Business context and reporting period
Jackson Financial Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. The company is a U.S. retirement and insurance business with Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks segments. Comparatives for 2022 were recast for adoption of long-duration contract accounting (LDTI), effective January 1, 2023.
Key financial results
Amounts are in millions except per-share data. The filing provides no conventional operating-margin measure; adjusted operating earnings are non-GAAP.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $2,606 | $2,962 | $2,267 | $11,877 |
| Net income attributable to Jackson Financial | $2,773 | $1,879 | $2,493 | $7,336 |
| Net income attributable to common shareholders | $2,762 | $1,879 | $2,469 | $7,336 |
| Diluted EPS | $33.35 | $21.38 | $29.20 | $82.13 |
| Pretax adjusted operating earnings (non-GAAP) | $355 | $414 | $962 | $1,323 |
| Adjusted operating earnings (non-GAAP) | $315 | $376 | $869 | $1,160 |
- Revenue and earnings volatility: Nine-month GAAP revenue fell sharply, mainly because derivatives and investment results shifted from $3,836 of gains in 2022 to $5,821 of losses in 2023. For Q3, total derivative and investment results were a $176 loss versus a $359 gain.
- Investment income: Nine-month net investment income rose to $2,176 from $2,022, reflecting higher bond yields, partly offset by lower funds-withheld investment income.
- Cash flow: Nine-month operating cash flow was $3,676, investing cash outflow $685, and financing cash outflow $4,527. Cash, cash equivalents and restricted cash ended at $2,765, down $1,536 since year-end 2022.
- Balance sheet and debt: At September 30, total assets were $314,534, total equity $10,253, cash and cash equivalents $2,760, and long-term debt $2,635. AOCI was negative $5,187. A $600 senior-note maturity was due in November 2023; management said it expected to pay it with cash on hand.
- Liquidity: Jackson reported $21.2 billion of unrestricted, unencumbered cash, short-term investments, and privately and publicly traded securities available for sale at the insurance-subsidiary level. Net derivative collateral payable was $450, down from $689 at year-end 2022. Insurance subsidiaries were described as well above minimum statutory capital requirements; a current RBC ratio is not provided in the supplied filing text.
Material changes versus the prior comparable period
- Q3 GAAP net income increased, largely reflecting $1,463 of more favorable market-risk-benefit movements; however, adjusted operating earnings declined to $315 from $376.
- Nine-month adjusted operating earnings decreased to $869 from $1,160. Retail Annuities contributed $1,038 pretax adjusted operating earnings (down from $1,180); Institutional Products $47 (down from $62); Closed Life and Annuity Blocks a loss of $7 (versus $79 earnings); and Corporate and Other a loss of $116 (versus $2 earnings).
- Total sales declined to $10.6 billion from $14.0 billion for nine months. Retail annuity sales were $9.6 billion versus $12.5 billion. Variable annuity sales fell, partly offset by higher RILA sales.
- Retail annuity net flows, gross of reinsurance, were negative $7.3 billion for nine months versus negative $1.7 billion, driven by higher variable-annuity surrenders and withdrawals and lower sales. RILA net flows remained positive.
- Mortgage-loan credit-loss allowance increased to $200 from $95 at year-end 2022, with a $105 nine-month provision, primarily associated with two stressed mezzanine loans. Available-for-sale debt securities had $7.1 billion of gross unrealized losses; management said it did not intend, and was not more likely than not required, to sell the affected securities before recovery.
- Jackson issued $533 million of Series A preferred stock in March. Common shares outstanding declined to 80.1 million from 82.7 million at year-end 2022.
Outlook, risks and unusual items
- Capital returns: Management’s 2023 common-shareholder capital-return target was $450–$550 million. Through September 30, it reported $347 million returned ($159 million in common dividends and $188 million in share repurchases). The board declared a fourth-quarter common dividend of $0.62 per share. The filing also reports different repurchase totals in other presentations; see investor verification items below.
- Market and interest-rate exposure: Results are sensitive to equity markets, interest rates, credit spreads, policyholder behavior, hedge effectiveness, and collateral requirements. Management emphasized that GAAP fair-value movements in hedges and market risk benefits can produce substantial earnings volatility and may not offset economically in the same reporting period.
- Reinsurance and credit: The allowance for reinsurance recoverables rose to $33 from $15, including an increase related to a reinsurer ordered into liquidation. The filing says this allowance represents management’s current best estimate of remaining exposure. Reinsurance recoverables and funds-withheld arrangements remain material.
- Tax: Jackson is subject to the corporate alternative minimum tax beginning in 2023. It recorded an estimated $450 provision with an offsetting deferred tax asset and no current total tax-expense impact, but Treasury guidance could change the estimate. A valuation allowance for unrealized tax losses reached $1,086.
- Ratings and regulatory matters: On October 20, 2023, Moody’s downgraded Jackson Financial’s issuer rating from Baa2 to Baa3 and Jackson National Life’s financial-strength rating from A2 to A3, changing the outlook to stable. A proposed Department of Labor fiduciary-advice rule could affect annuity distribution, compensation, product offerings, and litigation exposure; its final impact is uncertain.
- Controls and cybersecurity: Management reported disclosure controls and internal control over financial reporting were not effective at September 30 because of a material weakness in risk assessment and controls over the non-performance-risk discount rate used to value certain variable-annuity guarantees. Remediation was underway, with completion expected by year-end. A vendor MOVEit breach affected data relating to approximately 850,000 Jackson customers; management did not expect a material adverse effect.
- Unusual accounting and transactions: LDTI adoption reduced equity by approximately $3.0 billion at the January 1, 2021 transition date. A private-equity investment sale in October 2023 followed a $93 million estimated loss recognized in nine-month investment income. No formal earnings guidance is provided in the filing.
Most important facts for investors to verify
- Reconcile GAAP earnings with adjusted operating earnings and assess how much of reported profit depends on volatile market-risk-benefit and derivative valuations.
- Review variable-annuity sales, persistency, withdrawals, net flows, and hedge results, as well as the assumptions underlying market-risk-benefit valuations.
- Track mortgage credit performance—especially the two stressed mezzanine loans—and the reinsurer liquidation exposure and related allowance.
- Confirm liquidity, statutory capital and dividend capacity, the November 2023 senior-note repayment, and any effects of the Moody’s downgrade.
- Clarify the different repurchase figures disclosed: $188 million of nine-month capital returns in the executive summary, $236 million of treasury-stock purchases in the cash-flow/equity disclosures, and $214 million of 2023 program payments shown through November 3.
- Monitor remediation of the material weakness, updated CAMT guidance, and any financial or legal consequences from the MOVEit incident or proposed fiduciary rule.