8-K: Jackson Financial Inc. Reports Strong 2023 Results, Exceeds Financial Targets and Implements Strategic Reinsurance Solution

Jackson Financial Inc. announced its fourth quarter and full year 2023 financial results, highlighting strong performance, the achievement of key financial targets, and the implementation of a new captive reinsurance structure.

Summary

• Jackson Financial Inc. (JFI) has released its financial results for the fourth quarter and full year of 2023, showcasing a successful year of execution.
• The company met or exceeded all key financial targets for the third consecutive year.
• JFI returned $464 million of capital to common shareholders in 2023 through share repurchases of $255 million and dividends of $209 million.
• The company's net income attributable to common shareholders was nearly $900 million, or $10.76 per diluted share, for the full year.
• Adjusted operating earnings for the full year were $1.1 billion, or $12.84 per diluted share.
• The company's estimated Risk-Based Capital (RBC) ratio was 624% at year-end 2023, exceeding the target range for normal market conditions.
• A new captive reinsurer, Brooke Re, was established and funded in January 2024 to improve capital generation and align reserves with the economics of the business.
• Total retail annuity sales were $12.8 billion, including $2.9 billion in Registered Index-Linked Annuity (RILA) sales.
• Holding company cash and highly liquid securities were approximately $600 million at year-end 2023, above the targeted minimum liquidity buffer.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the company's strong financial performance, exceeding targets, and strategic initiatives like the establishment of Brooke Re. While there are some negative aspects, such as the net hedge loss and lower 4Q23 earnings, the overall tone is optimistic and forward-looking.

Positives

• The company successfully met or exceeded all key financial targets for the third consecutive year.
• JFI demonstrated strong capital return to shareholders, exceeding its target for 2023.
• The company reported strong earnings results for both the full year and the fourth quarter.
• The establishment of Brooke Re is expected to lead to more predictable capital generation and better alignment of reserves with the economics of the business.
• The company maintains a strong capital position with an estimated RBC ratio of 624%.
• Retail annuity sales remain strong, with significant growth in RILA sales.
• The company has a robust level of liquidity with approximately $600 million in holding company cash and highly liquid securities.
• The company has a high quality, diversified investment portfolio.
• The company has a strong opening balance sheet position at Brooke Re, funded by capital from JNL.

Negatives

• Adjusted operating earnings for 4Q23 were $204 million, compared to $294 million for 4Q22, due to the unfavorable impact of the annual actuarial assumptions update, higher market-related costs, and other expenses.
• The company experienced a net hedge loss of $990 million in 4Q23, primarily due to lower interest rates.
• The closed block segment reported a pretax adjusted operating loss of $88 million in 4Q23, compared to income of $38 million in 4Q22.
• The company's market/book ratio of the fixed maturity portfolio is 0.93, indicating some unrealized losses.
• The company's exposure to below investment grade securities is 6% of total invested assets, which is almost entirely corporate bonds and loans.

Risks

• The company's forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected.
• The company's hedging program may not fully protect against adverse market conditions.
• The company's financial results may be impacted by changes in interest rates, equity markets, and other market conditions.
• The company's closed block segment results may experience volatility due to quarterly updates of actual versus expected cash flows and annual assumption updates.
• The company's exposure to below investment grade securities could lead to potential losses.
• The company's commercial mortgage loan portfolio has some exposure to office properties, which may be subject to market risks.

Future Outlook

The company is well-positioned for continued long-term value creation for shareholders and expects Brooke Re to be self-sustaining and capital generative over the long-term. The company has set a 2024 capital return target of $550 $650 million and a target RBC ratio of 425%.

Management Comments

• The company has continued progress toward our strategic and operational goals.
• The company has maintained a strong balance sheet and robust levels of liquidity.
• The company is well-positioned for continued long-term value creation for shareholders.

Industry Context

The announcement reflects a trend in the insurance industry towards optimizing capital structures and managing risk through reinsurance solutions. The focus on RILA sales also aligns with the growing demand for products that offer both growth potential and downside protection. The establishment of Brooke Re is a strategic move to better manage the unique challenges of variable annuity guarantees.

Comparison to Industry Standards

• The company's RBC ratio of 624% is significantly above the minimum regulatory requirements, indicating a strong capital position compared to many peers in the insurance industry.
• The company's capital return to shareholders of $464 million is a substantial amount, suggesting a commitment to returning value to investors, which is a key metric for investors in the financial sector.
• The company's focus on RILA sales is in line with industry trends, as these products have become increasingly popular due to their balance of growth potential and downside protection.
• The establishment of Brooke Re is a strategic move to manage the complexities of variable annuity guarantees, which is a common challenge for companies in this sector. This is similar to other companies that have used captive reinsurance to manage risk and capital.
• The company's investment portfolio is diversified and high quality, which is a standard practice for insurance companies to manage risk and ensure stability.

Stakeholder Impact

• Shareholders will benefit from the strong capital return and the company's focus on long-term value creation.
• Employees will benefit from the company's continued success and stability.
• Customers will benefit from the company's strong financial position and its ability to provide reliable annuity products.
• Suppliers and creditors will benefit from the company's strong financial health and its ability to meet its obligations.

Next Steps

• The company will continue to execute on its annual targets and focus on shareholder value creation.
• The company will continue to manage its capital position and liquidity.
• The company will continue to monitor and manage its investment portfolio.
• The company will continue to develop and market its annuity products.
• The company will continue to operate Brooke Re as a self-sustaining and capital generative entity.

Key Dates

Keywords

annuities, reinsurance, capital return, financial results, risk-based capital, RBC, share repurchase, dividends, operating earnings, variable annuities, fixed annuities, RILA, investment portfolio, hedging, Brooke Re