JACKSON FINANCIAL 2026 THIRD QUARTER EARNINGS CALL - JACKSON FINANCIAL INC

Financial Performance:

• Adjusted operating earnings reached $7.55 per diluted share for Q3 2026, with a 24% year-over-year increase on an ex-notable items basis.
• Combined account values across retail annuities and institutional products exceeded $291 billion, up 4% year-over-year.
• Free cash flow increased 18% in the first nine months of 2026 to $850 million; statutory capital generation was $491 million in Q3.
• Total adjusted capital stood at $5.9 billion at quarter-end (up 5% YoY), with an estimated Risk-Based Capital (RBC) ratio of 524%.
• Holding company liquidity remained robust at nearly $1.4 billion in cash and investments, with total available liquidity of approximately $4 billion.
• Effective tax rate was 13.7%, below the 15% guidance; trailing 12-month adjusted operating return on equity (ROE) improved to 17.1%.

Guidance and Future Outlook:

• Jackson expects to achieve its full-year free capital generation target of $1.2 billion and deliver capital returns between $900 million and $1.1 billion, with current expectations leaning toward the midpoint.
• Annualized dividend remains at $0.90 per share, representing an 80% increase since inception in 2021.
• AARP annuity program is scheduled to launch in 10 states in mid-November 2026, with national availability targeted for H1 2027.
• Full-year 2026 financial targets are on track, supported by diversified earnings profiles and continued sales momentum.

Business Segments and Product Lines:

• Retail annuity sales hit a record $6.5 billion in Q3 2026 (up 22% YoY), with spread-based products accounting for 58% of the mix.
• RILA sales reached a record $3 billion (up 44% YoY), driven by the June launch of Market Link Pro 4 and Market Link Pro Advisory 4; total RILA assets are nearly $29 billion.
• Fixed and Fixed Index Annuity (FIA) account values grew 64% over the past 12 months to $7.1 billion; new launches include Jackson Fixed Index Accumulation and Advisory offerings in October.
• Institutional product sales totaled $755 million, reflecting strong demand for spread lending.
• Advisory channel sales were led by RILA, FIA, and Elite Access, which accounted for 80% of year-to-date advisory annuity sales.

Market and Competitive Landscape:

• Jackson maintains its #1 leadership position in traditional variable annuities and is a top-three provider in the RILA market.
• The company secured an exclusive partnership with AARP to serve as the sole annuity provider for members, creating a new direct-to-consumer channel for affluent households.
• Strategic partnership with TPG continues to enhance PPM's asset sourcing capabilities, expanding access to high-yielding private debt and infrastructure investments.
• Net outflows improved for the third consecutive quarter, declining 22% year-to-date, despite higher surrenders in variable annuities due to strong equity markets.

Risks and Challenges:

• Rising interest rates and equity market volatility resulted in significant hedge losses for the Brookry captive in the quarter, though natural offsets with RILA reduced enterprise impact.
• Statutory reserving rules can create mismatches between hedge losses and liability reserves in rising rate/equity environments, necessitating the Brookry structure.
• A fourth-quarter assumption review is underway to assess emerging lapse rate trends, which may impact future assumptions and capital requirements.
• Potential regulatory scrutiny regarding captive reinsurance structures remains a monitoring point, though management asserts full compliance with Michigan law.

Management Commentary and Tone:

• Management expressed high confidence in Jackson's strategic execution, highlighting the successful diversification of the business mix and the resilience of the capital generation profile.
• CEO Don Cummings emphasized the company's five-year track record, including $88 billion in retail sales and a 400% stock price increase since becoming independent.
• CFO Brian Walta noted the disciplined approach to financial management and the "earn it then pay it" philosophy regarding capital returns.
• The tone was optimistic and forward-looking, with a focus on long-term value creation and the strengthening of the spread-based business franchise.

Analyst Questions and Answers:

• Lapse Rates: Management confirmed a fourth-quarter review is active; while expected lapse rates have risen slightly, unexpected behavior has improved, with no specific financial impact quantified yet.
• Brookry Liquidity: Management reassured investors that liquidity headwinds in Brookry due to market moves are manageable via intercompany offsets, steady fee streams, and holding company support.
• AARP Opportunity: Described as a significant growth driver for the direct-to-consumer channel, initially focusing on fixed/spread products before expanding.
• Regulatory Environment: Executives stated full confidence in the legitimacy of the Brookry and Hickory Ray captives under Michigan law, expecting no adverse regulatory changes despite election results.

Other Key Points:

• The Brookry captive was capitalized with $700 million; hard assets have increased since inception due to cumulative fees exceeding settlement payments.
• A significant portion of hedge losses in Brookry are internal trades offset by RILA hedging gains, reducing reliance on external counterparties.
• The company has repurchased nearly 30% of its initial share count and returned over $3.5 billion to shareholders since independence.
• Investment portfolio remains high-quality with only 1% exposure to below-investment-grade securities and less than 2% exposure to hyperscaler/data center/AI assets.