Jackson Financial's Q3 2025: Contradictions Emerge on RILA/VA Risk Management, Capital Strategies, and Market Impact on Surrender Rates

Business Commentary:

* Strong Financial Performance: - Jackson Financial Inc reported adjusted operating earnings of $433 million for Q3 2025, up over 20% from the year-ago quarter. - The growth was driven by strong sales growth in retail annuities, robust capital generation, and consistent capital return to shareholders.

• Retail Annuities Sales and Diversification:
• Retail annuity sales for Q3 2025 exceeded $5 billion, marking their highest level since becoming an independent company.
  

• The increase was primarily due to record sales of the RILA product, which accounted for 38% of overall retail annuity sales.

• Capital Generation and Shareholder Returns:

• Jackson generated $1.1 billion in free capital in the first nine months of 2025, exceeding their target of $1 billion.

• Shareholder returns during this period totaled $815 million, with a capital return target of $700 million to $800 million for the year 2025.

• Variable Annuity Lapse Rates and Market Impact:

• The year-to-date surrender rate was flat, despite a 12% surrender rate in Q3, largely due to strong equity market returns.
• Headwinds from elevated net outflows in recent quarters were mitigated by strong investment performance exceeding net outflows.
  

Contradiction Point 1

Management of RILA and VA Risk

It involves the way Jackson Financial manages risk associated with its RILA and VA products, which directly impacts the company's financial stability and strategic decisions regarding product offerings and capital management.

Are you managing or risk managing RILA in conjunction with the legacy VA? - Suneet Kamath(Jefferies LLC)

2025Q3: We do manage both blocks of business separately. All of the guarantees related to our VA business are reinsured to Brooke Re, rate, while the RILA business remains at Jackson. - Don Cummings(CFO)

Can you use Brooke Re for inorganic growth, such as acquiring a VA company? - Suneet Kamath(Jefferies LLC)

2025Q2: We do believe that there could be opportunities to leverage Brooke Re further with some type of M&A type transaction. If there are life blocks or other blocks of business that would be complementary to our VA guarantee business, that's something that we could consider. - Don Cummings(CFO)

Contradiction Point 2

Capital Management and Strategic Growth

It involves the company's approach to managing excess capital and its strategic priorities for capital allocation, which are crucial for shareholder returns and business expansion.

What actions are needed to restore RBC to $425 million with current excess capital? - Suneet Kamath(Jefferies LLC)

2025Q3: We expect our RBC to come down over time rather than a one-time transaction. We plan to grow our business through diversifying into more spread-type products, which will require more capital than variable annuities. - Don Cummings(CFO)

What is the priority order for allocating excess capital between increasing shareholder returns and pursuing M&A? - Taylor Scott(Barclays Bank PLC)

2025Q2: Our approach is to generate or earn excess capital and then pay it in the form of free cash flow and then return capital to shareholders. We continue to look at that on a balanced basis. We believe we can maintain the strength of our balance sheet while also investing in the growth of our business and returning capital to shareholders. - Don Cummings(CFO)

Contradiction Point 3

Capital Generation and Reinvestment Strategy

It involves a shift in strategy regarding capital generation and reinvestment, which impacts financial management and shareholder value expectations.

With current excess capital, how to restore RBC to $425 million? - Suneet Kamath (Jefferies LLC, Research Division)

2025Q3: We expect our RBC to come down over time rather than a one-time transaction. We plan to grow our business through diversifying into more spread-type products, which will require more capital than variable annuities. - Don Cummings(CFO)

How did tax benefits affect statutory capital generation this quarter? - Tom Gallagher (Evercore ISI Institutional Equities, Research Division)

2025Q1: We expect our statutory capital generation to average in the range of $1.4 billion to $1.5 billion per quarter on an annualized basis. We had about $5 billion of statutory capital at year-end, and we expect about $7 billion of statutory capital at 12/31/2025. - Don Cummings(CFO)

Contradiction Point 4

Impact of Market Conditions on Surrender Rates

It highlights differing explanations for the impact of market conditions on surrender rates, which can influence financial performance and regulatory compliance.

Can you explain the cause of increased lapses and higher surrender rates—market conditions or distributor actions—and whether the company should revise its dynamic lapse assumptions? - Ryan Krueger (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: The current rate of 12% is due to higher equity markets driving surrender activity. - Don Cummings(CFO)

What is driving the increase in fee-based advisors' annuity sales? - Suneet Kamath (Jefferies)

2025Q1: The growth of fee-based annuities is driven by the ability to provide choice to advisors and clients. We offer modeling and financial planning tools, enabling our products to be used in either a fee-based or commission wrapper. The growth of the RIA space also contributes to this trend. - Scott Romine(President, Jackson National Life Distributors)

Contradiction Point 5

Lapse Rate Assumptions and Market Conditions

It involves differing explanations for the increased lapses in policyholder behavior and the impact of market conditions, which could affect the company's financial forecasting and investor expectations.

Can you explain the increase in policyholder lapses, especially the higher surrender rate, and whether it's due to market conditions or distributor actions? - Ryan Krueger(Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: The 12% lapse rate is due to higher equity markets driving surrender activity. - Don Cummings(CFO)

Did you consider changing the long-term lapse assumption, and if so, why was the existing one retained? - Ryan Krueger(Keefe, Bruyette, & Woods, Inc., Research Division)

2024Q4: The assumption review focused primarily on refining withdrawal behavior projections rather than lapse rates. - Don Cummings(CFO)