Q4 2023 Jackson Financial Inc Earnings Call

Good morning, and I would like to welcome you all to the Jackson Financial Inc. Fourth quarter 2023 earnings call.

My name is BRCA.

I will be the moderator for today's conference.

All lines are on mute for the presentation portion of the cool with an opportunity for questions and answers at the end.

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I would now like to pass the conference over to your wife, Liz Werner head of Investor Relations from Jackson find out two chip again. So lets please go ahead.

Good morning, everyone and welcome to Jackson's fourth quarter and full year 2023 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 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 jacksonism.

Within operating expenses, resulting from stronger equity markets as well as lower income on operating derivatives from higher levels of floating interest rate.

While higher equity markets and interest rates created this near term reduction in adjusted operating earnings they provide a positive tailwind for future adjusted operating earnings due to a significantly larger fee base and an improved profitability profile.

Slide nine shows the same analysis, but on a full year basis earnings per share in 2023. After adjusting for the notable items were down 18% compared to full year 2022, consistent with the fourth quarter of 2023. This was primarily the result of lower income on operating derivatives and higher.

Levels of market related costs as noted for the quarter the same tailwind from higher rates and equity markets will benefit earnings going forward.

Slide 10 illustrates the reconciliation of our fourth quarter pretax adjusted operating earnings of $203 million to the pre tax loss attributable to Jackson financial of $2 billion.

As shown in the table the total guaranteed benefits and hedge results. Our net hedge result was a loss of $990 million in the fourth quarter of 2023.

Starting from the left side of the chart you see a robust guaranteed benefit fee stream of $780 million, providing significant resources to support the hedging of our guarantee.

These guaranteed benefit these are calculated based on the benefit base, rather than the account value, which provides stability to the guarantee fee stream protecting our hedge budget when markets decline.

Consistent with our practice I'll guarantee fees are presented in non operating income to align with the related hedging and liability movements.

There was a $43 million gain on freestanding derivatives, primarily due to gains on interest rate hedges in a quarter, where interest rates were down across the yield curve, mostly offset by losses on equity hedges in a rising equity market environment.

Movements in net market risk benefits, our net MRV drove a $1.2 billion loss that more than offset the freestanding derivative movements due in large part to the same interest rate decreases.

This illustrates that net income has historically included changes in liability values under U S. GAAP accounting that have not aligned well with our hedging assets.

I will discuss later, we would expect going forward that U S. GAAP accounting will better align with our economic hedging with the establishment and funding of the reinsurance relationship with Brooke re leading to lower levels of net hedging gains or losses.

Non operating results also included $841 million of losses from business Reinsured to third party. This.

This was primarily due to a loss on a funds withheld reinsurance treaty due to the change in the associated embedded derivative value and the related net investment income.

These nonoperating items, which can be volatile from period to period are offset by changes in accumulated other comprehensive income or OCI in the funds withheld account related to reinsurance, resulting in a minimal net impact on Jackson's adjusted book value.

Furthermore, these items do not impact our statutory capital or free cash flow.

Our segment results start on slide 11, with retail annuities as Laura highlighted our <unk> product continues to gain momentum with our fourth quarter sales, reaching a record level of more than $1 billion supporting further diversification in our top line.

Sales of and without lifetime benefits increased to 53% of our total retail sales up from 43% in the fourth quarter of last year.

While recent consumer preference for protection results in VA sales below historical levels higher interest rates provide an even stronger profitability profile on current sales.

When viewed through a net flow lens. The gross sales, we are generating an ROA and other spread products translated to $1 billion of non VA net flow in the fourth quarter of 2023, which has grown materially over time.

These net flows provide valuable economic diversification and capital efficiency benefit.

Importantly, our overall sales mix remains efficient from the standpoint of new business strain.

Looking at pretax adjusted operating earnings for our retail annuity segment on Slide 12, we show positive underlying trends in the growth across our annuity product categories as demonstrated by assets under management or AUM or.

Our variable annuity account values grew by double digits benefiting from stronger equity markets.

Net income continues to benefit from higher interest rates and strong net flows are driving growth in <unk> fixed and fixed indexed annuity account values.

Furthermore, the positive momentum for our enhanced <unk> suite positions us well for ongoing success as we enter 2024.

<unk> growth has an added benefit to our hedging efficiency as it has an upside equity risk profile that offsets the downside equity risk profile and our guaranteed VA business.

Netting these risks reduces the amount of external equity hedging required to protect our business and this reduction grew to 14% as of the fourth quarter of 2023 as you can see the benefit is not dollar for dollar as our $5 billion of Riley account value is offsetting a larger amount of VA.

NT equity exposure illustrating that we can rapidly grow this hedging offset benefit as rylan AUM increases.

Our other operating segments are shown on slide 13.

For our institutional segment pre tax adjusted operating earnings were up from the prior year due to higher spread income and reduced interest expense.

Sales in 2023 totaled $1 1 billion in.

In account values ended the year at $8 4 billion.

Our closed life and annuity blocks segment reported lower pretax adjusted operating earnings compared to the prior year. This.

This was primarily due to the assumptions review impact I discussed earlier, partially offset by lower expenses.

Slide 14 summarizes our year end capital position, we returned $117 million to common shareholders in the fourth quarter through a combination of dividends and share repurchases and we reached our capital return target for the third straight time since becoming a public company as law.

I mentioned earlier, we also announced a 13% increase in our first quarter common dividend to <unk> 70 per share.

We generated significant regulatory capital or Tac in the quarter driven by the profitability of our variable annuity book and effective risk management, our Tac increased by approximately $700 million to $5 2 billion, reflecting positive variable annuity net guarantee results strong based con.

<unk> cash flow and tax benefits.

As we move closer to the end of the year, we began to transition our hedging to align more with our captive new modified GAAP approach, adding meaningful.