Q3 2024 Jackson Financial Inc Earnings Call
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Harry: Hello, and welcome to the Jackson Financial incorporated <unk> 24 earnings call. My name is Harry and I'll be your operator today.
Harry: All lines are currently in a listen only mode and there will be an opportunity for Q&A. After management's prepared remarks, if you would like to enter the queue for questions. Please dial star followed by one on your telephone keypad.
Liz Werne: I would now like to hand, the conference over to Liz Werne Jackson head of Investor Relations. Thank you. Please go ahead.
Speaker Change: Good morning, everyone and welcome to Jackson third quarter 2024 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.
Speaker Change: 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 are management's estimates are opinions should change.
Speaker Change: Today's remarks also refer to certain non-GAAP financial measures. The reconciliation of those measures. 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 <unk> Jackson Dot com.
Speaker Change: Joining us today are our CEO, Laura pre scorn, our CFO, Don coming the President of Jackson National Life distributors, Scott Rowe mine, and our Chief Actuary steeped in Europe, and the President and Chief investment Officer of P. P M. Craig Smith.
Speaker Change: At this time I'll turn the call over to our CEO lauralee, scoring.
Lauralee Scoring: Good morning, everyone. Today, we will discuss Jackson's third quarter results and progress through the first nine months of the year.
Lauralee Scoring: Our results reflect diversified and growing annuity sales recent product and distribution initiatives and sustainable capital generation.
Lauralee Scoring: With three operating quarters completed with our captive Brook re we're realizing the benefits of greater capital stability, which are evident in our third quarter results.
Lauralee Scoring: Beginning with slide three net income was a loss for the third quarter and positive over the full nine months importantly, we've experienced less volatility than prior periods with the formation of Brook re and achieved greater alignment between adjusted operating earnings GAAP net income in statutory capital.
Generation.
Lauralee Scoring: Adjusted operating earnings were up in the third quarter compared to the same period last year and are also up comparatively on a year to date basis.
Lauralee Scoring: Increased fee income combined with greater investment spread income once again supported strong earnings growth in our retail annuity segment.
Lauralee Scoring: Favorable equity markets and increasing sales resulted in a 9% growth in assets under management through the first nine months to more than $250 billion.
Lauralee Scoring: The combination of product innovation risk management best in class service scale and strong distribution partnerships continue to provide a solid foundation for sustainable growth.
Lauralee Scoring: Total retail annuity sales exceeded $5 billion for the third quarter up 59% from the third quarter of 2023 and up 25% from the second quarter of 2024, marking our highest and most diversified quarter of sales since becoming an independent company.
Lauralee Scoring: In September of 2021.
Lauralee Scoring: Our wireless segment hit record sales with more than one $6 billion in the third quarter of 2020 for bringing us to more than $4 billion over the first nine months of the year.
Lauralee Scoring: Jackson market link pro continues to grow as a rail a product of choice and after three years of offering. This product. We are a top five rile a provider. According to <unk> second quarter 2024 sales rankings over.
Lauralee Scoring: Over the past six months, we have seen additional sales from our new Riley offering in New York and our Raila with living benefit launched in April of this year.
Lauralee Scoring: We continue to expand our distribution network announcing earlier this week that Jackson market linked pro two is now available to approximately 5000 financial professionals with J P. Morgan wealth management we.
Lauralee Scoring: We look forward to providing this important partner and its clients access to Jackson's unique product and industry, leading service as consumer demand for <unk> continues to grow.
Lauralee Scoring: Our traditional variable annuity sales were $2 $6 billion for the third quarter and continue to benefit from a favorable equity market with sales up 6% over the first nine months of the year Jackson continues to meet the demands of a dynamic market delivering flexible protection and income oriented.
Lauralee Scoring: <unk> to Americans planning for retirement.
Lauralee Scoring: Recently, we introduced principal guard the guaranteed minimum accumulation benefit or G. M. A b to our elite access variable annuity suite. This benefit provides policyholders the option to add valuable principle protection, while maintaining investment flexibility.
Lauralee Scoring: The sales we generated in RYLA and other SPREAD products translated to $2.5 billion of non-variable annuity net flows in the third quarter, which has grown materially over time. These net flows provide valuable economic diversification and hedging efficiency benefits.
Lauralee Scoring: We remain focused on our consistent, balanced approach to capital return while maintaining our financial strength and investing in our business.
Lauralee Scoring: Excluding the impact of the non-recurring gain from previously disclosed payout annuity reserve releases in the second quarter, earnings for retail annuities were up about 5% on a sequential basis.
Lauralee Scoring: Jackson's earnings power is supported by the growing level of assets under management.
Lauralee Scoring: As healthy separate account returns combined with growing non-variable annuity net flows have built our total retail annuity AUM up to $256 billion, an increase of 18% from the third quarter of last year.
Lauralee Scoring: Importantly, the positive separate account performance has offset our retail annuity net outflows by over $21 billion in the first nine months of this year, including the impact of elevated surrenders of variable annuities coming out of their surrender charge period.
Lauralee Scoring: For our institutional segment, pre-tax adjusted operating earnings were down from the third quarter of last year, primarily due to reductions in average AUM from $2.2 billion of maturities year-to-date.
Lauralee Scoring: We have experienced increased new business activity this year with over 1.5 billion dollars in year-to-date sales And what we believe to be a strong start to the fourth quarter
Lauralee Scoring: Our Closed Life and Annuity Blocks segment reported pre-tax adjusted operating earnings that were broadly unchanged from the third quarter of last year and down from the second quarter of this year due to comparatively stronger results
Lauralee Scoring: from updating future policy cash flow assumptions in the second quarter.
Slide 11 summarizes our strong capital and liquidity position.
Lauralee Scoring: The profitability of our in-force business, including the Variable Annuity Base Contract and a one-time benefit from the Corporate Alternative Minimum Tax, provided substantial capital generation of $462 million during the third quarter.
Lauralee Scoring: Consistent with our prior guidance for smaller periodic distributions from Jackson National Life, 300 million dollars was distributed during the third quarter.
Lauralee Scoring: After accounting for the impact of this distribution and the related reduction in deferred tax asset admissibility, Jackson's total adjusted capital, or TAC, increased and ended the quarter at $4.8 billion.
Lauralee Scoring: Our statutory capital generation of $1.1 billion through the first nine months of this year has exceeded our original guidance when measured on an after-tax basis before dividends and distributions.
Lauralee Scoring: We believe this after-tax measure of capital generation provides the most insight into the underlying strength of our business and provides the foundation for making capital allocation decisions about future organic growth, pursuit of strategic opportunities, and return of capital to shareholders.
Lauralee Scoring: That said, we understand the value of reflecting the change in company action level required capital, or CAL, when measuring free capital generation.
Lauralee Scoring: Reflecting the change in Cal, our free capital generation was over $850 million through the first nine months of this year, which we believe puts us on a pace to exceed a billion dollars for the full year on this measure as well.
Lauralee Scoring: Regardless of the way you measure capital generation, we have thus far outperformed our guidance provided earlier this year, and we believe we remain well positioned for continuing our balanced approach to capital management heading into 2025.
Lauralee Scoring: Cal has continued to remain stable following the formation of Brook Re as was apparent in our third quarter results with estimated Cal slightly higher reflecting growth and fixed annuity sales partially offset by overall investment portfolio activity.
Lauralee Scoring: Our estimated RBC ratio was up slightly from the second quarter and in the range of 550 to 570% and remains well above our minimum of 425%.
Lauralee Scoring: We are also pleased with Brooke Ree's third quarter performance, which is operating as expected and remains capitalized well above our minimum operating capital level.
Lauralee Scoring: Our holding company cash and highly liquid asset position at the end of the quarter grew to nearly $650 million, which continues to be above our minimum buffer.
Lauralee Scoring: The extraordinary dividend from Jackson National Life this quarter is consistent with the goal of stabilizing RBC compared to our past practice of a sizable annual dividend.
Lauralee Scoring: We believe our robust capital position provides a strong financial base for future operating company dividends.
Lauralee Scoring: We returned $167 million to common shareholders during the quarter through share repurchases and dividends, and year-to-date we have returned $483 million, or $6.24 per share, a strong pace relative to our 2024 target of $550 to $650 million.
Speaker Change: Overall, I'm very pleased with our third quarter results, which demonstrate positive momentum in sales, earnings, capital generation, holding company liquidity, and capital return. I'll now turn the call back to Laura.
Thank you, Don.
Speaker Change: Our third quarter results and cumulative progress through the first nine months demonstrate Jackson's business strength, market leadership, and sustainable capital generation.
Speaker Change: As we look forward to completing another year as an independent company, our focus on execution and capital discipline is strong. We remain committed to profitable growth, serving all stakeholders, and enhancing shareholder value over the long term, including our commitment to capital return.
Lauralee Scoring: As always, I'd like to acknowledge our talented Jackson team. Their dedication to our purpose of helping Americans achieve financial freedom for life is our greatest strength.
Lauralee Scoring: The opportunity to work alongside our associates is ever rewarding as we continue to deliver against our strategic and operational goals while supporting our clients, our distribution partners, our communities, and each other. At this time, I'll turn it over to the operator for questions.
Speaker Change: Thank you. If you would like to ask a question, please dial star followed by one on your telephone keypad now. If you change your mind and would like to exit the queue, please dial star followed by two. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally.
Lauralee Scoring: Our first question today will be from the line of Alex Scott with Barclays. Please go ahead, your line is now open.
Alex Scott: Hi, good morning. The first question I wanted to ask is just on the strong statutory earnings this quarter. And, you know, I think there is
of it that was not reoccurring.
Lauralee Scoring: You all have been pretty clear about the expectation there, but I wanted to understand, like, how much of an offset do you expect from, you know, growing the business, just, you know, acknowledging the strength and Riley sales and so forth, like,
Hey, Alex, it's Don. Good morning.
Speaker Change: Yeah, I'll take your question. So, you know, in terms of capital usage for new business, we feel really comfortable with our current capital mix. We do believe that's relatively capital efficient.
Speaker Change: And, you know, that could change, obviously, as we see, you know, opportunities going forward to diversify our mix.
Speaker Change: But we're pretty comfortable. And I think one example of the flexibility that we have there is with the increased level of fixed annuity sales that we saw in the quarter. We were able to do that. And there obviously was a little bit of a
Lauralee Scoring: Capital Impact related to that, you know, on the required side, but that was kind of largely offset with some normal portfolio activity.
Lauralee Scoring: In terms of, you know, RILA strain, I think there's, you know, kind of a minimal impact coming through TAC in the current quarter. But, you know, as we bring on more assets, there is obviously there's a...
Lauralee Scoring: capital that you have to put up to support those growing level of assets. But in general, we're pretty comfortable with our product mix and feel that it's quite manageable going forward.
The End.
Speaker Change: Okay, great. Thanks. Second one I have is on brokery, and I know there was a little bit of noise just around the hedging this quarter, but
You know, as we think through that structure, I think
Speaker Change: Over time, you guys have said there is positive margin, you know, between the fees and the cost of hedging there on these riders. At what point would you have the confidence to actually take a common dividend and have that
Speaker Change: you know, help the overall cash flow of the company, you know, and I appreciate you set it up recently, but I'm just sort of interested in the more medium to long term there.
Speaker Change: Yeah, yeah. So in terms of brookery, as you pointed out, it's we've got three quarters now of experience operating with brookery in place.
Speaker Change: and we do expect that over time it will be capital generative and if you look at just the results through the, you know, first nine months, we have seen some growth in the equity there.
Speaker Change: We don't have any expectations here in the near term to take any capital out of Brookery. We think we've got sufficient capital generation occurring at J&L.
Speaker Change: and continue to see that, you know, growing a bit and think that that will be sufficient to fund our near-term capital return targets.
The New York City,
Great, thank you.
Speaker Change: Our next question will be from the line of Sunit Kamath with Jeffreys. Please go ahead. Your line is now open.
. . . .
Unknown Speaker 0
Speaker Change: Yeah, thanks for that, Suneet. So, yeah, obviously 2024, as you highlighted, is a little unique. We didn't really have a distribution up to the holding company in the first quarter because, you know, we use some of that capital to fund the establishment of Brookery.
Speaker Change: And in terms of future capital generation, you know, it'll continue to depend on the performance of our business. So we would fully expect to continue with our approach of periodic distribution of capital.
Speaker Change: And as I said, it's going to depend on, you know, the level of performance that we have.
Speaker Change: in terms of generating capital. So I don't want to give you a guide at this point. As you know, we typically publish our capital return targets in connection with our fourth quarter results.
Speaker Change: So, as part of that, we'll be sharing what our plan is. If you look back at our track record, since we've been a public company, I think you'll see a sort of consistent, balanced approach in terms of growing the level of capital return that we have.
Speaker Change: I'm anticipating, if the business continues to perform as expected, that we will see some increase in the level of our capital return for 2025.
Thank you.
Speaker Change: Yeah, no, when we're pricing, it's done on a standalone basis, so we don't take into account, you know, the offset that we get.
Speaker Change: with the VA business. That does come through as we've talked about on prior calls in our hedging results to the extent it allows us to do lower levels of external hedging. We do get a benefit from that, but in terms of pricing we don't take that into account. It's really done on a standalone basis.
Unknown Executive, Don Cummings, Marcia Wadsten
Thank you. Thank you.
Speaker Change: Yeah, so basis risk for the quarter was fairly muted for us, and
Speaker Change: Resolved in the second, I believe, but on a year to date basis, it's been fairly modest. We do have a very.
Speaker Change: rigorous approach in terms of managing the funds that are available on our platform. And I think that's one of the things that we use to, you know, to help manage that. We also use
Got it. Thanks, Don.
Speaker Change: As a reminder, for any further questions, please dial star followed by one now. And our next question is from the line of Ryan Kruger with Keith Bray and Woods. Please go ahead, your line's open.
Speaker Change: Hey, thanks. Good morning. First one was on brokery. Can you provide us a little more color on, or at least quantification on how the capital has moved at brokery on a year-to-day basis at this point?
Speaker Change: Yeah, so, you know, I don't we obviously are not currently disclosing, you know, the exact financials of brookery, I think consistent with
you know, other companies that have captive arrangements.
Speaker Change: As I mentioned, you know, we, we have seen some growth there. It's not a huge amount, but don't really want to quantify it at this point. I would say that, you know, just as a reminder, we did put $700 million in terms of
Speaker Change: Initial capitalization of brookree and you know the other kind of component of equity that exists there is the asset related to the to the MRV or the variable annuity guarantees
Speaker Change: and the combined result of both of those have, you know, grown in the first nine months.
Speaker Change: Okay, got it. Thanks. And then when I look at the market risk benefits roll forward, it looks like there's been a fairly consistent amount of negative impact from actual policy holder behavior versus your expectation. It's, you know, 514 million year to date. Can you give some additional info on what is driving that and how to think about that as we go forward?
Speaker Change: Sure, Ryan. So what ends up in the sort of the unexpected
component of the MRV roll forward is essentially related to
Lapsed activity and withdrawals.
Speaker Change: variability in that. But, you know, really, assumptions are set more on a long term basis.
Speaker Change: As you know, Jackson goes through a process of updating its actuarial assumptions in the fourth quarter, and I don't want to get ahead of that, but we will be doing that. We're actually going through the final phases of that now, and we'll be reporting that out along with our fourth quarter results.
The End.
Speaker Change: Thanks. Just one quick follow-up to that. Is what's happening currently mostly lower than expected lapse rates? Has that been the short-term deviation?
The End.
Speaker Change: It's it's it's actually the other way around, you know, as we've talked about when equity markets are really strong, like we've seen this year, we do tend to see a higher level of of lapse rates or of policyholders withdrawing their money. So it's, you know, it's higher, higher lapses.
Okay, great. Thank you.
Speaker Change: Our next question will be from the line of Tom Gallagher with Epcot ISI. Please go ahead. Your line is now open.
Tom Gallagher: Good morning. A few questions. First, just on the hedging, the
I guess excluding the equity vol.
Speaker Change: It looks like you had about 130 million of hedging losses.
Speaker Change: in the quarter. I'm just curious what caused the hedging losses, you know, which factors.
Speaker Change: and how big of a loss, when we think about hedging and brokery, how big of a loss or how much of a breakage would you need to see before there would be some capital implications? It sounds like you have a pretty big buffer there, but just want to get a broad sense for...
what that would look like.
[inaudible]
Yeah, so just in terms of the level of.
Hedging Bosses, and the math you did there with
Speaker Change: Subtracting out the volatility, it sounds like you're on the right track.
Speaker Change: You know, we don't view volatility as kind of a core risk embedded within our guarantees.
Speaker Change: Rather than developing a, you know, fairly costly hedging approach to cover off volatility, that's what led us to setting the fixed volatility assumption within our modified gap approach at BrookGray.
Speaker Change: And we do accept that that's going to create a little bit of variability in the gap results that show up in our non-operating results.
That's the point on volatility. And in terms of the level of losses that we, you know, would,
be able to sustain at Brookery prior to putting in any capital.
If you go back to our original disclosures around the establishment of Brookery, we set
Speaker Change: to be sort of self-sustaining. And so we do feel like we have a pretty strong buffer there, and well above the minimum operating capital that's required for a regulatory basis.
Speaker Change: We also have internal risk levels that we monitor quite regularly, and we feel good about about that and
and really feel like we're in a strong position in terms of brokery. It would take a very, very significant market event to cause a capital issue.
I think as we've disclosed on prior calls, that would typically be
Speaker Change: Very high levels of volatility, combined with really significant equity stresses or equity and interest rate stresses combined.
So think of events like the global financial crisis in the 07, 08 period, or potentially similar to the COVID shock in 2020, would be the scenario where, you know, we could potentially need some additional capital.
Thank you for your time, everybody.
Gotcha, that's helpful Don. So you know as a bright line test with the 700 million dollars of hard assets that you funded it with initially
Speaker Change: It's that if you went through that, would that would that be one way to think about it? Because I know you have other equity, but the rest of the equity that's been created there.
which is essentially an embedded gain from the embedded derivatives doesn't really feel like real equity. I mean, I don't know if the regulator views it that way. But just curious, like how you
Is that a reasonable initial level to think about if you depleted that 700 million, which obviously you're way away from that because you have year to date gains, but just trying to understand like a bright line level.
Yeah, we don't have a bright line.
Speaker Change: related to the 700 million, recall that that was our initial capital or hard assets, if you will, that we put into the company. Each quarter, we settle up on the results of the business with Rookery. And so the hard assets have actually grown as well over the first nine months of the year.
Unknown Speaker 0
Gotcha. Thanks. And then, you know, just
Speaker Change: Sorry Tom just to close that out we don't don't really have a bright line we do have
Speaker Change: We look at it very, very closely, but there's no bright line dollar amount that would, you know, guide you to.
Speaker Change: Gotcha and then I just my follow-up is just on sales the the big ramp-up and fixed and FIA sales in Q3 I heard your comments about I think you said probably not going to stay at that level but I guess my question is
Speaker Change: That's probably the most competitive part of the life insurance market. That's where all the alternative managers are operating. How do you think about standalone ROEs? Like I heard everything you said about diversification. That all makes sense.
Speaker Change: But I can't imagine these are particularly high returning sales like Ryla in my view It's probably a much better quality sale for you. So why?
Speaker Change: Why, why like enter into that market in such a big way if that's in fact where most of the competition is intense and pricing? I don't know. That's a bit of a rambling question. But what kind of returns do you think you're actually getting on on those product sales?
For more information visit www.FEMA.gov
Good morning, Tom, and thank you for that question.
Yeah, I'll have...
characteristics for annuity sales overall across all different annuity types.
And we've, you know, seen very, you know, rational behavior out of, um, our peers as well. So, you know, in
Speaker Change: across the entire industry, we're seeing growth in markets for each annuity type. And Scott can share, you know, our view on what's driving those increased sales.
Scott: Yeah, thanks, Lauren. Thanks for the question, Tom. I mean, there's several drops in it.
Scott: it starts with demand. I mean, you've heard virtually every firm in our industry talk about favorable demographics. And the reason why is because that opportunity is real. It's not just the number of Americans turning 65 that have the need, but the number of Americans that
that now are responsible for funding their own retirement and the need for protection for growth.
Speaker Change: Unknown Executive, Don Cummings, Marcia Wadsten, Unknown Executive, Don Cummings, Marcia Wadsten,
Speaker Change: that are available that have strong consumer value across the entire risk spectrum, whether it's.
Speaker Change: It's the growth potential of VA, the protected growth of RILA, or the principle guarantee of spread, you know, that that's important to overall to Jackson sales and diversification.
Speaker Change: Another driver is really the number of advisors that are now using annuity solutions as part of their client diversification and part of their overall financial planning. I mean, we've spent a lot of effort over the years to ensure that that our products
to run their business and to serve their clients.
and it's really helped advisors illustrate the positive impact our solutions can have.
have.
Speaker Change: on a client's portfolio and really helps demonstrate how we can drive potentially better outcomes.
From a spread.
Specific standpoint.
Speaker Change: You know, we talked about, you know, some of some of the drivers, active repricing the capital stability of Brookree, you know, our ability to tap into the strength of distribution and re-engage with key distribution partners. But for Jackson, you know, a key reason to be in the spread business
is it helps us attract new advisors.
Speaker Change: to our overall suite of products. Much like Ryla did, what we've seen with the spread sales, it's brought advisors back to Jackson that hadn't done business with us in a while. So we're very pleased with the results we've seen with our diversified sales.
I'll just add a couple.
Speaker Change: I'll just add a couple things to that and then address your question on return so
Speaker Change: As you know, Jackson's had a pretty long history of being in the spread business, and so
Speaker Change: As Scott was mentioning, now that we have more stability with Brookery in place in terms of our capital position, we
You know, made the decision to support the distribution effort.
Scott: In terms of returns, we're very comfortable with the profitability of all the products that we're currently selling.
Scott: Including the fixed annuities and the range of returns really varies by product so
Scott: As you pointed out, you know, our VAs are some of our highest return products. You know, fixed annuities are going to be at the lower end of the range, and RILA falls somewhere in the middle there. We don't disclose specific IRR targets, but we're comfortable with the returns we're seeing on that.
and others. Thank you.
Gotcha. Thanks, guys.
Speaker Change: With no further questions on the line, I will now hand the call back over to Jackson CEO, Laura Prieskorn, for any closing remarks.
Laura Prieskorn: Thank you all for joining us this morning and we look forward to providing you our next update on our full year results in the new year. Take care.
Thank you. Thank you.
Speaker Change: This will conclude the Jackson Financial Incorporated 3Q24 earnings call. Thank you to everyone who was able to join us. You may now disconnect your lines.
Scott: Yeah.