Good morning, and welcome to the Jackson Financial Inc. 2Q 2022 Earnings Call. My name is Lauren, and I’ll be coordinating your call today. [Operator Instructions]. I would now like to hand over to your host Liz Werner, Head of Investor Relations to begin. Liz, please go ahead.

Good morning, everyone. Before we begin, we remind you that today’s presentation may include forward-looking statements, which are not guarantees of future performance or outcome. A number of important factors, including the risks, uncertainties and assumptions discussed in risk factors and management’s discussion and analysis of financial conditions in the company’s 2021 Form 10-K and the most recent first quarter 10-Q could cause actual results to differ materially from those reflected in the forward-looking statements. In this presentation, management will refer to certain non-GAAP measures, which management believes provide useful information in measuring the financial performance of the business. A reconciliation of non-GAAP financial measures to the most comparable GAAP measures is contained in the appendix to the presentation. With us today are Jackson’s CEO, Laura Prieskorn; our CFO, Marcia Wadsten; and our Vice Chair, Chad Myers, our Head of [Indiscernible] and the President and CEO of [Indiscernible]. At this time I will turn the call over to Laura.

Thank you, Liz. Good morning, and welcome to our second quarter earnings call. In addition to our second quarter results, we’ll discuss Jackson’s financial strength, our continued capital return to shareholders and our favorable business outlook. Despite a challenging market, our disciplined approach to risk management and the profitability of our healthy book resulted in strong capital levels that both are operating and holding companies. Looking forward, we see a clear path to achieving our 2022 capital return target and remain confident in our long term capital generation. For the second quarter, we reported net income of nearly $3 billion, driven by sizeable net hedging gains that protected our business during equity market stress conditions. Our hedging strategy performed as intended preserving statutory capital during periods of significant stress, which was evident in our healthy and growing operating company RBC ratio. Although market volatility was high during the quarter, some benefit of higher rates was realized in hedging costs that were largely in line with our guaranteed benefit fees. These fees are based on a policyholders benefit base, which is not subject to market volatility, and are intended to cover our hedge cost over the life of a policy and throughout market cycles. We believe the effectiveness of our hedging strategy is most evident in challenging environments which was the case this quarter. From an operating standpoint, we focus on adjusted operating earnings excluding notable items, which were 481 million for the quarter driven by the impact of the equity market on separate account fees. Our separate account assets outpaced the broader S&P by 2% during the quarter as a result of our diversification and investment performance. Importantly, with over 208 billion and annuity assets, we have the scale to support future growth and capital generation. Our confidence in Jackson’s…

Thank you, Laura. Turning to our results on slide 5. Lower equity markets in the quarter led to a decline in our adjusted operating earnings from the prior year second quarter. The largest driver was higher deferred acquisition cost amortization, resulting from lower comparatives separate account returns, but it was also impacted by lower fee income from reduced separate account assets under management, as well as lower limited partnership income. However, lower expenses reflecting the variable nature of a portion of our expense base that Lauren noted earlier, provided a partial offset. As a reminder, we believe Jackson has taken a conservative approach to the treatment of guarantee fees within our definition of adjusted operating earnings as all guarantee fees are moved below the line, with no assumed profit on guaranteed benefits included in adjusted operating earnings. In the second quarter strong net income resulted in a growing adjusted book value, even after returning 116 million to shareholders in the quarter. This has moved our leverage ratio down to 18.5%, which compares favorably to industry and rating agency expectations. In regard to our balance sheet strength, it is important to note that both our GAAP filings and statutory bluebook disclosures show our investment portfolio including the assets backing the liabilities that were transferred to a theme as part of our reinsurance transaction in 2020. This complicates the analysis of our investment portfolio for external parties. To help with this, we’ve included additional portfolio details in the appendix of our earnings presentation that provide portfolio breakdowns on both GAAP and statutory basis, excluding the assets, reinsurance [Indiscernible]. Jackson’s investment portfolio remains conservatively positions, with only 2% exposure to below investment grade securities on statutory basis, along with an append quality bias and structured securities and commercial mortgage loans. Furthermore, our earnings…

Thank you, Marcia. I want to amplify Marcia statements about our commitment to returning capital to shareholders. As you can see on slide 13, we have been consistent in our approach to shareholder capital return. Shortly after our separation last year, and immediately following our share repurchase authorization. We return capital to shareholders and each subsequent quarter. As a reminder, when we separated we established a 325 million to 425 million capital return targets in the first 12 months, and we reach this target within the first six months of our spin off. We execute share repurchases through multiple strategies and we continue to view our shares as attractively valued. We also believe our dividend is just one indication of the sustainability of our long term capital generation. In summary, the second quarter demonstrated the continued resiliency of both our business and our balance sheet. We are confident in our ability to reach our targeted capital return this year and we remain focused on delivering value to all our stakeholders including our shareholders. With that, I will open it up for questions.

Thank you. [Operator Instructions] First question comes from Ryan Krueger from KBW. Ryan please go ahead.

My first question was, can you help us think about more of what you would view as a stress RBC minimum that you’d want to maintain when we’re in more, of a stress environment like we’re in today?

Morning, Ryan, thank you for the question. Marcia do you want to respond?

Sure, thank you. We haven’t set out you know, a particular RBC level. But I think what we’re seeing is that through market cycles, we’ve historically operated in a 400% to 500% RBC range. And throughout all that time, we were able to get dividends out of the operating company as well. So we’re, I think you can see from quarter two as an example, how resilient our businesses and how strong our risk management program is under stress, and as we’ve shown in some prior materials for our investor day, our analysts, excuse me, there were some examples shown of other prior past stress periods where we were able to maintain a really stable RBC, all things considered.

And then a little bit of a different question on fixed annuities. And you haven’t been selling much for the last couple of years. You have very strong distribution, and there’s significant appetite from reinsures to reinsure new fixed annuity business. Have you looked into considering starting a more fixed annuities and just reinsuring it to generate additional income from your distribution ability?

Thanks, Ryan. On the fixed annuity Ryan with certainly the rising rate has allowed us to do more frequent re-pricing of our fixed annuities and fixed indexed annuities. Certainly, that’ll help make us more competitive in the second quarter. We continue to see our market link pro offering our VA sales as our best opportunity given the economic offset and capital efficiency between this product and our variable annuity products. And the reinsurance point, I’ll let Marcia respond.

Yes, we have looked at possibilities for flow reinsurance in the past, but just haven’t necessarily come to anything that has met our target returns and kind of filled the whole picture in the way we would like it to but we’ve also done that under a lower interest rate environment. So certainly keep our eye open for as market conditions change our own pricing opportunities and anything that may exist as well. From a reinsurance standpoint, that would be advantageous.

Thank you. Our next question comes from Suneet Kamath from Jefferies. Suneet please go ahead.

Thanks, and good morning, I think you made the comment in your prepared remarks that capital formation in the quarter was above the capital that you’ve distributed. I was just hoping you could put some numbers around that, or at least what’s the best way to think about how much capital was formed in the quarter?

Sure. Thank you Suneet. This is Marcia here. I can take that one. So first of all, I guess we want to just step back and kind of look at the performance of the quarter and recognize that we saw during a volatile market period we saw positive RBC generation as an operating company. And we can see that relative to the impact of the capital return on our RBC, and that definitely is a favorable relationship there in terms of the ability to cover off the capital return with the capital that we generated during the period. We just have good core earnings power that remains intact. And we continue to expect, as we go forward, two additional benefits that we saw begin to emerge in the second quarter with regard to hedge spend under the higher short rates.

And then I guess, on that last point, can you help us think through how much of a benefit you’re getting from the rising rates both short and long end. You’ve talked about this last quarter, but just in terms of what’s still in front of us anyway, you can help us think about what the future benefit could be?

Well, I think we spend just, the benefit comes through both in the form of lower cost of actions that we might purchase, and also in a more favorable result with our futures cost. And so we think, as we look at those two items, certainly have seen benefits already kind of emerge a little bit here in the second quarter, and then with recent actions would expect those to continue. I would say, with regard to the futures, we would anticipate getting to a point where that could even be positive to us when we roll futures as opposed to a cost as we progress through to the latter part of the year. And then when it comes to options one of the things that’s a result of a higher interest rate environment, is that it may make certain trades become more cost effective. And that would give us the potential to take advantage of those types of opportunities. And example, there could be longer dated options, as well as the just absolute cost of the similar term options that we would have been purchasing recently.

And then just my last one, just to tie it all together. I think on the last quarter call, you talked about expectations for annual dividends in the kind of the $500 to $700 million range. Is that still, based on everything that’s happened so far this year, is that still sort of in the range of what you’re thinking about for next year?

Well, at this point, and I think consistent with what we did for 2022, we’ll have to wait until we see how our year end results play out before we’ll know what we’ll be doing with regard to any kind of dividend out of the operating company. But just as we’ve said before, we are operating in a position that’s very consistent with what we’ve done for many years, and we’ve routinely been able to get dividends out of the operating company. So we’re not seeing any concerns there. But we’ll have to wait until we see year end results before we know the specifics.

Thank you. Our next question comes from Alexander Scott from Goldman Sachs. Alex, please go ahead.

Hi, first one I had was just going back to the spend on hedging. From looking through some of the stat disclosure look like because of the increase in notional in the first part of the year that option premiums were up pretty substantially on what was added. And I’m just wanting to understand I mean, is that fully amortized in those higher hedge costs? I mean, is there some pressure as we get into the back of the year from that fully amortizing in, or is that not the right way to think about it?

Sure. Yes, the interaction you saw with hedges typically what happens is when we get to more volatile markets, often one of the things that we need to do both to be more nimble and to just to deal with the overall cost is shorten up hedge experts, which is something that you would have seen coming into the year with both low rates coming into the year. And as the market became more volatile, as Marcia alluded to, we would see things changing rates going higher and ball coming down a little bit, we’ve been able to extend maturities, we’ll back out. But what you would have seen is options that ostensibly would be fairly quickly amortizing of the stuff that we were buying in the first half of the year. So there’s not a lot to be dragging through into the second half. And as to the extent that we’re able to extend maturities a little bit, then that’ll actually move in a positive direction for us on a go forward basis.

And second one I had was going back to some of the comments you made about accepting GAAP volatility. And I think those comments were mainly related to the current GAAP accounting, which makes a lot of sense, given how asymmetrical it is to think the economic reality under the new LDTI rules. I mean, we can sort of see just based on what you’re saying, on year end ‘20 versus where you sort of are communicating today having a much less material impact, that there’s probably still a fair amount of net income movement under that accounting framework. Will you still take the same approach? Do you still view that as non-economic and what’s the thought process there as to why it’s not economic?

Sure. Yes. I think we will take the same approach, largely driven by kind of the way reserve movement come through back 157, where you have sort of that higher level of interest rate sensitivity, that comes from more of a market consistent or fair value type approach whereas I think when you see a healthy block of business, like we have, the primary risk, really in the business comes from the equity markets because unless you have poor equity market performance, you’re not going to have future benefit payments that you need to make. And the interest rate risk for a healthy black a business like ours comes in more in as a sort of a secondary risk on top of the equity risk in discounting of those future benefit payments that would arise out of equity movements. So our view of interest rate risk and interest risk in general and looking at the cash flows themselves and that’s not necessarily consistent with the fair value approach. So, I think we would continue to have that same view as we move forward, that there will be certain elements that will flow through non-operating income, that will result from just kind of a mismatch between the way the assets and liabilities will be moving.

Thank you. [Operator Instructions] Our next question comes from Erik Bass with Autonomous Research. Eric please go ahead.

Hi, thank you. And with the rise in interest rates, can you talk about how pricing is adjusting in the annuity market and what current competitive dynamics look like? And guess how much of the benefit is getting passed through in pricing, and how’s this changing the value proposition for consumers?

Yes, thanks, Eric. As I mentioned earlier, the rising rates are allowing us to do more frequent pricing on our spreads business. Marcia I’m not sure if there’s anything else you would add from what we’ve previously stated?

Just to say from a pricing perspective that we’re going to continue to maintain the same return target. So if we can achieve higher yields on the investment and a higher interest rate environment, then naturally we would be able to pass that on through a higher accredited rate and a higher value proposition for the consumer and still maintain our same level of return.

And just wondering, from an industry perspective, are you seeing others take that same approach so that kind of things, what are you seeing in the competitive landscape and how much of the benefits are getting passed through?

It’s always challenging to say fully what’s happening with profitability inside other firms, but we’re certainly seeing companies, increasing their accredited rate offering in response to higher rates. So that would imply they’re taking a similar view, at least to a certain extent, and in passing the benefits of a higher interest rate environment and higher yields, that can be earned onto the policyholders through a high accredited rate.

And then this is more of a philosophical question. But as the volatility in your stock year-to-date, and particularly over the past quarter, changed your view at all on the value of having more of a first dollar hedging program. I’d say investors clearly aren’t giving you credit for the ROE that you’re producing. So it makes sense to spend more and generate a lower return but with less volatility.

No. I don’t think we’ve had any change in our view, I think we have had a really strong record of good performance out of our hedge program, the way it’s worked, I think we recognize that we’re also still in a new company and some of the volatility maybe related to the fact that that track record isn’t necessarily as familiar to everyone as it is to us. But we’re not, we still have the same kind of risk framework that defines how we look at risk and in our hedging program would be aligned with that the way it has been.

Thank you. We currently have no further questions registered. So I’ll now hand you back over to Laura Prieskorn, CEO for the closing remarks.

Okay, well, thank you all for joining us this morning. We appreciate your participation and look forward to connecting with you next quarter.

This concludes today’s call. Thank you for joining us and I’ll disconnect your lines.