Jackson Financial Inc. Form 8-K Summary
Reporting date: March 22, 2023. The filing reports the adoption of U.S. GAAP Accounting Standards Update 2018-12, commonly referred to as long-duration targeted improvements (LDTI), effective January 1, 2023, with a transition date of January 1, 2021.
Business Context and Reporting Period
Jackson Financial furnished an unaudited historical financial supplement recast for LDTI for quarters and fiscal years ended in 2021 and 2022. The supplement was provided to help investors assess the effect of LDTI before the company files audited recast financial statements for 2021 and 2022, which it expected to file after its Form 10-Q for the quarter ended March 31, 2023.
Key Financial Metrics and LDTI Impact
- Total shareholders’ equity: LDTI reduced equity by $3.0 billion at January 1, 2021. At December 31, 2022, the reported impact was an increase of $223 million, primarily reflecting higher interest rates and an increase in accumulated other comprehensive income.
- Adjusted book value: The reduction in retained earnings at December 31, 2022 decreased adjusted book value by approximately $1.9 billion.
- Leverage: The company’s leverage ratio increased to 21% at December 31, 2022 after implementation.
- Net income: LDTI increased full-year 2022 net income by $489 million and full-year 2021 net income by $234 million.
- Adjusted operating earnings: The company expects a modest increase in future deferred acquisition cost amortization. Equity-market-driven acceleration or deceleration of DAC amortization no longer applies prospectively, which is expected to reduce volatility in adjusted operating earnings.
- Statutory capital and shareholder returns: Management stated that LDTI has no impact on statutory capital or the company’s ability to return cash to shareholders.
- Other metrics: The filing text provided does not include clear revenue, operating margin, cash-flow, debt-balance, or liquidity figures.
Material Changes Versus Prior Comparable Period
- The company applied the modified retrospective method for most contracts and the full retrospective method for market risk benefits.
- Market risk benefits are now measured at fair value, with changes generally recognized in earnings and changes attributable to the company’s own non-performance risk recognized in OCI.
- DAC is amortized on a constant-level basis independent of underlying profitability.
- Future policy benefit liabilities use updated cash-flow assumptions and quarterly updated discount rates, with related changes recognized in OCI.
- LDTI increased reported net income for both 2021 and 2022, reduced adjusted book value, and altered the presentation and volatility of certain earnings measures.
Outlook, Risks, and Unusual Items
- Management does not expect to change its hedging strategy because of LDTI.
- Future net hedge results are expected to be less sensitive to equity-market movements but more sensitive to interest-rate movements.
- The recast financial information is unaudited and may differ, potentially materially, from the subsequent audited recast financial statements.
- Adjusted book value and adjusted operating earnings are non-GAAP measures and may not be comparable with similarly titled measures used by other companies. Reconciliations are included in Exhibit 99.1.
- The filing contains forward-looking statements subject to risks and uncertainties described in Jackson Financial’s SEC filings. The company does not undertake to update such statements except as required by law.
- The information in Items 2.02 and 7.01, including Exhibit 99.1, was furnished rather than filed for Section 18 liability purposes and is not incorporated by reference except where expressly stated.
Investor Verification Checklist
- Verify the audited recast 2021 and 2022 financial statements against the unaudited Exhibit 99.1 supplement.
- Reconcile the reported $223 million equity increase, approximately $1.9 billion adjusted book value reduction, and 21% leverage ratio to the final audited disclosures.
- Assess how LDTI changed net income, OCI, market risk benefit valuations, DAC amortization, and adjusted operating earnings.
- Review the company’s subsequent Form 10-Q for updated assumptions, transition adjustments, liquidity, debt, statutory capital, and shareholder-return capacity.
- Confirm the definitions and reconciliations for adjusted book value and adjusted operating earnings before relying on those non-GAAP measures.