Q4 2024 Jackson Financial Inc Earnings Call
Hello, everyone and welcome to the checks and financial Inc. Full Q4 earnings call. My name is Charlie and I'll be coordinating the call today.
You'll have the opportunity to ask your questions at the end of the presentation, if you'd like to register your question. Please press star followed by one on the telephone keypads.
And I would like to hand, the Culebra TWA host Liz Werne head of Investor relations to begin.
Please go ahead.
Speaker Change: 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.
Speaker Change: Jackson filings with the SEC provide details on important factors that may cause actual results or events to differ materially except.
Speaker Change: Except as required by law Jackson is under no obligation to update any forward looking statements if circumstances or management's estimates or opinion should change.
Speaker Change: 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.
Speaker Change: Supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors that 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, Steven Yours, and the President and Chief investment Officer of P. B M. Craig Smith.
Speaker Change: At this time I'll turn the call over to our CEO lauralee, scoring.
Speaker Change: Thank you Liz.
lauralee, scoring: Good morning, everyone and welcome to our fourth quarter and full year 2024 earnings call.
lauralee, scoring: I'll begin by reviewing our full year results and the success, we had in delivering on our 'twenty 'twenty four key financial target.
lauralee, scoring: 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 coming to discuss our performance in the fourth quarter and past year in more detail.
lauralee, scoring: 'twenty 'twenty four was a pivotal year for Jackson marked by significant operational and financial accomplishments.
lauralee, scoring: We completed a full year of operating with more economic hedging approach realizing the benefits of greater capital stability.
lauralee, scoring: We increased transparency into capital generation at Jackson National Life, and now our capital generation is more closely aligned with our adjusted operating earnings.
lauralee, scoring: The strong results at Jackson National Life resulted in 2020 for distributions to our holding company of $875 million the highest annual level in the company's history.
lauralee, scoring: Moving to our full year results on slide three.
lauralee, scoring: Net income exceeded $900 million and adjusted operating earnings were $1 $4 billion largely due to the significant growth in earnings of our retail annuity segment.
lauralee, scoring: Retail annuity sales of $18 billion increased 39% year over year with strong sales across our annuity products.
lauralee, scoring: In 2024, we benefited from more diversified product sales and growing distribution.
lauralee, scoring: Our profitability and healthy capital position were evident throughout the year and Jackson National life made periodic distributions to our holding company during 2024.
lauralee, scoring: 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 the combo.
lauralee, scoring: Nation of capital distributions to our holding company and level of holding company liquidity provided for free cash flow of $767 million and $631 million of capital return to common shareholders. We.
lauralee, scoring: We are proud of these results and plan to build upon this momentum in the year ahead.
lauralee, scoring: As you can see on slide four.
lauralee, scoring: We were near the top of our targeted range for capital return to common shareholders, while maintaining more than $700 million of highly liquid assets at our holding company.
lauralee, scoring: Our capital return increased 36%, excluding the $700 million distribution from Jackson National life used to establish Brook re our Michigan based captive reinsurer.
lauralee, scoring: 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.
Our strong holding company liquidity combined with our remaining share repurchase authorization of more than 600 million at year end.
lauralee, scoring: Positions us well for continued capital flexibility investment in our business and return to shareholders.
lauralee, scoring: As you can see on slide five.
lauralee, scoring: We take a balanced long term view of capital management and have steadily increased our common dividend and share buyback program.
lauralee, scoring: We also announced the board's approval of our fourth dividend increase to 80 per common share a 14% increase over the prior year's quarterly dividend level.
lauralee, scoring: Our healthy and profitable book of business has provided a consistent return of capital to common shareholders, while continuing to maintain our financial strength.
lauralee, scoring: By the end of 'twenty 'twenty, four our cumulative return to shareholders with more than one $8 billion.
lauralee, scoring: Product innovation distribution expansion and industry, leading service continue to be Differentiators for us.
lauralee, scoring: On slide six you can see the positive outcome of our focus on sales diversification over the last three years <unk> has grown to contribute more than 30% of our total retail annuity sales.
lauralee, scoring: Our success with <unk>, along with recent growth in fixed annuities and institutional sales has diversified our new business beyond traditional variable annuities with living benefits.
lauralee, scoring: Variable annuities remain a valuable product for financial professionals and their clients and our total traditional variable annuity sales were up 11% in 2020 for.
lauralee, scoring: Our consumer oriented product offerings and service capabilities led to new and diverse distribution relationships.
lauralee, scoring: Growth in distribution created increases in new producers multi product producers and the total number of producers and new sales.
lauralee, scoring: Applications for new business have grown and in the fast growing advisory market I am pleased to share in 2020 for Jackson reached $1 billion in advisory sales.
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.
lauralee, scoring: <unk> estimates indicate 2025 industry sales will remain strong with traditional variable annuity sales holding steady near their recent increase levels assuming stable market.
Speaker Change: Memory projects Riley sales to be slightly above 2024 sales and fixed annuities are estimated to decline assuming a lower interest rate environment.
Speaker Change: Jackson continues to introduce leading product features to meet the needs of financial professionals and their clients.
Speaker Change: In the fourth quarter alone, we introduced O'reilly product in New York partnered with J P. Morgan Chase to offer our rail our product through their network of advisors.
Speaker Change: And added a guaranteed minimum accumulation benefit to elite access our investment only variable annuity.
Speaker Change: Our investments in technology and commitment to service excellence position us well in the market and continue to enhance our distribution relationship.
Speaker Change: 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.
Speaker Change: Best interest standards for their business and clients.
Speaker Change: 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 annuity and other financial instruments.
Speaker Change: The outcome for Jackson, and the industry is greater efficiency and reduce processing time for financial professionals and their clients.
Speaker Change: These examples along with our other corporate initiatives are a continuation of our long history of excellent.
Speaker Change: Execution and operating discipline, and we look forward to building further on this track record.
Speaker Change: Turning to slide seven.
Speaker Change: As we look ahead to 2025.
Speaker Change: We are pleased that our healthy business enables us to provide sustainable capital returned to shareholders.
Speaker Change: For 2025, we have increased our total capital return target to $700 million to $800 million compared.
Compared to our 2020 for capital return of $631 million. 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.
Speaker Change: 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 million at the holding company and maintain an RBC ratio above 425%.
Speaker Change: Our capital management approach will continue balancing investment in our business.
Speaker Change: Maintaining financial strength and returning.
Capital to shareholders.
Speaker Change: Now I'll turn the call over to Don to further discuss our financial results.
Don: Thank you Laura I'll begin on slide eight with our fourth quarter 2024 consolidated financial results.
Don: Adjusted operating earnings of $349 million were up 71% over the fourth quarter of last year.
Don: This significant growth in our earnings was primarily due to higher fee income from growth in variable annuity assets under management.
Don: Higher earnings on spread products.
Don: The sequential comparable was impacted by our annual assumptions review, which reduced fourth quarter earnings by $23 million after tax or 31 cents per share.
Don: Outside of the assumptions review, we continue to see positive sequential earnings trends develop 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 wireless and fixed annuity blocks as well as higher yields on our bond portfolio.
Don: The investment portfolio supporting our spread products has continued to perform well.
Don: The appendix of our earnings presentation provides information on our high quality diversified investment portfolio.
Don: This information includes insights into our commercial office loans, which represent less than 2% of the overall investment portfolio.
Don: It also includes our exposure to below investment grade securities, which represents only 1% of the portfolio.
Don: Before turning to notable items in the quarter I want to highlight the growth of our book value in 2024.
Don: Our adjusted book value attributable to common shareholders at the end of the fourth quarter was $11 2 billion or.
Don: Or $150 and <unk> 11 per diluted share an increase of 10% from last year, driven by our strong operating performance and common share repurchase activity.
Don: Adjusted operating return on equity increased 230 basis points to 12, 9% for full year 2024 up from 10, 6% last year.
Don: Slide nine outlines the notable items included in adjusted operating earnings.
Don: Reported adjusted operating earnings per share were $4 65 for the current quarter.
Don: Adjusting for 19 of notable items and the difference in tax rates from our 15% guidance earnings per share were $4.84 for the current quarter.
Don: 55% from $3.13 in the prior year's fourth quarter.
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.
Don: Consistent with prior years, we completed our annual actuarial assumption review in the fourth quarter.
Don: This led to an unfavorable earnings per share impact of 31 cents in the current quarter.
Don: Compared to an unfavorable impact of 79.
Don: Last year's fourth quarter.
Don: The 2024 assumption updates were primarily related to higher mortality, which unfavorably impacted the closed block segment as we recorded a reserve increase for life insurance.
Don: The same mortality trends led to a benefit on payout annuity reserves positively impacting the retail annuities segment.
Don: The other notable item for the current quarter was a four cent benefit from limited partnership results coming in above our 10% long term assumption.
Don: Slide 10 provides a breakdown of our full year notable items, earning.
Don: Earnings per share in 2024 after adjusting for the notable items were up 37% compared to the prior year.
Don: This was primarily the result of growing variable annuity and a U N improved spread earnings and a reduction in the diluted share count.
Don: Turning to slide 11, we've included a waterfall comparison of our fourth quarter pre tax adjusted operating earnings of $405 million to the GAAP pre tax income attributable to Jackson financial of $367 million.
Don: While there are some largely offsetting items for the quarter the trend of more stable nonoperating results continued throughout 2024.
Don: Before covering the results of our hedging program I want to note. The non operating results include $347 million in earnings from business Reinsured to third parties.
Don: This resulted from fair value gains on our legacy funds withheld reinsurance treaty and the related investment income.
Don: 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.
Don: Fourth quarter non operating results also include an unfavorable impact of $419 million from the annual actuarial assumption review.
Don: 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 benefit.
Don: Overall, the impact of our updates in the fourth quarter is quite reasonable given the size of our variable annuity block.
Don: Now turning to our hedging program.
Don: The net hedge result was a gain of $79 million in the fourth quarter.
Don: And our net hedge gain of $285 million for the full year.
Don: 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 nonoperating results and capital generation.
Don: Our hedging program is supported by a robust stream of guaranteed benefit fees that are assessed on the benefit base rather than a California.
Don: This approach provides stability to the guarantee fees even in periods when the market's decline as we experienced in 2022.
Don: Guarantee fees for the fourth quarter were zero point $8 billion and over $3 1 billion for the full year.
Don: During the fourth quarter. Our results included a net loss on hedging assets of about $2 8 billion, 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.
Don: Markets.
Don: Changes in market risk benefits, where MRV were driven in part by the same interest rate and equity market movements, leading to a nearly $2 $2 billion positive offset to the hedging assets loss.
Don: The reserve and embedded derivative loss of $89 million during the fourth quarter, primarily reflects increases in Riley reserves, resulting from higher equity markets.
Don: The rail business continues to provide a natural equity risk offset to our guaranteed variable annuity business.
Don: Which result in hedging efficiencies.
Don: 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.
Don: On slide 12, we focus on the diverse new business profile of our retail annuity segment illustrated by growth of 42% from the fourth quarter.
Don: Our reiland product delivered fourth quarter sales of $1 5 billion.
Don: Supporting further diversification in our topline growth.
Don: We expect future growth in our rail business to be supported by our 2024 launch of our plus income living benefit.
Don: The availability of one of Jackson's Reiland products in New York.
Don: And our expanded distribution opportunities through financial professionals at J P. Morgan wealth management.
Don: Sales of variable annuities will remain strong.
Don: <unk>, 27% from the fourth quarter of last year, and 5% from the third quarter of 2024.
Don: Importantly, our sales of variable annuities without lifetime benefits were up 46% from the fourth quarter of last year.
Don: 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.
Don: Jackson 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: During the fourth quarter, we continued to produce healthy volumes of spread product sales and delivered $397 million of fixed and fixed index annuity sales in the quarter.
Don: Our overall sales mix during 2024 remains capital efficient and this stability provides us the opportunity to continue allocating some capital towards spread products as we further diversify our business going forward.
Don: As Laura mentioned earlier, we have been pleased with our progress in diversifying our new business mix since becoming an independent public company.
Don: Turning to net flows the sales we generated in river and other spread products translated to $1 8 billion of non variable annuity net flows in the fourth quarter.
Don: These net flows provide valuable economic diversification and hedging efficiency benefits.
Don: 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.
Don: 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.
Don: In 2020 for 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.
Don: Which positions us to assist in helping customers reach their financial goals.
Don: 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: The more recent environment of higher interest rates and attractive annuity alternatives, such as ROA combined with Jackson's season out of the money book Heightens exchange activity for us and the industry.
Don: Looking at pretax adjusted operating earnings for our segments on slide 13.
Don: Equity markets and a continued positive environment for spread products have driven solid growth in our retail annuity segment up 57% compared to the fourth quarter of last year and 12% from the third quarter of this year.
Don: Fourth quarter results for retail annuities also benefited from the assumptions review I noted earlier.
Don: Jacksons 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 billion, an increase of 7% from the end of.
Don: 2023.
Don: Importantly, the positive separate account fund performance has more than offset a retail annuity net outflows by nearly $18 billion in 2024.
Don: For our institutional segment pre tax adjusted operating earnings were broadly in line with the fourth quarter of last year.
Don: 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.
Don: Our closed block segment reported pretax adjusted operating earnings that were improved from the fourth quarter of 2023 due to higher net investment income.
Don: Results were down sequentially due to the assumptions review impacts in the current quarter, which I noted earlier.
Don: Slide 14 highlights our capital generation and free cash flow.
Don: This quarter, we are enhancing our disclosures to bolster transparency regarding these metrics.
Don: Which we believe will offer clear insights into the robustness of our results and our updated targets.
Don: We acknowledge that there are diverse methodologies within the industry. However, as previously discussed in our calls Jackson adheres to and earn it and pay it philosophy for capital return.
Don: 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.
Don: Starting with the first pillar after tax statutory capital generation was more than $1 7 billion in 2024.
Don: 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.
Don: Free capital generation was more than $1 $3 billion in 2024, after reducing gross capital generation by about $400 million.
Don: <unk> the change in required capital or cow, resulting from our strong and diversified new business results during the year.
Don: 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.
Don: Both after tax statutory capital generation and free capital generation exceeded $1 billion.
Don: Each of these capital generation metrics included a one time benefit of about $190 million.
Don: Related to the corporate alternative minimum tax in 2024.
Don: In 2025, we continue to expect free capital generation in excess of $1 billion under normal market conditions.
Don: 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.
Don: Moving to the second pillar, our free cash flow grew substantially in 2024, once again illustrating the stability of our capital generation in.
Don: In 2020 for over two thirds of free capital generation or $875 million was distributed to J F.
Don: Which was up about 46% from $600 million in 2023.
Don: After covering expenses and other cash flow items at the holding company, the resulting free cash flow of $498 million in 2023 grew to $767 million in 2024.
Don: Finally, looking at the right most pillar the outcome of strong free capital generation and growing free cash flow allowed us to return $631 million to common shareholders in 2024 up 48% from 2023 on a per diluted share basis.
Don: Our 2025 total capital return target of $700 million to $800 million.
Don: Represents further growth from the 2024 level.
Don: Overall these results and updated targets highlight Jackson strong capital generation profile and more stable cash distributions to J F I, which have enhanced value for our shareholders.
Don: Slide 15 summarizes our formidable capital and liquidity position for 2024.
Don: The profitability of our in force business driven by fee income from our variable annuity based contract and the onetime tax benefit I mentioned earlier provided statutory capital generation of $591 million during the fourth quarter.
Don: Consistent with our prior guidance for smaller periodic distributions from Jackson National life.
Don: $280 million was distributed during the fourth quarter.
Don: After accounting for the impact of this distribution and the related reduction in deferred tax asset and disability Jack.
Don: <unk> total adjusted capital or Tac increased and ended the quarter at $5 1 billion.
Don: Cow at Jackson National Life has continued to remain stable as was apparent in our fourth quarter results with estimated count slightly higher reflecting strong and diversified new business activity.
Don: Our estimated RBC ratio was up from the third quarter to 572% and remains well above our minimum of 425%.
Don: We are also pleased with Brooke <unk> performance during 2024, which continues to operate as expected and remains capitalized well above our minimum operating capital level.
Don: While we did see an impact on brokerage capital in the fourth quarter from the actuarial assumption update capital for the full year increased by about $200 million.
Don: Other than the initial formation there were no capital contributions to our distributions from Brook rate in 2024.
Don: Going forward, we will continue to manage brook rate on a self sustaining basis, given the long term nature of its liabilities.
Don: Our holding company cash and highly liquid asset position at the end of the quarter grew to more than $700 million, which continues to be above our minimum buffer and provides substantial financial flexibility.
Don: The periodic dividends and distributions to J F. I throughout 2024 are consistent with the goal of stabilizing RBC compared to our past practice of a sizable annual dividend.
Don: We believe our robust capital position provides a strong financial base for future operating company dividends.
Don: We returned $148 million 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 million to $650 million.
Don: Overall, I am very pleased with our fourth quarter and full year 2024 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: Thank you Dan.
Speaker Change: 24, with a year of significant progress for Jackson, and an important one for demonstrating the consistency of our commitment to all stakeholders.
Speaker Change: We remain dedicated to serving financial professionals and their clients with the goal of helping Americans grow and protect their retirement savings and income.
Speaker Change: As always I'd like to recognize the efforts of all our associates, who talent and dedication remain our greatest strength.
Speaker Change: Our award winning culture was recently recognized with Jackson National asset management and P. P. M. American named Best Places to work in money management by pensions and investments.
Speaker Change: This further showcases our strong workplace environment employee engagement and dedication to supporting each other our business partners and community.
Speaker Change: At this time I will turn it over to the operator for question.
Speaker Change: Thank you if you'd like to ask a question. Please press star followed by one on the telephone keypads can be luxury jewelry. Your question. Please press star followed by two.
Parents, who ask you a question please ensure you're on mute locally.
Speaker Change: As a reminder, that star followed by one on your telephone keypads now.
Speaker Change: Our first question comes from Ryan Kruger of K VW Ryan. Your line is open. Please go ahead.
Ryan Kruger: Hey, Thanks. Good morning first question was could you provide a little bit more color on the moving pieces within brokerage fee in 2024 that ultimately produced.
Ryan Kruger: 100 million dollar increase in capital.
Dawn: Hey, Ryan it's dawn.
Dawn: Happy to kind of take you through the components of that so.
Dawn: First of all I would just.
Dawn: Maybe.
Dawn: <unk> folks that we've indicated that the consolidated hedging results are a decent directional indicator, but theyre not sort of a direct read across for.
Dawn: Brokerage results given that.
Dawn: We follow a modified GAAP approach.
Dawn: The other thing that I would highlight is that on a consolidated basis.
Dawn: $285 million.
Dawn: Net hedge gain for the full year.
Dawn: <unk> of the results of our variable annuity hedging as well as our right.
Dawn: And under the structure that we've set up would you agree we are not reassuring the rail business to procreate, nor are we re insuring the variable annuity business in our New York subsidiary. So that's one sort of scope difference that you need to keep in mind.
Dawn: The second thing is.
Speaker Change: I would just.
Speaker Change: Reiterate while we previously disclosed we have some disclosures around our modified cap approach.
Speaker Change: In our 2023 earnings materials, you can look at slide 19.
Speaker Change: They're essentially for modifications to the GAAP results.
Speaker Change: We implemented in connection with broke right.
Speaker Change: The first was really to kind of promote stability in brokerage balance sheet and included.
Speaker Change: Having sort of a fixed long term volatility assumption and we have discussed that.
Speaker Change: Element on prior calls.
Speaker Change: Volatility actually for the full year was fairly muted.
Speaker Change: And then the other sort of balance sheet stability item was just the way that we handle.
Speaker Change: The nonperformance risk spread brokerage and it's more of a.
Speaker Change: Fixed approach compared to GAAP and then there are two final modifications.
Speaker Change:
Speaker Change: Both of which are part of our goal.
Speaker Change: Our goal of having brokerage can be a self sustaining organization going forward and that was we apply haircut to the guarantee fee stream and we also apply an expense provision for administrative costs. So when you factor in.
Speaker Change: The difference in the blocks of business that Senate brokerage versus in our consolidated results, which was primarily river.
Speaker Change: And then consider these modifications that I just described.
Speaker Change: Those are the items that sort of.
Speaker Change: Make up the difference between consolidated results and results that broke right on a standalone basis.
Speaker Change: Okay.
Speaker Change: Great. Thanks, and then.
Speaker Change: A question on the assumption review it sounds like you the main.
Speaker Change: <unk> impact was around utilization I think you've also had actual to expect.
Speaker Change: Adverse actual to expected.
Speaker Change: Our results over the last year or two around higher lapses I know you also mentioned youre seeing more exchange activity in the current environment.
Speaker Change: So just curious did you see.
Speaker Change: Changing the long term lapse assumption and ultimately what led to keeping the existing lapse assumption.
Speaker Change: Yeah, Yeah, and so before I kind of get into the specifics of your question. There maybe just helpful. Just to kind of step back and put the overall impact of the assumption updates and perspective.
Speaker Change: So when you combine both C P.
Speaker Change: Piece of our assumption updates and impacted our operating earnings that was about $26 million.
Speaker Change: Unfavorable and that's primarily due to mortality as we described it kind of impacts.
Speaker Change: It was blocked in a negative way because of that's related to some life business, where we increased reserves.
Speaker Change: A favorable impact within retail annuities.
Speaker Change: Related to <unk>.
Speaker Change: Blocking payout annuity products, so that sort of offset the.
Speaker Change: Item that we saw in the closed block.
Speaker Change: So 26 million, our operating earnings primarily related to mortality for the non operating earnings impact, which was the $419 million as we.
Speaker Change: Mentioned in our prepared remarks, that's primarily related to refining our protections on withdrawal behavior.
Speaker Change: And so we do look at them.
Speaker Change: All of our various assumptions when we go through our unlocking every year.
Speaker Change: In this year kind of taking.
Speaker Change: Oh look at.
Speaker Change: <unk>.
Speaker Change: Refining the projections around withdrawal behavior.
Speaker Change: For policies that do have GM WPS, we took a look at all the data we have which is quite substantial given the size of our VA block.
Speaker Change: And essentially we updated the granularity of our models so that we can better.
Speaker Change: More precisely capture electric withdrawal frequencies.
Speaker Change: So turning to kind of be unexpected policyholder behavior, which you mentioned, which is included in our <unk>.
Speaker Change: MRV roll forward I did want to highlight that that unexpected behavior.
Speaker Change: Consisting of both surrenders.
Speaker Change: Withdrawals so the item that we changed the assumption for in the fourth quarter as well as death benefits. So it's really all three of those combined.
Speaker Change: And then lastly, just.
Speaker Change: Just on the exchanges.
Speaker Change: Well before I go to the exchanges just just one more comment on surrenders. So.
Speaker Change: Obviously, given the strong equity market performance that we've seen in 2024 as well as 2023.
Speaker Change: A lot of the benefits are out of the money in the current environment and so we do tend to see higher levels of.
Speaker Change: 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, so that contributes.
Speaker Change: What we're seeing in terms of the surrender rate.
Speaker Change: And then on the exchange comment.
Speaker Change: Our prepared remarks.
Speaker Change: Given that the current environment. There you know there are some more attractive.
Speaker Change: Annuity alternatives for customers who have copies.
Speaker Change: The products that are kind of out of the money.
Speaker Change: And which is driven by the higher rate environment also.
Speaker Change: Right what products and so we have seen.
Speaker Change: While we believe a heightened level of surrender activity when we look back at.
Speaker Change: Setting our assumptions are.
Speaker Change: Function for.
Speaker Change: Surrenders going forward, we look at that over time that includes both periods of.
Speaker Change: Markets and down markets and so as we went through that.
Speaker Change: We didn't believe that it made sense to make any changes to our surrender assumptions at this point.
Speaker Change: And just highlight that if you look back to the last.
Speaker Change: Down market that we had in 2022, our surrender rate was about 7% so.
Speaker Change: That's where we that's where we landed on.
Speaker Change: The assumption of debt.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question comes from Sunny to come off of Jefferies. Your line is open. Please go ahead.
Sunny: Great. Thanks, I, just follow up to Ryan's question on broker.
Speaker Change: One of the questions that we get most often from investors is how do you get comfort that broker he 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 just it seems to be some reluctance in terms of providing additional disclosure on broker and since it's such a important part of your strategy.
Speaker Change: I'm wondering if there was something that you guys could give us on a more regular basis that we can use to track the performance there.
Speaker Change: Yeah. Thanks, Thanks for all that to me. So we we take a look at our disclosures on rookery.
Speaker Change: Every quarter.
Speaker Change: And as I mentioned in <unk>.
Speaker Change: Response to Ryan's question, we did provide quite a bit of disclosure around brokerage last year I think we had about a dozen agents in our earnings call materials.
Speaker Change: And.
Speaker Change: You know, we're essentially one year in.
Speaker Change: With brokerage those liabilities are quite long term, probably 20 years on average so we're going to continue to manage broke rate on a long term self sustaining basis.
Speaker Change: As we go forward.
The extent we have any.
Speaker Change: Need for additional capital in brokerage, we would obviously share that will also share.
Speaker Change: When we can take capital out of brokerage and then as we've done this year and we'll kind of get a little bit of.
Speaker Change: Additional disclosure at the end of the year in terms of how we saw the results.
Speaker Change: Play out during the course of the year.
Speaker Change: 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 Holdco cash also being above your target, it's a pretty big number so I guess.
Speaker Change: What is.
Speaker Change: 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 is a sizable amount of excess.
Speaker Change: On the balance sheet.
Speaker Change: Sure. So let me share with you some of our thinking our estimate so.
As we kind of look.
Speaker Change: Laid out with our new disclosures, we are sort of continue to stay focused on this concept of <unk>.
Speaker Change: Our earnings capital hang it up to the holding company and then returning to shareholders.
Speaker Change: At the operating company.
Speaker Change: We are obviously operating with a significant buffer above.
Speaker Change: Above our 425 minimum some of that reflects the fact that there is a period of market sensitivity on the base contract that remains of Jackson national and so.
Speaker Change: So we want to be able to have a sustainable level.
Speaker Change: Capital return coming out of the company and so you would likely see that level of RBC come down over time as opposed to sort of one.
Speaker Change: No kind of major transaction.
Speaker Change: I would also highlight that.
Speaker Change: All of those distributions continuing to be subject to discussions with our regulators.
Speaker Change: But we feel pretty good that if you look at the capital generation that we had for 2024.
Speaker Change: On a reported basis.
Speaker Change: Oh about Ah represents about 66% of the.
Speaker Change: We sent up to the holding company about 66% of what we generate it if you factor in that we had kind of a one time.
Speaker Change: Benefiting the capital generation related to the <unk>.
Speaker Change: We're more like 80%. So we feel we feel good about that and we believe the cash that we have at the holding company provides us with additional flex.
Speaker Change: Flexibility as we look at continuing to grow.
Speaker Change: Going forward, including organic growth operating company as well as any.
Speaker Change: Strategic opportunities that might come up.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks for the answers.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Alex Scott of Barclays. Alex. Your line is open. Please proceed.
Speaker Change: Yeah.
Alex Scott: Hey, Thanks for taking the question.
Alex Scott: First one is actually on a P. P. M. I know, it's a relatively small business from an earnings standpoint for you all but yeah.
Alex Scott: It would be interested in where you see P. P M going over over the long term is that something that may become a bigger piece of the strategy overtime.
Alex Scott: Good morning, Alex Thanks for the question.
Alex Scott: We do see P. P M as a core part.
Alex Scott: Or business at Jackson.
And he was support us with management of our general account.
Alex Scott: And in other ways with our corporate strategy and from that you know.
Alex Scott: Overall performance perspective.
Alex Scott: As you can see in our disclosures.
Alex Scott: They do well for us.
Alex Scott: I think as we continue to move forward.
Alex Scott: If there is opportunity for PP&E to them you would add.
Alex Scott: The larger part of our strategy, we you know what.
Alex Scott: Look.
Alex Scott: For that opportunity to come into play.
Alex Scott: Well continue to have then operate as is and.
Alex Scott: Manage you know the general account.
Alex Scott: I'll invite Craig Smith, who is here with us to share any additional remarks, but you may want to in terms of Pbms specific initiatives sure. Thank you Lauren and thanks, Alex for the question.
Alex Scott: Yeah.
Our business at P. P M as Laura mentioned.
Alex Scott: About half just under half of the assets under management are associated.
Alex Scott: Associated with the Jackson General account, we also have.
Alex Scott: Third party business, we operate our business across five verticals.
Alex Scott: Fixed income.
Alex Scott: Private fixed income.
Alex Scott: Hello management.
Alex Scott: Hello business.
Alex Scott: Commercial mortgage debt and private equity.
Alex Scott: And all of those verticals.
Alex Scott: We are not only providing the services to Jackson, but also third parties and have a.
Alex Scott: Robust.
Alex Scott: Efforts to increase the distribution to institutional investors across the globe recently, you've probably read Alex of our hiring of an experienced emerging market debt team from.
Alex Scott: Western asset management, I guess, three or four weeks ago.
Alex Scott: It's just that.
Alex Scott: Illustration of Jackson's commitment to Dpm's business, the growth of our business and increasing our capabilities at our investment management.
Speaker Change: Got it that's helpful and that that western asset management, a higher or did I catch my eye that was one of the reason that I was interested in asking about that.
Speaker Change: Alright, I guess for my follow up.
Speaker Change: I wanted to ask about the free capital generation guidance unchanged in terms of you know exceed 1 billion I'd say 2024 being 1.7 before funding sort of business grows 1.3. After you've laid out in your deck that that seemed pretty darn strong to me.
Speaker Change: I guess I just wanted to ask.
Speaker Change: How much is that.
Speaker Change: Excuse me a number benefit from.
Speaker Change: This 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 they were like you know sort of one one time benefits in the market being strong or.
Speaker Change: Do you view that as a pretty good run rate at this point.
Speaker Change: Yeah. So thanks for that Alex it's done so.
Speaker Change: The first thing I would just highlight in terms of the.
Speaker Change: $1 billion plus for 2025.
Speaker Change: 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 you're essentially kind of a $1 1 billion.
Speaker Change: For 24 on a more normalized basis and in terms of going forward.
Speaker Change: You know there is some equity market sensitivity as I mentioned, but we have a fairly.
Speaker Change:
Speaker Change: What we believe is reasonable.
Speaker Change: Our level of equity market return built into our plan for 2025, and we feel very comfortable with that $1 billion guide.
Speaker Change: Guidance.
Speaker Change: Got it thank you.
Speaker Change: Thank you as another reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: Our next question comes from Tom Gallagher of ISI, Tom Your.
Speaker Change: Your line is open. Please go ahead Sean.
Speaker Change: Good morning, first wanted to come back to the actuarial review.
Sean: So is it was the charge taken because more customers are utilizing the G. M. WB features than you had modeled I guess I'll go I've sort of what 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.
Speaker Change: And the money is there.
Speaker Change: Is that it's done is that where you're making the adjustment changed as you've looked at different cohorts.
Speaker Change: If you could unpack that a little bit thanks.
Tom Gallagher: Sure Good morning, Tom.
Tom Gallagher: So yeah, let me try and unpack that for you and make it a bit more clear so are we.
Tom Gallagher: Adjustment that we made as part of our assumption review was not directly related to utilization it was more related to kind.
Tom Gallagher: Kind of making sure that we've got captured in our projections.
Tom Gallagher: More precise information around the frequency of withdrawals as opposed to being able to utilize those benefits.
Tom Gallagher: And 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 AR.
Tom Gallagher: A regular basis, and that's really what the focus of our.
Tom Gallagher: Assumption.
Tom Gallagher: And it was in the quarter.
Tom Gallagher: Yeah.
Speaker Change: Gotcha and then just a couple of other quick ones did you did you say you're.
Speaker Change: Ultimate lapse rate assumption for total annuities was around 7% because I've just looking at this quarter was around 13.
Speaker Change: Wanted to make sure I'm looking at apples to apples.
Speaker Change: Yes, no the 7% that I mentioned that was.
Speaker Change: The <unk>.
Speaker Change: Surrender rate that we experienced in 2022 my point in having you look back at that that was the last down market experience that we had and so because we do tend to see changes in our surrenders and.
Speaker Change: Equity markets that tends to result in more surrenders, we have the opposite impact the car and that's when we have a down market and so that's what the 7% relates to.
Okay, and what what is your terminal lapse rate assumption I just want to at.
Speaker Change: At least level set where we are now and if rage, if lapses remain elevated whether you might have to make some adjustments.
Speaker Change: Yes, it's probably closer to the 8% to 9% range would be more typical.
Speaker Change: In the money lapse rate.
Speaker Change: Im sorry at the money lapse rate.
Speaker Change: Got you and then just one final one if I could.
Speaker Change: Digital a little more of like a structural question.
Speaker Change: So I know you'll have the permitted practice with Brooke re is there within the permitted practice is there are there guardrails around you still are beholden and somehow to RBC on a statutory basis and the reason I ask is.
Speaker Change: When when I see like there's proposed changes to scenario generator in 'twenty six.
Speaker Change: I wonder how is that even going to affect you if you're using modified GAAP, but anyway is there any is there any guardrail that's still.
Speaker Change: Where theres still a relevance to statutory or is there.
Speaker Change: Does that not even relevant anymore in terms of the deal you have with the Michigan regulator.
Speaker Change: Yeah. It's.
Speaker Change: Good question, Tom Thanks for that so.
Speaker Change: It is largely the goes.
Speaker Change: Pat has largely not applicable to the book of business that we've reinsured to Brooklyn, and in terms of Guardrails and primary.
Speaker Change: The primary guardrail that we have there is our minimum operating capital, which we did outline in our disclosures at year end.
Speaker Change: Last year in terms of the framework that we use there. So we do have a minimum level of capital that we've committed.
Speaker Change: The two Michigan to maintain and look great and we're well above that given where we ended 2024.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you at this time, we have no further questions registered on today's call. So I'll hand back over to lower preschool CEO for any closing remarks.
Speaker Change: Thank you as you've heard this morning, 2024 was a great year of progress for Jackson, and I look forward to continuing discussions and sharing our progress toward our 2025 targets after the first quarter.
Speaker Change: You all for your continued interest in Jackson.
Speaker Change: Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.