Jackson Financial Inc.

My name is Breaker and I will be the moderator for today's conference. All lines are on mute for the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question at this time, please press star followed by one on your touch phone keypad. If you change your mind and would like to remove your request to speak, please press star then two. I would now like to pass the conference over to your host, Liz Werner, Head of Investor Relations from Jackson Financial to begin. So Liz, please go ahead.

Good morning everyone and welcome to Jackson's fourth quarter and full year 2023 earnings call. Today's remarks may contain forward-looking statements which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations. Jackson's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. Except as required by law, Jackson is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks also refer to certain non-GAAP financial measures. The reconciliation of those measures to the most comparable U.S. GAAP figures is included in our earnings release, financial supplement, and earnings presentation, all of which are available on the Investor Relations page of our website at .jaxson.com. Joining us today are our CEO Laura Prescorn, our CFO Marcia Watson, our Head of Asset Liability Management and Chief Actuary Steve Benures, and our President and Chief Investment Officer of PPM Craig Smith. At this time, I'll turn the call over to our CEO Laura Prescorn.

Thank you, Liz. Good morning, everyone, and welcome to our fourth quarter and full-year 2023 earnings call. We have quite a bit to cover today, so we'll allow extra time to provide updates and answer your questions. We'll start with a review of our strong track record of capital return and success in delivering on our financial targets, followed by an overview of our fourth quarter and full-year 2023 results. We'll also provide insights into the structure and strategic benefits of Brooklife Reinsurance Company, or Brook Re, our recently formed captive reinsurer. In prior quarters, we discussed our focus on finding a durable solution to the statutory impact of the cash surrender value floor with the goal of better aligning our reserve liability with the economics of our business. By addressing the statutory requirements associated with the cash surrender value floor, Brook Re provides the ability for more stable capital generation and reduced RBC volatility. It also allows the profitability of our Healthy Variable Annuity book to be more transparent and intuitive in our results. Finally, we'll conclude today's remarks with our 2024 outlook in financial targets, along with our expectations for sustainable capital return to shareholders. Turning to slide three, Jackson's capital return to common shareholders since becoming a standalone public company in 2021 has exceeded $1.2 billion in the form of share repurchases and shareholder dividends. The fourth quarter of 2023 marked our ninth consecutive quarter with share buyback activity, and as of year-end 2023, the cumulative common shares repurchased represented over 21% of shares outstanding at separation. We view our cash dividend as a valuable source of sustainable capital return and have cumulatively paid more than $450 million to common shareholders in just over two years. Yesterday, we announced our board's approval of the third increase in our common shareholder quarterly dividend to 70 cents per share, highlighting our confidence in our ability to generate capital, our focus on long-term profitability, and our commitment to increasing shareholder value. Moving to slide four, maintaining a strong capital position at our operating companies and parent company Jackson Financial remains a priority as evidenced again this quarter. We ended 2023 above our RBC target range with an estimated ratio of 624% and with total adjusted statutory capital of more than $5 billion. In January, we established Brook Rea to be self-sustaining from a capital standpoint both initially and into the future. Pro forma for the transactions with Brook Rea, Jackson National Life has an estimated RBC ratio of 543% consistent with our guidance and our quarterly track record of being within or above our target RBC range. Going forward, we expect Jackson National Life's statutory earnings and distribution capacity will more closely align with our adjusted operating earnings. Our holding company liquidity at year end continued to be well above our targeted minimum level and was approximately $600 million. As scheduled in November, we repaid $600 million in senior debt, further enhancing our financial flexibility and resilient balance sheet. Holding company liquidity supports our capital return goals and provides a buffer for covering holding company expenses. In 2023, we returned $464 million to common shareholders through share repurchases and common dividends, comfortably within our target range for capital return of $450 to $550 million. Our remaining common share repurchase authorization of approximately $300 million combined with holding company liquidity position us well for reaching our 2024 targets and building on our track record of consistent shareholder return. Jackson has consistently achieved or exceeded its financial target commitments and has maintained a strong capital position throughout. Our first 12-month capital return target was achieved within six months and we have consistently raised our annual financial targets. We are pleased to share we are once again increasing our financial return targets in 2024 and we'll share more details later in the call. Moving to slide five, 2023 was a fantastic year of execution for Jackson with our financial performance highlighting the strong fundamentals of our business. Net income for the year with nearly $900 million and adjusted operating earnings were $1.1 billion. In 2023, we navigated volatile markets and maintained our resilient capital position, delivering on our commitments and investing in our business. Our statutory capital discipline allowed us to meet and exceed our financial targets while also capitalizing Brook-Ree in January 2024. Beginning in 2024 and subject to regulatory approval, we intend to have periodic distributions from our operating company throughout the year with the goal of reducing the RBC volatility that occurred from our past practice of sizable annual dividends. Variable annuity sales remained relatively stable over the course of the year and we have seen V.A. profitability improve with the rise in interest rates. Consumer preference for protection-oriented products impacted the broader annuity market and Jackson market demand through our registered index linked annuity or RYLA product suite. In our second full year selling RYLA, sales were nearly $3 billion, up 60% from 2022. Notably, RYLA sales in the fourth quarter alone reached $1 billion, accounting for nearly one-third of our total annuity sales and reaching a $4 billion annual run rate. For Jackson, RYLA's value proposition goes beyond sales diversification and positive net flows. RYLA also contributes to hedging efficiency, which in turn positively impacts capital. We have a long history of product innovation, strong distribution partnerships, and industry leading service. These strengths, combined with the enhancements made to our RYLA suite earlier this year, position Jackson well for continued RYLA sales momentum. Our consistent ability to execute enables us to achieve our strategic and operational goals and serves as the foundation of our results. Summing it up on slide 6, 2023 was a terrific year of progress for Jackson. We met or exceeded all financial targets for the third consecutive time, ended 2023 with robust levels of capital and liquidity, grew our RYLA business, and continued to create long-term value for shareholders. I'll now turn the call over to Marcia to review our fourth quarter and full-year financials and provide an overview of our Brook-Ree transaction.

Thank you, Laura. I'll begin with our fourth quarter result summary on slide 7. Adjusted operating earnings of $204 million decreased from last year's fourth quarter as stronger fee and spread earnings were more than offset by higher expenses as well as the impact of our annual assumptions review update. Our fourth quarter adjusted book value attributable to common shareholders increased from last year's fourth quarter due to healthy full-year adjusted operating earnings. Slide 8 outlines the notable items included in adjusted operating earnings for the fourth quarter. Results from limited partnership investments which report on a one-quarter delay were below our long-term expectation for a negative $28 million notable impact. In the fourth quarter of 2022, limited partnership income was below our long-term expectation but to a greater degree, creating a comparative pre-tax benefit in the current quarter of $34 million. Consistent with prior years, we completed our annual actual assumptions review in the fourth quarter. This led to an unfavorable pre-tax adjusted operating earnings impact of $60 million in the current quarter compared to a benefit of $38 million in the fourth quarter of 2022. The impact in 2023 was focused in the closed block segment where we recorded a reserve increase for life insurance and annuitization benefits driven by a decrease in lapses partially offset by an increase in the long-term earned rate. In addition to these notable items, both fourth quarter 2022 and fourth quarter 2023 benefited from a lower effective tax rate relative to the 15% long-term guidance with a larger benefit in the current quarter. This occurred due to lower pre-tax operating earnings in the current quarter which made tax benefits that are similar on a dollar basis more impactful. Adjusted for both the notable items and the tax rate difference, earnings per share were $3.07 for the current quarter compared to $3.37 in the prior year's fourth quarter. Key drivers of the -over-year difference include higher levels of market-related costs within operating expenses resulting from stronger equity markets as well as lower income on operating derivatives from higher levels of floating interest rates. While higher equity markets and interest rates created this near-term reduction in adjusted operating earnings, they provide a positive tailwind for future adjusted operating earnings due to a significantly larger fee base and an improved profitability profile. Slide 9 shows the same analysis but on a full-year basis. Earnings per share in 2023 after adjusting for the notable items were down 18% compared to full year 2022. Consistent with the fourth quarter of 2023, this was primarily the result of lower income on operating derivatives and higher levels of market-related costs. As noted for the quarter, the same tailwinds from higher rates and equity markets will benefit earnings going forward. Slide 10 illustrates the reconciliation of our fourth quarter pre-tax adjusted operating earnings of $203 million to the pre-tax loss attributable to Jackson Financial of $2 billion. As shown in the table, the total guaranteed benefits and hedge results, or net hedge results, was a loss of $990 million in the fourth quarter of 2023. Starting from the left side of the chart, you see a robust guaranteed benefit fee stream of $780 million, providing significant resources to support the hedging of our guarantees. These guaranteed benefit fees are calculated based on the benefit base rather than the account value, which provides stability to the guaranteed fee stream, protecting our hedge budget when markets decline. Consistent with our practice, all guaranteed fees are presented in non-operating income to align with the related hedging and liability movements. There was a $43 million gain on freestanding derivatives, primarily due to gains on interest rate hedges in a quarter where interest rates were down across the yield curve, mostly offset by losses on equity hedges in a rising equity market environment. Movements in net market risk benefits, or net MRB, drove a $1.2 billion loss that more than offset the freestanding derivative movements due in large part to these same interest rate decreases. This illustrates that net income has historically included changes in liability values under U.S. GAAP accounting that have not aligned well with our hedging assets. As I will discuss later, we would expect going forward that U.S. GAAP accounting will better align with our economic hedging with the establishment and funding of the reinsurance relationship with brokerage, leading to lower levels of net hedging gains or losses. Non-operating results also included $841 million of losses from business reinsured to third parties. This was primarily due to a loss on a funds withheld reinsurance treaty due to the change in the associated embedded derivative value and the related net investment income. These non-operating items, which can be volatile from period to period, are offset by changes in accumulated other comprehensive income, or AOCI, in the funds withheld account related to reinsurance, resulting in a minimal net impact on Jackson's adjusted book value. Furthermore, these items do not impact our statutory capital or free cash flow. Our segment results start on slide 11 with retail annuities. As Laura highlighted, our RILA product continues to gain momentum with our fourth quarter sales reaching a record level of more than $1 billion, supporting further diversification in our top line. Sales of annuities without lifetime benefits increased to 53% of our total retail sales, up from 43% in the fourth quarter of last year. While recent consumer preference for protection results in VA sales below historical levels, higher interest rates provide an even stronger profitability profile on current sales. When viewed through a net flow lens, the gross sales we are generating in RILA and other products translated to $1 billion of non-VA net flow in the fourth quarter of 2023, which has grown materially over time. These net flows provide valuable economic diversification and capital efficiency benefits. Importantly, our overall sales mix remains efficient from the standpoint of new business strain. Looking at pre-tax adjusted operating earnings for our retail annuity segment on slide 12, we show positive underlying trends in the growth across our annuity product categories as demonstrated by asset funder management or AUM. Our variable annuity account values grew by double digits, benefiting from stronger equity markets. Spread income continues to benefit from higher interest rates and strong net flows are driving growth in RILA fixed and fixed indexed annuity account values. Furthermore, the positive momentum for our enhanced RILA suite positions us well for ongoing success as we enter 2024. RILA growth has an added benefit to our hedging efficiency as it has an upside equity risk profile that offsets the downside equity risk profile in our guaranteed VA business. Netting these risks reduces the amount of external equity hedging required to protect business and this reduction grew to 14% as of the fourth quarter of 2023. As you can see, the benefit is not dollar for dollar as our $5 billion of RILA account value is offsetting a larger amount of VA guaranteed equity exposure, illustrating that we can rapidly grow this hedging offset benefit as RILA AUM increases. Our other operating segments are shown on slide 13. For our institutional segment, pre-tax adjusted operating earnings were up from the prior year due to higher spread income and reduced interest expense. Sales in 2023 totaled $1.1 billion and account values ended the year at $8.4 billion. Our closed life and annuity block segment reported lower pre-tax adjusted operating earnings compared to the prior year. This is primarily due to the assumptions review impact I discussed earlier, partially offset by lower expenses. Slide 14 summarizes our year-end capital position. We returned $117 million to common shareholders in the fourth quarter through a combination of dividends and share repurchases and we reached our capital return target for the third straight time since becoming a public company. As Laura mentioned earlier, we also announced a 13% increase in our first quarter common dividend to $0.70 per share. We generated significant regulatory capital or TAC in the quarter driven by the profitability of our variable annuity book and effective risk management. Our TAC increased by approximately $700 million to $5.2 billion reflecting positive variable annuity net guarantee results, strong base contract cash flows, and tax benefits. As we moved closer to the end of the year, we began to transition our hedging to align more with our CAPTIS new modified gap approach, adding meaningful interest rate protection. This increased level of protection led to hedging gains when interest rates declined in December, which had little offset in regulatory capital due to our deeply forwarded out reserve position and contributed to the gaining capital in the fourth quarter. These gains on interest rate hedges reflected an offset to the impact of lower rates on the modified gap liabilities in Brook Re and helped to fund the initial capitalization I will discuss in a few moments. As we noted in our 8K in December, we expected J&L to remain at or above our target RBC range after the formation of Brook Re, which we were positioned to do whether interest rates rose or declined in December. There was an additional benefit from a lower level of required capital or CAL, which was driven by strong equity markets, partially offset by lower interest rates. The combined effects of the TAC increase and CAL reduction led to our estimated RBC ratio rising to 624% well above our target range. Our holding company cash and highly liquid asset position at the end of the year was approximately $600 million, which continues to be well above our minimum buffer. We repaid the $600 million senior debt obligation that matured in November and have no debt maturities until 2027. In the midst of Jackson's progress in 2023, the execution of our innovative long-term solution to the cash surrender value floor was certainly a highlight, which we dive into beginning on slide 16. Here we show the non-economic aspects of the cash surrender value floor within statutory reserves and required capital. Statutory accounting for variable annuities uses a principles-based reserving approach. Looking at the present value of cash flows across a distribution of thousands of scenarios, it then focuses on the tail of these outcomes to determine the level of statutory reserves and required capital. These cash flow-based outcomes would be represented by the red line on the chart where you can see that as you move left to right toward more favorable scenarios, the requirement gets smaller and smaller. The statutory framework also considers the aggregate cash surrender value, or CSV, of the variable annuity book, which is the amount due to policyholders in the unlikely event that 100% of all policyholders immediately surrendered their annuities. The statutory framework forces the cash flow-based scenario requirements to be overridden by this cash surrender value if that surrender value exceeds the cash flow-based outcome. This is illustrated by the beige line in the chart where only the extreme portion of the tail is above the cash surrender value and the remainder of the distribution is floored out. This has been a common issue for years at Jackson as our prudently designed and priced variable annuity book led to healthy cash flow-based outcomes and a large portion of scenarios floored at the CSV. We successfully managed this dynamic for many years, protected our balance sheet, and generated significant distributable capital. However, the rise in interest rates pushed this impact further and further into the tail of the distribution. We continued to successfully navigate this situation, but the greater impact of the CSV floor led to several consequences. The fundamental impact was a consistently non-economic profile of our statutory liability requirements that often could not decrease and could only increase. As a consequence of this non-economic liability profile, we experienced volatility in statutory capital, required capital, and the RBC ratio, especially when equity markets or interest rates were rising. Managing this one-sided movement required elevated levels of non-economic hedging with Turning to slide 17, you can see that this non-economic hedging made our hedging strategy more complex and consumed resources that could have been put to better use. This resulted in yet another adverse outcome of less predictable earnings results in capital generation. We have consistently stated that our goals for this transaction were not focused on day benefits, but rather on creating a liability framework consistent with the way we manage our business. Specifically, this means reserves and hedging instruments would be aligned. This not only reduces the need for non-economic hedging, but also makes it easier to explain our hedging strategy and allows us to focus hedging on the economic impacts to our business. And lastly, the removal of the CSV floor-driven volatility means that we would see capital impacts emerge more intuitively with changes in equity markets and interest rates, making our results more predictable. Slide 18 describes the structure and initial capital flows of our CSV floor solution. We formed Brook Re, a Michigan-based captive reinsurer wholly owned by Brook Life Insurance Company. Brook Life, Brook Re, and Jackson National Life Insurance Company, or J&L, are all domiciled in Michigan, giving us consistent regulatory oversight. Through the co-insurance agreement executed in January, the enforced and future VA guaranteed benefits are transferred to Brook Re while the VA base contract remains at J&L. The base contract is expected to continue generating substantial earnings and capital for J&L and will continue to be subject to the CSV floor requirement. Application of the CSV floor minimum liability requirement is more relevant to the base contract, which can be monetized, unlike the guaranteed benefits. The determination of reserves and required capital for the guaranteed benefits to be insured to Brook Re will follow a modified gap framework, which we believe is a more appropriate economic approach. J&L will execute the hedging of these guarantees on Brook Re's behalf and will transfer the hedging gains and losses to Brook Re through a co-insurance agreement, along with future fees collected, benefits paid, and an allowance for expenses. J&L made a $749 million capital distribution to Brook Life, which retained $50 million to increase its capital position. Brook Life made a $699 million initial capital investment into Brook Re that serves as the operating value on Brook Life's statutory balance sheet. A seeding commission of nearly $1.2 billion reflects the healthy expected cash flow profile of our VA guarantees. The seeding commission was funded through transactions that effectively round tripped the commission from J&L to Brook Life, then to Brook Re and back to J&L. Importantly, all of these initial capital flows were entirely within the operating entities, so holding company liquidity at JFI was not impacted by this transaction. Slide 19 summarizes the benefits of our modified gap reserve approach, which as we previously mentioned, aligns the economics of our liability with the way we manage our business. The key aspect is the lack of a cash surrender value floor, which means that modified gap reserves are always responsive to market movements, as are the related hedge assets. Another benefit is that this arrangement creates a clear dividing line between the base contract at J&L and the guarantees at Brook Re. This will allow us to focus hedging on the guarantees and will help each quarter to provide greater transparency into the underlying economics and capital generation at J&L. The reserving methodology is modified gap as we received regulatory approval for some modifications to US GAAP to add incremental stability to the captive balance sheet and facilitate a self-sustaining entity, with four main adjustments noted here on the slide. Two of the adjustments are to use fixed long-term volatility and non-performance risk spread assumptions rather than market implied volatility and Jackson's own credit spread. These two adjustments help align the liability treatment to the hedging by removing aspects that we do not consider as primary risks to the business and therefore do not hedge. The second two adjustments are intended to apply a margin of prudence to the liability to help support the self-sustaining design. These adjustments include a haircut to the guarantee fee stream reflected in the reserve and an expense provision for administration costs. All of these adjustments collectively tend to result in a more conservative reserve compared to US GAAP. On slide 20, we explain our minimum operating capital and the determination of the initial capitalization amount. Our minimum operating capital framework is broadly similar to the statutory required capital risk charge methodology. A key change we made to the statutory framework is in the market risk component. As a reminder, the statutory market risk charge uses the same methodology as the reserve calculation but measured further into the tail. The charge is then based on the relationship between the deep tail requirement and the reserves already posted. However, if we kept this exact approach, our reserves and required capital would be misaligned with reserves using an economic modified GAAP framework and the required capital using the statutory framework, which is impacted by the CSD floor. We corrected this by replacing the statutory deep tail calculation with a modified GAAP reserve that has been recalculated under stressed conditions. The market risk charge is then based on this stressed reserve relative to the original modified GAAP reserve. As a result of the $699 million initial capitalization, Brook Rees' equity position is well above its minimum operating capital level. We seek to hold capital sufficient to remain above this minimum level following adverse scenarios. Our initial capitalization level means that we would have sufficient resources to remain above our minimum operating capital in more than 95% of scenarios and across multiple timeframes. Importantly, we expect Brook Rees to not only be self-sustaining, but capital generative over the long term. Looking at slide 21, this economic reserve and required capital framework is expected to lead to fewer one-sided hedging outcomes going forward. An economically responsive liability makes our hedge target more predictable and requires less frequent rebalancing, and the removal of non-economic upside protection reduces equity hedging costs. We will expect to have a higher level of interest rate protection going forward, which lines up well with our economic framework and is no longer complicated by the CSE floor. Lastly, we anticipate a high level of hedge effectiveness from this framework while continuing to protect the business from the impact of larger shocks. All of these items should lead to a simpler hedging strategy and more intuitive financial results. Slide 22 summarizes how Brook Rees will check all the boxes for our stated goals. We are very pleased to have a durable long-term solution that aligns our reserves and hedging instruments, avoids having resources consumed by non-economic hedging, and simplifies the communication of our hedging strategy and financial results. Moving on from Brook Rees, slide 24 lays out the favorable profile of J&L going forward. We expect to see more stable and predictable capital generation, and that this capital generation will better align with adjusted operating earnings as reported by JFI. Additionally, US GAAP net income will benefit from lower volatility in net hedging results given our more US GAAP-focused liability structure. Capital generation at J&L will primarily be driven by VA-based contract fee income, which is now completely separated from the guarantees. While fee business is the main driver of capital generation, we also continue to have significant balance sheet diversification from our enforced spread and mortality business, which we seek to grow over time. Lastly, in addition to the anticipated strong future cash flow profile, J&L will have a robust initial capital position well above our targeted RBC level after consideration of the initial transaction impacts. Turning to slide 25, as I noted earlier, one of the advantages of the Brook Rees solution is increased alignment of capital generation at J&L with adjusted operating earnings at JFI. While there are differences in the two approaches, such as tax outcomes and acquisition cost treatment, we would expect adjusted operating earnings to be a directional proxy for capital generation over time. This would imply a greater degree of capital generation going forward than what we have seen since separation. We currently estimate that our annual capital generation would generally be at or above $1 billion. The pie chart on the left side of the slide looks at US GAAP reserves at JFI. Variable annuity fee-based AUM makes up most of the reserves and will likewise be the biggest driver of capital generation. Economically, this is very similar to an asset management business with the earnings trajectory tightly aligned with AUM. As such, the level of future capital generation will be sensitive to equity markets and to a lesser degree net flows. We have a meaningful level of spread reserves and given the recent vintages of our retained non-VA annuity block, we are delivering strong net flows. We expect this to continue given our positive momentum in RILA and our desire to grow other spread sales as well. Lastly, our closed block life reserves reflect our successful M&A track record. Growth in this segment would depend on future acquisition activity. Slide 26 shows the J&L capital position after the funding of Brook-Ree. We ended 2023 with a very strong 624% estimated RBC ratio and our hedging will now fully align with our new framework. As I noted earlier, a $749 million return of capital payment from J&L strengthened the capital position at Brook-Life and gave a robust starting position at Brook-Ree. When you consider the secondary deferred tax asset admissibility impact, J&L's tax was reduced to $4.3 billion. There was a modest offsetting benefit from the release of the VA Guarantee Capital requirement reducing Cal by $36 million. This led to a very healthy pro forma estimated RBC ratio at J&L of over 540%. Slide 27 provides a look into the capital framework at the three main entities following this transaction. The target at our holding company, JFI, remains at two times its annual fixed expenses and is well in excess of that position coming into 2024. Jackson National Life is our primary operating company and as noted maintains a strong RBC level after the funding of Brook-Ree. Our captive re-insurer, Brook-Ree, is well capitalized with the expectation to be self-sustaining under adverse scenarios and capital generative over the long term and we expect our hedging to have a high degree of effectiveness. In summary, our innovative CSB floor solution delivers on the established goals of reducing the non-economic influences in our liability requirements and hedging as well as increased transparency and more intuitive results. I will now turn it back over to Laura to provide our updated 2024 financial targets on page 29.

Thank you, Marcia. We are pleased to have yet again achieved our financial targets for the year ending 2023 in a strong financial position. Our year end results underscore Jackson's ability to maintain financial and risk management discipline while continuing to serve our customers through product innovation, exceptional distribution, and industry leading service. In 2024, we are targeting $550 to $650 million in capital return to common shareholders. This represents a 20% increase from last year, is our third increase since becoming an independent company and we believe there is further potential to grow given the expected long term benefits of Brook Re. We have increased our per share common dividend level by 13%, representing continued confidence in our business. Looking over the long term, since establishing our first dividend in the fourth quarter of 2021, we've increased our dividend per share by 40%. We continue to view our minimum RBC ratio at J&L as 425% and expect to operate above this level. Given a more stable and predictable capital and RBC ratio following the Brook Re transaction, we believe that an RBC target range is no longer necessary. With respect to operating company dividends, our intent is to maintain our distributions from J&L to JFI through periodic payments over the course of the year as opposed to one large annual payment in the first quarter. Our outlook for consistent capital generation reflects our high quality book of business and our ability to execute. Before closing, I'd like to acknowledge that the 2023 accomplishments covered today reflect the hard work of our incredibly talented associates who show up each day to provide long term solutions for Americans planning for their financial futures. I am grateful for their contributions and I am proud to work alongside a team so committed to our business, our communities, each other and the customers we serve. I look forward to working together to execute against our strategic priorities, building on our strong track record of performance excellence and delivering another set of outstanding results for 2024.

Before we turn the call over to Q&A, I want to comment on the news of our CFO, Marsha Watson's future retirement plans. After 32 years of outstanding and dedicated service, Marsha has decided to retire. During her long tenure, she has led finance

and actuarial teams across the organization and has had an incredible impact on the company overall. Her deep subject matter expertise has allowed for positive rating agency, analyst and shareholder engagements. Marsha was instrumental in our execution and transition to an independent public company and to our recently announced formation of Brook Re. Marsha will remain CFO until early June and will then continue to serve in an advisory capacity. We anticipate a smooth transition to Don Cumming, who is expected to assume the role of CFO at the time of Marsha's retirement. Many of you know Don, who is our current controller and chief accounting officer. He has been a valuable member of our senior management team since joining Jackson and we look forward to his future contributions as our next CFO. We are extremely grateful to Marsha for her contributions and leadership, which have had a positive impact on associates and external stakeholders and we are excited for her to eventually enjoy retirement. I'll now turn the call over to the operator for questions.

Thank you. If you would like to ask a question at this time, I would ask you to please press star followed by one on your touch phone keypad. If you change your mind at any time, please press star and two. We have the first question from Ryan Kfuger of KBW. Ryan, your line is open.

Thanks. Good morning. My first question was on capital generation and you had mentioned you would expect a billion or more annually. So I had a couple of questions on that. One, was that for the in-force business only or was that after new business strain?

Hi Ryan, it's Marsha. That would be after new business strain, you know, in line with the level and kind of sales mix that we would typically have been at recently.

Yes. Got it. And then I guess just given the strength of that comment, I guess how should we think about the $550 million to $650 million of capital return guidance that you provided for 2024 relative to the $1 billion or more of expected capital generation?

Well, we are thinking about it in a couple of different ways, I guess, to go through. First, you know, the capital generation will support the return of capital, as you noted, but it also will support the level of holding company expenses and debt service that we need to do. So there's a slice there that we need to think about. You know, we've talked historically about our balance use of capital between new business investment, you know, which may, you know, could include, I guess, a different mix of business as we move forward over time that may, you know, require a different level of strain or upfront investment. Also, capital return is certainly one of the priorities as well as just balance sheet strength. You know, as we looked at our capital return for 2024, we, you know, we recognize that the Brook Re transaction is new, and so we're going to take a measured approach here, but I think as Laura stated earlier, we would anticipate with this outlook that we might be able to see in our capital return as we move forward in time, given that profile of expected capital generation.

Thanks. I had just one more follow-up. I wanted to make sure I understood. Is the $1 billion before the holding company expenses or is that net of the holding company expenses, which I think are usually about maybe about $125 million?

Yeah, it would be before. So that would be the just capital generation from the J&L entity, which would then need to, you know, in part support those holding company expenses that are, as you say, about $125 million.

Okay, great. Thank you.

Thank you. We'll move on to the next questioner, which is Sainte-Cama of Jefferies. The line is now open.

Thanks. Good morning. I just wanted to follow up on Ryan's question. So I think over the past couple of years, the subsidiary dividends to the holding company have been around $600 million. So should we be expecting that to increase, kind of given that $1 billion capital generation figure that you just mentioned?

Hi, Sainte. Yeah, I think, well, certainly to the extent that we're supporting a higher level of capital return, we would need to do that through a higher level of remittance from the operating company. And then as the capital return target moves forward in the future, you know, likewise we would have, you know, similar changes in our distributions to support that as needed.

Okay, got it. And then I guess when we think about the capital sufficiency of Brookery, you know, I had that comment in the deck about 95% plus of the scenarios, it's adequately capitalized. I guess what are the 5% or so scenarios where it's not, like what would have to happen for you to need to contribute more capital into that business? The reason I ask is because I think we normally think about VA capitalization as really in that tail scenario, which I'm assuming would capture that 5% where capital is not sufficient. So just some color there.

Sure. So first of all, I guess maybe I'll make a comment or two about how we set things up and structured things for our initial capital level. We looked at, you know, the capital that we had put in from Jackson, which was approximately $700 million. And coupling that with, you know, a strong benefit from a negative liability puts us in a very strong balance sheet position to begin with. So we start off, you know, well above that minimum operating capital that we want to maintain going forward. And then what we've structured, given the goals for Brookery to be self-sustaining, is we've structured, you know, a risk framework that looks at how the balance sheet might move as we look out over the future in kind of in a short-term view as well as a more longer-term view and making sure that we would, as we stated earlier, be above that minimum capital over time in greater than 95% or, you know, more than the 95th percentile of that distribution. So we're looking across, you know, a wide number of economic scenarios and wanting to be at least at the 95th percentile. As we started this out and looked at the opportunity that we had and how we wanted to set the balance sheet up to begin with, we had a very strong position in terms of our capital at J&L at the end of the year, which provided us with a good deal of flexibility in terms of how we could position the starting balance sheet for Brookery. So because of that, we chose to capitalize initially at a level closer to the 98th percentile of the distribution. So I want to be clear that we're not aiming to be right at the 95th. It's greater than the 95th and we're starting off in a stronger position than that. Looking at what some of those tail scenarios might look like, they would include, you know, the types of events that we would see, you know, we'd expect to see in the tail. Very high realized volatility, you know, strong decline in the equity market or strong drop in interest rates. The types of things you might see in like the first quarter

of.

Yep. Okay. Understood. And then I guess maybe just the last one just so, you know, we can kind of keep score on this. So normally we look at RBC and that's kind of how we determine the capital adequacy of your insurance. Now we have Brookery. So what metrics are you going to give us sort of on a quarterly basis so we can kind of assess the capital adequacy of the subsidiary?

We'll

speak to, you know, the capitalization generally, I think on a regular basis with respect to the captive, the Brookery entity. We don't, I think, intend to put out a detailed, you know, kind of RBC like position, you know, in a different format for the Brookery, but we will speak to how it is performing, whether it maintains a good capital position and we'll probably generally speak to hedging in a different way than we have in the past where we have historically talked about hedge spend as one of the metrics that we would look at to assess, you know, whether our hedging, you know, needs were within the budget of the fees we collect given that we'll have more, probably more of a futures-based hedging strategy and not quite so heavily options-based strategy that that approach probably doesn't really fit going forward. So I think we'll talk in the future more about hedge effectiveness and how well our hedging has performed relative to our expectations. And that is really going to be what's going to be the driving force for the stability of the balance sheet moving forward.

Okay, thanks.

Thank you. As a reminder, if you would like to ask any further questions, please press start followed by one on your telephone keypads now. We have the next question from Tom Gallagher of Evercore ISI.

Thanks. Just a follow-up to Sunit's question on the Brookery. I know you mentioned the target, I guess, is going to be 95 plus. You're going to initially capitalize it closer to 98 percent. But isn't the VA standard now CTE 98 across the industry? So shouldn't we be thinking about 98 being a better baseline or is there something about this agreement you have with the captive and your regulator that's going to allow you to run closer to 95?

Well, Tom, I think of it in kind

of two layers. I mean, we have minimum operating capital, which is already kind of taking a place, if you will, of the market risk charge that we would have had in the statutory requirement, that being in the statutory world based on CTE 98. We've translated that to something that is more applicable to a modified gap basis. But within our minimum operating capital, we're already capturing that level of kind of tail type situation and the level of required capital supports that. And then on top of that, within our risk framework, we're looking out at adding further stresses on top of that as we move forward in time and ensuring that we maintain still that amount of minimum operating capital that in and of itself is already reflective of a stressed environment.

Gotcha. And when we think about the billion dollar a year of annual capital generation, when we think about, I guess, remittances that you would expect to get up to the holding company every year, are there any limitations that we should think about on the permitted annual dividend amounts? I believe you're at the greater of 10% of stat surplus or 100% of prior year's earnings. But will there be, when you think about those rules, in all probability, do you think you'll be able to remit potentially a billion a year, frame and clear, or do you see the need to maybe get extraordinary dividends approved every year?

Well, you're right. There are a number

of elements in terms of defining what's available as an ordinary dividend, what becomes an extraordinary dividend and the like. We've historically had many periods in which our distributions were of the extraordinary dividend type. So we certainly have worked through that very well with our regulator when that is the case. So I think we don't, as we look out, I don't think we're anticipating challenges around that in terms of just working through and understanding of where we sit. Subject, of course, to the regulator approval where that's needed, we will look through that. But I don't think we anticipate seeing any significant challenge there.

Okay, thanks. And just one final one, if I could. Can you give us a sense for the sizing of interest rate hedges that you purchased in Q4 and whether or not you're done at this point, or would you expect to do more interest rate hedging from current levels?

Well, we had begun our transition late in

December, once we had our approval in hand and we're working toward that. And as of the very beginning of January, probably the first or second business day, we were fully built up with our hedging on our new modified gap basis, both with respect to our equity position and our interest rate hedge position. So we're, you know, we are where we need to be right from the beginning of January and have been operating on that basis so far through the first quarter.

And would it be possible for you to give us an idea of the sizing of it at all, notional amount of rate swaps or some measure, just to give us some better perspective on, you know, where you went from and where you went to?

Our positions that we would have had

at the end of the year, which would have been, you know, as I say, getting us quite close to where we needed to be, would be something that you,

I think you'll see in the 10K disclosure. Gotcha. Thanks. Thank you. We

have a follow-up question from Sunique Maths. Jeffery, your line is open.

Thanks. Thanks for the follow-up. So just to come back to the billion. So I think before you talked about capital generation of 700 and 900 million, so let's call it 800 at the midpoint. And now you're talking about a billion. Is that 200 million incremental capital generation? Is that just lower hedge spend? Or I guess I just wanted to unpack that a little bit if you could. Thanks.

Sure. I think the main thing that's really changed, I mean, if you think about the liabilities, the products themselves, the cash flows that they're throwing off are the same as what they would be, you know, before or after the transaction. So really the main driver of the difference is going to be the fact that we have, you know, relief from the amount of non-economic hedging that we were doing in the past, which was costly. That's, it's not to say that in every period that was, or in every year that that was exactly 200 million. That was something that varied and I think contributed to the variability of our capital generation, you know, each year. So when we talked about that 700 and 900, we talked about that and kind of, you know, normal market conditions, which obviously aren't going to be, you know, the same one year to the next. I think one of the good things going forward is that what we will see is a much more consistent level of capital generation that won't have those influences of the spend that we needed to have for the non-economic hedging to the degree that it was needed from one year to the next. And, and we'll just not have a lot of the, you know, cash value floor complications that made our capital generation sort of not always that transparent because it wasn't always coming through TAC. Sometimes the benefits were effectively more in the reduction in the required capital. So you could see, you know, you could see things within the RBC ratio that weren't necessarily always aligned with the TAC movement. And I think as we move forward under this arrangement, we'll have much more consistency in that and the capital generation will be largely in the form of, you know, TAC increases.

Okay, got it. And then I guess maybe just the last one just on the RBC. So just want to be clear, you're targeting 425, but you're expecting to operate above that. Is that, did I hear that right? Or I just wanted to get a sense of like, what should we be looking at or expecting in terms of RBC?

Thanks. Sure. We, we left the, you know, the minimum is unchanged at 425. That was the case before and we'll be going forward. So, you know, I think we'll probably be operating in a very similar range. You know, we had a, again, well above the 425, but probably in that kind of range we talked about before, we just aren't defining that whole thing as a target with a particular upper bound to it. But we would expect certainly to be operating generally at a level that's, you know, in excess of that 425, probably in, you know, largely within the range we've historically kind of focused on.

Got it. Okay, thanks.

Thank you. If you would like to ask any further questions, please press star, followed by one on your telephone keypads now.

We currently have

no further questions, so I'd like to hand it back to Laura Priscawn, CEO, for any closing remarks.

Okay, well that wraps up our Q&A for today. Thank you everyone for your continued interest in Jackson. We appreciate you joining us today and we look forward to speaking with you again soon. Take care.

Thank you all for joining the Jackson Financial Inc. Fourth Quarter 23 Earnings Court. I can confirm this has now concluded and you may now disconnect your lines. And please enjoy the rest of your day.