Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following executive summary of Management’s Discussion and Analysis of Financial Condition and Results of Operation highlights selected information and may not contain all the information that is important to current or potential investors in our securities. You should read this Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the "Form 10-K") in its entirety for a more detailed description of events, trends, uncertainties, risks and critical accounting estimates affecting us.
Discussion related to the Company's comparison of 2024 results to 2023 results of operations has been omitted in this Form 10-K. The Company's comparison of 2024 results to 2023 results is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 26, 2025, (the "2024 Annual Report"), under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Jackson Financial Inc. (“Jackson Financial” or “JFI”), along with its subsidiaries (collectively, the “Company,” which also may be referred to as “we,” “our” or “us”), is a financial services company. Jackson Financial, domiciled in the state of Delaware, United States (“U.S.”), became an independent public company on September 13, 2021. Jackson National Life Insurance Company ("Jackson") is licensed to sell group and individual annuity products (including immediate, registered index-linked, deferred fixed, fixed index, fixed and variable annuities), and various protection products, primarily whole life, universal life, variable universal life and term life insurance products, in all 50 states and the District of Columbia.
Executive Summary
We help Americans in the U.S. grow and protect their retirement savings and income to secure their financial future. We believe that we are uniquely positioned in our markets because of our differentiated products, well-known brand and disciplined risk management. Our market position is supported by our efficient and scalable operating platform and industry-leading distribution network. We believe these core strengths will enable us to grow profitably as an aging U.S. population transitions into retirement.
We earn revenues predominantly from fee income, spread income resulting from what we earn on investments versus the interest we credit to contract holders, and margins on other insurance products. Our profitability is dependent on our ability to properly price and manage risk on insurance and annuity products, manage our portfolio of investments effectively, and control costs through expense discipline.
Due to funds withheld reinsurance arrangements, including the Athene Reinsurance Transaction, we hold significant assets whose investment performance accrues to the benefit of the related reinsurer.
We experience net income volatility because we do not directly use hedging to offset the movement in our U.S. generally accepted accounting principles ("U.S. GAAP") market risk benefit liabilities as market conditions change from period to period. Our core dynamic hedging program seeks to offset impacts of equity market and interest rate movements on the economic liabilities associated with variable annuity guaranteed benefits and with annuities subject to index interest crediting (RILA and FIA), while our macro hedging program seeks to provide additional liquidity and statutory capital protection as needed. As a result, the changes in the fair value of the derivatives used as part of our overall hedging program are not expected to match the movements in the market risk benefit liabilities resulting in volatility from changes in fair value recorded to net income. Accordingly, we evaluate and manage the performance of our business using Adjusted Operating Earnings, a non-GAAP financial measure, which reduces the impact of market volatility by excluding changes in fair value of freestanding and embedded derivative instruments, market risk benefits and other items. See “Non-GAAP Financial Measures” below for information regarding our non-GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Executive Summary
We manage our business through three reportable segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. We report in Corporate and Other items that are not included in those three segments, including the results of PPM Holdings, Inc., the parent holding company of PPM America Inc. ("PPM") that manages the majority of our general account investment portfolio. See Item 8. Financial Statements and Supplementary Data — Note 3 - Segment Information of the Notes to Consolidated Financial Statements for further information on our segments.
An understanding of several key operating measures, including sales, account value, net flows, benefit base and assets under management ("AUM"), is helpful in evaluating our results. See “Key Operating Measures” below. Finally, we are affected by various economic, industry and regulatory trends , which are described below under “Macroeconomic, Industry and Regulatory Trends.”
The table below presents selected financial and operating measures:
Years Ended December 31,
(in millions, except percentages)
Operating Metrics:
Total Sales
Assets Under Management ("AUM")
Income Metrics:
Net income (loss) attributable to Jackson Financial Inc. common shareholders
Adjusted Operating Earnings (1)
Return on Equity ("ROE") Attributable to Common Shareholders
Adjusted Operating ROE Attributable to Common Shareholders on average adjusted book value (1)
Capital Metrics:
Amount of common shares repurchased under share repurchase program
Dividends on common shares
Jackson Financial, Inc. Net cash provided by operating activities (Parent Company Only)
Free cash flow (1)
Jackson statutory risk-based capital ratio (2)
(1) Non-GAAP Financial Measure. See “Non-GAAP Financial Measures” below for information regarding our non-GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures.
(2) Based on a Company Action Level basis.
Recent Events of Note
• Capital Returned to Common Shareholders: During 2025, we returned $862 million to our common shareholders consisting of $228 million in dividends and $634 million in common share repurchases. Our capital return target for common shareholders for 2026 is $900 million - $1.1 billion. Share repurchases, net of issuances for our share-based compensation, have reduced our outstanding shares of common stock from 73,380,643 at December 31, 2024 to 66,825,632 at December 31, 2025. See Item 8. Financial Statement and Supplementary Data — Note 23 - Equity of the Notes to Consolidated Financial Statements for further information on our share repurchases and Note 25 – Subsequent Events for information regarding a first quarter 2026 share issuance.
• Free Capital Generation and Free Cash Flow:
◦ Our free capital generation during 2025 was $1.4 billion, meeting our expectation to exceed $1 billion in 2025, under normal market conditions. Free capital generation represents Jackson’s aggregate statutory basis after-tax income from operations, realized gains (losses), unrealized gains (losses), and other surplus adjustments, adjusted for the change in Company Action Level required capital (CAL) for Jackson calibrated to a 425% RBC ratio. We expect free capital generation in 2026 to be at or above $1.2 billion, assuming 5% equity market total return and rates following the year-end forward curve. As explained below under “Liquidity and Capital Resources – Holding Company Liquidity” and “-
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Executive Summary
Distributions from Our Insurance Subsidiaries,” the payment of dividends or distributions from our capital generation is limited by applicable laws and regulations.
◦ The free cash flow at Jackson Financial (Parent Company only) during 2025 was $838 million. Free cash flow is a non-GAAP financial measure calculated as the difference between cash received by Jackson Financial from its subsidiaries less holding company expenses and other, net. See “Non-GAAP Financial Measures” below for information regarding our non-GAAP financial measures and reconciliation to the most comparable U.S. GAAP measure.
• Brooke Life Reinsurance Company (“Brooke Re”): During the first quarter of 2024, Jackson entered into a 100% coinsurance with funds withheld reinsurance transaction with Brooke Re with all economics of the transaction effective as of January 1, 2024. The transaction primarily provides for the cession from Jackson to Brooke Re of liabilities associated with certain guaranteed benefit riders under variable annuity contracts and similar products of Jackson (“market risk benefits”), both in-force on the transaction effective date and written in the future ( i.e. , on a “flow” basis) as well as related future fees, claims and other benefits, and maintenance expenses in exchange for a $1.2 billion ceding commission for the in-force business. Jackson retains the variable annuity base contract, the annuity contract administration of the ceded business, and responsibility for investment management of the assets in the funds withheld account supporting the ceded liabilities. The reinsurance transaction eliminates upon consolidation at JFI. Holding company liquidity at JFI was not impacted by the transaction.
Brooke Re is a Michigan captive insurer regulated by the Michigan Department of Insurance and Financial Services and created for the express purpose of serving as the counterparty to the reinsurance transaction with Jackson described above. Brooke Re was capitalized with assets contributed from Brooke Life of approximately $1.9 billion originating from Jackson as a return of capital to Brooke Life. Brooke Re utilizes a modified U.S. GAAP approach for regulatory reporting purposes primarily related to market risk benefits, with the intent to increase alignment between assets and liabilities in response to changes in economic factors. The modifications include a fixed, long-term volatility assumption and adjustments to discount rates, guarantee fees and administrative expenses.
The transaction and related modified U.S. GAAP approach enable us to largely moderate the impact of the cash surrender value floor on Jackson’s total adjusted capital, statutory required capital, and RBC ratio and enable more efficient economic hedging of the underlying risks of Jackson’s business. This outcome serves the interests of policyholders by protecting statutory capital through diminished non-economic hedging and related costs. Overall, this transaction allows us to optimize our hedging, stabilize capital generation, and produce more predictable financial results going forward.
• Long-term Strategic Partnership with TPG Inc ("TPG") and formation of Hickory Brooke Reinsurance Company (“Hickory Re”): On January 6, 2026, Jackson announced that it entered an agreement providing for a long-term strategic partnership with TPG, combining the strength of Jackson’s annuity product expertise and broad distribution network with TPG’s best-in-class, scaled private credit platform. The partnership aims to expand Jackson’s spread-based product sales and to provide flexibility for future innovative insurance solutions. The benefits of this strategic partnership include increased opportunities for new business and earnings diversification, enhanced profitability and greater long-term value for Jackson stakeholders.
Upon the transaction closing on February 11 2026, subsidiaries and affiliates of Jackson Financial and TPG entered into a non-exclusive investment management arrangements with a 10-year initial term with automatic 1-year renewals through year 15, subject to various termination provisions, with TPG providing Investment Grade Asset Based Finance and Direct Lending investment capabilities to complement the asset management capabilities of PPM America, Inc. ("PPM"), a Jackson subsidiary. The partnership is expected to strengthen investment capabilities within Jackson’s general account with a focus on maintaining a well-diversified investment strategy that appropriately balances risk and returns to support annuity product sales in various market environments. PPM will continue to manage the majority of Jackson’s general account and both Jackson and PPM will retain oversight of Jackson’s investment portfolio. The combination of PPM and TPG’s complementary investment capabilities is expected to enhance Jackson’s profitability and competitive position.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Executive Summary
As part of the closing, TPG Operating Group II, L.P. ("TPG Partnership") acquired an approximate 6.5% equity stake for $500 million in Jackson Financial consisting of 4,715,554 shares of JFI common stock. Additionally, TPG issued to Jackson Brooke LLC ("JBLLC"), a wholly owned, indirect subsidiary of Jackson Financial, $150 million equity stake in TPG representing 2,279,109 shares of TPG common stock. Under the terms of the agreement, TPG Partnership and JBLLC have agreed to certain limitations on their ability to divest their respective ownership stakes over time.
During the fourth quarter of 2025, Jackson entered into a reinsurance agreement with Hickory Re, on a quota-share coinsurance basis on certain fixed annuities and fixed index annuities issued by Jackson, including the annuitization of these contracts, with all economics of the transaction effective as of December 1, 2025. In consideration for the ceded contracts, Jackson transferred to Hickory Re an initial reinsurance premium consisting of assets with a market value equal to the estimated statutory reserve amount of the ceded contracts in the amount of $1.2 billion. In addition, Hickory Re, will reinsure new sales by Jackson of fixed annuities and fixed index annuities. The reinsurance transaction eliminates upon consolidation at JFI.
Hickory Re is a Michigan captive insurer regulated by the Michigan Department of Insurance and Financial Services and was capitalized with a $150 million capital contribution in excess cash from Jackson Financial. The $500 million received at the close of the transaction, from TPG’s investment in Jackson Financial, was used to make a further capital contribution to Hickory Re. Hickory Re has been established to serve as a capital-efficient way to accelerate further sales growth of Jackson’s fixed and fixed index annuity products as we grow our spread-based business. For regulatory reporting purposes, Hickory Re measures the liabilities for assumed contracts using a modified U.S. GAAP methodology which is intended to increase alignment between assets and liabilities in response to changes in economic factors.
The combination of these transactions is expected to increase Jackson’s future profitability, general account asset growth and capital generation, supporting growth in free cash flows and capital return to shareholders.
• 2025 Annual Actuarial Assumption Updates and Model Enhancements: Consistent with prior years, we completed our annual actuarial assumptions review in the fourth quarter of 2025. See “Policy and Contract Liabilities – Actuarial Assumption Updates and Model Enhancements” below and Item 8. Financial Statements and Supplementary Data -- Note 12 - Market Risk Benefits of Notes to Consolidated Financial Statements for further information regarding the notable assumption updates included in the MRB calculation.
The following table reflects the impacts from our annual assumption review to Pretax Income (Loss) for the periods presented:
Years Ended December 31,
(in millions)
Assumption Review Impact:
Net gains (losses) on derivatives and investments
Total assumption review impact on Total Revenues
Death, other policy benefits and change in policy reserves, net of deferrals
(Gain) loss from updating future policy benefits cash flow assumptions, net
Market risk benefits (gains) losses, net
Amortization of deferred acquisition costs
Total assumption review impact on Total Benefits and Expenses
Total assumption review impact on Pretax Income (Loss)
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Executive Summary
The following table reflects the impacts from our annual assumption review to segment Pretax Adjusted Operating Earnings for the periods presented:
Years Ended December 31,
(in millions)
Assumption Review Impact on Pretax Adjusted Operating Earnings by Segment:
Retail Annuities
Closed Life and Annuity Blocks
Total assumption review impact on Pretax Adjusted Operating Earnings
Key Operating Measures
We use a number of operating measures, discussed below, which management believes provide useful information about our businesses and the operational factors underlying our financial performance.
Sales
Sales of annuities and institutional products include all money deposited by customers into new and existing contracts. We believe sales statistics are useful to gaining an understanding of, among other things, the attractiveness of our products, how we can best meet our customers’ needs, evolving industry product trends and the performance of our business from period to period.
Years Ended December 31,
(in millions)
Sales
Variable annuities (1)
RILA
Fixed Annuities
Fixed Index Annuities
Total Retail Annuity Sales
Total Institutional Product Sales
Total Sales
(1) Excludes certain internal exchanges.
Higher retail annuity sales for the year ended December 31, 2025, were primarily due to increased RILA and fixed index annuity sales. Sales of our fixed annuities remained strong as PPM added capabilities during 2025 to source higher yielding assets supporting our spread based products. In addition, sales of our institutional products were higher for the year ended December 31, 2025, reflecting our opportunistic approach to this business, which depends on both the risk-adjusted return on investment opportunities available and the prevailing cost of funding required by purchasers.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Key Operating Measures
Account Value
Account value ("AV") generally refers to the account value of our variable annuities, RILA, fixed annuities, fixed index annuities, interest sensitive life, and institutional products. It reflects the total amount of customer invested assets that have accumulated within a respective product and equals cumulative customer contributions, which includes gross deposits or premiums, plus accrued credited interest plus or minus the impact of equity market movements, as applicable, less withdrawals and various fees. We believe account value is a useful metric in providing an understanding of, among other things, the sources of potential fee and spread income generation, potential benefit obligations and risk management priorities.
December 31,
(in millions)
Account Value
GMWB For Life
GMWB
GMIB
GMAB
No Living Benefits
Total Variable Annuity Account Value
RILA
Fixed Annuity (1)
Fixed Index Annuity (1)
Total Fixed & Fixed Index Annuity Account Value (1)
Payout Annuity (1)
Total Retail Annuities Account Value (1)
Total Institutional Products Account Value
Total Closed Life and Annuity Blocks Account Value (1)
(1) Net of reinsurance
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Key Operating Measures
Net Flows
Net flows represent the net change in customer account balances during a period, reflecting gross premiums received and surrenders, withdrawals and benefits payments. Net flows exclude investment performance, interest credited to customer accounts, transfers between fixed and variable benefits for variable annuities and policy charges. We believe net flows is a useful metric in providing an understanding of, among other things, sales, ongoing premiums and deposits, the changes in account value from period to period, sources of potential fee and spread income and policyholder behavior.
Years Ended December 31,
(in millions)
Net Flows:
Variable Annuity
RILA
Fixed Annuity (1)
Fixed Index Annuity (1)
Payout Annuity (1)
Total Retail Annuities Net Flows (1)
Net flows ceded
Total Retail Annuities Net Flows, gross of reinsurance
Total Institutional Products Net Flows
Total Closed Life and Annuity Blocks Net Flows (1)
Total Net Flows (1)
(1) Net of reinsurance
Net flows, net of reinsurance, improved for the year ended December 31, 2025, compared to the year ended December 31, 2024. Improved net flows for the year ended December 31, 2025 were primarily driven by increased RILA, fixed index annuity, and institutional sales. Elevated variable annuity surrenders and withdrawals were driven by mature policies from higher sales years coming out of their surrender charge period, along with higher surrenders as guaranteed benefits are less in the money during times of strong equity market performance. The more recent environment of higher interest rates and attractive annuity alternatives, such as RILA, combined with Jackson’s seasoned “out-of-the-money” book heightens exchange activity for us and the industry.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Key Operating Measures
Benefit Base
Benefit base refers to a notional amount representing the value of a customer’s guaranteed benefit and, therefore, may be a different value from the invested assets in that customer’s account value. The benefit base may be used to calculate the fees for a customer’s guaranteed benefits within an annuity contract. The guaranteed death benefit and guaranteed living benefit within the same contract may not have the same benefit base. We believe benefit base is a useful metric for our variable annuity policies in providing an understanding of, among other things, fee income generation, potential optional guarantee benefit obligations and risk management priorities. The following table shows variable annuity account value and benefit base as of December 31, 2025 and 2024:
Years Ended December 31,
Account Value
Benefit Base
Account Value
Benefit Base
(in millions)
No Living Benefits
By Guaranteed Living Benefits:
GMWB for Life
GMWB
GMIB (1)
GMAB
Total
By Guaranteed Death Benefit:
Return of AV (No GMDB)
Return of Premium
Highest Anniversary Value ("HAV")
Rollup
Combination HAV/Rollup
Total
(1) Substantially all our GMIB benefits are reinsured.
Assets Under Management
AUM, or assets under management, includes: (i) investment assets managed by one of our subsidiaries, PPM, including our investment portfolio (but excluding assets held in funds withheld accounts for reinsurance transactions) and assets of other institutional clients and (ii) the separate account investment assets of our Retail Annuities segment managed and administered by another Company subsidiary, JNAM. Total AUM reflects exclusions between segments to avoid double counting. We believe AUM is a useful metric for understanding, among other things, the sources of our earnings, net investment income and performance of our invested assets, customer directed investments and risk management priorities.
December 31,
(in millions)
Jackson Invested Assets
Third Party Invested Assets (including CLOs)
Total PPM AUM
Total JNAM AUM
Total AUM
Sales of RILA, fixed and fixed index annuities, and institutional products, along with a focus on growing its institutional client assets, contributed to the increase in PPM AUM. The increase in JNAM AUM primarily reflects favorable equity market performance.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Macroeconomic, Industry and Regulatory Trends
Macroeconomic, Industry and Regulatory Trends
We discuss a number of trends and uncertainties below that we believe could materially affect our future business performance, including our results of operations, our investments, our cash flows, and our capital and liquidity position. See Part IA. Risk Factors – “Risks Related to Conditions in Global Financial Markets and the Economy” and “Risks Related to Legal, Tax and Regulatory Matters” in this Form 10-K.
Macroeconomic and Financial Market Conditions
Our business and results of operations are affected by macroeconomic factors. The level of interest rates and shape of the yield curve, credit and equity market performance and equity volatility, regulation, tax policy, the level of U.S. employment, inflation and the overall U.S. economic growth rate can affect both our short- and long-term profitability. Monetary and fiscal policy in the U.S., or similar actions in foreign nations, could result in increased volatility in financial markets, including interest rates, currencies and equity markets, and could impact our business in both the short- and medium-term. Government actions, including tariffs, sanctions or other barriers to international trade, restructuring of government services, responses to future pandemics, civil unrest, and geographic conflicts, and the effects that these or other government events could have on levels of U.S. economic activity, could also impact our business through any of their individual impacts on consumers’ behavior or on financial markets.
In the short- to medium-term, increased volatility could pressure sales and reduce demand for our products as consumers consider purchasing alternative products to meet their objectives. Our financial performance can be adversely affected by market volatility and equity market declines if fees assessed on the account value of our annuities fluctuate, hedging costs increase, or revenues decline due to reduced sales and increased outflows.
Equity Market Environment
Our financial performance is impacted by equity market performance.
• Variable Annuity Fees: Fees we earn that are not associated with guaranteed benefits are mainly based on the account value, which increases as equity market levels increase.
• Index Interest Crediting on RILA and FIA Contracts: RILA and FIA products feature a crediting rate formulaically linked to the performance of an external equity index. The interest credited to the contract increases as equity market levels increase.
• Hedge Effectiveness in Face of Volatility: Our hedges could be less effective in periods of large directional movements, or we could experience more frequent or more costly rebalancing in periods of high volatility. This could lead to adverse performance versus our hedge targets and increased hedging costs.
• Basis Risk: We are exposed to basis risk, which results from our inability to purchase or sell hedge assets whose performance fully correlates to the performance of the funds into which customers allocate their assets. We make available to customers funds where we believe we can transact in sufficiently correlated hedge assets, yet we anticipate some variance in the performance of our hedge assets relative to customer funds. This variance may result in our hedge assets outperforming or underperforming the customer assets they are intended to match. This variance may be exacerbated during periods of high volatility, leading to a mismatch in our hedge results relative to our hedge targets, and potentially an adverse effect on our U.S. GAAP results.
Interest Rate Environment
The interest rate environment has affected, and will continue to affect, our business and financial performance for the following reasons:
• Our hedges could be less effective in periods of large directional interest rate movements, or we could experience more frequent or more costly rebalancing in periods of high interest rate volatility. This could lead to adverse performance versus our hedge targets and increased hedging costs.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Macroeconomic, Industry and Regulatory Trends
• Pricing actions we take in response to decreasing interest rates may reduce the attractiveness of crediting rates, guaranteed benefits, and other product features. This in turn may lead to reduced sales volumes.
• Low interest rate environments could also subject us to increased hedging costs or an increase in the amount of regulatory reserves that our insurance subsidiaries are required to hold for optional guaranteed benefits, decreasing regulatory surplus, which would adversely affect our insurance subsidiaries' ability to pay dividends. In addition, low interest rates could also increase the perceived value of optional guaranteed benefit features to our customers, which in turn could lead to a higher utilization of withdrawal or annuitization features of annuity policies and higher persistency of those products over time.
• Some of our annuities have guaranteed minimum interest crediting rates (“GMICRs”) that limit our ability to reduce crediting rates. If earnings on our investment portfolio decline, those GMICRs may result in net investment spread compression that negatively impacts earnings. Many of our annuities have GMICRs that reset at contractually specified times after issue, subject to a contractually specified MICR. In a rising interest rate environment, these GMICRs can increase over time. Conversely, in a falling interest rate environment, the interest crediting rate will eventually decrease; however, there may be a lag between interest rate movements and the GMICR reset, temporarily limiting our ability to lower crediting rates. When policies have comparatively high GMICRs, in a subsequent low interest rate environment more customers are expected to hold on to their policies, which may result in lower lapses than previously expected.
• Periods of rising interest rates impact investment-related activity, including investment income returns, net investment spread results, new money rates, mortgage loan prepayments, and bond redemptions. Rising interest rates also impact the hedging results of our variable annuity business as the market values of interest rate hedges decline, thereby driving hedging losses. Further, we expect near-term hedging losses from rising rates may be more than offset by changes in the fair value of the related guaranteed benefit liabilities, which are reduced with an increase in interest rates.
• Interest rate increases also expose us to disintermediation risk, where higher rates make currently sold fixed annuity products more attractive while simultaneously reducing the market value of assets backing our liabilities. This creates an incentive for our customers to lapse their products in an environment where selling assets causes us to realize losses.
• Additionally, rising interest rates decrease the value of bond funds held by variable annuity clients. This in turn decreases the volume of fees we collect based on the account value and increases the value of any guaranteed benefits.
• Increasing interest rates also increase the cash surrender values of some of our RILAs. This increases the amount of regulatory reserves that our insurance subsidiaries are required to hold, decreasing regulatory surplus, which could adversely affect our insurance subsidiaries' ability to pay dividends.
Credit Market Environment
Conditions in fixed income markets impact our financial performance. As credit spreads widen, the fair value of our existing investment portfolio generally decreases, although we generally expect the widening spreads to increase the yield on new fixed income investments. Conversely, as credit spreads tighten, the fair value of our existing investment portfolio generally increases, and the yield available on new investment purchases decreases. While changing credit spreads impact the fair value of our investment portfolio, this revaluation is generally reflected in our accumulated other comprehensive income, or accumulated other comprehensive income ("AOCI"). The revaluation will impact net income in the cases of realized gains or losses from the sale of securities, changes in fair value of trading securities or securities carried at fair value under the fair value election, or potential changes in the allowance for credit loss ("ACL"). In addition, if credit conditions deteriorate due to a recession or other negative credit events in capital markets, we could experience an increase in defaults and other-than-temporary-impairments (“OTTI”).
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Macroeconomic, Industry and Regulatory Trends
OTTI in our underlying investments would reduce our insurance company subsidiaries' regulatory capital. Also, shifts in the credit quality or credit rating downgrades of our investments as a result of stressed credit conditions may impact the level of regulatory required capital for our insurance company subsidiaries. As such, significant credit rating downgrades along with elevated defaults and OTTI losses would negatively impact our RBC ratio, which could impact available dividends from our insurance subsidiaries.
Additionally, widening credit spreads decrease the value of bond funds held by variable annuity clients. This in turn decreases the volume of fees we collect based on the account value and increases the value of any guaranteed benefits.
Brooke Re
With the execution of the Brooke Re transaction in the first quarter of 2024, we are now able to largely moderate the impact of the cash surrender value floor going forward. In the past, our statutory total adjusted capital ("TAC") has been negatively impacted by rising equity markets or rising interest rates due to minimum required reserving levels ( i.e. , the cash surrender value floor) when reserve releases are limited and unable to offset equity or interest rate hedging losses. The risk-based capital, or RBC, ratio increased or decreased depending on the interaction between movements in TAC and movements in statutory required capital (the company action level, or "CAL”). See “Recent Events of Note” above for more information regarding Brooke Re.
Consumer Behavior
We believe that many retirees look to tax-efficient savings products as a tool for addressing their unmet need for retirement planning. We believe our products are well-positioned to meet this increasing consumer demand. However, consumer behavior may be impacted by increased economic uncertainty, unemployment rates, inflation rates, declining equity markets, significant changes in interest rates and increased volatility of financial markets. In recent years, we have introduced or reintroduced products, such as RILA or fixed annuities, to better address changes in consumer demand and targeted distribution channels that meet changes in consumer preferences.
Demographics
We expect demographic trends in the U.S. population, in particular the increase in the number of retirement age individuals, to generate significant demand for our products. In addition, the potential risk to government social safety net programs and shifting of responsibility for retirement planning and financial security from employers and other institutions to employees, highlight the need for individuals to plan for their long-term financial security and will create additional opportunities to generate sustained demand for our products. We believe we are well-positioned to capture the increased demand generated by these demographic trends.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Macroeconomic, Industry and Regulatory Trends
Regulatory Policy
We operate in a highly regulated industry. Our insurance company subsidiaries are regulated primarily at the state level, with some policies and products also subject to federal regulation. New federal and state regulations could impact our business model, including regulatory reserve and capital requirements. Our ability to respond to changes in regulation and other legislative activity is critical to our long-term financial performance. T he following regulations could materially impact our business:
Department of Labor Fiduciary Advice Rule
In April 2024, the Department of Labor (the "DOL") revised the definition of “fiduciary” and related Prohibited Transaction Exemptions ("PTE") (the “2024 Fiduciary Advice Rule”), redefining what constitutes fiduciary “investment advice” to Employee Retirement Income Security Act ("ERISA") plans and individual retirement accounts ("IRAs"). See Part I, Business – Regulation – “Federal Initiatives Impacting Insurance Companies – Department of Labor’s Fiduciary Advice Rule” for more information regarding the 2024 Fiduciary Advice Rule. The 2024 Fiduciary Advice Rule is currently being challenged in two separate litigation matters and the DOL has been stayed from enforcing the rule. In these cases, it does not appear that the government will ultimately oppose the relief sought by the plaintiffs, making it likely that the 2024 Fiduciary Advice rule will be permanently vacated.
While we cannot predict the final rule’s impact, it could have an adverse effect on sales of annuities through our distribution partners and result in increased compliance costs to Jackson.
Legislative Reforms
In recent years, Congress approved legislation beneficial to our business model. The Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act"), approved by Congress on December 20, 2019, provides individuals with greater access to retirement products. Namely, it made it easier for 401(k) programs to offer annuities as an investment option by, among other things, creating a statutory safe harbor in ERISA for a retirement plan’s selection of an annuity provider. On December 29, 2022, Congress signed into law the SECURE 2.0 Act of 2022 (“SECURE 2.0”). SECURE 2.0 expands automatic enrollment programs, increases the age for required minimum distributions, and eliminates age requirements for traditional IRA contributions. These changes are intended to expand and increase Americans’ retirement savings.
Tax Laws
Our annuities offer investors the opportunity to benefit from tax deferrals. If U.S. tax laws change such that our annuities no longer offer tax-deferred advantages, demand for our products could materially decrease.
Changes to individual income tax rates and other elements of tax policy can make the tax deferral aspects of our products more or less attractive to consumers, affecting demand for our products.
Non-GAAP Financial Measures
In addition to presenting our results of operations and financial condition in accordance with U.S. GAAP, we use and report selected non-GAAP financial measures. Management believes that the use of these non-GAAP financial measures, together with relevant U.S. GAAP financial measures, provides a better understanding of our results of operations, financial condition and the underlying performance drivers of our business. These non-GAAP financial measures should be considered supplementary to our results of operations and financial condition that are presented in accordance with U.S. GAAP. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Consequently, our non-GAAP financial measures may not be comparable to similar measures used by other companies. These non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with U.S. GAAP.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Non-GAAP Financial Measures
Adjusted Operating Earnings
Adjusted Operating Earnings is an after-tax non-GAAP financial measure, which we believe should be used to evaluate our financial performance on a consolidated basis by excluding certain items that may be highly variable from period to period due to accounting treatment under U.S. GAAP or that are non-recurring in nature, as well as certain other revenues and expenses that we do not view as driving our underlying performance. Adjusted Operating Earnings should not be used as a substitute for net income as calculated in accordance with U.S. GAAP. However, we believe the adjustments to net income are useful for gaining an understanding of our overall results of operations.
Adjusted Operating Earnings equals our Net income (loss) attributable to Jackson Financial Inc.'s common shareholders (which excludes income attributable to non-controlling interest and dividends on preferred stock) adjusted to eliminate the impact of the items described in the following numbered paragraphs. These items are excluded as they may vary significantly from period to period due to near-term market conditions or are otherwise not directly comparable or reflective of the underlying performance of our business. We believe these exclusions provide investors a better picture of the drivers of our underlying performance.
1. Net Hedging Results : Comprised of: (i) fees attributed to guaranteed benefits; (ii) net gains (losses) on hedging instruments which includes: (a) changes in the fair value of freestanding derivatives, and related commissions and expenses, used to manage the risk associated with market risk benefits and other guaranteed benefit features, excluding earned income from periodic settlements and changes in settlement accruals on cross-currency swaps; and (b) investment income and change in fair value of certain non-derivative assets used to manage the risk associated with market risk benefits and other guaranteed benefit features; and (iii) the movements in reserves, market risk benefits, guaranteed benefit features accounted for as embedded derivative instruments, and related claims and benefit payments (excluding impacts of actuarial assumption updates and model enhancements). We believe excluding these items removes the impact to both revenue and related expenses associated with Net Hedging Results.
2. Amortization of DAC Associated with Non-operating Items at Date of Transition to LDTI: Amortization of the balance of unamortized deferred acquisition costs, at January 1, 2021, the date of transition to current Long Duration Targeted Improvements ("LDTI") accounting guidance, associated with items excluded from pretax adjusted operating earnings prior to transition.
3. Actuarial Assumption Updates and Model Enhancements: The impact on the valuation of MRBs and embedded derivatives arising from our annual actuarial assumption updates and model enhancements review.
4. Net Realized Investment Gains and Losses: Comprised of: (i) realized investment gains and losses associated with the periodic sales or disposals of securities, excluding those held within our trading portfolio; (ii) impairments of securities, after adjustment for the non-credit component of the impairment charges; and (iii) foreign currency gain or loss on foreign denominated funding agreements and associated cross-currency swaps.
5. Change in Value of Funds Withheld Embedded Derivative and Net Investment Income on Funds Withheld Assets: Composed of: (i) the change in fair value of funds withheld embedded derivatives; and (ii) net investment income on funds withheld assets related to funds withheld reinsurance transactions.
6. Other Items : Comprised of: (i) the impact of investments that are consolidated in our financial statements due to U.S. GAAP accounting requirements, such as our investments in collateralized loan obligations ("CLOs"), but for which the consolidation effects are not consistent with our economic interest or exposure to those entities; (ii) impacts from derivatives not included in Net Hedging Results or Net Realized Investment Gains or Losses (see 1. and 4. above), excluding earned income from periodic settlements and changes in settlement accruals on cross-currency swaps; and (iii) one-time or other non-recurring items.
Operating income taxes are calculated using the prevailing corporate federal income tax rate of 21% while taking into account any items recognized differently in our financial statements and federal income tax returns, including the dividends received deduction and other tax credits. For interim reporting periods, the Company uses an estimated annual effective tax rate (“ETR”) in computing its tax provision including consideration of discrete items.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Non-GAAP Financial Measures
The following is a reconciliation of Adjusted Operating Earnings to net income (loss) attributable to Jackson Financial common shareholders, the most comparable U.S. GAAP measure:
Years Ended December 31,
(in millions)
Net income (loss) attributable to Jackson Financial Inc common shareholders
Add: dividends on preferred stock
Add: income tax expense (benefit)
Pretax income (loss) attributable to Jackson Financial Inc
Non-operating adjustments (income) loss:
Guaranteed benefits and hedging results:
Fees attributable to guarantee benefit reserves
Net (gains) losses on hedging instruments
Market risk benefits (gains) losses, net
Net reserve and embedded derivative movements
Total net hedging results
Amortization of DAC associated with non-operating items at date of transition to LDTI
Actuarial assumption updates and model enhancements
Net realized investment (gains) losses
Net realized investment (gains) losses on funds withheld assets
Net investment income on funds withheld assets
Other items
Total non-operating adjustments
Pretax adjusted operating earnings
Less: operating income tax expense (benefit)
Adjusted operating earnings before dividends on preferred stock
Less: dividends on preferred stock
Adjusted operating earnings
Adjusted Book Value Attributable to Common Shareholders and Adjusted Operating ROE Attributable to Common Shareholders
We use Adjusted Operating Return on Equity ("ROE") Attributable to Common Shareholders to manage our business and evaluate our financial performance that: (i) excludes items that vary from period to period due to accounting treatment under U.S. GAAP or that are non-recurring in nature, as such items may distort the underlying performance of our business; and (ii) is calculated by dividing our Adjusted Operating Earnings by average Adjusted Book Value Attributable to Common Shareholders.
Adjusted Book Value Attributable to Common Shareholders excludes Preferred Stock and AOCI attributable to Jackson Financial, which does not include AOCI arising from investments held within the funds withheld account related to the Athene Reinsurance Transaction.
We exclude AOCI attributable to Jackson Financial from Adjusted Book Value Attributable to Common Shareholders because our invested assets are generally invested to closely match the duration of our liabilities, which are longer duration in nature, and therefore we believe period-to-period fair market value fluctuations in AOCI to be inconsistent with this objective. We believe excluding AOCI attributable to Jackson Financial is more useful to investors in analyzing trends in our business because it removes those short-term fluctuations. Changes in AOCI within the funds withheld account related to the Athene Reinsurance Transaction offset the related non-operating earnings from the Athene Reinsurance Transaction resulting in a minimal net impact on Adjusted Book Value of Jackson Financial.
Adjusted Book Value Attributable to Common Shareholders and Adjusted Operating ROE Attributable to Common Shareholders should not be used as substitutes for total shareholders’ equity and ROE as calculated using annualized net income and average equity in accordance with U.S. GAAP. However, we believe the adjustments to equity and earnings are useful to gaining an understanding of our overall results of operations.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Non-GAAP Financial Measures
The following is a reconciliation of Adjusted Book Value Attributable to Common Shareholders to total shareholders’ equity and a comparison of Adjusted Operating ROE Attributable to Common Shareholders to ROE Attributable to Common Shareholders, the most comparable U.S. GAAP measure:
Years Ended December 31,
(in millions, except percentages)
Net income (loss) attributable to Jackson Financial Inc. common shareholders
Adjusted Operating Earnings
Total shareholders' equity
Less: Preferred stock
Total common shareholders' equity
Adjustments to total common shareholders’ equity:
Exclude AOCI attributable to Jackson Financial Inc. (1)
Adjusted Book Value Attributable to Common Shareholders
ROE Attributable to Common Shareholders
Adjusted Operating ROE Attributable to Common Shareholders on average equity
(1) Excludes $(1,269) million, $(1,597) million and $(1,612) million related to the investments held within the funds withheld account related to the Athene Reinsurance Transaction as of December 31, 2025, 2024 and 2023, respectively, which are not attributable to Jackson Financial Inc. and are therefore not included as an adjustment to total shareholders’ equity in the reconciliation of Adjusted Book Value Attributable to Common Shareholders to total shareholders’ equity.
Free Cash Flow
Free cash flow is Jackson Financial Inc. (Parent Company only) net cash provided by (used in) operating activities less preferred stock dividends and capital contributions to PPM or other subsidiaries, plus the return of capital from subsidiaries. Free cash flow should not be used as a substitute for Jackson Financial’s (Parent Company only) net cash provided by (used in) operating activities calculated in accordance with U.S. GAAP. However, we believe these adjustments are useful to gaining an understanding of our overall available cash flow at Jackson Financial for return of capital to common shareholders and other corporate initiatives.
Years Ended December 31,
(in millions)
Dividends and distributions to parent (1)
Capital contributed to Hickory Re
Jackson Financial expenses and other, net
Free Cash Flow
(1) Cash distributed to Jackson Financial includes cash dividends and distributions of $1,025 million and interest payments on surplus notes of $90 million to Jackson Financial from its subsidiaries for the year-ended December 31, 2025 and includes cash dividends and distributions of $785 million and interest payments on surplus notes of $90 million to JFI from its subsidiaries for the year-ended December 31, 2024.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Non-GAAP Financial Measures
The following is a reconciliation of Jackson Financial net cash provided by (used in) operating activities (Parent Company only), the most comparable U.S. GAAP measure, to Free Cash Flow:
Years Ended December 31,
(in millions)
Jackson Financial, Inc. Net cash provided by operating activities (Parent Company Only)
Adjustments from net cash provided by operating activities to free cash flow:
Capital distributions from subsidiaries
Capital contributed to subsidiaries
Dividends on preferred stock
Total adjustments
Free cash flow
Free Cash Flow Comprised of:
Capital distributions from subsidiaries
Interest on surplus note from subsidiary
Cash distributed to Jackson Financial
Capital contributed to Hickory Re
Parent company expenses
Net investment income and other income
Other, net
Jackson Financial expenses and other, net
Free cash flow
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Consolidated Results of Operations
Consolidated Results of Operations
The following table sets forth, for the periods presented, certain data from our Consolidated Income Statements. The information contained in the table below should be read in conjunction with our Consolidated Financial Statements and the related notes elsewhere in this Form 10-K:
Years Ended December 31,
(in millions)
Revenues
Fee income
Premiums
Net investment income:
Net investment income excluding funds withheld assets
Net investment income on funds withheld assets
Total net investment income
Net gains (losses) on derivatives and investments:
Net gains (losses) on derivatives and investments
Net gains (losses) on funds withheld reinsurance treaties
Total net gains (losses) on derivatives and investments
Other income
Total revenues
Benefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferrals
(Gain) loss from updating future policy benefits cash flow assumptions, net
Market risk benefits (gains) losses, net
Interest credited on other contract holder funds, net of deferrals and amortization
Interest expense
Operating costs and other expenses, net of deferrals
Amortization of deferred acquisition costs
Total benefits and expenses
Pretax income (loss)
Income tax expense (benefit)
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to Jackson Financial Inc.
Less: Dividends on preferred stock
Net income (loss) attributable to Jackson Financial Inc. common shareholders
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Consolidated Results of Operations
Year Ended December 31, 2025 compared to Year Ended December 31, 2024
Pretax Income (Loss)
Our pretax income (loss) decreased by $1,136 million to a pretax loss of $(114) million for the year ended December 31, 2025, from pretax income of $1,022 million for the year ended December 31, 2024, primarily due to:
• $4,414 million unfavorable movements in market risk benefits (gains) losses, net, primarily due to less favorable movements in interest rates and unfavorable movements in equity volatility in 2025, compared to the prior year;
• $111 million increase in interest credited on contract holder funds, net of deferrals and amortization, primarily due to higher average institutional account balances in 2025 and increased retail new business, compared to the prior year;
• $100 million decrease in fee income primarily due to decreases in benefit-based guarantee fee income during 2025, and decreases in variable fee income driven by market volatility in the first half of 2025, which was partially offset by increase in separate account values in the second half of the year;
• $57 million increase in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to changes in mortality and higher other policyholder benefits, partially offset by the impact of actuarial assumption updates. See " Policy and Contract Liabilities" below for further information regarding our actuarial assumption updates.
These movements were partially offset by:
• $3,203 million improvement in total net gains (losses) on derivatives and investments as discussed below:
Years Ended December 31,
Variance
(in millions)
Net gains (losses) excluding derivatives and funds withheld assets
Net gains (losses) on freestanding derivatives
Net gains (losses) on embedded derivatives (excluding funds withheld reinsurance)
Net gains (losses) on derivative instruments
Net gains (losses) on funds withheld reinsurance
Total net gains (losses) on derivatives and investments
• Volumes of freestanding derivatives can vary significantly period over period and movements in those derivatives are subject to interest rate or market movements. The movements in interest rate hedges during 2025 were primarily driven by a decrease in interest rates in the current year compared to an increase in interest rates in the prior year. The movements in equity hedges during 2025 were primarily driven by smaller increases in equity markets in the current year compared to larger increases in equity markets during 2024; and
• Embedded derivative movements were unfavorable largely due to equity market increase impacts on our growing RILA block during 2025, compared to the prior year.
• $289 million increase in net investment income as a result of higher income on bonds, lower expenses, and higher income on limited partnerships, which are recorded on a one quarter lag, partially offset by lower income on funds withheld assets during 2025; and
• $28 million decrease in operating costs and other expenses, net of deferrals, primarily due to lower incentive and deferred compensation expenses during 2025, partially offset by higher other commissions expenses, net of deferrals, driven by higher retail sales, compared to prior year.
Income Taxes
Income tax expense (benefit) decreased $232 million to a benefit of $186 million for the year ended December 31, 2025, from an expense of $46 million for the year ended December 31, 2024.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Consolidated Results of Operations
The provision for income tax in the current period led to an effective tax rate ("ETR") of 117% for the year ended December 31, 2025, compared to an ETR of 5% for the year ended December 31, 2024. The year-over-year change in the ETR was due to the relationship of the taxable income to the consolidated pre-tax income (loss), the valuation allowance expense in the current year compared to a prior year benefit, and the interest benefit on IRS refund claims. The ETR differs from the statutory rate of 21% primarily due to the dividends received deduction, utilization of foreign tax credits, valuation allowance and the interest benefit on IRS refund claims.
Segment Results of Operations
We manage our business through three reportable segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. We report certain activities and items that are not included in these segments, including the results of PPM Holdings, Inc., the holding company of PPM, within Corporate and Other. The following tables and discussion represent an overall view of our results of operations for each segment.
Pretax Adjusted Operating Earnings by Segment
The following table summarizes pretax adjusted operating earnings (non-GAAP) from the Company's business segment operations and also provides a reconciliation of the segment measure to net income on a consolidated U.S. GAAP basis. As part of the Company’s asset liability management program, management monitors the allocation of invested assets supporting the Company’s contractual liabilities. During the first quarter of 2025, that monitoring resulted in the reallocation of certain invested assets across reportable segments and Corporate and Other. The results of this reallocation are reflected in reported net investment income starting the second quarter of 2025. The impact of the reallocation was not material to the prior period financial results and prior period financial figures were not recast to reflect the reallocated basis. Also, see Item 8. Financial Statements and Supplementary Data — Note 3 - Segment Information of the Notes to Consolidated Financial Statements for further information regarding the calculation of pretax adjusted operating earnings :
Years Ended December 31,
(in millions)
Pretax Adjusted Operating Earnings by Segment:
Retail Annuities
Institutional Products
Closed Life and Annuity Blocks
Corporate and Other
Pretax Adjusted Operating Earnings
Pre-tax reconciling items from adjusted operating income to net income (loss) attributable to Jackson Financial Inc.:
Guaranteed benefits and hedging results:
Fees attributable to guarantee benefit reserves
Net gains (losses) on hedging instruments
Market risk benefits gains (losses), net
Net reserve and embedded derivative movements
Total net hedging results
Amortization of DAC associated with non-operating items at date of transition to LDTI
Actuarial assumption updates and model enhancements
Net realized investment gains (losses)
Net realized investment gains (losses) on funds withheld assets
Net investment income on funds withheld assets
Other items
Total pre-tax reconciling items
Pretax income (loss) attributable to Jackson Financial Inc.
Income tax expense (benefit)
Net income (loss) attributable to Jackson Financial Inc.
Less: Dividends on preferred stock
Net income (loss) attributable to Jackson Financial Inc. common shareholders
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Segment Results of Operations
Retail Annuities
The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Retail Annuities segment. The information contained in the table below should be read in conjunction with our Consolidated Financial Statements and the related notes appearing elsewhere in this Form 10-K:
Years Ended December 31,
(in millions)
Retail Annuities:
Operating Revenues
Fee income
Premiums
Net investment income
Other income
Total Operating Revenues
Operating Benefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferrals
(Gain) loss from updating future policy benefits cash flow assumptions, net
Interest credited on other contract holder funds, net of deferrals and amortization
Interest expense
Asset-based commission expenses
Other commission expenses
Sub-advisor expenses
General and administrative expenses
Deferral of acquisition costs
Amortization of deferred acquisition costs
Total Operating Benefits and Expenses
Pretax Adjusted Operating Earnings
The following table summarizes a roll-forward of activity affecting account value for our Retail Annuities segment for the periods indicated:
Years Ended December 31,
(in millions)
Retail Annuities Account Value:
Balance as of beginning of period
Premiums and deposits (1)
Surrenders, withdrawals, and benefits (1)
Net flows
Investment performance
Change in value of equity option
Interest credited
Policy charges and other
Balance as of end of period, net of ceded reinsurance
Ceded reinsurance
Balance as of end of period, gross of reinsurance
(1) Excludes certain internal exchanges.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Segment Results of Operations
Year Ended December 31, 2025 compared to Year Ended December 31, 2024
Pretax Adjusted Operating Earnings
Pretax a djusted operating earnings increased $8 million to $1,863 million for the year ended December 31, 2025 from $1,855 million for the year ended December 31, 2024 primarily due to:
• $152 million increase in spread income primarily due to $210 million higher net investment income, partially offset by $58 million higher interest credited on contract holder funds. The increase in investment income was driven by higher debt securities income primarily due to higher invested asset balances. Increased interest credited on contract holder funds was primarily due to increased retail new business, compared to the prior year.
These movements were mostly offset by:
• $78 million increase in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to higher other policyholder benefits and the impact of actuarial assumption updates. See " Policy and Contract Liabilities" below for further information regarding our actuarial assumption updates;
• $33 million increase in commissions and general expenses, net of deferrals, reflecting higher other commissions expenses, net of deferrals, of $37 million during 2025, driven by higher retail sales compared to prior year; and
• $12 million decrease in fee income driven by market volatility in the first half of 2025 which resulted in lower fee income compared to the prior year. Separate account values increased in the second half of 2025, which partially offset this impact.
Account Value
Retail annuities account value, net of reinsurance, increased $16.9 billion over the prior year primarily due to positive variable annuity separate account returns driven by favorable market performance in 2025, as well as positive RILA and fixed index annuity net flows over the period.
Institutional Products
The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Institutional Products segment. The information contained in the table below should be read in conjunction with our Consolidated Financial Statements and the related notes appearing elsewhere in this Form 10-K:
Years Ended December 31,
(in millions)
Institutional Products:
Operating Revenues
Net investment income
Total Operating Revenues
Operating Benefits and Expenses
Interest credited on other contract holder funds, net of deferrals and amortization
General and administrative expenses
Total Operating Benefits and Expenses
Pretax Adjusted Operating Earnings
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Segment Results of Operations
The following table summarizes a roll-forward of activity affecting account value for our Institutional Products segment for the periods indicated:
Years Ended December 31,
(in millions)
Institutional Products:
Balance as of beginning of period
Premiums and deposits
Surrenders, withdrawals, and benefits
Net flows
Interest credited
Policy charges and other (1)
Balance as of end of period
(1) Includes net deposit and withdrawal activity for FABCP funding agreements, which are generally short-term in nature. S ee Item 8. Financial Statements and Supplementary Data Note 10 - Other Contract Holder Funds in the Notes to Consolidated Financial Statements elsewhere in this Form 10-K for information regarding FABCP funding agreements.
Year Ended December 31, 2025 compared to Year Ended December 31, 2024
Pretax Adjusted Operating Earnings
Pretax adjusted operating earnings decreased $4 million to $92 million for the year ended December 31, 2025 from $96 million for the year ended December 31, 2024, reflecting a $3 million decrease in spread income primarily due to a $100 million increase in interest credited on contract holder funds, due to increased account values, partially offset by a $97 million increase in investment income, due to higher invested asset balances.
Account Value
Institutional product account value increased from $8,384 million at December 31, 2024 to $11,021 million at December 31, 2025. The increase in account value was primarily driven by an increased amount of FABN funding agreements and FABCP funding agreements in 2025. S ee Item 8. Financial Statements and Supplementary Data — Note 10 - Other Contract Holder Funds in the Notes to Condensed Consolidated Financial Statements for information regarding FABN and FABCP funding agreements.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Segment Results of Operations
Closed Life and Annuity Blocks
The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for our Closed Life and Annuity Blocks segment. The information contained in the table below should be read in conjunction with our Consolidated Financial Statements and the related notes appearing elsewhere in this Form 10-K:
Years Ended December 31,
(in millions)
Closed Life and Annuity Blocks:
Operating Revenues
Fee income
Premiums
Net investment income
Other income
Total Operating Revenues
Operating Benefits and Expenses
Death, other policy benefits and change in policy reserves, net of deferrals
(Gain) loss from updating future policy benefits cash flow assumptions, net
Interest credited on other contract holder funds, net of deferrals and amortization
Other commission expenses
General and administrative expenses
Deferral of acquisition costs
Amortization of deferred acquisition costs
Total Operating Benefits and Expenses
Pretax Adjusted Operating Earnings
Year Ended December 31, 2025 compared to Year Ended December 31, 2024
Pretax Adjusted Operating Earnings
Pretax adjusted operating earnings increased $79 million to $70 million for the year ended December 31, 2025 from $(9) million for the year ended December 31, 2024 primarily due to:
• $112 million increase in spread income due to a $65 million increase in net investment income, and a $47 million decrease in interest credited on contract holder funds, net of deferrals and amortization, resulting from the continued run off of the closed block of business; and
• $3 million decrease in death, other policy benefits, and change in policy reserves, net of (gain) loss from updating future policy benefits cash flow assumptions, primarily due to the impact of actuarial assumption updates and lower other policyholder benefits, mostly offset by changes in mortality. See “ Policy and Contract Liabilities” below for further information regarding our actuarial assumption updates .
These movements were partially offset by:
• $21 million decrease in fee income resulting from the continued run off of the closed block of business.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Segment Results of Operations
Corporate and Other
Corporate and Other includes the operations of PPM Holdings, Inc., the parent holding company of PPM, and unallocated corporate revenue and expenses, as well as certain eliminations and consolidation adjustments. The following table sets forth, for the periods presented, certain data underlying the pretax adjusted operating earnings results for Corporate and Other. The information contained in the table below should be read in conjunction with our Consolidated Financial Statements and the related notes appearing elsewhere in this Form 10-K:
Years Ended December 31,
(in millions)
Corporate and Other:
Operating Revenues
Fee income
Net investment income
Other income
Total Operating Revenues
Operating Benefits and Expenses
Interest expense
Sub-advisor expenses
General and administrative expenses
Total Operating Benefits and Expenses
Pretax Adjusted Operating Earnings
Year Ended December 31, 2025 compared to Year Ended December 31, 2024
Pretax Adjusted Operating Earnings
Pretax adjusted operating earnings increased $121 million to $(143) million for the year ended December 31, 2025 from $(264) million for the year ended December 31, 2024 primarily driven by a $58 million decrease in general and administrative expenses, due to lower incentive and deferred compensation expenses, a $29 million increase in other income primarily due to a one-time reinsurance related adjustment in 2024, and a $40 million increase in net investment income.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments
Investments
Our investment portfolio primarily consists of fixed-income securities and loans, publicly-traded corporate and government bonds, private securities and loans, asset-backed securities and mortgage loans. Asset-backed securities include mortgage-backed and other structured securities. The fair value of these and our other invested assets fluctuates depending on market and other general economic conditions and the interest rate environment and is affected by other economic factors.
Investment Strategy
Our overall investment strategy seeks to maintain a diversified and largely investment grade fixed income portfolio that is capital efficient, achieves risk-adjusted returns that support competitive pricing for our products, generates profitable growth of our business and maintains adequate liquidity to support our obligations. We utilize repurchase and reverse repurchase transactions as a part of our overall portfolio management program to assist with collateral requirements associated with our hedging program and other liquidity needs of our insurance subsidiaries.
Our investment program seeks to generate a competitive rate of return on our invested assets to support the profitable growth of our business, while maintaining investment portfolio allocations within the Company’s risk tolerance. This means maximizing risk-adjusted return within the context of a largely fixed income portfolio while also managing exposure to downside risk in a stressed environment, regulatory and rating agency capital models, overall portfolio yield, diversification and correlation with other investments and company exposures.
The investments within our investment portfolio are primarily managed by PPM, our wholly-owned registered investment advisor. Our investment strategy benefits from PPM’s ability to originate investments directly, as well as participate in transactions originated by banks, investment banks, commercial finance companies and other intermediaries. Certain investments held in funds withheld accounts for reinsurance transactions are managed by Apollo Insurance Solutions Group LP ("Apollo"), an Athene affiliate. S ee Item 8. Financial Statements and Supplementary Data — Note 8 - Reinsurance of the Notes to Consolidated Financial Statements for further details . We use other third-party investment managers for certain niche asset classes. As of December 31, 2025, Apollo managed $11.6 billion of cash and investments and other third-party investment managers managed approximately $312 million of investments.
Our Investment Committee has specified a target strategic asset allocation (“SAA”) that is designed to deliver the highest expected return within a defined risk tolerance while meeting other important objectives such as those mentioned in the second preceding paragraph. The fixed income portion of the SAA is assessed relative to a customized index of public corporate bonds that represents a close approximation of the maturity profile of our liabilities and a credit quality mix that is consistent with our risk tolerance. PPM’s objective is to outperform this index on a number of measures including portfolio yield, total return and capital loss due to downgrades and defaults. While PPM has access to a broad universe of potential investments, we believe grounding the investment program with a customized public corporate index that can be easily tracked and monitored helps guide PPM in meeting the risk and return expectations and assists with performance evaluation
Recognizing the trade-offs between the level of risk, required capital, liquidity and investment return, the largest allocation within our investment portfolio is to investment grade fixed income securities. As previously mentioned, our investment manager accesses a broad universe of potential investments to construct the investment portfolio and considers the benefits of diversification across various sectors, collateral types and asset classes. To this end, our SAA and investment portfolio includes allocations to public and private corporate bonds (both investment grade and high yield), mortgage loans, structured securities, private equity and U.S. Treasury securities. These U.S. Treasury securities, while lower yielding than other alternatives, provide a higher level of liquidity and play a role in managing our interest rate exposure.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments
Portfolio Composition
The following table summarizes the carrying values of our investments:
December 31,
Investments excluding Funds Withheld
Funds Withheld
Total
Investments excluding Funds Withheld
Funds Withheld
Total
(in millions)
Debt Securities, available-for-sale, net of allowance for credit losses
Debt Securities, at fair value under fair value option
Equity securities, at fair value
Mortgage loans, net of allowance for credit losses
Mortgage loans, at fair value under fair value option
Policy loans
Freestanding derivative instruments
Other invested assets
Total investments
Available-for-sale debt securities increased to $47,321 million at December 31, 2025 from $40,289 million at the end of 2024. The amortized cost of debt securities, available-for-sale, increased to $50,491 million at December 31, 2025 from $45,007 million as of December 31, 2024. Further, net unrealized losses, after adjusting for allowance for credit loss, were $3,159 million as of December 31, 2025, compared to $4,679 million as of December 31, 2024.
Other Invested Assets
Other invested assets increased to $3,185 million at December 31, 2025 from $2,864 million at December 31, 2024.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments
Debt Securities
At December 31, 2025 and December 31, 2024, the amortized cost, allowance for credit loss, gross unrealized gains and losses, and fair value of debt securities, including trading securities and securities carried at fair value under the fair value option, were as follows (in millions):
December 31, 2025
Amortized
Cost
Allowance for Credit Loss
Gross
Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
U.S. government securities
Other government securities
Corporate securities
Utilities
Energy
Banking
Healthcare
Finance/Insurance
Technology/Telecom
Consumer goods
Industrial
Capital goods
Real estate
Media
Transportation
Retail
Other (1)
Total Corporate Securities
Residential mortgage-backed
Commercial mortgage-backed
Other asset-backed securities
Total Debt Securities
(1) No single remaining industry exceeds 3% of the portfolio.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments
December 31, 2024
Amortized
Cost
Allowance for Credit Loss
Gross
Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
U.S. government securities
Other government securities
Corporate securities
Utilities
Energy
Banking
Healthcare
Finance/Insurance
Technology/Telecom
Consumer goods
Industrial
Capital goods
Real estate
Media
Transportation
Retail
Other (1)
Total Corporate Securities
Residential mortgage-backed
Commercial mortgage-backed
Other asset-backed securities
Total Debt Securities
(1) No single remaining industry exceeds 3% of the portfolio.
Evaluation of Available-For-Sale Debt Securities for Credit Loss
See Item 8. Financial Statements and Supplementary Data -- Note 4 - Investments of the Notes to Consolidated Financial Statements for information about how we evaluate our available-for-sale debt securities for credit loss.
Equity Securities
Equity securities consist of investments in common and preferred stock and mutual fund investments. Common and preferred stock investments generally arise out of previous private equity investments or other settlements rather than as direct investments. Mutual fund investments typically represent investments made in our own mutual funds to seed those structures for external issuance at a later date. The following table summarizes our holdings:
December 31,
(in millions)
Common Stock
Preferred Stock
Mutual Funds
Total
Mortgage Loans
At December 31, 2025, commercial mortgage loans were collateralized by properties located in 34 states, the District of Columbia, and Europe. Residential mortgage loans were collateralized by properties located in 49 states, the District of Columbia, Mexico, and Europe.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments
The table below presents the carrying value, net of allowance for credit loss, of our mortgage loans by property type:
December 31,
(in millions)
Commercial:
Apartment
Hotel
Office
Retail
Warehouse
Other
Total Commercial
Residential
Total
ACL (1)
Total with ACL
(1) At December 31, 2025 and 2024 a llowance for credit losses included $117 million and $116 million, respectively, for commercial loans and $16 million and $5 million, respectively, for residential loans.
The table below presents the carrying value, net of allowance for credit loss, of our mortgage loans by region:
December 31,
(in millions)
United States:
East North Central
East South Central
Middle Atlantic
Mountain
New England
Pacific
South Atlantic
West North Central
West South Central
Total United States
Foreign
Total
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments
The following table provides information about the credit quality of our mortgage loans:
December 31,
(in millions)
Commercial mortgage loans
Loan to value ratios:
Less than 70%
Greater than 100%
Total
Residential mortgage loans
Performing
Nonperforming (1)
Total
Total mortgage loans
(1) At December 31, 2025 and 2024, includes $19 million and $24 million, respectively, of loans 30-89 days past due and $16 million and $24 million, respectively, of loans 90 days or greater past due and supported with insurance or other guarantees provided by various governmental programs.
The following table provides a summary of the allowance for credit losses related to our mortgage loans:
December 31,
(in millions)
Balance at beginning of period
Charge offs, net of recoveries (1)
Reductions for mortgages disposed
Provision (release) (1)
Balance at end of period
(1) At December 31, 2025, the $12 million net increase in allowance for credit losses is due to the change in expected credit losses, primarily in the residential mortgage sector. At December 31, 2024, the $(44) million net decrease in allowance for credit losses is due to the change in expected credit losses, primarily in the office sector.
The Company’s mortgage loans that are current and in good standing are accruing interest. Interest is not accrued on loans greater than 90 days delinquent or in process of foreclosure, when deemed uncollectible. Delinquency status is determined from the date of the first missed contractual payment. Accrued interest amounting to $3 million and $1 million were written off as of December 31, 2025 and 2024, respectively, relating to loans that were greater than 90 days delinquent or in the process of foreclosure.
The following table provides information about our impaired residential mortgage loans (in millions):
December 31,
Recorded investment (1)
Unpaid principal balance
Related loan allowance
Average recorded investment
Investment income recognized
(1) At December 31, 2025 and 2024, includes $4 million and $2 million, respectively, of loans in process of foreclosure, all of which are loans supported with insurance or other guarantees provided by various governmental programs.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Investments
Derivative Instruments
See Item 8. Financial Statements and Supplementary Data — Note 5 – Derivative Instruments of the Notes to Consolidated Financial Statements, which presents the aggregate contractual or notional amounts and the fair values of our freestanding and embedded derivatives instruments as of December 31, 2025 and 2024.
Evaluation of Invested Assets
We perform regular evaluations of our invested assets. On a monthly basis, management identifies those investments that may require additional monitoring and carefully reviews the carrying value of such investments to determine whether specific investments should be placed on a non-accrual status and if an allowance for credit loss is required. In making these reviews, management principally considers the adequacy of any collateral, compliance with contractual covenants, the borrower’s recent financial performance, news reports and other externally generated information concerning the borrower’s affairs. In the case of publicly traded bonds, management also considers market value quotations, where available. For mortgage loans, management generally considers information concerning the mortgaged property, including factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral. For investments in partnerships, management reviews the financial statements and other information provided by the general partners.
To determine an allowance for credit loss, we consider a security’s forecasted cash flows as well as the severity of depressed fair values. Investment income is not accrued on securities in default and otherwise where the collection is uncertain. Subsequent receipts of interest on such securities are generally used to reduce the cost basis of the securities. The provisions for impairment on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest on mortgage loans is generally suspended when principal or interest payments on mortgage loans are past due more than 90 days. Interest is then accounted for on a cash basis.
Policy and Contract Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are estimated as necessary to meet policy obligations or to provide for future annuity payments. Amounts for actuarial liabilities are computed and reported on the Consolidated Financial Statements in conformity with U.S. GAAP. For more details on Policyholder Liabilities, see “Critical Accounting Estimates" below.
Our policy and contract liabilities include separate account liabilities, reserves for future policy benefits and claims payable and other contract holder funds. As of December 31, 2025, 90% of our policy and contract liabilities were in our Retail Annuities segment, 4% were in our Institutional Products segment and 6% were in our Closed Life and Annuity Blocks segment.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Policy and Contract Liabilities
The table below represents a breakdown of our policy and contract liabilities:
December 31, 2025
Separate Accounts
Reserves for future policy benefits
Other contract holder funds
Market Risk Benefits
Total
(in millions)
Variable Annuities
RILA 1
Fixed Annuities
Fixed Index Annuities 2
Payout Annuities
Other Annuities
Total Retail Annuities
Total Institutional Products
Total Closed Life and Annuity Blocks
Total Policy and Contract Liabilities
Claims payable and other
Total
December 31, 2024
Separate Accounts
Reserves for future policy benefits
Other contract holder funds
Market Risk Benefits
Total
(in millions)
Variable Annuities
RILA 1
Fixed Annuities
Fixed Index Annuities 2
Payout Annuities
Other Annuities
Total Retail Annuities
Total Institutional Products
Total Closed Life and Annuity Blocks
Total Policy and Contract Liabilities
Claims payable and other
Total
(1) Includes the embedded derivative liabilities in other contract holder funds re lated to RILA of $6,043 million and $3,065 million at December 31, 2025 and 2024, respectively.
(2) Includes the embedded derivative liabilities related to fixed index annuity in other contract holder funds of $863 million and $877 mill ion at December 31, 2025 and 2024, respectively.
As of December 31, 2025:
• $236.5 billion or 76% of our policy and contract liabilities were backed by separate account assets. These separate account assets backed reserves primarily related to our variable annuities. Separate account liabilities are fully funded by cash flows from the customer’s corresponding separate account assets and are set equal to the fair value of such invested assets.
• $60.0 billion of our policy and contract liabilities were backed by our investment portfolio.
• $13.0 billion of our policy and contract liabilities were reinsured by Athene and backed by funds withheld assets.
As of December 31, 2025, 92% of fixed annuity, fixed-index annuity, and the fixed accounts of RILA and variable annuity correspond to crediting rates that are at the guaranteed minimum crediting rate. We have the discretion, subject to contractual limitations and minimums, to reset the crediting terms on the majority of our fixed annuities and fixed index annuities.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Policy and Contract Liabilities
See Item 8. Financial Statements and Supplementary Data — Note 9 - Reserves for Future Policy Benefits and Claims Payable, Note 10 - Other Contract Holder Funds, Note 11 - Separate Account Assets and Liabilities, and Note 12 - Market Risk Benefits of the Notes to Consolidated Financial Statements for additional discussion on accounting policies around Reserves for future policy benefits and claims payable, Other contract holder funds, Separate account assets and liabilities and MRBs.
Actuarial Assumption Updates and Model Enhancements
The following tables reflect the impacts from our annual assumption review to pretax income (loss), pre-tax non-operating
adjustments and Pre-Tax Adjusted Operating Earnings for the periods presented:
Years Ended December 31,
(in millions)
Assumption Review Impact:
Total assumption review impact on pretax (loss) income
Less: total assumption review impact on pretax non-operating
Total assumption review impact on Pretax Adjusted Operating Earnings
Assumption Review Impact on Pretax Adjusted Operating Earnings by Segment:
Retail Annuities
Closed Life and Annuity Blocks
Total assumption review impact on Pretax Adjusted Operating Earnings
2025 Actuarial Assumption Updates and Model Enhancements
The impact of assumption updates on Pretax Adjusted Operating Earnings was a gain of $18 million. A gain of $16 million from the Retail Annuities segment was mainly driven by favorable mortality experience on payout annuities on the reserves for future policyholder benefits as well as other contract holder funds. $2 million of this gain was attributed to the Closed Life and Annuity Blocks segment related to mortality and lapse assumptions.
The impact on pretax non-operating earnings was a loss of $360 million attributed to the Retail Annuities segment. This loss was due to changes on variable annuity MRB reserves of $374 million, which was primarily related to updated policyholder behavior assumptions such as lapse and partially offset by updated mortality assumptions and model enhancements. This was partially offset by a gain of $14 million on fixed index annuities and RILA MRB and embedded derivative reserves, primarily driven by changes to RILA policyholder behavior. See Item 8. Financial Statements and Supplementary Data -- Note 12 - Market Risk Benefits of the Notes to Consolidated Financial Statements for further information regarding the notable assumption updates included in the MRB calculation.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Liquidity and Capital Resources
Liquidity and Capital Resources
Liquidity is our ability to generate sufficient cash flows to meet the cash requirements of operating, investing and financing activities. Capital refers to our long-term financial resources available to support the business operations and contribute to future growth. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and alternate sources of liquidity and capital described herein.
The discussion below describes our liquidity and capital resources for the years ended December 31, 2025, 2024 and 2023.
Cash Flows
The following table presents a summary of our cash flow activity for the periods set forth below:
Years Ended December 31,
(in millions)
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Total cash, cash equivalents, and restricted cash at end of period
Cash flows from Operating Activities
The principal operating cash inflows from our insurance activities come from insurance premiums, fees charged on our products and net investment income. The principal operating cash outflows are the result of the payment of annuity and life insurance benefits, operating expenses and income tax , as well as interest expense. The primary liquidity concern with respect to these cash flows is the risk of earlier than expected contract holder and policyholder benefit payments.
Cash flows provided by (used in) operating activities decreased $35 million to $5,758 million during the year ended December 31, 2025 from $5,793 million during the year ended December 31, 2024. This was primarily due to the timing of settlements of receivables and payables.
Cash flows from Investing Activities
The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments, as well as settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments and settlements of freestanding derivatives. It is not unusual to have a net cash outflow from investing activities because cash inflows from insurance operations are typically reinvested to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors or market disruptions that might impact the timing of investment related cash flows as well as derivative collateral needs, which could result in material liquidity needs for our insurance subsidiaries.
Cash flows provided by (used in) investing activities changed by $666 million to $(7,756) million during the year ended December 31, 2025 from $(7,090) million during the year ended December 31, 2024. This change was primarily driven by increased net purchases of debt securities and mortgage loans, primarily driven by increased institutional and retail sales in 2025, partially offset by lower outflows related to our hedging program, compared to the prior year.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources
Cash flows from Financing Activities
The principal cash inflows from our financing activities come from deposits of funds associated with policyholder account balances, issuance of securities and lending of securities. The principal cash outflows come from withdrawals associated with policyholder account balances, repayment of debt, and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early policyholder withdrawal.
Cash flows provided by (used in) financing activities increased $1,562 million to $3,935 million during the year ended December 31, 2025 from $2,373 million for the year ended December 31, 2024. This increase was primarily due to higher deposits from increased institutional and RILA sales in 2025, partially offset by repayments on repurchase agreements and federal home loan bank notes during 2025 .
Statutory Capital
Our insurance company subsidiaries have statutory surplus above the level needed to meet current regulatory requirements. RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action. RBC is based on a formula that incorporates both factor-based components (applied to various asset, premium, and statutory reserve items) and model-based components. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk, and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not to rank insurers generally. As of December 31, 2025, our insurance companies were well in excess of the minimum required capital levels.
With the execution of the Brooke Re transaction in the first quarter of 2024, we are now able to largely moderate the impact of the cash surrender value floor going forward. In the past, our statutory TAC (total adjusted capital) may have been negatively impacted by minimum required reserving levels ( i.e. , cash surrender value floor) when reserve releases were limited and unable to offset losses from our hedging program.
Jackson had an RBC ratio of 567%, 572% and 624% as of December 31, 2025, 2024 and 2023, respectively. The decrease in Jackson’s RBC ratio as of December 31, 2025 as compared to December 31, 2024 was primarily due to an increase in asset risk driven by RILA separate account growth and increased business risk, partially offset by decreased collateral and capital generation.
Holding Company Liquidity
As a holding company with no business operations of its own, Jackson Financial primarily derives cash flows from dividends and interest payments from its insurance subsidiaries. These principal sources of liquidity are expected to be supplemented by cash and short-term investments held by Jackson Financial, and access to bank lines of credit and the capital markets. We intend to maintain a minimum amount of cash and highly liquid securities at Jackson Financial adequate to fund two years of holding company fixed net expenses, which is currently targeted at $250 million but may change over time as we refinance existing debt or make changes to our debt and capital structure.
The main uses of liquidity for Jackson Financial are interest payments and debt repayment, holding company operating expenses, payment of dividends and other distributions to shareholders, which may include stock repurchases, and capital contributions, if needed, to our insurance company subsidiaries. See “Recent Events of Note” above in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Insurance Company Subsidiaries’ Liquidity
The liquidity sources for our insurance company subsidiaries include their cash, short-term investments, sales of publicly-traded bonds, insurance premiums, fees charged on their products, sales of annuities and institutional products, investment income, commercial repurchase agreements and utilization of borrowing facilities, including a short-term borrowing facility with the Federal Home Loan Bank of Indianapolis ("FHLBI").
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources
The liquidity requirements for our insurance company subsidiaries include:
• liabilities associated with their insurance and reinsurance activities. Liabilities arising from insurance and reinsurance activities include the payment of policyholder benefits when due, cash payments in connection with policy surrenders and withdrawals and policy loans;
• purchases of new investments;
• management of derivative-related margin requirements. The derivative contracts are an integral part of our risk management program, especially for the management of our variable annuities program, and are managed in accordance with our hedging and risk management program. Our cash flows associated with collateral received from counterparties and posted with counterparties fluctuates with changes in the market value of the underlying derivative contract and/or the market value of the collateral. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. As of December 31, 2025 , we were in a net collateral payable position of $58 million, compared to $150 million as of December 31, 2024 ;
• repayment of principal and interest on debt, and payments of interest on surplus notes. As of December 31, 2025 , Jackson’s outstanding surplus notes and bank debt included $ 47 million of bank loans from the FHLBI, collateralized by mortgage-related securities and mortgage loans, and $250 million of surplus notes maturing in 2027; and
• funding of expenses including payment of commissions, operating expenses and taxes.
Significant increases in interest rates could create sudden increases in surrender and withdrawal requests by customers and contract holders and result in increased liquidity requirements at our insurance company subsidiaries. Significant increases in interest rates or equity markets may also result in higher margin and collateral requirements on our derivative portfolio.
Other factors not directly related to interest rates can also give rise to an increase in liquidity requirements including, changes in ratings from rating agencies, general policyholder concerns relating to the life insurance industry (e.g., the unexpected default of a large, unrelated life insurer) and competition from other products, including non-insurance products such as mutual funds, certificates of deposit and newly developed investment products. Most of the life insurance and annuity products Jackson offers permit the policyholder or contract holder to withdraw or borrow funds or surrender cash values. As of December 31, 2025, 100% of our RILA policy and contract liabilities were subject to surrender charges of at least 5% or at market value in the event of discretionary withdrawal by customers. Further, more than half of Jackson’s general account reserves are not surrenderable, included surrender charges greater than 5%, or included market value adjustments to discourage early withdrawal of policy and contract funds as of December 31, 2025 .
Jackson uses a variety of asset liability management techniques to provide for the orderly provision of cash flow from investments and other sources as policies and contracts mature in accordance with their normal terms. Jackson’s principal sources of liquidity to meet unexpected cash outflows associated with sudden and severe increases in surrenders and withdrawals or benefit payments are its portfolio of liquid assets and its net operating cash flows. As of December 31, 2025, the portfolio of cash, short-term investments and privately and publicly traded securities and equities that are unencumbered and unrestricted to sale, amounted to $36.8 billion.
Distributions and Dividends
• Holding Company
Any declaration of cash dividends or stock repurchases by JFI are at the discretion of JFI’s Board of Directors and will depend on our financial condition, earnings, liquidity and capital requirements, regulatory constraints, level of indebtedness, preferred stock and other contractual restrictions with respect to paying cash dividends or repurchasing stock, restrictions imposed by Delaware law, general business conditions and any other factors that JFI’s Board of Directors deems relevant in making any such determination. Therefore, there can be no assurance that we will pay any cash dividends to holders of our stock or approve any further increase in the existing, or any new, common stock repurchase program, or any assurance as to the amount of any such cash dividends or stock repurchases.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources
Under Delaware law, dividends may be paid, or stock may be repurchased, out of “surplus,” or out of the current or the immediately preceding year's earnings. Surplus is defined as the fair market value of net assets minus stated capital. JFI is a holding company and has no direct operations. All of our business operations are conducted through our subsidiaries. Any dividends we pay, or stock repurchases we make, will depend upon the funds legally available for distribution, including dividends or distributions from our subsidiaries to us. The states in which our insurance subsidiaries are domiciled impose certain restrictions on our insurance subsidiaries’ ability to pay dividends to their parent companies. See “Distributions and Dividends - Insurance Company Subsidiaries” below for a discussion of those restrictions . Such restrictions, or any future restrictions adopted by the states in which our insurance subsidiaries are domiciled, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable by our subsidiaries without affirmative approval of state regulatory authorities. See “Risk Factors—Risks relating to Financing and Liquidity - As a holding company, Jackson Financial depends on the ability of its subsidiaries to pay dividends and make other distributions to meet its obligations and liquidity needs, including servicing debt, dividend payments and stock repurchases.”
During the year ended December 31, 2025, we paid a cash dividend of $0.50 per depositary share and $0.80 per common share on JFI's preferred and common stock totaling $44 million and $228 million, respectively. On February 16, 2026, our Board of Directors approved a cash dividend for the first quarter on JFI's common stock of $0.90 per share, payable on March 26, 2026, to common shareholders of record on March 16, 2026. The Company also announced the declaration of a cash dividend of $0.50 per depositary share, each representing a 1/1,000th interest in a share of Fixed-Rate Reset Noncumulative Perpetual Preferred Stock, Series A. The dividend will be payable on March 30, 2026, to depositary shareholders of record at the close of business on March 16, 2026.
On February 11, 2026, Jackson and TPG completed the transaction announced on January 6, 2026. See Executive Summary - Recent Events to Note of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details on this transaction.
On September 18, 2025, our Board of Directors authorized an increase of $1 billion in our existing authorization to repurchase shares of our outstanding common stock as part of the Company's share repurchase program.
We repurchased a total of 7,030,535 shares of common stock for an aggregate purchase price of $634 million for the year ended December 31, 2025, which were funded with cash on hand. As of February 18, 2026, the Company had remaining authorization to purchase $903 million of its common shares.
See Note 23 - Equity of the Notes to Consolidated Financial Statements in this Form 10-K for further information on dividends to shareholders and share repurchases .
• Insurance Company Subsidiaries
The ability of our insurance company subsidiaries to pay dividends is limited by applicable laws and regulations of the jurisdictions where such subsidiaries are domiciled as well as agreements entered into with regulators. These laws and regulations require, among other things, our insurance company subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay.
Subject to these limitations, our insurance company subsidiaries are permitted to pay ordinary dividends based on calculations specified under insurance laws of the relevant state of domicile, subject to prior notification to the appropriate regulatory agency. Any distributions above the amount permitted by statute in any twelve-month period are considered extraordinary dividends, and the approval of the appropriate regulator is required prior to payment. In Michigan, the Director of the Michigan Department of Insurance and Financial Services (the Michigan Director of Insurance) may limit, or not permit, the payment of dividends from either Jackson or Brooke Life, Jackson's direct parent company, if it determines that the surplus of either of these subsidiaries is not reasonable in relation to their outstanding liabilities and is not adequate to meet their financial needs, as required by the Michigan Insurance Code of 1956, as amended (the "Michigan Insurance Code"). Unless otherwise approved by the Michigan Director of Insurance, dividends may only be paid from earned surplus. Also, surplus note arrangements and interest payments must be approved by the Michigan Director of Insurance and such interest payments to related parties reduce the otherwise calculated ordinary dividend capacity for that period. In New York, all dividends require approval from the New York State Department of Financial Services.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources
For 2026, ordinary dividend capacity for Jackson and Brooke Life is based on the greater of 10% of 2025 reported statutory capital and surplus or statutory net gain from operations. This capacity is then reduced by cumulative dividends and other capital distributions in the preceding 12 months, subject to the availability of earned surplus. As a result of cumulative dividends and other capital distributions occurring in the preceding 12 months as of December 31, 2025 , future dividends from both Jackson and Brooke Life are expected to be classified as extraordinary. There is a process within the Michigan Insurance Code to request extraordinary dividends that the companies have utilized previously. Brooke Life, as the sole owner of Jackson and Brooke Re, is the direct recipient of any dividend payments from those subsidiaries and must make dividend payments to its ultimate parent company, Jackson Financial, in order for any funds from our insurance company subsidiaries to reach Jackson Financial.
The maximum distribution permitted by law or contract is not necessarily indicative of an insurer’s actual ability to pay such distributions, which may be constrained by business and other considerations, such as imposition of withholding tax, the impact of such distributions on surplus, which could affect the insurer’s credit and financial strength ratings or competitive position, the ability to generate new annuity sales and the ability to pay future dividends or make other distributions. Further, state insurance laws and regulations require that the statutory surplus of our insurance subsidiaries following any dividend or distribution must be reasonable in relation to their outstanding liabilities and adequate for the insurance subsidiaries’ financial needs. Along with solvency regulations, another primary consideration in determining the amount of capital used for dividends is the level of capital needed to maintain desired financial strength ratings from rating agencies, including A.M. Best, S&P, Moody’s and Fitch. Both regulators and rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for insurance company subsidiaries. We believe our insurance company subsidiaries have sufficient statutory capital and surplus to maintain their desired financial ratings.
Our Indebtedness
Senior Notes
The Company has an aggregate of $1,750 million principal amount of its senior notes, shown as Long-term debt on the Consolidated Balance Sheets. See Note 13 – Long-Term Debt of the Notes to Consolidated Financial Statements for information regarding long term debt.
Revolving Credit and Short-Term Borrowing Facilities
On February 24, 2023, the Company entered into a revolving credit facility (the "2023 Revolving Credit Facility") with a syndicate of banks and Bank of America, N.A., as Administrative Agent. The 2023 Revolving Credit Facility replaced an existing revolving credit facility that was due to expire in February 2024. The 2023 Revolving Credit Facility provides for borrowings for working capital and other general corporate purposes under aggregate commitments of $1.0 billion, with a sub-limit of $500 million available for letters of credit. The 2023 Revolving Credit Facility further provides for the ability to request, subject to customary terms and conditions, an increase in commitments thereunder by up to an additional $500 million. Commitments under the 2023 Revolving Credit Facility terminate on February 24, 2028. Interest on borrowings may be based on a “Base Rate” (as defined in the 2023 Revolving Credit Facility) plus an adder ranging from 0.125% to 0.875%, or a “Term SOFR Rate” (as defined in the 2023 Revolving Credit Facility) plus an adder ranging from 1.125% to 1.875%. The applicable adder is based upon the ratings assigned to the Company’s senior, unsecured, non-credit enhanced debt.
The credit agreement governing the 2023 Revolving Credit Facility contains a number of customary representations and warranties, affirmative and negative covenants and events of default (including a change of control provision). See Note 13 – Long-Term Debt of the Notes to Consolidated Financial Statements for information regarding financial maintenance covenants contained in the credit agreement. We were in compliance with these covenants at December 31, 2025.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources
Jackson is a party to an Uncommitted Money Market Line Credit Agreement dated April 6, 2023 among Jackson, Jackson Financial, and Société Générale. This agreement is an uncommitted short-term cash advance facility that provides an additional form of liquidity to Jackson and to Jackson Financial. The aggregate borrowing capacity under the agreement is $500 million and each cash advance request must be at least $100 thousand. The interest rate is set by the lender at the time of the borrowing and is fixed for the duration of the advance. Jackson and Jackson Financial are jointly and severally liable to repay any advance under the agreement, which must be repaid prior to the last day of the quarter in which the advance was drawn.
Surplus Notes
On March 15, 1997, our subsidiary, Jackson, issued 8.2% surplus notes in the principal amount of $250 million due March 15, 2027. These surplus notes are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims and may not be redeemed at the option of the Company or any holder prior to maturity. Interest is payable semi-annually on March 15th and September 15th of each year. Interest expense on the notes was $20 million for each of the years ended December 31, 2025, 2024 and 2023.
Under Michigan insurance law, for statutory reporting purposes, the surplus notes are not part of the legal liabilities of Jackson and are considered surplus funds. Payments of interest or principal may only be made with the prior approval of the Michigan Director of Insurance and only out of surplus earnings that the Director determines to be available for such payments under Michigan insurance law.
Federal Home Loan Bank
Jackson is a member of the FHLBI primarily for the purpose of participating in its collateralized loan advance program with funding facilities. Membership requires us to purchase and hold a minimum amount of FHLBI capital stock, plus additional stock based on outstanding advances. Advances are in the form of either notes or funding agreements issued to FHLBI. As of December 31, 2025 and 2024, Jackson held a bank loan with an outstanding balance of $47 million and $52 million, respectively.
Collateral Upgrade Transactions
During the first quarter of 2024, Jackson executed certain paired repurchase and reverse repurchase transactions totaling approximately $1.5 billion pursuant to master repurchase agreements with participating bank counterparties. Under these transactions, the Company lends securities (e.g., corporate debt securities) to bank counterparties in exchange for U.S. Treasury securities. The paired repurchase and reverse repurchase transactions are settled on a net basis. As a result, there was no cash exchanged at initiation of these transactions. The paired transactions are reported net within the Consolidated Balance Sheets. These transactions are evergreened and require at least 150-days' notice prior to termination. See “Collateral Upgrade Transactions” under Note 4 – Investments of Notes to Consolidated Financial Statements in Part II, Item 8. Financial Statements and Supplementary Data in this Form 10-K for additional information.
Financial Strength Ratings
Our access to funding and our related cost of borrowing, the attractiveness of certain of our subsidiaries’ products to customers, our attractiveness as a reinsurer to potential ceding companies and requirements for derivatives collateral posting are affected by our credit ratings and financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting consumer confidence in an insurer and its competitive position in marketing products as well as critical factors considered by ceding companies in selecting a reinsurer.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Liquidity and Capital Resources
Our principal insurance company subsidiaries are rated by A.M. Best, S&P, Moody’s and Fitch. Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurer or reinsurer to meet its obligations under an insurance policy or reinsurance arrangement and generally involve quantitative and qualitative evaluations by rating agencies of a company’s financial condition and operating performance. Generally, rating agencies base their financial strength ratings upon information furnished to them by the company and upon their own investigations, studies and assumptions. Financial strength ratings are based upon factors of concern to customers, distribution partners and ceding companies and are not directed toward the protection of investors. Financial strength ratings are not recommendations to buy, sell or hold securities and may be revised or revoked at any time at the sole discretion of the rating organization.
As of February 18, 2026, the financial strength ratings of our principal insurance subsidiaries were as follows:
Company
A.M. Best
Fitch
Moody’s
Jackson National Life Insurance Company
Rating
Outlook
stable
stable
stable
stable
Jackson National Life Insurance Company of New York
Rating
Outlook
stable
stable
stable
stable
Brooke Life Insurance Company
Rating
Outlook
stable
In evaluating our Company’s financial strength, the rating agencies evaluate a variety of factors including our strategy, market positioning and record, mix of business, profitability, leverage and liquidity, the adequacy and soundness of our reinsurance, the quality and estimated market value of our assets, the adequacy of our surplus, our capital structure, and the experience and competence of our management.
In addition to the financial strength ratings, rating agencies use an outlook statement to indicate a short- or medium-term trend which, if continued, may lead to a rating change. A positive outlook indicates a rating may be raised and a negative outlook indicates a rating may be lowered. A stable outlook is assigned when ratings are not likely to be changed. Outlooks should not be confused with expected stability of the issuer’s financial or economic performance. A stable outlook does not preclude a rating agency from changing a rating at any time without notice.
A.M. Best, S&P, Moody’s and Fitch review their ratings of insurance companies from time to time. There can be no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in their judgment, circumstances so warrant. While the degree to which ratings adjustments will affect sales of our annuities and institutional products, and persistency is unknown, if our ratings are negatively adjusted for any reason, we believe we could experience a material decline in the sales in our individual channel, origination in our institutional channel, and the persistency of our existing business.
Contractual Obligations
We have contractual obligations identified within Item 8. Financials Statements and Supplementary Data -- Note. 5. Derivative Instruments, Note 9. Reserves for Future Policy Benefits and Claims Payable, Note 10. Other Contract Holder Funds, Note 11. Separate Account Assets and Liabilities, Note 12. Market Risk Benefits, Note 13. Long-Term Debt, Note 16. Commitments and Contingencies, and Note 17. Leases.
Impact of Recent Accounting Pronouncements
For a complete discussion of new accounting pronouncements affecting us, s ee Item 8. Financial Statements and Supplementary Data — Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements .
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Estimates
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in our Consolidated Financial Statements. The following are our most critical estimates, which require management’s most difficult, subjective and complex judgments, including the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
The following discussion is not intended to represent a comprehensive list of the estimates and judgments that we apply or our accounting policies. For a detailed discussion of the application of these and other accounting policies, see Item 8. Financial Statements and Supplementary Data — Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.
Reserves for Future Policy Benefits and Claims Payable
We establish reserves for future policy benefits to, or on behalf of, customers in the same period in which the policy is issued or acquired, using methodologies prescribed by U.S. GAAP.
Reserves for Future Policy Benefits
For non-participating traditional life insurance contracts and limited pay life-contingent contracts , which include term, whole life, and payout annuities with significant insurance risk, reserves for future policy benefits represents the present value of estimated future policy benefits to be paid to, or on behalf of, policyholders in future periods and certain related expenses less the present value of estimated future net premiums.
Reserves for future policy benefits for non-participating traditional and limited-payment insurance contracts are measured using the net premium ratio (NPR) measurement model. The NPR measurement model accrues for future policy benefits in proportion to the premium revenue recognized. The reserve for future policy benefits is derived from the Company's best estimate of future net premium and future benefits and expenses, which is based on best estimate assumptions, including mortality, persistency, claims expense, and discount rate. On an annual basis, or as circumstances warrant, we conduct a comprehensive review of our current best estimate assumptions based on our experience, industry benchmarking, and other factors, as applicable. Expense assumptions are updated based on estimates of expected non-level costs, such as termination or settlement costs, and costs after the premium-paying period, and exclude acquisition costs or any costs that are required to be charged to expenses as incurred. Updates to assumptions are applied on a retrospective basis, and each reporting period the reserve for future policy benefits is updated to reflect actual experience to date.
The Company establishes cohorts, which are product groupings used to measure reserves for future policy benefits. In determining cohorts, the Company considers both qualitative and quantitative factors, including the issue year, type of product, product features, and legal entity.
The discount rate used to estimate reserves for future policy benefits is consistent with an upper-medium grade (low-credit risk) fixed-income corporate instrument yield, which has been interpreted to represent a single-A corporate instrument yield. This discount rate curve is determined by fitting a parametric function to yields to maturity and related times to maturity of market observable single-A rated corporate instruments. The discount rate used to recognize interest accretion on the reserves for future policy benefits is locked at the initial measurement of the cohort. Each reporting period, the reserve for future policy benefits is remeasured using the current discount rate. The difference between the reserve calculated using the current discount rate and the reserve calculated using the locked-in discount rate is recorded in accumulated other comprehensive income.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Estimates
Additional Liabilities - Universal Life-type
The Company issues universal life policies with secondary guarantees and interest-sensitive life policies. The primary reserves for these policies are the contract holder account balances reported within the other contract holder funds line of the Consolidated Balance Sheets. Where these contracts provide additional benefits beyond the account balance or base insurance coverage that are not market risk benefits or embedded derivatives, liabilities in addition to the policyholder’s account value are recognized. These additional liabilities for annuitization, death and other insurance benefits are reported within reserves for future policy benefits and claims payable. The liability measurement methodology uses a benefit ratio defined as a constant percentage of the assessment base. This ratio is multiplied by current period assessments to determine the reserve accrual for the period. The measurements of the additional liabilities for annuitization, death and other insurance benefits are based on best estimate assumptions including mortality, persistency, investment returns, and discount rates. These assumptions are similarly subject to the annual review process discussed above.
Other Future Policy Benefits and Claims Payable
In conjunction with a prior acquisition, we recorded a fair value adjustment related to certain annuity and interest-sensitive life blocks of business to reflect the cost of the interest guarantees within the in-force liabilities, based on the difference between the guaranteed interest rate and at purchase assumed new money guaranteed interest rate. This adjustment is recorded in reserves for future policy benefits and claims payable. This liability adjustment is remeasured each reporting period, taking into account changes in the in-force block. Any resulting change in the reserve is recorded as a change in policy reserve in the Consolidated Income Statements.
In addition, life and annuity claims liabilities in course of settlement are included in reserves for future policy benefits and claims payable.
See Item 8. Financial Statements and Supplementary Data — Note 9 - Reserve for Future Policy Benefits and Claims Payable of the Notes to Consolidated Financial Statements for additional information on these accounting policies.
Market Risk Benefits
Contracts or contract features that provide protection to the contract holder from capital market risk and expose the Company to other-than-nominal capital market risk are classified as market risk benefits, or MRBs. All long-duration insurance contracts and certain investment contracts are subject to MRB evaluation. MRBs are measured at fair value at the contract level and can be in either an asset or liability position. For contracts that contain multiple MRB features, the MRBs are valued together as a single compound MRB.
The use of models and assumptions to determine fair value of MRBs requires a significant amount of judgment. The significant assumptions used in the MRB fair value calculations are:
• Mortality rates - These vary by attained age, tax qualification status, guaranteed benefit election, and duration. The range used reflects ages from the minimum issue age for the benefit through age 95, which corresponds to the typical maturity age. A mortality improvement assumption is also applied.
• Base lapse rates - These vary by contract-level factors, such as product type, surrender charge schedule and guaranteed benefits election. Lapse rates are further adjusted based on the degree to which a guaranteed benefit is in-the-money, with lower lapse applying when benefits are more in-the-money. Lapse rates are also adjusted to reflect lower lapse expectations when guaranteed benefits are utilized.
• Utilization rates - These represent the expected percentage of contracts that will utilize the benefit through annuitization (GMIB) or commencement of withdrawals (GMWB). Utilization may vary by benefit type, attained age, duration, tax qualification status, benefit provision, and degree to which the guaranteed benefit is in-the-money.
• Withdrawal rates - These represent the percentage of annual withdrawal assumed relative to the maximum allowable withdrawal amount under the free partial withdrawal provision or the GMWB, as applicable. Free partial withdrawal rates vary based on the product type, duration, and GMAB election. Withdrawal rates on contracts with a GMWB vary based on attained age, tax qualification status, GMWB type and GMWB benefit provisions.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Estimates
• Non-performance risk adjustment - This is applied as a spread over the risk-free rate to determine the rate used to discount the related cash flows and varies by projection year.
• Long-term equity volatility - This represents the equity volatility beyond the period for which observable equity volatilities are available.
See Item 8. Financial Statements and Supplementary Data — Note 6 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information.
Variable Annuities
We issue variable contracts through our separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder. Certain of these contracts include contract provisions by which we contractually guarantee to the contract holder either a) return of no less than total deposits made to the account adjusted for any partial withdrawals, b) total deposits made to the account adjusted for any partial withdrawals plus a minimum return, or c) the highest account value on a specified anniversary date adjusted for any withdrawals following the contract anniversary. These guarantees include benefits that are payable upon the depletion of funds (GMWB), in the event of death (GMDB), at annuitization (GMIB), or at the end of a specified period (GMAB). Substantially all of our GMIB benefits are reinsured. GMIB benefits were discontinued in 2009. For additional information regarding our account value by optional guarantee benefit, see Item 1. Business–Our Product Offerings by Segments–Retail Annuities–Variable Annuities in this Form 10-K.
Variable annuity guaranteed benefit features classified as MRBs, which have explicit fees, are measured using the attributed fee method. Under the attributed fee method, fair value is measured as the difference between the present value of projected future liabilities and the present value of projected attributed fees. At the inception of the contract, the Company attributes to the MRB a portion of total fees expected to be assessed against the contract holder to offset the projected claims over the lifetime of the contract. The attributed fee is expressed as a percentage of total projected future fees at inception of the contract. This percentage of total projected fees is considered a fixed term of the MRB feature and is held static over the life of the contract. This percentage may not exceed 100% of the total projected contract fees as of contract inception. As the Company may issue contracts that have projected future liabilities greater than the projected future guaranteed benefit fees at issue, the Company may also attribute mortality and expense charges when performing this calculation. In subsequent valuations, both the present value of future projected liabilities and the present value of projected attributed fees are remeasured based on current market conditions and policyholder behavior assumptions.
Fixed Index Annuities and RILA
Our FIA and RILA contracts may be issued with features that guarantee benefits that are payable upon death (GMDB) or upon depletion of funds (GMWB). These features are classified as MRBs and measured at fair value.
Where the guaranteed benefit features have explicit fees, the fair value of the MRB is measured as the difference between the present value of projected future guaranteed benefits and the present value of projected attributed fees (the attributed fee method). At inception of the contract, the Company attributes a percentage of total projected future fees expected to be assessed against the policyholder to offset the projected future guaranteed benefits over the lifetime of the contract. Where the projected attributed fees are sufficient to offset the projected guaranteed benefits at issue, the MRB has an initial fair value of zero resulting in no gain or loss on issuance of the contract. If the projected attributed fees are insufficient to offset the projected guaranteed benefits at issue, an MRB liability is recognized and the value of the MRB is deducted from the host contract liability resulting in no gain or loss on issuance of the contract.
If the guaranteed benefits do not have explicit fees, the fair value of the MRB is measured as the present value of projected future guaranteed benefits. At inception, the initial value of the MRB is deducted from the host contract liability resulting in no gain or loss on issuance of the contract.
See Item 8. Financial Statements and Supplementary Data — Note 12 - Market Risk Benefits of the Notes to Consolidated Financial Statements for additional information on these accounting policies.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Estimates
Income Taxes
The Company did not elect to early adopt the proposed regulations of the U.S. Treasury Department and the Internal Revenue Service and relied on reasonable interpretations of published guidance to determine the estimated Corporate Alternative Minimum Tax (“CAMT”) liability and related CAMT deferred tax asset. The determination of the estimated 2025 CAMT liability considered carryover impacts from the prior years tax returns and consideration of the applicability of the published guidance. The U.S. Treasury Department is expected to issue Final Regulations after the year ended December 31, 2025, which may materially change the estimated provision of the CAMT.
Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the effects of recording certain invested assets at market value, the deferral of acquisition costs and sales inducements and the provisions for future policy benefits and expenses. Deferred tax assets and liabilities are measured using the tax rates expected to be in effect when such benefits are realized. We are required to test the value of deferred tax assets for realizability. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. In determining the need for a valuation allowance, we consider the carryback eligibility of losses, reversal of existing temporary differences, estimated future taxable income and tax planning strategies.
Determining the valuation allowance for our deferred tax assets requires management to make certain judgments and assumptions regarding future operations that are based on historical experience and expectations of future performance. To recognize a tax benefit in the Consolidated Financial Statements, there must be a greater than 50% chance of success of our position being sustained by the relevant taxing authority. Management’s judgments are potentially subject to change given the inherent uncertainty in predicting future performance, which is impacted by such factors as policyholder behavior, competitor pricing and other specific industry and market conditions.
See Item 8. Financial Statements and Supplementary Data — Note 15 – Income Taxes for additional information on these accounting policies and the estimated provision for the CAMT.
Reinsurance
We assess each of our reinsurance agreements to determine whether the agreement transfers insurance risk to the reinsurer by providing indemnification against loss or liability relating to insurance risk. Those contracts that transfer risk to the reinsurer are accounted for as reinsurance. Contracts that do not transfer sufficient risk to the reinsurer are accounted for as deposits.
For reinsurance contracts to transfer sufficient insurance risk to the reinsurer, the contract must provide a reasonable possibility that the reinsurer may realize a significant loss. Determining whether a reinsurance contract sufficiently transfers insurance risk is a matter of judgment based on an evaluation of all facts, both qualitative and quantitative.
For contracts where the Company cedes risks to reinsurers, reinsurance accounting generally matches the recognition of the benefits received from the reinsurance with the expense for benefits provided on the reinsured contracts. Premiums paid to the reinsurer are recorded as reduction of premium revenue. Expected reimbursements for losses are recorded as a reduction of losses as the losses are incurred with a corresponding reinsurance recoverable asset.
Reinsurance recoverables are generally measured using methodologies and assumptions that are consistent with those used to measure the direct liabilities. For non-participating traditional life insurance contracts and limited pay life-contingent contracts, there may be reinsurance contracts executed subsequent to the direct contract issue dates, and market interest rates may have changed between the date that the underlying insurance contracts were issued and the date the reinsurance contract is recognized in the financial statements, resulting in the underlying discount rate differing between the direct and reinsured business. We periodically review, and update as necessary, actual and anticipated experience and the assumptions used to measure reinsurance recoverable assets.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Estimates
Reinsurance recoverables are reported net of an allowance for expected credit losses. The allowance for credit losses considers the credit quality of the reinsurer and is generally determined based on probability of default and loss given default assumptions after considering any applicable collateral arrangements. Counterparty credit risk may be managed through the use of letters of credit, collateral trusts or funds withheld agreements. Assets held under funds withheld agreements are included on our Consolidated Balance Sheets.
Guaranteed minimum income benefits (GMIBs) are reinsured with an unrelated party. This contract provides reinsurance for only the GMIB feature and is classified as a market risk benefit (MRB). The reinsurance MRB is recorded at fair value using internally developed models consistent with those used to value our direct MRBs.
See Item 8. Financial Statements and Supplementary Data — Note 8 - Reinsurance of the Notes to Consolidated Financial Statements for additional information on these accounting policies.
Investments – Valuation and Impairment
We determine the fair values of certain financial assets and liabilities based on quoted market prices, where available. When necessary, we may also determine fair value based on estimated future cash flows discounted at the appropriate current market rate. Fair values also, if appropriate, reflect adjustments for counterparty credit quality, credit rating, liquidity and incorporate risk margins for unobservable inputs.
Where quoted market prices are not available, fair value estimates are made at a point in time, based on relevant market data, as well as the best information about the individual financial instrument. At times, illiquid market conditions could result in inactive markets for certain of our financial instruments. In such instances, there could be no or limited observable market data for these assets and liabilities. Fair value estimates for financial instruments deemed to be in an illiquid market are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These fair values are estimates and involve considerable uncertainty and variability as a result of the inputs selected and may differ materially from the values that would have been used had an active market existed. As a result of market inactivity, such calculated fair value estimates may not be realizable in an immediate sale or settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique could significantly affect these fair value estimates.
We periodically review our available-for-sale debt securities on a case-by-case basis to determine if an impairment is necessary for securities with a decline in fair value to below cost or amortized cost. Factors considered in determining whether an impairment is necessary include whether we have the intent to sell, or whether it is more likely than not we will be required to sell, the security before the amortized cost basis is fully recovered, the severity of the unrealized loss, the reasons for the decline in value and expectations for the amount and timing of a recovery in fair value. For debt securities in an unrealized loss position, for which we deem an impairment necessary, an ACL will be recorded along with a charge to net gains (losses) on derivatives and investments and any amounts deemed unrecoverable will be released from the ACL with a corresponding reduction to the amortized cost of the security.
Securities determined to be underperforming, or potential problem securities are subject to regular review. To facilitate the review, securities with significant declines in value, or where other objective criteria evidencing credit deterioration have been met, are included on a watch list. Among the criteria for securities to be included on a watch list are: credit deterioration that has led to a significant decline in fair value of the security; a significant covenant related to the security has been breached; or an issuer has filed or indicated a possibility of filing for bankruptcy, has missed or announced it intends to miss a scheduled interest or principal payment, or has experienced a specific material adverse change that could impair its creditworthiness.
In performing these reviews, we consider the relevant facts and circumstances relating to each investment and exercise considerable judgment in determining whether an impairment is needed for a particular security. Assessment factors include judgments about an obligor’s current and projected financial position, an issuer’s current and projected ability to service and repay its debt obligations, the existence of, and realizable value of, any collateral backing the obligations and the outlooks for specific industries and issuers. This assessment may also involve assumptions regarding underlying collateral such as prepayment rates, default and recovery rates, and third-party servicing capabilities.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Estimates
In addition to the review procedures described above, investments in asset-backed securities where market prices are depressed are subject to a review of their future estimated cash flows, including expected and stress case scenarios, to identify potential shortfalls in contractual payments. These estimated cash flows are developed using available performance indicators from the underlying assets including current and projected default or delinquency rates, levels of credit enhancement, current subordination levels, vintage, expected loss severity and other relevant characteristics. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked against third-party sources.
For mortgage-backed securities, credit losses are assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral characteristics and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements existing in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment speeds, default rates and loss severity. Specifically, for prime and Alt-A RMBS, the assumed default percentage is dependent on the severity of delinquency status, with foreclosures and real estate owned receiving higher rates, but also includes the currently performing loans. These estimates reflect a combination of data derived by third parties and internally developed assumptions. Where possible, this data is benchmarked other third-party sources. In addition, these estimates are extrapolated along a timing curve to estimate the total lifetime pool rate.
After these reviews, we recognize impairments on debt securities in an unrealized loss position when any of the following circumstances exists:
• We intend to sell a security;
• It is more likely than not that we will be required to sell a security prior to recovery; or
• We do not expect full recovery of the amortized cost based on the discounted cash flows estimated to be collected.
Mortgage loans, which are not carried at fair value under the fair value option, are carried at the aggregate unpaid principal balance, adjusted for any applicable unamortized discount or premium, or ACL. Acquisition discounts and premiums on mortgage loans are amortized into investment income through maturity dates using the effective interest method. Interest income is accrued on the principal balance of the loan based on the loan’s contractual interest rate. Interest income and amortization of premiums and discounts are reported in net investment income along with prepayment fees and mortgage loan fees, which are recorded as incurred.
We review mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net gains (losses) on derivatives and investments. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, we record an ACL on the pool of mortgage loans based on lifetime expected credit losses. Credit loss estimates are pooled by property type and unfunded commitments are included in the model with an allowance for credit losses determined accordingly.
Mortgage loans on real estate deemed uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL.
Accrued interest receivables are presented separate from the amortized cost of debt securities and mortgage loans. An allowance for credit losses is not estimated on an accrued interest receivable. Rather, receivable balances that are deemed uncollectible are written off with a corresponding reduction to net investment income.
Derivatives
Freestanding Derivative Instruments
We enter into financial derivative transactions, including swaps, put-swaptions, futures, forwards, and options to reduce and manage business risks. These transactions manage the risk of a change in the value, yield, price, cash flows, foreign currency, credit quality or degree of exposure with respect to assets, liabilities or future cash flows that we have acquired or incurred.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Estimates
Freestanding derivative instruments are reported at fair value, which reflects the estimated amounts, net of payment accruals, that we would receive or pay upon sale or termination of the contracts at the reporting date. Freestanding derivatives priced using third party pricing services incorporate inputs that are predominantly observable in the market. The determination of the estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, non-performance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. See Item 8. Financials Statements and Supplementary Data — Note 5 - Derivative Instruments and Note 6 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information on significant inputs into our derivative pricing methodology.
Embedded Derivatives - Product Liabilities
For our registered index-linked and fixed index annuities, the equity-linked option issued by the Company is accounted for at fair value as an embedded derivative on the Company’s Consolidated Balance Sheets as a component of other contract holder funds, with changes in fair value recorded in net income.
The fair value of the embedded derivative for the FIA and RILA products is determined using an option-budget method with capital market inputs of market index returns and discount rates as well as actuarial assumptions including lapse, mortality and withdrawal rates. We typically update our actuarial assumptions annually as discussed above, unless a material change is observed in an interim period that we feel is indicative of a long-term trend.
The underlying assumptions may have a material impact on the measurement of the embedded derivative, including equity market movements.
See Item 8. Financials Statements and Supplementary Data — Note 5 - Derivative Instruments and Note 10 - Other Contract Holder Funds of the Notes to Consolidated Financial Statements for additional information on our accounting policies for embedded derivatives bifurcated for insurance host contracts.
Embedded Derivatives - Funds Withheld Reinsurance Agreements
The Company has recorded an embedded derivative liability related to the Athene coinsurance agreement (the “Athene Embedded Derivative”) in accordance with ASC 815-15 as Jackson’s obligation under the coinsurance agreement is based on the total return of investments in a segregated funds withheld account. As the coinsurance agreement transfers the performance of the investments in the segregated funds withheld account to Athene, they will receive an investment return equivalent to owning the underlying assets. At inception of the coinsurance agreement, the Athene Embedded Derivative was valued at zero. Additionally, the inception fair value of the investments in the segregated funds withheld account differed from their book value and, accordingly, the amortization of this difference is reported in Net gains (losses) on derivatives and investments in the Consolidated Income Statement, while the investments are held. Subsequent to the effective date of the coinsurance agreement, the Athene Embedded Derivative is measured at fair value with changes reported in Net gains (losses) on derivatives and investments in the Consolidated Income Statement. The Athene Embedded Derivative Liability is included in Funds withheld payable under reinsurance treaties on the Consolidated Balance Sheet.
See Item 8. Financial Statements and Supplementary Data — Note 8 - Reinsurance of the Notes to Consolidated Financial Statements for additional information on Athene Reinsurance Transaction.
Net Investment Income
Net investment income reported for each of our three segments and Corporate and Other includes an allocation for investment income generated on assigned capital. The amount of capital assigned to each of our segments for purposes of measuring segment net investment income is established at a level that management considers necessary to support the segment’s risks. This assessment is determined based upon internal models and contemplates the RBC requirements at internally defined levels. Net investment income on capital in excess of the amount required to support our core operating strategies is reflected in Corporate and Other.
Part II | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Estimates
Contingent Liabilities
We are a party to legal actions and, at times, regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate their impact on our financial position. A reserve is established for contingent liabilities if it is probable that a loss has been incurred and the amount is reasonably estimable. It is possible that an adverse outcome in certain of our contingent liabilities, or the use of different assumptions in the determination of amounts recorded, could have a material effect upon our financial position. However, it is the opinion of management that the ultimate disposition of contingent liabilities is unlikely to have a material adverse effect on our financial position.
Consolidation of Variable Interest Entities (“VIEs”)
The Company invests in a number of asset types that may be VIEs, such as equity positions in collateralized loan obligations (“CLOs”), limited partnerships (“LPs”), limited liability companies (“LLCs”), and mutual funds. These entities are assessed to determine whether they meet the criteria as a VIE. The Company consolidates VIEs where the Company has determined that it is the primary beneficiary of the VIE. To the extent that external parties are also invested in these VIEs, a non-controlling interest is reflected on our Consolidated Financial Statements as well. See Item 8. Financial Statements and Supplementary Data — Note 4 - Investments of the Notes to Consolidated Financial Statements for additional information.
Part II | Item 7A. Quantitative and Qualitative Disclosures about Market Risk
