortality based.
And some some parts of that block being spread based as well and it also provides diversification benefits within the capital requirements statutory capital requirement.
So we do see that block is as valuable to us and we know that you know that diversification is viewed favorably by rating agencies. So you know here again, we'd certainly be open to transactions, but there is some significant value to us in that business. So you know that would have to be taken into account in the term.
To make it favorable and end up in the best interest of the shareholders.
Great. Thanks, and then just a follow up on the buybacks can you comment on the nature of those buybacks would that more likely be regular open market repurchases or would you also consider a bulk transactions from some of your larger hold as you've indicated a preference not to be long term holders of your stock I think they did show a buyback has been an issue, which should come up time and time again with the business.
Is the buyback program, something which potentially could address it.
Yeah and in general we haven't limited ourselves to any precise method of repurchase in order to make sure we have the maximum.
Maximum amount of flexibility to execute.
Okay makes sense. Thanks.
Sure.
Okay.
As another reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad now and.
The next question comes from Eric Bass from Autonomous Research. Your line is now open. Please go ahead.
Hi, Thank you and can you discuss how you're planning to manage holding company liquidity going forward and your expectations for bringing dividends from your insurance subs up to the Holdco over the next year.
Sure. Thank you Eric for that question.
So we as we've disclosed here. We you know we have holding company cash currently in excess of the 800 million and we have previously disclosed that we would want to maintain a minimum buffer there at about two times, our annual fixed expenses as far as looking for.
Pardon me know that we have you know dividend capacity within the operating companies.
That will be.
To be fully defined as we progressed through the end of the year, but we have the capacity there and we'll look to.
Were you able to.
Pass cash up from the operating company as capital generated in that.
And provide that liquidity at the holding company level and we also have.
You know sources other sources of available liquidity if needed and then with the liquidity. We do have at the holding company. We would obviously look to you know kind of prioritize out across the various priorities that we've disclosed around maintaining or.
<unk> financial strength and are optimizing leverage you know new business investment at appropriate margins and of course, our capital distribution to shareholders.
Got it that's helpful. I guess I was wondering should we expect that in the near term you're going to run with a sizable buffer similar to the kind of where you are sitting today.
Okay.
I think you know we would want to obviously maintain that roughly $250 million level buffer are minimal and then you know I think naturally there might be some buffer above that but I don't think we have anything we would.
The schools at this point in terms of specific plans of what would that level would remain at.
Okay. Thanks, and then I was hoping you could talk about your expectations for the new <unk> product that you recently launched and how quickly do you anticipate sales ramping there and do you expect this to all be incremental volumes or will there be some cannibalization of sales from other products.
Well, we're we're definitely excited about our rail launch and where were in the market with a competitive product that we know has differentiated features and as I indicated in the presentation. Early on we've we've received good positive feedback from them.
Advisors.
We haven't disclosed any sales.
Sales projections, but we are recognizing that Ryan has expanded the market overall.
And with the demand that we see you know, we think theres lots of space for Jackson to enter this market you know win.
And continue to meet that growing consumer demand.
Got it and then last one just was hoping you could talk about the outlook for corporate expenses going forward and presumably a lot higher interest expense starting in the fourth quarter, but are there also any other incremental higher costs relating to being an independent public company that aren't in kind of the run rate expense.
Now.
Yeah sure Chad do you want to take that one sure I think with that we'll have a we'll have some pluses and minuses. There. Obviously, we've got some expenses that we've been running through the process of the merger.
So that's been pushing expenses.
Little bit higher so we'll get some reduction coming off of that offsetting that youre going to get higher expense from you know we have a holding company we didn't have before.
So there's always some expenses there there's interest expense and similar types of activities. So I think broadly speaking.
We're not expecting any any really big movements and a corporate expenses there.
It might trend a little higher than that with Oh, specifically with the extra expense.
Got it thank you.
Yeah.
As another reminder to ask a question. Please press star followed by one I know Ted I think he passed now we have a follow up question from Tom Gallagher from Evercore. Your line is now open.
Hi, Thanks, just a follow up on Nigel is question on risk transfer I just wanted to make sure.
I've.
Scott got your.
Responses clear in terms of the at least my understanding of them or are you actively exploring risk transfer.
Variable annuities or life insurance right now it sounded to me from your answers that it was less likely that you're sort of proactively pursuing something.
Currently is that is that a fair way to characterize it or just just wanted to be clear on that.
Yes, I think you've got that right time.
Yeah.
Okay. Thanks, and then.
Just as we think about the actuarial review for next quarter recognizing.
It's a process you're not going to front run it going into it are there any assumptions, we should be thinking about that may get revised such as long term separate account return assumptions that better does appear to be a bit higher than some others in the industry.
Or policyholder lapse experience any any anything kind of high level.
You think might come under more review when you go through that.
Well I guess I would say one thing to share that.
Our annual review process is generally.
One where we take a comprehensive look at everything and typically would make small adjustments if we see experienced emerging in a certain area. So that we avoid the likelihood of large changes from time to time, because we're just kind of keeping up with the experience.
And so that tends to result in and potentially you know few small adjustments here and there and then depending upon what the emerging and the experience.
We just take that into account, but I would say from the cycle that we're working through right now.
You know we are still in the process and don't want to front run anything in particular, but this is not a year that we've identified you know really notable items.
This has been more of a typical process of of sorting through the experience data looking for you know a.
Kind of new emerging experience that would inform any adjustments.
Okay. That's that's helpful and one final one on that.
Can you can you disclose what youre assuming for interest rates in your accounting the in terms of a 10 year Treasury mean reversion assumption.
That number is.
Well, we have not disclosed that in the past we have a when you think about our business and the fact that.
That type of an assumption doesn't apply directly to the majority of our business, particularly within the VA you you've already noted we have.
On a longer term separate account growth assumption. There are we don't define that as being tied directly to a 10 year treasury per se, but.
But the rest of our business that we're you know future interest rate assumptions play into the projection of.
Benefit payments or gross profits.
Those are quite immaterial to our business that we do have maybe a simplified approach in terms of how we set that up it doesn't necessarily lend itself to a specific 10 year treasury, but that's just not immaterial assumption at our in our reserving methodologies given our mix of business.
Okay got it thank you.
This concludes our Q&A session. So I'll hand, it back to north of placing remarks.
Great well, thank you for joining us on our call today, we look forward to speaking with you again in the future.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
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