Jackson Financial Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Jackson is a retirement-focused financial services and insurance company, with Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks segments.
Financial results and key metrics
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| GAAP total revenues | (322) | (764) |
| GAAP pretax income (loss) | 903 | (2,054) |
| Net income (loss) attributable to Jackson | 795 | (1,497) |
| Net income (loss) attributable to common shareholders | 784 | (1,497) |
| Diluted EPS | $9.94 | $(18.11) |
| Adjusted operating earnings, after tax (non-GAAP) | 334 | 271 |
| Pretax adjusted operating earnings (non-GAAP) | 389 | 302 |
| Net investment income | 734 | 707 |
| Operating cash flow | 1,426 | 1,461 |
- GAAP results were strongly affected by market-sensitive accounting: net losses on derivatives and investments were $3,093 million, while net gains on market risk benefits were $2,718 million. These items contributed to negative reported revenue despite positive pretax and net income.
- Adjusted operating earnings increased 23% year over year; adjusted operating ROE was 12.0%, versus 11.7%. These are non-GAAP measures and should be considered alongside GAAP results.
- Fee income rose to $1,998 million from $1,888 million, primarily reflecting higher average separate-account values. Operating costs and other expenses increased to $685 million from $616 million; DAC amortization was $278 million versus $293 million.
- Segment pretax adjusted operating earnings: Retail Annuities $419 million (up from $356 million); Institutional Products $31 million (up from $9 million); Closed Life and Annuity Blocks $19 million (versus a $20 million loss); Corporate and Other had an $80 million loss (versus a $43 million loss).
- At March 31, total assets were $340.3 billion, total liabilities $329.9 billion, and total equity $10.4 billion. Cash and cash equivalents were $2.5 billion. Long-term debt was $2.0 billion; repurchase agreements and securities-lending payable totaled $1.8 billion, up from $19 million at year-end, principally reflecting new repo activity.
- Available-for-sale debt securities had $4.7 billion of gross unrealized losses; accumulated other comprehensive loss was $3.4 billion, compared with $2.8 billion at December 31, 2023. Management said it did not intend, and was not more likely than not required, to sell temporarily impaired securities before recovery.
- Net cash used in investing activities was $2.0 billion, improving from $2.9 billion used in Q1 2023, mainly due to lower derivative settlement and collateral outflows. Financing activities provided $433 million, versus $1.1 billion used in the prior-year quarter.
Material changes versus the prior comparable period
- GAAP net income attributable to common shareholders swung to $784 million from a $1.5 billion loss, primarily reflecting the substantially more favorable market-risk-benefit result and lower funds-withheld reinsurance losses. GAAP earnings remain sensitive to market movements and hedging-accounting mismatches.
- Total sales were nearly unchanged at $3.8 billion. Retail annuity sales increased to $3.7 billion from $3.1 billion, led by RILA sales of $1.2 billion versus $533 million. Institutional sales fell to $100 million from $649 million, consistent with the company’s opportunistic approach to that business.
- Retail Annuities net flows, net of reinsurance, worsened to negative $2.8 billion from negative $1.2 billion, driven by increased variable-annuity surrenders and withdrawals; RILA flows were positive. Institutional net flows were negative $596 million.
- Variable annuity account value was $238.5 billion at quarter-end, up from $227.8 billion at year-end, supported by favorable investment performance; retail annuity account value increased to $247.6 billion from $235.5 billion.
- Operating costs rose, including higher asset-based commissions and incentive and deferred compensation. The company also reclassified certain interest costs related to portfolio leverage into net investment income; prior periods were conformed to the revised presentation.
Outlook, management commentary, risks and contingencies
- Capital return: Management set a 2024 common-shareholder capital-return target of $550–$650 million. In Q1, it returned $172 million through $56 million of common dividends and $116 million of share repurchases. The board declared a $0.70-per-share common dividend for Q2. The target is not a guarantee; dividends and repurchases remain subject to board discretion, liquidity, capital, legal and regulatory constraints.
- Brooke Re transaction: A new captive reinsurer received a 100% coinsurance-with-funds-withheld transfer of specified variable-annuity market-risk-benefit liabilities, effective January 1, 2024. Jackson received an approximately $1.2 billion ceding commission; the transaction eliminates in consolidated GAAP reporting. Management says it is intended to moderate cash-surrender-value-floor effects on statutory capital, improve hedging efficiency and make capital generation more predictable. Holding-company liquidity was not affected.
- Capital and liquidity: Management reported insurance subsidiaries well above minimum statutory capital requirements. Jackson had $20.2 billion of unencumbered, unrestricted cash, short-term investments and securities available for sale, and a net derivative collateral payable position of $92 million, down from $780 million at year-end. The company also targets at least $250 million of holding-company cash and highly liquid securities to cover two years of fixed net expenses. Revolving credit facility covenants were reported in compliance.
- Key exposures: Equity-market performance affects variable-annuity account values, fee income and hedging outcomes. Interest rates can affect investment spreads, surrender behavior, reserves and derivative collateral needs; credit deterioration could increase defaults, impairments and statutory capital requirements. Policyholder withdrawals and market disruptions may create liquidity needs.
- Regulation: The Department of Labor adopted a fiduciary-advice rule on April 23, 2024, after quarter-end, effective September 23, 2024, with a phase-in for most provisions. Jackson is assessing potential effects on annuity distribution, compliance costs, compensation, products and litigation exposure; the rule may face legal challenges.
- Other items: Jackson recorded a $46 million increase in the valuation allowance on deferred tax assets related to unrealized investment losses. Management described ordinary-course litigation, including product-sales allegations, and did not expect its ultimate disposition to materially harm financial condition. Unfunded investment commitments were $751 million to limited partnerships and LLCs and $804 million for mortgage loans and other debt securities.
- The filing provides no clear full-year earnings or revenue guidance. Management cautions that Q1 results are not necessarily indicative of full-year results; risk factors were reported as unchanged from the 2023 Form 10-K.
Most important facts for investors to verify
- How much of the GAAP earnings improvement reflects market-sensitive MRB and derivative accounting, versus underlying operating performance; review the non-GAAP reconciliation and hedging disclosures.
- Whether negative retail annuity net flows—especially variable-annuity withdrawals and surrenders—persist, and whether RILA growth can offset them.
- The statutory-capital and risk-based-capital effects of the Brooke Re transaction, including execution, regulatory treatment and realized hedging benefits.
- Credit quality and valuation exposure in the investment portfolio, including unrealized losses, commercial real estate loans, Level 3 fair values and potential future credit-loss allowances.
- Liquidity and collateral needs under adverse market conditions, alongside the increased use of repurchase agreements and the company’s capital-return target.
- The eventual implementation and legal status of the DOL fiduciary rule, its effect on distribution partners, and any material developments in litigation or tax guidance.