Q3 2023 Earnings Summary
- The anticipated cash surrender value floor solution, expected to complete in early 2024, could reduce statutory capital volatility and allow for more economic hedging, potentially improving capital stability and freeing up capital for growth or shareholder returns.
- The growing RILA (Registered Indexed Linked Annuity) business has reached account values of just under $4 billion, providing a 10% economic offset to equity risk relative to the variable annuity block, enhancing capital efficiency and positioning the company for increased capital benefits as the RILA block grows.
- The company is considering revising its RBC (Risk-Based Capital) target range due to decreased capital volatility from the cash surrender value floor solution, which could signal stronger capital efficiency and potentially allow for increased capital deployment.
- Uncertainty regarding the regulatory approval and implementation of the cash surrender value (CSV) floor solution could impact Jackson Financial's capital stability. While the company targets early 2024 for completion, it acknowledges dependency on regulator approval and cannot predict specific timing ( ). This uncertainty may affect the company's ability to achieve greater capital stability and hedging efficiency.
- Potential changes to the hedging program pose a risk to financial performance. The anticipated shift towards more economic hedging and less statutory-focused hedging due to the CSV floor solution could reduce the emphasis on protecting the statutory balance sheet, possibly increasing earnings volatility ( ).
- Reliance on the Registered Index-Linked Annuity (RILA) product for capital benefits may be limited due to its relatively small size. The RILA block is just under $4 billion compared to the variable annuity block, and currently provides about a 10% economic offset from equity risk relative to the VA block ( ). This may not be significant enough to materially impact the company's capital position in the near term.
-
Regulatory Solution Impact
Q: What's the progress on the regulatory solution and its impact?
A: Management reported significant progress on the regulatory solution, targeting completion in early 2024. They aim to establish a more economic liability basis that aligns with their hedging, allowing for more economic hedging strategies. This approach is expected to promote greater stability in capital and RBC, and they may revisit their 425% to 500% RBC target range as a result. The focus is on long-term benefits rather than immediate impacts. -
Hedging Program Changes
Q: Will the regulatory solution change your hedging program?
A: Yes, the solution is likely to reduce the need for noneconomic hedging associated with the cash surrender value floor. This would enable the company to concentrate more on economic hedging, adjusting how hedges are positioned to better reflect economic risks. -
RILA Product Capital Benefits
Q: How does RILA growth affect your capital position?
A: Although the RILA block is under $4 billion in account value, it provides about a 10% economic offset to equity risk relative to the variable annuity block. As the RILA block grows, it offers significant offsetting risk benefits, enhancing the company's capital profile. -
Capital Return Targets
Q: Should we expect $450–550M capital return next year?
A: Management views the $450 million to $550 million capital return target as a reasonable long-term expectation. They are confident in their ability to support these targets and will provide specific guidance early next year. -
Annual Assumption Review
Q: Any expected changes from the assumption review?
A: The annual review is underway, and results will be shared next quarter. Policyholder behavior has been generally consistent with assumptions, with a slight increase in variable annuity surrenders due to stronger equity markets.
Research analysts covering Jackson Financial.