JACKSON FINANCIAL: Discussion and analysis by management of the financial position and results of operations. (form 10-Q)

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FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE
Certain statements made in this report are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). A
forward-looking statement is a statement that is not a historical fact and
includes any statement that may predict, forecast, indicate or imply future
results, performance or achievements. Forward-looking statements may contain
words like: "anticipate," "believe," "estimate," "expect," "project," "shall,"
"will" and other words or phrases with similar meaning in connection with a
discussion of future operating or financial performance. In particular, these
include statements relating to future actions, trends in our businesses,
prospective services or products, future performance or financial results and
the outcome of contingencies, such as legal proceedings.
Forward-looking statements are subject to risks and uncertainties. Actual
results could differ materially from those expressed in or implied by such
forward-looking statements due to a variety of factors, including:

  •   general conditions in the global capital markets and the economy;


• unfavorable capital and credit market conditions, including volatility of

          interest rates and credit spreads, prolonged periods of low interest
          rates, volatile equity markets and decreased liquidity and credit
          capacity;



     •    adverse impacts on our results of operations and capitalization as a

result of optional guarantee benefits in some of our annuities;

• unavailability of hedging instruments and insufficient hedging and

          reinsurance programs to protect us against the full extent of the
          exposure or losses we seek to mitigate;


• the variation in the performance of our hedging assets and our client funds, also

          referred to as basis risk;


• interruptions of our commercial functions due to unfavorable results

          from our operational risks and those of our material outsourcing
          partners;


• operational failures, failure of our IT systems, and

failure to respect the confidentiality of customer information or

          proprietary business information;


• inability to recruit, motivate and retain experienced and productive

          employees;



  •   misconduct by our employees or business partners;



  •   difficulty in marketing and distributing products;


• Jackson Financial’s dependence on the ability of its subsidiaries to

transfer funds to meet Jackson Financial’s bonds and liquidity

          needs;



  •   risks arising from acquisitions or other strategic transactions;



     •    risks related to natural and
          man-made

disasters and catastrophes, diseases, epidemics, pandemics (including

COVID-19[FEMALE)[FEMININE)

malicious acts, cyber attacks, terrorist acts, civil unrest and climate

          change;


• the degree of indebtedness and our inability to refinance our

          indebtedness;


• deterioration in the credit quality of securities and loans in our

          investment portfolio;


• failure to adequately describe and administer, or respond to any of the complex

          product and regulatory requirements relating to, the many complex
          features and options contained in our annuities;



     •    our counterparties' requirements to pledge collateral or make payments
          related to declines in estimated fair value of specified assets and
          changes in the actual or perceived soundness or condition of other
          financial institutions and market participants;



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Contents

• insufficient reserves due to differences between our actual experience and

          management's estimates and assumptions;


• significant deviations from our assumptions regarding the probabilities

          that our annuity contracts will remain in force from one period to the
          next;


• changes in the amortization levels of deferred acquisition costs (“DAC”);


  •   changes in accounting standards;


• models which are based on a number of estimates, assumptions, sensitivities and

          projections that are inherently uncertain and which may contain
          misjudgments and errors;



  •   a downgrade in our financial strength or credit ratings;


• competition from other insurance companies, banks, asset managers and

          other financial institutions;


• the failure of our risk management policies and procedures to

          identify, monitor and manage risks, which could leave us exposed to
          unidentified or unanticipated risks;


• changes in we federal income or other tax laws or the interpretation of

          tax laws;


• changes in we federal, state and other state securities and insurance

          laws and regulations; and



  •   adverse outcomes of legal or regulatory actions.


The risks and uncertainties included here are not exhaustive. Our Form 10
includes additional factors that could affect our businesses and financial
performance. Moreover, we operate in a rapidly changing and competitive
environment. New risk factors emerge from time to time, and it is not possible
for management to predict all such risk factors.
Further, it is not possible to assess the effect of all risk factors on our
businesses or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as a prediction of
actual results. In addition, we disclaim any obligation to update any
forward-looking statements to reflect events or circumstances that occur after
the date of this report, except as otherwise required by law.
Available Information
We maintain a public website at www.jackson.com. We use our website as a routine
channel for distribution of important information, including news releases,
analyst presentations, financial information and corporate governance
information. We post filings on our website as soon as practicable after they
are electronically filed with, or furnished to, the SEC, including our annual
and quarterly reports on Forms
10-K
and
10-Q
and current reports on Form
8-K;
our proxy statements; and any amendments to those reports or statements. All
such postings and filings are available on the "Investor Relations" section of
our website free of charge. The SEC's website, www.sec.gov, contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC.

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Overview of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis of our financial condition and results of
operations should be read in its entirety and in conjunction with the condensed
consolidated financial statements and related notes contained in Part I, Item
1 of this Quarterly Report on
Form 10-Q,
as well as "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section in our Form 10 filed with the U.S. Securities and
Exchange Commission (the "SEC") that was declared effective by the SEC on
August 6, 2021 (the "Form 10").
Jackson Financial Inc. ("Jackson Financial") along with its subsidiaries
(collectively, the "Company," which also may be referred to as "we," "our" or
"us"), is a financial services company focused on helping Americans grow and
protect their retirement savings and income to enable them to pursue financial
freedom for life in the United States ("U.S."). Jackson Financial, domiciled in
the U.S., was, as of June 30, 2021, a majority-owned subsidiary of Prudential
plc ("Prudential"), London, England and was the holding company for Prudential's
U.S. operations. As described below, the Company's demerger from Prudential was
completed on September 13, 2021 ("Demerger"), and the Company is no longer a
majority-owned subsidiary of Prudential. Jackson Financial's primary life
insurance subsidiary, Jackson, is licensed to sell group and individual annuity
products (including fixed, fixed index and variable annuities), and various
protection products, primarily whole life, universal life and variable universal
life and term life insurance products in all 50 states and the District of
Columbia.
On January 28, 2021, Prudential announced its intent to pursue the separation of
its U.S. business operations in 2021. On August 6, 2021, the registration on
Form 10 of the Company's Class A common stock, par value $0.01 per share, became
effective under the Securities Exchange Act of 1934, as amended. The Demerger
transaction described in the Form 10 was effective on September 13, 2021.
Post-demerger, Prudential retained a 19.9 percent
non-controlling
interest in the Company.
On September 9, 2021, the Company effected a
104,960.3836276-for-1
stock split of its Class A common stock and Class B common stock by way of a
reclassification of its Class A common stock and Class B common stock. The
incremental par value of the newly issued shares was recorded with the offset to
additional
paid-in
capital. All share and earnings per share information presented herein have been
retroactively adjusted to reflect the stock split.
On June 18, 2020, the Company's subsidiary, Jackson, announced that it had
entered into a funds withheld coinsurance agreement with Athene Life Re Ltd.
("Athene") effective June 1, 2020 to reinsure on 100% quota share basis, a block
of Jackson's
in-force
fixed and fixed-index annuity product liabilities in exchange for a $1.2 billion
ceding commission.
In addition, we entered into an investment agreement with Athene Life Re Ltd.,
pursuant to which Athene would invest $500.0 million of capital into the Company
in return for a 9.9% voting interest corresponding to a 11.1% economic interest
in the Company. The transaction was completed on July 17, 2020. In August 2020,
the Company contributed the $500.0 million, as a capital contribution, to its
subsidiary, Jackson.

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Executive Summary
This executive summary of Management's Discussion and Analysis of Financial
Condition and Results of Operation highlights selected information and may not
contain all of the information that is important to current or potential
investors in our securities. You should read this Quarterly Report on Form
10-Q,
together with the Form 10, in their entirety for a more detailed description of
events, trends, uncertainties, risks and critical accounting estimates affecting
us.
We help Americans grow and protect their retirement savings and income to enable
them to pursue financial freedom for life. We believe that we are uniquely
positioned in our markets because of our differentiated products, well-known
brand and disciplined risk management. Our market leadership 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 offer a diverse suite of annuities to retail investors in the U.S.. Our
variable annuities have been among the best-selling products of their kind in
the U.S. primarily due to the differentiated features we offer as compared to
our competitors, in particular the wider range of investment options and greater
freedom to invest across multiple investment options. We also offer fixed index
annuities and fixed annuities and intend to offer a registered index-linked
annuity, or RILA, in the fourth quarter of 2021.
We sell our products through a distribution network that includes independent
broker-dealers, wirehouses, regional broker-dealers, banks, and independent
registered investment advisors, third-party platforms and insurance agents. We
have been the top selling retail annuity company in the United States for eight
of the past nine years, according to LIMRA.
Our operating platform is scalable and efficient. We administer approximately
75% of our
in-force
policies on our
in-house
policy administration platform. The remainder of our business is administered
through established third-party arrangements. We believe that our operating
platform provides us with a competitive advantage by allowing us to grow
efficiently and provide superior customer service.
We manage our business through three 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, in
Corporate and Other. See Note 13 to Condensed Consolidated Financial Statements
for further information on our segments.
Revenues
Our revenues come from five primary sources:

• Commissions from our annuities and our investment management products;


  •   Net investment income from our investment portfolio;


• The premiums for some of our life insurance and annuity products, as well as

          as premiums from reinsurance transactions;


• Net realized gains (losses) on investments, including trading activity

within our investment portfolio and derivatives linked to risk management

          activities; and


• Other income, which mainly represents the associated expenditure allowances

with our reinsurance agreements.


Benefits and Expenses
Our benefits and expenses consist of five primary sources:

    •     Death, other policy benefits and change in policy reserves, net of
          deferrals;



  •   Interest credited on contract holder funds, net of deferrals;



  •   Operating costs and other expenses, net of deferrals;



  •   Interest expense; and



  •   Amortization of deferred acquisition and sales inducement costs.



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Net Income Volatility
Our results experience net income volatility due to the mismatch between
movements in our policyholder liabilities and the market driven movements in the
derivatives used in our hedging program. Our hedging program seeks to balance
three objectives: protecting against the economic impact of adverse market
conditions, protecting our statutory capital and stabilizing our statutory
distributable earnings throughout market cycles. Our hedging program is based on
economic cash flow models of our liabilities, rather than the U.S. GAAP
accounting view of the embedded derivative liabilities. We do not directly seek
to offset the movement in our U.S. GAAP liabilities from adverse market
conditions. As a result, the changes in the value of the derivatives used as
part of the hedging program are not expected to match the movements in the
hedged liabilities on a U.S. GAAP basis from period to period, resulting in net
income volatility. Accordingly, we evaluate and manage the performance of our
business using Adjusted Operating Earnings, a
non-GAAP
financial measure that reduces the impact of market volatility by excluding
changes in fair value of freestanding and embedded derivative instruments.
Significant Factors Impacting Results
The following selected factors have impacted, and may in the future impact, our
financial condition and results of operations.
Impact of Hedging
We utilize derivatives primarily as part of our variable and fixed index annuity
financial risk management program, primarily to reduce the inherent equity
market and interest rate risk associated with the optional guarantee benefits
embedded in those products. Derivative contracts, primarily composed of futures
and options on equity indices and interest rates, are an essential part of our
program and are selected to provide a measure of economic protection. These
transactions are intended to manage the risk of a change in the value, yield,
price, cash flows or degree of exposure with respect to assets, liabilities or
future cash flows which we have acquired or incurred. Our hedging program seeks
to balance three objectives: protecting against the economic impact of adverse
market conditions, protecting our statutory capital and stabilizing our
statutory distributable earnings throughout market cycles. The balance among
these three objectives may shift over time based on our capital position, market
conditions and other needs of the business. For example, in 2020 our total level
of hedging requirements under our risk framework were higher as a result of our
level of statutory capital and our focus on protecting statutory capital in
preparation for the Demerger.
We do not employ a hedging program that seeks to offset the movement in our U.S.
GAAP liabilities. As a result, the changes in the value of these derivatives are
not expected to match the movements in hedged liabilities on a U.S. GAAP basis
from period to period. With this focus, the program does not meet the accounting
requirements for hedge accounting and, accordingly, we have not sought hedge
accounting treatment on either a U.S. GAAP or Statutory accounting principles
basis. Accordingly, changes in value of the derivatives are recognized in the
period in which they occur with offsetting changes in reserves recognized in the
current period, resulting in net income volatility.
Impact of Mean Reversion Methodology on DAC Amortization
Our operating income includes amortization of DAC balances. For our variable
annuities, DAC is amortized in proportion to expected gross profits. A
significant portion of the expected gross profits on our variable annuities are
composed of the core contract charges, investment management fees, and
associated administrative fees, which depend on the performance of the account
value upon which fees are assessed, as well as guarantee fees, which are
assessed on the benefit base. This, in turn, depends on account value returns
from period to period, including in future periods, and the features of optional
guarantee benefits selected by our customers. We employ a mean reversion
methodology with the objective of stabilizing the amortization of DAC that would
otherwise be highly volatile due to fluctuations in future gross profits arising
from changes in equity market and interest rate levels over the short term. The
mean reversion methodology seeks to achieve this objective by applying a dynamic
adjustment to the assumption for short-term future investment returns. This
dynamic adjustment incorporates actual returns for the current and preceding two
years combined along with our estimate of projected returns for the next five
years that are set such that the average rate of return over the eight- year
period is equivalent to the current long-term assumed return. This methodology
prevents our DAC models from being distorted by a significant increase or
decrease in the account value or benefit base in one period from inflated or
deflated projected contract-related charges (including core contract charges and
guarantee fees, as applicable) due to volatility in equity market returns or
interest rates. However, this methodology does result in income volatility when
historical period returns that deviate significantly from the mean are dropped
from the mean reversion formula. For example, during a period in

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which a large negative return falls out of the calculation due to the passage of
time, the projected returns for the next five years would be reset at a lower
level, such that the average rate of return over the eight-year period remains
equivalent to the current long-term assumed return. This would result in a
potentially materially higher amortization of DAC for the current period, even
if the actual returns for the current period are equivalent to the current
long-term assumed return.
Recent Acquisitions and Reinsurance Transactions
We have and expect to continue to manage and diversify our overall mortality and
longevity risks through closed block acquisitions, which we believe provide
opportunities to deploy capital at attractive risk-adjusted returns and
diversify our
in-force
business. We also use third-party reinsurance to manage capital in support of
our strategy by monetizing selected risks in our
in-force
business. A reinsurance transaction could have a significant impact on our
results of operations in the period in which the transaction occurs as a result
of the reserves acquired or divested at the time the transaction is closed, and
assets added or removed from the balance sheet (including any premium paid or
received), net of ceding commission. A reinsurance transaction could also impact
the credit risk in our investment portfolio. Generally, acquired blocks of
business will increase our exposure to credit risk in our investment portfolio,
while business that is disposed of or reinsured will reduce the amount of credit
risk in our investment portfolio and increase the counterparty credit risk to
which we are exposed.
Retail Annuities
Effective June 1, 2020, we entered into a reinsurance agreement with Athene,
ceding a $27.6 billion portfolio of fixed and fixed index annuity liabilities in
exchange for approximately $1.2 billion in ceding commissions. Our reinsurance
arrangement with Athene is a funds withheld coinsurance arrangement where
Athene, as reinsurer, will bear responsibility for all financial terms of the
reinsured policies (i.e., premiums, expenses, claims, etc.) and, we, as the
ceding company, hold certain assets backing the reserves as collateral in a
segregated custody account.
Separation Costs
Prior to the Demerger, we received certain operational support services from
Prudential and provided services to Prudential, pursuant to an intra-group
master services agreement. Such intra-group master services agreement was
terminated in connection with the Demerger as part of the complete operational
separation of Prudential's and our businesses. The process of replicating and
replacing functions, systems and infrastructure provided by Prudential or
certain of its affiliates in order to operate as a separate public company has
been completed. In connection with preparing for the Demerger and our operation
as a separate, publicly traded company, we incurred, and expect to incur,
one-time
and recurring expenses. We estimate that the aggregate amount of these
one-time
expenses will be approximately $75 million, of which approximately $18 million
was incurred in 2020 and approximately $51 million was incurred during the six
months ended June 30, 2021, with the remainder expected to be incurred
throughout the remainder of the year. We estimate that our incremental annual
recurring expenses relating to operating on a stand-alone basis will be between
approximately $25 million and $30 million. These expenses primarily relate to
information security, finance, risk management, human resources, corporate
communications, public relations and other support services.
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.
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 (including market paths, equity volatility and other
factors), regulation, tax policy, the level of U.S. employment, inflation and
the overall economic growth rate can affect both our short and long-term
profitability. Monetary and fiscal policy in the United States, 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-term and medium-term. Political events,
including the imposition of
stay-at-home
orders and business shutdowns or other effects arising as a result of the
COVID-19
pandemic, civil unrest, tariffs or other barriers to international trade, and
the effects that these or other political events could have on levels of
economic activity, could also impact our business through impacts on consumers'
behavior or impact on financial markets.

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In the short- to medium-term, the potential for increased volatility, coupled
with prevailing interest rates remaining below historical averages and uncertain
equity market performance, could pressure sales and reduce demand for our
products as consumers consider purchasing alternative products to meet their
objectives. In addition, this environment could make it difficult to
consistently develop products that are attractive to customers. Our financial
performance can be adversely affected by market volatility and equity market
declines if fees assessed on the account value or benefit base of our annuities
fluctuate, hedging costs increase and revenues decline due to reduced sales and
increased outflows.
Equity Market Environment
Our financial performance is impacted by the performance of equity markets. For
example, our variable annuities earn fees based on the account value, which
changes with equity market levels. After a very volatile 2020, U.S. equity
markets reached new all time highs in the first half of 2021. Equity volatility
moderated in the first half of 2021 from historically high levels in 2020
resulting in reduced hedging costs year over year. Equity implied volatility
remains above its historical average in 2021. The financial performance of our
hedging program could be impacted by large directional market movements or
periods of high volatility. In particular, 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, which would lead to
adverse performance versus our hedge targets and increased hedging costs.
Further, we are also exposed to basis risk, which results from our inability to
purchase or sell hedge assets whose performance is perfectly correlated to the
performance of the funds into which customers allocate their assets. We make
funds available to customers where we believe we can transact in sufficiently
correlated hedge assets, and we anticipate some variance in the performance of
our hedge assets and 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.
Interest Rate Environment
We believe the interest rate environment will continue to impact our business
and financial performance in the future for several reasons, including the
following:

        •    Our investment portfolio is predominantly composed of fixed income
             securities. In the near term, we expect the yields we earn on new
             investments will be materially lower than yields we earned on maturing
             investments due to the low interest rate environment.



        •    A prolonged low interest rate environment could subject us to
             increased hedging costs or an increase in the amount of statutory
             reserves that our insurance subsidiaries are required to hold for
             optional guarantee benefits, decreasing statutory surplus, which would
             adversely affect their ability to pay dividends. Certain

entries in the

             statutory models rely on prescribed interest rates, which are, in
             turn, determined using a historical interest rate perspective with a
             mean reversion path over the longer term. If rates remain at the
             current low levels, we expect these prescribed rates to continue to
             decline as the NAIC updates the calculations each year, which would
             adversely impact our statutory capital. In addition, low interest
             rates could also increase the perceived value of optional guarantee
             benefits 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. Finally,
             low interest rates could continue to cause an acceleration of DAC
             amortization or reserve increase due to loss recognition for annuities
             and interest-sensitive life insurance. A gradual rise in interest
             rates would have benefits that are offsetting to risks previously
             described. Those potential benefits include increased new money
             investment yields, a reduction in hedging requirements and more
             attractive product features.



        •    Some of our annuities have a guaranteed minimum interest crediting
             rate. These guaranteed minimum interest crediting rates may not be
             lowered, even if earnings on our investment portfolio decline,
             resulting in net investment spread compression that negatively impacts
             earnings. In addition, we expect more customers to hold

policies with

             comparatively high guaranteed minimum interest crediting rates longer
             in a low interest rate environment, resulting in lower than previously
             expected lapse rates. Conversely, a rise in the average yield on our
             investment portfolio should positively impact earnings.

Likewise, we

             expect customers would be less likely to hold policies if existing
             guaranteed minimum interest crediting rates are perceived to have less
             value as interest rates rise, resulting in higher than previously
             expected lapse rates.

Credit market environment

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Our financial performance is impacted by conditions in fixed income markets.
With an improving economy, credit spreads have tightened in 2021 after
increasing substantially at the onset of the
COVID-19
pandemic in 2020, and credit defaults have also reduced from levels seen in
2020. 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 will not affect our net income, unless such changes are realized
through the sale of securities or are included in our trading portfolios, and is
instead reflected in our AOCI. Shifts in the credit quality of the assets
underlying our investment portfolio may also impact the level of regulatory
required statutory capital for our insurance company subsidiaries. As such,
significant credit rating downgrades or payment defaults could negatively impact
our RBC ratio.
COVID-19
We continue to closely monitor developments related to the
COVID-19
pandemic. The
COVID-19
pandemic has caused significant economic and financial turmoil both in the
United States and around the world. These conditions could continue and could
worsen in the future. At this time, it is not possible to estimate the long-term
effectiveness of any therapeutic treatments and vaccines for
COVID-19,
or their efficacy with respect to current or future variants or mutations of
COVID-19,
or the longer-term effects that the
COVID-19
pandemic could have on our business. The extent to which the
COVID-19
pandemic impacts our business, results of operations, financial condition and
cash flows will depend on future developments which are highly uncertain and
cannot be predicted, including the availability and efficacy of vaccines against
COVID-19
and against variant strains of the virus. Federal and state authorities' actions
could include restrictions of movements. We are not able to predict the duration
and effectiveness of governmental and regulatory actions taken to contain or
address the
COVID-19
pandemic or the impact of future laws, regulations or restrictions on our
business.
Consumer Behavior
We believe that many retirees have begun to 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, increased unemployment rates, declining equity markets,
lower interest rates and increased volatility of financial markets. In recent
years, we have introduced new products to better address changes in consumer
demand and targeted distributions channels which 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, highlights the need
for individuals to plan for their long-term financial security and will create
additional opportunities to generate sustained demand for our products. Based on
a 2017 U.S. Census Bureau Population Projection, the portion of the U.S.
population age 55 or older is expected to grow through 2030 at double the annual
rate of growth forecast for the overall U.S. population. If this growth is
realized, 32% of the overall U.S. population, or 112 million individuals, will
be age 55 or older by 2030, compared to 29%, or 95 million individuals, in 2018.
We believe we are well positioned to capture the increased demand generated by
these demographic trends.
Competition
The insurance industry is highly competitive, with several factors affecting our
ability to compete effectively, including the range of products offered, product
terms and features, financial strength and credit ratings, brand strength and
name recognition, investment management performance and fund management trends,
the ability to respond to developing demographic trends, customer appetite for
certain products and technological advances. Our competitors include major stock
and mutual insurance companies, mutual fund organizations, banks and other
financial services companies. In recent years, there has been substantial
consolidation and convergence among companies in the insurance and financial
services industries resulting in increased competition from large,
well-capitalized insurance and financial services firms that market products and
services similar to us. Increased consolidation among banks and other financial
services companies could create firms with even stronger competitive positions,
negatively impact the insurance industry's sales, increase competition for
access to distribution partners, result in greater distribution expenses and
impair our ability to market our

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annuities to our current customer base or expand our customer base. Despite the
increasing competition, we believe that our competitive strengths position us
well in the current competitive environment.
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. As such, regulations recently approved or
currently under review at both the U.S. federal and state level could impact our
business model, including statutory reserve and capital requirements. We
anticipate that our ability to respond to changes in regulation and other
legislative activity will be critical to our long-term financial performance. In
particular, the following could materially impact our business:
Department of Labor Fiduciary Advice Rule
The Department of Labor ("DOL") has issued a new regulatory action (the
"Fiduciary Advice Rule") effective February 16, 2021, that reinstates the text
of the DOL's 1975 investment advice regulation defining what constitutes
fiduciary "investment advice" to ERISA Plans and IRAs and provides guidance
interpreting such regulation. The guidance provided by the DOL broadens the
circumstances under which financial institutions, including insurance companies,
could be considered fiduciaries under ERISA or the Tax Code. In particular, the
DOL states that a recommendation to "roll over" assets from a qualified
retirement plan to an IRA, or from an IRA to another IRA, can be considered
fiduciary investment advice if provided by someone with an existing relationship
with the ERISA Plan or an IRA owner (or in anticipation of establishing such a
relationship). This guidance reverses an earlier DOL interpretation suggesting
that roll over advice did not constitute investment advice giving rise to a
fiduciary relationship. Because we do not engage in direct distribution of
annuities, including IRA products and annuities sold to ERISA plan participants
and to IRA owners, we believe that we will have limited exposure to the new
Fiduciary Advice Rule. Unlike the DOL's previous fiduciary rule issued in 2016,
compliance with the Fiduciary Advice Rule will not require us or our
distributors to provide the disclosures required for exemptive relief under the
previous rule. However, we continue to analyze the impact of the Fiduciary
Advice Rule, and, while we cannot predict the rule's impact, it could have an
adverse effect on sales of annuities through our distribution partners, as
approximately 62% of our annuity sales were purchased within IRAs or other
qualified accounts (excluding employer-sponsored qualified plans) during 2020.
The Fiduciary Advice Rule may also lead to changes to our compensation practices
and product offerings and increased litigation risk, which could adversely
affect our results of operations and financial condition. We may also need to
take certain additional actions in order to comply with, or assist our
distributors in their compliance with the Fiduciary Advice Rule.
Legislative Reforms
Congress approved the Setting Every Community Up for Retirement Enhancement Act
of 2019 (the "SECURE Act") on December 20, 2019. The SECURE Act provides
individuals with greater access to retirement products. Namely, it makes 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. The SECURE Act represents the largest overhaul
to retirement plans in over a decade. We view these reforms as beneficial to our
business model and expect growth opportunities will arise from the new law.
Tax Laws
All of our annuities offer investors the opportunity to benefit from tax
deferral. If U.S. tax laws were to change, such that our annuities no longer
offer
tax-deferred
advantages, demand for our products could materially decrease.
Key
Non-GAAP
Financial Measures and Operating 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 profitability 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 and should not be viewed as a substitute for the U.S. GAAP financial
measures. 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.

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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.
We also use a number of operating measures that management believes provide
useful information about our businesses and the operational factors underlying
our financial performance.
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 which we do not view
as driving our underlying profitability. 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 adjusted to eliminate the
impact of the following items:

• Costs Attributable to Guarantee Services: costs paid jointly with

guaranteed benefits offered for some of our variable annuities

and fixed index annuities are set at a level intended to mitigate

the cost of hedging and financing the liabilities associated with these

features with guaranteed performance. The total amount of costs attributable to

the characteristics of guaranteed benefits have been excluded from adjusted operating income

Profit as net movements linked to stand-alone derivatives and

movements in reserves and embedded derivatives, as described below, have been

excluded from adjusted operating income. This presentation of our

profit is intended to directly align income and related expenses

          associated with the guaranteed benefit features;


• Net movement in Autonomous Derivatives, with the exception of income from activity (periodic

settlements and changes in provisions for settlement) on derivatives that are

investment hedges, but are not eligible for the hedging accounting treatment:

          changes in the fair value of our freestanding derivatives used to manage
          the risk associated with our life and annuity reserves, including those
          arising from the guaranteed benefit features offered for certain of our
          variable annuities and fixed index annuities. Net movements in

stand-alone derivatives have been excluded from adjusted operating income

Earnings because the market value of these derivatives may vary

significantly from period to period due to the short-term market

conditions and are therefore not directly comparable or do not reflect the

          underlying profitability of our business;


• Net reserves and movements in embedded derivatives: change in valuation

certain life reserves and annuities, part of which is recorded

for embedded derivatives, which are mainly composed of

variable and fixed index annuity reserves, including those from

the characteristics of guaranteed services offered for some of our

annuities. Net reserves and movements in embedded derivatives were

excluded from adjusted operating income because the carrying amounts of

these derivatives can vary considerably from period to period

result of short-term market conditions and policyholder behavior

          inputs and therefore are not directly comparable or reflective of the
          underlying profitability of our business. Movements in reserves
          attributable to the current period claims and benefit payments in excess
          of a customer's account value on these policies are also excluded from

Adjusted operating profit as these benefit payments are affected by

short-term market conditions and policyholder behavioral inputs and

          therefore may vary significantly from period to period;


• Net realized investment gains and losses, including changes in fair value

retained embedded derivative funds: realized investment gains and

losses linked to periodic sales or transfers of securities,

excluding those held in our trading portfolio, as well as impairments

          of securities, after adjustment for the
          non-credit
          component of the impairment charges and change in fair value of funds
          withheld embedded derivative related to the Athene Reinsurance
          Transaction;



    •     DAC and DSI Impact: amortization of deferred acquisition costs and
          deferred sales inducements associated with the items excluded from
          Adjusted Operating Earnings;


• Changes in assumptions: the impact on the valuation of the Net Derivative and

Movements in reserves, including amortization of CAD, resulting from changes in

          underlying actuarial assumptions;



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    •     Loss on Athene Reinsurance Transaction: includes contractual ceding
          commission, cost of reinsurance
          write-off
          and DAC and DSI
          write-off
          related to the Athene Reinsurance Transaction;


• Net investment income on funds held: includes net investment

          income on funds withheld assets related to funds withheld reinsurance
          transactions;



    •     Other items:
          one-time
          or other
          non-recurring
          items, such as costs relating to the Demerger and our separation from
          Prudential, the impact of discontinued operations and investments that

are consolidated in our financial statements due to we GAAP accounting

requirements, such as our investments in secured loan bonds,

but whose consolidation effects are not aligned with our

          interest or exposure to those entities; and


• Taxes on operating profits are calculated using the

21% federal income tax rate taking into account everything

recognized differently in our financial statements and federal income tax

returns, including dividends received deduction and other taxes

credits. For interim periods, the company uses an estimate

annual effective tax rate in the calculation of its tax provision, including

taking into account of discrete elements.


As detailed above, the fees attributed to guaranteed benefits, the associated
movements in optional guaranteed benefit liabilities and related claims and
benefit payments are excluded from Adjusted Operating Earnings, as we believe
this approach appropriately removes the impact to both revenue and related
expenses associated with the guaranteed benefit features that are offered for
certain of our variable annuities and fixed index annuities and gives investors
a better picture of what is driving our underlying profitability.
The following is a reconciliation of Adjusted Operating Earnings to net income
(loss) attributable to Jackson Financial Inc., the most comparable U.S. GAAP
measure.

                                           Three Months Ended June 30,           Six Months Ended June 30,
                                             2021                2020              2021               2020

                                                                    (in

millions)

Net income (loss) attributable to
Jackson Financial, Inc.                  $      (540.0 )      $  (3,109.3 )    $     2,391.5       $ (1,312.6 )
Income tax expense (benefit)                     (54.5 )           (457.0 )            531.1           (423.8 )
Pretax income (loss) attributable to
Jackson Financial Inc                           (594.5 )         (3,566.3 )          2,922.6         (1,736.4 )
Non-operating
adjustments (income) loss:
Fees attributable to guarantee benefit
reserves                                        (701.0 )           (617.7 )         (1,372.6 )       (1,224.6 )
Net movement in freestanding
derivatives                                      442.2            9,340.3            3,472.9         (2,717.9 )
Net reserve and embedded derivative
movements                                      1,373.7           (3,715.9 )         (3,218.5 )        6,536.7
DAC and DSI impact                              (242.8 )         (1,264.6 )            453.1           (631.8 )
Net realized investment gains (losses)
including change in fair value of
funds withheld embedded derivative               752.4           (1,629.8 )           (297.8 )       (1,329.9 )
Loss on Athene Reinsurance Transaction              -             2,046.7                 -           2,046.7
Net investment income on funds
withheld assets                                 (293.8 )           (144.2 )           (584.9 )         (228.9 )
Other items                                       24.6               60.9               19.2             70.9

Total
non-operating
adjustments                                    1,355.3            4,075.7           (1,528.6 )        2,521.2

Pretax Adjusted Operating Earnings               760.8              509.4            1,394.0            784.8
Operating income taxes                           124.4              134.5              189.5             96.9

Adjusted Operating Earnings              $       636.4        $     374.9   

$ 1,204.5 $ 687.9



Adjusted Book Value and Adjusted Operating ROE
We use Adjusted Operating ROE to manage our business and evaluate our financial
performance. Adjusted Operating ROE 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 profitability of our
business. We calculate Adjusted Operating ROE by dividing our Adjusted Operating
Earnings by average Adjusted Book Value. Adjusted Book Value excludes AOCI
attributable to Jackson Financial Inc. AOCI attributable to Jackson Financial
Inc. 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 Inc. from Adjusted Book Value because our
invested assets are generally invested to

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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 Inc. is more useful
to investors in analyzing trends in our business. 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 Inc.
Adjusted Book Value and Adjusted Operating ROE should not be used as substitutes
for total stockholders' equity and ROE as calculated using net income and total
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.
The following is a reconciliation of Adjusted Book Value to total stockholders'
equity and a comparison of Adjusted Operating ROE to ROE, the most comparable
U.S. GAAP measure:

                                          Three Months Ended June 30,            Six Months Ended June 30,
                                            2021                 2020              2021               2020

                                                                    (in

millions)

Total stockholder's equity              $    10,390.5         $  8,858.6       $    10,390.5       $  8,858.6
Adjustments to total stockholders'
equity:
Exclude accumulated other
comprehensive income attributable to
Jackson Financial Inc.
(1)                                          (1,758.1 )         (2,321.5 )     $    (1,758.1 )     $ (2,321.5 )

Adjusted Book Value                     $     8,632.4         $  6,537.1       $     8,632.4       $  6,537.1 %

ROE                                             (21.2 )%          (146.2 )%            48.3  %          (33.5 ) %
Adjusted Operating ROE on average
equity                                           29.2 %             23.6 %             31.2  %           20.6 %


(1) Excludes $ 632.1 million and $ 1,107.9 million related to investments held

in the held funds account linked to Athene reinsurance

Transaction dated June 30, 2021 and June 30, 2020, respectively.


Operating Measures
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.

                                              Three Months Ended June 30,           Six Months Ended June 30,
                                               2021                 2020              2021               2020

                                                                      (in millions)
Sales
Variable annuities                        $      4,820.7       $      3,297.7     $     9,495.0       $  7,299.1
Fixed Index Annuities                               32.5                139.8              72.3            891.8
Fixed Annuities                                      5.9                 30.3              16.1            303.0

Total Retail Annuity Sales                       4,859.1              3,467.8           9,583.4          8,493.9

Total Institutional Product Sales                     -                    -                 -           1,284.2

Total Sales                               $      4,859.1       $      3,467.8     $     9,583.4       $  9,778.1



Our new business annuities sales levels for the three and six months ended
June 30, 2021 have been in line with the trends seen in the second half of 2020.
For the three and six months ended June 30, 2021, sales of variable annuities
were higher than in the three and six months ended June 30, 2020. For the three
and six months ended June 30, 2021, sales of fixed index annuities and fixed
annuities remained at historically low levels following pricing actions taken in
early 2020. In addition, there were no sales of institutional products during
the three and six months ended June 30, 2021, compared to nil and $1.3 billion
during the comparable periods in the prior year.

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Account Value
Account Value generally equals the policy account value of our variable
annuities, fixed index annuities, fixed annuities 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 market movements, as applicable, less withdrawals and various
fees. Annual average account value is calculated by averaging balances as of the
end of each month in the trailing
12-month
period, as well as the ending balance of the prior
12-month
period. Quarterly average account value is calculated by averaging balances as
of the end of each month in the quarter, as well as the ending balance of the
prior quarter. We believe account value is a useful metric in providing an
understanding of, among other things, the sources of potential fee income
generation, potential benefit obligations and risk management priorities.

                                                           As of June 30,
                                                        2021            2020

                                                            (in millions)
Account Value
GMWB For Life                                        $ 181,968.8     $ 139,444.1
GMWB                                                     7,249.6         5,944.2
Other Guarantees - Living Benefits                       1,864.5         

1 685.1

No Living Benefits                                      57,858.4        

45 649.3

Total Variable Annuity Account Value                   248,941.3       192,722.7

Fixed Index Annuity
(1)                                                        243.2            61.7
Fixed Annuity
(1)                                                      1,080.9         1,043.6

Total value of the fixed and fixed index annuity account 1,324.1 1,105.3

Total Retail Annuities Account Value                 $ 250,265.4     $ 

193,828.0

Total Institutional Products Account Value           $   8,910.0     $  

12,325.0

Total Closed Life and Annuity Blocks Account Value
(2)                                                  $   8,929.7     $   9,259.9


(1) Almost all of our

in strength

the liabilities of the fixed and fixed index annuity products have been reinsured with Athene,

effective June 1, 2020.

(2) Excluding immediate annuities and traditional life insurance without an account

    value.


Net Flows
Net flows represents the net change in customer account balances during a
period, including gross premiums, surrenders, withdrawals and benefits. Net
flows excludes 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 income and
policyholder behavior.

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                                                     Three Months Ended             Six Months Ended
                                                          June 30,                      June 30,
                                                     2021           2020           2021           2020

                                                                      (in millions)
Net Flows:
Variable Annuity                                  $   (324.8 )    $  463.0      $   (565.4 )    $  304.7
Fixed Index Annuity
(1)                                                   (325.0 )      (141.8 )        (651.1 )       247.6
Fixed Annuity
(1)                                                   (234.2 )      (243.5 )        (536.1 )      (380.2 )

Total Retail Annuities Net Flows                  $   (884.0 )    $   77.7  

$ (1,752.6) $ 172.1

Total Institutional Products Net Flows            $ (1,735.2 )    $ (742.6 

) $ (2,280.6) $ (108.4)

Total Closed Life and Annuity Blocks Net Flows
(2)                                               $    (61.2 )    $  (71.6 )    $   (144.5 )    $ (156.5 )


(1) Gross reinsurance at Athene.

(2) Excluding immediate annuities and traditional life insurance without an account

    value.


Benefit Base
Benefit base refers to a notional amount that represents the value of a
customer's guaranteed benefit, and therefore may be a different value from the
invested assets in a 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.

                                                 June 30, 2021                          December 31, 2020
                                       Account Value        Benefit Base        Account Value        Benefit Base

                                                                     (in millions)
No Living Benefits                    $      57,858.4                 N/A      $      53,021.6                 N/A
By Guaranteed Living Benefits:
GMWB for Life                               181,968.8      $    171,681.3            167,007.2      $    160,225.7
GMWB                                          7,249.6             5,764.4              6,807.4             5,557.7
GMIB
(1)                                           1,864.5             2,130.8              1,826.5             2,216.3
GMAB                                               -                   -                  49.2                 7.2

Total                                 $     248,941.3      $    179,576.5      $     228,711.9      $    168,006.9

By Guaranteed Death Benefit:
Return of AV (No GMDB)                $      28,842.3                 N/A      $      26,368.6                 N/A
Return of Premium                           190,529.9           131,863.0            174,678.2           128,481.5
Highest Anniversary Value                    15,333.7            14,270.8             14,322.9            13,175.2
Rollup                                        4,235.0             4,945.0              4,061.8             5,005.5
Combination HAV/Rollup                       10,000.4            10,095.1              9,280.4             9,447.0

Total                                 $     248,941.3      $    161,173.9      $     228,711.9      $    156,109.2



(1) Almost all of our GMIB services are reinsured.

AT M

AUM, or assets under management, refers to investment assets that are managed by
one of our subsidiaries and includes: (i) the assets in our investment portfolio
managed by PPM, which excludes assets held in funds withheld accounts for
reinsurance transactions, (ii) other assets managed by PPM, including those for
Prudential and its affiliates or third parties and (iii) the separate account
assets of our Retail Annuities segment which JNAM administers. Total AUM
reflects exclusions between segments to avoid double counting. We believe AUM is
a useful metric for understanding of, among other things, the sources of our
earnings, net investment income and performance of our invested assets, customer
directed investments and risk management priorities.

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                                                June 30,        December 31,
                                                  2021              2020

                                                       (in millions)
Jackson Invested Assets                        $  44,330.1     $     49,832.2
Prudential Affiliates Invested Assets             26,468.1           

31.009.4

Former assets of Prudential Affiliates invested 3,545.3 22,882.1 Other assets invested by third parties

                  2,656.2            2,253.9

Total PPM AUM                                     76,999.7          105,977.6
Total JNAM AUM                                   271,914.0          255,668.7

Total AUM                                      $ 348,913.7     $    361,646.3



PPM manages the majority of our investment portfolio and provides investment
management services to Prudential's Asian affiliates and other third parties
across markets, including public fixed income, private equity, private debt and
commercial real estate. Since December 31, 2020, PPM's assets under management
have decreased, primarily due to withdrawals by Prudential's former UK
affiliate.

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