Jackson Financial Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Jackson is a U.S. retirement-focused insurer and financial services company, with retail annuities as its primary business.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Total GAAP revenue | $14.551 billion | $9.247 billion |
| Net income attributable to Jackson Financial | $5.697 billion | $3.183 billion |
| Adjusted Operating Earnings (non-GAAP) | $1.443 billion | $2.398 billion |
| Total sales | $18.135 billion | $19.804 billion |
| Assets under management | $290.549 billion | $359.454 billion |
| Operating cash flow | $5.206 billion | $5.682 billion |
| Cash and cash equivalents at year-end | $4.298 billion | $2.623 billion |
| Long-term debt | $2.635 billion | $2.649 billion |
| Total shareholders’ equity | $8.423 billion | $10.394 billion |
| Jackson statutory RBC ratio | 544% | 580% |
GAAP revenue and net income rose substantially, chiefly reflecting a $6.329 billion year-over-year improvement in net gains on derivatives and investments. These market-sensitive items can make GAAP results volatile and are excluded, in part, from Adjusted Operating Earnings. Adjusted Operating Earnings fell 40%, and adjusted operating ROE declined to 13.2% from 28.6%; reported GAAP ROE was 60.7% versus 31.5%. The filing does not provide a single directly comparable operating margin measure.
Retail annuity sales were $15.737 billion, down from $19.329 billion. Variable annuity sales declined to $13.638 billion from $19.073 billion; RILA sales, launched in late 2021, rose to $1.811 billion. Institutional product sales increased to $2.398 billion from $475 million. Total retail annuity account value fell to $209.318 billion from $259.423 billion, primarily due to negative market returns and outflows. Retail Annuities pretax adjusted operating earnings decreased to $1.626 billion from $2.528 billion.
Net cash from operating activities decreased by $476 million, primarily due to lower limited-partnership investment income. Investing activities used $1.374 billion, while financing activities used $2.162 billion. The year-end cash balance increased, but insurer and holding-company liquidity are subject to different constraints. Jackson reported $23.3 billion of unencumbered, unrestricted cash, short-term investments and marketable securities; net collateral payable on derivatives was $689 million.
Total investments declined to $65.946 billion from $74.227 billion. Rising rates and wider credit spreads drove available-for-sale debt securities’ net unrealized position from a $2.178 billion gain to a $6.286 billion loss. Debt securities remained 92.4% investment grade, compared with 93.5% in 2021. Total liabilities were $301.903 billion; separate-account assets and matching liabilities were each $195.906 billion.
Material changes and significant items
- 2022 equity-market declines reduced variable-annuity account values and fee income; higher interest rates and market movements also affected hedging and guarantee valuations.
- Net investment income declined to $2.761 billion from $3.424 billion, mainly reflecting lower limited-partnership income. Fee income declined to $7.722 billion from $8.059 billion.
- GAAP derivative and investment gains swung to $3.851 billion from a $2.478 billion loss. The result includes noncash and market-sensitive fair-value movements and should not be read as recurring operating growth.
- Jackson issued $750 million of senior notes in 2022, using proceeds and cash to repay a $750 million term loan. Debt at year-end was $2.635 billion. A $600 million insurer capital return was made during 2022; another $600 million distribution was approved in February 2023, subject to upstreaming constraints.
- Common-stock repurchases totaled $283 million and shareholder dividends totaled $199 million in 2022. The board later approved a $450 million increase to the repurchase authorization and a quarterly dividend of $0.62 per share.
- The company revised certain prior-period line-item classifications after identifying errors. It said these revisions were immaterial and did not change previously reported net income, equity or net cash flows.
Outlook, risks and contingencies
Management cites demographic demand for retirement income, new RILA products and defined-contribution offerings as growth opportunities. It also expects higher rates to improve yields on new investments, while warning of possible policy lapses, realized asset losses, higher collateral needs and effects on statutory capital. The filing provides no formal earnings or revenue guidance.
Jackson expected to be subject to the Inflation Reduction Act’s 15% corporate alternative minimum tax beginning in 2023, but had recorded no provision at year-end; Treasury guidance was still pending. The company planned to adopt long-duration contract accounting (LDTI) on January 1, 2023. It estimated an approximately $3 billion decrease in total equity at the January 1, 2021 transition date based on conditions at that date, while noting the estimated impact had become positive by December 31, 2022, primarily because of higher interest rates.
Control and audit matters: Management and KPMG identified a material weakness in controls over assessment of the nonperformance-risk adjustment used in discount rates for certain variable-annuity guarantees. Management said no financial-statement misstatement was identified and expected remediation by year-end 2023. KPMG gave an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. Significant estimation uncertainty also applies to guarantee liabilities, deferred acquisition costs, policyholder behavior and investment valuations.
Other principal risks include equity and interest-rate volatility, credit deterioration, reinsurance and derivative counterparty exposure, reliance on subsidiary dividends and FHLB funding, regulatory changes, competition and litigation. Jackson reported ongoing state insurance examinations with no pending material adverse findings as of December 31, 2022. Management said the ultimate disposition of legal contingencies was unlikely to materially adversely affect financial position, while acknowledging outcomes are uncertain.
Important facts for investors to verify
- Reconcile GAAP net income growth with the decline in Adjusted Operating Earnings and assess how much of reported earnings came from market-driven fair-value movements.
- Track remediation of the material weakness, related control testing, and any subsequent changes to guarantee valuations or reported results.
- Review LDTI adoption disclosures and the resulting effects on equity, earnings volatility, reserves and comparability.
- Monitor RBC, statutory capital and the ability of Brooke Life and Jackson to upstream distributions, particularly after the approved 2023 distribution.
- Assess variable-annuity sales, account values, net flows, guarantee exposure and hedge performance following 2022 market declines.
- Evaluate unrealized investment losses, credit quality, mortgage exposures, derivative collateral needs and concentration in Athene reinsurance.
- Confirm the cash-tax consequences of the new alternative minimum tax and the effects of repurchases, dividends and debt maturities on holding-company liquidity.