Good morning, everyone. And welcome to Jackson Financial Incorporated Third Quarter 2023 Earnings Call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question-and-answer at the end. [Operator Instructions] I would now like to turn the conference call over to Liz Werner, Head of Investor Relations. Please go ahead.

Good morning, everyone. And welcome to Jackson's third quarter 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 may contain 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 Web site at investors.jackson.com. Joining us today are our CEO, Laura Prieskorn; our CFO, Marcia Wadsten; our Head of Asset Liability Management and Chief Actuary, Steve Binioris; our President of Jackson National Life Distributors, Scott Romine; and our President and Chief Investment Officer of PPM, Craig Smith. At this time, I'll turn the call over to our CEO, Laura Prieskorn.

Thank you, Liz. Good morning, everyone, and welcome to our third quarter 2023 earnings call. In today's call, we'll provide an update on our strong capital position, our product and distribution initiatives, and our solid third quarter operating results. In our two-years as an independent public company, we have consistently delivered on our commitments to shareholders. We continue to build on this momentum in the third quarter with total capital return to shareholders exceeding $120 million through share repurchases and common dividends and ending the quarter with an RBC above our target range. As we enter the fourth quarter, we look forward to furthering our track record of execution by achieving our 2023 financial targets. Since our separation in September of 2021, Jackson's cumulative capital return has surpassed $1 billion in combined shareholder dividends and share buybacks. We have repurchased common shares for eight consecutive quarters. As of the end of the third quarter, our cumulative share repurchases represent 19% of our common shares outstanding at the time of separation. We view dividends as an important component of sustained return to shareholders and paid our first dividend within four months of becoming an independent public company. Alongside this morning's earnings release, we are pleased to also announce our board's approval for a fourth quarter common dividend of $0.62 per share. Maintaining a strong capital position at Jackson and its operating companies is a priority for Jackson's leadership. We ended the third quarter with an estimated RBC ratio above our target range of 425% to 500% and our total adjusted statutory capital increase to $4.5 billion. We have consistently reported estimated RBC within or above our target range and consistently above rating agency requirements each quarter since separation. Our capital flexibility is further supported by liquidity at the holding company level,…

Thank you, Laura. I'll begin with our third quarter result summary on slide six. Adjusted operating earnings of $315 million were up from this year's second quarter, primarily due to higher fee and spread income. Similarly, our third quarter adjusted book value attributable to common shareholders was up from the second quarter due to non-operating net hedging gains and healthy adjusted operating earnings. In the appendix of our earnings presentation, we have included additional general account investment portfolio details that provide breakdowns on both U.S. GAAP and statutory bases, excluding the assets reinsured to third-parties or funds withheld assets. The information provides helpful insight into our highly rated and diversified commercial mortgage loan office portfolio. As you can see, Jackson remains conservatively positioned with only 1% exposure to below investment grade securities on a statutory basis, excluding funds withheld assets. As a reminder, we will complete our annual assumptions review process in the coming quarter and will disclose the results of the review in our fourth quarter and full-year earnings release. This process entails a thorough and comprehensive assessment of our assumptions and models performed every year. Slide seven outlines the notable items included in adjusted operating earnings for the third quarter. Results from limited partnership investments, which report on a one quarter lag, were $13 million lower in the current quarter than they would have been had returns matched our long-term expectations. In the third quarter of 2022, limited partnership income was also below our long-term expectations, but to a greater degree, creating a comparative pre-tax benefit in the current quarter of $41 million. In addition to this notable item, both third quarter 2022 and third quarter 2023 benefited from a lower effective tax rate relative to the 15% long-term guidance. The benefit in the prior year's quarter was…

Thanks, Marcia. Our third quarter results and our accomplishments throughout the year underscore our ability to serve our customers through product innovation, exceptional distribution, effective risk management, and industry-leading service. As I mentioned earlier, we look forward to providing additional insights into our cash surrender value floor solution and continued capital generation in the near future. We continue to work closely with our regulators and are focused on arriving at a solution that meets the goals Marcia outlined. As 2023 comes to an end, I am proud of our accomplishments. We have completed our second year of operating as an independent public company and delivered on our commitments to stakeholders, returning capital to our shareholders, maintaining a strong balance sheet, and serving our distribution partners and their clients. I am grateful to each of our talented associates, who contribute every day to Jackson's successes and help create a more confident financial future for American saving floor and living in retirement. I'll now turn the call over to the operator for questions. Thank you.

Thank you. [Operator Instructions] So our first question comes from the line of Tom Gallagher of Evercore ISI. Your line is now open. Please go ahead.

Good morning. Yes, that's -- I think that's comforting to hear that. I think you said March 2024 is when you expect timing wise to get some further progress on the Florida reserve situation. I just want to get a -- and I'm not asking for specifics, but just get a general idea about how you think the change might end up looking. I mean, I'll tell you in my head how I've thought about it and if you could just maybe tell me whether I'm thinking about it correctly or not? But I guess the first thing is I would guess that you would get some kind of permitted practice for an allowance to be able to move your reserve to a net asset, maybe up to some limit, because I assume it won't be unlimited. And if they're able to do that -- willing to do that, that would allow you to have greater hedging symmetry. So you'd be able to hedge the economics and not worry about this issue as much going forward? Is that -- am I thinking about that correctly?

Good morning, Tom, and thanks for the question. I'll maybe address timing and then have Marcia cover your comments on the specifics that you mentioned. From a timing perspective, I think importantly, we've made great progress year-to-date, which has allowed us to confidently indicate a targeted completion early in 2024. It is hard to predict any specific timing given, obviously we're dependent on regulator approval, but again great progress being made and we do intend to provide updates as soon as possible around the particular timing and the specifics of the solution. But I can have Marcia comment on your thoughts around the solution specifically?

Sure, Tom. While you're correct, we're not going to go into the details of the form of the solution. I think we can certainly start with just what we've said about the goals of the solution. And that does have certain implications, I think, about how things would change going forward. So what we've said is we're looking for a more economic liability basis that's going to move in line with hedging and that would, as you indicate allow for more economic hedging and that's one of the restated goals was to avoid any costs and implications related to non-economic hedging that we have today, given the influence of the cash surrender value floor. So we would be looking for a situation and looking forward to the opportunity to have more economic hedging and avoid that non-economic hedging. We also think that, that type of solution then would also promote greater stability in our capital and RBC, and just more kind of predictable capital generation as we move forward. And we're also keenly, I think, interested in having results that I think everyone sees as more intuitive as markets move and the statutory results move sensibly, I guess, with what the market changes are, period-to-period. Keeping in mind, I guess, that all of these items or these elements are -- what I'm thinking of as more long-term benefits as we move forward. So our goals here are really focused on those long-term benefits rather than motivated by near-term impacts.

That was really helpful. Thanks. The -- and I guess my follow-up is the $3 billion MRB that you have on a GAAP basis. Is it possible you're going to be, if and when a solution comes through, is it possible that we get a material increase to your RBC to reflect being able to have some similar directional change on the balance sheet? So should we expect some change in RBC, or do you think this is going to be more of a prospective change to ongoing capital generation and not really a balance-chain impact budget, or is it potentially both?

I think the emphasis would be, Tom, on the prospective impact. And as I said, really, this is, you know, we're looking for a solution that works well as we move forward in time, not so much focused on day one type impacts. om Gallagher: That's really helpful. Thanks.

Thank you. Our next question comes from the line of Ryan Krueger of KBW. Your line is now open. Please go ahead.

Hi, thanks. Good morning. I have a somewhat related follow-up. But do you think that would -- the potential solution would allow you to change your hedging program at all? Or is it more just making the statutory results move more sensibly relative to how your hedging approach already is?

Well, Ryan, I'll -- this is Marcia here. I think there is an implication that there would be some changes in kind of how our hedges would be positioned. I think we've talked regularly in the past that the way we think about hedging is to hedge the economic risk profile, but then to also consider our statutory position and make sure that we're also protecting our statutory balance sheet and stabilizing distributable earnings over time. So what I think we would anticipate with this solution is that if you have less of an impact from the cash surrender value floor, you're just not going to have quite as much of a need, not that it's going to go entirely away potentially, but you're not going to have quite as much of a need for -- what we would call the macro hedge adjustments, those that are sort of statutory focused. And you'd be kind of more economically hedging. So I think that just the balance between the economic focus within our hedging and that those sort of statutory lens that we have to look through today, would change and the amount of focus on economic would rise and the focus on the statutory piece would just naturally become a little bit less dominant without the heavy influence of the cash surrender value floor in the way we experience it now.

Got it. No, that makes sense. And then maybe just one other one related to what Tom was asking. Is it more likely that it would be just a permitted practice or some sort of change to your existing legal entity or the use of a new legal entity, like a captive, that where you could move some of the reserves to the captive entity?

Well, I think we feel it's a little premature to talk about the forum today, so unfortunately I have to pass on that and just let you know that we'll come back with an update as soon as we can and share the details of all of that at that point.

Okay, understood. Thank you.

Thank you. Our next question comes from the line of Sameer Kumar of Jeffries. Your line is now open. Please go ahead.

Great. Thank you. Just a couple on capital, so first on the Michigan solution, assuming you get it in early ‘24. Would that change how you think about your RBC target of 425% to 500%?

I think that's a likely outcome, Sameer, that we would want to revisit that, not indicating yet how it would change, but I do think that when we set that 425% to 500% target range you know we set a wider range purposefully given the volatility in our business. And I think if to the extent that some of that volatility was contributed to by the cash surrender value floor, a solution that mitigates that cash surrender value floor solution could very well likely mean that we don't need such a wide range to think about. And therefore that's something that we would be considering as we look forward and provide our outlook and targets for 2024.

Got it, that makes sense. The second one was just on the RILA product. I think you had mentioned that there's some capital benefits you get as that block grows. Can you just maybe talk about how much of a benefit are you getting and at sort of what point in terms of the size of that block does it really start to move the needle from a capital perspective?

Sure. Yes, that's a great question and thank you for that. We are really pleased with the momentum that we've had with the RILA business and while in terms of account value it is still relatively small at just under $4 billion compared to the size of our variable annuity block. It does have really a good profile in terms of an offsetting risk from an equity perspective in terms of the direction of the risk. So we see benefits already with the -- even with the size of our RILA block today in terms of the types of scenarios that would naturally play out into your statutory requirements, particularly when you think about the tail scenarios that drive your CTE 98 requirements, which on a VA only viewpoint are going to be largely significant downward equity stress type paths, which are going to definitely have an economic offset because that's certainly going to not be the profile of your RILA. So we're seeing already benefits within our statutory requirements from the offset, which is both an economic risk offset, but also kind of captured as well in VM 21 that way. But when we just look at the sizing of it and the question around how big, when does it become material, already today with the size of block we have, we're seeing about a 10% economic offset from our equity risk relative to the VA block, the VA guaranteed business, despite the fact that it is still a relatively small size block. With continued momentum in the rile of blook, we look forward to an increased offset there as well.

Got it. And then if I could just sneak one more and just on your unassigned surplus, I think it was negative in the second quarter. Obviously your stat results in the third quarter were much stronger. So do you have an update on that. And as we think about, kind of, capital return into next year. Should we think about that 450% to 550% is a reasonable starting point?

No, we’ve talked about the capital return target of 450% to 550% as being a reasonable long-term view, so it’s certainly -- starting point. And I think as far as unassigned surplus goes, I mean, we are doing our own modeling and looking forward on that and, you know, I think we believe we'll be in a position that is not going to be problematic with our ability to support what we need to do to deliver on our capital return targets once we've established and communicated them early next year.

Got it. Okay, thank you.

Thank you. [Operator Instructions] We now have a follow-up question from Tom Gallagher of Evercore ISI. Your line is now open.

Thanks. Just a question on the assumption reviewing Q4. Can you give some sense for how policyholder behavior on your variable annuity block is trending right now? Has that been running above or below long-term expectations? And would you expect any meaningful positive or negative change there? Thanks.

Yes, thanks, Tom. Yes, as we've historically done, we complete our -- what we do our annual review process to be completed in the fourth quarter, so that work is underway right now and we'll be able to provide more specific outcomes of that with our quarter four and full-year results. In terms of the policyholder behavior that we've seen, as we move through this year, I think largely we've seen policyholder behavior that not too different than what our assumptions would indicate. For example, we've seen a little bit of an uptick and I think you can see that in the financial supplement in variable annuity surrenders, but that would be kind of natural with the rebound in the equity markets. That's naturally part of that dynamic behavior that I think we would typically expect and include in our modeling. But I think the key point is we really have a large bank of experience data that we use to help inform our assumptions. And every year we look at the new experience that's emerged, make adjustments. So we typically never have years where there's no adjustments. We're making them small adjustments as experiences emerge each period and keeping up essentially with the experience that way so that we can avoid larger less frequent updates. As far as directionality, I think it's, you know, nothing we can speak to today, but we'll look forward to providing those updates next quarter.

Okay, thanks.

Thank you. As there are no additional questions waiting at this time, I'd like to hand the conference call back over to Laura Prieskorn, CEO, for closing remarks.

Thank you. As I mentioned earlier, I'm proud of our team for continuing to deliver on our commitment to stakeholders. And as we mark the end of our second year as an independent company, the momentum that we build towards our strategic and operational goals affirms our disciplined approach. We appreciate you joining us today and we look forward to speaking to you again soon. Take care.

Ladies and gentlemen, thank you for joining us for the Jackson Financial Incorporated third quarter 2023 earnings call. Have a great rest of your day. You may now disconnect.