Hello everyone, and welcome to the Jackson Financial Inc. 2Q ‘24 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 second quarter 2024 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. Joining us today are our CEO, Laura Prieskorn; our CFO, Don Cummings; the President of Jackson National Life Distributors, Scott Romine; our Head of Asset Liability Management and Chief Actuary, Steve Binioris; the President and Chief Investment Officer of PPM, Craig Smith. At this time, I'll turn the call over to our CEO, Laura Prieskorn.

Good morning, everyone. As we moved through the second quarter, our operating trends and strong capital levels supported positive financial results and sustainable capital return. Today, we look forward to discussing our second quarter results and progress through the first half of 2024. Beginning on Slide 3, we achieved positive net income and solid operating earnings growth in the second quarter of 2024, driven by increased fee income from higher average annuity assets under management and higher net investment income. The benefits of a favorable equity market and strong annuity sales contributed to growth from the second quarter of 2023 and from the first quarter of this year. We continued to see successful retail annuity sales across all product lines demonstrating our continued focus on execution. Jackson provides a range of annuity solutions to advisors and their clients and in the second quarter of 2024, we saw strong demand for Registered Index-Linked Annuities or RILAs and traditional variable annuities. Total retail annuity sales grew 36% from the second quarter of 2023 and 15% from the first quarter of this year. Variable annuity sales benefited from rising equity markets and the opportunity for equity growth available through our commitment to investment freedom. Our second quarter variable annuity sales of $2.7 billion represented a return to a level we last saw in the third quarter of 2022. We continue to build momentum in RILA sales, reaching a record $1.4 billion in the second quarter with an increasing share of new and reactivated advisors selling RILA as their leading annuity solution. Demonstrating that RILA continues to be a source of diversification and a product of choice for our financial professionals. We expect Jackson's sales momentum to continue as we focus on providing the best solutions to U.S. retirement savers through our product innovation,…

Thank you, Laura. I'll begin on Slide 6 with our second quarter result summary. Adjusted operating earnings of $410 million were up 45% over the second quarter of last year, and 23% over the first quarter of this year. This significant growth in earnings was primarily due to higher fee income from growth and variable annuity assets under management and higher earnings on spread products. Spread earnings benefited from gains and net investment income, primarily driven by the growth of our RILA block, as well as higher portfolio yields. The investment portfolio supporting our spread products has continued to perform well. The appendix of our earnings presentation provides breakdowns on both GAAP and statutory basis, excluding the assets reinsured to third parties through funds withheld agreements. This information includes insights into our highly rated and diversified commercial office loan portfolio, which is less than 2% of the investment portfolio. Jackson remains conservatively positioned with only 1% exposure to below investment grade securities on a statutory basis, excluding funds withheld assets. Before turning to notable items in the quarter, I want to highlight the growth in book value since year end. Our adjusted book value attributable to common shareholders ended the second quarter at $11.5 billion or $150.35 per diluted share, an increase of over 10% from year end 2023 driven by our strong operating performance and common share repurchase activity. Slide 7 outlines the notable items included in adjusted operating earnings for the second quarter of 2024. Reported earnings per share were $5.32 for the current quarter, adjusting for $0.37 of notable items and the difference in tax rates from our 15% guidance. Earnings per share were $4.87 for the current quarter compared to $3.54 in the prior year's second quarter. This strong earnings improvement was primarily due to the…

Thank you, Don. Our second quarter results demonstrate we continue to benefit from our stable capital position and market leadership. We look forward to the second half of 2024 and providing further updates on our growth, product initiatives, and continued capital generation. As always, I'd like to acknowledge our talented Jackson team. Their dedication to our purpose in providing long-term solutions to Americans planning for their financial futures as our greatest strength. The opportunity to work alongside our associates is ever rewarding as we continue to deliver against our strategic and operational goals while supporting our communities and each other. At this time, I'd like to turn it over to the operator for questions.

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

I just wanted to start with the capital generation. If we look kind of year-to-date, I think you're a little over $600 million, which is pretty well in excess of, I guess, your $1 billion plus that you've talked about before. I just was hoping you could unpack that. How much of that was maybe the better markets versus better investment spreads? Because even if I think about the market impact, the growth seems just a lot higher than that. So I just wanted to understand what's going in there, please.

Suneet, it's Don. I'll take that question. So first of all, just a reminder on our $1 billion capital generation guidance, that was based on performance under normal market conditions. So as we look at the performance in the first half, we've obviously had a strong tailwind from the equity market performance to reach that $680 million. So we are a bit ahead, but we continue to feel very comfortable with that $1 billion guidance and growth in statutory capital. I would say that the business that we're writing today is fairly capital efficient. And as we see attractive opportunities going forward, to diversify our mix of business, that could change the magnitude of required capital related to organic growth. But overall, just to answer your question, I think the main delta from the $1 billion is really that, that was a more normal market environment as opposed to the strong growth that we've seen in the first half of the year.

And maybe just to follow-up on that, because I think the markets through the second quarter were up like 14% if you just use the S&P. And obviously, the growth off of the sort of the run rate in capital generation is well above that percentage-wise. So is it just the positive operating leverage that you're getting and that's what's giving you higher capital generation because it does seem to be coming in higher than the overall market?

Yes. So it is a combination. So obviously, our portfolio is pretty heavily weighted toward variable annuity business. So within Jackson National, you're going to see the higher variable annuity AUM driving our fee income. So that's a significant component. The other thing that I would remind you of is that we did have strong growth in RILA sales. So as we continue to bring on assets for that business, we're seeing higher spread-based earnings as well.

Got it. And then my follow-up is just on where we sit today. Obviously, first half of the year was pretty good, but now volatility has spiked. Interest rates have been pretty volatile as well. I guess, how should we think about the capital generation in JNLIC? And the reason I ask is my thought was -- or my understanding was that most of the hedges are now in Brooke Re, which means the capital generation of JNLIC might be a little bit more tied to the markets, but I just wanted to get your thoughts based on that as well as just where we sit today in terms of the volatility.

Yes. So maybe I'll address the volatility point first, Suneet. So the recent market pullback that we saw in the last few days, our hedging program continued to perform as expected, with Brooke Re in place. And I think there are a couple of things that contribute to that. So first of all, just reminding everyone that our hedging program is now aligned more with the economics post the Brooke Re transaction. So that makes it easier to manage with less rebalancing needed given that we've got a much more predictable hedge target. And our hedge target is really just our MRB position on a modified GAAP basis. So that is certainly contributing to the positive results at JNL. And we do have some hedges at JNL for a business that was not seeded over to Brooke Re. But you're right in that we would continue to see most of the performance of JNL being driven by our base contract, and there is a little bit of sensitivity to market results there. And the impact on variable annuity AUM. And then again, as I said earlier, the growth in spread products.

[Operator Instructions] Our next question is from Tom Gallagher of Evercore ISI.

A couple of questions on hedging in Brooke Re. So Don, I was following your comments, and it sounds like the $200 million plus derivative loss was largely offset by the fees you're collecting the guaranteed fees you're collecting. And I think you said it was a net of $64 million for Brooke Re in the quarter. So my question is, can you just comment on what are the actual hard assets that are currently capitalizing Brook? How does that compare to the $64 million? And just -- can you mention your capital levels there? Do you have a buffer over what you target?

Yes. Thanks, Tom. So first of all, just a reminder, so the components of the hedge gain or loss in the quarter, which we displayed on Slide 8 of the earnings material. Those are for JFI on a consolidated basis. And there's not a direct read across to Brooke Re but generally, I think you can use that as kind of an informational proxy. Brooke Re follows a modified gap structure. So it's not going to be the exact same numbers but kind of directionally a good indicator. In terms of just some stats on Brooke Re, just to remind you of what we've previously disclosed. So we funded Brooke Re on day 1 with $700 million of cash and investments. And on day 1, we had an MRB that was in an asset position. And through the first half of the year, we've seen a bit of growth in Brooke Re's equity. So everything with Brooke Re with 2 quarters behind us is operating as we expected and we continue to be comfortable with that structure.

Got you. And so the $64 million, I could compare to the $700 million? Or is the net reserve position, that's an asset large enough where it's not going to be a 10% type swing in your capital there that it would be much smaller? Maybe if you could comment on that.

Yes. So the $65 million wouldn't be relative to the $700 million of hard assets because, again, there's a couple of components to Brooke Re's equity. It's the hard assets that we put in, in addition to the MRB asset. And that's going to be significantly higher than the $700 million. We provide some disclosures in our financial supplement on the consolidated JFI MRB position. But again, not that's not a direct read across for Brooke Re. And it gives you an idea of the magnitude of the assets that we've got in Brooke Re.

Okay. And then my last question is just when I -- if I look back a few years ago, when you were still using a different hedging approach, I think the duration of most of your derivatives were around 3 months. And then there was a period where as rates began to move higher, you started lengthening that out. Can you comment about average duration of your hedging instruments and also goal risk? If we get into an environment where the market becomes a lot more volatile, how should we think about roll risk on your hedges?

Yes. So I'll make a couple of points then maybe ask Steve to just chime in on some of the specifics around the duration of our hedges. But because Brooke Re's hedging program is more aligned with the economics, it's much easier for us to manage and actually requires less rebalancing than our historical approach under the old statutory framework. So we feel comfortable that, that's working as we kind of designed it and as we expected. I'll let Steve just chime in terms of the duration of the hedges that we're using and that sort of thing.

Yes, Tom. In terms of focusing on interest rates as part of the modified gap move, we really increased our interest rate protection as part of that framework and so we do have some pretty significant north of $30 billion of interest rate derivatives. Those are were tied to the longer end of the yield curve. So 10-20-30-year part of the yield curve. So we've got some pretty good production there. That's tied to liability. In terms of -- on the equity side, we both have a combination of futures but importantly, we do still have a significant put option portfolio. That's the more tail type events worked really well in recent periods, market volatility pickup, having those splits in place serves as well. And those will vary from 3 to 6 to 9 months. We try to stack in the maturities a little bit on the put options as well. So we feel pretty comfortable that our hedging is pretty resilient for the foreseeable future. In terms of the roll risk, we're pretty diversified across multiple indices. We've ramped up to 7 different equity indices that we're using right now. So we want to make sure we're light up both the liabilities we offer our platform. And one of the benefits that we are getting to start managing the collateral, the counterparty risk is bile does provide a nice offset to our PAs. We're seeing about a 30% reduction in our kind of our external hedging needs. And so that does help with managing the liquidity and the role of our overall risk management program.

[Operator Instructions] At this time, we have no further questions. I'll hand back over to Laura, please call for any closing or final remarks.

Thank you. Your participation in today's call is appreciated. We thank you all for joining us this morning. Take care.

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