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 at 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 Raub; 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 toward achieving our 2025 financial target. Following my remarks, our CFO, Don Cummings, 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 Market Link Pro III and…

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 securities. We believe this modest shift in our new money asset allocation will allow Jackson to maintain a 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 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…

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 your 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 excess is building even further. And just in light of that situation, I wanted to better understand, like, as you look at this capital position what is the pecking order for priority for potential upsizing capital return or M&A.

Alex, 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 philosophy going forward, and I'll let Don address 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.

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

Tom, 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 but 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 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. Thanks, 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 interest rate hedge program is now based on exchange traded futures rather than over- the-counter options. And these exchange rate features have much lower roll risk relative to exchange-traded options, which are -- can be sensitive to the implied volatility environment. These futures are highly liquid and can be traded in any market environment. Now with that said though, we do have a normal position of put options, which help to mitigate GAAP risk and rebalancing risk in high volatility periods to what we saw and experienced in April. And we'll tweak the characteristics of those options to mitigate the cost and high volatility regimes. 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. And 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 shocks 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, matches our economic liability profile well and provides meaningful sales protection.

Okay. Just one 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 evolve.

Thanks, Laura. And Tom, thanks for the question. The RILA 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 time -- 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 III product, which offers the NASDAQ 100 Index option as well as 100% protection buffers for our 1-, 3- and 6-year term. 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 one 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 or risk managing the RILA sort of together with the legacy VA? And the reason I ask the question is another one 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. So I just want to make sure that I get a better sense of kind of how you're approaching the 2 -- 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 Brooke Re rate, while the RILA business remains at Jackson.

Got it. And if I could just sneak one 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 Keefe, Bruyette, & Woods.

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.