Jackson Financial Aktie

Good day, everyone. Welcome to the Jackson Financial First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time.

I would now like to turn the call over to Liz Werner, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Jackson's 2026 First 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. 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.

Today's remarks may also refer to certain non-GAAP financial measures. The reconciliation of those measures to the most comparable U.S. GAAP figures is included in our earnings release, our financial supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors.jackson.com.

Presenting on today's call are Jackson's CEO, Laura Prieskorn; and CFO, Don Cummings. Joining us in the room are our President of PPM America, our Investment Management subsidiary, Chris Raub; and our Head of Asset Liability Management, Brian Walta.

At this time, I'll turn the call over to our CEO, Laura Prieskorn.

Thank you, Liz. Good morning, everyone. I appreciate you joining us today for Jackson Financial's First Quarter 2026 Earnings Call. I'll start by highlighting the quarter's positive results and the solid progress toward achieving our 2026 financial targets. Following my remarks, Don Cummings, our Chief Financial Officer, will discuss our financial results in greater detail.

Beginning with the bigger picture, 2026 is off to a strong start. Through a volatile market [Audio Gap] generation and continues to support both distributions to our holding company and consistent capital return to shareholders holders.

During the quarter, we distributed $288 million from our operating company to JFI, our holding company. Our common shareholders benefited from an 11% increase in capital return from a year ago to $257 million in the form of shareholder dividends and share repurchases. We remain focused on maintaining a balanced approach to capital management, including investing in new business while maintaining our financial strength and consistent capital return to our shareholders.

Looking ahead, we're confident in our ability to generate free cash flow supported by a healthy book of business and expectations for profitable growth.

Turning to earnings. Our operating performance was strong. Pretax operating earnings were up 12% from a year ago, excluding the impact of notable items. On a per share basis, the increase was 18%, reflecting the benefits of our share repurchase program. Growth of spread-based earnings more than offset the impact of market volatility on fee income. We expect continued momentum here driven by our spread-based business and the benefits of our expanding product lineup, our enhanced investment capabilities and our broad distribution reach.

For the first quarter, retail annuity sales increased 31% from a year ago, a great result. Much of that growth came from our Marketlink Pro 3 and Marketlink Pro Advisory III, our leading RILA offerings. RILA sales have now exceeded $2 billion in quarterly sales since we launched the products in May of 2025. We're proud these sales have elevated us to be the industry's third largest RILA provider with more than $21 billion in RILA assets. We expect continued strong demand from advisers and their clients who value the combination of the growth potential and the downside protection that these products offer.

Further adding to retail annuity sales growth was our spread-based business, including the recent launch of Jackson Income Assurance, our fixed indexed annuity or FIA. Our FIA offers a highly valued income benefit [indiscernible] and helps advisers deliver retirement income protection solutions their clients can count on. Since our launch in August of 2025, our FIA offering has been positively received, and we expect FIA sales momentum to continue. In the first quarter, fixed annuity and FIA sales reached $756 million, a significant increase from $174 million a year ago.

We anticipate future sales momentum for our spread-based products. With PPM's broad-based investment expertise and the recently announced investment partnership with TPG, we're confident in our ability to offer competitive spread-based products to our many distribution partners.

Importantly, we saw considerable improvement in net outflows and which improved by 30% from a year ago and decreased nearly 6% from the fourth quarter 2025. This improvement reflects significant RILA inflows and lower variable annuity surrenders and withdrawals. The decline from last quarter reflects recent equity market uncertainty, which typically leads to lower surrender activity.

As our variable annuity block continues to mature, we do expect continued withdrawal activity as policyholders take advantage of their valued benefits. On the distribution front, we're expanding and making annuities more accessible as a retirement solution. Within the advisory channel, we're a leading provider and have accelerated our product diversification efforts. In the first quarter, RILA and Elite Access accounted for more than 70% of fee-based advisory sales. Additionally, our new competitive FIA product accounted for more than 10% of total advisory sales this quarter, and we anticipate continued growth in its contribution to sales in this channel.

As advisers and their clients navigate changing markets and individual financial goals, we believe our solutions-based and consultative approach underscores a unique value proposition across a growing annuity market. With our full suite of products and industry-leading service, Jackson remains a trusted partner across a growing and dynamic annuity market.

Turning to Slide 4. You can see the significant shift in our business since our separation. Today, nearly 40% of our account values come from spread-based and investment-only variable annuities, a meaningful shift that reflects the progress we've made in diversifying our in-force book. Nearly 5 years into our journey as a public company, our focus remains clear. We're driving growth through a diversified and broader product portfolio and expanded distribution reach.

Staying disciplined and execution-focused is a long-held strength for Jackson. As we execute on our growth initiatives and deliver on our commitments, we expect to build long-term value in our business and for our stakeholders.

Now turning to Slide 5 and looking ahead to the full year, we've started the year off strong and are on track to achieve our 2026 financial targets. In the quarter, free capital generation was $271 million, and we expect that to build over the course of the year under our current modest market assumption. We continue to expect to reach our 2026 free capital generation target of $1.2 billion, along with our capital return to common shareholders in the range of $900 million to $1.1 billion.

Further, at the end of the first quarter, our holding company liquidity is nearly $650 million, comfortably above our minimum buffer. As you know, we recently established a long-term strategic partnership with TPG, which brings expertise in asset-based finance and direct lending areas that complement PPM's existing capabilities and create opportunities for enhanced investment returns. We've already started allocating new money to TPG managed assets. And while we don't expect an outsized allocation to these asset classes, we do believe the investment returns will support profitable growth across our spread-based products over time.

Importantly, our relatively low current exposure to private credit provides us the flexibility to invest opportunistically when market volatility creates attractive entry points. We continue to maintain our disciplined investment approach, working closely with TPG and see great value in our strategic partnership. Later in our remarks, you'll hear more about our investment portfolio and how the asset classes and the expertise TPG brings fit well within our current portfolio and business strategy.

At this time, I'll turn the call over to Don.

Thank you, Laura. Let's turn to Slide 6 and walk through our consolidated financial results for the first quarter. We reported pretax adjusted operating earnings of $430 million or $503 million, excluding notable items, which I'll discuss in more detail shortly.

On this ex notables basis, earnings increased 12% year-over-year, reflecting continued momentum across our spread-based businesses and steady growth in in-force assets under management. Sequentially, ex notables earnings were modestly lower than the fourth quarter of 2025, primarily due to approximately $30 million of headwinds in fee income this quarter. These headwinds were driven by slightly lower average AUM in fewer days in the quarter. Excluding these timing-related factors, earnings were up modestly from the prior quarter.

Our spread-based earnings continued to demonstrate a strong growth trajectory, supported by a full suite of competitive product offerings and a high-quality, conservatively managed investment portfolio. Diversification and disciplined credit management remain central to our investment approach, and that consistency continues to deliver solid results. Sales of our spread-based products also reflect the enhanced asset sourcing capabilities at PPM, which have enabled us to allocate new money into select higher-yielding asset classes. This measured shift in new money deployment, combined with a compelling product lineup has helped Jackson maintain a stable and competitive position in the spread product market through the last half of 2025 and into 2026.

We are also seeing positive early results from our new strategic partnership with TPG, along with the ongoing benefits of our capital-efficient strategy. TPG began deploying capital in the quarter, further expanding our investment opportunities and supporting higher new money yields.

Before turning to notable items for the quarter, I'd like to take a moment to highlight the continued strength and profitability of our in-force business. Our adjusted operating return on equity for the trailing 12 months ended March 2026 was 14.8%, up from 13.2% for the comparable period ending March 2025. This improvement underscores the resilience and underlying profitability of our business as we continue to grow and diversify our sales mix and balance sheet in a disciplined value-accretive way.

Turning to Slide 7, I'll walk through the notable items that affected adjusted operating earnings this quarter. Free capital generation, which I'll cover later, was also impacted by these notable items in the quarter. We reported adjusted operating earnings per share of $5.15. After excluding $0.90 of notable items and normalizing for the difference between our actual tax rate and our 15% tax guidance, adjusted operating EPS was $5.94. This represents an 18% increase compared to the first quarter of last year, reflecting the strong spread income growth I discussed earlier as well as the benefit of a lower diluted share count from our ongoing share repurchase program.

These positive factors more than offset the impact of the 4.7 million shares issued to TPG midway through the quarter. During the quarter, we experienced a $0.48 unfavorable impact from limited partnership results, which came in below our long-term 10% return assumption. While valuations of our limited partnership investments can experience quarterly fluctuations, we remain confident in the underlying strength and long-term performance of the portfolio.

In addition, we proactively enhanced our processes and data sourcing to more efficiently identify the ceased policyholders. This initiative resulted in higher claims during the quarter leading to a $0.42 unfavorable impact. While this initiative will temporarily affect results, it strengthens our data integrity, streamlines the policyholder experience and ensures greater consistency in future reporting.

Our effective tax rate for the quarter was 13.5%, modestly lower than our 15% tax guidance.

Turning to Slide 8. We take a closer look at the diverse and expanding new business profile within our retail annuity segment, which holds a top 3 leadership position in both our traditional variable annuity and RILA product lines. The segment delivered 31% year-over-year sales growth in the first quarter, underscoring the success of our comprehensive product suite. Spread-based products represented 52% of total sales, reflecting the continued balance across our offerings.

On a sequential basis, sales were modestly lower, consistent with typical seasonal patterns. Our RILA product suite continues to be a standout performer. We achieved $2 billion in RILA sales, an increase of 68% from the year ago quarter. Since launching the product in 2021, RILA assets under management have grown steadily, reaching a record high of more than $21 billion at the end of the first quarter.

As mentioned earlier, our spread-based products are also benefiting from strong momentum. The successful launch of our new fixed index annuity offering contributed to $756 million in fixed index annuity sales during the quarter, an increase of over 300% year-over-year. Combined with our recently announced strategic partnership with TPG, we are well positioned to sustain this growth and further expand the potential of our spread-based business.

Turning to net flows. Strong RILA sales and spread product performance drove $2.5 billion of nonvariable annuity net inflows in the first quarter. Within variable annuities, the all-in surrender rate declined both year-over-year and sequentially, resulting in modestly lower net outflows for the quarter. We continue to expect equity market volatility to influence surrender activity within our in-force block. Importantly, while equity markets were volatile early in 2026, we entered the second quarter with equity indices near all-time highs. Should this environment persist, we may see higher surrender activity, but it would also support growth in variable annuity AUM and fee income over the remainder of the quarter.

Lastly, we've included advisory sales trends to highlight the breadth of our distribution capabilities. Jackson maintains a leading position in the advisory annuity space, supported by a full spectrum of product offerings. Notably, in the first quarter of 2026, nearly 50% of advisory sales came from products other than variable annuities, demonstrating the continued strength in our growth and diversification strategy.

Turning to Slide 9. We highlight our first quarter net hedge results by product along with a waterfall comparison of pretax adjusted operating earnings to the GAAP pretax loss attributable to Jackson Financial. Since moving to a more economic hedging approach at the beginning of 2024, we have seen a meaningful improvement in the consistency of our hedging program outcomes, which, in turn, has supported stronger and more predictable capital generation. As a reminder, last quarter, we enhanced our disclosure of net hedge results to separately present outcomes for our variable annuity and RILA businesses. This additional transparency provides a clearer view of the offsetting equity risk between these product lines and excluding the impact of implied volatility and market risk benefit liabilities offers insight into the change in equity at Brooke Re.

After isolating the volatility effects, our overall net hedge result for the quarter was a loss of $101 million. Given the size and complexity of our liability profile, we view this result as a very stable and well-managed outcome. As shown on the slide, the RILA and FIA products generated a modest gain, while the loss was concentrated in our VA business. The variable annuity net hedging results reflect the breadth of available funds on our separate account platform, which includes both indexed and actively managed strategies.

During the first quarter, market dislocations, driven by investor sentiment around artificial intelligence and ongoing geopolitical developments led to divergent performance between certain actively managed funds and their benchmarks. This relative underperformance versus the indices we use in our hedging program resulted in the modest net hedging loss for the quarter. It is important to note that this dynamic can move in both directions. And historically, these effects have tended to balance out over time. Despite the modest loss from our hedging program during the quarter, Brooke Re's capitalization remains well above both our internal risk management target, which reflects a range of severe stress and tail scenarios and our regulatory minimum operating capital level.

Aside from the $500 million of growth capital contributed to Hickory Re, there were no additional capital flows for Brooke Re during the quarter. Looking ahead, we will continue to manage Brooke Re on a self-sustaining basis, consistent with the long-term nature of its liabilities and our disciplined approach to capital management.

Overall, these results underscore the effectiveness of our hedging program in maintaining capital stability, proactively managing economic risk in preserving the durability and resilience of our business model.

Turning to Slide 10. We highlight the consistency of our capital return and free cash flow. At Jackson, we operate under a straightforward philosophy, earn it, then pay it. This framework is built on 3 pillars: generating free capital, this is where we earn it; converting that capital into free cash flow, this is where we pay it; and returning capital to common shareholders. The outcome of the first 2 steps working together.

In the first quarter, after-tax statutory capital generation was $342 million. We view this as one of the clearest indicators of the underlying strength of our business and it serves as a key guidepost in balancing future growth with capital return to shareholders. Free capital generation was $271 million in the quarter, reflecting the estimated change in required capital, driven by our strong and diversified new business results. For full year 2026, we continue to expect to generate at least $1.2 billion in free capital, assuming equity markets deliver a 5% return and interest rates move in line with the year-end forward curve.

While we maintain our RBC risk appetite at 425%, the stability in RBC levels over the past 2 years gives us confidence to focus on sustained free capital generation consistent with our earn it, then pay it approach. Free capital generation was modestly reduced by the same limited partnership returns and elevated claims that impacted adjusted operating earnings.

Additionally, slightly lower average AUM and fewer days in the quarter weighed on fee income. However, the market recovery early in the second quarter positions us well for the remainder of the quarter. Excluding these temporary factors, capital generation was broadly consistent with the 2025 run rate. Free cash flow remained strong and consistent totaling $288 million at the holding company, up 35% year-over-year after funding expenses and other cash flow items.

Our robust free capital generation and growing free cash flow enabled us to return $257 million to common shareholders in the first quarter, an increase of 17% year-over-year on a per diluted share basis. Since becoming an independent public company, Jackson has returned nearly $3 billion to common shareholders, exceeding our initial market capitalization at separation. These results reinforce Jackson's strong capital generation profile, the stability of our cash distributions and our continued commitment to delivering long-term value for shareholders.

Turning to Slide 11. This slide highlights Jackson's robust capital and liquidity position. Our in-force business continues to be a key driver of profitability. Fee income from our variable annuity based contracts, combined with growing spread-based earnings supported solid capital generation during the quarter. As noted earlier, results were modestly impacted by the notable items we discussed previously.

At Jackson National Life, our capital position and RBC ratio have become significantly less sensitive to equity market movements, reflecting the benefits of the Brooke Re structure. Today, changes in the equity markets primarily influence our assets under management and future capital generation rather than our immediate capital levels. In many ways, this evolution has made our earnings profile, increasingly resemble that of an asset management business, steady, diversified and capital efficient.

Consistent with our disciplined approach of taking smaller periodic distributions, we paid $325 million to the holding company during the first quarter. After considering the impact of that distribution on our deferred tax assets, total adjusted capital ended the quarter at $5.5 billion, with an estimated RBC ratio of 554%, comfortably above our minimum target. These results underscore that Jackson is operating from a position of real strength as we progress through 2026.

At the holding company level, we ended the quarter with nearly $650 million in cash and investments, well above our minimum liquidity buffer and providing strong financial flexibility. The slight decline from the fourth quarter primarily reflects capital return to shareholders. Overall, our first quarter results show strong momentum, supported by a solid balance sheet, healthy capital and liquidity levels and a business model well positioned for continued success.

Slide 12 highlights the substantial liquidity sources we maintain across our legal entities, which underpin our strong capital position and now include our recently issued PCAPs facility. We view the PCAPs facility as an important extension of our commitment to balance sheet strength and enhanced risk management. This $900 million contingent capital facility strengthens our liquidity profile and reinforces capital resilience across market cycles, while allowing us to maintain a lean and efficient balance sheet. The facility is designed for flexible application, serving both as a buffer against severe market stress events and as a tool to proactively manage our capital structure. This ensures that Jackson remains well capitalized under a wide range of market conditions and scenarios.

When combined with holding company cash and highly liquid securities, along with our undrawn revolving credit facility, total available liquidity at Jackson Financial Inc. stands at approximately $3 billion. At the operating company level, Jackson National Life maintains more than $35 billion of available liquidity, including $7 billion in cash and U.S. treasury securities and an additional $25 billion in other highly liquid marketable securities.

Jackson National Life also benefits from our long-standing relationship with the Federal Home Loan Bank, which provides $2.6 billion of additional capacity through its collateralized loan advance program.

Finally, Jackson's leverage remains among the lowest in our peer group, with a total leverage ratio of approximately 19.8%, excluding AOCI. Our combination of strong capitalization, substantial liquidity and modest leverage provides meaningful financial flexibility and supports our ongoing commitment to maintaining a balance sheet built to perform through multiple market cycles.

Turning to Slide 13. This slide highlights PPM America, our wholly owned asset management subsidiary. PPM oversees approximately $95 billion in total assets under management. And together with our new strategic relationship with TPG, enhances Jackson's ability to source attractive yields and maintain product competitiveness across both our retail and institutional businesses.

PPM is a core component of Jackson's strategic growth profile, managing $59 billion of Jackson's assets and an additional $36 billion of third-party AUM, which has grown meaningfully since our separation. PPM manages our general account investment portfolio, directly supporting the profitable growth of our business and our objective of maintaining strong capitalization. Our ownership of PPM provides structural advantages and strategic alignment, including synergies across asset-liability management, product design and investment execution. This integration ensures that our investment strategy remains closely aligned with our product and risk management frameworks.

PPM has also expanded its investment capabilities, enabling new money allocations to select higher-yielding asset classes such as emerging markets, residential and commercial mortgage loans and investment-grade structured securities. These enhancements strengthen our ability to optimize portfolio returns while maintaining a disciplined approach to credit quality and diversification.

In addition, PPM maintains oversight of third-party asset managers, including our strategic partnership with TPG. This oversight encompasses the establishment of investment guidelines for asset classes managed by TPG and ongoing monitoring of deal flow and performance. While the partnership is still in its early stages, collaboration between the teams has been strong, and we are encouraged by the positive initial progress. We remain highly optimistic about PPM's growth trajectory and the opportunities to further expand its capabilities, reinforcing its role as a strategic differentiator and a key contributor to Jackson's long-term success.

Moving to Slide 14. We highlight the quality, diversification and conservative positioning of our investment portfolio as of the first quarter. Jackson takes a disciplined approach to managing our assets and liabilities, which guides how we make strategic decisions about asset allocation. Our fixed maturity portfolio remains high quality and defensively positioned with a meaningful allocation to highly liquid U.S. treasuries, which represent approximately 6% of the portfolio. The market-to-book ratio of 95% reflects our disciplined approach to asset selection and prudent portfolio management.

Exposure to below investment-grade securities remains very limited at just 1% of the portfolio, consisting almost entirely of corporate bonds and loans. The portfolio is well diversified by asset type. Corporate securities account for roughly 57% of invested assets, complemented by mortgage loans, asset-backed securities and a modest allocation to private equity through our limited partnership investments. Our commercial mortgage portfolio is conservatively underwritten, supported by strong loan-to-value and debt service coverage ratios, ensuring resilience across market cycles.

Overall, our investment portfolio reflects a conservative credit philosophy centered on quality, diversification and liquidity, which continues to support the stability of our capital position and the durability of our earnings profile.

Given the recent headlines surrounding asset-based finance and direct lending, Slide 15 provides enhanced disclosures on our private investment exposure. As noted last quarter, Jackson remains underweight in direct lending relative to peers. We view the current market dislocation as an opportunity to invest selectively at more attractive valuations than those seen in recent vintages. In addition, our strategic partnership with TPG provides access to deep expertise in direct lending, particularly in the lower middle market segment where TPG emphasizes strong covenants and rigorous credit underwriting. This positions us well as we gradually and prudently build exposure in this space.

As of the first quarter, our private debt portfolio consisted of 63% traditional private placements, with the remainder allocated to infrastructure, asset-backed securities and credit tenant leases.

From a ratings perspective, the portfolio is 99% investment grade with private letter ratings representing only 6% of total invested assets. Exposure to Egan-Jones-rated securities is immaterial and our software industry exposure is modest, focused exclusively on high-quality investment-grade issuers. Overall, our private investment portfolio is conservatively positioned and supported by robust credit oversight. We maintain substantial capacity to deploy capital on attractive terms, reinforcing our growth and diversification strategy while preserving the strength and stability of our balance sheet.

I'll now turn the call back to Laura.

Thank you, Don. Turning to Slide 16. Our outlook remains strong. we expect to continue our track record of maintaining capital strength, generating excess capital and delivering on our financial targets. Throughout all types of market environments, the need for retirement security is highly valued, and we're committed to our mission of helping Americans secure their financial futures. As always, we're grateful for the dedication of our associates whose contributions each quarter remain our greatest strength.

At this time, I'll turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Suneet Kamath with Jefferies.

Sorry, I think I just unmuted. Can you hear me?

We can.

Okay. Sorry about that. I wanted to just start with annuities. Do you have a sense of what percentage of your sales represent sort of exchange activity versus sort of true new business?

Suneet, thank you for the question. the first quarter sales, which were very healthy at $5.3 billion, are a reflection of new business without any internal exchanges. So the sales reported would be all new business, minus any internal exchanges.

Okay. And then I guess maybe a bigger picture question -- sorry. Can you hear me?

Yes, we can. Yes.

Yes. Okay. I don't know. There's some background noise. So a bigger picture question. Obviously, there's a pretty large merger of equals going on in the annuity space. We haven't seen one of those in, I don't know, 20 years or so. Just wondering, Laura, if you think this changes the industry dynamic at all? And any thoughts that you could give on overall consolidation in the space would be helpful.

Sure. I agree with you, this is a large change in one that we haven't seen in the industry in quite some time. From a competitive perspective, I would say we compete with both organizations that are recently involved in the merger announcement. We have a diversified product set that I think in comparison to the combined organization will allow us to continue to compete well.

In terms of any other consolidation, I wouldn't have any comment or remarks on what else might occur. But I think we'll continue to compete constructively with both organizations as we have in the past and look forward from our diversified product offerings to continue to focus on growth across all those annuity types.

I can just sneak one in for Don.

Yes.

I'm just going to chime in on Laura's response on the merger of equitable and core bridge. As Laura highlighted, we already have kind of a pretty comprehensive product suite. And we also happen to have one of the largest distribution forces in our space. Our wholesaler group has been quite effective over the last several years, and we're expanding this year. So we feel pretty well positioned both with our product suite and with our distribution capabilities going forward.

Got it. And then just one other one for Don, if I could. Just on Brooke Re and the additional capital that's now in the subsidiary, I guess, related to Hictory, does that change the timing of when you might be able to take dividends out of Brooke Re? And any update there would be helpful.

Sure. Happy to take that question, Suneet. So you're right, we did put $500 million of capital into Brooke Re during the quarter. That's the growth capital that we've designated for Hickory Re. And so we did -- after the capital contribution and the kind of $100 million or so loss we experienced at Brooke Re during the quarter, we're still up in capital there.

In terms of the timing of when we expect to be able to distribute capital from Brooke Re, I believe, as I mentioned on the fourth quarter earnings call. We would anticipate that Hickory Re will start generating capital that we will be able to distribute kind of in the near term. So think about next few years. And then capital that would be distributed from the business that is sitting at Brooke Re kind of on a stand-alone basis, that would be more of a longer-term time frame. Hopefully, that helps.

Our next question comes from Ryan Krueger with KBW.

My first question was on capital generation. I guess given the continued headwinds to alternative investment returns, can you give us any sense of how -- just how sensitive your capital generation is to the alts returns? I know we can look at the dollar to dollar return impact, but I think there's probably also an offset in required capital, given high capital charges against all. So just any sensitivity that you could provide would be helpful.

Yes. Ryan, thanks for that question. So you're right. There is a bit of sensitivity with capital generation. And you do get a bit of an offset given the fact that heavy requires a higher capital charge. But as we look at the results we generated in the first quarter, and just kind of given the recovery in markets since the end of the quarter, equity markets are back near or at all-time highs, and we feel pretty comfortable with capital generation for the full year and being able to hit our $1.2 billion target.

And as a reminder, that was based on kind of a 5% total equity market return. So we feel good about that. We don't see really any issues with our alternative returns, but maybe I'll ask Chris just to chime in and add a little color on how we look at that asset class and our recent performance as well as long term.

Yes. Thanks, Don. Ryan, thanks for the question. Just some flavor to help you as you think about that portfolio, it's predominantly private equity investing with the middle-market buyout focus. We do also have a modest amount of CLO equity and some other fund investments in there.

Returns are reported on a 1-quarter lag there and will reflect market conditions at the time. So nothing we saw in the quarter changes our thoughts around the 10% long-term assumption. In fact, that's a measure that we've outperformed since being public a number of years ago.

And then on the TPG relationship, I know you talked about allocating -- starting to allocate new money to assets managed by TPG. I think you had also talked about maybe an opportunity to reposition some of the existing assets, particularly in the payout annuity book, is that something that -- can you give us any sense of the timing on that? Is this going to take a while to do? Or is that something that could happen more quickly on repositioning of the existing assets?

Yes. Thanks, Ryan. So just in terms of the partnership with TPG, we closed that kind of midway through the quarter. So we have started seeing some capital deployed by TPG. It is early days. And in terms of being able to reposition our overall portfolio, outside of our kind of new business returns, we still do have that potential. We -- and that certainly on our list of things to work through as we get the partnership fully stood up.

Our next question comes from Alex Scott with Barclays.

I hope you can hear me. I just wanted to first ask about the growth that you're seeing in some of the RILA and FIAs. And if you could take us into some of the future changes and things that you're doing to more of the growth? Like can you tell us about it? Are there bonuses on the products? Have you increased cap rates? What are the different features that you're tweaking to make it more attractive?

Alex, thank you for the question. We did throughout 2025 refresh our RILA product. And in the fall, we launched in FIA product as well. Both Don and I have talked about the diversification of our sales being a goal. And the RILA sales are now at 40% of our total retail sales as we had seen in the first quarter.

The product update for RILA was in the mid part of 2025. And that product design has flexibility and choice that is a differentiation from other products that you see in the market in terms of crediting methods, the protection level and the number of indexes that we have available for choice. And then on the FIA front, that launch included a living benefit option as well that can be elected not just at sale, but also post sale, which is a unique feature for the FIA product. We've seen great momentum in sales with the FIA product and expect as we continue through this year that the spread-based sales growth will benefit from not just the product refresh that we've done, but also from the efforts at PPM to seek greater yield the establishment of the captive for fixed and FIA as well as with the partnership with TPG that Don just took the opportunity to talk through. So we're excited about the growth on the spread-based side.

That's helpful. Next question I had is on the PCAPs actually. Is that as interesting as you were describing the PCAPs? You kind of mentioned that it could potentially allow you to run more leaner on capital. And I just wanted to understand if that was something I should pay more attention to. Your RBC ratio and the operating company is pretty high at the moment and your hold through cash is pretty high relative to your threshold. Does adding that kind of contingent liquidity change the way you may be able to manage some of those levels?

Alex, it's Don. So let me first just highlight with our RBC levels. As we've talked about on prior calls, given our shift to continuing to focus on diversifying our business and more focused on the spread-based products, we do expect to see our RBC ratio come down over time. So I would say that's point one.

The second point specifically around the use of PCAPs, we think that the way that facility is structured, it does provide very -- a very good source of contingent capital should we get into sort of a severe stress scenario. And that's one of the features of that facility that we found attractive. We obviously do a very robust stress testing on a variety of different levels. And as we went through our overall enterprise stress testing, felt that a facility like PCAPs provides a good source of capital in a very severe stress environment.

This concludes our Q&A session. I will now turn the call back to Laura Prieskorn for closing remarks.

Thank you. Jackson's strong first quarter performance reinforces the resilience of our business. We look forward to continuing this discussion and sharing our progress toward our 2026 targets after next quarter. Thank you for your ongoing interest in Jackson.

The call has concluded. Thank you for joining. You may now disconnect.

Hello, everyone, and welcome to the Jackson Financial Inc. 4Q '25 Earnings Call. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions]

I'll now hand over to our host, Liz Werner, Head of Investor Relations, to begin. Liz, please go ahead.

Good morning, everyone, and welcome to Jackson's 2025 Fourth Quarter and Full Year Earnings Call. Today's remarks may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations. Jackson's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. Except as required by law, Jackson is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change.

Today's remarks also refer to certain non-GAAP financial measures. The reconciliation of those measures to the most comparable U.S. GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors.jackson.com.

Presenting on today's call are Jackson CEO, Laura Prieskorn and CFO, Don Cummings. Joining us in the room are our President of Jackson National Life Insurance Company, Chris Rob, our Head of Asset Liability Management, Brian Walter, our Chief Actuary, Lin Sun; and our Treasurer and Head of Corporate Development, Dean Scott. At this time, I'll turn the call over to our CEO, Laura Prieskorn.

Thank you, Liz. Good morning, and thank you for joining our 2025 Fourth Quarter and Full Year Earnings Call. I'll begin with a review of our recently announced strategic actions, followed by a discussion of our 2025 accomplishments, our progress since separation and our 2026 financial targets. 2025 was an exceptional year as we surpassed our financial targets and set records for sales and distribution. We delivered another year of over $1 billion in free capital generation and grew free cash flow while providing initial funding for our new captive reinsurer, Hickory Reed. Following my remarks, our CFO, Don Cummings, will discuss our financial performance in further detail.

Beginning on Slide 3, Jackson's execution focus and core capabilities have been steadfast and are evident in both our success as a leading provider of retirement solutions and our performance as a public company. As an important next step in Jackson's growth, we recently closed on our previously announced strategic partnership agreement with TPG -- this long-term partnership will support accelerated growth of our spread-based business and future flexibility.

TPG's unique investment capabilities and collaborative culture align well with Jackson and our teams have already been working closely together. Our partnership with TPG, combined with the capital efficiency from our captive strategy positions us well for fixed and fixed index annuity sales momentum. Turning to Slide 4, our strong full year operating results drove nearly 12% growth in our adjusted operating earnings, supported by stable fee income and increased investment spread earnings. Our commitment to shareholder capital return and the benefit of share repurchases resulted in over 20% growth in adjusted operating earnings per share for the full year.

As a reminder, our net income includes the impact of our annual assumption review and net hedge results, which Don will discuss. Over the course of 2025, our sustained profitability and disciplined capital management resulted in well over $800 million in free cash flow and capital return. Importantly, -- we expect to maintain our balanced approach to capital management, focusing on financial strength, future growth and capital return to shareholders. We achieved the highest quarterly and annual retail annuity sales since going public in the fourth quarter and full year 2025. Continued growth in RILA, combined with accelerated growth in our recently introduced fixed index annuity have deepened our distribution relationships and diversified our business. For the full year, retail annuity sales of nearly $20 billion are at their highest level since 2019, and net flows improved for the quarter and full year.

While the strong equity market continues to impact net flows and our healthy variable annuity book, our RILA and FIA sales are an increasing offset to VA lapses. These strong sales in a favorable market contributed to the 7% increase in total retail annuity account values to $269 billion at 2025 year-end.

Turning to Slide 5. We exceeded all our 2025 financial targets, surpassing the high end of our capital return target range with over $860 million returned to common shareholders. We also ended the year with over $650 million in holding company liquidity and an RBC ratio of 567%, free capital generation was over $1 billion for the second year in a row. As a result, we distributed over $1 billion from our operating company, Jackson National Life to our holding company a 27% increase from 2024.

We expect our strong capital generation to both support growth and continued capital return and we have established a new financial target for free capital generation, reflecting our view of future profitability. Our accomplishments last year are significant, not only on a single year basis, but also as they reflect Jackson's continued progress over more than 4 years.

Slide 6 highlights the significant growth in capital return since separation due to our strong cash flows and prudent capital management. Beginning in 2021, when we launched as a public company in each subsequent year, Jackson increased its common shareholder dividend and raised its targets for capital return to common shareholders. During this time, we managed through periods of external market volatility and form the captive for [indiscernible] That allows for more economic hedging and has significantly improved capital stability.

Furthermore, Jackson's commitment to investing in our business supports our continued track record of capital return. Turning to Slide 7. Our ongoing product innovation has resulted in sales growth and greater business diversification. This year was no exception, and we saw the benefits from our second quarter launch of Jackson's MarketLink Pro 3 and Market Link Pro Advisory 3, which we refer to as RILA 3.0.h -- in the fourth quarter, RILA sales set a record at nearly $2.3 billion and for the 2025 full year, RILA sales rose 22%. RILA account value at 2025 year-end was $20 billion, a 14% increase from third quarter 2025 and a 74% increase from 2024. We expect RILA to remain a valuable offering for our advisers and their clients, and RILA 3.0 offers a broad range of index and crediting options, along with valuable protection benefit.

In addition to RILA, our recently launched fixed index annuity, Jackson Income Assurance was a significant contributor to fourth quarter sales -- and looking ahead, we expect this offering to provide further diversification in our new business mix. Importantly, RILA and FIA have broadened our distribution reach, resulting in expanded broker-dealer partnerships and deeper relationships with advisers selling multiple Jackson product line. We also see momentum in the fee-based advisory business, where 2025 sales reached a record $1.5 billion.

The growth was broad-based as our investment-only variable annuity, elite Access and our RILA offering accounted for over 2/3 of advisory sales, while our traditional variable annuity accounted for nearly all of the remainder. Jackson's expanding annuity product portfolio allows advisers to best meet their clients' individual retirement planning goals. In our fifth year as an independent public company, we are well positioned with a more diverse product suite and broader distribution than at separation.

Turning to Slide 8. As we look ahead to 2026, we expect our partnership with TPG and our captive strategy will contribute to stronger and more stable capital generation. As a result, we believe free capital generation will reach or exceed $1.2 billion given our healthy book of business and outlook for profitable growth. We are also raising our capital return targets for the fifth time, setting a 2026 target of $900 million to $1.1 billion. A 16% increase from our 2025 actual capital return of $862 million.

Jackson's free capital generation provides greater visibility into potential free cash flow and sustainable capital return to shareholders. To that end, our Board approved our fifth increase in our quarterly dividend to $0.90 per share, a nearly 13% increase over our prior quarterly dividend. We believe Jackson's approach to capital management, balancing investment in our business, maintaining financial strength and returning capital to shareholders will continue to serve all stakeholders.

At this time, I'll turn the call over to Don.

Thank you, Laura. Let's turn to Slide 9 and walk through our consolidated financial results for the fourth quarter. We delivered adjusted operating earnings of $455 million, driven by continued strength across our spread-based products. Earnings benefited from the ongoing expansion of our RILA 6 and fixed index annuity lines as well as our institutional products. We also saw a favorable operating earnings impact this quarter from our annual actuarial assumption review which added to the solid performance. As always, our spread-based products are supported by a high-quality, conservatively managed investment portfolio. Diversification and strong credit quality remain core to how we manage the portfolio, and that discipline continues to serve us well. Our spread-based product sales reflect the enhanced asset sourcing capabilities at PPM America.

PPM's work has allowed us to direct new money and to select higher-yielding asset classes. -- such as emerging markets, residential mortgages and investment-grade structured securities. This modest shift in new money allocation combined with a compelling product lineup, has helped Jackson maintain a stable and competitive position in the spread product market throughout the back half of 2025.

And looking forward, -- we're excited about the momentum created by our new strategic partnership with TPG, along with the ongoing benefit of our capital-efficient captive strategy. Together, these initiatives will further strengthen our ability to offer competitive spread products that generate attractive financial returns.

Given the recent headlines around asset-based finance and direct lending, -- it's worth noting that Jackson is currently underweight in these asset classes compared to our peers. We actually see potential market stress as an opportunity to step in and be selective investors. Additionally, TPG's expertise in direct lending, where they emphasize strong covenants and deep credit knowledge in the lower middle market segment positions us well as we gradually build exposure in this space.

Now before we get into the notable items for the quarter, I'd like to take a moment to highlight our strong performance in book value per common share. Over the course of the year, we returned $862 million of capital to shareholders. As you would expect, that level of return contributed to a modest decline in total adjusted book value since year-end 2024. But importantly, our share repurchase activity reduced the diluted share count, which helped drive a 4% increase in adjusted book value per share, bringing it to $155.78. We're also very pleased with our profitability metrics. Our adjusted operating return on common equity for the year came in at 14.7%, up from 12.9% in 2024, reflecting the underlying strength and resilience of the business.

Turning to Slide 10. Let me walk you through the notable items that affected adjusted operating earnings this quarter. We reported adjusted operating earnings per share of $6.61, after backing out $0.10 of notable items and adjusting for the difference between our actual tax rate and our 15% tax guidance, adjusted operating EPS was $6.43. That's a 33% increase from last year's fourth quarter. The improvement reflects the strong spread income growth I mentioned earlier, along with the benefit from a lower diluted share count because of our repurchase activity.

As we typically do, we completed our annual actuarial assumption review in the fourth quarter. This year's review resulted in a $0.23 per share operating earnings benefit compared to a $0.31 unfavorable impact in the prior year quarter. The 2025 update primarily reflected favorable mortality trends which supported operating income in both our Retail Annuities segment and our Closed Block. The only other notable item this quarter was a $0.13 unfavorable impact from limited partnership results, which came in below our long-term 10% return assumption.

Moving to Slide 11. This chart walks through our notable items for the full year. After adjusting for those items, our 2025 earnings per share were up 22% compared to last year. That growth was driven primarily by the strong improvement in our spread earnings, along with the benefit of a lower diluted share count from our repurchase program. On Slide 12, we take a closer look at the diverse and growing new business profile within our Retail Annuities segment. The segment delivered 27% growth over last year's fourth quarter and 10% growth sequentially. Our RILA product suite continues to be a standout. We achieved record sales of $2.3 billion, up 53% from the prior year quarter and 10% from the third quarter. Since launching the product in 2021, RILA assets under management have grown steadily and reached a record high of more than $20 billion at the end of 2025.

As I mentioned earlier, our spread products are also benefiting from strong momentum. The successful launch of our new FIA offering contributed to $812 million in fixed and fixed index annuity sales during the quarter. With our recently announced strategic partnership with TPG, we feel very well positioned to continue this growth and expand the potential of our spread-based business.

Turning to net flows. Our strong RILA sales and spread product performance drove $2.8 billion of nonvariable annuity net flows in the fourth quarter. On the variable annuity side, net outflows have remained somewhat elevated. This reflects several expected factors, the current moneyness of the block an aging policyholder base and the impact of older, larger sales vintages coming off their surrender periods. On a full year basis, our surrender rate was essentially flat, reflecting overall strong equity market returns. We saw some quarterly fluctuations in surrender rates this year.

In the first half of 2025 surrenders improved as market volatility kept policyholders on the sidelines. But since April, as equity markets reached new highs, we've seen surrenders pick up in the second half of the year. Looking ahead, we expect surrender activity to remain closely tied to what's happening in the equity markets. Importantly, those same strong market returns generated over $28 billion of separate account investment performance for the year, over $9 billion more than our variable annuity net outflows. This helped drive 2.8% growth in variable annuity account values and supported the strong levels of fee income we delivered throughout the year.

Slide 13 gives an overview of pretax adjusted operating earnings across each of our business segments. Starting with retail annuities, we continue to see strong momentum in our spread business. That performance helped lift our average retail annuity AUM to $268 billion, up from $254 billion in last year's fourth quarter. This growth more than offset the lower favorable impact from this year's actuarial assumption update, resulting in pretax adjusted operating earnings that were $19 million higher than the prior year quarter.

In our institutional segment, pretax adjusted operating earnings were also up year-over-year. The increase reflects higher spread income driven by our expanding book of business. New business activity was elevated throughout the year, supported by strong demand for spread lending and our ability to act opportunistically in the market. Finally, in the Closed Block segment, pretax adjusted operating earnings improved compared to the fourth quarter of last year. The primary driver was a comparatively favorable impact from the annual actuarial assumptions update.

Let me draw your attention to Slide 14, which really highlights how the quality and structure of our variable annuity book set us apart and support our economic hedging strategy. With Brook Re, we've created a framework that lets us align our variable annuity hedging directly with the economics of our guarantees. Our VA guarantees at Brook we are well protected and we're seeing stable regulatory capital and distributable earnings at Jackson National Life. That's been clear in our strong free capital generation, free cash flow and capital return over the past 8 quarters.

This structure also benefits how we manage our RILA business. RILA remains at J&L, separate from the variable annuity guarantees and is managed and priced on a stand-alone basis. All capital generation from RILA flows through J&Ls results. There's a natural equity offset between RILA and our variable annuity guarantees. RILA is exposed to upside equity risk, while the VA guarantees are exposed to downside risk. Each is reserved and capitalized independently, VA guarantees under our modified GAAP framework at Brook Re; and RILA under the statutory regime at J&L with no diversification benefit between the two. While we don't get a capital or reserving benefit from these offsetting risk, we do gain hedging efficiency by netting them internally, which reduces our need for external equity hedging. And if RILA grows to surpass variable annuities in terms of equity risk, that benefit continues. Our external hedging would just shift from downside to upside protection.

We see this structure as a real differentiator, underscoring our consistent economic approach and the strong performance of our book. We're confident in the quality of our annuity business, and our ability to manage risk effectively. Slide 15 walks through a waterfall comparing our fourth quarter pretax adjusted operating earnings of $529 million to the GAAP pretax loss attributable to Jackson Financial of $376 million. We've heard your feedback. So this quarter, we're also providing additional disclosure that breaks out our net hedging results for VA and RILA separately. This should give you a clearer view of how the offsetting equity risk between these businesses are playing out in our results and hopefully make it easier to compare JFI's net hedge results with what's happening at Brook Re.

One of the themes I want to highlight here is the continued stability in our nonoperating results. Since shifting to a more economic hedging approach at the beginning of 2024, we've seen a meaningful improvement in consistency which has also supported stronger and more predictable capital generation. Our total net hedge result for the quarter was a net loss of $405 million, driven largely by the impact of equity index implied volatility.

Let me break the components down. Our hedging program is supported by a robust and stable stream of guaranteed benefit fees which are assessed on the benefit base, not account value. This structure means our guarantee fee revenue remains consistent even during market downturns, helping to smooth earnings across cycles. In the fourth quarter, guarantee fees totaled $800 million, bringing the full year figure to $3.1 billion. This continues to demonstrate the durability and predictability of this revenue source.

Turning to hedging instruments. Our hedging program produced a $370 million net loss in the quarter. This was primarily driven by losses on interest rate hedges as long-term rates moved higher and losses on VA equity hedges from modest gains in equity markets. Our new disclosure really brings out how the RILA business naturally offsets our VA equity exposure. When markets move higher, we typically see losses on our VA hedges but those are often balanced by gains on our RILA hedges. This dynamic helps drive better overall hedge efficiency for the portfolio. We recorded a $405 million MRB loss related primarily to our variable annuity guarantees. The biggest driver here was higher equity index implied volatility during the quarter. It's worth noting that implied volatility does not impact the MRB calculation at Brook Re because that entity uses a fixed volatility assumption, an approach designed to enhance balance sheet stability.

Excluding the impact from volatility, MRB movements were modest this quarter, and our VA net hedge results track closely with expectations. We also recognized a $393 million reserve and embedded derivative loss, reflecting higher RILA reserves tied to stronger equity markets. Much of this impact was offset by gains on our RILA hedges. Stepping back, after isolating the volatility effects I just mentioned, our overall net hedge result for the quarter was a modest $62 million loss, a very stable outcome, especially given the size and complexity of our liability profile. We believe these results underscore the effectiveness of our hedging program in supporting capital stability, managing economic risk proactively and preserving the durability of our business model.

Lastly, our annual actuarial assumptions review resulted in an unfavorable impact of $360 million. This was driven mainly by higher reserves from updated policyholder behavior assumptions, including lapses. These increases were partially offset by favorable mortality updates, and some model refinements. Given the scale of our variable annuity block, we view the overall impact of these updates as very manageable.

Now let's turn to Slide 16 which walks through how Brooke Re's equity position evolved over the course of 2025. Throughout the year, Brooke Re's capital position proved resilient, and we continue to build on our base of hard assets. reinforcing the overall strength of the balance sheet and Brooke's self-sustaining design. We started the year in a strong position, about $2.1 billion of capital, which put us well above both our internal risk framework and our minimum operating capital requirements. For the full year, Brooke Re generated $27 million of capital before the annual actuarial assumptions review. Given the market volatility we saw in the second quarter and the higher lapse rates during the year, that's a solid result. Even with those headwinds, we still grew our capital base, which underscores the strength of our hedging and risk management under the Brooke re structure.

Now the assumption review had a $349 million after-tax impact. This differs a bit from what we saw at the consolidated JFI level mainly because JFI includes nonvariable annuity business. The changes at Brooke Re were mostly tied to updates in lapse and utilization assumptions and reflect our long-term best estimate expectations of behavior. We expect those updates to lead to better actual to expected results in 2026 compared to the last couple of years if experience is similar. At year-end, Brooke Re's equity stood at $1.7 billion before we formed and capitalized Hickory Re. Even at that level, we were comfortably above both our internal and regulatory capital thresholds. Once we added the initial capitalization for Hickory Re, reported year-end equity increased by another $150 million, bringing total reported equity to just under $1.9 billion.

Shifting to how we think about risk and capital management at Brooke Re, our goal is to make sure the entity always holds enough capital to stay well above minimum operating capital, even under stress. When we first launched Brooke Re, we discussed how our capital framework was built to hold up under stress. Specifically, to give us 95% confidence that we can withstand a wide range of market scenarios. That confidence level comes from running a robust set of stochastic scenarios to illustrate how our capital position would perform over time. At launch, we didn't just meet the 95% confidence level. We actually capitalized Brooke Re well above closer to the 98th percentile of our projected capital distribution. In other words, we started from a position of real strength.

At the end of 2025, we continue to be capitalized well into the tail, consistent with the 98th percentile and beyond. So overall, 2025 was a year that tested the structure and Brooke Re performed exactly as intended, maintaining strength through volatility and positioning us well heading into 2026. We expect Brooke Re to remain self-sustaining under normal market conditions and over time, we see it becoming an additional source of free cash flow.

Slide 17 highlights the continued growth in our capital generation and free cash flow. At Jackson, we follow a straightforward philosophy, earn it, then pay it. This framework rests on 3 pillars: Generating free capital, this is where we earn it, converting that capital into free cash flow, this is where we pay it and returning capital to common shareholders, the outcome of the first 2 steps working together. In the fourth quarter, after-tax statutory capital generation was $266 million. We view this metric as one of the clearest indicators of the underlying strength of our business, and it guides how we balance future growth with returning capital to shareholders.

Quarterly capital generation was reduced by a onetime reserve increase of about $150 million or about $173 million, including deferred tax impacts, primarily related to the runoff Closed Block. This adjustment was not related to variable annuities or RILA. Excluding this nonrecurring item, capital generation was broadly consistent with the run rate we saw over the first 9 months of the year. Free capital generation was $235 million in the quarter, reflecting the estimated change in required capital driven by our strong and diversified new business results. For the full year, free capital generation totaled nearly $1.4 billion, well ahead of our $1 billion-plus expectation. As Laura mentioned, we've now added free capital generation to our financial targets for the year.

In 2026, we expect to generate at least $1.2 billion in free capital, assuming equity markets deliver a 5% return and interest rates move in line with the year-end forward curve. While we're maintaining our RBC risk appetite at 425%, and the stability we've seen in RBC over the past 2 years gives us confidence to shift our focus toward free capital generation, aligning with our earned then pay it approach. Free cash flow was again strong and consistent in the quarter. After funding the $150 million initial capitalization of Hickory Re and covering expenses and other cash flow items, free cash flow at the holding company totaled $119 million.

For the full year, we distributed over $1.1 billion to the holding company and generated $838 million of free cash flow. Based on our year-end market capitalization, that represents a free cash flow yield of about 12% for 2025. While valuation reflects many factors, -- we believe this is a powerful indicator of Jackson's value, and it reinforces our commitment to continue repurchasing shares while also investing in growth. Our strong free capital generation and growing free cash flow enabled us to return $205 million to common shareholders in the fourth quarter, a 51% increase from the prior year quarter on a per diluted share basis.

For the full year, we returned $862 million, above the top end of our disclosed range. Since becoming an independent public company, Jackson has now returned more than $2.7 billion to common shareholders, exceeding our initial market capitalization at separation. As Laura highlighted, we're increasing our capital return targets again, our raise since going public, setting a target of $900 million to $1.1 billion up from the $862 million we returned in 2025.

Our strong capital position and high-quality book of business underpin our ability to generate free capital well beyond 2026. This consistent capital generation supports a sustainable stream of free cash flow and enables continued capital returns to shareholders. Looking ahead, we expect growth in free capital generation to accelerate in line with the ongoing growth of our business. These results reinforce Jackson's robust capital generation profile the stability and growth of our cash distributions and our continued focus on delivering enhanced long-term value for shareholders.

Turning to Slide 18, this slide highlights the continued growth in our capital and liquidity position. Our in-force business continues to be a strong driver of profitability. Fee income from our variable annuity based contracts along with growing spread-based earnings supported solid capital generation during the quarter. At Jackson National Life, our capital position and RBC ratio have become much less sensitive to equity market movements, thanks to the Brooke Re structure. Today, changes in the equity markets primarily affect our assets under management and future capital generation, not our immediate capital levels or RBC ratio.

In that sense, our earnings profile is looking more and more like an asset management business. Consistent with our approach of taking smaller periodic distributions, we paid $300 million to the holding company during the fourth quarter. After accounting for the impact of that distribution on our deferred tax assets, total adjusted capital ended the quarter just over $5.5 billion. Our RBC ratio came in at 567%, comfortably above our minimum target. Overall, we believe Jackson is operating from a position of real strength as we move into 2026. As I mentioned earlier, Brooke Re's capitalization remains well above both our internal risk management target, which reflects a range of detailed scenarios and our regulatory minimum operating capital level.

During the quarter, there were no capital contributions to or distributions from Booke Re, other than the initial capitalization of Hickory Re. Looking ahead, we'll continue to manage Brooke Re on a self-sustaining basis, given the long-term nature of its liabilities. As we announced last week, -- our strategic partnership with TPG has officially closed. The growth capital from that transaction will flow down through the ownership chain to Hickory Re. Just as a quick reminder, we received $650 million in value from the deal and issued $500 million of common stock. That equates to roughly 4.7 million shares at an effective premium of 30% at the time of signing. It's a great outcome that further strengthens our balance sheet and supports future growth.

At the holding company level, we ended the quarter with $691 million in cash and investments, still above our minimum buffer and providing strong financial flexibility. That's down from $797 million in the third quarter, mainly reflecting the funding of our new captive and capital return to shareholders, which more than offset the operating company dividends. Overall, our fourth quarter results show strong momentum, supported by a solid balance sheet, healthy capital and liquidity levels and a business that's well positioned for continued success.

I'll now turn the call back to Laura.

Thank you, Don. Turning to Slide 19. You can see our track record of executing on our business initiatives, delivering on our financial targets, and creating value for all stakeholders. 2025 marked another year of significant progress and an important milestone for Jackson as we look forward to new growth opportunities. We expect our long-term partnership with TPG to leverage our core capabilities and lead to an expansion of our spread-based business. Jackson remains dedicated to serving financial professionals and their clients with the goal of helping Americans grow and protect their retirement savings and income.

As we reflect on the year and our opportunities ahead, we recognize the hard work of all our associates whose talent and dedication remain our greatest strength.

At this time, I'll turn it over to the operator for questions.

[Operator Instructions] Our first question comes from Suneet Kamath of Jefferies.

I had a couple on Slide 16. Just in terms of the capital levels, I mean, you've kind of given us a qualitative sort of framework for how you think about the minimum capital. But I'm just wondering is there any way that you can kind of give us a little bit more of a target, so we can track this over time.

Suneet it's Don. So first of all, just on Brooke Re, I think it's important to kind of zoom out and put our progress since early 2024 in perspective. And when we formed Brooke re, we had shared quite a bit of detail around how we think about and manage capital there. And when we first set it up, the liability profile was almost entirely tied to our variable annuity guarantees. Now since then, we've taken a couple of important steps, both of which happened in the fourth quarter, and we believe those will give Brooke a more diversified liability and capital profile than it had initially.

So I want to just spend a minute and cover what those are. First of all, we reinsured about $1.3 billion of payout annuity liabilities on a call insurance basis with assets transferring over to support that block. And these liabilities are somewhat similar to the GMWB benefits on our VA book. But importantly, they don't have any equity market exposure. -- which means that, that block is going to be more stable over time. And another thing to keep in mind as we bring on assets through our partnership with TPG we do see opportunities to enhance the profitability of that payout annuity plan.

Secondly, we did establish Hickory Re as a subsidiary of Brooke Re and we ceded roughly $1.2 billion of in-force assets and liabilities into that structure. And there are a few advantages that I want to highlight here. Firstly, the modified gap framework, we already use a Brooke Re is well understood by our regulator, and it's worked effectively over the past 2 years. So it made sense to kind of build on that foundation rather than setting up an offshore structure which would just add cost and complexity to us.

With respect to the liabilities at Hickory Re, which are the fixed annuity and fixed index annuity liabilities, we also get a diversification benefit in our minimum operating capital calculation, and that benefit should increase as the block grows with new sales. And then over the next couple of years, we do expect Hickory Re will be an additional source of free cash flow for us. And longer term, we believe that Brooke Re on a stand-alone basis we'll also be generating sufficient capital to support distributions back to the holding company. And then finally, the growth capital from that came in at closing. That gives us more flexibility at J&L because it frees up excess capital that we otherwise would have used to fund our accelerated growth plans for spread products. And so that gives us confidence in stepping up our capital return plans as we've laid out in our financial targets. And as I've mentioned on prior calls, we would expect our RBC ratio to come down over time. So we're very comfortable with the performance and the balance sheet strength that we have at Brook Re and we'll continue to update you on progress there as we go throughout the year.

Okay. That's helpful. And then I guess the second question on the slide is the $27 million of capital generation. It just seems like a low number, especially in a pretty favorable equity market environment. I know in your prepared remarks, you called out a couple of things, the surrenders and I guess, volatility. But -- can you not mention how big of an impact that had on capital generation? Or maybe said another way, what would you expect normal course capital generation to be?

Yes. We haven't provided guidance in terms of kind of normal market environment, capital generation. But you're right, the 2 items that I mentioned in my prepared remarks, -- the first one related to the volatility that we saw in the early part of the second quarter, and that certainly was a headwind for us. And then the second item, and we do provide some disclosure on this in our financial supplement in the MRB roll forward. We did see some pressure from higher-than-expected surrenders. The overall objective for Brooke Reis to keep it be self-sustaining over time. And we continue to believe that, that will be the case. It's just so happens that this year, we did see a couple of headwinds that resulted in the numbers you see here.

Our next question comes from Alex Scott of Barclays.

First thing I wanted to ask about was just the initiative with TPG. And what -- any way to help us think through what that could mean for growth in the retail annuity platform. And ultimately, that will lead to flows. And so maybe not asking for an outlook, you probably don't want to give an outlook for flows per se, but maybe just talking what that will look like and when you could maybe expect to get to growth mode for AUM overall from a flow standpoint.

Good morning, Alex. Slightly hard to hear. I think you were asking about the partnership with TPG and what the growth outlook looks like as a result of that partnership.

Sorry about that. I switched to the headset. Yes, you had the question, right, apologies.

Okay. Thank you. Our overall goal is to have a diverse set of competitive products that continue to meet a variety of consumer needs. Within the industry overall, we've continued to see strong demand for a variety of needs, income, protection, growth, legacy benefits. So having that broad range of annuity offerings helps support that goal that we have for diversifying sales. Don, do you have anything to add around the TPG partnership to support that goal?

Yes. So Alex, thanks for that question. I would say that I would just highlight the progress that we made in spread products over the last half of this past year. We introduced a new product in late in the third quarter that really came online fully in the fourth quarter. That's our fixed index annuity product. And you can see we did between that and just other spread products, about $800 million in the quarter. I think that's probably a good yardstick to think about how much we can generate on an annual basis with the TPG partnership in place. The other point that I would highlight for you is that we'll be leveraging the TPG assets for other product lines outside of just fixed annuities and FIA products.

We also anticipate -- some of those assets will fit in well with our RILA asset allocation strategy as well as even some on our institutional products. So we feel quite comfortable that as you look at our results going forward, we'll continue to be able to produce strong retail annuity sales results. And in terms of your question on when we would expect to get to kind of flat net flows, I would say it probably is going to take us a couple of years to sort of have the additional levels of sales coming in to offset what we're seeing on the VA book. And of course, with the VA book, that's going to depend on market environments because as we saw this year, even though we did have net outflows, we had investment performance that offset that by about $9 billion.

So we're pretty optimistic about the partnership with TPG and how that's getting operationalized.

Great. Another question I had is on the Hickory Re, just thinking through your comment that, that could be a medium-term contributor to remittances versus brokery more long term. if you had cash flow coming out of Hickory Re, since it sits underneath Brooke Re would that cash flow -- can we assume that in the medium term, that cash flow could be taken up to the holdco and go through Brooke Re even if it's not sort of Brooke Re stand-alone. I just wanted to clarify that point whether it would be retained or not? And then maybe any other comments you have on just potential uses of excess capital you have at the HoldCo and J.

Yes. So you're right about the way the Hickory restructure works. So any dividend that we would pay would go up to Brooke Re -- and then we would anticipate assuming there's not anything unusual going on with markets at the time that we would then be able to distribute that up through Brooke Re to our holding company, similar to the way we do today with our stacked structure on the J&L side. So you have that right -- and just in terms of other uses of excess capital, we continue to be focused on growth. We think we have a very good opportunity with our broad distribution network to really focus in on the spread sales here in the near term. And as other opportunities come up for us to grow inorganically, we would look at those relative to how we can leverage that capital for returning to shareholders. .

Our next question comes from Tom Gallagher of Evercore.

A few questions. First is just on the Brooke Re equity. If you have a net MRB asset of $4.2 billion, how is the Brooke Re equity only $1.7 billion? What would the other accounting adjustment be on where the value of the net MRP asset is going to. .

Yes. Thanks for that, Tom. So you're looking at 2 sort of components of the balance sheet, and I'm not going to get into all the kind of puts and takes, but we obviously have other assets at Brooke Re as well as liabilities. And so obviously, the net of all those represents the equity that we have left. As I mentioned in the kind of the more overview and putting Brooke Re in perspective. We have done a couple of transactions in the fourth quarter with the blocks of business that we reinsured into Booke Re as well as into Hickory Re. So if you look at Brooke Re's consolidated balance sheet, we have a pretty strong position in terms of invested assets.

Also, if you look at the capital that we put in initially, which was a total of $1.9 million and $700 million of that was hard assets. We've seen that grow over the last couple of years as we've executed on the reinsurance settlements.

Got you. And Don, can you update us on what the hard assets are in Brooke Re at this point?

Yes, I'm not going to give you the exact number, but I would just say that the $700 million has grown pretty significantly. So that's the kind of the stand-alone VA piece. And as I mentioned earlier, those blocks that we moved over in the fourth quarter, those were supported by invested assets as well. So we believe Brooke Re has got a pretty strong consolidated balance sheet. And even if you look at the VA and the payout annuity lines of business separately, we're quite comfortable there, too.

Got you. And then just my follow-up is -- if we think about the annual actuarial review charges, if lapses do remain high on the VA side, and you have another year of, we'll call it, close to breakeven hedging on VA, the $300 million to $400 million that you've been having every year would be a decent percentage of this $1.7 billion. So I guess, when we think about playing that out for the next 2 or 3 years, is there a risk that you would have to contribute capital to Brooke Re? Because I know you said you have a buffer, I think it was 98% plus versus 95 CTE level currently. But if I think about just what's happening .

Lenson, our new Chief Actuary to kind of give a little bit of perspective on our actuarial assumption review process. But just in terms of thinking about how that could impact capital are, 1 of the things that I mentioned in my prepared remarks was that because the assumption updates that we included in the fourth quarter, those were primarily focused on lapses and benefit utilization. So we would expect that A versus E policyholder behavior that we disclosed in the MRB roll forward, we would expect that to close somewhat. And so that would certainly be helpful. And we'll continue to see how markets play out. As you know from our prior discussions, we do tend to see a slowdown in surrender activity when equity markets are volatile or in periods where equity markets decline.

We saw that clearly in 2002, if you look back on our results then. But maybe, Lynn, if you could just add a little bit of color around what we went through on the actuarial assumption review.

Happy to. So as you mentioned on the majority of the assumption unlocking impact in 2025 was due to updating our long-term assumptions on lapses. Over the last few quarters, similar to other carriers in the industry, we saw an increase in lapses on our annuity book. We also saw fluctuations once a month and quarter-to-quarter lapses decreased -- we saw a trend of that in the first half of 2025 before they increase again in the second half of the year.

Our analysis shows that the elevated lapse experience was particularly prevalent for variable annuity policies with GLWB at the money or slightly in the money relative to their company. And we've updated our assumptions to reflect that dynamic. -- based on my prior experience in the industry, I'm confident that our annual assumption process is robust, and we're well positioned for evaluating experience and bringing in the data when it becomes credible and it affects our long-term view of experience.

Thank you very much. We have no further questions registered on today's call, and therefore, this concludes the Q&A session. I'll now hand the call back over to Laura Prieskorn for any concluding or final remarks.

Thank you. As you've heard this morning, 2025 was an exceptional year of progress for Jackson. We look forward to continuing these discussions and sharing our progress toward our 2026 target after the first quarter. We thank you all for joining us today and your continued interest in Jackson.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

Hello, everyone, and welcome to the Jackson Financial Inc. 3Q '25 Earnings Call. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions]

I'll now hand the call over to our host, Liz Werner, Head of Investor Relations to begin. Liz, please go ahead.

Good morning, everyone, and welcome to Jackson's Third Quarter 2025 Earnings Call. Today's remarks may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations. Jackson's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. Except as required by law, Jackson is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change.

Today's remarks also refer to certain non-GAAP financial measures. The reconciliation of those measures' comparable U.S. GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors.jackson.com.

Presenting on today's call are our CEO, Laura Prieskorn; and our CFO, Don Cummings. Joining us in the room are our President of Jackson National Life Insurance Company, Chris Raub; our President of PPM, Craig Smith; and the Head of Asset Liability Management, Brian Walta.

At this time, I'll turn the call over to our CEO, Laura Prieskorn.

Thank you, Liz. Good morning, and thank you for joining our third quarter 2025 earnings call. I'll begin by reviewing the quarter's positive results, including strong sales growth and diversification, robust capital generation and consistent capital return to shareholders. Following my remarks, our CFO, Don Cummings, will discuss our financial performance in further detail.

Beginning with Slide 3. Jackson's third quarter performance highlights our strong earnings diversification and healthy book of business. Adjusted operating earnings of $433 million increased over 20% from the year ago quarter, led by our Retail Annuities business. Retail Annuities continued to see significant growth and diversification from investment spread income as well as solid fee income from nearly $240 billion of separate account value. Retail annuities sales for the quarter reached their highest levels since we became an independent company, exceeding $5 billion for the quarter, driven by growth in RILA and traditional variable annuities.

Last quarter, we highlighted the launch of Jackson's Market Link Pro 3 and Market Link Pro Advisory 3, which we refer to as RILA 3.0. The positive reception to RILA 3.0, combined with a robust RILA market, resulted in record sales of $2 billion in the quarter, accounting for 38% of overall retail annuity sales. We expect RILA to remain a valuable source of growth, providing sustainable investment spread income and earnings diversification.

Our RILA account balance approached $18 billion, a 21% increase from the second quarter and a 74% increase from the prior year. While the RILA market continues to evolve and grow, we believe our RILA 3.0 product offerings provides advisers and their clients with a broad range of index and crediting options and a valuable range of protection levels. Jackson's long-held focus on product innovation and consumer choice has differentiated us and is highly valued by our distribution partners and their clients.

Our RILA offerings continue to drive growth in the breadth and depth of our distribution. Since launching RILA 3.0 in May, we've added over 500 new advisers. Our new RILA relationship with JPMorgan Chase is one example of accelerating RILA sales through a valued partnership.

Traditional variable annuities remain core to our business and accounted for over 1/2 of our third quarter retail annuity sales. Variable annuity sales increased 13% from the second quarter and 8% from a year ago. The growth of variable annuities sold without a lifetime benefit continued and sales increased 24% for the first 9 months of 2025. Year-to-date, variable annuity sales without a living benefit accounted for 38% of Jackson's total variable annuity sales.

Importantly, average variable annuity balances increased by $10 billion from the second quarter, supporting an increase in third quarter fee income of 8% quarter-over-quarter. Variable annuity net outflows improved from a year ago and were consistent with strong equity market performance.

For the third quarter, strong investment performance exceeded the impact of net flows by over $7 billion. The diversity of Jackson's variable annuity fund offerings remains a valued feature and, for the first 9 months of 2025, separate account performance exceeded 13%. We continue to believe the asset growth potential, investment flexibility and guaranteed income provided by Jackson's traditional variable annuities a long-term need for millions of Americans retiring each year. This profitable book of business exhibits Jackson's thoughtful product design and disciplined risk management capabilities.

Fixed and fixed index annuity sales reflect our opportunistic approach to pricing and have contributed to our sales diversification. Looking ahead, we expect our recent fixed index annuity launch will contribute to future sales growth. The Jackson Income Assurance suite has an embedded guaranteed minimum withdrawal benefit designed to meet consumer demand for income and protected growth. Jackson's fixed index products further expand our portfolio of annuity solutions, meeting a wide range of retirement planning goals for advisers and their clients.

Complementing the growth of our business is the investment expertise and asset growth of our investment manager, PPM America. Last quarter, we highlighted PPM's additional investment capabilities, which support the competitiveness and profitability of our spread-based products in the market. We believe our disciplined approach to the market, combined with incremental yield provided by PPM investment capabilities, position us well for future growth and profitability across spread-based annuity solutions.

The profitability of our in-force business and capital generation resulted in continued free cash flow and capital distributions. Through the first 3 quarters of this year, free capital generation exceeded $1 billion and free cash flow was $719 million. Quarterly distributions to our holding company through the first 9 months of this year have totaled $815 million. These strong results lead us to believe we are well positioned to maintain capital flexibility at our holding company and sustain future capital return to our common shareholders.

We continued to return capital consistently and for the third quarter returned $210 million, bringing our year-to-date capital return totaled to $657 million. Given this pace and our outlook for the fourth quarter, we expect to exceed our 2025 capital return target range of $700 million to $800 million. Since becoming an independent company, we have returned nearly $2.5 billion to common shareholders, exceeding our initial market capitalization. We believe that our balanced approach to capital management will continue to support Jackson's financial strengths, ongoing investments in long-term growth and future capital return to shareholders.

Turning to Slide 4. We began the fourth quarter with great momentum and are approaching the end of 2025 in a very strong position with respect to all our financial targets. I've already addressed capital return and would add that in September, our Board of Directors approved a $1 billion increase to our common share repurchase authorization. Yesterday, we announced our Board also approved a fourth quarter cash dividend of $0.80 per common share. We believe shareholder dividends underscore our outlook for long-term profitability and, combined with share buyback, highlight our commitment to shareholder returns.

Over the course of 2025, our strong capital generation resulted in a risk-based capital ratio that was consistently well above our targeted minimum level of 425%, and we ended the third quarter at an estimated 579%. In addition, at the end of the quarter, the cash and liquid securities position at our holding company was over $750 million.

Our strong capital position combined with holding company liquidity provides valuable capital flexibility. Jackson's resilient capital, effective hedging strategy and disciplined risk management have enabled us to navigate through periods of market uncertainty. In today's environment, we believe this experience is essential to maintaining long-term leadership in the annuity market.

At this time, I'll turn it over to Don.

Thank you, Laura. I'll begin on Slide 5 with our consolidated financial results for the third quarter. Adjusted operating earnings were $433 million, reflecting strong performance from our spread products where earnings were supported by the continued expansion of our RILA fixed, fixed index annuities and institutional products. Additionally, strong equity markets in the quarter led to increased variable annuity assets under management driving stronger fee income.

Our high-quality conservative investment portfolio supporting the spread product business is well positioned with diversification and strong credit quality, a theme throughout the portfolio. The exposure of our portfolio to commercial office loans and below investment-grade securities is less than 2% and 1%, respectively. Given recent headlines on asset quality, it is also important to note that our regional bank exposure is about 1% of our portfolio, and we have no material exposure to First Brands or Tricolor. Furthermore, our CLO portfolio remains highly rated and well-diversified.

Our spread product sales continue to benefit from enhanced asset sourcing capabilities at PPM America, which enabled recent new money allocation to certain higher-yielding asset classes, including emerging markets, residential home mortgages and investment-grade structured securities. We believe this modest shift in our new money asset allocation, combined with an attractive product lineup, will allow Jackson to maintain a consistent and stable presence in the spread product marketplace.

Before discussing notable items for the quarter, I want to highlight our strong performance in book value per common share. During the first 9 months of the year, we returned $657 million of capital to shareholders, which has contributed to a modest decrease in adjusted book value since year-end. Importantly, our share repurchase activity reduced the diluted share count, driving a 6% increase in adjusted book value per share to $158.44. Additionally, our adjusted operating return on common equity for the first 9 months of this year was 14%, up from 13% in the first 9 months of last year.

Slide 6 outlines the notable items included in adjusted operating earnings. Reported adjusted operating earnings per share was $6.16 for the current quarter. Adjusting for $0.04 of notable items and the difference in tax rates from our 15% guidance, adjusted operating earnings per share was $6.15 for the current quarter, up 27% from $4.86 in the prior year's third quarter. This improvement was primarily due to the growth in spread income noted earlier as well as a reduction in diluted share count from share repurchase activity.

The only notable item for the current quarter was a $0.04 negative as limited partnership results came in slightly below our 10% long-term assumption. The prior year's third quarter included a larger $0.28 negative impact from this item.

On Slide 7, we highlight the diverse and growing new business profile of our Retail Annuities segment, which achieved 2% growth over last year's strong third quarter and 22% growth from the second quarter of this year. Our RILA product suite delivered record sales of $2.1 billion, up 28% from the prior year's third quarter and 49% compared to the second quarter of this year. Since its launch in 2021, RILA assets under management have grown consistently, reaching a record high of nearly $18 billion at the end of the third quarter.

As mentioned earlier, our spread product offerings were further supported by enhanced capabilities at PPM, resulting in $444 million in fixed and fixed index annuity sales for the third quarter. We are confident about the future growth potential of our spread business with strong early momentum from our recently launched fixed index annuity suite of products.

Our sales mix continues to be capital efficient, which has provided flexibility to allocate additional capital to spread products as we focus on diversifying our business. We are pleased with the progress that we've made in building a well-diversified new business mix since becoming an independent public company, and we continue to explore opportunities to write higher levels of spread business on a capital-efficient basis.

Turning to net flows. The sales we generated in RILA and other spread products translated to $2.3 billion of nonvariable annuity net flows in the third quarter. Variable annuity net outflows have been elevated in recent quarters, reflecting the moneyness profile of our book, the aging of policyholders and some larger past sales years coming out of the surrender period.

On a year-to-date basis, our surrender rate was flat, even though strong equity market returns led to a higher surrender rate in the third quarter. These strong market returns also resulted in separate account investment performance of nearly $25 billion year-to-date, exceeding variable annuity net outflows by over $11 billion. This has driven variable annuity account value growth year-to-date and supported our strong levels of fee income.

Slide 8 highlights pretax adjusted operating earnings across our business segments. In Retail Annuities, we benefited from a favorable environment for spread products and higher levels of fee income. Like an asset management business, retail annuity earnings are driven by the level of assets under management. Growing nonvariable annuity net flows and strong separate account returns have increased our average retail annuity AUM to $263 billion, up from year-end 2024.

For the institutional segment, pretax adjusted operating earnings were up from the third quarter of last year, reflecting higher spread income from our growing book of business. Our higher level of new business activity this year reflects strong demand for spread lending and our opportunistic approach in the institutional marketplace.

Our closed block segment reported pretax adjusted operating earnings that were up from the third quarter of last year, primarily due to higher spread income. Earnings were down modestly on a sequential basis, reflecting higher levels of mortality.

Slide 9 includes a waterfall comparison of our third quarter pretax adjusted operating earnings of $505 million to GAAP pretax income attributable to Jackson Financial of $57 million. The stability in our nonoperating results has significantly improved after moving to a more economic hedging approach in 2024, which has also contributed to our consistent capital generation.

During the third quarter, our hedge results included a $14 million net loss on hedging instruments, supporting our variable annuity and RILA businesses. This loss was primarily from equity hedges reflecting S&P returns of about 8% during the quarter and gains on interest rate hedges resulting from lower long-term interest rates. Our RILA business continues to provide a natural offset to the equity risk of our variable annuity guarantees. This enhances our overall hedging efficiency as higher equity markets typically result in losses on our variable annuity hedges while resulting in gains for our RILA hedges.

Changes in market risk benefits, or MRB, were driven in part by the same interest rate and equity market movements in the quarter, leading to a $226 million gain that more than offset the loss on our hedges. As a reminder, changes in the MRB relate primarily to our variable annuity business and include the impact of equity index implied volatility, which was a modest benefit during the quarter. Changes in implied volatility do not impact our Brooke Re MRB measurement since its modified GAAP methodology uses a fixed volatility assumption designed to promote balance sheet stability.

The reserve and embedded derivative loss of $1.2 billion during the third quarter reflects increases in RILA reserves resulting from higher equity markets, which was largely offset by a gain on our RILA hedges. Net hedging results for variable annuities also reflect the highly diversified nature of our separate accounts, which can lead to differing performance relative to the market in periods where the returns of an index are driven by a subset of companies.

This dynamic was at play in the current quarter with the underperformance of our separate accounts relative to certain hedging indices, leading to a modest net hedging loss. It is important to note that this dynamic plays out in both directions and, as a result, these impacts have tended to smooth out over time. In fact, this dynamic produced a modest benefit over the first half of this year. We believe these results underscore the effectiveness of our hedging program in supporting capital stability and proactively managing the economic risks of our business.

Slide 10 provides a summary of Jackson's high-quality variable annuity business, which is differentiated in the marketplace, enabling us to outperform peers. In large part, our success can be attributed to our focusing on withdrawal benefits and avoiding more challenging guarantee features. Jackson also has long been a proponent of providing customers with investment freedom without forcing allocations or managed volatility funds.

This approach is supported by a rigorous fund manager due diligence and oversight process to ensure a high correlation between separate account assets and the related benchmarks over time. The strong underlying fund performance benefits both our policyholders and Jackson. Prudent pricing and disciplined product design further mitigate risk and enable agile product launches and repricing actions as market conditions evolve. We believe our variable annuity products are highly valued in the marketplace, and we remain a consistent product provider for our distribution partners and their clients.

The substantial cash flows generated by our large in-force block, combined with extensive policyholder experience data, enhance our risk management capabilities. By utilizing Brooke Re, we are able to further protect our book from market volatility and hedge more closely to the economics of our business. We believe our hedging performance has been proven through recent periods of financial market stress.

Slide 11 provides context on how our high-quality variable annuity book and differentiated structure support our economic hedging approach. Brooke Re creates a structure for us to manage a profitable variable annuity block without the constraint of the cash surrender value floor, allowing us to align our hedging with the underlying economics of the guarantees. Specifically, we are focused on mitigating the impact of lower equity markets and interest rates on these liabilities.

The result is well protected variable annuity guarantees at Brooke Re and stable regulatory capital and distributable earnings at Jackson National Life, which has been evident in our strong free capital generation, free cash flow and capital return over the last 7 quarters. This structure is beneficial for our management of the RILA business as well. Under this framework, RILA remains at JNL, separate from the variable annuity guarantees. The RILA business is managed and priced on a stand-alone basis with capital generation included in JNL's results.

RILA and variable annuity guarantees have a natural equity offset with RILA exposed to upside equity risk and variable annuity guarantees exposed to downside equity risks. Variable annuity guarantees are reserved and capitalized on a stand-alone basis under our modified GAAP framework at Brooke Re, and RILA is reserved and capitalized under the statutory regime at JNL without consideration of a diversification benefit.

While there is no reserving or capital benefit of the offsetting equity risks, we are able to realize a hedging efficiency by netting them off through fully settled internal trades, leaving a reduced need for external equity hedging. Importantly, this benefit would continue even if RILA grew to the point of overtaking variable annuities from an equity risk perspective, simply shifting the external equity need from downside protection to upside protection.

We believe this structure is a differentiator that highlights our consistent economic approach and the strong underlying performance of our book. We remain confident in the quality of our annuity business and our risk management capabilities.

Slide 12 highlights our growing capital generation and free cash flow. Jackson adheres to an earn it, then pay it philosophy for capital return. This philosophy is built upon three pillars: the generation of free capital where we earn it, the creation of free cash flow where we pay it and, ultimately, the return of capital to our common shareholders.

After-tax statutory capital generation was $579 million in the third quarter. We believe this metric offers helpful insight into the underlying strength of our business and provides the foundation for making capital allocation decisions that balance future growth with the return of capital to shareholders. Free capital generation was $459 million in the quarter, reflecting the estimated change in required capital [ or ] resulting from our strong and diversified new business results during the quarter.

Free capital generation totaled $1.1 billion in the first 9 months of the year,and $1.6 billion on a trailing 12-month basis. This pace is well above our $1 billion-plus expectation for the full year.

Free cash flow was strong in the current quarter, once again illustrating the stability of our capital generation. In the third quarter, $250 million were distributed to the holding company. After covering expenses and other cash flow items, the resulting free cash flow at the holding company was $216 million in the quarter. Over the last 12 months, we've distributed nearly $1.1 billion to the holding company and generated free cash flow of nearly $1 billion.

Based on Jackson's market capitalization at quarter end, we have produced a free cash flow yield of about 14% for the trailing 12 months. Although there are many factors that impact valuation, we believe this metric is a strong indicator of Jackson's value, and we will continue to pursue share repurchases while investing in the growth of our business.

The outcome of our strong free capital generation and growing free cash flow allowed us to return $210 million to common shareholders in the quarter, up 37% from last year's third quarter on a per diluted share basis. On a trailing 12-month basis, we have returned $805 million and we are on pace to exceed the top end of our full year capital return range. Jackson has now returned nearly $2.5 billion to common shareholders, exceeding our initial market capitalization as an independent public company.

These results reinforce Jackson's robust capital generation profile and stable growing cash distributions, delivering enhanced value to our shareholders.

Slide 13 summarizes our growing capital and liquidity position. The profitability of our in-force business, driven by fee income from our variable annuity based contract and growing spread-based earnings, provided strong capital generation during the quarter. Our capital position and RBC ratio at Jackson National Life continues to be less sensitive to equity market movements with the Brooke restructure. The main impacts of equity market changes is on AUM and future capital generation rather than immediate changes in capital or RBC. This results in the earnings stream at Jackson National Life being like an asset management business.

Consistent with our approach of taking smaller periodic distributions, we distributed $250 million to the holding company during the third quarter. After considering the impact of this distribution on our deferred tax assets, Jackson's total adjusted capital, or TAC, increased and ended the quarter at $5.6 billion. Our estimated RBC ratio ended the quarter at 579% and remains well above our minimum target of 425%. We believe Jackson is operating from a position of strength as we head into the end of the year.

During the third quarter, Brooke Re continued to operate as expected. While equity was down modestly from the second quarter, Brooke Re's capitalization remains well above our internal risk management target that reflects a variety of detailed scenarios and our regulatory minimum operating capital level. During the quarter, there were no capital contributions to or distribution of capital from Brooke Re. Going forward, we will continue to manage Brooke Re on a self-sustaining basis given the long-term nature of its liabilities.

Our holding company cash and highly liquid asset position at the end of the quarter was $751 million, which continues to be above our minimum buffer and provide substantial financial flexibility. This was up from $713 million in the second quarter of this year, reflecting operating company dividends and capital return to shareholders.

Our third quarter results demonstrate strong positive momentum, bolstered by a robust balance sheet and rising capital and liquidity levels that firmly position us for continued success.

I'll now turn the call back to Laura.

Thanks, Don. In September, we hit our 4-year milestone as an independent company. During this time frame, we've worked hard to capture opportunities to grow profitably while diversifying our sales mix and earnings. Our third quarter results represent another period of excellent operational and financial accomplishments. As the end of the year approaches, we'll take time to reflect on our valued relationships with our distribution partners and their clients and continue our shared mission to help hardworking Americans protect and grow their retirement savings and income.

Most importantly, we believe our accomplishments and ability to consistently deliver on our promises are only possible through the dedication and hard work of our associates. We are truly grateful for all they do at Jackson and in the communities we call home.

At this time, I'll turn it over to the operator for your questions.

[Operator Instructions] Our first question comes from Ryan Krueger of KBW.

My first question is on the actual to expected policyholder behavior. It has improved year-over-year but it got more -- I guess, it increased in the third quarter from the recent run rate. Can you give some perspective on what's causing this? I assume it's still just higher lapses. And to what extent you may consider changing your dynamic lapse assumption given that this has been occurring for a few years consistently now?

Ryan, thanks for the question. I'll turn it to Don to respond.

Ryan, yes, so just to give you a little bit of context on policyholder behavior and kind of the level of net outflows that we've been seeing on our variable annuity book. First of all, I think it's important to remember that our surrender rate is sort of an all-in surrender rate, as we've talked about on prior calls. So you decompose that 12% that we've seen on a year-to-date basis, it breaks down like about 7% of that is full surrenders. And then there's 4% which are withdrawals, and that's just simply customers using the benefit that they purchase those products forward and being able to generate income and retirement. And then the remaining 1% is related to death benefits.

And I would highlight that just for the quarter, we did see a bit of an uptick in the surrender rate, primarily driven by the fact that equity markets were up and that does tend to influence surrender activity because of the moneyness in the contracts. Just overall, the VA performance that we saw in the quarter, which was also driven by the higher equity markets, was about $25 million, and that will offset the level of net outflows that we're seeing.

So in terms of how we think about that from our assumption setting process, first of all, we do take a very comprehensive look at our assumptions every year. We complete that work in the fourth quarter. And we're setting assumptions with the long-term nature of our liabilities in mind. So we do look at our recent experience, but we wouldn't take 1 or 2 quarters of experience and simply use that to set our long-term assumption. We would look at our experience over time. Having said that, we'll certainly look at the experience we've been seeing over the last couple of years as we update our assumptions in the fourth quarter. And we'll publish those results along with our overall fourth quarter results as well as our financial targets for 2026. And we look forward to being able to discuss that in February.

One follow-up on that. I've heard some suggest that there has been some targeted efforts by distributors to roll older variable annuity contracts into other products when they've been out of the money, and that may be contributing to the higher lapse rates beyond just the pure markets but also may eventually dissipate once they kind of contacted all of their clients. Is that something -- do you agree with that? Is that something that you've seen at all impact the lapse rate?

I would say, Ryan, it's primarily more driven by the market environment and specific activities that might take place.

Our next question comes from Suneet Kamath of Jefferies.

Just wanted to ask a couple on capital. So first, on the RBC target of 425, you've been traveling well north of that for a while. My math suggests that if you were to bring that to 425, maybe $1.5 billion of excess could be released. I guess if 425 is really the target, what needs to happen in order to bring your RBC back down to that level?

Yes. Thanks for the question, Suneet. So yes, you're right. At the 425 target, we do have a substantial amount of excess capital at J&L. As we've talked about in the past, we expect that will come down over time rather than some sort of onetime outsized upstreaming of capital to the holding company.

We believe that we are in a unique position to continue our efforts to diversify our book of business through focusing on more spread product sales, as I mentioned in the prepared remarks. And that obviously will assume a bit more capital than what we've historically been writing over the years, which is variable annuity business. And we've seen some of that over the course of this year.

So we believe that we can both continue to grow our business through diversifying into more spread-type products as well as continuing to return significant levels of capital. But you'll see that ratio come down over time as opposed to one sizable transaction.

Okay. And then I guess my second one is on this closed block segment that you have. I mean, it doesn't get a lot of attention. We never get asked about it. I'm just curious, what's the strategic value of having that? I know it's small, but also curious about how much capital is supporting those liabilities that are in that segment.

Yes. Yes, good question. We obviously look at the closed block very frequently and we're comfortable with the liabilities that are there. As you mentioned, it's not a huge portion of our balance sheet. However, we believe it does provide some balance to our overall general account structure because there are some life liabilities in there along with some annuities and other blocks of business that came about through some acquisitions that Jackson completed a number of years ago.

So we do monitor the performance of that lot closely. And to the extent we find opportunities to better leverage our capital, we would be prepared to take advantage of those.

And how much capital is in that segment? Is it a meaningful amount?

Yes. We don't break out, Suneet, the allocation of our capital across the segments, but the liabilities are roughly about $20 billion.

Our next question comes from Tom Gallagher of Evercore.

Just a follow-up question on hedging. I heard the comment about how your RILA naturally hedges part of your VA guarantees, which lowers your need to buy the quantity of derivatives and hedges you need to buy. You have a peer out there, Brighthouse, that used to make the similar point. They eventually hit a limit and the company has struggled since they hit the limit.

Now I'm sure there are differences between your book and their book. Your guarantees look far less risky, quite candidly, from my perspective. So that might be one of the reasons. But curious why you won't hit a limit and if you've spent any time thinking about what you're doing versus what Brighthouse is doing just so you can at least clear up any confusion about why your program is fine.

Yes. Tom, thanks for that question. We have spent a lot of time thinking about this issue, and we're very comfortable with the structure that we have in place. The new slide that we shared in the materials this quarter is intended to kind of help explain why we're different. And it really comes down to the fact that we have -- the VA guarantees are housed within Brooke Re. The RILA business is at JNL, and we're able to get this efficiency from a hedging perspective as we sort of offset the internal trades and then go out to our derivative counterparties to purchase external hedges.

The reason we're very comfortable that we won't have the issue that others have run into is because we don't have the guarantees and the RILA business being reserved for and hedged under a statutory framework, which I think was primarily the problem that you're referring to, which is the VM-21 construct. So we're very comfortable that even if the equity risk on RILA were to surpass the equity risk that we have on the VAs, then all that does is just shift the nature of our external hedging. It doesn't mean that we would have to suddenly put out some additional level of reserves.

Got you. That's super clear. Yes, that is. Just from a follow-up perspective, if there was any impact to the actuarial review, to Ryan's question, would that likely show up in JNL or Brooke Re in terms of any changes that we would see there?

Yes. Well, as I mentioned, we're still working through our actuarial assumption review. But my expectation would be that we would see very minimal impacts at JNL. Any impact related to our VA business would be sort of below the line and a component of our MRB.

Our final question of today comes from Alex Scott of Barclays.

I just had a follow-up on same kind of question that you just had from Tom and Ryan. So on the potential for an impact in Brooke Re, if there is an impact, do I take the comments that you made earlier in your script around the self-sustaining nature of the capital in Brooke Re to mean that based on what you're seeing, at least as of today, regardless of how that actuarial review pans out, you don't feel like there's risk that you would have to fund any capital into there? Is that a correct way of reading those comments earlier?

Alex, yes, so my comments earlier were more long-term focused in that we do believe, given the nature of the guarantees in Brooke Re, that over the long term that Brooke Re will actually generate capital and be self-sustaining. I don't want to get ahead of the completion of our actuarial review work at this point. We'll certainly look at it. And as I said, when we report fourth quarter earnings and our 2026 financial targets including our capital return targets for next year, we'll update you on the status of our -- or the impact of our actuarial review.

Understood. Okay. And then I also wanted to ask about potential reinsurance opportunities out there. I mean, I think, on one hand, we're questioning you all about actuarial studies and so forth. I know, on the other hand, you guys have expressed a lot of confidence about your ability to manage VAs. I mean, are there opportunities out there that you're still considering and looking at around reinsurance of other blocks of business to take advantage of what you built there?

Yes. So we talked a little bit about this on last quarter's call, Alex, and we certainly believe that we have very good expertise in the VA space and with risk management and hedging. And so to the extent that there were high-quality variable annuity blocks that were available that we believe would be complementary to what we already have at Brooke Re, that would be something that we would consider.

We do believe that some of the recent VA transactions that you've seen indicate there are some buyers that see value in high-quality VA blocks, and we would look to participate in that. That probably wouldn't be the highest priority on our list.

I think if we were looking at some sort of transaction, we might want to look at opportunities to further accelerate all of the work that we've done since becoming an independent public company to diversify our book, and that could include reinsurance of potentially some life business or something along that line that would be complementary to the businesses that we already have. But we're certainly aware of what's going on in the marketplace and are monitoring those kinds of things closely.

I would just add that any growth opportunities that we were to explore or evaluate would be done in comparison to the value that we receive from buying back our own shares.

Thank you. We have no further questions registered on today's call. So I'll hand back over to Laura Prieskorn for any closing remarks.

Thank you all for your continued interest in Jackson. As you've heard this morning, our latest results represent another period of excellent operational accomplishments. We look forward to continuing this discussion and sharing our continued progress on our 2025 targets after the end of the fourth quarter.

Thank you, and take care.

Ladies and gentlemen, this concludes today's call. Thank you so much for joining. You may now disconnect your lines.

Hello, everyone, and welcome to the Jackson Financial, Inc. 2Q 2025 Earnings Call. My name is Charlie and I'll be coordinating the call today. [Operator Instructions] I now hand the call over to our host, Liz Werner, Head of Investor Relations, Jackson Financial to begin. Liz, please go ahead.

Good morning, everyone, and welcome to Jackson's Second Quarter 2025 Earnings Call. Today's remarks may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations.

Jackson's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. Except as required by law,

Jackson is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks also refer to certain non-GAAP financial measures. The reconciliation of those measures to meet the most comparable U.S. GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors.jackson.com.

Presenting on today's call are our CEO, Laura Prieskorn and our CFO, Don Cummings. Joining us in the room are our President of Jackson National Life Insurance Company, Chris Rob, our President of PPM, Craig Smith and Head of Asset Liability Management, Brian Walta.

At this time, I'll turn the call over to our CEO, Laura Prieskorn.

Thank you, Liz. Good morning, and welcome to our second quarter 2025 earnings call. I'll begin by reviewing the quarter's performance, including our solid operating and sales results, continued capital generation and return to shareholders and our significant progress towards achieving our 2025 financial target.

Following my remarks, our CFO, Don Cummins, will discuss our financial performance in further detail. Beginning with Slide 3. Jackson's second quarter performance highlights the health of our business and strong capital position. Our retail annuities business benefited from our growing RILA product suite, resulting in greater investment spread income and valuable earnings diversification for the quarter. RILA account balances have increased by nearly 80% from the second quarter last year and 26% since year-end 2024, supporting sustainable investment spread income.

The relative stability of spread income enhances Jackson's earnings overall and provides diversification that is especially valuable during periods of market volatility. Traditional Variable annuities remain a core product offering accounting for over half of our retail annuity sales and our in-force book generates more than $1 billion in quarterly fee income.

The impact of lower average variable annuity assets in the second quarter was in part offset by investment spread income growth. Variable annuity account balances increased during the quarter with account values reaching $239 billion at the end of the second quarter, up from 2024 year-end. Total retail annuity sales $4.4 billion in the second quarter, representing a 9% increase over the first quarter and a 4% increase year-over-year. This growth was driven by sequential gains in both RILA and fixed annuity sales.

RILA sales approached $1.4 billion, up 16% from the previous quarter and roughly flat compared to the prior year levels. Notably, RILA sales momentum has continued and is supported by the launch of Jackson's MarketLink Pro 3 and Marketlink Pro Advisory 3, which offers a NASDAQ 100 index option in full principal protection options. RILA now accounts for nearly 1/3 of total retail annuity sales, underscoring Jackson's leadership in meeting the growing demand for solutions that offer participation in equity market growth with downside protection.

Jackson's fixed annuity sales are consistent with our focus on offering a competitive product suite while adhering to our pricing discipline. In the second quarter, the attractiveness of our spread products benefited from our recent allocation of resources to certain higher-yielding asset classes including emerging markets, residential home mortgages and structured securities of investment-grade assets. We will maintain a disciplined approach to this market and see future growth potential as we broaden our fixed index annuity product offering and further expand our market reach.

Variable annuity sales in total continued to be strong and were relatively flat for the first half of 2025. However, we have seen a 16% increase in sales of variable annuities without a lifetime benefit in the first 6 months of this year compared to the same period last year. These products provide access to attractive investment options as well as valuable tax and estate planning benefits.

Additionally, we continue to believe that the asset growth potential investment flexibility and guaranteed income provided by Jackson's traditional variable annuities meet a long-term need for millions of Americans retiring each year. Jackson's traditional variable annuity book delivers strong profitability underpinned by prudent product design, conservative assumptions and disciplined risk management. [indiscernible] will discuss in greater detail.

Importantly, we saw variable annuity net outflows improved for the second consecutive quarter and return to 2023 levels. As a result, total retail annuity net outflows were $2.2 billion in the second quarter, down 27% from a year ago and down 39% from the first quarter. This emerging trend, combined with the second quarter's positive separate account performance and increasing sales diversification positions us well for favorable retail annuity account value comparison.

In addition to our innovative approach to product design, we remain focused on delivering industry-leading service and bringing enhanced tools to the market. Our recent launch of a new digital experience for financial professionals is the latest example of our ongoing investments in service and technology. Considering input from financial advisers, we created a digital tool to align clients' needs with the benefits and features of multiple products. The site also includes a wholesaler contact resource to facilitate new adviser relationships and is designed to deliver tailored support. These initiatives and our commitment to delivering exceptional service highlight our long-term dedication to our business, distribution partners and clients.

In July of this year, Jackson was once again recognized in Barron's Annual 100 Best Annuity guide. Jackson had 3 products featured across 5 categories including our lead access Advisory to variable annuity and our Jackson Market Link Pro RILA Suite, which was highlighted 7x as a leading product, providing valuable market protection [indiscernible].

Our long-standing commitment to product innovation has resulted in differentiated annuity solutions that are highly valued by our distribution partners and their clients. We ended the second quarter in a strong capital position with even greater financial flexibility. Total adjusted capital exceeded $5.3 billion, up from the first quarter this year and a 5% increase since year-end 2024. Risk-based capital remains comfortably above our 425% target minimum and is estimated at as of the end of the second quarter after investing in our business and distributing $325 million to our holding company.

Excess capital generation and free cash flow during the first half of this year have both exceeded a $1 billion annualized run rate. Our second quarter capital return of $216 million extends our track record to 15 quarters of continuous return to shareholders. We remain confident that our strong and sustainable capital generation will continue to support both future growth initiatives and ongoing capital return to shareholders.

Turning to Slide 4. We've made significant progress towards achieving our capital return target with $447 million in share repurchases and common shareholder dividends through the first 6 months. This is a 41% increase from last year and shows that we're on track to meet or exceed our targeted range of $700 million to $800 million. Our holding company liquidity of over $700 million provides additional financial flexibility and should position Jackson for continued capital return beyond 2025.

In addition, we continue to view a cash dividend as a reliable and sustainable means of returning capital to shareholders. Consistent with this long-term focus, our Board recently approved a third quarter cash dividend of $0.80 per common share. Jackson remains committed to a balanced capital management strategy that prioritizes disciplined investments in our business, the maintenance of a strong balance sheet, and consistent capital return to shareholders, all with the objective of creating long-term value for our stakeholders.

Our resilient capital, disciplined risk management and effective hedging spread have enabled us to manage market volatility with confidence. In today's environment, the need for financial security and retirement has never been more apparent. Financial advisers are increasingly recognizing the value of annuities as essential tools for delivering the security to their clients. Jackson's commitment to the annuity market providing flexible protection and income-oriented solutions continues to be highly valued. We remain dedicated to supporting our distribution partners and helping their clients achieve greater financial confidence in [indiscernible]

With that, I'll turn the call over to Don.

Thank you, Laura. I'll begin on Slide 5 with our consolidated financial results for the second quarter of 2025. Adjusted operating earnings were $350 million, reflecting strong performance from our spread products where earnings were supported by the continued expansion of our RILA and fixed annuity blocks and higher yields in our bond portfolio. While fee income was lower this quarter due to market volatility in April, it is encouraging to note that variable annuity AUM rebounded and ended the quarter higher as markets recovered, positioning us well for the third quarter.

The comparison to the second quarter of 2024 was also impacted by a reserve release benefit in that prior year quarter. Our high-quality conservative investment portfolio supporting the spread product business is well positioned with diversification and strong credit quality, a theme throughout the portfolio. The exposure of our portfolio to commercial office loans and below investment grade securities is less than 2% and 1%, respectively.

As Laura mentioned, our spread product sales benefited from added capabilities at PPM America, which enabled Recent new money allocation to certain higher-yielding asset classes, including emerging markets, residential home mortgages and investment-grade structured security. Our rents in book value per common share, during the first half of the year, we returned $447 million of capital to common shareholders, which contributed to $102 million decrease in adjusted book value attributable to common shareholders since year-end. Importantly, our share repurchase activity reduced the diluted share count driving a 3% increase in book value per diluted share to $155.11.

Additionally, our adjusted operating return on common equity for the first half of the year was 13%, in line with the healthy level achieved in the first half of 2024.

Slide 6 outlines the notable items included in adjusted operating earnings. Reported adjusted operating earnings per share was $4.87 for the current quarter. Adjusting for $0.33 of notable items and the difference in tax rates from our 15% guidance, adjusted operating earnings per share was $5.12 for the current quarter, up 5% from $4.87 in the prior year second quarter. This improvement was primarily due to the growth in spread income noted earlier as well as a reduction in diluted share count from common share repurchase activity.

The only notable item for the current quarter was a $0.33 negative as limited partnership results came in below our 10% long-term assumption. The prior year second quarter included a $0.06 benefit from this item and also included a onetime reserve release benefit of $0.31. And on Slide 7, we highlight the strong and diverse new business profile of our Retail Annuities segment, which achieved 4% growth over the second quarter of 2024. Our RILA product delivered robust sales of $1.4 billion, broadly consistent with the prior year second quarter and increasing 16% compared to the first quarter of this year.

Since its launch in 2021, RILA assets under management have grown consistently, reaching a record high of nearly $15 billion at the end of the second quarter. As mentioned earlier, our spread product offerings were further supported by enhanced capabilities at our asset manager, PPM America, resulting in $470 million in fixed and fixed index annuity sales for the second quarter.

Our sales mix remains capital efficient, which has provided flexibility to allocate additional capital to spread products as we continue to diversify our business. We are proud of the progress we have made in building a well-diversified new business mix since becoming an independent public company, positioning us for continued momentum.

Turning to net flows. The sales we generated in RILA and other spread products translated to $1.7 billion of nonvariable annuity net flows in the second quarter. As we discussed on prior calls, Variable annuity net outflows have been elevated in recent quarters, reflecting the moneyness profile of our book, the aging of policyholders and some larger past sales years coming out of the surrender period.

Encouragingly, this trend has improved in 2025 with the all-in surrender and benefit rate, including partial withdrawals and death benefits, declining by 240 basis points from the fourth quarter of 2024. This resulted in an improvement in variable annuity net flows of about $900 million compared to the first quarter of 2025.

Slide 8 highlights pretax adjusted operating earnings across our segments. In retail annuities, we benefited from a favorable environment for spread products and lower operating expenses. While fee income was impacted by a temporary decline in average variable annuity AUM, our underlying business fundamentals remain strong. Jackson's earnings power is supported by the level of assets under management as growing nonvariable annuity net flows and strong separate account returns have built our average retail annuity AUM to $249 billion, up from year-end 2024.

For the Institutional segment, pretax adjusted operating earnings were down from the second quarter of last year, reflecting lower spread income and were broadly in line with the first quarter of this year. Our higher level of new business activity in 2024 has continued into 2025, reflecting strong demand for spread lending and our opportunistic approach in the institutional marketplace.

Our Closed Block segment reported pretax adjusted operating earnings that were down from the second quarter of last year, primarily due to an unfavorable comparative impact from policyholder benefits and cash flow assumption updates.

Slide 9 includes a waterfall comparison of our first quarter pretax adjusted operating earnings of $406 million to GAAP pretax income attributable to Jackson Financial of $183 million. Our hedging program reported a consolidated net hedge gain of $61 million in the second quarter, demonstrating resilience despite elevated market volatility in April. The stability in our nonoperating results has significantly improved after moving to a more economic hedging approach in 2024, which has also contributed to our consistent capital generation.

Our hedging program benefits from a robust and stable stream of guaranteed benefit fees, which are assessed on the benefit base rather than account buying. This methodology ensures consistent fee generation even during periods of market decline. In the second quarter, guarantee fees reached nearly $800 million, contributing to a strong total of $3.1 billion over the trailing 12 months.

During the second quarter, our hedge results included a net loss of about $1.8 billion on hedging assets supporting our variable annuity and RILA business. This loss was primarily from equity hedges, reflecting S&P returns of about 10% during the quarter and losses on interest rate hedges resulting from higher long-term interest rates. Changes in market risk benefits or MRB, were driven in part by the same interest rate and equity market movements, leading to a $2.2 billion gain, which more than offset the hedging assets loss.

As a reminder, changes in the MRB relate primarily to our variable annuity business and include the impact of equity index implied volatility, which was a modest benefit during the quarter. Changes in implied volatility do not impact our Brook Re MRB measurement since its modified GAAP methodology uses a fixed volatility assumption designed to promote balance sheet stability. The reserve and embedded derivative loss of $1.1 billion during the second quarter primarily reflects increases in RILA reserves resulting from higher equity markets.

Our RILA business continues to provide an economic offset to the equity risk of our variable annuity guarantee business, enhancing overall hedging efficiency. We believe these second quarter results underscore the effectiveness of our hedging program in supporting capital stability and proactively managing the economic risks of our business.

Slide 10 provides an updated perspective on Jackson's high-quality variable annuity business, building on themes first introduced at our 2021 spin-off. Jackson's variable annuity business is differentiated in the marketplace, which has enabled us to outperform peers. In large part, our success can be attributed to our focus on withdrawal benefits and avoiding more challenging guarantee features. Jackson also has long been a proponent of providing customers with investment freedom without forcing allocations or managed volatility funds.

This approach is supported by a rigorous fund manager diligence and oversight process to ensure a high correlation between separate account assets and the related benchmarks. The strong underlying fund performance benefits both our policyholders and Jackson. Prudent pricing and disciplined product design further mitigate risk and enable agile product launches and repricing actions as market conditions evolve.

As Laura noted, we believe our variable annuity products are highly valued, and we remain a consistent product provider for our distribution partners and their clients. The substantial cash flows generated by our large in-force block combined with extensive policyholder experience data, enhance our risk management capabilities. With the formation of Brook Re, we can further protect our book from market volatility and hedge more closely to the economics of our business. We believe our hedging performance has been proven through recent periods of financial strength.

Overall, we remain confident in the quality of our variable annuity business and our risk management capability.

Slide 11 highlights our capital generation and free cash flow for the quarter. Jackson adheres to an earnest then payment philosophy for capital return. This philosophy is built upon 3 pillars; The generation of free capital where we earn it, the creation of free cash flow where we pay it and ultimately, the return of capital to our common shareholders. After-tax statutory capital generation was $443 million in the second quarter. We believe this metric offers helpful insight into the underlying strength of our business and provides the foundation for making capital allocation decisions that balance future growth with the return of capital to shareholders.

Free capital generation was $258 million in the quarter, reflecting the estimated change in required capital or Cal, resulting from our strong and diversified new business results during the quarter. Free capital generation totaled $665 million in the first half of this year and $1.5 billion on a trailing 12-month basis, a pace well above our $1 billion-plus expectation for the full year. Free cash flow grew substantially in the current quarter, once again illustrating the stability of our capital generation. In the second quarter, $325 million were distributed to the holding company. After covering expenses and other cash flow items, the resulting free cash flow at the holding company was $290 million in the quarter.

Over the last 12 months, we've distributed over $1.1 billion to the holding company and generated free cash flow of over $1 billion. Based on Jackson's market capitalization at quarter end, we have produced a free cash flow yield of about 16% for the trailing 12 months. Although there are many factors that impact valuation -- we believe this metric is a strong indicator of Jackson's value, and we will continue to pursue share repurchases while investing in the growth of our business. The outcome of our strong free capital generation and growing free cash flow allowed us to return $216 million to common shareholders in the quarter, up 60% from last year's second quarter on a per diluted share basis.

On a trailing 12-month basis, we have returned $762 million and we are highly confident in our ability to meet our full year capital return target, likely coming in at or above the high end of the range. Overall, these results reinforce Jackson's strong capital generation profile and stable growing cash distributions driving enhanced value for our shareholders.

Slide 12 summarizes our growing capital and liquidity position for the quarter. The profitability of our in-force business, driven by fee income from our variable annuity based contract in growing spread-based earnings provided statutory capital generation of $443 million during the second quarter. Following the establishment of Brook Re, our capital position and RBC ratio at Jackson National Life is much less sensitive to equity market movements. The main impact of equity market changes is on AUM and future capital generation rather than immediate changes in capital for RBC. This results in the earnings stream at Jackson National Life being more like an asset management business.

Consistent with our approach of taking smaller periodic distributions from Jackson National Life, we distributed $325 million to the holding company during the second quarter. After considering the impact of this distribution on our deferred tax asset, Jackson's total adjusted capital, or TAC, increased and ended the quarter at $5.3 billion.

Required capital at Jackson National Life has continued to remain relatively stable as was apparent in our second quarter results with estimated cow somewhat higher, reflecting growth in our general account assets and our strong and diversified new business activity. Our estimated RBC ratio ended the quarter at 566% and remains well above our minimum of 425%.

We believe Jackson is operating from a position of strength as we head into the last half of the year. During the second quarter of 2025, Brooke Re continued to operate as expected despite elevated levels of market volatility early in the quarter. Overall, equity of Brooke Re was broadly flat during the second quarter and increased for the first 6 months of the year. Brooke Re's capitalization remains well above our internal risk management framework, which reflects a variety of detailed scenarios and our regulatory minimum operating capital level. During earlier calls, we committed to sharing any capital contributions to or distributions of capital from Brooke Re, and we can confirm that we did not take either of those actions with Brooke Re during the quarter.

Going forward, we will continue to manage Brooke Re on a self-sustaining basis, given the long-term nature of its liabilities. Our holding company cash and highly liquid asset position at the end of the quarter was $713 million, which continues to be above our minimum buffer and provide substantial financial flexibility. This was up from $617 million in the first quarter of 2025, reflecting operating company dividends and capital return to shareholders. Including other holding company investments increases the total to $767 million.

Overall, our second quarter results reflect positive momentum, including a strong balance sheet and growing levels of capital and liquidity and which position us well for continued success.

I'll now turn the call back to Laura.

Thank you, Don. Our second quarter results represent continued strong progress, and we look forward to sharing future updates as we advance our strategic objectives. We remain steadfast in our commitment to supporting financial professionals and their clients with a common goal of helping Americans grow and safeguard their retirement savings and income.

Lastly, but importantly, I want to acknowledge the exceptional dedication and talent of our associates whose contributions are fundamental to our ongoing success.

At this time, I'll turn it over to the operator for questions.

[Operator Instructions] Our first question comes from Alex Scott of Barclays.

First one I had is just on excess capital position and cash flow and potential uses of capital, I mean, at this point, you've got such a strong excess capital position. You're sort of taking up so much free cash flow to the holdco, you're not using it all for share repurchases. So the access is building even further. And just in light of that situation, I wanted to better understand as you look at this capital position what is the pecking order for priority for potential upsizing capital return or M&A.

Thank you for the question. I'll turn it to Don to get to your question specifically. But as you heard Don shared in his prepared remarks, our approach is to first generate or earn excess capital and then pay it in the form of free cash flow and then return capital to shareholders that will continue to be our plate going forward, and I'll let Don and rest more specifically your question.

Yes. Alex, thanks for that question. So first of all, I would just reiterate that we have, in fact, had a very strong and kind of consistent level of operating company dividends coming up to the holding company, and you can see that in our cash and liquid investment position -- if you look back since the separation from Prudential or since the IPO, that's totaled about $2.6 billion, which has actually exceeded our initial market capitalization. So -- we do think that we'll continue to have a very strong level of capital generation.

In terms of your question on how we would expect to use that -- we continue to look at that on a balanced basis. So we believe that we can continue to support maintaining the strength of our balance sheet while also investing in the growth of our business and returning capital to shareholders. We don't think this is a one or the other situation. We think we can do both. And I think you've seen that in the results we produced for the second quarter.

1

Got it. That's helpful. And then the second question, I just wanted to ask on the AUM level equity market helping it into the back half of the year, how would you expect that to kind of flow through your earnings? Like how much of the expense base is variable versus fixed? Would you expect margins to improve out of that? Or there may be some offsets to think about related to investing in the business and so forth.

Yes. Thanks, Alex. So in terms of the kind of the equity market performance for the quarter, it was quite strong. If you look at our roll forward of AUM for the quarter. We saw a roughly 9.4% return on our separate account assets, which contributed about $19 billion to AUM, and that far offset some of the net outflows that we're seeing primarily due to our VA business. Just to get your question in terms of how we would think about that for the last half of the year, we continue to have pretty solid margins.

Our fixed expenses in terms of our general and administrative expenses or not going to be that sensitive. We do have some other components of the P&L, which include some asset-based commissions and the like that do have some market sensitivity, so there will be a little bit of offset in that.

Our next question comes from Tom Gallagher of Evercore.

Just a sort of a strategic question on -- is there any consideration to remixing the business when -- and it's kind of slowly happening already from the mix shift that's happening on the sales side. But anything that you would consider on something more strategic on legacy VA risk transfer maybe lowering the reliance on shorter-term hedges for the VA or anything else that you would consider? Or would you say you're broadly happy with the structure you have today? And just thinking specifically about lowering your cost of capital, given your your lower valuation versus peers.

Thank you for this question. I'll share a couple of comments given the range of topics that you covered there and then turn it to Don. In terms of risk transfer, I'll say, if there is a good strategic partnership opportunity that would makes sense from a shareholder value perspective, we would certainly give consideration to that opportunity. You commented on the diversity that we're seeing in our sales mix and our multiproduct portfolio does position us well to serve a range of market environments and client needs, and we're going to continue to focus on product innovation to create greater access across those different annuity types going forward.

I'll turn it to Don to comment on some of the other points that you included in your question.

Yes. Thanks, Tom. So I'll take the risk transfer question, and then I'll ask Brian to jump in on the hedging. But First of all, just in terms of the way we would look at any sort of transaction, whether it's risk transfer or M&A, the goal for us would be to create new streams of capital generation so that we can continue to grow our free cash flow and how that impacts our ultimate capital return. So that's kind of the way that we look at it. In terms of risk transfer transactions, if you look back on Jackson's history, we've not only evaluated the completed a number of multiple complex reinsurance transactions. And we're open to considering any transaction that is strategic in nature and creates additional shareholder value.

So obviously, it's going to need to be accretive to future profitability and capital generation. Some of -- a couple of examples of things that could potentially relate to the risk transfer transaction. As you mentioned, we have been diversifying our business mix with more of a focus on spread products. Certainly, there are opportunities to utilize captives to help manage some of the capital usage of those types of products. And we would certainly certainly are exploring those opportunities. And also that could include some type of asset management partnership that might be additive to the capabilities that we already have in-house with PPM. And so that's just a couple of examples on risk transfer.

I will turn it over to Brian just to touch on your point about hedging and kind of the short-term nature of some of our hedging instruments.

Yes. Tom, for the question on hedging. So just with the move to Brooke Re and a more economic stable and predictable hedge target, A significant portion of our equity in iterate hedge program is now based on exchange traded futures rather than over-the-counter options. And these exchange rate features have much lower roll relative to exchange rate options, which are -- can be sensitive to the implied volatility environment. These futures are highly liquid and can be traded in any market environment.

With that said though, we do have a normal position of put options, which helped to mitigate GAAP risk and rebalancing risk in high volatility periods to what we saw and experienced in April. And we'll tweak to characteristics of those options to mitigate the cost and high-vol implied volatility regime. These maturities are spaced out to try to reduce roll risk concentration. And as implied volatility comes down, we do tend to extend the duration of those trades. I'll note that on a daily basis, we aim to cover our equity and interest rate exposure regardless of the market environment or the volatility regime will by the hedges we need to. We look at both small and large market tracks on our liability to achieve the right balance between futures and options. And based on our current liability profile, we feel our approach predominantly using futures and supplementing with options, manages our economic liability profile well and provides meaningful sales production.

Okay. Just 1 quick follow-up. The RILA product you're selling today, does that have a living benefit and income guarantees on the majority of that? Or is that investment only -- and how do you see competition in that part of the market?

Yes. Thank you, Tom. Our RILA momentum is strong since launch in 2022. I think I'll ask Chris to just comment on RILA sales in the second quarter and then outlook as we have been watching that market evolves.

Thanks, Laura. And Tom, thanks for the question. The Rail market certainly can be competitive from quarter-to-quarter. But as Laura noted in her opening remarks, RILA sales for us increased 16% sequentially. This compares to industry sales of about 13% over that same time period. We believe we have a competitive product offering, including an income option with a compelling suite of options for advisers and policyholders.

In addition, the strength of our distribution team and our industry-leading service position us well to participate in the robust growth we've seen in the RILA market over the last 3 years. We also saw strong momentum leading into the third quarter following the launch of our market link Pro 3 product, which offers the NASDAQ 100 index option as well as 100% protection buffers for our 1-, 3- and 6-year terms.

As Laura said, RILA now represents just over 30% of our sales and nearly 1/3 of our RILA sales are now coming from advisers that are either new to Jackson or that haven't sold a Jackson product in a while. It remains a core part of our diversified product offering that delivers a complete suite of annuities to our distribution partners, which allows our wholesalers to focus on providing solutions to their client needs, be it income protection, growth potential, tax and risk management or legacy benefits. We want to have products that deliver value across any market or consumer preference environment.

Our next question comes from Suneet Kamath of Jefferies.

First, just a quick follow-up on RILA and the answer you just gave. So this new product that offers 100% principal protection. I had thought that one of the things that made the RILA more capital efficient is that it didn't have principal protection and that the downside was sort of shared with the consumer.

So maybe just want to understand that a little bit more? And is this a relatively unique feature in the market versus kind of what your competitors are offering? And how do the capital requirements associated with this 100% principal protection compared to some of the other RILA that you offer.

Suneet, it's Don. I'll take that question. So in terms of capital efficiency, the new RILA product is -- remains very capital light in terms of requirements. And so we're comfortable with that. The feature itself is 1 that is offered by a number of our competitors. So it's not entirely a new feature. It's new for Jackson but not new in the industry.

Okay. And then I guess on the -- you mentioned this also in your prepared remarks, I just wanted to come back to it. Are you managing a risk managing the RILA sort of together with the legacy VA -- and the reason I ask the question is another 1 of your company competitors has talked about doing that, and they sort of ran into some issues once they got to this "balanced risk profile across the 2 blocks. I just want to make sure that we get a better sense of kind of how you're approaching the -- the risk management of those 2 blocks of business.

Yes, Suneet, it's Don again. So good question, and thanks for that. So we -- at Jackson, we do manage both blocks of business separately. I think the thing that we referred to in the prepared remarks is really the sort of natural offset in equity risk that the 2 products have. That does create some efficiency as we go out to purchase external hedges for our hedging program. But the products themselves are not managed together, like you were mentioning some other companies may do. In fact, all of the guarantees related to our VA business, as you know, for withdrawal benefits are reinsured to book rate, while the RILA business remains at Jack.

Got it. And if I could just sneak 1 more in, just on Brook Re. Do you think you'd be able to use that structure if you were to pursue inorganic growth, i.e., acquire a VA company. Could you sort of slot that block of business into Brooke Re.

Yes. I guess we'll let you have another one. So yes, we do believe that there could be opportunities to leverage Brooke Re further with some type of M&A type transaction. And as we think about M&A, we've, I think, demonstrated that Brooke Re is operating effectively, and we've got certainly a much more predictable and stable capital generation profile.

So that does give us some optionality in how we deploy our capital across both share repurchases and growing our business. So we would consider M&A part of growth. In terms of the types of transactions that we might consider, I think they would fall into 1 or 2 categories. One would be just leveraging our existing strengths. We've got a strong risk management culture at Jackson, and we've demonstrated that through the performance of our variable annuity business.

We also are very strong in RILA. RILA is now about $15 billion of AUM as of the end of the second quarter. And I think the other thing that we would probably consider in terms of any kind of M&A activity would be how we could further accelerate diversifying our business. As we talked about earlier, we've been doing that very much through our new sales and kind of shifting the mix there. if there were an opportunity to do something like that more broadly through M&A, we would consider that.

And all of our -- any M&A type activity that we would consider obviously, we would look at that through the lens of that versus returning capital to shareholders.

Our next question comes from Ryan Krueger of Keith BettonWoods.

I had some follow-ups. One was you mentioned that you could use captives to reduce the strain from increased sales of fixed and fixed indexed annuities. When you mentioned that, were you referring to potentially setting up like a new affiliated reinsurer that would be separate from Brooke Re and that could be used to put some of the new business into.

Yes, that's exactly what I was referring to, Ryan. We think we've been very successful with Brooke Re and we obviously observed what some of our competitors have done in terms of using Bermuda and other offshore locations. That could be a possibility. We would also look very strongly at what we could do on a domestic basis.

But yes, it would be to be able to have a captive that we can see spread business to.

And then I guess somewhat related to this, but -- so I guess, in terms of looking to diversify the business, you -- outside of just organic growth.

So I guess, are you suggesting that you would be, I guess, consider being a reinsurer for spread business in the market? I assume you don't need a strategic M&A transaction because you already have the capabilities in distribution. So I think I just wanted to make sure I understood that correctly that you'd potentially consider being a reinsurer for spread business in the market, there was an opportunity.

Yes. So I think as I said in response to the earlier question, it could be that we would look at using Brooke Re to acquire other blocks of business that might be additive in terms of our capital generation and free cash flow in the future. And that likely probably in our case, would not include spread type business. But 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.

At this time, we have no further questions. I'll hand back over to the CEO for any final comments.

Thank you for your continued interest in Jackson. As you've heard this morning, our latest results show the strong momentum we have going forward. We'll continue these discussions and share our progress toward our 2025 targets after the third quarter. Thank you, and take care.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.