Business context and reporting period
Jackson Financial Inc. filed this Form 10-K for the fiscal year ended December 31, 2021. Although the request identifies 2021 Q4, the filing presents annual results; it does not provide a clear standalone fourth-quarter income statement. Jackson is a U.S. retirement-services and insurance company, primarily selling annuities. Its demerger from Prudential plc was completed September 13, 2021, and its Class A shares began NYSE trading on September 20, 2021.
In Q4 2021, Jackson launched its Market Link Pro registered index-linked annuities and entered the defined-contribution market through AllianceBernstein’s Lifetime Income Strategy.
Financial and operating performance
Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $8,848 | $3,206 |
| Net income (loss) attributable to Jackson Financial | $3,183 | $(1,634) |
| Adjusted Operating Earnings, non-GAAP | $2,398 | $1,880 |
| Operating cash flow | $5,743 | $3,777 |
| Total sales | $19,804 | $19,229 |
| AUM | $359,454 | $361,646 |
| Adjusted Operating ROE | 28.6% | 27.6% |
Reported GAAP earnings were substantially affected by market-driven derivative and reserve valuation changes. Management uses Adjusted Operating Earnings, which excludes several volatile or non-recurring items; it is not a substitute for GAAP net income. The filing does not present a single consolidated operating margin as a key performance measure. Jackson reported a 23-basis-point statutory operating expense-to-asset ratio at its principal insurance subsidiaries.
- Revenue rose mainly with higher fee income and investment income. GAAP net gains and losses on derivatives and investments improved to a loss of $2,478 from a loss of $6,451, while still materially affecting reported results.
- Adjusted Operating Earnings increased 28%, supported chiefly by higher variable-annuity fee income; Retail Annuities pretax Adjusted Operating Earnings rose to $2,528 from $2,006.
- Total sales increased modestly, but mix shifted: variable-annuity sales rose to $19,073 from $16,621; institutional-product sales fell to $475 from $1,284. Retail annuity net flows turned negative at $(3,361), versus positive $581 in 2020, as surrenders and death-benefit outflows exceeded sales.
- Total assets were $375,484 and total shareholders’ equity was $10,394 at year-end. Investments totaled $74,227, down from $80,488; AOCI fell to $1,744 from $3,821, primarily reflecting lower unrealized investment gains.
- Cash, cash equivalents and restricted cash were $2,631 at year-end. Net cash used in investing activities was $1,296 and net cash used in financing activities was $3,835.
- Long-term debt was $2,649, up from $322. Jackson issued $1.6 billion of senior notes and used the proceeds and cash on hand to repay a $1.6 billion delayed-draw term loan; $750 million of term loans due 2023 remained outstanding. Jackson’s RBC ratio rose to 580% from 347%.
Changes, outlook, risks and unusual items
- The 2021 GAAP profit reversal largely reflects improved market-related derivative and embedded-reserve results versus 2020, when Jackson recorded a $2,082 pretax loss on the Athene reinsurance transaction. The 2021 comparison also includes higher operating expenses, partly because the 2020 accounts included a $1.2 billion Athene ceding commission as a contra-expense.
- Athene reinsures 100% of a block of in-force fixed and fixed-index annuity liabilities. Jackson retains legal ownership of related funds-withheld assets while the economic returns accrue to Athene, creating a significant counterparty concentration.
- Management said fixed-annuity sales were expected to remain historically low in 2022 under then-current market conditions. The filing provides no consolidated earnings or revenue guidance.
- Management cited favorable 2021 equity-market performance and lower year-over-year volatility, but warned that low interest rates, market declines or volatility, credit deterioration, policyholder behavior, hedge basis risk and derivative collateral needs can pressure earnings, capital and liquidity.
- Jackson is a holding company dependent on regulated subsidiary distributions. A $600 million payment from Jackson to Brooke Life was approved in February 2022; Brooke Life expected to pay a $510 million dividend to Jackson Financial afterward. Jackson’s 2022 ordinary dividend capacity was reported as nil, subject to earned-surplus availability.
- The filing reports a material weakness in disclosure controls and internal control over financial reporting tied to a restatement of 2020 financial statements. Controls were deemed ineffective at December 31, 2021; management expected remediation in Q2 2022, but said remediation would require successful testing. The company did not include management’s ICFR assessment because of the newly public company transition period.
- The auditor issued an unqualified opinion on the financial statements and identified variable-annuity guarantee liabilities and DAC amortization as critical audit matters. Jackson also disclosed ongoing litigation and regulatory risks; management considered a material adverse effect from ultimate disposition unlikely.
- Long-duration insurance accounting standard ASU 2018-12 was expected to have a significant financial-statement and disclosure impact; the company was assessing the effects and did not plan early adoption.
Important facts for investors to verify
- How much of 2021’s GAAP earnings improvement reflects market-related accounting movements versus durable operating performance; review the non-GAAP reconciliation.
- Whether negative retail-annuity net flows and elevated surrenders persist, and how they affect fee income, reserves and liquidity.
- Progress in remediating the material weakness, including the results of control testing and any further restatements or control findings.
- Jackson’s statutory capital, dividend capacity and liquidity after the approved subsidiary distributions, and the effect of market stress on RBC and hedge collateral needs.
- Athene’s reinsurance performance and credit exposure, as well as the impact of Prudential and Athene ownership, asset-management relationships and any further share sales.
- The effect of ASU 2018-12, interest-rate and credit-market changes, and the Moody’s negative outlook on ratings, financing costs and product sales.