Jackson Financial reports strong Q2 earnings, despite hedging hits

Main Takeaway: Jackson Financial delivered strong second-quarter 2024 earnings driven by robust asset growth and capital generation, despite a significant drop in net income due to unfavorable hedging results. The benefits of a favorable equity market and strong annuity sales contributed to growth compared to the second quarter of 2023 and the first quarter of this year.

Jackson continues to see successful retail annuity sales across all product lines. The company provides a range of annuity solutions to advisors and their clients, and in the second quarter of 2024, saw strong demand for registered index-linked annuities, or RILAs, and traditional variable annuities.

Jackson Financial's earnings report show that total retail annuity sales grew 36% from the second quarter of 2023 and 15% from the first quarter of this year. Variable annuity sales benefited from rising equity markets. RILA continues to be a source of diversification and a product of choice for Jackson’s financial professionals and the company expects sales momentum to continue.

Supporting Numbers:
• 9% increase in total annuity AUM (Assets Under Management) to $247 billion.
• Net income fell to $264 million, from $1.2 billion in the same quarter last year.
• Adjusted operating earnings surged to $410 million, from $283 million in the same quarter last year.
• Strong capital position with RBC (Risk Based Capital) ratio above target and ample liquidity
• Record RILA sales of $1.4 billion, up from $541 million in the second quarter of 2023

Additional Takeaways
• Consistent dividend payouts, increased share repurchase authorization, and continued focus on retail annuity sales diversification.
• Next Steps: Monitor the impact of market conditions on the investment portfolio, assess the competitive landscape in the annuity market, and evaluate the effectiveness of RILA sales strategy.

Management Commentary

• CFO Don Cummings’ Statement: “Adjusted operating earnings of $410 million were up 45% for the second quarter of last year, and 23% over the first quarter of this year. This significant growth in earnings was primarily due to higher fee income from growth in variable annuity assets under management, and higher earnings on spread products. Spread earnings benefited from gains in net investment income, primarily driven by the growth of our RILA block, as well as higher portfolio yields. Notable items for the quarter also included a $0.31 benefit from a payout annuity reserve release due to debt. This was a one-off item in the current quarter that we do not expect to repeat. Although our net hedge result was a loss of $201 million in the second quarter of 2024, for the first half of the year, we reported a net hedge gain of $226 million. The hedging results include a robust guaranteed benefit fee stream that is derived from the benefit base rather than the account value, which provides stability to the guaranteed fees even in periods when markets decline. During the second quarter of 2024, the net hedge result included a loss of $311 million and a loss on freestanding derivatives of about $1 billion, primarily due to losses on interest rate hedges in a quarter where interest rates were up across the yield curve, as well as losses on equity hedges in a rising equity market environment.

• President and CEO Laura Prieskorn‘s Statement: “Critical to our continued growth is a focus on enhancing the digital experience for financial professionals and consumers to strengthen understanding of an annuity's value to a confident and secure retirement. Jackson has a long history of investing in technology, which we believe has contributed to our competitive cost structure and exceptional service delivery for financial professionals and their clients. We are a leader in digital connectivity through data exchanges and integrations within the annuity industry ecosystem. This allows us to connect to an advisor's platform of choice, making annuities more accessible for financial professionals and their clients, and making it easier to do business with Jackson. With a variety of educational tools and information available, Jackson.com serves as a platform for financial professionals to build their practice, support their clients, and optimize annuities in their current books of business.”

Company Information
• Insurance Carrier Name: Jackson Financial, Lansing, Michigan
• Quarter: Q2 2024
• Date of Earnings Call: 8/8/2024
• Offerings: Annuities, life insurance, and other retirement products

Financial Overview
• Total Revenue : $1.24 billion
• Net Income (gain or loss): $264 million
• Earnings Per Share (EPS): $5.32, versus $3.34 in 2Q 2023
• Operating Income: $410 million (adjusted)
• Share repurchases: $90 million in Q2, $316 million YTD
• Dividend declared: $0.70 per share of common stock and $0.50 per depositary share
• Stock price movement: Up .35% in mid-day trading to $103.48 per share.

Segment Performance
• Annuities:
◦ Revenue : $4.2 billion
◦ Net Income: $465 million
◦ Key Metrics: AUM growth of 9%, record RILA sales
• Institutional Products: $29 million
• Closed Life and Annuity Blocks: $35 million

Key Drivers and Trends
• New Products or Services: Focus on RILA products.
• Market Conditions: Rising interest rates likely contributed to higher spread income.
• Other: Strong distribution capabilities and focus on retail annuity sales diversification.

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].